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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

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

PS Business Parks, Inc.

(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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LOGO

701 Western Avenue

Glendale, California 91201

June 8, 2022

Dear Stockholder,

You are cordially invited to attend a special meeting of common stockholders of PS Business Parks, Inc., a Maryland corporation (the “Company” or “PSB”), to be held on July 15, 2022, at 10 a.m., Pacific time. The special meeting will be held at the Westin Pasadena at 191 N Los Robles Ave, Pasadena, CA 91101. At the special meeting, you will be asked to consider and vote on the merger (the “Company Merger”) of Sequoia Merger Sub I LLC (“Merger Sub I”), a wholly owned subsidiary of Sequoia Parent LP (“Parent”), an affiliate of Blackstone Inc. (“Blackstone”), with and into the Company, and the other transactions contemplated by the Agreement and Plan of Merger, dated as of April 24, 2022, and as it may be amended from time to time, by and among the Company, PS Business Parks, L.P., Parent, Merger Sub I and Sequoia Merger Sub II LLC (the “Merger Agreement”).

If the Company Merger is completed, each share of our common stock, $0.01 par value per share (the “Common Stock”), that is issued and outstanding immediately prior to the effective time of the Company Merger (the “Company Merger Effective Time”) will automatically be converted into the right to receive $187.50 in cash, without interest and less any applicable withholding taxes, as more fully described in the enclosed proxy statement (the “merger consideration”).

Only holders of record of our Common Stock at the close of business on June 7, 2022, are entitled to notice of, and to vote at, the special meeting, or any adjournment or postponement thereof. The vote of the holders of our preferred stock, $0.01 par value per share (the “Preferred Stock”), or any depositary shares in respect thereof is not required to approve any of the proposals at the special meeting and is not being solicited. Our board of directors has unanimously determined and declared that the transactions contemplated by the Merger Agreement, including the Company Merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Company Merger. Our board of directors unanimously recommends that you vote “FOR” the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and the other proposals to be considered at the special meeting.

The Company Merger must be approved by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the matter by the holders of the issued and outstanding Common Stock. 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. We encourage you to read carefully the enclosed proxy statement, including the exhibits. You may also obtain more information about the Company from us or from documents we have filed with the U.S. Securities and Exchange Commission.

If you hold your shares of Common Stock in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your broker, bank or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals without your instructions.


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Your vote is very important regardless of the number of shares of Common Stock that you own. Whether or not you plan to attend the special meeting, we request that you authorize a proxy to vote your shares of Common Stock by either completing and returning the enclosed proxy card as promptly as possible or authorizing your proxy or voting instructions by telephone or through the Internet. The enclosed proxy card contains instructions regarding voting.

If you attend the special meeting in person, you may continue to have your shares of Common Stock voted as instructed in your proxy, or you may revoke your proxy at the special meeting by voting your shares of Common Stock in person at the special meeting. If you fail to vote by proxy or in person at the special meeting, or fail to instruct your broker, bank or other nominee how to vote, it will have the same effect as a vote “AGAINST” approval of the Company Merger and the other transactions contemplated by the Merger Agreement.

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

Sincerely,

 

LOGO

Stephen W. Wilson

President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Company Merger, passed upon the merits or fairness of the Company Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

This proxy statement is dated June 8, 2022, and is first being mailed to our stockholders on or about June 8, 2022.


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PS BUSINESS PARKS, INC.

701 Western Avenue

Glendale, California 91201

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 15, 2022

To the Stockholders of PS Business Parks, Inc.:

You are cordially invited to attend a special meeting of common stockholders (the “special meeting”) of PS Business Parks, Inc., a Maryland corporation (the “Company”), to be held on July 15, 2022, at 10 a.m., Pacific time. The special meeting will be held at the Westin Pasadena at 191 N Los Robles Ave, Pasadena, CA 91101. The special meeting is being held for the purpose of acting on the following matters:

 

  1.

To consider and vote on a proposal to approve the merger (the “Company Merger”) of Sequoia Merger Sub I LLC (“Merger Sub I”) with and into the Company, as contemplated by the Agreement and Plan of Merger, dated as of April 24, 2022, and as it may be amended from time to time, by and among the Company, PS Business Parks, L.P., Sequoia Parent LP, Merger Sub I and Sequoia Merger Sub II LLC (the “Merger Agreement”), and the other transactions contemplated by the Merger Agreement (the “proposal to approve the Company Merger”);

 

  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 that is based on or otherwise relates to the Company Merger (the “proposal to approve the merger-related compensation”); 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 proposal to approve the Company Merger (the “proposal to approve adjournment of the special meeting”).

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 Maryland General Corporation Law (the “Maryland General Corporation Law”), and our bylaws, only the matters set forth in this Notice of Special Meeting may be brought before the special meeting. Our board of directors has fixed the close of business on June 7, 2022, as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting or any postponement or adjournment thereof. All holders of record of our common stock, $0.01 par value per share (the “Common Stock”), as of the record date are entitled to receive notice of, attend and vote at the special meeting or any postponement or adjournment of the special meeting. The vote of the holders of our preferred stock, $0.01 par value per share (the “Preferred Stock”), or any depositary shares in respect thereof is not required to approve any of the proposals at the special meeting and is not being solicited.

Our board of directors has unanimously determined and declared that the transactions contemplated by the Merger Agreement, including the Company Merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Company Merger. Our board of directors unanimously recommends that you vote “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the special meeting.

The Company Merger must be approved by the affirmative vote of the holders of our Common Stock entitled to cast a majority of all the votes entitled to be cast on the Company Merger. Accordingly, your vote is very important regardless of the number of shares of Common Stock that you own. Whether or not you plan to attend the special meeting, we request that you authorize a proxy to vote your shares of Common Stock by either marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope or authorizing your proxy or voting instructions by telephone or through the Internet. If you attend the special


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meeting in person, you may continue to have your shares of Common Stock voted as instructed in your proxy, or you may revoke your proxy at the special meeting by voting your shares of Common Stock in person at the special meeting. If you hold your shares of Common Stock in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your broker, bank or other nominee cannot vote on any of the proposals without your instructions. If you fail to exercise your proxy or vote in person, or fail to instruct your broker, bank or other nominee how to vote, the effect will be that the shares of Common Stock 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 proposal to approve the Company Merger. Holders of shares of Common Stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares of Common Stock in connection with the Company Merger.

Approval of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the special meeting each require the affirmative vote of a majority of the votes cast on such proposal. If you fail to vote by proxy or in person, or fail to instruct your broker, bank or other nominee how to vote, it will not have any effect on the outcome of such proposals, assuming a quorum is present. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals, assuming a quorum is present.

Any proxy may be revoked at any time prior to its exercise by delivery of a properly executed, later-dated proxy card, by authorizing your proxy or voting instructions by telephone or through the Internet at a later date than your previously authorized proxy, by submitting a written revocation of your proxy to our Corporate Secretary, or by voting at the special meeting in person. Attendance at the special meeting alone will not be sufficient to revoke a previously authorized proxy.

We encourage you to read the accompanying proxy statement in its entirety and to submit a proxy or voting instructions so that your shares of Common Stock will be represented and voted even if you do not attend the special meeting. If you have any questions or need assistance in submitting a proxy or your voting instructions, please call our proxy solicitor, D.F. King & Co., Inc., toll-free at (866) 227-7300.

 

On Behalf of the Board of Directors,

LOGO

Adeel Khan

Executive Vice President,

Chief Financial Officer and Corporate Secretary

June 8, 2022


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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1  

The Parties to the Mergers

     1  

The Special Meeting

     3  

The Mergers

     5  

Recommendation of Our Board of Directors

     5  

Opinion of the Company’s Financial Advisor

     6  

Treatment of Common Stock, Preferred Stock, Company Options and Equity Awards

     6  

Financing

     7  

Interests of Our Directors and Executive Officers in the Company Merger

     8  

Company Acquisition Proposals; Non-Solicitation and Obligation of the Board of Directors with Respect to Its Recommendation

     8  

Conditions to the Mergers

     9  

Termination of the Merger Agreement

     10  

Termination Fees

     12  

Guaranty and Remedies

     13  

Support Agreement

     13  

Regulatory Matters

     14  

No Dissenters’ Rights of Appraisal

     14  

Material U.S. Federal Income Tax Consequences

     14  

Delisting and Deregistration of Common Stock

     15  

Litigation Relating to the Mergers

     15  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGERS

     16  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     23  

PROPOSAL 1 PROPOSAL TO APPROVE THE COMPANY MERGER

     25  

PROPOSAL 2 PROPOSAL TO APPROVE THE MERGER-RELATED COMPENSATION

     26  

PROPOSAL 3 PROPOSAL TO APPROVE ADJOURNMENT OF THE SPECIAL MEETING

     27  

THE PARTIES TO THE MERGERS

     28  

PS Business Parks, Inc.

     28  

PS Business Parks, L.P.

     28  

Sequoia Parent LP

     28  

Sequoia Merger Sub I LLC

     29  

Sequoia Merger Sub II LLC

     29  

THE SPECIAL MEETING

     30  

Date, Time and Purpose of the Special Meeting

     30  

Record Date, Notice and Quorum

     30  

Required Vote

     31  

How to Authorize a Proxy

     32  

Proxies and Revocation

     32  

Solicitation of Proxies

     33  

Adjournments

     33  

Postponements

     33  

THE MERGERS

     34  

General Description of the Mergers

     34  

Background of the Mergers

     34  

Reasons for the Mergers

     43  

Recommendation of Our Board of Directors

     47  

Forward-Looking Financial Information

     47  

Opinion of the Company’s Financial Advisor

     50  

Financing

     56  

Interests of Our Directors and Executive Officers in the Company Merger

     57  

 

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Regulatory Matters

     61  

Material U.S. Federal Income Tax Consequences

     62  

Tax Classification of the Company Merger in General

     66  

Consequences of the Company Merger to U.S. Holders of  Shares of Common Stock

     66  

Consequences of the Company Merger to Non-U.S. Holders of Shares of Common Stock

     67  

Information Reporting and Backup Withholding

     68  

Delisting and Deregistration of Common Stock

     68  

Litigation Relating to the Mergers

     68  

THE MERGER AGREEMENT

     70  

Structure

     70  

Effective Times; Closing Date

     70  

Governing Documents

     71  

Directors; Officers; General Partner and Limited Partners of the Surviving Entities

     71  

Treatment of Common Stock, Preferred Stock and Equity Awards

     71  

Representations and Warranties

     74  

Conduct of Our Business Pending the Mergers

     78  

Company Stockholders’ Meeting

     82  

Agreement to Take Certain Actions

     84  

Company Acquisition Proposals;  Non-Solicitation

     85  

Obligation of the Board of Directors with Respect to Its Recommendation

     89  

Employee Benefits

     91  

Financing Cooperation

     92  

Partnership Conversion

     94  

Certain Other Covenants

     94  

Conditions to the Mergers

     95  

Termination of the Merger Agreement

     96  

Termination Fees

     98  

Guaranty and Remedies

     99  

Amendment and Waiver

     99  

THE SUPPORT AGREEMENT

     100  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     101  

NO DISSENTERS’ RIGHTS OF APPRAISAL

     103  

STOCKHOLDER PROPOSALS

     103  

HOUSEHOLDING OF PROXY MATERIALS

     104  

OTHER MATTERS

     104  

WHERE YOU CAN FIND MORE INFORMATION

     105  

EXHIBITS

  

Exhibit A — Agreement and Plan of Merger, dated as of April  24, 2022, by and among PS Business Parks, Inc., PS Business Parks, L.P., Sequoia Parent LP, Sequoia Merger Sub I LLC and Sequoia Merger Sub II LLC.

     A-1  

Exhibit B — Support Agreement, dated as of April  24, 2022, by and between Sequoia Parent LP, PS Business Parks, Inc. and Public Storage.

     B-1  

Exhibit C — Opinion of J.P. Morgan Securities LLC, dated as of April 24, 2022.

     C-1  

 

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SUMMARY

This summary highlights only selected information from this proxy statement relating to (1) the merger (the “Partnership Merger”) of Sequoia Merger Sub II LLC, a Maryland limited liability company (“Merger Sub II”) and wholly owned subsidiary of Sequoia Parent LP, a Delaware limited partnership (“Parent”) and an affiliate of Blackstone Inc. (“Blackstone”), with and into PS Business Parks, L.P., a California limited partnership (the “Partnership”), with the Partnership surviving such merger, (2) the merger (the “Company Merger” and, together with the Partnership Merger, the “Mergers”) of Sequoia Merger Sub I LLC, a Maryland limited liability company (“Merger Sub I”) and wholly owned subsidiary of Parent, with and into PS Business Parks, Inc., a Maryland corporation (“us”, “our” or the “Company”), with the Company surviving such merger, (3) certain other matters contemplated by the Agreement and Plan of Merger, dated as of April 24, 2022, and as it may be amended from time to time, by and among the Company, the Partnership, Parent, Merger Sub I and Merger Sub II (the “Merger Agreement”) and (4) the special meeting of our common stockholders to consider the matters set forth in this proxy statement.

This summary does not contain all the information about the special meeting or the Mergers and related transactions contemplated by the Merger Agreement that may be important to you. As a result, to understand the special meeting, 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 exhibits and the other documents to which we have referred you, including the Merger Agreement attached as Exhibit A. Each item in this summary includes a page reference directing you to a more complete description of that item. This proxy statement is first being mailed to our stockholders on or about June 8, 2022.

The Parties to the Mergers (page 28)

PS Business Parks, Inc.

701 Western Avenue,

Glendale, California 91201

(818) 244-8080

PS Business Parks, Inc., which we refer to as “we,” “our,” “us,” “PSB” or the “Company,” was originally formed as a California corporation in 1990 and effective May 19, 2021 the Company reincorporated to the State of Maryland. We elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with our taxable year ended December 31, 1990. We are a fully-integrated, self-advised and self-managed REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex, and low rise-suburban office space. As of March 31, 2022, we owned and operated 27.0 million rentable square feet of commercial space in six states, comprising 96 parks and 652 buildings. Our properties are primarily located in major coastal markets that have experienced long-term economic growth. We also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia. We also manage for a fee approximately 0.3 million rentable square feet on behalf of Public Storage.

The Company’s website is psbusinessparks.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the U.S. Securities and Exchange Commission (the “SEC”). Our Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “PSB.” Depositary shares in respect of each series of our Preferred Stock are listed on the NYSE under the symbols: “PSBPrX”, “PSBPrY” and “PSBPrZ.” For additional information about us and our business, please refer to “Where You Can Find More Information.”

 

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PS Business Parks, L.P.

701 Western Avenue,

Glendale, California 91201

(818) 244-8080

PS Business Parks, L.P., which we refer to as the “Partnership,” is currently a California limited partnership formed on January 2, 1997 and is planned to be converted into a Maryland limited partnership pursuant to the terms of the Merger Agreement. As of the record date, we owned approximately 79.1% of the common units of partnership interest of the Partnership. Substantially all of our assets are held by, and all of our operations are conducted through, the Partnership. Our interest in the Partnership entitles us to share in cash distributions from, and in the profits and losses of, the Partnership in proportion to our percentage ownership. As the sole general partner of the Partnership we have exclusive and complete responsibility and discretion in managing and controlling the Partnership.

Sequoia Parent LP

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Sequoia Parent LP, which we refer to as “Parent”, is a Delaware limited partnership and an affiliate of Blackstone Real Estate Partners IX L.P., a Delaware limited partnership (the “Sponsor”). Sequoia Parent GP LLC, a Delaware limited liability company, is the sole general partner of Parent and is also an affiliate of the Sponsor. Parent was formed solely for the purpose of acquiring us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. The Sponsor is an affiliate of Blackstone.

Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $298 billion of investor capital under management. Blackstone is the largest owner of commercial real estate globally, owning and operating assets across every major geography and sector, including logistics, residential, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ business invests in substantially stabilized real estate assets globally, through both institutional strategies and strategies tailored for income-focused individual investors including Blackstone Real Estate Income Trust, Inc. (BREIT), a U.S. non-listed REIT, and Blackstone’s European yield-oriented strategy. Blackstone Real Estate also operates one of the leading global real estate debt businesses, providing comprehensive financing solutions across the capital structure and risk spectrum, including management of Blackstone Mortgage Trust (NYSE: BXMT).

Sequoia Merger Sub I LLC

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Sequoia Merger Sub I LLC, which we refer to as “Merger Sub I”, is a Maryland limited liability company. Parent is the sole member of Merger Sub I. Merger Sub I was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, on the closing date, Merger Sub I will merge with and into the Company, and the Company will continue as the surviving company.

 

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Sequoia Merger Sub II LLC

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Sequoia Merger Sub II LLC, which we refer to as “Merger Sub II”, is a Maryland limited liability company. Parent is the sole member of Merger Sub II. Merger Sub II was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, on the closing date, Merger Sub II will merge with and into the Partnership, and the Partnership will continue as the surviving partnership.

The Special Meeting (page 30)

The Proposals

The special meeting of our stockholders (the “special meeting”) will be held on July 15, 2022 at 10 a.m., Pacific time, at the Westin Pasadena at 191 N Los Robles Ave, Pasadena, CA 91101. At the special meeting, holders of our common stock, $0.01 par value per share (the “Common Stock”), as of the record date, which was the close of business on June 7, 2022, 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 (the “proposal to approve the Company Merger”), (2) a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger (the “proposal to approve the merger-related compensation”) 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 Company Merger and the other transactions contemplated by the Merger Agreement (the “proposal to approve adjournment of the special meeting”).

Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.

Record Date, Notice and Quorum

All stockholders of record of shares of our Common Stock as of the record date, which was the close of business on June 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Common Stock that such holder owned as of the record date. On the record date, there were 27,631,499 shares of Common Stock entitled to vote at the special meeting.

The presence in person or by proxy of our common stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the special meeting. A quorum is necessary to transact business at the special meeting. Abstentions 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, we expect that the special meeting will be adjourned to a later date. Pursuant to our bylaws, the chairman of the special meeting may adjourn the special meeting, whether or not a quorum is present, to a later date and time and place announced at the special meeting (subject to certain restrictions in the Merger Agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).

 

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Required Vote

Completion of the Company Merger and the other transactions contemplated by the Merger Agreement requires approval of the Company Merger and the other transactions contemplated by the Merger Agreement by the affirmative vote of the holders of the issued and outstanding shares of Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter. Each common stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Common Stock that such holder owned as of the record date. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, if you fail to exercise your proxy or vote in person (including by abstaining), or fail to instruct your broker, bank or other nominee how to vote, such failure will have the same effect as voting against the proposal to approve the Company Merger.

Each of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the special meeting requires the affirmative vote of a majority of the votes cast on such proposal. Approval of these proposals is not a condition to completion of the Mergers. For the purpose of each of these proposals, if you fail to exercise your proxy or vote in person, or fail to instruct your broker, bank or other nominee how to vote, it will not have any effect on the outcome of such proposals, assuming a quorum is present. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals, assuming a quorum is present.

The vote of the holders of our 5.250% Series X Cumulative Preferred Stock, par value $0.01 per share, 5.200% Series Y Cumulative Preferred Stock, par value $0.01 per share, and 4.875% Series Z Cumulative Preferred Stock, par value $0.01 per share, which we refer to collectively as the “Preferred Stock,” or depositary shares in respect thereof, is not required to approve any of the proposals at the special meeting and is not being solicited.

As of the record date, our directors and executive officers owned and are entitled to vote an aggregate of 399,620 shares of our Common Stock, entitling them to exercise approximately 1.4% of the voting power of our Common Stock entitled to vote at the special meeting. Our directors and executive officers have informed us that they intend to vote the shares of Common Stock that they own in favor of the proposal to approve the Company Merger, in favor of the proposal to approve the merger-related compensation and in favor of the proposal to approve adjournment of the special meeting.

In addition, Public Storage, solely in its capacity as a common stockholder of the Company and limited partner of the Partnership, Parent and the Company have entered into a support agreement requiring Public Storage, among other things, to vote its shares of Common Stock in favor of the proposal to approve the Company Merger (the “Support Agreement”). As of the record date, Public Storage beneficially owned 7,158,354 shares of our Common Stock, entitling it to exercise approximately 25.9% of the voting power of our Common Stock entitled to vote at the special meeting. As of the record date, Public Storage, together (without duplication) with our directors and executive officers, beneficially owned 7,557,974 shares of our Common Stock, entitling them to exercise approximately 27.4% of the voting power of our Common Stock entitled to vote at the special meeting.

Proxies; Revocation

Any of our common stockholders of record entitled to vote may authorize a proxy to vote his, her or its shares of Common Stock by returning the enclosed proxy card, authorizing a proxy or voting instructions by telephone or through the Internet, or by appearing and voting at the special meeting in person. If the shares of Common Stock that you own are held in “street name” by your broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote your shares of Common Stock using the instructions provided by your broker, bank or other nominee.

 

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Any proxy may be revoked at any time prior to its exercise by your delivery of a properly executed, later-dated proxy card, by authorizing your proxy by telephone or through the Internet at a later date than your previously authorized proxy, by your filing a written revocation of your proxy with our Corporate Secretary or by your voting in person at the special meeting. Attendance at the special meeting alone will not be sufficient to revoke a previously authorized proxy.

The Mergers (page 34)

Pursuant to the Merger Agreement, on the closing date, Merger Sub II will merge with and into the Partnership and the separate existence of Merger Sub II will cease, and the Partnership will continue as the surviving entity in the merger (the “Partnership Merger”). We use the term “Surviving Partnership” to refer to the Partnership following the Partnership Merger Effective Time (as defined below).

The Partnership Merger will become effective upon the later of the acceptance for record of the articles of merger with respect to the Partnership Merger by the State Department of Assessments and Taxation of Maryland (the “SDAT”) or on such other date and time as may be mutually agreed to by us and Parent and specified in the articles of merger with respect to the Partnership Merger (not to exceed 30 days from the date the articles of merger with respect to the Partnership Merger are accepted for record by the SDAT). We use the term “Partnership Merger Effective Time” in this proxy statement to refer to the time the Partnership Merger becomes effective.

Pursuant to the Merger Agreement, on the closing date, Merger Sub I will merge with and into the Company and the separate existence of Merger Sub I will cease, and the Company will continue as the surviving entity in the merger (the “Company Merger”). We use the term “Surviving Company” to refer to the Company following the Company Merger Effective Time (as defined below).

The Company Merger will become effective upon the acceptance for record of the articles of merger with respect to the Company Merger by the SDAT or on such other date and time as may be mutually agreed to by us and Parent and specified in the articles of merger with respect to the Company Merger (not to exceed 30 days from the date the articles of merger with respect to the Company Merger are accepted for record by the SDAT). We use the term “Company Merger Effective Time” in this proxy statement to refer to the time the Company Merger becomes effective.

Unless otherwise agreed by the parties to the Merger Agreement, the Partnership Merger Effective Time and the Company Merger Effective Time will occur on the closing date, with the Company Merger Effective Time occurring immediately after the Partnership Merger Effective Time.

Recommendation of Our Board of Directors (page 47)

Our board of directors has unanimously:

 

   

determined and declared the transactions contemplated by the Merger Agreement, including the Company Merger, to be advisable and in the best interests of the Company and its stockholders;

 

   

approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Company Merger; and

 

   

recommended that you vote “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the special meeting.

 

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Opinion of the Company’s Financial Advisor (page  50)

In connection with the Mergers, J.P. Morgan Securities LLC (“J.P. Morgan”), the Company’s financial advisor, delivered to the Company’s board of directors on April 24, 2022 an oral opinion, which was confirmed by delivery of a written opinion dated April 24, 2022, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the consideration to be paid to the holders of the Company’s Common Stock in the Mergers was fair, from a financial point of view, to such holders.

The full text of the written opinion of J.P. Morgan, dated April 24, 2022, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Exhibit C to this proxy statement and is incorporated herein by reference. The summary of J.P. Morgan’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the written opinion. The Company’s common stockholders are urged to read J.P. Morgan’s opinion in its entirety. J.P. Morgan’s opinion was addressed to the Company’s board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the Mergers, was directed only to the consideration to be paid to the holders of the Company’s Common Stock in the Mergers and did not address any other aspect of the Mergers. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the Mergers to the holders of any other class of securities, creditors or other constituencies of the Company or the Partnership, or as to the underlying decision by the Company to engage in the Mergers. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. J.P. Morgan’s opinion does not constitute a recommendation to any of the Company’s common stockholders as to how such stockholder should vote with respect to the Mergers or any other matter. For a description of the opinion that the Company’s board of directors received from J.P. Morgan, see the section entitled “The Mergers — Opinion of the Company’s Financial Advisor”.

Treatment of Common Stock, Preferred Stock, Company Options and Equity Awards (page  71)

Common Stock

At the Company Merger Effective Time, each share of our Common Stock (other than shares of our Common Stock that are owned by Parent or any wholly owned subsidiary of Parent or us, which will automatically be cancelled with no consideration being delivered in exchange thereof (the “cancelled shares”)) issued and outstanding immediately prior to the Company Merger Effective Time will be automatically converted into the right to receive the merger consideration of $187.50 in cash, without interest and less any applicable withholding taxes. If we declare a dividend determined by us to be reasonably necessary to maintain our status as a REIT under the Code or to avoid the imposition of income or excise tax or any other entity-level tax as permitted under the Merger Agreement (an “Additional Dividend”), the merger consideration will be decreased by an amount equal to the per share amount of such Additional Dividend. Additionally, immediately prior to the Partnership Merger Effective Time, we will be required to pay a closing cash dividend (the “Closing Cash Dividend”) to holders of record of our Common Stock as of the close of business on the business day immediately prior to the closing date in an amount reasonably determined by the Company in consultation with Parent equal to or in excess of the sum of (i) the amount required to be distributed to avoid the imposition of income or excise tax or any other entity-level tax for the Company’s hypothetical short taxable year ending on the closing date as a result of the Mergers or the Company’s taxable year ended December 31, 2021 and (ii) the estimated accumulated earnings and profits of the Company, calculated pursuant to applicable Treasury Regulations, for the Company’s hypothetical short taxable year ending on the closing date as a result of the Mergers, so long as any such Closing Cash Dividend is no greater than the cash available for distribution. The Closing Cash Dividend will also reduce the merger consideration per share by an amount equal to the per share amount of such Closing Cash Dividend.

 

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Preferred Stock

Each share of Preferred Stock issued and outstanding immediately prior to the Company Merger Effective Time and each depositary share issued pursuant to the deposit agreements for the Preferred Stock, representing one-thousandth of one share of Preferred Stock issued and outstanding immediately prior to the Company Merger Effective Time will be unaffected by the Company Merger and will remain outstanding in accordance with their respective terms.

Company Options

Immediately prior to the Company Merger Effective Time, each option to purchase shares of our Common Stock (we refer to each as a “Company Option”) that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company Option immediately prior to the Company Merger Effective Time multiplied by (2) the excess (if any) of the merger consideration over the per share exercise price applicable to the Company Option, less any applicable withholding taxes. Each Company Option with a per share exercise price that exceeds the merger consideration will be cancelled for no consideration.

Company RSU Awards

Immediately prior to the Company Merger Effective Time, each award of restricted stock units (we refer to each as a “Company RSU Award”) covering shares of our Common Stock granted under a Company equity plan that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company RSU Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

Company Deferred Stock Unit Awards

Immediately prior to the Company Merger Effective Time, each award of deferred stock units (we refer to each as a “Company Deferred Stock Unit Award”) governed under the Company’s retirement plan for non-employee directors that is outstanding immediately prior to the Company Merger Effective Time will become vested and, at the Company Merger Effective Time, be converted into a right to receive a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company Deferred Stock Unit Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

2022 Equity Incentive Plan Awards

Immediately prior to the Company Merger Effective Time, each award approved under the Company’s 2022 Equity Incentive Plan Awards Program (we refer to each as a “2022 EIP Award”) will be cancelled in exchange for a specified cash payment, less any applicable withholding taxes.

Financing (page 56)

In connection with the closing of the Mergers, Parent will cause an aggregate of approximately $6.6 billion to be paid to the holders of our Common Stock, including the holders of Company equity awards, and the holders of common units of partnership interest of the Partnership. In addition, Parent has informed us that in connection with the closing of the Mergers, Parent expects to cause our outstanding indebtedness under our revolving credit facility, if any, to be prepaid in full. As of May 19, 2022, we had $0 in aggregate principal amount of consolidated indebtedness under our revolving credit facility.

 

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Parent has informed us that it has received, in connection with the Mergers, a debt commitment letter from Citigroup Global Markets Inc., Bank of America, N.A., Barclays Bank PLC, Barclays Capital Real Estate Inc., Morgan Stanley Bank, N.A. and Societe Generale Financial Corporation, providing for debt financing through a CMBS loan and balance sheet loan in an aggregate amount of up to approximately $4.85 billion to be funded on or after the closing of the Mergers, subject to the satisfaction of the conditions contained in the debt commitment letter (which we refer to collectively as the “debt financing”) and that it may seek to obtain additional debt financing in connection with the Mergers. In addition, it is expected that the Sponsor and its affiliates will contribute equity to Parent for the purpose of funding the acquisition costs (including the merger consideration) that are not covered by such debt financing.

Parent has informed us that in addition to the payment of the merger consideration, the funds to be obtained from the debt and equity financing may be used for purposes such as reserves, paying carrying costs with respect to the properties, funding working capital requirements, and for other costs and expenses related to the financing and the Mergers. Parent has informed us that it currently believes that the funds to be borrowed under the debt financing would be secured by, among other things, a mortgage lien on certain properties which are wholly owned and/or ground leased by us, certain escrows and reserves and such other pledges and security required by the lenders to secure and perfect their interests in the applicable collateral, and that such debt financing would be conditioned on the mergers being completed and other customary conditions for similar financings.

The Merger Agreement does not contain a financing condition or a “market MAC” condition to the closing of the mergers. For more information, see “The Merger Agreement — Financing Cooperation” and “The Merger Agreement — Conditions to the Mergers.”

Interests of Our Directors and Executive Officers in the Company Merger (page 57)

Our directors and executive officers have certain interests in the Company Merger that are different from, or in addition to those of our stockholders. See “The Mergers — Interests of Our Directors and Executive Officers in the Company Merger” for additional information about interests that our directors and executive officers have in the Company Merger that are different than yours.

Company Acquisition Proposals; Non-Solicitation (page 85) and Obligation of the Board of Directors with Respect to Its Recommendation (page 89)

The “Go-Shop” Period: Solicitation of Company Acquisition Proposals

Until 11:59 p.m. (New York City time) on May 25, 2022, which we refer to as the “No-Shop Period Start Date,” we and our subsidiaries and representatives had the right to solicit, initiate, encourage or facilitate any inquiry, discussion, offer, request or proposal that constitutes, or could reasonably be expected to lead to, a Company Acquisition Proposal (as defined below), including providing non-public information and data regarding the Company to any person pursuant to an acceptable confidentiality agreement, and engage in any discussions or negotiations with any persons and their respective representatives with respect to a Company Acquisition Proposal or potential Company Acquisition Proposal or interest or potential interest with respect thereto, or otherwise cooperate with, assist or participate in, or facilitate any inquiries. Within one (1) business day after the No-Shop Period Start Date, the Company was required to notify Parent of the identity of each person from whom the Company received a Company Acquisition Proposal during such period, including any “excluded parties” as described below, and provide a copy of such Company Acquisition Proposal and any other written terms or proposals. The Company and its subsidiaries and their respective representatives were permitted to continue to engage in the activities described above with respect to any excluded party until 11:59 p.m. (New York City time) on June 4, 2022 subject to extension in certain circumstances as described under “The Merger Agreement—Company Acquisition Proposals; Non-Solicitation.” An “excluded party” is a person or

 

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group of persons from whom we or any of our representatives have received a written bona fide Company acquisition proposal after the date of the Merger Agreement and prior to the No-Shop Period Start Date that our board of directors determined in good faith prior to the No-Shop Period Start Date (after consultation with outside counsel and financial advisor) constitutes or could reasonably be expected to lead to a Superior Proposal (as defined in “The Merger Agreement — Company Acquisition Proposals”). The circumstances in which a person or group of persons ceases to be an “excluded party” are described under “The Merger Agreement — Company Acquisition Proposals; Non-Solicitation — Actions Prior to ‘No-Shop Period Start Date’.” We refer to such Company Acquisition Proposal as a “qualified proposal.”

The “No-Shop” Period: No Solicitation of Company Acquisition Proposals

Under the terms of the Merger Agreement, from and after the No-Shop Period Start Date, other than as permitted with respect to excluded parties as described above, we have agreed to cease any solicitations, discussions, negotiations or communications with any person with respect to any Company Acquisition Proposal and not to solicit, initiate, knowingly encourage or knowingly facilitate any inquiry, discussion, offer, request or proposal that constitutes, or could reasonably be expected to lead to, a Company Acquisition Proposal, and, subject to certain exceptions, we are not permitted to enter into discussions or negotiations concerning, or provide non-public information to a third party in connection with, any Company Acquisition Proposals. However, we may, prior to obtaining the requisite vote of our common stockholders in favor of the proposal to approve the Company Merger, engage in discussions or negotiations and provide non-public information to a third party which has made an unsolicited written bona fide Company Acquisition Proposal if the Company’s board of directors determines in good faith, after consultation with outside legal counsel and financial advisors, that such Company acquisition proposal constitutes, or could reasonably be expected to lead to, a Superior Proposal.

Prior to obtaining the requisite vote of our common stockholders in favor of the proposal to approve the Company Merger, the Company’s board of directors may, in certain circumstances, effect an adverse recommendation change (as defined in the section entitled “The Merger Agreement — Obligation of the Board of Directors with Respect to Its Recommendation”), subject to complying with specified notice requirements to Parent and other conditions set forth in the Merger Agreement.

Conditions to the Mergers (page 95)

Completion of the Mergers depends upon the satisfaction or waiver of a number of conditions, including, among others, that:

 

   

the Company Merger and the other transactions contemplated by the Merger Agreement must be approved by the affirmative vote of the common stockholders entitled to cast a majority of all the votes entitled to be cast on the matter and the Partnership Merger must be approved by the written consent of the Company (as the general partner of the Partnership) and the written consent of the holders of partnership units (other than the Company);

 

   

no governmental entity of competent jurisdiction has enacted, issued, promulgated, enforced or entered any law or order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Mergers illegal or otherwise restricting, preventing or prohibiting the consummation of the Mergers;

 

   

our and the Partnership’s and Parent’s, Merger Sub I’s and Merger Sub II’s 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”;

 

   

we and the Partnership and Parent, Merger Sub I and Merger Sub II must have performed and complied, in all material respects, with our and their respective obligations, agreements and covenants required by the Merger Agreement to be performed or complied with on or prior to the closing date;

 

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we and Parent must have received a tax opinion of Hogan Lovells US LLP, tax counsel to the Company, or such other law firm as may be reasonably approved by Parent, dated as of the closing date, concluding (subject to customary assumptions, qualifications and representations, including representations made by us and our subsidiaries in a tax representation letter provided by us in connection with the issuance of such opinion) that we were organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code for all taxable periods commencing with our taxable year ended December 31, 2015 through our hypothetical short taxable year ending immediately before the closing on the closing date (without regard to the effects of the Closing, any action (or inaction) taken after the Closing, and the distribution requirements of Section 857(b) of the Code for the hypothetical short taxable year); and

 

   

from the date of the Merger Agreement through the closing date, there must not have occurred a change, event, state of facts or development which has had or would reasonably be expected to have, individually or in the aggregate, a “material adverse effect” (as defined in the Merger Agreement).

Termination of the Merger Agreement (page 96)

We and Parent may mutually agree to terminate and abandon the Merger Agreement at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement.

Termination by either the Company or Parent

In addition, we, on the one hand, or Parent, on the other hand, may terminate and abandon the Merger Agreement by written notice to the other at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

any governmental entity of competent authority has issued an order, decree or ruling or taken any other action in each case permanently restraining, enjoining or otherwise prohibiting the Mergers substantially on the terms contemplated by the Merger Agreement and such order, decree, ruling or other action has become final and non-appealable, provided, that the right to terminate the Merger Agreement pursuant to this bullet point is not available to a party if the issuance of such final, non-appealable order, decree or ruling or taking of such other action was primarily due to the failure of us or the Partnership, in the case of termination by us, or Parent, Merger Sub I or Merger Sub II, in the case of termination by Parent, to perform any of its obligations under the Merger Agreement;

 

   

the Mergers have not been consummated by October 24, 2022, provided that the right to terminate the Merger Agreement under this bullet point is not available to us, if the Company or the Partnership, or to Parent, if Parent, Merger Sub I or Merger Sub II, as applicable, has breached in any material respect its obligations under the Merger Agreement in any manner that has caused or resulted in the failure to consummate the Mergers on or before October 24, 2022; or

 

   

the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement has not been obtained at the duly held special meeting or any adjournment or postponement thereof at which the Company Merger is voted on.

 

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Termination by the Company

We may also terminate and abandon the Merger Agreement by written notice to Parent at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

prior to obtaining the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, our board of directors effects an adverse recommendation change in accordance with the requirements described under “The Merger Agreement — Obligation of the Board of Directors with Respect to Its Recommendation” and has approved, and concurrently with the termination under the provision described in this bullet point we enter into, a definitive agreement providing for the implementation of a Superior Proposal that did not result from a breach of our obligations described under “The Merger Agreement — Company Acquisition Proposals; Non-Solicitation” and “The Merger Agreement — Obligation of the Board of Directors with Respect to Its Recommendation,” provided that we will have previously or concurrently paid the Company termination fee (as described under “The Merger Agreement — Termination Fees”);

 

   

Parent, Merger Sub I or Merger Sub II has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that a closing condition relating to its representations, warranties, covenants or agreements would be incapable of being satisfied by October 24, 2022, provided that neither we nor the Partnership have breached or failed to perform any of our or its representations, warranties, covenants or other agreements contained in the Merger Agreement in any material respect; or

 

   

all of the following requirements are satisfied:

 

   

all of the mutual conditions to the parties’ obligations to effect the Mergers and the additional conditions to the obligations of Parent, Merger Sub I and Merger Sub II to effect the Mergers have been satisfied or waived by Parent (other than those conditions that by their nature are to be satisfied at the closing of the Mergers, provided that such conditions to be satisfied at the closing of the Mergers would be satisfied as of the date of the notice referenced in the immediately following bullet point if the closing of the Mergers were to occur on the date of such notice);

 

   

on or after the date the closing of the Mergers should have occurred pursuant to the Merger Agreement, we have delivered written notice to Parent to the effect that the prior sub-bullet has been satisfied and we and the Partnership are prepared to consummate the closing of the Mergers; and

 

   

Parent, Merger Sub I and Merger Sub II fail to consummate the closing of the Mergers on or before the third (3rd) business day after delivery of the notice referenced in the immediately preceding sub-bullet point, and we and the Partnership were prepared to consummate the closing of the Mergers during such three (3) business day period.

Termination by Parent

Parent may also terminate and abandon the Merger Agreement by written notice to us at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

we or the Partnership have breached or failed to perform any of our or the Partnership’s representations, warranties, covenants or other agreements contained in the Merger Agreement such that the closing conditions relating to our and the Partnership’s representations, warranties, covenants or agreements would be incapable of being satisfied by October 24, 2022, provided that neither Parent, Merger Sub I nor Merger Sub II has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Merger Agreement in any material respect; or

 

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(1) our board of directors has effected, or resolved to effect, an adverse recommendation change, (2) we have failed to publicly recommend against any tender offer or exchange offer subject to Regulation 14D under the Exchange Act that constitutes a Company Acquisition Proposal (including, for these purposes, by taking no position with respect to the acceptance of such tender offer or exchange offer by our stockholders) within ten business days after the commencement of such tender offer or exchange offer, (3) our board of directors has failed to publicly reaffirm its recommendation to our common stockholders to approve the proposal to approve the Company Merger within ten business days after the date a Company Acquisition Proposal has been publicly announced (or if the special meeting is scheduled to be held within ten business days from the date a Company Acquisition Proposal is publicly announced, promptly and in any event prior to the date on which the special meeting is scheduled to be held) or (4) we enter into a letter of intent, memorandum of understanding, agreement in principle, expense reimbursement agreement, acquisition agreement, merger agreement, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar definitive agreement providing for or relating to a Company Acquisition Proposal or requiring us or the Partnership to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement (other than an acceptable confidentiality agreement).

Termination Fees (page 98)

Termination Fee Payable by the Company

We have agreed to pay Parent a termination fee of $220 million (the “Company termination fee”) as directed by Parent if:

 

   

Parent terminates the Merger Agreement pursuant to the provision described above in the second bullet point under “—Termination by Parent”;

 

   

we terminate the Merger Agreement pursuant to the provision described above in the first bullet point under “—Termination by the Company”; or

 

   

all of the following requirements are satisfied:

 

   

we or Parent terminate the Merger Agreement pursuant to the provisions described above in the second bullet point or the third bullet point under “—Termination by either the Company or Parent” or Parent terminates the Merger Agreement pursuant to the provision described above in the first bullet point under “—Termination by Parent”; and

 

   

(1) a Company Acquisition Proposal has been received by us or our representatives or any person has publicly proposed or publicly announced an intention (whether or not conditional) to make a Company Acquisition Proposal (and, in the case of a termination pursuant to the provision described above in the third bullet point under ““—Termination by either the Company or Parent,” such Company Acquisition Proposal or publicly proposed or announced intention was made prior to the special meeting) and (2) within 12 months after a termination referred to in this bullet point we enter into a definitive agreement relating to, or consummate, any Company Acquisition Proposal (with, for purposes of this clause (2), the references to “15%” in the definition of “Company Acquisition Proposal” being deemed to be references to “50%”).

However, the Company termination fee will equal $110 million if the Merger Agreement is terminated by us pursuant to the provision described above in the first bullet point under “—Termination by the Company” prior to 11:59 p.m. (New York City time) on June 4, 2022 (subject to extension in certain circumstances as described under “The Merger Agreement — Company Acquisition Proposals; Non-Solicitation”) in order to enter into a definitive agreement with an excluded party providing for the implementation of a Superior Proposal.

 

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Termination Fee Payable by Parent

Parent has agreed to pay to us the Parent termination fee of $735 million if we terminate the Merger Agreement pursuant to the provisions described above in the second bullet point or third bullet point under “— Termination by the Company” or in the event that Parent terminates the Merger Agreement pursuant to the provisions described above in the second bullet under “—Termination by either the Company or Parent” and we were then entitled to terminate the Merger Agreement pursuant to the provisions described above in the second or third bullet point under “—Termination by the Company.”

Guaranty and Remedies (page 99)

In connection with the Merger Agreement, Sponsor, entered into a guaranty (the “guaranty”) in our favor to guarantee Parent’s payment obligations with respect to the Parent termination fee and certain expense reimbursement and indemnification obligations of Parent under the Merger Agreement, subject to the terms and limitations set forth in the guaranty.

The maximum aggregate liability of the Sponsor under the guaranty will not exceed $735 million plus all reasonable and documented third-party costs and out-of-pocket expenses (including reasonable fees of counsel) actually incurred by us relating to any litigation or other proceeding brought by us to enforce our rights under the guaranty, if we prevail in such litigation or proceeding.

We and the Partnership cannot seek specific performance to require Parent, Merger Sub I or Merger Sub II to complete the Mergers and, subject to limited exceptions, including with respect to enforcing confidentiality provisions and certain expense reimbursement and indemnification obligations of Parent, our sole and exclusive remedy against Parent, Merger Sub I and Merger Sub II relating to any breach of the Merger Agreement or otherwise will be the right to receive the Parent termination fee under the conditions described above. Parent, Merger Sub I and Merger Sub II may, however, seek specific performance to require us and the Partnership to complete the Mergers.

Support Agreement (page 100)

Concurrently with the execution of the Merger Agreement, Parent and the Company entered into a Support Agreement with Public Storage, who as of the record date owned 7,158,354 shares of the Company’s Common Stock, or approximately 25.9% of the outstanding shares of the Company’s Common Stock, as well as 7,305,355 common units of partnership interest of the Partnership.

Pursuant to the Support Agreement, Public Storage has agreed, among other things, that at any meeting of the stockholders of the Company or partners of the Partnership, and in connection with any written consent of the stockholders of the Company or partners of the Partnership, it will (a) appear at such meeting or otherwise cause any issued and outstanding shares of Common Stock and common units of partnership interest of the Partnership (or any securities convertible into or exercisable or exchange for any of the foregoing) beneficially owned by Public Storage, or that may otherwise become beneficially owned by Public Storage during the term of the Support Agreement (collectively, the “Covered Securities”) to be counted as present thereat for the purpose of establishing a quorum, (b) vote or cause to be voted all of the Covered Securities in favor of adopting the Merger Agreement and approving the Mergers and the transactions contemplated thereby and (c) vote or cause to be voted all of the Covered Securities against any alternative acquisition proposal or any other action that could reasonably be expected to impede, interfere with, materially delay, materially postpone or adversely affect the Mergers or other transactions contemplated by the Merger Agreement or result in a breach in any material respect of any covenant, representation or warranty or other obligation or agreement of the Company or the Partnership under the Merger Agreement or of Public Storage under the Support Agreement. Public Storage also

 

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agreed not to transfer any Covered Securities during the term of the Support Agreement. The Support Agreement does not require Public Storage to redeem any common units of partnership interest of the Partnership beneficially owned by Public Storage for shares of Common Stock.

Except with respect to certain provisions which shall survive termination, the Support Agreement will automatically terminate upon the earliest of (i) the Partnership Merger Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms or (iii) if there occurs any amendment or modification to the Merger Agreement that reduces the amount or changes the form of consideration payable in any of the Mergers or otherwise amends or modifies the Merger Agreement in a manner adverse (directly or indirectly) to Public Storage without Public Storage’s prior written consent.

Regulatory Matters (page 61)

We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Merger Agreement or the completion of either the Company Merger or the Partnership Merger, other than (1) the filing and acceptance for record of the articles of merger with respect to the Mergers by the SDAT, and (2) the filing and acceptance of record of the articles of conversion and a certificate of limited partnership with the SDAT, and a certificate of conversion with the California Secretary of State, in connection with the conversion of the Partnership from a California limited partnership to a Maryland limited partnership.

No Dissenters’ Rights of Appraisal (page 103)

We are organized as a corporation under Maryland law. Holders of shares of Common Stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares of Common Stock in connection with the Company Merger because, as permitted by the Maryland General Corporation Law, our charter provides that stockholders are not entitled to exercise such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination.

Material U.S. Federal Income Tax Consequences (page 62)

We intend to treat the distribution of the Closing Cash Dividend and the Additional Dividends, if any, as a dividend distribution to holders of shares of Common Stock to the extent of the Company’s current and accumulated earnings and profits. Further, we intend to designate the Closing Cash Dividend, to the maximum extent permitted by applicable law, as a “capital gains dividend” under Section 857(b) of the Code. Each of the Closing Cash Dividend and the Additional Dividends, if any, will reduce the per share merger consideration by an amount equal to the per share amount of such dividend.

The receipt of cash in exchange for shares of Common Stock pursuant to the Company Merger will be a taxable transaction for U.S. federal income tax purposes.

You should consult your own tax advisors regarding the tax consequences to you of the receipt of the Closing Cash Dividend, the Additional Dividends, if any, and the per share merger consideration received in exchange for shares of Common Stock pursuant to the Company Merger in light of your particular circumstances (including the application and effect of any state, local or non-U.S. income and other tax laws). For further discussion, see “The Mergers — Material U.S. Federal Income Tax Consequences.”

 

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Delisting and Deregistration of Common Stock (page  68)

Following the completion of the Company Merger, our Common Stock will no longer be traded on the NYSE and will be deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”).

Our Preferred Stock (and depositary shares in respect thereof) will be unaffected by the Company Merger and will remain outstanding in accordance with their respective terms.

Litigation Relating to the Mergers (page 68)

As of June 8, 2022, three lawsuits have been filed by purported stockholders of the Company in connection with the Mergers. The complaints generally allege that the preliminary proxy statement filed by the Company in connection with the Mergers fails to disclose allegedly material information in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Plaintiffs seek, among other things, to enjoin the Company from consummating the Mergers, or in the alternative, rescission of the Merger Agreement, as well as attorney’s fees. For a more detailed description of such litigation relating to the Mergers, see the section entitled “The Mergers — Litigation Relating to the Mergers.” Although the ultimate outcome of the matters cannot be predicted with any certainty, the Company believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the Mergers may also be filed in the future.

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGERS

The following questions and answers address briefly 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 common stockholder. 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 Exhibit A.

 

Q:

What is the proposed transaction?

 

A:

The proposed transaction is the acquisition of the Company, including the Partnership, by affiliates of Blackstone pursuant to the Merger Agreement. After the Company Merger and the other transactions contemplated by the Merger Agreement have been approved by our common stockholders and the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub II will merge with and into the Partnership, with the Partnership continuing as the Surviving Partnership, and Merger Sub I will merge with and into the Company, with the Company continuing as the Surviving Company. The Mergers will occur at the time provided in the Merger Agreement.

For additional information about the Mergers, please review the Merger Agreement, attached to this proxy statement as Exhibit A and incorporated by reference into this proxy statement. We encourage you to read the Merger Agreement carefully and in its entirety, as it is the principal document governing the Mergers.

 

Q:

As a common stockholder, what will I receive in the Company Merger?

 

A:

For each outstanding share of Common Stock that you own immediately prior to the Company Merger Effective Time, you will receive the merger consideration, which is $187.50 in cash, without interest and less the per share amount of the Closing Cash Dividend (and any Additional Dividend) and any applicable withholding taxes.

 

Q:

Will I receive any regular quarterly dividends or any other dividends with respect to the shares of Common Stock that I own?

 

A:

On February 2, 2022, our board of directors authorized and we declared a quarterly cash dividend of $1.05 per share of Common Stock for the quarter ended March 31, 2022, which was paid in cash on March 31, 2022, to holders of record of our Common Stock at the close of business on March 16, 2022. Additionally, on April 29, 2022, our board of directors authorized and we declared a quarterly cash dividend of $1.05 per share of Common Stock for the quarter ended June 30, 2022, which will be payable in cash on June 30, 2022, to holders of record of our Common Stock at the close of business on June 15, 2022. Under the terms of the Merger Agreement, we may make, declare and pay regular quarterly cash dividends to holders of Common Stock and to holders of common units of partnership interest of the Partnership, in an amount of up to $1.05 per share or unit (with declaration, record and payment dates consistent with historical declaration, record and payment dates from fiscal year 2021), including a pro rata distribution in respect of any stub period.

Under the terms of the Merger Agreement we are also permitted to authorize, declare and pay any Additional Dividend, which are dividends to the holders of our Common Stock during the term of the Merger Agreement that are determined by us to be reasonably necessary to maintain our status as a REIT under the Code or to avoid the imposition of income or excise tax or any other entity-level tax. Additionally, immediately prior to the Partnership Merger Effective Time, we will be required to pay the Closing Cash Dividend, which is a dividend to holders of record of our Common Stock as of the close of business on the business day immediately prior to the closing date in an amount reasonably determined by the Company in consultation with Parent equal to or in excess of the sum of (i) the amount required to be distributed to avoid the imposition of income or excise tax or any other entity-level tax for the Company’s hypothetical short

 

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taxable year ending on the closing date as a result of the Mergers or the Company’s taxable year ended December 31, 2021 and (ii) the estimated accumulated earnings and profits of the Company, calculated pursuant to applicable Treasury Regulations, for the Company’s hypothetical short taxable year ending on the closing date as a result of the Mergers, so long as any such Closing Cash Dividend is no greater than the cash available for distribution. Each of the Closing Cash Dividend and the Additional Dividends, if any, will reduce the per share merger consideration received by holders of Common Stock in the Company Merger by an amount equal to the per share amount of such dividend.

 

Q:

When do you expect the Mergers to be completed?

 

A:

If our common stockholders vote to approve the Company Merger and the other transactions contemplated by the Merger Agreement, and assuming that the other conditions to the Mergers are satisfied or waived, it is currently anticipated that the Mergers will be completed in the third quarter of 2022. Pursuant to the Merger Agreement, the closing of the Mergers will take place on the third business day after satisfaction or waiver of the conditions to the Mergers described under “The Merger Agreement — Conditions to the Mergers” (other than those conditions that by their nature are to be satisfied at the closing of the Mergers, but subject to the satisfaction or waiver of such conditions) or on such other date as may be mutually agreed in writing by us and Parent. For further information regarding the timing of the closing of the Mergers, see “The Merger Agreement — Effective Times; Closing Date.”

 

Q:

What happens if the Company Merger is not completed?

 

A:

If the Company Merger is not approved by our common stockholders, or if the Company Merger is not completed for any other reason, our common stockholders will not receive any payment for their shares of Common Stock pursuant to the Merger Agreement. Instead, the Company will remain a public company and shares of Common Stock and depositary shares with respect to the Preferred Stock will continue to be registered under the Exchange Act and listed on the NYSE, and our Common Stock, Preferred Stock (and depositary shares in respect thereof), equity awards and partnership interests of the Partnership will remain outstanding. Upon a termination of the Merger Agreement, under certain circumstances, we will be required to pay Parent the Company termination fee. In certain other circumstances, Parent will be required to pay us the Parent termination fee upon a termination of the Merger Agreement.

 

Q:

If the Company Merger is completed, how do I obtain the merger consideration for my shares of Common Stock?

 

A:

Following the completion of the Company Merger, your shares of Common Stock will automatically be converted into the right to receive your portion of the merger consideration. Shortly after the Company Merger is completed, you will receive instructions describing how you may surrender your shares of Common Stock for the merger consideration. If your shares of Common Stock 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.

 

Q:

When and where is the special meeting?

 

A:

The special meeting will be held on July 15, 2022, at 10 a.m., Pacific time, at the Westin Pasadena at 191 N Los Robles Ave, Pasadena, CA 91101.

 

Q:

Who can vote and attend the special meeting?

 

A:

All holders of record of shares of Common Stock as of the record date, which was the close of business on June 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each common stockholder will be entitled to cast one

 

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vote on each matter presented at the special meeting for each share of Common Stock that such holder owned as of the record date.

The vote of the holders of shares of Preferred Stock (or depositary shares in respect thereof) is not required to approve any of the proposals at the special meeting and is not being solicited.

 

Q:

What is the quorum requirement for the special meeting?

 

A:

The presence in person or by proxy of our common stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the special meeting. A quorum is necessary to transact business at the special meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If you fail to submit a proxy prior to the special meeting or to vote in person at the special meeting, your shares of Common Stock will not be counted toward a quorum.

 

Q:

What vote of common stockholders is required to approve the Company Merger?

 

A:

Approval of the Company Merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote of the holders of issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have the same effect as voting “AGAINST” the proposal to approve the Company Merger.

 

Q:

What vote of common stockholders is required to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger?

 

A:

Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger requires the affirmative vote of a majority of the votes cast on the proposal. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.

 

Q:

What vote of common stockholders 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 proposal to approve the Company Merger requires the affirmative vote of a majority of the votes cast on the proposal. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.

 

Q:

Why is my vote important?

 

A:

If you do not authorize your proxy or voting instructions or vote at the special meeting, it will be more difficult for us to obtain the necessary quorum to hold the special meeting. In addition, because the proposal to approve the Company Merger must be approved by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the matter by the holders of issued and outstanding Common Stock, your failure to authorize your proxy or voting instructions or to vote at the special meeting will have the same effect as a vote “AGAINST” the approval of the Company Merger.

 

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Q:

How does the merger consideration compare to the market price of the Company’s shares of Common Stock?

 

A:

The merger consideration of $187.50 per share in cash represents a premium of approximately 15% to the volume weighted average share price over the 60 days prior to announcement of the proposed transaction.

 

Q:

How does our board of directors recommend that I vote?

 

A:

Our board of directors recommends that you vote “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the special meeting.

 

Q:

Why am I being asked to consider and cast a vote on the non-binding proposal to approve the merger-related compensation payable to our named executive officers?

 

A:

The SEC has adopted rules that require companies to seek a non-binding, advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions such as the Company Merger.

 

Q:

What will happen if stockholders do not approve the non-binding proposal to approve the merger-related compensation?

 

A:

The proposal to approve the merger-related compensation is a proposal separate and apart from the proposal to approve the Company Merger. Approval of this proposal is not a condition to completion of the Mergers. The vote on this proposal is an advisory vote only, and it is not binding on us or our board of directors. Further, the underlying arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the Mergers are completed, our 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 Company Merger, in accordance with the terms and conditions applicable to such compensation.

 

Q:

Do any of the Company’s directors and executive officers have any interests in the Company Merger that are different than mine?

 

A:

Our directors and executive officers have certain interests in the Company Merger that are different from, or in addition to, the interests of our stockholders generally. See “The Merger — Interests of Our Directors and Executive Officers in the Company Merger” for additional information about interests that our directors and executive officers have in the Company Merger 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 exhibits attached to this proxy statement, please vote your shares of Common Stock or authorize a proxy to vote your shares of Common Stock in one of the ways described below as soon as possible. You will be entitled to cast one vote on each matter presented at the special meeting for each share of Common Stock that you owned as of the record date.

 

Q:

How do I cast my vote?

 

A:

If you are a holder of record of Common Stock on the record date, you may vote in person at the special meeting or authorize a proxy to vote your shares of Common Stock at the special meeting. You can authorize your proxy by marking, signing, dating and returning the enclosed proxy card by mail, or, if you

 

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prefer, by telephone or through the Internet by following the instructions included with your proxy card. Specific instructions to be followed by stockholders of record interested in authorizing a proxy via the Internet or by telephone are shown on the accompanying proxy card. Internet and telephone procedures are designed to authenticate the stockholder’s identity and to allow stockholders to authorize a proxyholder to vote the stockholder’s shares and confirm that their instructions have been properly recorded. A common stockholder that authorizes a vote through the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, which will be borne by the stockholder.

 

Q:

How do I cast my vote if my shares of Common Stock are held of record in a “street name”?

 

A:

If your shares are held in a “street name” through a broker, bank or other nominee, you must direct your intermediary regarding how you would like your shares voted by following the voting instructions you receive from your broker, bank or other nominee; or, if you want to participate in the special meeting, you must follow the instructions you receive from your broker, bank or other nominee.

 

Q:

What will happen if I abstain from voting or fail to vote?

 

A:

With respect to the proposal to approve the Company Merger, if you abstain from voting and fail to cast your vote in person at the special meeting or by proxy, or if you hold your shares of Common Stock 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 proposal to approve the merger-related compensation and the proposal to approve adjournment of the special meeting, if you abstain from voting or you fail to cast your vote in person at the special meeting or by proxy, or if you hold your shares of Common Stock 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 present.

 

Q:

How will proxy holders vote my shares of Common Stock?

 

A:

If you properly authorize a proxy prior to the special meeting, your shares of Common Stock will be voted as you direct. If you authorize a proxy but no direction is otherwise made, your shares of Common Stock will be voted “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the special meeting. Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.

 

Q:

What happens if I sell shares of Common Stock before the special meeting?

 

A:

If you held shares of Common Stock 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 consideration when the Company Merger becomes effective will pass to the person who at that time owns the shares of Common Stock you previously owned.

 

Q:

Can I change my vote after I have mailed my proxy card?

 

A:

Yes. If you own shares of Common Stock as a record holder on the record date, you may revoke a previously authorized proxy at any time before it is exercised by filing with our Corporate Secretary a notice of revocation or a duly authorized proxy bearing a later date or by attending the special meeting and voting in person 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, bank or other nominee to vote your shares of Common Stock, the foregoing options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.

 

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Q:

What are the material U.S. federal income tax consequences of the Mergers?

 

A:

We intend to treat the distribution of the Closing Cash Dividend and the Additional Dividends, if any, as a dividend distribution to holders of shares of Common Stock to the extent of the Company’s current and accumulated earnings and profits. Further, we intend to designate the Closing Cash Dividend, to the maximum extent permitted by applicable law, as a “capital gains dividend” under Section 857(b) of the Code. Each of the Closing Cash Dividend and the Additional Dividends, if any, will reduce the per share merger consideration by an amount equal to the per share amount of such dividend.

The receipt of cash in exchange for shares of Common Stock pursuant to the Company Merger will be a taxable transaction for U.S. federal income tax purposes.

You should consult your own tax advisors regarding the tax consequences to you of the receipt of the Closing Cash Dividend and the Additional Dividends, if any, and the per share merger consideration received in exchange for shares of Common Stock pursuant to the Company Merger in light of your particular circumstances (including the application and effect of any state, local or non-U.S. income and other tax laws). For further discussion, see “The Mergers — Material U.S. Federal Income Tax Consequences.”

 

Q:

What rights do I have if I oppose the Mergers?

 

A:

If you are a common stockholder of record on the record date, you can vote against the proposal to approve the Company Merger. You are not, however, entitled to exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares in connection with the Company Merger or the transactions contemplated by the Merger Agreement because, as permitted by the Maryland General Corporation Law, our charter provides that stockholders are not entitled to exercise any such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination. See “No Dissenters’ Rights of Appraisal.”

 

Q:

Where can I find the voting results of the special meeting?

 

A:

We intend 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 we file with the SEC are publicly available on the SEC’s website at www.sec.gov when filed.

 

Q:

Have any stockholders entered into a support agreement in connection with the Company Merger?

 

A:

Yes. Public Storage, solely in its capacity as our stockholder and limited partner of the Partnership, has entered into the Support Agreement with Parent pursuant to which it agreed, among other things, that at any meeting of the stockholders of the Company or partners of the Partnership, and in connection with any written consent of the stockholders of the Company or partners of the Partnership, it will (a) appear at such meeting or otherwise cause any Covered Securities to be counted as present thereat for the purpose of establishing a quorum, (b) vote or cause to be voted all of the Covered Securities in favor of adopting the Merger Agreement and approving the Mergers and the transactions contemplated thereby and (c) vote or cause to be voted all of the Covered Securities against any alternative acquisition proposal or any other action that could reasonably be expected to impede, interfere with, materially delay, materially postpone or adversely affect the Mergers or other transactions contemplated by the Merger Agreement or result in a breach in any material respect of any covenant, representation or warranty or other obligation or agreement of the Company or the Partnership under the Merger Agreement or of Public Storage under the Support Agreement. Public Storage also agreed not to transfer any Covered Securities during the term of the Support Agreement. The Support Agreement does not require Public Storage to redeem any common units of partnership interest of the Partnership beneficially owned by Public Storage for shares of Common Stock.

 

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As of the record date, the shares of Common Stock covered by the Support Agreement represented approximately 25.9% of the outstanding voting power of our Common Stock.

 

Q:

Can I participate if I am unable to attend the special meeting?

 

A:

If you are unable to attend the special meeting in person, we encourage you to complete, sign, date and return your proxy card, or authorize your proxy or voting instructions by telephone or through the Internet. The special meeting will not be broadcast telephonically or over the Internet.

 

Q:

Where can I find more information about the Company?

 

A:

We file certain information with the SEC, which is available on the SEC’s website at www.sec.gov and on our website at https://ir.psbusinessparks.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. You can also request copies of these documents from us. See “Where You Can Find More Information.”

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

We will bear the cost of solicitation of proxies for the special meeting. Our board of directors is soliciting your proxy on our behalf. In addition to the use of mail, proxies may be solicited by personal interview, telephone, fax, e-mail or otherwise, by our directors, officers and other employees. We have engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for a fee of $15,000, plus reimbursement of out-of-pocket expenses. We also will request persons, firms and corporations holding shares of Common Stock 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 Mergers, you should contact us at:

PS Business Parks, Inc.

701 Western Avenue,

Glendale, California 91201

Attention: Adeel Khan, Executive Vice President, Chief Financial Officer and Corporate Secretary

(818) 244-8080

You may also contact D.F. King & Co., Inc., our proxy solicitor, as follows:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

Banks and Brokers, Call Collect: (212) 269-5550

All Others Call Toll Free: (866) 227-7300

Email: PSB@dfking.com

If your broker holds your shares of Common Stock, you should also contact your broker or other nominee for additional information.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the documents that we incorporate 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 (the “Securities Act”) and Section 21E of the Exchange Act). Also, documents we subsequently file with the SEC and incorporate by reference may contain forward-looking statements. These forward-looking statements include, among others, statements about the expected benefits of the Mergers, the expected timing and completion of the Mergers and the future business, performance and opportunities of the Company. Forward-looking statements may be identified by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “goal,” “future,” “outlook,” “guidance,” “target,” “estimate” and similar words or expressions, including the negative version of such words and expressions. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise, and we may not be able to realize them. These forward-looking statements are based upon the Company’s present expectations, estimates and projections about the industry and markets in which the Company operates and beliefs of and assumptions made by Company management, involve numerous risks and uncertainties that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, and are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. You should not place undue reliance upon these forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, the Company’s actual results and performance could differ materially from those set forth in these forward-looking statements due to numerous factors. Forward-looking statements are based on expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, without limitation:

 

   

the adverse effects on global economic conditions and the capital markets of the war in Ukraine, and the global supply chain disruptions related thereto;

 

   

the duration and severity of the coronavirus (“COVID-19”) pandemic and its impact on our business and our customers;

 

   

changes in general economic and business conditions, including as a result of the economic fallout of the COVID-19 pandemic;

 

   

potential regulatory actions to close our facilities or limit our ability to evict delinquent customers;

 

   

decreases in rental rates or increases in vacancy rates/failure to renew or replace expiring leases;

 

   

the effect of the recent credit and financial market conditions;

 

   

our failure to maintain our status as a REIT under the Code;

 

   

the health of our officers and directors;

 

   

increases in operating costs;

 

   

increases in interest rates and its effect on our stock price;

 

   

the impact of inflation;

 

   

potential defaults on or non-renewal of leases by tenants;

 

   

the economic health of our customers;

 

   

casualties to our properties not covered by insurance;

 

   

the availability and cost of capital;

 

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security breaches, including ransomware, or a failure of our networks, systems or technology which could adversely impact our operations or our business, customer and employee relationships or result in fraudulent payments;

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

   

the failure to obtain the approval of the Company’s common stockholders of the Company Merger or the failure to satisfy any of the other conditions to the completion of the Mergers;

 

   

the current and any future stockholder litigation in connection with the Mergers, which may affect the timing or occurrence of the Mergers or result in significant costs of defense, indemnification and liability;

 

   

the effect of the announcement of the Mergers on the ability of the Company to retain and hire key personnel and maintain relationships with its tenants, vendors and others with whom it does business, or on its operating results and businesses generally;

 

   

risks associated with the disruption of management’s attention from ongoing business operations due to the Mergers;

 

   

the ability to meet expectations regarding the timing and completion of the Mergers; and

 

   

significant transaction costs, fees, expenses and charges.

There can be no assurance that the Mergers or any other transaction described above will in fact be consummated in the expected time frame, on the expected terms or at all. There can be no assurance as to the impact of COVID-19 and other potential future outbreaks of infectious diseases or of the war in Ukraine on the Company’s financial condition, results of operations, cash flows and performance and those of the Company’s tenants as well as on the economy and real estate and financial markets, which may impact the timing or occurrence of the Mergers. While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors” set forth in Item 1A of the Company’s Annual Report on Form 10-K filed by the Company with the SEC on February 22, 2022, and subsequent filings by the Company with the SEC. Any forward-looking statement speaks only as of the date on which it is made, and the Company assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

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PROPOSAL 1

PROPOSAL TO APPROVE THE COMPANY MERGER

We are asking our common stockholders to vote on a proposal to approve the merger of Merger Sub I with and into the Company (with the Company surviving such merger) and the other transactions contemplated by the Merger Agreement.

For detailed information regarding this 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 Exhibit A to this proxy statement.

Approval of the proposal to approve the Company Merger requires the affirmative vote of the holders of issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 1, your shares of Common Stock, will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 1. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have the same effect as voting “AGAINST” the proposal to approve the Company Merger.

Approval of this proposal is a condition to the completion of the Mergers. In the event that this proposal is not approved, the Mergers cannot be completed.

Recommendation of the Board of Directors

Our board of directors unanimously recommends that our common stockholders vote “FOR” the proposal to approve the Company Merger.

 

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PROPOSAL 2

PROPOSAL TO APPROVE THE MERGER-RELATED COMPENSATION

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) under the Exchange Act, we are asking our common stockholders to vote at the special meeting on an advisory basis regarding the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger. 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 Mergers — Interests of Our Directors and Executive Officers in the Company Merger — Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Company Merger.”

The stockholder vote on executive compensation is an advisory vote only, and it is not binding on us or our board of directors. Further, the underlying arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the Mergers are completed, our named executive officers will be eligible to receive the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger, in accordance with the terms and conditions applicable to such compensation. Approval of this proposal is not a condition to the completion of the Mergers.

We are asking our common stockholders to vote “FOR” the following resolution:

RESOLVED, that PS Business Parks, Inc.’s common stockholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of PS Business Parks, Inc. that is based on or otherwise relates to the Company Merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Mergers — Interests of Our Directors and Executive Officers in the Company Merger — Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Company Merger”.

Approval of the above resolution, on a non-binding, advisory basis, 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 of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 2, your shares of Common Stock will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 2. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.

Recommendation of the Board of Directors

Our board of directors unanimously recommends that our common stockholders vote “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger.

 

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PROPOSAL 3

PROPOSAL TO APPROVE ADJOURNMENT OF THE SPECIAL MEETING

We are asking our common stockholders 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 Company Merger and the other transactions contemplated by the Merger Agreement.

Approval of the proposal to approve any such adjournment of the special meeting requires the affirmative vote of a majority of the votes cast on the proposal. Approval of this proposal is not a condition to the completion of the Mergers. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 3, your shares of Common Stock will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 3. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.

In addition, even if a quorum is not present at the special meeting, the chairman of the special meeting may adjourn the special meeting to a later date and time and place announced at the special meeting (subject to certain restrictions in the Merger Agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).

Recommendation of the Board of Directors

Our board of directors unanimously recommends that our common stockholders vote “FOR” the 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 Company Merger and the other transactions contemplated by the Merger Agreement.

 

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THE PARTIES TO THE MERGERS

PS Business Parks, Inc.

701 Western Avenue,

Glendale, California 91201

(818) 244-8080

We were originally formed as a California corporation in 1990 and effective May 19, 2021 we reincorporated to the State of Maryland. We elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 1990. We are a fully-integrated, self-advised and self-managed REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, industrial-flex, and low rise-suburban office space. As of March 31, 2022, we owned and operated 27.0 million rentable square feet of commercial space in six states, comprising 96 parks and 652 buildings. Our properties are primarily located in major coastal markets that have experienced long-term economic growth. We also held a 95.0% interest in a joint venture entity which owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex also located in Tysons, Virginia. We also manage for a fee approximately 0.3 million rentable square feet on behalf of Public Storage.

The Company’s website is psbusinessparks.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. Our Common Stock is listed on the NYSE under the symbol “PSB.” Depositary shares in respect of each series of our Preferred Stock are listed on the NYSE under the symbols: “PSBPrX”, “PSBPrY” and “PSBPrZ.” For additional information about us and our business, please refer to “Where You Can Find More Information.”

PS Business Parks, L.P.

701 Western Avenue,

Glendale, California 91201

(818) 244-8080

The Partnership is currently a California limited partnership formed on January 2, 1997 and is planned to be converted into a Maryland limited partnership pursuant to the terms of the Merger Agreement. As of the record date, we owned approximately 79.1% of the common units of partnership interest of the Partnership. Substantially all of our assets are held by, and all of our operations are conducted through, the Partnership. Our interest in the Partnership entitles us to share in cash distributions from, and in the profits and losses of, the Partnership in proportion to our percentage ownership. As the sole general partner of the Partnership, we have exclusive and complete responsibility and discretion in managing and controlling the Partnership.

Sequoia Parent LP

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Parent is a Delaware limited partnership and an affiliate of the Sponsor. Sequoia Parent GP LLC, a Delaware limited liability company, is the sole general partner of Parent and is also an affiliate of the Sponsor. Parent was formed solely for the purpose of acquiring us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. The Sponsor is an affiliate of Blackstone.

Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $298 billion of investor capital under management. Blackstone is the largest owner of commercial real

 

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estate globally, owning and operating assets across every major geography and sector, including logistics, residential, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ business invests in substantially stabilized real estate assets globally, through both institutional strategies and strategies tailored for income-focused individual investors including Blackstone Real Estate Income Trust, Inc. (BREIT), a U.S. non-listed REIT, and Blackstone’s European yield-oriented strategy. Blackstone Real Estate also operates one of the leading global real estate debt businesses, providing comprehensive financing solutions across the capital structure and risk spectrum, including management of Blackstone Mortgage Trust (NYSE: BXMT).

Sequoia Merger Sub I LLC

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Merger Sub I is a Maryland limited liability company. Parent is the sole member of Merger Sub I. Merger Sub I was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, on the closing date, Merger Sub I will merge with and into the Company, and the Company will continue as the surviving company.

Sequoia Merger Sub II LLC

c/o Blackstone Inc.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Merger Sub II is a Maryland limited liability company. Parent is the sole member of Merger Sub II. Merger Sub II was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, on the closing date, Merger Sub II will merge with and into the Partnership, and the Partnership will continue as the surviving partnership.

 

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THE SPECIAL MEETING

Date, Time and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our board of directors to be exercised at a special meeting to be held on July 15, 2022, at 10 a.m., Pacific time. The special meeting will be held at the Westin Pasadena at 191 N Los Robles Ave, Pasadena, CA 91101.

Only holders of our Common Stock as of the close of business on the record date are entitled to receive notice of, and vote at, the special meeting or any adjournment or postponement thereof. If you are a holder of record, you will be able to attend the special meeting in person, ask a question and vote.    

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 Merger Sub I with and into the Company, as contemplated by the Agreement and Plan of Merger, dated as of April 24, 2022, and as it may be amended from time to time, by and among the Company, the Partnership, Parent, Merger Sub I and Merger Sub II, and the other transactions contemplated by the Merger Agreement;

 

  2.

a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the Company Merger; 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 Company Merger and the other transactions contemplated by the Merger Agreement.

Pursuant to the Maryland General Corporation Law and our 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 issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter is required to approve the Company Merger and the other transactions contemplated by the Merger Agreement and for the Mergers to occur. A copy of the Merger Agreement is attached as Exhibit A to this proxy statement, which we encourage you to read carefully in its entirety.

Record Date, Notice and Quorum

All holders of record of our Common Stock as of the record date, which was the close of business on June 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Common Stock that such holder owned as of the record date. On the record date, there were 27,631,499 shares of Common Stock outstanding and entitled to vote at the special meeting.

The presence in person or by proxy of our stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the special meeting. A quorum is necessary to transact business at the special meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If you fail to submit a proxy prior to the special meeting or to vote in person at the special meeting, your shares of Common Stock will not be counted toward a quorum. If a quorum is not present at the special meeting, we expect that the special meeting will be adjourned to a later date. Under our bylaws, the chairman of the special meeting may adjourn the special meeting, whether or not a quorum is present, to a later date and time and place announced at the special meeting (subject to certain restrictions in the Merger Agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).

 

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Required Vote

Completion of the Company Merger and the other transactions contemplated by the Merger Agreement requires approval of the Company Merger and the other transactions contemplated by the Merger Agreement by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the matter by the holders of issued and outstanding Common Stock. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Common Stock that such holder owned as of the record date. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, if you fail to exercise your proxy or vote in person (including by abstaining), or fail to instruct your broker, bank or other nominee how to vote, such failure will have the same effect as voting against the proposal to approve the Company Merger.

In addition, each of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the special meeting requires the affirmative vote of a majority of the votes cast on the proposal. Approval of these proposals is not a condition to completion of the Mergers. For the purpose of each of these proposals, if you fail to exercise your proxy or vote in person, or fail to instruct your broker, bank or other nominee how to vote, it will not have any effect on the outcome of such proposals, assuming a quorum is present. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals, assuming a quorum is present.

In order for your shares of Common Stock to be voted, if you are a common stockholder of record, you must either return the enclosed proxy card, authorize your proxy or voting instructions by telephone or through the Internet, or vote in person at the special meeting.

The vote of the holders of shares of Preferred Stock, or depositary shares in respect thereof, is not required to approve any of the proposals at the special meeting and is not being solicited.

As of the record date, our directors and executive officers owned and are entitled to vote an aggregate of 399,620 shares of our Common Stock, entitling them to exercise approximately 1.4% of the voting power of our Common Stock entitled to vote at the special meeting. Our directors and executive officers have informed us that they intend to vote the Common Stock that they own in favor of the proposal to approve the Company Merger, in favor of the proposal to approve the merger-related compensation and in favor of the proposal to approve adjournment of the special meeting. In addition, Public Storage, solely in its capacity as our stockholder and limited partner of the Partnership, has entered into a Support Agreement pursuant to which it agreed, among other things, that at any meeting of the stockholders of the Company or partners of the Partnership, and in connection with any written consent of the stockholders of the Company or partners of the Partnership, it will (a) appear at such meeting or otherwise cause any Covered Securities to be counted as present thereat for the purpose of establishing a quorum, (b) vote or cause to be voted all of the Covered Securities in favor of adopting the Merger Agreement and approving the Mergers and the transactions contemplated thereby and (c) vote or cause to be voted all of the Covered Securities against any alternative acquisition proposal or any other action that could reasonably be expected to impede, interfere with, materially delay, materially postpone or adversely affect the Mergers or other transactions contemplated by the Merger Agreement or result in a breach in any material respect of any covenant, representation or warranty or other obligation or agreement of the Company or the Partnership under the Merger Agreement or of Public Storage under the Support Agreement. Public Storage also agreed not to transfer any Covered Securities during the term of the Support Agreement. The Support Agreement does not require Public Storage to redeem any common units of partnership interest of the Partnership beneficially owned by Public Storage for shares of Common Stock. As of the record date, Public Storage beneficially owned 7,158,354 shares of our Common Stock, entitling it to exercise approximately 25.9% of the voting power of our Common Stock entitled to vote at the special meeting. As of the record date, Public Storage, together (without duplication) with our directors and executive officers, beneficially owned 7,557,974 shares of our Common Stock, entitling them to exercise approximately 27.4% of the voting power of our Common Stock entitled to vote at the special meeting.

 

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Votes cast by proxy or in person at the special meeting will be counted by the person appointed by us to act as inspector of election for the special meeting. The inspector of election will also determine the number of shares of Common Stock represented at the special meeting, in person or by proxy.

How to Authorize a Proxy

Holders of record of our Common Stock may vote or cause their shares to be voted by proxy using one of the following methods:

 

  1.

mark, sign, date and return the enclosed proxy card by mail;

 

  2.

authorize your proxy or voting instructions by telephone or through the Internet by following the instructions included with your proxy card; or

 

  3.

appear in person and vote at the special meeting.

Regardless of whether you plan to attend the special meeting, we request that you authorize a proxy for your Common Stock as described above as promptly as possible.

Under NYSE rules, all 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. Brokers, banks and other nominees do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Accordingly, if your shares are held in “street name” through a broker, bank or other nominee, you must direct your intermediary regarding how you would like your shares voted by following the voting instructions you receive from your broker, bank or other nominee; or, if you want to participate in the special meeting, you must follow the instructions you receive from your broker, bank or other nominee. Because the proposal to approve the Company Merger requires the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the matter by the holders of issued and outstanding Common Stock, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to approve the Company Merger. Because the approval of each of (1) the proposal to approve the merger-related compensation and (2) the proposal to adjourn the special meeting 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 present.

Proxies and Revocation

If you authorize a proxy, your Common Stock will be voted at the special meeting as you indicate on your proxy. If no instructions are indicated when you authorize your proxy, your Common Stock will be voted in accordance with the recommendations of our board of directors. Our board of directors recommends that you vote “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the special meeting.

You may revoke your proxy at any time, but only before the proxy is voted at the special meeting, in any of three ways:

 

  1.

by delivering, prior to the date of the special meeting, a written revocation of your proxy dated after the date of the proxy that is being revoked to our Corporate Secretary at our principal executive offices, 701 Western Avenue, Glendale, California 91201;

 

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  2.

by delivering to our Corporate Secretary a later-dated, duly executed proxy or by authorizing your proxy by telephone or by Internet at a date after the date of the previously authorized proxy relating to the same shares of Common Stock; or

 

  3.

by attending the special meeting and voting in person.

Attendance at the special meeting will not, in itself, constitute revocation of a previously granted proxy. If you own Common Stock in “street name,” you may revoke or change previously granted voting instructions by following the instructions provided by the broker, bank or other nominee that is the registered owner of the shares.

Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.

Solicitation of Proxies

We will bear the cost of solicitation of proxies for the special meeting. In addition to the use of mail, proxies may be solicited by personal interview, telephone, fax, e-mail or otherwise, by our officers, directors and other employees, for which they will not receive additional compensation. We have engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for a fee of $15,000, plus reimbursement of out-of-pocket expenses, and we have agreed to indemnify D.F. King & Co., Inc. against certain losses, costs and expenses. We also will request persons, firms and corporations holding Common Stock 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.

Adjournments

Although it is not currently expected, the special meeting may be adjourned for, among other purposes, the purpose of soliciting additional proxies if the holders of a sufficient number of shares of Common Stock are not present at the special meeting, in person or by proxy, to constitute a quorum or if we believe it is reasonably likely that the Company Merger and the other transaction contemplated by the Merger Agreement will not be approved at the special meeting when convened on July 15, 2022, or when reconvened following any adjournment. Any adjournments may be made, without setting a new record date for the special meeting, to a date not more than 120 days after the original record date without notice (other than by an announcement at the special meeting), by the chairman of the special meeting, whether or not a quorum is present, to a later date and time and place announced at the special meeting (subject to certain restrictions in the Merger Agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).

Postponements

At any time prior to convening the special meeting, we may postpone the special meeting, without setting a new record date for the special meeting, for any reason without the approval of our common stockholders to a date not more than 120 days after the original record date (subject to certain restrictions in the Merger Agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled). Notice of the date, time and place to which the special meeting is postponed shall be given not less than 10 days prior to such date.

 

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THE MERGERS

General Description of the Mergers

Under the terms of the Merger Agreement, affiliates of Blackstone will acquire the Company and its subsidiaries, including the Partnership, through (1) the merger of Merger Sub II with and into the Partnership, with the Partnership continuing as the Surviving Partnership and (2) the merger of Merger Sub I with and into the Company, with the Company continuing as the Surviving Company.

Background of the Mergers

Our board of directors and senior management regularly review our performance and prospects in light of the current business, economic, capital markets, and real estate environments, as well as developments in the multi-tenant industrial, industrial-flex, and low-rise suburban office space and the opportunities and challenges facing participants in those businesses. These reviews have included consideration, from time to time, of potential strategic alternatives, including potential acquisitions, dispositions, the re-weighting of our portfolio of assets to industrial assets, joint ventures, spin-off transactions, and business combination transactions, as well as remaining an independent public company. Our board of directors and senior management have considered various challenges that we have faced as a public company, in particular the competitive environment for acquiring industrial and industrial-flex assets and our close to zero tax basis in existing assets, making asset-by-asset dispositions inefficient from a tax perspective, as well as the discount to estimated net asset value at which shares of Common Stock have recently traded and the implications of this discount on the cost of obtaining capital to fund future acquisitions and growth.

Additionally, from time to time, the Chairman of the board of directors, Ronald L. Havner, and our senior management have engaged in discussions with executives of other participants in the real estate industry, including Blackstone, regarding potential acquisitions or dispositions of assets or portfolios of assets, as well as potential joint ventures. In January 2021, the Company and Blackstone engaged in discussions regarding the Company acquiring a portfolio of industrial properties on the west coast of the United States that Blackstone planned to sell. Blackstone conducted an auction to sell these properties, and, after preliminary discussions, the Company determined in March 2021 not to pursue the transaction because, among other things, the competitive dynamic and resulting price expectations meant the acquisition would not be accretive to the Company.

In February 2021, a representative of Blackstone contacted Mr. Havner, expressing that Blackstone would be interested in exploring a potential acquisition of the Company, and requesting that the Company provide Blackstone with non-public information for such purpose. The conversation was high level and no specific terms were discussed. On February 24, 2021, the Company and Blackstone entered into a confidentiality agreement, following which the Company provided Blackstone limited property-level financial information. Over the next few weeks, Blackstone engaged in due diligence on the Company and, on March 11, 2021, Blackstone’s representative telephoned Mr. Havner and informed him that, based on Blackstone’s due diligence review, Blackstone would not be in a position at that time to offer to acquire the Company at a premium to its then-current stock price. On March 11, 2021, the closing price of the Company’s Common Stock was $151.53 per share. Mr. Havner relayed this conversation to the other members of the board.

At a meeting of the Company’s board of directors on August 28, 2021, the board of directors reviewed our business performance and outlook in light of general market conditions and considered opportunities and risks in our industrial, flex and office real estate businesses. The board discussed, among other things, the Company’s strategic direction, as well as the real estate business environment. At the meeting, in light of the business and real estate environment at the time, the board of directors determined to engage Eastdil, which has from time to time acted as a broker for real estate transactions involving the Company, to assist the board in confidentially evaluating strategic options and assessing the value of the Company and its assets. The board of directors directed management to assist Eastdil in preparing its evaluation, with the results of such evaluation to be presented to the board at a meeting later in 2021.

 

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On October 26, 2021, during a meeting of the Company’s board of directors, which was attended by the Company’s senior management, Eastdil presented its assessment of the state of the real estate industry, including the industrial, flex, and office sectors. Representatives of Eastdil also presented a preliminary valuation of the Company and the assets in the Company’s portfolio and discussed with the board possible approaches to creating value through strategic acquisitions and dispositions The board discussed with management and Eastdil the benefits and risks of pursuing such opportunities, and instructed management and Eastdil to continue reviewing such strategic acquisitions and dispositions.

On December 1, 2021, a representative of Blackstone contacted a representative of Eastdil to discuss the Company and the Company’s real estate portfolio. Blackstone’s representative was aware that the Company had previously worked with Eastdil with respect to acquisitions and dispositions of real estate assets. The representative of Blackstone indicated that Blackstone would be interested in discussing an acquisition of the entire Company. Blackstone’s representative did not propose a valuation of the Company, stating that before proposing a purchase price, Blackstone would need access to certain confidential information regarding the Company. Blackstone’s representative then asked that the representative of Eastdil communicate Blackstone’s interest to the Company, including with respect to receiving confidential information of the Company.

Between December 2, 2021 and December 4, 2021, representatives of Eastdil conveyed their discussions with Blackstone to Mr. Havner and Dan “Mac” Chandler, III, the Company’s then-President and Chief Executive Officer, including that Blackstone had expressed an interest in potentially making a proposal to acquire the Company.

On December 8, 2021, during a meeting of the Company’s board of directors, which was attended by the Company’s senior management, Mr. Havner and Mr. Chandler provided a summary to the other members of the board regarding Blackstone’s renewed interest in potentially acquiring the Company and its request to receive access to certain confidential information of the Company in order to make a proposal to acquire the Company. After discussion, the board of directors authorized members of management to provide confidential information about the Company to Blackstone in order to determine Blackstone’s proposed purchase price for an acquisition of the Company.

On December 14, 2021, Mr. Chandler discussed with a representative of Blackstone the Company’s willingness to provide confidential information of the Company so that Blackstone could provide a proposed purchase price, subject to the parties entering into a new confidentiality agreement given the earlier confidentiality agreement was scheduled to expire on February 24, 2022. On December 19, 2021, the Company and Blackstone entered into a new confidentiality agreement. Following the execution of the new confidentiality agreement, the Company granted access to an electronic data room to representatives of Blackstone and Blackstone commenced its extensive due diligence review, including of property-level information, which continued until the execution of the Merger Agreement.

On January 6, 2022, a representative of Blackstone contacted Mr. Havner to update Mr. Havner on Blackstone’s extensive due diligence efforts and informed Mr. Havner that Blackstone intended to propose a specific purchase price for the Company in the near future.

On January 18, 2022, the Company announced that Mr. Chandler would take a temporary leave of absence for health reasons unrelated to the coronavirus (COVID-19) pandemic, effective January 17, 2022. The Company also announced that in connection with Mr. Chandler’s leave of absence, on January 17, 2022, the board of directors appointed Stephen W. Wilson, a member of the Company’s board, to serve as interim President and Chief Executive Officer and Maria R. Hawthorne, a member of the Company’s board, to serve as interim Chief Operating Officer, until Mr. Chandler returned from his leave of absence. Subsequently on March 23, 2022, the Company announced that Mr. Chandler would step down as President and Chief Executive Officer. On April 5, 2022, the Company announced that Mr. Wilson had been appointed President and Chief Executive Officer of the Company, and that he would continue to serve as a member of the board of directors.

 

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On February 3, 2022, a representative of Blackstone contacted representatives of Eastdil to orally communicate an indicative purchase price for all of the outstanding shares of Common Stock and all outstanding common units of partnership interest of the Partnership not owned by the Company of $188.00 per share/unit in cash. The representative of Blackstone did not outline any other terms of the proposal. Thereafter on February 3, 2022, representatives of Eastdil contacted Mr. Havner and Mr. Wilson to summarize the conversation with Blackstone’s representative, including the proposed indicative purchase price.

On February 8, 2022, during a meeting of the Company’s board of directors, which was attended by the Company’s senior management, Mr. Havner and members of the Company’s senior management provided an update on discussions with Blackstone, including the February 3, 2022 indicative purchase price of $188.00 per share/unit. During the meeting, the board discussed, among other things, general real estate and economic conditions and the Company’s potential opportunities and strategic direction, including potential monetization opportunities and the standalone case as an independent public company, and the benefits and risks related to each, including those discussed at prior meetings of the board of directors. Following discussion, the board determined that the Company should communicate to Blackstone that its indicative purchase price was too low and that, based on current market conditions at the time, any indicative purchase price should be at least $200.00 per share/unit. Following further discussions, the board determined to reconvene in the coming days to receive any updates and further discuss the indicative purchase price and potential next steps.

On February 9, 2022, Mr. Havner communicated to representatives of Eastdil the board of directors’ view that the indicative purchase price of $188.00 per share/unit was too low at this time, and that any indicative purchase price should be at least $200.00 per share/unit. Representatives of Eastdil subsequently communicated the board’s views to representatives of Blackstone.

On February 12, 2022, representatives of Blackstone contacted representatives of Eastdil to inform them that Blackstone was not prepared to offer more than $188.00 per share/unit. Representatives of Eastdil subsequently communicated Blackstone’s unwillingness to increase the indicative purchase price to Mr. Havner and Mr. Wilson.

On February 13, 2022, during a meeting of the Company’s board of directors, which was attended by the Company’s senior management, Mr. Havner, Mr. Wilson, and other members of management provided an update on the discussions with Blackstone and Eastdil and continued their discussion of Blackstone’s proposal, the general market conditions, and the Company’s performance and opportunities. Following discussion, the board of directors authorized management to evaluate beginning a confidential process to explore potential strategic alternatives with the goal of enhancing stockholder value, which could include a potential transaction such as a merger, business combination, sale, spin-off, dissolution and distribution of assets, or other transaction, as well as the potential for the Company to continue operating its business as a standalone public company. In order to facilitate this process, the board formed an ad-hoc transaction committee of the board of directors comprised of three independent directors (the “Transaction Committee”), which would provide advice to members of the Company’s senior management on day-to-day matters involving this process and assist in the selection of financial, legal, and other advisors as appropriate. The members of the board of directors named to the Transaction Committee were M. Christian Mitchell, Gary E. Pruitt, and Robert S. Rollo, with Mr. Mitchell appointed Chairman of the Transaction Committee. Thereafter on numerous occasions, Mr. Mitchell and Mr. Wilson discussed various matters related to the potential transaction with Blackstone and the potential strategic alternatives review process, as well as the Company’s standalone business plan, and Mr. Mitchell also discussed these matters with the other members of the Transaction Committee.

On February 14, 2022, the Transaction Committee held a meeting by teleconference during which the Transaction Committee decided that Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”) should be retained by the Company to act as the Company’s legal advisor in connection with the Company’s evaluation of strategic alternatives. Additionally, the Transaction Committee determined that, in addition to Eastdil, who would continue to serve as real estate advisor to the Company and as a financial advisor, it would be advisable for the

 

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Company to retain an additional financial advisor. Later that week, after meeting with several candidates, based on the recommendation of the Transaction Committee, the Company retained J.P. Morgan as co-financial advisor to the Company in connection with its consideration of strategic alternatives. J.P. Morgan was selected based on its qualifications, expertise and reputation in the industrial, industrial-flex and office sectors, and its knowledge of the business and affairs of the Company and of potential counterparties.

On February 24, 2022, the Russian Federation launched an invasion of Ukraine, which conflict escalated throughout the spring of 2022 and continues as of the date of this proxy statement. Following commencement of the invasion, there was a rapid deterioration of the credit markets, including as related to real estate in the United States, and borrowing costs associated with purchasing real estate continued to increase.

During the final week of February and the month of March, members of management worked with Eastdil and J.P. Morgan to prepare for a potential process to explore potential strategic alternatives for the Company. Also during this period, members of management and the Company’s financial advisors monitored market conditions in light of the war in Ukraine, including the substantial deterioration in the access and the cost of credit relative to prior to Russia’s invasion of Ukraine. Members of management and the Company’s financial advisors continued to evaluate the potential strategic alternatives in light of the macroeconomic environment, and compared those alternatives to the Company’s strategic business plan as a standalone public company. Also during this time, members of management finalized the Company’s projections for 2022 through 2026, which we refer to as the “Company Projections” (discussed in more detail under “—Forward Looking Financial Information”).

During March 2022, representatives of Blackstone continued to discuss with representatives of J.P. Morgan and Eastdil a potential acquisition of the Company, taking into account the rapidly deteriorating economic environment and the rise of borrowing costs. Representatives of Blackstone communicated that Blackstone was no longer willing to offer an indicative purchase price of $188.00 per share/unit, and, on several occasions, indicated that given the deterioration in the credit markets, any purchase price may need to be less than $180.00 per share/unit. Representatives of J.P. Morgan and Eastdil subsequently informed Mr. Wilson of these discussions, who regularly updated Mr. Havner and Mr. Mitchell and the other members of the Transaction Committee regarding these discussions.

On March 18, 2022, at a meeting of the board of directors, Mr. Wilson provided an update on management’s work with J.P. Morgan and Eastdil regarding the potential process to evaluate strategic alternatives for the Company. Mr. Wilson described to the board of directors the various alternatives that management and its advisors had identified, including the Company continuing to execute on its strategic plan and operating its business as a standalone, public company, as well as potential transactions such as a merger, business combination, sale, spin-off, dissolution and distribution of assets. Mr. Wilson also discussed with the board of directors the macroeconomic and real estate environments in general, including the substantial deterioration in the credit markets that had occurred since the beginning of the conflict in Ukraine, and the impact such deterioration would have on any potential purchaser of the Company or its real estate assets.

On March 25, 2022, Mr. Havner, a representative of Eastdil, and a representative of Blackstone met to discuss a variety of matters related to the real estate industry. At that meeting, Mr. Havner asked the representative of Blackstone whether Blackstone was still interested in pursuing an acquisition of the Company and, if so, at what price. Blackstone’s representative informed Mr. Havner that Blackstone was interested in an acquisition of the Company and that their respective representatives should continue discussions in a bilateral manner, without the Company engaging with third parties. Mr. Havner informed Blackstone’s representative that if the Company were to enter into bilateral negotiations with Blackstone regarding a transaction, he and the other members of the board of directors would insist on the right of the Company to solicit alternative proposals during a “go-shop” period following the execution of any definitive agreement with Blackstone.

On March 29, 2022, Mr. Wilson, Mr. Havner and representatives of Blackstone met via teleconference to further discuss Blackstone’s potential acquisition of the Company. The representatives of Blackstone did not

 

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make a proposal during the discussion. Mr. Havner and representatives of Blackstone agreed that representatives of Blackstone would meet with Mr. Wilson and additional representatives of the Company on March 31, 2022, during which meeting members of management would describe underappreciated features of specific assets of the Company that the Company believed were likely undervalued in Blackstone’s model, and thus not accurately reflected in any indicative purchase price.

On March 31, 2022, representatives of each of the Company, including Mr. Wilson, Blackstone, J.P. Morgan and Eastdil met via teleconference, during which meeting members of management discussed the Company’s portfolio of underappreciated assets, and answered questions from representatives of Blackstone regarding the Company’s assets, business strategy and financial outlook. At the conclusion of the meeting, representatives of Blackstone indicated that they would provide an updated indicative purchase price shortly after the meeting.

On April 1, 2022, representatives of Blackstone, J.P. Morgan, and Eastdil continued to discuss the proposed transaction and the possible valuation of the Company. During this discussion, representatives of Blackstone indicated that they would be prepared to acquire all of the outstanding shares of Common Stock and all outstanding common units of partnership interest of the Partnership not owned by the Company for $185.00 per share/unit in cash (the “April 1 Proposal”). Thereafter on April 1, 2022, representatives of J.P. Morgan and Eastdil informed Mr. Wilson, Mr. Havner, and members of the Transaction Committee of the discussions with Blackstone, including the April 1 Proposal. Mr. Wilson, Mr. Havner, and the members of the Transaction Committee agreed that they would discuss the April 1 Proposal at a meeting of the board of directors in order to determine a response.

On April 5, 2022, the board of directors held a meeting, which was attended by members of the Company’s senior management and representatives of J.P. Morgan, Eastdil, and Wachtell Lipton. Mr. Wilson and representatives of J.P. Morgan and Eastdil provided members of the board of directors with an update on developments with respect to the strategic review, as well as discussions with Blackstone, including the April 1 Proposal. Additionally, representatives of J.P. Morgan and Eastdil provided the board of directors with an update on the real estate market and macroeconomic conditions since the Russian invasion of Ukraine, including the rapid deterioration of the credit markets, and the rising interest rate environment for borrowers. Representatives of J.P. Morgan then reviewed with the board their preliminary financial analysis of the April 1 Proposal, including their analysis of Blackstone’s overall financial ability to acquire the Company, and representatives of Wachtell Lipton reviewed with the board its legal obligations in connection with considering the possible sale of the Company. Following this discussion, representatives of J.P. Morgan provided an overview of other strategic alternatives that members of management and representatives of each of Eastdil and J.P. Morgan had discussed, including a potential separation of the Company’s industrial-flex and office assets through the formation of a joint venture and/or taxable spin-off transaction. Members of the board of directors further discussed the April 1 Proposal and potential responses, including in the context of the Company’s standalone plan, as well as potential short- and long-term execution and strategic risks to the Company’s long-range financial plan on a standalone basis, including the deteriorating credit markets and rising interest rate environment, as well as the execution risks associated with the strategic alternatives that J.P. Morgan and members of management had identified. Representatives of J.P. Morgan also reviewed with the board other potential acquirors of the Company, including other publicly traded real estate investment trusts, as well as financial sponsor buyers other than Blackstone.

Following this discussion, the board, management and advisors reviewed and discussed the risks to the Company and its business posed by contacting other potential bidders before engaging in discussions with Blackstone, including: concerns that market leaks and rumors regarding a potential transaction would disrupt the Company’s business relationships and risk employee turnover, as well as lead to turnover in our stockholder base and potential stock price volatility, and the limited number of potential purchasers with the financial ability to acquire the Company in light of its size and diverse portfolio of assets comprising multi-tenant industrial, industrial-flex, and low-rise suburban office space (including as a result of the deterioration in credit markets and the rising interest rate environment). As a result, the board determined that it was in the best interest of the

 

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Company and its stockholders to pursue a transaction with Blackstone with a price per share/unit of at least $185.00 per share in cash, but that any definitive agreement with Blackstone must contain a “go-shop” provision or other mechanism that would permit the Company to solicit and entertain potentially superior proposals from other bidders while having a binding contract with Blackstone. After further discussion of the best path forward to maximizing value for the Company’s stockholders, the board of directors instructed management and the Company’s financial advisors to request that Blackstone revise the April 1 Proposal to improve its price per share/unit, and suggested that they make a counteroffer of $190.00 per share/unit in cash, and to inform Blackstone that the Company would require that any merger agreement include a go-shop provision.

On April 6, 2022, representatives of J.P. Morgan and Eastdil, acting at the direction of the board of directors, contacted a representative of Blackstone to inform him that the Company was prepared to move forward with bilateral negotiations with Blackstone for an acquisition by Blackstone of the Company, but that to do so Blackstone would need to improve the price per share/unit of its April 1 Proposal, and suggested $190.00 as a price that the board of directors might find acceptable. Additionally, representatives of J.P. Morgan and Eastdil, acting at the direction of the board of directors, informed Blackstone’s representative that any definitive agreement between the Company and Blackstone must include a go-shop provision.

On April 7, 2022, a representative of Blackstone contacted Mr. Wilson to inform him that Blackstone would be making an offer to acquire the Company for $187.50 per share/unit in cash. Thereafter, a representative of Blackstone emailed a letter to Mr. Wilson containing a non-binding proposal (the “April 7 Letter”) for Blackstone to acquire all of the outstanding shares of Common Stock at a value of $187.50 per share in cash. The April 7 Letter also proposed that (i) the Company not be permitted to declare or pay any further dividends on its Common Stock prior to the closing of a transaction, (ii) the Company’s Preferred Stock (and the depositary shares representing an interest therein) would remain outstanding following the closing of the proposed transaction, and (iii) the merger agreement for any such transaction contain a customary no-shop provision. The April 7 Letter also stated that Blackstone’s proposal was not subject to a financing condition. Mr. Wilson shared the April 7 Letter with the members of the board of directors, as well as the Company’s financial and legal advisors.

On April 8, 2022, following discussion with other members of the board of directors, including Mr. Havner and Mr. Mitchell, Mr. Wilson contacted a representative of Blackstone to inform him that he would be sending the Company’s written response to the April 7 Letter, and that it would include a purchase price of $188.00 per share/unit in cash, as well as the right of the Company to continue paying its regular, quarterly dividends/distributions on the Common Stock and common units of partnership interest of the Partnership up to $1.05 per quarter, including pro rata dividends or distributions for any stub period prior to closing.

Following this call on April 8, 2022, Mr. Wilson emailed a letter to Blackstone’s representative containing the Company’s response to the April 7 Letter (the “April 8 Company Letter”), which stated that the Company was prepared to proceed with a transaction with Blackstone, subject to alignment on the following key terms: (i) a transaction price of $188.00 per share/unit in cash for all of the outstanding common equity of the Company and the Partnership, (ii) the right of the Company and the Partnership to continue paying their regular, quarterly dividends/distributions on the shares of Common Stock and common units of partnership interest of the Partnership of up to $1.05 per quarter, including pro rata dividends or distributions for any stub period prior to closing, (iii) a go-shop period of 45 days after signing the merger agreement, (iv) a termination fee equal to 2.5% of the equity value of the transaction, payable by the Company to Blackstone in the event that the Company terminated its agreement with Blackstone to enter into a definitive agreement with a topping bidder, provided that such termination fee would be equal to 0.5% of the equity value of the transaction if the Company terminated its agreement with Blackstone to enter into an agreement with a bidder that emerged during the 45-day go-shop period, and (v) the Preferred Stock (and depositary shares representing an interest therein) would remain outstanding following the closing. The April 8 Company Letter also stated that, if Blackstone and the Company aligned on the foregoing terms, the Company was willing to forego the right to specifically enforce Blackstone’s obligation to close the transaction, consistent with the approach Blackstone has taken in its other

 

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acquisitions of publicly traded real estate investment trusts, provided that Blackstone agree to pay a reverse termination fee equal to 12% of the equity value of the transaction (including the aggregate liquidation preference of the Preferred Stock) in the event Blackstone breached its obligation to close the transaction when otherwise obligated to do so. Finally, the letter stated that the Company expected that if Blackstone and the Company aligned on these key terms, the parties could negotiate definitive documentation expeditiously.

On April 9, 2022, a representative of Blackstone contacted Mr. Wilson and stated that Blackstone had reviewed the April 8 Company Letter, and was willing to agree to most of the key terms with certain modifications, which would be set forth in an updated proposal letter. In particular, Blackstone’s representative noted that Blackstone was unwilling to permit the Company and the Partnership to declare or pay any dividends on the shares of Common Stock or common units of partnership interest of the Partnership for the second quarter of 2022 and was only willing to permit a pro-rata dividend or distribution at a rate of $1.05 per quarter for the period from July 1, 2022 through the closing of a transaction.

Following this discussion, on April 9, 2022, a representative of Blackstone emailed a proposal to Mr. Wilson containing Blackstone’s response to the April 8 Company Letter (the “April 9 Blackstone Proposal”). In the April 9 Blackstone Proposal, Blackstone agreed to the terms of the April 8 Company Letter, including the price per share/unit of $188.00, with the following modifications: (i) the Company and the Partnership would not be permitted to declare and/or pay any dividends/distributions on the shares of Common Stock and common units of partnership interest of the Partnership during the second quarter of 2022 and would only have the ability to declare and/or pay a pro rata dividend/distribution at a rate of $1.05 per quarter for the period from July 1, 2022 through the closing, (ii) the go-shop period would last for 30 days, instead of 45 days, (iii) the termination fee payable from the Company to Blackstone in the event that the Company terminated the merger agreement to accept a superior proposal from another bidder would be equal to 3.0% of the equity value of the transaction (including the aggregate liquidation preference of the Preferred Stock), provided that such termination fee would be equal to 1.5% of the equity value of the transaction (including the aggregate liquidation preference of the Preferred Stock) if, within 40 days of signing, the Company terminated its agreement with Blackstone and entered into an agreement with a bidder that made a proposal during the go-shop period that the board determined in good faith prior to the end of the go-shop period constituted or could reasonably be expected to lead to a superior proposal, and (iv) the reverse termination fee payable by Blackstone to the Company in the event Blackstone breached its obligation to close the transaction when otherwise obligated to do so would be 9% of the equity value of the transaction (including the aggregate liquidation preference of the Preferred Stock). Mr. Wilson shared the April 9 Blackstone Proposal with certain members of the board of directors, as well as the Company’s financial and legal advisors.

Later on April 9, 2022, following discussion with certain other members of the board of directors, including Mr. Havner and Mr. Mitchell, Mr. Wilson contacted a representative of Blackstone and stated that the Company had reviewed the April 9 Blackstone Proposal, and that he believed the parties had reached agreement on most key terms, but that the Company was unwilling to forego the Company’s and the Partnership’s right to continue declaring and paying its regular, quarterly dividends/distributions of up to $1.05 per quarter per share/unit, as well as pro rata dividends/distributions for any stub period prior to closing. Mr. Wilson informed Blackstone’s representative that the Company’s written response to the April 9 Blackstone Proposal would be forthcoming.

Following this call, on April 9, 2022, Mr. Wilson emailed a proposal to a representative of Blackstone containing the Company’s response to the April 9 Blackstone Proposal (the “April 9 Company Proposal”). The April 9 Company Proposal agreed to the terms of the April 9 Blackstone Proposal with certain modifications, including: (i) there would be no suspension of the Company’s or the Partnership’s right to declare and pay regular, quarterly dividends/distributions of up to $1.05 per share/unit, including a pro rata dividend or distribution for any stub period prior to closing, and (ii) the reverse termination fee payable by Blackstone to the Company in the event Blackstone breached its obligation to close the transaction when otherwise obligated to do so would be 10% of the equity value of the transaction (including the aggregate liquidation preference of the Preferred Stock).

 

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Later on April 9, 2022, a representative of Blackstone informed Mr. Wilson that Blackstone was willing to agree to the terms of the April 9 Company Proposal, including the right of the Company and the Partnership to declare and pay regular, quarterly dividends/distributions of up to $1.05 per share/unit, including a pro rata dividend or distribution for any stub period prior to closing, but that the purchase price per share/unit must be $187.50 to partially account for the Company’s right to continue to pay its regular, quarterly dividends/distributions of up to $1.05 per share/unit, including a pro rata dividend or distribution for any stub period prior to closing.

Following receipt of Blackstone’s revised proposal, on April 9, 2022, Mr. Wilson discussed Blackstone’s proposal with certain other members of the board of directors and the Company’s legal and financial advisors. Following discussion, Mr. Wilson and such other members of the board of directors determined that, consistent with the board’s prior determination on April 5, 2022, it would be in the best interests of the Company and its stockholders to attempt to negotiate definitive documentation on terms consistent with those set forth in the April 9 Company Proposal, with a purchase price per share/unit of $187.50. Mr. Wilson thereafter contacted Blackstone’s representative to notify him that the Company was prepared to proceed on this basis.

Beginning on April 10, 2022, the Company made available to Blackstone and its representatives certain additional due diligence information. Thereafter, from April 10, 2022 through April 24, 2022, Blackstone, with the assistance of its advisors, continued to conduct due diligence on the Company and its assets, including through calls with members of management.

On April 12, 2022, the board of directors held a meeting, which was attended by members of the Company’s senior management and representatives of J.P. Morgan, Eastdil and Wachtell Lipton. Mr. Wilson and representatives of J.P. Morgan and Eastdil provided the board of directors with an update on the negotiations with Blackstone since the board had authorized Mr. Wilson on April 5, 2022 to pursue a transaction with Blackstone at a price per share/unit of at least $185.00. The group discussed that Blackstone had agreed to a price per share/unit of $187.50, as well as to the Company and the Partnership continuing to make regular, quarterly dividends/distributions in an amount of up to $1.05 per share/unit, including a pro rata dividend/distribution with respect to any stub period prior to closing. The group discussed that, given that the approval of the Company’s common stockholders would be required in any such transaction, any transaction with Blackstone would be unlikely to close during the second quarter of 2022, and thus the right to pay a dividend during the second quarter of 2022 as well as a stub dividend for any stub period prior to closing would likely result in common stockholders receiving at least $1.05 that they would not otherwise receive if the Company were not permitted to declare and pay a dividend for the second quarter of 2022. Additionally, the group discussed the fact that Blackstone had agreed that any definitive documentation with respect to a transaction would provide the Company the right to solicit and entertain proposals from bidders other than Blackstone during a 30-day go-shop period. The board instructed Mr. Wilson and members of the Company’s senior management, along with the Company’s financial and legal advisors, to proceed to negotiate definitive documentation with Blackstone consistent with the terms described to the board at this meeting, which documentation would remain subject to final board approval.

On April 13, 2022, Simpson Thacher & Bartlett LLP, legal advisors to Blackstone, provided initial drafts to Wachtell Lipton of the proposed merger agreement and the other transaction documents. Between April 13, 2022 and April 24, 2022, the parties’ respective management teams and legal and financial advisors engaged in extensive negotiations regarding the terms of the proposed merger agreement and other transaction documentation. During the course of these negotiations, areas of discussion and negotiation between the parties included, among other things, the representations and warranties to be made by the parties, the Company’s obligations with respect to the operation of its business during the period between the signing of the merger agreement and the consummation of the Mergers, the scope of the restrictions applicable to actions taken by the Company during the period between the signing of the merger agreement and the consummation of the Mergers, the conditions to completion of the Mergers, the plans of the surviving company following the consummation of the Mergers with respect to the Preferred Stock and depositary shares in respect thereof, the termination

 

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provisions and the triggers of the termination fee payable by the Company, and the provisions regarding the Company’s equity awards, employee benefit plans, retention, severance and other compensation matters.

On April 18, 2022, a representative of a private equity firm (“Party A”) contacted Mr. Wilson and orally communicated an interest in acquiring the Company. Mr. Wilson informed the representative of Party A that he would inform the board of such interest and inquired at what price would Party A be willing to pursue such a transaction. The representative of Party A stated that Party A would need due diligence information regarding the Company, but orally informed Mr. Wilson that the price could be up to as much as $200.00 per share/unit, subject to due diligence and obtaining necessary financing for such a transaction. Mr. Wilson asked the representative of Party A to present its proposal in writing. Thereafter, Mr. Wilson informed Mr. Mitchell, Mr. Havner, and the Company’s financial and legal advisors of the discussion with Party A.

On April 24, 2022, the board of directors held a meeting by videoconference, which was attended by members of the Company’s senior management and representatives of J.P. Morgan, Eastdil, and Wachtell Lipton. During this meeting, members of the Company’s senior management and its financial and legal advisors reviewed the history of negotiations with Blackstone and the terms of the proposal by Blackstone and the associated transaction documents. Mr. Wilson also informed the board of directors of his conversation with the representative of Party A, including the fact that Party A had not presented the Company with a written proposal at that time and that Party A had not conducted any non-public due diligence on the Company. Members of the Company’s senior management and the representatives of J.P. Morgan and Eastdil discussed the likelihood of a third party offering to acquire the Company at a value at or above $187.50 per share of Common Stock, including whether Party A would be able to secure the financing necessary to consummate a transaction of this size, in light of the rapid deterioration of the credit markets following the Russian invasion of Ukraine and the rising interest rate environment for borrowers. The board also discussed the timing consideration relating to such possible proposals, as well as the potential opportunities and risks associated with rejecting Blackstone’s proposal and remaining a standalone entity or pursuing other strategic alternatives or discussions with other third parties at that time, including concerns that market leaks and rumors regarding a potential transaction would disrupt the Company’s business relationships and risk employee turnover, as well as lead to turnover in our stockholder base and potential stock price volatility. Members of the board also discussed the Company’s ability during a 30-day go-shop period following the execution of the merger agreement to solicit proposals from third parties, including Party A, and the ability of the Company to terminate its agreement with Blackstone to enter into an agreement with another bidder, including Party A, if such a bidder made a superior proposal to acquire the Company. In addition, the board observed that the $110 million company termination fee applicable to qualified proposals made during the go-shop period was not likely to preclude or discourage other interested parties from submitting a superior proposal. Additionally, the board reviewed disclosures from J.P. Morgan regarding fees it had received or may in the future receive from the Company and its affiliates, Public Storage and its affiliates, or Blackstone and its affiliates, and J.P. Morgan’s ownership of common equity of the Company, Public Storage, Blackstone, and their respective affiliates. Representatives of J.P. Morgan then reviewed J.P. Morgan’s financial analyses of the consideration provided for in the proposed merger agreement with Blackstone. Following its presentation, J.P. Morgan delivered to the Company’s board of directors its oral opinion, confirmed by delivery of a written opinion dated April 24, 2022, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the consideration to be paid to the holders of our Common Stock in the Mergers was fair, from a financial point of view, to the holders of our Common Stock, as more fully described below in the section “—Opinion of the Company’s Financial Advisor”. Also at the meeting, representatives of Wachtell Lipton provided a presentation summarizing the terms of the draft merger agreement and other transaction documents and reviewed with the directors their legal obligations in connection with their consideration and potential approval of the transaction with Blackstone.

Following extensive discussion, the board unanimously approved the Merger Agreement, declared the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Company Merger, to be advisable and in the best interests of the Company and its stockholders, and determined to recommend the

 

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approval of the Company Merger and the other transactions contemplated by the Merger Agreement to our stockholders.

Following the board’s approval, during the evening of April 24, 2022, the parties finalized and executed and delivered the Merger Agreement, the guaranty, and the equity commitment letter. As required by Blackstone, the parties and Public Storage, the Company’s largest stockholder holding approximately 25.9% of the issued and outstanding shares of Common Stock and 20.9% of the issued and outstanding common units of partnership interest of the Partnership, also executed the support agreement, pursuant to which, among other things, Public Storage agreed to vote all of its shares of Common Stock and common units of partnership interest of the Partnership in favor of the proposed transaction, not transfer its shares/units, and not engage in solicitation of alternative acquisition proposals to the extent the Company is prohibited from soliciting such proposals under the merger agreement with Blackstone. Thereafter, the transaction was announced before the opening of the financial markets in New York on April 25, 2022, in a press release jointly issued by the Company and Blackstone. The press release announcing the transaction also noted that the merger agreement included a 30-day go-shop period that would expire on May 25, 2022.

During the go-shop period, representatives of J.P. Morgan and Eastdil, acting at the direction of the board of directors, communicated with 43 prospective transaction partners in order to solicit such prospective transaction partners to make an offer or proposal that would constitute, or would reasonably be expected to lead to, a Company Acquisition Proposal. Of those 43 parties, the Company executed a confidentiality agreement with 12 parties (including Party A) and subsequently provided non-public information with respect to the Company to such parties. To date, no party (including Party A) has made a Company Acquisition Proposal following the execution of the Merger Agreement.

The go-shop period expired at 11:59 p.m. (New York City time) on May 25, 2022.

Reasons for the Mergers

In reaching its decision to approve the Merger Agreement, declare the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Company Merger, to be advisable and in the best interests of the Company and our stockholders, and recommend approval of the Company Merger and the other transactions contemplated by the Merger Agreement to our stockholders, our board of directors consulted with the Company’s senior management team, as well as our financial and legal advisors, and considered a number of factors, including the following material factors which the board of directors viewed as supporting its decision:

 

   

the current and historical trading prices of our shares of our Common Stock, and the fact that the merger consideration of $187.50 per share in cash represents a premium of approximately 12% to the closing price of our Common Stock as of April 22, 2022, the last trading day prior to the public announcement of the Merger Agreement, and a premium of approximately 15% to the volume weighted average price of our Common Stock over the 60 days prior to announcement of the proposed transaction;

 

   

the Company’s ability to continue declaring and paying its regular quarterly cash dividends on the Company’s Common Stock and Preferred Stock without a reduction in the merger consideration;

 

   

the risks and uncertainties of remaining as an independent public company, including the Company’s need to frequently raise capital due to the capital intensive nature of the Company’s business, the difficulty and cost of obtaining capital and the need to ensure qualified and talented individuals are available to serve as members of the Company’s management team;

 

   

that a private company might be able to realize more value from the Company’s business than a public company and thereby pay a higher price to acquire the Company, including the ability of private companies to use higher leverage to pursue growth that is more accretive, to absorb near-term dilution from capital expenditures in favor of longer-term growth, and to fund developments without having to rely on the volatility of equity capital markets;

 

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the board’s belief that, in light of Blackstone’s strategic focus on acquiring industrial real estate assets and substantial available capital, Blackstone was in the best position to offer the highest possible price for the Company;

 

   

the fact that the merger consideration was the result of arm’s-length negotiations and that we negotiated an increase by Blackstone from its April 1, 2022 proposed price of $185.00 per share, and the board of directors’ belief that the merger consideration was the maximum price that Blackstone was willing to pay;

 

   

the limited number of potential purchasers with the financial ability to acquire the Company in light of its size and diverse portfolio of assets comprising multi-tenant industrial, industrial-flex, and low-rise suburban office space;

 

   

the board’s belief that contacting other potential bidders prior to signing a definitive agreement with Blackstone would result in significant risks to the Company and its business, including concerns that market leaks and rumors regarding a potential transaction would disrupt the Company’s business relationships and risk employee turnover, as well as lead to turnover in our stockholder base and potential stock price volatility;

 

   

the board’s belief that soliciting other potential buyers prior to signing a definitive agreement with Blackstone could delay or jeopardize the availability of Blackstone’s proposal;

 

   

the Company’s right under the Merger Agreement to a 30-day “go-shop” period, during which the Company may actively solicit additional acquisition proposals from, and furnish information to and conduct negotiations with, third parties (including Party A), providing an opportunity to determine if a third party is willing to pay a higher value per share than Blackstone;

 

   

the Company’s right under the Merger Agreement, in response to unsolicited acquisition proposals, to furnish information to and conduct negotiations with third parties in certain circumstances;

 

   

the board’s right, under the Merger Agreement, to withhold, withdraw, modify, or qualify its recommendation that our stockholders vote to approve the Company Merger and the other transactions contemplated by the Merger Agreement under certain circumstances, subject to payment of a termination fee if Parent elects to terminate the Merger Agreement in such circumstances;

 

   

the Company’s right to terminate the Merger Agreement, under certain circumstances, in order to enter into a definitive agreement providing for the implementation of a superior proposal, upon payment of a termination fee;

 

   

the fact that in certain circumstances a lower termination fee of $110 million (representing approximately 1.5% of the Company’s equity value, including the aggregate liquidation preference of the Preferred Stock) will be payable by the Company, and that the lower termination fee of $110 million and the termination fee of $220 million (representing approximately 3% of the Company’s equity value, including the aggregate liquidation preference of the Preferred Stock) were viewed by the board of directors, after consultation with our outside legal counsel and financial advisors, as reasonable under the circumstances and not likely to preclude or discourage any other party (including Party A) from making a competing acquisition proposal, particularly with respect to those parties that make a qualifying proposal during the go-shop period;

 

   

the fact that the merger consideration is a fixed cash amount, providing our common stockholders with certainty of value and liquidity immediately upon the closing of the Company Merger, in comparison to the risks, uncertainties, and longer potential timeline for realizing equivalent value from the Company’s standalone business plan or possible strategic alternatives involving transactions in which all or a portion of the consideration would be payable in equity or involving portfolio transactions;

 

   

the belief that the Company Merger is more favorable to the Company’s common stockholders than other strategic alternatives available to the Company, including remaining as an independent public

 

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company, the feasibility of such alternatives, and the significant risks and uncertainties associated with pursuing such alternatives;

 

   

the board’s knowledge of the business, assets, operations, financial condition, earnings, and prospects of the Company, as well as its knowledge of the current and prospective environment in which the Company and each of its businesses operate, including economic, market and capital raising conditions;

 

   

the risks and uncertainties created by the Russian Federation’s invasion of Ukraine, including disruptions and dislocations to the equity and debt capital markets, as well as the impact of the recent increase in interest rates, as well as the stated intention of members of the Federal Open Market Committee to continue to increase interest rates in 2022;

 

   

the risks and uncertainties of remaining as an independent public company and being able to expand, or realize value from reducing, the size of the Company’s portfolio through acquisitions, dispositions, and/or development, including, among other things, the challenges of acquiring assets on an accretive basis in light of the increasingly competitive environment for industrial real estate assets, and the difficulty and cost of obtaining capital to fund future activities due to the discount to estimated net asset value at which the Company’s Common Stock has recently traded;

 

   

the belief that conditions for a sale transaction in the real estate market are generally favorable, with prices for industrial and industrial-flex assets being at or near historical highs while capitalization rates are at or near historical lows, and the likely possibility that interest rates may continue to rise in the future, which may increase a buyer’s financing costs resulting in less favorable conditions for sale transactions in the real estate markets;

 

   

the high probability that the Mergers would be completed based on, among other things, Blackstone’s proven ability to complete large acquisition transactions, Blackstone’s extensive experience in the real estate industry, the absence of a financing condition, and the $735 million reverse termination fee (representing approximately 10% of the Company’s equity value, including the aggregate liquidation preference of the Preferred Stock) payable to the Company if the Merger Agreement is terminated in certain circumstances, which payment is guaranteed by the Sponsor;

 

   

the financial analyses presented to the board of directors by J.P. Morgan and the April 24, 2022 oral opinion delivered by J.P. Morgan to the board of directors, which was confirmed by delivery of its written opinion dated April 24, 2022, to the effect that, as of April 24, 2022 and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the consideration to be paid to the holders of our Common Stock in the Mergers was fair, from a financial point of view, to such holders, as more fully described below in the section entitled “—Opinion of the Company’s Financial Advisor” (the full text of the written opinion of J.P. Morgan, dated April 24, 2022, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Exhibit C to this proxy statement and is incorporated herein by reference);

 

   

the terms and conditions of the Merger Agreement, which were reviewed by the board with our financial and legal advisors, and the fact that such terms were the product of arm’s-length negotiations between the parties;

 

   

the fact that the Company Merger would be subject to the approval of our common stockholders, and our common stockholders would be free to reject the proposed transactions by voting against the Company Merger for any reason, including if a higher offer were to be made prior to the stockholders’ meeting (in certain cases subject to payment by the Company of a $220 million termination fee if the Company subsequently were to enter into a definitive agreement relating to, or to consummate, an acquisition proposal); and

 

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the fact the Company’s three outstanding series of Preferred Stock, and associated depositary shares, would be unaffected by the Mergers, and that we were informed by Parent that Parent currently intends for the Company to continue to have the depositary shares representing the Preferred Stock listed on the NYSE with public reporting so long as there is at least $75 million aggregate liquidation value of Preferred Stock outstanding.

The Company’s board of directors also considered a variety of risk and other potential negative factors in its consideration of the Merger Agreement and the Mergers, including the following material potentially negative factors:

 

   

our inability, after 11:59 p.m. (New York City time) on May 25, 2022, to solicit competing acquisition proposals and the possibility that the $220 million termination fee (or $110 million termination fee under certain circumstances) payable by us upon the termination of the Merger Agreement under certain circumstances could discourage other potential bidders from making a competing bid to acquire us;

 

   

the fact that, following the Mergers, the Company will no longer exist as an independent public company and our existing stockholders will not participate in any future earnings or growth;

 

   

the fact that the Mergers might not be consummated in a timely manner or at all, due to a failure of certain conditions to the closing of the Mergers;

 

   

the fact that if any of Parent, Merger Sub I, or Merger Sub II fails, or threatens to fail, to satisfy its obligations under the Merger Agreement, we are not entitled to specifically enforce the Merger Agreement or the equity commitment letter, and that our exclusive remedy, available if the Merger Agreement is terminated in certain circumstances, would be limited to a reverse termination fee payable by Parent in the amount of $735 million (the payment of which is guaranteed by the Sponsor);

 

   

the restrictions on the conduct of our business prior to the completion of the Mergers, which could delay or prevent us from undertaking business opportunities that may arise pending completion of the Mergers;

 

   

the fact that an all-cash merger would be taxable to our stockholders for U.S. federal income tax purposes;

 

   

the fact that, under Maryland law, our stockholders are not entitled to appraisal rights, dissenters’ rights or similar rights of an objecting stockholder in connection with the Company Merger;

 

   

the significant costs involved in connection with entering into the Merger Agreement and completing the Mergers and the substantial time and effort of management required to consummate the Mergers and related disruptions to the operation of our business;

 

   

the fact that the announcement and pendency of the transactions contemplated by the Merger Agreement, the failure to complete the Mergers, and/or actions that the Company may be required, or Parent may be permitted, to take under the Merger Agreement could have an adverse impact on our existing and prospective business relationships with customers and other third parties and on our employees, including the risk that certain key members of the Company’s management might choose not to remain employed with the Company prior to the completion of the Mergers, regardless of whether or not the Mergers are completed; and

 

   

the fact that some of our directors and executive officers have interests in the Mergers that are different from, or in addition to, our stockholders generally (see “—Interests of Our Directors and Executive Officers in the Company Merger”).

The foregoing discussion of the factors considered by the board is not intended to be exhaustive, but rather includes the material factors considered by the board. In reaching its decision to approve the Merger Agreement, declare the Merger Agreement and the transactions contemplated by the Merger Agreement, including the

 

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Company Merger, to be advisable and in the best interests of the Company and our stockholders, and recommend approval of the Company Merger and the other transactions contemplated by the Merger Agreement to our stockholders, the board did not quantify, rank or otherwise assign any relative weights to, and did not make specific assessments of, the factors considered, and individual directors may have given different weights to different factors. The board did not reach any specific conclusion with respect to any of the factors or reasons considered, but determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Company Merger, the Merger Agreement, and the other transactions contemplated by the Merger Agreement.

The above factors are not presented in any order of priority. The explanation of the factors and reasoning set forth above contain 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 Our Board of Directors

Our board of directors unanimously determined and declared that the transactions contemplated by the Merger Agreement, including the Company Merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Company Merger. Our board of directors unanimously recommends that you vote “FOR” the proposal to approve the Company Merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the special meeting.

Forward-Looking 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 and is especially wary of making projections for extended periods due to, among other reasons, the inherent difficulty of accurately predicting financial performance for future periods and the uncertainty of underlying assumptions and estimates. However, the Company is including in this proxy statement a summary of certain unaudited prospective financial information of the Company on a standalone basis, without giving effect to the Mergers (the “Company Projections”), to give the Company’s common stockholders access to the financial projections that were made available to our board of directors and J.P. Morgan in connection with their consideration and evaluation of the Company Merger. The Company Projections were provided to J.P Morgan for its use and reliance in connection with the financial analyses presented by J.P. Morgan to our board of directors and J.P. Morgan’s opinion as discussed in “—Opinion of the Company’s Financial Advisor”, and such use and reliance was approved by our board of directors. The Company did not provide the Company Projections to Blackstone, but did provide certain property-level projected financial information to Blackstone in connection with Blackstone’s due diligence review of the Company’s properties. The Company advised the recipients of the Company Projections that its internal financial forecasts are subjective in many respects. The inclusion of the Company Projections or of this summary does not constitute an admission or representation by the Company, J.P. Morgan, or any other person that the information is material, should not be regarded as an indication that our board of directors, J.P. Morgan, the Company or its management, or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of future results or an accurate prediction of future results, and they should not be relied on as such. This information is not fact and should not be relied upon as indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on the Company Projections.

The Company Projections and the underlying assumptions upon which the Company Projections were based are subjective in many respects and subject to multiple interpretations and frequent revisions attributable to the dynamics of the Company’s industry and based on actual experience and business developments. The Company

 

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Projections, while presented with numerical specificity, reflect numerous assumptions with respect to Company performance, industry performance, general business, economic, regulatory, market, and financial conditions, and other matters, many of which are difficult to predict, subject to significant economic and competitive uncertainties, and beyond the Company’s control. The Company Projections constitute forward-looking information and are subject to a wide variety of significant risks and uncertainties, including those described in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements,” that could cause the Company Projections or the underlying assumptions to be inaccurate and for actual results to differ materially from the Company Projections. As a result, there can be no assurance that the Company Projections will be realized or that actual results will not be significantly higher or lower than projected, and the Company Projections cannot be considered a guarantee of future operating results and should not be relied upon as such. Because the Company Projections cover multiple years, such information by its nature becomes less reliable with each successive year. The Company Projections do not take into account any circumstances or events occurring after the date on which they were prepared, including the Mergers, and some or all of the assumptions that have been made in connection with the preparation of the Company Projections may have changed since the date the Company Projections were prepared. Economic and business environments can and do change quickly, which adds an additional significant level of uncertainty as to whether the results portrayed in the Company Projections will be achieved.

In addition, the Company Projections have not been updated or revised to reflect information or results after the date the Company Projections were prepared or as of the date of this proxy statement. None of the Company, Blackstone or any of our or their respective affiliates intends to, and each of them disclaims any obligation to, update or otherwise revise the Company Projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error (except, in the case of the Company, as required by applicable securities laws). These considerations should be taken into account in reviewing the Company Projections, which were prepared as of an earlier date.

For the foregoing reasons, and considering that the special meeting will be held several months after the Company Projections were prepared, as well as the uncertainties inherent in any forecasting information, readers of this proxy statement are cautioned not to place unwarranted reliance on the Company Projections set forth below. The Company Projections should be evaluated, if at all, in conjunction with the historical financial statements and other information contained in the Company’s public filings with the SEC. The Company urges all of its stockholders to review its most recent SEC filings for a description of its reported financial results. See the section of this proxy statement entitled “Where You Can Find More Information.”

The Company Projections were not prepared with the purpose of, or with a view toward, public disclosure or toward compliance with United States generally accepted accounting principles (“GAAP”), 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. Neither Ernst & Young LLP (“Ernst & Young”), the Company’s independent registered public accounting firm, nor any other accounting firm, has examined, compiled, or performed any procedures with respect to the Company Projections and, accordingly, neither Ernst & Young nor any other accounting firm expresses an opinion or any other form of assurance with respect thereto. The Ernst & Young report incorporated by reference in this proxy statement relates to the Company’s historical financial information. It does not extend to the prospective financial information contained herein and should not be read to do so.

The Company has not made and makes no representation to any stockholder of the Company or to Parent, Merger Sub I, or Merger Sub II in the Merger Agreement or otherwise concerning the Company Projections or regarding the Company’s ultimate performance compared to the information contained in the Company Projections or that the projected results will be achieved. None of the Company, Blackstone or any of our or their respective affiliates assumes any responsibility for the validity, reasonableness, accuracy, or completeness of the Company Projections.

 

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Company Projections

The Company’s management prepared the Company Projections with respect to the Company’s business, as a standalone company, for the fiscal years ending December 31, 2022 through December 31, 2026, except that unlevered free cash flow was calculated by J.P. Morgan using the cash net operating income and adjusted EBITDA projected by the Company’s management.

The following is a summary of the Company Projections, with dollars in millions:

 

     2022E      2023E      2024E      2025E      2026E  

Cash Net Operating Income (NOI)(1)

   $ 300      $ 325      $ 358      $ 380      $ 404  

Adj. EBITDA(2)

   $ 277      $ 298      $ 333      $ 355      $ 379  

Unlevered Free Cash Flow(3)

   $ 148      $ 233      $ 274      $ 293      $ 321  

 

(1)

Cash Net Operating Income is defined as rental income less amortized amounts of deferred rent receivables (net of write-offs), in-place lease intangibles, tenant improvement reimbursements, lease incentives and expenses related to stock-based compensation.

(2)

Adjusted EBITDA is defined as Cash Net Operating Income less general and administrative expenses, other expenses and management, facility fee and other income.

(3)

Unlevered Free Cash Flow is defined as Adjusted EBITDA less cash paid for taxes in lieu of shares, commercial capital expenditures, recurring leasing costs and investment in multi-family and industrial development.

In addition, in connection with J.P. Morgan’s financial analyses and opinion as discussed in “—Opinion of the Company’s Financial Advisor”, the Company’s management provided J.P. Morgan two separate allocations of the Company’s projected cash net operating income for the year ending December 31, 2022. The first allocation was done on an ‘As reported’ basis (Industrial, Office, Flex and Multifamily) in order to match the Company’s public reporting of cash net operating income by property type. The second allocation was done on an ‘Asset type’ basis (using Industrial, Office and Multifamily classifications only), where various adjustments were made to the ‘As-reported’ allocations in order to take into account the actual Office usage in each property, as provided by the Company. For this second allocation, the Company’s reported ‘Industrial’ cash net operating income was partly allocated as ‘Office’ to reflect the estimated office build-out of the Company’s industrial classified assets. Additionally, for the Company’s reported ‘Flex’ segment, the cash net operating income was reallocated to ‘Industrial’ and ‘Office’ based on the estimated build-out of industrial and office square footage across the Company’s Flex portfolio. The final allocations are as follows, with dollars in millions:

 

     2022E NOI(1)  

As Reported Classification

  

Industrial

   $ 207  

Flex

   $ 60  

Office

   $ 28  

Multifamily

   $ 5  

Asset Type Classification(2)

  

Industrial

   $ 198  

Office

   $ 96  

Multifamily

   $ 5  

 

(1)

Cash Net Operating Income is defined as rental income less amortized amounts of deferred rent receivables (net of write-offs), in-place lease intangibles, tenant improvement reimbursements, lease incentives and expenses related to stock-based compensation.

 

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(2)

The allocation by Asset Type takes into account the actual Office usage in each property, and excludes the Flex classification.

Cash Net Operating Income, Adjusted EBITDA, and Unlevered Free Cash Flow are non-GAAP financial measures within the meaning of the applicable rules and regulations of the SEC, which are financial measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures and may be different from non-GAAP financial measures used by other companies. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. SEC rules that may otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure do not apply to non-GAAP financial measures provided to directors or a financial advisor (like the Company Projections) in connection with a proposed transaction like the Mergers when the disclosure is included in a document like this proxy statement. In addition, reconciliations of non-GAAP financial measures to GAAP financial measures were not relied upon by J.P. Morgan for purposes of its opinion or by our board of directors in connection with its consideration of the Company Merger. Accordingly, the Company has not provided a reconciliation of the non-GAAP financial measures included in the Company Projections to the relevant GAAP financial measures.

The Company Projections do not take into account the possible financial and other effects on the Company of the Mergers and do not attempt to predict or suggest future results following the Mergers. The Company Projections do not give effect to the Mergers, including the impact of negotiating or executing the Merger Agreement, the expenses that may be incurred in connection with completing the Mergers, the effect on the Company of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the Merger Agreement had not been executed, but that were instead altered, accelerated, postponed, or not taken in anticipation of the Mergers. Further, the Company Projections do not take into account the effect on the Company of any possible failure of the Mergers to occur.

Opinion of the Company’s Financial Advisor

Pursuant to an engagement letter, the Company retained J.P. Morgan as its financial advisor in connection with the transactions contemplated by the Merger Agreement, including the Mergers.

At the meeting of the board of directors of the Company on April 24, 2022, J.P. Morgan rendered its oral opinion to the board of directors of the Company that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the consideration to be paid to the holders of the Company’s Common Stock in the Mergers was fair, from a financial point of view, to such stockholders. J.P. Morgan has confirmed its April 24, 2022 oral opinion by delivering its written opinion to the board of directors of the Company, dated April 24, 2022, that, as of such date, the consideration to be paid to the holders of the Company’s Common Stock in the Mergers was fair, from a financial point of view, to such stockholders.

The full text of the written opinion of J.P. Morgan dated April 24, 2022, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Exhibit C to this proxy statement and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The Company’s common stockholders are urged to read the opinion in its entirety. J.P. Morgan’s opinion was addressed to the Company’s board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the Mergers, was directed only to the consideration to be paid to the holders of the Company’s Common Stock in the Mergers and did not address any other aspect of the Mergers. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the Mergers to the holders of any other class of securities, creditors or other constituencies of the Company or

 

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the Partnership or as to the underlying decision by the Company to engage in the Mergers. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. J.P. Morgan’s opinion does not constitute a recommendation to any of the Company’s common stockholders as to how such stockholder should vote with respect to the Mergers or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed a draft dated April 24, 2022 of the Merger Agreement;

 

   

reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;

 

   

reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business; and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

In addition, J.P. Morgan held discussions with certain members of the management of the Company with respect to certain aspects of the Mergers, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to its engagement letter with the Company, J.P. Morgan did not assume any obligation to undertake any such independent verification. J.P. Morgan did not conduct or was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Parent under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by the Company’s management as to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the Mergers and the other transactions contemplated by the Merger Agreement will be consummated as described in the Merger Agreement. J.P. Morgan also assumed that the representations and warranties made by the Company and Parent in the Merger Agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Mergers will be obtained without any adverse effect on the Company or on the contemplated benefits of the Mergers.

The Company Projections furnished to J.P. Morgan were prepared by the Company’s management, as discussed more fully under the section entitled “—Forward Looking Financial Information”. While the Company has from time to time provided limited financial guidance to investors, the Company does not, as a matter of course, otherwise publicly disclose internal projections beyond the then current annual period, including of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the Mergers, and such Company Projections were not prepared with the purpose of, or with a view toward, public disclosure or toward compliance with GAAP, 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. The Company Projections reflect numerous assumptions, many of which are difficult to predict, and may be beyond the Company’s control, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could differ materially from those set forth in the

 

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Company Projections. For more information regarding the use of the Company Projections and other forward-looking statements, please refer to the section entitled “—Forward Looking Financial Information”.

J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. J.P. Morgan’s opinion noted that subsequent developments may affect J.P. Morgan’s opinion, and that J.P. Morgan does not have any obligation to update, revise or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, to the holders of the Company’s Common Stock of the consideration to be paid to such holders in the Mergers, and J.P. Morgan has expressed no opinion as to the fairness of any consideration to be paid in connection with the Mergers to the holders of any other class of securities, creditors or other constituencies of the Company or the Partnership or as to the underlying decision by the Company to engage in the Mergers. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Mergers, or any class of such persons relative to the consideration to be paid to the holders of the Company’s Common Stock in the Mergers or with respect to the fairness of any such compensation.

J.P. Morgan was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of the Company or any other alternative transaction prior to the execution of the Merger Agreement.

The terms of the Merger Agreement, including the consideration to be paid to the holders of the Company’s Common Stock, were determined through arm’s length negotiations between the Company and Parent, and the decision to enter into the Merger Agreement was solely that of the Company’s board of directors. J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the Company’s board of directors in its evaluation of the Mergers and should not be viewed as determinative of the views of the Company’s board of directors or management with respect to the Mergers or the consideration, including the consideration to be paid to the holders of the Company’s Common Stock.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodologies in rendering its opinion to the Company’s board of directors on April 24, 2022 and in the financial analyses presented to the Company’s board of directors on such date in connection with the rendering of such opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with rendering its opinion to the Company’s board of directors and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

Implied Capitalization Rate Valuation Analysis. J.P. Morgan conducted a sum-of-the-parts implied capitalization rate valuation analysis of the Company, based on the projected cash net operating income of the Company for the year ending December 31, 2022 (“2022E NOI”) allocated, at the direction of the Company’s management, to the following asset types of the Company: Industrial, Office and Multifamily properties. Using publicly available information, J.P. Morgan compared the selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be sufficiently analogous to those engaged in by the Company.

The companies selected by J.P. Morgan with respect to the Company’s Industrial properties were as follows:

 

   

Prologis, Inc.

 

   

Duke Realty Corp.

 

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Rexford Industrial Realty, Inc.

 

   

First Industrial Realty Trust, Inc.

 

   

EastGroup Properties, Inc.

 

   

Terreno Realty Corporation

The companies selected by J.P. Morgan with respect to the Company’s Office properties were as follows:

 

   

Highwoods Properties, Inc.

 

   

Piedmont Office Realty Trust, Inc.

The companies selected by J.P. Morgan with respect to the Company’s Multifamily properties were as follows:

 

   

Washington Real Estate Investment Trust

 

   

Apartment Income REIT Corp.

 

   

Camden Property Trust

 

   

UDR, Inc.

These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for the purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. However, certain of these companies may have characteristics that are materially different from those of the Company. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the selected companies differently than they would affect the Company.

Using publicly available information, J.P. Morgan calculated, for each selected company with respect to the Company’s Industrial, Office and Multifamily properties, the ratio of the consensus equity research analyst estimates for such company’s cash net operating income for the year ending December 31, 2022 to consensus equity research analyst estimates for such company’s implied real estate value (the “Implied Capitalization Rate”).

Based on the results of this analysis, J.P. Morgan selected the following ranges of Implied Capitalization Rates for the Company’s Industrial, Office and Multifamily properties:

 

     Implied Capitalization Rates  

Industrial

     3.4 % - 4.0% 

Office

     7.0 % - 7.9% 

Multifamily

     4.0 % - 4.7% 

J.P. Morgan then calculated ranges of implied equity values for the Company’s Industrial, Office and Multifamily properties by applying the applicable ranges of Implied Capitalization Rates to the 2022E NOI allocated, at the direction of the Company’s management, to the Company’s Industrial, Office and Multifamily properties.

 

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After aggregating the ranges of implied equity value for the Company’s Industrial, Office and Multifamily properties, this analysis indicated the following range of implied per share equity value (rounded to the nearest $1.00) for the Company’s Common Stock:

 

     Implied Per Share Equity Value  
             Low                      High          

Implied Capitalization Rate Valuation Analysis (Asset Type)

   $ 168      $ 198  

The range of implied per share equity values for the Company’s Common Stock was compared to (i) the closing price of the Company’s Common Stock of $167.67 as of April 22, 2022, the trading day immediately preceding the date of J.P. Morgan’s written opinion dated April 24, 2022, and (ii) the offer price of $187.50 per share of the Company’s Common Stock.

J.P. Morgan also conducted a sum-of-the-parts implied capitalization rate valuation analysis of the Company, based on the 2022E NOI of the Company allocated, at the direction of the Company’s management, based on the Company’s following ‘as reported’ segments: Industrial, Flex, Office and Multifamily.

Using the information and calculated ranges listed above for the Company’s Industrial, Office and Multifamily properties and, in the case of the Flex segment, at the direction of the Company’s management, using the weighted average of the Industrial and Office Implied Capitalization Rates, which was calculated by applying a 41% weighting to the Industrial Implied Capitalization Rates and a 59% weighting to the Office Implied Capitalization Rate, J.P. Morgan selected the following ranges of Implied Capitalization Rates for the Industrial, Flex, Office and Multifamily segments based on its professional judgment and experience:

 

     Implied Capitalization Rates  

Industrial

     3.4 % - 4.0% 

Flex

     5.5 % - 6.3% 

Office

     7.0 % - 7.9% 

Multifamily

     4.0 % - 4.7% 

J.P. Morgan then calculated ranges of implied equity values for the Company’s Industrial, Flex, Office and Multifamily segments by applying the applicable ranges of Implied Capitalization Rates to the 2022E NOI allocated, at the direction of the Company’s management, to the Company’s Industrial, Flex, Office and Multifamily segments.

After aggregating the ranges of implied equity value for the Company’s Industrial, Flex, Office and Multifamily segments, this analysis indicated the following range of implied per share equity value (rounded to the nearest $1.00) for the Company’s Common Stock:

 

     Implied Per Share Equity Value  
             Low                      High          

Implied Capitalization Rate Valuation Analysis (‘As Reported’ Segments)

   $ 177      $ 208  

The range of implied per share equity values for the Company’s Common Stock was compared to (i) the closing price of the Company’s Common Stock of $167.67 as of April 22, 2022, the trading day immediately preceding the date of J.P. Morgan’s written opinion dated April 24, 2022, and (ii) the offer price of $187.50 per share of the Company’s Common Stock.

 

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Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied equity value per share for the Company’s Common Stock. J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during fiscal years 2022E through 2026E based upon the Company Projections prepared by the Company’s management (as set forth in the section entitled “—Forward Looking Financial Information”, which was discussed with, and approved by, the Company’s board of directors for use by J.P. Morgan in connection with its financial analyses). J.P. Morgan also calculated a range of terminal values for the Company at the end of this period by applying perpetual growth rates ranging from 2.75% to 3.25%, based on guidance provided by the Company’s management, to estimates of the projected cash net operating income for the Company at the end of fiscal-year 2026E, as provided in the Company Projections. J.P. Morgan then discounted the unlevered free cash flow estimates and the range of terminal values to present value as of December 31, 2021 using discount rates ranging from 7.00% to 7.50%, which ranges were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of the Company. The present value of the unlevered free cash flow estimates and the range of terminal values were then adjusted by subtracting net debt and other adjustments for the Company as of April 12, 2022.

Based on the foregoing, this analysis indicated the following range of implied per share equity value (rounded to the nearest $0.25) for the Company’s Common Stock:

 

     Implied Per Share Equity Value  
             Low                      High          

Discounted Cash Flow

   $ 159      $ 202  

The range of implied per share equity values for the Company’s Common Stock was compared to (i) the closing price of the Company’s Common Stock of $167.67 as of April 22, 2022, the trading day immediately preceding the date of J.P. Morgan’s written opinion dated April 24, 2022, and (ii) the offer price of $187.50 per share of the Company’s Common Stock.

Miscellaneous. The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of the Company. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary is identical to the Company. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to the Company.

 

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As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. J.P. Morgan was selected to advise the Company with respect to the Mergers and deliver an opinion to the Company’s board of directors with respect to the Mergers on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with the Company and the industries in which it operates.

For financial advisory services rendered in connection with the Mergers, the Company has agreed to pay J.P. Morgan an estimated fee of up to $32.0 million, $3.0 million of which became payable to J.P. Morgan at the time J.P. Morgan delivered its opinion and the remainder of which is contingent and payable upon the consummation of the Mergers. In addition, the Company has agreed to reimburse J.P. Morgan for its reasonable and documented out-of-pocket costs and expenses incurred in connection with its services, including the reasonable and documented fees and expenses of outside counsel, and will indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement. During the two years preceding the date of J.P. Morgan’s written opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with the Company and certain affiliates of Parent, for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included acting as joint lead arranger on the Company’s syndicated credit facility in August 2021, sole lead arranger on Blackstone’s, an affiliate of Parent, syndicated credit facility in November 2021, joint lead bookrunner on Blackstone’s offering of debt securities in September 2021, and joint lead bookrunner on Blackstone’s offering of equity securities in November 2021. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of Blackstone, for which it receives customary compensation. In addition, during the two years preceding the date of J.P. Morgan’s written opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with Blackstone’s portfolio companies for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included providing debt syndication, equity underwriting, debt underwriting and financial advisory services to Blackstone’s portfolio companies. During the two years preceding the date of J.P. Morgan’s written opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with Public Storage, which owns approximately 26% (or 7.2 million shares) of the Company’s Common Stock and would own approximately 41.4% (or 14.5 million shares) of the outstanding shares of the Company’s Common Stock if it redeemed its common units of partnership interest of the Partnership for the Company’s Common Stock, for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included acting as active bookrunner on an offering of Public Storage’s debt securities in November 2021, joint bookrunning manager on an offering of Public Storage’s debt securities in April 2021, and active bookrunner on an offering of Public Storage’s debt securities in January 2021. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of each of the Company, Blackstone, and Public Storage. During the two-year period preceding delivery of its written opinion ending on April 24, 2022, the aggregate fees recognized by J.P. Morgan (i) from Parent and its affiliates and their portfolio companies were approximately $242 million and (ii) from Public Storage were approximately $7 million. During the two-year period preceding delivery of its written opinion ending on April 24, 2022, J.P. Morgan did not recognize any fees from the Company. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, Blackstone or Public Storage for their own account or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities or other financial instruments. The information regarding fees recognized by J.P. Morgan disclosed in this paragraph is based upon information provided to us by J.P. Morgan.

Financing

In connection with the closing of the Mergers, Parent will cause an aggregate of approximately $6.6 billion to be paid to the holders of our Common Stock, including the holders of Company equity awards, and the holders

 

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of common units of partnership interest of the Partnership. In addition, Parent has informed us that in connection with the closing of the Mergers, Parent expects to cause our outstanding indebtedness under our revolving credit facility, if any, to be prepaid in full. As of May 19, 2022, we had $0 in aggregate principal amount of consolidated indebtedness under our revolving credit facility.

Parent has informed us that it has received, in connection with the Mergers, a debt commitment letter from Citigroup Global Markets Inc., Bank of America, N.A., Barclays Bank PLC, Barclays Capital Real Estate Inc., Morgan Stanley Bank, N.A. and Societe Generale Financial Corporation, providing for debt financing through a CMBS loan and balance sheet loan in an aggregate amount of up to approximately $4.85 billion to be funded on or after the closing of the Mergers, subject to the satisfaction of the conditions contained in the debt commitment letter (which we refer to collectively as the “debt financing”) and that it may seek to obtain additional debt financing in connection with the Mergers. In addition, it is expected that the Sponsor and its affiliates will contribute equity to Parent for the purpose of funding the acquisition costs (including the merger consideration) that are not covered by such debt financing.

Parent has informed us that in addition to the payment of the merger consideration, the funds to be obtained from the debt and equity financing may be used for purposes such as reserves, paying carrying costs with respect to the properties, funding working capital requirements, and for other costs and expenses related to the financing and the Mergers. Parent has informed us that it currently believes that the funds to be borrowed under the debt financing would be secured by, among other things, a mortgage lien on certain properties which are wholly owned and/or ground leased by us, certain escrows and reserves and such other pledges and security required by the lenders to secure and perfect their interests in the applicable collateral, and that such debt financing would be conditioned on the mergers being completed and other customary conditions for similar financings.

The Merger Agreement does not contain a financing condition or a “market MAC” condition to the closing of the mergers. For more information, see “The Merger Agreement — Financing Cooperation” and “The Merger Agreement — Conditions to the Mergers.”

Interests of Our Directors and Executive Officers in the Company Merger

In considering the recommendation of our board of directors to vote in favor of the proposal to approve the Company Merger, holders of our Common Stock should be aware that our directors and executive officers have interests in the Company Merger that may be different from, or in addition to, the interests of holders of our Common Stock generally. Our board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the Merger Agreement, in reaching its decision to approve the Merger Agreement and the consummation of the transactions contemplated by the Merger Agreement (including the Company Merger), and in recommending that the common stockholders vote in favor of the proposal to approve the Company Merger. These interests are described below. The Company Merger will be a “change in control” (or term of similar import) for purposes of our executive compensation and benefit plans and agreements described below.

Our executive officers who are named executive officers for purposes of the discussion below are Stephen W. Wilson (President and Chief Executive Officer), Adeel Khan (Executive Vice President and Chief Financial Officer) and Trenton A. Groves (Senior Vice President and Chief Accounting Officer). Our executive officer who is not a named executive officer for purposes of the discussion below is Maria R. Hawthorne (Interim Chief Operating Officer).

The information in this section and the tables below do not include information for Dan M. Chandler, III, our former President and Chief Executive Officer, John W. Petersen, our former Interim President and Chief Executive Officer and Chief Operating Officer, or Jeffrey D. Hedges, our former Executive Vice President, Chief Financial Officer and Secretary, because while they are technically “named executive officers” pursuant to SEC rules, they are no longer executive officers of the Company and will not receive any compensation that is based on, or otherwise relates to, the Company Merger.

 

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Certain Assumptions

Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions were used:

 

   

The relevant price per share of our common stock is $187.50, which is the per share merger consideration;

 

   

The Company Merger Effective Time as referenced in this section occurs on May 18, 2022, which is the assumed date of the Company Merger Effective Time solely for purposes of the disclosure in this section; and

 

   

The employment of each of our executive officers was terminated by us without “cause” (as such term is defined in the relevant plans and agreements), in either case immediately following the Company Merger Effective Time and on the assumed date of the Company Merger Effective Time of May 18, 2022.

The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described above, and do not reflect certain compensation actions that may occur before the Company Merger Effective Time.

Treatment of Outstanding Equity-Based Awards

Upon the terms and subject to the conditions of the Merger Agreement, immediately prior to the Company Merger Effective Time, our outstanding equity-based awards, including awards held by our executive officers and directors, will be treated as follows:

 

   

Each Company Option that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (i) the number of shares of Common Stock subject to the Company Option immediately prior to the Company Merger Effective Time multiplied by (2) the excess (if any) of the merger consideration over the per share exercise price applicable to the Company Option, less any applicable withholding taxes. Each Company Option with a per share exercise price that exceeds the merger consideration will be cancelled for no consideration.

 

   

Each Company RSU Award that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company RSU Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

 

   

Each Company Deferred Stock Unit Award that is outstanding immediately prior to the Company Merger Effective Time will become vested and, at the Company Merger Effective Time, be converted into a right to receive a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company Deferred Stock Unit Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

 

   

Each 2022 EIP Award will be cancelled in exchange for a specified cash payment, less any applicable withholding taxes.

See the section of this proxy statement entitled “Quantification of Potential Payments and Benefits to our Named Executive Officers in Connection with the Company Merger” for an estimate of the value of each of our named executive officer’s unvested equity-based awards. In addition to the awards that are outstanding as of the date of this proxy statement, the Company will also grant a 2022 EIP Award with a value of $3.4 million to Mr. Wilson in recognition of his transition from interim to permanent Chief Executive Officer after the date that 2022 EIP Awards were granted to other executives of the Company. Based on the assumptions described above under “—Certain Assumptions”, the estimated aggregate amounts that would become payable at the Company Merger Effective Time to Ms. Hawthorne in respect of her unvested equity awards are as follows: unvested

 

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Company Options — $48,902; and unvested Company RSU Awards — $937,500. The estimated aggregate amounts that would become payable at the Company Merger Effective Time to our nonemployee directors in respect of their unvested equity awards are as follows: unvested Company Options — $2,003,055; and unvested Company Deferred Stock Unit Awards — $7,125,000.

2022 Annual Awards to Directors

Following the 2022 annual meeting of our stockholders on April 29, 2022, we granted to each of our directors, in lieu of the annual grant of Company Options that we would typically make, a cash long-term incentive award in the amount of $31,000 (which corresponds to the approximate Black-Scholes value of the 2021 annual grant of Company Options to our directors). Each cash long-term incentive award will vest ratably over five years (consistent with the vesting schedule applicable to annual grants of Company Options) subject to the director’s continued service on our board of directors, and will accelerate and vest in full at the Company Merger Effective Time.

Severance Letter Agreements with Certain Executive Officers

Prior to the Company Merger Effective Time, the Company will enter into a letter agreement with each of Ms. Hawthorne and Messrs. Khan and Groves providing for the payment of (i) a lump sum cash severance amount equal to $2,200,000, $1,100,000, and $460,000, respectively and (ii) a lump sum cash payment equal to three months of COBRA premiums, the estimated value of which is $4,107, $8,482, and $4,741, respectively. Each letter agreement will provide that the applicable executive officer’s employment will be terminated without cause effective as of the closing date (or, if requested by Parent, as of a date that is not later than 30 days after the closing date) and that the severance payments are subject to such executive officer signing and not revoking a release of claims in favor of the Company and its affiliates.

Transaction Success Bonus Program

Under the terms of the Merger Agreement, we may adopt a transaction success bonus program in an aggregate amount of up to $2.5 million to promote retention and to incentivize efforts to consummate the completion of the Company Merger. Awards under the transaction success bonus program will be allocated among employees of the Company and its subsidiaries (other than Messrs. Wilson and Khan, who are excluded from participation) who are selected by our Chief Executive Officer (or his designees). Each transaction success bonus award will vest in full at the Company Merger Effective Time, subject to the participant’s continued employment with the Company or one of its subsidiaries through the Company Merger Effective Time. As of the date of this proxy statement, no transaction success bonus awards have been granted to any of our executive officers.

2022 Short-Term Cash Incentive Payments

Under the terms of the Merger Agreement, we may pay to each of our employees who is eligible to receive a short-term cash incentive payment in respect of 2022 (we refer to each as a “2022 Cash Incentive”), including each of our executive officers other than Mr. Wilson and Ms. Hawthorne, a cash payment that does not exceed the product of (a) such employee’s total target 2022 Cash Incentive, multiplied by (b) a fraction, the numerator of which is the number of days elapsed between January 1, 2022 and the closing date and the denominator of which is 365.

See the section of this proxy statement entitled “Quantification of Potential Payments and Benefits to our Named Executive Officers in Connection with the Company Merger” for the estimated maximum amount of the 2022 Cash Incentive payment that may be paid to each of our eligible named executive officers under the terms of the Merger Agreement.

 

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Gross-Up Agreements

As previously disclosed, on April 24, 2022, our board of directors approved excise tax gross-up agreements with each of Messrs. Wilson and Khan. The agreements provide each executive officer with the right to receive a gross-up payment in the event that any payments or benefits provided to such executive officer in connection with the Company Merger becomes subject to the excise tax pursuant to Section 4999 of the Internal Revenue Code. The gross-up payment would generally place each executive officer in the same after-tax position that he would have been in if the excise tax did not apply to him, and does not cover ordinary income taxes due on the payments and benefits giving rise to the excise tax. These gross-up rights are provided solely in connection with the transactions contemplated by the Merger Agreement and therefore the gross-up agreements will be automatically revoked if the Merger Agreement is terminated without the consummation of the transactions contemplated thereby.

See the section of this proxy statement entitled “Quantification of Potential Payments and Benefits to our Named Executive Officers in Connection with the Company Merger” for the estimated amounts of the payments that each of Messrs. Wilson and Khan would receive under the terms of the gross-up agreements.

Indemnification and Insurance

Pursuant to the terms of the Merger Agreement, our non-employee directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies following the Company Merger.

Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Company Merger

The information set forth in the table below is intended to comply with Item 402(t) of the SEC’s Regulation S-K, which requires disclosure of information about certain compensation for each named executive officer of the Company that is based on, or otherwise relates to, the Company Merger. For additional details regarding the terms of the payments and benefits described below, see the discussion under the caption “—Interests of Our Directors and Executive Officers in the Company Merger” above.

The amounts shown in the table below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below and in the footnotes to the table, and do not reflect certain compensation actions that may occur before the Company Merger Effective Time. For purposes of calculating such amounts, the following assumptions were used:

 

   

The relevant price per share of our common stock is $187.50, which is the per share merger consideration;

 

   

The Company Merger Effective Time as referenced in this section occurs on May 18, 2022, which is the assumed date of the Company Merger Effective Time solely for purposes of the disclosure in this section; and

 

   

The employment of each of our named executive officers was terminated by the surviving corporation without “cause” immediately following the Company Merger Effective Time and on the assumed date of the Company Merger Effective Time of May 18, 2022.

 

Named Executive Officer(1)

   Cash ($)(1)      Equity ($)(2)      Perquisites /
Benefits ($)(3)
     Tax
Reimbursement ($)(4)
     Total ($)  

Stephen W. Wilson

     31,000        5,153,506        —          2,319,437        7,503,943  

Adeel Khan

     1,261,500        1,413,563        8,482        1,430,439        4,113,984  

Trenton A. Groves

     564,500        1,154,251        4,741        —          1,723,492  

 

(1)

Cash. Consists of (a) for Mr. Wilson, the director long-term cash award granted following the 2022 annual meeting of our stockholders on April 29, 2022, and (b) for each of Messrs. Khan and Groves, (i) cash

 

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severance payments pursuant to their severance letter agreements and (ii) a 2022 Cash Incentive payment under the terms of the Merger Agreement (calculated based on the target level of performance and proration based on the days elapsed prior to the assumed Company Merger Effective Time). Mr. Wilson is not entitled to any cash severance compensation or benefits. The director long-term cash award to Mr. Wilson and the 2022 Cash Incentive payments to Messrs. Khan and Groves are “single trigger” and become payable upon the closing of the Company Merger (see “Interests of our Directors and Executive Officers in the Company Merger — 2022 Annual Awards to Directors” and “Interests of our Directors and Executive Officers in the Company Merger — 2022 Short-Term Cash Incentive Payments”). The cash severance payments to Messrs. Khan and Groves under the terms of their severance letter agreements are “double trigger” and become payable only upon termination of employment after the closing of the Company Merger (see “Interests of our Directors and Executive Officers in the Company Merger — Severance Letter Agreements with Certain Executive Officers”). The estimated amount of each such payment is shown in the following table:

 

Named Executive Officer

   Director Long-Term
Cash Award ($)
     Cash Severance ($)      Prorated 2022 Cash
Incentive ($)
     Total ($)  

Stephen W. Wilson

     31,000        —          —          31,000  

Adeel Khan

     —          1,100,000        161,500        1,261,500  

Trenton A. Groves

     —          460,000        104,500        564,500  

 

(2)

Equity. Includes accelerated vesting at the Company Merger Effective Time of outstanding Company Options, Company Restricted Stock Unit Awards and Company Deferred Stock Unit Awards and payments in connection with the cancellation of 2022 EIP Awards (including the 2022 EIP Award to be granted to Mr. Wilson prior to the Company Merger Effective Time), which are “single trigger” benefits. For further details regarding the treatment of our equity-based awards in connection with the Company Merger, see “Interests of our Directors and Executive Officers in the Mergers — Treatment of Outstanding Equity-Based Awards”. The estimated value of such awards are shown in the following table:

 

Named Executive Officer

   Company
Options ($)
     Company
Restricted Stock
Unit Awards ($)
     Company
Deferred Stock
Unit Awards ($)
     2022 EIP
Awards ($)
     Total ($)  

Stephen W. Wilson

     253,506        —          1,500,000        3,400,125        5,153,506  

Adeel Khan

     —          538,875        —          874,688        1,413,563  

Trenton A. Groves

     —          826,313        —          327,938        1,154,251  

 

(3)

Perquisites/Benefits. Includes lump sum cash payments equal to three months of COBRA premiums pursuant to the terms of the severance letter agreements with Messrs. Khan and Groves. These payments are “double trigger” and become payable upon the named executive officer’s termination of employment following the closing of the Company Merger (see “Interests of our Directors and Executive Officers in the Company Merger — Severance Letter Agreements with Certain Executive Officers”).

(4)

Tax Reimbursements. Includes the estimated amount of the gross-up payment for the excise tax imposed on the payments and benefits to each of Messrs. Wilson and Khan in connection with the Company Merger by reason of Section 4999 of the Internal Revenue Code. See “Interests of our Directors and Executive Officers in the Company Merger — Gross-Up Agreements.”

Regulatory Matters

We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the Merger Agreement or the completion of either the Company Merger or the Partnership Merger, other than (1) the filing and acceptance for record of the articles of merger with respect to the Mergers by the SDAT, and (2) the filing and acceptance of record of the articles of conversion and a certificate of limited partnership with the SDAT, and a certificate of conversion with the California Secretary of State, in connection with the conversion of the Partnership from a California limited partnership to a Maryland limited partnership.

 

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Material U.S. Federal Income Tax Consequences

The following is a general discussion of the material U.S. federal income tax consequences of the receipt of the Closing Cash Dividend and Additional Dividends, if any, and the per share merger consideration pursuant to the Company Merger to U.S. holders and non-U.S. holders (each, as defined below) of shares of Common Stock. This discussion is based on the provisions of the Code, proposed, temporary and final U.S. Treasury Regulations promulgated thereunder, judicial opinions and administrative rulings and published positions of the Internal Revenue Service (the “IRS”), each as in effect as of the date hereof. These authorities are subject to change or differing interpretations, possibly with retroactive effect. Any such change or differing interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. We have not sought and will not seek an advance ruling from the IRS regarding any matter discussed in this section. This summary assumes that the payment of the Closing Cash Dividend and Additional Dividends, if any, and the Company Merger will be consummated in accordance with the Merger Agreement and as further described in this proxy statement.

This discussion is for general information purposes only and is not a complete description of all of the tax consequences of the Closing Cash Dividend and Additional Dividends, if any, and the receipt of cash in the Company Merger to holders of shares of Common Stock, and, in particular, does not address any tax reporting requirements, tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010 or the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations and administrative guidance thereunder and the intergovernmental agreements entered into pursuant thereto or in connection therewith, and any laws, regulations or practices adopted in connection therewith) nor does it address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to U.S. federal income tax, such as gift or estate tax laws.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of Common Stock who or that is, for U.S. federal income tax purposes:

 

   

an individual citizen or resident of the United States;

 

   

a corporation (or other entity or arrangement taxable as a corporation for U.S. federal income tax purposes) created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust (1) the administration of which is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (as defined under the Code) who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person; or

 

   

an estate the income of which is subject to U.S. federal income tax regardless of its source.

For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of shares of Common Stock that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.

This discussion applies only to U.S. holders and non-U.S. holders of shares of Common Stock who hold such shares as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is for general information purposes only and does not purport to address all aspects of U.S. federal income taxation that may be relevant to specific holders in light of their particular facts and circumstances, nor does it apply to holders subject to special treatment under U.S. federal income tax laws such as, for example:

 

   

insurance companies;

 

   

dealers, brokers or traders in securities or currencies;

 

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traders in securities who elect to apply the mark-to-market method of accounting;

 

   

broker-dealers;

 

   

persons acting as nominees or otherwise not as beneficial owners;

 

   

holders subject to the alternative minimum tax;

 

   

persons who are required to accelerate the recognition of any item of gross income as a result of such income being recognized on an applicable financial statement;

 

   

U.S. holders that have a functional currency other than the U.S. dollar;

 

   

governments or agencies or instrumentalities thereof;

 

   

mutual funds;

 

   

tax-exempt entities and organizations;

 

   

retirement plans, individual retirement accounts or other tax-deferred or advantaged accounts (or persons holding shares of Common Stock through such plans or accounts);

 

   

banks and other financial institutions or financial services entities;

 

   

certain former citizens or former long-term residents of the United States;

 

   

controlled foreign corporations or passive foreign investment companies;

 

   

partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes or other flow-through entities (and investors therein);

 

   

S corporations;

 

   

REITs;

 

   

regulated investment companies;

 

   

holders who own or have owned at any time, or are deemed to own or to have owned at any time, directly, indirectly or constructively, five percent or more of our voting shares or five percent or more of the total value of all classes of our stock;

 

   

“qualified foreign pension funds” (within the meaning of Section 897(l)(2) of the Code) or entities all of the interests in which are held by a qualified pension fund;

 

   

“qualified shareholders” (within the meaning of Section 897(k)(3) of the Code) or investors therein;

 

   

non-U.S. holders who hold, or have held at any time, directly, indirectly or constructively, more than 10% of our outstanding shares of Common Stock or more than 10% of our outstanding shares of Preferred Stock;

 

   

holders who hold shares of Common Stock as part of a hedge, straddle, constructive sale, conversion or other integrated or risk reduction transaction; or

 

   

holders who acquired shares of Common Stock through the exercise of employee stock options or other equity awards, through a tax-qualified retirement plan or otherwise as compensation.

If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Common Stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. Such a partner or partnership is urged to consult its tax advisor regarding the U.S. federal, state, local and non-U.S. tax consequences of the receipt of the Closing Cash Dividend and Additional Dividends, if any, and the per share merger consideration pursuant to the Company Merger to it in light of its particular circumstances.

 

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THIS DISCUSSION IS FOR GENERAL INFORMATION PURPOSES ONLY, IS NOT TAX ADVICE AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE RECEIPT OF THE CLOSING CASH DIVIDEND AND ADDITIONAL DIVIDENDS, IF ANY, AND THE PER SHARE MERGER CONSIDERATION PURSUANT TO THE COMPANY MERGER. DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE RECEIPT OF THE CLOSING CASH DIVIDEND AND ADDITIONAL DIVIDENDS, IF ANY, AND THE PER SHARE MERGER CONSIDERATION PURSUANT TO THE COMPANY MERGER TO A HOLDER MAY BE COMPLEX AND WILL DEPEND ON A HOLDER’S SPECIFIC SITUATION. ALL HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE RECEIPT OF THE CLOSING CASH DIVIDEND AND ADDITIONAL DIVIDENDS, IF ANY, AND THE PER SHARE MERGER CONSIDERATION PURSUANT TO THE COMPANY MERGER TO THEM IN LIGHT OF THEIR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING WITH RESPECT TO THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS AND ANY POTENTIAL CHANGES IN SUCH LAWS.

Treatment of the Receipt of the Closing Cash Dividend and Additional Dividends

U.S. Federal Income Tax Treatment of the Receipt of the Closing Cash Dividend and Additional Dividends

For U.S. federal income tax purposes, the Company intends to treat the distribution of the Closing Cash Dividend and Additional Dividends, if any, as dividend distributions to holders of shares of Common Stock to the extent of the Company’s current and accumulated earnings and profits. Additionally, the Company intends to designate the Closing Cash Dividend, to the maximum extent permitted by applicable law, as a “capital gains dividend” under Section 857(b) of the Code. The rest of this discussion proceeds on the basis that our intended U.S. federal income tax treatment of the distribution of the Closing Cash Dividend and Additional Dividends is respected. Holders of shares of Common Stock are urged to consult their own tax advisors regarding the impact to them of potential alternative treatments in their particular circumstances. Non-U.S. holders of Common Stock may wish to consult their own tax advisors regarding the impact of the receipt of the Closing Cash Dividend and Additional Dividends, if any, and the per share merger consideration pursuant to the Company Merger as opposed to a sale of their Common Stock prior to the Company Merger.

U.S. Holders

Ordinary Dividend. The distribution of the Closing Cash Dividend and Additional Dividends, if any, made by the Company out of its current or accumulated earnings and profits, and not designated as capital gain dividends, will constitute dividends taxable to U.S. holders as ordinary income. Noncorporate U.S. holders will generally not be entitled to the preferential tax rate applicable to qualified dividend income except with respect to the portion of any distribution (1) that represents income from dividends the Company received from a corporation in which the Company owns shares (but only if such dividends would be eligible for the lower rate on dividends if paid by the corporation to its individual stockholders), (2) that is equal to the sum of the Company’s REIT taxable income (taking into account the dividends paid deduction available to the Company) and certain net built-in gain with respect to property acquired from a C corporation in certain transactions in which the Company must adopt the basis of the asset in the hands of the C corporation for the Company’s previous taxable year, less any taxes paid by the Company during its previous taxable year, or (3) that represents earnings and profits that were accumulated in a non-REIT taxable year, in each case, provided that certain holding period and other requirements are satisfied at both the Company and the individual stockholder levels. However, to the extent not so treated as qualified dividend income and not designated as a capital gain dividend, the distribution will generally constitute a dividend with respect to which noncorporate U.S. holders will be permitted to take a deduction equal to 20% of such dividend for purposes of determining their U.S. federal income tax. Noncorporate U.S. holders should consult their own tax advisors to determine the tax rates on dividends received from the Company.

 

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The distribution of the Closing Cash Dividend and Additional Dividends, if any, made by the Company will not be eligible for the dividends received deduction in the case of U.S. holders that are corporations.

Capital Gain Dividend. The distribution of the Closing Cash Dividend and Additional Dividends made by the Company, to the extent that the Company properly designates such distribution as a capital gain dividend, will be taxable to U.S. holders as gain from the sale of a capital asset held for more than one year, provided that the amount of the dividend so designated does not exceed the Company’s actual net capital gain for the applicable taxable year, without regard to the period for which a U.S. holder has held the shares of Common Stock. Thus, with certain limitations, a capital gain dividend received by an individual U.S. holder may be eligible for preferential rates of taxation. U.S. holders that are corporations may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income.

Return of Capital. Although the Closing Cash Dividend and any Additional Dividends are expected to be treated as distributions out of the Company’s current and accumulated earnings and profits, it is possible that events occurring after the closing of the Merger could reduce the Company’s current earnings and profits. To the extent that the Closing Cash Dividend and Additional Dividends are in excess of the Company’s current and accumulated earnings and profits, such a distribution will be treated first as a tax-free return of capital to each U.S. holder. Thus, such a distribution will reduce the adjusted basis that the U.S. holder has in the shares of Common Stock for U.S. federal income tax purposes by the amount of the distribution, but not below zero. This reduction will increase gain (or reduce loss) a U.S. holder would otherwise recognize in respect of the Company Merger (see “Consequences of the Company Merger to U.S. Holders of Shares of Common Stock”). The distribution made in excess of a U.S. holder’s adjusted basis in the shares of Common Stock will be taxable as capital gain, provided that the shares of Common Stock have been held as a capital asset.

The distribution of the Closing Cash Dividend and Additional Dividends, if any, made by the Company will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any passive losses against that income or gain. A U.S. holder generally may elect to treat capital gain dividends and income designated as qualified dividend income as investment income for purposes of computing the investment interest limitation, but in such case, the U.S. holder will be taxed at ordinary income rates on such amount. Other distributions of the Closing Cash Dividend and Additional Dividends, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.

Non-U.S. Holders

Ordinary Dividend. The distribution of the Closing Cash Dividend and Additional Dividends, if any, other than the portion of the distribution designated by the Company as a capital gain dividend, will generally be treated as ordinary income to the extent that the distribution is made out of the Company’s current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution will ordinarily apply to a distribution of this kind to non-U.S. holders, unless an applicable tax treaty reduces that withholding tax. However, if income from the investment in the shares of Common Stock is treated as effectively connected with a non-U.S. holder’s conduct of a U.S. trade or business and, if required by an applicable income tax treaty as a condition for subjecting a non-U.S. holder to U.S. taxation on a net income basis, is attributable to a permanent establishment or fixed base that the non-U.S. holder maintains in the United States, then the same treatment that applies to U.S. holders with respect to dividends will generally apply to such non-U.S. holder, and a 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) may also apply if such non-U.S. holder is a corporation. The Company expects that it or the applicable withholding agent will withhold U.S. federal income tax at a rate of 30% on the gross amount of the distribution of the Closing Cash Dividend and Additional Dividends, if any, other than the portion of the distribution that is treated as attributable to gain from sales or exchanges of U.S. real property interests and a capital gain dividend, paid to a non-U.S. holder, unless (1) a lower treaty rate applies and the required form evidencing eligibility for that reduced rate is filed with the Company or the appropriate withholding agent or (2) the non-U.S. holder files an

 

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IRS Form W-8-ECI or a successor form with the Company or the appropriate withholding agent claiming that the distribution is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and, in either case, other applicable requirements are met.

Capital Gain Dividend. The distribution of the Closing Cash Dividend and Additional Dividends, if any, that is attributable to gain from sales or exchanges by the Company of U.S. real property interests that is paid with respect to shares of Common Stock held by a non-U.S. holder who does not own more than 10% of such stock at any time during the one-year period ending on the date of the distribution will generally be treated as an ordinary dividend and subject to withholding in the manner described above under “Ordinary Dividend”.

Any portion of the distribution of the Closing Cash Dividend and Additional Dividends to a non-U.S. holder that is designated by the Company at the time of distribution as a capital gain dividend that is not attributable to or treated as attributable to the disposition by the Company of a U.S. real property interest generally will not be subject to U.S. federal income taxation, subject to the exceptions discussed in “Consequences of the Company Merger to Non-U.S. Holders of Shares of Common Stock.”

Return of Capital. Although the Closing Cash Dividend and any Additional Dividends are expected to be treated as distributions out of the Company’s current and accumulated earnings and profits, it is possible that events occurring after the closing of the Merger could reduce the Company’s current earnings and profits. The Closing Cash Dividend and Additional Dividends, if any, made in excess of the Company’s current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that the distribution does not exceed the non-U.S. holder’s adjusted basis in such non-U.S. holder’s shares of Common Stock. A distribution of this kind will instead reduce the adjusted basis of such non-U.S. holder’s shares of Common Stock. To the extent that a distribution of this kind exceeds the non-U.S. holder’s adjusted basis in such non-U.S. holder’s shares of Common Stock, the distribution will give rise to tax liability if the non-U.S. holder otherwise would have to pay tax on any gain from the sale or disposition of such non-U.S. holder’s shares. See the discussion below under “Consequences of the Company Merger to Non-U.S. Holders of Shares of Common Stock.” If it cannot be determined at the time the distribution of the Closing Cash Dividend or Additional Dividend is made whether such distribution will be in excess of current and accumulated earnings and profits, withholding will generally apply to the distribution at the rate applicable to ordinary dividends. However, a non-U.S. holder may seek a refund of these amounts from the IRS if it is subsequently determined that the distribution was, in fact, in excess of the Company’s current and accumulated earnings and profits, provided that certain conditions are met.

Tax Classification of the Company Merger in General

For U.S. federal income tax purposes, the parties will treat the Company Merger as a taxable sale of Common Stock in exchange for the cash consideration payable in connection with the Company Merger to the holders of shares of Common Stock. The remainder of this discussion assumes that the Company Merger will be treated as described above.

Consequences of the Company Merger to U.S. Holders of Shares of Common Stock

The receipt of cash by U.S. holders in exchange for shares of Common Stock pursuant to the Company Merger is expected to be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder of shares of Common Stock will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the amount of cash received in exchange for such U.S. holder’s shares of Common Stock in the Company Merger and (2) the U.S. holder’s adjusted tax basis in its shares of Common Stock.

If a U.S. holder acquired different blocks of shares of Common Stock at different times and different prices, such U.S. holder must determine its adjusted tax basis, gain or loss and holding period separately with respect to each block of shares of Common Stock. Any such gain or loss will generally be capital gain or loss and will be

 

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long-term capital gain or loss if a U.S. holder’s holding period in the shares of Common Stock surrendered in the Company Merger is greater than one year at the time of the Company Merger. Long-term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations.

A U.S. holder who has held shares of Common Stock for less than six months at the time of the Company Merger, taking into account the holding period rules of Sections 246(c)(3) and (4) of the Code, and who recognizes a loss on the exchange of such shares of Common Stock in the Company Merger will be treated as recognizing a long-term capital loss to the extent of any capital gain dividends received from us, or such holder’s share of any designated retained capital gains, with respect to such shares.

Consequences of the Company Merger to Non-U.S. Holders of Shares of Common Stock

A non-U.S. holder’s gain or loss from the Company Merger will generally be determined in the same manner as that of a U.S. holder. Subject to the discussion of backup withholding below under “—Information Reporting and Backup Withholding,” a non-U.S. holder generally should not be subject to U.S. federal income tax on the gain or loss from the receipt of the merger consideration in exchange for shares of Common Stock pursuant to the Company Merger, except as described below.

Gain recognized by a non-U.S. holder upon a sale or exchange of shares of Common Stock pursuant to the Company Merger generally will not be taxed under the Foreign Investment in Real Property Tax Act (“FIRPTA”) if the Company is a “domestically controlled qualified investment entity,” defined generally to include a REIT, provided that less than 50% in value of the stock of such REIT is and was held directly or indirectly by foreign persons at all times during a specified testing period (provided that, if any class of a REIT’s stock is regularly traded on an established securities market in the United States, a person holding less than 5% of such class at all times during the testing period is generally presumed not to be a foreign person, unless the REIT has actual knowledge otherwise). The Company believes that it is a “domestically controlled qualified investment entity” and, therefore, assuming that the Company is a “domestically controlled qualified investment entity” at the Effective Time, taxation under FIRPTA will not apply to the receipt of cash in exchange for shares of Common Stock pursuant to the Company Merger, although there can be no assurance in this regard.

If the Company does not qualify as a “domestically controlled qualified investment entity,” the tax consequences to a non-U.S. holder of an exchange of shares of Common Stock for cash pursuant to the Company Merger will depend upon whether such stock is regularly traded on an established securities market in the United States and the amount of such stock that is held by a non-U.S. holder. The Company believes that its shares of Common Stock are regularly traded on an established securities market in the United States within the meaning of FIRPTA and the applicable Treasury Regulations. Therefore, a non-U.S. holder generally will not be subject to U.S. federal income tax under FIRPTA, unless such non-U.S. holder has held more than 10% of the value of the shares of the Common Stock at any time during the applicable testing period. Non-U.S. holders should consult their own tax advisors regarding the particular tax consequences of the Company Merger to them, including the applicability of FIRPTA. In particular, a non-U.S. holder who has held more than 10% of the shares of Common Stock at any time during the one-year period ending on the date of the Company Merger or a non-U.S. holder who is a “qualified shareholder” (within the meaning of Section 897(k)(3) of the Code) is urged to consult its tax advisors concerning the tax consequences to them of the receipt of the merger consideration.

However, even if not subject to FIRPTA, gain recognized by a non-U.S. holder as a result of the Company Merger will be taxable to such non-U.S. holder if such gain is treated as effectively connected with the non-U.S. holder’s U.S. trade or business and, if required by an applicable income tax treaty as a condition for subjecting the non-U.S. holder to U.S. taxation on a net income basis, is attributable to a permanent establishment or fixed base that the non-U.S. holder maintains in the United States. In this case, the same treatment that applies to U.S. holders with respect to the gain will generally apply to such non-U.S. holder, and a non-U.S. holder that is a corporation may also be subject to a 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such gain. In addition, any such gain will be taxable to a non-U.S. holder if the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more

 

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during the taxable year or maintains an office or a fixed place of business in the United States to which the gain is attributable. In such cases, a 30% tax (or such lower rate as may be specified by an applicable income tax treaty) will apply to the nonresident alien individual’s capital gains, which may be offset by certain 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.

Non-U.S. holders should consult their own tax advisors regarding the application of the foregoing rules in light of their particular facts and circumstances and the procedures for claiming tax treaty benefits or otherwise establishing an exemption from U.S. withholding tax.

Information Reporting and Backup Withholding

Information reporting and backup withholding (currently at a rate of 24%) generally will apply to payments of cash made in connection with the Company Merger. Backup withholding will not apply, however, to a holder of shares of Common Stock who (1) in the case of a U.S. holder, furnishes a correct taxpayer identification number, certifies that such U.S. holder is not subject to backup withholding on a duly executed IRS Form W-9, and otherwise complies with all applicable requirements of the backup withholding rules; (2) in the case of a non-U.S. holder, furnishes a duly executed applicable IRS Form W-8; or (3) provides proof that such holder is otherwise exempt from backup withholding and complies with other applicable rules and certification requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be claimed as a refund or credited against a holder’s U.S. federal income tax liability, if any, so long as such holder furnishes the required information to the IRS in a timely manner.

THIS DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS OF SHARES OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE CLOSING CASH DIVIDEND AND ADDITIONAL DIVIDENDS, IF ANY, AND THE COMPANY MERGER, INCLUDING THE EFFECT OF ANY FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS.

Delisting and Deregistration of Common Stock

Following the completion of the Company Merger, our Common Stock will no longer be traded on the NYSE and will be deregistered under the Exchange Act.

Our Preferred Stock (and depositary shares in respect thereof) will remain outstanding following the Company Merger in accordance with their respective terms. The terms of the Preferred Stock (and depositary shares in respect thereof) will be unaffected by the Company Merger.

Litigation Relating to the Mergers

As of June 8, 2022, three lawsuits have been filed by purported stockholders of the Company in connection with the Mergers. On May 26, 2022, a purported stockholder of the Company filed a lawsuit against the Company and the current members of the Company’s board of directors alleging that the preliminary proxy statement filed by the Company in connection with the Mergers contained alleged material misstatements and/or omissions in violation of federal law. The lawsuit is captioned Shiva Stein v. PS Business Parks, Inc., et al., Case 1:21-cv-04330 and is pending in the United States District Court for the Southern District of New York. On June 6, 2022, two additional lawsuits were filed against the same defendants asserting similar claims; the first lawsuit is captioned Hopkins v. PS Business Parks, Inc., et al., Case 1:22-cv-03335 and is pending in the United States District Court for the Eastern District of New York; the second lawsuit is captioned Whitfield v. PS Business Parks, Inc., et al., Case 1:22-cv-03337 and is pending in the United States District Court for the Eastern District of New York.

The complaints generally allege that the preliminary proxy statement filed by the Company in connection with the Mergers fails to disclose allegedly material information in violation of Sections 14(a) and 20(a) of the

 

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Exchange Act and Rule 14a-9 promulgated thereunder. The alleged omissions relate to (i) certain financial projections prepared by the Company (ii) certain financial analyses of the Company’s financial advisors, (iii) certain statements concerning the sales process and (iv) certain information regarding the Company’s financial advisors. Plaintiffs seek, among other things, to enjoin the Company from consummating the Mergers, or in the alternative, rescission of the Merger Agreement, as well as attorney’s fees.

Although the ultimate outcome of the matters cannot be predicted with any certainty, the Company believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the Mergers may also be filed in the future.

 

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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 Exhibit A and which we incorporate by reference into this proxy statement. We recommend that you read the Merger Agreement attached to this proxy statement as Exhibit 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, us, the Partnership, Parent, Merger Sub I and Merger Sub II. These representations and warranties, which are set forth in the copy of the Merger Agreement attached to this proxy statement as Exhibit 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 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 our stockholders. 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 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.

Structure

The Partnership Merger

At the Partnership Merger Effective Time, Merger Sub II will be merged with and into the Partnership, the separate existence of Merger Sub II will cease, and the Partnership will be the Surviving Partnership in the Partnership Merger. At the Partnership Merger Effective Time, all the properties, rights, privileges, powers and franchises of the Partnership and Merger Sub II will vest in the Surviving Partnership, and all debts, liabilities, duties and obligations of the Partnership and Merger Sub II will become the debts, liabilities, duties and obligations of the Surviving Partnership.

The Company Merger

At the Company Merger Effective Time, Merger Sub I will be merged with and into the Company, the separate existence of Merger Sub I will cease and the Company will be the Surviving Company in the Company Merger. At the Company Merger Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub I will vest in the Surviving Company, and all debts, liabilities, duties and obligations of the Company and Merger Sub I will become the debts, liabilities, duties and obligations of the Surviving Company. Our Preferred Stock (and depositary shares in respect thereof) will remain outstanding following the Company Merger. The terms of the Preferred Stock (and depositary shares in respect thereof) will be unaffected by the Company Merger. Following the completion of the Company Merger, our Common Stock will no longer be traded on the NYSE and will be deregistered under the Exchange Act.

Effective Times; Closing Date

On the closing date, the Partnership and Merger Sub II will duly execute and file articles of merger with the SDAT. The Partnership Merger will become effective upon the later of the acceptance for record of the articles of

 

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merger with respect to the Partnership Merger by the SDAT or on such other date and time (not to exceed 30 days from the date the articles of merger with respect to the Partnership Merger are accepted for record by the SDAT) as may be mutually agreed to by the Company and Parent and specified in the articles of merger with respect to the Partnership Merger.

On the closing date, the Company and Merger Sub I will duly execute and file articles of merger with the SDAT. The Company Merger will become effective upon the later of the acceptance for record of the articles of merger with respect to the Company Merger by the SDAT or on such other date and time (not to exceed 30 days from the date the articles of merger with respect to the Company Merger are accepted for record by the SDAT) as may be mutually agreed to by the Company and Parent and specified in the articles of merger with respect to the Company Merger.

Unless otherwise agreed in writing by the parties to the Merger Agreement, the Partnership Merger Effective Time and the Company Merger Effective Time will occur on the closing date, with the Company Merger Effective Time occurring immediately after the Partnership Merger Effective Time.

In this proxy statement, we refer to the date on which the closing of the Mergers occurs as the “closing date.” The closing of the Mergers will take place on the third business day after satisfaction or waiver of the conditions to the Mergers described under “—Conditions to the Mergers” (other than those conditions that by their nature are to be satisfied or waived at the closing of the Mergers, but subject to the satisfaction or waiver of such conditions) or at such other date as may be mutually agreed to in writing by the parties to the Merger Agreement.

Governing Documents

At the Company Merger Effective Time, the charter of the Company, as in effect immediately prior to the Company Merger Effective Time, will be amended and restated in a form agreed to by the parties to the Merger Agreement and set forth on an exhibit to the Merger Agreement, and the amended charter will be the charter of the Surviving Company until thereafter amended as provided therein or by applicable law. The bylaws of the Company, as in effect immediately prior to the Company Merger Effective Time, will be the bylaws of the Surviving Company until thereafter amended as provided therein or by applicable law.

At the Partnership Merger Effective Time, the certificate of limited partnership of the Partnership, as in effect immediately prior to the Partnership Merger Effective Time, will be the certificate of limited partnership of the Surviving Partnership until thereafter amended as provided therein or by applicable law. The partnership agreement, as in effect immediately prior to the Partnership Merger Effective Time (being in the form attached on an exhibit to the Merger Agreement) will be the limited partnership agreement of the Surviving Partnership until thereafter amended as provided therein or by applicable law.

Directors; Officers; General Partner and Limited Partners of the Surviving Entities

From and after the Company Merger Effective Time, the board of directors of the Surviving Company will consist of the individuals designated by Parent pursuant to a written notice to the Company prior to the Company Merger Effective Time. The officers of the Company immediately prior to the Company Merger Effective Time will be the officers of the Surviving Company from and after the Company Merger Effective Time. The Company will be the sole general partner and a limited partner of the Surviving Partnership following the Partnership Merger Effective Time.

Treatment of Common Stock, Preferred Stock and Equity Awards

Common Stock

At the Company Merger Effective Time, each share of our Common Stock (other than the cancelled shares) issued and outstanding immediately prior to the Company Merger Effective Time will be automatically

 

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converted into the right to receive the merger consideration. If we declare an Additional Dividend, which is a dividend determined by us to be reasonably necessary to maintain our status as a REIT under the Code or to avoid the imposition of income or excise tax or any other entity-level tax as permitted under the Merger Agreement, the merger consideration will be decreased by an amount equal to the per share amount of such Additional Dividend. Additionally, immediately prior to the Partnership Merger Effective Time, we will be required to pay the Closing Cash Dividend to holders of record of our Common Stock as of the close of business on the business day immediately prior to the closing date in an amount reasonably determined by the Company in consultation with Parent equal to or in excess of the sum of (i) the amount required to be distributed to avoid the imposition of income or excise tax or any other entity-level tax for the Company’s hypothetical short taxable year ending on the closing date as a result of the Mergers or the Company’s taxable year ended December 31, 2021 and (ii) the estimated accumulated earnings and profits of the Company, calculated pursuant to applicable Treasury Regulations, for the Company’s hypothetical short taxable year ending on the closing date as a result of the Mergers, so long as any such Closing Cash Dividend is no greater than the cash available for distribution. The Closing Cash Dividend will also reduce the merger consideration per share by an amount equal to the per share amount of such Closing Cash Dividend.

Preferred Stock

Each share of Preferred Stock issued and outstanding immediately prior to the Company Merger Effective Time and each depositary share issued pursuant to the deposit agreements for the Preferred Stock, representing one-thousandth of one share of Preferred Stock issued and outstanding immediately prior to the Company Merger Effective Time will be unaffected by the Company Merger and will remain outstanding in accordance with their respective terms.

Company Options

Immediately prior to the Company Merger Effective Time, each Company Option that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company Option immediately prior to the Company Merger Effective Time multiplied by (2) the excess (if any) of the merger consideration over the per share exercise price applicable to the Company Option, less any applicable withholding taxes. Each Company Option with a per share exercise price that exceeds the merger consideration will be cancelled for no consideration.

Company RSU Awards

Immediately prior to the Company Merger Effective Time, each Company RSU Award that is outstanding immediately prior to the Company Merger Effective Time will be cancelled in exchange for a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company RSU Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

Company DSU Awards

Immediately prior to the Company Merger Effective Time, each Company Deferred Stock Unit Award that is outstanding immediately prior to the Company Merger Effective Time will become vested and, at the Company Merger Effective Time, be converted into a right to receive a cash payment in an amount equal to (1) the number of shares of Common Stock subject to the Company Deferred Stock Unit Award immediately prior to the Company Merger Effective Time multiplied by (2) the merger consideration, less any applicable withholding taxes.

 

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2022 Equity Incentive Plan Awards

Immediately prior to the Company Merger Effective Time, each 2022 EIP Award will be cancelled in exchange for a specified cash payment, less any applicable withholding taxes.

Treatment of Interests in the Partnership

Partnership Units

At the Partnership Merger Effective Time, each partnership unit (other than units held by the Company, Parent, Merger Sub II or any of their respective wholly owned subsidiaries) issued and outstanding immediately prior to the Partnership Merger Effective Time will be cancelled in exchange for the right to receive an amount in cash equal to the merger consideration.

Company Partnership Interests

At the Partnership Merger Effective Time, each partnership unit owned by the Company or any of its subsidiaries immediately prior to the Partnership Merger Effective Time will remain outstanding as a partnership unit of the Surviving Partnership held by the Company or the relevant subsidiary. Following the Company Merger Effective Time, the Surviving Company will be the general partner of the Surviving Partnership and will have such rights, duties and obligations as are more fully set forth in the partnership agreement of the Surviving Partnership, as amended in accordance with the terms of the Merger Agreement.

No Further Ownership Rights

At the Company Merger Effective Time and the Partnership Merger Effective Time, as applicable, holders of our Common Stock and the holders of partnership units of the Partnership, respectively, that have their shares or units converted into the right to receive the merger consideration will cease to be, and will have no rights as, our stockholders or limited partners of the Partnership other than the right to receive the merger consideration. The merger consideration paid, delivered or issued upon the surrender for exchange of certificates representing Common Stock or partnership units will be deemed to have been paid, delivered or issued, as the case may be, in full satisfaction of all rights and privileges pertaining to the Common Stock or partnership units exchanged therefor.

Exchange and Payment Procedures

At or before the Partnership Merger Effective Time, Parent will deposit, or cause to be deposited, with a paying agent reasonably satisfactory to us, for the benefit of the holders of our Common Stock and the partnership units, the merger consideration, less the merger consideration to be paid in respect of our equity awards as described in “—Treatment of Common Stock, Preferred Stock and Equity Awards” above (which amounts will be paid or delivered directly to the Surviving Company). As soon as practicable after the closing date (but in any event within five business days), the paying agent will mail to each holder of record of a certificate or certificates that, immediately prior to the Company Merger Effective Time, represented outstanding shares of Common Stock or that, immediately prior to the Partnership Merger Effective Time, represented partnership units, a letter of transmittal and instructions for use in effecting the surrender of the certificates in exchange for the merger consideration to which the holder thereof is entitled. The letter of transmittal and instructions will tell you how to surrender your certificates representing shares of Common Stock or partnership units, as applicable, in exchange for the merger consideration.

Holders of book-entry shares of Common Stock or book-entry partnership units will not receive a letter of transmittal for their shares of Common Stock or partnership units from the paying agent. Instead, holders of such book-entry shares of Common Stock or book-entry partnership units will automatically be entitled to receive in exchange therefor the merger consideration to which the holder thereof is entitled.

 

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Upon surrender of a certificate that previously represented shares of Common Stock or partnership units to the paying agent, together with a letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the paying agent, the holder of such certificate will be entitled to receive the merger consideration payable in respect of the shares of our Common Stock or partnership units, as applicable, previously represented by such certificate. The merger consideration may be paid to a person other than the person in whose name the certificate so surrendered is registered in our and the Partnership’s transfer records, if any such certificate is properly endorsed or otherwise in proper form for transfer and the person requesting such payment pays any transfer or other similar taxes or establishes to the reasonable satisfaction of Parent that such tax has been paid or is not applicable.

No interest will be paid or will accrue on any cash payable upon surrender of any certificate. The Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent, Merger Sub I, Merger Sub II or the paying agent (and any affiliates or designees of the foregoing) and any other applicable withholding agent, as applicable, will be entitled to deduct and withhold from any amounts otherwise payable pursuant to the Merger Agreement to any person such amounts as it is required to deduct and withhold with respect to the making of such payment (and, with respect to our equity awards, the vesting and/or cancellation of such equity awards) under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or non-U.S. tax law. To the extent that amounts are so deducted or withheld and paid over to the appropriate governmental entity, such deducted and withheld amounts shall be treated as having been paid to the person in respect of which such deduction or withholding was made.

On the closing date, the share transfer books of the Company and the unit transfer books of the Partnership will be closed and thereafter there will be no further registration of transfers of shares of Common Stock or partnership units.

None of Parent, Merger Sub I, the Surviving Company, the Partnership, Merger Sub II, the Surviving Partnership, the Company or the paying agent, or any employee, officer, trustee, director, agent or affiliate thereof, will be liable to any person in respect of merger consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Any portion of the merger consideration which remains undistributed to the holders of the certificates or the holders of any shares of Common Stock or partnership units held in book-entry for 12 months after the closing date will be delivered to the Surviving Company, and any holders of our Common Stock or partnership units prior to the Company Merger Effective Time or Partnership Merger Effective Time, as applicable, who have not theretofore complied with the exchange and payment procedures contained in the Merger Agreement must look only to the Surviving Company and only as general creditors thereof for payment of the merger consideration.

If any certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed to the reasonable satisfaction of Parent and the paying agent and the taking of such other actions as may be reasonably requested by the paying agent, the paying agent will issue, in exchange for such lost, stolen or destroyed certificate, the merger consideration, pursuant to the Merger Agreement.

Representations and Warranties

We and the Partnership, jointly and severally, 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 confidential disclosure schedules 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 its properties and assets and to carry on the businesses of each of us, the Partnership and our subsidiaries;

 

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our charter, bylaws and deposit agreements and the similar organizational documents of the Partnership;

 

   

the capital structure and indebtedness of, and the absence of restrictions or encumbrances with respect to the equity interests of each of us, the Partnership and our subsidiaries;

 

   

our and the Partnership’s power and authority to execute and deliver the Merger Agreement, and, subject to the approval of our common stockholders, to consummate the transactions contemplated by the Merger Agreement;

 

   

the enforceability of the Merger Agreement against us and the Partnership;

 

   

the absence of conflicts with, or violations of, laws or organizational documents and the absence of any consents under, conflicts with or defaults under contracts to which we, the Partnership or any of our subsidiaries is a party, in each case as a result of us executing, delivering and performing under or consummating the transactions contemplated by the Merger Agreement;

 

   

approvals of, filings with, or notices to, governmental entities required in connection with entering into, performing under or consummating the transactions contemplated by the Merger Agreement;

 

   

our and the Partnership’s SEC filings since January 1, 2020 and the financial statements contained in those filings;

 

   

our internal controls over financial reporting and the disclosure controls and procedures;

 

   

the accuracy of the information supplied by us in this proxy statement;

 

   

the absence of any material adverse effect (as discussed below) and certain other changes and events since December 31, 2021;

 

   

the absence of liabilities required to be recorded on a balance sheet under generally accepted accounting principles as applied in the United States (“GAAP”) since December 31, 2021;

 

   

possession of all permits necessary for us and our subsidiaries to own, lease and operate our and our subsidiaries’ properties and assets and to carry on and operate our and our subsidiaries’ businesses as currently conducted, the absence of a failure by us or our subsidiaries to comply with such permits, and the conduct by us and our subsidiaries of our and our subsidiaries’ businesses in compliance with applicable laws;

 

   

our and our subsidiaries’ compliance with laws, including the Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder;

 

   

the absence of any suit, claim, action, investigation or proceeding against us or our subsidiaries;

 

   

our and our subsidiaries’ employee compensation and benefit plans, agreements, and policies;

 

   

labor matters affecting us and our subsidiaries;

 

   

tax matters affecting us and our subsidiaries;

 

   

real property owned and leased by us and our subsidiaries; our and our subsidiaries’ ground leases, leases, space leases, development projects, participation agreements and joint venture agreements;

 

   

environmental matters affecting us and our subsidiaries;

 

   

intellectual property used by, owned by or licensed by us and our subsidiaries;

 

   

our and our subsidiaries’ material contracts and the absence of any breach of or default under the terms of any material contract;

 

   

the receipt by our board of directors of a fairness opinion from J.P. Morgan, to the effect that, as of the date of such fairness opinion, the merger consideration to be received by the holders of our shares of Common Stock is fair, from a financial point of view, to such holders;

 

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the exemption of the Mergers and the Merger Agreement from the requirements of any moratorium, control share, fair price, affiliate transaction, business combination or other takeover laws and regulations in the Maryland General Corporation Law (including the Maryland Business Combination Act and Maryland Control Share Acquisition Act), the California Revised Uniform Limited Partnership Act or the Maryland Revised Uniform Limited Partnership Act;

 

   

the vote of the stockholders required in connection with the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and the approval of us as the general partner of the Partnership;

 

   

our and our subsidiaries’ insurance policies;

 

   

our and our subsidiaries’ status under the Investment Company Act of 1940; and

 

   

the absence of any broker’s or finder’s fees, other than those payable to our financial advisors, in connection with the transactions contemplated by the Merger Agreement.

Many of our representations and warranties are qualified by the concept of a “material adverse effect.” Under the terms of the Merger Agreement, a “material adverse effect” means any change, event, state of facts or development that has had or would reasonably be expected to have a material adverse effect on (1) the business, financial condition, assets or continuing results of operations of us and our subsidiaries, taken as a whole, or (2) the ability of us or the Partnership to consummate the Mergers before October 24, 2022; provided, however, that in the case of clause (1), no change, event, state of facts or development resulting from any of the following shall be deemed to be, or taken into account in determining whether there has been or will be, a “material adverse effect”:

 

   

the entry into or the announcement, pendency or performance of the Merger Agreement or the transactions contemplated by the Merger Agreement, including (i) the identity of Parent and its affiliates, (ii) by reason of any communication by Parent or any of its affiliates regarding the plans or intentions of Parent with respect to the conduct of our and our subsidiaries’ business following the Company Merger Effective Time, (iii) the failure to obtain any third party consent in connection with the transactions contemplated thereby and (iv) the impact of any of the foregoing on any relationships with customers, suppliers, vendors, business partners, employees or any other person;

 

   

any change, event or development in or affecting financial, economic, social or political conditions generally or the securities, credit or financial markets in general, including inflation, interest rates or exchange rates, or any changes therein, in the United States or other countries in which we or our subsidiaries conduct operations or any change, event or development generally affecting the industries in which we and our subsidiaries operate;

 

   

any change in the market price or trading volume of our equity securities or of our or our subsidiaries’ equity or credit ratings or our or our subsidiaries’ ratings outlook by any applicable rating agency; provided, however, that the exception in this bullet point shall not prevent the underlying facts giving rise or contributing to such change, if not otherwise excluded from the definition of material adverse effect, from being taken into account in determining whether a material adverse effect has occurred;

 

   

the suspension of trading in securities generally on the NYSE;

 

   

any adoption, implementation, proposal or change after the date of the Merger Agreement in any applicable law or GAAP or interpretation of any of the foregoing;

 

   

any action taken or not taken to which Parent has consented in writing;

 

   

any action expressly required to be taken by the Merger Agreement or taken at the request of Parent;

 

   

the failure of us or our subsidiaries to meet any internal or public projections, budgets, forecasts or estimates of revenues, earnings or other financial results for any period ending on or after the date of the Merger Agreement; provided, however, that the exception in this bullet point shall not prevent the

 

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underlying facts giving rise or contributing to such failure, if not otherwise excluded from the definition of material adverse effect, from being taken into account in determining whether a material adverse effect has occurred; and provided, further, that this bullet point shall not be construed as implying that we are making any representation or warranty with respect to any internal or public projections, budgets, forecasts or estimates of revenues, earnings or other financial results for any period;

 

   

the commencement, occurrence, continuation or escalation of any war (whether or not declared), civil disobedience, sabotage, armed hostilities, military or para-military actions or acts of terrorism (including cyberattacks);

 

   

any actions or claims made or brought by any of our or our subsidiaries’ current or former stockholders or equityholders (or on their behalf or on behalf of us or our subsidiaries, but in any event only in their capacities as current or former stockholders or equityholders) arising out of the Merger Agreement or the Mergers; or

 

   

the existence, occurrence or continuation of any force majeure events, including any earthquakes, floods, hurricanes, tropical storms, fires or other natural disasters or any national, international or regional calamity or any outbreak of illness, epidemic, pandemic or other public health event (including COVID-19) or any COVID-19 measures or other restrictions to the extent relating to, or arising out of, any outbreak of illness, epidemic, pandemic or other public health event (including COVID-19) or any material worsening of any of the foregoing;

provided, that (1) with respect to the exceptions set forth in the second, fifth, ninth and eleventh bullet points above, such changes, events, state of facts or developments may be taken into account to the extent they disproportionately adversely affect us and our subsidiaries, taken as a whole, compared to other companies operating in the United States in the industries in which we and our subsidiaries operate and (2) clause (iii) of the first bullet point above does not apply to the references to material adverse effect in certain representations and warranties.

The Merger Agreement also contains customary representations and warranties made, jointly and severally, by Parent, Merger Sub I and Merger Sub II that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. 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 its properties and assets and to carry on their businesses;

 

   

their power and authority to execute and deliver the Merger Agreement and to consummate the transactions contemplated by the Merger Agreement;

 

   

the enforceability of the Merger Agreement against them;

 

   

the absence of conflicts with, or violations of, laws or organizational or governing documents and the absence of any consents under, conflicts with or defaults under contracts to which they are a party, in each case as a result of them executing, delivering and performing under or consummating the transactions contemplated by, the Merger Agreement;

 

   

approvals of, filings with, or notices to, governmental entities required in connection with entering into, performing under or consummating the transactions contemplated by, the Merger Agreement;

 

   

the absence of any suit, claim, action or proceeding against them which would reasonably be expected to prevent, materially delay or materially impair the consummation of the transactions contemplated by the Merger Agreement;

 

   

no broker, finder or investment banker being entitled to any brokerage, finder’s or other fee or commission payable by us or any of our affiliates or us or our affiliates’ respective stockholders in connection with the Mergers based upon arrangements made by and on behalf of them;

 

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the accuracy of the information supplied by them in this proxy statement;

 

   

the ownership of Merger Sub I and Merger Sub II and absence of prior conduct of activities or business of Merger Sub I and Merger Sub II;

 

   

the equity commitment letter made available by Parent to us (including the enforceability thereof) and, assuming that the equity funding is provided in accordance with the equity commitment letter, the accuracy of the representations and warranties under the Merger Agreement and the performance by us and the Partnership in all material respects of our obligations under the Merger Agreement, that at the closing Parent will have sufficient cash on hand to consummate the transactions contemplated by the Merger Agreement and satisfy all of its obligations under the Merger Agreement including the payment of the merger consideration, any fees and expenses, any payments in respect of equity compensation obligations required to be made in connection with, or as a result of, the Mergers and any repayment or refinancing of any outstanding indebtedness of Parent, the Company and their respective subsidiaries required in connection therewith;

 

   

the guaranty executed by the Sponsor;

 

   

the solvency of Parent, the Surviving Company and each subsidiary of the Surviving Company, including the Surviving Partnership, immediately following the Company Merger Effective Time and after giving effect to all of the transactions contemplated by the Merger Agreement; and

 

   

the absence of any contract with any bank or investment bank or other potential provider of debt or equity financing on an exclusive basis in connection with any transaction involving us or the Partnership (or otherwise on terms that would prohibit such provider from providing or seeking to provide such financing to any third party in connection with a transaction relating to us or our subsidiaries).

The representations and warranties of each of the parties to the Merger Agreement will expire upon the closing of the Mergers.

Conduct of Our Business Pending the Mergers

Under the Merger Agreement, we have agreed that, subject to certain exceptions set forth in the Merger Agreement or the confidential disclosure schedules delivered in connection therewith or unless Parent consents in writing (which consent may not be unreasonably withheld, delayed or conditioned), between the date of the Merger Agreement and the earlier of the Partnership Merger Effective Time and the termination of the Merger Agreement in accordance with its terms (which period we refer to as the “interim period”), we will, and will cause our subsidiaries to, in all material respects, use commercially reasonable efforts:

 

   

to carry on our and our subsidiaries’ respective businesses in the ordinary course of business, consistent with the Company budget;

 

   

to maintain and preserve substantially intact our and our subsidiaries’ current business organizations;

 

   

to retain the services of our and our subsidiaries’ respective current officers and key employees;

 

   

to preserve our and our subsidiaries’ goodwill and relationships with tenants, customers and others having business dealings with us and our subsidiaries; and

 

   

to preserve our and our subsidiaries’ assets and properties in good repair and condition (normal wear and tear excepted).

We have also agreed that during the interim period, subject to certain exceptions set forth in the Merger Agreement or the confidential disclosure schedules delivered in connection therewith or unless Parent consents in

 

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writing (which consent may not be unreasonably withheld, delayed or conditioned), we and our subsidiaries will not, among other things:

 

   

amend our or the Partnership’s organizational or governance documents, deposit agreements or, other than in the ordinary course of business, our other subsidiaries’ organizational or governance documents;

 

   

authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver any shares of any class, partnership interests or any equity equivalents (including any share options or share appreciation rights) or any other securities convertible into or exchangeable for any shares, partnership interests or any equity equivalents (including any share options or share appreciation rights), except for (1) the issuance or sale of shares of our Common Stock (i) pursuant to Company equity awards that are outstanding as of the date of the Merger Agreement or (ii) issuable upon exchange or redemption of common units of partnership interest of the Partnership in accordance with the terms of the partnership agreement, or (2) the issuance of partnership units issued to the Company in connections with the issuance of Common Stock permitted under the Merger Agreement;

 

   

split, combine or reclassify any of our or any of our subsidiaries’ share capital, partnership interests or other equity interests;

 

   

authorize, declare, set aside or pay any dividend or other distribution in respect of our or our subsidiaries’ share capital, partnership interests or other equity interests or make any actual, constructive or deemed distribution in respect of any shares of our or our subsidiaries’ share capital, partnership interests or other equity interests or otherwise make any payments to equityholders in their capacity as such, except (1) for (A) distributions reasonably necessary to maintain our status as a REIT under the Code or to avoid the imposition of income or excise tax or any other entity-level tax and (B) the Closing Cash Dividend on the day immediately prior to the closing date, in an aggregate amount no greater than the cash available for distribution, which distributions will result in a reduction of the merger consideration as described under “—Treatment of Common Stock, Preferred Stock and Equity Awards — Common Stock,” (2) for the payment of dividends or distributions declared prior to the date of the Merger Agreement, (3) for the declaration and payment in the ordinary course of business of regular quarterly cash dividends or other distributions on the Company Stock (including Company Stock subject to Company RSU Awards and Company Deferred Stock Unit Awards), the common units of partnership interest of the Partnership, the Preferred Stock and the preferred partnership units in an amount (x) not to exceed a quarterly rate of $1.05 per share of Common Stock, (y) not to exceed a quarterly rate of $1.05 per preferred unit of partnership interest of the Partnership and (z) not to exceed the amount of dividend per quarter per share of Preferred Stock required to be paid under our charter for such quarter, (4) for the dividends accruing on Company equity awards that are outstanding as of the date of the Merger Agreement, (5) in transactions between us and one or more of our wholly owned subsidiaries (other than the Partnership) or solely between our wholly owned subsidiaries, or (6) for distributions by any of our subsidiaries that is not wholly-owned, directly or indirectly, by us, in accordance with the requirements of the organizational or governing documents of such subsidiary;

 

   

redeem, repurchase or otherwise acquire, directly or indirectly, any of our or our subsidiaries’ securities or any securities of any of our or our subsidiaries’ subsidiaries, except (A) as may be required by our charter or the partnership agreement (including any redemption of common units of partnership interest of the Partnership in accordance with the Partnership Agreement) or the retention or acquisition of any Company Stock tendered by current or former employees or directors in order to pay the exercise price of any Company Options or taxes in connection with the exercise or vesting of any Company equity awards outstanding as of the date of the Merger Agreement, or (B) as may be reasonably necessary for us to maintain our status as a REIT under the Code or avoid the payment of any income or excise tax;

 

   

enter into any contract with respect to the voting or registration of any capital share or equity interest of us or our subsidiaries;

 

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authorize, recommend, propose or announce an intention to adopt or effect, or adopt or effect a plan of complete or partial liquidation, dissolution, merger, consolidation, conversion, restructuring, recapitalization or other reorganization;

 

   

incur, assume or guarantee any indebtedness for borrowed money or issue any debt securities, or assume or guarantee any indebtedness for borrowed money of any person, except (1) intercompany indebtedness among us and/or any of our wholly-owned subsidiaries, (2) for borrowings and guarantees under our existing loan documents in the ordinary course of business practice (including borrowings necessary for capital expenditures and to pay dividends permitted by the Merger Agreement) that do not, in the aggregate, exceed $10,000,000 or (3) in connection with certain allowed acquisitions of any interest in any person or any assets, real property, personal property, equipment, business or other rights (subject to certain requirements, as described below), provided that any indebtedness shall be prepayable at any time without penalty or premium;

 

   

prepay, refinance or amend any indebtedness, except for (1) intercompany indebtedness among us and/or any of our wholly-owned subsidiaries, (2) repayments under our existing loan documents in the ordinary course of business (specifically excluding the loans secured, directly or indirectly, by any of our real property), and (3) mandatory payments under the terms of any indebtedness in accordance with its terms;

 

   

make loans, advances or capital contributions to or investments in any person (other than (1) as required or permitted in the ordinary course of business by the contracts listed on the disclosure schedules, (2) in connection with certain transactions as permitted in the Merger Agreement or (3) loans, advances or capital contributions to or investments in any wholly-owned Company subsidiary in the ordinary course of business);

 

   

create or suffer to exist any material lien (other than certain permitted liens) on shares of stock, partnership interests or other equity interests of any of our subsidiaries held by us or another of our subsidiary;

 

   

except as required by any Company employee benefit plan, (1) enter into, adopt, amend or terminate any Company employee benefit plan; (2) enter into, adopt, amend or terminate any agreement, arrangement, plan or policy between us or any of our subsidiaries and one or more of our or our subsidiaries’ directors or executive officers; (3) increase in any manner the compensation or fringe benefits of any employee, officer or director, except for increases or payments in the ordinary course of business with respect to any employee who is not an executive officer; (4) grant to any officer, trustee, director or employee the right to receive any severance, change of control or termination pay or termination benefits or any increase in the right to receive any severance, change of control or termination pay or termination benefits; (5) enter into any new employment, loan, retention, consulting, indemnification, change-in-control, termination or similar agreement, except in the ordinary course of business with respect to any employee who is not an executive officer; (6) grant any awards under any bonus, incentive, performance or other compensation plan or arrangement or Company employee benefit plan (including the grant of stock options, stock appreciation rights, stock-based or stock-related awards, performance units, restricted stock or long-term incentive units); (7) hire any new employee, other than with respect to a non-executive officer employee with a prospective base salary of not more than $200,000; or (8) take any action to fund, accelerate or in any way secure the payment of compensation or benefits under any employee plan, agreement, contract or arrangement or Company employee benefit plan;

 

   

other than in the ordinary course of business, sell, transfer, assign, dispose of, pledge or encumber (other than certain permitted liens) any of our or our subsidiaries’ material personal property, equipment or assets (other than as provided in the Merger Agreement);

 

   

sell, transfer, pledge, dispose of, lease, ground lease, license, or encumber (other than certain permitted liens) any real property (including our real property) other than execution of easements, covenants,

 

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rights of way, restrictions and other similar instruments in the ordinary course of business that, individually or in the aggregate, would not reasonably be expected to materially impair the existing use, operation or value of, the property or asset affected by the applicable instrument, except in connection with the incurrence of any indebtedness permitted to be incurred by the Company pursuant to the Merger Agreement and any execution of Company space leases entered into in accordance with the terms of the Merger Agreement;

 

   

make any material change to any financial accounting policies or financial accounting procedures that would materially affect the consolidated assets, liabilities or results of operations of us or any of our subsidiaries, except as may be required as a result of a change in law or in GAAP or statutory or regulatory accounting rules or interpretations with respect thereto or any governmental entity or quasi-governmental entity;

 

   

acquire any interest in any person (or equity interests thereof) or any assets, real property, personal property, equipment, business or other rights, other than (1) acquisitions of personal property and equipment in the ordinary course of business (including in connection with new development or expansion not otherwise prohibited by the Merger Agreement) for consideration that does not individually or in the aggregate exceed $7,000,000, (2) pursuant to our or our subsidiaries’ existing contractual obligations as set forth in certain specified contracts, (3) any other acquisitions of assets or businesses (excluding purchases of real property or a ground lease interest therein) pursuant to certain specified contracts, and (4) any acquisitions of real property (or a ground lease therein) pursuant to certain specified contracts;

 

   

except, in each case, if we reasonably determine, after prior consultation with Parent, that such action is reasonably necessary to preserve our status as a REIT or to preserve the status of any of our subsidiaries as a REIT, partnership, disregarded entity, taxable REIT subsidiary or qualified REIT subsidiary for U.S. federal tax purposes, (1) file any material tax return that is materially inconsistent with a previously filed tax return of the same type for a prior taxable period (taking into account any amendments), (2) make, rescind or change any entity classification or other material election relating to taxes, (3) settle or compromise any material tax liability, audit, claim or assessment by any governmental entity, (4) change any accounting method with respect to taxes, (5) change any tax accounting period, (6) enter into any material closing agreement with a governmental entity, (7) surrender any right to claim a refund of a material amount of taxes or (8) give or request any extension or waiver of the limitation period applicable to any material tax claim or assessment (other than in the ordinary course of business);

 

   

settle or compromise any claim, suit or proceeding against us or any of our subsidiaries (or for which we or any of our subsidiaries would be financially responsible) (other than claims, suits or proceedings with respect to taxes), except for (1) settlements or compromises providing solely for payment of amounts less than $2,000,000 individually, or $5,000,000 in the aggregate, or (2) claims, suits or proceedings arising from the ordinary course of our operations involving collection matters (to the extent we are the defendant) or personal injury which are fully covered by adequate insurance (subject to customary deductibles);

 

   

enter into any new line of business;

 

   

(1) amend in any material respect or terminate, or waive compliance with the material terms of or material breaches under, or assign, or renew or extend (except as may be required under the terms thereof), any material space lease or material company lease, (2) amend or terminate, or waive compliance with the terms of or breaches under, or assign, or renew or extend (except as may be required by the terms thereof) any other material contract, (3) enter into any new material contract, agreement or arrangement, or (4) enter into, renew or extend any specified space lease other than on terms consistent with certain specified terms, or amend the term (including any renewal options) of any existing specified space leases, except, to effect any matter that is otherwise permitted by the other bullet points in this section of the Merger Agreement, provided, that solely for the purposes of this

 

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bullet point, with respect to the entry into of new Material Space Leases or the renewal or extension of existing material space leases, (x) “$500,000” in the definition of “material space lease” shall be replaced with “$250,000” and (y) “25,000 square feet of space” in the definition of “material space lease” shall be replaced with “10,000 square feet of space”, provided, however, that Parent shall be deemed to have given its written consent to such actions (subject to certain specified exceptions) if Parent fails to respond to our written request for approval of any such action within forty-eight (48) hours of receipt of any such request;

 

   

make, enter into any contract for, or otherwise commit to any capital expenditures (which, for the avoidance of doubt, does not include acquisitions) on, relating to, or adjacent to any of our real property, except for (1) capital expenditures required by law, (2) emergency capital expenditures in any amount that we determine is necessary in our reasonable judgment to maintain our ability to operate our businesses in the ordinary course, (3) capital expenditures in an aggregate amount of up to certain specified thresholds subject to a budget, or (4) capital expenditures in any amount not exceeding $5,000,000 in the aggregate;

 

   

initiate or consent to any material zoning reclassification of any of our real property or any material change to any approved site plan (in each case, that is material to our real property or plan, as applicable), special use permit or other land use entitlement affecting any of our material real property, in each case, in a manner that would (x) materially inhibit our ability to develop our real property for its currently permitted uses or ability to use our real property for its currently permitted operations or (y) impose material obligations on us in connection with the development or use of such real property;

 

   

amend, modify or terminate, or authorize any person to amend, modify, terminate or allow to lapse, any material company permit;

 

   

fail to use commercially reasonable efforts to maintain in full force and effect our or our subsidiaries’ existing insurance policies or to replace our insurance policies with comparable insurance policies covering us and our subsidiaries and our and our subsidiaries’ respective properties, assets and businesses (including real property);

 

   

agree to any material condemnation or payment of material condemnation proceeds;

 

   

enter into any tax protection agreement;

 

   

change (i) any posted privacy policy in any manner that is materially adverse to our or our subsidiaries’ rights or obligations under such policy or (ii) materially diminish the standards of data and system security used for any material IT asset, except as may be required as a result of a change in applicable law;

 

   

apply for or receive any relief under the CARES Act; and

 

   

authorize or enter into any contract or arrangement to do any of the actions described in the foregoing bullet points.

Notwithstanding anything to the contrary in the foregoing bullet points, nothing will prohibit any transactions between us and one or more of our wholly-owned subsidiaries (other than the Partnership) or between any of our wholly-owned subsidiaries.

Company Stockholders’ Meeting

Under the Merger Agreement, we are required, as soon as reasonably practicable following the date that this proxy statement is cleared by the SEC for mailing to our common stockholders, to duly call, give notice of, convene and hold a meeting of the holders of our Common Stock for the purpose of seeking stockholder approval of the Company Merger and the other transactions contemplated by the Merger Agreement, which we refer to as the special meeting, provided that we are not required to convene and hold the special meeting prior to

 

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11:59 p.m. (New York City time) on June 4, 2022 or such later “cut-off time” as described below pursuant to terms of the Merger Agreement. We are required to (1) through our board of directors, recommend to holders of our Common Stock that they vote in favor of the Company Merger so that we may obtain the approval for the Company Merger and the other transactions contemplated by the Merger Agreement and (2) use our reasonable best efforts to solicit the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by the holders of our Common Stock (including by soliciting proxies from our common stockholders), except in each case to the extent that our board of directors has effected an adverse recommendation change, as permitted by and determined in accordance with the provisions described below under “—Company Acquisition Proposals; Non-Solicitation” and “—Obligation of the Board of Directors with Respect to Its Recommendation.” Unless the Merger Agreement is terminated in accordance with its terms, we are prohibited from submitting to the vote of our common stockholders any Company Acquisition Proposal.

For purposes of the Merger Agreement a “Company Acquisition Proposal” means any inquiry, offer or proposal from any person or “group” (as defined in Section 13(d)(3) of the Exchange Act) regarding any of the following (other than the Mergers) involving any of us, the Partnership or our respective subsidiaries:

 

   

any merger, consolidation, share exchange, recapitalization, dissolution, liquidation, business combination or other similar transaction involving us or the Partnership;

 

   

any sale, lease, exchange, mortgage, pledge, transfer or other disposition, directly or indirectly, by merger, consolidation, sale of equity interests, share exchange, joint venture, business combination or otherwise, of 15% or more of the consolidated assets of us, the Partnership and our other subsidiaries, taken as a whole (as determined on a book-value basis (including indebtedness secured solely by such assets)), in a single transaction or series of related transactions;

 

   

any issue, sale or other disposition (including by way of merger, consolidation, sale of equity interests, share exchange, joint venture, business combination or otherwise) of securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing 15% or more of our voting power or 15% or more of the equity interests or general partner interests in the Partnership;

 

   

any tender offer or exchange offer for 15% or more of any class of our equity securities or 15% or more of the equity interests or general partner interests in the Partnership or the filing of a registration statement under the Securities Act in connection therewith;

 

   

any other transaction or series of related transactions pursuant to which any third party proposes to acquire control of our or the Partnership’s and our respective subsidiaries’ assets having a fair market value equal to or greater than 15% of the fair market value of all of our, the Partnership’s and our respective subsidiaries’ assets, taken as a whole, immediately prior to such transaction; or

 

   

any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

Notwithstanding anything to the contrary contained in the Merger Agreement, we may adjourn or postpone the special meeting, after consultation with Parent: (a) to the extent necessary to ensure that any required supplement or amendment to this proxy statement is provided to our common stockholders within a reasonable amount of time in advance of a vote on the Company Merger; if additional time is reasonably required to solicit proxies in favor of the approval of the Company Merger; or (c) if there are insufficient shares of Company Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the special meeting, provided that, in the case of clause (b) or clause (c), without the written consent of Parent, in no event will the special meeting (as so postponed or adjourned) be held on a date that is more than 30 days after the date for which the special meeting was originally scheduled.

Under the Merger Agreement, we must call, give notice of, convene and hold the special meeting and mail this proxy statement to our stockholders without regard to an adverse recommendation change, unless the Merger Agreement has been terminated in accordance with its terms.

 

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Agreement to Take Certain Actions

Subject to the terms and conditions of the Merger Agreement, each party to the Merger Agreement has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to consummate the Mergers as promptly as practicable and to cause to be satisfied all conditions precedent to its obligations under the Merger Agreement, including, consistent with the foregoing,

 

   

preparing and filing as promptly as practicable with the objective of being in a position to consummate the Mergers as promptly as practicable following the date of the special meeting, all documentation to effect all necessary or advisable applications, notices, petitions, filings, and other documents and to obtain as promptly as practicable all consents, waivers, licenses, orders, registrations, approvals, permits, rulings, authorizations and clearances necessary or advisable to be obtained from any governmental entity or third party in connection with the transactions contemplated by the Merger Agreement, including any that are required to be obtained under any federal, state or local law or contract to which we or our subsidiaries are a party or by which any of our or our subsidiaries’ properties or assets are bound;

 

   

contesting, litigating, and defending all lawsuits or other legal proceedings against us or our affiliates relating to or challenging the Merger Agreement or the consummation of the Mergers; and

 

   

effecting all necessary or advisable registrations and other filings required under the Exchange Act or any other federal, state or local law relating to the Mergers.

Neither we nor our subsidiaries will be permitted to pay or commit to pay to any non-governmental third party any cash or other consideration, make any commitment or incur any liability or other obligation in connection with obtaining any required consent in connection with the transactions contemplated by the Merger Agreement from any such non-governmental third party unless Parent has provided its prior written consent. Neither we, nor the Partnership, nor Parent, nor any of their respective affiliates will be required to pay or commit to pay to such non-governmental third party whose approval or consent is being solicited in connection with the transactions contemplated by the Merger Agreement any cash or other consideration, make any commitment or incur any liability or other obligations in connection with obtaining any approval or consent from any such non-governmental third party, except in each case, if the payment, commitment or obligation is conditioned upon the closing of the Mergers.

In addition, in the event that any party fails to obtain any non-governmental third-party consent, the parties to the Merger Agreement will use reasonable best efforts to minimize any adverse effect upon us and Parent and our and their respective affiliates and businesses resulting, or which would reasonably be expected to result, after the Partnership Merger Effective Time, from the failure to obtain such non-governmental third-party consent.

Parent is required to, and will cause its subsidiaries to, take any and all actions to avoid the entry of, and resist, vacate, modify, reverse, suspend, prevent, eliminate or remove any actual, anticipated or threatened temporary, preliminary or permanent injunction or other order, decree, decision, determination or judgment entered or issued, or that becomes reasonably foreseeable to be entered or issued, in any proceeding or inquiry of any kind, in each case that would reasonably be expected to delay, restrain, prevent, enjoin or otherwise prohibit or make unlawful the consummation of the Mergers, including becoming subject to, consenting to, or offering or agreeing to, or otherwise taking any action with respect to, any requirement, condition, limitation, contract or order to (i) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of the Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent or any of their respective subsidiaries, (ii) conduct, restrict, operate, invest or otherwise change the assets, business or portion of business of the Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent or any of their respective subsidiaries in any manner or (iii) impose any restriction, requirement or limitation on the operation of the business or portion of the business of the Company, the Surviving Company, the Partnership, the Surviving Partnership or any of their respective subsidiaries; provided,

 

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however, that none of the Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent or any of their respective affiliates is required to take any of the actions set forth in clauses (i) through (iii) unless the effectiveness of such action is conditioned upon the closing of the Mergers; provided, further, that, nothing in the Merger Agreement will require any of Parent or its affiliates to agree or otherwise be required to, take any action, including any action contemplated in clauses (i) through (iii) above with respect to Parent or any of its affiliates (including Blackstone and any investment funds or investment vehicles affiliated with, or managed or advised by, Blackstone or any portfolio company (as such term is commonly understood in the private equity industry) or investment of Blackstone or of any such investment fund or investment vehicle), or any interest therein, other than with respect to the Company. In no event will the Company, Surviving Company, the Partnership, the Surviving Partnership or any of their respective affiliates negotiate, effect or agree to any action contemplated by clauses (i) — (iii) above without the prior written consent of Parent.

Parent, Merger Sub I and Merger Sub II will not, and will not permit any of their subsidiaries to, take or agree to take any action, including acquiring or agreeing to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in or otherwise making any investment in, or by any other manner, any person or portion thereof, or otherwise acquiring or agreeing to acquire or make any investment in any assets, or agreeing to any commercial or strategic relationship with any person, if the entering into of a definitive agreement relating to or the consummation of such acquisition, merger, consolidation, investment or commercial or strategic relationship would reasonably be expected to (i) impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any consent, approval, authorization, declaration, waiver, license, franchise, permit, certificate or order of any governmental entity necessary to consummate the transactions contemplated hereby or the expiration or termination of any applicable waiting period, (ii) materially increase the risk of any governmental entity entering an order prohibiting the consummation of the transactions contemplated by the Merger Agreement or (iii) materially delay the consummation of the transactions contemplated by the Merger Agreement.

Each party to the Merger Agreement has agreed to keep the other parties reasonably informed regarding any lawsuit or other legal proceeding relating to or challenging the Merger Agreement or the consummation of the Mergers unless doing so would, in the reasonable judgment of such party, jeopardize any of our or our subsidiaries’ privilege with respect thereto. We will promptly advise Parent in writing of the initiation of and any material developments regarding, and will reasonably consult with and permit Parent and its representatives to participate in the defense, negotiations or settlement of, any such lawsuit or other such legal proceeding, and we will give consideration to Parent’s advice with respect to such lawsuit or other such legal proceeding. We will not, and will not permit any of our subsidiaries nor any of our or our subsidiaries’ representatives to, compromise or settle any such lawsuit or other legal proceeding or consent thereto unless Parent otherwise consents in writing (which will not be unreasonably withheld, conditioned or delayed).

Each party to the Merger Agreement has agreed to take all action necessary so that no takeover statute is or becomes applicable to Parent, Merger Sub I, Merger Sub II, the Merger Agreement, the Mergers or any of the other transactions contemplated in the Merger Agreement. If any takeover statute becomes applicable, parties will take all actions necessary so that the Mergers and the other transactions contemplated in the Merger Agreement are consummated as promptly as practicable on the terms contemplated in the Merger Agreement.

Prior to the closing date, the Company will use reasonable best efforts to take, or cause to be taken, all actions reasonably necessary, proper or advisable to delist our Common Stock from the NYSE and deregister our Common Stock under the Exchange Act as promptly as practicable after such delisting.

Company Acquisition Proposals; Non-Solicitation

Actions Prior to “No-Shop Period Start Date”

Pursuant to the Merger Agreement, until the No-Shop Period Start Date, the Company, its subsidiaries, Public Storage and their respective directors, partners, managers, officers, employees, consultants, advisors

 

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(including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives had the right to:

 

   

solicit, initiate, encourage or facilitate any inquiry, discussion, offer, request or proposal that would constitute, or would reasonably be expected to lead to, a Company Acquisition Proposal;

 

   

provide information (including non-public information and data) regarding, and afford access to the business, properties, assets, books, records and personnel of, the Company and its subsidiaries to any person (and its representatives, including potential financing sources) pursuant to an acceptable confidentiality agreement (it being understood that such confidentiality agreement need not contain any “standstill” or similar provisions to the extent that it would prohibit the making or amendment of any non-public Company Acquisition Proposal to our board of directors) subject to the requirement that the Company provide to Parent, Merger Sub I and Merger Sub II any non-public information or data that is provided to any such person which was not previously made available to Parent, Merger Sub I and Merger Sub II prior to or substantially concurrently with the time it is provided to such person (and in any event within 48 hours);

 

   

engage in any discussions or negotiations with any person (and their respective representatives, including potential financing sources) with respect to a Company Acquisition Proposal or potential Company Acquisition Proposal or interest or potential interest with respect thereto; and

 

   

cooperate with, assist, participate in or facilitate any such inquiries, discussions, offers, requests or proposals that constitute, or could reasonably be expected to lead to, a Company Acquisition Proposal.

For purposes of the Merger Agreement an “excluded party” means any person or group of persons from whom the Company or any of its representatives has received a written bona fide Company Acquisition Proposal after the date of the Merger Agreement and prior to the No-Shop Period Start Date, which the board has determined in good faith (after consultation with its outside legal and financial advisors), prior to the No-Shop Period Start Date, constitutes or could reasonably be expected to lead to a Superior Proposal.

However, any such person or group of persons will immediately cease to be an excluded party upon the earliest to occur of the following:

 

   

such time as such person’s or group of person’s Company Acquisition Proposal is withdrawn, terminated or expires;

 

   

in the case of a group, if the persons in such group as of the time such group submitted the qualified proposal that most recently rendered such group an excluded party cease to constitute in the aggregate at least 75% of the equity financing (measured by voting power or value) of such group, unless the remainder of such equity financing is to be provided by persons who were themselves in a group of persons that was an excluded party prior to the No-Shop Period Start Date; or

 

   

11:59 p.m. (New York City time) on June 4, 2022, however this date will be extended to:

 

   

the last day of the excluded party notice period immediately following a notice of change period (as defined below) with respect to such qualified proposal if June 4, 2022 occurs during such notice of change period; or

 

   

the last day of the excluded party notice period with respect to such qualified proposal if June 4, 2022 occurs during such excluded party notice period.

Such date and time, as it may be extended, is referred to as the “cut-off time”.

An “excluded party notice period” means, with respect to an excluded party, a period of three days commencing upon the expiration of a notice of change period with respect to our intention to terminate the Merger Agreement to enter into a definitive agreement with respect to a qualified proposal that was submitted by

 

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such excluded party and that our board of directors has determined constitutes a Superior Proposal in accordance with the procedures described in the section titled “—Obligation of the Board of Directors with Respect to Its Recommendation”.

Actions Following “No-Shop Period Start Date”

From and after the No-Shop Period Start Date, we have agreed that, except as permitted for excluded parties and by certain exceptions described below, we will, and will cause each of our subsidiaries, and our and their officers and directors to, and will direct our and their partners, managers, officers, employees, consultants, advisors (including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives to, and will cause Public Storage and its officers and directors to, and will cause Public Storage to direct its partners, managers, officers, employees, consultants, advisors (including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives to, immediately cease any solicitations, discussions, negotiations or communications with any person that may be ongoing with respect to any Company Acquisition Proposal.

We have further agreed that, except as permitted for excluded parties and by certain exceptions described below, from the No-Shop Period Start Date until the earlier of the Partnership Merger Effective Time and the termination of the Merger Agreement in accordance with its terms and subject to the provisions described below, we will not, and we will cause our subsidiaries and our and their officers and directors not to, and will not authorize and will use reasonable best efforts to cause our and their partners, managers, officers, employees, consultants, advisors (including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives not to, and will cause Public Storage and its officers and directors not to, and will cause Public Storage to not authorize and to use reasonable best efforts to cause its partners, managers, officers, employees, consultants, advisors (including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives not to, directly or indirectly through another person:

 

   

solicit, initiate, knowingly encourage or knowingly facilitate any inquiry, discussion, offer, request or proposal that constitutes, or could reasonably be expected to lead to, a Company Acquisition Proposal;

 

   

engage in any discussions or negotiations regarding, or furnish to any third party any non-public information in connection with, or knowingly facilitate, any inquiry, discussion, offer, request or proposal that constitutes, or would reasonably be expected to lead to, a Company Acquisition Proposal (other than in response to an unsolicited inquiry that did not arise from a breach of the Company’s non-solicitation obligations, solely to request clarification of the terms and conditions from the person making such Company Acquisition Proposal required to determine whether such Company Acquisition Proposal constitutes or could reasonably be expected to lead to a Superior Proposal);

 

   

approve or recommend a Company Acquisition Proposal;

 

   

enter into any letter of intent, memorandum of understanding, agreement in principle, expense reimbursement agreement, acquisition agreement, Merger Agreement, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar definitive agreement providing for or relating to a Company Acquisition Proposal or requiring the Company or the Partnership to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement (other than an acceptable confidentiality agreement); or

 

   

propose or agree to do any of the above.

Within one business day after the No-Shop Period Start Date, we are required to:

 

   

notify Parent in writing of the identity of each person from whom we received a Company Acquisition Proposal after the execution of the Merger Agreement and prior to the No-Shop Period Start Date;

 

   

provide Parent a list identifying excluded parties as of the No-Shop Period Start Date; and

 

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provide to Parent (A) a copy of any Company Acquisition Proposal made in writing and any other written terms or proposals provided (including financing commitments) to us or any of our subsidiaries in connection with any Company Acquisition Proposal and any modifications to the financial and other material terms thereof (which may be redacted to the extent necessary to protect confidential information of the business or operations of the person making such Company Acquisition Proposal) and (B) a written summary of the material terms and conditions of any Company Acquisition Proposal not made in writing (including any material terms and conditions proposed orally or supplementally and any modifications to the financial and other material terms thereof).

Promptly after the No-Shop Period Start Date (and, in any event, within 24 hours thereafter), we are required to:

 

   

request each person (other than Parent, its affiliates and their respective representatives) that has executed a confidentiality agreement in connection with any inquiry, Company Acquisition Proposal or its consideration of any Company Acquisition Proposal to promptly return or destroy all non-public information furnished to such person by or on behalf of us or any of our subsidiaries prior to the No-Shop Period Start Date; and

 

   

terminate any data room or other diligence access to each such person (and its representatives); provided, that we will not be required to take any action under this bullet or the above bullet in respect of any excluded party unless and until such person or group ceases to be an excluded party (in which case all references in this sentence to the No-Shop Period Start Date will be read as the date on which such person or group ceases to be an excluded party).

On or after the No-Shop Period Start Date and prior to obtaining the Company Requisite Vote, if we receive an unsolicited written bona fide Company Acquisition Proposal after the date of the Merger Agreement by a third party (including any person or group of persons that ceased to be an excluded party after such person or group has ceased to be an excluded party) that did not result from a breach of the obligations described above (provided that the Company or any of its partners, managers, officers, employees, consultants, advisors (including counsel, accountants, investment bankers, experts, consultants and financial advisors), agents and other representatives may correspond in writing with any party making such written Company Acquisition Proposal to request clarification of the terms and conditions thereof so as to determine whether such Company Acquisition Proposal constitutes or could reasonably be expected to lead to a Superior Proposal), if in the good faith determination of our board of directors, after consultation with its outside legal counsel and financial advisors, such Company Acquisition Proposal constitutes or could reasonably be expected to lead to a Superior Proposal, we or our subsidiaries may:

 

   

furnish non-public information to such third party (and such third party’s representatives, including potential financing sources), provided however, that prior to furnishing such information, we receive from the third party an executed confidentiality agreement (which we refer to as an “acceptable confidentiality agreement”) on customary terms no more favorable in any material respect to such persons than our existing confidentiality agreement with Blackstone, it being understood that such confidentiality agreement need not contain any “standstill” or similar provisions that would prohibit the making or amendment of any non-public Company Acquisition Proposal to our board of directors, and any non-public information concerning us or our subsidiaries that is provided to such third party (or its representatives) shall, to the extent not previously provided to Parent, be provided to Parent as promptly as practicable after providing it to such third party (and in any event within 48 hours thereafter); and

 

   

engage in, enter into or otherwise participate in discussions or negotiations with such third party (and such third party’s representatives) with respect to the Company Acquisition Proposal.

From and after the No-Shop Period Start Date, we will notify Parent promptly (but in no event later than 48 hours) after receipt of any Company Acquisition Proposal or any request for non-public information regarding us or any of our subsidiaries by any third party that informs us that it is considering making, or has made, a

 

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Company Acquisition Proposal, or any other inquiry from any person seeking to have discussions or negotiations with us regarding a possible Company Acquisition Proposal. Such notice will be made in writing and shall identify the person making such Company Acquisition Proposal or inquiry and indicate the material terms and conditions of any Company Acquisition Proposals or inquiries, to the extent known (including, if applicable, providing copies of any written Company Acquisition Proposals or inquiries and any proposed agreements related thereto, which may be redacted to the extent necessary to protect confidential information of the business or operations of the person making such Company Acquisition Proposals or inquiry). We will also promptly, and in any event within 48 hours, notify Parent in writing if we enter into discussions or negotiations concerning any Company Acquisition Proposal or provide nonpublic information to any person, notify Parent of any change to the financial and other material terms and conditions of any Company Acquisition Proposal and otherwise keep Parent reasonably informed of the status and terms of any Company Acquisition Proposal or inquiry on a reasonably current basis, including by providing a copy of all written proposals, offers, drafts of proposed agreements or correspondence relating thereto (which may be redacted to the extent necessary to protect confidential information of the business or operations of the person making such Company Acquisition Proposal or inquiry). Neither we nor any of our subsidiaries may, after the date of the Merger Agreement, enter into any confidentiality or similar agreement that would prohibit us from providing such information to Parent.

For purposes of the Merger Agreement a “Superior Proposal” means a bona fide, written Company Acquisition Proposal (provided that the references to “15%” in the definition of Company Acquisition Proposal will be replaced with references to “50%”) by a third party which our board of directors has determined in good faith, after consultation with the Company’s outside legal and financial advisors, to be (A) if consummated, more favorable to the Company’s stockholders from a financial point of view than the transactions contemplated by the Merger Agreement and (B) reasonably likely to be consummated, taking into account (x) the financial, legal, regulatory and any other aspects of such proposal, (y) the likelihood and timing of consummation (as compared to the Company Merger) and (z) any changes to the terms of the Merger Agreement proposed by Parent and any other information provided by Parent.

Obligation of the Board of Directors with Respect to Its Recommendation

Except in the circumstances and pursuant to the procedures described below, neither our board of directors nor any committee thereof will:

 

   

withhold, withdraw, modify or qualify in any manner adverse to Parent (or publicly propose to withhold, withdraw, modify or qualify in a manner adverse to Parent), our board of directors’ recommendation with respect to the Company Merger;

 

   

approve, adopt or recommend (or publicly propose to approve, adopt or recommend) any Company Acquisition Proposal;

 

   

fail to include our board of directors’ recommendation with respect to the Company Merger in this proxy statement; or

 

   

approve, adopt, declare advisable or recommend (or agree to, resolve or propose to approve, adopt, declare advisable or recommend), or cause or permit us or any of our subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, expense reimbursement agreement, acquisition agreement, merger agreement, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar definitive agreement providing for or relating to a Company Acquisition Proposal or requiring us or the Partnership to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement (other than an acceptable confidentiality agreement).

We refer to any action described in the first three bullet points above as an “adverse recommendation change.”

Prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by our common stockholders, our board of directors may effect an adverse recommendation change

 

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and/or (only in the case of a Superior Proposal) terminate the Merger Agreement to enter into a definitive agreement providing for the implementation of a Superior Proposal:

 

   

if an Intervening Event (as defined below) has occurred and our board of directors determines in good faith, after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to be inconsistent with our board’s duties under applicable law, or if our board has received after the date of the Merger Agreement and prior to the cut-off time from an excluded party a Company Acquisition Proposal or after the No-Shop Period Start Date, an unsolicited written bona fide Company Acquisition Proposal (and we have not breached certain of the provisions described above under “—Acquisition Proposals; Non-Solicitation” and under “—Obligation of the Board of Directors with Respect to Its Recommendation”, subject to certain materiality qualifiers set forth in the Merger Agreement) that, in the good faith determination of our board of directors, after consultation with outside legal counsel and financial advisors, constitutes a Superior Proposal, after having complied (other than any non-compliance with certain provisions that has a de minimis effect) with, and giving effect to all of the adjustments which may be offered by Parent, and such Company Acquisition Proposal is not withdrawn;

 

   

if we provide prior written notice to Parent of our intention to effect an adverse recommendation change and/or terminate the Merger Agreement, as applicable (which we refer to as a “notice of change of recommendation”), identifying the person making the Superior Proposal and describing the material terms and conditions of the Superior Proposal or Intervening Event, as applicable, that is the basis for effecting an adverse recommendation change and/or terminating the Merger Agreement, as applicable, including, if applicable, copies of any written proposals or offers and any proposed written agreements related to a Superior Proposal (it being agreed that the delivery of such notice will not constitute an adverse recommendation change);

 

   

if we negotiate with Parent in good faith for a period of three business days following Parent’s receipt of the notice of change of recommendation and ending at 11:59 p.m. (New York City time) on such 3rd business day (which we refer to as a “notice of change period”) to make such adjustments in the terms and conditions of the Merger Agreement, so that, in the case of a Superior Proposal, such Superior Proposal ceases to constitute a Superior Proposal, or in the case of an Intervening Event, in order to obviate the need to make such adverse recommendation change; and

 

   

if our board of directors, following the end of the notice of change period, has determined in good faith, after consultation with outside legal counsel and financial advisors, taking into account any changes to the Merger Agreement proposed in writing by Parent in response to the notice of change of recommendation or otherwise, that (1) the Superior Proposal giving rise to the notice of change of recommendation continues to constitute a Superior Proposal or (2) in the case of an Intervening Event, the failure of the board to effect an adverse recommendation change would reasonably be expected to be inconsistent with our directors’ duties under applicable law.

For purposes of the Merger Agreement, “Intervening Event” means a material event, development or change in circumstances with respect to us and our subsidiaries, taken as a whole, that occurred or arose after the date of the Merger Agreement, which was unknown to, nor reasonably foreseeable by, our board of directors as of or prior to the date of the Merger Agreement, and first becomes known to or by our board of directors prior to the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by our common stockholders. Notwithstanding the foregoing, none of the following will constitute, or be considered in determining whether there has been, an Intervening Event:

 

   

the receipt, existence of or terms of an inquiry or a Company Acquisition Proposal or any matter relating thereto or consequence thereof; and

 

   

changes in the market price or trading volume of our Common Stock or the Company Depositary Shares or the fact that we meet or exceed internal or published projections, budgets, forecasts or estimates of revenues, earnings or other financial results for any period, provided, however, that the

 

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underlying causes of such change or fact will not be excluded by the provision described in this bullet point.

Any amendment to the financial terms or any other material amendment of such a Superior Proposal will require a new notice of change of recommendation, and we will be required to comply again with the requirements described above, except that the notice of change period will be reduced to two business days following receipt by Parent of any such new notice of change of recommendation and ending at 11:59 p.m. (New York City time) on such 2nd business day.

Nothing contained in the Merger Agreement will prohibit us or our board of directors from taking and disclosing to our stockholders a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or from making any disclosure to our stockholders that is required by applicable law or if our board of directors determines in good faith, after consultation with outside legal counsel, that the failure to make such disclosure would reasonably be expected to be inconsistent with our directors’ duties under applicable law, provided, however, that neither we nor our board of directors will be permitted to recommend that our stockholders tender any securities in connection with any tender offer or exchange offer that is a Company Acquisition Proposal or otherwise effect an adverse recommendation change with respect thereto, except as permitted by the provisions described above.

Employee Benefits

From and after the Company Merger Effective Time and for a period ending on the first anniversary of the Company Merger Effective Time (or, if shorter, during any applicable period of employment), each of our and our subsidiaries’ employees who is employed immediately prior to, and continues employment with the Surviving Company or any of its subsidiaries following, the Company Merger Effective Time, each of which we refer to as a “Company Employee,” will be entitled to receive (1) a base salary or wage rate, as applicable, that is no less favorable than the base salary or wage rate in effect with respect to such Company Employee immediately prior to the Company Merger Effective Time, (2) an annual cash bonus opportunity that is no less favorable than the annual cash bonus opportunity provided to such Company Employee immediately prior to the Company Merger Effective Time, and (3) other compensation and benefits (including severance benefits, paid time off, health insurance and equity-based compensation opportunities under the Equity Incentive Plan Awards Program and the Leader Board Program but excluding all other equity-based compensation and long-term incentive compensation) that are substantially comparable, in the aggregate, to the other compensation and benefits provided to such Company Employee immediately prior to the Company Merger Effective Time, it being understood that cash compensation in an amount equal to the target annual equity-based compensation opportunity applicable to such Company Employee as of immediately prior to the Company Merger Effective Time may be provided in lieu of equity-based compensation.

For the employee benefit plans of Parent and its subsidiaries providing any benefits to any Company Employee after the Company Merger Effective Time, each Company Employee will be credited with his or her years of service with us and our subsidiaries and our and their respective predecessors as if such service were with Parent or an applicable subsidiary, provided that the foregoing will not apply (1) for purposes of accrual of or entitlement to pension benefits, post-employment welfare benefits, special or early retirement programs, window separation programs or similar plans which may be in effect from time to time, (2) to the extent that its application would result in a duplication of benefits or (3) to the extent the we did not recognize such service under any comparable plan, program or benefit. After the Company Merger Effective Time, each Company Employee will continue to be credited with the unused paid time off credited to such employee through the Company Merger Effective Time under our or our subsidiaries’ applicable paid time off policies (subject to the same forfeiture conditions and accrual limits as applicable prior to the Company Merger Effective Time).

All limitations as to preexisting conditions, exclusions, actively at work requirements, waiting periods or any other restriction that would prevent immediate or full participation of Company Employees under Parent’s or

 

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any of its subsidiaries’ health and welfare plans will be waived by Parent and its subsidiaries, other than limitations, exclusions, actively at work requirements, waiting periods or other restrictions that are already in effect with respect to such Company Employees and that have not been satisfied as of the closing date of the Company Merger under any Company employee benefit plan. Any and all evidence of insurability requirements with respect to such Company Employees to the extent such evidence of insurability requirements were not applicable to the Company Employees under the comparable company benefit plans immediately prior to the closing of the Company Merger will be waived by Parent and its subsidiaries. Additionally, each Company Employee and his or her dependents will be provided with full credit for any co-payments and deductibles satisfied prior to the closing date for the plan year within which the Company Merger Effective Time occurs in order to satisfy any applicable deductible or out-of-pocket requirements, and for any lifetime maximums, under any welfare plans that such Company Employees are eligible to participate in after the closing date of the Company Merger.

On and after the closing date of the Company Merger, Parent shall cause the Surviving Company and the Surviving Partnership to honor all Company employee benefit plans and compensation arrangements and agreements in accordance with their terms as in effect immediately prior to the Company Merger Effective Time (subject to any rights to terminate, amend or modify such Company employee benefit plans and compensation arrangements and agreements in accordance with their terms).

Financing Cooperation

The consummation of the Mergers is not conditioned upon Parent’s receipt of financing. Pursuant to the Merger Agreement, Parent may disclose non-public information to potential debt financing sources.

Subject to applicable law, prior to the closing of the Mergers, we will, and will cause our subsidiaries to, and will use commercially reasonable efforts to cause our and our subsidiaries’ representatives to, provide all cooperation reasonably requested in writing by Parent in connection with Parent arranging financing with respect to us, our subsidiaries or our or any of our subsidiaries’ properties effective as of or after (and conditioned on the occurrence of) the Partnership Merger Effective Time (which we refer to as the “Financing”), including by using commercially reasonable efforts to:

 

   

furnish to Parent and its financing sources as promptly as reasonably practicable following the delivery of a request therefor to us by Parent such financial, statistical and other pertinent information and projections relating to us and our subsidiaries as may be reasonably requested in writing by Parent, and as is customarily required in connection with a financing of a type similar to the Financing;

 

   

make our and our subsidiaries’ appropriate officers available at reasonable times and with reasonable advance notice for a reasonable number of due diligence meetings and for participation in a reasonable number of meetings, presentations, road shows and sessions with rating agencies and prospective sources of financing;

 

   

assist Parent and its financing sources with the preparation of customary materials for rating agency presentations, offering documents, private placement memoranda, bank information memoranda, prospectuses and similar documents necessary, proper or advisable in connection with the Financing;

 

   

reasonably cooperate with the marketing efforts of Parent and its financing sources for any Financing;

 

   

provide documentation and other information relating to us and any of our subsidiaries requested by Parent in writing and required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations;

 

   

facilitate, effective no earlier than the Partnership Merger Effective Time, the execution and delivery of definitive financing, pledge, security and guarantee documents relating to the Financing;

 

   

as may be reasonably requested by Parent, within a reasonable time period prior to the closing of the Mergers, form new direct and indirect subsidiaries pursuant to documentation reasonably satisfactory to Parent and us;

 

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to the extent reasonably requested by Parent, after obtaining the approval of the Company Merger and the other transactions contemplated by the Merger Agreement by our common stockholders and no earlier than immediately prior to the Partnership Merger Effective Time on the closing date of the Mergers and provided such actions would not adversely affect the tax status of us or any of our subsidiaries or cause us or our subsidiaries to be subject to additional taxes that are not indemnified by Parent, transfer or otherwise restructure our ownership of existing subsidiaries, properties or other assets, in each case, pursuant to documentation reasonably satisfactory to Parent and us;

 

   

provide reasonably timely and customary access to diligence materials, appropriate personnel and properties during normal business hours and on reasonable advance notice to allow sources of the Financing and their representatives to complete all reasonable due diligence;

 

   

provide reasonable assistance with respect to the review and delivery of guarantees and granting of mortgages, pledges and security interests in collateral for the Financing (in each case, effective no earlier than the Partnership Merger Effective Time), and using commercially reasonable efforts to obtain any consents associated therewith (effective no earlier than the Partnership Merger Effective Time);

 

   

to the extent reasonably requested by a Financing source, using commercially reasonable efforts to obtain estoppels and certificates from tenants, lenders, managers, franchisors, ground lessors and counterparties to reciprocal easement agreements in form and substance reasonably satisfactory to any potential financing source;

 

   

cooperate in connection with the repayment or defeasance of any existing indebtedness of our and our subsidiaries’ as of the Partnership Merger Effective Time and the release of related liens, including delivering such payoff, defeasance or similar notices under any of our and our subsidiaries’ existing loans as are reasonably requested by Parent;

 

   

to the extent requested by Parent, obtain accountants’ comfort letters and consents to the use of accountants’ audit reports relating to us and our subsidiaries; and

 

   

to the extent reasonably requested by a Financing source, permit Parent and its representatives to conduct appraisal and environmental and engineering inspections of each real estate property owned and, subject to obtaining required third-party consents with respect thereto (which we will use reasonable efforts to obtain), leased by us or any of our subsidiaries (except that (1) neither Parent nor its representatives will have the right to take and analyze any samples of any environmental media (including soil, groundwater, surface water, air or sediment) or any building material or to perform any invasive testing procedure on any such property, (2) Parent will schedule and coordinate all inspections with us upon reasonable advance notice, and (3) we will be entitled to have representatives present at all times during any such inspection).

Nothing in the Merger Agreement will, however, require us or any of our subsidiaries or any of our or any of our subsidiaries’ representatives to take any action to the extent it would:

 

   

unreasonably interfere with our or our subsidiaries’ business or operations or require us or any of our subsidiaries to agree to pay any fees, incur or reimburse any expenses, or incur any liability prior to the Partnership Merger Effective Time (except those expenses for which the Company is immediately reimbursed by Parent);

 

   

cause us or our subsidiaries to be an issuer or other obligor under the Financing prior to the Partnership Merger Effective Time, require us, our subsidiaries or any of our or our subsidiaries’ officers (other than directors or officers who will continue in such role following the Partnership Merger Effective Time, and shall only doing so in such continuing capacity) to pass resolutions or consents to approve or authorize the execution of the Financing that are effective prior to the Partnership Merger Effective Time or enter into, execute or deliver any certificate, document, instrument or agreement or agree to any change or modification of any existing certificate, document, instrument or agreement that is effective prior to the Partnership Merger Effective Time;

 

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cause any of our or our subsidiaries’ officers to incur any personal liability;

 

   

contravene our or our subsidiaries’ organizational documents or any applicable laws;

 

   

result in any breach or violation of or constitute a default by us or any of our subsidiaries, or give to others any right of termination, acceleration or cancellation of any material contract to which we or any of our subsidiaries thereof is a party or by which we or any of our subsidiaries thereof or their respective properties or assets is bound;

 

   

require us or any of our subsidiaries to disclose information subject to any attorney-client, attorney work product or other legal privilege to the extent that we believe in good faith that doing so would be reasonably likely to result in a risk of loss or waiver of attorney-client privilege, attorney work product or other legal privilege (provided that we will use commercially reasonable efforts to allow the disclosure of such information (or as much of it as reasonably possible) in a manner that does not result in a loss of such privilege); or

 

   

require us or any of our subsidiaries or our respective representatives to prepare any financial statements or information other than information that is within our and our subsidiaries’ control, reasonably available to us and our subsidiaries and prepared in the ordinary course of our or their financial reporting practice, or prepare any pro forma financial information or post-closing financial information.

Partnership Conversion

The Merger Agreement requires that, prior to the closing of the Mergers, we take steps to cause the Partnership to be converted prior to the Partnership Merger Effective Time from a California limited partnership to a Maryland limited partnership pursuant to the filing of articles of conversion and a certificate of limited partnership with the SDAT, and a certificate of conversion with the California Secretary of State (such transactions referred to as the “Partnership Conversion” and are pursuant to a “plan of conversion”). We will not amend or terminate the plan of conversion without Parent’s written approval, provided that we may, without Parent’s written approval, make (1) ministerial or de minimis amendments to the form of articles of conversion (other than Article Third thereof), certificate of limited partnership and certificate of conversion or (2) any other amendments or alterations to the form of articles of conversion, certificate of limited partnership and certificate of conversion to the extent required by a governmental entity in connection with giving effect to the Partnership Conversion in accordance with applicable law, subject to certain limitations as stated in the Merger Agreement. We will keep Parent informed on a reasonably current basis and in good faith regarding our efforts and progress with respect to the Partnership Conversion, including by promptly delivering to Parent copies of all fully executed and filed Partnership conversion documents and evidences of filing and acceptance received from the California Secretary of State and the SDAT.

Certain Other Covenants

The Merger Agreement contains certain other covenants of the parties to the Merger Agreement relating to, among other things:

 

   

giving Parent and its authorized representatives reasonable access to our and our subsidiaries’ properties, facilities, personnel and books and records;

 

   

the filing of this proxy statement with the SEC, and cooperation in preparing this proxy statement and in responding to any comments received from the SEC on this proxy statement;

 

   

actions necessary to exempt the Merger Agreement and the transactions contemplated by the Merger Agreement from, or mitigate, the effect of any applicable anti-takeover statutes;

 

   

the consultation regarding any press releases or other public statements with respect to the Merger Agreement or the Mergers;

 

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the indemnification of our and our subsidiaries’ directors and officers;

 

   

notification of certain matters; and

 

   

certain tax matters.

Conditions to the Mergers

The obligations of the parties to consummate the Mergers are subject to the satisfaction or waiver of the following mutual conditions:

 

   

the Company Merger and the other transactions contemplated by the Merger Agreement must be approved by the affirmative vote of the common stockholders entitled to cast a majority of all the votes entitled to be cast on the matter and the Partnership Merger must be approved by the written consent of the Company (as the general partner of the Partnership) and the written consent of the holders of partnership units (as limited partners); and

 

   

no governmental entity of competent jurisdiction has enacted, issued, promulgated, enforced or entered any law or order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Mergers illegal or otherwise restricting, preventing or prohibiting the consummation of the Mergers.

The obligations of Parent, Merger Sub I and Merger Sub II to effect the Mergers are further subject to the satisfaction or waiver of the following conditions:

 

   

our and the Partnership’s representations and warranties must be true and correct (determined without regard to any materiality or material adverse effect qualifications therein) as of the closing date as though made on and as of the closing date (except to the extent a representation or warranty is made as of a specific date, in which case such representation or warranty must be true and correct at and as of such date, without regard to any such qualifications therein), except where the failure of such representations and warranties to be true and correct has not had, or would not, individually or in the aggregate, reasonably be expected to have, a material adverse effect, except for (1) certain of our and the Partnership’s representations and warranties regarding our, the Partnership’s and our other subsidiaries’ capitalization, which must be true and correct in all material respects and (2) our and the Partnership’s representations and warranties regarding the absence of a material adverse effect, which must be true and correct in all respects;

 

   

we and the Partnership must have performed and complied, in all material respects, with all of our and its obligations, agreements and covenants required by the Merger Agreement to be performed or complied with on or prior to the closing date;

 

   

we and Parent must have received a tax opinion of Hogan Lovells US LLP, tax counsel to the Company, or such other law firm as may be reasonably approved by Parent, dated as of the closing date, concluding (subject to customary assumptions, qualifications and representations, including representations made by us and our subsidiaries in a tax representation letter provided by us in connection with the issuance of such opinion) that we were organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code for all taxable periods commencing with our taxable year ended December 31, 2015 through our hypothetical short taxable year ending immediately before the closing on the closing date (without regard to the effects of the closing (including, without limitation, the Partnership Conversion or any other obligation required to be undertaken by us or any of our subsidiaries under the Merger Agreement), any action (or inaction) taken after the closing (other than, for the avoidance of doubt, with respect to our taxable year ended December 31, 2021, the requirement that we timely and properly make the necessary distributions under Section 858(a) of the Code with respect to such taxable year) and the distribution requirements of Section 857(b) of the Code for the hypothetical short taxable year);

 

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from the date of the Merger Agreement through the closing date, there must not have occurred a change, event, state of facts or development which has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect; and

 

   

Parent will have received a certificate signed on behalf of the Company, by an executive officer of the Company, dated as of the closing date, certifying that the conditions specified in the first and second bullet points above are satisfied.

Our and the Partnership’s obligations to effect the Mergers are further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Parent, Merger Sub I and Merger Sub II must be true and correct in all material respects as of the closing date as though made on and as of the closing date (except to the extent a representation or warranty is made as of a specific date, in which case such representation or warranty must be true and correct at and as of such date, without regard to any such qualifications therein);

 

   

each of Parent, Merger Sub I and Merger Sub II must have performed and complied, in all material respects, with all of their obligations, agreements and covenants required by the Merger Agreement to be performed or complied with on or prior to the closing date; and

 

   

we will have received a certificate signed on behalf of Parent, Merger Sub I and Merger Sub II, by an executive officer of Parent, Merger Sub I and Merger Sub II, dated as of the closing date, certifying that the conditions specified in the first and second bullet points above are satisfied.

Termination of the Merger Agreement

We and Parent may mutually agree to terminate and abandon the Merger Agreement at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement.

Termination by either the Company or Parent

In addition, we, on the one hand, or Parent, on the other hand, may terminate and abandon the Merger Agreement by written notice to the other at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

any governmental entity of competent authority has issued an order, decree or ruling or taken any other action in each case permanently restraining, enjoining or otherwise prohibiting the Mergers substantially on the terms contemplated by the Merger Agreement and such order, decree, ruling or other action has become final and non-appealable, provided, that the right to terminate the Merger Agreement pursuant to this bullet point is not available to a party if the issuance of such final, non-appealable order, decree or ruling or taking of such other action was primarily due to the failure of us or the Partnership, in the case of termination by us, or Parent, Merger Sub I or Merger Sub II, in the case of termination by Parent, to perform any of its obligations under the Merger Agreement;

 

   

the Mergers have not been consummated on or before October 24, 2022, provided that the right to terminate the Merger Agreement under this bullet point is not available to us, if the Company or the Partnership, or to Parent, if Parent, Merger Sub I or Merger Sub II, as applicable, has breached in any material respect its obligations under the Merger Agreement in any manner that has caused or resulted in the failure to consummate the Mergers on or before October 24, 2022; or

 

   

the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement has not been obtained at the duly held special meeting or any adjournment or postponement thereof at which the Company Merger is voted on.

 

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Termination by the Company

We may also terminate and abandon the Merger Agreement by written notice to Parent at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

prior to obtaining the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, our board of directors effects an adverse recommendation change in accordance with the requirements described above under “—Obligation of the Board of Directors with Respect to Its Recommendation” and has approved, and concurrently with the termination under the provision described in this bullet point, we enter into a definitive agreement providing for the implementation of a Superior Proposal that did not result from a breach of our obligations described above under “—Company Acquisition Proposals; Non-Solicitation” and “—Obligation of the Board of Directors with Respect to Its Recommendation,” provided that we will have previously or concurrently paid the Company termination fee and such termination will not be effective until we have paid the Company termination fee (as described below);

 

   

Parent, Merger Sub I or Merger Sub II has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Merger Agreement such that a closing condition relating to its representations, warranties, covenants or agreements would be incapable of being satisfied by October 24, 2022, provided that neither we nor the Partnership have breached or failed to perform any of our or its representations, warranties, covenants or other agreements contained in the Merger Agreement in any material respect; or

 

   

all of the following requirements are satisfied:

 

   

all of the mutual conditions to the parties’ obligations to effect the Mergers and the additional conditions to the obligations of Parent, Merger Sub I and Merger Sub II to effect the Mergers have been satisfied or waived by Parent (other than those conditions that by their nature are to be satisfied at the closing of the Mergers, provided that such conditions to be satisfied at the closing of the Mergers would be satisfied as of the date of the notice referenced in the immediately following bullet point if the closing of the Mergers were to occur on the date of such notice);

 

   

on or after the date the closing of the Mergers should have occurred pursuant to the Merger Agreement, we have delivered written notice to Parent to the effect that all of the mutual conditions to the parties’ obligations to effect the Mergers and the additional conditions to the obligations of Parent, Merger Sub I and Merger Sub II to effect the Mergers have been satisfied or waived by Parent (other than those conditions that by their nature are to be satisfied at the closing of the Mergers, provided that such conditions to be satisfied at the closing of the Mergers would be satisfied as of the date of such notice if the closing of the Mergers were to occur on the date of such notice) and we and the Partnership are prepared to consummate the closing of the Mergers; and

 

   

Parent, Merger Sub I and Merger Sub II fail to consummate the closing of the Mergers on or before the third business day after delivery of the notice referenced in the immediately preceding bullet point, and we and the Partnership were prepared to consummate the closing of the Mergers during such three business day period.

Termination by Parent

Parent may also terminate and abandon the Merger Agreement by written notice to us at any time prior to the closing date, even after we have obtained the requisite vote of our common stockholders to approve the Company Merger and the other transactions contemplated by the Merger Agreement, if:

 

   

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that the closing conditions relating to our and the Partnership’s representations, warranties, covenants or agreements would be incapable of being satisfied by October 24, 2022, provided that neither Parent, Merger Sub I nor Merger Sub II has breached or failed to perform any of its representations, warranties, covenants or other agreements contained in the Merger Agreement in any material respect; or

 

   

(1) our board of directors has effected, or resolved to effect, an adverse recommendation change, (2) we have failed to publicly recommend against any tender offer or exchange offer subject to Regulation 14D under the Exchange Act that constitutes a Company Acquisition Proposal (including, for these purposes, by taking no position with respect to the acceptance of such tender offer or exchange offer by our stockholders) within ten business days after the commencement of such tender offer or exchange offer, (3) our board of directors has failed to publicly reaffirm its recommendation to our common stockholders to approve the proposal to approve the Company Merger within ten business days after the date a Company Acquisition Proposal has been publicly announced (or if the special meeting is scheduled to be held within ten business days from the date a Company Acquisition Proposal is publicly announced, promptly and in any event prior to the date on which the special meeting is scheduled to be held) or (4) we enter into a letter of intent, memorandum of understanding, agreement in principle, expense reimbursement agreement, acquisition agreement, merger agreement, share purchase agreement, asset purchase agreement, share exchange agreement, option agreement or other similar definitive agreement providing for or relating to a Company Acquisition Proposal or requiring us or the Partnership to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement (other than an acceptable confidentiality agreement).

Termination Fees

Termination Fee Payable by the Company

We have agreed to pay to Parent the Company termination fee of $220 million as directed by Parent if:

 

   

Parent terminates the Merger Agreement pursuant to the provision described in the second bullet point under “—Termination of the Merger Agreement — Termination by Parent”;

 

   

we terminate the Merger Agreement pursuant to the provision described in the first bullet point under “—Termination of the Merger Agreement — Termination by the Company”; or

 

   

all of the following requirements are satisfied:

 

   

we or Parent terminate the Merger Agreement pursuant to the provisions described in the second bullet point or the third bullet point under “—Termination of the Merger Agreement — Termination by either the Company or Parent” or Parent terminates the Merger Agreement pursuant to the provision described in the first bullet point under “—Termination of the Merger Agreement — Termination by Parent”; and

 

   

(1) a Company Acquisition Proposal has been received by us or our representatives or any person has publicly proposed or publicly announced an intention (whether or not conditional) to make a Company Acquisition Proposal (and, in the case of a termination pursuant to the provision described in the third bullet point under “—Termination of the Merger Agreement — Termination by either the Company or Parent,” such Company Acquisition Proposal or publicly proposed or announced intention was made prior to the special meeting) and (2) within 12 months after a termination referred to in this bullet point we enter into a definitive agreement relating to, or consummate, any Company Acquisition Proposal (with, for purposes of this clause (2), the references to “15%” in the definition of “Company Acquisition Proposal” being deemed to be references to “50%”).

However, the Company termination fee will equal $110 million if the Merger Agreement is terminated by us pursuant to the provisions described in the first bullet point under “—Termination of the Merger Agreement —

 

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Termination by the Company” prior to the cut-off time in order to enter into a definitive agreement with an excluded party providing for the implementation of a Superior Proposal.

Termination Fee Payable by Parent

Parent has agreed to pay to us the Parent termination fee of $735 million if we terminate the Merger Agreement pursuant to the provisions described in the second bullet point or third bullet point under “—Termination of the Merger Agreement — Termination by the Company” or in the event that Parent terminates the Merger Agreement pursuant to the second bullet under “—Termination of the Merger Agreement — Termination by either the Company or Parent” and we were then entitled to terminate the Merger Agreement pursuant to the second or third bullet point under “—Termination of the Merger Agreement — Termination by the Company.”

Guaranty and Remedies

In connection with the Merger Agreement, the Sponsor entered into a guaranty in our favor to guarantee Parent’s payment obligations with respect to the Parent termination fee and certain expense reimbursement and indemnification obligations of Parent under the Merger Agreement, subject to the terms and limitations set forth in the guaranty.

The maximum aggregate liability of the Sponsor under the guaranty will not exceed $735 million plus all reasonable and documented third-party costs and out-of-pocket expenses (including reasonable fees of counsel) actually incurred by us relating to any litigation or other proceeding brought by us to enforce our rights under the guaranty, if we prevail in such litigation or proceeding.

We and the Partnership cannot seek specific performance to require Parent, Merger Sub I or Merger Sub II to complete the Mergers and, subject to limited exceptions, including with respect to enforcing confidentiality provisions and certain expense reimbursement and indemnification obligations of Parent, our sole and exclusive remedy against Parent, Merger Sub I or Merger Sub II relating to any breach of the Merger Agreement or otherwise will be the right to receive the Parent termination fee under the conditions described under “—Termination Fees — Termination Fee Payable by Parent.” Parent, Merger Sub I and Merger Sub II may, however, seek specific performance to require us and the Partnership to complete the Mergers.

Amendment and Waiver

The Merger Agreement may be amended by action taken by the parties at any time before or after our common stockholders have approved the Company Merger and the other transactions contemplated by the Merger Agreement but, after such approval, no amendment may be made which requires the approval of any such common stockholders under applicable law without obtaining such further approvals. The Merger Agreement also provides that, at any time prior to the closing date, each party may extend the time for the performance of any of the obligations or other acts of the other parties, waive any breaches or inaccuracies in the representations and warranties of the other parties, or waive compliance by the other parties with any of the agreements or conditions contained in the Merger Agreement.

 

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THE SUPPORT AGREEMENT

The following summarizes the material provisions of the Support Agreement. This summary does not purport to be complete and may not contain all of the information about the Support Agreement that is important to you. The summary of the material terms of the Support Agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the Support Agreement, a copy of which is attached to this proxy statement as Exhibit B and which we incorporate by reference into this proxy statement. We recommend that you read the Support Agreement attached to this proxy statement as Exhibit B carefully and in its entirety, as the rights and obligations of the parties are governed by the express terms of the Support Agreement and not by this summary or any other information contained in this proxy statement.

Concurrently with the execution of the Merger Agreement, Parent and the Company entered into a Support Agreement with Public Storage, who as of the record date owned 7,158,354 shares of the Company’s Common Stock, or approximately 25.9% of the outstanding shares of the Company’s Common Stock, as well as 7,305,355 common units of partnership interest of the Partnership. As of the record date, Public Storage was the only limited partner of the Partnership other than the Company.

Pursuant to the Support Agreement, Public Storage has agreed, among other things, that at any meeting of the stockholders of the Company or partners of the Partnership, and in connection with any written consent of the stockholders of the Company or partners of the Partnership, it will (a) appear at such meeting or otherwise cause any Covered Securities to be counted as present thereat for the purpose of establishing a quorum, (b) vote or cause to be voted all of the Covered Securities in favor of adopting the Merger Agreement and approving the Mergers and the transactions contemplated thereby and (c) vote or cause to be voted all of the Covered Securities against any alternative acquisition proposal or any other action that could reasonably be expected to impede, interfere with, materially delay, materially postpone or adversely affect the Mergers or other transactions contemplated by the Merger Agreement or result in a breach in any material respect of any covenant, representation or warranty or other obligation or agreement of the Company or the Partnership under the Merger Agreement or of Public Storage under the Support Agreement. Public Storage also agreed not to transfer any Covered Securities during the term of the Support Agreement. The Support Agreement does not require Public Storage to redeem any common units of partnership interest of the Partnership beneficially owned by Public Storage for shares of Common Stock.

The Support Agreement also contains certain commitments by Public Storage and the Surviving Company, effective upon the closing of the Mergers, relating to the preservation of certain intercompany arrangements between the Surviving Company and Public Storage and access to certain books and records relating to the Company and its subsidiaries that are in the possession or under the control of Public Storage, as well as other certain commitments by Parent, the Company, the Surviving Company and Public Storage with respect to certain tax matters.

Except with respect to certain provisions which shall survive termination, the Support Agreement will automatically terminate upon the earliest of (i) the Partnership Merger Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms or (iii) if there occurs any amendment or modification to the Merger Agreement that reduces the amount or changes the form of consideration payable in any of the Mergers or otherwise amends or modifies the Merger Agreement in a manner adverse (directly or indirectly) to Public Storage without Public Storage’s prior written consent.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of June 7, 2022, certain information regarding the beneficial ownership of shares of our Common Stock, for (1) each person known to us to be the beneficial owner of more than 5% of our outstanding shares of Common Stock, (2) each of our directors and named executive officers, and (3) all of our directors and named executive officers as a group. Each person named in the table has sole voting and investment power with respect to all of the shares of Common Stock shown as beneficially owned by such person, except as otherwise set forth in the notes to the table.

The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A common stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our Common Stock subject to options, vesting or other rights (as set forth above) held by that person that are exercisable or will become exercisable or vest within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

 

Name and Address**

  Shares
Owned(1)
    Percentage(1)  

Directors and Executive Officers:

   

Ronald L. Havner, Jr.(2)

    182,214       *  

Dan M. Chandler, III

    —         —    

Jennifer Holden Dunbar(3)

    20,702       *  

Maria R. Hawthorne

    52,143       *  

M. Christian Mitchell

    —         —    

Irene H. Oh

    3,070       *  

Kristy M. Pipes

    11,186       *  

Gary E. Pruitt

    39,333       *  

Robert S. Rollo

    22,380       *  

Joseph D. Russell, Jr.

    28,089       *  

Peter Schultz

    25,700       *  

Stephen W. Wilson

    10,456       *  

John W. Peterson

    18,747       *  

Jeffrey D. Hedges.

    3,921       *  

Trenton A. Groves.

    4,347       *  

All current executive officers and directors as a group
(13 persons)

    399,620       1.4

5% or Greater Owners:

   

Public Storage(4)

    7,158,354       25.9

The Vanguard Group(5)

    3,140,261       11.4

100 Vanguard Boulevard, Malvern, Pennsylvania 19355

   

BlackRock, Inc.(6)

    2,753,322       10.0

55 East 52nd Street, New York, New York 10055

   

T. Rowe Price Associates, Inc.(7)

    2,394,239       8.7

100 E. Pratt Street, Baltimore, Maryland 21202

   

Wellington Management Group LLP(8)

    2,014,638       7.3

c/o Wellington Management Company LLP

   

280 Congress Street, Boston, Massachusetts 02210

   

 

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*

Less than 1%.

**

Unless otherwise indicated, the business address is 701 Western Avenue, Glendale, California 91201.

(1)

Represents shares of Common Stock beneficially owned as of June 7, 2022. Includes options to purchase shares of Common Stock exercisable within 60 days of June 7, 2022, as follows: Mr. Havner, 2,070 shares; Ms. Dunbar, 6,210 shares; Ms. Hawthorne, 414 shares; Ms. Oh, 2,070 shares; Ms. Pipes, 7,466 shares; Mr. Pruitt, 14,490 shares; Mr. Rollo, 12,078 shares; Mr. Russell, 6,210 shares; Mr. Schultz, 14,490 shares; and Mr. Wilson, 7,456 shares. Also includes deferred stock units scheduled to vest within 60 days of June 7, 2022, which will be settled in shares of Common Stock upon each non-management director’s separation from service, as follows: Mr. Havner, 10,000 deferred stock units; Ms. Dunbar, 10,000 deferred stock units; Ms. Oh, 1,000 deferred stock units; Ms. Pipes, 3,000 deferred stock units; Mr. Pruitt, 10,000 deferred stock units; Mr. Rollo, 9,000 deferred stock units; Mr. Russell, 1,000 deferred stock units; Mr. Schultz, 10,000 deferred stock units; and Mr. Wilson, 3,000 deferred stock units. Also includes shares credited to the accounts of the executive officers of the Company that are held in the Company’s 401(k) plan. Except as otherwise indicated and subject to applicable community property and similar statutes, the persons listed as beneficial owners of the shares have sole voting and investment power with respect to such shares. The percentage held is calculated using the outstanding shares of Common Stock on June 7, 2022 of 27,631,499.

(2)

Includes 170,144 shares held by Mr. Havner in a joint margin account with his spouse. Does not include shares owned by Public Storage as to which Mr. Havner disclaims beneficial ownership. Mr. Havner is Chairman of the Board of Public Storage.

(3)

Includes 4,425 shares of Common Stock held by Ms. Dunbar and her spouse as trustees of the Lilac II Trust.

(4)

This information is as of June 7, 2022 and is based on a Schedule 13D/A filed by Public Storage on April 25, 2022. Public Storage has sole voting and dispositive power with respect to all shares of the Common Stock. The 7,158,354 shares of Common Stock in the above table do not include 7,305,355 units held by Public Storage and affiliated partnerships, which (pursuant to the terms of the Partnership’s agreement of limited partnership) are redeemable by the holder for cash or, at the Company’s election, for shares of the Company’s Common Stock on a one-for-one basis. Upon conversion of the units to Common Stock, Public Storage and its affiliated partnerships would own approximately 41.4% of the Common Stock (based upon the Common Stock outstanding at June 7, 2022 and assuming such conversion).

(5)

This information is as of March 31, 2022 and is based solely on a Schedule 13F filed on May 13, 2022 by The Vanguard Group on behalf of it and its affiliates.

(6)

This information is as of March 31, 2022 and is based solely on a Schedule 13F filed on May 12, 2022 by BlackRock, Inc. on behalf of it and its affiliates.

(7)

This information is as of March 31, 2022 and is based solely on a Schedule 13F filed on May 16, 2022 by T. Rowe Price Associates, Inc.

(8)

This information is as of March 31, 2022 and is based solely on a Schedule 13F filed on May 16, 2022 by Wellington Management Group LLP on behalf of it and its affiliates.

 

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NO DISSENTERS’ RIGHTS OF APPRAISAL

We are incorporated as a corporation under Maryland law. A holder of shares of Common Stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares in connection with the Mergers because, as permitted by the Maryland General Corporation Law, our charter provides that stockholders are not entitled to exercise such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination.

STOCKHOLDER PROPOSALS

Deadlines to Propose or Nominate Individuals to Serve as Directors for the 2023 Annual Meeting

We intend to hold the 2023 annual meeting of stockholders (the “2023 Annual Meeting”) only if the Company Merger is not completed. To nominate an individual for election at the 2023 Annual Meeting, a common stockholder must give timely notice to the Corporate Secretary in accordance with our bylaws, which, in general, require that the notice be received by the Corporate Secretary no earlier than December 30, 2022, and no later than 5:00 p.m., Eastern Time, on January 29, 2023, provided however that in the event that the date of the 2023 Annual Meeting is more than 30 days before or more than 60 days after the first anniversary date of the 2022 annual meeting (the “2022 Annual Meeting”), or if no annual meeting was held in the preceding year, notice by the stockholder must be delivered no earlier than the 120th day and no later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the date we announce publicly the date for our 2023 Annual Meeting.

Our bylaws provide that a common stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding Common Stock continuously for at least three years, may include in our proxy materials director nominees constituting up to the greater of two directors or 20% of the number of directors on our board of directors, provided that the stockholder and the nominees satisfy the eligibility requirements in our bylaws. If you wish to nominate any person for election to our board of directors at the 2023 Annual Meeting under the proxy access provision of our bylaws, your nomination notice must be submitted to the Corporate Secretary between the close of business on November 28, 2022, and the close of business on December 28, 2022, provided however that in the event that the date of mailing of the notice for our 2023 Annual Meeting is moved more than 30 days before or more than 60 days after the first anniversary date of mailing of the notice for the 2022 Annual Meeting, or if no annual meeting was held in the preceding year, the nomination must be received no earlier than the close of business on the 120th day and no later than the close of business on the later of the 90th day prior to the mailing of the notice for the 2023 Annual Meeting or the tenth day following the date we announce publicly the date of mailing of the notice for the 2023 Annual Meeting.

Deadlines for Receipt of Stockholder Proposals

Any proposal that a holder of our shares wishes to submit for inclusion in our 2023 proxy statement pursuant to SEC Rule 14a-8 must be received by the Company no later than November 28, 2022. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. Under Rule 14a-8, we are not required to include stockholder proposals in our proxy materials unless certain conditions specified in the rule are met.

In addition, in accordance with our bylaws, notice of any proposal that a holder of our shares wishes to propose for consideration at the 2023 Annual Meeting, but does not seek to include in the 2023 proxy statement pursuant to Rule 14a-8, must be received by the Corporate Secretary no earlier than December 30, 2022, and no later than 5:00 p.m., Eastern Time, on January 29, 2023, provided however that in the event that the date of the 2023 Annual Meeting is more than 30 days before or more than 60 days after the first anniversary date of the 2022 Annual Meeting, or if no annual meeting was held in the preceding year, notice by the stockholder must be delivered no earlier than the 120th day and no later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the date we announce publicly the date for our 2023 Annual Meeting.

 

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HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the impacted stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify us, by calling (818) 244-8080 or by directing your written request to: PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201, Attention: Adeel Khan, Executive Vice President, Chief Financial Officer and Corporate Secretary. Pursuant to such request, the Company will undertake to promptly deliver a separate copy of the proxy statement or annual report, as applicable, to you. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their brokers as specified above.

OTHER MATTERS

Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.

 

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. We make our SEC filings available free of charge under the “SEC Filings” section of our website at http://ir.psbusinessparks.com as soon as reasonably practicable after such materials are filed with or furnished to the SEC. Information contained on our website is not incorporated by reference into this proxy statement, and you should not consider information contained on our website to be part of this proxy statement. Our SEC filings, including this proxy statement, are also available to you on the SEC’s website at http://www.sec.gov.

The SEC allows us to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring to those documents. The information incorporated by reference is an important part of this proxy statement. The incorporated documents contain significant information about us, our business and our finances. Any information contained in this proxy statement or in any document incorporated or deemed to be incorporated by reference in this proxy statement will be deemed to have been modified or superseded to the extent that a statement contained in this proxy statement, or in any other document we subsequently file with the SEC that also is incorporated or deemed to be incorporated by reference in this proxy statement, modifies or supersedes the original statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to be a part of this proxy statement. We incorporate by reference the following documents that we filed with the SEC:

 

   

PSB’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on February 22, 2022;

 

   

PSB’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed on May 2, 2022;

 

   

PSB’s Definitive Proxy Statement on Schedule 14A filed on March 25, 2022; and

 

   

PSB’s Current Reports on Form  8-K filed with the SEC on January  18, 2022, February  9, 2022, March  23, 2022 (Item 5.02 only), April  5, 2022 (Item 5.02 only), April  25, 2022, May  2, 2022 (Item 5.07) and May 27, 2022.

We also incorporate by reference into this proxy statement additional documents that PSB may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, from the date of this proxy statement until the date of the special meeting; provided, however, that we are not incorporating by reference any additional documents or information furnished and not filed with the SEC.

We will provide without charge to each person, including any beneficial owner of shares of Common Stock, to whom a proxy statement is delivered, on written or oral request of that person, a copy of any or all of the documents that we are incorporating by reference into this proxy statement, other than exhibits to those documents unless those exhibits are specifically incorporated by reference into those documents. A request should be addressed to PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201, Attention: Adeel Khan, Executive Vice President, Chief Financial Officer and Corporate Secretary, or by telephone at (818) 244-8080.

If you have any questions about this proxy statement, the special meeting or the Mergers, or if you would like additional copies of this proxy statement, please contact us at:

PS Business Parks, Inc.

701 Western Avenue,

Glendale, California 91201

Attention: Adeel Khan, Executive Vice President, Chief Financial Officer and Corporate Secretary

(818) 244-8080

 

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF COMMON STOCK AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM, OR IN ADDITION TO, WHAT IS CONTAINED IN THIS PROXY STATEMENT OR IN ANY OF THE MATERIALS THAT ARE INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED JUNE 8, 2022. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES, AND THE MAILING OF THIS PROXY STATEMENT TO COMPANY STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

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Exhibit A

 

 

 

 

 

 

AGREEMENT AND PLAN OF MERGER

DATED AS OF APRIL 24, 2022

BY AND AMONG

PS BUSINESS PARKS, INC.,

PS BUSINESS PARKS, L.P.,

SEQUOIA PARENT LP,

SEQUOIA MERGER SUB I LLC,

AND

SEQUOIA MERGER SUB II LLC

 

 

 

 

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  

ARTICLE I

  

THE MERGERS

  

Section 1.1

   The Mergers      A-2  

Section 1.2

   Governing Documents      A-2  

Section 1.3

   Directors, Officers, General Partner and Limited Partners of the Surviving Entities      A-3  

Section 1.4

   Effective Times      A-3  

Section 1.5

   Closing of the Mergers      A-3  

Section 1.6

   Effects of the Mergers      A-4  

Section 1.7

   Tax Consequences      A-4  

ARTICLE II

  

MERGER CONSIDERATION; COMPANY SHARES; COMPANY PREFERRED
SHARES; PARTNERSHIP UNITS

  

Section 2.1

   Effect on Company Shares; Effect on Company Preferred Shares      A-4  

Section 2.2

   Preferred Shares of the Company      A-4  

Section 2.3

   Partnership Unit Merger Consideration; Effect on Partnership Units      A-5  

Section 2.4

   Treatment of Equity-Based Awards      A-6  

Section 2.5

   Exchange of Certificates      A-7  

Section 2.6

   Exchange Procedures      A-8  

Section 2.7

   Withholding Rights      A-9  

Section 2.8

   Dissenters’ Rights      A-10  

Section 2.9

   Adjustment of Certain Merger Consideration      A-10  

ARTICLE III

  

REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES

  

Section 3.1

   Organization and Qualification; Subsidiaries      A-10  

Section 3.2

   Capitalization      A-11  

Section 3.3

   Authority      A-13  

Section 3.4

   No Conflict; Required Filings and Consents      A-14  

Section 3.5

   Company SEC Documents; Financial Statements      A-15  

Section 3.6

   Information Supplied      A-16  

Section 3.7

   Absence of Certain Changes      A-16  

Section 3.8

   Undisclosed Liabilities      A-16  

Section 3.9

   Permits; Compliance with Laws      A-16  

Section 3.10

   Litigation      A-17  

Section 3.11

   Employee Benefits      A-17  

Section 3.12

   Labor Matters      A-19  

Section 3.13

   Tax Matters      A-19  

Section 3.14

   Real Property      A-21  

 

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Section 3.15

   Environmental Matters      A-24  

Section 3.16

   Intellectual Property      A-25  

Section 3.17

   Contracts      A-25  

Section 3.18

   Opinion of Financial Advisor      A-27  

Section 3.19

   Takeover Statutes      A-27  

Section 3.20

   Vote Required      A-27  

Section 3.21

   Insurance      A-27  

Section 3.22

   Investment Company Act      A-27  

Section 3.23

   Brokers      A-28  

Section 3.24

   Acknowledgement of No Other Representations or Warranties      A-28  

ARTICLE IV

  

REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB I AND MERGER SUB II

  

Section 4.1

   Organization      A-29  

Section 4.2

   Authority      A-29  

Section 4.3

   No Conflict; Required Filings and Consents      A-30  

Section 4.4

   Litigation      A-30  

Section 4.5

   Brokers      A-30  

Section 4.6

   Information Supplied      A-31  

Section 4.7

   Merger Sub I and Merger Sub II      A-31  

Section 4.8

   Sufficient Funds      A-31  

Section 4.9

   Guaranty      A-32  

Section 4.10

   Solvency      A-32  

Section 4.11

   Absence of Certain Arrangements      A-32  

Section 4.12

   Acknowledgement of No Other Representations and Warranties      A-33  

ARTICLE V

  

COVENANTS AND AGREEMENTS

  

Section 5.1

   Conduct of Business by the Company Pending the Mergers      A-33  

Section 5.2

   Access to Information      A-38  

Section 5.3

   Proxy Statement      A-39  

Section 5.4

   Company Shareholders’ Meeting      A-40  

Section 5.5

   Appropriate Action; Consents; Filings      A-40  

Section 5.6

   Solicitation; Acquisition Proposals; Adverse Recommendation Change      A-43  

Section 5.7

   Public Announcements      A-46  

Section 5.8

   Directors’ and Officers’ Indemnification      A-47  

Section 5.9

   Employee Matters      A-49  

Section 5.10

   Notification of Certain Matters      A-50  

Section 5.11

   Dividends      A-50  

Section 5.12

   Other Transactions      A-52  

Section 5.13

   Taxes      A-53  

Section 5.14

   Rule 16b-3 Matters      A-54  

Section 5.15

   Financing      A-54  

Section 5.16

   Partnership Conversion      A-56  

Section 5.17

   Certain Transactions      A-57  

 

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ARTICLE VI

  

CONDITIONS TO CONSUMMATION OF THE MERGERS

  

Section 6.1

   Conditions to Each Party’s Obligations to Effect the Mergers      A-57  

Section 6.2

   Conditions to the Obligations of Parent, Merger Sub I and Merger Sub II      A-57  

Section 6.3

   Conditions to Obligations of the Company and the Partnership      A-58  

Section 6.4

   Frustration of Closing Conditions      A-59  

ARTICLE VII

  

TERMINATION

  

Section 7.1

   Termination      A-59  

Section 7.2

   Effect of the Termination      A-60  

Section 7.3

   Fees and Expenses      A-61  

Section 7.4

   Payment of Amount or Expense      A-62  

ARTICLE VIII

  

MISCELLANEOUS

  

Section 8.1

   Nonsurvival of Representations and Warranties      A-63  

Section 8.2

   Entire Agreement; Assignment      A-63  

Section 8.3

   Notices      A-64  

Section 8.4

   Governing Law and Venue; Waiver of Jury Trial      A-65  

Section 8.5

   Interpretation; Certain Definitions      A-66  

Section 8.6

   Parties In Interest      A-66  

Section 8.7

   Severability      A-67  

Section 8.8

   Specific Performance      A-67  

Section 8.9

   Amendment      A-68  

Section 8.10

   Extension; Waiver      A-68  

Section 8.11

   Counterparts      A-68  

Section 8.12

   Definitions      A-69  

Exhibits

  

Exhibit A – Form of REIT Opinion

 

Exhibit B – Form of Tax Representation Letter

 

Exhibit C – Form of Amended Charter

 

Exhibit D – Plan of Conversion

 

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of April 24, 2022 is by and among PS Business Parks, Inc., a Maryland corporation (the “Company”), Sequoia Parent LP, a Delaware limited partnership (“Parent”), Sequoia Merger Sub I LLC, a Maryland limited liability company (“Merger Sub I”), Sequoia Merger Sub II LLC, a Maryland limited liability company (“Merger Sub II”), and PS Business Parks, L.P., a California limited partnership (the “Partnership”).

W I T N E S S E T H:

WHEREAS, the parties wish to effect a business combination through (i) a merger of Merger Sub II with and into the Partnership (as converted into a Maryland limited partnership pursuant to Section 5.16), with the Partnership being the surviving entity (the “Partnership Merger”), on the terms and subject to the conditions set forth in this Agreement and in accordance with the Maryland Revised Uniform Limited Partnership Act (the “MRULPA”) and the Maryland Limited Liability Company Act (the “MLLCA”) and (ii) immediately following the consummation of the Partnership Merger, a merger of Merger Sub I with and into the Company, with the Company being the surviving entity (the “Company Merger” and, together with the Partnership Merger, the “Mergers”), on the terms and subject to the conditions set forth in this Agreement and in accordance with the MLLCA and the Maryland General Corporation Law (the “MGCL”);

WHEREAS, the Company is the sole general partner of the Partnership through which the Company operates its business, and, as of the date hereof, the Company owns approximately 79.1% of the outstanding common partnership units of the Partnership (the “Common Partnership Units”), 100% of the outstanding 5.25% Series X Cumulative Redeemable Preferred Units of the Partnership (the “Series X Preferred Partnership Units”), 100% of the outstanding 5.20% Series Y Cumulative Redeemable Preferred Units of the Partnership (the “Series Y Preferred Partnership Units”), and 100% of the outstanding 4.875% Series Z Cumulative Redeemable Preferred Partnership Units of the Partnership (the “Series Z Preferred Partnership Units” and, together with the Series X Preferred Partnership Units and the Series Y Preferred Partnership Units, the “Preferred Partnership Units”);

WHEREAS, the Board of Directors of the Company (the “Company Board”) has declared the Company Merger advisable, and approved this Agreement, the Company Merger and the other transactions contemplated hereby, on substantially the terms and subject to the conditions set forth herein;

WHEREAS, Parent, as the sole member of Merger Sub I, has approved this Agreement and the Company Merger and determined that it is advisable and in the best interests of Merger Sub I to enter into this Agreement and to consummate the Company Merger on the terms and subject to the conditions set forth herein;

WHEREAS, the Company, as the sole general partner of the Partnership, has approved this Agreement and the Partnership Merger and determined that it is advisable and in the best interests of the Partnership and the limited partners of the Partnership for the Partnership to enter into this Agreement and to consummate the Partnership Merger on the terms and subject to the conditions set forth herein;

WHEREAS, Parent, as the sole member of Merger Sub II, has approved this Agreement and the Partnership Merger and determined that it is advisable and in the best interests of Merger Sub II to enter into this Agreement and to consummate the Partnership Merger on the terms and subject to the conditions set forth herein;

WHEREAS, as an inducement to the Company and the Partnership entering into this Agreement, Blackstone Real Estate Partners IX L.P. (the “Guarantor”) is entering into a guaranty with the Company (the “Guaranty”), pursuant to which the Guarantor is guaranteeing certain obligations of Parent, Merger Sub I and Merger Sub II under this Agreement;

WHEREAS, as a condition to the Parent Parties willingness to enter into the Merger Agreement, concurrently with and subject to the execution and delivery of the Merger Agreement, Public Storage, a

 

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Maryland REIT (“Public Storage”), has entered into a Support Agreement with Parent and for certain limited purposes, the Company (the “Support Agreement”), pursuant to which Public Storage has agreed to, among other things, vote all of the Covered Securities (as defined therein) beneficially owned by it in favor of the approval of the Mergers and the transactions contemplated hereby, subject to the terms and conditions set forth in the Support Agreement; and

WHEREAS, Parent, the Partnership, Merger Sub I, Merger Sub II and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Mergers as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

THE MERGERS

Section 1.1 The Mergers.

(a) Subject to the terms and conditions of this Agreement, and in accordance with the MRULPA and MLLCA, at the Partnership Merger Effective Time, Merger Sub II and the Partnership shall consummate the Partnership Merger, pursuant to which (i) Merger Sub II shall be merged with and into the Partnership and the separate existence of Merger Sub II shall thereupon cease and (ii) the Partnership shall be the surviving partnership in the Partnership Merger (the “Surviving Partnership”). The Partnership Merger shall have the effects provided in this Agreement and as specified in the MRULPA and MLLCA.

(b) Subject to the terms and conditions of this Agreement, and in accordance with the MLLCA and the MGCL, at the Company Merger Effective Time, the Company and Merger Sub I shall consummate the Company Merger, pursuant to which (i) Merger Sub I shall be merged with and into the Company and the separate existence of Merger Sub I shall thereupon cease and (ii) the Company shall survive the Company Merger (the “Surviving Company”), such that, immediately following the Company Merger, Parent shall be the sole holder of common stock of the Surviving Company. The Company Merger shall have the effects provided in this Agreement and as specified in the MLLCA and the MGCL.

Section 1.2 Governing Documents.

(a) At the Company Merger Effective Time, the name of the Surviving Company shall be “PS Business Parks, Inc.” At the Company Merger Effective Time, the charter of the Company, as in effect immediately prior to the Company Merger Effective Time, shall be amended and restated as set forth on Exhibit C (the “Amended Charter”), which Amended Charter be the charter of the Surviving Company until thereafter amended as provided therein or by applicable Law. The bylaws of the Company, as in effect immediately prior to the Company Merger Effective Time, shall be the bylaws of the Surviving Company until thereafter amended as provided therein or by applicable Law.

(b) At the Partnership Merger Effective Time, the certificate of limited partnership of the Partnership, as in effect immediately prior to the Partnership Merger Effective Time (the “Certificate of Limited Partnership”), shall be the certificate of limited partnership of the Surviving Partnership until thereafter amended as provided therein or by applicable Law. At the Partnership Merger Effective Time, the Partnership Agreement as in effect immediately prior to the Partnership Merger Effective Time (being in the form attached as Exhibit C to the Plan of Conversion) shall be the limited partnership agreement of the Surviving Partnership until thereafter amended as provided therein or by applicable Law.

 

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Section 1.3 Directors, Officers, General Partner and Limited Partners of the Surviving Entities.

(a) The board of directors of the Surviving Company, from and after the Company Merger Effective Time, shall consist of the individuals to be designated by Parent pursuant to a written notice to the Company prior to the Company Merger Effective Time. Each Person elected as a director of the Surviving Company pursuant to the preceding sentence shall remain in office as a director of the Surviving Company until his or her successor is elected and qualified or until his or her earlier resignation or removal.

(b) The officers of the Company immediately prior to the Company Merger Effective Time shall be the officers of the Surviving Company from and after the Company Merger Effective Time, until such time as their resignation or removal or such time as their successors shall be duly elected and qualified.

(c) The Company shall be the sole general partner and a limited partner of the Surviving Partnership following the Partnership Merger Effective Time, entitling the Company to such rights, duties and obligations as are more fully set forth in the Partnership Agreement.

Section 1.4 Effective Times.

(a) On the Closing Date, (i) the Partnership and Merger Sub II shall duly execute and file articles of merger (the “Partnership Merger Articles of Merger”) with the State Department of Assessments and Taxation of Maryland (the “SDAT”) in accordance with the Laws of the State of Maryland and (ii) the Partnership and Merger Sub II shall make any other filings, recordings or publications required to be made by the Partnership or Merger Sub II under the MRULPA and the MLLCA in connection with the Partnership Merger. The Partnership Merger shall become effective upon the later of the acceptance for record of the Partnership Merger Articles of Merger by the SDAT or on such other date and time (not to exceed thirty (30) days from the date the Partnership Merger Articles of Merger are accepted for record by the SDAT) as may be mutually agreed to by the Company and Parent and specified in the Partnership Merger Articles of Merger in accordance with the MRULPA and MLLCA (such date and time being hereinafter referred to as the “Partnership Merger Effective Time”).

(b) On the Closing Date, (i) the Company and Merger Sub I shall duly execute and file articles of merger (the “Company Merger Articles of Merger”) with the SDAT in accordance with the Laws of the State of Maryland and (ii) Merger Sub I and the Company shall make any other filings, recordings or publications required to be made by the Company or Merger Sub I under the MGCL and the MLLCA in connection with the Company Merger. The Company Merger shall become effective upon the later of the acceptance for record of the Company Merger Articles of Merger by the SDAT or on such other date and time (not to exceed thirty (30) days from the date the Company Merger Articles of Merger are accepted for record by the SDAT) as may be mutually agreed to by the Company and Parent and specified in the Company Merger Articles of Merger in accordance with the MGCL and MLLCA (such date and time being hereinafter referred to as the “Company Merger Effective Time”), it being understood and agreed that the parties shall cause the Company Merger Effective Time to occur immediately after the Partnership Merger Effective Time.

(c) Unless otherwise agreed in writing, the parties shall cause the Company Merger Effective Time and the Partnership Merger Effective Time to occur on the Closing Date, with the Company Merger Effective Time occurring immediately after the Partnership Merger Effective Time as specified in this Section 1.4.

Section 1.5 Closing of the Mergers. The closing of the Mergers (the “Closing”) shall take place at 9:00 am Eastern time on the third Business Day after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of such conditions), at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019 or remotely by exchange of documents and signatures (or their electronic counterparts), or at such other time, date and place as may be mutually agreed to in writing by the parties hereto (the “Closing Date”).

 

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Section 1.6 Effects of the Mergers.

(a) The Company Merger shall have the effects set forth in the MLLCA and the MGCL. Without limiting the generality of the foregoing, and subject thereto, at the Company Merger Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub I shall vest in the Surviving Company, and all debts, liabilities, duties and obligations of the Company and Merger Sub I shall become the debts, liabilities, duties and obligations of the Surviving Company.

(b) The Partnership Merger shall have the effects set forth in the MRULPA and the MLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Partnership Merger Effective Time, all the properties, rights, privileges, powers and franchises of the Partnership and Merger Sub II shall vest in the Surviving Partnership, and all debts, liabilities, duties and obligations of the Partnership and Merger Sub II shall become the debts, liabilities, duties and obligations of the Surviving Partnership.

Section 1.7 Tax Consequences. The parties intend that for U.S. federal, and applicable state and local, income Tax purposes (a) the Company Merger shall be treated as a taxable sale of Company Common Stock in exchange for the Company Share Merger Consideration and (b) the Partnership Merger shall be treated as a taxable sale or redemption of the Common Partnership Units in exchange for the Partnership Unit Merger Consideration. The parties hereto agree not to take any position on any Tax Return that is inconsistent with the foregoing for all U.S. federal, and, if applicable, state and local Tax purposes, except to the extent otherwise required pursuant to a “determination” as defined in Section 1313(a) of the Code.

ARTICLE II

MERGER CONSIDERATION; COMPANY SHARES; COMPANY PREFERRED SHARES; PARTNERSHIP UNITS

Section 2.1 Effect on Company Shares; Effect on Company Preferred Shares.

(a) Limited Liability Company Interests of Merger Sub I. At the Company Merger Effective Time, by virtue of the Company Merger and without any action on the part of any holder thereof, each unit of limited liability company interest in Merger Sub I issued and outstanding immediately prior to the Company Merger Effective Time shall automatically be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Company.

(b) Company Share Merger Consideration; Conversion of Company Shares. At the Company Merger Effective Time, by virtue of the Company Merger and without any action on the part of any holder thereof, each share of Company Common Stock (each, a “Company Share”) (other than any Excluded Shares) issued and outstanding immediately prior to the Company Merger Effective Time, subject to the terms and conditions set forth herein, shall automatically be converted into the right to receive an amount in cash equal to one hundred eighty-seven dollars and fifty cents ($187.50), without interest (the “Per Company Share Merger Consideration”). The aggregate amount of cash payable to holders of Company Shares as the Per Company Share Merger Consideration is hereinafter referred to as the “Company Share Merger Consideration.” The Per Company Share Merger Consideration shall be subject to adjustments as contemplated by Section 2.9 and Section 5.11(a).

Section 2.2 Preferred Shares of the Company.

(a) At the Company Merger Effective Time, by virtue of the Company Merger and without any action on the part of any holder thereof:

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by the Company Merger and remain outstanding as one share of Series X Preferred Stock of the Surviving Company, and (B) each depositary share issued pursuant to the Series X Deposit Agreement, representing one-thousandth of one Company Series X Preferred Share (each, a “Company Series X Depositary Share”) issued and outstanding immediately prior to the Company Merger Effective Time shall be unaffected by the Company Merger and remain outstanding and represent one-thousandth of one share of Series X Preferred Stock of the Surviving Company;

(ii) each share of Series Y Preferred Stock (each, a “Company Series Y Preferred Share”) issued and outstanding immediately prior to the Company Merger Effective Time shall be unaffected by the Company Merger and remain outstanding as one share of Series Y Preferred Stock of the Surviving Company, and (B) each depositary share issued pursuant to the Series Y Deposit Agreement, representing one-thousandth of one Company Series Y Preferred Share (each, a “Company Series Y Depositary Share”) issued and outstanding immediately prior to the Company Merger Effective Time shall be unaffected by the Company Merger and remain outstanding and represent one-thousandth of one share of Series Y Preferred Stock of the Surviving Company; and

(iii) each share of Series Z Preferred Stock (each, a “Company Series Z Preferred Share” and, together with the Company Series X Preferred Shares and Company Series Y Preferred Shares, the “Company Preferred Shares”) issued and outstanding immediately prior to the Company Merger Effective Time shall be unaffected by the Company Merger and remain outstanding as one share of Series Z Preferred Stock of the Surviving Company, and (B) each depositary share issued pursuant to the Series Z Deposit Agreement, representing one-thousandth of one Company Series Z Preferred Share (each, a “Company Series Z Depositary Share” and, together with the Company Series X Depositary Shares and Company Series Y Depositary Shares, the “Company Depositary Shares”) issued and outstanding immediately prior to the Company Merger Effective Time shall be unaffected by the Company Merger and remain outstanding and represent one-thousandth of one share of Series Z Preferred Stock of the Surviving Company.

(b) Cancellation of Company Shares Owned by Parent, the Company or Merger Sub I. At the Company Merger Effective Time, each issued and outstanding Company Share that is owned by Parent or Merger Sub I or any wholly-owned Subsidiary of Parent, the Company or Merger Sub I immediately prior to the Company Merger Effective Time (collectively, the “Excluded Shares”), if any, shall automatically be canceled and retired and shall cease to exist, and no cash, Per Company Share Merger Consideration or other consideration shall be delivered or deliverable in exchange therefor.

(c) Cancellation of Company Shares. As of the Company Merger Effective Time, all Company Shares issued and outstanding immediately prior to the Company Merger Effective Time shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a Company Share (other than Excluded Shares, if any) shall cease to have any rights with respect to such interest, except the right to receive the Per Company Share Merger Consideration.

Section 2.3 Partnership Unit Merger Consideration; Effect on Partnership Units.

(a) Partnership Unit Merger Consideration. At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of any holder thereof, each Common Partnership Unit, other than Excluded Units, issued and outstanding immediately prior to the Partnership Merger Effective Time, subject to the terms and conditions set forth herein, shall be converted into, and shall be canceled in exchange for, the right to receive an amount in cash equal to the Per Company Share Merger Consideration, without interest (the “Per Partnership Unit Merger Consideration”). The aggregate amount of cash payable to holders of Common Partnership Units as the Per Partnership Unit Merger Consideration is herein referred to as the “Partnership Unit Merger Consideration,” and together with the Company Share Merger Consideration, the aggregate Per Company Share Merger Consideration payable in respect of the Company Options pursuant to Section 2.4(a), the Company RSU Awards pursuant to Section 2.4(b), the 2022 EIP Awards pursuant to

 

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Section 2.4(c) and the Deferred Stock Unit Awards pursuant to Section 2.4(d), is herein referred to as the “Merger Consideration”.

(b) Partnership Units Held by the Company. At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of the holder of any partnership interest in the Partnership, (i) each “partnership unit” (as defined in the Partnership Agreement) of the Partnership (each a “Partnership Unit”) held by the Company or any wholly owned Subsidiary of the Company immediately prior to the Partnership Merger Effective Time (collectively, the “Continuing Units”) shall be unaffected by the Partnership Merger and shall remain outstanding as a Partnership Unit of the Surviving Partnership held by the Company or relevant wholly owned Subsidiary of the Company.

(c) Cancellation of Parent and Merger Sub II-Owned Partnership Units. At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of the holder of any partnership interest in the Partnership, each Partnership Unit held by Parent, Merger Sub II or any of their respective wholly-owned Subsidiaries immediately prior to the Partnership Merger Effective Time (collectively, the “Cancelled Units” and, together with the Continuing Units, the “Excluded Units”) shall automatically be canceled and shall cease to exist, with no consideration to be delivered or deliverable in exchange therefor.

(d) Conversion of Merger Sub II Interests. At the Partnership Merger Effective Time, by virtue of the Partnership Merger and without any action on the part of any holder thereof, the limited liability company interests in Merger Sub II shall automatically be converted into such number of validly issued and fully paid Common Partnership Units of the Surviving Partnership as is equal to the number of Common Partnership Units that were converted into the right to receive the Per Partnership Unit Merger Consideration pursuant to Section 2.3(a), which Common Partnership Units of the Surviving Partnership shall be held by Parent.

Section 2.4 Treatment of Equity-Based Awards.

(a) Company Options. Effective immediately prior to the Company Merger Effective Time, each option to purchase Company Shares (each, a “Company Option”) that is outstanding immediately prior to the Company Merger Effective Time shall automatically be cancelled, with the holder of such Company Option becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash equal to (i) the number of Company Shares subject to the Company Option immediately prior to the Company Merger Effective Time multiplied by (ii) the excess (if any) of the Per Company Share Merger Consideration over the per share exercise price applicable to the Company Option (less any applicable income and employment withholding Taxes). In the event that the exercise price of a Company Option exceeds the Per Company Share Merger Consideration, such Company Option shall be cancelled for no consideration.

(b) Company Restricted Stock Units. Effective immediately prior to the Company Merger Effective Time, each award of restricted stock units (each, a “Company RSU Award”) granted under a Company Stock Incentive Plan that is outstanding immediately prior to the Company Merger Effective Time shall be cancelled, with the holder of each such Company RSU Award becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash equal to (i) the number of Company Shares subject to the Company RSU Award immediately prior to the Company Merger Effective Time multiplied by (ii) the Per Company Share Merger Consideration (less any applicable income and employment withholding Taxes).

(c) Company EIP Awards. Effective immediately prior to the Company Merger Effective Time, each award approved under the Company 2022 Equity Incentive Plan Awards Program (each, a “2022 EIP Award”) as set forth in Section 2.4(c) of the Company Disclosure Letter shall be cancelled, with the holder of each such 2022 EIP Award becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash as set forth in Section 2.4(c) of the Company Disclosure Letter (less any applicable income and employment withholding Taxes).

 

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(d) Deferred Stock Unit Awards. All deferred stock units governed under the Retirement Plan (the “Deferred Stock Unit Awards”), and any accrued dividend equivalents in participant accounts under the Retirement Plan, shall, as of immediately before the Company Merger Effective Time, become vested and no longer subject to restrictions. All Deferred Stock Unit Awards shall, at the Company Merger Effective Time, be converted into a right of the holder to receive a cash amount equal to the product of (i) the number of Company Shares subject to the Deferred Stock Unit Awards immediately before the Company Merger Effective Time and (ii) the Per Company Share Merger Consideration, and shall cease to represent a right to receive a number of Company Shares or cash equal to or based on the value of a number of Company Shares.

(e) Cash amounts payable to (i) employees pursuant to Section 2.4(a), Section 2.4(b) and Section 2.4(c) shall be paid through the Company’s payroll, less any applicable income and employment withholding Taxes, and (ii) non-employee directors pursuant to Section 2.4(a) and Section 2.4(d) shall be paid by check, less any applicable income and employment withholding Taxes, in each case within five (5) Business Days following the Company Merger Effective Time (or, in the case of Section 2.4(b) and Section 2.4(d), at such time as necessary to avoid a violation and/or adverse tax consequences under Section 409A of the Code).

(f) Prior to the Partnership Merger Effective Time, the Company Board (or a committee thereof) shall adopt resolutions approving the treatment of the Company Options, Company RSU Awards, 2022 EIP Awards and Deferred Stock Unit Awards contemplated by this Section  2.4 and the termination of each of the Company Stock Incentive Plan and the Retirement Plan.

Section 2.5 Exchange of Certificates.

(a) Paying Agent. Prior to the Partnership Merger Effective Time, Parent shall appoint a bank or trust company reasonably satisfactory to the Company to act as Paying Agent (the “Paying Agent”) and enter into an agreement with the Paying Agent with respect thereto, in form and substance reasonably acceptable to the Company, for the payment or exchange in accordance with this Article II of the Merger Consideration (other than any payments in respect of Company Options, Company RSU Awards, 2022 EIP Awards and Deferred Stock Unit Awards). At or prior to the Partnership Merger Effective Time, Parent shall deposit or cause to be deposited with the Paying Agent, for the benefit of the holders of the Company Shares and the Common Partnership Units, the Merger Consideration, less the Per Company Share Merger Consideration to be paid in respect of Company Options, Company RSU Awards, 2022 EIP Awards, and Deferred Stock Unit Awards, which amounts in respect of Company Options, Company RSU Awards, 2022 EIP Awards, and Deferred Stock Unit Awards shall be paid or delivered directly to the Surviving Company (the Merger Consideration so deposited being referred to herein as the “Exchange Fund”). The Paying Agent shall make payments of the Merger Consideration out of the Exchange Fund in accordance with this Agreement. The Exchange Fund shall not be used for any other purpose other than a purpose expressly provided for in this Agreement. Any and all interest earned on cash deposited in the Exchange Fund shall be paid to the Surviving Company.

(b) Share and Unit Transfer Books. On the Closing Date, the share transfer books of the Company and the unit transfer books of the Partnership shall be closed and thereafter there shall be no further registration of transfers of the Company Shares or Common Partnership Units. From and after the Closing Date, the holders of any certificates (each such certificate, a “Certificate”) representing ownership of the Company Shares or Common Partnership Units outstanding immediately prior to the Company Merger Effective Time or the Partnership Merger Effective Time, as applicable, or any book-entry shares (each such book-entry share, a “Book-Entry Share”) or book-entry units (each such book-entry unit, a “Book-Entry Unit”) representing Company Shares or Common Partnership Units outstanding immediately prior to the Company Merger Effective Time or the Partnership Merger Effective Time, as applicable, shall cease to have rights with respect to such shares or units, as applicable, except as otherwise provided for herein. On or after the Closing Date, any Certificates, Book-Entry Shares or Book-Entry Units presented to the Paying Agent, the Surviving Company or the Surviving Partnership in accordance with this Agreement shall be exchanged for the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, with respect to the Company Shares or Common Partnership Units formerly represented thereby.

 

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Section 2.6 Exchange Procedures.

(a) Procedure. As soon as practicable after the Closing Date (but in any event within five (5) Business Days), the Surviving Company shall cause the Paying Agent to mail to each holder of record of a Certificate or Certificates that, immediately prior to the Company Merger Effective Time, represented outstanding Company Shares or that, immediately prior to the Partnership Merger Effective Time, represented Common Partnership Units, which were converted into the right to receive or be exchanged for the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, pursuant to Section 2.1 and Section 2.3: (x) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass to the Paying Agent, only upon delivery of the Certificates or affidavits of loss in lieu thereof in accordance with Section 2.6(f) to the Paying Agent, and which letter shall be in such form and have such other provisions as Parent and the Company may mutually agree and specify) and (y) instructions for use in effecting the surrender of the Certificates in exchange for the Per Company Share Merger Consideration or Per Partnership Unit Merger Consideration, as applicable, to which the holder thereof is entitled. Upon surrender of a Certificate for cancellation or affidavits of loss in lieu thereof in accordance with Section 2.6(f) to the Paying Agent or to such other agent or agents reasonably satisfactory to the Company as may be appointed by Parent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, payable in respect of the Company Shares or Common Partnership Units, as applicable, previously represented by such Certificate pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Shares or Common Partnership Units to a Person that is not registered in the transfer records of the Company or Partnership, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other similar Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the reasonable satisfaction of Parent that such Tax has been paid or is not applicable. Notwithstanding anything to the contrary contained in this Agreement, no holder of Book-Entry Shares or Book-Entry Units shall be required to deliver a Certificate or letter of transmittal or surrender such Book-Entry Shares or Book-Entry Units to the Paying Agent. In lieu thereof, the holder of such Book-Entry Shares or Book-Entry Units shall automatically upon the Company Merger Effective Time or the Partnership Merger Effective Time, as applicable, be entitled to receive in exchange therefor the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, payable in respect of the Company Shares or Common Partnership Units, as applicable, previously represented by such Book-Entry Shares or Book-Entry Units pursuant to the provisions of this Article II. Until surrendered, in the case of a Certificate, or paid, in the case of a Book-Entry Share or Book-Entry Unit, in each case, as contemplated by this Section 2.6, each Certificate, Book-Entry Share or Book-Entry Unit shall be deemed at any time after the Closing Date to represent only the right to receive, upon such surrender, the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, as contemplated by this Article II. No interest shall be paid or accrue for the benefit of the holders of the Certificates, Book-Entry Shares or Book-Entry Units on any cash payable hereunder.

(b) No Further Ownership Rights in the Company Shares or Common Partnership Units. On the Closing Date, holders of Company Shares or Common Partnership Units that are converted into the right to receive Per Company Share Merger Consideration or Per Partnership Unit Merger Consideration, as applicable, shall cease to be, and shall have no rights as, shareholders of the Company or limited partners of the Partnership other than the right to receive the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, as provided under this Article II. The Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, paid or delivered or issued upon the surrender for exchange of Certificates representing Company Shares or Common Partnership Units, or automatically in the case of Book-Entry Shares or Book-Entry Units, in accordance with the terms of this Article II shall be deemed

 

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to have been paid, delivered or issued, as the case may be, in full satisfaction of all rights and privileges pertaining to the Company Shares or Common Partnership Units, as applicable, exchanged therefor.

(c) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates, Book-Entry Shares or Book-Entry Units for twelve (12) months after the Closing Date shall be delivered to the Surviving Company and any holders of Company Shares or Common Partnership Units prior to the Company Merger Effective Time or Partnership Merger Effective Time, as applicable, who have not theretofore complied with this Article II shall thereafter look only to the Surviving Company and only as general creditors thereof for payment of the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, upon compliance with the procedures set forth in Section 2.6(a) and subject to Section 2.6(d).

(d) No Liability. None of Parent, Merger Sub I, the Surviving Company, the Partnership, Merger Sub II, the Surviving Partnership, the Company or the Paying Agent, or any employee, officer, trustee, director, agent or affiliate thereof, shall be liable to any Person in respect of Merger Consideration from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. Any amounts remaining unclaimed by holders of the Certificates, Book-Entry Shares or Book-Entry Units immediately prior to the time at which such amounts would otherwise escheat to, or become the property of, any Governmental Entity shall, to the extent permitted by applicable Law, become the property of the Surviving Company, free and clear of any claims or interest of any such holders or their successors, assigns or personal representatives previously entitled thereto.

(e) Investment of Exchange Fund. After the Closing Date, the Paying Agent shall invest any cash included in the Exchange Fund as directed by the Surviving Company. Any interest and other income resulting from such investments shall be paid to the Surviving Company. Until the termination of the Exchange Fund pursuant to Section 2.6(c), to the extent that there are losses with respect to such investments, or the cash portion of the Exchange Fund diminishes for other reasons below the level required to make prompt payments of the Company Share Merger Consideration or the Partnership Unit Merger Consideration as contemplated hereby, the Surviving Company shall promptly replace or restore the portion of the Exchange Fund lost through investments or other events so as to ensure that the Exchange Fund is, at all times, maintained at a level sufficient to make all such payments.

(f) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed to the reasonable satisfaction of Parent and the Paying Agent and the taking of such other actions as may be reasonably requested by the Paying Agent, the Paying Agent (or, if subsequent to the termination of the Exchange Fund pursuant to, and subject to Section 2.6(c), the Surviving Company) will issue, in exchange for such lost, stolen or destroyed Certificate, the Per Company Share Merger Consideration or the Per Partnership Unit Merger Consideration, as applicable, payable in respect thereof, in accordance with this Agreement.

Section 2.7 Withholding Rights. Each of the Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent, Merger Sub I, Merger Sub II, the Paying Agent (and any affiliates or designees of the foregoing) and any other applicable withholding agent, as applicable, shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any Person such amounts as it is required to deduct and withhold with respect to the making of such payment (and, with respect to the Company Options, the Company RSU Awards, the 2022 EIP Awards and the Deferred Stock Unit Awards, the vesting and/or cancellation of such Company Options, Company RSU Awards, 2022 EIP Awards and Deferred Stock Unit Awards as set forth in Section 2.4) under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or non-U.S. Tax Law. To the extent that amounts are so deducted and withheld by the Company, the Surviving Company, the Partnership, the Surviving Partnership, Parent, Merger Sub I, Merger Sub II, the Paying Agent (or any affiliates or designees of the foregoing) or any other applicable withholding agent, as applicable, and paid over to the appropriate Governmental Entity, such deducted and withheld amounts shall be

 

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treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.

Section 2.8 Dissenters Rights. No dissenters’ or appraisal rights shall be available with respect to the Mergers.

Section 2.9 Adjustment of Certain Merger Consideration. In the event that, subsequent to the date of this Agreement but prior to the Company Merger Effective Time or the Partnership Merger Effective Time, as applicable, the Company Shares or the Partnership Units issued and outstanding shall, through a reorganization, recapitalization, reclassification, share dividend, share split, reverse share split or other similar change in the capitalization of the Company or the Partnership, as applicable, increase or decrease in number or be changed into or exchanged for a different kind or number of securities, then an appropriate and proportionate adjustment shall be made to the Per Company Share Merger Consideration and the Per Partnership Unit Merger Consideration, as applicable, to provide the holders the same economic effect as contemplated by this Agreement prior to such event; provided, however, that nothing set forth in this Section 2.9 shall be construed to supersede or in any way limit the prohibitions set forth in Section 5.1 hereof.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES

Except (a) as disclosed in the Company SEC Documents furnished or filed prior to the date hereof (other than disclosures in the “Risk Factors” sections of any such filings and any disclosure of risks or other matters included in any “forward-looking statements” disclaimer or other statements that are cautionary, predictive or forward-looking in nature), or (b) as disclosed in the separate disclosure letter which has been delivered by the Company to Parent in connection with the execution and delivery of this Agreement, including the documents attached to or incorporated by reference in such disclosure letter (the “Company Disclosure Letter”) (it being agreed that disclosure of any item in any section or subsection of the Company Disclosure Letter shall also be deemed to be disclosed with respect to any other section or subsection in this Agreement to which the relevance of such item is reasonably apparent on the face of such disclosure), the Company and the Partnership hereby jointly and severally represent and warrant to Parent, Merger Sub I and Merger Sub II as follows:

Section 3.1 Organization and Qualification; Subsidiaries.

(a) The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Maryland. The Partnership is (i) as of the date hereof a limited partnership duly formed, validly existing and in good standing under the Laws of the State of California and (ii) as of the Closing will be a limited partnership duly formed, validly existing and in good standing under the Laws of the State of Maryland. Each other Company Subsidiary is a corporation or other legal entity duly incorporated or organized, validly existing and in good standing (with respect to jurisdictions that recognize such concept), as applicable, under the Laws of the jurisdiction of its incorporation or organization, except where the failure to be so existing and in good standing would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. The Company and each Company Subsidiary has requisite corporate or other legal entity, as the case may be, power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted, except where the failure to have such power and authority would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. The Company and each Company Subsidiary is duly qualified to do business and is in good standing in each jurisdiction (with respect to jurisdictions that recognize such concept) where the ownership, leasing or operation of its properties or assets or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

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(b) The Company has made available to Parent true and complete copies of (i) the cha