PREM14A
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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

(Amendment No.    )

 

 

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

ESH HOSPITALITY, INC.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

    (2)  

Aggregate number of securities to which transaction applies:

 

     

    (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it was determined):

 

     

    (4)  

Proposed maximum aggregate value of transaction:

 

     

    (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
    (1)  

Amount Previously Paid:

 

$381,743.49

    (2)  

Form, Schedule or Registration Statement No.:

 

Schedule 14A

    (3)  

Filing Party:

 

Extended Stay America, Inc.

    (4)  

Date Filed:

 

April 13, 2021

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED APRIL 13, 2021

 

LOGO

EXTENDED STAY AMERICA, INC.

and

ESH HOSPITALITY, INC.

11525 N. Community House Rd. Suite 100

Charlotte, NC 28277

[            ], 2021

Dear Stockholders:

On March 14, 2021, Extended Stay America, Inc. (the “Company”) and its controlled subsidiary, ESH Hospitality, Inc. (“Hospitality” and together with the Company, the “Paired Entities”) entered into a merger agreement with Eagle Parent Holdings L.P. (“Parent”), a joint venture of affiliates of Blackstone Real Estate Partners IX L.P. and Starwood Distressed Opportunity Fund XII Global, L.P. The merger agreement provides that an acquisition subsidiary of Parent will merge with and into the Company (the “Company merger”) and an indirect acquisition subsidiary of Parent will merge with and into Hospitality (the “Hospitality merger” and, together with the Company merger, the “mergers”).

Upon completion of the mergers, holders of our paired shares will be entitled to receive $19.50 in cash, subject to adjustments as described in the enclosed joint proxy statement, in exchange for each paired share, which consists of one share of Company common stock and one share of Hospitality class B common stock, in each case, except for certain excluded shares as described in the accompanying joint proxy statement.

The management of the Paired Entities recommended the mergers to the Company board of directors (the “Company board”) and Hospitality board of directors (the “Hospitality board”), and the Company board and Hospitality board approved the mergers, based on their assessment that the certainty of $19.50 per paired share in cash today was superior to the risk-adjusted present value associated with management’s execution of its business plan for the Paired Entities. Moreover, the $19.50 per paired share price represents a 15.1% premium to the $16.94 closing price for our paired shares on the last trading day prior to the execution of the merger agreement. That closing price was near a 52-week high for the paired shares. In addition, the $19.50 price reflects a premium of 23%, 28%, and 44% to the 30-trading day, 3-month and 6-month volume weighted average prices, respectively, for the paired shares prior to the execution of the merger agreement.

The holders of the paired shares will be asked, at a special meeting of the Company’s stockholders, to vote their Company common stock on the adoption of the merger agreement, and will be asked, at a special meeting of Hospitality’s stockholders, to vote their Hospitality class B stock on the adoption of the merger agreement.

The mergers and the other transactions contemplated by the merger agreement were unanimously approved by the Company board and also approved by the Hospitality board. The Company board unanimously recommends that stockholders vote “FOR” the adoption of the merger agreement. The Hospitality board also recommends that stockholders vote “FOR” the adoption of the merger agreement.

A special meeting of the stockholders of the Company will be held exclusively online via a live audio webcast at [            ] on [            ], 2021 at [            ], Eastern Time (the “Company special meeting”). You are invited to attend and vote your shares of Company common stock to adopt the merger agreement.


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A special meeting of the stockholders of Hospitality will be held exclusively online via a live audio webcast at [            ] on [            ], 2021 at [            ], Eastern Time (the “Hospitality special meeting”). You are invited to attend and vote your shares of Hospitality class B common stock to adopt the merger agreement. The Company is the sole holder of Hospitality class A common stock, which constitutes [            ]% of the voting power of the outstanding common stock of Hospitality as of the close of business on the record date. Under the terms of the merger agreement, the Company has agreed to vote its shares of Hospitality class A common stock to adopt the merger agreement at the Hospitality special meeting.

The joint proxy statement attached to this letter provides you with important information about the proposed mergers and the special meetings of the Paired Entities’ stockholders. We encourage you to read the entire joint proxy statement carefully. You may also obtain more information about the Paired Entities from documents that we have filed with the Securities and Exchange Commission.

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF PAIRED SHARES THAT YOU OWN. BECAUSE THE ADOPTION OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE COMPANY’S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AND A MAJORITY OF HOSPITALITY’S ISSUED AND OUTSTANDING SHARES OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS, A FAILURE TO VOTE, OR TO INSTRUCT YOUR BROKER ON HOW TO VOTE, WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE MERGERS. ACCORDINGLY, YOU ARE REQUESTED TO SUBMIT PROMPTLY YOUR PROXIES FOR YOUR PAIRED SHARES BY PHONE, INTERNET OR BY COMPLETING, SIGNING AND DATING THE ENCLOSED WHITE PROXY CARDS AND RETURNING THEM IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING OF THE COMPANY STOCKHOLDERS OR THE SPECIAL MEETING OF THE HOSPITALITY STOCKHOLDERS.

If you have any questions about the joint proxy statement, the special meetings, the merger agreement or the mergers or need assistance with voting procedures, please contact Okapi Partners LLC, our proxy solicitor, toll-free at (212) 297-0720 (if you are a bank or brokerage firm) and (888) 785-6668 (if you are a stockholder or other party) or email at info@okapipartners.com.

Thank you for your continued support.

 

Douglas G. Geoga    Bruce H. Haase
Chairman of the Boards of Directors    President and Chief Executive Officer

This joint proxy statement is dated [            ], 2021 and is first being mailed to our stockholders on or about [            ], 2021.


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED APRIL 13, 2021

EXTENDED STAY AMERICA, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [                    ], 2021

To the Stockholders of Extended Stay America, Inc.:

A special meeting of the stockholders of Extended Stay America, Inc. (the “Company”) will be held exclusively online via a live audio webcast at [            ] on [                    ], 2021 at [            ], Eastern Time. You are invited to attend and vote your shares of Company common stock at the special meeting. If you plan on attending the meeting, you are encouraged to register to attend the special meeting at [            ] prior to the registration deadline of [            ], Eastern Time on [                    ], 2021. There is no physical location for the special meeting. The special meeting is being held for the purpose of acting on the following matters:

 

  1.

To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of March 14, 2021 and as it may be amended from time to time, among Eagle Parent Holdings L.P., Eagle Merger Sub 1 Corporation, Eagle Merger Sub 2 Corporation, the Company and ESH Hospitality, Inc. (the “merger agreement”) and approve the mergers and the other transactions contemplated by merger agreement;

 

  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 mergers; 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 adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

The foregoing items of business are more fully described in the attached joint proxy statement, which forms a part of this notice and is incorporated herein by reference. The board of directors of the Company (the “Company board”) has fixed the close of business on [                    ], 2021 as the record date for the determination of Company stockholders entitled to notice of and to vote at the Company special meeting or any postponement or adjournment thereof.

The Company board has unanimously approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and fair to and in the best interests of the Company and its stockholders. The Company board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, “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 mergers, and “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 adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

We encourage you to read the accompanying joint proxy statement in its entirety and to authorize a proxy to vote your shares of Company common stock by providing your proxy or voting instructions by telephone or through the Internet or by marking, signing, dating and promptly returning the enclosed WHITE proxy card relating to your shares of Company common stock in the accompanying postage-paid envelope so that your shares of Company common stock will be represented and voted even if you do not attend the virtual special meeting. If you have any questions or need assistance in submitting a proxy or your voting instructions, please call our proxy solicitor, Okapi Partners LLC, toll-free at (212) 297-0720 (if you are a bank or brokerage firm) and (888) 785-6668 (if you are a stockholder or other party) or email at info@okapipartners.com.

BY ORDER OF THE BOARD OF DIRECTORS

Christopher N. Dekle

General Counsel and Corporate Secretary

Charlotte, North Carolina

[                    ], 2021


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED APRIL 13, 2021

ESH HOSPITALITY, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [                    ], 2021

To the Stockholders of ESH Hospitality, Inc.:

A special meeting of the stockholders of ESH Hospitality, Inc. (“Hospitality”) will be held exclusively online via a live audio webcast at [            ] on [                    ], 2021 at [            ], Eastern Time. You are invited to attend and vote your shares of Hospitality class B common stock at the special meeting. If you plan on attending the meeting, you are encouraged to register to attend the special meeting at [            ] prior to the registration deadline of [            ], Eastern Time on [                    ], 2021. There is no physical location for the special meeting. The special meeting is being held for the purpose of acting on the following matters:

 

  1.

To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of March 14, 2021 and as it may be amended from time to time, among Eagle Parent Holdings L.P., Eagle Merger Sub 1 Corporation, Eagle Merger Sub 2 Corporation, Extended Stay America, Inc. and Hospitality (the “merger agreement”) and approve the mergers and the other transactions contemplated by the merger agreement; and

 

  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 mergers.

The foregoing items of business are more fully described in the attached joint proxy statement, which forms a part of this notice and is incorporated herein by reference. The board of directors of Hospitality (the “Hospitality board”) has fixed the close of business on [                    ], 2021 as the record date for the determination of Hospitality stockholders entitled to notice of and to vote at the Hospitality special meeting or any postponement or adjournment thereof.

The Hospitality board has approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and fair to and in the best interests of Hospitality and its stockholders. The Hospitality board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, and “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 mergers.

We encourage you to read the accompanying joint proxy statement in its entirety and authorize a proxy to vote your shares of Hospitality class B common stock by providing your proxy or voting instructions by telephone or through the Internet or by marking, signing, dating and promptly returning the enclosed WHITE proxy card relating to your shares of Hospitality class B common stock in the accompanying postage-paid envelope so that your shares of Hospitality class B common stock will be represented and voted even if you do not attend the virtual special meeting. If you have any questions or need assistance in submitting a proxy or your voting instructions, please call our proxy solicitor, Okapi Partners LLC, toll-free at (212) 297-0720 (if you are a bank or brokerage firm) and (888) 785-6668 (if you are a stockholder or other party) or email at info@okapipartners.com.

BY ORDER OF THE BOARD OF DIRECTORS

Christopher N. Dekle

General Counsel and Corporate Secretary

Charlotte, North Carolina

[                    ], 2021


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGERS

     1  

SUMMARY

     9  

The Parties to the Mergers

     9  

The Company Special Meeting

     11  

The Hospitality Special Meeting

     13  

The Mergers

     15  

Recommendation of the Company Board

     16  

Recommendation of Hospitality Board

     16  

Opinion of the Paired Entities’ Financial Advisor

     16  

Treatment of the Company Capital Stock and Hospitality Capital Stock

     17  

Financing

     18  

Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers

     19  

Restriction on Solicitation of Acquisition Proposals

     19  

Conditions to the Mergers

     20  

Termination of the Merger Agreement

     20  

Termination Fee

     22  

Guaranty and Remedies

     24  

Regulatory Matters

     25  

Support Agreement

     25  

Dissenters’ Rights of Appraisal

     25  

Material U.S. Federal Income Tax Consequences

     25  

Delisting and Deregistration of Our Paired Shares and Preferred Shares

     26  

Market Price of Our Paired Shares

     26  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     27  

COMPANY PROPOSAL 1: PROPOSAL TO ADOPT THE MERGER AGREEMENT

     29  

COMPANY PROPOSAL 2: PROPOSAL TO APPROVE THE MERGER-RELATED COMPENSATION

     30  

COMPANY PROPOSAL 3: PROPOSAL TO APPROVE ADJOURNMENT OF THE MEETING

     31  

HOSPITALITY PROPOSAL 1: PROPOSAL TO ADOPT THE MERGER AGREEMENT

     32  

HOSPITALITY PROPOSAL 2: PROPOSAL TO APPROVE THE MERGER-RELATED COMPENSATION

     33  

THE PARTIES TO THE MERGERS

     34  

THE COMPANY SPECIAL MEETING

     37  

Date, Time and Purpose of the Company Special Meeting

     37  

Record Date, Notice and Quorum

     37  

Required Vote

     37  

How to Authorize a Proxy

     38  

Proxies and Revocation

     39  

Solicitation of Proxies

     40  

Adjournments

     40  

Postponements

     40  

 

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THE HOSPITALITY SPECIAL MEETING

     41  

Date, Time and Purpose of the Hospitality Special Meeting

     41  

Record Date, Notice and Quorum

     41  

Required Vote

     41  

How to Authorize a Proxy

     42  

Proxies and Revocation

     43  

Postponements

     44  

THE MERGERS

     45  

General Description of the Mergers

     45  

Background of the Mergers

     45  

Reasons for the Mergers

     58  

Recommendation of the Company Board

     62  

Recommendation of the Hospitality Board

     62  

Forward-Looking Financial Information

     63  

Opinion of the Paired Entities’ Financial Advisor

     65  

Financing

     73  

Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers

     74  

Regulatory Matters

     80  

Material U.S. Federal Income Tax Consequences

     80  

Consequences of the Special Dividend to U.S. Holders of our Paired Shares

     81  

Consequences of the Mergers to U.S. Holders of our Paired Shares

     82  

Consequences of the Special Dividend to Non-U.S. Holders of our Paired Shares

     83  

Consequences of the Mergers to Non-U.S. Holders of our Paired Shares

     85  

Information Reporting Requirements and Withholding

     86  

Foreign Account Tax Compliance Act

     86  

Delisting and Deregistration of Our Paired Shares

     87  

THE MERGER AGREEMENT

     88  

Structure

     88  

Treatment of the Company Capital Stock and Hospitality Capital Stock

     90  

No Further Ownership Rights

     92  

Exchange and Payment Procedures

     92  

Representations and Warranties

     93  

Conduct of Our Business Pending the Mergers

     97  

Special Meetings

     100  

Agreement to Take Certain Actions

     102  

Restriction on Solicitation of Acquisition Proposals

     103  

Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations

     104  

Employee Benefits

     107  

Financing Cooperation

     108  

Pre-Closing Transactions

     110  

Special Dividend

     110  

Certain Other Covenants

     111  

Conditions to the Mergers

     111  

Termination of the Merger Agreement

     113  

Termination Fees

     114  

Guaranty and Remedies

     117  

Amendment and Waiver

     117  

Support Agreement

     117  

 

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MARKET PRICE OF OUR PAIRED SHARES

     118  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     119  

APPRAISAL RIGHTS

     121  

STOCKHOLDER PROPOSALS

     126  

HOUSEHOLDING OF PROXY MATERIALS

     127  

OTHER MATTERS

     127  

WHERE YOU CAN FIND MORE INFORMATION

     128  

Exhibit A—Agreement and Plan of Merger, dated as of March  14, 2021, by and among Eagle Parent Holdings L.P., Eagle Merger Sub 1 Corporation, Eagle Merger Sub 2 Corporation, Extended Stay America, Inc. and ESH Hospitality, Inc.

     A-1  

Exhibit B—Opinion of Goldman & Co. LLC, dated March  14, 2021

     B-1  

Exhibit C—Section 262 of the Delaware General Corporation Law

     C-1  

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGERS

The following questions and answers address briefly some questions you may have regarding the special meetings and the mergers (as defined below). These questions and answers may not address all questions that may be important to you as a stockholder of Extended Stay America, Inc. (the “Company”) and ESH Hospitality, Inc. (“Hospitality”). Please refer to the more detailed information contained elsewhere in this joint proxy statement filed by the Company and Hospitality (the “joint proxy statement”), the exhibits to this joint proxy statement and the documents referred to or incorporated by reference in this joint proxy statement. In this joint proxy statement, the terms the “Paired Entities,” “we,” “our,” “ours” and “us” refer to the Company and its subsidiaries, including Hospitality, and the terms “paired share,” “paired common stock” and “paired common shares” refer to one share of the Company common stock, par value $0.01 per share (“Company common stock”) and one share of Hospitality class B common stock, par value $0.01 per share (“Hospitality class B common stock”) that are paired and trade together as a single unit on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “STAY.”

 

Q:

What is the proposed transaction?

 

A:

The proposed transaction is the acquisition of the Company and its subsidiaries, including Hospitality, by Eagle Parent Holdings L.P. (“Parent”), a joint venture of affiliates of Blackstone Real Estate Partners IX L.P. (the “Blackstone Sponsor”) and Starwood Distressed Opportunity Fund XII Global, L.P. (the “Starwood Sponsor”), or its permitted assigns, pursuant to an Agreement and Plan of Merger (the “merger agreement”), dated as of March 14, 2021 and as it may be amended from time to time, by and among the Company, Hospitality, Parent, Eagle Merger Sub 1 Corporation (“MergerCo 1”) and Eagle Merger Sub 2 Corporation (“MergerCo 2”). The merger agreement provides that MergerCo 1, an acquisition subsidiary of Parent, will merge with and into the Company (the “Company merger”) and MergerCo 2, an indirect acquisition subsidiary of Parent, will merge with and into Hospitality (the “Hospitality merger”, and together with the Company merger, the “mergers”). For additional information about the mergers, please review the merger agreement attached to this joint proxy statement as Exhibit A and incorporated by reference into this joint 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 holder of paired shares, what will I receive in the mergers?

 

A:

For each of your paired shares, which consists of one share of Company common stock and one share of Hospitality class B common stock that you own immediately prior to the effective time of the mergers (which we refer to as the “effective time”), you will receive $19.50 in cash, plus if the mergers are consummated after July 27, 2021 (or, earlier, if Parent elects to delay the mergers to in order to obtain certain foreign competition clearances), a per diem amount of $0.001 for each day from and after such date until, but not including, the closing date, without interest and less any applicable withholding taxes (the “merger consideration”).

Under the terms of the merger agreement, at the request of Parent, immediately prior to the effective time, the Company will pay a special dividend of up to $1.75 per share in respect of each share of Company common stock included in each paired share (which we refer to as the “special dividend”). The merger consideration will be reduced by the amount of such special dividend.

 

Q:

When do you expect the mergers to be completed?

 

A:

If the Company stockholders and Hospitality stockholders vote to adopt the merger agreement, and assuming that the other conditions to the mergers are satisfied or waived, it is anticipated that the mergers will be completed in the second quarter of 2021. 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

 

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  described under “The Merger Agreement—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, to the extent permitted by applicable law, waiver of such conditions) or at such other date as mutually agreed to by the parties to the merger agreement. Under certain circumstances, Parent has the right to delay the closing of the mergers to obtain certain foreign competition clearances. For further information regarding the timing of the closing of the mergers, see “The Merger Agreement—Structure—Closing Date.”

 

Q:

What happens if the mergers are not completed?

 

A:

If the merger agreement is not adopted by the Company stockholders or Hospitality stockholders, or if the mergers are not completed for any other reason, the Company stockholders and Hospitality stockholders will not receive any payment for their paired shares pursuant to the merger agreement and no special dividend will be paid. Instead, we will remain a public company and the paired shares will continue to be registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and listed on NASDAQ. Upon a termination of the merger agreement, under certain circumstances, we will be required to pay Parent a termination fee. In certain other circumstances, Parent will be required to pay us a termination fee upon termination of the merger agreement.

 

Q:

If the mergers are completed, how do I obtain the merger consideration for my paired shares?

 

A:

Following the completion of the mergers, your paired shares (other than any excluded shares) will automatically be converted into the right to receive the merger consideration. Shortly after the mergers are completed, holders of record of the paired shares as of immediately prior to the effective time will receive a letter of transmittal describing how to exchange their paired shares for the merger consideration. If such paired shares are held in “street name” by a broker, bank or other nominee, holders of such paired shares may receive instructions from their broker, bank or other nominee as to what action, if any, they need to take to effect the surrender of their “street name” shares in exchange for the merger consideration.

 

Q:

When and where are the special meetings?

 

A:

A special meeting of the stockholders of the Company will be held on [            ], 2021 at [            ] in virtual format (the “Company special meeting”), and a special meeting of the stockholders of Hospitality will be held on [            ], 2021 at [            ] in virtual format (the “Hospitality special meeting”). The Company stockholders may attend, vote and examine the list of Company stockholders entitled to vote at the Company special meeting by visiting [            ] and entering the control number found on their WHITE proxy card. The Hospitality stockholders may attend, vote and examine the list of Hospitality stockholders entitled to vote at the Hospitality special meeting by visiting [            ] and entering the control number found on their WHITE proxy card. In light of public health concerns regarding the COVID-19 pandemic, the special meetings will be held in virtual meeting format only. You will not be able to attend the special meetings physically.

 

Q:

Who can vote and attend the special meetings?

 

A:

All holders of record of the Company common stock, Hospitality class A common stock, par value $0.01 (“Hospitality class A common stock”), and Hospitality class B common stock as of the record date, which was the close of business on [            ], 2021, are entitled to receive notice of and vote at the special meetings or any postponement or adjournment of the special meetings. Each Company stockholder and Hospitality stockholder will be entitled to cast one vote on each matter presented at the respective special meetings for each share of Company common stock, Hospitality class A common stock and Hospitality class B common stock that such holder owned as of the record date. The vote of the holders of the Hospitality preferred stock is not required to approve any of the proposals at the special meetings and is not being solicited.

 

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Q:

What vote of Company stockholders and Hospitality stockholders is required to adopt the merger agreement?

 

A:

For us to complete the mergers, the affirmative vote of stockholders holding (1) at least a majority of the issued and outstanding shares of the Company common stock and (2) at least a majority of the issued and outstanding shares of the Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, in each case, at the close of business on the record date must vote “FOR” the adoption of the merger agreement. The Company is the sole holder of Hospitality class A common stock, which constitutes [    ]% of the voting power of the outstanding Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, as of the close of business on the record date. Under the merger agreement, the Company has agreed to vote its shares of Hospitality class A common stock to adopt the merger agreement at the Hospitality special meeting.

 

Q:

What vote of Company stockholders and Hospitality stockholders is required to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to each of the Company’s and Hospitality’s named executive officers that is based on or otherwise relates to the mergers?

 

A:

Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to each of the Company’s and Hospitality’s respective named executive officers that is based on or otherwise relates to the mergers requires, in the case of the Company, the affirmative vote of at least a majority of the shares of Company common stock cast on the proposal and, in the case of Hospitality, the affirmative vote of at least a majority of the shares of the Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, cast on the proposal. For the purpose of this proposal, assuming that a quorum is present, the failure to vote your shares of Company common stock or Hospitality class B common stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal.

 

Q:

What vote of Company stockholders is required to approve adjournments of the Company special meeting?

 

A:

Assuming that a quorum is present, approval of any adjournment of the Company special meeting to solicit additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement requires the affirmative vote of a majority of the votes cast on the proposal. Assuming that a quorum is present, for the purpose of this proposal, failure to vote your shares of Company common stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal.

 

Q:

Why is my vote important?

 

A:

If you do not authorize your proxy or voting instructions or vote in person at the special meetings (which consists of presence at a virtual meeting), it will be more difficult for us to obtain the necessary quorum to hold the special meetings. In addition, because the proposal to adopt the merger agreement must be approved by the affirmative vote of the holders of a majority of the issued and outstanding shares of Company common stock and the holders of a majority of the issued and outstanding shares of the Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, your failure to authorize your proxy or voting instructions or to vote in person at the special meetings (which consists of presence at a virtual meeting) will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

 

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Q:

How do the Company board and Hospitality board recommend that I vote?

 

A:

The board of directors of the Company (the “Company board”) unanimously recommends, and the board of directors of Hospitality (the “Hospitality board”, and together with the Company board, the “Boards”) also recommends, that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s and Hospitality’s respective named executive officers that is based on or otherwise relates to the mergers. The Company board recommends that you also vote “FOR” the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement.

 

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 the Company’s and Hospitality’s named executive officers?

 

A:

The U.S. Securities and Exchange Commission, which we refer to as the “SEC”, has adopted rules that require companies to seek a nonbinding, 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 mergers.

 

Q:

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

 

A:

The vote to approve the non-binding proposal to approve the merger-related compensation is a vote separate and apart from the vote to adopt the merger agreement. Approval of this proposal is a 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, the Company board or Hospitality board. 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, the Company’s and Hospitality’s respective named executive officers will be eligible to receive the compensation that may be paid or become payable to them that is based on or otherwise relates to the mergers, in accordance with the terms and conditions applicable to such compensation.

 

Q:

Do any of the Company’s or Hospitality’s directors and executive officers have any interest in the mergers that is different than mine?

 

A:

The Company’s and Hospitality’s respective directors and executive officers have interests in the mergers that may be different from, or in addition to, the interests of the Company stockholders and Hospitality stockholders generally, including (1) the consideration that they would receive with respect to their outstanding restricted stock units granted under the equity incentive plans of the Paired Entities (which we refer to as the “stock units”) in connection with the mergers and (2) certain severance payments and benefits that may become payable upon a qualifying termination following the closing of the mergers. See “Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers” for additional information about interests that our directors and executive officers have in the mergers that are different than yours.

 

Q:

What do I need to do now?

 

A:

After carefully reading and considering the information contained in this joint proxy statement and the exhibits attached to this joint proxy statement, please authorize a proxy to vote your shares of Company common stock and Hospitality class B common stock in one of the ways described below as soon as possible. You will be entitled to one vote at the Company special meeting for each share of Company common stock included in each paired share that you owned as of the record date. You will be entitled to one vote at the Hospitality special meeting for each share of Hospitality class B common stock included in each paired share that you owned as of the record date.

 

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Q:

How do I cast my vote?

 

A:

For stockholders of record: If you are a Company stockholder and Hospitality stockholder of record on the record date, you may vote in person at the special meetings (which would include presence at a virtual meeting) or authorize a proxy to vote your shares of Company common stock and Hospitality class B common stock at the special meetings. If you are eligible to vote at the special meetings and are a stockholder of record, you may cast your shares in any of four ways:

 

   

by voting over the internet using the website indicated on the enclosed WHITE proxy card;

 

   

by telephone using the toll-free number on the enclosed WHITE proxy card;

 

   

by signing, dating and returning the enclosed WHITE proxy card in the postage-paid envelope provided; or

 

   

by attending the special meetings in a virtual format and voting by virtual ballot.

Internet voting are available 24 hours a day until 11:59 p.m., Eastern Time, the day immediately prior to the date of the special meetings. Have your WHITE proxy cards with you if you are going to authorize your proxy by telephone or through the Internet. To authorize your proxy by mail, please complete, sign, date and mail your WHITE proxy cards in the envelope provided. If you attend the special meetings in person (which consists of presence at a virtual meeting).

For holders in street-name (shares held with bank or broker firm): If you own paired shares through a broker, bank or other nominee (i.e., in “street name”), you must provide voting instructions in accordance with the instructions on the voting instruction card that your broker, bank or other nominee provides to you, since brokers, banks and other nominees do not have discretionary voting authority with respect to any of the proposals described in this joint proxy statement. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee who can give you directions on how to vote your shares of Company common stock or Hospitality class B common stock. If you hold your paired shares through a broker, bank or other nominee and wish to vote your shares of Company common stock or Hospitality class B common stock in person at the special meetings (which would include presence at a virtual meeting), you must obtain a “legal proxy,” executed in your favor, from the broker, bank or other nominee (which may take several days).

 

Q:

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

 

A:

With respect to the proposal to adopt the merger agreement, if you abstain from voting, fail to cast your vote in person (which would include presence at a virtual meeting) or by proxy or if you hold your shares of Company common stock or Hospitality class B 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 merger agreement.

With respect to the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to each of the Company’s and Hospitality’s named executive officers that is based on or otherwise relates to the mergers, if you abstain from voting, fail to cast your vote in person (which would include presence at a virtual meeting) or by proxy or if you hold your shares of Company common stock or Hospitality class B 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 proposal.

With respect to the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement, if you abstain from voting, fail to cast your vote in person (which would include presence at a virtual meeting) or by proxy or if you hold your shares of Company common stock in “street name” and fail to give voting instructions to your broker, bank or other nominee and a quorum is present at the Company special meeting, your failure to vote or provide voting instructions will have no effect on the outcome on such proposal.

 

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Q:

How will proxy holders vote my shares of Company common stock or Hospitality class B common stock?

 

A:

If you properly authorize a proxy prior to the special meetings, your shares of Company common stock and Hospitality class B common stock will be voted as you direct. If you authorize a proxy but no direction is otherwise made, your shares of Company common stock or Hospitality class B common stock will be voted “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to approve, on a nonbinding, advisory basis, the compensation that may be paid or become payable each of the Company’s and Hospitality’s named executive officers that is based on or otherwise relates to the merger and, with respect to the Company only, “FOR” the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement. Pursuant to our bylaws, the only business that may be conducted at the special meetings is that which is set forth in the Company’s or Hospitality’s notice of meeting, as applicable.

 

Q:

What happens if I transfer my paired shares before the special meetings?

 

A:

If you transfer your paired shares before the special meeting, you will have transferred your right to receive the merger consideration in the mergers and your right to demand appraisal rights in connection with the mergers. Any transfer of your paired shares prior to the record date for the payment of the special dividend will also result in the transfer of your right to receive such special dividend. In order to receive the merger consideration or to exercise appraisal rights in connection with the mergers, you must hold your paired shares through the effective time of the mergers. In order to receive any special dividend you must hold your paired shares through the record date for that dividend, which is expected to be as of the open of business on the closing date of the mergers.

 

Q:

Can I change my vote after I have previously authorized a proxy by phone, internet or by mailing a WHITE proxy card?

 

A:

Yes. If you are a record holder of the Company common stock and Hospitality class B common stock on the record date, you may revoke a previously authorized proxy at any time before it is exercised by authorizing your proxy by telephone or through the Internet at a later date than your previously authorized proxy or by filing with our Corporate Secretary a notice of revocation or a duly authorized proxy bearing a later date or by attending the meetings and voting in person (which will consist of presence at a virtual meeting). Attendance at the virtual meeting will not, in itself, constitute revocation of a previously authorized proxy. If you have instructed a broker to vote your shares of Company common stock and Hospitality class B common stock, the foregoing options for changing your vote do not apply and instead you must follow the instructions received from your broker to change your vote.

 

Q:

Are the mergers expected to be taxable to me?

 

A:

Yes. The receipt of cash in exchange for the shares of Company common stock and Hospitality class B common stock pursuant to the mergers will be a taxable transaction for U.S. federal income tax purposes. In connection with the mergers, the Company may pay a special dividend to holders of Company common stock, which is intended to be treated as a dividend for U.S. federal income tax purposes to the extent of the Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax purposes. To the extent the special dividend exceeds the Company’s current and accumulated earnings and profits, such amount is intended to be treated as a return of capital to the extent of your adjusted tax basis in your shares of Company common stock and any remaining excess would be treated as gain from a disposition of Company common stock. Such special dividend, if paid, is not intended to be treated as consideration in exchange for shares of the Company common stock pursuant to the Company merger, and will be reported to you as a distribution from the Company with respect to your shares of Company common stock. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of your shares of Company common stock and Hospitality class B common stock for cash

 

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  pursuant to the mergers or the receipt of the special dividend, to the extent paid, in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws). For further discussion, see “Material U.S. Federal Income Tax Consequences.”

 

Q:

Do I have appraisal rights in connection with the mergers?

 

A:

Yes, if you are a record holder of the Company common stock or Hospitality class B common stock and do not vote in favor of the proposals to adopt the merger agreement, you are entitled to exercise appraisal rights under Section 262 of the Delaware General Corporation Law (“DGCL”) in connection with the mergers for either or both of your shares of Company common stock and Hospitality class B common stock if you take certain actions and meet certain conditions (shares for which appraisal rights are properly perfected are referred to herein as “appraisal shares”). See “Appraisal Rights” beginning on page 121. In addition, a copy of Section 262 of the DGCL is attached to this joint proxy statement as Exhibit C.

 

Q:

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

 

A:

We intend to announce preliminary voting results at the special meetings and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meetings. All reports that we file with the SEC are publicly available on the SEC’s website at www.sec.gov when filed.

 

Q:

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

 

A:

If you are unable to attend the meetings in person (which consists of presence at a virtual meeting), we encourage you to authorize your proxy or voting instructions by telephone or through the Internet or by completing, signing, dating and returning your WHITE proxy cards.

 

Q:

Have any Company stockholders or Hospitality stockholders already agreed to approve the mergers?

 

A:

Yes. In connection with the entry into the merger agreement, SAR Public Holdings, L.L.C. (which we refer to as the “Starwood Rollover Investor”), an affiliate of the Starwood Sponsor and Parent, entered into a support agreement (the “support agreement”) pursuant to which the Starwood Rollover Investor agreed to vote the paired shares owned by it as of the date of the support agreement and any paired shares acquired by it after the date thereof and up to the date on which the requisite vote is obtained (collectively, the “covered shares”) in favor of the adoption of the merger agreement and the approval of the mergers. As of the date of the support agreement, the Starwood Rollover Investor beneficially owns 16,694,265 paired shares which represents approximately [    ]% of the outstanding Company common stock and [    ]% of the total number of Hospitality class A common stock and Hospitality class B common stock outstanding in each case based on the number of such shares outstanding as of the close of business on the record date.

In addition, the Company is the sole holder of Hospitality class A common stock, which constitutes [    ]% of the voting power of the outstanding Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, as of the close of business on the record date. Under the terms of the merger agreement, the Company has agreed to vote its shares of Hospitality class A common stock in favor of the adoption of the merger agreement and the approval of the mergers at the Hospitality special meeting.

 

Q:

Where can I find more information about the Paired Entities?

 

A:

We file certain information with the SEC. You may read and copy this information at the SEC’s public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available on the SEC’s website at www.sec.gov and on our website at www.esa.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this joint 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.”

 

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Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

We will bear the cost of solicitation of proxies for the special meetings. The Company board and Hospitality board are soliciting your proxies on our behalf. In addition to the use of mails, proxies may be solicited by personal interview, telephone, facsimile, e-mail or otherwise, by our directors, officers and other employees. We have engaged Okapi Partners LLC to assist in the solicitation of proxies for a fee of up to approximately $250,000, plus a one time performance fee to be determined and reimbursement of out-of-pocket expenses. We also will request persons, firms and corporations holding common shares in their names, or in the names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in so doing.

 

Q:

Who can help answer my other questions?

 

A:

If after reading this joint proxy statement you have more questions about the special meetings or the mergers, you should contact us at:

Extended Stay America, Inc.

ESH Hospitality, Inc.

11525 N. Community House Road, Suite 100

Charlotte, North Carolina 28277

Attention: General Counsel and Corporate Secretary

You may also contact our proxy solicitor at:

Okapi Partners LLC

1212 6th Avenue

New York, New York 10036

Banks and Brokerage Firms: (212) 297-0720

Stockholders and All Others: (888) 785-6668

Email: info@okapipartners.com

If your broker holds your paired shares, you should also contact your broker for additional information.

 

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SUMMARY

This summary highlights only selected information from this joint proxy statement relating to (1) the merger of Extended Stay America, Inc. with and into Eagle Merger Sub 1 Corporation (the “Company merger”), (2) the merger of ESH Hospitality, Inc. with and into Eagle Merger Sub 2 Corporation (the “Hospitality merger”) and (3) certain related transactions. References to the mergers refer to both the Company merger and the Hospitality merger. This summary does not contain all of the information about the mergers and related transactions contemplated by the merger agreement that may be important to you. As a result, to understand the mergers and the related transactions fully and for a more complete description of the terms of the mergers and related transactions, you should read carefully this joint 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 joint proxy statement is first being mailed to our stockholders on or about [                    ], 2021.

The Parties to the Mergers (page 34)

Extended Stay America, Inc.

11525 N. Community House Road, Suite 100

Charlotte, North Carolina 28277

(980) 345-1784

Extended Stay America, Inc., which we refer to as “we,” “our,” “us,” or the “Company,” is a Delaware corporation. Extended Stay America-branded hotels are designed to provide an affordable and attractive alternative to traditional lodging or apartment accommodations and are targeted toward self-sufficient, value-conscious guests who need lodging for a night, a week or longer. Guests include business travelers, leisure travelers, professionals on temporary work or training assignments, persons relocating, the temporarily displaced, those purchasing a home and anyone else in need of accommodations. The Company’s website is www.esa.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this joint proxy statement or any other report or document we file with or furnish to the SEC. The Company’s shares of common stock are paired with and trade together with shares of class B common stock of ESH Hospitality, Inc. Those paired shares are listed on NASDAQ under the symbol “STAY.” For additional information about us and our business, please refer to “Where You Can Find More Information.”

ESH Hospitality, Inc.

11525 N. Community House Road, Suite 100

Charlotte, North Carolina 28277

(980) 345-1784

ESH Hospitality, Inc., which we refer to as Hospitality, is a Delaware corporation and has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code. As of [                    ], 2021, the Company owned approximately [    ]% of the outstanding Hospitality class A common stock, and holders of paired shares owned approximately [    ]% of Hospitality through ownership of Hospitality class B common stock.



 

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Parent, MergerCo 1 and MergerCo 2

Eagle Parent Holdings L.P.

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Parent Holdings L.P. (which we refer to as “Parent”) is a Delaware limited partnership that is jointly owned by affiliates of Blackstone Real Estate Partners IX L.P. (which we refer to as the “Blackstone Sponsor”) and Starwood Distressed Opportunity Fund XII Global, L.P. (which we refer to as the “Starwood Sponsor” and together with the Blackstone Sponsor, the “Sponsors”). Parent was formed solely for the purpose of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. The Blackstone Sponsor is an affiliate of The Blackstone Group Inc. (which we refer to as “Blackstone”). The Starwood Sponsor is an affiliate of Starwood Capital Group (which we refer to as “Starwood”).

Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $187 billion of investor capital under management. Blackstone is one of the largest property owners in the world, owning and operating assets across every major geography and sector, including logistics, multifamily and single-family housing, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ strategy invests in substantially stabilized real estate globally through regional open-ended funds focused on high-quality assets and Blackstone Real Estate Income Trust, Inc., a non-listed REIT that invests in U.S. income-generating assets. 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).

Starwood Capital Group is a private investment firm with a core focus on global real estate, energy infrastructure and oil & gas. Starwood and its affiliates maintain 16 offices in seven countries around the world, and currently have approximately 4,100 employees. Since its inception in 1991, Starwood Capital Group has raised over $55 billion of equity capital, and currently has in excess of $75 billion of assets under management. Through a series of comingled opportunity funds and Starwood Real Estate Income Trust, Inc., a non-listed REIT, Starwood has invested in virtually every category of real estate on a global basis, opportunistically shifting asset classes, geographies and positions in the capital stack as it perceives risk/reward dynamics to be evolving. Starwood Capital also manages Starwood Property Trust (NYSE: STWD), the largest commercial mortgage real estate investment trust in the United States, which has successfully deployed over $63 billion of capital since inception and manages a portfolio of over $17 billion across debt and equity investments. Over the past 29 years, Starwood Capital Group and its affiliates have successfully executed an investment strategy that involves building enterprises in both the private and public markets.



 

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Eagle Merger Sub 1 Corporation

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Merger Sub 1 Corporation (which we refer to as “MergerCo 1”) is a Delaware corporation and a wholly owned subsidiary of Parent. MergerCo 1 was formed solely for purposes of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, MergerCo 1 will merge with and into the Company, and the Company will continue as the surviving entity.

Eagle Merger Sub 2 Corporation

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Merger Sub 2 Corporation (which we refer to as “MergerCo 2”) is a Delaware corporation and a wholly owned subsidiary of MergerCo 1. MergerCo 2 was formed solely for purposes of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, MergerCo 2 will merge with and into Hospitality, and Hospitality will continue as the surviving entity.

The Company Special Meeting (page 37)

The Proposals

The Company special meeting will be conducted exclusively online via live audio webcast at [            ] starting at [            ] Eastern Time, on [                    ], 2021. You will be able to attend the Company special meeting online and vote your shares electronically at the Company special meeting by registering in advance prior to the deadline of [            ] Eastern Time on [                    ], 2021 at [            ] and entering your control number, which is included on the WHITE proxy card that you received for the Company special meeting. Because the Company special meeting is completely virtual and being conducted online via live audio webcast, Company stockholders will not be able to attend the meeting in person.



 

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At the Company special meeting, holders of shares of Company common stock, par value $0.01 per share, which we refer to as Company common stock, as of the record date, which was the close of business on [                    ], 2021, will be asked to consider and vote on (1) a proposal to adopt the merger agreement and approve the mergers 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 mergers and (3) a proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

Pursuant to the Company’s second amended and restated bylaws (the “Company’s bylaws”), only the matters set forth in the Notice of Special Meeting of Company Stockholders may be brought before the Company special meeting.

Record Date, Notice and Quorum

All holders of record of Company common stock as of the record date, which was the close of business on [                    ], 2021, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the Company special meeting. Each Company stockholder will be entitled to cast one vote on each matter presented at the Company special meeting for each share of Company common stock that such holder owned as of the record date. On the record date, there were [            ] shares of Company common stock outstanding and entitled to vote at the Company special meeting.

The presence in person or by proxy of the Company stockholders entitled to cast a majority of all of 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.

Required Vote

Completion of the mergers requires adoption of the merger agreement and approval of the mergers and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Company common stock entitled to vote at the company special meeting. Each Company stockholder is entitled to cast one vote on each matter presented at the Company special meeting for each share of Company common stock owned by such stockholder on the record date. Because the required vote for this proposal is based on the number of shares of Company common stock issued and outstanding rather than on the number of votes cast, if you fail to vote by proxy or virtually (including by abstaining), or fail to instruct your broker on how to vote, such failure will have the same effect as voting against the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

The approval of the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers, and assuming that a quorum is present, the approval of the proposal regarding any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to approve the mergers and the other transactions contemplated by the merger agreement, each 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 vote by proxy or in person, or fail to instruct your broker on how to vote, it will not have any effect on the outcome of such proposals assuming that 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 accordance with the applicable rules,



 

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banks, brokers and other nominees who hold shares of Company common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to adopt the merger agreement, the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers or the proposal regarding any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to approve the merger and the other transactions contemplated by the merger agreement. Accordingly, there can be no broker non-votes at the Company special meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker 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.

As of the record date, the Company’s and Hospitality’s directors and executive officers owned and are entitled to vote an aggregate of approximately [            ] shares of Company common stock, entitling them to exercise approximately [    ]% of the voting power of Company common stock entitled to vote at the Company special meeting. The Company’s and Hospitality’s directors and executive officers have informed us that they intend to vote the shares of Company common stock that they own in favor of: (1) the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (other than Neil T. Brown and Simon M. Turner, each a director of the Hospitality board and who own [            ] and [            ] shares of Company common stock, respectively, as of the close of business on the record date), (2) the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers and (3) the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, although they have no obligation to do so.

Proxies; Revocation

Any Company stockholders of record entitled to vote may authorize a proxy to vote his, her or its shares of Company common stock by authorizing a proxy or voting instructions by telephone or through the Internet, by returning the enclosed WHITE proxy card or by voting at the Company special meeting virtually. If the Company common stock that you own are held in “street name” by your broker, you should instruct your broker on how to vote your shares of Company common stock using the instructions provided by your broker.

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

The Hospitality Special Meeting (page 41)

The Proposals

The Hospitality special meeting will be conducted exclusively online via live audio webcast at [            ] starting at [            ] Eastern Time, on [                    ], 2021. You will be able to attend the Hospitality special meeting online and vote your shares electronically at the Hospitality special meeting by registering in advance prior to the deadline of [            ] Eastern Time on [                    ], 2021 at [            ] and entering your control number, which is included on the WHITE proxy card that you received. Because the Hospitality special meeting is completely virtual and being conducted online via live audio webcast, Hospitality stockholders will not be able to attend the meeting in person.



 

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At the Hospitality special meeting, holders of Hospitality class A common stock, par value $0.01 per share, which we refer to as the Hospitality class A common stock, and holders of Hospitality class B common stock, par value $0.01 per share, which we refer to as the Hospitality class B common stock, as of the record date, which was the close of business on [                    ], 2021, will be asked to consider and vote on (1) a proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement and (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 mergers.

Pursuant to Hospitality’s amended and restated bylaws (“Hospitality’s bylaws”), only the matters set forth in the Notice of Special Meeting Hospitality Stockholders may be brought before the Hospitality special meeting.

Record Date, Notice and Quorum

All holders of record of Hospitality class A common stock and Hospitality class B common stock as of the record date, which was the close of business on [                    ], 2021, are entitled to receive notice of and attend and vote at the Hospitality special meeting. Each Hospitality stockholder will be entitled to cast one vote on each matter presented at the Hospitality special meeting for each share of Hospitality class A common stock or Hospitality class B common stock that such holder owned as of the record date. On the record date, there were [            ] shares of Hospitality class A common stock outstanding and entitled to vote at the Hospitality special meeting and [            ] shares of Hospitality class B common stock outstanding and entitled to vote at the Hospitality special meeting. All of the outstanding shares of Hospitality class A common stock are owned by the Company.

The presence in person or by proxy of Hospitality stockholders entitled to cast a majority of all of the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the Hospitality 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.

Required Vote

Completion of the mergers requires adoption of the merger agreement and approval of the mergers and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Hospitality class A common stock and Hospitality class B common stock entitled to vote at the Hospitality special meeting, voting together as a single class. Each Hospitality stockholder is entitled to cast one vote on each matter presented at the Hospitality special meeting for each share of Hospitality class A common stock and Hospitality class B common stock owned by such stockholder on the record date. Because the required vote for this proposal is based on the number of shares of Hospitality class A common stock and Hospitality class B common stock issued and outstanding rather than on the number of votes cast, if you fail to vote by proxy or virtually (including by abstaining), or fail to instruct your broker on how to vote, such failure will have the same effect as voting against the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

The approval of the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers requires the affirmative vote of a majority of the votes cast on the proposal. Approval of this proposal is not a condition to completion of the mergers. For the purpose of this proposal, if you fail to vote by proxy or virtually, or fail to instruct your broker on how to vote, it will not have any effect on the outcome of such proposal. Abstentions are not considered votes cast and therefore will have no effect on the outcome of this proposal assuming a quorum is present.



 

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In accordance with the applicable rules, banks, brokers and other nominees who hold shares of Hospitality class A common stock or Hospitality class B common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to adopt the merger agreement or the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers. Accordingly, there can be no broker non-votes at the Hospitality special meeting, so failure to provide instructions to your broker or other nominee on how to vote will result in your shares not being counted as present at the meeting. A broker non-vote occurs when shares held by a broker or other nominee are represented at the meeting, but the broker 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.

The Company is the sole holder of Hospitality class A common stock, which constitutes [    ]% of the voting power of the outstanding Hospitality class A common stock and Hospitality class B common stock of Hospitality, voting together as a single class, as of the close of business on the record date. Under the merger agreement, the Company agreed to vote its shares of Hospitality class A common stock to approve the proposal to approve the adoption of the merger agreement and the approval of mergers and the other transactions contemplated by the merger agreement.

As of the record date, the Company’s and Hospitality’s directors and executive officers owned and are entitled to vote an aggregate of approximately [            ] shares of Hospitality class B common stock, entitling them to exercise approximately [    ]% of the voting power of Hospitality class A common stock and Hospitality class B common stock entitled to vote at the Hospitality special meeting. The Company’s and Hospitality’s directors and executive officers have informed us that they intend to vote the Hospitality class B common stock that they own in favor of: (1) the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (other than the Messrs. Brown and Turner, each a director of the Hospitality board and who own [            ] and [            ] shares of Hospitality class B common stock, respectively, as of the close of business on the record date), and (2) the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers.

Proxies; Revocation

Any Hospitality stockholders of record entitled to vote may authorize a proxy to vote his, her or its shares of Hospitality class B common stock by authorizing a proxy or voting instructions by telephone or through the Internet, by returning the enclosed WHITE proxy card or by voting at the Hospitality special meeting virtually. If the Hospitality class B common stock that you own are held in “street name” by your broker, you should instruct your broker on how to vote your shares of Hospitality class B common stock using the instructions provided by your broker.

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

The Mergers (page 45)

Pursuant to the terms and subject to the conditions set forth in the merger agreement, MergerCo 1 will merge with and into the Company, and MergerCo 2 will merge with and into Hospitality. Upon completion of the mergers, the Company will survive and become a wholly owned subsidiary of Parent and Hospitality will survive and become a wholly owned subsidiary of the Company.



 

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Each merger will become effective upon the time of filing of the applicable certificate of merger with the Secretary of State of the State of Delaware, or at such later time or date as the parties to the merger agreement will have agreed upon and specified in the applicable certificate of merger in accordance with the DGCL as the effective time of the applicable merger. It is the intention of the parties that the mergers shall become effective at the same time, and that the certificates of merger filed by the Company and Hospitality shall provide for the same effective time. We use the term “effective time” in this joint proxy statement to refer to the time the mergers becomes effective.

Recommendation of the Company Board (page 62)

The Company board unanimously:

 

   

approved the merger agreement;

 

   

declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and fair to and in the best interests of the Company and the Company stockholders; and

 

   

recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (which we refer to herein as the “Company board recommendation”), “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 mergers, and “FOR” the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

Recommendation of the Hospitality Board (page 62)

The Hospitality board:

 

   

approved the merger agreement;

 

   

declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and fair to and in the best interests of Hospitality and its stockholders; and

 

   

recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (which we refer to herein as the “Hospitality board recommendation” and together with the Company board recommendation, the “Recommendations”), and “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 mergers.

Opinion of the Paired Entities’ Financial Advisor (page 65)

Opinion of Goldman Sachs & Co. LLC

Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its opinion to the Company board and the Hospitality board that, as of March 14, 2021 and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders (other than Parent (or a permitted assign thereof pursuant to the merger agreement) and its affiliates (or a permitted assign thereof pursuant to the merger agreement)) (collectively, “Excluded Holders”) of the outstanding paired shares pursuant to the merger agreement was fair from a financial point of view to such holders.



 

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The full text of the written opinion of Goldman Sachs, dated March 14, 2021, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Exhibit B to this joint proxy statement and is incorporated herein by reference. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Company board and the Hospitality board in connection with their consideration of the transactions contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of paired shares should vote with respect to the mergers or any other matter. Pursuant to an engagement letter among the Company, Hospitality and Goldman Sachs, the Company and Hospitality have agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $30,000,000, $3,000,000 of which became payable at announcement of the mergers and the remainder of which is contingent upon consummation of the mergers.

Treatment of the Company Capital Stock and Hospitality Capital Stock (page 90)

At the effective time, each paired share (subject to the exceptions described below), consisting of one share of Company common stock and one share of Hospitality class B common stock, will automatically be converted into the right to receive a total of $19.50 in cash plus the additional consideration, if any, described below, and subject to further adjustment described below. The aggregate consideration per paired share is allocated in each merger between each share of Company common stock and Hospitality class B common stock as described below.

Company Common Stock

A share of Company common stock constitutes a portion of a paired share. At the effective time, each share of Company common stock issued and outstanding immediately prior to the effective time (other than certain shares specified in the merger agreement) will automatically be converted into the right to receive (1) $11.69 per share, in cash, without any interest thereon, plus (2) if Parent delivers an extension notice (as described in “The Merger Agreement—Treatment of the Company Capital Stock and Hospitality Capital Stock—Company Common Stock”) or the mergers are consummated after the 135th day following the date of the merger agreement, 59.9% of a per diem amount of $0.001 in cash, without interest, for each day from and after the earlier of date of delivery of the extension notice or the 135th day following the date of the merger agreement (we refer to the $0.001 per diem amount as the “additional consideration” and refer to the sum of $11.69 per share, in cash, without any interest thereon, plus 59.9% of the additional consideration, if any, without interest thereon, as the “Company merger consideration”).

Upon the written request of Parent at least 10 business days prior to the closing date, the Company board will declare the special dividend to the Company stockholders in an aggregate amount specified by Parent that represents the Company’s estimated amount of current and accumulated earnings and profits, or such lesser amount specified by Parent, though such amount will not exceed the lesser of (1) $1.75 per share of Company common stock and (2) an aggregate amount of cash then available to the Company, after taking into account any amount that can be drawn under the existing revolving facilities and any new debt facility, as described in “The Merger Agreement—Special Dividend”. The special dividend will be payable immediately prior to the effective time to holders of record of shares of Company common stock as of immediately prior to the open of business on the closing date. The Company merger consideration will be reduced by the amount of such special dividend.

Hospitality Class B Common Stock

A share of Hospitality class B common stock constitutes a portion of a paired share. At the effective time, each share of Hospitality class B common stock issued and outstanding immediately prior to the effective time (other than certain shares specified in the merger agreement) will automatically be converted into the right to receive (1) $7.81 per share, in cash, without any interest thereon, plus (2) 40.1% of the additional consideration, if any,



 

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without interest thereon (we refer to the sum of $7.81 per share, in cash, without any interest thereon, plus 40.1% of the additional consideration, if any, without interest thereon, as the “Hospitality merger consideration”).

If Hospitality declares a distribution reasonably necessary to maintain its status as a REIT under the Code or to avoid the payment of income or excise tax under the Code as permitted under the merger agreement, the Hospitality merger consideration will be reduced by the amount of such distribution.

Hospitality Series A Preferred Stock

At the effective time, each share of Hospitality preferred stock issued and outstanding immediately prior to the effective time will remain issued and outstanding.

Hospitality Class A Common Stock

At the effective time, each share of Hospitality class A common stock issued and outstanding held by the Company, any of our subsidiaries, Parent or its subsidiaries or permitted assigns immediately prior to the effective time will remain issued and outstanding as one share of the Hospitality surviving corporation common stock.

Restricted Stock Units

Immediately prior to the effective time, each outstanding stock unit under the equity incentive plans of the Company and Hospitality (whether vested or unvested), except for certain unvested stock units held by the Chief Executive Officer that will be forfeited for no consideration in accordance with the terms thereof, will automatically and without action on the part of the holder thereof, be cancelled and converted into, and the holder thereof will be entitled to the right to receive, without interest, an amount in cash equal to the sum of (1) the product obtained by multiplying (i) the total number of paired shares issuable in respect of such stock unit immediately prior to the effective time (assuming that in respect of each performance-vesting stock unit, performance was achieved at the greater of the (x) actual level of achievement as of the closing date for each performance period then in process measured against the applicable performance goal, pro-rated through the closing date, and (y) “target” level of achievement) by (ii) the merger consideration and (2) the dividend equivalents payable pursuant to the applicable award agreement in respect of each paired share issuable in respect of such stock unit, which are accrued and unpaid as of immediately prior to the effective time (including the special dividend), less any applicable withholding taxes.

Financing (page 73)

In connection with the closing, Parent will cause an aggregate of approximately $3.5 billion to be paid to the holders of Company common stock, Hospitality class B common stock and stock units. In addition, Parent has informed us that Parent expects to cause all of our outstanding unsecured senior notes and term loans and all of our outstanding indebtedness under our revolving credit facilities to be prepaid in full in connection with the closing. As of December 31, 2020, we had approximately $2.7 billion in aggregate principal amount of consolidated indebtedness under our unsecured senior notes, term loans and revolving credit facilities.

Parent has informed us that it has received a debt commitment letter from JPMorgan Chase Bank, National Association, Citigroup Global Markets Inc. and Deutsche Bank AG, New York Branch providing for debt financing in connection with the mergers in an aggregate amount not to exceed $4.5 billion and that it may seek to obtain additional debt financing in connection with the mergers. In addition, it is expected that the Blackstone Sponsor and the Starwood Sponsor and/or their respective affiliates will contribute equity to Parent or its permitted assigns for the purpose of funding the acquisition costs (including the merger consideration) that are



 

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not covered by such debt financing. In connection with such equity contribution, the Blackstone Sponsor has delivered a commitment letter to Parent under which, subject to the terms and conditions thereof, the Blackstone Sponsor committed to cause Parent or its permitted assigns to be capitalized with cash for the purpose of funding 50% of the merger consideration pursuant to the merger agreement plus related costs and expenses, less 50% of the net proceeds of the debt financing (subject to applicable reserve requirements). Similarly, the Starwood Sponsor and the Starwood Rollover Investor have delivered a separate commitment letter to Parent under which, subject to the terms and conditions thereof (1) the Starwood Rollover Investor agreed to contribute all of its 16,694,265 paired shares (which we refer to as the “rollover shares”) to Parent or its permitted assigns immediately prior to the effective time and (2) the Starwood Sponsor committed to cause Parent or its permitted assigns to be capitalized with cash for the purpose of funding 50% of the merger consideration pursuant to the merger agreement plus related costs and expenses, less 50% of the net proceeds of the debt financing (subject to applicable reserve requirements), and less an amount equal to the number of rollover shares contributed by the Starwood Rollover Investor multiplied by the merger consideration.

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, carrying costs with respect to the properties, working capital requirements of the properties, 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 each debt financing would be secured by, among other things, a first priority mortgage lien on certain properties which are wholly owned by us, escrows, reserves, a cash management account, or a first priority pledge of and security interest in the direct or indirect ownership interests in the owners of the properties and the operating lessee, in each case, together with such other pledges and security required by the lender to secure and perfect their interest in the applicable collateral and that such debt financings 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. For more information, see “The Merger Agreement—Financing Cooperation” and “The Merger Agreement—Conditions to the Mergers.”

Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers (page 74)

In considering the recommendations of the Company board and the Hospitality board that the holders of Company common stock and Hospitality class B common stock, respectively, vote in favor of the adoption of the merger agreement, the holders of Company common stock and Hospitality class B common stock should be aware that the directors and executive officers of the Company and Hospitality have interests in the mergers that may be different from, or in addition to, the interests of the holders of the paired shares generally, including the treatment of their equity awards in connection with the transaction, certain potential severance payments, and the right to continued indemnification and insurance coverage. The Company board and Hospitality board were aware of these interests and considered them, among other matters, in making their respective recommendation that the holders of the Company common stock and Hospitality class B common stock, respectively, vote in favor of the adoption of the merger agreement. See “The Mergers—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers.”

Restriction on Solicitation of Acquisition Proposals (page 103)

Under the terms of the merger agreement, we and our subsidiaries are subject to restrictions on our ability to solicit any acquisition proposals (as defined in the section entitled “The Merger Agreement—Special Meetings”), including, among others, restrictions on our ability to provide any non-public information in connection with any acquisition proposal, or engage in any discussions or negotiations regarding any acquisition proposal, or propose



 

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or agree to do any of the foregoing. Subject to the terms of the merger agreement, we or our subsidiaries may furnish non-public information to, and engage in discussions or negotiations with, a third party if we receive an unsolicited written bona fide acquisition proposal from such third party after the date of the merger agreement that did not result from a breach of our obligations described in the section entitled “The Merger Agreement—Restriction on Solicitation of Acquisition Proposals,” and the Company board and the Hospitality board determine in good faith, after consultation with their financial advisor and outside legal counsel, that the failure to take such action, in light of the acquisition proposal and the terms of the merger agreement, would be inconsistent with the directors’ fiduciary duties under applicable law, and the Company board and the Hospitality board have determined in good faith based on information then available and after consultation with their financial advisor and outside legal counsel that such acquisition proposal either constitutes a superior proposal or would reasonably be expected to result in a superior proposal. Under certain circumstances and after following certain procedures and adhering to certain restrictions, we are permitted to terminate the merger agreement if our boards of directors approve, and concurrently with the termination of the merger agreement, we enter into, a definitive agreement providing for the implementation of a superior proposal (subject to payment of the Company termination fee) (as described below).

Conditions to the Mergers (page 111)

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

 

   

the merger and the other transactions contemplated by the merger agreement must be approved by the affirmative vote of the holders of (1) Company common stock and (2) Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, entitled to vote at the special meetings (which we refer to as the “requisite vote”);

 

   

no governmental entity of competent jurisdiction shall has enacted, issued, or entered any law or order (whether temporary, preliminary or permanent) or any law which remains in effect and that restrains, enjoins or otherwise prohibits the consummation of the mergers;

 

   

our and Parent’s, MergerCo 1’s and MergerCo 2’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 Parent, MergerCo 1 and MergerCo 2 must have performed and complied with, in all material respects, 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;

 

   

from the date of the merger agreement, there has not been any event, circumstances, change, development or effect that has had, or would reasonably be expected to have, a Company material adverse effect; and

 

   

Hospitality must have received an opinion of our counsel, Fried, Frank, Harris, Shriver & Jacobson LLP or such other law firm reasonably acceptable to Parent, dated as of the closing date, to the effect that commencing with its taxable year ended December 31, 2010, Hospitality has been organized in conformity with the requirements for qualification as a REIT under the Code, and its current and proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT under the Code until immediately prior to the closing (assuming that Hospitality’s taxable year ended immediately prior to the closing).

Termination of the Merger Agreement (page 113)

We and Parent may mutually agree to terminate and abandon the merger agreement at any time prior to the effective time, even after we have obtained the requisite vote.



 

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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 effective time, even after we have obtained the requisite vote, if:

 

   

the requisite vote has not been obtained at a duly held Company special meeting or any adjournment or postponement thereof at which the adoption of the merger agreement is voted on;

 

   

any governmental entity of competent jurisdiction has enacted, issued or entered, since the date of the merger agreement, any order or law shall that permanently restrains, enjoins or otherwise prohibits the consummation of the mergers, and such order or law have become final and non-appealable; provided, however, that the right to terminate the merger agreement pursuant to this bullet point is not available to (1) us, if our failure to comply with any provision of the merger agreement is the primary cause of, or results in, such order or law or (2) Parent, if Parent’s, MergerCo 1’s or MergerCo 2’s failure to comply with any provision of the merger agreement is the primary cause of, or results in, such order or law; or

 

   

the mergers have not been consummated by September 14, 2021; provided, however, that the right to terminate the merger agreement under this bullet point is not available to (1) us, if our failure to comply with any provision of the merger agreement is the primary cause of, or results in, the failure to consummate the mergers on or before September 14, 2021, or (2) Parent, if Parent’s, MergerCo 1’s or MergerCo 2’s failure to comply with any provision of the merger agreement is the primary cause of, or results in, the failure to consummate the mergers on or before September 14, 2021.

Termination by the Company or Hospitality

We may also terminate and abandon the merger agreement by written notice to Parent at any time prior to the effective time, even after we have obtained the requisite vote:

 

   

if, at any time prior to the obtaining of the requisite vote, (A) our boards of directors, after complying with the obligations described under “The Merger Agreement—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” in connection with a superior proposal, authorize us to enter into a definitive written agreement providing for the implementation of a superior proposal, (B) we enter into a definitive written agreement for such superior proposal concurrently with or immediately after the termination of the merger agreement and (C) we, prior to or concurrently with such termination, pay to Parent the Company termination fee;

 

   

if neither the Company nor Hospitality is in breach in any material respect of its representations, warranties, covenants or other agreements in the merger agreement and Parent, MergerCo 1 or MergerCo 2 has breached in any respect any of their respective representations, warranties, covenants or other agreements in the merger agreement, which breach would be reasonably likely to result in those conditions to our obligations to effect the mergers (relating to Parent’s, MergerCo 1’s and MergerCo 2’s representations, warranties, covenants or agreements) being incapable of being satisfied by September 14, 2021; or

 

   

if 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, MergerCo 1 and MergerCo 2 to effect the mergers have been satisfied or waived by Parent (other than those conditions that by their terms or nature are to be satisfied at the closing, but provided such conditions to be satisfied at the closing would be satisfied as of the date of the notice described in the following sub-bullet if the closing were to occur on the date of such notice);



 

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on or after the date the closing should have occurred in accordance with the merger agreement, we have irrevocably confirmed in writing to Parent that all of the mutual conditions to closing and the additional conditions to the obligations of Parent, MergerCo 1 and MergerCo 2 have been satisfied or waived by Parent (other than those conditions that by their terms or nature are to be satisfied at the closing, but provided such conditions to be satisfied at the closing would be satisfied as of the date of the notice described in this sub-bullet if the closing were to occur on the date of such notice) and we are both prepared to consummate the closing; and

 

   

Parent fails to consummate the closing within three business days of the notice described in the preceding sub-bullet, and we were prepared to consummated the closing during such three business days.

Termination by Parent, MergerCo 1 or MergerCo 2

Parent, MergerCo 1 or MergerCo 2 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:

 

   

if Parent, MergerCo 1 and MergerCo 2 are not in breach in any material respect of their respective representations, warranties, covenants or other agreements in the merger agreement and we have breached in any respect any of our respective representations, warranties, covenants or other agreements contained in the merger agreement and which breach would be reasonably likely to result in those conditions to the obligations of Parent, MergerCo 1 and MergerCo 2 to effect the mergers (relating to our representations, warranties, covenants or agreements) being incapable of being satisfied by September 14, 2021; or

 

   

if (1) either the Company board or the Hospitality board has effected, or resolved to effect, a change of recommendation, (2) we have failed to publicly recommend against any tender offer or exchange offer subject to Regulation 14D under the Exchange Act that constitutes an acquisition proposal (including, for these purposes, by taking no position with respect to the acceptance of such tender offer or exchange offer by the Company’s or Hospitality’s stockholders) within ten business days after the commencement of such tender offer or exchange offer, (3) the Company board or the Hospitality board, as applicable, has failed to publicly reaffirm the Company board recommendation or the Hospitality board recommendation, as applicable, within ten business days after the date an acquisition proposal shall have been publicly announced (or if the special meetings are scheduled to be held within ten business days from the date an acquisition proposal is publicly announced, promptly and in any event prior to the date on which the special meetings are scheduled to be held) or (4)  we enter into an alternative acquisition agreement (other than an acceptable confidentiality agreement).

Termination Fee (page 114)

Termination Fee Payable by the Company

We have agreed to pay a termination fee of $105,000,000 (which we refer to as the “Company termination fee”) to Parent or its designee if:

 

   

we terminate the merger agreement pursuant to the provision described in the first bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by the Company or Hospitality” in which case payment will be made before or concurrently with such termination and will be a condition to the effectiveness of such termination;

 

   

Parent terminates the merger agreement pursuant to the provision described in the second bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by Parent, MergerCo 1 or MergerCo 2” in which case the payment will be made within 2 business days of such termination; or



 

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all of the following requirements are satisfied:

 

   

an acquisition proposal has been received by us or our representatives or any person has publicly made or publicly announced an intention (whether or not conditional) to make an acquisition proposal (and, in the case of a termination pursuant to the provision described in the first bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by either the Company or Parent,” such acquisition proposal or publicly proposed or announced intention was made prior to the taking of a vote on the merger agreement by the Company stockholders);

 

   

we or Parent terminate the merger agreement pursuant to the provisions described in the first bullet point or the third bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by either the Company or Parent” or Parent, MergerCo 1 or MergerCo 2 terminates the merger agreement pursuant to the provision described in the first bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by Parent, MergerCo 1 or MergerCo 2”; and

 

   

within twelve months after such termination, either of us consummates, or enters into a definitive agreement for, any acquisition proposal, in which case payment will be made within two business days of earlier of the consummation of or entry into a definitive agreement for any acquisition proposal. For purposes of this sub bullet point, the references to “15%” in the definition of “acquisition proposal” are deemed to be references to “50%.”

However, the Company termination fee will equal $61,250,000 if (1) the merger agreement is terminated by us as provided in the first bullet point above, (2) we have delivered to Parent prior to the Cut-off time (as defined below) a notice period commencement notice in accordance with the provisions described under “The Merger Agreement—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” of our intention to terminate the merger agreement pursuant to the provisions described in the first bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by the Company or Hospitality” to enter into a definitive written agreement with respect to a superior proposal from an excluded party and (3) the merger agreement is so terminated to enter into a definitive written agreement providing for such or any amended superior proposal with such excluded party (and only if such person is an excluded party at the time of such termination) (which we refer to as an “excluded party termination”).

An “excluded party” is a person or group of persons from whom we or our representatives have received, after the execution of the merger agreement and prior to April 14, 2021, a bona fide written acquisition proposal that the Company board and the Hospitality board determine in good faith after consultation with their financial advisor and outside legal counsel prior to or within one business day after April 14, 2021, constitutes, or would reasonably be expected to lead to, a superior proposal and we provide written notice to Parent promptly (and in any event within 48 hours) of such determination (which we refer to as a “qualified proposal”); provided that we commence, at or prior to the Cut-off time, a notice period with respect to our intention to terminate the merger agreement pursuant to first bullet point under “Termination of the Merger Agreement—Termination by the Company or Hospitality.”

Termination Fee Payable by Parent

Parent has agreed to pay to us the Parent termination fee of $300,000,000 if:

 

   

we terminate the merger agreement pursuant to the provisions described in the second bullet point or third bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by the Company or Hospitality” or the merger agreement is terminated pursuant to the



 

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provisions described in the third bullet under “The Merger Agreement—Termination of the Merger Agreement—Termination by either the Company or Parent” in circumstances where we could have terminated pursuant to the provisions described in the second bullet point or third bullet point under “The Merger Agreement—Termination of the Merger Agreement—Termination by the Company or Hospitality”;

 

   

either Parent or we terminate the merger agreement pursuant to the second bullet under “The Merger Agreement—Termination of the Merger Agreement—Termination by either the Company or Parent” solely when such order or law is with respect to antitrust laws and at the time of such termination all conditions to the obligations of Parent, MergerCo 1 or MergerCo 2 have been satisfied or waived, other than:

 

   

the condition described in the second bullet under “—Conditions to the Mergers” but solely in the case the order or law is in respect of the antitrust law,

 

   

if such termination occurs prior to the taking of a vote of the Company’s stockholders on the adoption of the merger agreement at the Company special meeting, the condition described in the first bullet under “The Merger Agreement—Conditions to the Mergers”, and

 

   

those conditions that by their terms or their nature are to be satisfied at the closing but provided such conditions to be satisfied at the closing would be capable of being satisfied as of the date of termination if the closing were to occur on the date of such notice; or

either Parent or we terminate pursuant to the third bullet under “The Merger Agreement—Termination of the Merger Agreement—Termination by either the Company or Parent” and at the time of such termination all conditions to obligations of Parent, MergerCo 1 or MergerCo 2 have been satisfied or waived (other than those conditions that by their terms or their nature are to be satisfied at the closing but provided such conditions to be satisfied at the closing would be capable of being satisfied as of the date of termination if the closing were to occur on the date of such notice) except for the condition described in the second bullet under “The Merger Agreement—Conditions to the Mergers” by reason of any order or law solely in respect of the antitrust law.

Guaranty and Remedies (page 117)

In connection with the merger agreement, the Blackstone Sponsor and the Starwood Sponsor each 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 such guaranties.

The maximum aggregate liability of the Blackstone Sponsor and the Starwood Sponsor under its respective guaranty will not exceed $150,000,000, 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 such guaranty, if we prevail in such litigation or proceeding.

We cannot seek specific performance to require Parent, MergerCo 1 or MergerCo 2 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, MergerCo 1 or MergerCo 2 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 “The Merger Agreement—Termination Fees—Termination Fee Payable by Parent.” Parent, MergerCo 1 and MergerCo 2 may, however, seek specific performance to require us to complete the mergers.



 

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Regulatory Matters (page 80)

We are unaware of any material federal or state regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of either merger, other than the filing of the certificates of merger with respect to each of the mergers with the Secretary of State of the State of Delaware.

Although the completion of the transactions contemplated by the merger agreement is not conditioned on receipt of any approvals or clearances pursuant to any antitrust laws, clearances under antitrust laws of Finland, Ireland and Spain have been sought by the parties to the merger agreement in connection with the transactions contemplated by the merger agreement. The parties submitted filings to the Irish Competition and Consumer Protection Commission, the Finnish Competition and Consumer Authority and the Spanish National Markets and Competition Commission on March 25, 2021, April 8, 2021 and April 13, 2021, respectively.

Although it is expected that clearances and approvals under these foreign antitrust laws will be obtained, there are no assurances that these regulatory clearances and approvals will be timely obtained, obtained at all or that the applicable regulatory authorities will not impose additional conditions on the consummation of the transactions contemplated in the merger agreement. On April 13, 2021, the parties received notice from the Irish Competition and Consumer Protection Commission permitting the completion of the proposed transactions under Irish antitrust laws.

Support Agreement (page 117)

In connection with the entry into the merger agreement, the Starwood Rollover Investor and Parent entered into the support agreement pursuant to which the Starwood Rollover Investor agreed to vote the covered shares in favor of the adoption of the merger agreement and the approval of the mergers and any other matters necessary or presented or proposed for consummation of the mergers and the other transactions contemplated by the merger agreement, and against any acquisition proposal and any other action that could reasonably be expected to impede, interfere with, delay, postpone or adversely affect the mergers or other transactions contemplated by the merger agreement or result in a breach of any covenant, representation or warranty or other obligation or agreement of the Company or Hospitality under the merger agreement or of the Starwood Rollover Investor under the support agreement. The Starwood Rollover Investor has agreed not to sell, transfer, pledge or otherwise dispose of the covered shares. The Starwood Rollover Investor has also agreed to waive any rights of appraisal or rights to dissent from the mergers that it may have. Each of the Company and Hospitality is a third-party beneficiary under the support agreement and may enforce the support agreement on its own behalf. As of the date of the support agreement, the Starwood Rollover Investor beneficially owned 16,694,265 paired shares which represents approximately [    ]% of the outstanding paired shares based on [            ] paired shares outstanding as of the close of business on the record date.

Appraisal Rights (page 121)

The Company stockholders or Hospitality stockholders who do not vote in favor of the proposal to adopt the merger agreement will have the right to seek appraisal of the fair value of their paired shares as determined in accordance with Section 262 of the DGCL, if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all of the requirements of Delaware law, including Section 262 of the DGCL, which are summarized herein. Section 262 of the DGCL is reproduced in its entirety in Exhibit C to this joint proxy statement. This joint proxy statement constitutes the notice of appraisal rights with respect to the merger agreement required by Section 262 of the DGCL.

Material U.S. Federal Income Tax Consequences (page 80)

The mergers and the special dividend will each be a taxable transaction. For U.S. federal income tax purposes, your receipt of the merger consideration in exchange for your paired shares generally will cause you to recognize



 

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gain or loss measured by the difference, if any, between the merger consideration (reduced by the special dividend, if any) you receive and your adjusted tax basis in your paired shares (determined after taking into account any portion of the special dividend, if any, you receive that is treated as a return of capital that has the effect of reducing your basis in your shares of Company common stock).

The Company intends that the special dividend, if made, be treated as a dividend for U.S. federal income tax purposes to the extent paid from its current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and will report the special dividend consistent with such treatment. If the special dividend exceeds the Company’s current and accumulated earnings and profits, the excess is intended to be treated as a nontaxable return of capital to the extent of the holder’s adjusted tax basis in its Company common stock and will reduce (but not below zero) such holder’s adjusted tax basis in its Company common stock, and any remaining excess will be treated as gain from a disposition of Company common stock.

Subject to the several exceptions discussed in “Material U.S. Federal Income Tax Consequences—Consequences of the Mergers to Non-U.S. Holders of Our Paired Shares”, any gain recognized on receipt of the merger consideration (reduced by the special dividend, if any) by non-U.S. holders in connection with the mergers should not be subject to U.S. federal income taxation. In addition, under certain circumstances, we may be required to withhold a portion of a non-U.S. holder’s merger consideration or special dividend.

For certain of our stockholders, the tax consequences of the mergers and the special dividend (including applicable withholding taxes) could be different than the tax consequences of selling their paired shares prior to the mergers. This joint proxy statement does not discuss the tax consequences of selling paired shares prior to the mergers. In view of those potential different tax consequences, we encourage you to consult your tax advisor regarding the tax consequences to you of selling your paired shares prior to the mergers, as compared to the tax consequences to you of the mergers and the special dividend. In addition, the tax consequences to you of the mergers and the special dividend will depend on the amount of the Company’s current and accumulated earnings and profits, which will not be known at the time of the mergers, and your particular tax situation. We also encourage you to consult your tax advisor regarding the tax consequences of the mergers and the special dividend to you. For further discussion, see “Material U.S. Federal Income Tax Consequences.”

Delisting and Deregistration of Our Paired Shares (page 87)

If the mergers our completed, our paired shares will no longer be traded on NASDAQ, and will be deregistered under the Exchange Act.

Market Price of Our Paired Shares (page 118)

Our paired shares are listed on NASDAQ under the trading symbol “STAY.” On March 12, 2021, the last trading day prior to the date of the public announcement of the merger agreement, the reported closing price per share for the paired shares on NASDAQ was $16.94. On [                    ], 2021, the last trading day before the date of this joint proxy statement, the reported closing price per share for the paired shares on NASDAQ was $[            ]. You are encouraged to obtain current market quotations for our paired shares.



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts included in this joint proxy statement may be forward-looking, including statements regarding, among other things, our ability to meet our debt service obligations, future capital expenditures (including future acquisitions and hotel renovation programs), our distribution policies, our development, growth and franchise opportunities, anticipated benefits or use of proceeds from dispositions, our plans, objectives, goals, beliefs, business strategies, business conditions, results of operations, financial position and business outlook, business trends and future events, including the COVID-19 pandemic, its effects on the foregoing, government actions taken in response to the COVID-19 pandemic and actions that we have or plan to take in response to the pandemic and such effects. Among the risks, contingencies and uncertainties that could cause actual results to differ from those described in the forward-looking statements or could result in the failure of the mergers to be completed are the following:

 

   

our ability to obtain the stockholder and regulatory approvals required for the mergers;

 

   

the occurrence or non-occurrence of the other conditions to the closing of the mergers;

 

   

the timing of the closing of the mergers and receipt by stockholders of the merger consideration;

 

   

legislative or regulatory developments that could have the effect of delaying or preventing the mergers;

 

   

the effect of restrictions placed on our ability to operate the businesses or pay dividends on holders of the paired shares under the merger agreement;

 

   

the risk of disruption resulting from the mergers, including the diversion of the Paired Entities’ resources and management’s attention from ongoing business operations;

 

   

the effect of the announcement of the mergers on the Paired Entities’ ability to retain and hire key employees;

 

   

the effect of the announcement of the mergers on the Paired Entities’ business relationships, results of operations, financial condition, the market price of our paired shares and businesses generally;

 

   

the risk of negative reactions from investors, associates, suppliers and guests;

 

   

the outcome of any legal proceedings that may be instituted against the Paired Entities related to the mergers;

 

   

the amount of the costs, fees, expenses and charges related to the mergers;

 

   

the occurrence of any event giving rise to the right of a party to terminate the merger agreement; and

 

   

our exclusive remedy against the counterparties to the merger agreement with respect to any breach of the merger agreement being to seek payment by Parent of a termination fee in the amount of $300 million ($150 million of which amount is guaranteed by the Blackstone Sponsor, and $150 million of which amount is guaranteed by the Starwood Sponsor), which may not be adequate to cover our damages.

Information describing other risks and uncertainties affecting the Paired Entities that could cause actual results to differ materially from those in forward-looking statements may be found in our filings with the SEC, including, but not limited to, the “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by our further filings.

When used in this joint proxy statement, the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “look forward to” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently

 

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uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will be achieved and actual results may differ materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this joint proxy statement. You should evaluate all forward-looking statements made in this joint proxy statement in the context of these risks and uncertainties, and you are cautioned not to place undue reliance on such forward-looking statements.

We caution you that the risks, uncertainties and other factors referenced above and throughout this joint proxy statement may not contain all of the risks, uncertainties and other factors that may be important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will have the results or effect on us, our business, our operations or the market price of our paired shares in the way expected. In particular, no assurance can be given that any of our ongoing, planned or expected strategic initiatives or objectives discussed herein or in other filings with the SEC will be initiated or completed on our expected timing or at all. Estimates and forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

 

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COMPANY PROPOSAL 1: PROPOSAL TO ADOPT THE MERGER AGREEMENT

The Company is asking its stockholders to vote on a proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

For detailed information regarding this proposal, see the information about the mergers and the merger agreement throughout this joint 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 joint proxy statement.

Approval of the proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement requires the affirmative vote of the holders of shares of Company common stock entitled to cast not less than a majority of all of 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 Company common stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 1 your shares of Company common stock will be voted in accordance with the recommendation of the Company board, which is “FOR” this Company Proposal 1. Because the required vote for this proposal is based on the number of votes the Company’s stockholders are entitled to cast rather than on the number of votes cast, failure to vote your shares of Company 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 adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

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

Recommendation of the Company Board

The Company board unanimously recommends that the Company’s stockholders vote “FOR” the proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

 

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COMPANY 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, the Company is asking its stockholders to vote at the special meeting on an advisory basis regarding the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the mergers. Information intended to comply with Item 402(t) of Regulation S-K concerning this compensation, subject to certain assumptions described therein, is presented in the section entitled “The Mergers—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers.”

The stockholder vote on executive compensation is an advisory vote only, and it is not binding on the Company or its board. 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, the Company’s named executive officers will be eligible to receive the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the mergers, 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.

The Company is asking its stockholders to vote “FOR” the following resolution:

“RESOLVED, that the Extended Stay America, Inc. stockholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of Extended Stay America, Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Mergers—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers” beginning on page 74 (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).”

Adoption of the above resolution, on a non-binding, advisory basis, requires the affirmative vote of a majority of the votes cast on the 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 Company common stock “FOR,” “AGAINST” or “ABSTAIN” on this Company Proposal 2, your shares of Company common stock will be voted in accordance with the recommendation of the Company board, which is “FOR” this Company Proposal 2. An abstention or failure to vote on this proposal will have no effect on the approval of this proposal.

Recommendation of the Company Board

The Company board unanimously recommends that the Company’s stockholders vote “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the mergers.

 

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COMPANY PROPOSAL 3: PROPOSAL TO APPROVE ADJOURNMENT OF THE MEETING

The Company is asking its 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 adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

Assuming that a quorum is present, 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 a not a condition to the completion of the mergers. If a quorum is not present at the Company special meeting, approval of the proposal to approve any such adjournment of the special meeting requires the affirmative vote of the holders of a majority of the voting power of the stock present in person or by proxy at the meeting and entitled to vote thereon. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Company common stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 3, your shares of Company common stock will be voted in accordance with the recommendation of the Company board, which is “FOR” this Company Proposal 3. Assuming a quorum is present, an abstention or failure to vote on this proposal will have no effect on the approval of this proposal.

Recommendation of the Company Board

The Company board unanimously recommends that the Company’s 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 adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

 

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HOSPITALITY PROPOSAL 1: PROPOSAL TO ADOPT THE MERGER AGREEMENT

Hospitality is asking its stockholders to vote on a proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

For detailed information regarding this proposal, see the information about the mergers and the merger agreement throughout this joint 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 joint proxy statement.

Approval of the proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement requires the affirmative vote of the holders shares of Hospitality class A common stock and Hospitality class B common stock entitled to cast not less than a majority of all of 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 Hospitality class B common stock “FOR,” “AGAINST” or “ABSTAIN” on this Hospitality Proposal 1, your shares of Hospitality class B common stock will be voted in accordance with the recommendation of the Hospitality board, which is “FOR” this Hospitality Proposal 1. Because the required vote for this proposal is based on the number of votes of the holders of Hospitality class A common stock and Hospitality class B common stock that are entitled to cast rather than on the number of votes cast, failure to vote your shares of Hospitality class B 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 adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

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

Recommendation of the Hospitality Board

The Hospitality board recommends that Hospitality’s stockholders vote “FOR” the proposal to adopt the merger agreement and approve the mergers and other transactions contemplated by the merger agreement.

 

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HOSPITALITY 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, Hospitality is asking its stockholders to vote at the special meeting on an advisory basis regarding the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the mergers. Information intended to comply with Item 402(t) of Regulation S-K concerning this compensation, subject to certain assumptions described therein, is presented in the section entitled “The Mergers—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers.”

The stockholder vote on executive compensation is an advisory vote only, and it is not binding on Hospitality or its board. 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, Hospitality’s named executive officers will be eligible to receive the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the mergers, 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.

Hospitality is asking its stockholders to vote “FOR” the following resolution:

“RESOLVED, that the ESH Hospitality, Inc. stockholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of ESH Hospitality, Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Mergers—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers” beginning on page 74 (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).”

Adoption of the above resolution, on a non-binding, advisory basis, requires the affirmative vote of a majority of the votes cast on the 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 Hospitality class B common stock “FOR,” “AGAINST” or “ABSTAIN” on this Hospitality Proposal 2, your shares of Hospitality class B common stock will be voted in accordance with the recommendation of the Hospitality board, which is “FOR” this Hospitality Proposal 2. An abstention or failure to vote on this proposal will have no effect on the approval of this proposal.

Recommendation of the Hospitality Board

The Hospitality board unanimously recommends that Hospitality’s stockholders vote “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the mergers.

 

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THE PARTIES TO THE MERGERS

Extended Stay America, Inc.

11525 N. Community House Road, Suite 100

Charlotte, North Carolina 28277

(980) 345-1784

Extended Stay America, Inc., which we refer to as “we,” “our,” “us,” or the “Company,” is a Delaware corporation. Extended Stay America-branded hotels are designed to provide an affordable and attractive alternative to traditional lodging or apartment accommodations and are targeted toward self-sufficient, value-conscious guests who need lodging for a night, a week or longer. Guests include business travelers, leisure travelers, professionals on temporary work or training assignments, persons relocating, the temporarily displaced, those purchasing a home and anyone else in need of accommodations. The Company’s website is www.extendedstayamerica.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this joint proxy statement or any other report or document we file with or furnish to the SEC. The Company’s shares of common stock are paired with and trade together with shares of class B common stock of ESH Hospitality, Inc. Those paired shares are listed on NASDAQ under the symbol “STAY.” For additional information about us and our business, please refer to “Where You Can Find More Information.”

ESH Hospitality, Inc.

11525 N. Community House Road, Suite 100

Charlotte, North Carolina 28277

(980) 345-1784

ESH Hospitality, Inc., is a Delaware corporation and has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code. As of the close of business on the record date, the Company owned shares of Hospitality class A common stock representing approximately [    ]% of the voting power of the Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, entitled to vote at the Hospitality special meeting.

Parent, MergerCo 1 and MergerCo 2

Eagle Parent Holdings L.P.

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Parent Holdings L.P. (which we refer to as “Parent”) is a Delaware limited partnership that is jointly owned by affiliates of Blackstone Real Estate Partners IX L.P. (which we refer to as the “Blackstone Sponsor”) and Starwood Distressed Opportunity Fund XII Global, L.P. (which we refer to as the “Starwood Sponsor” and together with the Blackstone Sponsor, the “Sponsors”). Parent was formed solely for the purpose of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. The Blackstone sponsor is an affiliate of The Blackstone Group Inc. (which we refer to as “Blackstone”). The Starwood Sponsor is an affiliate of Starwood Capital Group (which we refer to as “Starwood”).

 

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Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $187 billion of investor capital under management. Blackstone is one of the largest property owners in the world, owning and operating assets across every major geography and sector, including logistics, multifamily and single-family housing, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ strategy invests in substantially stabilized real estate globally through regional open-ended funds focused on high-quality assets and Blackstone Real Estate Income Trust, Inc., a non-listed REIT that invests in U.S. income-generating assets. 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).

Starwood Capital Group is a private investment firm with a core focus on global real estate, energy infrastructure and oil & gas. Starwood and its affiliates maintain 16 offices in seven countries around the world, and currently have approximately 4,100 employees. Since its inception in 1991, Starwood Capital Group has raised over $55 billion of equity capital, and currently has in excess of $75 billion of assets under management. Through a series of comingled opportunity funds and Starwood Real Estate Income Trust, Inc., a non-listed REIT, Starwood has invested in virtually every category of real estate on a global basis, opportunistically shifting asset classes, geographies and positions in the capital stack as it perceives risk/reward dynamics to be evolving. Starwood Capital also manages Starwood Property Trust (NYSE: STWD), the largest commercial mortgage real estate investment trust in the United States, which has successfully deployed over $63 billion of capital since inception and manages a portfolio of over $17 billion across debt and equity investments. Over the past 29 years, Starwood Capital Group and its affiliates have successfully executed an investment strategy that involves building enterprises in both the private and public markets.

Eagle Merger Sub 1 Corporation

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Merger Sub 1 Corporation (which we refer to as “MergerCo 1”) is a Delaware corporation. MergerCo 1 is a wholly owned subsidiary of Parent. MergerCo 1 was formed solely for purposes of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, MergerCo 1 will merge with and into the Company, and the Company will continue as the surviving entity.

 

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Eagle Merger Sub 2 Corporation

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

(212) 583-5000

and

c/o Starwood Capital Group

591 West Putnam Avenue

Greenwich, Connecticut 06830

Eagle Merger Sub 2 Corporation (which we refer to as “MergerCo 2”) is a Delaware corporation. MergerCo 2 is a wholly owned subsidiary of MergerCo 1. MergerCo 2 was formed solely for purposes of engaging in the transactions contemplated by the merger agreement, has engaged in no other business activities and has conducted its operations only incidentally to its formation or in furtherance of the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, MergerCo 2 will merge with and into Hospitality, and Hospitality will continue as the surviving entity.

 

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THE COMPANY SPECIAL MEETING

Date, Time and Purpose of the Company Special Meeting

This joint proxy statement is being furnished to holders of Company common stock in connection with the solicitation of proxies by the Company board to be exercised at the Company special meeting which will be conducted exclusively online via live audio webcast at [        ] starting at [        ] Eastern Time, on [                ], 2021. You will be able to attend the Company special meeting online and vote your shares electronically at the Company special meeting by registering in advance prior to the deadline of [        ] Eastern Time on [                ], 2021 at [        ] and entering your control number, which is included on the WHITE proxy card that you received. Because the Company special meeting is completely virtual and being conducted online via live audio webcast, Company stockholders will not be able to attend the meeting in person. The purpose of the Company special meeting is for you to consider and vote on the following matters:

 

  1.

a proposal to adopt the merger agreement and approve the mergers 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 the Company’s named executive officers that is based on or otherwise relates to the mergers; and

 

  3.

a proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

Pursuant to the Company’s bylaws, all business to be conducted at the Company special meeting must be brought before the meeting pursuant to the Company’s notice of meeting. The affirmative vote of holders of Company common stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter is required to adopt the merger agreement and approve the mergers 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 joint proxy statement, which the Company encourages you to read carefully in its entirety.

Record Date, Notice and Quorum

All holders of record of the Company common stock as of the record date, which was the close of business on [                ], 2021, are entitled to receive notice of and attend and vote at the Company special meeting or any postponement or adjournment of the Company special meeting. Each Company stockholder will be entitled to cast one vote on each matter presented at the Company special meeting for each share of Company common stock that such holder owned as of the record date. On the record date, there were [            ] shares of Company common stock outstanding and entitled to vote at the Company special meeting.

The presence in person (which would include presence at a virtual meeting) or by proxy of the Company stockholders entitled to cast a majority of all of the votes entitled to be cast at the Company special meeting will constitute a quorum for purposes of the Company special meeting. A quorum is necessary to transact business at the Company 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 Company special meeting, the Company expects that the Company special meeting will be adjourned to a later date. Pursuant to the Company’s bylaws, the chairman of the meeting may adjourn the meeting, whether or not a quorum is present, to a later time and place announced at the Company special meeting, even if the Company’s stockholders have not approved the proposal to adjourn the special meeting.

Required Vote

Completion of the mergers requires adoption of the merger agreement and approval of the mergers and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of Company common

 

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stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter. Each Company stockholder is entitled to cast one vote on each matter presented at the Company special meeting for each share of Company common stock owned by such stockholder on the record date.

Because the required vote for this proposal is based on the number of votes the Company’s stockholders are entitled to cast rather than on the number of votes cast, if you fail to vote by proxy or in person (including by abstaining) (which would include presence at a virtual meeting), or fail to instruct your broker on how to vote, such failure will have the same effect as voting against the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

In addition, the approval of the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the mergers, and assuming a quorum is present, the approval of the proposal regarding any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, each 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 vote by proxy or in person (which would include presence at a virtual meeting), or fail to instruct your broker on how to vote, it will not have any effect on the outcome of such proposals. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals assuming a quorum is present. Accordingly, in order for your shares of Company common stock to be voted, if you are a stockholder of record, you must either return the enclosed WHITE proxy card, authorize your proxy or voting instructions by telephone or through the Internet or vote in person (which would include presence at a virtual meeting) at the Company special meeting.

As of the record date, the Company’s directors and executive officers owned and are entitled to vote an aggregate of approximately [            ] of the shares of Company common stock, entitling them to exercise approximately [    ]% of the voting power of the Company common stock entitled to vote at the Company special meeting. The Company’s and Hospitality’s directors and executive officers have informed us that they intend to vote the shares of Company common stock that they own in favor of: (1) the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (other than Neil T. Brown and Simon M. Turner, each a director of the Hospitality board and who own [            ] and [            ] shares of Company common stock, respectively, as of the close of business on the record date), (2) the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers and (3) the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, although they have no obligation to do so.

Votes cast by proxy or in person (which would include presence at a virtual meeting) at the Company special meeting will be counted by the person appointed by the Company to act as inspector of election for the Company special meeting. The inspector of election will also determine the number of shares of Company common stock represented at the Company special meeting, in person or by proxy.

How to Authorize a Proxy

Holders of record of the Company common stock may vote or cause their shares to be voted by proxy using one of the following methods:

 

   

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

 

   

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

 

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appear and vote in person (which would include presence at a virtual meeting) by ballot at the Company special meeting.

Regardless of whether you plan to attend the Company special meeting, the Company requests that you authorize a proxy for your shares of Company common stock as described above as promptly as possible.

Under NASDAQ rules, all of the proposals in this joint proxy statement are non-routine matters, so there can be no broker non-votes at the Company special meeting. A broker non-vote occurs when shares held by a bank, broker, trust or other nominee are represented at a meeting, but the bank, broker, trust or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals at such meeting. Accordingly, if you own Company common stock through a broker, bank or other nominee (i.e., in “street name”), you must provide voting instructions in accordance with the instructions on the voting instruction card that your broker, bank or other nominee provides to you, as brokers, banks and other nominees do not have discretionary voting authority with respect to any of the three proposals described in this joint proxy statement. You should instruct your broker, bank or other nominee as to how to vote your shares of Company common stock following the directions contained in such voting instruction card. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee who can give you directions on how to vote your shares of Company common stock. If you hold your shares of Company common stock through a broker, bank or other nominee and wish to vote in person at the Company special meeting, you must obtain a “legal proxy,” executed in your favor, from the broker, bank or other nominee (which may take several days). Because the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement requires the affirmative vote of the holders of Company common stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement. Because the required vote on the approval of each of (1) the non-binding compensation advisory proposal and (2) the proposal to adjourn the Company special meeting if necessary or appropriate are each based on the number of shares present and/or voting at the Company special meeting, 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 shares of Company common stock will be voted at the Company special meeting as you indicate on your proxy. If no instructions are indicated when you authorize your proxy, your shares of Company common stock will be voted in accordance with the recommendations of the Company board. The Company board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the merger and “FOR” the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

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

 

   

by delivering, prior to the date of the Company special meeting, a written revocation of your proxy dated after the date of the proxy that is being revoked to the Company’s Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277;

 

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by delivering to the Company’s 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 Company common stock; or

 

   

by attending the Company special meeting and voting in person (which would include presence at a virtual meeting).

Attendance at the Company special meeting will not, in itself, constitute revocation of a previously granted proxy. If you own Company 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 Company’s bylaws, all business to be conducted at the Company special meeting must be brought before the meeting pursuant to the Company’s notice of meeting.

Solicitation of Proxies

The Company will bear the cost of solicitation of proxies for the Company special meeting. In addition to the use of mails, proxies may be solicited by personal interview, telephone, facsimile, e-mail or otherwise, by the Company’s officers, directors and other employees, for which they will not receive additional compensation. The Company has engaged Okapi Partners LLC to assist in the solicitation of proxies for a fee of up to approximately $250,000, plus a one time performance fee to be determined, plus reimbursement of out-of-pocket expenses, and the Company has agreed to indemnify Okapi Partners LLC and its members, officers, directors, employees, agents and affiliates against certain losses, costs and expenses. The Company also will request persons, firms and corporations holding Company 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 Company special meeting may be adjourned for the purpose of soliciting additional proxies if the holders of a sufficient number of shares of Company common stock are not present at the Company special meeting, in person or by proxy, to constitute a quorum or if the Company believes it is reasonably likely that the merger agreement will not be adopted and the mergers and the other transactions contemplated by the merger agreement approved at the Company special meeting when convened on [                    ], 2021, or when reconvened following any adjournment. Any meeting may be adjourned for up to 30 days without notice (other than by an announcement at the Company special meeting of the date, time and place, if any of the adjourned meeting), by the chairman of the meeting, whether or not a quorum is present (subject to certain restrictions in the merger agreement, including that the Company special meeting generally may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the Company special meeting was originally scheduled).

Postponements

At any time prior to convening the Company special meeting, the Company may postpone the Company special meeting for any reason without the approval of its stockholders (subject to certain restrictions in the merger agreement, including that the Company special meeting generally may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the Company special meeting was originally scheduled).

 

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THE HOSPITALITY SPECIAL MEETING

Date, Time and Purpose of the Hospitality Special Meeting

This joint proxy statement is being furnished to holders of Hospitality class B common stock in connection with the solicitation of proxies by the Hospitality board to be exercised at the Hospitality special meeting which will be conducted exclusively online via live audio webcast at [        ] starting at [        ] Eastern Time, on [                ], 2021. You will be able to attend the Hospitality special meeting online and vote your shares electronically at the Hospitality special meeting by registering in advance prior to the deadline of [        ] Eastern Time on [                ], 2021 at [        ] and entering your control number, which is included on the WHITE proxy card that you received. Because the Hospitality special meeting is completely virtual and being conducted online via live audio webcast, Hospitality stockholders will not be able to attend the meeting in person. The purpose of the Hospitality special meeting is for you to consider and vote on the following matters:

 

  1.

a proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement; and

 

  2.

a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the mergers.

Pursuant to Hospitality’s bylaws, all business to be conducted at the Hospitality special meeting must be brought before the meeting pursuant to Hospitality’s notice of meeting. The affirmative vote of holders of Hospitality class B common stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter is required to adopt the merger agreement and approve the mergers 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 joint proxy statement, which Hospitality encourages you to read carefully in its entirety.

Record Date, Notice and Quorum

All holders of record of Hospitality class B common stock as of the record date, which was the close of business on [                ], 2021, are entitled to receive notice of and attend and vote at the Hospitality special meeting or any postponement of the Hospitality special meeting. Each Hospitality stockholder will be entitled to cast one vote on each matter presented at the Hospitality special meeting for each share of Hospitality class B common stock that such holder owned as of the record date. On the record date, there were [            ] shares of Hospitality class B common stock outstanding and entitled to vote at the Hospitality special meeting.

The presence in person (which would include presence at a virtual meeting) or by proxy of the Hospitality stockholders entitled to cast a majority of all of the votes entitled to be cast at the Hospitality special meeting will constitute a quorum for purposes of the Hospitality special meeting. A quorum is necessary to transact business at the Hospitality special meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum.

Required Vote

Completion of the mergers requires adoption of the merger agreement and approval of the mergers and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of Hospitality common stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter. Each Hospitality stockholder is entitled to cast one vote on each matter presented at the Hospitality special meeting for each share of Hospitality class A common stock or Hospitality class B common stock owned by such stockholder on the record date. Because the required vote for this proposal is based on the number of votes Hospitality’s stockholders are entitled to cast rather than on the number of votes cast, if you fail to vote by proxy or in person (including by abstaining) (which consists of presence at a virtual meeting), or fail to instruct your broker on how to vote, such failure will have the same effect as voting against the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

 

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The Company is the sole holder of Hospitality class A common stock, which constitutes [    ]% of the voting power of the outstanding Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, as of the close of business on the record date. The Company will vote its shares of Hospitality class A common stock at the Hospitality special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement and approve the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers.

In addition, the approval of the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the mergers requires the affirmative vote of a majority of the votes cast on the proposal. Approval of this proposal is not a condition to completion of the mergers. For the purpose of this proposal, if you fail to vote by proxy or in person (which would include presence at a virtual meeting), or fail to instruct your broker on how to vote, it will not have any effect on the outcome of such proposal. Abstentions are not considered votes cast and therefore will have no effect on the outcome of this proposal.

Accordingly, in order for your shares of Hospitality class B common stock to be voted, if you are a stockholder of record, you must either return the enclosed WHITE proxy card, authorize your proxy or voting instructions by telephone or through the Internet or vote in person (which would include presence at a virtual meeting) at the Hospitality special meeting. The vote of the holders of Hospitality’s preferred stock is not required to approve any of the proposals at the Hospitality special meeting and is not being solicited.

As of the record date, Hospitality’s directors and executive officers owned and are entitled to vote an aggregate of approximately [        ] of the shares of Hospitality class B common stock, entitling them to exercise approximately [    ]% of the voting power of Hospitality class B common stock entitled to vote at the Hospitality special meeting. The Company’s and Hospitality’s directors and executive officers have informed us that they intend to vote the Hospitality class B common stock that they own in favor of: (1) the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement (other than the Messrs. Brown and Turner, each a director of the Hospitality board and who own [            ] and [            ] shares of Hospitality class B common stock, respectively, as of the close of business on the record date), and (2) the proposal regarding the non-binding, advisory vote on the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the mergers.

Votes cast by proxy or in person (which would include presence at a virtual meeting) at the Hospitality special meeting will be counted by the person appointed by Hospitality to act as inspector of election for the Hospitality special meeting. The inspector of election will also determine the number of shares of Hospitality class B common stock represented at the Hospitality special meeting, in person or by proxy.

How to Authorize a Proxy

Holders of record of the Hospitality class B common stock may vote or cause their shares to be voted by proxy using one of the following methods:

 

   

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

 

   

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

 

   

appear and vote in person (which would include presence at a virtual meeting) by ballot at the Hospitality special meeting.

Regardless of whether you plan to attend the Hospitality special meeting, Hospitality requests that you authorize a proxy for your shares of Hospitality class B common stock as described above as promptly as possible.

Under NASDAQ rules, all of the proposals in this joint proxy statement are non-routine matters, so there can be no broker non-votes at the Hospitality special meeting. A broker non-vote occurs when shares held by a bank,

 

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broker, trust or other nominee are represented at a meeting, but the bank, broker, trust or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals at such meeting. Accordingly, if you own Hospitality class B common stock through a broker, bank or other nominee (i.e., in “street name”), you must provide voting instructions in accordance with the instructions on the voting instruction card that your broker, bank or other nominee provides to you, as brokers, banks and other nominees do not have discretionary voting authority with respect to any of the three proposals described in this joint proxy statement. You should instruct your broker, bank or other nominee as to how to vote your shares of Hospitality class B common stock following the directions contained in such voting instruction card. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee who can give you directions on how to vote your shares of Hospitality class B common stock. If you hold your shares of Hospitality class B common stock through a broker, bank or other nominee and wish to vote in person at the Hospitality special meeting, you must obtain a “legal proxy,” executed in your favor, from the broker, bank or other nominee (which may take several days). Because the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement requires the affirmative vote of the holders of Hospitality class B common stock entitled to cast not less than a majority of all of the votes entitled to be cast on the matter, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement. Because the approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the votes cast on such proposal, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on such proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of such proposal, assuming a quorum is present.

Proxies and Revocation

If you authorize a proxy, your shares of Hospitality class B common stock will be voted at the Hospitality special meeting as you indicate on your proxy. If no instructions are indicated when you authorize your proxy, your shares of Hospitality class B common stock will be voted in accordance with the recommendations of the Hospitality board. The Hospitality board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Hospitality’s named executive officers that is based on or otherwise relates to the merger.

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

 

   

by delivering, prior to the date of the Hospitality special meeting, a written revocation of your proxy dated after the date of the proxy that is being revoked to Hospitality’s Corporate Secretary at 11525 N. Community House Road, Suite 100, Charlotte, North Carolina 28277;

 

   

by delivering to Hospitality’s 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 Hospitality class B common stock; or

 

   

by attending the Hospitality special meeting and voting in person (which would include presence at a virtual meeting).

Attendance at the Hospitality special meeting will not, in itself, constitute revocation of a previously granted proxy. If you own Hospitality class B 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 Hospitality’s bylaws, all business to be conducted at the Hospitality special meeting must be brought before the meeting pursuant to Hospitality’s notice of meeting.

 

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Postponements

At any time prior to convening the Hospitality special meeting, Hospitality may postpone the Hospitality special meeting for any reason without the approval of its stockholders (subject to certain restrictions in the merger agreement, including that the Company special meeting generally may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the Hospitality special meeting was originally scheduled).

 

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THE MERGERS

General Description of the Mergers

Under the terms of the merger agreement, affiliates of Blackstone and Starwood will acquire the Company, Hospitality and their subsidiaries, through the mergers. Pursuant to the terms of the merger agreement, MergerCo 1 will merge with and into the Company, with the Company surviving the Company merger, and Hospitality will merge with and into MergerCo 2, with MergerCo 2 surviving the Hospitality merger.

Background of the Mergers

The Boards and senior management regularly evaluate the Paired Entities’ business and operations, trends in the hotel and lodging and real estate industries, and the macro-economic environment, all with a view toward creating and maximizing stockholder value. From time to time, this evaluation has included the review of potential strategic alternatives, including business combinations involving all or part of the Paired Entities, and potential alternatives to the Paired Entities’ corporate structure.

At the time of the Paired Entities’ initial public offering in 2013, the Paired Entities adopted a “paired share” structure, under which shares of the Company, the parent company, were paired with shares representing a minority interest in Hospitality, a corporation that elected to be taxed as a REIT under the Code, with the remaining equity interest in Hospitality owned by the Company. The holders of paired shares owned all of the common equity of the Company directly and all of the common equity of Hospitality, directly through their minority interest and indirectly through their ownership of the Company. This structure, which has been infrequently utilized by U.S. public companies and is not currently used by any other U.S. public company, was designed to allow the Paired Entities to obtain, partially, the tax benefits of holding real estate in REIT form while at the same time maintaining a fully integrated owner/operator model that is unique relative to other lodging industry participants, which are primarily franchise businesses that generally own and control only a small portion of their hotels. At the time of their initial public offering, the Paired Entities hoped that the public markets would ascribe more value to this unique structure and business model than may have been recognized by the public markets if a more traditional structure had been used.

In early July 2017, our then Chief Executive Officer met with a representative of Starwood during which they discussed developments in the extended stay lodging industry, and in the course of such discussions the Starwood representative expressed Starwood’s preliminary interest in exploring a possible acquisition of the Paired Entities. No specific terms were discussed, but our then Chief Executive Officer indicated that it was unlikely the Boards would be interested in pursuing any transaction for less than $24 per paired share. On July 7, 2017, Starwood submitted to the Paired Entities a written indication of interest for an acquisition of the Paired Entities at a purchase price in the range of $22 to $24 per paired share, subject to completion of due diligence.

Following receipt of this indication of interest, at the direction of the Boards and with the assistance of a financial advisor, the Paired Entities initiated a process to explore potential third party interest in an acquisition of the Paired Entities. At the direction of the Boards, the Paired Entities’ financial advisor approached two other potential acquirers, including Blackstone, that the Boards and the financial advisor believed would be most likely to be interested in a potential acquisition of the Paired Entities to ascertain their interest in considering a potential transaction. The Paired Entities provided information to Starwood pursuant to a confidentiality/standstill agreement dated August 6, 2017. The Paired Entities also provided information to Blackstone pursuant to a confidentiality/standstill agreement dated August 22, 2017. The other potential acquiror that had been approached declined to consider a potential transaction with the Paired Entities. Following discussions with the Paired Entities and a review of non-public due diligence information, on September 13, 2017 Starwood informed the Paired Entities that it was only prepared to proceed toward a transaction at a price per paired share that was unlikely to provide a material premium to the current trading price per paired share (which closed at $20.20 on September 13, 2017), but that Starwood would not proceed with a transaction in the range of its initial indication

 

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of interest. The Paired Entities did not receive any other specific proposals, including from Blackstone, during the summer of 2017. In September 2017, the Paired Entities discontinued this process. During September 2017, the paired shares were trading in the range of $19.11 to $20.20 per paired share.

On November 7, 2017, the Paired Entities announced earnings for the third quarter of 2017 that failed to meet analyst expectations and lowered guidance for the 2017 fiscal year. On that date, the paired shares closed at $17.23.

On November 10, 2017, Blackstone made an unsolicited written proposal to acquire the Paired Entities at a price of $19.50 per paired share. On that date, the paired shares closed at a price of $16.81 per paired share. Blackstone’s price represented a premium of 16.0% to the closing price of the paired shares on that date, a 2.4% premium to the 30-day volume weighted average trading price (or VWAP) of the paired shares, a 6.6% discount to the 52-week high closing price and a multiple of 9.5x next twelve months estimated earnings before interest, taxes, depreciation and amortization based on IBES projections (or NTM EBITDA).

During the remainder of November 2017 and early December 2017, the Paired Entities and Blackstone engaged in discussions and Blackstone conducted due diligence. On December 6, 2017, Blackstone submitted a revised written proposal of $20.75 per paired share, which Blackstone orally indicated was its best offer. On the previous day, the paired shares closed at a price of $17.35. Blackstone’s price represented a premium of 19.6% to the previous day’s closing price of the paired shares, a 16.4% premium to the 30-day VWAP of the paired shares, a 0.6% discount to the 52-week high closing price and a multiple of 10.3x NTM EBITDA. At that time, the Paired Entities owned approximately 625 hotels (which on average were 18.5 years old).

Thereafter, the Boards of the Paired Entities met and determined that Blackstone’s revised proposal was not in the best interests of the Paired Entities’ stockholders and determined not to pursue the proposal. In rejecting Blackstone’s proposal, the Boards took into account a number of factors, including the fact that the proposal represented a discount to the highest trading price of the paired shares as recently as October 18, 2017, the Boards’ belief that the Paired Entities’ performance for the third quarter of 2017 was not reflective of the Paired Entities’ near or longer term prospects, the fact that there was an impending change to the Paired Entities’ President and Chief Executive Officer and the Boards’ belief that the Paired Entities had significant potential under new leadership, and the Boards’ view that anticipated changes in federal tax legislation could have a favorable impact on the Paired Entities’ valuation. Following this meeting, discussions with Blackstone terminated.

In December 2017, the President and Chief Executive Officer of the Paired Entities resigned and the Boards appointed the Paired Entities’ then Chief Financial Officer as the President and Chief Executive Officer. Under the new President and Chief Executive Officer, the Paired Entities planned to accelerate progress on developing Extended Stay hotels under the Paired Entities’ new design model, through the sale of non-core assets at attractive cash flow multiples while retaining franchise agreements on the sold properties, new development of Extended Stay hotels in attractive markets, sale of Extended Stay franchises and targeted capital investments (which we collectively refer to as the ESA 2.0 strategy).

On the Paired Entities’ second quarter earnings call held on July 26, 2018, the Paired Entities’ President and Chief Executive Officer noted that various research analysts were performing valuation analyses of the Paired Entities under a structure in which the Paired Entities would be separated into a REIT and an independent operating company or other method of separating the Company from Hospitality. The President and Chief Executive Officer stated that the Paired Entities intended to continue to evaluate the merits of alternatives to the Paired Entities’ corporate structure. On that date, the paired shares closed at $21.64 per paired share.

In late July 2018, at the direction of the Boards and with the assistance of a financial advisor, the Paired Entities began a process to evaluate a variety of strategic alternatives, including a sale of the Paired Entities, the potential for a sale of the Extended Stay brand and management company (with the company remaining solely as an owner

 

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of real estate taxed as a REIT (which we refer to as Remainco REIT)), or other business combination transaction, as well as continuing with the Paired Entities’ business plan, including its ESA 2.0 strategy. In connection with this process, among other things, the Paired Entities’ financial advisor contacted three publicly-traded hotel franchising companies regarding their interest in a potential acquisition of the Extended Stay brand and management company, and also contacted Blackstone and another financial sponsor the Boards believed might be interested in a potential whole company transaction. In addition, a representative of the Paired Entities contacted Starwood with a view to ascertaining Starwood’s potential interest in having the Paired Entities become the owner or brand manager for certain of Starwood’s hotels. Starwood did not express any interest in pursuing a transaction.

Two of the publicly-traded hotel franchising companies (whom we refer to as Party A and Party B, respectively) expressed interest in engaging in discussions with the Paired Entities. In mid-September 2018, representatives of the Paired Entities and the Paired Entities’ financial advisor met with representatives of each of Party A and Party B. At these meetings, the Paired Entities emphasized that their focus in any potential transaction would be on the expected performance and profitability of Remainco REIT giving effect to the transaction, in view of the fact that Remainco REIT would remain a publicly traded company following the transaction and represented the overwhelming majority of the combined value of the Paired Entities.

Thereafter, the Paired Entities entered into confidentiality agreements (which did not contain standstill provisions) with each of Party A and Party B, and the Paired Entities shared certain confidential information and provided a term sheet regarding the potential terms of a transaction to each of Party A and Party B. The draft term sheet outlined terms for a long-term master management agreement and master franchise agreement, with proposed franchise, management, system and loyalty program fees payable by Remainco REIT, contemplated a five year performance guarantee to Remainco REIT of $654 million in system-wide property-level EBITDA for 2019 with annual adjustments thereafter (with rebates and adjustments to fees in order to offset any performance shortfall), a purchase price to be determined, and other terms, including covenants to assure Remainco REIT that, unless otherwise agreed by Remainco REIT, the Paired Entities’ management team would continue to manage the Extended Stay brand and portfolio, and areas of protection for Remainco REIT’s properties against new Extended Stay branded hotels or other extended stay franchises. The term sheet proposed that, after the initial five-year guarantee period, Remainco REIT would have rights to terminate the master agreements with respect to a specified number of hotels annually for failures to meet annual performance standards.

In late 2018 and early 2019, while the Paired Entities were engaged in discussions with Party A and Party B, the Paired Entities engaged in discussions with Blackstone regarding Blackstone’s potential interest in an acquisition of the Paired Entities. In connection with these discussions, the preexisting confidentiality/standstill agreement between Blackstone and the Paired Entities was amended to extend its duration, and Blackstone conducted due diligence on the Paired Entities. The other financial sponsor contacted by the Paired Entities’ financial advisor as part of this process did not express any interest in a transaction with the Paired Entities.

On December 11, 2018, a representative of Blackstone orally indicated to the Paired Entities that, were Blackstone to submit an acquisition proposal, it would be at a valuation below $20 per paired share, and that Blackstone would continue to conduct its due diligence review of the Paired Entities. Blackstone did not make a specific proposal to the Paired Entities at that time. On that date, the paired shares closed at a price of $17.15 per paired share.

In January 2019, while the Paired Entities continued discussions with Party A and Party B, at the direction of the Boards, the Paired Entities’ financial advisor continued to engage with Blackstone regarding its interest in a potential acquisition of the Paired Entities and to see if Blackstone would submit a specific proposal. In the course of these discussions, the Paired Entities’ financial advisor indicated that the Paired Entities were considering certain alternatives, and that before making a decision regarding those alternatives, the Paired Entities were interested in ascertaining whether Blackstone was prepared to make a specific proposal for an acquisition of the Paired Entities.

 

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On January 18 and January 22, 2019, the Paired Entities received revised term sheets reflecting proposals from Party A and Party B. The proposal from Party A contemplated solely an acquisition of the Extended Stay brand for $150 million, with the Paired Entities retaining ownership of the management company, and with no minimum performance guarantees. The proposal from Party B contemplated an acquisition of the Extended Stay brand and management company for $500 million (which the Paired Entities estimated to have a value of approximately $2.00 per paired share after entity-level taxes) and, among other things, the payment by Remainco REIT to Party B of a franchise and system fee equal to 10% of revenue and a management fee equal to 1% of revenue. The proposal also provided for an annual performance guarantee to Remainco REIT of $630 million in system-wide property-level EBITDA, which would, however, be subject to an unspecified “ramp up period” for the initial performance guarantee level, and an annual and aggregate cap over the 5 year guarantee period of unspecified amounts. Party B’s proposal further indicated that the cash purchase price would be adjusted based upon the final form and structure of the performance guarantee. Other issues arising out of Party B’s proposal included that Party B rejected the inclusion of covenants proposed by the Paired Entities; whether Remainco REIT hotels would participate in Party B’s loyalty guest program and the terms of such participation; no specific proposal was made regarding the size of areas of protection for Remainco REIT’s properties against new Extended Stay branded hotels or other extended stay franchises; and the proposal did not address the rights of Remainco REIT following the initial 5 year guarantee period.

On January 25, 2019, a representative of Blackstone orally communicated to the Paired Entities’ financial advisor a proposal to acquire the Paired Entities at a price of $18.65 per paired share, indicating that Blackstone was not prepared to increase its price and that its proposal assumed the Paired Entities would pay no additional dividends on the paired shares. On the previous day, the paired shares closed at a price of $16.40 per paired share. Blackstone’s proposal represented a premium of 13.7% to the previous day’s closing price, a 15.7% premium to the 30-day VWAP of the paired shares, a 17.2% discount to the 52-week high closing price and a multiple of 10.9x NTM EBITDA. At that time, the Paired Entities owned approximately 567 hotels (which on average were 19.6 years old).

On January 28 and 29, 2019, representatives of the Paired Entities’ financial advisor met with representatives of each of Party A and Party B at an industry conference. The financial advisor conveyed to Party A that its proposal was not of interest to the Paired Entities because the price offered for the Extended Stay brand was inadequate, Party A was not prepared to assume the management of the Paired Entities’ hotels and was unwilling to provide performance guarantees. The financial advisor informed Party B that the Paired Entities were negotiating exclusively with Party B as a brand and management partner, but that this was not the only alternative being pursued by the Paired Entities.

In early February 2019, Party B submitted a revised written proposal in which it indicated that it was prepared to provide a five-year performance guarantee to Remainco REIT of $650 million in system-wide property-level EBITDA with no ramp-up period or annual adjustment, but with the guarantee payment to be paid by Party B for any shortfall capped at $60 million per year and at $180 million over the life of the guarantee. In addition, Party B proposed to have the right to recoup any guarantee payment over the following 20 years to the extent in any such year EBITDA exceeded $650 million. Under this proposal, Party B would be prepared to pay only $375 million for the Extended Stay brand and management company, rather than the $500 million it previously proposed. As an alternative, Party B indicated it would be prepared to pay $425 million for the Extended Stay brand and management company with a five-year performance guarantee of $650 million, but under this alternative the guarantee payment to be paid by Party B for any shortfall would be capped at $50 million per year and at $100 million over the life of the guarantee, but with the same 20 year recoupment term.

At meetings of the Boards of the Paired Entities on February 7 and 8, 2019, the Boards discussed Blackstone’s January 25, 2019 proposal and the status of discussions with Party B, including its revised proposal. At that meeting, the Boards determined to request a revised proposal from Blackstone. In mid-February 2019, a representative of Blackstone orally reaffirmed that the $18.65 per shared share price remained Blackstone’s best and final price. Thereafter, discussions with Blackstone terminated.

 

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Discussions with Party B regarding a potential transaction continued between February and May 2019. During this period, Party B conducted additional diligence and refined its views regarding the potential transaction, including Party B’s capabilities to provide longer length of stay business consistent with the Paired Entities’ extended stay business model, the magnitude of scale-driven savings that would be expected to be available to Remainco REIT versus the various revenue-based fees and reimbursements that would be payable by Remainco REIT to Party B, and Party B’s views regarding the need to rebrand some of the then current Remainco REIT hotels to lower-tier Party B brands as a condition of a transaction, and the impact of that rebranding on the profitability of those hotels, which would still be owned by Remainco REIT.

In that connection, in mid-April 2019, Party B submitted a revised written proposal with three alternatives. Under the first alternative, Party B was prepared to pay $375 million for the Extended Stay brand and management company with no performance guarantee. Under the second and third alternatives, Party B was prepared to provide a five-year performance guarantee of system-wide property-level EBITDA ranging from $605 million in year one to $665 million in year five. Under the second alternative, it would pay $250 million for the Extended Stay brand and management company but its annual guarantee payment for any shortfall was to be capped at $60 million per year and at $180 million over the life of the guarantee. Under the third alternative, it would pay $300 million for the Extended Stay brand and management company but its guarantee payment for any shortfall was to be capped at $50 million per year and at $100 million over the life of the guarantee. No recoupment provision was included under any of the three alternatives.

On May 15, 2019, Party B delivered a revised written proposal to the Paired Entities, which Party B stated reflected its best and final proposal. Under this proposal, Party B would pay $300 million for the Extended Stay brand and management company with a five-year performance guarantee of system-wide property-level EBITDA ranging from $630 million in year one to $660 million in year five but its guarantee payment for any shortfall was to be capped at 2% of revenue per year (estimated to be approximately $25 million per year) and at $100 million over the life of the guarantee. No recoupment provision was included. In addition, Party B proposed to rebrand a significant number of Remainco REIT hotels to other brands, and added provisions that would commit Remainco REIT to additional capital expenditures following a transition period.

At a meeting of the Boards of the Paired Entities on May 19, 2019, the Boards reviewed the revised proposal from Party B. Also in attendance were representatives of the Paired Entities’ legal counsel and financial advisor. Following discussion, the Boards concluded that the proposal was not in the best interests of the holders of paired shares because it undervalued the Extended Stay brand and management company and presented material risks to the future performance and valuation of Remainco REIT. Accordingly, the Boards and determined not to move forward with Party B’s revised proposal and to cease discussions with Party B. The Boards determined that the Paired Entities should instead continue to move forward with the Paired Companies’ business plan and ESA 2.0 strategy.

On the Paired Entities’ August 7, 2019 earnings call, the Paired Entities’ President and Chief Executive Officer provided an update on the Boards’ evaluation of the Paired Entities’ corporate structure, stating that, after consideration of a variety of options, including discussions with potential transaction partners, the Boards had concluded that none of these options at that time provided superior stockholder value creation to the Paired Entities stand-alone prospects, but that the Boards remained open to actions in the future, including those that would involve a change in corporate structure. On that date, the paired shares closed at a price of $14.78 per paired share.

During the period from the July 26, 2018 earnings call to the August 7, 2019 earnings call, no party other than Blackstone made a proposal to the Paired Entities for an acquisition of the Company and no party other than Party A and Party B made a proposal to the Paired Entities for an acquisition of the Extended Stay brand or management company.

On November 21, 2019, the Paired Entities’ President and Chief Executive Officer resigned and was replaced by Bruce N. Haase, who is the current President and Chief Executive Officer of the Paired Entities. Prior to

 

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becoming President and Chief Executive Officer, Mr. Haase had served as an independent director of Hospitality since April 2018.

On February 27, 2020, the Paired Entities held their earnings call for the fourth quarter of 2019. On this call, Mr. Haase identified four key pillars to the Paired Entities’ value creation strategy: improving the guest experience and property-level financial performance; more strategically curating and extracting value from the REIT assets through asset sales; growing the Extended Stay brand through an asset-light franchising strategy; and continuing to return significant capital to stockholders while maintaining a prudent balance sheet.

Commencing in the first quarter of 2020, the Paired Entities were impacted by the Covid-19 pandemic. Although all of the Paired Entities’ hotels remained open, the Paired Entities experienced declines in occupancy and revenues, while outperforming the broader lodging industry. On April 3, 2020, the paired shares closed at $6.43

On April 6, 2020, Starwood filed a Schedule 13D disclosing ownership of approximately 8.5% of the paired shares. In a call on that date, Barry Sternlicht of Starwood spoke to Doug Geoga, the Chairman of the Boards and an independent director of the Paired Entities. Mr. Sternlicht indicated that Starwood viewed the paired shares as undervalued, and that Starwood had no intention of pursuing any specific transaction with the Paired Entities at that time.

On June 1, 2020, the Paired Entities engaged Goldman Sachs & Co. LLC to serve as financial advisor to the Paired Entities to assist with their analysis and consideration of various financial or strategic alternatives that may be available to it. Goldman Sachs was engaged by the Paired Entities because of its substantial hospitality industry and mergers and acquisition experience.

On August 7, 2020, Starwood filed an amendment to its Schedule 13D disclosing ownership of approximately 9.4% of the paired shares.

Beginning in August 2020, Tarsadia Capital, an investment firm whom we refer to as Tarsadia, began to engage with management of the Paired Entities with respect to various investment ideas it wanted the Paired Entities to consider. Tarsadia indicated that it owned approximately 5 million paired shares. Over the following six months, multiple representatives of the Paired Entities, including Mr. Geoga, Mr. Haase, our Chief Financial Officer, and our Vice President of Investor Relations, engaged in more than 20 calls and meetings with representatives of Tarsadia. Management of the Paired Entities regularly briefed the Boards and the Boards discussed these matters with its financial and legal advisors.

Tarsadia’s representatives generally stated that they wished to be supportive of the Paired Companies and complimented the Paired Entities’ performance and management. Tarsadia’s ideas included: the potential to execute a transaction in which the Extended Stay brand and management company would be acquired by the Paired Entities’ management, leaving a public REIT; significantly increasing the Paired Entities’ leverage to conduct large-scale share repurchases; and partnering with another company, such as Starwood, to add their hospitality assets into Hospitality to leverage our management/brand capabilities. Under Tarsadia’s management buyout idea, the Company’s management would be both third party manager of the hotels and the remaining REIT’s management team. Management did not pursue Tarsadia’s management buyout proposal, as it viewed the proposal as giving rise to significant conflicts of interest for the Paired Entities’ management, in addition to requiring substantial third-party capital to fund any such transaction. Management also viewed the proposal as raising issues with respect to feasibility in light of the Paired Entities’ prior exploration of business separation transactions with Party A and Party B. Moreover, the Boards viewed this proposal as not being in stockholders’ best interests, in view of the fact that public REIT stockholders would not benefit from additional economies of scale or future sales of franchises; and that a substantial expansion of the EBITDA multiple of the remaining public REIT would be necessary in order for such a transaction to maximize value to the holders of paired shares — in this regard, the Boards believed, after discussions with representatives of Goldman Sachs, the Paired Entities’ financial advisor, that support for this multiple expansion was not persuasive. The Boards also believed

 

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that significantly increasing the Paired Entities’ leverage as proposed by Tarsadia was not in the best interests of the Paired Entities’ stockholders.

On January 19, 2021, Tyler Henritze, a senior managing director at Blackstone, called Mr. Geoga to express Blackstone’s interest in a potential acquisition of the Paired Entities. Mr. Henritze stated that Blackstone had performed initial due diligence based on publicly-available information and that any offer price would be in the range of approximately “$17.00 plus” per paired share. Mr. Henritze also indicated to Mr. Geoga that Blackstone was considering working with Starwood but that no agreement or understanding between Blackstone and Starwood had been reached. Mr. Henritze noted that working with Starwood could result in a higher price for holders of paired shares. Mr. Geoga informed Mr. Henritze that he would confer with the Boards and management of the Paired Entities and the Paired Entities’ external advisors. On that date, the closing price of the paired shares was $15.47 per paired share. At that time, the Paired Entities owned approximately 563 hotels (which on average were 21.0 years old).

On January 20, 2021, Mr. Geoga advised the Boards regarding the outreach from Blackstone.

On January 22, 2021, Mr. Geoga called Mr. Henritze and indicated that the expression of interest in a potential acquisition of the Paired Entities would be considered by the Boards in due course.

On February 5, 2021, the Boards held a special meeting via videoconference. Also in attendance were David Clarkson, the Paired Entities’ Chief Financial Officer, and Christopher Dekle, the Paired Entities’ General Counsel, representatives of Fried Frank Harris Shriver & Jacobson LLP (whom we refer to as Fried Frank), the Paired Entities’ legal counsel, and representatives of Goldman Sachs, the Paired Entities’ financial advisor. Mr. Geoga provided an overview of the conversation with Blackstone on January 19, 2021. Representatives of Fried Frank provided an overview of the directors’ fiduciary duties in connection with the evaluation of a potential transaction and other relevant legal considerations. Representatives of Fried Frank also indicated that members of management should not, and the Boards instructed management not to, engage in any discussions with Blackstone regarding management’s role with the Paired Companies or compensation after completion of any transaction. Management agreed not to engage in such discussions.

At the February 5, 2021 meetings, representatives of Goldman Sachs reviewed and discussed with the Boards management’s preliminary projections for the Paired Entities for 2021 through 2025 reflecting management’s plan for the Paired Entities. Representatives of Goldman Sachs then reviewed and discussed with the Board certain preliminary financial analyses prepared by Goldman Sachs based on management’s projections, which were provided to Goldman Sachs for such purpose, reviewed the impact of potential revenue initiatives and potential asset sales by the Paired Entities, and reviewed general economic and industry developments and a range of strategic alternatives, including executing the Paired Entities’ business plan, executing the Paired Entities’ business plan with asset sales, pursuing alternatives for expanding the Paired Entities’ footprint, a split of the Paired Entities into independent management and property companies, and a sale of the Paired Entities as a whole.

As part of its review of management’s projections for the Paired Entities, the Boards discussed the assumptions underlying management’s projections. As part of this discussion, Mr. Haase indicated management’s view that the potential capital expenditure needs of the Paired Entities’ hotels could be materially greater than the capital expenditures allowances reflected in management’s projections over the duration of the five year projection period in light of the average age of the Paired Entities’ hotels of approximately 21 years, the average number of years between the last renovation and next planned renovation which will be approximately 10 years and the substantial wear and tear often associated with usage by extended stay guests. In addition, although the projected financial information assumed that property-level expenses per occupied room would increase approximately 3.0% annually, Mr. Haase noted to the Boards that expense increases could be materially greater (as they have been since 2017), and that each additional percentage point of annual expense increase over the projection period would result in an approximately $35 million reduction in annual adjusted EBITDA. The Boards discussed the foregoing risks to the management projections.

 

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The Boards also discussed illustrative asset sale scenarios assuming the sale of hotels at different multiples of adjusted EBITDA and the potential benefits to the Paired Entities and their stockholders of such sales. One scenario involved the sale of 156 hotels from 2021 through 2023 (consisting of the sale of six hotels then under contract and which were expected to be sold in 2021 for $102 million and reflected in management’s projections, and the potential sale of 150 hotels and were not reflected in the management projections) at average multiples of 2019 adjusted EBITDA of 14.0x, 16.0x and 18.0x, resulting in illustrative total sale proceeds to the Paired Entities of approximately $1.6 billion, $1.9 billion and $2.1 billion, respectively, from 2021 to 2023, before taking into account expenses and other costs, including taxes. The Boards also considered a scenario where asset sales were completed from 2021 to 2023 at average multiples of 18.0x 2019 adjusted EBITDA, resulting in illustrative total sale proceeds to the Paired Entities of approximately $1.1 billion, before taking into account expenses and other costs, including taxes. Although the asset sales represented a potential upside scenario for stockholders, Mr. Haase indicated that, in management’s view, they should be considered in conjunction with the risks to management’s projections that the Board had discussed. No conclusions were reached at this meeting with respect to potential next steps, and the Boards determined to discuss the topic at their next regularly-scheduled board meetings several days later.

On February 8 and 9, 2021, the Boards of the Paired Entities held regularly-scheduled meetings via videoconference. On February 9, 2021, the Boards engaged in a further discussion of Blackstone’s recent proposal. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. The Boards discussed potential next steps, including the advantages and disadvantages of permitting Blackstone and Starwood to work together to explore a potential transaction and potential related disclosure considerations. Following discussion, the Boards directed representatives of Goldman Sachs to communicate to Blackstone that the Paired Entities had no interest in a transaction at a price in the $17 per paired share range, but were prepared to share limited information with Blackstone under an appropriate confidentiality/standstill agreement, with a view to Blackstone making an improved proposal.

Later on February 9, 2021, representatives of Goldman Sachs conveyed the Boards’ view to a representative of Blackstone. On the same date, Fried Frank provided an initial draft of a confidentiality/standstill agreement to Simpson Thacher & Bartlett LLP (whom we refer to as Simpson Thacher), counsel to Blackstone. Representatives of Fried Frank and Simpson Thacher negotiated the terms of the confidentiality/standstill agreement, which was executed the following day and prohibited Blackstone from engaging in discussions or sharing information with any equity financing source, such as Starwood, without the consent of the Paired Entities.

On February 9, 2021, Blackstone submitted a due diligence list to the Paired Entities and, in response, management of the Paired Entities, with the assistance of Goldman Sachs, began to populate a virtual data room. On February 11, 2021, the Paired Entities granted Blackstone and its representatives access to the virtual data room.

On February 11, 2021, a representative of Starwood called a representative of Goldman Sachs to request that Starwood be given access to the Paired Entities’ non-public information. The representative of Goldman Sachs indicated that the Paired Entities were willing to share information with Starwood under an appropriate confidentiality/standstill agreement. On February 14, 2021, Fried Frank sent Starwood’s outside counsel, Kirkland & Ellis LLP, a form of confidentiality/standstill agreement. This agreement was substantially identical to the confidentiality/standstill agreement executed by Blackstone, and prohibited Starwood from engaging in discussions or sharing information with any equity financing source, such as Blackstone, without the consent of the Paired Entities. In addition, the draft agreement prohibited Starwood from making any public disclosure relating to a potential transaction without the consent of the Paired Entities. Neither Starwood nor its counsel indicated a willingness to enter into the confidentiality agreement at that time.

On February 12, 2021, Mr. Geoga spoke with representatives of Tarsadia. The Tarsadia representatives expressed the view that the Boards of the Paired Entities needed to communicate to the market a message of support for

 

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management and its strategy, and that the Paired Entities were not for sale. The Tarsadia representatives urged the Paired Entities to ramp up the pace of asset dispositions as well as franchising and suggested that the Boards should add new directors with lodging and asset management experience. Mr. Geoga subsequently conveyed Tarsadia’s views to the Boards.

On February 16, 17 and 18, 2021, members of management of the Paired Entities and representatives of Goldman Sachs participated in due diligence meetings with representatives of Blackstone. In addition, on February 17, 2021, members of management of the Paired Entities provided a management presentation to representatives of Blackstone. Following this presentation, at the direction of the Paired Entities, representatives of Goldman Sachs furnished to Blackstone the Paired Entities’ management’s financial forecasts reflecting its business plan for the Paired Entities. These forecasts are summarized below under “Forward-Looking Financial Information.”

Also on February 17, 2021, Mr. Dekle received an inquiry from legal counsel to Tarsadia requesting a copy of the Paired Entities’ form of director questionnaire and written representation and agreement that are required to be furnished in connection with stockholder nominations of directors. These items were provided to Tarsadia and its counsel by Fried Frank on February 18, 2021.

On February 18, 2021, Mr. Henritze spoke by telephone to Mr. Geoga and to representatives of Goldman Sachs, and conveyed that Blackstone had completed a substantial amount of its due diligence and was prepared to increase its price to $17.75 per paired share. Representatives of Goldman Sachs advised Mr. Henritze that, based on their prior discussion with the Boards, a price of $17.75 per paired share would likely not be of interest to the Boards.

Later that day, Mr. Henritze again reached out to a representative of Goldman Sachs to indicate that Blackstone remained interested in a possible acquisition of the Paired Entities at an increased price of $18.00 per paired share. Blackstone asked for permission to speak to three financial institutions in connection with financing the proposed transaction, and Blackstone indicated that upon reaching a “handshake agreement” on price, Blackstone would be able to move quickly to sign a definitive agreement. The Goldman Sachs representative stated that Goldman Sachs would report this discussion to the Boards and management of the Paired Entities. On that date, the closing price of the paired shares was $15.28 per paired share.

On February 19, 2021, the Boards of the Paired Entities held a special meeting via videoconference. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. Mr. Geoga provided an update regarding the recent outreach from Blackstone, and representatives of Goldman Sachs described Blackstone’s revised proposal of $18.00 per paired share and provided an update to Goldman Sachs’ preliminary financial analyses. Mr. Haase summarized his views concerning a potential transaction, stating that he believed a sale of the Paired Entities at the values that were likely achievable through further negotiations with Blackstone was a more favorable outcome for stockholders than continuing to pursue the Paired Entities’ standalone plan, taking into account risks associated with management’s business plan that had previously been discussed with the Boards and the benefits of potential asset sales. A discussion ensued, in the course of which individual directors expressed their views regarding a potential transaction. Following this discussion, the Boards directed representatives of Goldman Sachs to communicate to Blackstone that the Paired Entities had no interest in a transaction at a price at $18.00 per paired share, and that Blackstone would be permitted to discuss the potential acquisition with two debt financing sources in order to help facilitate a potential increase in Blackstone’s price.

On February 23, 2021, Tarsadia submitted to the Company a notice of its intent to nominate three candidates for election to the board of directors at the 2021 annual meeting of the Company. On February 24, 2021, Mr. Geoga notified the Boards of the Paired Entities of the receipt of this nomination notice and advised the directors that there would be a discussion of this notice at the next meetings of the Boards.

 

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On February 25, 2021, after market close, the Paired Entities released their earnings for the fourth quarter of 2020 and the full fiscal year. The Paired Entities held an earnings call on February 26, 2021. On that date, the closing price of the paired shares was $16.09 per paired share.

On March 2, 2021, Blackstone submitted a letter to the Paired Entities contemplating the acquisition of the Paired Entities at an increased price of $18.75 per paired share, which the letter indicated represented a 30% premium to the trailing 30-day VWAP of the paired shares on January 19, 2021, the date of Blackstone’s initial indication, and a 22% premium to the trailing 30-day VWAP of the paired shares on March 1, 2021. The letter assumed that the Paired Entities would declare no additional dividends on the paired shares (other than the $0.09 dividend per paired share previously declared by the Boards) and was premised on Blackstone having the right to work with a co-investor, which Goldman Sachs’ representatives understood to refer to Starwood. In addition, the letter stated that Blackstone was prepared to complete its confirmatory due diligence and concurrently negotiate a definitive merger agreement within ten days. On that date, the closing price of the paired shares was $16.41 per paired share.

On March 2, 2021, Goldman Sachs provided the Paired Entities a letter describing Goldman Sachs’ relationships with Blackstone and Starwood over the prior two year period. This letter was subsequently provided to the Boards.

Also, on March 2, 2021, Mr. Dekle sent a letter to a representative of Tarsadia, indicating, among other things, that the Company intended to interview the Tarsadia board nominees in due course and would be reaching out to the nominees in the next few days. In e-mail and telephone exchanges with representatives of Tarsadia, Mr. Geoga confirmed the Company’s intent to interview the nominees. While the Company’s executive search firm did subsequently schedule these interviews, the Company cancelled the interviews following the announcement of the merger as a result of the Boards’ determination to postpone the annual meeting in order to focus on the merger transaction.

On March 3, 2021, the Boards of the Paired Entities held special meetings via videoconference. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. Representatives of Goldman Sachs summarized Blackstone’s revised written proposal, discussed the recent movement in the trading price of the paired shares and recent changes to Wall Street analyst estimates for the Paired Entities, and provided an update to their preliminary financial analyses. Representatives of Fried Frank reviewed the directors’ fiduciary duties in evaluating Blackstone’s revised written proposal and discussed the key legal and contractual terms thereof, including Blackstone’s desire to work with Starwood. A discussion ensued and the meeting concluded without the Boards making any determination with respect to a response to the revised Blackstone proposal. The Boards agreed to schedule a follow up meeting as promptly as practicable.

On March 6, 2021, the Boards of the Paired Entities held special meetings via videoconference. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. Mr. Geoga stated that the purpose of the meeting was to determine a response to the revised Blackstone proposal and encouraged each of the directors to provide his or her views. Representatives of Goldman Sachs provided an update on discussions with Blackstone, discussed Goldman Sachs’ preliminary financial analyses and outlined considerations relating to a potential response to Blackstone. In addition, representatives of Goldman Sachs discussed the potential level of debt financing to be used to fund the proposed transaction. Mr. Haase then presented his views on Blackstone’s most recent proposal. While acknowledging the progress made during his 15-month tenure as President and Chief Executive Officer and the potential for further progress, Mr. Haase indicated that, based on his best judgment of the Paired Entities’ business plan on a risk-adjusted basis, he would recommend that the Paired Entities transact with Blackstone, subject to the negotiation of Blackstone’s best and final offer. Mr. Haase noted that management had spent substantial time in recent years evaluating various potential value creation ideas for the Paired Entities, including the ideas conveyed by Tarsadia, and that these alternatives had been, and likely would continue to be, less favorable than the Paired Entities’ execution of their business plan. Mr. Haase discussed that, while he had not changed his views regarding the Paired Entities’

 

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business plan and was optimistic regarding the potential for asset sales by the Paired Entities, the long-term capital needs of the business were a significant concern.

A majority of directors agreed with Mr. Haase’s views. A minority of directors were concerned that, given the recent rebound in stock prices in the hotel sector, potential for further recovery given the expected federal stimulus plan and increasing COVID-19 vaccinations, and the low interest rate environment, this was not the appropriate time to sell the Paired Entities, and that the premium offered by Blackstone was not compelling. After this discussion, it was the broad consensus of the Boards to make a counterproposal to Blackstone of $19.75 per paired share. In addition, the Boards directed representatives of Goldman Sachs to communicate the following points: the Paired Entities would agree to pay no dividends between signing and closing; a “ticking fee” of $0.001 per day should be payable if closing did not occur within four months of signing due to failure to complete the acquisition financing; the agreement should include a “go-shop” provision permitting the Paired Entities to solicit alternative proposals following signing of a definitive agreement and a two-tier termination fee, with a lower fee payable in the case of a termination to enter into an alternative transaction with a party making a proposal during the go-shop period; the right to specific performance of the buyer’s obligations under the agreement if debt financing is available; and a reverse termination fee of $350 million. The Boards instructed representatives of Goldman Sachs to communicate that the Boards would consider after the go-shop period whether to allow Blackstone to work with Starwood.

Later in the day on March 6, 2021, representatives of Goldman Sachs communicated this counterproposal orally to representatives of Blackstone and sent a written summary of the counterproposal to Blackstone.

On March 7, 2021, Blackstone communicated a revised proposal orally and in writing to representatives of Goldman Sachs. Blackstone’s revised proposal contemplated a purchase price of $19.25 per paired share, with a 30-day go-shop period (with a 1.5% of equity value go-shop termination fee and a 3% of equity value termination fee thereafter), a $300 million reverse termination (but no right to specific performance), and a ticking fee of $0.001 per day if closing were delayed beyond 135 days from signing. Blackstone indicated that its proposal was premised on Blackstone having the right to request that the Company pay a pre-closing dividend to purge its accumulated earnings and profits through the closing date of the transaction (which would offset the merger consideration on a dollar-for-dollar basis). Blackstone also indicated that its revised proposal was premised on Blackstone being able to bring Starwood in as its partner before signing of the definitive agreement. On March 5, 2021, the last trading day prior to Blackstone’s revised proposal, the paired shares closed at a price of $16.66 per paired share.

On March 7, 2021, the Boards of the Paired Entities held special meetings via videoconference. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. Representatives of Goldman Sachs summarized the latest proposal from Blackstone and representatives of Fried Frank discussed the tax implications for holders of paired shares of Blackstone’s proposal for a “purging” dividend. Fried Frank and Goldman Sachs agreed to provide additional materials to the Boards regarding the proposed dividend, which materials were subsequently made available to the Boards. A discussion ensued during which individual directors expressed views that were largely consistent with the views they had expressed at the March 6, 2021 meeting. However, several directors expressed concern that the premium to the last closing price represented by Blackstone’s revised proposal was at the low end of precedent REIT merger transactions and below the 25th percentile of premia paid in all industry transactions. Representatives of Goldman Sachs and the Boards further discussed the premium and representatives of Goldman Sachs expressed their view that the premia from precedent REIT merger transactions were likely more relevant to the Boards’ considerations than all-industries premia because, among other reasons, the Paired Entities, and particularly Hospitality, have substantial owned real estate exposure. Representatives of Goldman Sachs and the Boards also discussed that the premium represented by the proposed purchase compared favorably to the premium paid in other precedent REIT transactions when measured based on the 52-week high closing price and the 30-trading day volume-weighted average prices and that the proposed purchase price represented a significant premium to the paired shares’ trading price prior to the COVID-19 pandemic. Following this discussion, it was the broad consensus of the

 

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Boards that representatives of Goldman Sachs should communicate to Blackstone that the Paired Entities would move forward to negotiate a merger agreement on the basis of Blackstone’s revised proposal, subject to (1) Blackstone understanding that the Paired Entities reserved the right to revisit the acquisition price depending upon upward price movement of the paired shares, (2) the go-shop termination fee being reduced to 1.25% of equity value, (3) confirmation of the tax impact of the proposed “purging” dividend and (4) Blackstone’s ability to partner with Starwood being conditioned upon Starwood’s signing of an acceptable confidentiality/standstill agreement. The Boards directed Fried Frank to provide a draft merger agreement to Simpson Thacher.

On the same day, representatives of Goldman Sachs communicated the Boards’ position to representatives of Blackstone. Later in the day on March 7, 2021, Fried Frank provided a draft merger agreement to Simpson Thacher.

On March 9, 2021, Simpson Thacher provided comments on the draft merger agreement to Fried Frank, which were consistent with Blackstone’s proposal, adjusted to reflect the reduced go-shop termination fee of approximately 1.25% of equity value proposed by the Paired Entities.

On March 10, 2021, the Paired Entities finalized a confidentiality/standstill agreement with Starwood and negotiated an amendment to the Blackstone confidentiality/standstill agreement, pursuant to which the Paired Entities permitted Blackstone to partner with Starwood in connection with a potential transaction. On March 10, 2021, the Paired Entities granted Starwood and its representatives access to the virtual data room.

From March 10, 2021 until the execution of the merger agreement, Blackstone and Starwood continued their due diligence review of the Paired Entities and the parties continued to negotiate the terms of the merger agreement and other transaction documents. These negotiations covered various aspects of the transaction, including, among other things: the representations and warranties to be made by the parties; the restrictions on the conduct of the Paired Entities’ business until completion of the transaction; the conditions to the completion of the mergers; the Paired Entities’ right to participate in discussions or negotiations with third parties relating to unsolicited acquisition proposals; the Paired Entities’ right to terminate the merger agreement; the remedies available to each party under the merger agreement, including the triggers for payment of the termination fees; the covenants regarding antitrust matters; the Paired Entities’ equity awards, employee benefit plans, severance and other compensation matters; and Parent’s right to delay the closing of the transaction in connection with obtaining certain foreign antitrust clearances.

On March 12, 2021, Simpson Thacher sent drafts of equity commitment letters and limited guarantees from Blackstone and Starwood to Fried Frank.

On March 12, 2021, the closing price of the paired shares was $16.94 per paired share. A meeting of the Boards of the Paired Entities was held via videoconference after the close of trading. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. Representatives of Goldman Sachs provided an update on discussions with Blackstone and Starwood since the prior board meetings on March 7, 2021 and representatives of Fried Frank reviewed the status of the merger agreement. The directors discussed the fact that, as a result of the increase in the trading price of the paired shares, the premium to the last closing price represented by the proposed merger consideration of $19.25 per paired share was equal to approximately 13.6% and considered that premium primarily relative to the premia from precedent REIT merger transactions. Following discussion, it was the broad consensus of the Boards of the Paired Entities to communicate to Blackstone that, in light of the movement in the trading price of the paired shares, the Paired Entities were not prepared to move forward unless the merger consideration were increased to $19.50 per paired share. Representatives of Goldman Sachs conveyed this information to Blackstone that evening.

On March 13, 2021, representatives of Blackstone orally conveyed a revised proposal to representatives of Goldman Sachs. Blackstone and Starwood agreed to the Paired Entities’ request to increase the merger consideration to $19.50 per paired share in exchange for the elimination of the go-shop clause. Blackstone and

 

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Starwood would retain the two-tiered termination fee structure, but increase the termination fee payable by the Paired Entities from approximately 1.25% to 2% of equity value in connection with the Paired Entities’ entry into an unsolicited alternative acquisition proposal received during the first 45 days following the execution of the merger agreement. Representatives of Blackstone communicated to representatives of Goldman Sachs that they were not willing to further raise their offer price. During further discussions on the same day between representatives of Blackstone and representatives of Goldman Sachs, Blackstone agreed to reduce the initial termination fee payable by the Paired Entities from 2.0% to 1.75% of equity value and that the reverse termination fee would be payable by Parent in certain circumstances involving antitrust matters. Thereafter, the parties continued to negotiate and exchange drafts of the merger agreement and other transaction documents.

On the afternoon of March 14, 2021, a meeting of the Boards of the Paired Entities was held via videoconference. Messrs. Clarkson and Dekle were in attendance, together with representatives of Fried Frank and Goldman Sachs. At that meeting, the Boards discussed the terms of the proposed engagement letter with Goldman Sachs relating to the proposed mergers. A representative of Fried Frank noted the relationships with Blackstone and Starwood that Goldman Sachs had previously disclosed to the Paired Entities. After discussion, the Boards approved the proposed engagement letter with Goldman Sachs. Representatives of Fried Frank then reviewed the directors’ fiduciary duties in connection with their evaluation of the potential transaction and also summarized the material terms of the merger agreement. Representatives of Goldman Sachs then presented their financial analyses of the mergers to the Boards, following which Goldman Sachs rendered an oral opinion to the effect that the proposed merger consideration of $19.50 per paired share to be paid pursuant to the proposed mergers was fair to the holders of paired shares (other than Blackstone, Starwood and their affiliates) from a financial point of view.

Mr. Geoga expressed his support for the proposed mergers and invited the other directors to express their views. Mr. Haase reiterated his support for the transaction and his comments at prior board meetings and articulated his belief that the proposed merger consideration provided certain and compelling value to holders of paired shares relative to the value potentially achievable under the Paired Entities’ business plan on a risk-adjusted basis. The Boards discussed Blackstone and Starwood’s elimination of the go-shop clause. It was noted that the Paired Entities had explored potential alternatives to maximize value on multiple occasions and, over that time period, no party other than Blackstone and Starwood has indicated an interest in a potential acquisition of the Paired Entities. It was also noted that, notwithstanding the elimination of the go-shop clause, the merger agreement would continue to provide a two-tiered termination fee structure, with a lower termination fee payable in connection with the termination of the merger agreement to enter into a more favorable transaction with a bidder making an unsolicited alternative acquisition proposal during an initial period following the execution of the merger agreement. In addition, representatives of Goldman Sachs expressed the view that there were unlikely to be other acquirers of the Paired Entities. The Boards concluded that increase the merger consideration to $19.50 per paired share in exchange for the elimination of the go-shop clause was in the best interest of the stockholders of the Paired Entities.

At the meeting, all of the members of the Company board communicated their support for the transaction. Two independent members of the Hospitality board, Neil Brown and Simon Turner, stated that they would dissent from the vote to approve the merger agreement. For a discussion of the reasons for the recommendation of the Boards of the Paired Entities in favor of the merger and the reasons of those directors who dissented from the vote, see “—Reasons for the Merger,” “—Recommendation of the Company Board,” and “—Recommendation of the Hospitality Board” below. A representative of Fried Frank then summarized a proposal to provide a “gross up” to members of management for taxes associated with change of control payments potentially triggered by the transaction under Sections 280G and 4999 of the Code. The representative of Fried Frank explained that, in exchange for the 280G “gross-up”, the members of management had agreed that the closing of the mergers and any changes or modifications to their authority, duties and/or responsibilities which arise solely as a result of the Paired Entities ceasing to be publicly-held companies would not, in and of itself, constitute a “material diminution in their authority, duties or responsibilities” (and, therefore, will not constitute good reason entitling them to terminate their employment with the Paired Entities and receive severance payments) under the

 

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Company’s Executive Severance Plan. Mr. Haase confirmed that, aside from Fried Frank’s discussion with Simpson Thacher regarding the 280G “gross-up”, there had been no discussion between members of management and Blackstone or Starwood regarding their role with the Paired Companies or compensation after completion of the mergers.

Following these discussions, the Boards of the Paired Entities, by the unanimous vote of the Company directors and the affirmative vote of five of the seven directors of Hospitality (with Messrs. Brown and Turner dissenting), adopted resolutions declaring the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and in the best interests of the Paired Entities and the holders of paired shares, and determined to recommend the approval of the mergers and the other transactions contemplated by the merger agreement by stockholders. In addition, the Boards unanimously approved the “gross up” arrangements with management of the Paired Entities.

Following the meeting, the parties finalized and executed the merger agreement and other transaction documents during the evening of March 14, 2021. On March 15, 2021, the Paired Entities issued a press release announcing entry into the merger agreement.

Reasons for the Mergers

At the March 14, 2021 meeting of the Boards of the Paired Entities, the Boards adopted resolutions declaring the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and in the best interests of the Paired Entities and the holders of paired shares, and determined to recommend the approval of the mergers and the other transactions contemplated by the merger agreement to their respective stockholders.

In reaching their decisions, the Boards consulted with the Company’s senior management team, as well as the Paired Entities’ financial and legal advisors, and considered a number of factors, including the following factors which the Boards viewed as supporting their respective decisions to approve the merger agreement and the transactions contemplated by the merger agreement, including the mergers, and to recommend approval of the mergers and the other transactions contemplated by the merger agreement to their respective stockholders:

 

   

The merger consideration of $19.50 per paired share represents immediate and certain value and liquidity to the holders of paired shares upon the closing of the mergers. The Boards believed that, on a present value, risk-adjusted basis, the merger consideration of $19.50 per paired share is more favorable to the holders of paired shares than the values achievable under the Paired Entities’ business plan, taking into account the benefits and risks of that plan, including opportunities for asset sales and increased franchising of Extended Stay branded hotels.

 

   

In this regard, the Boards ascribed significant weight to the views of management expressed at multiple meetings of the Boards that the proposed merger consideration provided certain and compelling value to holders of paired shares relative to the value potentially achievable under the Paired Entities’ business plan on a risk-adjusted basis.

 

   

The Boards considered that there could be potential upside in the Paired Entities’ business plan depending upon the scale and realized prices from asset sales and the potential to increase the pace of franchising activity. However, asset sales reduce the Paired Entities’ asset base, revenue and EBITDA and, unless the Paired Entities are able to identify and execute a new growth strategy, could adversely affect the long-term value of the Paired Entities. In addition, the Paired Entities’ franchising business is small, and the Boards believed that franchising activity, even if substantially accelerated, would not materially impact the value of the Paired Entities.

 

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The Boards also considered downside risks to the business plan. In this regard, the Boards considered management’s view that the potential capital needs of the Paired Entities’ hotels could be materially greater than capital expenditures allowances reflected in management’s projections over the duration of the five year projection period in light of the average age of the Paired Entities’ hotels of approximately 21 years, the average number of years it will be between the last renovation and next planned renovation of approximately 10 years and the substantial wear and tear often associated with usage by extended stay guests. In addition, although management’s business plan assumed that property-level expenses per occupied room would increase approximately 3.0% annually, management expressed the view that expense increases could be materially greater as a result of higher than anticipated labor cost and other expense and inflationary pressures.

 

   

The Boards’ knowledge of the business, operations, financial condition, earnings and prospects of the Paired Entities, as well as their views regarding the current and prospective environment in which the Paired Entities operate, including economic and market conditions.

 

   

The current and historical trading prices of the paired shares, and the fact that the merger consideration of $19.50 per paired share represented: a premium of approximately 15% to the closing price for the paired shares on March 12, 2021, the last trading day before we entered into the merger agreement; premia of approximately 23%, 28%, 44% and 76% over the 30-trading day, 3-month, 6-month and 12- month volume-weighted average prices (VWAP) of the paired shares, respectively, in each case for the period ending March 12, 2021; a premium of approximately 15% to the 52-week high closing price for the paired shares as of March 12, 2021; and a premium of 51% to the paired shares’ pre COVID-19 pandemic trading price (calculated as the VWAP of the paired shares over the period from February 1, 2020 to February 21, 2020).

 

   

The merger consideration implies a transaction value of 11.0x 2019 EBITDA (pro forma for a November 2020 asset sale), 15.6x 2020 EBITDA and EBITDA multiples of 13.0x, 11.6x and 10.7x analyst consensus estimates for 2021, 2022 and 2023, respectively, as published by Institutional Brokers Estimate System (I/B/E/S), and the paired shares have traded meaningfully below these multiples consistently over the Paired Entities’ time as a public company, averaging a 9.5x NTM EBITDA multiple over the five years prior to February 21, 2020 and a 9.1x NTM EBITDA multiple for the one-year prior to February 21, 2020 (the five-year period and one-year period prior to the beginning of the COVID-19 global pandemic) as compared to average multiples of 11.3x and 11.1x, respectively, over the same time periods for the following publicly-traded service lodging REITs: Apple Hospitality REIT, Inc., Chatham Lodging Trust, CorePoint Lodging Inc. and Summit Hotel Properties, which the Boards considered to be most directly comparable to the business of the Paired Entities.

 

   

Since their initial public offering in 2013, the Paired Entities have explored potential alternatives to maximize value on multiple occasions and, over that time period, no party other than Blackstone and Starwood has indicated an interest in a potential acquisition of the Paired Entities.

 

   

The Paired Entities explored a potential sale of the Extended Stay brands and management company during 2018 and 2019, which resulted in the receipt of a credible proposal from a single party and, after conducting negotiations with that party, the Boards’ concluded that the value achievable for a sale of the brands and management company was not attractive and presented material risks to the future performance and valuation of the remaining publicly-traded REIT.

 

   

The merger consideration was the result of arm’s-length negotiations and resulted in the buyers increasing the merger consideration on five occasions after Blackstone’s indication of interest on January 19, 2021 of “$17 per paired share plus.” It was the broad consensus of the Boards that the merger consideration of $19.50 was the maximum price that Blackstone and Starwood were willing to pay, and that it was highly unlikely that any other bidder for the Paired Entities would emerge.

 

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The terms of the merger agreement, including:

 

   

the Paired Entities’ 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 Boards’ right, under the merger agreement, to withhold, withdraw, qualify or modify their recommendation that stockholders vote to approve the mergers 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 Paired Entities’ 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 if the Boards determine 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, that the proposal continues to constitute a superior proposal, upon payment of a termination fee;

 

   

the fact that in certain circumstances a lower termination fee of $61,250,000 (or approximately $0.34 per outstanding paired share), representing approximately 1.75% of the Paired Entities’ equity value and 1.05% of the Paired Entities’ enterprise value, will be payable by the Company, and that the lower termination fee of $61,250,000 and the termination fee of $105,000,000 (or approximately $0.59 per outstanding paired share), representing approximately 3% of the Paired Entities’ equity value and 1.8% of the Paired Entities’ enterprise value, were viewed by the Boards, after consultation with our legal and financial advisors, as reasonable under the circumstances and not likely to preclude any other party from making a competing acquisition proposal.

 

   

The high probability that the mergers would be completed based on, among other things, Blackstone’s and Starwood’s proven ability to complete large acquisition transactions, Blackstone’s and Starwood’s extensive experience in the real estate industry, the absence of a financing condition and the $300,000,000 reverse termination fee payable to the Paired Entities if the merger agreement is terminated in certain circumstances ($150,000,000 of which payment is guaranteed by the Blackstone Sponsor and $150,000,000 of which is guaranteed by the Starwood Sponsor).

 

   

The financial analysis of representatives of Goldman Sachs reviewed and discussed with the Boards, and Goldman Sachs’ oral opinion, subsequently confirmed in writing, that, as of March 14, 2021 and based upon and subject to the various limitations and assumptions set forth in the written opinion, the merger consideration to be received by holders of paired shares pursuant to the merger agreement was fair from a financial point of view to such holders (see “—Opinion of the Paired Entities Financial Advisor”).

 

   

The fact that the mergers would be subject to the approval of holders of paired shares, and such holders would be free to reject the mergers by voting against the mergers for any reason, including if a higher offer were to be made prior to the Company special meeting.

 

   

The availability in the mergers of statutory appraisal rights to the stockholders who timely and properly exercise such appraisal rights under the DGCL.

The Boards also considered the following potentially negative factors in their consideration of the merger agreement and the mergers:

 

   

Following the mergers, holders of paired shares will not participate in future earnings or growth of the Paired Entities and will not benefit from any appreciation in value of the Paired Entities. Although the Boards believed that, on a present value, risk-adjusted basis, the merger consideration of $19.50 per paired share is more favorable to the holders of paired shares than the values achievable under the Paired Entities’ business plan, taking into account the benefits and risks of that plan, the Boards recognized that, over time, the business plan could potentially deliver greater value, including incremental value arising from asset sales and accelerated franchising activity.

 

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The fact that while the confidentiality agreement between the Paired Entities and Blackstone expressly prohibited Blackstone from bidding jointly for the Paired Entities with any other investor without the consent of the Boards, the Boards ultimately agreed to waive this restriction in order to permit Blackstone to bid jointly for the Paired Entities with Starwood, but did so only after receiving Blackstone’s increased offer of $19.25 per paired share (which was the basis on which the Paired Entities agreed to move forward to finalize an agreement and which was conditioned upon Blackstone being permitted to work together with Starwood).

 

   

Certain terms of the merger agreement, including:

 

   

our inability to solicit competing acquisition proposals and the possibility that a termination fee could be payable by us under certain circumstances upon termination of the merger agreement could discourage other potential bidders from making a superior proposal to acquire us;

 

   

the fact that if Parent fails, or threatens to fail, to satisfy its obligations under the merger agreement, we are not entitled to specifically enforce the merger agreement, and that our exclusive remedy, if the merger agreement is terminated in certain circumstances due to the failure of Parent to consummate the closing following the satisfaction of all applicable closing conditions, or due to an order or law prohibiting closing under antitrust laws, would be the right to receive a reverse termination fee payable by Parent in the amount of $300,000,000 ($150,000,000 of which payment is guaranteed by the Blackstone Sponsor and $150,000,000 of which is guaranteed by the Starwood Sponsor); and

 

   

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 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 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, including potential loss of key personnel and potential impacts upon existing and prospective business relationships with tenants and other third parties, which could negatively impact the standalone value of the Paired Entities if the mergers do not close.

 

   

The fact that we are prohibited from paying additional dividends prior of closing of the mergers, other than the special dividend and any dividend necessary to maintain qualification as a REIT for federal income tax purposes or to avoid the payment of income or excise tax under the Code (which dividends would reduce the merger consideration dollar for dollar) and the $0.09 dividend per paired share paid on March 26, 2021 (without a reduction to the merger consideration).

 

   

The mergers and the special dividend would be taxable to holders of paired shares for U.S. federal income tax purposes, and the payment of the special dividend may increase the aggregate U.S. federal income tax liability of certain shareholders depending upon the Company’s earnings and profits as determined under U.S. federal income tax principles and the holder’s basis and holding period in the paired shares for U.S. federal income tax purposes.

 

   

The fact that some of the directors and executive officers of the Paired Entities have interests in the mergers that may be different from, or in addition to, the interests of the holders of paired shares generally (see “—Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers”).

 

   

The fact that while all of the directors of the Company supported the transaction, two of the directors of Hospitality (Neil Brown and Simon Turner), dissented from the vote of the Hospitality Board in favor of the mergers. Mr. Brown’s view was that the approximately 15% premium to the paired shares’ last

 

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closing price prior to approval of the merger agreement represented by the $19.50 transaction price was insufficient in that it was at the 25th percentile of premia in all-cash acquisition transactions involving U.S. publicly traded REITs announced from 2013 through 2020 and below the 25th percentile of premia paid in completed all-cash acquisition transactions involving U.S. public companies, regardless of industry, announced during the time period from 2015 through 2020 where the disclosed enterprise values for the transaction were between $1 billion and $10 billion. Mr. Brown also was of the view that this was not the appropriate time to sell the Paired Entities, in light of the recent rebound in stock prices in the hotel sector, potential for further recovery given the expected U.S. federal stimulus plan spending and increasing COVID-19 vaccinations, the low interest rate environment, and his perspective that the current management team had not yet had an opportunity to fully impact the results of the Paired Entities and could generate superior value by executing their business plan. Mr. Turner expressed similar concerns, and was of the view that a price below $20 per paired share was not compelling. Mr. Turner also expressed concern with Blackstone and Starwood insisting on an increase to the lower termination fee from approximately 1.25% of the Paired Entities’ equity value to 1.75% in connection with their agreeing to raise the merger consideration from $19.25 per paired share to $19.50 per paired share.

The foregoing discussion of the factors considered by the Boards is not intended to be exhaustive. In reaching their respective decisions, the Boards did not quantify or 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. Neither Board made any specific conclusion with respect to any of the factors or reasons considered. The above factors are not presented in any order of priority.

The explanation of the factors and reasoning set forth above contain forward-looking statements and should be read in conjunction with the section of this joint proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements.”

Recommendation of the Company Board

The Company board has unanimously approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and in the best interests of the Company and its stockholders. The Company board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, “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 merger and “FOR” the proposal to approve any adjournment of the Company special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Company special meeting to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement.

Recommendation of the Hospitality Board

The Hospitality board has approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement, including the mergers, to be advisable and in the best interests of Hospitality and its stockholders. The Hospitality board recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the mergers and the other transactions contemplated by the merger agreement, and “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 merger.

 

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Forward-Looking Financial Information

As a matter of general practice, due to the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections, we do not publicly disclose detailed projections as to our anticipated financial position or results of operations, other than providing, from time to time, estimated ranges for the then-current fiscal year of certain expected financial results and operational metrics in our regular earnings press releases and other investor materials.

However, in connection with the evaluation of a possible transaction, our management prepared in February 2021 and provided to the Boards projections for the Paired Entities on a consolidated basis for 2021 through 2025 reflecting management’s business plan (the “projected financial information”), which are summarized below. The projected financial information was also provided to Goldman Sachs, and at the direction and with the approval of the Boards, Goldman Sachs relied on the plan projected financial information in performing its financial analyses for purposes of rendering its fairness opinion to the Boards. In addition, the projected financial information was provided to Blackstone and Starwood in connection with their evaluations of the transaction.

The projected financial information reflected the following key management assumptions:

 

   

Revenue per available room (RevPAR) growth at a compounded annual growth rate (CAGR) of 6.6% from 2020 through 2025 (resulting in RevPAR being 9% above 2019 levels by 2023 and 16% above 2019 levels by 2025, notwithstanding that RevPAR in 2020 was down 16% from 2019 levels). RevPAR growth was assumed to be driven by a combination of organic growth, improvements in the performance of the Paired Entities’ distribution channels and sales function (“commercial initiatives”), and planned renovations at 86 top-tier hotels as part of the Paired Entities’ step-up Premium brand strategy; upon completion, and after a brief ramp up period, these planned renovations, together with the commercial initiatives, were assumed to drive incremental average daily rate (ADR) improvement of 15%;

 

   

Commercial initiatives were projected to drive an incremental approximate $35 million of Hotel Revenues and $31 million of Property EBITDA by 2025, and the Premium brand strategy (including associated renovations) was projected to drive an incremental approximate $45 million of Hotel Revenues and $35 million of Property EBITDA by 2025;

 

   

Franchise fee income growth of approximately 25% per year over 2019 to 2025, growing from approximately 0.5% of revenue in 2019 to approximately 1.4% of revenue in 2025, as a result of the assumed conversion annually of 10 existing third party hotels to be Extended Stay franchisees and a ramp up to 30 hotels newly built by third-party owners becoming franchisees per year by 2025;

 

   

Completion of the sale of six hotels under contract in 2021 with no remaining management and no or limited franchise role for the Paired Entities (the completion of the sale of two of the six contracted hotels occurred in March 2021); gain was assumed to be paid out as special dividends;

 

   

Allowances for capital expenditures were assumed to be approximately $1,050 million from 2021 through 2025, comprised of the following:

 

   

ongoing maintenance capital expenditures of approximately $90 million to $120 million per year based on prior period levels;

 

   

renovation capital expenditures beginning in 2022 at lower-tier and core hotels on a seven year renovation cycle per hotel of approximately (i) $2,500 per key per lower tier hotel and (ii) $7,500 per key per core hotel;

 

   

renovation capital expenditures in 2021 and 2022 of $245 million for planned renovations at 86 top tier hotels as part of the Paired Entities’ step up brand strategy;

 

   

ongoing information technology capital expenditures of $10 million to $14 million per year; and

 

   

development capital expenditures in 2021 of $21 million planned for the construction of owned new build hotels.

 

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The following table summarizes the projected financial information:

 

    Projected Financial Information
(in millions, except dividends per share)
 
    2021E     2022E     2023E     2024E     2025E  

Hotel Revenues

  $ 1,128     $ 1,215     $ 1,329     $ 1,371     $ 1,412  

Fee Income

    6       8       10       15       21  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    1,134       1,223       1,339       1,386       1,433  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property Expenses

    (611     (626     (657     (677     (698

Corporate Overhead Expenses

    (89     (91     (94     (97     (100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(1)

    434       506       588       612       636  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity Based Compensation

    (7     (7     (7     (7     (7

Cash Taxes @ 16.0%

    32       (55     (59     (62     (66

Capital Expenditure Allowances

    (211     (371     (164     (150     (154

Contracted Asset Sales

    102       0       0       0       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered Free Cash Flow(2)

  $ 350     $ 72     $ 359     $ 393     $ 408  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends Per Paired Share

  $ 0.87     $ 0.46     $ 0.61     $ 0.66     $ 0.68  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Debt ((i) debt less (ii) cash, including restricted cash) at Year End

  $ 2,232     $ 2,334     $ 2,177     $ 1,995     $ 1,806  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fully Diluted Shares Outstanding at Year End

    178.4       178.7       179.0       179.3       179.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Adjusted EBITDA is a non-GAAP financial measure calculated by subtracting from total revenue property expenses and corporate overhead expenses. Adjusted EBITDA does not reflect (i) charges related to equity-based compensation expense, (ii) interest expense, (iii) income tax expenses, (iv) depreciation and amortization expenses, (v) the effect of impairment losses recorded on property and equipment and intangible assets and (vi) net gain or loss on sale of assets.

 

(2)

Unlevered Free Cash Flow is a non-GAAP financial measure calculated by subtracting from Adjusted EBITDA, equity-based compensation expense, cash taxes (calculated by applying a 16% tax rate to unlevered taxable income (subject to certain adjustments in some periods)) and capital expenditure allowances and adding the net proceeds of contracted asset sales. Unlevered Free Cash Flow estimates were used by Goldman Sachs in connection with its financial analyses for purposes of rendering its fairness opinion to the Boards.

The projected financial information was not intended for public disclosure, and, accordingly, does not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or generally accepted accounting principles (GAAP). Neither our independent registered public accounting firm nor any other independent accountants have audited, compiled or performed any procedures with respect to the projected financial information or any assumptions underlying the projected financial information nor expressed an opinion or any form of assurance on the projected financial information or its achievability, and they assume no responsibility for, and disclaim any association with, such financial projections assumptions. The summary of the projected financial information is included in this joint proxy statement only because such information was made available to the Boards, Goldman Sachs, Blackstone and Starwood. The inclusion of the projected financial information in this joint proxy statement does not constitute an admission or representation by us that the information is material.

The projected financial information has been included only to reflect information made available to the Boards, Goldman Sachs, Blackstone and Starwood at the time of certain events and decisions and should not be relied upon as indicative of actual future results, and you are cautioned not to rely on the projected financial information or any assumptions underlying the projected financial information. Some or all of the assumptions

 

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that have been made in connection with the preparation of the projected financial information may have changed since the date such information was prepared. None of the Company, Hospitality, Blackstone, Starwood nor any of our or their respective affiliates, advisors or other representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the projected financial information. None of the Company, Hospitality, Blackstone, Starwood nor any of their respective affiliates has or intends to, and each of them disclaims any obligation to, update, revise or correct the projected financial information if any portion or all of such information has become or become inaccurate (even in the short term) since the time of its preparation. These considerations should be taken into account in reviewing the projected financial information, which was prepared as of an earlier date.

The projected financial information does not reflect changes in general business or economic conditions since the time it was prepared, changes in our businesses or prospects since the time it was prepared, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the projected financial information was prepared, and the projected financial information is not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth above and should not be regarded as a representation that the projected financial information can or will be achieved. The projected financial information also reflects assumptions as to certain business decisions that are subject to change. In addition, our future financial performance may be affected by our ability to successfully implement a number of initiatives to improve our operations and financial performance and our ability to achieve strategic goals, objectives and targets over the applicable periods.

Because the projected financial information reflects subjective judgments in many respects, it is susceptible to multiple interpretations and continued revision based on actual experience and business developments. The projected financial information covers multiple years, and such information by its nature becomes less predictive with each succeeding year. The projected financial information constitutes forward-looking information and is subject to a wide variety of significant risks and uncertainties that could cause the actual results to differ materially from the projected results. For additional information on factors that may cause our future financial results to materially vary from the projected results summarized below, see the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 27. Accordingly, there can be no assurance that the projected financial information will be realized or that actual results will not differ materially from the projected results, and the projected financial information cannot be considered a guarantee of future operating results and should not be relied upon as such. Neither the Paired Entities nor their affiliates or advisors or any other person has made any representation to any of our stockholders or any other person regarding our actual performance compared to the results included in the projected financial information. We have not made any representation to Blackstone, Starwood or their affiliates, in the merger agreement or otherwise, concerning the projected financial information.

The projected financial information should be evaluated in conjunction with the historical financial statements and other information contained in our public filings with the SEC. The projected financial information does not take into account any circumstances or events occurring after the date it was prepared, including the mergers. Further, the projected financial information does not take into account the effect of any failure of the mergers to be consummated and should not be viewed as accurate or continuing in that context.

We do not intend to update or otherwise revise the projected financial information to reflect circumstances existing after the date when it was prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projected financial information are no longer appropriate.

Opinion of the Paired Entities’ Financial Advisor

Opinion of Goldman Sachs

Goldman Sachs rendered its opinion to the Company board and the Hospitality board that, as of March 14, 2021 and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid

 

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to the holders (other than Excluded Holders) of paired shares pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated March 14, 2021, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Exhibit B and is incorporated into this joint proxy statement by reference in its entirety. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Company board and the Hospitality board in connection with their consideration of the transactions contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of paired shares should vote with respect to the mergers or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

   

the merger agreement;

 

   

annual reports to stockholders and Annual Reports on Form 10-K of the Paired Entities for the five years ended December 31, 2020;

 

   

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Paired Entities;

 

   

certain other communications from the Paired Entities to their respective stockholders;

 

   

certain publicly available research analyst reports for the Paired Entities;

 

   

certain internal financial analyses and forecasts for the Paired Entities prepared by their management, as approved for Goldman Sachs’ use by the Paired Entities, which are referred as the “projected financial information” described above under “Forward-Looking Financial Information” and which are referred to as the “Forecasts” below; and

 

   

an estimate of $0.00 for the Additional Consideration (as defined in the merger agreement) provided to Goldman Sachs by management of the Paired Entities, as approved for Goldman Sachs’ use by the Paired Entities, which is referred to as the “Additional Consideration Estimate.”

Goldman Sachs also held discussions with members of the senior management of the Paired Entities regarding their assessment of the past and current business operations, financial condition and future prospects of their respective companies; reviewed the reported price and trading activity for the paired shares; compared certain financial and stock market information for the Paired Entities with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the real estate investment trust (“REIT”) industry and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering its opinion, Goldman Sachs, with the Paired Entities’ consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with the Paired Entities’ consent that the Forecasts and the Additional Consideration Estimate were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Paired Entities. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Paired Entities or any of their respective subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the merger agreement (the “proposed transaction”) will be obtained without any adverse effect on the expected benefits of the proposed transaction in any way meaningful to its analysis. Goldman Sachs has also assumed that the proposed transaction will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

 

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Goldman Sachs’ opinion does not address the underlying business decision of the Paired Entities to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available to the Paired Entities; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, the Paired Entities or any other alternative transaction. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Excluded Holders) of paired shares, as of the date of the opinion, of the merger consideration to be paid to such holders pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the proposed transaction or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the proposed transaction, including any allocation of the merger consideration, including among the holders of paired shares, the fairness of the proposed transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Paired Entities; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Paired Entities, or class of such persons in connection with the proposed transaction, whether relative to the merger consideration to be paid to the holders (other than Excluded Holders) of paired shares pursuant to the merger agreement or otherwise. Goldman Sachs’ opinion does not express any opinion as to the potential effects of volatility in the credit, financial and stock markets on Parent, the Paired Entities or the proposed transaction, or as to the impact of proposed transaction on the solvency or viability of the Paired Entities or Parent or the ability of the Paired Entities or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Company board and the Hospitality board in connection with their consideration of the proposed transaction and such opinion does not constitute a recommendation as to how any holder of paired shares should vote with respect to the proposed transaction, or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

Summary of Material Financial Analyses

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Company board and the Hospitality board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 12, 2021, the last trading day before the public announcement of the mergers, and is not necessarily indicative of current market conditions.

Illustrative Premia and Multiples. Goldman Sachs calculated the implied premia represented by the merger consideration of $19.50 per paired share relative to:

 

   

$16.94, the closing price of the paired shares on March 12, 2021, the last completed trading day before Goldman Sachs rendered its opinion;

 

   

$19.00, the median broker price target for the paired shares as of March 12, 2021, based on analyst research (the “Median Broker Target Price”);

 

   

$16.97, the highest closing trading price of the paired shares over the 52-week period ended March 12, 2021 (the “52-Week High”);

 

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$6.00, the lowest closing trading price of the paired shares over the 52-week period ended March 12, 2021 (the “52-Week Low”);

 

   

$14.40, the volume weighted average price (“VWAP”) of the paired shares over the 30-trading day period ended January 19, 2021, the date of the first outreach by Blackstone (the “First Blackstone Outreach”);

 

   

$15.82, the VWAP of the paired shares over the 30-trading day period ended March 12, 2021;

 

   

$15.19, the VWAP of the paired shares over the three-month period ended March 12, 2021;

 

   

$13.57, the VWAP of the paired shares over the six-month period ended March 12, 2021; and

 

   

$11.08, the VWAP of the paired shares over the twelve-month period ended March 12, 2021.

The results of these calculations and comparisons are as follows:

 

    Implied Premium
Represented by the $19.50 in
cash per Paired Share
 

Reference Price Per Paired Share

 

March 12, 2021 Closing Price of $16.94

    15.1

Median Broker Target Price as of March 12, 2021 of $19.00

    2.6

52-Week High of $16.97

    14.9

52-Week Low of $6.00

    224.9

30-Trading Day VWAP to First Blackstone Outreach of $14.40

    35.5

30- Trading Day VWAP of $15.82

    23.3

3-Month VWAP of $15.19

    28.4

6-Month VWAP of $13.57

    43.7

12-Month VWAP of $11.08

    76.0

In addition, Goldman Sachs calculated an implied equity value of the Paired Entities by multiplying $19.50 by the total number of fully diluted paired shares outstanding as of March 14, 2021, as provided by management of the Paired Entities. Goldman Sachs then calculated an implied enterprise value of the Paired Entities by adding, to the implied equity value it calculated, the Paired Entities’ net debt as of December 31, 2020, as provided by the management of the Paired Entities.

Using the foregoing, Goldman Sachs calculated the following multiples:

 

   

The implied enterprise value of the Paired Entities as a multiple of the Paired Entities’ fiscal year 2019, pro forma for a November 2020 asset sale, and fiscal year 2020 earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $532 million and $374 million, respectively; and

 

   

The implied enterprise value of the Paired Entities as a multiple of the Paired Entities’ estimated EBITDA of $447 million, $504 million and $546 million for each of calendar years 2021, 2022 and 2023, respectively, as reflected by the Institutional Brokers’ Estimate Systems’ (“IBES”) consensus estimates.

The results of these calculations and comparisons are as follows:

 

Implied Enterprise Value as a Multiple of:           Multiples  

FY2019 EBITDA

   $ 532 million        11.0x  

FY2020 EBITDA

   $ 374 million        15.6x  

2021E EBITDA (IBES)

   $ 447 million        13.0x  

2022E EBITDA (IBES)

   $ 504 million        11.6x  

2023E EBITDA (IBES)

   $ 546 million        10.7x  

 

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Goldman Sachs also calculated the one year forward EBITDA multiples for the Paired Entities for the periods shown below (the “historical NTM EBITDA multiples”):

 

Period   NTM EBITDA
Average Multiples
 

5 years pre-COVID (February 21, 2015-February 21, 2020)

    9.5x  

3 years pre-COVID (February 21, 2017-February 21, 2020)

    9.4x  

1 year pre-COVID (February 21, 2019-February 21, 2020)

    9.1x  

Since COVID (Period starting February 24, 2020)

    9.9x  

March 12, 2021 (Management EBITDA projection Q2 2021 – Q1 2022)

    11.8x  

March 12, 2021 (weighted average of IBES EBITDA estimates for 2021 and 2022)

    11.6x  

Illustrative Present Value of Future Share Price Analysis.    Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per paired share, including the present value of accumulated dividends, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s financial multiples and the dividends per share forecasted to be paid through each year. For this analysis, Goldman Sachs first used the Forecasts to calculate the illustrative implied enterprise value of the Paired Entities as of year-end for each of the calendar years 2021 to 2024, by multiplying the one-year forward EBITDA as of such date (using the Forecasts) by an illustrative range of multiples of 9.0x to 11.0x. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data for the Paired Entities and one year forward EBITDA multiples for the Paired Entities, including the historical NTM EBITDA multiples. To derive year-end illustrative implied equity values for each of the calendar years 2021 to 2024, Goldman Sachs then subtracted the amount of the Paired Entities’ projected net debt as of December 31, 2021, 2022, 2023 and 2024, respectively, as provided in the Forecasts (subject to an adjustment for the Paired Entities’ restricted cash of $13.2 million as of December 31, 2020, as provided by the Paired Entities’ management and as approved for Goldman Sachs’ use by the Paired Entities), from the range of year-end illustrative implied enterprise values. To convert the year-end illustrative implied equity values into illustrative implied equity values per paired share, Goldman Sachs then divided the year-end illustrative implied equity values by the number of fully diluted paired shares as of December 31 of each such year (as provided by the Paired Entities’ management and as approved for Goldman Sachs’ use by the Paired Entities). Goldman Sachs then discounted the 2021, 2022, 2023 and 2024 year-end illustrative implied per paired share equity values back one, two, three and four years, respectively, to December 31, 2020, using an illustrative discount rate of 9.56%, reflecting an estimate of the Paired Entities’ cost of equity. Goldman Sachs derived such discount rate by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. Goldman Sachs then added to such discounted value the present value of the projected dividends per paired share (as provided by the Paired Entities’ management and approved for Goldman Sachs’ use by the Paired Entities) for the years 2021 (including declared dividends in 2021), 2022, 2023 and 2024 obtained by discounting such projected dividends (using a mid-year payment convention) back to December 31, 2020 using an illustrative discount rate of 9.56%, reflecting an estimate of the Paired Entities’ cost of equity, as discussed above, to obtain the implied present value of an illustrative future value per paired share, including the present value of accumulated dividends. This analysis resulted in a range of implied present values of $12.62 to $21.48 per paired share.

Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the Paired Entities. Using discount rates ranging from 7.00% to 8.00%, reflecting estimates of the Paired Entities’ weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2020 (i) estimates of unlevered free cash flow for the Paired Entities for the years 2021 through 2025 as reflected in the Forecasts and (ii) a range of illustrative terminal values for the Paired Entities, which were calculated by applying perpetuity growth rates ranging from 1.00% to 1.50% to a terminal year estimate of the free cash flow to be generated by the Paired Entities, as reflected in the Forecasts (which analysis implied exit terminal year EBITDA multiples ranging from 8.4x to 10.8x). Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model, which requires certain company-specific inputs,

 

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including the Paired Entities’ target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the Paired Entities, as well as certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for the Paired Entities by adding the ranges of present values it derived above. Goldman Sachs then subtracted net debt from the range of illustrative enterprise values it derived for the Paired Entities, as provided by the management of the Paired Entities, to derive a range of illustrative equity values for the Paired Entities. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the Paired Entities as of March 14, 2021, as provided by the management of the Paired Entities, to derive a range of illustrative present values per share ranging from $15.26 to $22.47.

Premia Analysis. Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for completed (with the exception of the Front Yard and Taubman Centers transactions described below) all-cash acquisition transactions announced during the time period from 2013 through 2020 involving a publicly traded company in the REIT industry based in the United States as the target (the “REIT premia analysis”). This REIT premia analysis included the announced acquisition of Front Yard Residential Corporation (“Front Yard”) by Amherst Residential LLC and the initial offer for the acquisition of Taubman Centers, Inc. (“Taubman Centers”) by Simon Property Group, Inc. Both of these transactions were announced prior to the COVID pandemic but not completed, and subsequently, after the onset of the pandemic, new transactions involving the same target entities were announced and completed. Goldman Sachs, utilizing its professional judgement and experience, determined that with respect to Front Yard and Taubman Centers it was appropriate to include in the REIT premia analysis both the initial announced but uncompleted transactions and the subsequent completed transactions to provide additional points of reference for the Hospitality board and the Company board. The REIT premia analysis also excluded the acquisition of Quality Care Properties by Welltower Inc. due to circumstances surrounding the trading of the target’s shares prior to announcement that caused Goldman Sachs, utilizing its professional judgment and experience, to determine that such transaction was not appropriate to include. In total, twenty-three transactions were included in the REIT premia analysis.

 

REIT Industry Announced 2013-2020    Premium to
Undisturbed
Price
    Premium to 52-
Week High
    Premium to 30-
Trading Day
VWAP
 

75th Percentile

     25.2     10.7     26.0

Mean

     24.5     1.5     26.1

Median

     19.4     0.0     22.4

25th Percentile

     13.9     (6.7 )%      16.0

Proposed Transaction

     15.1     14.9     23.3

For the entire period, using publicly available information, Goldman Sachs calculated the mean, median, 25th percentile and 75th percentile premiums of the price paid in the identified transactions relative to (i) the target’s last undisturbed closing stock price prior to announcement of the transaction, (ii) the highest trading price for the target’s shares over the 52-week period ending on the date of the target’s last undisturbed closing share price and (iii) the 30-trading day VWAP of the target’s shares prior to the date of the target’s last undisturbed closing share price. The results of this analysis are presented in the table above as compared to the applicable metric for the paired shares in the proposed transaction. Using this analysis, Goldman Sachs applied a reference range of illustrative premiums of 13.9% to 25.2% to the undisturbed closing price per paired share of $16.94 as of March 12, 2021 and calculated a range of implied equity values per paired share of $19.29 to $21.21.

Goldman Sachs also reviewed and analyzed, using publicly available information, the acquisition premia for completed all-cash acquisition transactions involving a U.S. public company as the target, regardless of industry, announced during the time period from 2015 through 2020, where the disclosed enterprise values for the transaction were between $1 billion and $10 billion (the “all industries premia analysis”). The all industries

 

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premia analysis excluded the acquisition of Quality Care Properties by Welltower Inc. (for the reasons discussed above), the acquisition of Tobira Therapeutics, Inc. by Allergan plc, a research and development-focused acquisition in the pharmaceuticals industry with a significant amount of contingent consideration, due to the nature of the transaction, which caused Goldman Sachs, utilizing its professional judgment and experience, to determine that such transaction was not appropriate to include, and the acquisition of La Quinta Holdings, Inc. by Wyndham Worldwide Corporation due the nature of the transaction making an accurate and representative premium difficult to obtain, which caused Goldman Sachs, utilizing its professional judgment and experience, to determine that such transaction was not appropriate to include.

 

All Industries, $1-10bn Completed

Transactions Announced 2015-2020

  Premium to
Undisturbed
Price
    Premium to 52-
Week High
    Premium to 30-
Day Average
   

75th Percentile

    50.4     20.9       49.1%  

Mean

    36.3     7.7       40.8%  

Median

    28.1     6.8       32.6%  

25th Percentile

    16.6     (5.5 )%        21.4%  

Proposed Transaction

    15.1     14.9       23.3%   (Premium to 30-Trading Day VWAP)

For the entire period, using publicly available information, Goldman Sachs calculated the mean, median, 25th percentile and 75th percentile premiums of the price paid in the identified transactions relative to (i) the target’s last undisturbed closing stock price prior to announcement of the transaction, (ii) the highest trading price for the target’s shares over the 52-week period ending on the date of the target’s last undisturbed closing share price and (iii) the 30-day average price of the target’s shares prior to the date of the target’s last undisturbed closing share price. The results of this analysis are presented in the table above. Using this analysis, Goldman Sachs applied a reference range of illustrative premiums of 16.6% to 50.4% to the undisturbed closing price per paired share of $16.94 as of March 12, 2021 and calculated a range of implied equity values per paired share of $19.76 to $25.47.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Paired Entities or Parent or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to Company board and the Hospitality board as to the fairness from a financial point of view to the holders (other than Excluded Holders) of paired shares, as of the date of the opinion, of the merger consideration to be paid to such holders pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Paired Entities, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration was determined through arm’s-length negotiations between the Paired Entities and Parent and was approved by the Company board and the Hospitality board. Goldman Sachs provided advice to the Paired Entities during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Paired Entities, the Company board or the Hospitality board or that any specific amount of consideration constituted the only appropriate consideration for the mergers.

 

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As described above, Goldman Sachs’ opinion to the Company board and the Hospitality board was one of many factors taken into consideration by the Company board and the Hospitality board in making their determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Exhibit B.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Paired Entities, Parent, any of their respective affiliates and third parties, including The Blackstone Group Inc. and Starwood Capital Group, each of which are affiliates of Parent, and their respective affiliates and portfolio companies, or any currency or commodity that may be involved in the transactions contemplated by the merger agreement. Goldman Sachs acted as financial advisor to the Paired Entities in connection with, and participated in certain of the negotiations leading to, the transactions contemplated by the merger agreement. During the two year period ended March 14, 2021, the Investment Banking Division of Goldman Sachs has not been engaged by the Paired Entities or their affiliates, except as described below, to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs also has provided certain financial advisory and/or underwriting services to The Blackstone Group Inc. and its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as left lead bookrunner with respect to a term loan repricing and add on (aggregate principal amount €1,220,000,000) by BME Group Holding BV, a portfolio company of funds associated with Blackstone, in March 2021; as financial advisor to Change Healthcare Inc., a portfolio company of funds associated with Blackstone, with respect to its pending sale to UnitedHealth Group announced in January 2021; as financial advisor to a consortium of Blackstone Infrastructure Partners, an affiliate of Blackstone, and B&J Holdings Limited with respect to the consortium’s recommended offer to acquire Applegreen plc announced in December 2020; as financial advisor to BioMed Realty Trust Inc., a portfolio company of funds associated with Blackstone, with respect to its recapitalization into a new fund affiliated with Blackstone in November 2020; as financial advisor to Rothesay Life plc, a portfolio company of funds associated with Blackstone, with respect to the sale of Blackstone’s equity interest in October 2020; as financial advisor to Blackstone Group LP, an affiliate of Blackstone, with respect to its investment in Cryoport, Inc. in October 2020; as a joint bookrunner with respect to a follow-on public offering of the equity of TradeWeb LLC, a portfolio company of funds associated with Blackstone in April 2020; as a bookrunner with respect to the term loan B facility (aggregate principal amount $1,800,000,000) and the 4.75% secured notes due 2027 (aggregate principal amount $375,000,000) issued by the Michaels Companies, Inc., a portfolio company of funds associated with Blackstone, in September 2020; as lead arranger with respect to the floating rate securitization (aggregate principal amount $630,000,000) entered into by Blackstone Real Estate Advisors, an affiliate of Blackstone, in August 2020; as left lead bookrunner with respect to a public offering of 4.25% Notes due 2026 (aggregate principal amount $750,000,000) by Blue Yonder Group, Inc., a portfolio company of funds associated with Blackstone, in July 2020; and as lead arranger for London Stock Exchange Group plc, a portfolio company of funds associated with Blackstone, with respect to its bridge financing completed in November 2019. During the two year period ended March 14, 2021, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to The Blackstone Group Inc. and/or its affiliates and portfolio companies of approximately $202.5 million as determined by Goldman Sachs based on its books and records. Goldman Sachs also has provided certain financial advisory and/or underwriting services to Starwood Capital Group and its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as financial advisor to SOF-11 Klimt CAI S.à r.l., Luxembourg, a portfolio company of funds associated with Starwood, with respect to its take private of CA Immobilien Anlagen AG announced in January 2021; as a bookrunner with respect to the term loan B facility (aggregate principal amount $250,000,000) entered into by Starwood Property Mortgage LLC, an

 

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affiliate of Starwood, in September 2020; as a bookrunner with respect to the 5.50% unsecured notes due 2023 (aggregate principal amount $300,000,000) issued by Starwood Property Trust, Inc., an affiliate of Starwood, in October 2020; and as a bookrunner with respect to the term loan B facility (aggregate principal amount $400,000,000) entered into by Starwood Property Trust, Inc., an affiliate of Starwood, in July 2019. During the two year period ended March 14, 2021, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Starwood Capital Group and/or its affiliates and portfolio companies of approximately $3.75 million as determined by Goldman Sachs based on its books and records. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the Paired Entities, Parent, The Blackstone Group Inc., Starwood Capital Group and their respective affiliates and, as applicable, portfolio companies for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may have co-invested with The Blackstone Group Inc. and/or Starwood Capital Group and their respective affiliates from time to time and may have invested in limited partnership units of affiliates of The Blackstone Group Inc. and/or Starwood Capital Group from time to time and may do so in the future.

The Company board and the Hospitality board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated March 14, 2021, the Paired Entities engaged Goldman Sachs to act as its financial advisor in connection with the mergers. The engagement letter between the Paired Entities and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $30,000,000, $3,000,000 of which became payable at announcement of the mergers, and the remainder of which is contingent upon consummation of the mergers. In addition, the Paired Entities have agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Financing

In connection with the closing, Parent will cause an aggregate of approximately $3.5 billion to be paid to the holders of Company common stock, Hospitality class B common stock and stock units. In addition, Parent has informed us that Parent expects to cause all of our outstanding unsecured senior notes and term loans and all of outstanding indebtedness under our revolving credit facilities to be prepaid in full in connection with the closing. As of December 31, 2020, we had approximately $2.7 billion in aggregate principal amount of consolidated indebtedness under our unsecured senior notes, term loans and revolving credit facilities.

Parent has informed us that it has received a debt commitment letter from JPMorgan Chase Bank, National Association, Citigroup Global Markets Inc. and Deutsche Bank AG, New York Branch providing for debt financing in connection with the mergers in an aggregate amount not to exceed $4.5 billion and that it may seek to obtain additional debt financing in connection with the mergers. In addition, it is expected that the Blackstone Sponsor and the Starwood Sponsor and/or their respective affiliates will contribute equity to Parent or its permitted assigns for the purpose of funding the acquisition costs (including the merger consideration) that are not covered by such debt financing. In connection with such equity contribution, the Blackstone Sponsor has delivered a commitment letter to Parent under which, subject to the terms and conditions thereof, the Blackstone Sponsor committed to cause Parent or its permitted assigns to be capitalized with cash for the purpose of funding 50% of the merger consideration pursuant to the merger agreement plus related costs and expenses, less 50% of the net proceeds of the debt financing (subject to applicable reserve requirements). Similarly, the Starwood Sponsor and the Starwood Rollover Investor have delivered a separate commitment letter to Parent under which, subject to the terms and conditions thereof (1) the Starwood Rollover Investor agreed to contribute all of its rollover shares to Parent or its permitted assigns immediately prior to the effective time and (2) the Starwood Sponsor committed to cause Parent or its permitted assigns to be capitalized with cash for the purpose of funding 50% of the merger consideration pursuant to the merger agreement plus related costs and expenses, less 50% of the net proceeds of the debt financing (subject to applicable reserve requirements), and less an amount equal to

 

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the number of rollover shares contributed by the Starwood Rollover Investor multiplied by the merger consideration.

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, carrying costs with respect to the properties, working capital requirements of the properties, 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 each debt financing would be secured by, among other things, a first priority mortgage lien on certain properties which are wholly owned by us, escrows, reserves, a cash management account, or a first priority pledge of and security interest in the direct or indirect ownership interests in the owners of the proper-ties and the operating lessee, in each case, together with such other pledges and security required by the lender to secure and perfect their interest in the applicable collateral and that such debt financings 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. For more information, see “The Merger Agreement—Financing Cooperation” and “The Merger Agreement—Conditions to the Mergers.”

Interests of the Company’s and Hospitality’s Directors and Executive Officers in the Mergers

Company stockholders and Hospitality stockholders should be aware that the directors and executive officers of the Company and Hospitality have interests in the mergers that may be different from, or in addition to, the interests of the holders of the paired shares generally, including the treatment of their equity awards in connection with the transaction, certain potential severance payments, and the right to continued indemnification and insurance coverage. This disclosure assumes that the mergers will constitute a change in control, change of control or term of similar meaning under all of our compensation plans, programs, and agreements. For purposes of this disclosure, our “executive officers” are: (1) Bruce N. Haase, President and Chief Executive Officer; (2) David Clarkson, Chief Financial Officer; (3) Kevin A. Henry, Executive Vice President and Chief Human Resource Officer; (4) Christopher N. Dekle, General Counsel and Corporate Secretary; (5) Howard J. Weissman, Corporate Controller and Chief Accounting Officer; (6) Randolph H. Fox, Executive Vice President, Property Operations; (7) Kelly Poling, Executive Vice President, Chief Commercial Officer; (8) Michael L. Kuenne, Senior Vice President, Chief Customer Experience Officer; (9) Nancy K. Templeton, Senior Vice President, Chief Information Officer; and (10) Judi Bikulege, Chief Investment Officer.

Arrangements with Parent

As of the date of this joint proxy statement, none of our executive officers has entered into any agreement with Parent or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, Parent or any of its affiliates.

Treatment of the Company and Hospitality Equity Awards

The Company and Hospitality have from time to time granted stock units under the Amended and Restated Extended Stay America, Inc. Long-Term Incentive Plan, adopted as of April 10, 2015, and the Amended and Restated ESH Hospitality, Inc. Long-Term Incentive Plan, adopted as of April 10, 2015, respectively (collectively referred to in this joint proxy statement as the “equity incentive plans”).

The merger agreement provides for the following treatment with respect to stock unit awards held by the Company’s and Hospitality’s directors, executive officers, and all other participants in the equity incentive plans as of immediately prior to the effective time. Each then-outstanding stock unit (whether vested or unvested), except for the then-unvested stock units held by Mr. Haase in respect of his base compensation stock unit awards (which will be canceled for no consideration therefor, in accordance with their terms), will automatically and

 

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without any action on the part of the holder thereof, be canceled and converted into, and the holder thereof will be entitled to receive, without interest, a lump sum cash payment equal to the sum of (1) the product obtained by multiplying (i) the total number of paired shares issuable in respect of such stock unit immediately prior to the effective time (assuming that in respect of each stock unit subject to performance-vesting conditions, performance was achieved at the greater of (x) the actual level of achievement as of the closing date for each then-in-process performance period measured against the applicable performance goal, pro-rated through the closing date and (y) the “target” level of achievement) by (ii) the merger consideration and (2) the amount of all dividend equivalents payable pursuant to the applicable award agreement in respect of each paired share issuable in respect of such stock unit, which have accrued and are unpaid as of immediately prior to the effective time (including the special dividend ) that would otherwise become payable at the time of the stock unit’s settlement, subject to any applicable tax withholding.

Summary of Outstanding Shares of Common Stock and Equity Awards Held by the Company’s and Hospitality’s Directors and Executive Officers

The following table sets forth the estimated cash consideration that each of the Company’s and Hospitality’s directors and executive officers would be entitled to receive in respect of any outstanding paired shares and any outstanding stock units held by the executive officer or director as of the date of this joint proxy statement. The values shown were calculated based on the merger consideration per paired share of $19.50 (without reduction for the special dividend), and assuming (i) for the stock unit awards subject to performance-vesting conditions, performance is achieved at (x) 150% of target for the performance-based stock unit awards with a performance period that commences in 2019 and 2020 and (y) 200% of target for the performance-based stock unit awards with a performance period that commences in 2021, (ii) all accrued and unpaid dividend equivalents will be paid, (iii) no additional equity-based awards will be granted to any executive officers between the date of the merger agreement and the effective time and (iv) no stock unit awards are forfeited prior to the effective time, other than the 149,998 stock units held by Mr. Haase in respect of his base compensation stock unit awards, which represents the number of then-unvested base compensation award stock units that would be forfeited by Mr. Haase as of the effective time in accordance with their terms, assuming that the effective time occurs on July 1, 2021. Such stock units that will be forfeited by Mr. Haase are excluded from this table. The amounts shown in the table below do not include any payments in respect of the 280G “tax gross-up” provision described below.

 

Name and Position

   Number of
Paired
Shares of
Common
Stock*
     Number of
Paired
Shares
Underlying
Unvested
Stock Units
Subject to
Time-
Vesting
Conditions**
     Number of
Paired Shares
Underlying
Unvested
Stock Units
Subject to
Performance-
Vesting
Conditions**
     Accrued
and Unpaid
Dividend
Equivalent
Amounts
for Stock
Unit
Awards
($)***
     Total
Consideration for
Paired Shares and
Equity Awards ($)
 
Executive Officers  

 

 

Bruce N. Haase

President and Chief Executive Officer

     249,064        116,667        250,000      $ 258,986      $ 12,265,741  

Christopher N. Dekle

General Counsel and Corporate Secretary

     28,683        30,315        70,516      $ 77,897      $ 2,603,411  

David Clarkson

Chief Financial Officer

     27,651        20,921        34,091      $ 30,404      $ 1,642,323  

Howard J. Weissman

Corporate Controller and Chief Accounting Officer

     32,320        10,805        14,047      $ 17,650      $ 1,132,495  

 

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Name and Position

   Number of
Paired
Shares of
Common
Stock*
     Number of
Paired
Shares
Underlying
Unvested
Stock Units
Subject to
Time-
Vesting
Conditions**
     Number of
Paired Shares
Underlying
Unvested
Stock Units
Subject to
Performance-
Vesting
Conditions**
     Accrued
and Unpaid
Dividend
Equivalent
Amounts
for Stock
Unit
Awards
($)***
     Total
Consideration for
Paired Shares and
Equity Awards ($)
 
Executive Officers  

 

 

Judi Bikulege

Chief Investment Officer

     13,184        22,111        49,535      $ 46,460      $ 1,700,645  

Kelly Poling

Executive Vice President, Chief Commercial Officer

     3,981        28,624        61,761      $ 49,827      $ 1,889,954  

Kevin A. Henry

Executive Vice President and Chief Human Resources Officers

     103,382        34,288        82,951      $ 90,909      $ 4,393,018  

Michael L. Kuenne

Senior Vice President, Chief Customer Experience Officer

     11,541        6,891        15,979      $ 16,203      $ 687,217  

Nancy K. Templeton

Senior Vice President, Chief Information Officer

     4,606        6,856        15,819      $ 15,888      $ 547,858  

Randolph H. Fox

Executive Vice President, Property Operations

     2,256        18,614        40,064      $ 32,262      $ 1,220,465  
Directors

 

 

 

Neil T. Brown

     48,476        12,406        —        $ 3,348      $ 1,190,551  

Kapila K. Anand

     42,501        18,610        —        $ 5,022      $ 1,196,693  

Jodie W. McLean

     35,743        12,406        —        $ 3,348      $ 942,258  

Douglas G. Geoga

     550,376        18,610        —        $ 5,022      $ 11,100,255  

Ellen Keszler

     19,061        12,406        —        $ 3,348      $ 616,959  

Lisa Palmer

     45,897        12,406        —        $ 3,348      $ 1,140,261  

Richard F. Wallman

     249,889        12,406        —        $ 3,348      $ 5,118,105  

Simon M. Turner

     1,564        13,662        —        $ 3,926      $ 300,837  

Steven E. Kent

     18,334        12,406        —        $ 3,348      $ 602,782  

Thomas F. O’Toole

     37,649        12,406        —        $ 3,348      $ 979,425  

 

*

For Bruce N. Haase, this amount includes 140,998 paired shares underlying vested stock units in respect of his base compensation stock unit awards that will be vested as of July 1, 2021 (on which date the effective time is assumed to occur, for purposes of this table), which will settle in connection with the closing of the mergers.

**

The 2021 annual equity grants that will be made to directors in 2021 are included in the “Number of Paired Shares Underlying Unvested Stock Units Subject to Time-Vesting Conditions” column. For purposes of this column, the number of stock units granted in respect of the 2021 annual equity grants is based on the

 

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  quotient of (x) $100,000 for each director (except for Mr. Geoga and Ms. Anand whose stock units are each valued at $150,000) divided by (y) the per-paired share merger consideration of $19.50.
***

Accrued and unpaid dividend equivalents set forth in this table (i) include the amounts payable in respect of paired shares underlying vested stock units for Mr. Haase’s base compensation stock unit awards and all unvested stock units but (ii) do not include the special dividend.

Executive Severance Plan; Haase Offer Letter of Continued Employment

The Company has entered into an offer letter of continued employment with Mr. Haase dated February 8, 2021 (the “Offer Letter”) and maintains an Executive Severance Plan, adopted as of June 19, 2014, that covers each of its other executive officers, each of which provides for severance following certain termination events, as described below.

The Executive Severance Plan provides that, in the event that an executive officer’s employment is terminated by the Company or one of its subsidiaries without “cause” (other than due to the executive officer’s death or disability) or by the executive officer for “good reason” at any time (each, a “Qualifying Termination”), the executive officer shall be entitled to the following payments and benefits, subject to the execution and delivery of a release of claims and the executive officer’s compliance with restrictive covenants: (i) a cash payment equal to (x) for executive officers who hold the title of executive vice president and above, the sum of 1.0x annual base salary in effect immediately prior to the date of termination and 1.0x target annual bonus for the year in which termination occurs (except for Mr. Haase, whose cash severance amount is discussed below), (y) for executive officers who hold the title of senior vice president, 1.0x annual base salary in effect immediately prior to the date of termination or (z) for executive officers who hold the title of vice president, 0.5x annual base salary in effect immediately prior to the date of termination, in each case of (x), (y), and (z), payable in a single lump sum within 60 days following the date of termination; (ii) continued eligibility to participate in group health plans pursuant to COBRA, provided, that, for twelve months (or 6 months in the case of executive officers who hold the title of vice president) following the date of termination, the executive officer is responsible for the payment of the portion of the costs associated with such health coverage continuation equal to the amount paid by an active employee for similar coverage and the employer pays the balance of the cost for such coverage; and (iii) payment for executive outplacement services provided by a firm to be determined by the employer in its sole discretion for a period of 6 months following the date of termination. Each executive officer is also bound by the following restrictive covenants: (i) a non-competition covenant, a non-solicitation of customers covenant, and non-solicitation and no-hire of employees covenants that apply during the executive officer’s employment and for one year following the executive officer’s Qualifying Termination, as applicable; (ii) a perpetual confidentiality covenant; and (iii) a perpetual non-disparagement covenant.

Pursuant to the Offer Letter, Mr. Haase is a participant in the Executive Severance Plan and the cash severance amount that he is entitled to receive thereunder will be, subject to the execution and delivery of a release of claims and compliance with restrictive covenants, (i) in the event of a Qualifying Termination on or before December 31, 2022, $3,000,000, and (ii) in the event of a Qualifying Termination after December 31, 2022, either (x) 150% of his base compensation, as agreed to between Mr. Haase and the Boards or (y) in the absence of an agreement with the Boards, no less than $3,000,000.

For purposes of the Executive Severance Plan, “cause” means with respect to the termination of an executive officer by the Company or one of its subsidiaries, such executive officer’s (i) refusal or neglect to perform substantially his or her employment-related duties or services, (ii) personal dishonesty, incompetence, willful misconduct, or breach of fiduciary duty, (iii) indictment for, conviction of, or entering a plea of guilty or nolo contendere to, a crime constituting a felony or the willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment or services to the Company or its subsidiaries which does not adversely affect the Company or its subsidiaries or its reputation or the ability of the executive officer to perform his or her employment-related duties or services or to represent the Company or any applicable subsidiary), (iv) failure to reasonably cooperate, following a request to do so by the Company or one

 

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of its subsidiaries, in any internal or governmental investigation of the Company or any of its subsidiaries, or (v) material breach of any written covenant or agreement with the Company or any of its subsidiaries not to disclose any information pertaining to the Company or such subsidiary or not to compete or interfere with Company or such subsidiary.

For purposes of the Executive Severance Plan, “good reason” means any of the following, without the executive officer’s written consent: (i) a material diminution in an executive officer’s base salary (in the case of Mr. Haase, his Offer Letter amends this clause as described in more detail below); (ii) a material diminution in an executive officer’s authority, duties, or responsibilities; (iii) a material change in the geographic location at which the executive officer must perform the services; or (iv) any other action or inaction that constitutes a material breach by the service recipient of the agreement under which the executive officer provides services; provided, however, that a termination by the executive officer for any of the reasons listed in (i) through (iv) above shall not constitute termination for good reason unless the executive officer shall first have delivered to his or her employer a written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for good reason (which notice must be given no later than 60 days after the initial occurrence of such event), and the employer fails to cure such event within 30 days after receipt of such written notice. The executive officer’s employment must be terminated for good reason within 120 days after the occurrence of an event of good reason.

Mr. Haase’s Offer Letter amends the definition of good reason under the Executive Severance Plan as it applies to Mr. Haase to provide that for the period commencing after December 31, 2022, a “material diminution in participant’s base salary” is replaced with a “material diminution in the total value of participant’s annual base compensation,” which for this purpose is valued at $2,021,939.12, unless the Company, Hospitality, and Mr. Haase mutually agree in writing otherwise.

Notwithstanding the foregoing, in exchange for the “280G tax gross-up” payment described below, each executive officer has agreed that the consummation of the transactions contemplated by the merger agreement, and any changes or modifications to his or her authority, duties and/or responsibilities which arise solely as a result of the Company or Hospitality ceasing to be a publicly-held company or becoming a subsidiary of Parent in connection with the consummation of the transactions contemplated by the merger agreement, will not, in and of itself, constitute a “material diminution in his or her authority, duties or responsibilities” (and, therefore, will not constitute good reason) under the Executive Severance Plan.

The following table sets forth an estimate of the potential cash severance payments (for the avoidance of doubt, not including any employer-paid portion of health coverage continuation costs or the cost of executive outplacement services) that would be payable as described above in the event that the executive officer experiences a Qualifying Termination immediately following the mergers utilizing current base salaries and target bonus amounts, as applicable.

 

     Total Cash Severance Amount ($)  

Bruce N. Haase

   $ 3,000,000  

Christopher N. Dekle

   $ 772,500  

David Clarkson

   $ 700,000  

Howard J. Weissman

   $ 133,865  

Judi Bikulege

   $ 600,000  

Kelly Poling

   $ 780,000  

Kevin A. Henry

   $ 947,600  

Michael L. Kuenne

   $ 250,000  

Nancy K. Templeton

   $ 250,000  

Randolph H. Fox

   $ 590,000  

 

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Golden Parachute Compensation.

As required by Item 402(t) of Regulation S-K, the following table sets forth, for our named executive officers, compensation that is based on or otherwise relates to the mergers and that will become vested or payable (in the case of “single-trigger” arrangements) upon the closing of the mergers and those that may (in the case of “double-trigger” arrangements) become vested or payable to or realized by such individuals following certain termination of employment events that occur following the closing of the mergers. For purposes of this joint proxy statement, our “named executive officers” are those individuals who are identified as named executive officers in each of the Company’s and Hospitality’s proxy statements for the 2020 annual meeting of stockholders, which proxy statements were filed with the SEC on April 23, 2020.

Depending on when the mergers occur, certain equity awards that are now unvested and included in the table below may vest pursuant to the terms of the equity awards based on the completion of continued service with the Company, independent of the mergers. The amounts indicated below are estimates that assume (i) a per-paired share merger consideration of $19.50 (without reduction for the special dividend), (ii) base salary, target bonus levels (as applicable), and equity award holdings as of date of this joint proxy statement, (iii) the mergers closing on July 1, 2021 (the assumed closing date of the mergers solely for purposes of this golden parachute compensation disclosure), (iv) that for the stock unit awards subject to performance-vesting conditions, performance is achieved at (x) 150% of target for the performance-based stock unit awards with a performance period that commences in 2019 and 2020 and (y) 200% of target for the performance-based stock unit awards with a performance period that commences in 2021, and (v) that a Qualifying Termination of each named executive officer occurs in connection with the closing of the mergers such that the executive will be entitled to severance payments and benefits under the Executive Severance Plan on the closing date (utilizing their base salary and target bonus amounts, as applicable, as of the date of this joint proxy statement). Further, the estimated potential payments in the table below assume that (i) each named executive officer’s base salary, target bonus level (as applicable), and equity award holdings remain unchanged from those in effect as of the date of this joint proxy statement (other than the then-unvested base compensation award stock units held by Mr. Haase that will be forfeited by him as of the effective time, in accordance with their terms), (ii) no named executive officer receives any additional equity grants or receives any paired shares in respect of any Company or Hospitality equity awards on or prior to the effective time, and (iii) no named executive officer enters into any new agreement with the Company or is otherwise legally entitled to, prior to the effective time, additional compensation or benefits that is based on or otherwise relates to the mergers. As a result, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below. All dollar amounts have been rounded to the nearest whole dollar.

The amounts shown in the table below also include the “280G tax gross-up” payment that is payable pursuant to the letter agreements entered into with our named executive officers, providing that, if it is determined that such named executive officer will become entitled to payments and benefits in connection with and contingent upon the transactions contemplated by the merger agreement (the “Total Payments”) that are deemed “parachute payments” under Sections 280G and 4999 of the Code, such named executive officer will be entitled to receive a gross-up payment in an amount such that, after payment by the named executive officer of all applicable taxes on the gross-up payment (including any excise tax that could be imposed under Section 4999 of the Code (the “Excise Tax”)), the named executive officer will retain an amount of the gross-up payment equal to the Excise Tax imposed upon the Total Payments.

 

Name

   Cash
Severance($)(1)
     Equity($)(2)      Perquisites/
Benefits($)(3)
     Tax
Reimbursements($)(4)
     Other($)(5)      Total($)  

Bruce N. Haase

   $ 3,000,000      $ 8,124,987      $ 3,400      $ 5,039,202      $ 258,986      $ 16,426,575  

David Clarkson

   $ 700,000      $ 1,072,731      $ 24,515      $ 756,060      $ 30,404      $ 2,583,710  

Kelly Poling

   $ 780,000      $ 1,762,498      $ 24,515      $ 1,091,411      $ 49,827      $ 3,708,251  

Christopher N. Dekle

   $ 772,500      $ 1,948,326      $ 23,135      $ 1,188,315      $ 76,019      $ 4,008,295  

Kevin A. Henry

   $ 947,600      $ 2,286,154      $ 21,946      $ —        $ 90,909      $ 3,346,609  

Judi Bikulege

   $ 600,000      $ 1,397,091      $ 11,576      $ 787,341      $ 46,460      $ 2,842,468  

Howard J. Weissman

   $ 133,865      $ 484,598      $ 21,946      $ —        $ 17,650      $ 658,059  

 

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(1)

Amounts in this column are “double-trigger” amounts payable upon a Qualifying Termination as described above, representing the cash severance (i.e., annual base salary and target annual bonus (if applicable)) component.

(2)

Amounts in this column are “single-trigger” amounts representing the value payable in respect of Company stock units that are being accelerated and cashed out in the mergers.

(3)

Amounts in this column are “double-trigger” amounts payable upon a Qualifying Termination as described above, representing the employer-paid portion of health coverage continuation and the executive outplacement services components.

(4)

Amounts in this column are the 280G “tax gross-up” amounts payable pursuant to the letter agreements as described above.

(5)

Amounts in this column are “single-trigger” amounts representing the payment of accrued and unpaid dividend equivalents.

Indemnification and Insurance.

Pursuant to the terms of the merger agreement, our directors and executive officers will be entitled to certain ongoing indemnification and insurance coverage, further described in the section entitled “The Merger Agreement—Indemnification and Insurance.”

Regulatory Matters

We are unaware of any material federal or state regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of either merger, other than the filing of the certificates of merger with respect to each of the mergers with the Secretary of State of the State of Delaware.

Although the completion of the transactions contemplated by the merger agreement is not conditioned on receipt of any approvals or clearances pursuant to any antitrust laws, clearances under antitrust laws of Finland, Ireland and Spain have been sought by the parties to the merger agreement in connection with the transactions contemplated by the merger agreement. The parties submitted filings to the Irish Competition and Consumer Protection Commission, the Finnish Competition and Consumer Authority and the Spanish National Markets and Competition Commission on March 25, 2021, April 8, 2021 and April 13, 2021, respectively.

Although it is expected that these foreign merger control clearances and approvals under these foreign antitrust laws will be obtained, there are no assurances that these regulatory clearances and approvals will be timely obtained, obtained at all or that the applicable regulatory authorities will not impose additional conditions on the consummation of the transactions contemplated in the merger agreement. On April 13, 2021, the parties received notice from the Irish Competition and Consumer Protection Commission permitting the completion of the proposed transactions under Irish antitrust laws.

Material U.S. Federal Income Tax Consequences

The following is a general discussion of the material U.S. federal income tax consequences of the mergers and the special dividend to U.S. holders and non-U.S. holders (each as defined below) of our paired shares. This discussion is based on the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury Regulations, 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, and any such change or interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the Medicare contribution tax on net investment income, 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 the U.S. federal income tax.

 

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

 

   

an individual citizen or resident of the United States;

 

   

a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created or organized 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 for which one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable U.S. 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 our paired shares, other than an entity or arrangement classified as a partnership for U.S. federal income tax purposes, that is not a U.S. holder.

This discussion applies only to holders of our paired shares who hold such shares as “capital assets” within the meaning of the Code (generally, property held for investment). Further, this discussion is for general informational purposes only and does not address all aspects of U.S. federal income taxation that may be relevant to specific holders in light of their particular facts and circumstances, and it does not apply to holders subject to special treatment under U.S. federal income tax laws (including, for example, insurance companies, dealers or brokers in securities or foreign currencies, traders in securities who elect to apply the mark-to-market method of accounting, holders subject to the alternative minimum tax, persons who are required to recognize income or gain with respect to the mergers or the special dividend no later than such income or gain is required to be reported on an applicable financial statement, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, retirement plans, individual retirement accounts or other tax-deferred or advantaged accounts (or persons holding shares through such plans or accounts), banks and other financial institutions, certain former citizens or former long-term residents of the United States, “controlled foreign corporations,” “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, real estate investment trusts, regulated investment companies, “qualified foreign pension funds” (within the meaning of Section 897(1)(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 5% of our outstanding shares, holders who hold our paired shares as part of a hedge, straddle, constructive sale, conversion or other integrated or risk reduction transaction, and holders who acquired our paired shares through the exercise of employee stock options or otherwise as compensation).

If a partnership (including any entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our paired shares, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. Partnerships that hold our paired shares, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the mergers and the special dividend to them in light of their particular circumstances.

For certain of our stockholders, the tax consequences of the mergers and the special dividend (including applicable withholding taxes) could be different than the tax consequences of selling their shares prior to the mergers. This joint proxy statement does not discuss the tax consequences of selling shares prior to the mergers. In view of those potential different tax consequences, we encourage all holders to consult their own tax advisors regarding the tax consequences to them of selling their shares prior to the mergers, as compared to the tax consequences to them of the mergers and the receipt of the special dividend. In addition, all holders should consult their own tax advisors regarding the specific tax consequences of the

 

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mergers and the special dividend 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, foreign or other tax laws.

Consequences of the Special Dividend to U.S. Holders of our Paired Shares

As described below in “The Merger Agreement—Special Dividend” upon the request of Parent, the Company will declare and pay the special dividend immediately prior to the effective time of the Company merger. The special dividend will be paid to the holders of record of Company common stock as of immediately prior to the open of business on the closing date. The amount of the special dividend will represent the estimated amount of current and accumulated earnings and profits of the Company calculated through the portion of the taxable year that includes the closing date ending at the effective time, subject to certain limitations described in “The Merger Agreement—Special Dividend”. A corporation is required to determine its earnings and profits for an applicable taxable year on an annual basis following the end of the applicable taxable year. Accordingly, events subsequent to the closing date may impact the Company’s current earnings and profits for the taxable year in which the closing occurs, such that the amount of the Company’s current and accumulated earnings and profits through the closing date, as finally determined, may not equal the amount of the special dividend.

If the special dividend is made, the Company intends that the special dividend be treated as a dividend for U.S. federal income tax purposes to the extent paid from its current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and accordingly will be taken into account by U.S. holders as ordinary income. Dividends paid to a non-corporate U.S. holder by the Company that constitute qualified dividend income will be taxable to the holder at the preferential rates applicable to long-term capital gains provided that the holder holds the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends paid to corporate U.S. holders may be eligible for the dividends received deduction. If the amount of the special dividend exceeds the Company’s current and accumulated earnings and profits, the excess is intended to be treated as a nontaxable return of capital to the extent of the U.S. holder’s adjusted tax basis in its Company common stock and will reduce (but not below zero) such U.S. holder’s adjusted tax basis in its Company common stock, and any remaining excess will be treated as gain from a disposition of Company common stock. Such gain will be included in a U.S. holder’s income as long-term capital gain (or short-term capital gain if the stock has been held for one year or less), subject to the tax treatment described below under “—Consequences of the Mergers to U.S. Holders of our Paired Shares.

The merger consideration will be reduced by the per share amount of the special dividend.

Although the special dividend is intended to be treated for U.S. federal income tax purposes as described above, it could be treated instead as Company merger consideration. Under such treatment, a U.S. holder would be treated as not receiving a distribution and instead as having sold its shares of Company common stock for consideration equal to the merger consideration attributable to the Company common stock (without reduction for the special dividend), and such U.S. holder would be subject solely to the treatment described below under “—Consequences of the Mergers to U.S. Holders of our Paired Shares.

Consequences of the Mergers to U.S. Holders of our Paired Shares

The receipt of cash in the mergers by U.S. holders of our paired shares will be a taxable transaction to U.S. holders for U.S. federal income tax purposes. The merger consideration paid for a paired share in the mergers will be allocated between the share of Company common stock and the share of Hospitality class B common stock that constitute the paired share in accordance with their respective fair market values, which the parties to the merger agreement have agreed shall be $11.69 per share of Company common stock (reduced by the special dividend, if any) and $7.81 per share of Hospitality class B common stock, in each case subject to adjustment as described below in “The Merger Agreement—Treatment of the Company Capital Stock and Hospitality Capital Stock.”

 

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Disposition of Shares of Hospitality Class B Common Stock in the Hospitality Merger. In general, a U.S. holder will realize gain or loss upon the exchange of shares of Hospitality class B common stock for cash in the Hospitality merger in an amount equal to the difference between the amount of cash received for such shares and the U.S. holder’s aggregate adjusted tax basis in its shares of Hospitality class B common stock at the time of the Hospitality merger. In general, a U.S. holder’s adjusted tax basis in its shares of Hospitality class B common stock will equal the U.S. holder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. holder less tax deemed paid on such deemed distribution and reduced by returns of capital. In general, capital gains recognized by individuals and other non-corporate U.S. holders upon the sale or disposition of their shares of Hospitality class B common stock will be subject to tax at preferential rates, if the shares of Hospitality class B common stock are held for more than 12 months, and will be taxed at ordinary income rates if shares of Hospitality class B common stock are held for 12 months or less. Gains recognized by U.S. holders that are corporations are subject to U.S. federal income tax at the same rates as apply to ordinary income, whether or not classified as long-term capital gains.

Holders are advised to consult with their tax advisors with respect to their capital gain tax liability. Capital losses recognized by a U.S. holder upon the disposition of Hospitality class B common stock held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. holder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon the disposition of shares of Hospitality class B common stock in the Hospitality merger by a U.S. holder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from Hospitality that were required to be treated by the U.S. holder as long-term capital gain.

Disposition of Shares of Company Common Stock in the Company Merger. In general, a U.S. holder will realize gain or loss upon the exchange of shares of Company common stock for cash in the Company merger in an amount equal to the difference between the amount of cash received for such shares and the U.S. holder’s aggregate adjusted tax basis in shares of Company common stock at the time of the Company merger. In general, a U.S. holder’s adjusted tax basis in its shares of Company common stock will equal the U.S. holder’s acquisition cost reduced by returns of capital, including any portion of the special dividend that is treated as a return of capital. In general, capital gains recognized by individuals and other non-corporate U.S. holders upon the sale or disposition of shares of Company common stock will be subject to U.S. federal income tax at preferential rates, if the Company common stock is held for more than 12 months, and will be taxed at ordinary income rates if Company common stock is held for 12 months or less. Gains recognized by U.S. holders that are corporations are subject to U.S. federal income tax at the same rates that apply to ordinary income, whether or not classified as long-term capital gains.

Holders are advised to consult with their tax advisors with respect to their capital gain tax liability. Capital losses recognized by a U.S. holder upon the disposition of Company common stock held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. holder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year).

Consequences of the Special Dividend to Non-U.S. Holders of our Paired Shares

As discussed above in “—Consequences of the Special Dividend to U.S. Holders of our Paired Shares,” immediately prior to the effective time of the Company merger, upon Parent’s request the Company will declare and pay the special dividend. The amount of the special dividend is intended to represent the estimated amount of current and accumulated earnings and profits of the Company calculated through the portion of the taxable year that includes the closing date ending at the effective time, however, as discussed above, there can be no assurance that the Company’s actual current and accumulated earnings and profits, as finally determined, will equal the amount of the special dividend, which may impact its treatment for U.S. federal income tax purposes, as discussed below.

 

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If the special dividend is made, the Company intends (and intends to report) that the special dividend be treated as a dividend for U.S. federal income tax purposes to the extent paid from its current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If the special dividend exceeds the Company’s current and accumulated earnings and profits, the excess is intended to be treated as a nontaxable return of capital to the extent of the holder’s adjusted tax basis in its Company common stock and will reduce (but not below zero) such holder’s adjusted tax basis in its Company common stock, and any remaining excess will be treated as gain from a disposition of Company common stock, subject to the tax treatment described below under “—Consequences of the Mergers to Non-U.S. Holders of our Paired Shares.

If the special dividend is not treated as a distribution with respect to the shares of Company common stock for U.S. federal income tax purposes, as described above in “—Consequences of the Special Dividend to U.S. Holders of our Paired Shares,” it could be treated as additional cash consideration in the Company merger. Under such treatment, a non-U.S. holder would be treated as not receiving a distribution and instead as having sold its shares of Company common stock for consideration equal to the merger consideration attributable to the Company common stock (without reduction for the special dividend), and such non-U.S. holder would be subject solely to the treatment described below under “—Consequences of the Mergers to Non-U.S. Holders of our Paired Shares.” The portion of the special dividend received by a non-U.S. holder that is treated as a dividend and that is not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States generally will be subject to withholding of U.S. federal income tax at a rate of 30%. A non-U.S. holder may be eligible for a lower rate under an exemption or applicable income tax treaty between the United States and its jurisdiction of tax residence. In order to claim the benefit of an applicable income tax treaty, a non-U.S. holder will be required to provide to the applicable withholding agent a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable form) in accordance with the applicable certification and disclosure requirements. Special rules apply to partnerships and other pass-through entities and these certification and disclosure requirements also may apply to beneficial owners of partnerships and other pass-through entities that hold Company common stock.

The portion of the special dividend received by a non-U.S. holder that is treated as a dividend and that is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States will be taxed on a net income basis at the regular graduated rates and in the manner applicable to United States persons (unless the non-U.S. holder is eligible for and properly claims the benefit of an applicable income tax treaty and the dividends are not attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States, in which case the non-U.S. holder may be eligible for a lower rate under the applicable income tax treaty). Dividends that are effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States will not be subject to the withholding of U.S. federal income tax discussed above if the non-U.S. holder provides to the applicable withholding agent a properly executed IRS Form W-8ECI (or other applicable form) in accordance with the applicable certification and disclosure requirements. A non-U.S. holder that is treated as a corporation for U.S. federal income tax purposes may also be subject to a “branch profits” tax at a 30% rate (or a lower rate if the non-U.S. holder is eligible for a lower rate under an applicable income tax treaty) on the portion of the special dividend received by a non-U.S. holder that is treated as a dividend.

The certifications described above must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. A non-U.S. Holder may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS. Non-U.S. Holders should consult their own tax advisors regarding their eligibility for benefits under a relevant income tax treaty and the manner of claiming such benefits.

Because the Company believes it is a “U.S. real property holding corporation” (“USRPHC”), as described below, any non-U.S. holder which holds more than 5% of the Company common stock, actually or constructively, during the applicable testing period, will generally be taxed on any gain on the sale or deemed sale of Company common stock in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business, except that the branch profits tax generally will not apply.

 

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Consequences of the Mergers to Non-U.S. Holders of our Paired Shares

Disposition of Shares of Hospitality Class B Common Stock in the Hospitality Merger. Non-U.S. holders could incur tax under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) with respect to gain realized upon a disposition of shares of Hospitality class B common stock if Hospitality is a USRPHC during a specified testing period. If at least 50% of a U.S. corporation’s assets are “U.S. real property interests” (“USRPIs”), then the U.S. corporation will be a USRPHC. Hospitality believes that it is a USRPHC based on the composition of its assets. However, even if Hospitality is a USRPHC, a non-U.S. holder generally would not incur tax under FIRPTA on gain attributable to the sale of shares of Hospitality class B common stock if Hospitality is a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified testing period, less than 50% in value of its stock is held directly or indirectly by non-U.S. holders. We intend to take the position that Hospitality is a domestically controlled REIT under the Code. However, there can be no assurance that the IRS will not challenge this treatment or that a court would not sustain such a challenge. Regardless of whether Hospitality qualifies as a domestically controlled qualified investment entity at the time the non-U.S. holder sells shares of Hospitality class B common stock pursuant to the mergers, an additional exception to the tax under FIRPTA may be available if shares of Hospitality class B common stock are regularly traded on an established securities market. Under that exception, the gain from a sale by a non-U.S. holder will not be subject to tax under FIRPTA if:

 

   

shares of Hospitality class B common stock are treated as being regularly traded under applicable U.S. Treasury Regulations on an established securities market; and

 

   

the non-U.S. holder owned, actually or constructively, 10% or less of shares of Hospitality class B common stock at all times during a specified testing period.

While there is no direct authority addressing whether a component of a paired interest is considered to be regularly traded on an established securities market by virtue of the paired interest being considered to be traded on an established securities market, we intend to take the position that shares of Hospitality class B common stock are regularly traded on an established securities market in the United States.

If the gain on the sale of shares of Hospitality class B common stock were taxed under FIRPTA, a non-U.S. holder would be taxed on that gain in the same manner as U.S. holders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Furthermore, a non-U.S. holder generally will incur tax on gain not subject to FIRPTA if:

 

   

the gain is effectively connected with the non-U.S. holder’s U.S. trade or business, in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain; or

 

   

the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. holder will incur a 30% tax on their capital gains.

Disposition of Shares of Company Common Stock in the Company Merger. Non-U.S. holders could incur tax under FIRPTA with respect to gain realized upon a disposition of shares of Company common stock if the Company is a USRPHC during a specified testing period. If at least 50% of a U.S. corporation’s assets are USRPIs, then the U.S. corporation will be a USRPHC. Assuming Hospitality is a USRPHC, the Company believes it is a USRPHC as a result of holding 100% of the Hospitality class A common stock. If the Company common stock is regularly traded on an established securities market, an exception to the tax under FIRPTA may be available. Under this exception, the gain from such a sale by such a non-U.S. holder will not be subject to tax under FIRPTA if:

 

   

the Company common stock is treated as being regularly traded under applicable U.S. Treasury Regulations on an established securities market; and

 

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the non-U.S. holder owned, actually or constructively, 5% or less of shares of the Company common stock at all times during a specified testing period.

While there is no direct authority addressing whether a component of a paired interest is considered to be regularly traded on an established securities market by virtue of the paired interest being considered to be traded on an established securities market, we intend to take the position that the shares of Company common stock are regularly traded on an established securities market in the United States.

If the gain on the sale of shares of Company common stock were taxed under FIRPTA, in whole or in part, a non-U.S. holder would be taxed on that gain in the same manner as U.S. holders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Furthermore, a non-U.S. holder generally will incur tax on gain not subject to FIRPTA if:

 

   

the gain is effectively connected with the non-U.S. holder’s U.S. trade or business, in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain; or

 

   

the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. holder will incur a 30% tax on their capital gains.

Information Reporting Requirements and Withholding

Information reporting and backup withholding (currently, at a rate of 24%) generally will apply to payments of cash made pursuant to the mergers and the special dividend. Backup withholding will not apply, however, to a holder who (1) in the case of a U.S. holder, furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on a duly executed IRS Form W-9, (2) in the case of a non-U.S. holder, furnishes a duly executed, applicable IRS Form W-8, or (3) 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 a credit against such holder’s U.S. federal income tax liability (if any) provided the required information is furnished to the IRS on a timely basis.

Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act and related U.S. Treasury guidance (collectively referred to as “FATCA”) generally impose U.S. federal withholding tax at a rate of 30% on payments to certain foreign entities of U.S. source dividends (including the special dividend) and the gross proceeds (including the merger consideration) from the sale or other disposition of property that produces U.S.-source dividends. This withholding tax applies to a foreign entity (as defined in the Code), whether acting as a beneficial owner or an intermediary, unless such foreign entity complies with (x) certain information reporting requirements regarding its U.S. account holders and its direct and indirect U.S. owners and (y) certain withholding obligations regarding certain payments to its account holders and certain other persons. Accordingly, the entity through which a U.S. Holder or a non-U.S. Holder holds its shares will affect the determination of whether such withholding is required. Under proposed U.S. Treasury regulations that may be relied upon pending finalization, the withholding tax on gross proceeds would be eliminated and, consequently, FATCA withholding on gross proceeds is not currently expected to apply to the merger consideration. An intergovernmental agreement between the United States and an applicable foreign country, or future U.S. Treasury regulations or other guidance, may modify these requirements. Holders should consult their own tax advisors regarding FATCA.

THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGERS AND THE SPECIAL DIVIDEND AND IS NOT TAX ADVICE. THEREFORE, STOCKHOLDERS ARE STRONGLY URGED TO CONSULT

 

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THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGERS AND THE SPECIAL DIVIDEND INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS ON THEIR PARTICULAR CIRCUMSTANCES.

Delisting and Deregistration of Our Paired Shares

If the mergers are completed, our paired shares will no longer be traded on NASDAQ and will be deregistered under the Exchange Act.

 

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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 joint proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this joint proxy statement as Exhibit A and which we incorporate by reference into this joint proxy statement. We recommend that you read the merger agreement attached to this joint proxy statement as Exhibit A carefully and in its entirety, as the rights and obligations of the parties to the merger agreement are governed by the express terms of the merger agreement and not by this summary or any other information contained in this joint proxy statement.

The merger agreement contains representations and warranties made by, and to, us, Parent, MergerCo 1 and MergerCo 2. These representations and warranties, which are set forth in the copy of the merger agreement attached to this joint proxy statement as Exhibit A, were made for the purposes of negotiating and entering into the merger agreement between the parties to the merger agreement, or may have been used for the purpose of allocating risk between the parties to the merger agreement 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 to the merger agreement in connection with negotiating the terms of the merger agreement, were made as of specified dates, and may be subject to contractual standards of materiality or material adverse effect applicable to the contracting parties that differ from the standard that applies to reports and documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this joint 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 joint 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 Paired Entities or their affiliates. The representations, warranties and covenants in the merger agreement and any descriptions thereof should be read in conjunction with the disclosures in our periodic and current reports, proxy statements and other documents filed with the SEC. See the section of this joint proxy statement entitled “Where You Can Find More Information.”

Structure

The Mergers

On the closing date, each of the Company and MergerCo 1 and Hospitality and MergerCo 2 will file a certificate of merger with the Secretary of State of the State of Delaware. The mergers will become effective upon the time of filing of the applicable certificate of merger with the Secretary of State of the State of Delaware, or at such later time or date as the parties to the merger agreement shall have agreed upon and specified in the applicable certificate of merger as the effective time of the applicable merger. It is the intention of the parties that the mergers shall become effective at the same time, and that the certificates of merger filed by the Company and Hospitality shall provide for the same effective time.

At the effective time, MergerCo 1 will be merged with and into the Company and the separate corporate existence of MergerCo 1 shall thereupon cease and the Company shall continue as the surviving corporation (which we refer to as the “Company surviving corporation”) in the Company merger. Similarly, at the effective time, MergerCo 2 will be merged with and into Hospitality and the separate corporate existence of MergerCo 2 shall thereupon cease and Hospitality shall continue as the surviving corporation (which we refer to as the “Hospitality surviving corporation”) in the Hospitality merger.

At the effective time, under the DGCL, all the rights, privileges, powers and franchises of the Company and MergerCo 1 will vest in the Company surviving corporation, and all debts, liabilities and duties of the Company

 

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and MergerCo 1 will become the debts, liabilities and duties of the Company surviving corporation. Similarly, at the effective time, all the rights, privileges, powers and franchises of Hospitality and MergerCo 2 will vest in the Hospitality surviving corporation, and all debts, liabilities and duties of Hospitality and MergerCo 2 will become the debts, liabilities and duties of the Hospitality surviving corporation.

Following the completion of the mergers, the paired shares will no longer be traded on NASDAQ and will be deregistered under the Exchange Act.

Closing Date

In this joint 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 following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to the mergers described under “—Conditions to the Mergers” (other than those conditions that by their terms or nature are to be satisfied at the closing of the mergers, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions) or at such other date as may be mutually agreed to in writing by the parties to the merger agreement. However, if the foreign regulatory approvals (as described in the sections entitled “Regulatory Matters” and “—Agreement to Take Certain Actions”) have not been obtained at the time of the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to the mergers described under “—Conditions to the Mergers” (other than those conditions that by their terms or nature are to be satisfied at the closing of the mergers, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions), then Parent may on one or more occasions elect to delay the closing of the mergers to a date that is no later than the earlier of the third business day after the receipt of the foreign regulatory approvals and the seventh business day prior to September 14, 2021 (which we refer to as the “designated closing date”), by giving written notice to the Company (which we refer to as an “extension notice”) at least two business days immediately preceding the date that, but for such delivery of such extension notice, would have been the closing date (and, for the avoidance of doubt, Parent shall be entitled to provide one or more additional extension notices to delay the closing of the mergers to a date following such designated closing date that is no later than the earlier of the third business day after the receipt of the foreign regulatory approvals and the seventh business day prior to September 14, 2021, in which event the date specified in such additional extension notice(s) shall be the designated closing date). If, on the designated closing date, the conditions to the mergers described under “—Conditions to the Mergers” are not satisfied or waived (other than those conditions that by their terms or nature are to be satisfied at the closing of the mergers, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions), then the closing of the mergers shall occur on the third business day following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to the mergers described under “—Conditions to the Mergers” (other than those conditions that by their terms or nature are to be satisfied at the closing of the mergers, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions) or on such other date as may be mutually agreed to in writing by the parties to the merger agreement.

Organizational Documents

At the effective time, by virtue of the Company merger, the amended and restated certificate of the incorporation of the Company will be amended and restated to read in its entirety as the certificate of incorporation of MergerCo 1 reads immediately prior to the effective time except that the name of the Company surviving corporation will be the name of the Company, the name of the incorporator will be omitted and the shares of capital stock authorized may be amended to be sufficient to reflect the number of issued and outstanding shares of the Company surviving corporation, until further amended in accordance with applicable law. The Company board will take all actions necessary so that, as of the effective time, the Company’s bylaws will be amended so as to read as the bylaws of MergerCo 1 immediately prior to the effective time except that the name of the Company surviving corporation will be the name of the Company, until further amended in accordance with applicable law.

 

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At the effective time, by virtue of the Hospitality merger, the amended and restated certificate of incorporation of Hospitality will be amended and restated to read in its entirety as the certificate of incorporation of MergerCo 2 reads immediately prior to the effective time except that the name of the Hospitality surviving corporation will be the name of Hospitality, the name of the incorporator will be omitted and the shares of capital stock authorized may be amended to be sufficient to reflect the number of issued and outstanding shares of the Hospitality surviving corporation, until further amended in accordance with applicable law. The Hospitality board will take all actions necessary so that, as of the effective time, Hospitality’s bylaws will be amended so as to read as the bylaws of MergerCo 2 immediately prior to the effective time except that the name of the Hospitality surviving corporation will be the name of Hospitality, until further amended in accordance with applicable law.

Directors and Officers

The directors of MergerCo 1 immediately prior to the effective time will be the directors of the Company surviving corporation from and after the effective time, and the officers of the Company immediately prior to the effective time will be the initial officers of the Company surviving corporation from and after the effective time, each to hold office in accordance with the amended and restated certificate of incorporation and the amended and restated bylaws of the Company surviving corporation.

The directors of MergerCo 2 immediately prior to the effective time will be the directors of the Hospitality surviving corporation from and after the effective time, and the officers of Hospitality immediately prior to the effective time will be the initial officers of the Hospitality surviving corporation from and after the effective time, each to hold office in accordance with the amended and restated certificate of incorporation and the amended and restated bylaws of the Hospitality surviving corporation.

Treatment of the Company Capital Stock and Hospitality Capital Stock

At the effective time, each paired share (subject to the exceptions described below), consisting of one share of Company common stock and one share of Hospitality class B common stock, will automatically be converted into the right to receive a total of $19.50 in cash plus the additional consideration, if any, described below, and subject to further adjustment described below. The aggregate consideration per paired share is allocated in each merger between each share of Company common stock and Hospitality class B common stock as described below.

Company Common Stock

A share of Company common stock constitutes a portion of a paired share. At the effective time, each share of Company common stock (other than (1) shares held in treasury by the Company, (2) shares held by Paired Entities (other than the shares held in treasury), Parent or their subsidiaries (which we refer to as “Paired-Entities/Parent-held shares”) and (3) Company appraisal shares (such shares described in clauses (1) through (3) are collectively referred to herein as the “Company excluded shares”)) issued and outstanding immediately prior to the effective time will automatically be canceled and converted into the right to receive (1) $11.69 per share, in cash, without any interest thereon, plus (2) if Parent delivers an extension notice or the mergers are consummated after the 135th day following the date of the merger agreement, 59.9% of a per diem amount of $0.001 in cash, without interest, for each day from and after the earlier of the date of delivery of the extension notice or the 135th day following the date of the merger agreement (we refer to the $0.001 per diem amount as the “additional consideration” and refer to the sum of $11.69 per share, in cash, without any interest thereon, plus 59.9% of the additional consideration, if any, without interest thereon, as the “Company merger consideration”).

At the effective time, each share of the Company common stock held in treasury by the Company will automatically be cancelled and will cease to be outstanding with no consideration being delivered in exchange therefor, and each share of the Company common stock that is a Paired-Entities/Parent-held share will remain issued and outstanding as one share of the Company surviving corporation common stock.

 

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At the request of Parent, immediately prior to the effective time, the Company will pay a special cash dividend to holders of the Company common stock, in which event the Company merger consideration will be reduced by the amount of such special dividend. For more information, see “—Special Dividend.”

Hospitality Class B Common Stock

A share of Hospitality class B common stock constitutes a portion of a paired share. At the effective time, each share of Hospitality class B common stock (other than (1) shares held in treasury by Hospitality, (2) Paired-Entities/Parent-held shares and (3) Hospitality appraisal shares (such shares described in clauses (1) through (3) are collectively referred to herein as the “Hospitality excluded shares” and, together with the Company excluded shares, the “excluded shares”)) issued and outstanding immediately prior to the effective time will automatically be canceled and be converted into the right to receive (1) $7.81 per share, in cash, without any interest thereon, plus (2) 40.1% of the additional consideration, if any, without interest thereon (we refer to the sum of $7.81 per share, in cash, without any interest thereon, plus 40.1% of the additional consideration, if any, without interest thereon, as the “Hospitality merger consideration”).

At the effective time, each share of Hospitality class B common stock held in treasury by Hospitality will automatically be canceled and will cease to exist with no consideration being delivered in exchange therefor, and each share of Hospitality class B common stock that is a Paired-Entities/Parent-held share will remain issued and outstanding as one share of the Hospitality surviving corporation common stock

If Hospitality declares a distribution reasonably necessary to maintain its status as a REIT under the Code or to avoid the payment of income or excise tax under the Code as permitted under the merger agreement, the Hospitality merger consideration will be reduced by the amount of such distribution.

Hospitality Series A Preferred Stock

At the effective time, each share of Hospitality preferred stock issued and outstanding immediately prior to the effective time will remain issued and outstanding.

Hospitality Class A Common Stock

At the effective time, each share of Hospitality class A common stock issued and outstanding held by the Company, any of our subsidiaries, Parent or its subsidiaries or permitted assigns immediately prior to the effective time will remain issued and outstanding as one share of Hospitality surviving corporation common stock.

Restricted Stock Units

Immediately prior to the effective time, each outstanding stock unit under the equity incentive plans of the Company and Hospitality (whether vested or unvested), except for certain unvested stock units held by the Chief Executive Officer that will be forfeited for no consideration in accordance with the terms thereof, will automatically and without action on the part of the holder thereof, be cancelled and converted into, and the holder thereof will be entitled to the right to receive, without interest, an amount in cash equal to the sum of (1) the product obtained by multiplying (i) the total number of paired shares issuable in respect of such stock unit immediately prior to the effective time (assuming that in respect of each performance-vesting stock unit, performance was achieved at the greater of the (x) actual level of achievement as of the closing date for each performance period then in process measured against the applicable performance goal, pro-rated through the closing date, and (y) “target” level of achievement) by (ii) the merger consideration and (2) the dividend equivalents payable pursuant to the applicable award agreement in respect of each paired share issuable in respect of such stock unit, which are accrued and unpaid as of immediately prior to the effective time (including the special dividend), less any applicable withholding taxes.

 

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No Further Ownership Rights

From and after the effective time, holders of any stock certificates representing ownership of Company common stock and Hospitality class B common stock (other than certain excluded shares described above, including (1) the shares held in treasury, (2) Paired-Entities/Parent-held shares or (3) appraisal shares) (which we refer to as the “eligible shares”) will cease to have rights with respect to such shares except for the right to receive the Company merger consideration and Hospitality merger consideration, respectively, except as to those stockholders asserting appraisal rights. The merger consideration paid will be deemed to have been paid in full satisfaction of all rights pertaining to the Company common stock or Hospitality class B common stock exchanged therefor.

Exchange and Payment Procedures

At the closing, Parent will deposit, or cause to be deposited, with a paying agent (which we refer to as the “paying agent”) reasonably satisfactory to us, in trust for the benefit of the holders of the eligible shares, the merger consideration. Promptly after the effective time (but in any event within three business days thereafter), the paying agent will mail to each holder of record of a certificate or certificates or a book-entry account (other than those held through the Depositary Trust Company (which we refer to as “DTC”)) representing the eligible shares (which we refer to as “book-entry shares”) that, immediately prior to the effective time, represented any eligible shares, a letter of transmittal and instructions for use in effecting the surrender of the certificates or book-entry account, as applicable, for the Company merger consideration and Hospitality merger consideration, as applicable, to which the holder thereof is entitled. The letter of transmittal and instructions will tell you how to surrender your certificates or book-entry shares representing the eligible shares in exchange for the Company merger consideration and the Hospitality merger consideration, as applicable.

With respect to book-entry shares held through DTC, we and Parent will cooperate to establish procedures with the paying agent, DTC and such other necessary or desirable third-party intermediaries to ensure that the paying agent will transmit to DTC or its nominees as promptly as practicable after the effective time, upon surrender of the eligible shares in accordance with DTC’s customary procedures and as agreed by us, Parent and the paying agent, the merger consideration to which beneficial owners of such book-entry shares are entitled pursuant to the merger agreement.

Upon surrender to the paying agent of a certificate or book-entry shares that previously represented the eligible shares, together with a letter of transmittal, duly completed and validly executed, and such other documents as may be reasonably be required by the paying agent in accordance with the terms of the materials and instructions provided by the paying agent (and DTC, in respect of book-entry shares held thereby), the holder of such certificate or book-entry share will be entitled to receive the merger consideration payable in respect of the eligible shares previously represented by such certificate or book-entry shares.

No interest will be paid or will accrue on any amount payable upon the surrender of any eligible shares.

In the event of a transfer of ownership of shares of Company common stock or Hospitality class B common stock that is not registered in the stock transfer books of the Company or Hospitality, respectively, or if the Company merger consideration or Hospitality merger consideration, as applicable, is to be paid in a name other than that in which the certificates surrendered in exchange therefor are registered on the Company’s or Hospitality’s stock transfer books or ledger, as applicable, a check for any cash to be exchanged upon due surrender of any such certificates may be issued to such transferee if the certificate formerly representing the eligible shares is properly endorsed and otherwise in proper form for surrender to the paying agent, accompanied by all documents required to evidence and effect such transfer, and to evidence that any applicable transfer, stamp or other similar taxes have been paid or not applicable, in each case in form and substance reasonably satisfactory to Parent and the paying agent. Payment of Company merger consideration and Hospitality merger consideration with respect to book-entry shares will only be made to the person in whose name such book-entry shares are registered in the stock transfer books of the Company and Hospitality, as applicable.

 

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From and after the effective time, there shall be no transfers on the stock transfer books of the Company or Hospitality of the eligible shares. If, after the effective time, any certificate or acceptable evidence of a book-entry share is presented to the Company surviving corporation, the Hospitality surviving corporation, Parent or the paying agent for transfer, it will be cancelled and exchanged for the cash amount in immediately available funds to which the holder thereof is entitled pursuant to the merger agreement.

Any portion of the merger consideration that remains undistributed or unclaimed by holders of eligible shares on the date that is one year following the effective time will be delivered to the Company surviving corporation. Any holder of eligible shares who has not theretofore complied with the exchange and payment procedures contained in the merger agreement will look to the Company surviving corporation as a general creditor thereof for payment of the merger consideration to which such holder of eligible shares is entitled pursuant to the merger agreement. None of the Company surviving corporation, Hospitality surviving corporation, Parent, the paying agent or any other person will be liable to any former holder of eligible shares for any amount delivered to public official pursuant to any applicable abandoned property, escheat or similar laws. Any merger consideration remaining unclaimed by former holders of eligible shares immediately prior to the time such amounts would otherwise escheat to or become the property of a governmental entity will become the property of the Company surviving corporation, to the extent permitted by law, free and clear of any claims thereon.

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 and, if required by Parent or the paying agent, the posting by such person of a bond in a customary amount and upon such terms as may be required by Parent or the paying agent, the paying agent will issue a check in the amount of the merger consideration such person is entitled to pursuant to the merger agreement.

The paying agent, Parent, MergerCo 1, MergerCo 2, the Company surviving corporation, the Hospitality surviving corporation and we are entitled to deduct and withhold from any amounts otherwise payable pursuant to the merger agreement such amounts as are required to be deducted and withheld under all applicable tax laws. Any such amounts so withheld and paid over to a governmental entity will be treated as having been paid to the person or entity in respect of which such deduction was made.

Representations and Warranties

We have, jointly and severally, made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement or in the disclosure 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 and our subsidiaries;

 

   

the certificate of incorporation and bylaws of each of the Company and Hospitality;

 

   

our power and authority to execute and deliver the merger agreement, and, subject to the approval of holders of the Company common stock, Hospitality class A common stock and Hospitality class B common stock, to consummate the transactions contemplated by the merger agreement;

 

   

the enforceability of the merger agreement against us;

 

   

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

 

   

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;

 

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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 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;

 

   

our SEC filings since January 1, 2019 and the financial statements contained in those filings;

 

   

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

 

   

the absence of liabilities required to be recorded on a balance sheet under GAAP other than those contained in our consolidated balance sheets as of December 31, 2020;

 

   

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

 

   

the absence of any violation or default of laws or publicly-facing privacy policies to which we or our subsidiaries are subject;

 

   

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

 

   

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

 

   

the absence of any material adverse effect (as discussed below) and certain other changes and events since December 31, 2020;

 

   

tax matters affecting 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;

 

   

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

 

   

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

 

   

environmental matters affecting us and our subsidiaries;

 

   

our and our subsidiaries’ employee benefit plans;

 

   

labor matters affecting us and our subsidiaries;

 

   

the receipt by the Company board and the Hospitality board of a fairness opinion from Goldman Sachs, to the effect that, as of the date of the written opinion, the merger consideration is fair from a financial point of view to the holders of paired shares (other than Parent and its affiliates);

 

   

the exemption of the mergers and the merger agreement from the restrictions on “business combinations” in Article XI in each of our certificates of incorporation, business combinations under section 203 of the DGCL and any other fair price, moratorium, control share acquisition, business combination or other law applicable to us or our subsidiaries;

 

   

the vote of our stockholders required in connection with the approval of the mergers and the other transactions contemplated by the merger agreement;

 

   

our and our subsidiaries’ insurance policies;

 

   

the accuracy of the information in this joint proxy statement;

 

   

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

 

   

the absence of any broker’s or finder’s fees, other than those payable to Goldman Sachs, in connection with the transactions contemplated by the merger agreement.

 

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Many of our representations and warranties are qualified by the concept of a “Company material adverse effect.” Under the terms of the merger agreement, a Company material adverse effect means any effect, event, development or change that, individually or in the aggregate with all other effects, events, developments or changes, is, or would reasonably be expected to be, materially adverse to (1) the business, results of operations, financial condition, or assets of us and our subsidiaries, taken as a whole, or (2) our ability to consummate the mergers before September 14, 2021; provided, however, that in the case of clause (1), no effect, event, development or change resulting from, arising out of, attributable to or relating to any of the following shall be deemed to be or constitute a “Company material adverse effect”:

 

   

general economic conditions (or changes in such conditions) in the United States or any region thereof or any other country or region in the world, or conditions in the global economy generally;

 

   

conditions (or changes in such conditions) in the securities markets, credit markets, currency markets or other financial markets in the United States or any region thereof or any other country or region in the world, including (1) changes in interest rates in the United States or any other country or region in the world and changes in exchange rates for the currencies of any countries and (2) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any region thereof or any other country or region in the world;

 

   

conditions (or changes in such conditions) in any of the industries in which we or our subsidiaries conduct business;

 

   

political conditions (or changes in such conditions) in the United States or any region thereof or any other country or region in the world or acts of war, sabotage or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United States or any region thereof or any other country or region in the world;

 

   

force majeure events;

 

   

the announcement of the merger agreement or the pendency or consummation of the transactions contemplated thereby, including (1) the identity of Parent and its affiliates and (2) the impact thereof on relationships, contractual or otherwise, with customers, suppliers, licensors, distributors, partners or employees (provided that this bullet does not apply to certain representations and warranties);

 

   

the taking of any action expressly required by the merger agreement or with the written consent of Parent;

 

   

changes in law or other legal or regulatory conditions (or the interpretation thereof), or changes in GAAP or other accounting standards (or the interpretation thereof), in each case, after the date of the merger agreement;

 

   

changes in the stock price of our paired shares or the trading volume of our paired shares, or any failure by us to meet any public estimates or expectations of our revenues, earnings or other financial performance or results of operations for any period, or any failure by any of us or our subsidiaries to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (but not, in each case, the underlying cause of such changes or failures, unless such changes or failures would otherwise be excepted from the definition of Company material adverse effect); and

 

   

any litigation by our stockholders related to the merger agreement, the mergers or other transactions contemplated thereby;

except to the extent such effects, events, developments or changes resulting from, arising out of, attributable to or related to the exceptions set forth in the first, second, third, fourth, fifth and eighth bullet points above disproportionately adversely affect us and our subsidiaries, taken as a whole, as compared to other companies that conduct business in the United States in the industries in which we and our subsidiaries conduct business.

 

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The merger agreement also contains customary representations and warranties made, jointly and severally, by Parent, MergerCo 1 and MergerCo 2 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 their 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;

 

   

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 conflicts with, or violations of, laws or organizational 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;

 

   

the ownership of MergerCo 1 and MergerCo 2 and absence of prior conduct of, activities, businesses of, or liabilities of Parent, MergerCo 1 and MergerCo 2;

 

   

the equity commitment letters made available by Parent to us (including the enforceability thereof) and, assuming that the equity funding is provided in accordance with such equity commitment letters, the accuracy of the representations and warranties under the merger agreement and the performance by us 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 the mergers, and any repayment or refinancing of any outstanding indebtedness of Parent, us and their respective subsidiaries required in connection therewith;

 

   

the guaranties executed by each of the Blackstone Sponsor and the Starwood Sponsor;

 

   

the solvency of the Company surviving corporation, the Hospitality surviving corporation and each of their subsidiaries immediately following the effective time and after giving effect to all of the transactions contemplated by the merger agreement;

 

   

no broker, investment banker, financial advisor or other person being entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission in connection with the mergers for which we or our affiliates would be liable if the transactions contemplated by the merger agreement are not consummated;

 

   

the absence of any suit, claim, action or proceeding against them which would reasonably be expected to be materially adverse to the ability of Parent, MergerCo 1 and MergerCo 2 to consummate the mergers by September 14, 2021;

 

   

the absence of any contracts to which Parents or any of its affiliates are party with any of our or our subsidiaries’ current employee, officer or director of that relate to our or our subsidiaries’ operations after the effective time, the mergers or the other transactions contemplated by the merger agreement;

 

   

the accuracy of the information supplied by or on behalf of Parent for inclusion in this joint proxy statement; and

 

   

that none of Parent or any of its affiliates have been an Interested Stockholder, as such term is defined in our respective certificates of incorporation, in the three years prior to the date of the merger agreement.

 

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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 in the merger agreement and the disclosure schedules delivered in connection therewith or unless Parent consents in writing in advance (which consent may not be unreasonably withheld, delayed or conditioned), between the date of the merger agreement and the earlier of the closing date and the termination of the merger agreement (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 certain budgets that we have provided to Parent and past practice;

 

   

maintain and preserve intact the material components of our and our subsidiaries’ current business organizations;

 

   

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

 

   

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

 

   

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

One of the exceptions is for any action reasonably taken or reasonably omitted to be taken by us in connection with or resulting from COVID-19 or any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester, safety or similar laws, guidelines or recommendations promulgated by any governmental entity so long as such action or omission is done after written notice to and, to the extent practicable under the circumstances, consultation with Parent.

Without limiting the foregoing, we have also agreed that, during the interim period, subject to certain exceptions set forth in the merger agreement and the disclosure schedules delivered in connection therewith or unless Parent consents in writing in advance (which consent may not be unreasonably withheld, delayed or conditioned), we and our subsidiaries will not, among other things:

 

   

split, combine or reclassify or redeem, purchase or otherwise acquire any of our or any of our subsidiaries’ share capital or other equity interests;

 

   

declare, set aside or pay any dividend or other distribution in respect of our or our subsidiaries’ share capital or other equity interests, except (1) for dividends reasonably necessary to maintain Hospitality’s status as a REIT under the Code or to avoid the payment of income or excise tax, which dividends will result in a reduction of the Hospitality merger consideration as described under “—Treatment of the Company Capital Stock and Hospitality Capital Stock—Hospitality Class B Common Stock,” (2) the special dividend as described under “—Special Dividend”, (3) for the payment of dividends or distributions declared prior to the date of the merger agreement, or (4) in transactions between us and one or more of our wholly owned subsidiaries or solely between our wholly owned subsidiaries;

 

   

enter into any contract with respect to the voting or registration of any capital share or other equity interest of us or our subsidiaries, or adopt a “poison pill” or similar stockholder rights plan;

 

   

issue, sell, pledge, dispose of, grant, license or otherwise subject to any encumbrance any shares of any capital stock or any other securities convertible into or exchangeable for any shares or any equity equivalents, except for (1) issuances, sales or dispositions of shares of capital stock of any of our subsidiaries to us or any of our wholly-owned subsidiaries, (2) the issuance of paired shares upon the

 

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settlement of stock units outstanding on the date of the merger agreement or granted after the date of the merger agreement in accordance with the merger agreement or (3) the 2021 annual grant of stock units to members of the Company board or the Hospitality board in the ordinary course of business consistent with past practice and (iv) for conversions into excess stock (as defined in and in accordance with our respective certificates of incorporation);

 

   

(1) sell, transfer, lease, assign, license, abandon, dispose of, pledge, or otherwise encumber (other than certain permitted encumbrances) any of our or our subsidiaries’ properties or assets other than (i) disposition of used or excess furniture, fixtures or equipment in the ordinary course of business, (ii) for non-exclusive licenses or non-material transactions in the ordinary course of business, (iii) pursuant to certain contracts providing for the sale, assignment, ground lease or exchange of real estate or (2) in connection with incurrence of indebtedness permitted under the merger agreement, sell, transfer, ground lease, dispose of, pledge or encumber (other than certain permitted encumbrances) any real property (including our real property), except, in each case of (1) and (2), for execution of easements, covenants, rights of way, restrictions and other similar instruments in the ordinary course of business that would not, individually or in the aggregate, reasonably be expected to materially impair the existing use, operation or value of, the property or asset affected by the applicable instrument;

 

   

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 not real property) in the ordinary course of business consistent with past practice for consideration that does not exceed $7,500,000 individually or in the aggregate and (2) acquisitions of assets or real property pursuant to certain specified contracts;

 

   

incur, assume, refinance or guarantee any indebtedness for borrowed money or issue any debt securities, or assume, guarantee, endorse or otherwise become responsible for any indebtedness for borrowed money of any person, except (1) for borrowings and guarantees under our existing credit facilities (including our intercompany credit facilities) in effect as of the date of the merger agreement, (2) in connection with the transactions permitted pursuant to the immediately preceding bullet point or (3) in an amount not to exceed $7,500,000 in the aggregate and is not secured, directly or indirectly, by any of our owned or ground leased real properties and is not pursuant to the provisions of the CARES Act, provided that in the case of (2) and (3), any indebtedness shall be prepayable at any time without penalty or premium;

 

   

prepay, refinance or amend the terms of any indebtedness, except for (1) repayments under our existing credit facilities in the ordinary course of business consistent with past practice (excluding any loans secured by any of our owned or ground leased real properties) or under our existing credit faculties or the intercompany credit facilities and (2) 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 as permitted under these restrictive interim operating covenants described in this “—Conduct of Our Business Pending the Mergers )”;

 

   

change any of the accounting policies or procedures, except as may be required by GAAP, or make any materially adverse change to any publicly-facing privacy policy or the security of any material information technology assets in our business except as required by law;

 

   

establish, adopt, enter into, terminate or materially amend any company employee benefit plan;

 

   

increase the compensation or benefits payable to any current or former director, officer or employee, except for increases in base compensation for all employees in respect of regular salary and wages in an amount that does not exceed 3% of employees’ salaries and wages in the aggregate;

 

   

grant any retention, severance or termination pay or award under any cash-based bonus or incentive plan to, or enter into any employment, bonus, change of control or severance agreement with, any current or former director, officer or other employee of ours or our subsidiaries;

 

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loan or advance any money or other property to any current or former director, officer or employee of ours or any of our subsidiaries;

 

   

grant any equity or equity based awards;

 

   

hire any new employee or terminate the employment of any employee (other than for “cause”), in each case, other than with respect to employees with total annual compensation of not more than $150,000;

 

   

take any action to fund, accelerate or in any way secure the payment of compensation or benefits under any employee plan, agreement or arrangement or company employee benefit plan;

 

   

amend or otherwise change, in any material respect, any provisions of our organizational documents, or amend the organizational documents of our wholly owned subsidiaries’ organizational documents other than in the ordinary course of business consistent with past practice;

 

   

terminate, waive compliance with the terms of or breaches under, or assign, or take certain other actions under the agreement under which the shares of Company common stock and Hospitality class B common stock are paired, waive specified provisions of our certificates of incorporation or convert any shares of Hospitality class A common stock into Hospitality class B common stock;

 

   

adopt a plan of complete or partial liquidation, merger, consolidation, conversion, restructuring, recapitalization or other reorganization or resolutions providing for or authorizing such a plan;

 

   

settle or compromise any pending or threatened claim, suit or proceeding against us or any of our subsidiaries (whether or not commenced prior to the date of the merger agreement), except for (1) settlements or compromises providing solely for payment of amounts (not covered by insurance) not in excess of $2,000,000 individually, or $5,000,000 in the aggregate, (2) claims, suits or proceedings arising from the ordinary course of our operations involving collection matters or personal injury which are fully covered by adequate insurance (subject to customary deductibles) or (3) claims with respect to taxes; provided that in no event may we or our subsidiaries settle or compromise any claim or suit relating to the transactions contemplated by the merger agreement;

 

   

(1) enter into, 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) or exercise any option to renew or extend any material contract or any contracts that would be a material contract if it were in existence as of the date of the merger agreement; provided 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 48 hours of receipt of any such request;

 

   

enter into any contract for, or otherwise authorize or make any commitment with respect to, any capital expenditures or development expenditures on, relating to, or adjacent to any of our owned or ground leased real properties, except for (1) in an aggregate amount up to 110% of the respective amounts specified for each such expenditure in the budget we provided to Parent and in an aggregate amount up to 105% of the budget taken as a whole, (2) maintenance and repair expenditures at our existing properties in the ordinary course of business, (3) capital expenditures which, when added to other capital expenditures made after the date of the merger agreement but not provided for in the budget and not made in accordance with the fore going clause (2), do not exceed $7,500,000 in the aggregate, or (4) emergency capital expenditures in an amount that the Company determines is necessary in its reasonable judgment to maintain its ability to operate its businesses in the ordinary course;

 

   

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), make or change any material method of tax accounting, make or rescind any material tax election (including entity classification), amend in any material manner any material tax return, or settle or compromise any material tax liability audit, claim or assessment by any governmental entity, enter into any closing agreement related to a material amount of taxes, waive or extend the statute of limitations in respect of any

 

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material taxes (other than in the ordinary course of business), or knowingly surrender any right to claim any material tax refund (except, in each case, after prior consultation with Parent, to the extent any such action is required by law or necessary to preserve Hospitality’s 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 income tax purposes);

 

   

enter into any new line of business;

 

   

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 any material respect;

 

   

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);

 

   

enter into any tax protection agreement;

 

   

other than for expenditures or commitments in the ordinary course of business consistent with past practice make any expenditure or commitment (including expenditures or commitments from our national advertising fund) in connection with the operation of any frequent stayer program or any media advertising or adopt, renew, terminate, change or increase the liability of us or our subsidiaries under, any operating standards, loyalty programs or amenity packages relating to their brands;

 

   

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

 

   

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

Special Meetings

Under the merger agreement, we are required, as soon as reasonably practicable following the clearance of this joint proxy statement from the SEC (or receiving notification that the SEC is not reviewing this joint proxy statement), to (1) cause this joint proxy statement to be mailed to the holders of the paired shares and (2) duly call, give notice of, convene and hold the Company special meeting and the Hospitality special meeting for the purpose of seeking stockholder approval of the applicable merger and the other transactions contemplated by the merger agreement, which we refer to as the “special meetings.” We are required to include in this joint proxy statement the recommendation of each of the Company board and Hospitality board that the holders of the paired shares vote in favor of the applicable merger unless the applicable recommendation has been withdrawn, modified or amended in accordance with the provisions described below under “—Obligation of the Company Board and the Hospitality Board with Respect to Their Recommendations.” We are also required to use our reasonable best efforts to solicit the requisite vote (including by soliciting proxies in favor of the adoption of the merger agreement from the Company stockholders and the Hospitality stockholders), except in each case to the extent the Company board or Hospitality board, as applicable, has effected a change of recommendation, as permitted by and determined in accordance with the provisions described below under “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations.” Unless the merger agreement is terminated in accordance with its terms, we are prohibited from submitting to the vote of our stockholders any acquisition proposal.

 

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For purposes of the merger agreement, “acquisition proposal” means any bona fide written proposal or offer from any person (other than Parent, MergerCo 1 or MergerCo 2 or any of their respective affiliates) for:

 

   

any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution, or similar transaction pursuant to which any persons would acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of 15% or more of the voting power of the capital stock of the Company or 15% or more of our or our subsidiaries’ consolidated assets;

 

   

any sale, lease or other disposition of 15% or more of our or our subsidiaries’ consolidated assets;

 

   

any issuance, sale or other disposition of securities representing 15% or more of the Company’s voting power; or

 

   

any other transaction having a similar effect to the ones described in the preceding bullet points;

in each case, including any series of related transactions.

Notwithstanding anything to the contrary contained in the merger agreement, we may adjourn or postpone the special meetings after consultation with Parent:

 

   

to the extent necessary to allow reasonable additional time for the filing and mailing of any supplemental or amended disclosure which the Company board or the Hospitality board, as applicable, determines in good faith after consultation with outside counsel is reasonably likely to be necessary or appropriate under applicable law, and to allow such disclosure to be disseminated to, and reviewed by, the Company stockholders or the Hospitality stockholders, as applicable prior to the special meetings;

 

   

if there are insufficient shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the special meetings; or

 

   

to allow reasonable additional time to solicit additional proxies in favor of the adoption of the merger agreement to the extent the Company board or the Hospitality board, as applicable, or any committee thereof reasonably believes necessary in order to obtain the requisite vote;

provided that, in the case of the second and third bullet points above, without the written consent of Parent, in no event will the special meetings (as so adjourned, delayed or postponed) be held on a date that is more than 30 days after the date for which the special meetings were originally scheduled.

Unless the merger agreement has been terminated in accordance with its terms, the Company must mail this joint proxy statement to holders of our paired shares and hold its special meeting regardless of whether the Company board has withdrawn, modified or amended the Company board recommendation, and if the requisite Company vote has been obtained, Hospitality must hold its special meeting regardless of whether the Hospitality board has withdrawn, modified or amended the Hospitality board recommendation.

Unless the merger agreement has been terminated in accordance with its terms, the Company is required to (1) appear at the Hospitality special meeting or otherwise cause the Hospitality class A common stock it holds to count for purposes of establishing a quorum, (2) vote the Hospitality class A common stock in favor of the Hospitality merger, (3) vote the Hospitality class A common stock against (i) any acquisition proposal or other proposal made in opposition to, in competition with, or inconsistent with the merger agreement or the transactions contemplated thereby, (ii) any proposal for any recapitalization, reorganization, liquidation, merger, sale of assets, or other business combination between Hospitality and any other person, other than the Hospitality merger and (iii) any other action that would reasonably be expected to impede, interfere with, delay, postpone or adversely affect the transactions contemplated by the merger agreement or result in a breach of any covenant, representation or warranty or other obligation or agreement of Hospitality under the merger agreement and (iv) not transfer the shares of Hospitality class A common stock held by it.

 

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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 consummate the mergers as promptly as practicable and to cooperate with each other in connection with the foregoing, including using reasonable best efforts to:

 

   

obtain any necessary consents, approvals, orders, exemptions and authorizations by or from any public or private third party, including, without limitation, any that are required to be obtained under any federal, state or local law or any contract to which we or any of our subsidiaries is a party or by which our or any of their respective properties or assets are bound;

 

   

defend all lawsuits or other legal proceedings challenging the merger agreement or the consummation of the mergers;

 

   

effect all necessary registrations and antitrust filings and make submissions of information requested by any governmental entity; and

 

   

cause to be lifted or rescinded any order adversely affecting the ability of the parties to the merger agreement to consummate the mergers.

The parties to the merger agreement have also agreed to make or cause to be made as soon as practicable, and in any event within ten business days following the date of the merger agreement, all necessary filings (or draft filings or initial submissions, as applicable or advisable) required under antitrust laws in Finland, Ireland and Spain. The receipt of these approvals is not a condition to the consummation of the mergers. For more information see the section entitled “Regulatory Matters.”

Notwithstanding the foregoing, Parent, MergerCo 1 and MergerCo 2 are not required or obligated to effect or agree to effect any sale, divestiture or disposition or any other action that limits their freedom of action with respect to, or their ability to retain, any businesses, services or assets of the Paired Entities (or their respective subsidiaries), or, effective as of the effective time, the Company surviving corporation or the Hospitality surviving corporation (or their respective subsidiaries), or any interests therein. Further, nothing in the merger agreement requires Parent or its subsidiaries to take or agree to take any action with respect to Parent or its affiliates, other than us, our subsidiaries, the Company surviving corporation and the Hospitality surviving corporation (and their subsidiaries).

In connection with obtaining any required consent in connection with the transactions contemplated by the merger agreement from any third party, neither we nor our subsidiaries are permitted to pay or commit to pay to such party any cash or other consideration, make any commitment or incur any liability or other obligation, unless Parent has provided its prior written consent. In addition, none of Parent or any of its affiliates will be required to pay or commit to pay to such 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 third party.

In addition, in the event that any party to the merger agreement fails to obtain any third-party consent, the parties to the merger agreement will use commercially reasonable efforts to minimize any adverse effect upon us and Parent and our and its respective affiliates and businesses resulting, or which would reasonably be expected to result, after the effective time, from the failure to obtain such third-party consent.

We have agreed to keep Parent reasonably informed regarding any securityholder litigation relating to the merger agreement, the mergers or the other transactions contemplated by the merger agreement. We will promptly advise Parent in writing of the initiation of and any such litigation, and will reasonably consult with and permit Parent and its representatives to participate in the defense, negotiations or settlement of, any such litigation, and we will consider in good faith Parent’s advice with respect to such litigation. 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 litigation unless Parent otherwise consents in writing (which will not be unreasonably withheld, conditioned or delayed).

 

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Restriction on Solicitation of Acquisition Proposals

We have agreed that, from the date of the merger agreement until the earlier of the effective time and the termination of the merger agreement and subject to the provisions described below, we and our subsidiaries will not, we will cause our and their officers and directors not to, and will instruct and use our commercially reasonable efforts to cause our and their subsidiaries’ employees, consultants, accountants, legal counsel, investment bankers, agents and other representatives (which we refer to, collectively, as the “representatives”) not to, directly or indirectly through any other person:

 

   

initiate, solicit, knowingly encourage or knowingly facilitate any inquiries, discussions or requests regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal (an “inquiry”);

 

   

engage in, continue or otherwise participate in any discussions or negotiations regarding, or that could reasonably be expected to lead to, an acquisition proposal, or provide any non-public information or data concerning us or our subsidiaries to any person in connection with the foregoing, in each case, except to notify such person of the existence of the restrictions described in this section “—Restriction on Solicitation of Acquisition Proposals”;

 

   

otherwise knowingly facilitate in any way any effort or attempt to make an acquisition proposal or inquiry;

 

   

approve or recommend an acquisition proposal;

 

   

enter into any letter of intent, memorandum of understanding, agreement in principle, 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 an acquisition proposal or requiring either of us to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement (which we refer to as an “alternative acquisition agreement”); or

 

   

resolve or agree to do any of the foregoing.

Prior to the approval of the mergers and the other transactions contemplated by the merger agreement by our stockholders and subject to our compliance with the provisions described in this section “—Restriction on Solicitation of Acquisition Proposals,” if we receive an unsolicited bona fide written acquisition proposal after the date of the merger agreement that did not result from a breach of the obligations described above under this section “—Restriction on Solicitation of Acquisition Proposals,” and the Company board and the Hospitality board determine in good faith, after consultation with their financial advisor and outside legal counsel, that failure to take such action, in light of the acquisition proposal and the terms of the merger agreement, would be inconsistent with the directors’ fiduciary duties under applicable law and the Company board and the Hospitality board have determined in good faith based on information then available and after consultation with their financial advisor and outside legal counsel that such acquisition proposal either constitutes a superior proposal or would reasonably be expected to result in a superior proposal, then we, our subsidiaries and our and their representatives may:

 

   

provide information (to such person, its representatives, affiliates and its prospective financing sources) if, prior to providing such information, we receive from the person so requesting such information a confidentiality agreement on terms not less restrictive to such person than those contained in our existing confidentiality agreement with Blackstone Real Estate Services L.L.C. or with Starwood Capital Group Global, LLC; it being understood that such confidentiality agreement need not include explicit or implicit standstill provisions that would restrict the making, amendment or modification of a confidential acquisition proposal (which we refer to as an “acceptable confidentiality agreement”) and any such non-public information has previously been made available to Parent or will be made available to Parent prior to, or substantially concurrently with (and in any event within 48 hours of), the time such information is made available to such person, its representatives, affiliates and its prospective financing sources; or

 

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engage in or otherwise participate in any discussions or negotiations with any person or group of persons who has made such an acquisition proposal.

We will notify Parent promptly (and, in any event, within 48 hours) if any acquisition proposal or any proposal, offer or other inquiry with respect to, or that may be reasonably expected to lead to, an acquisition proposal is received by, any non-public information in connection therewith is requested from, or any such discussions or negotiations related thereto are sought to be initiated or continued with, either of us by any person indicating, in connection with such notice, the name of such person or group of persons making the acquisition proposal or the proposal, offer or other inquiry and providing copies of any written requests, proposals or offers or other inquiry, including proposed agreements, and the material terms and conditions of any proposals or offers (or, if not made in writing, a reasonably detailed written description thereof). We will also (1) promptly (and in any event within 48 hours) notify Parent if either of us enters into discussions or negotiations concerning any acquisition proposal or provides nonpublic information to any person, in each case subject to the obligations described above under this section “—Restriction on Solicitation of Acquisition Proposals,” (2) keep Parent reasonably informed of any material developments, material discussions or material negotiations regarding any acquisition proposal, including any amendments thereto and (3) keep Parent reasonably informed on a reasonably current basis of the status of any such discussions or negotiations. Neither we nor any of our subsidiaries will, after the date of the merger agreement, enter into any confidentiality or similar agreement that would prohibit us or it from providing such information to Parent.

For purposes of the merger agreement, “superior proposal” means a bona fide written acquisition proposal (except that each reference to “15% or more” in the definition of “acquisition proposal” will be replaced by “50% or more”) that our boards of directors determine in their good faith judgment, after receiving the advice of their financial advisor and outside legal counsel, and after taking into account all the terms and conditions of the acquisition proposal, (1) would result, if consummated, in a transaction that is more favorable to the holders of paired shares (solely in their capacity as such) from a financial point of view than those contemplated by the merger agreement (including any revisions to the merger agreement that are proposed in writing by Parent in response thereto and any other information provided by Parent) and (2) is reasonably likely to be consummated, after 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 transactions contemplated by the merger agreement) and (z) any revisions to the merger agreement that are proposed in writing by Parent in response thereto and any other information provided by Parent.

The merger agreement provides that we may grant a limited waiver of any explicit or implicit standstill provision to which either of us are a party solely to allow the applicable counterparty to make a nonpublic acquisition proposal to our boards of directors to the extent that our boards of directors determine in good faith, after consultation with their financial advisor and outside legal counsel, that the failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law.

The merger agreement also provides that we and our boards of directors will not take any actions to exempt any person from or render inapplicable (x) the restrictions on “Business Combinations” or the “Ownership Limit,” (as such terms are defined in our respective certificates of incorporation) or (y) any other “fair price,” “business combination” or “control share acquisition” statute or other similar statute or regulation, in each case, unless such actions are taken concurrently with the termination of the merger agreement in accordance with the provisions described in the first bullet point of “—Termination of the Merger Agreement—Termination by the Company.”

Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations

Except in the circumstances and pursuant to the procedures described below, neither the Company board nor the Hospitality board, nor any committee thereof, will:

 

   

withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent, the Company board recommendation or the Hospitality board recommendation, as applicable;

 

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authorize, approve, adopt or recommend or otherwise declare advisable (or publicly propose or resolve to authorize, approve, adopt or recommend or otherwise declare advisable) any acquisition proposal;

 

   

fail to include the Company board recommendation or the Hospitality board recommendation in this joint proxy statement; or

 

   

except as expressly permitted by, and after compliance with the provisions described under “—Restriction on Solicitation of Acquisition Proposals” and “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations,” authorize, approve, adopt or recommend or otherwise declare advisable (or publicly propose or resolve to authorize, approve, adopt or recommend or otherwise declare advisable), or cause or permit us or any of our subsidiaries to enter into, any alternative acquisition agreement (other than an acceptable confidentiality agreement entered into in compliance with the provisions described under “—Restriction on Solicitation of Acquisition Proposals”).

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

Prior to obtaining the requisite vote, our boards of directors may:

 

   

make a change of recommendation if an intervening event has occurred and if, after consulting with their financial advisor and outside legal counsel, either the Company board or the Hospitality board determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with such directors’ fiduciary duties under applicable law; or

 

   

if we have not breached the provisions described under “—Restriction on Solicitation of Acquisition Proposals” or “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” in any material respect, make a change of recommendation and/or terminate the merger agreement pursuant to the first bullet point under “—Termination of the Merger Agreement—Termination by the Company” if we receive an acquisition proposal (not resulting from a breach of the provisions described under “—Restriction on Solicitation of Acquisition Proposals” or “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations”) that our boards of directors have determined in good faith, after consulting with their financial advisor and outside legal counsel:

 

   

constitutes a superior proposal after having complied with, and giving effect to all of the adjustments which may be offered by Parent pursuant to, the provisions under this section “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” and such acquisition proposal is not withdrawn, and

 

   

the failure to take such action would be reasonably likely to be inconsistent with such directors’ fiduciary duties under applicable law.

Notwithstanding the foregoing, we may not take any such action unless, prior to making such change of recommendation or authorizing such termination of the merger agreement to enter into a definitive written agreement providing for the implementation of such superior proposal pursuant to the first bullet point under “—Termination of the Merger Agreement—Termination by the Company”:

 

   

we have provided prior written notice (which we refer to as a “notice period commencement notice”) to Parent at least four business days in advance (which we refer to as the “notice period”) of our intention to take such action, which notice shall include, in the case of a superior proposal, the name of the person or group making the superior proposal and substantial final draft of the definitive agreement reflecting such superior proposal and, in the case of an intervening event, a reasonably detailed description of such intervening event;

 

   

if requested by Parent, during the notice period we will, and will direct our representatives to, negotiate with Parent in good faith should Parent propose to make amendments or other revisions to the terms

 

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and conditions of the merger agreement such that, in the case of a superior proposal, such acquisition proposal no longer constitutes a superior proposal and, in the case of an intervening event, the failure to take such action is no longer reasonably likely to be inconsistent with the directors’ fiduciary duties under applicable law as determined in the good faith judgment of our boards of directors after consulting with their financial advisor and outside legal counsel; and

 

   

our boards of directors have taken into account any amendments or other revisions to the terms and conditions of the merger agreement agreed to by Parent in writing prior to the end of the notice period and (1) our boards of directors have determined in good faith that, after consulting with their financial advisor and outside legal counsel, in the case of an intervening event, a failure to make such change of recommendation continues to be reasonably likely to be inconsistent with the directors’ fiduciary duties under applicable law and (2) our boards of directors have determined in good faith that, after consulting with their financial advisor and outside legal counsel, in the case of an acquisition proposal, the acquisition proposal giving rise to such change of recommendation continues to constitute a superior proposal and the failure to make such change of recommendation continues to be inconsistent with the directors’ fiduciary duties under applicable law.

Any change to the financial terms or any other material amendments or other material revisions to any acquisition proposal will be deemed to be a new acquisition proposal, including for purposes of the notice period, except that, subsequent to the initial notice period, the notice period is reduced to two business days following receipt by Parent of any such new notice period commencement notice.

For purposes of the merger agreement, “intervening event” means a material event, fact, development, change in circumstance or occurrence with respect to us or any of our subsidiaries that (1) is neither known, nor reasonably foreseeable, by either of our boards of directors, as applicable, as of or prior to the execution and delivery of the merger agreement and (2) first occurs, arises or becomes known to either of our boards of directors, as applicable, after the execution and delivery of the merger agreement and on or prior to the approval of the merger and the other transactions contemplated by the merger agreement by our 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 acquisition proposal or any matter relating thereto or consequence thereof; and

 

   

changes in the market price or trading volume of the paired 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 underlying causes of such change or fact shall not be excluded by the provision described in this bullet point).

No provisions described under “—Restriction on Solicitation of Acquisition Proposals” and “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” will prohibit the Company or either of our boards of directors from (i) taking and disclosing a position contemplated by Rule 14d-9, Rule 14e-2(a)(2) or (3) or Item 1012(a) of Regulation MA promulgated under the Exchange Act (or any similar communications to our stockholders) or (ii) making any disclosure that constitutes a “stop, look and listen” communication pursuant to Section 14d-9(f) promulgated under the Exchange Act (or any similar communications to our stockholders), which actions will not constitute or be deemed to constitute a change of recommendation; provided, that we publicly and expressly reaffirm the Company board recommendation and the Hospitality board recommendation in such disclosure; and provided, further, that neither we nor our boards of directors will be permitted to recommend that our stockholders tender any securities in connection with any tender offer or exchange offer that is an acquisition proposal or otherwise effect a change of recommendation with respect thereto, except as permitted by the provisions described above.

 

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Employee Benefits

Through at least the first anniversary of the closing date, Parent and its subsidiaries will (1) provide each employee of us and our respective subsidiaries who remain employed after the effective time (each of which we refer to as a “continuing employee”) with at least the same level of base salary and target annual cash incentive compensation opportunity that was provided to each such continuing employee immediately prior to the effective time, and (2) to the extent permitted by applicable law, provide the continuing employees with employee benefits (other than equity-based compensation, severance, and long-term incentive compensation) that are substantially comparable in the aggregate to those provided to such continuing employees immediately prior to the effective time; provided, that (x) if we or our respective subsidiaries institute temporary reductions to base salary or wage rate or target annual cash incentive opportunity before the effective time in response to the COVID-19 pandemic, Parent can maintain such reductions for such period as Parent determines in good faith is appropriate in light of the COVID-19 pandemic, and (y) Parent may institute temporary reductions to base salary or wage rate or target annual cash incentive opportunity following the effective time in response to the COVID-19 pandemic and may maintain such reductions for such period as Parent determines in good faith is appropriate in light of the COVID-19 pandemic.

On and after the effective time, each continuing employee will receive credit for all purposes (including, for purposes of eligibility to participate, vesting, benefit accrual and eligibility to receive benefits, but excluding benefit accruals under any defined benefit pension plan) under any employee benefit plan, program or arrangement established or maintained by Parent, us, or any of its or our respective affiliates under which each continuing employee may be eligible to participate on or after the effective time to the same extent recognized by us, or any ERISA affiliate, as applicable, under corresponding employee benefit plans of us, and our respective subsidiaries immediately prior to the effective time. Such plan, program or arrangement will credit each such continuing employee for service accrued or deemed accrued on or prior to the effective time with us or any ERISA affiliate, as applicable; provided, however, that such crediting of service will not operate to duplicate any benefit or the funding of any such benefit.

Without limiting any of the foregoing, Parent and its subsidiaries will provide severance benefits to each continuing employee who is terminated during the one-year period immediately following the effective time in an amount that is at least equal to the severance benefits that would have been paid to such continuing employee pursuant to the terms of certain applicable severance plans and arrangements of us and our respective subsidiaries.

Parent and its subsidiaries will (1) credit each continuing employee with an amount of paid vacation and sick leave days following the effective time equal to the amount of vacation time and sick leave days each such continuing employee has accrued but has not yet used or cashed out under our vacation and sick leave plans, and (2) allow each continuing employee to use such accrued vacation and sick leave days at such times as each would have been allowed under our vacation and sick leave policies as in effect immediately prior to the effective time.

With respect to the welfare benefit plans, programs and arrangements maintained, sponsored or contributed to by Parent or its subsidiaries in which a continuing employee may be eligible to participate on or after the effective time, Parent will (1) waive, or cause its insurance carrier to waive, all limitations as to preexisting and at-work conditions, if any, with respect to participation and coverage requirements applicable to each continuing employee under any such plan, program, and arrangement to the same extent waived under a corresponding employee benefit plan of ours or our subsidiaries’, and (2) provide credit to each continuing employee for any co-payments, deductibles and out-of-pocket expenses paid by such continuing employee under our or our subsidiaries’ employee benefit plans during the relevant plan year, up to and including the effective time.

Parent and its subsidiaries will, at or immediately following the closing date, make a payment under the Extended Stay America, Inc. Annual Incentive Plan (which we refer to as the “AIP”) in respect of the 2021 “Performance Period” (as defined in the AIP) (which we refer to as the “2021 AIP bonuses”) to each continuing

 

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employee who holds a position below Vice President and who is actively participating in the AIP as of immediately prior to the effective time (which employee we refer to as a “Below VP AIP participant”), in an amount equal to the prorated portion of the 2021 AIP bonuses based on the portion of the year ending on the closing date and with (1) achievement of objective performance goals determined at the greater of (x) actual level of achievement as of the closing date measured against the applicable performance goal, prorated through the closing date and (y) the target level of achievement, and (2) achievement of subjective performance goals determined at the target level.

With respect to each continuing employee (other than a Below VP AIP participant) who as of immediately prior to the effective time either (1) participates in the AIP and holds a position of Vice President or above or (2) participates in an annual cash bonus plan other than the AIP (each of which plans we refer to as an “other bonus plan”), Parent and its subsidiaries will administer the AIP or other bonus plan in accordance with the terms of such plans in effect on the date of the merger agreement, and each such continuing employee will be eligible to receive a payment under such plans in accordance with the provisions of the applicable plan or arrangement.

Following the date of the merger agreement and through the period prior to the effective time, we and Parent will discuss in good faith the appropriate treatment of the retention programs that will apply to the continuing employees following the effective time.

Financing Cooperation

The consummation of the mergers is not conditioned upon Parent’s receipt of financing. Pursuant to the merger agreement, we will, and will cause our subsidiaries to, use our or their respective commercially reasonable efforts, and will use commercially reasonable efforts to cause our and our subsidiaries’ representatives to, provide customary 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’ owned or ground leased properties (which we refer to as the “debt financing”), including by using commercially reasonable efforts to:

 

   

make our and our subsidiaries’ senior management available for a reasonable number of due diligence sessions and for participation in a reasonable number of road shows, lender presentations and sessions with rating agencies and prospective lenders;

 

   

deliver to Parent and its potential financing sources for the debt financing (whom we refer to as the “financing sources”) such financial, statistical and other pertinent information and projections relating to us and our subsidiaries as may be reasonably requested by Parent, and as is customarily delivered in connection with a financing of the applicable type;

 

   

execute and deliver authorization letters permitting the distribution of information to financing sources and prospective lenders or investors;

 

   

provide documentation and other information relating to us and any of our subsidiaries which any lender or prospective lender has determined is required by bank regulatory authorities under applicable “know-your-customer” and anti-money laundering rules and regulations;

 

   

after obtaining the requisite vote, form new direct and indirect subsidiaries pursuant to documentation reasonably satisfactory to Parent and the Company;

 

   

as may be reasonably requested by Parent, and no earlier than immediately prior to the effective time and provided such actions would not adversely affect the tax status of us or any of our subsidiaries or cause us 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 acceptable to Parent and the Company;

 

   

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

 

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provide reasonable and customary assistance with respect to the granting of mortgages and security interests in collateral for the debt financing, and attempting to obtain any consents associated therewith (effective no earlier than the effective time);

 

   

to the extent reasonably requested by a financing source, attempt 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 such financing source;

 

   

cooperate in connection with the repayment or defeasance of any of our or our subsidiaries’ existing indebtedness as of the effective time and the release of related liens, including delivering such payoff, defeasance or similar notices under any of our or our subsidiaries’ existing loans as are reasonably requested by Parent (provided that we and our subsidiaries will not be required to deliver any notices that are not conditioned on the occurrence of the effective time);

 

   

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

 

   

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, any financing source, their respective representatives, nor any other person 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);

 

   

assist Parent and its financing sources with the preparation of 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 debt financing;

 

   

reasonably cooperate with the marketing efforts of Parent and its financing sources for any debt financing to be raised by Parent to complete the mergers and the other transactions contemplated by the merger agreement; and

 

   

facilitate, effective no earlier than the effective time, the execution and delivery of definitive financing, pledge security and guarantee documents relating to the debt financing.

Without our prior written consent, Parent’s debt financing may not exceed $5 billion. In addition, 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 of the following actions:

 

   

make any representation, warranty or certification, as to which, after our use of commercially reasonable efforts to cause such representation, warranty or certification to be true, we have determined in our good faith that such representation, warranty or certification is not true;

 

   

pay any commitment, documentation, due diligence or other similar fee, or incur any liability to any financing source in connection with Parent’s debt financing prior to the effective time (except for such fees and expenses that we are reimbursed by Parent for);

 

   

except for documentation specified in the third, fourth, fifth, sixth, tenth and fifteenth bullets in the preceding sentence, require any of our or our subsidiaries’ directors, officers or employees to execute any document, agreement, certificate or instrument;

 

   

issue any offering documents, private placement memoranda, bank information memoranda, prospectuses and similar documents required in relation to the debt financing;

 

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have either of our boards of directors prior to the effective time adopt resolutions approving the agreements, documents and instruments pursuant to which the debt financing is obtained, except as expressly contemplated by the merger agreement;

 

   

permit any inspection, or disclose any information, that in our reasonable judgement would result in the disclosure of trade secrets of third parties or violate any of our obligations of confidentiality; and

 

   

disclose any privileged or protected (including attorney-client privilege, attorney work-product protections and confidentiality protections) information of ours or our subsidiaries (provided that we will use commercially reasonable efforts to allow for such disclosure to information in this and the immediately preceding bullet in a manner that does not result in the events set out in this or the immediately preceding bullet point).

Pre-Closing Transactions

The merger agreement requires that we use commercially reasonable efforts to provide such cooperation and assistance as Parent may reasonably request to (1) convert any of our wholly owned subsidiaries organized as a corporation or limited partnership into a limited liability company on the basis of organizational documents as reasonably requested by Parent, (2) sell or cause to be sold stock, partnership interests, limited liability interests owned or other equity interests owned, directly or indirectly, by us in any wholly owned subsidiary on terms designated by Parent provided that such terms reflect reasonably fair value for the stock or other interests sold, or (3) exercise any of our or our subsidiaries’ rights to terminate or cause to be terminated any contract to which we or one of our wholly-owned subsidiaries is a party and (4) sell or cause to be sold any of our or our wholly owned subsidiaries’ assets on terms designated by Parent provided that such terms reflect reasonably fair value of the assets sold.

These rights of Parent are limited, however, in that (1) Parent may not require us or any of our subsidiaries to take any action that contravenes any of our or any of our subsidiaries’ organizational documents, material contracts or applicable law, (2) any such conversions, exercises of any rights of termination or other terminations, sales or transactions must be contingent upon all conditions to the mergers under the merger agreement having been satisfied or waived and our receipt of a written notice from Parent to such effect and that Parent, MergerCo 1 and MergerCo 2 are prepared to proceed immediately with the closing of the mergers and any other evidence reasonably requested by us that the closing of the mergers will occur, (3) these actions (or the inability to complete them) will not affect or modify the obligations of Parent, MergerCo 1 and MergerCo 2 under the merger agreement, including the amount of or timing of the payment of the merger consideration, (4) we and our subsidiaries will not be required to take any action that could adversely affect Hospitality’s classification, or the classification of any of our subsidiaries that is classified as a REIT, as a REIT within the meaning of the Code or that could subject Hospitality or any such subsidiary to any “prohibited transactions” taxes or certain other material taxes under the Code (or other material entry-level taxes), and (5) we and our subsidiaries will not be required to take any such action that could result in any U.S. federal, state or local income tax being imposed on any holder of shares of Hospitality class A common stock or Hospitality class B common stock other than us or any of our subsidiaries (except with respect to dividends expressly permitted by the merger agreement). Parent will, promptly upon our request, reimburse us for all reasonable out-of-pocket costs incurred by us or our subsidiaries in connection with our or our subsidiaries’ performance of these obligations.

Special Dividend

The merger agreement requires that, upon the written request of Parent at least 10 business days prior to the closing date, the Company board will declare a special dividend to the Company stockholders in an aggregate amount specified by Parent that represents the Company’s estimated amount of current and accumulated earnings and profits, or such lesser amount specified by Parent, though such amount will not exceed the lesser of (1) $1.75 per share of Company common stock and (2) an aggregate amount of cash then available to the Company (after

 

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taking into account any amount that can be drawn under the existing revolving facilities and any new debt facility, as described below). The special dividend will be payable immediately prior to the effective time to holders of record of shares of Company common stock as of immediately prior to the open of business on the closing date. The Company merger consideration will be reduced by the amount of such special dividend. Prior to the closing, at Parent’s request, we will cooperate with Parent for the Company to enter into a new debt facility and borrow thereunder in an amount sufficient so that, together with the amount of cash then available to the Company including amounts that can be drawn under our existing revolving facilities, the cash available to pay the special dividend will at least equal the lesser of (1) the Company’s estimated amount of current and accumulated earnings and profits and (2) $1.75 per share of Company common stock.

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 joint proxy statement with the SEC, and cooperation in preparing this joint proxy statement

 

   

and in responding to any comments received from the SEC on this joint 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;

 

   

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

 

   

notification of certain matters;

 

   

certain tax matters;

 

   

the obtaining of resignations from the members of the Company board, the Hospitality board and boards of our subsidiaries; and

 

   

the redemption of our existing senior notes outstanding as of the date of the merger agreement.

Conditions to the Mergers

The obligations of the parties to complete the mergers are subject to the satisfaction or waiver of the following mutual conditions:

 

   

the merger and the other transactions contemplated by the merger agreement must be approved by the affirmative vote of the holders of (1) Company common stock and (2) Hospitality class A common stock and Hospitality class B common stock, voting together as a single class, entitled to vote at the respective special meetings; and

 

   

no governmental entity of competent jurisdiction has enacted, issued, or entered any order (whether temporary, preliminary or permanent) or any law which remains in effect and that restrains, enjoins or otherwise prohibits the consummation of the mergers.

The obligations of Parent, MergerCo 1 and MergerCo 2 to complete the mergers are further subject to the satisfaction or waiver of the following conditions:

 

   

our representations and warranties must be true and correct (determined without regard to any materiality or Company material adverse effect qualifications therein) as of the date of the merger

 

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agreement and as of the closing date, as though made on and as of the closing date (except to the extent such representations or warranties relate to a specific date or time, in which case such representation or warranty need only be so true and correct at and as of such date or time), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, have a Company material adverse effect, except for (1) certain of our representations and warranties regarding our and our subsidiaries’ capitalization, which must be true and correct in all material respects as of the date of the merger agreement and as of the closing date, as though made on and as of the closing date (except to the extent such representations or warranties relate to a specific date or time, in which case such representation or warranty need only be so true and correct at and as of such date or time) and (2) our representation and warranty regarding the absence of a Company material adverse effect, which must be true and correct in all respects as of the date of the merger agreement and as of the closing date, as though made on and as of the closing date, and Parent must have received a certificate signed on behalf of each of us by an executive officer of each of us, dated as of the closing date, to the foregoing effect;

 

   

we must have performed and complied, in all material respects, with all of our agreements and covenants required by the merger agreement to be performed or complied with by us at or prior to the closing, and Parent must have received a certificate signed on behalf of each of us by an executive officer of each of us, dated as of the closing date, to the foregoing effect;

 

   

from the date of the merger agreement, there has not been any event, circumstances, change, development or effect that has had, or would reasonably be expected to have, a Company material adverse effect; and

 

   

Hospitality must have received an opinion of our counsel, Fried, Frank, Harris, Shriver & Jacobson LLP or such other law firm reasonably acceptable to Parent, dated as of the closing date, to the effect that commencing with its taxable year ended December 31, 2010, Hospitality has been organized in conformity with the requirements for qualification as a REIT under the Code, and its current and proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT under the Code until immediately prior to the closing (assuming that Hospitality’s taxable year ended immediately prior to the closing).

Our obligations to complete the mergers are further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Parent, MergerCo 1 and MergerCo 2 must be true and correct in all respects (without regard to any materiality qualifications set forth therein) as of the date of the merger agreement and as of the closing date, as though made on and as of the closing date (except to the extent such representations or warranties expressly relate to a specific date or time, in which case such representations or warranties need only be so true and correct at and as of such date or time), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to be materially adverse to the ability of Parent, MergerCo 1 or MergerCo 2 to consummate the mergers prior to September 14, 2021, and we must have received a certificate signed on behalf of each of Parent, MergerCo 1 and MergerCo 2 by an executive officer of each, dated as of the closing date, to the foregoing effect; and

 

   

each of Parent, MergerCo 1 and MergerCo 2 must have performed and complied in all material respects with all of the agreements and covenants required by the merger agreement to be performed or complied with by it at or prior to the closing, and we must have received a certificate signed on behalf of each of Parent, MergerCo 1 and MergerCo 2 by an executive officer of each, dated as of the closing date, to the foregoing effect.

 

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Termination of the Merger Agreement

We and Parent may mutually agree to terminate and abandon the merger agreement at any time prior to the effective time, even after we have obtained the requisite vote.

Termination by either the Company or Parent

We, on the one hand, or Parent, on the other hand, may terminate and abandon the merger agreement at any time prior to the effective time by written notice to the other, even after we have obtained the requisite vote:

 

   

if the requisite vote has not been obtained at a duly held Company special meeting or any adjournment or postponement thereof at which the adoption of the merger agreement is voted on;

 

   

if any governmental entity of competent jurisdiction has enacted, issued or entered, since the date of the merger agreement, any order or law that permanently restrains, enjoins or otherwise prohibits the consummation of the mergers, and such order or law shall have become final and non-appealable; provided, however, that the right to terminate the merger agreement pursuant to this bullet point is not available to (1) us, if our failure to comply with any provision of the merger agreement is the primary cause of, or results in, such order or law or (2) Parent, if Parent’s, MergerCo 1’s or MergerCo 2’s failure to comply with any provision of the merger agreement is the primary cause of, or results in, such order or law; or

 

   

if the mergers have not been consummated by September 14, 2021; provided, however, that the right to terminate the merger agreement under this bullet point is not available to (1) us, if our failure to comply with any provision of the merger agreement is the primary cause of, or results in, the failure to consummate the mergers on or before September 14, 2021, or (2) Parent, if Parent’s, MergerCo 1’s or MergerCo 2’s failure to comply with any provision of the merger agreement is the primary cause of, or results in, the failure to consummate the mergers on or before September 14, 2021.

Termination by the Company or Hospitality

We may also terminate and abandon the merger agreement by written notice to Parent at any time prior to the effective time, even after we have obtained the requisite vote:

 

   

if, at any time prior to the obtaining of the requisite vote, (A) our boards of directors, after complying with the obligations described under “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” in connection with a superior proposal, authorize us to enter into a definitive written agreement providing for the implementation of a superior proposal, (B) we enter into a definitive written agreement for such superior proposal concurrently with or immediately after the termination of the merger agreement and (C) we, prior to or concurrently with such termination, pay to Parent the Company termination fee;

 

   

if neither the Company nor Hospitality is in breach in any material respect of its representations, warranties, covenants or other agreements in the merger agreement and Parent, MergerCo 1 or MergerCo 2 has breached in any respect any of their respective representations, warranties, covenants or other agreements in the merger agreement, which breach would be reasonably likely to result in those conditions to our obligations to effect the mergers (relating to Parent’s, MergerCo 1’s and MergerCo 2’s representations, warranties, covenants or agreements) being incapable of being satisfied by September 14, 2021; or

 

   

if all of the following requirements are satisfied:

 

   

all the mutual conditions to the parties’ obligations to effect the mergers and the additional conditions to the obligations of Parent, MergerCo 1 and MergerCo 2 to effect the mergers have been satisfied or waived by Parent (other than those conditions that by their terms or nature are to

 

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be satisfied at the closing, but provided such conditions to be satisfied at the closing would be satisfied as of the date of the notice described in the following sub-bullet if the closing were to occur on the date of such notice),

 

   

on or after the date the closing should have occurred in accordance with the merger agreement, we have irrevocably confirmed in writing to Parent that all of the mutual conditions to closing and the additional conditions to the obligations of Parent, MergerCo 1 and MergerCo 2 have been satisfied or waived by Parent (other than those conditions that by their terms or nature are to be satisfied at the closing, but provided such conditions to be satisfied at the closing would be satisfied as of the date of the notice described in this sub-bullet if the closing were to occur on the date of such notice) and we are both prepared to consummate the closing and

 

   

Parent fails to consummate the closing within three business days of the notice described in the preceding sub-bullet, and we were prepared to consummated the closing during such three business day period.

Termination by Parent, MergerCo 1 or MergerCo 2

Parent, MergerCo 1 or MergerCo 2 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:

 

   

if Parent, MergerCo 1 and MergerCo 2 are not in breach in any material respect of their respective representations, warranties, covenants or other agreements in the merger agreement and we have breached in any respect any of our respective representations, warranties, covenants or other agreements contained in the merger agreement and which breach would be reasonably likely to result in those conditions to the obligations of Parent, MergerCo 1 and MergerCo 2 to effect the mergers (relating to our representations, warranties, covenants or agreements) being incapable of being satisfied by September 14, 2021; or

 

   

if (1) either the Company board or the Hospitality board has effected, or resolved to effect, a change of recommendation, (2) we have failed to publicly recommend against any tender offer or exchange offer subject to Regulation 14D under the Exchange Act that constitutes an 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) the Company board or the Hospitality board, as applicable, has failed to publicly reaffirm the Company board recommendation or the Hospitality board recommendation, as applicable, within ten business days after the date an acquisition proposal shall have been publicly announced (or if the special meetings are scheduled to be held within ten business days from the date an acquisition proposal is publicly announced, promptly and in any event prior to the date on which the special meetings are scheduled to be held) or (4) we enter into an alternative acquisition agreement (other than an acceptable confidentiality agreement).

Termination Fees

Termination Fee Payable by the Company

We have agreed to pay the Company termination fee of $105,000,000 to Parent or its designee if:

 

   

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 Hospitality” in which case payment will be made before or concurrently with such termination and will be a condition to the effectiveness of such termination;

 

   

Parent terminates the merger agreement pursuant to the provision described in the second bullet point under “—Termination of the Merger Agreement—Termination by Parent, MergerCo 1 or MergerCo 2” in which case the payment will be made within 2 business days of such termination; or

 

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all of the following requirements are satisfied:

 

   

an acquisition proposal has been received by us or our representatives or any person has publicly made or publicly announced an intention (whether or not conditional) to make an acquisition proposal (and, in the case of a termination pursuant to the provision described in the first bullet point under “—Termination of the Merger Agreement—Termination by either the Company or Parent,” such acquisition proposal or publicly proposed or announced intention was made prior to the taking of a vote on the merger agreement by the Company’s stockholders);

 

   

we or Parent terminate the merger agreement pursuant to the provisions described in the first bullet point or the third bullet point under “—Termination of the Merger Agreement—Termination by either the Company or Parent” or Parent, MergerCo 1 or MergerCo 2 terminates the merger agreement pursuant to the provision described in the first bullet point under “—Termination of the Merger Agreement—Termination by Parent, MergerCo 1 or MergerCo 2”; and

 

   

within twelve months after such termination, either of us consummates, or enters into a definitive agreement for, any acquisition proposal,

in which case payment will be made within two business days of earlier of the consummation of or entry into a definitive agreement for any acquisition proposal. For purposes of this clause bullet point, the references to “15%” in the definition of “acquisition proposal” are deemed to be references to “50%.”

However, the Company termination fee will equal $61,250,000 if (1) the merger agreement is terminated by us as provided in the first bullet point above, (2) we have delivered to Parent prior to the Cut-off time a notice period commencement notice in accordance with the provisions described under “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations” of our intention to terminate the merger agreement pursuant to the provisions described in the first bullet point under “—Termination of the Merger Agreement—Termination by the Company or Hospitality” to enter into a definitive written agreement with respect to a superior proposal from an excluded party and (3) the merger agreement is so terminated to enter into a definitive written agreement providing for such or any amended superior proposal with such excluded party (and only if such person is an excluded party at the time of such termination) (which we refer to as an “excluded party termination”).

An “excluded party” is a person or group of persons from whom we or our representatives have received, after the execution of the merger agreement and prior to April 14, 2021, a bona fide written acquisition proposal that the Company board and the Hospitality board determine in good faith after consultation with their financial advisor and outside legal counsel prior to or within one business day after April 14, 2021, constitutes, or would reasonably be expected to lead to, a superior proposal and we provide written notice to Parent promptly (and in any event within 48 hours) of such determination (which we refer to as a “qualified proposal”); provided that we commence, at or prior to the Cut-off time, a notice period with respect to our intention to terminate the merger agreement pursuant to the first bullet point under “Termination of the Merger Agreement—Termination by the Company or Hospitality.”

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

 

   

such person’s or group of person’s qualified proposal is withdrawn, terminated or expires;

 

   

the last “excluded party notice period” with respect to such person or group of persons expires;

 

   

in the case of a group, 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; or

 

   

the Cut-off time occurs.

 

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“Cut-off time” means 11:59 p.m. (New York city time) on April 28, 2021 except that this date will be extended solely with respect to the excluded party making the qualified proposal to:

 

   

the last day of the notice period with respect to such qualified proposal if April 28, 2021 is during such notice of change period; or

 

   

the expiration of the last excluded party notice period with respect to such qualified proposal if April 28, 2021 is during an excluded party notice period.

An “excluded party notice period” means, with respect to an excluded party, a period of three business days commencing upon the expiration of the first notice period with respect to our intention to undertake an excluded party termination with respect to a qualified proposal that was submitted by such excluded party and that our boards of directors has determined constitutes a superior proposal in accordance with the procedures described in the section titled “—Obligations of the Company Board and the Hospitality Board with Respect to Their Recommendations.” However, if any new notice period is commenced before the expiration of the prior excluded party notice period with respect to our intention to undertake an excluded party termination with respect to such superior proposal, as materially revised, then a new excluded party notice period of two business days will commence upon the expiration of such new notice period (and another new excluded party notice period of two business days will commence upon the expiration of any further such new notice of change period that commences at or before the expiration of the prior excluded notice period).

If an excluded party notice period expires without a new notice period having commenced at or before such expiration, there will be no further excluded party notice periods with respect to such excluded party.

Termination Fee Payable by Parent

Parent has agreed to pay to us the Parent termination fee of $300,000,000 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 Hospitality” (or the merger agreement is terminated pursuant to the provisions described in the third bullet under “—Termination of the Merger Agreement—Termination by either the Company or Parent” in circumstances where we could have terminated 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 Hospitality”);

 

   

either Parent or we terminate the merger agreement pursuant to the second bullet under “—Termination of the Merger Agreement—Termination by either the Company or Parent” solely when such order or law is with respect to antitrust laws and at the time of such termination all conditions to the obligations of Parent, MergerCo 1 or Merger 2 have been satisfied or waived other than:

 

   

the condition described in the second bullet under “—Conditions to the Mergers” but solely in the case the order or law is in respect of the antitrust law,

 

   

if such termination occurs prior to the taking of a vote of the Company’s stockholders on the adoption of the merger agreement at the Company special meeting, the condition described in the first bullet under “—Conditions to the Mergers”, and

 

   

those conditions that by their terms or their nature are to be satisfied at the closing but provided such conditions to be satisfied at the closing would be capable of being satisfied as of the date of termination if the closing were to occur on the date of such notice; or

 

   

either Parent or we terminate pursuant to the third bullet under “—Termination of the Merger Agreement—Termination by either the Company or Parent” and at the time of such termination all conditions to obligations of Parent, MergerCo 1 or MergerCo 2 have been satisfied or waived (other than those conditions that by their terms or their nature are to be satisfied at the closing but provided

 

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such conditions to be satisfied at the closing would be capable of being satisfied as of the date of termination if the closing were to occur on the date of such notice) except for the condition described in the second bullet under “—Conditions to the Mergers” by reason of any order or law solely in respect of the antitrust law.

Guaranty and Remedies

In connection with the merger agreement, the Blackstone Sponsor and the Starwood Sponsor each 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 such guaranties.

The maximum aggregate liability of the Blackstone Sponsor and the Starwood Sponsor under its respective guaranty will not exceed $150,000,000, 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 such guaranty, if we prevail in such litigation or proceeding.

We cannot seek specific performance to require Parent, MergerCo 1 or MergerCo 2 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, MergerCo 1 or MergerCo 2 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, MergerCo 1 and MergerCo 2 may, however, seek specific performance to require us to complete the mergers.

Amendment and Waiver

The merger agreement may be amended by the parties thereto by an instrument in writing at any time before or after obtaining the requisite vote but, after obtaining the requisite vote, no amendment may be made which requires the approval of any such stockholders under applicable law without obtaining such further approvals. The merger agreement also provides that, at any time prior to the effective time, 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.

Support Agreement

In connection with the entry into the merger agreement, the Starwood Rollover Investor and Parent entered into the support agreement pursuant to which the Starwood Rollover Investor agreed to vote any covered shares in favor of the adoption of the merger agreement and the approval of the mergers and any other matters necessary or presented or proposed for consummation of the mergers and the other transactions contemplated by the merger agreement, and against any acquisition proposal and any other action that could reasonably be expected to impede, interfere with, delay, postpone or adversely affect the mergers or other transactions contemplated by the merger agreement or result in a breach of any covenant, representation or warranty or other obligation or agreement of the Company or Hospitality under the merger agreement or of the Starwood Rollover Investor under the support agreement. The Starwood Rollover Investor has agreed not to sell, transfer, pledge or otherwise dispose of the covered shares. The Starwood Rollover Investor has also agreed to waive any rights of appraisal or rights to dissent from the mergers that it may have. Each of the Company and Hospitality is a third-party beneficiary under the support agreement and may enforce the support agreement on its own behalf.

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MARKET PRICE OF OUR PAIRED SHARES

Our paired shares are listed on NASDAQ under the trading symbol “STAY.” On [                    ], 2021, there were approximately [                    ] holders of record. Certain of our paired shares are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The table below sets forth the quarterly high and low closing sales prices of the paired shares on NASDAQ for the periods indicated and the dividends declared by us with respect to the periods indicated.

 

     Range      Cash
Dividend per
Paired Share
 
Year    High      Low  

Fiscal Year Ended December 31, 2019

        

First Quarter

   $ 19.44      $ 15.18      $ .22  

Second Quarter

   $ 18.65      $ 16.33      $ .23  

Third Quarter

   $ 17.10      $ 13.73      $ .23  

Fourth Quarter

   $ 15.17      $ 14.14      $ .23  

Fiscal Year Ended December 31, 2020

        

First Quarter

   $ 14.95      $ 6.15      $ .23  

Second Quarter

   $ 12.33      $ 6.43      $ .01  

Third Quarter

   $ 12.88      $ 10.76      $ .01  

Fourth Quarter

   $ 14.81      $ 10.93      $ .01  

Fiscal Year Ending December 31, 2021

        

First Quarter

   $ 19.98      $ 14.04      $ .44  

Second Quarter (through [                    ], 2021)

   $        $        $    

On March 12, 2021, the last trading day prior to the date of the public announcement of the merger agreement, the reported closing price per share for the paired shares on NASDAQ was $16.94. On [                    ], 2021, the last trading day before the date of this joint proxy statement, the reported closing price per share for the paired shares on NASDAQ was $[            ]. You are encouraged to obtain current market quotations for our paired shares.

Under the terms of the merger agreement, we may not authorize, declare or pay any other dividends to the holders of our paired shares without the prior written consent of Parent, other than dividends reasonably required to maintain Hospitality’s status as a REIT under the Code or to avoid the payment of income or excise tax (with any such additional required dividend resulting in a corresponding decrease to the merger consideration). However, if the mergers are consummated after July 27, 2021 (or, earlier, under certain circumstances), holders of our paired shares will be entitled to receive an additional per diem amount of $0.001 for each day from and after such date until, but not including, the closing date, without interest and less any applicable withholding taxes. Such amount is meant to approximate the daily accrual of our regular quarterly dividend of $0.09 per paired share.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common shares, as of April 5, 2021, for (1) each person known to us to be the beneficial owner of more than 5% of our outstanding common shares based on the Schedule 13D, Schedule 13G, or any amendments thereto, filed with the SEC, (2) each of the Paired Entities’ directors, (3) each of the Paired Entities’ executive officers who is not a director and (4) the Paired Entities’ directors and executive officers as a group.

In accordance with SEC rules, each listed person’s beneficial ownership includes: