Item 1A. Risk Factors
Item 1A. Risk Factors
The Merger and related transactions may not be completed on the terms or timeline currently contemplated, or at all.
The completion of the Merger and related transactions are subject to certain conditions, including: (i) the approval of SAFE’s stockholders, (ii) the approval of the Company’s stockholders, (iii) completion of the spin-off, (iv) the approval of the shares of New SAFE common stock to be issued in the Merger for listing on the NYSE, (v) the effectiveness of the registration statement on Form S-4 registering the New SAFE common stock to be issued in the Merger, (vi) the absence of any temporary restraining order, injunction or other order of any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the reverse stock split or the Merger, (vii) generation of certain cash proceeds and repayment of the Company’s senior unsecured notes and preferred stock, (viii) the receipt of certain tax opinions by the Company and SAFE that the Merger will qualify as a reorganization under the Internal Revenue Code and that the Company and SAFE each qualifies as a REIT for federal income tax purposes, (ix) the accuracy of certain representations and warranties of the Company and SAFE contained in the Merger agreement and the compliance by the parties with the covenants contained in the Merger agreement (subject to customary materiality qualifiers), and (x) certain other conditions specified in the Merger agreement. The proposed sale of shares of SAFE common stock by the Company to MSD Partners is also subject to certain closing conditions and if it did not close for any reason, the Company would have to identify new sources of funds in order to satisfy the condition to the Merger that the Company repay its senior unsecured notes and preferred stock. Neither the Company nor SAFE can provide assurances that the Merger and related transactions will be consummated on the terms or timeline currently contemplated, or at all.
Failure to complete the Merger and related transactions could adversely affect the stock prices and the future business and financial results of the Company and SAFE.
If the Merger and related transactions are not completed, the ongoing businesses of the Company or SAFE may be adversely affected and the Company and SAFE will be subject to numerous risks, including the following:
● upon termination of the Merger agreement under specified circumstances, a termination fee of $63 million may be payable by either the Company or SAFE;
● each of the Company and SAFE having to pay substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration preparation costs that have already been incurred or will continue to be incurred until the closing of the Merger;
● the management of each of the Company and SAFE focusing on the Merger instead of on pursuing other opportunities that could be beneficial to the companies, in each case, without realizing any of the benefits of having the Merger completed; and
● reputational harm due to the adverse perception of any failure to successfully complete the Merger.
If the Merger and related transactions are not completed, neither the Company nor SAFE can assure their respective stockholders that these risks will not materialize or will not materially affect the business, financial results and stock prices of either the Company or SAFE.
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SAFE will have the option to internalize the Company's management if the Merger has not occurred by the outside date under the Merger agreement.
If the Merger agreement is terminated because the Merger has not occurred by September 30, 2023, SAFE will have the option under certain circumstances to terminate the existing external management agreement and internalize the Company's management, which may adversely affect the Company. If SAFE exercises its option under the Merger agreement to become internalized, it must pay the Company $100.0 million, of which up to $60.0 million may be paid in cash, at SAFE’s discretion, with the remainder being paid in shares of SAFE common stock, which is less than the $150.0 million of consideration that was allocated to the existing management agreement in the negotiations of the Merger. If SAFE exercises this option, the Company would become externally-managed by SAFE pursuant to a management agreement that SAFE and the Company have agreed to negotiate in good faith. These changes in the Company's management structure may adversely affect the Company and the market value of its securities.
The Merger agreement contains provisions that could discourage a potential competing acquirer of either the Company or SAFE or could result in any competing proposal being at a lower price than it might otherwise be.
The Merger agreement contains provisions that, subject to limited exceptions, restrict the ability of each of the Company and SAFE to, directly or indirectly, initiate, solicit, propose, knowingly encourage or facilitate competing third-party proposals to effect, among other things, a Merger, reorganization, share exchange, consolidation or the sale of 15% or more of the stock or consolidated net revenues, net income or total assets of the Company or SAFE. In addition, either the Company or SAFE generally has an opportunity to offer to modify the terms of the Merger agreement in response to any competing “superior proposal” (as defined in “the Merger Agreement”) that may be made to the other party before the special committee of the boards of directors of the Company or SAFE, as the case may be, may withdraw or modify its recommendation in response to such superior proposal or terminate the Merger agreement to enter into such superior proposal. In some circumstances, one of the parties will be required to pay a substantial termination fee to the other party.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company or SAFE from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger agreement. In addition, the Company's significant ownership interest and voting power in SAFE could discourage a potential competing acquirer for SAFE.
The pendency of the Merger and related transactions could adversely affect the business and operations of the Company and SAFE.
In connection with the pending Merger and related transactions, some tenants, vendors or other counterparties of each of the Company and SAFE may delay or defer decisions, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of the Company and SAFE, regardless of whether the Merger is completed. Similarly, current and prospective employees of the Company and New SAFE may experience uncertainty about their future roles with New SAFE following the Merger and related transactions, which may materially adversely affect the ability of the Company to attract and retain key personnel during the pendency of the Merger and related transactions. In addition, due to interim operating covenants in the Merger agreement, each of the Company and SAFE may be unable (without the other party’s prior written consent), during the pendency of the Merger and related transactions, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
There were no other material changes from the risk factors previously disclosed in our 2021 Annual Report.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.