Item 1.01. Entry into a Material Definitive Agreement.
Merger Agreement
On February 27, 2017, Silver Bay Realty Trust Corp., a Maryland corporation, (the Company), Silver Bay Management LLC, a Delaware limited liability company (Company GP), and Silver Bay Operating Partnership L.P., a Delaware limited partnership (Company LP and together with the Company and Company GP, the Company Parties), entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Tricon Capital Group Inc., a company incorporated under the laws of the Province of Ontario (Ultimate Parent), TAH Acquisition Holdings LLC, a Delaware limited liability company (Parent), and TAH Acquisition LP, a Delaware limited partnership (Parent LP and, together with Ultimate Parent and Parent, the Parent Parties). Under the Merger Agreement, the Company will merge with and into Parent, with Parent being the surviving entity (the Merger). The board of directors of the Company has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each outstanding share of Company common stock, par value $0.01 per share (other than shares held by any Parent Party or any subsidiary thereof or any wholly-owned subsidiary of the Company), will be converted into the right to receive an amount in cash equal to $21.50, without interest (as the same may be adjusted, the Merger Consideration), subject to any applicable withholding tax, and each outstanding share of Company 10% cumulative redeemable preferred stock (Company Preferred Stock), par value $0.01 per share, will be converted into the right to receive an amount in cash equal to $1,000 per share, plus an amount equal to all dividends accrued and unpaid on such share of Company Preferred Stock immediately prior to the Merger effective time, without interest, subject to applicable withholding tax. The Merger Agreement also provides for the merger of Parent LP with and into Company LP, with Company LP being the surviving entity (the Partnership Merger).
In the Merger, the Parent Parties will not assume any unvested awards of Company common stock (the Company Restricted Stock Awards). At the Merger effective time, any issuance and forfeiture conditions, or other restrictions, on any shares of Company common stock subject to company restricted stock awards will be deemed satisfied in full, contingent upon the closing of the Merger, and such shares of Company common stock will be entitled to receive the Merger Consideration. In addition, the Parent Parties will not assume any performance restricted stock units that are subject to performance based vesting criteria representing the right to receive Company common stock (the Company PSUs), which include the aggregate restricted stock units granted as dividend equivalents that are subject to the same vesting conditions as the Company PSUs (the Company DER Units). Pursuant to the Merger Agreement, at the Merger effective time, each outstanding Company PSU will vest in accordance with the terms thereof (including all Company DER Units subject to the same vesting provisions as the Company PSUs) and become a right to receive an amount in cash, without interest and subject to any applicable withholding tax, equal to the product obtained by multiplying (i) the number of shares of Company common stock subject to such Company PSU as of immediately prior to the Merger effective time, after taking into account the vesting in connection with the Merger, by (ii) the Merger Consideration. To the extent the performance period relating to any such Company PSU has not expired as of the Merger effective time and the grant date of the Company PSU occurred less than 18 months prior to the Merger effective time, the number of shares of Company common stock in clause (i) above will be determined as if the total stockholder return applicable to such Company PSU was achieved at the target level of performance. To the extent the performance period relating to any such Company PSU has not expired as of the Merger effective time and the grant date of the Company PSU occurred 18 months or more prior to the Merger effective time, the number of shares of Company common stock in clause (i) will be determined as if the total stockholder return applicable to such Company PSU was achieved at the maximum level of performance. To the extent the performance period relating to any such Company PSU has expired as of the Merger effective time, the number of shares of Company common stock in clause (i) will be determined based on the actual achievement of all total stockholder return targets applicable to such Company PSU through the Merger effective time. Each such Company PSU will, as of immediately prior to the Merger effective time, no longer be subject to any issuance and forfeiture conditions, or other restrictions, and such holders will be entitled to receive the Merger Consideration.
The Merger Agreement contains various customary representations, warranties and covenants, including, among others, covenants with respect to the conduct of the Companys business prior to the closing.
The completion of the Merger and the Partnership Merger is subject to customary conditions, including, among others: (i) approval by a majority of the Companys stockholders; (ii) the absence of a material adverse effect on the Company; (iii) the receipt of a tax opinion relating to REIT status of the Company and (iv) the absence of any order, action or law by a
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governmental authority preventing, prohibiting, enjoining or making illegal the consummation of the Merger and the Partnership Merger.
The Company has also agreed not to (i) solicit proposals relating to certain alternative transactions, (ii) engage in discussions or negotiations or provide non-public information in connection with any proposal for an alternative transaction from a third party, or (iii) enter into any letter of intent, agreement in principle, merger agreement or other similar agreement with a third party providing for a proposal for an alternative transaction, subject to certain exceptions to permit the Companys board of directors to comply with its fiduciary duties. Notwithstanding these no-shop restrictions, prior to obtaining the Company stockholder approval, under specified circumstances the Companys board of directors may change its recommendation and terminate the Merger Agreement to accept a superior proposal upon payment of the termination fee described below.
The Merger Agreement may be terminated under certain circumstances, including by either party if the Merger and the Partnership Merger have not been consummated on or before July 27, 2017, if a final and non-appealable order is issued by any governmental authority enjoining or otherwise prohibiting the Merger or the Partnership Merger, or upon a material uncured breach by the other party that would cause certain of the closing conditions not to be satisfied. The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, the Company may be required to pay to Ultimate Parent a termination fee of $24.5 million, and Parent may be required to pay the Company a termination fee of $62.5 million.
A copy of the Merger Agreement is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement. The Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company Parties or the Parent Parties. In particular, the assertions embodied in the representations and warranties in the Merger Agreement were made as of a specified date, and in the case of the Company Parties, are modified or qualified by information in the confidential disclosure letter provided by the Company Parties to the Parent Parties in connection with the signing of the Merger Agreement, and, in each case, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Merger Agreement are not necessarily characterizations of the actual state of facts about the Company Parties or the Parent Parties at the time they were made or otherwise, and should only be read in conjunction with the other information that the Company makes publicly available in reports, statements and other documents filed with the Securities and Exchange Commission (SEC).
In connection with the execution of the Merger Agreement, Ultimate Parent has entered into a form of support agreement (the Support Agreement) with Irvin R. Kessler, Thomas Brock, Tanuja M. Denhe, Thomas E. Siering, W. Reid Sanders, Stephen G. Kasnet, Daryl J. Carter, Mark Weld and Lawrence B. Shapiro, in each case in their capacity as a stockholder of the Company and a holder of limited partnership interests of the Company LP, to the extent applicable (and not in any other capacity). The Support Agreement provides that the signatory stockholders thereto will generally vote their shares of Company common stock or Company OP Common Units in favor of the adoption of the Merger or any other transactions contemplated by the Merger Agreement. The Support Agreement terminates automatically with respect to each signatory on the earliest of (i) the Merger effective time (in the case of shares of Company common stock) or Partnership Merger effective time (in the case of Company OP Common Units), as the case may be, (ii) the valid termination of the Merger Agreement in accordance with its terms and (iii) the mutual written consent of Ultimate Parent and such signatory stockholder.
Amendment to Revolving Credit Agreement
On February 22, 2017, the Company entered into that certain Second Amendment (the Second Amendment) to the Amended and Restated Revolving Credit Agreement (the Revolving Credit Agreement), among certain subsidiaries of the Company as borrowers, Company LP, as master property manager, SB Financing Trust Owner LLC, as representative of the borrowers, Bank of America, National Association, as joint lead arranger, lender and agent for the lenders and JPMorgan Chase Bank, National Association, as joint lead arranger and lender, and acknowledged and accepted by the Company, SB Financing Trust and Company LP as guarantors. The Second Amendment delays until August 18, 2017 the requirement to use net proceeds from operations of the properties encumbered under the Revolving Credit Agreement to pay down the outstanding principal amount of advances. The Second Amendment also contains acknowledgements regarding the mechanics for the voluntary prepayment in full of the obligations under the Revolving Credit Agreement and the reduction of the aggregate commitments of the lenders concurrently with (and in a like amount to) payments of outstanding advances.
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Approval of Additional Compensation for Certain Directors
On February 27, 2017, the Companys Board of Directors, based on recommendations made by the Compensation Committee of the Companys Board of Directors, approved a payment of $30,000 to each of the following directors in recognition for their services as independent directors in connection with the additional meetings attended related to, and additional time spent reviewing the terms of, the transaction described above and other matters: (i) Daryl J. Carter; (ii) Tanuja M. Dehne; (iii) Stephen G. Kasnet; (iv) W. Reid Sanders; and (v) Mark Weld.
Item 2.02 Results of Operations and Financial Condition
On February 27, 2017, the Company issued a press release which included an announcement of its financial results for the fiscal quarter and year ended December 31, 2016. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Item 2.02 and on pages 2 through 24 of Exhibit 99.1 attached hereto, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be filed for any other purpose, including for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Item 2.02 and on pages 2 through 24 of Exhibit 99.1 attached hereto, shall not be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filings (unless the registrant specifically states that the information or exhibit in this particular Current Report is incorporated by reference).
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Amendment to Outstanding Performance-Based Restricted Stock Unit Award Agreements
On February 26, 2017, the Compensation Committee of the Companys Board of Directors approved an amendment to the outstanding Performance-Based Restricted Stock Unit Award Agreements evidencing the awards granted to each of Lawrence B. Shapiro, Griffin P. Wetmore and Daniel J. Buechler effective as of February 12, 2015 (the February 2015 PSU Agreements). The amendment provides that contingent upon, and effective as of the closing of the Merger, the performance-based restricted stock units (the Company PSUs) subject to the February 2015 PSU Agreements will vest as follows: (i) to the extent the performance period applicable to the PSUs has not expired as of the Merger effective time and the grant date was less than 18 months prior to the Merger effective time, then the Company PSUs will vest as if the total stockholder return applicable to the Company PSUs was achieved at the target level of performance; (ii) to the extent the performance period applicable to the Company PSUs has not expired as of the Merger effective time and the grant date was 18 months or more prior to the Merger effective time, then the Company PSUs will vest as if the total stockholder return applicable to the Company PSUs was achieved at the maximum level of performance; and (iii) to the extent the performance period applicable to the Company PSUs has expired as of the Merger effective time, then the Company PSUs will vest based on actual achievement of all total stockholder return targets applicable to the Company PSUs.
Item 8.01. Other Events.
On February 27, 2017, the Company issued a press release announcing the transactions described above, a copy of which is attached hereto as Exhibit 99.1.
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