S-4/A 1 d758315ds4a.htm S-4/A S-4/A
Table of Contents

As filed with the Securities and Exchange Commission on July 25, 2019

Registration No. 333-232123

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Park Hotels & Resorts Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   7011   36-2058176

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Park Hotels & Resorts Inc.

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

Tel: (571) 302-5757

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Thomas C. Morey

Executive Vice President and General Counsel

Park Hotels & Resorts Inc.

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

Tel: (571) 302-5757

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With Copies to:

 

Paul D. Manca

Hogan Lovells US LLP

Columbia Square

555 Thirteenth Street, N.W.

Washington, DC 20004

(202) 637-5600

 

Kevin L. Vold

Polsinelli PC

1401 Eye Street, NW

Suite 800

Washington, D.C. 20005

(202) 783-3300

 

Steven J. Williams

Paul, Weiss, Rifkind, Wharton &

Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

(212) 373-3000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to the closing of the merger described herein.

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary proxy statement/prospectus is not complete and may be changed. Park Hotels & Resorts Inc. may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities nor should it be considered a solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS –

SUBJECT TO COMPLETION, DATED JULY 25, 2019

PROXY STATEMENT/PROSPECTUS

 

 

LOGO

Dear Shareholder:

On behalf of the Chesapeake Lodging Trust board of trustees (the “Chesapeake Board”), we are pleased to invite you to attend a special meeting of shareholders, to be held on September 10, 2019 at the offices of Polsinelli PC, located at 1401 Eye Street, NW, Suite 800, Washington, DC 20005. At the special meeting, Chesapeake shareholders will be asked to vote on a proposal to approve the merger of Chesapeake with a subsidiary of Park Hotels & Resorts Inc., a Delaware corporation (“Park”), on the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of May 5, 2019, as it may be amended from time to time (the “Merger Agreement”), by and among Park, PK Domestic Property LLC, an indirect subsidiary of Park (“Domestic”), PK Domestic Sub LLC (“Merger Sub”) and Chesapeake. Pursuant to the Merger Agreement, Chesapeake will merge with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of Domestic (the “Merger”). Park common stock will continue to trade on the New York Stock Exchange following the Merger under the symbol “PK.” The executive officers of Park immediately prior to the effective time of the Merger will continue to serve as the executive officers of Park following the Merger. Two of Chesapeake’s trustees will be added to Park’s board of directors following the closing of the Merger.

If the Merger is completed pursuant to the Merger Agreement, each Chesapeake common share outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.628 of a share of Park common stock and $11.00 in cash, subject to certain adjustments and any applicable withholding taxes. Chesapeake shareholders will not receive any fractional shares of Park common stock in the Merger and instead will be paid cash in lieu of any fractional shares of Park common stock to which they would otherwise be entitled.

Chesapeake shareholders will be asked to vote on two additional proposals at the special meeting: (i) a non-binding advisory proposal to approve certain compensation that may be paid or become payable to the named executive officers of Chesapeake in connection with the Merger and the other transactions contemplated by the Merger Agreement, and (ii) a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger.

The Chesapeake Board has declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement. The Chesapeake Board unanimously recommends that Chesapeake shareholders vote “FOR” the proposal to approve the Merger on the terms and conditions set forth in the Merger Agreement, “FOR” the non-binding advisory proposal to approve certain compensation that may be paid or become payable to the named executive officers of Chesapeake in connection with the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement and “FOR” the proposal to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Merger on the terms and conditions set forth in the Merger Agreement.

This proxy statement/prospectus contains important information about Park, Chesapeake, the Merger, the Merger Agreement and the special meeting. This document is also a prospectus for shares of Park common stock that will be issued to Chesapeake shareholders pursuant to the Merger Agreement. We encourage you to read this proxy statement/prospectus carefully before voting, including the section entitled “Risk Factors” beginning on page 28.

Your vote is very important because the proposed Merger cannot be completed unless Chesapeake shareholders approve it by the affirmative vote of holders of not less than a majority of the outstanding Chesapeake common shares. We strongly urge you to cast your vote as soon as possible, even if you plan to attend the special meeting in person. You may vote your shares by following the instructions on the proxy card or the voting instruction form you receive from your nominee.

Only shareholders as of the close of business on July 25, 2019, the record date for the special meeting, or their legal proxy holders will be allowed to attend and vote at the special meeting. To be admitted to the special meeting, you must present (i) a form of government-issued photo identification and an admission ticket, (ii) valid proof of ownership of Chesapeake common shares as of the close of business on the record date or (iii) a valid legal proxy. Please refer to page 43 of this proxy statement/prospectus for more logistical information about attending the special meeting.

We appreciate your support and look forward to seeing you at the special meeting.

Sincerely,

 

Thomas A. Natelli

Chairman of the Board of Trustees

 

James L. Francis

President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transactions described in this proxy statement/prospectus or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

 

This proxy statement/prospectus is dated                      , 2019, and is first being mailed to Chesapeake shareholders on or about                      , 2019.


Table of Contents

PRELIMINARY PROXY STATEMENT/PROSPECTUS –

SUBJECT TO COMPLETION, DATED JULY 25, 2019

 

 

LOGO

4300 Wilson Boulevard, Suite 625

Arlington, Virginia 22203

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On September 10, 2019

A special meeting of shareholders of Chesapeake Lodging Trust, a Maryland real estate investment trust (“Chesapeake”), will be held at the time and place and for the purposes indicated below.

 

Time and Date:    September 10, 2019, starting at 9:00 a.m., Eastern Time
Place:   

Polsinelli PC

1401 Eye Street, NW, Suite 800, Washington, DC 20005

Items of Business:   

•  To consider and vote on a proposal to approve the merger of Chesapeake with and into a subsidiary of Park Hotels & Resorts Inc. (“Park”) pursuant to the Agreement and Plan of Merger, dated as of May 5, 2019 (the “Merger Agreement”), by and among Park, PK Domestic Property LLC, an indirect subsidiary of Park (“Domestic”), PK Domestic Sub LLC, a wholly-owned subsidiary of Domestic (“Merger Sub”) and Chesapeake, as it may be amended from time to time (the “Merger”) (a copy of the Merger Agreement is attached as Annex A to the proxy statement/prospectus accompanying this notice), on the terms and subject to the conditions set forth in the Merger Agreement (the “Merger Proposal”);

  

•  To consider and vote on a non-binding advisory proposal to approve compensation that may be paid or become payable to Chesapeake’s named executive officers in connection with the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement (the “Chesapeake Compensation Proposal”); and

  

•  To consider and vote on a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal (the “Chesapeake Adjournment Proposal”).

Recommendations of the Chesapeake Board:    The Chesapeake board of trustees (the “Chesapeake Board”) has declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement and has recommended the approval of the Merger by Chesapeake’s shareholders. The Chesapeake Board has directed that the Merger Proposal and the Chesapeake Compensation Proposal be submitted for consideration at the special meeting. The Chesapeake Board unanimously recommends that the Chesapeake shareholders vote “FOR” the Merger Proposal, “FOR” the Chesapeake Compensation Proposal and “FOR” the Chesapeake Adjournment Proposal.


Table of Contents
Adjournments:    Any action on the items of business described above may be considered at the special meeting or, if the Chesapeake Adjournment Proposal is approved, at any time and date to which the special meeting may be properly adjourned.
Record Date:    The Chesapeake Board has set the close of business on July 25, 2019 as the record date for determining the holders of Chesapeake common shares that are eligible to attend and vote at the special meeting.
Voting:   

Your vote is very important, regardless of the number of Chesapeake common shares you own. Whether or not you plan to attend the special meeting, please submit a proxy to have your shares voted as promptly as possible to make sure that your shares are represented at the special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal, “FOR” the Chesapeake Compensation Proposal and “FOR” the Chesapeake Adjournment Proposal.

 

If you do not vote on the Merger Proposal, this will have the same effect as a vote by you “AGAINST” the approval of the Merger Proposal.

 

If you have any questions or require any assistance voting your shares, please contact our proxy solicitor at the following address or telephone numbers:

 

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

(800) 322-2885 (toll free)

(212) 929-5500 (call collect)

 

Corporate Headquarters:

  

 

4300 Wilson Boulevard, Suite 625, Arlington, Virginia 22203

 

  By Order of the Board of Trustees
          
  Graham J. Wootten,
  Senior Vice President,
  Chief Accounting Officer and Secretary

                , 2019


Table of Contents

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Park Hotels & Resorts Inc. (“Park”) and Chesapeake Lodging Trust (“Chesapeake”) from other documents that are not included in or delivered with this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175.

Documents incorporated by reference are also available to Park stockholders and Chesapeake shareholders without charge upon written or oral request. You can obtain copies of any of these documents by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Park Hotels & Resorts Inc.

   Chesapeake Lodging Trust

1775 Tysons Blvd.

   4300 Wilson Boulevard, Suite 625

Tysons, VA 22102

   Arlington, VA 22203

Attention: Investor Relations

   Attention: Investor Relations

(571) 302-5757

   (571) 349-9452

To receive timely delivery of the requested documents in advance of the special meeting of Chesapeake shareholders (the “Chesapeake Special Meeting”), you should make your request no later than September 3, 2019.

Investors may also consult the websites of Park and Chesapeake for more information concerning the transactions described in this proxy statement/prospectus. The website of Park is www.pkhotelsandresorts.com and the website of Chesapeake is www.chesapeakelodgingtrust.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus. The Securities and Exchange Commission (the “SEC”) also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Park and Chesapeake.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by Park (File No. 333-232123) with the SEC, constitutes a prospectus of Park for purposes of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of common stock, par value $0.01 per share, of Park (“Park common stock”) to be issued to holders of outstanding common shares of beneficial interest, par value $0.01 per share, of Chesapeake (“Chesapeake common shares”) pursuant to the Agreement and Plan of Merger, dated as of May 5, 2019 (the “Merger Agreement”), by and among Park, PK Domestic Property LLC, a Delaware limited liability company and an indirect subsidiary of Park (“Domestic”), PK Domestic Sub LLC, a Delaware limited liability company and a direct subsidiary of Domestic, and Chesapeake. This proxy statement/prospectus also constitutes a proxy statement for Chesapeake for purposes of the Securities Exchange Act of 1934, as amended. In addition, it constitutes a notice of meeting with respect to the Chesapeake Special Meeting.

You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated                 , 2019. You should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than that date. Neither Chesapeake’s mailing of this proxy statement/prospectus to Chesapeake shareholders nor the issuance by Park of shares of its common stock to Chesapeake shareholders pursuant to the Merger Agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding Park has been provided by Park and information contained in this proxy statement/prospectus regarding Chesapeake has been provided by Chesapeake.


Table of Contents

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE CHESAPEAKE SPECIAL MEETING

     1  

SUMMARY

     12  

The Companies

     12  

The Chesapeake Special Meeting

     13  

Risk Factors

     14  

The Merger

     14  

Recommendation of the Chesapeake Board and its Reasons for the Merger

     14  

Opinion of Chesapeake’s Financial Advisor

     15  

Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger

     15  

Park’s Reasons for the Merger

     16  

Regulatory Approvals Required for the Merger

     17  

Material U.S. Federal Income Tax Consequences of the Merger

     17  

Accounting Treatment of the Merger

     17  

Listing of Park Common Stock

     17  

Delisting and Deregistration of Chesapeake Common Shares

     17  

Financing Arrangements

     17  

Restriction on Solicitation of Acquisition Proposals

     18  

Conditions to Completion of the Merger

     19  

Termination of the Merger Agreement

     19  

Termination Fee and Expenses Payable by Chesapeake to the Park Parties

     20  

Chesapeake Restricted Shares

     20  

Dissenters’ Rights

     20  

Directors and Executive Officers of Park Following the Merger

     20  

Comparison of Rights of Park Stockholders and Chesapeake Shareholders

     21  

Litigation Relating to the Merger

     21  

SELECTED HISTORICAL FINANCIAL INFORMATION OF PARK

     22  

SELECTED HISTORICAL FINANCIAL INFORMATION OF CHESAPEAKE

     23  

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

     24  

UNAUDITED PER SHARE INFORMATION

     27  

RISK FACTORS

     28  

Risks Related to the Merger

     28  

Risks Related to Park Following the Merger

     32  

Risks Related to an Investment in Park Following the Merger

     34  

 

i


Table of Contents

FORWARD-LOOKING STATEMENTS

     40  

THE COMPANIES

     41  

Park Hotels & Resorts Inc.

     41  

PK Domestic Property LLC

     41  

PK Domestic Sub LLC

     42  

Chesapeake Lodging Trust

     42  

THE CHESAPEAKE SPECIAL MEETING

     43  

Date, Time, Place and Purpose of the Chesapeake Special Meeting

     43  

Recommendation of the Chesapeake Board

     43  

Chesapeake Record Date; Shares Entitled to Vote

     43  

Trustees and Officers of Chesapeake

     43  

Quorum; Required Vote

     43  

Abstentions and Broker Non-Votes

     44  

Manner of Submitting a Proxy

     44  

Shares Held in “Street Name”

     45  

Revocation of Proxies or Voting Instructions

     45  

Solicitation of Proxies; Payment of Solicitation Expenses

     45  

Inspector of Elections

     46  

Admission to the Chesapeake Special Meeting

     46  

Directions to the Chesapeake Special Meeting

     46  

PROPOSALS SUBMITTED TO CHESAPEAKE SHAREHOLDERS

     47  

Merger Proposal

     47  

Chesapeake Compensation Proposal

     47  

Chesapeake Adjournment Proposal

     48  

Other Business

     48  

THE MERGER

     49  

General

     49  

Background of the Merger

     49  

Recommendation of the Chesapeake Board and Its Reasons for the Merger

     57  

Opinion of Chesapeake’s Financial Advisor

     62  

Certain Chesapeake Unaudited Prospective Financial Information

     69  

Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger

     74  

No Change of Control Payments to Park Named Executive Officers

     78  

 

ii


Table of Contents

Park’s Reasons for the Merger

     78  

Security Ownership of Chesapeake Trustees and Named Executive Officers and Current Beneficial Owners

     79  

Regulatory Approvals Required for the Merger

     80  

Material U.S. Federal Income Tax Consequences of the Merger

     80  

Accounting Treatment of the Merger

     80  

Exchange of Shares

     80  

Dividends

     81  

Listing of Park Common Stock

     81  

Delisting and Deregistration of Chesapeake Common Shares

     82  

Financing Arrangements

     82  

Litigation Relating to the Merger

     83  

THE MERGER AGREEMENT

     84  

Form, Effective Time and Closing of the Merger

     84  

The Park Board Following the Merger

     85  

Merger Consideration; Effects of the Merger

     85  

Representations and Warranties

     86  

Covenants and Agreements

     89  

Conditions to Completion of the Merger

     106  

Termination of the Merger Agreement

     109  

Miscellaneous Provisions

     111  

DIRECTORS AND EXECUTIVE OFFICERS OF PARK FOLLOWING THE MERGER

     112  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     113  

Material U.S. Federal Income Tax Consequences—The Merger

     113  

Material U.S. Federal Income Tax Consequences—Park Following the Merger

     115  

DESCRIPTION OF CAPITAL STOCK OF PARK

     145  

General

     145  

Dividends

     145  

Restrictions on Ownership and Transfer

     145  

Certain Provisions of Delaware Law, the Park Charter and the Park By-laws

     150  

Exchange Listing

     153  

Transfer Agent and Registrar

     153  

COMPARISON OF RIGHTS OF PARK STOCKHOLDERS AND CHESAPEAKE SHAREHOLDERS

     154  

ADDITIONAL PARK PROPERTY INFORMATION

     168  

Hilton Hawaiian Village Waikiki Beach Resort

     168  

 

iii


Table of Contents

New York Hilton Midtown

     168  

PARK’S INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

     170  

Investment Policies

     170  

Dispositions

     171  

Financing Policies

     172  

Lending Policies

     172  

Issuance of Additional Securities

     172  

Reporting Policies

     173  

Code of Conduct

     173  

Conflict of Interest Policies

     173  

SHAREHOLDER PROPOSALS

     175  

LEGAL MATTERS

     175  

EXPERTS

     175  

Park

     175  

Chesapeake

     175  

WHERE YOU CAN FIND MORE INFORMATION

     175  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEX A

   Agreement and Plan of Merger   

ANNEX B

   Opinion of J.P. Morgan Securities LLC   

 

iv


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE CHESAPEAKE SPECIAL MEETING

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger Agreement, the Merger and the Chesapeake Special Meeting. These questions and answers do not address all questions that may be important to you as a Chesapeake shareholder. Please refer to the “Summary” beginning on page 12 and the more detailed information contained elsewhere in this proxy statement/prospectus and the annexes to this proxy statement/prospectus, which you should read carefully. Unless stated otherwise, any reference in this proxy statement/prospectus to:

 

   

“Chesapeake” refers to Chesapeake Lodging Trust, a Maryland real estate investment trust.

 

   

“Chesapeake Adjournment Proposal” refers to the proposal submitted to Chesapeake shareholders to approve one or more adjournments of the Chesapeake Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal.

 

   

“Chesapeake Board” refers to the board of trustees of Chesapeake.

 

   

“Chesapeake Board Recommendation” refers to the Chesapeake Board’s recommendation that the shareholders of Chesapeake vote in favor of approval of the Merger Proposal.

 

   

“Chesapeake bylaws” refers to the Amended and Restated Bylaws of Chesapeake, as amended.

 

   

“Chesapeake charter” refers to the Articles of Amendment and Restatement of Declaration of Trust of Chesapeake, as amended.

 

   

“Chesapeake common shares” refers to common shares of beneficial interest, par value $0.01 per share, of Chesapeake.

 

   

“Chesapeake Compensation Proposal” refers to the non-binding advisory proposal submitted to Chesapeake shareholders to approve compensation that may be paid or become payable to Chesapeake’s named executive officers in connection with the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

 

   

“Chesapeake OP” refers to Chesapeake Lodging, L.P., a Delaware limited partnership.

 

   

“Chesapeake Special Meeting” refers to a special meeting of Chesapeake shareholders with respect to the Merger.

 

   

“Code” refers to the Internal Revenue Code of 1986, as amended.

 

   

“DGCL” refers to the Delaware General Corporation Law.

 

   

“Domestic” refers to PK Domestic Property LLC, a Delaware limited liability company and an indirect subsidiary of Park.

 

   

“Effective Time” refers to the later of such time as the articles of merger have been accepted for record by the State Department of Assessments and Taxation of Maryland and the certificate of merger has been accepted for filing by the Secretary of State of the State of Delaware, or such other date or time as is mutually agreed to by the parties to the Merger Agreement in writing and specified in the articles of merger and certificate of merger.

 

   

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

 

   

“GAAP” refers to the accounting principles generally accepted in the United States of America.

 

   

“IRS” refers to the Internal Revenue Service.

 

   

“J.P. Morgan” refers to J.P. Morgan Securities LLC.



 

1


Table of Contents
   

“Merger” refers to the merger of Chesapeake with and into Merger Sub pursuant to the Merger Agreement, with Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of Domestic.

 

   

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of May 5, 2019, by and among Park, Domestic, Merger Sub and Chesapeake, as it may be amended from time to time.

 

   

“Merger Consideration” refers to the right to receive the following in exchange for each outstanding Chesapeake common share immediately prior to the Effective Time: (i) 0.628 of a share of Park common stock (the “Common Stock Consideration”), (ii) $11.00 in cash (the “Cash Consideration”) and (iii) cash in lieu of any fractional shares of Park common stock (equal to such fractional part of a share of Park common stock to which the holder would otherwise be entitled to receive in exchange for Chesapeake common shares held by such holder immediately prior to the Effective Time multiplied by the volume weighted average price of Park common shares for the ten trading days immediately prior to the date of the closing of the Merger) (the “Fractional Share Consideration”).

 

   

“Merger Proposal” refers to the proposal submitted to Chesapeake shareholders to approve the Merger on the terms and conditions set forth in the Merger Agreement.

 

   

“Merger Sub” refers to PK Domestic Sub LLC, a Delaware limited liability company and a direct subsidiary of Domestic.

 

   

“MGCL” refers to the Maryland General Corporation Law.

 

   

“MRL” refers to the Maryland REIT Law.

 

   

“New York Disposition Properties” refers to two existing hotels owned by Chesapeake and located in New York City, the Hyatt Place New York Midtown South and the Hyatt Herald Square New York.

 

   

“NYSE” refers to the New York Stock Exchange.

 

   

“Outside Date” refers to 11:59 P.M. (New York time) on October 31, 2019.

 

   

“Park” refers to Park Hotels & Resorts Inc., a Delaware corporation.

 

   

“Park Board” refers to the board of directors of Park.

 

   

“Park by-laws” refers to the Amended and Restated By-laws of Park, as amended.

 

   

“Park charter” refers to the Amended and Restated Certificate of Incorporation of Park, as amended.

 

   

“Park common stock” refers to shares of common stock, par value $0.01 per share, of Park.

 

   

“Park Parties” refers to Park, Domestic and Merger Sub.

 

   

“PIH” refers to Park Intermediate Holdings LLC, a Delaware limited liability company and direct subsidiary of Park.

 

   

“QRS” refers to entities that qualify as “qualified REIT subsidiaries” within the meaning of Section 856(i)(2) of the Code.

 

   

“REIT” refers to a real estate investment trust within the meaning of Section 856 of the Code.

 

   

“SEC” refers to the Securities and Exchange Commission.

 

   

“Select Hotels” refers to the hotels that are managed by Park rather than a third-party hotel management company, consisting of the following four hotels: the Hilton Garden Inn LAX/El Segundo in Los Angeles, California; the Hampton Inn & Suites Memphis—Shady Grove in Memphis, Tennessee, the Hilton Suites Chicago/Oak Brook in Chicago, Illinois; and the Hilton Garden Inn Chicago/Oak Brook in Chicago, Illinois.



 

2


Table of Contents
   

“Securities Act” refers to the Securities Act of 1933, as amended.

 

   

“Surviving Entity” refers to Merger Sub, following the Merger.

 

   

“TRS” refers to entities that qualify as “taxable REIT subsidiaries” within the meaning of Section 856(l) of the Code.

 

   

“TRS Lessee” refers to a TRS that is a party to a lease between Park, as lessor, and such entity, as lessee.

Q: What is the proposed transaction for which I am being asked to vote?

A: The Chesapeake shareholders are being asked to approve the Merger of Chesapeake with and into Merger Sub, a wholly-owned subsidiary of Domestic. The approval of the Merger Proposal by the Chesapeake shareholders is a condition to the completion of the Merger.

Q: Why are Park and Chesapeake proposing the Merger?

A: The Park Board and the Chesapeake Board believe that the Merger will provide a number of significant potential strategic opportunities and benefits that will be in the best interests of their respective shareholders, including, among others, that the Merger will combine two complementary portfolios of luxury and upper upscale-branded hotels operating in geographically diverse markets.

The Merger offers Chesapeake shareholders the potential for an immediate return in cash and meaningful improvements in investor liquidity as owners of shares in what is and will be the second-largest publicly traded lodging REIT based on equity market capitalization. Following the Merger, the combined company will have a total enterprise value of approximately $10.5 billion (as of the date of this proxy statement/prospectus). The combined company’s meaningful scale is expected to allow Park to capitalize on corporate efficiencies, consider and execute on opportunistic sales of hotels that have maximized their values without impacting Park’s market-leading dividend payout ratio, gain more efficient access to less expensive capital and create a strong and flexible financial platform to execute on strategic initiatives, which will provide Park with significant competitive advantages over smaller, less efficient peers.

To review Chesapeake’s reasons for the Merger in greater detail, see “The Merger—Recommendation of the Chesapeake Board and Its Reasons for the Merger” beginning on page 57. To review Park’s reasons for the Merger in greater detail, see “The Merger—Park’s Reasons for the Merger” beginning on page 78.

Q: What happens if the market price of Park common stock or Chesapeake common shares changes before the closing of the Merger?

A: Changes in the market price of Park common stock or the market price of Chesapeake common shares at or prior to the Effective Time will not change the amount of cash or the number of shares of Park common stock that Chesapeake shareholders will receive. The Merger Consideration is fixed at 0.628 of a share of Park common stock and $11.00 in cash for each Chesapeake common share. Because the exchange ratio is fixed, other than customary adjustments in the event of certain changes in Park’s or Chesapeake’s capitalization or the payment of dividends by Park or Chesapeake necessary to maintain its status as a REIT, the value of the consideration to be received by Chesapeake shareholders in the Merger will depend on the market price of shares of Park common stock at the time of the Merger.

Q: Are there any conditions to completion of the Merger?

A: Yes. In addition to the approval of the Chesapeake shareholders, there are a number of conditions that must be satisfied or waived for the Merger to be consummated. For a description of all of the conditions to the Merger, see “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 106.



 

3


Table of Contents

Q: Why am I receiving this proxy statement/prospectus?

A: The Chesapeake Board is using this proxy statement/prospectus to solicit proxies of Chesapeake shareholders to obtain the necessary approval for the Merger. In addition, Park is using this proxy statement/prospectus as a prospectus because Park is offering shares of Park common stock as a portion of the Merger Consideration payable to Chesapeake shareholders upon consummation of the Merger. The Merger cannot be completed unless the Chesapeake shareholders vote to approve the Merger on the terms and conditions set forth in the Merger Agreement. Chesapeake will submit the Merger Proposal and the other proposals described elsewhere in this proxy statement/prospectus to Chesapeake shareholders for a vote at the Chesapeake Special Meeting.

This proxy statement/prospectus contains important information about the Merger and the other proposals being voted on at the Chesapeake Special Meeting and you should read it carefully. The enclosed voting materials allow you to vote your Chesapeake common shares without attending the Chesapeake Special Meeting in person.

Q: Who will comprise the board of directors and executive officers of Park following the Merger?

A: Immediately following the Effective Time, the size of the Park Board will be increased to 10 members, with the eight current Park directors, Thomas J. Baltimore, Jr., Patricia M. Bedient, Gordon M. Bethune, Geoffrey Garrett, Christie B. Kelly, Sen. Joseph I. Lieberman, Timothy J. Naughton and Stephen I. Sadove, continuing as members of the Park Board, and Thomas A. Natelli and Thomas D. Eckert, current trustees on the Chesapeake Board, joining the Park Board, each to serve until the 2020 annual meeting of the stockholders of Park.

The executive officers of Park immediately prior to the Effective Time will continue to serve as the executive officers of Park following the Merger. See “Directors and Executive Officers of Park Following the Merger” on page 112 for more information.

Q: What will I receive for my Chesapeake common shares in the Merger?

A: Under the terms of the Merger Agreement, you will receive 0.628 of a share of Park common stock and $11.00 in cash for each Chesapeake common share you own immediately prior to the completion of the Merger. No fractional shares of Park common stock will be issued in the Merger. The value of any fractional shares of Park common stock to which a holder would otherwise be entitled will be paid in cash.

Q: How will I receive the Merger Consideration if the Merger is completed?

A: If you hold certificates evidencing Chesapeake common shares immediately prior to the Effective Time, you will receive a letter of transmittal with detailed written instructions for exchanging your Chesapeake common shares for the Merger Consideration. If your shares are held in “street name” by your bank, broker or other nominee, you will receive instructions from your bank, broker or other nominee as to how to effect the surrender of your “street name” shares in exchange for the applicable Merger Consideration. Upon surrender of the share certificates to the exchange agent along with the executed letter of transmittal and other required documents described in the instructions, you will receive the Merger Consideration. If you hold Chesapeake common shares in book-entry form immediately prior to the Effective Time, you will not need to take any action to receive the Merger Consideration.

Q: What will happen to Chesapeake common shares that I currently own after completion of the Merger?

A: Following the completion of the Merger, your Chesapeake common shares will be cancelled and will represent only the right to receive the Merger Consideration. Trading in Chesapeake common shares on the NYSE will cease, price quotations for Chesapeake common shares will no longer be available and Chesapeake will cease filing periodic and other reports with the SEC.



 

4


Table of Contents

Q: When and where is the Chesapeake Special Meeting?

A: The Chesapeake Special Meeting will be held on September 10, 2019, at the offices of Polsinelli PC (“Polsinelli”), located at 1401 Eye Street, NW, Suite 800, Washington, DC 20005, starting at 9:00 a.m., Eastern Time.

Q: What matters will be voted on at the Chesapeake Special Meeting?

A: You will be asked to consider and vote on the following proposals:

 

   

the Merger Proposal;

 

   

the Chesapeake Compensation Proposal; and

 

   

the Chesapeake Adjournment Proposal.

Chesapeake will transact no other business at the Chesapeake Special Meeting or any postponement or adjournment thereof.

Q: How does the Chesapeake Board recommend that I vote on the proposals?

A: The Chesapeake Board has declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement.

The Chesapeake Board unanimously recommends that the Chesapeake shareholders vote “FOR” the Merger Proposal, “FOR” the Chesapeake Compensation Proposal and “FOR” the Chesapeake Adjournment Proposal. For a more complete description of the recommendation of the Chesapeake Board, see “The Merger—Recommendation of the Chesapeake Board and Its Reasons for the Merger” beginning on page 57.

Q: Do the Chesapeake trustees and named executive officers have any interests in the Merger?

A: Yes. In considering the recommendation of the Chesapeake Board to approve the Merger Proposal and the Chesapeake Compensation Proposal, Chesapeake’s shareholders should be aware that Chesapeake’s trustees and named executive officers have interests in the Merger that may be different from, or in addition to, the interests of Chesapeake’s shareholders generally and that may present actual or potential conflicts of interests. These interests include:

 

   

Immediately prior to the Effective Time, each outstanding Chesapeake time-based restricted share award and each outstanding Chesapeake performance-based restricted share award will vest in full, contingent upon the consummation of the Merger, and thereafter the holders of such awards will have the right to receive the Merger Consideration from Park with respect to the Chesapeake common shares underlying all such awards (less required withholdings);

 

   

Chesapeake will pay each holder of a Chesapeake performance-based share award an amount in cash equal to all accrued and unpaid cash dividends in respect of such award, in accordance with the restricted share award agreement pursuant to which such award was granted (less required withholdings);

 

   

Each of Chesapeake’s named executive officers will become entitled to receive a payout under Chesapeake’s 2019 annual cash bonus plan as determined by Park, assuming a level of performance not less than that earned by each named executive officer in respect of Chesapeake’s 2018 annual cash bonus plan;



 

5


Table of Contents
   

Two current Chesapeake trustees, Thomas A. Natelli and Thomas D. Eckert, have been designated by Chesapeake to serve on the Park Board following the Merger, each to serve until the 2020 annual meeting of the stockholders of Park; and

 

   

Continued indemnification and insurance coverage will be provided for the trustees and named executive officers of Chesapeake in accordance with the Merger Agreement.

In addition, each Chesapeake named executive officer is party to an employment agreement with Chesapeake, which provides for payments and other benefits if the named executive officer’s employment terminates for a qualifying event or circumstance, such as being terminated without “cause” or leaving employment for “good reason,” as these terms are defined in the agreement, following a change in control, such as the Merger. If, within 12 months following the Merger, such named executive officer’s employment is terminated by Chesapeake or Park other than for “cause,” retirement or disability, or by such named executive officer for “good reason,” the named executive officer would be eligible to receive, among other benefits, a severance payment equal to (i) three times (for Messrs. Francis, Vicari and Adams) or two times (for Mr. Wootten), his then-current salary, plus (ii) three times (for Messrs. Francis, Vicari and Adams) or two times (for Mr. Wootten), the greater of (1) the average of all bonuses paid to the executive during the preceding 36 months and (2) the most recent bonus paid to the executive. The executive would also be eligible to receive payment of life and health insurance coverage for a period of 36 months for Messrs. Francis, Vicari and Adams, and 24 months for Mr. Wootten, following termination of employment.

The Chesapeake Board was aware of these interests and considered them, among other matters, in declaring advisable and approving the Merger on the terms and conditions set forth in the Merger Agreement. For additional information, see “The Merger—Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger” beginning on page 74.

Q: What constitutes a quorum at the Chesapeake Special Meeting?

A: The Chesapeake bylaws provide that the presence in person or by proxy of the holders of a majority of the outstanding Chesapeake common shares entitled to vote generally in the election of trustees will constitute a quorum for the transaction of business at each meeting of Chesapeake’s shareholders. Abstentions will be counted in determining whether a quorum exists.

Q: What vote is required for Chesapeake shareholders to approve the Merger Proposal?

A: Approval of the Merger Proposal will require the affirmative vote of the holders of not less than a majority of the outstanding Chesapeake common shares. For purposes of the Merger Proposal, any Chesapeake common shares not voted (whether by abstention or otherwise) will have the same effect as votes “AGAINST” this proposal.

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Merger Proposal.

Q: What vote is required for Chesapeake shareholders to approve the Chesapeake Compensation Proposal?

A: Approval of the Chesapeake Compensation Proposal will require that the number of votes cast for the proposal exceeds the number of votes cast against the proposal. For purposes of the Chesapeake Compensation Proposal, any Chesapeake common shares not voted (whether by abstention or otherwise) will not affect the vote on this proposal.



 

6


Table of Contents

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Chesapeake Compensation Proposal.

Q: What vote is required for Chesapeake shareholders to approve the Chesapeake Adjournment Proposal?

A: Approval of the Chesapeake Adjournment Proposal will require that the number of votes cast for the proposal exceeds the number of votes cast against the proposal. Chesapeake common shares not voted (whether by abstention or otherwise) will not affect the vote on this proposal.

Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Chesapeake Adjournment Proposal.

Q: Who is entitled to vote at the Chesapeake Special Meeting?

A: All holders of Chesapeake common shares as of the close of business on July 25, 2019, the record date for the Chesapeake Special Meeting, are entitled to vote at the Chesapeake Special Meeting, unless a new record date is fixed for any postponement or adjournment of the Chesapeake Special Meeting. As of the record date, there were 60,765,796 issued and outstanding Chesapeake common shares. Each holder of record of Chesapeake common shares on the record date is entitled to one vote per share.

Q: What happens if I sell my Chesapeake common shares before the Chesapeake Special Meeting?

A: The record date for the Chesapeake Special Meeting is earlier than the date of the Chesapeake Special Meeting and the date that the Merger is expected to be completed. If you sell your shares after Chesapeake’s record date but before the date of the Chesapeake Special Meeting, you will retain any right to vote at the Chesapeake Special Meeting, but you will have transferred your right to receive the Merger Consideration. In order to receive the Merger Consideration, you must hold your shares through completion of the Merger.

Q: How do I vote my Chesapeake common shares?

A: Chesapeake’s shareholders of record may vote in person by attending the Chesapeake Special Meeting, or may authorize proxies to vote their shares by completing, signing, and dating their proxy card and returning it in the accompanying pre-addressed, postage-prepaid envelope. Your proxy card must be received no later than September 9, 2019 for your shares to be voted at the Chesapeake Special Meeting.

If you are a beneficial owner, that is, you hold your Chesapeake common shares through a bank, broker, trustee or other nominee, you must provide your nominee with appropriate voting instructions no later than the deadline indicated on the voting instruction form for your shares to be voted at the Chesapeake Special Meeting. Beneficial owners of Chesapeake common shares may provide instructions to their bank, broker, trustee or other nominee holding their shares in one of these three ways:

 

   

By Internet—Beneficial owners may give instructions over the Internet by following the instructions on the voting instruction forms received from their nominees.

 

   

By Telephone—Beneficial owners may give instructions by telephone by calling the number on the voting instruction forms received from their nominees and following the instructions.

 

   

By Mail—Beneficial owners may give instructions by completing, signing and dating their voting instruction forms received from their nominees and mailing them in the accompanying pre-addressed, postage-prepaid envelope.



 

7


Table of Contents

Beneficial owners of Chesapeake common shares may vote in person at the Chesapeake Special Meeting only if they obtain a legal proxy to vote their shares. Your vote is important. We encourage you to sign and return the enclosed proxy card or provide voting instructions to the organization that holds your Chesapeake common shares whether or not you plan to attend the Chesapeake Special Meeting in person.

Q: Can I attend the Chesapeake Special Meeting in person?

A: Chesapeake shareholders of record may gain admittance to the Chesapeake Special Meeting by presenting the admission ticket that is attached to their proxy card delivered with their proxy statement or by providing other proof of ownership of Chesapeake common shares as of July 25, 2019. The admission ticket is non-transferable.

If your Chesapeake common shares are held in the name of a bank, broker, trustee or other nominee and you plan to attend the Chesapeake Special Meeting, you will need to bring the admission ticket provided by your bank, broker, trustee or other nominee, as well as proof of ownership as of July 25, 2019, such as a recent bank or brokerage account statement. You must also obtain a legal proxy from your bank, broker, trustee or other nominee giving you the right to vote your shares at the Chesapeake Special Meeting.

If you are not a Chesapeake shareholder but hold a proxy for a shareholder, you may attend the Chesapeake Special Meeting by presenting a valid legal proxy. Chesapeake shareholders may appoint only one proxy holder to attend on their behalf.

Q: If my Chesapeake common shares are held in “street name” by my bank, broker or other nominee, will my broker, bank or other nominee vote my shares for me?

A: No. Unless you instruct your broker, bank or other nominee to vote your Chesapeake common shares held in street name, your shares will NOT be voted. If you hold your Chesapeake common shares in a stock brokerage account or if your Chesapeake common shares are held by a bank or other nominee (that is, in “street name”), you must provide your broker, bank or other nominee with instructions on how to vote your Chesapeake common shares. You should follow the procedures provided by your bank, broker or nominee regarding the voting of your Chesapeake common shares.

Q: How can I revoke or change my vote?

A: If you are a shareholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to Chesapeake’s Secretary at its headquarters address in Arlington, Virginia, no later than September 9, 2019, or by attending the Chesapeake Special Meeting and voting in person. Attendance at the Chesapeake Special Meeting alone will not cause your previously granted proxy to be revoked unless you specifically make that request. For Chesapeake common shares you hold beneficially in the name of a bank, broker, trustee or other nominee, you may change your vote by submitting new voting instructions to your bank, broker, trustee or nominee by no later than the deadline indicated on the voting instruction form, or, if you have obtained a legal proxy from your bank, broker, trustee or other nominee giving you the right to vote your shares, by attending the Chesapeake Special Meeting and voting in person.

Q: When is the Merger expected to be completed?

A: We currently expect to complete the Merger by the late third quarter or early fourth quarter of 2019. Because the Merger is subject to a number of conditions, the exact timing of the Merger cannot be determined at this time and Park and Chesapeake cannot guarantee that the Merger will be completed at all.



 

8


Table of Contents

Q: Following the Merger, what percentage of Park common stock will current Park stockholders and current Chesapeake shareholders own?

A: Following the completion of the Merger:

 

   

the current Park stockholders are expected to own approximately 84% of the issued and outstanding common stock of Park; and

 

   

former Chesapeake shareholders are expected to own the remaining 16% of the issued and outstanding common stock of Park.

Q: What happens if the Merger is not completed?

A: If the Merger Proposal is not approved by Chesapeake shareholders, or if the Merger is not completed for any other reason, Chesapeake shareholders will not have their Chesapeake common shares exchanged for the Merger Consideration. Instead, each of Chesapeake and Park would remain a separate company. If the Merger Agreement is terminated under certain circumstances, Chesapeake may be required to pay Park a termination fee of $62.5 million and/or to reimburse Park’s reasonable out-of-pocket expenses up to $17.5 million, as described under “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by Chesapeake to the Park Parties” beginning on page 110. Any out-of-pocket expenses reimbursed would be credited against the payment of any termination fee to the Park Parties.

Q: Am I entitled to exercise appraisal rights?

A: No. The holders of Chesapeake common shares will not be entitled to appraisal rights.

Q: Were appraisals or valuations performed on the assets and liabilities of Park and Chesapeake in connection with the Merger?

A: No third-party appraisals or valuations on the assets and liabilities of Park and Chesapeake were obtained in connection with the Merger.

Q: Are there any risks associated with the Merger that I should consider in deciding how to vote?

A: Yes. There are a number of risks related to the Merger that are discussed in this proxy statement/prospectus and described in the section entitled “Risk Factors” beginning on page 28.

Q: What are the material U.S. federal income tax consequences of the Merger to Chesapeake shareholders?

A: The parties have agreed that the Merger should be treated as a taxable sale by Chesapeake of all of its assets in exchange for the Merger Consideration and the assumption of all of Chesapeake’s liabilities, immediately followed by a distribution of the Merger Consideration to the holders of Chesapeake common shares in liquidation of Chesapeake. Assuming that the Merger is completed as currently contemplated, Park and Chesapeake expect that the receipt of the Merger Consideration by Chesapeake shareholders in exchange for their Chesapeake common shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. Generally, for U.S. federal income tax purposes, Chesapeake shareholders will recognize gain or loss as a result of the Merger measured by the difference, if any, between (i) the fair market value of shares of Park common stock and the amount of any cash received in the Merger and (ii) the holder’s adjusted tax basis in the Chesapeake common shares exchanged.

The tax consequences to you of the Merger will depend on your situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the tax



 

9


Table of Contents

consequences of the Merger, please see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 80 and “Material U.S. Federal Income Tax Considerations” beginning on page 113.

Q: How can I obtain additional information about Chesapeake or Park?

A: Chesapeake and Park each file annual, quarterly and current reports, proxy statements and other information with the SEC. Chesapeake’s and Park’s filings with the SEC may be accessed on the Internet at www.sec.gov. Copies of the documents filed by Chesapeake with the SEC will be available free of charge on Chesapeake’s website at www.chesapeakelodgingtrust.com or by contacting Chesapeake Investor Relations at (571) 349-9452. Copies of the documents filed by Park with the SEC will be available free of charge on Park’s website at www.pkhotelsandresorts.com or by contacting Park Investor Relations at (571) 302-5757. The information provided on these websites is not part of this proxy statement/prospectus and is not incorporated by reference into this proxy statement/prospectus. For a more detailed description of the information available and information incorporated by reference, please see “Where You Can Find More Information” on page 175.

Q: What else do I need to do now?

A: You are urged to read this proxy statement/prospectus carefully and in its entirety, including its annexes and the information incorporated by reference, and to consider how the Merger may affect you. Even if you plan to attend the Chesapeake Special Meeting, if you hold your Chesapeake common shares in your own name as the shareholder of record, please vote your Chesapeake common shares by completing, signing, dating and returning the enclosed proxy card. You can also attend the Chesapeake Special Meeting and vote, or change your prior vote, in person. If you hold your Chesapeake common shares in “street name” through a bank, broker or other nominee, then you should have received this proxy statement/prospectus from that nominee, along with that nominee’s proxy card which includes voting instructions and instructions on how to change your vote. If you hold your Chesapeake common shares in “street name” and wish to attend the Chesapeake Special Meeting to vote your shares in person, you must obtain a legal proxy from your bank, broker, trustee or other nominee giving you the right to vote your shares at the Chesapeake Special Meeting.

Q: Will a proxy solicitor be used?

A: Yes. Chesapeake has engaged MacKenzie Partners, Inc., to assist in the solicitation of proxies for the Chesapeake Special Meeting, and Chesapeake estimates it will pay MacKenzie Partners, Inc. a fee of approximately $20,000. Chesapeake has also agreed to reimburse MacKenzie Partners, Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify MacKenzie Partners, Inc. against certain losses, costs and expenses. In addition to mailing proxy solicitation material, Chesapeake’s trustees, officers and employees may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to Chesapeake’s trustees, officers or employees for such services.



 

10


Table of Contents

Q: Who can answer my questions?

A: If you have any questions about the Merger Proposal, the other matters to be voted on at the Chesapeake Special Meeting or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus, the enclosed proxy card or your voting instructions, you should contact:

Chesapeake Lodging Trust

4300 Wilson Boulevard

Suite 625

Arlington, Virginia 22203

(571) 349-9452

Attention: Investor Relations

www.chesapeakelodgingtrust.com

Proxy Solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

(800) 322-2885 (toll free)

(212) 929-5500 (call collect)



 

11


Table of Contents

SUMMARY

The following summary highlights some of the information contained in this proxy statement/prospectus. This summary may not contain all of the information that is important to you. For a more complete description of the Chesapeake Special Meeting, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, Park and Chesapeake encourage you to read carefully this entire proxy statement/prospectus, including the attached Annexes. You should also read and consider the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175. We have included page references to direct you to a more complete description of the topics presented in this summary.

The Companies

Park Hotels & Resorts Inc. (See page 41)

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Park is a REIT that owns a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value. As of the date of this proxy statement/prospectus, Park holds investments in entities that have ownership or leasehold interests in 48 hotels, consisting of premium-branded hotels and resorts with over 29,000 rooms, of which over 85% are luxury and upper upscale (as defined by Smith Travel Research) and over 97% are located in the United States. Park’s high-quality portfolio includes hotels in major urban and convention areas, such as New York City, Washington, D.C., Chicago, San Francisco and New Orleans; premier resorts in key leisure destinations, including Hawaii, Orlando and Key West; and hotels adjacent to major gateway airports, such as Los Angeles International, Boston Logan International and Miami International, as well as hotels in select suburban locations.

Park common stock is listed on the NYSE trading under the symbol “PK.”

PK Domestic Property LLC (See page 41)

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Domestic is a Delaware limited liability company and an indirect subsidiary of Park and holds an indirect 100% interest in 20 Park properties. Contemporaneously with the execution of the Merger Agreement, Domestic and PIH obtained a $1.1 billion financing commitment pursuant to a commitment letter (the “Commitment Letter”) from Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”) to provide an unsecured delayed draw term loan facility to fund the Merger (the “Term Facility”). The Term Facility provides for a $250 million two-year delayed draw term loan tranche (the “Two-Year Tranche”) and an $850 million five-year delayed draw term loan tranche (the “Five-Year Tranche”). In connection with the closing of the Merger, Domestic is expected to become a borrower under the Term Facility and PIH’s existing credit facility.



 

12


Table of Contents

PK Domestic Sub LLC (See page 42)

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Merger Sub is a Delaware limited liability company and a direct subsidiary of Domestic. Merger Sub was formed by Park solely for the purpose of engaging in the Merger and the other transactions contemplated by the Merger Agreement. Merger Sub has not conducted any business activities, has no assets, liabilities or obligations and has conducted its operations solely as contemplated in the Merger Agreement.

Chesapeake Lodging Trust (See page 42)

4300 Wilson Boulevard, Suite 625

Arlington, Virginia 22203

(571) 349-9452

Chesapeake is a self-advised REIT that was formed in the state of Maryland in June 2009. Chesapeake is focused on investments primarily in upper-upscale hotels in major business and convention markets and, on a selective basis, premium select-service hotels in urban settings or unique locations in the United States. Chesapeake completed its initial public offering in January 2010 and owns 20 hotels as of the date of this filing.

The Chesapeake Special Meeting (See page 43)

 

   

Date, Time and Place. The Chesapeake Special Meeting will be held at the offices of Polsinelli, located at 1401 Eye Street, NW, Suite 800, Washington, DC 20005, on September 10, 2019 at 9:00 a.m., Eastern Time.

 

   

Purpose. At the Chesapeake Special Meeting, the Chesapeake shareholders will be asked to approve the Merger Proposal, the Chesapeake Compensation Proposal and the Chesapeake Adjournment Proposal.

 

   

Record Date; Voting Rights. Chesapeake shareholders of record at the close of business on July 25, 2019 are entitled to receive this notice and are entitled to vote at the Chesapeake Special Meeting and any postponement or adjournment thereof. Each holder of record of Chesapeake common shares on the record date is entitled to one vote per share.

 

   

Quorum. The presence in person or by proxy of the holders of a majority of the outstanding Chesapeake common shares entitled to vote generally in the election of trustees will constitute a quorum for the transaction of business at the Chesapeake Special Meeting.

 

   

Required Vote. Approval of the Merger Proposal will require the affirmative vote of the holders of not less than a majority of the outstanding Chesapeake common shares. Approval of the Chesapeake Compensation Proposal will require that the number of votes cast for the proposal exceeds the number of votes cast against the proposal. Approval of the Chesapeake Adjournment Proposal will require that the number of votes cast for the proposal exceeds the number of votes cast against the proposal.

As of the close of business on the record date for the Chesapeake Special Meeting, the trustees and named executive officers of Chesapeake beneficially owned approximately 4.4% of the outstanding Chesapeake common shares entitled to vote at the Chesapeake Special Meeting. Chesapeake currently expects that the Chesapeake trustees and officers will vote their Chesapeake common shares in favor of the Merger Proposal, although none of them is obligated to do so.



 

13


Table of Contents

Risk Factors (See page 28)

Before voting at the Chesapeake Special Meeting, you should carefully consider all of the information contained in or incorporated by reference into this proxy statement/prospectus, as well as the specific factors under the heading “Risk Factors,” including the risks that:

 

   

the exchange ratio is fixed and will not be adjusted in the event of any change in the stock price of either Chesapeake or Park;

 

   

there may be unexpected delays in the completion of the Merger or the Merger may not be completed at all;

 

   

failure to complete the Merger in a timely manner or at all could adversely affect Chesapeake’s business and operations and negatively affect Chesapeake’s share price;

 

   

the Merger Agreement contains provisions that could discourage a potential competing acquirer of Chesapeake from making a favorable proposal and, in specified circumstances, could require Chesapeake to make a substantial termination payment to Park;

 

   

if the Merger is not consummated by the Outside Date, either Chesapeake or the Park Parties may terminate the Merger Agreement;

 

   

certain of the trustees and named executive officers of Chesapeake have interests in the Merger that are different from, or in addition to, those of the other Chesapeake shareholders;

 

   

Park may be unable to integrate the current operations of Chesapeake in order to realize the anticipated benefits of the Merger or do so within the anticipated timeframe; and

 

   

Expected sales of certain hotel properties that have been identified for sale prior to the Merger may not occur and any failure to complete such sales could adversely affect Park’s credit profile.

The Merger

The Merger (See page 49)

Upon the terms and subject to the conditions set forth in the Merger Agreement, Chesapeake will merge with and into Merger Sub, with Merger Sub continuing as the surviving entity and a direct, wholly-owned subsidiary of Domestic. Upon the consummation of the Merger, the separate existence of Chesapeake will cease.

Merger Consideration (See page 85)

In the Merger, each outstanding Chesapeake common share (other than shares held by any wholly-owned subsidiary of Chesapeake or by any of the Park Parties or any of their respective wholly-owned subsidiaries) will be converted into the right to receive the Merger Consideration, including 0.628 of a share of Park common stock and $11.00 in cash. No fractional shares of Park common stock will be issued in the Merger. The value of any fractional shares of Park common stock to which a holder would otherwise be entitled will be paid in cash.

Recommendation of the Chesapeake Board and its Reasons for the Merger (See page 57)

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Chesapeake Board consulted with Chesapeake’s management and its outside legal and financial advisors and unanimously declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement. The Chesapeake Board unanimously recommends that Chesapeake’s shareholders vote “FOR” the Merger Proposal, “FOR” the Chesapeake Compensation Proposal and “FOR” the Chesapeake Adjournment Proposal.



 

14


Table of Contents

In reaching its conclusions, the Chesapeake Board considered, among other things, the following material factors:

 

   

the receipt of Merger Consideration comprising $11.00 in cash and 0.628 of a share of Park common stock would provide Chesapeake shareholders with an amount of immediate liquidity and the opportunity to have an ownership stake in Park, the second-largest publicly traded lodging REIT based on equity market capitalization;

 

   

the Merger would combine two complementary hotel portfolios in top United States markets under the leadership of Park’s experienced management team, allowing Park to capture immediate and substantial cost synergies in the form of corporate general and administrative cost savings, as well as the potential for long-term revenue synergies from Park’s asset management initiatives;

 

   

since its separation from Hilton Worldwide in early 2017, Park has generated total stockholder returns well above those of peer lodging REITs with equity market capitalizations in excess of $1 billion, and its strong performance in the first quarter of 2019 and strengthening outlook for 2019 was expected to benefit investors in Park relative to an investment in Chesapeake as a stand-alone business; and

 

   

Park’s meaningful scale is expected to allow it to capitalize on corporate efficiencies, consider and execute on opportunistic sales of hotels that have maximized their values while preserving Park’s market-leading dividend payout ratio, and gain more efficient access to less expensive capital.

These and certain other factors considered by the Chesapeake Board in reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement can be found in the section entitled “The Merger—Recommendation of the Chesapeake Board and Its Reasons for the Merger” beginning on page 57.

Opinion of Chesapeake’s Financial Advisor (See page 62)

In connection with the Merger, representatives of J.P. Morgan, Chesapeake’s financial advisor, delivered to the Chesapeake Board a written opinion, dated May 5, 2019, as to the fairness, from a financial point of view and as of the date of the opinion, of the Merger Consideration to be paid to the holders of Chesapeake common shares in the Merger. The full text of the written opinion, dated May 5, 2019, of J.P. Morgan, which describes, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in rendering the written opinion, is attached as Annex B to this document and is incorporated by reference herein in its entirety.

Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger (See page 74)

In considering the recommendation of the Chesapeake Board to approve the Merger Proposal and the Chesapeake Compensation Proposal, Chesapeake’s shareholders should be aware that Chesapeake’s trustees and named executive officers have interests in the Merger that may be different from, or in addition to, the interests of Chesapeake’s shareholders generally and that may present actual or potential conflicts of interests. These interests include:

 

   

Immediately prior to the Effective Time, each outstanding Chesapeake time-based restricted share award and each outstanding Chesapeake performance-based restricted share award will vest in full, contingent upon the consummation of the Merger, and thereafter the holders of such awards will have the right to receive the Merger Consideration from Park with respect to the Chesapeake common shares underlying all such awards (less required withholdings);

 

   

Chesapeake will pay each holder of a Chesapeake performance-based share award an amount in cash equal to all accrued and unpaid cash dividends in respect of such award, in accordance with the restricted share award agreement pursuant to which such award was granted (less required withholdings);



 

15


Table of Contents
   

Each of Chesapeake’s named executive officers will become entitled to receive a payout under Chesapeake’s 2019 annual cash bonus plan as determined by Park, assuming a level of performance not less than that earned by each named executive officer in respect of Chesapeake’s 2018 annual cash bonus plan;

 

   

Two current Chesapeake trustees, Thomas A. Natelli and Thomas D. Eckert, have been designated by Chesapeake to serve on the Park Board following the Merger, each to serve until the 2020 annual meeting of the stockholders of Park; and

 

   

Continued indemnification and insurance coverage will be provided for the trustees and named executive officers of Chesapeake in accordance with the Merger Agreement.

In addition, each Chesapeake named executive officer is party to an employment agreement with Chesapeake, which provides for payments and other benefits if the named executive officer’s employment terminates for a qualifying event or circumstance, such as being terminated without “cause” or leaving employment for “good reason,” as these terms are defined in the agreement, following a change in control, such as the Merger. If, within 12 months following the Merger, such named executive officer’s employment is terminated by Chesapeake or Park other than for “cause,” retirement or disability, or by such named executive officer for “good reason,” the named executive officer would be eligible to receive, among other benefits, a severance payment equal to (i) three times (for Messrs. Francis, Vicari and Adams) or two times (for Mr. Wootten), his then-current salary, plus (ii) three times (for Messrs. Francis, Vicari and Adams) or two times (for Mr. Wootten), the greater of (1) the average of all bonuses paid to the executive during the preceding 36 months and (2) the most recent bonus paid to the executive. The executive would also be eligible to receive payment of life and health insurance coverage for a period of 36 months for Messrs. Francis, Vicari and Adams, and 24 months for Mr. Wootten, following termination of employment.

The Chesapeake Board was aware of these interests and considered them, among other matters, in declaring advisable and approving the Merger on the terms and conditions set forth in the Merger Agreement.

Park’s Reasons for the Merger (See page 78)

The Park Board has approved and adopted the Merger Agreement. In evaluating the Merger, the Park Board consulted with Park’s management, as well as with Park’s legal and financial advisors, and, in reaching its conclusions, the Park Board considered, among other things, the following material factors:

 

   

the transaction would combine complementary portfolios of luxury and upper upscale-branded hotels by adding Chesapeake’s high quality, well-maintained portfolio;

 

   

the combined portfolio would have increased geographic diversity (including increased exposure to the San Francisco market, reduced exposure to the Hawaii market, and penetration into Miami Beach, Downtown Los Angeles, Boston, San Diego and Denver, which are core submarkets for Park);

 

   

the combined portfolio also would diversify Park’s brand and operator mix, providing exposure to Marriott, Hyatt and IHG brands and adding eight new operators (including Marriott and Hyatt); and

 

   

with a total enterprise value of approximately $12 billion (as of signing of the Merger Agreement), the combined company would solidify Park’s position as the second-largest publicly traded lodging REIT and create a strong and flexible financial platform for greater and more cost-effective access to both equity and debt capital markets and enhanced liquidity to execute on other strategic initiatives in the future.

These and certain other factors considered by the Park Board in reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement can be found in the section entitled “The Merger—Park’s Reasons for the Merger” beginning on page 16.



 

16


Table of Contents

Regulatory Approvals Required for the Merger (See page 80)

Park and Chesapeake are not aware of any material federal or state regulatory requirements (including any mandatory waiting period) that must be complied with, or regulatory approvals that must be obtained, in connection with the Merger or the other transactions contemplated by the Merger Agreement.

Material U.S. Federal Income Tax Consequences of the Merger (See page 80)

Assuming that the Merger is completed as currently contemplated, Park and Chesapeake expect that the receipt of the Merger Consideration by Chesapeake shareholders in exchange for their Chesapeake common shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. Generally, for U.S. federal income tax purposes, Chesapeake shareholders will recognize gain or loss as a result of the Merger measured by the difference, if any, between (i) the fair market value of shares of Park common stock and the amount of any cash received in the Merger and (ii) the holder’s adjusted tax basis in the Chesapeake common shares exchanged. Park and Chesapeake anticipate that the Merger will have no material U.S. federal income tax consequences to Park stockholders who do not own any Chesapeake common shares.

The tax consequences to you of the Merger will depend on your situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the tax consequences of the Merger to Chesapeake shareholders, please see “Material U.S. Federal Income Tax Considerations” beginning on page 113.

Accounting Treatment of the Merger (See page 80)

Park prepares its financial statements in accordance with GAAP. The Merger should be accounted for by applying the acquisition method of accounting, which requires the identification of the acquirer, the determination of the acquisition date, the recognition and measurement, at fair value, of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the consolidated subsidiaries of the acquiree and recognition and measurement of goodwill or a gain from a bargain purchase.

Listing of Park Common Stock (See page 81)

It is a condition to each party’s obligation to complete the Merger that the shares of Park common stock issuable in connection with the Merger be approved for listing on the NYSE, subject to official notice of issuance. Park has agreed to use its reasonable best efforts to have the application for the listing of the Park common stock accepted by the NYSE as promptly as is practicable following submission of the NYSE listing application.

Delisting and Deregistration of Chesapeake Common Shares (See page 82)

After the Merger is completed, the Chesapeake common shares currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Financing Arrangements (See page 82)

Contemporaneously with the execution of the Merger Agreement, PIH and Domestic entered into the Commitment Letter with Bank of America, N.A. and BofA Merrill Lynch providing a $1.1 billion financing commitment for the Term Facility to fund the Merger. The Term Facility includes the Two-Year Tranche and the Five-Year Tranche.



 

17


Table of Contents

Restriction on Solicitation of Acquisition Proposals (See page 96)

Chesapeake has agreed that, from the date of the Merger Agreement, Chesapeake will not, shall cause its subsidiaries and its and their respective officers, trustees and directors not to, and shall instruct and use its reasonable best efforts to cause its and its subsidiaries’ representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, facilitate or assist (including by way of furnishing non-public information) any acquisition proposal or acquisition inquiry (each as defined in “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals”);

 

   

engage in, continue or otherwise participate in any negotiations or discussions concerning, or provide any nonpublic information or data to any person or entity (other than Park and its representatives) or afford to any other person or entity (other than Park and its representatives) access to the business, properties, assets or personnel of Chesapeake or any of its subsidiaries, in each case, in connection with, or for the purpose of knowingly encouraging, facilitating or assisting, an acquisition proposal or acquisition inquiry;

 

   

terminate, waive, amend, release or modify any, or take any other action having a similar effect with respect to, any standstill provision or similar obligation or any anti-takeover statute (other than granting waivers of and not enforcing any such standstill provision or similar obligation in effect on the date of the Merger Agreement solely to the extent necessary to permit a counterparty to make an acquisition proposal in compliance with the Merger Agreement);

 

   

approve, authorize, execute or enter into any acquisition agreement (as defined in “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals”); or

 

   

propose or agree to do any of the foregoing.

However, prior to receipt of the Chesapeake shareholder approval of the Merger Proposal, Chesapeake (and its subsidiaries and representatives) is permitted, in response to certain unsolicited bona fide written acquisition proposals that did not result from a breach or violation of the no solicitation covenant in the Merger Agreement as described in “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals,” to engage in discussions and negotiations regarding such acquisition proposal and provide nonpublic information or data if the Chesapeake Board determines in good faith (after consultation with its advisors) that such acquisition proposal constitutes, or would reasonably be expected to lead to, a superior proposal and that failure to take such action would be inconsistent with the trustees’ duties under applicable law. Under the Merger Agreement, Chesapeake is required to notify Park as promptly as practicable (but in no event later than 24 hours after the receipt thereof) of the receipt of any acquisition proposal or acquisition inquiry.

Prior to receipt of the Chesapeake shareholder approval of the Merger Proposal, the Chesapeake Board may, under certain specified circumstances as described in “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals—Change in Recommendation with Respect to a Superior Proposal” and “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals—Change in Recommendation with Respect to an Intervening Event,” make a change in recommendation in response to a superior proposal (and terminate the Merger Agreement to enter into an alternative acquisition agreement with respect to a superior proposal) or an intervening event if the Chesapeake Board determines in good faith (after consultation with its advisors) that failure to take such action would be inconsistent with the trustees’ duties under applicable law. Prior to making a change in recommendation, Chesapeake must offer Park the opportunity to modify the terms of the Merger Agreement in response to the applicable circumstances leading to the Chesapeake Board’s intention to make a change in recommendation.



 

18


Table of Contents

Conditions to Completion of the Merger (See page 106)

A number of conditions must be satisfied or, to the extent permitted by law, waived before the Merger can be consummated. These include, among others:

 

   

approval of the Merger Proposal by Chesapeake shareholders;

 

   

effectiveness of the registration statement on Form S-4 and no stop order suspending the effectiveness of the Form S-4 having been issued;

 

   

no restraining order, injunction or other order, decree or judgment restricting or prohibiting the Merger;

 

   

approval for listing on the NYSE of the Park common stock that constitutes the Common Stock Consideration;

 

   

the accuracy of each party’s representations, subject in most cases to certain materiality or material adverse effect qualifications;

 

   

the performance in all material respects by each party of its obligations under the Merger Agreement;

 

   

the absence of a Chesapeake material adverse effect or a Park material adverse effect;

 

   

the receipt of closing certificates by each party that certain closing conditions have been satisfied; and

 

   

the receipt of tax opinions relating to the REIT status of Chesapeake and its subsidiary REITs and of Park.

Termination of the Merger Agreement (See page 109)

The Merger Agreement may be terminated under the following circumstances:

 

   

by mutual written consent of the parties;

 

   

by Chesapeake or the Park Parties:

 

   

if approval of the Merger Proposal by Chesapeake shareholders is not obtained;

 

   

if any order, decree or ruling by any governmental authority of competent jurisdiction that is within a jurisdiction that is material to the business and operations of Chesapeake, permanently restrains, enjoins or otherwise prohibits, restricts or makes illegal the consummation of the Merger and such order, decree, judgment, injunction or other action has become final and non-appealable; or

 

   

the Merger is not consummated on or before October 31, 2019.

 

   

by Chesapeake:

 

   

if, subject to cure rights, the Park Parties have breached or failed to perform their representations, warranties, covenants or other agreements set forth in the Merger Agreement such that the closing conditions relating to their representations, warranties, covenants or agreements would be incapable of being satisfied by October 31, 2019, unless Chesapeake is in breach of any of its own respective representations, warranties, covenants or agreements set forth in the Merger Agreement such that certain closing conditions would not be satisfied; or

 

   

at any time prior to the receipt of Chesapeake shareholder approval of the Merger Proposal, in order to concurrently enter into an acquisition agreement with respect to a superior proposal that did not result from a breach or violation of the non-solicitation covenant and covenants restricting the sharing of information contained in the Merger Agreement, provided that Chesapeake pays the termination fee prior to or concurrently with the occurrence of such termination.



 

19


Table of Contents
   

By the Park Parties:

 

   

if, subject to cure rights, Chesapeake has breached or failed to perform its representations, warranties, covenants or other agreements set forth in the Merger Agreement such that the closing conditions relating to its representations, warranties, covenants or agreements would be incapable of being satisfied by October 31, 2019, unless the Park Parties are in breach of any of their own representations, warranties, covenants or agreements set forth in the Merger Agreement such that certain closing conditions would not be satisfied; or

 

   

if, at any time prior to receipt of the Chesapeake shareholder approval of the Merger Proposal, the Chesapeake Board makes a change in recommendation or if Chesapeake has otherwise breached or violated any of its obligations under the non-solicitation covenant and covenants restricting the sharing of information (other than any immaterial or inadvertent breach not intended to result in an acquisition proposal) contained in the Merger Agreement.

Termination Fee and Expenses Payable by Chesapeake to the Park Parties (See page 110)

The Merger Agreement provides that, in connection with the termination of the Merger Agreement under certain specified circumstances, Chesapeake will be required to pay to Park a termination fee of $62.5 million and/or to reimburse Park’s reasonable out-of-pocket expenses up to $17.5 million. Any out-of-pocket expenses reimbursed would be credited against the payment of any termination fee to the Park Parties.

Chesapeake Restricted Shares (See page 86)

Immediately prior to the Effective Time, each of the outstanding Chesapeake time-based and performance-based share awards will automatically vest in full, contingent upon the consummation of the Merger, and the holders of the awards will have the right to receive the Merger Consideration with respect to all of the underlying Chesapeake common shares (less required withholdings). In addition, Chesapeake will pay each holder of a Chesapeake performance-based share award an amount in cash equal to all accrued and unpaid cash dividends in respect of such award, in accordance with the restricted share award agreement pursuant to which such award was granted (less required withholdings).

Dissenters’ Rights (See page 86)

No dissenters’ or appraisal rights or rights of objecting shareholders will be available to holders of Chesapeake common shares with respect to the Merger or the other transactions contemplated by the Merger Agreement, including any remedy under Sections 3-201 et seq. of the MGCL.

Directors and Executive Officers of Park Following the Merger (See page 112)

Immediately following the Effective Time, the size of the Park Board will be increased to 10 members, with the eight current Park directors, Thomas J. Baltimore, Jr., Gordon M. Bethune, Patricia M. Bedient, Geoffrey M. Garrett, Christie B. Kelly, Sen. Joseph I. Lieberman, Timothy J. Naughton and Stephen I. Sadove, continuing as members of the Park Board, and Thomas A. Natelli and Thomas D. Eckert joining the Park Board, each to serve until the 2020 annual meeting of the stockholders of Park (and until his or her successors qualify and are duly elected). Mr. Natelli has served as non-executive Chairman of the Chesapeake Board and Mr. Eckert has served as a trustee on the Chesapeake Board, in each case since Chesapeake’s initial public offering in 2010. Following the Merger, Thomas J. Baltimore, Jr. will continue to serve as Chairman of the Park Board and Gordon M. Bethune will continue to serve as Lead Independent Director of the Park Board.

The executive officers of Park immediately prior to the Effective Time will continue to serve as the executive officers of Park following the Merger, with Thomas J. Baltimore, Jr. continuing to serve as President and Chief Executive Officer.



 

20


Table of Contents

Comparison of Rights of Park Stockholders and Chesapeake Shareholders (See page 154)

The rights of Chesapeake shareholders are currently governed by and subject to the provisions of the MRL, the Chesapeake charter and the Chesapeake bylaws. Upon consummation of the Merger, the rights of the former Chesapeake shareholders who receive shares of Park common stock will be governed by the DGCL, the Park charter and the Park by-laws. These rights may be less favorable to the Chesapeake shareholders than their current rights.

Litigation Relating to the Merger (See page 83)

Two purported shareholder class actions have been filed in the United States District Court for the District of Delaware captioned: Kent v. Chesapeake Lodging Trust, et al., No. 1:19-cv-01201 (D.Del.) (filed June 25, 2019) and Terlinden v. Chesapeake Lodging Trust, et al., No. 1:19-cv-01263 (D.Del.) (filed July 8, 2019). The complaint in each case alleges purported violations of the federal securities laws and names as defendants Chesapeake, the individual members of the Chesapeake Board, Park, Domestic and Merger Sub. The plaintiffs allege that Chesapeake and the individual defendants violated Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder, by providing inadequate disclosure regarding the proposed Merger in the registration statement. The plaintiffs also allege that the individual defendants, Park, Domestic and Merger Sub violated Section 20(a) of the Exchange Act. Plaintiffs seek, among other things, to enjoin or rescind the Merger, an award of damages in the event the Merger is consummated and an award of costs and attorneys’ fees. Park and Chesapeake believe that these claims are without merit and intend to vigorously defend against them.



 

21


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION OF PARK

The selected financial data of Park for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are derived from Park’s audited consolidated financial statements. The selected financial data of Park for the three months ended March 31, 2019 and 2018 are derived from Park’s unaudited consolidated financial statements. This selected financial data is not necessarily indicative of Park’s future performance and does not necessarily reflect what Park’s financial position and results of operations would have been had Park been operating as an independent, publicly traded company during the periods presented prior to Park’s spin-off from Hilton Worldwide Holdings Inc. (“Hilton Worldwide”), effective January 3, 2017. For example, Park’s pre-spin consolidated financial statements include allocations of certain expenses from Hilton Worldwide, including expenses for costs related to functions such as information technology support, systems maintenance, financial services, human resources and other shared services. These costs may not be representative of the future costs Park will incur, either positively or negatively, as an independent, public company.

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements as of December 31, 2018 and 2017 and for the three years ended December  31, 2018, 2017 and 2016, and the related notes thereto, included in the Park Annual Report on Form 10-K for the year ended December 31, 2018, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the unaudited consolidated financial statements for the three months ended March 31, 2019 and 2018, and the related notes thereto, included in the Park Quarterly Report on Form  10-Q for the quarter ended March 31, 2019.

 

     Three Months
Ended March 31,
     Year Ended December 31,  
     2019      2018      2018      2017      2016      2015      2014  
     (in millions)  

Statement of Operations Data:

                    

Total revenues

   $ 659      $ 668      $ 2,737      $ 2,791      $ 2,727      $ 2,688      $ 2,513  

Operating income

   $ 129      $ 174      $ 504      $ 371      $ 419      $ 586      $ 440  

Net income

   $ 97      $ 149      $ 477      $ 2,631      $ 139      $ 299      $ 181  

Net income attributable to stockholders

   $ 96      $ 150      $ 472      $ 2,625      $ 133      $ 292      $ 176  

Earnings per share:

                    

Earnings per share—Basic(1)

   $ 0.48      $ 0.71      $ 2.32      $ 12.38      $ 0.67      $ 1.48      $ 0.89  

Earnings per share—Diluted(1)

   $ 0.48      $ 0.71      $ 2.31      $ 12.21      $ 0.67      $ 1.48      $ 0.89  

Dividends declared per common share

   $ 0.45      $ 0.43      $ 2.74      $ 1.84 (2)     $      $      $  

Balance Sheet Data:

                    

Total assets

   $ 9,394      $ 9,336      $ 9,363      $ 9,714      $ 9,834      $ 9,787      $ 9,714  

Debt

   $ 2,949      $ 2,946      $ 2,948      $ 2,961      $ 3,012      $ 4,057      $ 4,246  

Total equity

   $ 5,580      $ 5,715      $ 5,586      $ 5,962      $ 3,823      $ 2,797      $ 2,593  

 

(1)

For 2016 and prior, per share amounts were calculated using the number of shares of Park common stock outstanding upon the completion of the spin-off. Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.

(2)

Exclusive of the dividends paid in connection with the distribution of Park’s C Corporation earnings and profits attributable to the period prior to spin-off.



 

22


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION OF CHESAPEAKE

The selected financial data of Chesapeake for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are derived from Chesapeake’s audited consolidated financial statements. The selected financial data of Chesapeake for the three months ended March 31, 2019 and 2018 are derived from Chesapeake’s unaudited consolidated financial statements. This selected financial data is not necessarily indicative of Chesapeake’s future performance.

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements as of December 31, 2018 and 2017 and for the three years ended December  31, 2018, 2017 and 2016, and the related notes thereto, included in the Chesapeake Annual Report on Form  10-K for the year ended December 31, 2018, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the unaudited consolidated financial statements for the three months ended March  31, 2019 and 2018, and the related notes thereto, included in the Chesapeake Quarterly Report on Form  10-Q for the quarter ended March 31, 2019.

 

     Three Months
Ended March 31,
     Year Ended December 31,  
     2019      2018      2018      2017      2016      2015      2014  
     (in millions)  

Statement of Operations Data:

                    

Total revenues

   $ 134      $ 135      $ 597      $ 598      $ 620      $ 583      $ 478  

Net income

   $ 8      $ 7      $ 97      $ 76      $ 77      $ 68      $ 61  

Net income attributable to common shareholders

   $ 8      $ 7      $ 97      $ 67      $ 67      $ 58      $ 51  

Earnings per share:

                    

Earnings per share—Basic

   $ 0.14      $ 0.11      $ 1.63      $ 1.12      $ 1.13      $ 1.00      $ 1.01  

Earnings per share—Diluted

   $ 0.14      $ 0.11      $ 1.62      $ 1.11      $ 1.13      $ 0.99      $ 1.00  

Dividends declared per common share

   $ 0.40      $ 0.40      $ 1.60      $ 1.60      $ 1.60      $ 1.50      $ 1.20  

Balance Sheet Data:

                    

Total assets

   $ 1,956      $ 1,964      $ 1,909      $ 1,975      $ 2,035      $ 2,088      $ 1,714  

Debt

   $ 749      $ 832      $ 751      $ 830      $ 737      $ 770      $ 546  

Total equity

   $ 1,037      $ 1,035      $ 1,054      $ 1,048      $ 1,189      $ 1,210      $ 1,082  


 

23


Table of Contents

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following table shows summary unaudited pro forma condensed combined consolidated financial information about the combined financial condition and operating results after giving effect to the Merger. The unaudited pro forma condensed combined consolidated financial information assumes that the Merger is accounted for by applying the acquisition method of accounting. The historical consolidated financial statements of Chesapeake have been adjusted to reflect certain reclassifications in order to conform to Park’s financial statement presentation. The unaudited pro forma condensed combined consolidated balance sheet as of March 31, 2019 gives effect to the Merger as if it had occurred on March 31, 2019. The unaudited pro forma condensed combined consolidated statements of operations for the three months ended March 31, 2019 and the year ended December 31, 2018 give effect to the Merger as if it had occurred on January 1, 2018, the beginning of the earliest period presented.

On June 24, 2019, Park completed the previously announced sale of three of its non-core wholly-owned hotel properties, the Embassy Suites Parsippany, the Hilton New Orleans Airport and the Hilton Atlanta Airport. These sales are part of the planned asset sales previously announced by Park to reduce leverage in advance of or in connection with the Merger. Additionally, on July 25, 2019, Chesapeake announced it had entered into an agreement to sell the New York Disposition Properties. Park expects that Chesapeake will complete the sale of the New York Disposition Properties prior to completion of the Merger in accordance with the terms of the Merger Agreement. Due to the significance of the sales relative to the Merger, both Chesapeake’s and Park’s historical consolidated balance sheets as of March 31, 2019 and historical consolidated statements of operations for the year ended December 31, 2018 and the three months ended March 31, 2019 have been adjusted to reflect the sale of these hotels. For pro forma purposes, the sales are assumed to have occurred on March 31, 2019 for the unaudited pro forma condensed combined consolidated balance sheet and on January 1, 2018 for the unaudited pro forma condensed combined consolidated statements of operations.

The summary unaudited pro forma condensed combined consolidated financial information listed below has been derived from and should be read in conjunction with (i) the more detailed unaudited pro forma condensed combined consolidated financial information, including the notes thereto, appearing elsewhere in this proxy statement/prospectus; (ii) the consolidated financial statements and the related notes thereto of both Park and Chesapeake contained in the Park Annual Report on Form 10-K for the year ended December  31, 2018 and the Chesapeake Annual Report on Form 10-K for the year ended December 31, 2018, which are incorporated by reference into this proxy statement/prospectus; and (iii)  the consolidated financial statements and the related notes thereto of both Park and Chesapeake contained in the Park Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and the Chesapeake Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which are incorporated by reference into this proxy statement/prospectus. See “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page F-1 and “Where You Can Find More Information” beginning on page 175.



 

24


Table of Contents

The unaudited pro forma condensed combined consolidated financial information is presented for illustrative purposes only and is not indicative of the combined financial position or operating results that would have occurred if the transactions described above had occurred on the dates described above and in accordance with the assumptions described below, nor is it indicative of future operating results or financial position. As explained in more detail in the accompanying notes to the unaudited pro forma condensed combined consolidated financial information, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined consolidated financial information is subject to adjustment and may vary significantly from the definitive allocation of the final purchase price that will be recorded subsequent to completion of the Merger. The determination of the final purchase price allocation will be based on the actual net tangible and intangible assets and liabilities of Chesapeake that exist as of the closing date of the Merger and cannot be made prior to the completion of the Merger (in millions, except per share data).

 

     Three Months Ended March 31, 2019  
     Park
Historical
     Chesapeake
Historical
     Pro Forma
Sale
Adjustments
    Park &
Chesapeake
Adjusted
     Pro Forma
Merger
Adjustments
    Park Pro
Forma
 
     (in millions)  

Operating Data

               

Total revenues

   $ 659      $ 134      $ (21   $ 772      $     $ 772  

Total expenses

     561        120        (17     664        3       667  

Interest expense

     32        8        (1     39        5       44  

Net income attributable to stockholders

     96        8        (3     101        (8     93  

Per Common Share Data

               

Basic:

               

Earnings per share

   $ 0.48      $ 0.14        N/A       N/A        N/A     $ 0.39  

Weighted average shares outstanding

     201        59        N/A       N/A        N/A       239  

Diluted:

               

Earnings per share

   $ 0.48      $ 0.14        N/A       N/A        N/A     $ 0.39  

Weighted average shares outstanding

     202        60        N/A       N/A        N/A       240  

Balance Sheet Data

               

Property and equipment, net

   $ 7,944      $ 1,723      $ (291   $ 9,376      $ 605     $ 9,981  

Total assets

     9,394        1,958        (93     11,259        345       11,604  

Total debt

     2,949        751        (85     3,615        410       4,025  

Total equity

     5,580        1,037        (2     6,615        (167     6,448  


 

25


Table of Contents
     Year Ended December 31, 2018  
     Park
Historical
     Chesapeake
Historical
     Pro Forma
Sale
Adjustments
    Park &
Chesapeake
Adjusted
     Pro Forma
Merger
Adjustments
    Park Pro
Forma
 
     (in millions)  

Operating Data

               

Total revenues

   $ 2,737      $ 597      $ (86   $ 3,248      $     $ 3,248  

Total expenses

     2,329        498        (71     2,756        13       2,769  

Interest expense

     127        34        (4     157        21       178  

Net income attributable to stockholders

     472        97        (11     558        (34     524  

Per Common Share Data

               

Basic:

               

Earnings per share

   $ 2.32      $ 1.63        N/A       N/A        N/A     $ 2.17  

Weighted average shares outstanding

     203        59        N/A       N/A        N/A       241  

Diluted:

               

Earnings per share

   $ 2.31      $ 1.62        N/A       N/A        N/A     $ 2.16  

Weighted average shares outstanding

     204        59        N/A       N/A        N/A       242  


 

26


Table of Contents

UNAUDITED PER SHARE INFORMATION

The following table sets forth for the year ended December 31, 2018 and the three months ended March 31, 2019, selected per share information for Park common stock on a historical and pro forma combined basis and for Chesapeake common shares on a historical and pro forma equivalent basis. You should read the tables below together with the historical consolidated financial statements and related notes thereto of Park and Chesapeake contained in each of the Park Annual Report on Form 10-K for the year ended December  31, 2018 and the Chesapeake Annual Report on Form 10-K for the year ended December 31, 2018, and each of the Park Quarterly Report on Form 10-Q for the quarter ended March  31, 2019 and the Chesapeake Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175 for more information.

The unaudited pro forma net book value per share data give effect to the Merger as if it had occurred on March 31, 2019. The unaudited pro forma earnings and dividends per common share data give effect to the Merger as if it had become effective at January 1, 2018. The Chesapeake pro forma equivalent per common share amounts were calculated by multiplying the Park pro forma combined per share amounts by the exchange ratio of 0.628.

You should not rely on the pro forma amounts as being indicative of the financial position or results of operations of Park that actually would have occurred had the Merger been completed as of the dates indicated above, nor is it necessarily indicative of the future financial position or operating results of Park.

 

     Park      Chesapeake  
     Historical      Pro Forma
Combined
     Historical      Pro Forma
Equivalent
 

For the year ended December 31, 2018

           

Earnings per share—Basic

   $ 2.32      $ 2.17      $ 1.63      $ 1.36  

Earnings per share—Diluted

   $ 2.31      $ 2.16      $ 1.62      $ 1.36  

Dividends declared per share

   $ 2.74      $ 2.74      $ 1.60      $ 1.72  

For the three months ended March 31, 2019

           

Earnings per share—Basic

   $ 0.48      $ 0.39      $ 0.14      $ 0.24  

Earnings per share—Diluted

   $ 0.48      $ 0.39      $ 0.14      $ 0.24  

Dividends declared per share

   $ 0.45      $ 0.45      $ 0.40      $ 0.28  

As of March 31, 2019

           

Net book value per share

   $ 27.69      $ 26.90      $ 17.06      $ 16.89  


 

27


Table of Contents

RISK FACTORS

In addition to the other information included in this proxy statement/prospectus, including the matters addressed in the section entitled “Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote your Chesapeake common shares at the Chesapeake Special Meeting. In addition, you should read and consider the risks associated with each of the businesses of Park and Chesapeake because these risks will also affect Park following the Merger. These risks can be found in Item 1A: “Risk Factors” in each of the Park Annual Report on Form 10-K for the year ended December  31, 2018, the Chesapeake Annual Report on Form 10-K for the year ended December  31, 2018, the Park Quarterly Report on Form 10-Q for the quarter ended March  31, 2019, the Chesapeake Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and subsequent Quarterly Reports on Form 10-Q of Park and Chesapeake, each of which is filed with the SEC and incorporated by reference into this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175.

Risks Related to the Merger

The exchange ratio is fixed and will not be adjusted in the event of any change in the stock price of either Chesapeake or Park.

At the Effective Time, each outstanding Chesapeake common share (other than shares held by Chesapeake, any wholly-owned subsidiary of Chesapeake or by any of the Park Parties or any of their respective wholly-owned subsidiaries) will be converted into the right to receive the Merger Consideration, including 0.628 of a share of Park common stock and $11.00 in cash.

The exchange ratio of 0.628 of a share of Park common stock and $11.00 in cash was fixed in the Merger Agreement and, except for certain adjustments on account of changes in the capitalization of Park or Chesapeake, or the payment of certain dividends by Park or Chesapeake that are necessary to maintain its status as a REIT, will not be adjusted for changes in the market prices of Park common stock or Chesapeake common shares. Changes in the market price of shares of Park common stock prior to the Merger will affect the market value of the Merger Consideration that Chesapeake shareholders will be entitled to receive on the closing date of the Merger. Stock price changes may result from a variety of factors (many of which are beyond the control of Chesapeake and Park), including the following:

 

   

changes in the respective businesses, operations, assets, liabilities and prospects of Chesapeake and Park;

 

   

changes in market assessments of the business, operations, financial position and prospects of Chesapeake or Park;

 

   

market assessments of the likelihood that the Merger will be completed;

 

   

interest rates, general market and economic conditions and other factors generally affecting the market prices of Chesapeake common shares and Park common stock;

 

   

federal, state and local legislation, governmental regulation and legal developments in the business in which Chesapeake and Park operate; and

 

   

other factors, including those described or referred to elsewhere under this heading “Risk Factors.”

The market price of Park common stock at the closing of the Merger may vary from its price on the date the Merger Agreement was executed, on the date of this proxy statement/prospectus and on the date of the Chesapeake Special Meeting. As a result, the market value of the Merger Consideration represented by the exchange ratio will also vary. For example, based on the range of closing prices of Park common stock during the

 

28


Table of Contents

period from May 3, 2019, the last trading day before public announcement of the Merger, through July 24, 2019, the latest practicable date before the date of this proxy statement/prospectus, the exchange ratio of 0.628 per share plus $11.00 represented a market value ranging from a low of $27.23 to a high of $31.71.

Because the Merger will be completed after the date of the Chesapeake Special Meeting, at the time of the Chesapeake Special Meeting, you will not know the exact market value of the Park common stock that Chesapeake shareholders will receive upon completion of the Merger. You should consider, among other things:

 

   

if the price of Park common stock increases between the date the Merger Agreement was signed and the closing of the Merger, Chesapeake shareholders will receive shares of Park common stock that have a market value upon completion of the Merger that is greater than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed; and

 

   

if the price of Park common stock declines between the date the Merger Agreement was signed and the closing of the Merger, Chesapeake shareholders will receive shares of Park common stock that have a market value upon the closing of the Merger that is less than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed.

Therefore, while the number of shares of Park common stock to be issued per Chesapeake common share is fixed, Chesapeake shareholders cannot be sure of the market value of the Merger Consideration they will receive upon the closing of the Merger.

There may be unexpected delays in the completion of the Merger or the Merger may not be completed at all.

The Merger is currently expected to close late in the third quarter or early in the fourth quarter of 2019, assuming that all of the conditions in the Merger Agreement are satisfied or waived. The Merger Agreement provides that either Chesapeake or the Park Parties may terminate the Merger Agreement if the Merger has not occurred on or before the Outside Date. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of Chesapeake and the Park Parties. In particular, completion of the Merger requires the affirmative vote on the Merger Proposal of the holders of not less than a majority of Chesapeake’s outstanding common shares as of the record date for the Chesapeake Special Meeting. If the requisite shareholder approval is not obtained at the Chesapeake Special Meeting (including any postponement or adjournment thereof), either Chesapeake or the Park Parties may terminate the Merger Agreement.

Chesapeake and Park may incur significant additional costs in connection with any delay in completing the Merger or the termination of the Merger Agreement, in addition to significant transaction costs, including legal, financial advisory, accounting and other costs Chesapeake and Park have already incurred. In addition, if the Merger is terminated under certain circumstances specified in the Merger Agreement, Chesapeake will be required to pay to Park a termination fee of $62.5 million and/or to reimburse Park’s reasonable out-of-pocket expenses up to $17.5 million. Any out-of-pocket expenses reimbursed would be credited against the payment of any termination fee to the Park Parties. Neither Chesapeake nor Park can assure you that the conditions to the completion of the Merger will be satisfied or waived or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur.

Failure to complete the Merger in a timely manner or at all could adversely affect Chesapeake’s business and operations and negatively affect Chesapeake’s share price.

Under the Merger Agreement, Chesapeake is subject to certain restrictions on the conduct of its business prior to completing the Merger. These restrictions may prevent Chesapeake from pursuing certain strategic transactions, acquiring and disposing assets, undertaking certain capital expenditure projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial. Additionally, the pendency of the Merger may make it more difficult for

 

29


Table of Contents

Chesapeake to effectively recruit, retain and incentivize key personnel and may cause distractions from Chesapeake’s strategy and day-to-day operations for current employees and management.

Delays in completing the Merger or the failure to complete the Merger at all could adversely affect Chesapeake’s business and operations, and, in that event, the market price of Chesapeake common shares may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger is not completed for any reason, Chesapeake will not achieve the expected benefits thereof.

Chesapeake shareholders will have a substantially smaller ownership and voting interest in Park upon completion of the Merger, compared to their ownership and voting interest in Chesapeake prior to the Merger.

Upon completion of the Merger, each Chesapeake shareholder will become a Park stockholder with a percentage ownership of Park that is substantially smaller than the shareholder’s current percentage ownership of Chesapeake. Upon completion of the Merger, based on the number of Chesapeake common shares and shares of Park common stock outstanding on July 24, 2019, the latest practicable date prior to the filing of this proxy statement/prospectus, we estimate that continuing Park stockholders will own approximately 84% of the issued and outstanding common stock of Park, and former Chesapeake shareholders will own approximately 16% of the issued and outstanding common stock of Park. Accordingly, the former Chesapeake shareholders will exercise significantly less influence over Park after the Merger relative to their influence over Chesapeake prior to the Merger, and thus will have a less significant impact on the approval or rejection of future Park proposals submitted to a stockholder vote.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of Chesapeake from making a favorable proposal and, in specified circumstances, could require Chesapeake to make a substantial termination payment to Park.

Pursuant to the Merger Agreement, Chesapeake has agreed not to (i) solicit proposals relating to certain alternative transactions, (ii) enter into discussions or negotiations or provide non-public information concerning proposals relating to an alternative business combination transaction, or (iii) approve or enter into any agreements providing for any such alternative business combination transaction, subject to certain exceptions to permit members of the Chesapeake Board to comply with their duties as trustees under applicable law. Notwithstanding these “no-shop” restrictions, prior to obtaining Chesapeake shareholder approval of the Merger Proposal, under certain specified circumstances the Chesapeake Board may change the Chesapeake Board Recommendation and Chesapeake may also terminate the Merger Agreement to accept a superior proposal upon payment of the termination fee described below.

The Merger Agreement also provides that, in connection with the termination of the Merger Agreement under certain specified circumstances, Chesapeake may be required to pay to Park a termination fee of $62.5 million and/or to reimburse Park’s reasonable out-of-pocket expenses up to $17.5 million. Any out-of-pocket expenses reimbursed would be credited against the payment of any termination fee to the Park Parties. See “The Merger Agreement—Covenants and Agreements—Restriction on Solicitation of Acquisition Proposals” beginning on page 96 and “The Merger Agreement—Termination of the Merger Agreement—Termination Fee and Expenses Payable by Chesapeake to the Park Parties” beginning on page 110.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Chesapeake from considering or proposing such an acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower per share value 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.

 

30


Table of Contents

If the Merger is not consummated by the Outside Date, either Chesapeake or the Park Parties may terminate the Merger Agreement.

Either Chesapeake or the Park Parties may terminate the Merger Agreement if the Merger has not been consummated by the Outside Date, which is October 31, 2019. However, this termination right will not be available to a party if that party’s failure to comply with any provision of the Merger Agreement has been the primary cause of, or resulted in, the failure of the Merger to occur by the Outside Date. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 109. In the event the Merger Agreement is terminated by either party due to the failure of the Merger to close by the Outside Date, Chesapeake and Park will have incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities without realizing the anticipated benefits of the Merger.

The trustees and the named executive officers of Chesapeake have interests in the Merger that are different from, or in addition to, those of the other Chesapeake shareholders.

The trustees and named executive officers of Chesapeake have arrangements that provide them with interests in the Merger that are different from, or in addition to, those of the Chesapeake shareholders, generally. These interests include, among other things, with respect to Chesapeake’s trustees, accelerated vesting of outstanding restricted share awards and, with respect to certain trustees, the continued service as a director of Park or, with respect to the named executive officers, accelerated vesting of outstanding restricted share awards, the payment of an amount in cash equal to all accrued and unpaid cash dividends in respect of the vesting of outstanding performance-based restricted share awards, a bonus payout under Chesapeake’s 2019 annual cash bonus plan and a severance payment if employment is terminated or the named executive officer resigns for “good reason” upon consummation of the Merger or within the ensuing 12 months. The Chesapeake Board was aware of and considered those interests, among other matters, in reaching its decision to declare advisable and approve the Merger, and to recommend approval of the Merger Proposal to Chesapeake shareholders. These interests, among others, may influence or may have influenced the trustees and named executive officers of Chesapeake to support or approve the Merger. See “The Merger—Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger” beginning on page 74.

An adverse judgment in any litigation filed or that may be filed challenging the Merger may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. As of the date of this proxy statement/prospectus, two putative stockholder class action lawsuits have been filed by purported Chesapeake shareholders challenging the disclosures made in the registration statement in connection with the Merger. The complaints each allege that the registration statement fails to disclose certain allegedly material information in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule14a-9 promulgated thereunder. Additional lawsuits arising out of the Merger may be filed in the future. For a more detailed description of this litigation, see “The Merger—Litigation Relating to the Merger” beginning on page 83 of this proxy statement/prospectus.

Neither Chesapeake nor Park can assure you as to the outcome of these lawsuits or any other lawsuit that may be filed, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of Chesapeake’s or Park’s business.

 

31


Table of Contents

The fairness opinion obtained from the financial advisor by the Chesapeake Board will not reflect subsequent developments.

In connection with the proposed Merger, the Chesapeake Board received an oral opinion on May 5, 2019 from J.P. Morgan, later confirmed by delivery of a written opinion dated as of May 5, 2019, as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be paid to the holders of Chesapeake common shares, which opinion was based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken, as more fully described in the section entitled “The Merger—Opinion of Chesapeake’s Financial Advisor.” The opinion does not reflect developments that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Park or Chesapeake, changes in general market and economic conditions or regulatory or other factors. Any such changes, or other factors on which the opinions are based, may materially alter or affect the relative values of Park or Chesapeake. J.P. Morgan does not have any obligation to update, revise or reaffirm its opinion.

Risks Related to Park Following the Merger

Park expects to incur substantial expenses related to the Merger.

Park expects to incur substantial expenses in completing the Merger and integrating the business, operations, systems, technologies, policies and procedures of Chesapeake with those of Park. While Park has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of the expenses relating to the completion of the Merger and the integration of Park’s and Chesapeake’s operations. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the expenses associated with the Merger could, particularly in the near term, reduce the savings that Park expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings following the completion of the Merger.

Following the Merger, Park may be unable to integrate the current operations of Chesapeake and Park successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated timeframe.

The Merger involves the combination of two companies which currently operate as independent public companies. Park is expected to benefit from the elimination of duplicative costs associated with supporting a public company platform and the leveraging of technology and systems. However, Park will be required to devote significant management attention and resources to integrating the business practices and operations of Chesapeake into Park. Potential difficulties Park may encounter in the integration process include, among others, the following:

 

   

the inability to successfully combine the operations of Chesapeake and Park in a manner that permits Park to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all;

 

   

the additional complexities of increasing the number of third-party operators relied upon by Park and brands represented in Park’s portfolio following the Merger, including additional time and attention required by management;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and

 

   

performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and integrating the companies’ operations.

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of Park’s management, the disruption of Park’s ongoing business or inconsistencies in Park’s

 

32


Table of Contents

operations, services, standards, controls, procedures and policies, any of which could adversely affect the ability of Park to maintain relationships with tenants, customers, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect Park’s business and financial results.

Expected sales of certain hotel properties that have been identified for sale prior to the Merger may not occur and any failure to complete such sales could adversely affect Park’s credit profile.

Prior to the closing of the Merger, Park expects that Chesapeake will complete the sale of the New York Disposition Properties, which are currently under contract to be sold, in accordance with the terms of the Merger Agreement. The Park Parties also are permitted to undertake a marketing and sales process with respect to certain other Chesapeake hotel properties that may be identified by Park for disposition after closing of the Merger. Proceeds from these asset sales are expected to be used to pay down indebtedness to reduce leverage. There can be no assurance that any such potential asset sales will occur on favorable terms or at all. Any potential asset sales would be dependent upon a number of factors that may be beyond Chesapeake’s or Park’s control, including, among other factors, market conditions, industry trends, the interest of third parties in the properties to be sold and the availability of financing to potential buyers on reasonable terms.

Park’s anticipated level of indebtedness will increase upon completion of the Merger and will increase the related risks Park now faces.

Contemporaneously with the execution of the Merger Agreement, PIH and Domestic entered into the Commitment Letter with Bank of America, N.A. and BofA Merrill Lynch providing a $1.1 billion financing commitment for the Term Facility to fund the Merger. Park will also assume and/or refinance certain indebtedness of Chesapeake in connection with the Merger and will be subject to increased risks associated with debt financing, including an increased risk that Park’s cash flow could be insufficient to meet required payments on its debt. On March 31, 2019, Park had indebtedness of approximately $3 billion. After giving effect to the Merger, including the assumption of Chesapeake’s debt expected in the Merger, Park’s total pro forma consolidated indebtedness will increase to approximately $4 billion.

Park’s increased indebtedness could have important consequences to holders of its common stock, including:

 

   

increasing Park’s vulnerability to general adverse economic and industry conditions;

 

   

limiting Park’s ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;

 

   

with respect to floating rate indebtedness, risks associated with increases in interest rates;

 

   

requiring the use of a substantial portion of Park’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;

 

   

limiting Park’s flexibility in planning for, or reacting to, changes in its business and its industry; and

 

   

putting Park at a disadvantage compared to its competitors with less indebtedness.

Counterparties to certain significant agreements with Chesapeake may exercise contractual rights under such agreements in connection with the Merger.

Chesapeake is a party to certain agreements that give the applicable counterparty certain rights following a “change in control.” In certain of these agreements, such rights may be triggered upon the closing of the Merger

 

33


Table of Contents

and may trigger a consent or the right to terminate the agreement. It is not a condition to completion of the Merger that the counterparties consent to the Merger or waive their contractual rights. Certain counterparties may also require modifications to their respective agreements or the execution of new agreements as a condition to granting a waiver or consent under their agreement. The pursuit of such rights by the counterparties may result in Park suffering a loss of potential future revenue or incurring liabilities and may result in the loss or modification of rights that are material to Park’s business. There can be no assurances that such counterparties will not exercise their rights under these agreements, including termination rights where available, or that the exercise of any such rights under, or modification of, these agreements will not adversely affect Park’s business or operations.

Park depends on key senior executives and field personnel, including general managers, for its future success, and the loss of key personnel or inability to attract and retain key personnel could significantly harm Park’s business.

Park’s ability to maintain its competitive position depends somewhat on the efforts and abilities of its senior executives. Finding suitable replacements for senior executives could be difficult. Losing the services of one or more of these senior executives following consummation of the Merger could adversely affect strategic relationships, including relationships with Hilton Worldwide or other hotel managers or franchisors, joint venture partners and vendors, and limit Park’s ability to execute its business strategies.

Park also relies on the general managers at each of its hotels to manage daily operations and oversee the efforts of employees. These general managers are trained professionals in the hospitality industry and have extensive experience in many markets worldwide. The failure by Park to retain, train or successfully integrate the general managers currently at Chesapeake’s hotels could negatively affect our operations.

Risks Related to an Investment in Park Following the Merger

The market price and trading volume of Park common stock may be volatile.

The United States stock markets, including the NYSE, on which Park common stock will continue to be listed under the symbol “PK” after the Merger, have experienced significant price and volume fluctuations. As a result, the market price of shares of Park common stock is likely to be similarly volatile, and investors in shares of Park common stock may experience a decrease in the value of their shares, including decreases unrelated to Park’s operating performance or prospects. Neither Chesapeake nor Park can assure you that the market price of Park common stock will not fluctuate or decline significantly in the future.

In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect Park’s share price or result in fluctuations in the price or trading volume of Park common stock, including:

 

   

the annual yield from distributions on Park common stock as compared to yields on other financial instruments;

 

   

equity issuances by Park, or future sales of substantial amounts of Park common stock by its existing or future stockholders, or the perception that such issuances or future sales may occur;

 

   

increases in market interest rates or a decrease in Park’s distributions to stockholders that lead purchasers of Park common stock to demand a higher yield;

 

   

changes in market valuations of similar companies;

 

   

fluctuations in stock market prices and volumes;

 

   

additions or departures of key executive officers;

 

   

Park’s operating performance and the performance of other similar companies;

 

34


Table of Contents
   

actual or anticipated differences in Park’s quarterly operating results;

 

   

changes in expectations of future financial performance or changes in estimates of securities analysts;

 

   

publication of research reports about Park or its industry by securities analysts;

 

   

failure to qualify as a REIT for U.S. federal income tax purposes;

 

   

adverse market reaction to any indebtedness Park incurs in the future;

 

   

strategic decisions by Park or its competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

legislative or other regulatory developments that adversely affect Park or its industry;

 

   

speculation in the press or investment community;

 

   

changes in Park’s earnings;

 

   

failure to satisfy the listing requirements of the NYSE;

 

   

failure to comply with the requirements of Sarbanes Oxley Act of 2002, as amended;

 

   

actions by institutional stockholders of Park;

 

   

changes in accounting principles; and

 

   

general economic and/or market conditions, including factors unrelated to Park’s performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert Park’s management’s attention and resources, which could have a material adverse effect on Park’s cash flows, its ability to execute its business strategy and Park’s ability to make distributions to Park stockholders.

The market price of shares of Park common stock following the Merger may be affected by factors different from those affecting the price of shares of Park common stock before the Merger.

The results of operations of Park, as well as the market price of Park common stock, after the Merger may be affected by factors different from those currently affecting Park’s results of operations and the market prices of Park common stock. These factors include:

 

   

a greater number of shares of Park common stock outstanding;

 

   

different stockholders in Park; and

 

   

Park owning different assets and maintaining different capitalizations.

Accordingly, the historical market prices and financial results of Chesapeake and Park may not be indicative of these matters for Park after the Merger.

The market price of Park common stock may decline as a result of the Merger.

The market price of Park common stock may decline as a result of the Merger if Park does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the Merger on Park’s financial results is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Merger, Chesapeake shareholders and Park stockholders will own interests in a company operating an expanded business with a different mix of properties, risks and liabilities. Current Chesapeake shareholders and Park stockholders may not wish to continue to invest in Park, or for other

 

35


Table of Contents

reasons may wish to dispose of some or all of their shares of Park common stock. If, following the Effective Time, significant amounts of Park common stock are sold, the price of Park common stock could decline.

After the closing of the Merger, Chesapeake shareholders who receive shares of Park common stock in the Merger will have different rights that may be less favorable than their current rights as Chesapeake shareholders.

After the closing of the Merger, Chesapeake shareholders who receive shares of Park common stock in the Merger will have different rights than they currently have as Chesapeake shareholders, which may be less favorable than their current rights. For a detailed discussion of the similarities and material differences between the current rights of Chesapeake shareholders and the rights of Park stockholders, see “Comparison of Rights of Park Stockholders and Chesapeake Shareholders” beginning on page 154.

Following the Merger, Park may not continue to pay dividends at or above the rate currently paid by Chesapeake or Park.

Following the Merger, the stockholders of Park may not receive dividends at the same rate they received dividends as Chesapeake shareholders and as Park stockholders prior the Merger for various reasons, including the following:

 

   

Park may not have enough cash to pay such dividends due to changes in Park’s cash requirements, capital spending plans, cash flow or financial position;

 

   

decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Park Board, which reserves the right to change Park’s current dividend practices at any time and for any reason;

 

   

Park may desire to retain cash to maintain or improve its credit ratings; and

 

   

the amount of dividends that Park’s subsidiaries may distribute to Park may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

Stockholders of Park will have no contractual or other legal right to dividends that have not been declared by the Park Board.

Park may need to incur additional indebtedness in the future.

In connection with executing Park’s business strategies following the Merger, Park expects to continue to evaluate additional acquisitions and other strategic investment opportunities, and Park may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for Park, including:

 

   

hindering Park’s ability to adjust to changing market, industry or economic conditions;

 

   

limiting Park’s ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses;

 

   

limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;

 

   

making Park more vulnerable to economic or industry downturns, including interest rate increases; and

 

   

placing Park at a competitive disadvantage compared to less leveraged competitors.

The impact of any of these potential adverse consequences could have a material adverse effect on Park’s results of operations, financial condition and liquidity.

 

36


Table of Contents

The unaudited pro forma financial statements included in this proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of Park’s financial condition or results of operations after the Merger.

The unaudited pro forma financial statements contained in this proxy statement/prospectus are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates and may not be an indication of Park’s future financial condition or results of operations resulting from the Merger. The actual financial condition and results of operations of Park following the Merger may not be consistent with, or evident from, these unaudited pro forma financial statements. In addition, the assumptions used in preparing the unaudited pro forma financial statements may not prove to be accurate, and other factors may affect Park’s financial condition or results of operations following the Merger. Any potential decline in Park’s financial condition or results of operations may cause significant variations in the market price of Park common stock following the Merger.

The Merger should be taxable to Chesapeake shareholders; however, Chesapeake shareholders may not receive cash sufficient to pay any tax.

The Merger should be treated as a taxable sale by Chesapeake of all of its assets followed by a liquidating distribution to the Chesapeake shareholders. Chesapeake shareholders should be treated as exchanging their Chesapeake common shares in exchange for the Merger Consideration. As a result, Chesapeake shareholders should recognize gain or loss equal to the difference, if any, between (i) the fair market value of Park common stock, plus the amount of any cash received and (ii) the holder’s adjusted tax basis in the Chesapeake common shares exchanged. Because the Chesapeake shareholders will receive only a portion of the Merger Consideration in the form of cash, Chesapeake shareholders may need to sell Park common stock received in the Merger, or use cash from other sources, to pay any tax obligations resulting from the Merger.

If Park does not maintain its qualification as a REIT, Park will be subject to tax as a C corporation and could face a substantial tax liability.

Park has been taxed as a REIT for U.S. federal income tax purposes beginning January 4, 2017. Park is currently structured and operates consistent with the requirements to be a REIT and Park expects to continue to operate so as to qualify as a REIT under the Code. However, qualification as a REIT involves the interpretation and application of highly technical and complex Code provisions for which no or only a limited number of judicial or administrative interpretations may exist. Notwithstanding the availability of cure provisions in the Code, Park could fail to meet various compliance requirements, which could jeopardize Park’s REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for Park to qualify as a REIT. If Park fails to qualify as a REIT in any tax year, then:

 

   

Park would be taxed as a C corporation, which under current laws, among other things, means being unable to deduct dividends paid to stockholders in computing taxable income and being subject to U.S. federal income tax on Park’s taxable income at normal corporate income tax rates;

 

   

any resulting tax liability could be substantial and could have a material adverse effect on Park’s value and financial condition;

 

   

unless Park were entitled to relief under applicable statutory provisions, Park would be required to pay income taxes, and thus, Park’s cash available for distribution to stockholders would be reduced for each of the years during which Park did not qualify as a REIT; and

 

   

Park generally would not be eligible to requalify as a REIT for the subsequent four taxable years.

In addition, if Park fails to qualify as a REIT, Park will not be required to make distributions to stockholders. As a result of all these factors, Park’s failure to qualify as a REIT could impair Park’s ability to execute Park’s business and growth strategies, as well as make it more difficult for Park to raise capital and service Park’s indebtedness.

 

37


Table of Contents

Park would incur adverse tax consequences if it, Chesapeake or any of Park or Chesapeake’s subsidiary REITs failed to qualify as a REIT for U.S. federal income tax purposes.

Park has assumed that Chesapeake has qualified and will continue to qualify as a REIT for U.S. federal income tax purposes prior to the Merger and that Park will be able to continue to qualify as a REIT following the Merger. However, if Chesapeake has failed to qualify as a REIT, Merger Sub would succeed to significant tax liabilities (including the significant tax liability that would result from the deemed sale of assets by Chesapeake pursuant to the Merger) the economic burden of which would be borne by Domestic and Park, and Park could possibly lose its REIT status should disqualifying activities continue after the Merger.

REITs are subject to a range of complex organizational and operational requirements. As a REIT, with respect to each year, Park must distribute at least 90% of its REIT taxable income to its stockholders. Other restrictions apply to its income and assets. Park’s REIT status is also dependent upon the ongoing qualification of subsidiary entities as REITs or TRSs, as applicable, as a result of its substantial ownership interest in those entities.

For any taxable year that Park fails to qualify as a REIT and is unable to avail itself of savings provisions set forth in the Code (which themselves could impose significant excise or penalty tax liability on Park or its subsidiaries), it would be subject to federal income tax at the regular corporate rates on all of its taxable income, whether or not it makes any distributions to Park stockholders. Those taxes would reduce the amount of cash available for distribution to Park stockholders or for reinvestment and would adversely affect Park’s earnings. As a result, Park’s failure to qualify as a REIT during any taxable year could have a material adverse effect upon Park and Park stockholders. Furthermore, unless certain relief provisions apply, Park would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which it failed to qualify.

Qualifying as a REIT involves highly technical and complex provisions of the Code and therefore, in certain circumstances, may be subject to uncertainty.

In order to continue to qualify as a REIT, Park must satisfy a number of requirements, including requirements regarding the composition of Park’s assets, the sources of Park’s income and the diversity of Park’s share ownership. Also, Park must make distributions to stockholders aggregating annually at least 90% of Park’s “REIT taxable income” (determined without regard to the dividends paid deduction and excluding net capital gain). Compliance with these requirements and all other requirements for qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable United States Treasury (“Treasury”) regulations that have been promulgated under the Code is greater in the case of a REIT that, like Park, conducts significant business operations through one or more TRS. Even a technical or inadvertent action could jeopardize Park’s REIT status. In addition, the determination of various factual matters and circumstances relevant to REIT qualification is not entirely within Park’s control and may affect Park’s ability to qualify as a REIT. Accordingly, Park cannot be certain that Park’s organization and operation will enable Park to qualify as a REIT for U.S. federal income tax purposes.

Park may face other tax liabilities that reduce Park’s cash flows.

Even if Park qualifies for taxation as a REIT, Park may be subject to certain U.S. federal, state and local taxes on Park’s income and assets, including taxes on any undistributed income, built-in gain tax on the taxable sale of assets, tax on income from some activities conducted as a result of a foreclosure, and non-U.S. income taxes. Moreover, if Park has net income from “prohibited transactions,” that income will be subject to a 100% tax. In addition, Park could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain Park’s qualification as a REIT. Park is subject to U.S. federal and state income tax (and any applicable non-U.S. taxes) on the income earned by Park’s TRSs. Any of these taxes would decrease cash available for distributions to stockholders. Any of these taxes decrease cash available for distribution to Park’s stockholders.

 

38


Table of Contents

Chesapeake and Park face other risks.

The foregoing risks are not exhaustive, and you should be aware that, following the Merger, Park will face various other risks, including those discussed in reports filed by Chesapeake and Park with the SEC. See “Where You Can Find More Information” beginning on page 175.

 

39


Table of Contents

FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include, but are not limited to, statements related to the current expectations of Park and Chesapeake regarding the performance of the businesses, financial results, liquidity and capital resources, the effects of competition and the effects of future legislation or regulations, the expected completion of anticipated acquisitions and dispositions, the declaration and payment of future dividends, statements about the benefits of the proposed transaction involving Park and Chesapeake and statements that address operating performance, events or developments that Park and Chesapeake expect or anticipate will occur in the future, including but not limited to statements regarding anticipated synergies and general and administrative savings, future financial and operating results, plans, objectives, expectations and intentions, expected sources of financing, anticipated asset dispositions, anticipated leadership and governance, creation of value for stockholders, benefits of the proposed transaction to customers, employees, stockholders and other constituents of Park following the Merger, the integration of Park and Chesapeake, cost savings and the expected timetable for completing the proposed transaction, and other non-historical statements. Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements for various reasons, including risks associated with:

 

   

the ability to consummate the Merger and the other transactions described in this proxy statement/prospectus and the timing of the closing of the Merger;

 

   

the ability to satisfy conditions necessary to close the Merger and the other transactions described in this proxy statement/prospectus;

 

   

changes in national, regional and local economic conditions;

 

   

ability to maintain qualification as a REIT;

 

   

the impact of financial, accounting, legal, legislative or regulatory issues or changes or litigation that may impact Park, Chesapeake or the combined company;

 

   

the availability of financing;

 

   

risks associated with acquisitions generally, including the integration of Chesapeake’s and Park’s businesses;

 

   

risks associated with execution of anticipated asset dispositions;

 

   

risks associated with achieving expected revenue synergies or cost savings; and

 

   

other risks and uncertainties detailed from time to time in Park’s and Chesapeake’s filings with the SEC.

You should not put undue reliance on any forward-looking statements and Park and Chesapeake urge investors to carefully review the disclosures Park and Chesapeake have made concerning risk and uncertainties in Item 1A: “Risk Factors” in each of the Park Annual Report on Form 10-K for the year ended December 31, 2018, the Park Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, the Chesapeake Annual Report on Form 10-K for the year ended December 31, 2018 and the Chesapeake Quarterly Report on Form  10-Q for the quarter ended March 31, 2019, as such factors may be updated from time to time in Park’s and Chesapeake’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Except as required by law, Park and Chesapeake undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

40


Table of Contents

THE COMPANIES

Park Hotels & Resorts Inc.

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Park is a REIT that owns a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value. As of the date of this proxy statement/prospectus, Park holds investments in entities that have ownership or leasehold interests in 48 hotels, consisting of premium-branded hotels and resorts with over 29,000 rooms, of which over 85% are luxury and upper upscale (as defined by Smith Travel Research) and over 97% are located in the United States.

Park’s high-quality portfolio includes hotels in major urban and convention areas, such as New York City, Washington, D.C., Chicago, San Francisco and New Orleans; premier resorts in key leisure destinations, including Hawaii, Orlando and Key West; and hotels adjacent to major gateway airports, such as Los Angeles International, Boston Logan International and Miami International, as well as hotels in select suburban locations.

Park was originally formed as a Delaware corporation in 1946 and existed as a part of one of Hilton Worldwide’s business segments. On January 3, 2017, Hilton Worldwide completed the spin-off that resulted in Park’s establishment as an independent, publicly traded company.

Park is a REIT for U.S. federal income tax purposes and expects to continue to be organized and operate so as to continue to qualify as a REIT.

Park common stock is listed on the NYSE, trading under the symbol “PK.” Park’s headquarters are located at 1775 Tysons Blvd., 7th Floor, Tysons, VA 22102; its telephone number is (571) 302-5757. Park’s website address is www.pkhotelsandresorts.com. Information contained on Park’s website is not and should not be deemed a part of this proxy statement/prospectus or any other report or filing filed with the SEC.

Additional information about Park is included in documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175.

PK Domestic Property LLC

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Domestic is a Delaware limited liability company and an indirect subsidiary of Park and holds an indirect 100% interest in 20 Park properties. Contemporaneously with the execution of the Merger Agreement, PIH and Domestic entered into the Commitment Letter with Bank of America, N.A. and BofA Merrill Lynch providing a $1.1 billion financing commitment for the Term Facility to fund the Merger. The Term Facility includes the Two-Year Tranche and the Five-Year Tranche. In connection with the closing of the Merger, Domestic is expected to become a borrower under the Term Facility and PIH’s existing credit facility. Its principal executive offices are located at c/o Park Hotels & Resorts Inc., 1775 Tysons Blvd., 7th Floor, Tysons, VA 22102, and its telephone number is (571) 302-5757.

 

41


Table of Contents

PK Domestic Sub LLC

1775 Tysons Blvd., 7th Floor

Tysons, VA 22102

(571) 302-5757

Merger Sub is a Delaware limited liability company and a direct subsidiary of Domestic. Merger Sub was formed by Park solely for the purpose of engaging in the Merger and the other transactions contemplated by the Merger Agreement. Merger Sub has not conducted any business activities, has no assets, liabilities or obligations and has conducted its operations solely as contemplated in the Merger Agreement. Its principal executive offices are located at c/o Park Hotels & Resorts Inc., 1775 Tysons Blvd., 7th Floor, Tysons, VA 22102, and its telephone number is (571) 302-5757.

Chesapeake Lodging Trust

4300 Wilson Boulevard, Suite 625

Arlington, Virginia 22203

(571) 349-9452

Chesapeake is a self-advised REIT that was formed in the state of Maryland in June 2009. Chesapeake is focused on investments primarily in upper-upscale hotels in major business and convention markets and, on a selective basis, premium select-service hotels in urban settings or unique locations in the U.S. Chesapeake completed its initial public offering in January 2010 and owns 20 hotels as of the date of this filing.

 

42


Table of Contents

THE CHESAPEAKE SPECIAL MEETING

This proxy statement/prospectus is being furnished in connection with the solicitation of proxies from Chesapeake shareholders for use at the Chesapeake Special Meeting. This proxy statement/prospectus and accompanying form of proxy card are first being mailed to Chesapeake shareholders on or about                      , 2019.

Date, Time, Place and Purpose of the Chesapeake Special Meeting

The Chesapeake Special Meeting will be held at the offices of Polsinelli, located at 1401 Eye Street, NW, Suite 800, Washington, DC 20005, on September 10, 2019, commencing at 9:00 a.m., Eastern Time, for the following purposes:

 

  1.

To consider and vote on the Merger Proposal;

 

  2.

To consider and vote on the Chesapeake Compensation Proposal; and

 

  3.

To consider and vote on the Chesapeake Adjournment Proposal.

Recommendation of the Chesapeake Board

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Chesapeake Board consulted with Chesapeake’s management and its outside legal and financial advisors and unanimously declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement.

The Chesapeake Board unanimously recommends that the Chesapeake shareholders vote “FOR the Merger Proposal, “FOR the Chesapeake Compensation Proposal and “FOR the Chesapeake Adjournment Proposal. For the reasons for this recommendation, see “The Merger—Recommendation of the Chesapeake Board and Its Reasons for the Merger” beginning on page 57.

Chesapeake Record Date; Shares Entitled to Vote

Only holders of record of Chesapeake common shares at the close of business on July 25, 2019, the record date, will be entitled to receive notice of and to vote at the Chesapeake Special Meeting and any postponement or adjournment of the Chesapeake Special Meeting. As of the record date, there were 60,765,796 Chesapeake common shares outstanding and entitled to vote at the Chesapeake Special Meeting, held by approximately 25 shareholders of record.

Each holder of Chesapeake common shares is entitled to cast one vote for each Chesapeake common share owned on the record date for the Chesapeake Special Meeting on each proposal.

Trustees and Officers of Chesapeake

At the close of business on the record date, trustees and named executive officers of Chesapeake beneficially owned and were entitled to vote 2,648,119 Chesapeake common shares, or approximately 4.4% of the Chesapeake common shares issued and outstanding on that date. Chesapeake currently expects that all Chesapeake trustees and named executive officers will vote their Chesapeake common shares in favor of the Merger Proposal, as well as the other proposals to be considered at the Chesapeake Special Meeting.

Quorum; Required Vote

The presence in person or by proxy of the holders of a majority of the outstanding Chesapeake common shares entitled to vote generally in the election of trustees will constitute a quorum for the transaction of business at the Chesapeake Special Meeting. Abstentions will be counted in determining whether a quorum exists.

 

43


Table of Contents

Approval of the Merger Proposal requires the affirmative vote of the holders of not less than a majority of the outstanding Chesapeake common shares.

Approval of the Chesapeake Compensation Proposal requires that the number of votes cast for the proposal exceeds the number of votes cast against the proposal.

Approval of the Chesapeake Adjournment Proposal requires that the number of votes cast for the proposal exceeds the number of votes cast against the proposal.

Abstentions and Broker Non-Votes

Abstentions will have the same effect as votes “AGAINST” the Merger Proposal. Abstentions will have no effect on either of the other two proposals to be considered. A broker non-vote occurs when shares held by a bank, broker, trustee 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 but has discretionary voting power on other proposals. Because all three proposals are considered “non-routine” matters, Chesapeake common shares held through a bank, broker, trustee or other nominee will not be voted unless direction is provided by the underlying beneficial owners of such shares. Therefore, it is not anticipated that there will be any “broker non-votes” at the Chesapeake Special Meeting. Broker non-votes, if any, will have the same effect as votes “AGAINST” the Merger Proposal but will have no effect on either of the other two proposals to be considered.

Manner of Submitting a Proxy

Chesapeake shareholders of record may submit proxies by completing, signing and dating their proxy card and returning it in the accompanying pre-addressed, postage-prepaid envelope. Your proxy card must be received no later than September 9, 2019 for your shares to be voted at the Chesapeake Special Meeting.

If you are a beneficial owner, that is, you hold your Chesapeake common shares through a bank, broker, trustee or other nominee, you must provide your nominee with appropriate voting instructions as set forth on the voting instruction form you receive from your nominee no later than the deadline indicated on the voting instruction form. Beneficial owners may provide instructions to their bank, broker, trustee, or other nominee holding their shares in one of the following three ways:

 

   

By Internet—Beneficial owners may give instructions over the Internet by following the instructions on the voting instruction forms you received from your nominee.

 

   

By Telephone—Beneficial owners may give instructions by telephone by calling the number on the voting instruction form you received from your nominee and following the instructions. You will need to have the control number that appears on the proxy or voting instruction form available when voting.

 

   

By Mail—Beneficial owners may give instructions by completing, signing and dating their voting instruction forms received from your nominee and mailing it in the accompanying pre-addressed, postage-prepaid envelope.

If you do not provide voting instructions to your broker or other nominee, your Chesapeake common shares will not be voted.

Your vote is important. We encourage you to sign and return the enclosed proxy card or provide voting instructions to the organization that holds your Chesapeake common shares.

All Chesapeake common shares entitled to vote and represented by properly completed proxies received prior to the Chesapeake Special Meeting, and not revoked, will be voted at the Chesapeake Special Meeting as instructed on the proxies.

 

44


Table of Contents

If Chesapeake shareholders of record return properly executed proxies but do not indicate how their Chesapeake common shares should be voted on a proposal, the Chesapeake common shares represented by their properly executed proxies will be voted as the Chesapeake Board recommends and, therefore, “FOR” the proposal to approve the Merger on the terms and conditions set forth in the Merger Agreement, “FOR” the non-binding advisory proposal to approve certain compensation that may be paid or become payable to the named executive officers of Chesapeake in connection with the Merger and the other transactions contemplated by the Merger Agreement and “FOR” the proposal to approve one or more adjournments of the Chesapeake Special Meeting to another date, time or place, if necessary, to solicit additional proxies in favor of the proposal to approve the Merger on the terms and conditions set forth in the Merger Agreement.

Shares Held in “Street Name”

Beneficial owners of Chesapeake common shares may vote their shares by proxy by providing their nominee with appropriate voting instructions as set forth above under “—Manner of Submitting Proxy.”

Shares for which you are the beneficial owner but not the shareholder of record may be voted in person at the Chesapeake Special Meeting only if you obtain a legal proxy from the bank, broker, trustee or nominee that holds your shares giving you the right to vote the shares.

Revocation of Proxies or Voting Instructions

Chesapeake shareholders of record may change their vote or revoke their proxy by:

 

   

submitting notice in writing to Chesapeake’s Secretary at Chesapeake Lodging Trust, 4300 Wilson Boulevard, Suite 625, Arlington, Virginia 22203, Attn: Secretary, no later than September 9, 2019;

 

   

granting a new proxy bearing a later date (which automatically revokes the earlier proxy); or

 

   

attending the Chesapeake Special Meeting and voting in person.

Attendance at the Chesapeake Special Meeting alone will not cause your previously granted proxy to be revoked unless you specifically make that request.

For Chesapeake common shares you hold beneficially in the name of a bank, broker, trustee or other nominee, you may change your vote by submitting new voting instructions to your bank, broker, trustee or nominee by no later than the deadline indicated on the voting instruction form, or, if you have obtained a legal proxy from your bank, broker, trustee or other nominee giving you the right to vote your shares, by attending the Chesapeake Special Meeting and voting in person.

Solicitation of Proxies; Payment of Solicitation Expenses

The solicitation of proxies from Chesapeake shareholders is made on behalf of the Chesapeake Board. Chesapeake will pay the cost of soliciting proxies from Chesapeake shareholders. Chesapeake has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the Chesapeake Special Meeting, and Chesapeake estimates it will pay MacKenzie Partners, Inc. a fee of approximately $20,000. Chesapeake has also agreed to reimburse MacKenzie Partners, Inc. for reasonable expenses incurred in connection with the proxy solicitation and to indemnify MacKenzie Partners, Inc. against certain losses, claims, damages, liabilities and expenses. In addition to mailing proxy solicitation materials, Chesapeake’s trustees and officers, and employees of Chesapeake may also solicit proxies in person, by telephone or by any other electronic means of communication deemed appropriate. No additional compensation will be paid to Chesapeake’s trustees or officers, or to employees of Chesapeake for such services.

 

45


Table of Contents

In accordance with the regulations of the SEC and NYSE, Chesapeake also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of Chesapeake common shares.

Inspector of Elections

Votes will be counted by an inspector of elections appointed by Chesapeake for the Chesapeake Special Meeting.

Admission to the Chesapeake Special Meeting

Only holders of record of Chesapeake common shares at the close of business on July 25, 2019 or their legal proxy holders who comply with the admission requirements described below may attend the Chesapeake Special Meeting. Due to space constraints and other security considerations, we will not be able to accommodate the guests of either shareholders or their legal proxy holders.

Chesapeake shareholders of record may gain admittance to the Chesapeake Special Meeting by presenting the admission ticket that is attached to their proxy card delivered with this proxy statement/prospectus or by providing other proof of ownership of Chesapeake common shares as of the close of business on July 25, 2019.

If your Chesapeake common shares are held in the name of a bank, broker, trustee or other nominee and you plan to attend the Chesapeake Special Meeting, you will need to bring the admission ticket provided by your bank, broker, trustee or other nominee, as well as proof of ownership as of the close of business on July 25, 2019, such as a recent bank or brokerage account statement. If you are not a Chesapeake shareholder but hold a proxy for a shareholder, you may attend the Chesapeake Special Meeting by presenting a valid legal proxy.

If you are representing an entity that is a holder of Chesapeake common shares on the close of business on July 25, 2019, you must provide evidence of your authority to represent that entity at the Chesapeake Special Meeting. Shareholders holding Chesapeake common shares in a joint account will be admitted to the Chesapeake Special Meeting if they provide proof of joint ownership and otherwise follow the admission requirements described above.

All attendees must also provide a form of government-issued photo identification. If you arrive at the Chesapeake Special Meeting without the required items, we will admit you only if we are able to verify that you are a Chesapeake shareholder of record as of the close of business on July 25, 2019.

Directions to the Chesapeake Special Meeting

The Chesapeake Special Meeting will be held at the offices of Polsinelli, located at 1401 Eye Street, NW, Suite 800, Washington, DC 20005, in the Franklin Tower office building, on the Northwest corner of 14th and Eye Streets. Polsinelli is accessible from Reagan National Airport, Dulles International Airport and Baltimore/Washington International Airport.

 

46


Table of Contents

PROPOSALS SUBMITTED TO CHESAPEAKE SHAREHOLDERS

Merger Proposal

(Proposal 1 on the Proxy Card)

Chesapeake shareholders are asked to approve the Merger Proposal. For a summary of and detailed information regarding the Merger Proposal, see the information about the Merger and the Merger Agreement throughout this proxy statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page 49 and “The Merger Agreement” beginning on page 84. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus.

Pursuant to the Merger Agreement, approval of the Merger Proposal is a condition to the consummation of the Merger. If the Merger Proposal is not approved, the Merger will not be completed.

Approval of the Merger Proposal requires the affirmative vote of the holders of not less than a majority of the outstanding Chesapeake common shares.

The Chesapeake Board unanimously recommends that Chesapeake shareholders vote “FOR” the Merger Proposal.

Chesapeake Compensation Proposal

(Proposal 2 on the Proxy Card)

This section sets forth information relating to the Chesapeake Compensation Proposal. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Exchange Act, Chesapeake is providing its shareholders with the opportunity to cast a non-binding advisory vote on the compensation that may be paid or become payable to Chesapeake’s named executive officers, as determined in accordance with Item 402(t) of Regulation S-K, that is based upon or otherwise relates to the Merger and the other transactions contemplated by the Merger Agreement and arises from any form of arrangement or understanding, whether written or unwritten, between Chesapeake or the combined company and the named executive officers. Chesapeake, therefore, is asking its shareholders to vote on the adoption of the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to Chesapeake Lodging Trust’s named executive officers in connection with the merger and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger—Golden Parachute Compensation” is hereby APPROVED.”

The vote regarding the Chesapeake Compensation Proposal is separate and apart from the vote on the Merger Proposal. Because the vote regarding the Chesapeake Compensation Proposal is advisory only, it will not be binding on either Chesapeake or Park regardless of whether the Merger is completed. Furthermore, the compensation outlined under “The Merger—Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger” is contractual in nature. Accordingly, if the Merger is completed, the Merger-related compensation will become payable in connection with the Merger and a qualifying termination of employment, subject only to the conditions applicable thereto, regardless of the outcome of this non-binding advisory vote.

Approval of the Chesapeake Compensation Proposal requires that the number of votes cast for the proposal exceeds the number of votes cast against the proposal.

The Chesapeake Board unanimously recommends that Chesapeake shareholders vote “FOR” the Chesapeake Compensation Proposal.

 

47


Table of Contents

Chesapeake Adjournment Proposal

(Proposal 3 on the Proxy Card)

The Chesapeake shareholders are being asked to approve the Chesapeake Adjournment Proposal. If, at the Chesapeake Special Meeting, the number of Chesapeake common shares present or represented by proxy and voting for the approval of the Merger Proposal is insufficient to approve such proposal, Chesapeake intends to move to adjourn the Chesapeake Special Meeting to another place, date or time in order to enable the Chesapeake Board to solicit additional proxies for approval of the Merger Proposal. Approval of the Chesapeake Adjournment Proposal requires that the number of votes cast for the proposal exceeds the number of votes cast against the proposal. If the Chesapeake Adjournment Proposal is approved, Chesapeake may adjourn the Chesapeake Special Meeting to another place, date or time. Chesapeake does not intend to call a vote on the Chesapeake Adjournment Proposal if the Merger Proposal considered at the Chesapeake Special Meeting has been approved at the Chesapeake Special Meeting. If the Chesapeake Special Meeting is adjourned for the purpose of soliciting additional proxies, Chesapeake shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use.

The Chesapeake Board unanimously recommends that Chesapeake shareholders vote “FOR” the Chesapeake Adjournment Proposal.

Other Business

No other matters will be transacted at the Chesapeake Special Meeting.

 

48


Table of Contents

THE MERGER

The following is a summary of the material features of the Merger. This summary may not contain all of the information about the Merger that is important to you. Chesapeake and Park encourage urge you to carefully read this entire proxy statement/prospectus, including the Merger Agreement and the other documents attached to this proxy statement/prospectus and incorporated herein by reference, for a more complete understanding of the Merger.

General

The Chesapeake Board has unanimously (i) declared advisable and approved the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement and in accordance with applicable law, (ii) authorized Chesapeake to execute, deliver and perform the Merger Agreement, (iii) directed that the Merger be submitted for consideration at the Chesapeake Special Meeting, and (iv) subject to the terms and conditions set forth in the Merger Agreement, resolved to recommend that the shareholders of Chesapeake vote in favor of the approval of the Merger and to include the Chesapeake Board Recommendation in this proxy statement/prospectus. In the Merger, Chesapeake will merge with and into Merger Sub, with Merger Sub continuing as the Surviving Entity and a wholly-owned subsidiary of Domestic. Chesapeake shareholders will receive the Merger Consideration described below under “The Merger Agreement—Merger Consideration; Effects of the Merger.”

Background of the Merger

James L. Francis, President and Chief Executive Officer, and Douglas W. Vicari, Executive Vice President and Chief Financial Officer, co-founded Chesapeake in 2009 to capitalize on the downturn in the U.S. lodging industry resulting from the economic recession that began in 2007, with the belief that cyclical industry dynamics would create attractive opportunities to acquire high quality hotels, at prices well below replacement costs, with attractive yields on investment and significant upside potential. Chesapeake followed this strategy from the completion of its initial public offering in 2010 through April 2015, acquiring a total of 23 hotels located in many of the top 25 lodging markets in the United States.

Commencing in 2014, but increasingly in 2015, Chesapeake’s management team observed that U.S. lodging industry conditions had become less favorable to hotel buyers, given the extended growth of the current lodging and economic cycle and published industry forecasts indicating that U.S. lodging supply growth was expected to reach levels at or near the industry’s historical average over the coming two years. As a result, Chesapeake expected its pace of acquisitions to slow for the remainder of the lodging cycle and began evaluating opportunities to dispose of hotels that Chesapeake believed had maximized their values. Chesapeake made its first hotel sale, of the Courtyard Anaheim at Disneyland Resort, in 2014.

Chesapeake’s share price reached its all-time high in January 2015 but came under pressure, along with the share prices of other publicly traded lodging REITs, due to broader concerns that the lodging cycle may have reached peak performance levels. In the fall of 2015, in connection with Chesapeake’s annual strategic planning and budgeting efforts, Chesapeake’s management discussed with the Chesapeake Board management’s views that industry conditions were making it increasingly difficult for Chesapeake to identify, underwrite and complete accretive acquisitions, and that growth would need to be generated from asset management efforts such as renovating and repositioning hotels. Chesapeake’s management also noted its sense that, in light of these challenging industry dynamics and the resulting difficulties in generating growth, it would be appropriate to gauge the possibility of a strategic transaction to maximize shareholder value. The Chesapeake Board agreed that exploring a strategic transaction was in the best interests of Chesapeake, and authorized management to pursue this initiative.

At a meeting of the Chesapeake Board held on December 17, 2015, representatives of J.P. Morgan, the lead book-runner on Chesapeake’s initial public offering, a book-runner on all follow-on offerings completed by

 

49


Table of Contents

Chesapeake, and a lender and syndication agent in respect of Chesapeake’s revolving credit facility, made a presentation regarding U.S. lodging industry trends, its views regarding Chesapeake’s recent share price and preliminary valuation based on preliminary forecasts provided by Chesapeake’s management, and strategic options that might be available to Chesapeake. Following a discussion regarding the J.P. Morgan presentation and potential strategic alternatives available to Chesapeake, the Chesapeake Board determined that further exploration of such alternatives was warranted, and preparation for a potential sale of Chesapeake commenced. Subsequent to the meeting, Chesapeake retained Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”) as special M&A counsel in connection with a potential strategic transaction, collaborating in that effort with Chesapeake’s outside corporate counsel, Polsinelli.

The Chesapeake Board held a meeting on December 29, 2015 also attended by representatives of J.P. Morgan, Paul Weiss and Polsinelli, during which the Chesapeake Board, among other things, received a presentation from Paul Weiss regarding the duties of trustees under Maryland law and reviewed with J.P. Morgan a potential timeline and process for exploration of strategic alternatives. At the completion of that meeting, the Chesapeake Board authorized Mr. Thomas A. Natelli, its non-executive chairman, and Mr. Francis to work with J.P. Morgan and Chesapeake’s legal advisors in a confidential process as discussed at the meeting.

In early January 2016, at the direction of Chesapeake, J.P. Morgan commenced outreach to potentially interested parties. A news report noting Chesapeake’s exploration of strategic alternatives, citing anonymous sources, was published on January 5, 2016 by “The REIT Newshound.” At its regularly scheduled meeting on January 15, 2016 convened to discuss Chesapeake’s 2016 budget, the Chesapeake Board discussed the REIT Newshound publication with representatives of J.P. Morgan, Paul Weiss and Polsinelli, and authorized the continuation of the strategic alternatives process.

Over the ensuing weeks, at the direction of Chesapeake, representatives of J.P. Morgan initiated contact with ten other publicly traded lodging REITs; and 30 prospective financial buyers in the United States and Asia, and Chesapeake entered into confidentiality agreements with a total of 23 potential strategic and financial buyers. The initial phase of Chesapeake’s evaluation of potential strategic alternatives resulted in four written preliminary indications of interest and four preliminary verbal indications from prospective buyers. Each of the received indications of interest was discussed at meetings of the Chesapeake Board also attended by Chesapeake management and representatives of J.P. Morgan and Chesapeake’s legal advisors. Chesapeake management advised the Chesapeake Board of management’s view that none of the preliminary indications of interest proposed a combination with an indicative value equal to management’s estimate of Chesapeake’s net asset value, or NAV. Following those reviews, it was the sense of the Chesapeake Board that none of the preliminary indications of interest was compelling enough to pursue, but that representatives of J.P. Morgan should pursue certain targeted follow up discussions with potential counterparties in light of the responses received to date. Those discussions continued into the spring of 2016, but did not result in any proposals that the Chesapeake Board found sufficiently compelling.

In early June 2016, the Chesapeake Board met to consider separate proposals that had been made following J.P. Morgan’s targeted outreach efforts by three publicly traded lodging REITs to acquire Chesapeake for stock or a mixture of stock and cash. In the course of evaluating the three proposals, Mr. Francis and Mr. Vicari advised the Chesapeake Board that combining Chesapeake’s assets with a larger platform may be helpful in attracting and retaining lodging REIT investors, who soon would be able to invest in another larger platform following the spin-off of Park from Hilton Worldwide. Ultimately, however, the Chesapeake Board did not find any of the three lodging REITs’ bids to be sufficiently compelling, and the process of evaluating strategic alternatives was discontinued by the Chesapeake Board in mid-June 2016.

Subsequent to the completion of the 2016 process, in the ordinary course of business and from time to time, the Chesapeake Board and management team continued to evaluate a variety of opportunities in connection with its long-term strategy to maximize shareholder value, including among others the possibility to sell certain hotels and redeploy the capital in value-added renovation and repositioning activities. This process led to the sales of

 

50


Table of Contents

The Hotel Minneapolis, Autograph Collection, in 2017 and the Hyatt Centric Santa Barbara in 2018. In addition, Chesapeake’s management team engaged in regular dialogue with counterparts at other lodging REITs.

In conducting Chesapeake’s annual strategic plan and budgeting process in September 2017, management presented the Chesapeake Board with its views regarding, among other things, the U.S. economic outlook; lodging market supply and demand dynamics; challenges anticipated by management in delivering internal or external growth beyond that expected to be driven by the renovations completed at Chesapeake’s hotels in San Francisco and other markets during 2017; and management’s sense that Chesapeake’s shareholders remained patient, but ultimately would desire liquidity in some form. At the meeting, the Chesapeake Board discussed with management the possibility of restarting efforts to explore a strategic combination of Chesapeake with a publicly traded lodging REIT, noting that operating in a larger scale enterprise may be beneficial for EBITDA diversification, overhead efficiency, balance sheet flexibility, enhanced liquidity for investors trading in shares and generally appealing to a broader investor base.

As requested by the Chesapeake Board, Chesapeake’s management further explored the possibility of a strategic combination at the regular meeting of the Chesapeake Board held in December 2017. At that meeting, management made a detailed presentation regarding Chesapeake’s “status quo” operations, characterized by management as involving:

 

   

A challenging market for hotel acquisitions, with limited opportunities to acquire quality hotels being pursued by similar lodging REITs and other real estate investors, coupled with pricing metrics that reflected divergences between the valuations sought by sellers with slowing cash flow growth rates, making underwriting very difficult;

 

   

A balance sheet which would require significant equity to be raised to pursue acquisitions, given the lack of investment capacity remaining within Chesapeake’s policy not to incur debt in excess of 40% of aggregate hotel value (as calculated in accordance with the terms of Chesapeake’s revolving credit facility);

 

   

The possibility of future hotel sales, which posed concerns since, as the fourth smallest publicly-traded lodging REIT out of 16, any disposition would only shrink its size further, and could make it more difficult for the remaining hotels to generate sufficient cash flow to cover Chesapeake’s existing dividend rate;

 

   

Limited opportunities to implement further operational efficiencies to reduce costs and increase margins, as well as limited additional return on investment opportunities to pursue within its existing portfolio; and

 

   

A continued limited trading volume for Chesapeake common shares, with the average daily trading volume down significantly from historical levels, which management was concerned could limit the universe of active investors interested in buying or holding Chesapeake common shares.

Chesapeake’s management then discussed with the Chesapeake Board opportunities for potential sale transactions, and the challenges and potential benefits of such alternatives. Chesapeake’s management presented to the Chesapeake Board summary financial information and hotel portfolio data, stratified by room count, brand affiliation and geography, regarding eight other peer lodging REITs. Chesapeake’s management also outlined for the Chesapeake Board preliminary unaudited financial information prepared to illustrate the potential financial profile of the surviving entity following a potential business combination of Chesapeake with four of the eight peer lodging REITs. Following a discussion, the Chesapeake Board informed management it was open to pursuing discussions around a strategic transaction with one such peer lodging REIT that the Chesapeake Board identified as having the hotel portfolio and business strategy most complementary to that of Chesapeake, referred to herein as Party A, subject to the Chesapeake Board’s favorable review of financial information, including further information regarding Chesapeake’s NAV on a stand-alone basis, and greater detail regarding the expected costs of any such transaction.

 

51


Table of Contents

After these supplemental materials were prepared and discussed with the Chesapeake Board on January 9, 2018, Mr. Francis was authorized to initiate contact with his counterpart at Party A for the purpose of discussing, on a preliminary basis, a potential strategic transaction between the parties. Following further preliminary discussions between Messrs. Francis and Vicari and their respective counterparts at Party A, Chesapeake and Party A negotiated a reciprocal confidentiality agreement in early February 2018, and each of Chesapeake and Party A commenced reciprocal due diligence. Over the course of the next several weeks, Chesapeake and its financial and legal advisors spoke regularly to discuss the progress made with Party A until, in late March, Mr. Francis was advised by his counterpart at Party A that changes in the parties’ respective share prices made a transaction between the two parties unworkable for Party A. At that time, discussions and due diligence efforts between the parties terminated without any offer having been made in respect of a potential combination with Party A.

After discussions with Party A ceased, Mr. Francis and other members of Chesapeake’s management team continued to focus on Chesapeake’s operations on a stand-alone basis. From time to time, Mr. Francis and Mr. Vicari engaged in regular dialogue about lodging industry market dynamics and other matters with counterparts at other lodging REITs, including at a meeting between Mr. Francis and Thomas J. Baltimore, Jr., Chairman, President and Chief Executive Officer of Park, that occurred in San Francisco in conjunction with their respective attendance at the National Association of Real Estate Investment Trusts “REITWeek” convention in November 2018. No potential transaction between Chesapeake and Park was discussed at that meeting.

On March 15, 2019, Mr. Baltimore contacted Mr. Francis to discuss whether Chesapeake was interested in exploring a potential strategic transaction with Park. Mr. Francis informed Mr. Natelli of the call, and the two spoke together with Mr. Baltimore later that afternoon regarding a potential transaction. During that conversation, Mr. Baltimore indicated Park was interested in acquiring Chesapeake in a fully taxable transaction for an amount of cash and stock to be determined following reciprocal due diligence. Over the weekend of March 15-17, 2019, Mr. Natelli informed the Chesapeake Board regarding the outreach from Mr. Baltimore.

At its regularly scheduled meeting on March 19, 2019, Messrs. Natelli and Francis relayed their conversation with Mr. Baltimore to the Chesapeake Board. Mr. Vicari then reviewed materials that had been provided to the Chesapeake Board in advance of the meeting, including background information on Park, Mr. Baltimore and other members of Park’s senior management team as well as an overview of Park’s financial position, trading multiples, credit statistics, and hotel portfolio segmentation. Mr. Francis noted that, in his public statements since Park’s separation from Hilton Worldwide, Mr. Baltimore had consistently expressed a desire for Park to serve as a consolidator within the lodging REIT space. Mr. Vicari then reviewed several scenarios detailing the indicative financial position, statement of operations, and potential trading multiples of the combined company following a merger of Chesapeake and Park based on publicly available information for Park. A discussion ensued, after which it was the sense of the Chesapeake Board that it was in the best interests of Chesapeake for management to continue discussions with Park.

Following the conclusion of the meeting of the Chesapeake Board, later in the evening of March 19, 2019, representatives of Paul Weiss provided a draft reciprocal confidentiality agreement, which included a reciprocal standstill provision, to Park and representatives of Hogan Lovells US LLP (“Hogan Lovells”), outside counsel to Park. On March 20, 2019, Park returned a revised draft of the reciprocal confidentiality agreement, including a request for Chesapeake to grant Park a 45-day period of exclusivity to negotiate a potential transaction. Later that day, a representative of Paul Weiss informed a representative of Park that Chesapeake would not be willing to grant the requested exclusivity. On March 20, 2019 and March 21, 2019, representatives of the Park and Chesapeake management teams, along with their respective legal advisors, had multiple conversations regarding the requested exclusivity period and, on March 21, 2019, the parties signed the confidentiality agreement without any exclusivity requirement.

On March 21, 2019, Chesapeake opened a virtual data room with due diligence materials for Park and its legal, financial, tax and accounting advisors, with Park providing reciprocal access to due diligence materials for Chesapeake and its legal, financial, tax and accounting advisors on March 22, 2019.

 

52


Table of Contents

Over the next four weeks, Park and Chesapeake and their respective legal, tax and accounting advisors, along with Park’s financial advisors, engaged in reciprocal due diligence, with various conversations occurring among the parties and their representatives to answer questions regarding the other party’s hotels, key operational agreements and finances. These efforts included an in-person meeting on April 2, 2019 between Messrs. D. Rick Adams, Executive Vice President and Chief Operating Officer, and Graham J. Wootten, Senior Vice President, Chief Accounting Officer and Secretary, of Chesapeake and various members of Park’s investment, asset management and finance and accounting teams at which the parties’ respective hotel portfolios and growth opportunities were discussed. In addition, on April 11, 2019, Messrs. Francis, Adams and Wootten met in person with Mr. Baltimore and Mr. Sean Dell’Orto, Executive Vice President and Chief Financial Officer of Park, for further discussion of these same topics. The parties’ reciprocal due diligence efforts were largely completed by April 26, 2019, with confirmatory efforts relating to certain real estate and other matters continuing through May 4, 2019.

On April 17, 2019, the Chesapeake Board held a telephonic meeting also attended by representatives of J.P. Morgan, Paul Weiss, Polsinelli and Venable LLP, special Maryland counsel to Chesapeake (“Venable”). Mr. Francis updated the Chesapeake Board regarding the status of the potential transaction with Park, noting that there had been extensive activity by Park and its external legal, financial, tax and accounting advisors involving the virtual data room that Chesapeake had created for the transaction, and numerous interactions with the Park management team over the preceding month. Mr. Francis said it appeared that Park’s due diligence was proceeding well and that he believed Park was on target to present an indication of interest, and potentially a draft merger agreement, for consideration on or about April 26, 2019.

At the April 17, 2019 telephonic board meeting, representatives of Paul Weiss and Venable, discussed with the Chesapeake Board the duties of a trustee of a Maryland real estate investment trust under Maryland law, and representatives of J.P. Morgan provided information relating to current macroeconomic conditions; lodging industry dynamics; recent trends in REIT mergers and acquisitions; background regarding Park, its management team, hotels and relative performance since its separation from Hilton Worldwide; and information relating to a potential combination of Chesapeake and Park. Representatives of J.P. Morgan noted that they would provide updated materials in the event Park were to provide an offer or other indication of interest. In response to questions posed by the Chesapeake Board, representatives of J.P. Morgan and Chesapeake’s management discussed other potential alternative transactions that could be available, including the possibility of pursuing a process similar to the one undertaken in early 2016.

On the evening of April 26, 2019, Park provided Chesapeake with a written non-binding proposal, addressed to the Chesapeake Board and sent on behalf of the Park Board, to acquire Chesapeake for merger consideration comprising $10.76 (or 35%) in cash and 0.638 of a share (or 65%) of Park common stock, having an aggregate implied value of $30.75 per Chesapeake common share based on the 10-day volume-weighted average price of a share of Park common stock; a draft merger agreement; and a draft of Park’s disclosure letter related to the draft merger agreement. Park’s proposal also noted that it was conditioned upon the parties agreeing to a short exclusivity period during which the merger agreement for the proposed transaction would be finalized, and requested that Chesapeake agree to a customary “no shop” provision and proposed a 3.5% “break-up fee” if Chesapeake were to terminate the merger agreement to accept a superior proposal. Park’s proposal did not contain a financing contingency, but required that Chesapeake engage in an effort to market and sell the New York Disposition Properties prior to completing the merger. Park’s proposal further offered to appoint two members of the Chesapeake Board to serve on the Park Board following the closing.

On April 28, 2019, the Chesapeake Board held a telephonic meeting, also attended by representatives of J.P. Morgan, Paul Weiss and Polsinelli, to evaluate and consider the financial and other terms of Park’s proposal. At the direction of Chesapeake, representatives of J.P. Morgan made a presentation to the Chesapeake Board focusing on the consideration offered by Park, including the fixed exchange ratio and implied value to Chesapeake’s shareholders based on differences between the 10-day volume weighted average price of Park common stock used in setting the ratio and the most recent closing price of a share of Park common stock on

 

53


Table of Contents

April 26, 2019. The J.P. Morgan representatives noted in the presentation that a fixed exchange ratio would result in the parties sharing the risks of changing share prices following the date of announcement of any transaction. At the telephonic meeting, representatives of J.P. Morgan reviewed Park’s requirement that Chesapeake assist it by arranging for the sale of the New York Disposition Properties, and potentially other hotels, following the signing of the merger agreement and prior to closing; while noting that the sale of the New York Disposition Properties and any other such sales ultimately proposed were not conditions to Park’s obligation to close the merger, Park had requested the ability to delay closing the merger until mid-October if necessary to complete the sales of the New York Disposition Properties. The Chesapeake Board also was reminded of Park’s proposal that the transaction be structured as fully taxable to Chesapeake’s shareholders and Park’s requirement that Chesapeake assist Park in various pre-closing restructuring efforts; Park’s willingness to offer two seats on the Park Board to incumbent Chesapeake trustees following the closing; the termination and deal protection provisions proposed by Park, including the break-up fee Park requested in the event of certain terminations of the merger agreement; the so-called “Outside Date” of October 31, 2019 proposed by Park, after which either party could terminate the merger agreement if not previously completed; Park’s request for a limited period of exclusivity to finalize negotiations of transaction terms and of the definitive merger agreement drafted and circulated by Park; and the ability of Chesapeake to continue paying its regular $0.40 per share quarterly dividend pending completion of the proposed merger.

Also during the April 28, 2019 telephonic meeting, representatives of J.P. Morgan provided the Chesapeake Board with an analysis of the implied value of the proposed merger consideration based on the proposed exchange ratio at various prices of a share of Park common stock. Representatives of J.P. Morgan also provided its illustrative preliminary valuation analysis, which reviewed historical metrics for both Chesapeake and Park and evaluated the potential valuation creation for Chesapeake’s shareholders based on the exchange ratio outlined by Park in its proposal. A representative of Paul Weiss advised the Board that Park had delivered a reasonable draft agreement that appeared designed to permit efficient negotiation toward a final agreement. The Paul Weiss representative further noted that Park’s willingness to progress with diligence in the absence of an exclusivity period suggested that Park may be willing to progress with negotiations without the benefit of an exclusivity period. During that meeting, members of the Chesapeake Board and management expressed their view that Park had delivered an attractive proposal.

During the April 28, 2019 telephonic meeting, the Chesapeake Board evaluated and considered, with the assistance of representatives of J.P. Morgan and its legal advisors, Park’s ability and interest in a potential strategic transaction, the strategic fit associated with a combination of Chesapeake and Park, the discussions with Park to date, and the proposed due diligence, documentation and requested exclusivity period. The Chesapeake Board also discussed whether continuing to pursue Chesapeake’s existing business strategy as an independent, stand-alone company and not engaging in any strategic transaction with Park was a potentially better alternative for Chesapeake than the Park proposal. In discussing the Park proposal and considering alternatives, the Chesapeake Board focused on, among other matters, the duties of trustees under Maryland law as representatives of Paul Weiss previously had discussed. The Chesapeake Board also discussed the benefits to Chesapeake’s shareholders of participating as an owner of Park’s larger portfolio, the greater flexibility that a larger company would afford in optimizing the combined portfolio; the operational challenges presented for Chesapeake by Marriott’s acquisition of Starwood, which had proven disruptive to group and other business at certain of Chesapeake’s hotels such as the W Chicago—Lakeshore, and the risks perceived in terms of Chesapeake’s ability to generate future growth as a stand-alone business in a challenging acquisition environment.

Discussion at the April 28, 2019 board meeting then focused on the possibility of negotiating improvements to Park’s proposal in terms of the amount of consideration payable to Chesapeake’s shareholders and requesting a two-tiered termination fee, and enhancing the ability of the Chesapeake Board to entertain a potentially superior proposal from a third party consistent with the exercise of the trustees’ duties. The Chesapeake Board authorized Mr. Francis to negotiate with Mr. Baltimore for improvements to Park’s proposal and to agree to a limited period of exclusivity if he determined such agreement was appropriate to secure the transaction opportunity.

 

54


Table of Contents

On the afternoon and evening of April 28, 2019, Mr. Francis and Mr. Baltimore had a series of telephone conversations during which Mr. Francis relayed to Mr. Baltimore the Chesapeake Board’s response to Park’s April 26, 2019 proposal. Mr. Francis communicated the Chesapeake Board’s desire for Park to, among other things, increase the aggregate amount of consideration to be paid in the merger; increase the cash component of that consideration; and adopt a two-tiered termination fee construct. Mr. Baltimore held firm regarding the Park proposal, citing as reasons Park’s perception of the reasonableness of its initial offer; the fact that its due diligence investigation had identified certain operational issues and demand trends that positioned Chesapeake’s performance to be challenged relative to Park’s performance in the first and second quarters of 2019; and other reasons for maintaining its initial offer and terms. Mr. Baltimore informed Mr. Francis that it would be “pencils down” for his team if Mr. Francis pushed for further improvements to the proposed terms.

Mr. Francis, Mr. Natelli and representatives of J.P. Morgan talked throughout April 28, 2019 regarding the feedback provided by Mr. Baltimore, and determined that Mr. Francis should continue to negotiate with Mr. Baltimore. In response to Mr. Francis’s continued efforts to obtain increased consideration and changes to the deal protection provisions, later on April 28, 2019 Mr. Baltimore indicated that Park would be willing to offer two concessions: a $0.25 per share increase in the cash component of the merger agreement, and a two-tiered termination fee providing for payment by Chesapeake of a lower 2.0% fee if it were to terminate the merger agreement as a result of a superior proposal within the first thirty days following execution of the agreement by the parties.

In communicating these items to Mr. Francis on April 28, 2019, Mr. Baltimore clarified the pricing mechanics of Park’s proposal, stating that while the cash component was fixed, the exchange ratio for the stock component would not be fixed until expiration of a 10-day trailing volume weighted average price of Park’s shares through the trading day immediately preceding execution of the merger agreement, reflecting Park’s methodology to ensure the value of the aggregate merger consideration offered equaled $31.00 per Chesapeake common share on the date of execution of the merger agreement.

Later on April 28, 2019, at the direction of Chesapeake, representatives of J.P. Morgan, in telephone conversations with representatives of BofA Merrill Lynch, Park’s financial advisor, confirmed that Park viewed its proposal as providing for a $31.00 per share value on the date of execution of the merger agreement, with the stock component to be fixed based on the 10-day trailing volume weighted average price of Park’s shares through the trading day immediately preceding the execution of the merger agreement.

On April 29, 2019, the Chesapeake Board held a telephonic meeting also attended by representatives of J.P. Morgan, Paul Weiss and Polsinelli. Mr. Francis described his conversations with Mr. Baltimore, and the conversations among Mr. Francis, Mr. Natelli and representatives of J.P. Morgan that also had occurred on April 28, 2019. Representatives of J.P. Morgan apprised the Chesapeake Board of the impact of the increase in cash consideration and clarified pricing mechanics on the illustrative preliminary valuation presented by J.P. Morgan at the April 28, 2019 meeting. Following discussion of the proposed transaction, the Chesapeake Board unanimously approved continuing to proceed with Park on the clarified pricing terms and authorized Mr. Francis to enter into the exclusivity agreement on substantially the terms proposed by Park.

Late in the evening of April 29, 2019, representatives of Paul Weiss provided representatives of Hogan Lovells with initial comments on the draft merger agreement on behalf of Chesapeake and its advisors. The revised draft merger agreement provided for, among other things, revisions to the covenants surrounding the proposed sale of the New York Disposition Properties and other pre-closing restructuring activities requested by Park; changes to the representations and warranties and interim operating covenants for Chesapeake and the definition of “material adverse effect” modifying the same; revisions to the circumstances in which termination fees would be payable by Chesapeake, including revisions to the non-solicitation definitions and provisions, the implementation of the two-tiered termination fee for potentially superior proposals made within the initial thirty-day period, and certain changes to the matching rights provisions; the addition of a provision enabling Chesapeake to terminate the merger agreement for an intervening event if required to do so upon the exercise of

 

55


Table of Contents

the Chesapeake Board’s duties; the imposition of a cap on the amount of expenses for which Chesapeake might be required to reimburse Park upon certain terminations of the merger agreement not triggering payment of any termination fee; and other changes to the closing conditions and certain other covenants. The parties continued negotiating the merger agreement until the afternoon of May 5, 2019.

On April 30, 2019, representatives of Paul Weiss sent the initial draft of the Chesapeake disclosure letter to representatives of Hogan Lovells.

On May 1, 2019, the Chesapeake Board met in Arlington, Virginia. Representatives of J.P. Morgan, Paul Weiss, Polsinelli and Venable also attended the meeting. At the meeting, management and representatives of J.P. Morgan and Paul Weiss discussed with the Chesapeake Board an update on the negotiation process, including an overview of the status of the reciprocal due diligence process, how the merger agreement negotiations were progressing, the potential timing to sign a definitive merger agreement and an estimated timetable for steps between signing and closing a transaction. The Chesapeake Board also reviewed and discussed the strategic rationale for the combination of the companies. The Chesapeake Board then discussed certain benefits of the transaction, including the premier nature of the combined company’s high quality portfolio of primarily luxury and upper-upscale hotels in top urban and leisure markets with strong group customer focus, broad brand diversification, with high barriers to entry and multiple demand generators; that Chesapeake’s shareholders would gain exposure to the second largest lodging platform, with approximately $12 billion (as of signing of the Merger Agreement) of enterprise value and nearly $1 billion of Adjusted EBITDA, offering benefits of increased scale including greater liquidity, potential improvements in terms of access to and pricing of capital; and other factors, positive and negative, described in “—Recommendation of the Chesapeake Board and Its Reasons for the Merger,” as well as the risks described in “—Recommendation of the Chesapeake Board and Its Reasons for the Merger.”

At the May 1, 2019 meeting, the Chesapeake Board and representatives of J.P. Morgan discussed the proposal from Park and the value implied by the proposed price. Also at the meeting, representatives of Paul Weiss reminded the Chesapeake Board of the duties of a trustee under Maryland law and provided the Chesapeake Board with a summary of the proposed merger agreement. As part of the discussions, representatives of Paul Weiss reviewed with the Chesapeake Board the structure of the merger, the general nature of the representations and warranties, interim operating covenants, other covenants and closing conditions contained in the merger agreement, the two-tier termination fee structure, the events that would trigger the payment of a termination fee and/or expense reimbursement, the terms of the non-solicitation covenant and related deal protection provisions in the merger agreement. The Chesapeake Board asked questions of representatives of Paul Weiss regarding the proposed draft merger agreement and discussed various terms of the agreement. Following discussion, the members of the Chesapeake Board then determined that, subject to final determination of the exchange ratio, Chesapeake’s management should proceed with finalizing the merger agreement and other aspects of the transaction.

On May 1, 2019, representatives of Hogan Lovells circulated a revised draft of the merger agreement to representatives of Paul Weiss, reflecting changes to the pre-closing restructuring covenants requested by Park, the representations and warranties of each party, and the deal protection provisions. These matters were further discussed among representatives of Park, Chesapeake, Hogan Lovells, Paul Weiss and Polsinelli in various conference calls held throughout May 1, 2019.

Later on May 1, 2019, representatives of Hogan Lovells circulated a revised draft of Park’s disclosure letter and a draft set of commitment papers provided by BofA Merrill Lynch in respect of its proposal to provide debt financing to Park in connection with the proposed transaction. Early in the morning on May 2, 2019, representatives of Hogan Lovells circulated comments to Chesapeake’s disclosure letter.

On May 2, 2019, legal representatives to Park and Chesapeake continued to negotiate the merger agreement and the parties’ respective disclosure letters. Representatives of Paul Weiss circulated a revised draft of the

 

56


Table of Contents

merger agreement, reflecting further changes to the representations and warranties of each party and the deal protection provisions. The representatives of Paul Weiss noted that further edits relating to the pre-closing restructuring covenant were underway and would be transmitted separately. Later on May 2, 2019, representatives of Polsinelli circulated a revised draft of Chesapeake’s disclosure letter.

On May 3, 2019, representatives of Paul Weiss circulated proposed edits relating to the pre-closing restructuring covenant. During the day, and continuing on May 4, 2019, legal representatives to Park and Chesapeake worked to resolve various pre-signing issues; reviewed and commented upon the various exhibits to the draft merger agreement; and exchanged further revised drafts of the merger agreement and respective disclosure letters. On the evening of May 4, 2019, representatives of Hogan Lovells, Paul Weiss and Polsinelli substantially finalized the merger agreement, the parties’ respective disclosure letters and the exhibits to the merger agreement, substantially final versions of which were circulated among the parties.

In the late morning of May 5, 2019, Mr. Baltimore contacted Mr. Francis to advise him that the Park Board had approved the proposed transaction that morning.

On the afternoon of May 5, 2019, the Chesapeake Board held a telephonic meeting at which representatives of J.P. Morgan, Paul Weiss, Polsinelli and Venable were present. Representatives of Paul Weiss reminded the members of the Chesapeake Board of their duties under Maryland law and then provided a summary of the final merger agreement, detailing for the Chesapeake Board the resolution of the significant issues discussed at the board’s May 1, 2019 meeting. Discussion ensued regarding, among other items, the pre-closing restructuring covenant and the final language in the agreement relating to the efforts required in connection with the proposed sale of the New York Disposition Properties; the two-tiered termination fee; and the expense reimbursement provision. Representatives of Paul Weiss and Venable then presented a proposed amendment to Chesapeake’s bylaws that would make the state and federal courts in Baltimore the exclusive forum for litigation relating to Chesapeake’s internal affairs, including shareholder derivative suits (other than actions arising under the federal securities laws) and alleged breaches of duties owed to shareholders. Representatives of J.P. Morgan reviewed with the Chesapeake Board its financial analysis of the Merger Consideration. A representative of J.P. Morgan then delivered to the Chesapeake Board an oral opinion, which was subsequently confirmed by delivery of a written opinion dated May 5, 2019, to the effect that as of such date, and subject to the assumptions, limitations, qualifications and other matters set forth in J.P. Morgan’s written opinion, the Merger Consideration to be received by holders of Chesapeake common shares is fair, from a financial point of view, to the holders of such common shares. Representatives of Paul Weiss then reviewed the proposed resolutions prepared for the proposed transaction. Following these presentations and discussions, the Chesapeake Board, by the unanimous vote of all trustees, declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement and unanimously recommended the approval of the Merger by Chesapeake’s shareholders.

Following the Chesapeake Board meeting, Messrs. Francis and Natelli contacted Mr. Baltimore to advise him that the Chesapeake Board had unanimously approved the proposed transaction.

On the evening of May 5, 2019, Chesapeake and Park executed and delivered the Merger Agreement and arranged for issuance of a joint press release publicly announcing the Merger and execution of the Merger Agreement before the opening of the market on May 6, 2019.

Recommendation of the Chesapeake Board and Its Reasons for the Merger

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Chesapeake Board consulted with Chesapeake’s senior management and its outside legal counsel and financial advisor and unanimously declared advisable and approved the Merger on the terms and conditions set forth in the Merger Agreement. The Chesapeake Board unanimously recommends that the Chesapeake shareholders vote to approve the Merger on the terms and conditions set forth in the Merger Agreement.

 

57


Table of Contents

In declaring that the Merger is advisable and approving the Merger on the terms set forth in the Merger Agreement, and in recommending that Chesapeake shareholders vote to approve the Merger on the terms set forth in the Merger Agreement, the Chesapeake Board considered various factors that it viewed as supporting its decisions, including the following material factors:

 

   

the receipt of Merger Consideration comprising $11.00 in cash and 0.628 of a share of Park common stock provides Chesapeake shareholders with an amount of immediate liquidity and the opportunity to have an ownership stake in Park, which is expected to provide a number of significant potential strategic opportunities and benefits, including the following:

 

   

the Merger combines two complementary hotel portfolios in top United States markets under the leadership of Park’s experienced management team, allowing Park to capture immediate and substantial cost synergies in the form of corporate general and administrative cost savings, as well as the potential for long-term revenue synergies from Park’s asset management initiatives;

 

   

Park will have a complementary geographic footprint with increased geographic diversity, with the vast majority of Chesapeake’s cash flows generated from hotels located in markets with existing Park hotels, affording Park the opportunity to generate further operating cost efficiencies from those hotels, delivering the potential for value appreciation;

 

   

Park will further solidify its position as the second-largest publicly traded lodging REIT based on equity market capitalization;

 

   

Park’s meaningful scale is expected to allow it to capitalize on corporate efficiencies, consider and execute on opportunistic sales of hotels that have maximized their values while preserving Park’s market-leading dividend payout ratio, and gain more efficient access to less expensive capital;

 

   

Park’s strong focus on group travelers is expected to enhance and diversify the mix of customers at the hotels owned by Park following the Merger, and potentially mitigate the risks associated with Chesapeake’s focus on business transient guests, room demand from which historically has been particularly sensitive to changing economic conditions; and

 

   

since its separation from Hilton Worldwide in early 2017, Park has generated total stockholder returns well above those of peer lodging REITs with equity market capitalizations in excess of $1 billion, and its strong performance in the first quarter of 2019 and strengthening outlook for 2019 was expected to benefit investors in Park relative to an investment in Chesapeake as a stand-alone business, given the challenges expected to the ability of Chesapeake to generate long-term growth;

 

   

information with respect to the business, operating results and financial condition of Park, on both a historical and prospective basis, including Park’s strong and growing operating performance since its separation from Hilton Worldwide in early 2017, the quality, breadth and experience of Park’s senior management team, and the complementary markets served by the two companies, as well as the Chesapeake Board’s knowledge of the current and prospective environment in which the two companies operate, including industry, economic and market conditions, taking into account the results of Chesapeake’s due diligence review of Park;

 

   

current market and industry trends, Chesapeake’s future prospects as stand-alone business and the challenges and risks that could affect Chesapeake’s future performance;

 

   

that the implied value of the Merger Consideration per Chesapeake common share of $31.00 on the date of execution of the Merger Agreement represented a premium of approximately 8% to the closing price of a Chesapeake common share on May 3, 2019, the last trading day prior to the public announcement of the Merger Agreement, and exceeded the average of the estimates of Chesapeake’s NAV reported by the analysts following Chesapeake;

 

58


Table of Contents
   

that the exchange ratio for the stock component of the Merger Consideration is fixed and will not fluctuate as a result of changes in the market price of Chesapeake common shares or Park common stock, which provides certainty as to the pro forma percentage ownership of Park that the Chesapeake shareholders would receive in the Merger and offers the possibility that Chesapeake shareholders may benefit from increases in the market price of Park common stock after execution of the Merger Agreement;

 

   

that, based on the current dividend rates of Chesapeake and Park, Chesapeake shareholders would realize an increase in the quarterly dividend rate immediately after the closing, assuming no change in Park’s current quarterly dividend rate of $0.45 per share;

 

   

that the Park stock component of the Merger Consideration will be listed for trading on the NYSE and, based on the substantially higher average daily trading volumes of shares of Park common stock as compared to that of Chesapeake common shares, would be expected to afford enhanced liquidity for Chesapeake shareholders after the Merger;

 

   

the opinion of J.P. Morgan, dated May 5, 2019, to the Chesapeake Board as to the fairness, from a financial point of view and as of the date of the opinion, to holders of Chesapeake common shares of the Merger Consideration to be paid to such holders in the Merger, as more fully described below in the section entitled “—Opinion of Chesapeake’s Financial Advisor”;

 

   

that immediately following the completion of the Merger, the Park Board will consist of ten directors, two of whom will be designated by Chesapeake;

 

   

that the Merger is subject to approval by holders of not less than a majority of Chesapeake’s outstanding common shares;

 

   

that the Merger Agreement permits Chesapeake to continue to pay regular quarterly dividends of up to $0.40 per share through consummation of the Merger;

 

   

that the Merger Agreement provides Chesapeake with the ability, under certain specified circumstances, to consider an unsolicited acquisition proposal if the Chesapeake Board determines such proposal would reasonably be expected to lead to a superior proposal and that failure to take such action would be inconsistent with their duties as trustees under applicable law;

 

   

that the Merger Agreement provides the Chesapeake Board with the ability, under certain specified circumstances, to make a change in recommendation and to terminate the Merger Agreement following such change in recommendation in order to enter into an agreement with respect to a superior proposal upon payment of a termination fee;

 

   

that the Merger Agreement provided for a reduced termination fee of $38.5 million if Chesapeake were to terminate the Merger Agreement as a result of a superior proposal within the first thirty days following execution of the agreement by the parties;

 

   

the conclusion of the Chesapeake Board that the termination fee levels provided by the Merger Agreement were reasonable in the context of termination fees payable in comparable transactions and in light of the overall structure of the transaction and terms of the Merger Agreement;

 

   

that the Merger Agreement would provide Chesapeake with sufficient operating flexibility between the signing of the Merger Agreement and the completion of the Merger for Chesapeake to conduct its business in the ordinary course of business consistent with past practice;

 

   

the commitment on the part of each of Chesapeake and Park to complete the Merger as reflected in their respective obligations under the terms of the Merger Agreement and the absence of any known required government consents, and the likelihood that the Merger would be completed;

 

   

the other terms of the Merger Agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the Merger Agreement;

 

59


Table of Contents
   

that, in light of the expected long-term strategic and financial benefits associated with the combination of Chesapeake and Park, the ability of Chesapeake shareholders to gain immediate liquidity through the $11.00 per share Cash Consideration and continue to benefit from the prospects of Park, the overall terms of the Merger and the timing, likelihood and risks of completing alternative transactions, including the business, competition, industry and market risks that would apply to Chesapeake, the Merger, as compared to potential alternatives, including the continued stand-alone operation of Chesapeake and Chesapeake’s prospects for a Merger or sale transaction with a company other than Park and the potential terms for such other transactions as more particularly described in this proxy statement/prospectus under “The Mergers—Background of the Mergers,” would be in the best interests of Chesapeake; and

 

   

the course of negotiations with Park, which were conducted at arm’s length and during which the Chesapeake Board was advised by its legal and financial advisors.

The Chesapeake Board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the following material factors:

 

   

that, following the completion of the Merger, Chesapeake would no longer exist as a stand-alone public company and Chesapeake shareholders would not be able to participate in any future earnings growth Chesapeake might have achieved, solely through their ownership of Chesapeake common shares;

 

   

that, because the Merger Consideration comprises a stock component determined on the basis of a fixed exchange ratio of shares of Park common stock without adjustment if the market price of Park common stock were to decline, Chesapeake shareholders could be adversely affected by a decline in the market price of Park common stock after execution of the Merger Agreement with no price-based termination right or other similar protection in favor of Chesapeake or Chesapeake shareholders;

 

   

that the Merger should be treated as a taxable sale by Chesapeake of all of its assets in exchange for the Merger Consideration and the assumption of all of Chesapeake’s liabilities, immediately followed by a distribution of the Merger Consideration to the holders of Chesapeake common shares in liquidation of Chesapeake, with holders of Chesapeake common shares generally expected to recognize gain or loss upon the exchange of their Chesapeake common shares for the Merger Consideration measured by the difference, if any, between (i) the fair market value of shares of Park common stock and the amount of any cash received in the Merger and (ii) the holder’s adjusted tax basis in the Chesapeake common shares exchanged;

 

   

the risk that the cost savings, operational synergies and other benefits to the Chesapeake shareholders expected to result from the Merger might not be fully realized or not realized at all, including as a result of possible changes in the real estate market or the industrial real estate business affecting the markets in which Park will operate or as a result of potential difficulties integrating the two companies and their respective operations;

 

   

the risk that, although one had not been presented, a different strategic alternative might be available that potentially could be more beneficial to Chesapeake shareholders than the proposed Merger;

 

   

that, under the terms of the Merger Agreement, Chesapeake must pay to Park a termination fee in an amount of either $38.5 million or $62.5 million, depending on when the termination occurs, and/or reimburse certain expenses incurred by Park in connection with the Merger (up to $17.5 million) if the Merger Agreement is terminated under certain circumstances, which might discourage or deter other parties from proposing an alternative transaction that may be more advantageous to Chesapeake shareholders, or which may become payable in circumstances when no alternative transaction or superior proposal is available to Chesapeake;

 

   

that the terms of the Merger Agreement place limitations on the ability of Chesapeake, its trustees, executive officers and its financial and legal representatives to solicit, initiate, knowingly encourage or

 

60


Table of Contents
 

knowingly facilitate any inquiries or the making of any proposal by or with a third party with respect to a competing transaction and to furnish information to, or enter into discussions with, a third party interested in pursuing an alternative strategic transaction;

 

   

the risk that one or more of the conditions to the parties’ obligations to complete the Merger will not be satisfied or waived;

 

   

the risk that the sales of the New York Disposition Properties might not be completed in a timely fashion, which would result in automatically extending the closing date of the Merger to the earlier of (i) the date that is one business day after the date on which the sales of both New York Disposition Properties have been completed and (ii) October 10, 2019, which longer period might expose Chesapeake to additional risks associated with completion of the Merger;

 

   

the risk of diverting management focus and resources from operational matters and other strategic opportunities as well as causing significant distractions for Chesapeake’s employees while working to implement the Merger, which may result in harm to Chesapeake’s business if the Merger does not close;

 

   

the possibility that the Merger may not be completed, or may be unduly delayed, for reasons beyond the control of Chesapeake or Park, including because Chesapeake shareholders may not approve the Merger and the other transactions contemplated by the Merger Agreement;

 

   

provisions in the Merger Agreement restricting operation of Chesapeake’s business during the period between the signing of the Merger Agreement and consummation of the Merger may delay or prevent Chesapeake from undertaking business opportunities that may arise or other actions it would otherwise take with respect to its operations absent the pending completion of the Merger;

 

   

that Chesapeake and Park may be obligated to complete the Merger without having obtained appropriate consents, approvals or waivers from the counterparties under certain of Chesapeake’s contracts that require consent or approval to consummate the Merger, and the risk that such consummation could trigger the termination of, or default under, such contracts;

 

   

that Chesapeake’s trustees and named executive officers have certain interests in the Merger that might be different from, or in addition to, the interests of Chesapeake shareholders generally, as described under the section entitled “—Interests of Chesapeake Trustees and Named Executive Officers in the Merger” beginning on page 74;

 

   

the expenses to be incurred in connection with the Merger; and

 

   

the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 28.

This discussion of the foregoing information and material factors considered by the Chesapeake Board in reaching its conclusions and recommendations is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the Chesapeake Board in evaluating the Merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Chesapeake Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the Chesapeake Board may have given different weight or merit to different factors. The Chesapeake Board did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall review of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of declaring advisable and approving the Merger on the terms and conditions set forth in the Merger Agreement.

This explanation of the reasoning of the Chesapeake Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Forward-Looking Statements” beginning on page 40.

 

61


Table of Contents

After careful consideration, for the reasons set forth above, the Chesapeake Board unanimously recommends that the Chesapeake shareholders vote “FOR” the Merger Proposal.

Opinion of Chesapeake’s Financial Advisor

Chesapeake retained J.P. Morgan as its financial advisor in connection with the Merger pursuant to an engagement letter.

At a meeting of the Chesapeake Board on May 5, 2019, J.P. Morgan rendered its oral opinion to the Chesapeake Board that, as of such date and based upon and subject to the assumptions, limitations, qualifications and other matters set forth in its opinion, the Merger Consideration to be paid to the holders of Chesapeake common shares in the Merger was fair, from a financial point of view, to such holders. J.P. Morgan has confirmed its May 5, 2019 oral opinion by delivering its written opinion to the Chesapeake Board, dated May 5, 2019, that, as of such date, the Merger Consideration to be paid to the holders of Chesapeake common shares in the Merger was fair, from a financial point of view, to such holders.

The full text of the written opinion of J.P. Morgan, dated as of May 5, 2019, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in rendering its opinion, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. The summary of J.P. Morgan’s opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Chesapeake shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Chesapeake Board (in its capacity as such) in connection with and for the purposes of its evaluation of the Merger, was directed only to the fairness, from a financial point of view, of the Merger Consideration to be paid to the holders of Chesapeake common shares in the Merger and did not address any other aspect of the Merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any holder of Chesapeake common shares as to how such shareholder should vote with respect to the Merger or any other matter.

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

 

   

reviewed the Merger Agreement;

 

   

reviewed certain publicly available business and financial information concerning Chesapeake and Park and the industries in which they operate;

 

   

compared the proposed financial terms of the Merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

   

compared the financial and operating performance of Chesapeake and Park with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Chesapeake common shares and the Park common stock and certain publicly traded securities of such other companies;

 

   

reviewed certain internal financial analyses and forecasts prepared by the managements of Chesapeake and Park relating to their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the Merger (the “Synergies”); and

 

   

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

In addition, J.P. Morgan held discussions with certain members of the management of Chesapeake with respect to certain aspects of the Merger, the past and current business operations of Chesapeake, the financial

 

62


Table of Contents

condition and future prospects and operations of Chesapeake, the effects of the Merger on the financial condition and future prospects of Chesapeake, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry. J.P. Morgan assumed with Chesapeake’s consent that Chesapeake had operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes since its formation as a REIT and J.P. Morgan assumed that the Merger will not adversely affect the status or operations of Park.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Chesapeake or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to its engagement letter with Chesapeake, J.P. Morgan did not assume any obligation to undertake any such independent verification. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Chesapeake or Park under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Chesapeake and Park to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the Merger and the other transactions contemplated by the Merger Agreement will have the tax consequences described in discussions with, and materials furnished to it by, representatives of Chesapeake, and will be consummated as described in the Merger Agreement. J.P. Morgan has assumed that neither Chesapeake nor Park will declare or pay any dividends necessary to maintain REIT status and that no adjustments, including adjustments as of or after the closing of the Merger or the amount of any dividends necessary to maintain REIT status will be made to the Merger Consideration. J.P. Morgan also assumed that the representations and warranties made by Chesapeake and Park in the Merger Agreement and the related agreements are and will be true and correct in all respects material to J.P. Morgan’s analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Chesapeake with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on Chesapeake or Park or on the contemplated benefits of the Merger.

The J.P. Morgan opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the J.P. Morgan opinion. It should be understood that subsequent developments may affect the J.P. Morgan opinion, and J.P. Morgan does not have any obligation to update, revise or reaffirm its opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, of the Merger Consideration to be paid to the holders of Chesapeake common shares in the Merger, and J.P. Morgan expressed no opinion as to the fairness of any consideration paid in connection with the Merger to the holders of any other class of securities, creditors or other constituencies of Chesapeake or as to the underlying decision by Chesapeake to engage in the Merger. J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, trustees, directors, or employees of any party to the Merger, or any class of such persons relative to the Merger Consideration to be paid to the holders of Chesapeake common shares pursuant to the Merger Agreement or with respect to the fairness of any such compensation. Furthermore, J.P. Morgan expressed no opinion as to the price at which Chesapeake common shares or Park common stock will trade at any future time.

The terms of the Merger Agreement, including the Merger Consideration, were determined through arm’s length negotiations between Chesapeake and Park, and the decision to enter into the Merger Agreement was solely that of the Chesapeake Board and the Park Board. J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the Chesapeake Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Chesapeake Board or the management of Chesapeake with respect to the Merger or the Merger Consideration.

 

63


Table of Contents

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

Certain of the financial analyses are presented on an equity value per share basis. In arriving at equity value per share for Chesapeake and Park, the share count in all cases when J.P. Morgan derived an equity value per share was based, in the case of Chesapeake, on Chesapeake’s fully diluted shares outstanding as of May 3, 2019 of 61 million, per Chesapeake management, and, in the case of Park, on Park’s fully diluted shares outstanding as of May 3, 2019 of 202 million, per Park management, with diluted share count in each case calculated using the treasury stock method.

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial and market data of Chesapeake and Park with similar data for a number of select full service REITs, including the following selected companies:

 

   

Host Hotels & Resorts, Inc. (“HST”);

 

   

Pebblebrook Hotel Trust (“PEB”);

 

   

Ryman Hospitality Properties, Inc. (“RHP”);

 

   

Sunstone Hotel Investors, Inc. (“SHO”);

 

   

Xenia Hotels & Resorts, Inc. (“XHR”); and

 

   

DiamondRock Hospitality Company (“DHR”).

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

Multiples were based on closing stock prices on May 3, 2019. For each of the following analyses performed by J.P. Morgan, financial and market data and equity value estimates for the selected companies were based on the selected companies’ public filings and information J.P. Morgan obtained from SNL Financial and FactSet Research Systems (“FactSet”). The multiples and ratios for each of the selected companies were based on the most recent publicly available information.

With respect to the selected companies, J.P. Morgan calculated, for each selected company, the ratio of enterprise value (“EV”) to FactSet consensus estimated earnings before interest, tax, depreciation and amortization (“EBITDA”) for the fiscal year 2019 (EV / 2019E Adjusted EBITDA (Consensus)). Financial data for certain of the selected companies was adjusted for certain capital markets and mergers and acquisitions activity since the companies last reported. For certain companies that present adjusted EBITDA prior to

 

64


Table of Contents

deducting stock-based compensation expenses, the consensus EBITDA estimates were reduced by stock-based compensation to present adjusted EBITDA on a comparable basis.

 

     HST      Park      PEB      RHP      SHO      XHR      DRH      Chesapeake  

EV / 2019E Adjusted EBITDA (Consensus)

     11.4x        12.8x        15.1x        13.6x        11.8x        13.0x        12.1x        13.5x  

Based on the above analysis and other factors that J.P. Morgan considered appropriate based on its experience and professional judgment, J.P. Morgan then applied a multiple reference range of 11.5x to 14.5x for EV / 2019E Adjusted EBITDA (Consensus). After applying this multiple range to Chesapeake’s 2019E Adjusted EBITDA, per Chesapeake management, the analysis indicated the following range of implied equity values per Chesapeake common share and per share of Park common stock (in each case, rounded to the nearest $0.25):

 

     Implied Equity Value Per
Share  
 
             Low                      High          

Chesapeake

   $ 23.00      $ 31.75  

Park

   $ 29.00      $ 40.50  

The range of implied equity value per Chesapeake common share was compared to (i) the closing price per Chesapeake common share of $29.31 as of May 3, 2019 and (ii) the implied per share equity value of the Merger Consideration of $31.71 per Chesapeake common share, calculated as of May 3, 2019. The range of implied equity value per share of Park common stock was compared to the closing price per share of Park common stock of $32.98 as of May 3, 2019.

Precedent Transactions Analysis

Using publicly available information, J.P. Morgan examined a number of transactions over $400 million announced after 2004 involving companies that, for purposes of J.P. Morgan’s analysis and based on its experience and professional judgment, were considered similar to Chesapeake’s business. Specifically, J.P. Morgan reviewed the transactions set forth in the below table involving select full service REITs. Using publicly available information, J.P. Morgan calculated, for each selected transaction, the multiple of the transaction value implied by the consideration paid in such transaction to the target company’s forecasted EBITDA for the twelve calendar-month period following the announcement of the applicable transaction (the “NTM EBITDA”). Financial forecasts for the target companies were based on press releases, FactSet data and the target company’s filings with the SEC, including filings made in connection with the applicable selected transaction.

 

Date Announced

  

Acquirer

  

Target

  

Transaction Value /

      NTM EBITDA      

9/6/2018

   Pebblebrook Hotel Trust    LaSalle Hotel Properties    16.2x

4/24/2017

   RLJ Lodging Trust    FelCor Lodging Trust Incorporated    12.2x

9/8/2015

   The Blackstone Group    Strategic Hotels    16.5x

4/30/2007

   Apollo Real Estate Advisors, Aimbridge Hospitality and JF Capital Advisors    Eagle Hospitality Properties Trust    12.9x

4/24/2007

   JER Partners Acquisitions IV, LLC    Highland Hospitality Corporation    13.0x

1/19/2007

   MS Resort Holdings LLC    CNL Hotels & Resorts, Inc. – 8 Asset Luxury Portfolio    13.0x

1/18/2007

   Ashford Hospitality Trust    CNL Hotels & Resorts, Inc. – 51 Asset Portfolio    11.1x

5/22/2006

   Westmont Hospitality Group and Cadim Inc.    Boykin Lodging Company    12.2x

2/21/2006

   The Blackstone Group    MeriStar Hospitality Corporation    13.5x

 

65


Table of Contents

Date Announced

  

Acquirer

  

Target

  

Transaction Value /

      NTM EBITDA      

11/14/2005

   Host Marriott Corporation    Starwood Hotels & Resorts Worldwide, Inc. – 38 Asset Portfolio    11.4x

6/14/2005

   The Blackstone Group    Wyndham International, Inc.    13.8x

10/20/2004

   The Blackstone Group    Boca Resorts, Inc.    12.3x

Based on the results of this analysis and other factors that J.P. Morgan considered appropriate based on its experience and professional judgment, J.P. Morgan selected a multiple reference range of 12.2x to 16.2x for transaction value / NTM EBITDA and applied it to Chesapeake’s estimated adjusted NTM EBITDA of $180 million, per Chesapeake management, for the twelve months ended March 31, 2020. This analysis indicated a range of implied equity values per Chesapeake common share, rounded to the nearest $0.25, of $25.50 to $37.25, which was compared to (i) the closing price per Chesapeake common share of $29.31 as of May 3, 2019, and (ii) the proposed Merger Consideration of $31.71.

Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow (“DCF”) analysis, which is referred to in this proxy statement/prospectus as a DCF analysis, for the purpose of determining an implied equity value per share on a fully diluted basis using the treasury stock method for each of the Chesapeake common shares and the Park common stock on a standalone basis. A DCF analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered free cash flows,” for purposes of the DCF analysis, refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. “Present value” refers to the current value of the future cash flows generated by the asset, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the cost of capital and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projected period.

J.P. Morgan calculated the present value of the future standalone unlevered free cash flows that Chesapeake was forecasted to generate from calendar year 2019 through calendar year 2023 based upon projections provided by Chesapeake’s management. J.P. Morgan also calculated a range of terminal values for Chesapeake at the end of the five-year period ended 2023 by applying a terminal growth rate ranging from 1.50% to 2.50% (which range was developed with, and reviewed and approved by, the management of Chesapeake) to the unlevered free cash flows of Chesapeake during the final year of the projections. The unlevered free cash flows and the range of terminal values were then discounted to present values as of March 31, 2019 using a range of discount rates from 7.25% to 8.25%, which range was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Chesapeake. The present values were then adjusted to take into account Chesapeake’s net debt as of March 31, 2019 to derive implied equity values per share for Chesapeake on a fully diluted basis using the treasury stock method.

Based on the foregoing, this analysis indicated a range of implied equity values per Chesapeake common share, rounded to the nearest $0.25, of $25.00 to $38.00, which was compared to (i) the closing price per Chesapeake common share of $29.31 as of May 3, 2019 and (ii) the implied value of the Merger Consideration of $31.71 per Chesapeake common share.

J.P. Morgan calculated the present value of the future standalone unlevered free cash flows that Park was forecasted to generate from calendar year 2019 through calendar year 2023 based on Chesapeake’s projections for Park, per Chesapeake management. J.P. Morgan also calculated a range of terminal values for Park at the end of the five-year period ended 2023 by applying a terminal growth rate ranging from 1.50% to 2.50% (which

 

66


Table of Contents

range was developed with, and reviewed and approved by, the management of Chesapeake) to the unlevered free cash flows of Park during the final year of the projections. The unlevered free cash flows and the range of terminal values were then discounted to present values as of March 31, 2019 using a range of discount rates from 7.00% to 8.00%, which range was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Park. The present values were then adjusted to take into account Park’s net debt as of March 31, 2019 to derive implied equity values per share for Park on a fully diluted basis using the treasury stock method.

Based on the foregoing, this analysis indicated a range of implied equity values per share of the Park common stock, rounded to the nearest $0.25, of $31.25 to $48.75, which was compared to the closing price per share of the Park common stock of $32.98 as of May 3, 2019.

Certain Other Information

Illustrative Value Creation Analysis. J.P. Morgan conducted an illustrative value creation analysis based on projections for Chesapeake, per Chesapeake management and the projections for Park, per Chesapeake management, that compared the implied equity value of Chesapeake common shares derived from a discounted cash flow valuation on a standalone basis to the pro forma combined company implied equity value.

J.P. Morgan determined the pro forma combined company implied equity value by calculating: (i) the sum of (a) the implied equity value of each of Chesapeake and Park using the midpoint value of each as determined in J.P. Morgan’s discounted cash flow analysis (b) the midpoint of the discounted present value of the Synergies as determined in J.P. Morgan’s discounted cash flow analysis with the Synergies, less (ii) the sum of (a) aggregate transaction costs, including financing costs, of $120 million, as estimated by Park’s management and used by J.P. Morgan at the direction of Chesapeake’s management and (b) the aggregate cash portion of the Merger Consideration.

The foregoing analysis indicated, on an illustrative basis, that the Merger created hypothetical incremental implied value for the holders of Chesapeake common shares of 14%. J.P. Morgan noted that the value creation analysis was a hypothetical, illustrative analysis only and was not a prediction as to future share trading.

Other Analyses. J.P. Morgan also reviewed and presented other information, solely for reference purposes, including:

 

   

historical trading prices of the Chesapeake common shares during the 52-week period ended May 3, 2019, noting that the low and high closing prices during such period were $23.68 and $33.81, respectively;

 

   

analyst share price targets for the Chesapeake common shares in recently published, publicly available research analysts’ reports, noting that the low and high share price targets ranged from $23.00 to $36.00;

 

   

analyst net asset value (“NAV”) estimates for the Chesapeake common shares in recently published, publicly available research analysts’ reports, noting that the low and high NAV per share estimates ranged from $27.89 to $30.82;

 

   

Chesapeake management NAV estimates for the Chesapeake common shares, noting that the low and high NAV per share estimates ranged from $28.74 to $31.73;

 

   

historical trading prices of the Park common stock during the one-year period ended May 3, 2019, noting that the low and high closing prices during such period were $25.30 and $34.27, respectively;

 

   

analyst share price targets for the Park common stock in recently published, publicly available research analysts’ reports, noting that the low and high share price targets ranged from $27.00 to $37.00;

 

   

analyst NAV estimates for the Park common stock in recently published, publicly available research analysts’ reports, noting that the low and high NAV per share estimates ranged from $29.31 to $32.66; and

 

67


Table of Contents
   

Chesapeake management NAV estimates for the Park common stock, noting that the low and high NAV per share estimates ranged from $31.16 to $34.36.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of Chesapeake or Park. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies nor selected transactions reviewed was identical to Chesapeake or Park, or the Merger, as the case may be. However, such companies selected were chosen by J.P. Morgan because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis and based on its experience and professional judgment, may be considered similar to those of Chesapeake or Park, as applicable. The transactions selected were similarly chosen by J.P. Morgan because their participants, size and other factors, for purposes of J.P. Morgan’s analysis and based on its experience and professional judgment, may be considered similar to the Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Chesapeake, Park or the transactions compared to the Merger, as applicable.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise Chesapeake with respect to the Merger on the basis of such experience and its familiarity with Chesapeake.

For financial advisory services rendered in connection with the Merger, Chesapeake has agreed to pay J.P. Morgan a fee equal to $14,000,000, of which $2,500,000 became payable upon delivery by J.P. Morgan of its opinion and the remainder of which is payable upon the closing of the Merger. In addition, Chesapeake has agreed to reimburse J.P. Morgan for certain expenses incurred in connection with its services, including reasonable and documented fees and disbursements of counsel, and will indemnify J.P. Morgan for certain liabilities.

During the two years preceding the date of J.P. Morgan’s opinion, J.P. Morgan and its affiliates have had, and continue to have, commercial or investment banking relationships with Chesapeake and Park, for which J.P. Morgan and such affiliates have received, or will receive, customary compensation. Such services during such period have included acting as joint lead arranger and joint bookrunner on Chesapeake’s revolving credit facility which closed in May 2018. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender

 

68


Table of Contents

under outstanding credit facilities of Park, for which it receives customary compensation or other financial benefits. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of each of Chesapeake and Park. During the two year period preceding delivery of its opinion ending on May 5, 2019, the aggregate fees recognized by J.P. Morgan from Chesapeake were approximately $535,000 and from Park were approximately $10.5 million. In the ordinary course of its businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of Chesapeake or Park for their accounts or for the accounts of customers and, accordingly, J.P. Morgan may at any time hold long or short positions in such securities or other financial instruments.

Certain Chesapeake Unaudited Prospective Financial Information

Historically, it has been Chesapeake’s regular practice to issue financial guidance to investors providing low and high ranges, including for the first quarter and full year 2019, of Chesapeake’s expectations regarding its performance relative to a number of financial metrics commonly reported by lodging REITs. Chesapeake has not publicly disclosed any projections of future results for periods beyond the current year due to, among other reasons, the uncertainty of the underlying assumptions and estimates and the unpredictable nature of such long-term results. However, Chesapeake has included below certain financial forecasts that, as described below, were furnished to the Chesapeake Board, representatives of Chesapeake’s financial advisor, J.P. Morgan, and, in certain cases, to Park and Park’s financial advisors in connection with discussions concerning the Merger.

In connection with the Merger and the other transactions contemplated by the Merger Agreement, Chesapeake’s management updated its financial projections for 2019 and prepared certain projections of Chesapeake’s financial performance for calendar years 2020 through 2023, in each case assuming Chesapeake continued to operate for such periods on a stand-alone basis. We refer to the updated financial projections for 2019 as the “Chesapeake Updated 2019 Projections” and the entire set of five-year projections, including the Chesapeake Updated 2019 Projections, as the “Chesapeake Financial Forecasts.” Chesapeake’s management provided the Chesapeake Financial Forecasts to the Chesapeake Board and to representatives of J.P. Morgan.

Chesapeake’s management also prepared, and provided to representatives of J.P. Morgan and Park and Park’s financial advisors, its 2019 forecasts of room revenue per available room (“RevPAR”) and Adjusted Hotel EBITDAre1 for each of Chesapeake’s 20 hotels owned as of the date of the Merger Agreement. We refer to these forecasts as the “Chesapeake 2019 Hotel Operations Forecasts.” The Chesapeake 2019 Hotel Operations Forecasts projected portfolio-wide RevPAR improvement of 2.2% relative to RevPAR reported for the same 20 hotels for 2018, and portfolio-wide Adjusted Hotel EBITDAre approximating the midpoint of the guidance range for this metric issued by Chesapeake in February 2019.

In connection with Chesapeake’s due diligence investigation, in addition to publicly available information (including Park’s full-year 2019 financial guidance issued to investors in February 2019), Park’s management made available to Chesapeake’s management and representatives of J.P. Morgan certain financial information consisting of updated individual hotel forecasts for the calendar year 2019 for each of Park’s existing hotel properties and certain related supplemental corporate schedules (such additional financial information and schedules, together with the financial guidance issued to investors for full year 2019, the “Park 2019 Prospective Financial Information”). The updated individual hotel forecasts for the calendar year 2019 reflected actual results through the first quarter of 2019, and updated forecasts for Park’s hotels undertaken in the ordinary course. Using

 

1 

Adjusted Hotel EBITDAre is a non-GAAP financial measure that Chesapeake uses to evaluate its hotel operating performance. Chesapeake calculates Adjusted Hotel EBITDAre as (1) EBITDAre (as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (calculated in accordance with GAAP) before interest, income taxes, depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, and adjustments for unconsolidated partnerships and joint ventures); adjusted for (2) hotel acquisition costs and non-cash amortization of operating lease right-of-use assets, intangible assets and liabilities, deferred franchise costs, and deferred key money; and further adjusted for (3) corporate general and administrative expenses.

 

69


Table of Contents

the Park 2019 Prospective Financial Information, Chesapeake’s management prepared certain projections of Park’s financial performance for calendar years 2019 through 2023, in each case assuming Park continued to operate for such periods on a stand-alone basis, which we refer to as the “Chesapeake-Prepared Park Financial Forecasts.” The Chesapeake-Prepared Park Financial Forecasts were provided to the Chesapeake Board and representatives of J.P. Morgan.

Chesapeake management also projected that Park would realize an aggregate of approximately $14 million in EBITDAre synergies in the first full year following the closing of the Merger, net of the estimated impact of property tax step-ups at Chesapeake’s hotels located in California following completion of the Merger. We refer to these estimated synergies as the “Chesapeake Projected Synergies.” The Chesapeake Projected Synergies are not reflected in the Chesapeake Financial Forecasts or the Chesapeake-Prepared Park Financial Forecasts but separately were provided to the Chesapeake Board and representatives of J.P. Morgan.

With the approval of Chesapeake, representatives of J.P. Morgan used the Chesapeake Financial Forecasts, the Chesapeake-Prepared Park Financial Forecasts and the Chesapeake Projected Synergies (collectively, the “Chesapeake Management Forecasts”) in connection with its financial analysis and for purposes of its opinion described above under the section entitled “—Opinion of Chesapeake’s Financial Advisor.”

The Chesapeake Management Forecasts were not prepared with a view toward public disclosure, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections or GAAP. The inclusion of the Chesapeake Management Forecasts in this proxy statement/prospectus should not be regarded as an indication that such information is predictive of actual future events or results and such information should not be relied upon as such, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the Chesapeake Management Forecasts. The Chesapeake Management Forecasts included in this proxy statement/prospectus have been prepared by, and are the responsibility of, Chesapeake’s management.

While presented with numeric specificity, the unaudited prospective financial information set forth below was based on numerous variables and assumptions (including assumptions related to industry performance and general business, economic, market and financial conditions and additional matters specific to Chesapeake’s hotels and Chesapeake management’s perceptions of and expectations for the future performance of Park’s hotels) available at the time they were prepared that are inherently subjective and uncertain and are beyond the control of Chesapeake’s management and, with respect to the Park 2019 Prospective Financial Information, Park’s management. The Chesapeake Financial Forecasts and the Chesapeake-Prepared Park Financial Forecasts cover multiple year periods and by their nature become less reliable with each successive year. In addition, both the Chesapeake Financial Forecasts and the Chesapeake-Prepared Park Financial Forecasts assume that each of Chesapeake and Park would continue to operate as stand-alone companies, without giving effect to the Merger or other transactions discussed in this proxy statement/prospectus and as if such Merger and other transactions had not been contemplated by Chesapeake or Park. While the Chesapeake Financial Forecasts and the Chesapeake-Prepared Park Financial Forecasts were prepared in good faith based on assumptions and estimates that Chesapeake’s management and, with respect to the Park 2019 Prospective Financial Information, Park’s management believed to be reasonable in the exercise of its judgment, no assurance can be made regarding future events. Important factors that may affect actual results and cause this unaudited prospective financial information not to be achieved include, but are not limited to, risks and uncertainties relating to Chesapeake’s business (including its ability to achieve strategic goals, objectives and targets over applicable periods), Park’s ability to achieve the projected synergies from the Merger, U.S. lodging industry performance, general business and economic conditions and other factors described in the sections of this proxy statement/prospectus under the captions “Forward-Looking Statements” and “Risk Factors.” We urge Chesapeake shareholders to review Chesapeake’s SEC filings for a description of risk factors with respect to Chesapeake’s business, and Park’s SEC filings for a description of risk factors with respect to Park’s business, as well as, in each case, the section entitled “Risk Factors.”

 

70


Table of Contents

None of Chesapeake, Park or their respective officers, trustees, directors, affiliates, advisors or other representatives can give you any assurance that actual results will not differ materially from this unaudited prospective financial information.

The Chesapeake Financial Forecasts and the Chesapeake-Prepared Park Financial Forecasts include certain non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as presented in this proxy statement/prospectus may not be comparable to similarly titled amounts used by Chesapeake, Park or other lodging REITs. These non-GAAP financial measures are useful to investors and management in understanding current profitability levels and liquidity that may serve as a basis for evaluating future performance and facilitating comparability of results. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Chesapeake may not be comparable to similarly titled amounts used by other companies. The non-GAAP financial measures used in the forecasts were relied upon by J.P. Morgan for purposes of its respective financial analyses and opinion and by the Chesapeake Board in connection with its consideration of the Merger. Financial measures provided to a financial advisor are not subject to SEC rules which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Accordingly, no such reconciliations have been provided, although the footnotes to the tables below provide certain supplemental information with respect to the calculation of these non-GAAP financial measures.

Neither Ernst & Young LLP (Chesapeake’s and Park’s independent registered public accounting firm) nor any other independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, neither Ernst & Young LLP nor any other independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information. The Ernst & Young LLP reports incorporated by reference in this proxy statement/prospectus relate only to the historical financial information of Chesapeake and Park, respectively. Those reports do not extend to the Chesapeake Management Forecasts or to the Park 2019 Prospective Financial Information and should not be read to do so. The Chesapeake Management Forecasts were prepared by Chesapeake solely for use by Chesapeake’s Board in connection with its consideration of Chesapeake’s strategic alternatives, J.P. Morgan in connection with its financial analysis and opinion and, with respect to the Chesapeake 2019 Hotel Operations Forecasts and the Chesapeake Projected Synergies, by Park and its financial advisors in their consideration of the Merger. Such forecasts are subjective in many respects.

By including in this proxy statement/prospectus the Chesapeake Management Forecasts below, none of Chesapeake, Park or any of their respective representatives has made or makes any representation to any person regarding the ultimate performance of Chesapeake or Park compared to the information contained in such forecasts. Further, the inclusion of the Chesapeake Management Forecasts in this proxy statement/prospectus does not constitute an admission or representation by Chesapeake or Park that this information is material. The financial forecasts summarized in this section reflected the best estimates, judgments and assumptions available to Chesapeake’s management at the time they were prepared and have not been updated to reflect any changes since the dates the Chesapeake Management Forecasts were prepared. Neither Chesapeake nor Park undertakes any obligation, except as required by law, to update or otherwise revise the Chesapeake Management Forecasts or to the Park 2019 Prospective Financial Information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

The Chesapeake Financial Forecasts and the Chesapeake-Prepared Park Financial Forecasts should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Chesapeake and Park contained in Chesapeake’s and Park’s public filings with the SEC.

 

71


Table of Contents

The below summary of the Chesapeake Management Forecasts is not included to influence the voting decision of any Chesapeake shareholder on the Merger Proposal or any other matter to be voted upon at the Chesapeake Special Meeting. Such information is included in this proxy statement/prospectus for the purpose of providing Chesapeake’s shareholders access to certain non-public information that was furnished to the Chesapeake Board, representatives of J.P. Morgan and, in the case of the Chesapeake 2019 Hotel Operations Forecasts and the Chesapeake Projected Synergies, to Park and its financial advisors in connection with the Merger, and such information may not be appropriate for other purposes.

Chesapeake Financial Forecasts

The following table presents a summary of the Chesapeake Financial Forecasts prepared by Chesapeake’s management. The Chesapeake Financial Forecasts were reviewed with Chesapeake’s Board. The Chesapeake Financial Forecasts were also provided to representatives of J.P. Morgan and approved by Chesapeake for use in connection with J.P. Morgan’s financial analysis and fairness opinion rendered to Chesapeake’s Board (summarized in the section entitled “—Opinion of Chesapeake’s Financial Advisor” beginning on page 62 of this proxy statement/prospectus). Amounts in millions.

 

       2019E        2020E        2021E        2022E        2023E  

Total Revenue(1)

     $  604      $  614      $  623      $  635      $  648

Adjusted Corporate EBITDAre(2)

       178        179        181        185        189

Adjusted FFO available to common shareholders(3)

       143        147        149        155        161

Unlevered Free Cash Flow(4)

       142        141        142        146        150

 

(1)

Total revenue projections assume no future acquisitions or dispositions of any of Chesapeake’s 20 hotels owned as of the date of the Merger Agreement and reflect, among other things, Chesapeake management’s projections for growth in room revenues per available room (“RevPAR”) for such hotels of 2.2%, 1.5%, 1.5%, 2.0% and 2.0% for 2019, 2020, 2021, 2022 and 2023, respectively.

(2)

Adjusted Corporate EBITDAre is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Chesapeake calculates Adjusted Corporate EBITDAre as EBITDAre, calculated in accordance with standards established by the NAREIT as net income (calculated in accordance with GAAP) before interest, income taxes, depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, and adjustments for unconsolidated partnerships and joint ventures, further adjusted for hotel acquisition costs and non-cash amortization of operating lease right-of-use assets, intangible assets and liabilities, deferred franchise costs, and deferred key money, all of which are recurring items.

(3)

Adjusted funds from operations, or FFO, available to common shareholders is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Chesapeake calculates Adjusted FFO available to common shareholders in accordance with standards established by NAREIT as net income (calculated in accordance with GAAP), excluding depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, adjustments for unconsolidated partnerships and joint ventures, and the cumulative effect of changes in accounting principles, further adjusted for dividends declared on and earnings allocated to unvested time-based awards (consistent with adjustments required by GAAP in reporting net income available to common shareholders and related per share amounts), and hotel acquisition costs and non-cash amortization of operating lease right-of-use assets, intangible assets and liabilities, deferred franchise costs, and deferred key money, all of which are recurring items.

(4)

Unlevered free cash flow is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Chesapeake’s unlevered free cash flow is defined as Adjusted Corporate EBITDAre, less income tax expense, capital expenditures, and plus or less certain balance sheet changes. Unlevered free cash flows for Chesapeake were arithmetically derived by representatives of J.P. Morgan from the Chesapeake

 

72


Table of Contents
  Financial Forecasts prepared and provided by Chesapeake’s management to J.P. Morgan and approved by Chesapeake for use by J.P. Morgan.

Chesapeake-Prepared Park Financial Forecasts

The following table presents a summary of the Chesapeake-Prepared Park Financial Forecasts prepared by Chesapeake’s management. The Chesapeake-Prepared Park Financial Forecasts were reviewed with Chesapeake’s Board. The Chesapeake-Prepared Park Financial Forecasts were also provided to representatives of J.P. Morgan and approved by Chesapeake for use in connection with J.P. Morgan’s financial analysis and fairness opinion rendered to Chesapeake’s Board (summarized in the section entitled “—Opinion of Chesapeake’s Financial Advisor” beginning on page 62 of this proxy statement/prospectus). Amounts in millions.

 

     2019E(1)      2020E(2)      2021E      2022E      2023E  

Total Revenue(3)

   $  2,730      $  2,716      $  2,764      $  2,827      $  2,891  

EBITDAre(4)

     767        767        786        810        833  

FFO available to common stockholders(5)

     614        612        633        669        695  

Unlevered Free Cash Flow(6)

     547        547        563        582        600  

 

(1)

Chesapeake’s projections for Park’s 2019 results assume no Adjusted Corporate EBITDAre contribution for Park’s period of ownership of (i) the Pointe Hilton Squaw Peak, which was sold in January 2019 for approximately $51 million or (ii) the Hilton Nuremberg, which was sold in March 2019 for approximately $18 million.

(2)

Chesapeake’s projections for 2020 reflect the projected loss of $10 million in EBITDAre associated with the release of ownership of 466 keys at the Hilton Waikoloa Village, which Park expects to release at the end of December 2019.

(3)

Except as described in footnote (2) above, Chesapeake management’s projections of Park’s total revenue assume no future acquisitions or dispositions of any of the hotels owned as of the date of the Merger Agreement and reflect, among other things, Chesapeake management’s projections for growth in Park’s RevPAR for such hotels of 5.3%, 2.0%, 2.0%, 2.5% and 2.5% for 2019, 2020, 2021, 2022 and 2023, respectively.

(4)

EBITDAre is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Chesapeake management calculated EBITDAre for Park in accordance with standards established by NAREIT as net income (calculated in accordance with GAAP) before interest, income taxes, depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, and adjustments for unconsolidated partnerships and joint ventures.

(5)

Fund from operations, or FFO, available to common stockholders is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Chesapeake management calculated FFO available to common stockholders for Park in accordance with standards established by NAREIT as net income (calculated in accordance with GAAP), excluding depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, adjustments for unconsolidated partnerships and joint ventures, and the cumulative effect of changes in accounting principles, further adjusted for noncontrolling interests (consistent with adjustments required by GAAP in reporting net income available to common stockholders and related per share amounts).

(6)

Unlevered free cash flow is a non-GAAP financial measure and should not be considered as an alternative to net income as a measure of operating performance or cash flow from operating activities or as a measure of liquidity. Park’s unlevered free cash flow is defined as EBITDAre, less income tax expense, capital expenditures, noncontrolling interests, and plus or less certain balance sheet changes. Unlevered free cash flows for Park were arithmetically derived by representatives of J.P. Morgan from the Chesapeake-Prepared Park Financial Forecasts prepared and provided for, and approved by Chesapeake for use by, J.P. Morgan.

 

73


Table of Contents

Interests of Chesapeake’s Trustees and Named Executive Officers in the Merger

In considering the recommendation of the Chesapeake Board to approve the Merger Proposal and the Chesapeake Compensation Proposal, Chesapeake’s shareholders should be aware that Chesapeake’s trustees and named executive officers have interests in the Merger that may be different from, or in addition to, the interests of Chesapeake’s shareholders generally and that may present actual or potential conflicts of interests. The Chesapeake Board was aware of these interests and considered them, among other matters, in declaring advisable and approving the Merger on the terms and conditions set forth in Merger Agreement. These interests are discussed below.

Accelerated Vesting of Chesapeake Restricted Share Awards

Immediately prior to the Effective Time, each of the outstanding Chesapeake time-based and performance-based share awards will automatically vest in full, contingent upon the consummation of the Merger, and the holders of the awards will have the right to receive the Merger Consideration with respect to all of the underlying Chesapeake common shares (less required withholdings).

As of the date of this proxy statement/prospectus, Chesapeake’s named executive officers and trustees held unvested time-based and performance-based restricted share awards relating to the following numbers of Chesapeake common shares:

 

Name

   Time-Based
Shares
     Performance-Based
Shares
 

James L. Francis

     102,772        527,462  

Douglas W. Vicari

     41,760        214,360  

D. Rick Adams

     41,760        214,360  

Graham J. Wootten

     23,326        119,835  

Thomas A. Natelli

     3,454        —    

Thomas D. Eckert

     2,669        —    

John W. Hill

     2,669        —    

Jeffrey D. Nuechterlein

     2,669        —    

Angelique G. Brunner

     2,669        —    

In addition, Chesapeake will pay each holder of a Chesapeake performance-based share award an amount in cash equal to all accrued and unpaid cash dividends in respect of such award, in accordance with the restricted share award agreement pursuant to which such award was granted (less required withholdings).

Employment Agreements; Potential Payments Upon Termination Following Completion of the Merger

Chesapeake is party to employment agreements with Messrs. Francis, Vicari, Adams and Wootten, Chesapeake’s “named executive officers.” Each of these executives is entitled to receive severance benefits under the agreements if there is a change in control during the term of the agreements and the executive resigns for good reason or is terminated without cause within 12 months following such change in control. For these purposes, the term “good reason” generally refers to termination due to a material diminution of authority, duties or responsibilities, relocation beyond fifty (50) miles from Chesapeake’s address, or a material reduction in base salary and other compensation other than as a result of the Chesapeake’s failure to achieve performance targets, and the term “cause” generally refers to termination due to fraud, misappropriation or embezzlement, the conviction of any felony, breach of fiduciary duties, gross negligence in the performance of assigned duties, any act or omission that has a demonstrated and material adverse impact on Chesapeake’s reputation, or the breach of any material term of the employment agreement.

Under the employment agreements, if the Merger is completed and, at the time of closing or within 12 months thereafter, the executive is terminated without cause or resigns for good reason, each of the executives is

 

74


Table of Contents

entitled to receive (i) any accrued but unpaid salary and bonuses under Chesapeake’s then-current annual cash bonus plan, (ii) reimbursement for any outstanding reasonable business expense, (iii) vesting as of the executive’s last day of employment of any unvested restricted shares previously granted to the executive, including accrued and unpaid dividends on the shares so vesting, if applicable, (iv) continued life and health insurance as described below, and (v) a severance payment calculated as described below.

The severance payment payable to each named executive officer is equal to (i) three times (for Messrs. Francis, Vicari and Adams), or two times (for Mr. Wootten), his then-current salary, which amount will be paid to the executive over 36 months (for Messrs. Francis, Vicari and Adams) or over 24 months (for Mr. Wootten) in approximately equal installments on Chesapeake’s regularly scheduled payroll dates, plus (ii) three times (for Messrs. Francis, Vicari and Adams), or two times (for Mr. Wootten), the greater of (1) the average of all bonuses paid to the executive during the preceding 36 months and (2) the most recent bonus paid to the executive, which amount will be paid to the executive in a lump sum within 60 days following the end of the fiscal year in which the executive’s termination of employment occurs. In addition, Chesapeake will continue to pay for the executive’s life and health insurance coverage for a period of 36 months (for Messrs. Francis, Vicari and Adams), or 24 months (for Mr. Wootten), following termination of employment to the same extent that Chesapeake paid for such coverage immediately prior to such termination. If any such insurance coverage becomes unavailable during the 36 month or 24 month severance period, as applicable, then Chesapeake will be obligated only to pay to the executive an amount which, after reduction for income and employment taxes, is equal to the employer premiums for such insurance for the remainder of the applicable severance period.

None of the employment agreements requires that Chesapeake make any “gross up” payments to compensate the executive for additional taxes, if any, imposed under Section 4999 of the Code for receipt of excess parachute payments in the event of a termination or resignation following a change in control; however, each agreement provides that if (in the determination of a nationally recognized accounting firm engaged by Chesapeake to analyze this issue) such excise taxes may be imposed as a result of payments made to any executive in the event of a future change in control, the amount of such payments to such executive will be reduced to a level that will not exceed the amount that would trigger such excise taxes, if such reduction would put the executive in a better after-tax position. Severance payments will be subject to the executive signing a general release. The employment agreements include certain restrictive covenants in favor of Chesapeake, including a non-disclosure of proprietary information covenant, non-competition and non-solicitation covenants that run for 24 months (for Messrs. Francis, Vicari and Adams), or 12 months (for Mr. Wootten), following termination of employment, and a non-disparagement covenant.

Payment of 2019 Bonuses

Each of Chesapeake’s named executive officers is entitled to receive non-equity incentive plan compensation under Chesapeake’s 2019 annual cash bonus plan. Park will determine the amount of payouts for each named executive officer in Park’s discretion, provided that such payouts will not be less than the respective amounts paid by Chesapeake to each named executive officer in respect of Chesapeake’s 2018 annual cash bonus plan. The amount of any 2019 annual cash bonus due to any named executive officer whose service is terminated by Park or the Surviving Entity without “cause” or by the executive for “good reason” prior to December 31, 2019 will be pro-rated based on 2019 service through the termination date.

Payment of Trustee Compensation

Chesapeake expects to continue its practice of paying quarterly retainer fees to its non-employee trustees in accordance with its customary trustee compensation program. Due to the pending Merger, the full amount of such retainers will be paid to each trustee in cash. In addition, because Chesapeake does not expect to hold an annual meeting of shareholders during 2019, Chesapeake will not make any further restricted share awards to its non-employee trustees. Instead, Chesapeake expects to pay each non-employee trustee a cash amount equal to the value of the share-based compensation component of its non-employee trustee compensation program previously reported in Chesapeake’s most recent proxy statement, with such payment made immediately prior to, and pro-rated for time served on the Chesapeake Board through, the Effective Time.

 

75


Table of Contents

Directors of Park after the Merger

Immediately following the Effective Time, the size of the Park Board will be increased to 10 members, with the eight current Park directors, Thomas J. Baltimore, Jr., Gordon M. Bethune, Patricia M. Bedient, Geoffrey M. Garrett, Christie B. Kelly, Sen. Joseph I. Lieberman, Timothy J. Naughton and Stephen I. Sadove, continuing as members of the Park Board, and Thomas A. Natelli and Thomas D. Eckert joining the Park Board, each to serve until the 2020 annual meeting of the stockholders of Park (and until his or her successor qualifies and is duly elected). Mr. Natelli has served as non-executive Chairman of the Chesapeake Board and Mr. Eckert has served as a trustee on the Chesapeake Board, in each case since Chesapeake’s initial public offering in 2010. Following the Merger, Thomas J. Baltimore, Jr. will continue to serve as Chairman of the Park Board and Gordon M. Bethune will continue to serve as Lead Independent Director of the Park Board. See “The Merger Agreement—The Park Board Following the Merger” on page 85 for more information.

Indemnification of Chesapeake Trustees and Named Executive Officers

The Merger Agreement provides that for a period of six years following the Effective Time, each of Park and the Surviving Entity will indemnify and hold harmless each individual who at the Effective Time is, or at any time prior to the Effective Time was, a manager, director, officer, trustee or fiduciary of Chesapeake or any of its subsidiaries and acting in such capacity , which persons we refer to as the indemnified persons, to the fullest extent authorized or permitted under applicable law, for any and all costs and expenses (including reasonable fees and expenses of legal counsel), judgments, claims, awards, losses, damages, penalties or liabilities (including amounts paid in settlement) imposed upon or reasonably incurred by such indemnified person, in connection with any action, suit, arbitration or other proceedings (whether civil or criminal) in which such indemnified person may be involved or with which he may be threatened (regardless of whether as a named party or as a participant other than as a named party, including as a witness) with respect to matters occurring on or before the Effective Time, subject to certain limitations set forth in the Merger Agreement.

The parties have agreed not to modify the obligations described above regarding indemnification of indemnified persons in such a manner as to adversely affect such indemnified persons, and such obligations must be assumed by any successor entity to the Surviving Entity as a result of any consolidation or merger or transfer or conveyance of all or substantially all of its properties and assets.

The Merger Agreement also provides that, prior to the Effective Time, Chesapeake will obtain and fully pay the premium for, and Park will cause to be maintained in full force and effect (and the obligations under to be honored) during the six-year period beginning on the date the Merger is completed, a “tail” prepaid insurance policy or policies from Chesapeake’s current insurance carrier (or an insurance carrier with the same or better credit rating) with a claims period of six years from the Effective Time for the benefit of the indemnified persons with respect to directors’ and officers’ liability, employment practices liability and errors and omissions liability insurance for claims arising from facts or events that occurred on or prior to the Effective Time. The “tail” policy is required to provide at least the same coverage and amounts and contain terms and conditions, retentions and limits of liability that are no less favorable than Chesapeake’s and its subsidiaries’ existing policy or policies, subject to a maximum aggregate premium amount equal to 300% of the most recent aggregate annual premiums paid by Chesapeake, which we refer to as the maximum premium. If Chesapeake is unable to obtain the “tail” policy for an amount equal to or less than the maximum premium, Chesapeake will be entitled to obtain as much comparable “tail” insurance as reasonably available for an aggregate cost equal to the maximum premium.

Additionally, pursuant to the Merger Agreement, for a period of six years from the Effective Time, the Surviving Entity is required to fulfill and honor in all respects the obligations of the Surviving Entity pursuant to specified agreements in effect as of the date of the Merger Agreement between Chesapeake and any indemnified person, and any indemnification provision (including advancement of expenses) and any exculpation provision set forth in Chesapeake’s or Chesapeake’s subsidiaries’ organizational documents as in effect on the date of the Merger Agreement.

 

76


Table of Contents

“Golden Parachute” Compensation

The following table sets forth the information required by Item 402(t) of Regulation S-K promulgated by the SEC regarding certain compensation that each of Chesapeake’s named executive officers may receive that is based on or otherwise relates to the Merger. This compensation is referred to as “golden parachute” compensation in Item 402(t) of Regulation S-K. This compensation payable to Chesapeake’s named executive officers is subject to a non-binding advisory vote of holders of Chesapeake common shares as described above under the section entitled “Proposals Submitted to Chesapeake Shareholders—Chesapeake Compensation Proposal.” For additional details regarding the terms of the payments quantified below, see the sections entitled “—Accelerated Vesting of Chesapeake Restricted Share Awards” and “—Employment Agreements; Potential Payments Upon Termination Following Completion of the Merger” above.

 

Name

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

James L. Francis

   $ 6,874,647      $ 19,217,801      $ 58,425      $ 2,020,387      $ 28,171,260  

Douglas W. Vicari

     3,364,437        7,809,898        288        829,865        12,004,488  

D. Rick Adams

     3,364,437        7,809,898        58,425        829,865        12,062,625  

Graham J. Wootten

     1,495,774        4,365,426        38,950        478,803        6,378,953  

 

(1)

Amounts reported in this column report the severance amounts payable to each named executive officer under his employment agreement. The severance amounts constitute “double-trigger” arrangements because they are conditioned upon both the closing of the Merger and a qualifying termination of the applicable executive’s employment within 12 months following the Merger.

(2)

Amounts reported in this column report the dollar value that may be realized by each named executive officer in connection with the accelerated vesting of time-based restricted share awards (Mr. Francis: 102,772 shares, or $3,133,839; Mr. Vicari and Mr. Adams: 41,760 shares, or $1,273,393; and Mr. Wootten: 23,326 shares, or $711,283) and performance-based restricted share awards (Mr. Francis: 527,462 shares, or $16,083,962; Mr. Vicari and Mr. Adams: 214,360 shares, or $6,536,505; and Mr. Wootten: 119,835 shares, or $3,654,143). These dollar values have been determined by multiplying the aggregate number of Chesapeake common shares underlying such awards by the assumed value of the Merger Consideration payable in respect of such shares. Such assumed value has been calculated in accordance with instructions to Item 402(t) as the sum of $11.00 plus the product of 0.628, the exchange ratio for the stock component of the Merger Consideration, multiplied by $31.04, the average closing market price of a share of Park common stock over the first five business days following the first public announcement of the transaction, which occurred prior to the opening of the market on May 6, 2019. The amounts reported in this column represent “single-trigger” arrangements because they are conditioned solely upon the closing of the Merger.

(3)

Amounts reported in this column are estimates of the cash payments to be made on behalf of each named executive officer under his employment agreement, based on the annual premiums historically paid by Chesapeake, in respect of life and health insurance coverage for a period of 36 months (for Messrs. Francis, Vicari and Adams), or 24 months (for Mr. Wootten), following termination of employment following the Merger. If any such insurance coverage becomes unavailable during the 36 month or 24 month period, as applicable, then the payments for the remaining portion of the applicable period will be made to the executive and grossed up for taxes in accordance with the terms of each executive’s employment agreement. These amounts constitute “double-trigger” arrangements because they are conditioned upon both the closing of the Merger and a qualifying termination of the applicable executive’s employment within 12 months following the Merger.

(4)

Amounts reported in this column report the payouts to each named executive officer of (i) 2019 annual cash bonuses assuming performance at levels equal to the bonuses earned by each named executive officer for 2018 in each case, prorated to assume service through July 25, 2019, the latest practicable date prior to the date of this proxy statement/prospectus (Mr. Francis: $841,830; Mr. Vicari: $350,763; Mr. Adams: $350,763; and Mr. Wootten: $210,458); and (ii) the amount of accrued but unpaid dividends on performance-based restricted shares held by each named executive officer that will vest in full upon completion of the Merger, assuming for this purpose that Chesapeake’s last dividend prior to completion of

 

77


Table of Contents
  the Merger was the regular quarterly dividend paid on July 15, 2019 in the amount of $0.40 per share (Mr. Francis: $1,178,557; Mr. Vicari: $479,102; Mr. Adams: $479,102; and Mr. Wootten: $268,345). The amounts reported in this column represent “single-trigger” arrangements because they are conditioned solely upon the closing of the Merger.
(5)

The amounts reported in this column do not give effect to any potential reduction in payments to a named executive officer that may occur following a determination by the nationally recognized accounting firm engaged by Chesapeake that the amount of payments to such executive should be reduced to avoid the triggering certain excise taxes, as described above under “—Employment Agreements; Potential Payments Upon Termination Following Completion of the Merger.” Accordingly, there can be no assurance that any of Chesapeake’s named executive officers will realize the full amounts reported in this column.

No Change of Control Payments to Park Named Executive Officers

None of Park’s named executive officers will receive any type of “golden parachute” compensation that is based on or otherwise related to the Merger.

Park’s Reasons for the Merger

The Park Board has approved and adopted the Merger Agreement. In evaluating the Merger, the Park Board consulted with Park’s management, as well as with Park’s legal and financial advisors, and, in reaching its conclusions, the Park Board considered, among other things, the following material factors:

 

   

the transaction would combine complementary portfolios of luxury and upper upscale-branded hotels by adding Chesapeake’s high quality, well-maintained portfolio;

 

   

the combined portfolio would have increased geographic diversity (including increased exposure to the San Francisco market, reduced exposure to the Hawaii market, and penetration into Miami Beach, Downtown Los Angeles, Boston, San Diego and Denver, which are core submarkets for Park);

 

   

the combined portfolio also would diversify Park’s brand and operator mix, providing exposure to Marriott, Hyatt and IHG brands and adding eight new operators (including Marriott and Hyatt);

 

   

with a total enterprise value of approximately $12 billion (as of signing of the Merger Agreement), the combined company would solidify Park’s position as the second-largest publicly traded lodging REIT and create a strong and flexible financial platform for greater and more cost-effective access to both equity and debt capital markets and enhanced liquidity to execute on other strategic initiatives in the future;

 

   

Park’s disciplined approach to asset management would be applied to the combined company’s assets to continue to drive accretive growth and pursuit of opportunities to enhance value (including meeting space expansions and additional keys);

 

   

with 66 hotels (taking into account the sale by Park of three non-core hotel properties completed in June 2019 and assuming the sale by Chesapeake of the New York Disposition Properties, which are currently under contract to be sold, is consummated prior to the completion of the Merger pursuant to the Merger Agreement) and approximately 35,000 guest rooms in 17 states and Washington, D.C., the combined portfolio would benefit from enhanced scale and provide enhanced negotiating leverage with brands, managers and vendors;

 

   

the combined company is expected to generate cost savings through the elimination of duplicative general and administrative costs and functions resulting from the combination of similar portfolios with similar strategies, and achieve near-term revenue and expense synergies; and

 

   

the transaction is expected to be accretive to Adjusted FFO per share in 2020 and beyond.

The foregoing discussion of the reasons considered by the Park Board is not intended to be exhaustive and is not provided in any specific order or ranking. The Park Board did not assign relative weights to the above reasons or the other reasons considered by it. Further, individual members of the Park Board may have given different weight to different reasons.

 

78


Table of Contents

The explanation and reasoning of the Park Board is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Forward-Looking Statements” beginning on page 40.

Security Ownership of Chesapeake Trustees and Named Executive Officers and Current Beneficial Owners

The following table sets forth certain information, as of July 25, 2019, regarding the ownership of Chesapeake common shares by (i) each of Chesapeake’s trustees, (ii) each of Chesapeake’s named executive officers, (iii) each holder of 5% or more of the Chesapeake common shares and (iv) all of Chesapeake’s trustees and named executive officers as a group.

In accordance with SEC rules, each listed person’s beneficial ownership includes (i) all Chesapeake common shares the investor actually owns beneficially or of record, (ii) all Chesapeake common shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund) and (iii) all Chesapeake common shares the investor has the right to acquire within 60 days (such as restricted shares which are scheduled to vest within 60 days).

Unless otherwise indicated, the address of each named person is c/o Chesapeake Lodging Trust, 4300 Wilson Boulevard, Suite 625, Arlington, Virginia 22203.

 

 Beneficial Owner

   Common
Shares Owned
     Percentage(1)  

 James L. Francis(2)

     1,131,510        1.9

 Douglas W. Vicari(3)

     649,144        1.1

 D. Rick Adams(4)

     424,717        *  

 Graham J. Wootten(5)

     206,128        *  

 Thomas A. Natelli

     151,384        *  

 Thomas D. Eckert

     40,154        *  

 John W. Hill

     26,154        *  

 Jeffrey D. Nuechterlein

     14,654        *  

 Angelique Brunner

     4,274        *  

 All trustees and executive officers as a group (9 persons)(2), (3), (4), (5)

     2,648,119        4.4

 The Vanguard Group(6)

     9,406,681        15.5

 Goldman Sachs Asset Management(7)

     5,987,450        9.9

 BlackRock, Inc.(8)

     10,486,206        17.3

 

*

Represents less than 1% of the common shares outstanding as of the date of filing.

(1)

Percentages are based on 60,765,796 common shares outstanding as of July 25, 2019.

(2)

Includes 102,772 common shares underlying outstanding time-based share awards and 527,462 common shares underlying outstanding performance-based share awards that will vest in full upon completion of the Merger.

(3)

Includes 41,760 common shares underlying outstanding time-based share awards and 214,360 common shares underlying outstanding performance-based share awards that will vest in full upon completion of the Merger.

(4)

Includes 41,760 common shares underlying outstanding time-based share awards and 214,360 common shares underlying outstanding performance-based share awards that will vest in full upon completion of the Merger.

(5)

Includes 23,326 common shares underlying outstanding time-based share awards and 119,835 common shares underlying outstanding performance-based share awards that will vest in full upon completion of the Merger.

(6)

On February 11, 2019, The Vanguard Group filed a Schedule 13G/A to report beneficial ownership of an aggregate of 9,406,681 common shares, of which it has sole voting power for 110,827 shares, shared voting

 

79


Table of Contents
  power for 67,310 shares, sole dispositive power for 9,286,732 shares and shared dispositive power for 119,949 shares. The address for this shareholder is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
(7)

On February 4, 2019, Goldman Sachs Asset Management, L.P. and GS Investment Strategies, LLC jointly filed a Schedule 13G/A to report beneficial ownership of 5,987,450 common shares, of which it has shared voting power for 5,740,709 shares and shared dispositive power for all 5,987,450 shares. The address for this shareholder is 200 West Street, New York, New York 10282.

(8)

On January 24, 2019, BlackRock, Inc. filed a Schedule 13G/A to report beneficial ownership of 10,486,206 common shares, of which it has sole voting power for 10,304,280 shares and sole dispositive power for all 10,486,206 shares. The address for this shareholder is 55 East 52nd Street, New York, New York 10055.

Regulatory Approvals Required for the Merger

Park and Chesapeake are not aware of any material federal or state regulatory requirements (including any mandatory waiting period) that must be complied with, or regulatory approvals that must be obtained, in connection with the Merger or the other transactions contemplated by the Merger Agreement.

Material U.S. Federal Income Tax Consequences of the Merger

Assuming that the Merger is completed as currently contemplated, Park and Chesapeake expect that the receipt of the Merger Consideration by Chesapeake shareholders in exchange for their Chesapeake common shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. Generally, for U.S. federal income tax purposes, Chesapeake shareholders will recognize gain or loss as a result of the Merger measured by the difference, if any, between (i) the fair market value of shares of Park common stock and the amount of any cash received in the Merger and (ii) the holder’s adjusted tax basis in the Chesapeake common shares exchanged. Park and Chesapeake anticipate that the Merger will have no material U.S. federal income tax consequences to Park stockholders who do not own any Chesapeake common shares.

The tax consequences to you of the Merger will depend on your situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the tax consequences of the Merger to Chesapeake shareholders, please see “Material U.S. Federal Income Tax Considerations” beginning on page 113.

Accounting Treatment of the Merger

Park prepares its financial statements in accordance with GAAP. The Merger will be accounted for by applying the acquisition method of accounting, which requires the identification of the acquirer, the determination of the acquisition date, the recognition and measurement, at fair value, of the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the consolidated subsidiaries of the acquiree and recognition and measurement of goodwill or a gain from a bargain purchase.

Exchange of Shares

Prior to the mailing of this proxy statement/prospectus, Park will appoint a bank or trust company reasonably satisfactory to Chesapeake to act as exchange agent in connection with the Merger to handle the payment and delivery of the Merger Consideration.

At or before the Effective Time, Domestic shall deposit, or cause to be deposited, with the exchange agent an amount of shares of Park common stock in book-entry form issuable pursuant to the terms of Merger Agreement equal to the aggregate Common Stock Consideration and cash in immediately available funds in an amount sufficient to pay the aggregate Fractional Share Consideration and the aggregate cash portion of the Merger Consideration.

 

80


Table of Contents

As soon as possible after the Effective Time, but, in any event, no later than three business days thereafter, Park shall cause the exchange agent to mail (and to make available for collection by hand) to each holder of record of a Chesapeake common share certificate or certificates (or affidavits of loss in lieu thereof), if any, that immediately prior to the Effective Time evidenced outstanding Chesapeake common shares whose shares were converted into the right to receive the Merger Consideration pursuant to the terms of the Merger Agreement, a letter of transmittal and instructions for use in effecting the surrender of Chesapeake common share certificates (or affidavits of loss in lieu thereof) to the exchange agent in exchange for the Merger Consideration, together with any amounts payable in respect of any dividends or other distributions on shares of Park common stock in accordance with the terms of the Merger Agreement.

No fractional shares of Park common stock will be issued upon the conversion of Chesapeake common shares. The value of any fractional shares of Park common stock to which a holder of Chesapeake common shares would otherwise be entitled will be paid as Fractional Share Consideration.

Any shares of Park common stock and any funds that will be deposited with the exchange agent for the payment of the Merger Consideration that remain undistributed to Chesapeake shareholders as of the twelve month anniversary of the Effective Time will be delivered to Park, upon demand. Thereafter, former holders of Chesapeake common shares will be entitled to look only to Park (subject to abandoned property, escheat or other similar laws) as general creditors thereof for payment of the Merger Consideration that may be payable in respect of any Chesapeake common shares held by such holders, pursuant to and in accordance with the Merger Agreement, without any interest thereon. Any amounts remaining unclaimed by such holders as of the date on which the Merger Consideration would otherwise escheat to or become property of any governmental authority shall become, to the extent permitted by applicable law, the property of Park, free and clear of all claims or interest of any such holders previously entitled thereto.

The share transfer books of Chesapeake will be closed from and after the Effective Time and after the Effective Time there will be no further registration of transfers of any Chesapeake common shares.

Dividends

Prior to the closing of the Merger, Chesapeake shall be permitted to authorize and pay quarterly distributions at a rate not in excess of $0.40 per share and cause each of its subsidiary REITs to authorize and pay any dividends required by the terms of their preferred shares, and Park shall be permitted to authorize and pay quarterly distributions at a rate not in excess of $0.45 per share and cause its subsidiary REIT to authorize and pay any dividends required by the terms of its preferred shares. Both parties shall also be permitted (without the consent of the other) to declare and pay a dividend distributing any amounts determined by such party in good faith to be the minimum dividend required to be distributed in order for Chesapeake, Park or any of their respective REIT subsidiaries, as applicable, to maintain their status as a REIT under the Code and to avoid the incurrence of any entity-level income or excise taxes. In the event Chesapeake or any of its REIT subsidiaries declares a dividend prior to the closing date pursuant to the immediately preceding sentence, the Merger Consideration shall be decreased by an amount equal to such dividend, and in the event Park sets a record date that is on or prior to the closing date for a dividend pursuant to the immediately preceding sentence, the Merger Consideration shall be increased by an amount equal to the amount of such dividend.

Any dividend on Chesapeake common shares that has a record date prior to the Effective Time but has not been paid as of the Effective Time shall be paid by Chesapeake on the closing date of the Merger immediately prior to the Effective Time to the holders of record as of the applicable record date.

Listing of Park Common Stock

It is a condition to each party’s obligation to complete the Merger that the shares of Park common stock issuable in connection with the Merger be approved for listing on the NYSE, subject to official notice of

 

81


Table of Contents

issuance. Park has agreed to use its reasonable best efforts to have the application for the listing of the Park common stock accepted by the NYSE as promptly as is practicable following submission of the NYSE listing application.

Delisting and Deregistration of Chesapeake Common Shares

After the Merger is completed, the Chesapeake common shares currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Financing Arrangements

Park and Chesapeake estimate that the total amount of funds required to complete the Merger and related transactions, including the payment of the Cash Consideration, and pay related fees and expenses will be approximately $1.2 billion. Park expects the portion of this amount that is not funded with cash from the balance sheet will be financed with the proceeds of the Term Facility.

Contemporaneously with the execution of the Merger Agreement, PIH and Domestic entered into the Commitment Letter with Bank of America, N.A. and BofA Merrill Lynch providing a $1.1 billion financing commitment for the Term Facility to fund the Merger. The Term Facility includes the Two-Year Tranche and the Five-Year Tranche. The delayed draw feature permits not more than two drawings under each tranche within 90 days following the effectiveness of the Term Facility. Neither tranche includes any principal amortization requirements prior to the maturity date of such tranche.

Availability under the Two-Year Tranche will be reduced by the net cash proceeds from customary mandatory commitment reduction events resulting from issuances of equity, the incurrence of certain debt or the sale of certain assets, in each case subject to limited exceptions. Following the funding of any loans under the Two-Year Tranche, the same events that trigger commitment reductions will trigger mandatory prepayment events. The Five-Year Tranche does not contain such mandatory commitment reduction or prepayment events.

The funding of the Term Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to:

 

   

execution and delivery of definitive documentation with respect to the Term Facility in accordance with the terms set forth in the Commitment Letter;

 

   

consummation of the Merger in accordance with the Merger Agreement; and

 

   

the lack of any payment or bankruptcy default.

The commitments under the Commitment Letter expire on the Outside Date unless otherwise extended in writing by the parties. In addition, PIH may terminate the Commitment Letter in its discretion at any time prior to its expiration date.

In connection with the Merger Agreement, PIH received consent from Wells Fargo Bank, National Association, as administrative agent, and the majority lenders under its existing credit agreement to allow Park to enter into the Merger Agreement and certain related documentation without adhering to the requirement for it to become a guarantor under such existing credit agreement. In addition, PIH has entered into an amendment to its existing credit agreement to implement certain technical changes to reflect the corporate structuring contemplated by the Merger and the Term Facility.

 

82


Table of Contents

Litigation Relating to the Merger

Two purported shareholder class actions have been filed in the United States District Court for the District of Delaware captioned: Kent v. Chesapeake Lodging Trust, et al., No. 1:19-cv-01201 (D.Del.) (filed June 25, 2019) and Terlinden v. Chesapeake Lodging Trust, et al., No. 1:19-cv-01263 (D.Del.) (filed July 8, 2019). The complaint in each case alleges purported violations of the federal securities laws and names as defendants Chesapeake, the individual members of the Chesapeake Board, Park, Domestic and Merger Sub. The plaintiffs allege that Chesapeake and the individual defendants violated Section 14(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder, by providing inadequate disclosure regarding the proposed Merger in the registration statement. The plaintiffs also allege that the individual defendants, Park, Domestic and Merger Sub violated Section 20(a) of the Exchange Act. Plaintiffs seek, among other things, to enjoin or rescind the Merger, an award of damages in the event the Merger is consummated and an award of costs and attorneys’ fees.

Park and Chesapeake are reviewing the complaints and have not yet formally responded. Although the ultimate outcome of these actions cannot be predicted with certainty, Park and Chesapeake believe that these lawsuits are without merit and intend to defend against these actions vigorously.

Additional lawsuits arising out of the Merger may be filed in the future. If additional similar lawsuits are filed, absent new or different allegations that are material, neither Park nor Chesapeake will necessarily announce such additional filings.

 

83


Table of Contents

THE MERGER AGREEMENT

This section of this proxy statement/prospectus summarizes the material provisions of the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus and is incorporated herein by reference. As a Chesapeake shareholder, you are not a third-party beneficiary of the Merger Agreement and therefore, except as expressly provided in the Merger Agreement, you may not directly enforce any of its terms and conditions.

This summary may not contain all of the information about the Merger Agreement that is important to you. Chesapeake and Park urge you to carefully read the full text of the Merger Agreement because it is the legal document that governs the Merger. The Merger Agreement is not intended to provide you with any factual information about Chesapeake or the Park Parties of any of their respective subsidiaries. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement (and summarized below) are qualified by certain information each of Chesapeake and Park filed with the SEC prior to the effective date of the Merger Agreement, as well as by certain disclosure letters each of Chesapeake and the Park Parties delivered to the other in connection with the signing of the Merger Agreement, that modify, qualify and create exceptions to certain representations and warranties set forth in the Merger Agreement. Some of those representations and warranties may not be accurate or complete as of any specified date, may apply contractual standards of materiality in a way that is different from what may be viewed as material by investors or that is different from standards of materiality generally applicable under the United States federal securities laws. Moreover, the representations and warranties are not intended as statements of fact, but rather as a way of allocating risk among the parties to the Merger Agreement. Accordingly, the representations and warranties and other provisions of the Merger Agreement and the description of such provisions in this document should not be read alone but instead should be read in conjunction with the other information contained in the reports, statements and filings that each of Chesapeake and Park file with the SEC and the other information in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 175.

Chesapeake and Park acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, each of them is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this proxy statement/prospectus not misleading.

Form, Effective Time and Closing of the Merger

The Merger Agreement provides for the acquisition of Chesapeake by Park through the merger of Chesapeake with and into Merger Sub, with Merger Sub continuing as the Surviving Entity and an indirect wholly-owned subsidiary of Domestic, upon the terms and subject to the conditions set forth in the Merger Agreement. The Merger will become effective at the Effective Time.

The Merger Agreement provides that the closing of the Merger will take place at 9:00 am (New York City time) on the date mutually agreed upon by Chesapeake and the Park Parties, but no later than the second business day after the satisfaction or valid waiver of the conditions to the closing of the Merger (described below under “—Conditions to Completion of the Merger”) (other than the conditions that by their terms are required to be satisfied at the closing, but subject to the satisfaction or, if permissible, the waiver of those conditions). If all other conditions to consummation of the Merger have been satisfied or validly waived by the party entitled to the benefit of such conditions to closing (other than those conditions that by their terms are required by their terms to be satisfied at the closing), but the sale of the New York Disposition Properties has not been completed, the closing of the Merger will be automatically extended to the earlier of (a) the date that is one business day after the date on which the sales of both New York Disposition Properties have been completed and (b) October 10, 2019.

 

84


Table of Contents

The Park Board Following the Merger

The parties have agreed to take all actions necessary so that, as of the Effective Time, the Park Board shall be increased by two members, with the eight current Park directors continuing as directors, and Thomas A. Natelli and Thomas D. Eckert joining the Park Board, each to serve until the 2020 annual meeting of the stockholders of Park (and until his or her successor qualifies and is duly elected). Following the Merger, Thomas J. Baltimore, Jr. will continue to serve as Chairman of the Park Board and Gordon M. Bethune will continue to serve as Lead Independent Director of the Park Board.

Merger Consideration; Effects of the Merger

Merger Consideration

At the Effective Time, by virtue of the Merger and without any action on the part of the Park Parties, Chesapeake or the holders of any securities of Merger Sub or Chesapeake, all membership interests of Merger Sub issued and outstanding as of immediately prior to the Effective Time shall remain issued and outstanding as the membership interest of the Surviving Entity. Each Chesapeake common share issued and outstanding as of immediately prior to the Effective Time, other than Chesapeake common shares owned by Chesapeake or any of its wholly owned subsidiaries or any of the Park Parties or any of their respective wholly owned subsidiaries, shall automatically be converted into the right to receive the Merger Consideration. No fractional shares of Park common stock will be issued. In lieu of fractional shares of Park common stock, Chesapeake shareholders will receive the Factional Share Consideration.

Procedures for Surrendering Chesapeake Common Share Certificates or Book-Entry Shares

The conversion of Chesapeake common shares into the right to receive the Merger Consideration will occur automatically at the Effective Time and without any action on the part of the Park Parties, Chesapeake or the holders of any securities of Chesapeake or Merger Sub. In accordance with the Merger Agreement, prior to the mailing of this proxy statement/prospectus, Park will appoint a bank or trust company reasonably satisfactory to Chesapeake to act as exchange agent in connection with the Merger to handle the payment and delivery of the Merger Consideration. At or before the Effective Time, Domestic shall deposit, or cause to be deposited, with the exchange agent an amount of shares of Park common stock in book-entry form issuable pursuant to the terms of Merger Agreement equal to the aggregate Common Stock Consideration and cash in immediately available funds in an amount sufficient to pay the aggregate Fractional Share Consideration and the aggregate Cash Consideration. Domestic shall deposit, or cause to be deposited, with the exchange agent, as necessary from time to time following the Effective Time, any dividends or other distributions, if any, to which a holder of Chesapeake common shares may be entitled pursuant to the terms of the Merger Agreement.

As soon as possible after the Effective Time, but, in any event, no later than three business days thereafter, Park shall cause the exchange agent to mail (and to make available for collection by hand) to each holder of record of a Chesapeake common share certificate or certificates (or affidavits of loss in lieu thereof), if any, that immediately prior to the Effective Time evidenced outstanding Chesapeake common shares whose shares were converted into the right to receive the Merger Consideration pursuant to the terms of the Merger Agreement, a letter of transmittal and instructions for use in effecting the surrender of Chesapeake common share certificates (or affidavits of loss in lieu thereof) to the exchange agent in exchange for the Merger Consideration, together with any amounts payable in respect of any dividends or other distributions on shares of Park common stock in accordance with the terms of the Merger Agreement.

Each Chesapeake shareholder that surrenders a share certificate (or affidavit of loss in lieu thereof) to the exchange agent together with a duly completed and validly executed letter of transmittal and such other documents as may reasonably be required by the exchange agent, and each Chesapeake shareholder that holds book-entry Chesapeake common shares, will, after the Effective Time, receive the Merger Consideration due to such common shareholder, together with any amounts payable in respect of any dividends or other distributions

 

85


Table of Contents

on shares of Park common stock in accordance with the terms of the Merger Agreement. Any holder of a book-entry share registered in the transfer books of Chesapeake shall not be required to deliver a certificate or an executed letter of transmittal to the exchange agent and shall automatically, upon the Effective Time, be entitled to receive the Merger Consideration due to such common shareholder. After the Effective Time, each certificate that previously represented Chesapeake common shares will only represent the right to receive the Merger Consideration into which those Chesapeake common shares have been converted.

Chesapeake Restricted Shares

Immediately prior to the Effective Time, each outstanding unvested Chesapeake common shares subject to either performance-based or time-based vesting conditions granted under the Chesapeake equity incentive plan shall automatically become one hundred percent vested and all restrictions and forfeiture conditions thereon shall lapse, contingent upon the consummation of the Merger, and thereafter such Chesapeake common shares shall be considered outstanding for all purposes of the Merger Agreement, and holders thereof shall only have the right to receive the Merger Consideration in the same manner as all other Chesapeake common shares. Chesapeake does not have any outstanding equity awards, other than the performance-based and time-based restricted shares referenced in the immediately preceding sentence.

Withholding

All payments under the Merger Agreement are subject to any withholding required under applicable tax law.

Dissenters’ Rights

No dissenters’ or appraisal rights, or rights of objecting shareholders will be available to holders of Chesapeake common shares with respect to the Merger or the other transactions contemplated by the Merger Agreement, including any remedy under Sections 3-201 et seq. of the MGCL.

Representations and Warranties

The Merger Agreement contains customary representations and warranties made by each of Chesapeake and the Park Parties that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement, in the Chesapeake or the Park Parties disclosure letter or in certain reports filed by Chesapeake or Park with the SEC on or after January 1, 2017 and at least two business days prior to the date of the Merger Agreement. In particular, certain of these representations and warranties are subject to materiality or “Chesapeake material adverse effect” or “Park material adverse effect” qualifications (as further described in the section entitled “—Definitions of ‘Chesapeake Material Adverse Effect’ and ‘Park Material Adverse Effect’” beginning on page 88 of this proxy statement/prospectus). In addition, certain of the representations and warranties in the Merger Agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which certain officers of Chesapeake or Park, as applicable, did not have actual knowledge.

Representations and Warranties of Chesapeake

The Merger Agreement includes representations and warranties by Chesapeake relating to, among other things:

 

   

valid existence, good standing and compliance with law;

 

   

due authorization, execution, delivery and validity of the Merger Agreement;

 

   

capital structure;

 

   

subsidiaries;

 

86


Table of Contents
   

absence of any conflict with or violation of organizational documents or applicable laws, and the absence of any violation or breach of, or default or consent requirements under, certain agreements;

 

   

SEC filings, financial statements and internal controls;

 

   

litigation;

 

   

absence of certain changes since December 31, 2018;

 

   

tax matters, including Chesapeake’s and two of its subsidiaries’ qualification as REITs;

 

   

real property matters;

 

   

environmental matters;

 

   

employee benefit plans;

 

   

labor and employment matters;

 

   

broker’s, finder’s and agent’s fees;

 

   

opinion of Chesapeake’s financial advisor;

 

   

Chesapeake shareholder vote required to approve the Merger;

 

   

material contracts;

 

   

related party transactions;

 

   

intellectual property matters, including data and privacy matters;

 

   

insurance;

 

   

accuracy of information supplied for inclusion in the proxy statement/prospectus and registration statement;

 

   

inapplicability of the Investment Company Act of 1940, as amended; and

 

   

exemption of the Merger from anti-takeover statutes.

Representations and Warranties of the Park Parties

The Merger Agreement includes representations and warranties by the Park Parties relating to, among other things:

 

   

valid existence, good standing and compliance with law;

 

   

due authorization, execution, delivery and validity of the Merger Agreement;

 

   

capital structure;

 

   

absence of any conflict with or violation of organizational documents or applicable laws, and the absence of any violation or breach of, or default or consent requirements under, certain agreements;

 

   

SEC filings, financial statements and internal controls;

 

   

litigation;

 

   

absence of certain changes since December 31, 2018;

 

   

tax matters, including qualification as a REIT;

 

   

real property matters;

 

   

environmental matters;

 

   

material contracts;

 

87


Table of Contents
   

insurance;

 

   

accuracy of information supplied for inclusion in the proxy statement/prospectus and registration statement;

 

   

inapplicability of the Investment Company Act of 1940, as amended;

 

   

broker’s, finder’s and agent’s fees;

 

   

no ownership of Chesapeake common shares or other securities of Chesapeake;

 

   

no Park stockholder vote required to approve the Merger;

 

   

availability of funds to consummate the Merger;

 

   

no prior business activities of Merger Sub; and

 

   

data and privacy matters.

Definitions of “Chesapeake Material Adverse Effect” and “Park Material Adverse Effect”

Many of the representations of Chesapeake and the Park Parties are qualified by a “Chesapeake material adverse effect” or “Park material adverse effect” standard, respectively (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, has had, or would reasonably be expected to have, a material adverse effect). For the purposes of the Merger Agreement, both a “Chesapeake material adverse effect” and a “Park material adverse effect” mean an effect, event, change, development, circumstance, condition or occurrence that (i) has had, or would reasonably be expected to have, a material adverse effect on the assets, business, liabilities, results of operations, or condition (financial or otherwise) of Chesapeake and Chesapeake’s subsidiaries or the Park Parties and the other Park subsidiaries, as applicable, taken as a whole, or (ii) will prevent Chesapeake or Park and Merger Sub, as applicable, from consummating the Merger or the other transactions contemplated by the Merger Agreement on or prior to the Outside Date. However, for purposes of clause (i) above with respect to both Chesapeake and the Park Parties, any effect, event, change, development, circumstance, condition or occurrence will not be considered a material adverse effect to the extent arising out of or resulting from the following:

 

   

changes in conditions in the United States or global economy or capital or financial markets generally, including changes in interest or exchange rates;

 

   

changes in general legal, regulatory or political conditions in the United States or in any other country or region of the world;

 

   

any effect, event, change, development, circumstance, condition or occurrence that affects the lodging industry generally;

 

   

the negotiation, execution or announcement of the Merger Agreement or the consummation of the Merger or the other transactions contemplated by the Merger Agreement, including the impact thereof on relationships, contractual or otherwise, with customers, franchisors, managers, suppliers, lenders, investors, future partners or employees (subject to certain exceptions);

 

   

the taking of any action expressly required by, or the failure to take any action expressly prohibited by, the Merger Agreement, or the taking of any action at the written request or with the prior written consent of an executive officer of a Park Party or Chesapeake, as applicable;

 

   

earthquakes, hurricanes and other natural disasters;

 

   

the commencement, escalation or worsening of a war or armed hostilities or the occurrence of acts of terrorism or sabotage;

 

   

any decline in the market price of the capital stock of Chesapeake or Park, as applicable, or any failure to meet internal or publicly announced financial projections or forecasts or predictions (provided, that

 

88


Table of Contents
 

any effect, event, change, development, circumstance, condition or occurrence giving rise to such decline or failure may be taken into account in determining whether there has been a Chesapeake material adverse effect or Park material adverse effect, as applicable);

 

   

changes in law or GAAP or interpretations or enforcement thereof; or

 

   

any stockholder or derivative litigation arising from allegations of a breach or violation of applicable law relating to the Merger Agreement, the Merger or other transactions contemplated by the Merger Agreement;

which in the case of the first, second, third, sixth, seventh and ninth bullet points immediately above do not materially disproportionately affect Chesapeake and Chesapeake’s subsidiaries or Park and Park’s subsidiaries, as applicable, taken as a whole, relative to other participants in the lodging industry in the United States.

Covenants and Agreements

Each of Chesapeake and the Park Parties have agreed to certain restrictions from the date of the Merger Agreement until the earlier to occur of the Effective Time and the date, if any, on which the Merger Agreement is validly terminated, referred to herein as the interim period.

However, nothing in the Merger Agreement shall prohibit Chesapeake, Park, Domestic, or the board of directors of the Park subsidiary REIT from taking any action, at any time or from time to time, that in the reasonable judgment of the Chesapeake Board, Park Board or the members of Domestic, as applicable, upon advice of their applicable outside counsel, is necessary for Chesapeake, Park or any subsidiary REIT of Chesapeake or Park to avoid or continue to avoid incurring entity-level income or excise taxes under the Code or to maintain its qualification as a REIT under the Code for any period or portion thereof ending on or prior to the Effective Time, including making dividend or other distribution payments in accordance with the Merger Agreement to shareholders or stockholders, as applicable, of Chesapeake, Park or any subsidiary REIT of Chesapeake or Park, as applicable, in accordance with the Merger Agreement, or to qualify or preserve the status of any Chesapeake or Park subsidiary (other than any subsidiary REIT of Chesapeake or Park) as a disregarded entity or partnership for U.S. federal income tax purposes or as a QRS or a TRS under the applicable provisions of Section 856 of the Code.

If either Chesapeake or Park determines that it is necessary to take any of the action described in the immediately preceding paragraph, which action Chesapeake or the Park Parties, as applicable, would otherwise be prohibited from taking without the consent of the other party pursuant to the Merger Agreement, then Chesapeake or Park, as applicable, shall notify the other party as soon as reasonably practicable (but otherwise in accordance with the Merger Agreement) prior to taking such action (but the Park Parties shall not be required to obtain any consent from Chesapeake with respect to such action).

Conduct of Business of Chesapeake Pending the Merger

In general, except to the extent required by law, as otherwise expressly required or permitted by the Merger Agreement or as may be consented to in writing by the Park Parties (which, with respect to certain actions, shall not be unreasonably withheld, delayed or conditioned), Chesapeake shall, and shall cause its subsidiaries to:

 

   

conduct their respective businesses in all material respects in the ordinary course, and in a manner consistent with past practice;

 

   

prepare (or cause to be prepared) all income tax returns for Chesapeake and each Chesapeake subsidiary for the taxable year ended December 31, 2018; and

 

   

use their reasonable best efforts to:

 

   

maintain its material assets and properties in their current condition;

 

89


Table of Contents
   

preserve intact in all material respects their current business organizations, goodwill, ongoing businesses and relationships with third parties;

 

   

keep available the services of their present officers and other key employees and consultants;

 

   

maintain all insurance policies of Chesapeake and the Chesapeake subsidiaries or substitutes therefor; and

 

   

preserve Chesapeake’s and each of its subsidiary REIT’s status as a REIT within the meaning of the Code.

Without limiting the generality of the foregoing, none of Chesapeake or any of its subsidiaries will, during the interim period, subject to certain specified exceptions and except to the extent required by law, as otherwise expressly required or permitted by the Merger Agreement or as may be consented to in writing by the Park Parties (which, with respect to certain actions, shall not be unreasonably withheld, delayed or conditioned):

 

   

split, combine, reclassify or subdivide any equity securities or ownership interests of Chesapeake or any of its subsidiaries or issue or authorize the issuance of any other securities in respect thereof, in lieu of or in substitution for any equity securities or ownership interests;

 

   

make, declare, set aside or pay any dividend on, or make any other distributions (whether in cash, stock or property or otherwise) in respect of, any Chesapeake common shares or other equity securities or ownership interests in Chesapeake or any Chesapeake subsidiary, except for:

 

   

quarterly distributions at a rate not in excess $0.40 per share and any dividends required by the terms of the preferred shares of any subsidiary REIT of Chesapeake;

 

   

regular distributions to Chesapeake that are required to be made in respect of the partnership interest in Chesapeake OP, as applicable, in connection with any dividends paid on the Chesapeake common shares;

 

   

dividends or distributions, declared, set aside or paid by any Chesapeake subsidiary to Chesapeake or any Chesapeake subsidiary that is, directly or indirectly, wholly owned by Chesapeake; and

 

   

distributions required for Chesapeake or its subsidiary REITs to maintain their status as REITs under the Code and to avoid the incurrence of any entity-level income or excise taxes by any of Chesapeake or its subsidiary REITs, as applicable;

 

   

authorize for issuance, issue, sell or grant, or agree or commit to issue, sell or grant (whether through the issuance or granting of options, warrants, convertible securities, voting securities, commitments, subscriptions, rights to purchase or otherwise), any Chesapeake securities or equity equivalents (including “phantom” stock rights or stock appreciation rights) of Chesapeake or any Chesapeake subsidiary;

 

   

purchase, redeem, repurchase, or otherwise acquire, directly or indirectly, any shares of capital stock or other equity interests of Chesapeake or a Chesapeake subsidiary, except for:

 

   

the repurchase of Chesapeake common shares that are in excess of the ownership limits set forth in Chesapeake’s organizational documents; or

 

   

in connection with the vesting of, or lapse of restrictions on, Chesapeake restricted share awards in order to satisfy withholding obligations;

 

   

acquire or agree to acquire, any entity or any material amount of assets thereof (whether real property or personal property);

 

   

sell, mortgage, pledge, lease, assign, transfer, dispose of or encumber, or effect a deed in lieu of foreclosure with respect to any property of Chesapeake or any Chesapeake subsidiary (or real property that if owned by Chesapeake or any Chesapeake subsidiary on the date of the Merger Agreement would

 

90


Table of Contents
 

be a property of Chesapeake or any Chesapeake subsidiary) or any other assets, or place or permit any liens, mortgages, deeds of trust, pledges, claims against title, charges, security interests, rights of first refusal, options, preemptive rights, community property rights or other adverse property rights, easements, hypothecation, encumbrance, infringement, interference, community property interest, rights of way or other similar items, or any other restriction or encumbrances on title of any nature (subject to certain exceptions), except for sales, transfers or other such dispositions of personal property that do not exceed $15,000,000 in the aggregate;

 

   

incur, create, assume, refinance, replace or prepay any amount of indebtedness for borrowed money, assume, guarantee or endorse, or otherwise become responsible (whether directly, contingently or otherwise) for, any indebtedness of any other person or entity (other than a wholly owned Chesapeake subsidiary), except:

 

   

indebtedness incurred under Chesapeake’s or any Chesapeake subsidiary’s existing credit facilities (whether drawn or undrawn as of the date hereof) in the ordinary course of business for working capital purposes in the ordinary course of business consistent with past practice (including to the extent necessary to pay dividends permitted above) and indebtedness that does not, in the aggregate, exceed $10,000,000; or

 

   

issue or sell debt securities or warrants or other rights to acquire any debt securities of Chesapeake or any Chesapeake subsidiary or guarantee any debt securities of another person or entity;

 

   

make any loans, advances or capital contributions to, or investments (other than short-term investments of working capital in the ordinary course of business) in, any other person or entity (including to any of its officers, directors, affiliates, agents or consultants), or make any change in its existing borrowing or lending arrangements for or on behalf of such person or entity, enter into any “keep well” or other similar arrangement to maintain any financial statement condition of another person or entity or enter into any arrangement having the economic effect of the foregoing, other than:

 

   

by Chesapeake or a wholly owned Chesapeake subsidiary to a wholly owned Chesapeake subsidiary; and

 

   

as contractually required by any Chesapeake material contract in effect on the date of the Merger Agreement that has been made available to Domestic;

 

   

waive, release, assign, settle or compromise any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), directly or indirectly, other than waivers, releases, assignments, settlements or compromises that:

 

   

with respect to the payment of monetary damages, involve only the payment of monetary damages (excluding any portion of such payment payable under an existing property-level insurance policy) that do not exceed $10,000,000 individually or $15,000,000 in the aggregate;

 

   

do not involve the imposition of any injunctive relief against Chesapeake or any Chesapeake subsidiary;

 

   

do not provide for any admission of material liability by Chesapeake or any Chesapeake subsidiary; or

 

   

with respect to any legal action involving any present, former or purported holder or group of holders of Chesapeake common shares, have been reported to Park in accordance with the Merger Agreement;

 

   

fail to maintain all financial books and records in all material respects in accordance with GAAP or make any material change to its methods of accounting in effect at December 31, 2018, except as required by a change in GAAP or in applicable law, or make any change other than in the ordinary course of business consistent with past practice, with respect to accounting policies, principles or practices unless required by GAAP or the SEC;

 

91


Table of Contents
   

enter into any new line of business;

 

   

fail to timely file all material reports and other material documents required to be filed with any governmental authority or other authority, except to the extent that such failure would not prevent or materially impair the ability of Chesapeake to consummate the Merger on a timely basis;

 

   

enter into any joint venture, partnership, fund or other similar agreement;

 

   

with respect to employee matters:

 

   

hire or terminate (without cause) any officer, trustee or director of Chesapeake or any Chesapeake subsidiary or promote or appoint any person to a position of officer, trustee or director of Chesapeake or any Chesapeake subsidiary;

 

   

establish, adopt, enter into, terminate or materially amend any Chesapeake benefit or compensation program of Chesapeake or any Chesapeake subsidiary; or

 

   

increase in any manner the amount, rate or terms of compensation, perquisites or other benefits payable or to become payable to any trustee, director, officer or employee of Chesapeake of any Chesapeake subsidiary, amend or waive rights or accelerate vesting under any Chesapeake benefit or compensation program of Chesapeake or any Chesapeake subsidiary or any agreement that would be such a plan if in existence on the date of the Merger Agreement, any right to severance or termination pay, or increase in severance or termination pay, pay any bonuses other than pursuant to the terms of an existing benefit or compensation program, grant any new awards or amend or modify any outstanding award pursuant to the terms of an existing benefit or compensation program, or take any action to accelerate the payment, or to fund or in any other way secure the payment, of compensation or benefits under any benefit or compensation program;

 

   

amend or propose to amend the organizational documents of Chesapeake or any Chesapeake subsidiary;

 

   

adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or other reorganization of Chesapeake or any Chesapeake subsidiary or adopt resolutions providing for or authorizing such merger, liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization (other than the Merger);

 

   

amend any term of any outstanding stock or other equity security of Chesapeake or any Chesapeake subsidiary;

 

   

enter into, renew, materially modify, amend or terminate (other than through expiration in accordance with its terms), or waive, release, compromise or assign any rights or claims under, any material contract of Chesapeake or any Chesapeake subsidiary (or any contract that, if existing as of the date of the Merger Agreement, would constitute a material contract of Chesapeake or any Chesapeake subsidiary), and any major lease, management agreement, franchise agreement and ground lease of Chesapeake or any Chesapeake subsidiary, except:

 

   

as expressly permitted by the Merger Agreement;

 

   

the entry into any modification or amendment of, or waiver or consent under, any mortgage or related agreement to which Chesapeake or any Chesapeake subsidiary is a party as required or necessitated by the Merger Agreement or the transactions contemplated thereby;

 

   

in connection with change orders under a construction contract in effect on the date of the Merger Agreement related to capital expenditure projects that either (i) do not increase the cost of such project by more than $200,000 individually or $1,500,000 in the aggregate or (ii) are otherwise permitted pursuant to the Merger Agreement; or

 

   

to the extent the term of any major lease or ground lease of Chesapeake or any Chesapeake subsidiary will otherwise expire by its terms, renew such lease on terms consistent with such existing lease;

 

92


Table of Contents
   

enter into any agreement that would limit or otherwise restrict (or purport to limit or otherwise restrict) Chesapeake or any of the Chesapeake subsidiaries or any of their successors from engaging or competing in any line of business or owning property in, whether or not restricted to, any geographic area;

 

   

make or commit to make any capital expenditures, except:

 

   

pursuant to Chesapeake’s budget items and property capital budgets as previously provided to Park;

 

   

capital expenditures for tenant improvements in connection with certain new leases;

 

   

capital expenditures necessary to repair any casualty losses in an amount up to $5,000,000 individually or $10,000,000 in the aggregate or to the extent such losses are covered by existing insurance; and

 

   

capital expenditures in the ordinary course of business consistent with past practice necessary to comply with applicable law or to repair or prevent damage to any properties of Chesapeake or any Chesapeake subsidiary or as is necessary in the event of an emergency situation, with reasonably practicable notice to Park;

 

   

knowingly take any action that would, or knowingly fail to take any action, the failure of which to be taken would, reasonably be expected to cause Chesapeake or any of its subsidiary REITs to fail to qualify as REITs or any Chesapeake subsidiary other than the Chesapeake subsidiary REITs to cease to be treated as any of a disregarded entity for U.S. federal income tax purposes or a QRS or a TRS under the applicable provisions of the Code, as the case may be;

 

   

enter into or modify in a manner adverse to Chesapeake or Park any tax protection agreement applicable to Chesapeake or any Chesapeake subsidiary, make, change or rescind any material election relating to taxes, change a material method of tax accounting, file any U.S. federal income tax return or amend any income tax return or any other material tax return, settle or compromise any material federal, state, local or foreign tax liability, audit, claim or assessment, enter into any material closing agreement related to material taxes, or knowingly surrender any right to claim any material tax refund, except, in each case, to the extent necessary to preserve Chesapeake or any Chesapeake subsidiary REIT’s qualification as a REIT under the Code, or to qualify or preserve the status of any Chesapeake subsidiary other than the Chesapeake subsidiary REITs as a disregarded entity or partnership for U.S. federal income tax purposes, a QRS, or TRS under the applicable provisions of Section 856 of the Code;

 

   

permit any insurance policy naming Chesapeake or any of its subsidiaries or officers as a beneficiary or an insured or a loss payable payee, or Chesapeake’s directors and officers liability insurance policy, to be cancelled, terminated or allowed to expire, unless such entity shall have obtained an insurance policy with substantially similar terms and conditions to the cancelled, terminated or expired policy;

 

   

(i) enter into or amend any labor agreement applicable to the employees of Chesapeake or any Chesapeake subsidiary or (ii) to the extent Chesapeake or any Chesapeake subsidiary has a contractual right to prevent such actions, suffer or permit any third party that operates or manages any property of Chesapeake or any Chesapeake subsidiary to (a) enter into or amend any labor agreement applicable to such property of Chesapeake or any Chesapeake subsidiary or any employee, independent contractor, consultant, temporary employee, leased employee or other service provider of any third party that manages or operates any property of Chesapeake or any Chesapeake subsidiary or (b) voluntarily recognize any labor union or similar organization or otherwise acknowledge the formation of any collective bargaining unit with respect to any employee, independent contractor, consultant, temporary employee, leased employee or other service provider of any third party that manages or operates any property of Chesapeake or any Chesapeake subsidiary or such property of Chesapeake or any Chesapeake subsidiary;

 

93


Table of Contents
   

except as required by the existing terms of any benefit or compensation program or labor agreement in effect on the date of the Merger Agreement, enter into any pension plan or post-retirement benefit plan or arrangement or otherwise take any action that subjects Chesapeake or any Chesapeake subsidiary to material liability for pension or post-retirement benefits;

 

   

amend or modify the compensation terms or any other obligations of Chesapeake contained in the engagement letter with Chesapeake’s financial advisor in connection with the Merger or engage other financial advisors in connection with the transactions contemplated by the Merger Agreement; or

 

   

authorize, or enter into, any contract, agreement, commitment or arrangement to take any of the foregoing actions.

Conduct of Business of the Park Parties Pending the Merger

In general, except to the extent required by law, as otherwise expressly required or permitted by the Merger Agreement or as may be consented to in writing by Chesapeake (which, with respect to certain actions, shall not be unreasonably withheld, delayed or conditioned), Park and Domestic shall, and shall cause Domestic’s subsidiaries to:

 

   

conduct their respective businesses in all material respects in the ordinary course, and in a manner consistent with past practice;

 

   

use their reasonable best efforts to:

 

   

maintain its material assets and properties in their current condition;

 

   

preserve intact in all material respects their current business organizations, goodwill, ongoing businesses and relationships with third parties;

 

   

keep available the services of their present officers and other key employees and consultants;

 

   

maintain all insurance policies of Park and the Park subsidiaries or substitutes therefor; and

 

   

preserve Park’s and its subsidiary REIT’s status as a REIT within the meaning of the Code.

Without limiting the generality of the foregoing, none of the Park Parties or any other Park subsidiary will, during the interim period, subject to certain specified exceptions and except to the extent required by law, as otherwise expressly required or permitted by the Merger Agreement or as may be consented to in writing by Chesapeake (which consent shall not be unreasonably withheld, delayed or conditioned):

 

   

split, combine, reclassify or subdivide any shares of capital stock or other equity securities or ownership interests of Park;

 

   

make, declare, set aside or pay any dividend on, or make any other distributions (whether in cash, stock or property or otherwise) in respect of, any shares of Park common stock or other equity securities or ownership interests in Park, Domestic or any other Park subsidiary, except for:

 

   

quarterly distributions at a rate not in excess $0.45 per share and any dividends required by the terms of the preferred shares of any subsidiary REIT of Park;

 

   

dividends or distributions, declared, set aside or paid by Domestic, Merger Sub or any other Park subsidiary to the Park Parties or any other Park subsidiary that is, directly or indirectly, wholly owned by Park;

 

   

distributions by any Park subsidiary that is not wholly-owned, directly or indirectly, by Park, including the Park subsidiary REIT, in accordance with the requirements of the organizational documents of the Park subsidiary REIT; and

 

   

distributions required for Park or its subsidiary REIT to maintain their status as REITs under the Code and to avoid the incurrence of any entity-level income or excise taxes by any of Park or its subsidiary REIT, as applicable;

 

94


Table of Contents
   

purchase, redeem, repurchase, or otherwise acquire, directly or indirectly, any shares of its capital stock or other equity interests of Park, except for:

 

   

the repurchase of shares of Park common stock that are in excess of the ownership limits set forth in the Park’s amended and restated certificate of incorporation;

 

   

in connection with the exercise or vesting of, or lapse of restrictions on, stock options and restricted stock awards of Park in order to satisfy withholding or exercise price obligations; and

 

   

repurchases of shares of Park common stock pursuant to Park’s stock repurchase program;

 

   

waive, release, assign, settle or compromise any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), directly or indirectly, other than waivers, releases, assignments, settlements or compromises that:

 

   

with respect to the payment of monetary damages, involve only the payment of monetary damages (excluding any portion of such payment payable under an existing property-level insurance policy) that do not exceed $75,000,000 individually or $100,000,000 in the aggregate;

 

   

do not involve the imposition of any injunctive relief against Domestic or any Domestic subsidiary;

 

   

do not provide for any admission of material liability by Domestic or any Domestic subsidiary; and

 

   

with respect to any legal action involving any present, former or purported holder or group of holders of Park common stock, have been reported to Chesapeake in accordance with the Merger Agreement;

 

   

acquire or agree to acquire, any entity or any material amount of assets thereof (whether real property or personal property) that would, or would reasonably be expected to prevent or materially impair the ability of Domestic or Merger Sub to consummate the Merger on a timely basis;

 

   

fail to maintain all financial books and records in all material respects in accordance with GAAP or make any material change to its methods of accounting in effect at December 31, 2018, except as required by a change in GAAP or in applicable law, or make any change other than in the ordinary course of business consistent with past practice, with respect to accounting policies, principles or practices unless required by GAAP or the SEC;

 

   

enter into any new line of business;

 

   

fail to timely file all material reports and other material documents required to be filed with any governmental authority and other authority;

 

   

amend or propose to amend the organizational documents of Park in a manner as would cause holders of Chesapeake common shares that will receive the Common Stock Consideration in connection with the Merger to be treated in a manner materially and disproportionately adverse to the manner that other holders of Park common stock are treated;

 

   

adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or other reorganization of any of the Park Parties or adopt resolutions providing for or authorizing such merger, liquidation, dissolution, consolidation, restructuring, recapitalization or reorganization (other than the Merger) to the extent that such merger, liquidation dissolution, consolidation, restructuring, recapitalization or reorganization would prevent or materially impair the ability of Park to consummate the Merger on a timely basis;

 

   

knowingly take any action that would, or knowingly fail to take any action, the failure of which to be taken would, reasonably be expected to cause Park or its subsidiary REIT to fail to qualify as REITs; or

 

   

authorize, or enter into, any contract, agreement, commitment or arrangement to take any of the foregoing actions.

 

95


Table of Contents

Restriction on Solicitation of Acquisition Proposals

Chesapeake has agreed to, and to cause its subsidiaries to, and will instruct and use its reasonable best efforts to cause its and their affiliates, officers, directors, trustees, employees or consultants or investment bankers, financial advisors, attorneys, accountants or other representatives, which are referred to herein as “representatives” to:

 

   

cease immediately and terminate any and all existing activities, discussions or negotiations with any third parties that constitute or could reasonably be expected to lead to an acquisition proposal;

 

   

terminate any such third party’s access to any physical or electronic data rooms with respect to an acquisition proposal, to the extent required by and in accordance with the terms of the applicable confidentiality agreement between Chesapeake or any Chesapeake subsidiary and such person or entity; and

 

   

request that any such third party and its representatives promptly destroy or return all confidential information concerning Chesapeake or its subsidiaries furnished by or on behalf of Chesapeake or any of its subsidiaries and destroy all analyses and other materials prepared by or on behalf of such person or entity that contain, reflect or analyze such confidential information, to the extent required by and in accordance with the terms of the applicable confidentiality agreement between Chesapeake or any Chesapeake subsidiary and such person or entity.

For purposes of the Merger Agreement:

 

   

“acquisition proposal” means any proposal, offer or inquiry from any person or entity or SEC Exchange Act Rule 13d-3 “group” relating to any direct or indirect acquisition or purchase (in one or more transactions), including mergers, business combinations, asset or stock acquisitions, tender offers, recapitalizations or restructurings, or similar transactions, with respect to 20% or more of:

 

   

the assets or businesses (either with respect to consolidated total assets or with respect to generation of net revenues or net income) of Chesapeake and its subsidiaries taken as a whole, immediately prior to such transaction;

 

   

equity securities or voting power of Chesapeake or any resulting parent company of Chesapeake; or

 

   

any combination of the above.

 

   

“acquisition inquiry” means an inquiry, indication of interest, request for information, discussion, proposal or offer from a third party that constitutes, or would reasonably be expected to lead to, an acquisition proposal.

 

   

“acquisition agreement” means any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, share purchase agreement, asset purchase or agreement, share exchange agreement, option agreement or other similar contract (whether written or oral) providing for any acquisition proposal (other than a permissible confidentiality agreement) or requiring Chesapeake to abandon, terminate or fail to consummate the Merger.

Chesapeake has also agreed that, from the date of the Merger Agreement, Chesapeake will not, shall cause its subsidiaries and its and their respective officers, trustees and directors not to, and shall instruct and use its reasonable best efforts to cause its and its subsidiaries’ representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, facilitate or assist (including by way of furnishing non-public information) any acquisition proposal or acquisition inquiry;

 

   

engage in, continue or otherwise participate in any negotiations or discussions concerning, or provide any nonpublic information or data to any person or entity (other than Park or its representatives) or afford to any other person or entity (other than Park or its representatives) access to the business,

 

96


Table of Contents
 

properties, assets or personnel of Chesapeake or any of its subsidiaries, in each case, in connection with, or for the purpose of knowingly encouraging, facilitating or assisting, an acquisition proposal or acquisition inquiry;

 

   

terminate, waive, amend, release or modify any, or take any other action having a similar effect with respect to, any standstill provision or similar obligation or any anti-takeover statute (other than granting waivers of and not enforcing any such standstill provision or similar obligation in effect on the date of the Merger Agreement solely to the extent necessary to permit a counterparty to make an acquisition proposal in compliance with the Merger Agreement);

 

   

approve, authorize, execute or enter into any acquisition agreement (as defined below); or

 

   

propose or agree to do any of the foregoing.

Prior to receipt of the Chesapeake shareholder approval of the Merger Proposal, Chesapeake (and its subsidiaries and representatives) is permitted to take the following actions, in response to an unsolicited bona fide written acquisition proposal by such person or entity made after the date of the Merger Agreement that did not result from a breach or violation of the no solicitation covenant in the Merger Agreement and which the Chesapeake Board determines in good faith (after consultation with its advisors) constitutes, or would reasonably be expected to lead to, a superior proposal, if the Chesapeake Board determines in good faith (after consultation with its advisors) that failure to do so would be inconsistent with the trustee’s duties under applicable law:

 

   

engage in discussions and negotiations regarding such acquisition proposal with the person or entity who made such acquisition proposal (and their representatives); and

 

   

provide any nonpublic information or data to the person or entity who made such acquisition proposal (and their representatives) after entering into a customary confidentiality agreement, having confidentiality and use provisions that are not less favorable in any material respect to Chesapeake than those contained in the confidentiality agreement with respect to Park (and provided an acceptable confidentiality agreement is not required to contain any “standstill” or similar provisions or otherwise prohibit the making or amendment of any acquisition proposal).

If such an unsolicited bona fide written acquisition proposal is received, Chesapeake and the Chesapeake Board may also inquire with a person or entity making any such acquisition proposal solely to request clarification of the terms and conditions of such acquisition proposal so as to determine whether it constitutes, or would reasonably be expected to lead to, a superior proposal.

For purposes of the Merger Agreement, “superior proposal” means a bona fide unsolicited written acquisition proposal (that did not result from a breach or violation by Chesapeake of the non-solicitation covenant and covenants restricting the sharing of information in the Merger Agreement) made by a third party after the date of the Merger Agreement (except that for purposes of this definition, all references to “20%” in the definition of acquisition proposal are deemed to reference “60%”), where the Chesapeake Board determines in good faith (after consultation with its advisors and taking into account all legal, financial, regulatory and other aspects of the proposal and the person or entity making such proposal) is reasonably likely to be consummated in accordance with its terms and that, if consummated, would result in a transaction more favorable to Chesapeake’s shareholders from a financial point of view.

Chesapeake must as promptly as practical (but in no event later than 24 hours after the receipt thereof) notify Park of the receipt of any acquisition proposal or acquisition inquiry. Chesapeake must also promptly (but in no event later than 24 hours) notify Park of any changes or modifications to the material terms of the acquisition proposal and keep Park informed regarding material developments, discussions and negotiations concerning any such acquisition proposal, and upon Park’s reasonable request, apprise Park of the status of such acquisition proposal.

 

97


Table of Contents

Change in Recommendation. Except in the circumstances and pursuant to the procedures described below, the Chesapeake Board will not:

 

   

withhold, withdraw, qualify, amend or modify, in any manner adverse to the Park Parties, the Chesapeake Board Recommendation;

 

   

adopt, approve, recommend or otherwise declare advisable any acquisition proposal or acquisition inquiry;

 

   

fail to include the Chesapeake Board Recommendation in this proxy statement/prospectus;

 

   

fail to recommend against any acquisition proposal that is a tender offer or exchange offer subject to Regulation 14D of the Exchange Act (including by taking no position) within ten business days after the commencement of such tender offer or exchange offer;

 

   

fail to issue a press release reaffirming the Chesapeake Board Recommendation within ten business days after Park requests in writing if any acquisition proposal or any material modification thereof is made public or otherwise sent to Chesapeake shareholders or any third party makes a public statement of an intention to make an acquisition proposal;

 

   

propose, resolve or agree to take any of the foregoing actions; or

 

   

authorize, cause or permit Chesapeake or any of its affiliates to enter into any acquisition agreement (other than an acceptable confidentiality agreement).

The parties refer to any action in the first six bullets above as a change in recommendation.

Change in Recommendation with Respect to a Superior Proposal. At any time prior to the receipt of Chesapeake shareholder approval of the Merger Proposal, subject to complying with the change in recommendation procedure described below, the Chesapeake Board may make a change in recommendation and terminate the Merger Agreement to accept a superior proposal, if

 

   

an unsolicited bona fide written acquisition proposal that did not result from a breach or violation of the no solicitation covenant in the Merger Agreement is made to Chesapeake and not withdrawn, and

 

   

the Chesapeake Board determines in good faith (after consultation with its advisors) that such acquisition proposal constitutes a superior proposal (as defined below) and that failure to take such action would be inconsistent with the trustees’ duties under applicable law.

Prior to making a change in recommendation to terminate the Merger Agreement and accept a superior proposal, Chesapeake must comply with the following procedure:

 

   

four business days shall have elapsed since Chesapeake has given written notice to Park advising Park that Chesapeake intends to make a change in recommendation in connection with a superior proposal which notice must identify the person or entity making the acquisition proposal, the reason for the change in recommendation and all material terms and conditions of any such proposal;

 

   

Chesapeake must have negotiated, and must have caused its representatives to negotiate, in good faith with Park during such four business-day notice period, to the extent Park wishes to negotiate, for an adjustment or modification to the terms of the Merger Agreement; and

 

   

the Chesapeake Board, following such notice period, shall have again determined in good faith (after consultation with its advisors and taking into account any adjustment or modification of the terms of the Merger Agreement proposed in writing by Park during any applicable notice period) that the failure to make such change in recommendation would be inconsistent with the trustees’ duties under applicable law.

If during the four business-day notice period, any material revisions are made to the terms of the superior proposal, each such material revision shall require a new written notice and the Chesapeake Board must, in each

 

98


Table of Contents

case, give notice to Park regarding such revisions prior to the expiration of the then-current notice period and the notice period shall thereafter expire on the third business day immediately following the date of the delivery of such notice (but in no event will delivery of a such notice regarding revisions shorten the initial four business-day notice period).

Change in Recommendation with Respect to an Intervening Event. At any time prior to the receipt of Chesapeake shareholder approval of the Merger Proposal, subject to complying with the change in recommendation procedure described below, the Chesapeake Board may make a change in recommendation if an intervening event occurs and the Chesapeake Board determines in good faith (after consultation with its advisors) that failure to take such action would be inconsistent with the trustees’ duties under applicable law. For purposes of the Merger Agreement, “intervening event” means a material fact, event, circumstance, development or change that occurs or comes to the attention of the Chesapeake Board after the date of the Merger Agreement that:

 

   

materially affects the business, assets or operations of Chesapeake or its subsidiaries (other than resulting from a breach of the Merger Agreement by Chesapeake or its representatives);

 

   

was not known or reasonably foreseeable by, the Chesapeake Board (assuming appropriate consultations) as of the date of the Merger Agreement; and

 

   

becomes known to the Chesapeake Board prior to receipt of Chesapeake shareholder approval of the Merger Proposal.

Prior to making a change in recommendation with respect to an intervening event, Chesapeake must comply with the following procedure:

 

   

four business days shall have elapsed since Chesapeake has given written notice to Park advising Park that Chesapeake intends to make a change in recommendation in connection with an intervening event which written notice must include a description of such intervening event;

 

   

Chesapeake must have negotiated, and must have caused its representatives to negotiate, in good faith with Park during such four business-day notice period, to the extent Park wishes to negotiate, for an adjustment or modification to the terms of the Merger Agreement; and

 

   

the Chesapeake Board, following such notice period, shall have again determined in good faith (after consultation with its advisors and taking into account any adjustment or modification of the terms of the Merger Agreement proposed in writing by Park during any applicable notice period) that the failure to make such change in recommendation would be inconsistent with the trustees’ duties under applicable law.

If, after complying with the foregoing procedure, the Chesapeake Board does not make a change in recommendation with respect to an intervening event, but thereafter determines to make a change in recommendation in circumstances involving or relating to another intervening event, the foregoing procedures would apply again.

Unless the Merger Agreement is terminated with respect to a superior proposal, notwithstanding a change in recommendation, Chesapeake must cause the Merger Proposal to be submitted to a vote of its shareholders.

Chesapeake has agreed that it will promptly instruct its representatives and its subsidiaries’ representatives of the no solicitation covenant. Any violation of the no solicitation covenant by any officer, director, trustee or other representative of the Chesapeake or any of its subsidiaries will be deemed to be a breach or violation of the no solicitation covenant by Chesapeake for purposes of the Merger Agreement.

Form S-4, Proxy Statement/Prospectus; Chesapeake Shareholder Meeting

The Merger Agreement provides that Chesapeake shall use its reasonable best efforts to prepare and deliver to Park, for inclusion in the Form S-4 to be filed by Park, the proxy statement, as promptly as reasonably

 

99


Table of Contents

practicable following the date of the Merger Agreement. Park shall use its reasonable best efforts to prepare and file the Form S-4, in which the proxy statement will be included, as promptly as reasonably practicable following the date of the Merger Agreement, with respect to the Park common stock issuable in the Merger. Park shall use its reasonable best efforts to have the application for the listing of the Park common stock issuable in connection with the Merger accepted by the NYSE as promptly as is practicable following submission.

Chesapeake shall use its reasonable best efforts to cause this proxy statement/prospectus to be mailed to its shareholders entitled to vote at the Chesapeake Special Meeting and to hold the Chesapeake Special Meeting as soon as reasonably practicable after the Form S-4 is declared effective. Chesapeake shall also include in this proxy statement/prospectus the Chesapeake Board Recommendation and shall use its reasonable best efforts to obtain the Chesapeake shareholder approval except to the extent the Chesapeake Board has made a change in recommendation as discussed under the heading “—Restriction on Solicitation of Acquisition Proposals.”

Indemnification; Directors’ and Officers’ Insurance

For a period of six years following the Effective Time:

 

   

Each of Park and the Surviving Entity will indemnify and hold harmless each individual who at the Effective Time is, or at any time prior to the Effective Time was, a manager, director, officer, trustee or fiduciary of Chesapeake or any of its subsidiaries and acting in such capacity, which persons we refer to as the indemnified persons, to the fullest extent authorized or permitted under applicable law, for any and all costs and expenses (including reasonable fees and expenses of legal counsel), judgments, claims, awards, losses, damages, penalties or liabilities (including amounts paid in settlement) imposed upon or reasonably incurred by such indemnified person, in connection with any action, suit, arbitration or other proceedings (whether civil or criminal) in which such indemnified person may be involved or with which he may be threatened (regardless of whether as a named party or as a participant other than as a named party, including as a witness) with respect to matters occurring on or before the Effective Time, subject to certain limitations set forth in the Merger Agreement; and

 

   

Park shall cause the Surviving Entity to pay on behalf of or advance to each indemnified person, to the fullest extent authorized or permitted under applicable law, any claim expenses incurred in defending, serving as a witness with respect to or otherwise participating with respect to or otherwise participating with respect to any claim in advance of the final disposition of such claim, in each case without the requirement of any bond or other security, but subject to Park’s and the Surviving Entity’s receipt of:

 

   

an undertaking by or on behalf of such indemnified person to repay such claim expenses if it is ultimately determined under applicable laws or any of the organizational documents of Chesapeake that such indemnified person is not entitled to be indemnified; and

 

   

a good faith affirmation by such indemnified person of such indemnified person’s compliance with the standard of conduct required in the Merger Agreement.

Prior to the Effective Time, Chesapeake will obtain and fully pay the premium for, and Park will cause to be maintained in full force and effect (and the obligations under to be honored), during the six-year period beginning on the date the Merger is completed, a “tail” prepaid insurance policy or policies from Chesapeake’s current insurance carrier (or an insurance carrier with the same or better credit rating) with a claims period of six years from the Effective Time for the benefit of the indemnified persons with respect to directors’ and officers’ liability, employment practices liability and errors and omissions liability insurance for claims arising from facts or events that occurred on or prior to the Effective Time. The “tail” policy is required to provide at least the same coverage and amounts and contain terms and conditions, retentions and limits of liability that are no less favorable than Chesapeake’s and its subsidiaries’ existing policy or policies, subject to a maximum aggregate premium amount equal to 300% of the most recent aggregate annual premiums paid by Chesapeake, which we refer to as the maximum premium. If Chesapeake is unable to obtain the “tail” policy for an amount equal to or less than the maximum premium, Chesapeake will be entitled to obtain as much comparable “tail” insurance as reasonably available for an aggregate cost equal to the maximum premium.

 

100


Table of Contents

Additionally, pursuant to the Merger Agreement, for a period of six years from the Effective Time, the Surviving Entity is required to fulfill and honor in all respects the obligations of the Surviving Entity pursuant to specified agreements in effect as of the date of the Merger Agreement between Chesapeake and any indemnified person, and any indemnification provision (including advancement of expenses) and any exculpation provision set forth in Chesapeake’s or Chesapeake’s subsidiaries’ organizational documents as in effect on the date of the Merger Agreement.

Efforts to Complete Transactions; Consents

Each of Chesapeake and the Park Parties shall, and shall cause its respective subsidiaries and affiliates to, use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with each other in doing, all things necessary, proper or advisable under applicable law or pursuant to any contract or agreement to consummate and make effective as promptly as practicable the Merger and the other transactions contemplated by the Merger Agreement, including:

 

   

taking all reasonable actions necessary to cause the closing conditions as set forth under “—Conditions to Completion of the Merger” to be satisfied;

 

   

obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental authorities necessary in connection with the consummation of the Merger and the other transactions contemplated by the Merger Agreement and the making of all necessary registrations and filings and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental authority or other persons or entities necessary in connection with the consummation of the Merger and the other transactions contemplated by the Merger Agreement;

 

   

defending any lawsuits or other legal proceedings challenging the Merger Agreement or the consummation of the Merger or the other transactions contemplated by the Merger Agreement; and

 

   

executing and delivering any additional instruments necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement and to fully carry out the purposes of the Merger Agreement.

Notwithstanding anything to the contrary in the Merger Agreement, in no event shall the Park Parties, Chesapeake or any of their respective subsidiaries or affiliates be required to agree to, enter into, or offer to enter into any agreement or consent order requiring divestiture of any assets, hold-separate, business limitation, conduct remedy, or similar arrangement or undertaking in connection with the Merger Agreement or any of the transactions contemplated thereby.

Access to Information; Confidentiality

During the interim period, to the extent permitted by applicable law and contracts, each of Chesapeake and the Park Parties shall, and shall cause each of their respective subsidiaries to, afford to the other party and its representatives reasonable access during normal business hours and upon reasonable advance notice to all of their respective properties, offices, books, contracts, personnel and records. During the interim period, each of Chesapeake and Park shall, and shall cause its respective subsidiaries to:

 

   

furnish to the other party all information (financial or otherwise) concerning its business, properties, office, books, contracts, records and personnel as the other party may reasonably request;

 

   

furnish to the other party a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws, except to the extent such materials are otherwise publicly available; and

 

   

facilitate reasonable access for Park and its authorized representatives during normal business hours, and upon reasonable advance notice, to all properties of Chesapeake or any Chesapeake subsidiary in

 

101


Table of Contents
 

order to prepare or cause to be prepared surveys, inspections, engineering studies and certain environmental assessments.

Each of Chesapeake and Park shall hold, and will cause its respective representatives and affiliates to hold, any nonpublic information in confidence to the extent required by and in accordance with the terms of the existing confidentiality agreement by and between Chesapeake and Park, which shall remain in full force and effect pursuant to the terms thereof notwithstanding the execution and delivery of the Merger Agreement or the termination thereof.

Chesapeake shall cooperate and participate, as reasonably requested by Park from time to time and to the extent consistent with applicable law, in Park’s efforts to oversee the integration of the parties’ operations in connection with, and taking effect upon consummation of, the Merger.

Public Announcements

So long as the Merger Agreement is in effect, the parties shall, subject to certain exceptions, consult with each other before issuing any press release or otherwise making any public statements or filings with respect to the Merger Agreement or any of the transactions contemplated by the Merger Agreement. In addition, none of parties shall issue any such press release or make any such public statement or filing prior to obtaining the consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed).

Notification of Certain Matters; Transaction Litigation

Chesapeake and the Park Parties shall give prompt notice to the other of any notice or other communication received by such party from any governmental authority in connection with the Merger Agreement, the Merger or the transactions contemplated by the Merger Agreement or from any person or entity alleging that its consent is or may be required in connection with the Merger or the transactions contemplated by the Merger Agreement.

Each of Chesapeake and the Park Parties shall give prompt notice to the other if any representation or warranty made by it in the Merger Agreement becomes untrue or inaccurate such that it would be reasonable to expect that the applicable closing conditions would not be capable of being satisfied prior to the Outside Date, or if it fails to comply with or satisfy in any material respect any covenant, condition or agreement contained in the Merger Agreement.

Each of Chesapeake and the Park Parties shall give prompt notice to the other if, to Chesapeake’s knowledge or Park’s knowledge, as applicable, the occurrence of any state of facts, effect, event, change, development, circumstance, condition or occurrence would cause, or would reasonably be expected to cause, any of the closing conditions not to be satisfied or satisfaction to be materially delayed.

Each of Chesapeake and the Park Parties shall give prompt notice to the other of any claim, action, suit, litigation, proceeding, arbitration, mediation or other investigation or audit commenced or, to Chesapeake’s knowledge or Park’s knowledge, as applicable, threatened against, relating to or involving such party or any of its subsidiaries that relates to the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement, and each party shall keep the other party reasonably informed on a current basis regarding any such matters. Each party has agreed to allow the other the opportunity to reasonably participate in the defense and settlement of any litigation against the other or its directors, trustees or officers, relating to the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and neither party shall agree to a settlement without the prior written consent of the other party (which consent shall not be unreasonable withheld, conditions or delayed), unless such settlement involves no admission of liability and no restrictions or other obligations binding on Park, Chesapeake or any of their respective subsidiaries, other than the payment of money and the amount of such settlement shall be fully covered by insurance proceeds.

 

102


Table of Contents

Pre-Closing Transactions

The Park Parties are permitted to undertake a marketing and sales process with respect to:

 

   

the New York Disposition Properties, in order to permit their disposition by Chesapeake on the day before the Merger closing date or on the closing date prior to the Effective Time; and

 

   

certain of Chesapeake’s other properties designated by the Park Parties, in order to permit their disposition by Park after the closing date of the Merger.

It is not a condition to the completion of the Merger that any of the above-described dispositions be completed. However, if all other conditions to consummation of the Merger have been satisfied or validly waived (other than those conditions that by their terms are required to be satisfied at the closing), but the sale of the New York Disposition Properties has not been completed, the closing of the Merger will be automatically extended to the earlier of the date that is one business day after the date on which the sales of both New York Disposition Properties have been completed and October 10, 2019.

Chesapeake is obligated to in good faith provide the Park Parties with all cooperation reasonably requested by the Park Parties that is necessary or reasonably required in connection with the above-described marketing and sales processes, including the following:

 

   

furnishing information and materials customarily provided in the marketing and sale of similar properties;

 

   

entering into customary non-disclosure agreements with prospective purchasers;

 

   

providing prospective purchasers with reasonable access to the hotels in question and to customary due diligence information with respect thereto (subject to customary non-disclosure agreements);

 

   

assisting in the preparation of customary marketing materials;

 

   

cooperating to identify and pursue any notifications, authorizations, approvals or consents required with respect to the New York Disposition Properties;

 

   

entering into definitive sale agreements with respect to the New York Disposition Properties; and

 

   

facilitating the repayment or defeasance of any indebtedness in connection with any disposition of the New York Disposition Properties.

The Park Parties have indicated to Chesapeake that they expect to exercise their rights to cause the New York Disposition Properties to be sold by Chesapeake prior to the closing date of the Merger in accordance with the foregoing covenant in the Merger Agreement.

In addition, the Park Parties have the option, upon reasonable notice to Chesapeake, to require that Chesapeake use its reasonable best efforts to take or cause to be taken any of the following actions as the Park Parties may reasonably request (to be implemented on the day before the Merger closing date):

 

   

the conversion of one or more Chesapeake subsidiaries that are organized in a particular state to be domiciled in a different state, or that are organized as corporations into limited liability companies (or other entities) or as limited partnerships or limited liability companies into other entities;

 

   

the merger of one or more Chesapeake subsidiaries with or into one or more other Chesapeake subsidiaries;

 

   

the sale of one or more Chesapeake properties or subsidiaries to one or more Park Parties structured as the acquisition of one or more replacement properties in one or more tax-deferred exchanges pursuant to Section 1031 of the Code (and cause the net cash proceeds of any such sale to be transferred to the exchange agent to fund a portion of the Cash Consideration);

 

103


Table of Contents
   

form a wholly-owned subsidiary of Chesapeake solely to serve as an additional limited partner of Chesapeake OP;

 

   

appropriate tax elections to be made by Chesapeake or one or more of its subsidiaries;

 

   

a distribution or contribution of assets, or issuance of equity interests, by one or more Chesapeake subsidiaries to Chesapeake or one of its subsidiaries;

 

   

the winding-up, liquidation, dissolution or termination of one or more Chesapeake subsidiaries; and

 

   

the liquidation of the two existing Chesapeake subsidiary REITs, RP Holdings Trust, a Maryland statutory trust, and CHSP DC Holding Trust, a Maryland real estate investment trust in such a manner as to permit each of them to continue to qualify as a REIT for their respective taxable years that will end on the effective date of liquidation under Code Section 332.

None of foregoing disposition or other transactions described above shall require Chesapeake or its subsidiaries to take any of the following action in connection with any such transactions:

 

   

actions in contravention of any laws, the organizational documents or material contracts of Chesapeake or its subsidiaries (other than assisting the Park Parties to obtain consents or waivers necessary to permit the taking of such actions consistent with the terms of such laws, organizational documents or contracts);

 

   

actions that could adversely affect the classification of Chesapeake as a REIT prior to the Effective Time or subject Chesapeake to any “prohibited transactions” taxes or other taxes; and

 

   

actions that would reasonably be expected to result in an amount of taxes being imposed on, or any adverse tax consequences to, any shareholder or other equity interest holder of Chesapeake (in their capacity as a shareholder), or other material adverse consequences to the Chesapeake shareholders as a whole, that are incrementally greater or more adverse, as the case may be, than the taxes or other adverse consequences to such party in connection with the consummation of the Merger Agreement in the absence of taking such action.

The consummation of any of the above-described disposition or other transactions is contingent on all conditions to consummation of the Merger having been satisfied or validly waived (other than those conditions that by their terms are required to be satisfied at the closing), on the Park Parties having delivered written notice confirming that the conditions to closing have been satisfied or waived (other than certain closing deliverables that are to be delivered into escrow by the Park Parties), on the Park Parties having irrevocably waived any right to claim that the conditions to closing have not been satisfied or waived (other than certain closing deliverables of Chesapeake), on the Park Parties being prepared to proceed with the closing, and on the Park Parties providing other evidence reasonably requested by Chesapeake that the Merger will occur no later than the day following the date on which the earliest consummation of one of the above-described transactions occurs.

In addition, neither Chesapeake, nor any of its subsidiaries or representatives shall be required to enter into any contract, or make any undertaking, that would not terminate upon a termination of this Agreement, with no continuing obligation or liability for Chesapeake or its subsidiaries or requirement to pay any fee or incur any liability, other than reasonable out-pocket-expenses that are advanced or promptly reimbursed by the Park Parties.

The Park Parties, upon request by Chesapeake, will advance or reimburse all reasonable out-of-pocket costs to be incurred by Chesapeake or its subsidiaries in connection with any actions taken in connection with the above-described transactions (including taxes). The Park Parties have agreed to jointly and severally indemnify and hold Chesapeake, its subsidiaries and their representatives harmless from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred in connection with or as a result of the taking of any such actions.

 

104


Table of Contents

Dividends

Any dividend on Chesapeake common shares that has a record date prior to the Effective Time but has not been paid as of the Effective Time shall be paid by Chesapeake on the closing date of the Merger immediately prior to the Effective Time to the holders of record as of the applicable record date.

During the interim period, Chesapeake shall be permitted to authorize and pay quarterly distributions at a rate not in excess of $0.40 per share and cause each of its subsidiary REITs to authorize and pay any dividends required by the terms of their preferred shares, and Park shall be permitted to authorize and pay quarterly distributions at a rate not in excess of $0.45 per share and cause its subsidiary REIT to authorize and pay any dividends required by the terms of its preferred shares. Both parties shall also be permitted (without the consent of the other) to declare and pay a dividend distributing any amounts determined by such party in good faith to be the minimum dividend required to be distributed in order for Chesapeake, Park or any of their respective REIT subsidiaries, as applicable, to maintain their status as a REIT under the Code and to avoid the incurrence of any entity-level income or excise taxes. In the event Chesapeake or any of its REIT subsidiaries declares a dividend prior to the closing date pursuant to the immediately preceding sentence, the Merger Consideration shall be decreased by an amount equal to such dividend, and in the event Park sets a record date that is on or prior to the closing date for a dividend pursuant to the immediately preceding sentence, the Merger Consideration shall be increased by an amount equal to the amount of such dividend.

Other Covenants and Agreements

The Merger Agreement contains certain other covenants and agreements, including covenants related to:

 

   

Chesapeake providing to the Park Parties, and causing its subsidiaries, the respective officers and employees of Chesapeake and the Chesapeake subsidiaries to provide to the Park Parties, and instructing and using its reasonable best efforts to cause its representatives to provide to the Park Parties, at the Park Parties’ sole expense, all cooperation reasonably requested by the Park Parties that is necessary or reasonably required in connection with any third party debt financing transaction or any third party underwritten public offering for cash that any of the Park Parties may pursue prior to the date of the closing of the Merger;

 

   

Park and Domestic, from and after the closing of the Merger taking, or causing its affiliates to take, all actions, or forbear from taking all actions, within its control, as necessary, to ensure that each of Chesapeake and Park will be classified as a REIT for the taxable year of such entity that includes the date of closing of the Merger, and not knowingly taking or knowingly permitting any of its subsidiaries to take, within their control, any action that is inconsistent with such REIT qualification;

 

   

Domestic providing and causing its subsidiaries to provide to any continuing employee a base salary, a target annual cash incentive opportunity and a long term equity incentive compensation opportunity that are not less than the salary or opportunity provided to such employee prior to the closing of the Merger and benefits that are substantially comparable in the aggregate to the benefits such employee received immediately prior to the closing;

 

   

each of Chesapeake and Park taking all steps to cause (a) any disposition of Chesapeake common shares resulting from the Merger and the other transactions contemplated by the Merger Agreement and (b) any acquisition of Park common stock resulting from the Merger and the other transactions contemplated by the Merger Agreement, in each case by each individual who may become subject to the reporting requirement of Section 16(a) of the Exchange Act with respect to Chesapeake, immediately prior to the Effective Time, or Park, as applicable, to be exempt under Rule 16b-3 promulgated under the Exchange Act;

 

   

each of Park and Domestic, and its subsidiaries, voting all Chesapeake common shares beneficially owned by them as of the record date of the Chesapeake Special Meeting, if any, in favor of approval of the Merger;

 

105


Table of Contents
   

the Chesapeake Board (or a committee thereof) taking actions necessary to cause all outstanding restricted shares to vest and to terminate the Chesapeake equity incentive plan, and if requested by Park, the Chesapeake 401(k) plan effective as of immediately prior to the Effective Time;

 

   

Park and Chesapeake causing each of their respective subsidiaries to comply with and perform all of its applicable obligations under the Merger Agreement;

 

   

the Park Board taking all actions necessary so that, as of the Effective Time, the number of directors that will comprise the full Park Board shall be increased by two, and appointing two individuals, who as of the date of the Merger Agreement are members of the Chesapeake Board, designated by Chesapeake and approved by Park, to fill the newly created vacancies;

 

   

the Park Board using reasonable best efforts to exempt from the ownership limitations in the Park charter any person or entity to the extent the receipt of the Merger Consideration by such person or entity would result in such person or entity owning in excess of the amount permitted to be owned pursuant to such ownership limitations;

 

   

Chesapeake using reasonable best efforts to take, or cause to be taken, all actions, and to do or cause to be done all things, necessary, proper or advisable on its part to enable the delisting of the Chesapeake common shares from the NYSE and the deregistration of the Chesapeake common shares under the Exchange Act;

 

   

Chesapeake using, or causing its subsidiaries to use, reasonable best efforts to deliver all notices and take all other actions, in each case to the extent reasonably requested by the Park Parties, that are reasonably necessary to facilitate the termination at the Effective Time of all commitments in respect of Chesapeake’s credit facility and term loan;

 

   

the parties using their respective reasonable best efforts (a) to take all action necessary so that no takeover statute is or becomes applicable to the Merger or any of the other transactions contemplated by the Merger Agreement and (b) if any such takeover statute is or becomes applicable to any of the foregoing, to take all action necessary so that the Merger and the other transactions contemplated by the Merger Agreement may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise to eliminate or minimize the effect of such takeover statute on the Merger and the other transactions contemplated by the Merger Agreement; and