Item 1.01 Entry Into a Material Definitive
Agreement.
Agreement and Plan of Merger
On June 7, 2021, QTS
Realty Trust, Inc., a Maryland corporation (“QTS” or the “Company”), QualityTech LP, a Delaware
limited partnership and the operating partnership of the Company (the “Partnership”), Volt Upper Holdings LLC, a
Delaware limited liability company (“Parent”), Volt Lower Holdings LLC, a Delaware limited liability company
(“Merger Sub I”), and Volt Acquisition LP, a Delaware limited partnership (“Merger Sub II”) entered into an
Agreement and Plan of Merger (the “Merger Agreement”). Parent, Merger Sub I and Merger Sub II are affiliates of
Blackstone Infrastructure Partners L.P. and BREIT Operating Partnership L.P. (“BREIT OP”) (the
“Guarantors”), which are affiliates of The Blackstone Group Inc. Pursuant to the terms and subject to the conditions set
forth in the Merger Agreement, at the closing of the Mergers (the “Closing”), Merger Sub II will merge with and into the Partnership (the “Partnership
Merger”), and, immediately following the Partnership Merger, the Company will merge with and into Merger Sub I (the
“Company Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the
Partnership Merger, the Partnership will survive and the separate existence of Merger Sub II will cease (the “Surviving
Partnership”). Upon completion of the Company Merger, Merger Sub I will survive and the separate existence of the Company will
cease (the “Surviving Company”). The Mergers and the other transactions contemplated by the Merger Agreement were
unanimously approved by the Company’s Board of Directors (the “Company Board”).
Merger
Consideration. Pursuant to the terms and conditions of the Merger Agreement, at the effective time of the Company Merger (the
“Company Merger Effective Time”), among other things:
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Company Shares: each share of Class A Common Stock of the Company, par value $0.01 per share (each, a “Company Class
A Share”) and each share of Class B Common Stock of the Company, par value $0.01 per share (each, a “Company Class B Share”
and together with the Company Class A Shares, the “Company Shares”), other than shares owned by Parent, Merger Sub I or any
subsidiary of Parent, the Company or Merger Sub I (such shares, the “Excluded Shares”), that is issued and outstanding immediately
prior to the Company Merger Effective Time will automatically be converted into the right to receive an amount in cash equal to $78.00
(the “Per Company Share Merger Consideration”), without interest;
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Series A Preferred Stock: each share of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock of the Company,
par value $0.01 per share (each, a “Company Series A Preferred Share”) (other than any Excluded Shares) issued and
outstanding immediately prior to the Company Merger Effective Time shall be automatically converted into the right to receive the
redemption price per share equal to an amount in cash equal to $25.00 plus accrued and unpaid dividends, if any, to and including
the date of Closing (the “Closing Date”), without interest; and prior to Closing, the Company will, following
Parent’s request, provide a notice of special optional redemption to the holders of record of Company Series A Preferred Shares
in accordance with the Series A Articles Supplementary (as defined in the Merger Agreement) and the Merger Agreement; and
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Series B Preferred Stock: each share of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, par value $0.01
per share (each, a “Company Series B Preferred Share”) (other than any Excluded Shares) issued and outstanding
immediately prior to the Company Merger Effective Time shall be, subject to the terms and conditions set forth in the Merger
Agreement, automatically converted into one Series A Preferred Unit of the Surviving Company. Such Series A Preferred Units shall
have terms materially the same as the Company Series B Preferred Shares, with changes to such terms as are required pursuant to and
made in compliance with the Series B Articles Supplementary (as defined in the Merger Agreement). No later than twenty business days
prior to the anticipated Closing Date, the Company will provide the notice of fundamental change contemplated by the Series B Articles Supplementary (as defined in the Merger Agreement) to all holders of Company
Series B Preferred Shares.
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Class A Partnership Unit.
Pursuant to the terms and conditions of the Merger Agreement, at the effective time of the Partnership Merger (the
“Partnership Merger Effective Time”), each outstanding Class A Unit of the Partnership (a
“Class A Partnership Unit”), other than Class A Partnership Units held by the Company or any of the
Company’s wholly-owned subsidiaries or Parent, Merger Sub II or any of their respective wholly-owned subsidiaries, that is
issued and outstanding immediately prior to the Partnership Merger Effective Time will automatically be converted into, and will be
cancelled in exchange for, the right to receive an amount in cash equal to the Per Company Share Merger Consideration, without
interest (the “Per Partnership Unit Merger Consideration”), or in lieu of receiving the
Per Partnership Unit Merger Consideration, each Class A Partnership Unit may elect to retain such Class A Partnership Unit as a
Class A Partnership Unit in the Surviving Partnership.
Company LTIP Units.
With respect to each Company Class O LTIP Unit (“Company LTIP Unit”) that has vested in accordance with the terms of the relevant
award agreement prior to the Partnership Merger Effective Time (each, a “Vested LTIP Unit”), the Company, as the general partner
of the Partnership, will exercise its right to cause a Class O LTIP Unit Mandatory Conversion (as defined in the agreement of limited
partnership of the Partnership, as amended (the “Partnership Agreement”)) with respect to each Vested LTIP Unit, such that
as of immediately prior to the Partnership Merger Effective Time, each Vested LTIP Unit shall be converted into a number of Class A
Partnership Units pursuant to the terms of the Partnership Agreement including, for the avoidance of doubt, that such conversion shall
be determined taking into account any allocations that would be deemed to occur pursuant to the terms of the Partnership Agreement if
a Class A Unit Transaction (as defined therein) were considered to occur immediately prior to and in conjunction with such conversion,
with the result that the Class O Unit Economic Capital Account Balance (as defined in the Partnership Agreement) of a holder of Vested
LTIP Units is adjusted to give effect to any allocations that would occur in connection therewith.
Company Equity Awards.
Pursuant to the terms and conditions of the Merger Agreement, immediately prior to the Company Merger Effective Time, outstanding
equity awards of the Company will be treated as follows:
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Stock Options: each option to purchase Company Shares (each, a “Company Option”) that is outstanding immediately
prior to the Company Merger Effective Time shall automatically be cancelled in exchange for a cash payment in an amount in cash equal
to (i) the number of Company Shares subject to the Company Option immediately prior to the Company Merger Effective Time multiplied
by (ii) the excess (if any) of the Per Company Share Merger Consideration over the per share exercise price applicable to the Company
Option (less any applicable income and employment withholding taxes); in the event that the exercise price of a Company Option exceeds
the Per Company Share Merger Consideration, such Company Option shall be cancelled for no consideration;
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Restricted Share Awards: each award of restricted Company Shares (each, a “Company Restricted Share Award”) that
is outstanding immediately prior to the Company Merger Effective Time shall be cancelled in exchange for a cash payment in an amount in
cash equal to (i) the number of Company Shares subject to the Company Restricted Share Award immediately prior to the Company Merger Effective
Time multiplied by (ii) the Per Company Share Merger Consideration (less any applicable income and employment withholding taxes);
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Performance Units: each outstanding award of performance units (“Company Performance Units”) shall
automatically become earned and vested with respect to that number of Company Shares subject to such Company Performance Units
(including any related dividend equivalents) determined in accordance with the terms of the Company Performance Units based on the
achievement of the applicable performance goals set forth in the award agreement governing such Company Performance Units, as
measured from the beginning of the applicable performance period through the date immediately prior to the Closing Date; provided,
however that for each award of Company Performance Units that vests based upon the attainment of operating funds from operations
goals, such award of Company Performance Units shall be deemed earned at target level of performance in accordance with the terms of
the award agreement governing such award (each such earned and vested Company Performance Unit (including any related dividend
equivalents), an “Earned Unit”). At the Company Merger Effective Time, each Earned Unit shall be canceled and, in
exchange therefor, Parent shall cause the Surviving Company to pay to each former holder of any such canceled Earned Unit an amount
in cash (without interest, and less any applicable income and employment withholding taxes) equal to the Per Company Share Merger
Consideration for each Earned Unit. Notwithstanding the preceding, (i) the Company Performance Units that vest based upon the
attainment of operating funds from operations goals granted in 2020 will vest at the maximum level of performance (unless Parent and the Company determine that, on a pro forma basis, the applicable performance goals would be satisfied at less than
maximum performance, in which case such Company Performance Units would vest based on such actual pro forma performance achievement (but
in no event less than target performance)), (ii) any Company
Performance Units (including any related dividend equivalents) for which the level of performance has previously been determined and
certified prior to the date of the Merger Agreement and that remain subject to service-based vesting conditions shall, effective
immediately prior to the Company Merger Effective Time, automatically vest and shall be treated for purposes of the Merger Agreement
as an Earned Unit and (iii) the Chief Executive Officer’s Company Performance Units that vest based on attainment of TSR goals
will be earned, as required by the terms of his award agreement governing such Company Performance Units, at the greater of (x)
target level or (y) the level of achievement of the applicable performance goals set forth in such award agreement as measured from
the beginning of the applicable performance period through the date immediately prior to the Closing Date.
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Deferred Share Units: all equity-based awards deferred under, and all accounts that represent amounts notionally invested
in Company Shares under, the Company Director Deferred Compensation Plan (the “Deferred Compensation Plan” and such
units the “Deferred Share Units”), and all accrued dividend equivalents, shall become vested and no longer subject to
restrictions (including any holding period restrictions), and all Deferred Share Units shall, at the Company Merger Effective Time,
be adjusted and converted into a right of the holder to have allocated to the holder’s account under the Deferred Compensation
Plan an amount denominated in cash equal to the product of (i) the number of Company Shares deemed invested under or otherwise
referenced by such account immediately before the Company Merger Effective Time and (ii) the Per Company Share Merger Consideration,
and shall cease to represent a right to receive a number of Company Shares or cash equal to or based on the value of a number of
Company Shares.
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Closing Conditions. The
consummation of the Mergers is subject to certain customary closing conditions, including, among others, (i) approval of the
Company Merger by the affirmative vote of a majority of all of the votes entitled to be cast on the matter (the “Company
Requisite Vote”), (ii) the absence of injunctions, orders or legal restraints that are then in effect and that have the effect
of restricting, preventing or prohibiting consummation of the Mergers, (iii) as a condition to Parent’s, Merger Sub
I’s and Merger Sub II’s obligations to close, the receipt by Parent and Merger Sub I of the opinion of tax counsel to
the Company with respect to certain of the opinion of tax counsel to the Company with respect to certain tax matters and (iv) as a
condition to Parent’s, Merger Sub I’s and Merger Sub II’s obligations to close, the absence of a Company Material
Adverse Effect (as defined in the Merger Agreement) after the date of the Merger Agreement. The obligations of the parties to
consummate the Mergers are not subject to any financing condition or the receipt of any financing by Parent, Merger Sub I or Merger
Sub II.
Representations,
Warranties and Covenants. The Merger Agreement contains customary representations, warranties and covenants, including, among
others, covenants requiring the Company and its subsidiaries to use commercially reasonable efforts to, in all material respects,
carry on their respective businesses in the ordinary course of business consistent with past practice and the Company’s budget
and, subject to certain exceptions, restricting the Company from engaging in certain financing, acquisition and other operating
activities without Parent’s prior written consent (not to be unreasonably withheld, delayed or conditioned) during the period
between the date of the Merger Agreement and Closing. The Merger Agreement requires the Company to convene a stockholders’ meeting for purposes of obtaining the Company
Requisite Vote, except if the Company effects an Adverse Recommendation Change and terminates the Merger Agreement..
Go Shop Solicitation
Period. Until 11:59 p.m. (New York City time) on July 17, 2021 (the “No-Shop Period Start Date”), the Company and
its subsidiaries and representatives shall have the right to solicit, initiate, encourage or facilitate any inquiry, discussion,
offer, request or proposal that constitutes, or could reasonably be expected to lead to, an alternative acquisition proposal,
including providing non-public information and data regarding the Company to any person pursuant to a confidentiality agreement, and
engage in any discussions or negotiations with any persons and their respective representatives with respect to an alternative
acquisition proposal or potential alternative acquisition proposal or interest or potential interest with respect thereto, or
otherwise cooperate with, assist or participate in, or facilitate any inquiries. Within one business day after the No-Shop Period
Start Date, the Company shall notify Parent of the identity of each person from whom the Company received an alternative
acquisition proposal during such period, including any Excluded Parties (as defined in the Merger Agreement), and provide a copy of
such alternative acquisition proposal and any other written terms or proposals. The Company and its subsidiaries and their
respective representatives may continue to engage in the activities described above with respect to an Excluded Party until 11:59
p.m. (New York City time) on July 27, 2021, subject to extension in certain circumstances (the “Cut-Off Time”).
Non-Solicitation. Under
the Merger Agreement, from and after the No-Shop Period Start Date, other than as permitted with respect to Excluded Parties as described
above, the Company has agreed to cease any solicitations, discussions, negotiations or communications with any person with respect to
any alternative acquisition proposal and not to solicit, initiate, knowingly encourage or knowingly facilitate any inquiry, discussion,
offer, request or proposal that constitutes, or could reasonably be expected to lead to, an alternative acquisition proposal, and, subject
to certain exceptions, is not permitted to enter into discussions or negotiations concerning, or provide non-public information to a third
party in connection with, any alternative acquisition proposals. However, the Company may, prior to obtaining the Company Requisite Vote,
engage in discussions or negotiations and provide non-public information to a third party which has made an unsolicited written bona
fide acquisition proposal if the Company Board determines in good faith, after consultation with outside legal counsel and financial
advisors, that such Company Acquisition Proposal constitutes, or could reasonably be expected to lead to, a Superior Proposal.
Prior to obtaining the Company
Requisite Vote, the Company Board may, in certain circumstances, effect an Adverse Recommendation Change (as defined in the Merger Agreement),
subject to complying with specified notice requirements to Parent and other conditions set forth in the Merger Agreement.
Termination of the Merger Agreement. The
Merger Agreement may be terminated:
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by either party if (i) a governmental authority has issued a final and non-appealable judgment or taken other action to permanently
prohibit consummation of the Mergers, or (ii) the Mergers shall not have been consummated on or before December 7, 2021 (the “Outside
Date”), or (iii) if the Company Requisite Vote is not obtained at the stockholders’ meeting or any adjournment or postponement thereof;
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by the Company if (i) prior to obtaining the Company Requisite Vote, the Company Board approves and concurrently with
termination, the Company enters into a definitive agreement with a third party providing for the implementation of a Superior
Proposal that did not result from a breach of the non-solicitation provisions described above and only if the Company pays the
applicable termination fee to Parent prior to or concurrently with such termination, or (ii) there is a breach of the Merger
Agreement by Parent, Merger Sub I or Merger Sub II that would result in the failure of certain closing conditions to be satisfied by
the Outside Date, or (iii) the closing conditions are satisfied, the Company has notified Parent that the closing conditions are
satisfied and the Company and Partnership are ready to close and Parent, Merger Sub I and Merger Sub II fail to consummate the
Closing within three business days after such notice; or
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by Parent if (i) the Company Board makes an Adverse Recommendation Change, or (ii) the Company fails to publicly
recommend against a tender offer or exchange offer within 10 business days after commencement thereof, or (iii) the Company Board
fails to publicly reaffirm its recommendation within 10 business days after an alternative acquisition proposal has been publicly
announced, or (iv) the Company enters into an Alternative Acquisition Agreement (as defined in the Merger Agreement), or
(v) there is a breach of the Merger Agreement by the Company or the Partnership that would result in the failure of certain
closing conditions to be satisfied by the Outside Date.
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The Company will be required to pay a termination
fee to Parent equal to $128,000,000 if the Merger Agreement is terminated by the Company prior to the Cut-Off Time to enter into a Superior
Proposal with an Excluded Party. The Company will be required to pay a termination fee to Parent equal to $220,000,000 if the Merger Agreement
is terminated in the following circumstances:
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Parent terminates the Merger Agreement after the Company Board makes an Adverse Recommendation Change, fails to publicly
recommend against a tender offer or exchange offer within 10 business days after commencement thereof, the Company Board fails to
publicly reaffirm its recommendation within 10 business days after an alternative
acquisition proposal has been publicly announced or the Company enters into an Alternative Acquisition Agreement, or
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the Company terminates the Merger Agreement to enter into a Superior Proposal that did not result from a breach of the
non-solicitation provisions described above (including to enter into a Superior Proposal with a formerly Excluded Party any time
after the Cut-Off Time), or
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all of the following occur: (A) an alternative takeover proposal is received by the Company Board or publicly communicated,
and (B) the Merger Agreement is terminated by the Company or Parent because the Outside Date has been reached or due to the failure
to obtain the Company Requisite Vote, or terminated by Parent for certain breaches by the Company of its
representations, warranties or covenants, and (C) within 12 months of such termination, the Company enters into an alternative
transaction or consummates a transaction for more than 50% of the Company’s stock or assets.
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Parent will be required to pay a termination fee
equal to $805,000,000 (the “Parent Termination Fee”) if the Merger Agreement is terminated in the following circumstances:
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the Company terminates the Merger Agreement for certain breaches by Parent of its representations, warranties or covenants or if Parent fails to close when required to do so (as
described above), or
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Parent terminates the Merger Agreement because Closing has not occurred on or after the Outside Date and, at such time, the Company would
have been entitled to terminate the Merger Agreement as a result of a breach by Parent or Parent having failed to close when required
to do so, as described above.
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The Company’s sole
and exclusive remedy relating to a breach of the Merger Agreement by Parent is the Parent Termination Fee, certain litigation
expenses in enforcing its right to the Parent Termination Fee and certain indemnification and reimbursement related to cooperation
with Parent’s financing plan. Each Guarantor has guaranteed certain such payment obligations of Parent under the Merger
Agreement up to $402,500,000 plus certain enforcement expenses.
The foregoing description of
the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text
of the Merger Agreement, which is filed as Exhibit 2.1 hereto, and is incorporated herein by reference. The Merger Agreement has
been attached as an exhibit to provide stockholders with information regarding its terms and conditions. It is not intended to provide
any other factual or financial information about the Company, Parent or any of their respective affiliates or businesses. The representations,
warranties, covenants and agreements contained in the Merger Agreement were made only for the purposes of such agreement and as of specified
dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting
parties. The representations and warranties have been qualified by confidential disclosures made for the purposes of allocating contractual
risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality
applicable to the contracting parties that differ from those applicable to investors. Stockholders should not rely on the representations,
warranties, covenants and agreements contained in the Merger Agreement or any descriptions thereof as characterizations of the actual
state of facts or condition of the Company, the Partnership, Parent, Merger Sub I, Merger Sub II or any of their respective affiliates
or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of
the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The Merger
Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company, the Partnership,
Parent, Merger Sub I and Merger Sub II and their respective affiliates and the transactions contemplated by the Merger Agreement that
will be contained in or attached as an annex to the proxy statement that the Company will file in connection with the transactions contemplated
by the Merger Agreement, as well as in the other filings that the Company will make with the SEC.