Item
1.01
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Entry
Into a Material Definitive Agreement.
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On
December 26, 2021, the Board of Trustees (the “Board”) of Pillarstone Capital REIT (the “Company”)
authorized a dividend of one preferred share purchase right (a “Right”) for each outstanding common share of
beneficial interest, par value $0.01 per share, of the Company (the “Common Shares”). The dividend is payable
on December 27, 2021 (the “Record Date”), to the holders of record of Common Shares as of 5:00 P.M.,
New York City time, on the Record Date. The description and terms of the Rights are set forth in a Rights Agreement, dated as of December
27, 2021 (as the same may be amended from time to time, the “Rights Agreement”), between the Company
and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agent”). Each Right entitles
the registered holder to purchase from the Company one one-thousandth (a “Unit”) of a Series D Preferred Share,
par value $0.01 per share (each a “Preferred Share”), of the Company at a purchase price (“Purchase
Price”) of $7.00 per Unit, subject to adjustment.
The
Rights are in all respects subject to and governed by the provisions of the Rights Agreement. The following description of the Rights
Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Rights Agreement, which
is attached hereto as Exhibit 4.1 and incorporated herein by reference. A copy of the Rights Agreement is available free of charge from
the Company.
Distribution
Date
Initially,
the Rights will be attached to all Common Shares, and no separate certificates evidencing the Rights will be issued. Subject to certain
exceptions, until the Distribution Date (as defined below), the Company will issue one Right with each new Common Share issued after
the Record Date so that all Common Shares will have Rights attached, the Rights will be transferred with and only with the Common Shares,
and any transfer of Common Shares will constitute a transfer of the associated Rights. After the Distribution Date, the Rights will separate
from the Common Shares and, as soon as practicable after the Distribution Date, separate certificates evidencing the Rights (“Rights
Certificates”) will be mailed to holders of record of the Common Shares as of the close of business on the Distribution
Date and such separate Rights Certificates alone will evidence the Rights.
The
“Distribution Date” means the earlier of:
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ten
business days after the public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person (as defined below) or such earlier date, as determined
by the Board, on which an Acquiring Person has become such; and
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such
date (prior to such time as any person or group of affiliated or associated persons becomes
an Acquiring Person), if any, as may be determined by the Board following the commencement
of, or the first public announcement of an intention to commence, a tender offer or exchange
offer the consummation of which would result in any person or group of affiliated or associated
persons becoming an Acquiring Person.
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On
the Distribution Date (or such earlier time as required by the partnership agreement of the Operating Partnership defined below), proper provision shall be made by the Company in order to provide each holder of certain units of Pillarstone Capital REIT Operating
Partnership LP (the “Operating Partnership”) with the number of Rights, evidenced by Rights Certificates, if
any, as would be issued to the applicable holder as if the holder had exercised its applicable redemption rights relating to such units
immediately prior to the Distribution Date, and the Company had elected to satisfy the redemption rights by paying the holder in shares
in accordance with the Operating Partnership’s partnership agreement.
On
the Distribution Date, proper provision shall be made by the Company in order to provide each holder (other than the Company) of Class
C Convertible Preferred Shares of beneficial interest, presently $0.01 par value per share, of the Company (“Class C Preferred
Shares”) with the number of Rights, evidenced by Rights Certificates, as would be issued to such holder as if such holder
had converted all of its Class C Preferred Shares into Common Shares immediately prior to the Distribution Date.
Exercisability
The
Rights will not be exercisable until the Distribution Date. After the Distribution Date, each Right will be exercisable to purchase from
the Company one Unit of a Preferred Share for the Purchase Price. Prior to exercising their Rights, holders of Rights, in that capacity
have no rights as a shareholder of the Company, including the right to vote or receive dividends.
Consequences
of Any Person or Entity Becoming an Acquiring Person
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Flip-In
Trigger. If any person or group of affiliated or associated persons becomes an Acquiring
Person, each holder of a Right (other than Rights beneficially owned by an Acquiring Person,
affiliates and associates of an Acquiring Person and certain transferees thereof, which Rights
will thereupon become null and void) will thereafter have the right to receive upon exercise
of a Right that number of Common Shares having a market value of two times the Purchase Price.
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Flip-Over
Trigger. If, after any person or group of affiliated or associated persons has become
an Acquiring Person, the Company is acquired in a merger, consolidation or combination or
50% or more of its consolidated assets, cash flow or earning power are transferred, proper
provisions will be made so that each holder of a Right (other than Rights beneficially owned
by an Acquiring Person, affiliates and associates of an Acquiring Person and certain transferees
thereof, which Rights will have become null and void) will thereafter have the right to receive
upon the exercise of a Right that number of common shares of the person (or its parent) with
whom the Company has engaged in the foregoing transaction having a market value of two times
the Purchase Price.
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Exchange
Feature. At any time after any person or group of affiliated or associated persons becomes
an Acquiring Person and prior to the earlier of one of the events described in the previous
paragraph or the acquisition by an Acquiring Person of 50% or more of the outstanding Common
Shares, the Board may exchange the Rights (other than Rights owned by an Acquiring Person,
affiliates and associates of an Acquiring Person and certain transferees thereof, which Rights
will have become null and void), in whole or in part, for Common Shares at an exchange ratio
of one Common Share per Right.
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Expiration
The
Rights will expire on the earliest of (i) the close of business on December 27, 2024, (ii) the time at which the Rights are redeemed
pursuant to the Rights Agreement, (iii) the closing of any merger or other acquisition transaction involving the Company that has been
approved by the Board, at which time the Rights are terminated, (iv) the business day immediately
following the Company’s 2022 annual meeting of shareholders (including any adjournment thereof) if the Rights Agreement shall not
have been approved, on or before such date, by the affirmative vote of the holders of a majority of the voting power present, in person
or by proxy, and entitled to vote at a meeting of the Company’s shareholders duly held in accordance with the Articles of
Amendment and Restatement of the Declaration of Trust of the Company, the Company’s bylaws
and Maryland law, and (v) the time at which the Rights are exchanged pursuant to the Rights Agreement (such earliest date, the
“Expiration Date”).
Redemption
At
any time before any person or group of affiliated or associated persons becomes an Acquiring Person, the Board may redeem the Rights
in whole, but not in part, for $0.0001 per Right (the “Redemption Price”); provided that if a majority
of the Board is not composed of Continuing Trustees (as defined below) then for a period of 180 days (or such other maximum period then
allowed under Maryland law) following the first occurrence thereof, the Rights cannot be redeemed. The Redemption Price is payable, at
the option of the Company, in cash, Common Shares or such other form of consideration as the Board shall determine. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price. The Redemption Price will be subject to adjustment in accordance with the Rights Agreement.
The
term “Continuing Trustee” means any member of the Board who is not an Acquiring Person (or an affiliate or
associate of an Acquiring Person) or a representative or nominee of an Acquiring Person (or of an affiliate or associate of an Acquiring
Person), and who either (x) was a member of the Board immediately prior to the date of the Rights Agreement or (y) on or subsequent to
the date of the Rights Agreement became a member of the Board and whose nomination for election or election to the Board is recommended
or approved by a majority of the Continuing Trustees.
Amendment
For
so long as the Rights are then redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in
any manner. If a majority of the Board is not composed of Continuing Trustees, then for a period of 180 days (or such other maximum period
then allowed under Maryland law) following the first occurrence thereof, the Company may, except with respect to the Redemption Price,
amend the Rights Agreement in any manner if (i) one or more Continuing Trustees are members of the Board and (ii) a majority of such
Continuing Trustees approve the amendment; provided that if any person or group of affiliated or associated persons becomes an
Acquiring Person prior to the termination of such period, any proposed amendments will be governed by the following sentence. At any
time after any person or group of affiliated or associated persons becomes an Acquiring Person, the Company may, except with respect
to the Redemption Price, amend the Rights Agreement in any manner that does not adversely affect the interests of holders of the Rights
(other than an Acquiring Person, affiliates and associates of an Acquiring Person and certain transferees thereof).
Anti-Dilution
Provisions
The
Board may adjust the Purchase Price, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution
that may occur from a share dividend, a share split, a reclassification of the Preferred Shares or Common Shares or certain other specified
transactions. No adjustments to the Purchase Price of less than 1% are required to be made.
Preferred
Shares
Each
Unit of a Preferred Share will entitle the holder thereof to the same dividends, liquidation and voting rights as if the holder held
one Common Share and will be treated the same as a Common Share in the event of a merger, consolidation or other share exchange. The
value of one Unit of a Preferred Share should approximate the value of one Common Share.
Anti-Takeover
Effects
The
Rights may have certain anti-takeover effects. In general terms and subject to certain exceptions, the Rights Agreement works by imposing
a significant penalty upon any person or group of affiliated or associated persons that acquires 5% or more of the outstanding Common
Shares (20% or more in the case of a passive institutional investor), except in certain situations specified in the Rights Agreement
(such person, an “Acquiring Person”). The Rights, however, should not interfere with any merger or other business
combination approved by the Board.