Item 8.01 Other Events.
As previously disclosed, on February 16, 2022, Preferred Apartment Communities,
Inc., a Maryland corporation (the "Company"), Preferred Apartment Communities
Operating Partnership, L.P., a Delaware limited partnership (the "Partnership"),
PAC Operations, LLC, a Delaware limited liability company ("Operations"), Pike
Parent LLC, a Delaware limited liability company ("Parent"), Pike Merger Sub I
LLC, a Delaware limited liability company ("Merger Sub I"), Pike Merger Sub II
LLC, a Delaware limited liability company ("Merger Sub II"), and Pike Merger Sub
III LLC, a Delaware limited liability company ("Merger Sub III" and, together
with Parent, Merger Sub I and Merger Sub II, the "Parent Parties") entered into
an Agreement and Plan of Merger (the "Merger Agreement"). The Parent Parties are
affiliates of Blackstone Real Estate Income Trust, Inc. Pursuant to the terms
and subject to the conditions set forth in the Merger Agreement, at the closing
of the Mergers (as defined below) (the "Closing"), Merger Sub II will merge with
and into the Partnership (the "Partnership Merger"), with the Partnership
surviving (the "Surviving Partnership"), immediately following the Partnership
Merger, Operations will merge with and into Merger Sub III (the "Operations
Merger"), with Merger Sub III surviving, and immediately following the
Operations Merger, the Company will merge with and into Merger Sub I (the
"Company Merger" and, together with the Partnership Merger and the Operations
Merger, the "Mergers") with Merger Sub I surviving. A definitive proxy statement
(the "Proxy Statement") was filed with the Securities and Exchange Commission
(the "SEC") by the Company on April 14, 2022, in connection with, among other
things, the Merger Agreement.
Certain Merger-Related Litigation Matters
Following the filing of the Proxy Statement, six additional lawsuits were filed
relating to the Mergers and the Proxy Statement: Whitfield v. Preferred
Apartment Communities, Inc., et al., No. 2:22-cv-01542-RBS, which we refer to as
the "Whitfield Lawsuit," was filed in the Eastern District of Pennsylvania;
Weinrib v. Bartkowski, et al., No. 24-C-22-002041, which we refer to as the
"Weinrib Lawsuit," was filed in the Maryland Circuit Court for Baltimore City;
Milbourne v. Bartkowski, et al., 24-C-22-002038 which we refer to as the
"Milbourne Lawsuit," was also filed in the Maryland Circuit Court for Baltimore
City; Grady v. Preferred Apartment Communities, et al., No.
1:22-cv-02588-AMD-SJB, which we refer to as the "Grady Lawsuit," was filed in
the United States District Court for the Eastern District of New York; Taylor v.
Preferred Apartment Communities, et al., No. 1:22-cv-04044, which we refer to as
the "Taylor Lawsuit," was filed in the United States District Court for the
Southern District of New York; and Watson v. Preferred Apartment Communities, et
al., No. 1:22-cv-04053, which we refer to as the "Watson Lawsuit," was filed in
the United States District Court for the Southern District of New York.
The Whitfield Lawsuit asserts a claim under Section 14(a) of the Exchange Act
against the Company and the members of our board of directors and a claim under
Section 20(a) of the Exchange Act against the directors. The Whitfield Lawsuit
alleges that the Proxy Statement omits material information on certain topics,
including the line items used to calculate the financial projections, input data
and assumptions used in Goldman Sachs' analysis and the Company's nondisclosure
agreements with potential counterparties. The Whitfield Lawsuit seeks to enjoin
defendants from proceeding with the proposed merger, rescission of the merger
and an award of damages if the merger is consummated, and an award of
plaintiff's costs and attorney's fees.
The Weinrib Lawsuit and the Milbourne Lawsuits are nearly identical to each
other in all respects. The Weinrib and Milbourne Lawsuits each allege that the
Proxy Statement omits material information on certain topics, including certain
financial projections, line items used to calculate financial projections, a
reconciliation of non-GAAP financial metrics to GAAP metrics, input data and
assumptions used in Goldman Sachs' analysis, information relating to the work
performed by KeyBanc Capital Markets Inc., details regarding any discussions
about the future employment of the Company's officers and directors, discussions
the Company may have had with Arkhouse Securities LLC after Arkhouse sent the
Company a nomination notice for five board seats, and information regarding
whether the board considered the possibility that Arkhouse was working in
concert with Blackstone. The Weinrib and Milbourne Lawsuits also allege that the
Company's officers stand to benefit from the proposed merger, that the directors
failed to evaluate appropriately the Company's worth, that the directors failed
to enhance the Company's value and protect shareholder interests, and that the
Company did not engage in a meaningful auction. Relying on those allegations,
the Weinrib and Milbourne Lawsuits each assert a claim for breach of fiduciary
duties against the directors in their role as directors, a claim for declaratory
and equitable relief against all the Company and the directors, and a claim
against Mr. Murphy for allegedly breaching his fiduciary duties as an officer of
the Company. The Weinrib and Milbourne Lawsuits seek declaratory relief, an
injunction barring the shareholder vote and the consummation of the proposed
merger, rescission of the merger if it is consummated, and an award of damages
and attorney's fees.
The Grady Lawsuit and Taylor Lawsuit each assert a claim under Section 14(a) of
the Exchange Act against the Company and the members of our board of directors
and a claim under Section 20(a) of the Exchange Act against the directors. The
Grady Lawsuit and Taylor Lawsuits both allege that the Proxy Statement omits
material information on certain topics, including the Company's financial
projections, Goldman Sach's financial analyses, potential conflicts of interest
involving Company insiders, and the sales process and the confidentiality
agreements the Company executed. The Grady Lawsuit and
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the Taylor Lawsuit seek to enjoin defendants from proceeding with the
shareholder vote and proposed merger, rescission of the merger if the merger is
consummated, and an award of damages, plaintiff's costs and attorney's fees.
The Watson Lawsuit asserts a claim under Section 14(a) of the Exchange Act
against the Company and the members of our board of directors and a claim under
Section 20(a) of the Exchange Act against the directors. The Watson Lawsuit
alleges that the Proxy Statement omits material information on certain topics,
including the Company's financial projections and Goldman Sachs' financial
analyses. The Watson Lawsuit seeks to enjoin defendants from proceeding with the
proposed merger, an order directing the defendants to disseminate a revised
Proxy Statement, and an award of damages, plaintiff's costs and attorney's fees.
The results of complex legal proceedings are difficult to predict, and these
proceedings could delay or prevent the mergers from becoming effective in a
timely manner. Although the ultimate outcome of these matters cannot be
predicted with certainty, the Company believes that these lawsuits are without
merit and intends to defend against these actions vigorously.
While the Company believes that the disclosures in connection with the proposed
transaction, including those set forth in the Proxy Statement, comply fully with
applicable law, the Company has determined to voluntarily supplement the Proxy
Statement with the supplemental disclosures set forth below in order to moot the
plaintiffs' disclosure claims in the pending actions described above and in the
Proxy Statement, avoid nuisance and possible expense and business delays, and
provide additional information to its stockholders. Nothing in these
supplemental disclosures shall be deemed an admission of the legal necessity or
materiality under applicable laws of any of the disclosures set forth herein or
of the legal merit of the various litigation matters described above and in the
Proxy Statement. To the contrary, the Company specifically denies all
allegations in the litigation that any additional disclosure was or is required
or material.
SUPPLEMENTAL DISCLOSURES TO DEFINITIVE PROXY STATEMENT
These following supplemental disclosures should be read in connection with the
Proxy Statement, which should be read in its entirety. The inclusion in this
supplement to the Proxy Statement of certain information should not be regarded
as an indication that any of the Company or its affiliates, officers, directors
or other representatives, or any other recipient of this information,
considered, or now considers, it to be material, and such information should not
be relied upon as such. To the extent that information herein differs from or
updates information contained in the Proxy Statement, the information contained
herein supersedes the information contained in the Proxy Statement. Capitalized
terms used but not defined herein have the meanings set forth in the Proxy
Statement, unless otherwise defined below. All page references in the
information below are to pages in the Proxy Statement. For clarity, new text
within restated paragraphs (other than tables and related footnotes) from the
Proxy Statement is highlighted with bold, underlined text, and deleted text
within restated paragraphs from the Proxy Statement is highlighted with
strikethrough text.
The following supplemental disclosure amends and restates in its entirety the
first full paragraph on page 37 of the Proxy Statement concerning the Background
of the Mergers:
Mr. McLure, as our lead independent director, noted that our board of directors
needed to understand Blackstone's thoughts about retaining the Company platform
and employees in connection with finalizing a transaction, assuming that the
Company and Blackstone could agree to the price and other material terms of the
transaction. The directors unanimously agreed that, if the transaction
progressed, Mr. McLure should discuss Blackstone's intentions. The directors and
a representative of V&E also discussed options to handle future negotiations
with Blackstone given the pace of the transaction. Our board of directors also
discussed the interests of our directors and executive officers in the mergers
that are different from, or in addition to, those of our stockholders generally,
as discussed under "-Interests of our Directors and Executive Officers in the
Mergers". Following this discussion, our board of directors formed a committee
of directors consisting of Mr. Murphy as well as independent directors Mr.
McLure, John Cannon, Sara Finley and Tim Peterson (the "Transaction Committee")
in order to expeditiously evaluate and handle future negotiations with
Blackstone. Accordingly, the Transaction Committee was given the power and
authority to, among other things, negotiate the terms and conditions of a
transaction with Blackstone or any alternative transaction with a potential
acquirer, report to our board of directors at such times as the Transaction
Committee deems appropriate, and make recommendations to our board of directors
in respect of a potential transaction, including a recommendation not to proceed
with the transaction or to proceed with an alternative transaction, and to
utilize any of the Company's professional advisors or retain such other
professional advisors as the Transaction Committee deems necessary to accomplish
the foregoing.
The following supplemental disclosure adds the following additional paragraph
immediately following the sixth full paragraph on Page 38 of the Proxy Statement
concerning the Background of the Mergers.
On February 16, 2022, our board of directors engaged KeyBanc Capital Markets,
Inc. ("KBCM"), as an additional financial advisor to the Company. KBCM agreed to
provide, as the Company may reasonably request, financial advice and assistance
in connection with the transaction and coordinating and collaborating with
Goldman Sachs in connection with the provision
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of such services. As consideration for KBCM's services, the Company agreed to
pay KBCM a transaction fee of $1 million, to be paid upon consummation of the
transaction.
The following supplemental disclosure amends and restates in its entirety the
third full paragraph on page 40 of the Proxy Statement concerning the Go-Shop
Period:
Later in the day on February 16, 2022, at the direction of our board of
directors, representatives of Goldman Sachs began contacting Party A, Party B,
Party C and other potential counterparties that might consider entering into an
alternative transaction with the Company. In addition, on February 17, 2022, Mr.
Murphy sent an e-mail to Party A acknowledging its non-binding proposal from
February 15, 2022, notifying it that the Company had begun its go-shop process
pursuant to the merger agreement and welcoming Party A's participation in the
process. During the go-shop period, Goldman Sachs contacted 23 potential
counterparties (including Party A, Party B and Party C), consisting of five
strategic parties and 18 financial sponsor parties, and received inbound
inquiries from two additional potential counterparties (one strategic and one
financial). Of these 25 parties, nine, including Party A, Party B and Party C,
entered into a confidentiality agreement with the Company (each, a "Go-Shop
Confidentiality Agreement"). Each Go-Shop Confidentiality Agreement included
customary confidentiality restrictions and restrictions on the use of non-public
information of the Company, including a standstill obligation without a "don't
ask, don't waive" provision. Each of the Go-Shop Confidentiality Agreements was
similar to each other Go-Shop Confidentiality Agreement in all material
respects, except that certain of the Go-Shop Confidentiality Agreements
contained limited exceptions to prohibitions on joint purchasing in instances
where joint bidders approached the Company. Each of the parties that entered
into a confidentiality agreement Go-Shop Confidentiality Agreement received
access to the virtual data room containing non-public information about the
Company. None of the potential bidders approached during the go-shop period were
precluded from submitting a superior proposal due to the Go-Shop Confidentiality
Agreements. Other than the proposal submitted by Party A on February 15, 2022,
. . .
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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