Item 1.01. Entry into a Material Definitive
Agreement.
On August 10, 2022, iStar
Inc., a Maryland corporation (“STAR”), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with Safehold Inc., a Maryland corporation (“SAFE”).
As discussed further below,
shortly before the closing of the Merger, STAR intends to separate its remaining legacy non-ground lease assets and businesses into a
separate public company (“SpinCo”) by distributing to STAR’s stockholders, on a pro rata basis, the issued and
outstanding equity interests of SpinCo (the “Spin-Off”).
Agreement and Plan of Merger
Transaction Structure
The Merger Agreement provides
that, subject to the terms and conditions thereof, SAFE will merge with and into STAR (the “Merger”). The surviving
company of the Merger will be named Safehold Inc. (“New SAFE”) and its shares of common stock will trade on the New
York Stock Exchange under the symbol “SAFE.”
In the Merger and related
transactions, each issued and outstanding share of common stock, par value $0.001 per share, of STAR (“STAR Common Stock”)
will, by means of a reverse stock split (the “Reverse Split”), be combined into a fraction of a share of STAR Common
Stock equal to (i) (a) the number of shares of common stock, par value $0.01 per share, of SAFE (“SAFE Common Stock”)
held by STAR and its wholly-owned subsidiaries as of immediately prior to the Reverse Split (after giving effect to (x) the Spin-Off,
(y) distributions in respect of STAR’s performance incentive program known as “iPIP” and (z) the transaction with MSD
Partners, L.P. discussed below), plus (b) 1,195,034 (representing $50 million of shares based on recent trading prices), plus
(c) the number of shares of SAFE Common Stock payable in respect of accrued but unpaid management fees owing to STAR, divided by
(ii) the aggregate number of issued and outstanding shares of STAR Common Stock as of immediately prior to the Reverse Split (the “STAR
Share Consolidation Ratio”).
Based on the number of shares
of STAR Common Stock currently outstanding, each STAR stockholder is expected to receive approximately 0.27 of a share of STAR Common
Stock for each share of STAR Common Stock that such stockholder owns, and these shares will remain outstanding as shares of common stock,
par value, $0.01 per share, of New SAFE (“New SAFE Common Stock”) from and after the effective time of the Merger (the
“Effective Time”). By virtue of the Merger, each share of SAFE Common Stock issued and outstanding immediately prior
to the Effective Time will be converted into the right to receive one share of New SAFE Common Stock.
Pro forma for the Merger,
the Spin-Off and related transactions, approximately 37% and 34% of the New SAFE Common Stock is expected to be held by STAR’s and
SAFE’s pre-Merger stockholders, respectively, and 14% of New SAFE Common Stock is expected to be held by STAR’s pre-Merger
stockholders indirectly through their interests in SpinCo. Such ownership percentages are based on the number of shares currently outstanding
at each company.
All of STAR’s outstanding
preferred stock will be cashed out in the Merger at the liquidation preference per share plus accrued and unpaid dividends.
STAR has covenanted to retire
all of its senior unsecured notes in connection with the Merger. Its trust preferred securities will remain outstanding at New SAFE.
Governance and Other Matters
New SAFE’s board of
directors will be comprised of three individuals designated by STAR and four individuals designated by SAFE. New SAFE will be governed
by a charter and bylaws that are substantially similar to SAFE’s pre-Merger charter and bylaws.
Conditions to the Merger
The consummation of the Merger
is subject to the satisfaction or waiver of certain closing conditions, including: (i) the approval of SAFE’s stockholders, (ii)
the approval of STAR’s stockholders, (iii) completion of the Spin-Off, (iv) the approval of the shares of STAR Common Stock to be
issued in the Merger for listing on the NYSE, (v) the effectiveness of a registration statement on Form S-4 registering the STAR Common
Stock to be issued in the Merger, (vi) the absence of any temporary restraining order, injunction or other order of any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation of the reverse stock split or the Merger, (vii) generation
of certain cash proceeds, (viii) the receipt of certain tax opinions by STAR and SAFE that the Merger will qualify as a reorganization
under the Internal Revenue Code and that STAR and SAFE each qualifies as a REIT for federal income tax purposes, (ix) the accuracy of
certain representations and warranties of STAR and SAFE contained in the Merger Agreement and the compliance by the parties with the covenants
contained in the Merger Agreement (subject to customary materiality qualifiers), and (x) other conditions specified in the Merger Agreement.
Other Terms of the Merger Agreement
STAR and SAFE each made certain
representations, warranties and covenants in the Merger Agreement, including the pre-closing obligation of the companies to conduct their
respective businesses in the ordinary course (consistent with their respective stated corporate strategies), the pre-closing obligation
of each party to refrain from taking certain specified actions without the consent of the other party and the pre-closing obligation of
STAR to redeem its outstanding senior unsecured notes substantially concurrently with the closing.
The Merger Agreement provides
that, during the period from the date of the Merger Agreement until the earlier of the Effective Time or the termination of the Merger
Agreement, each of STAR and SAFE will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from
third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative
acquisition proposals, subject to certain exceptions. Subject to certain conditions, either party’s board of directors is permitted
to change its recommendation to its stockholders in response to, or terminate the Merger Agreement to enter into, a “Superior Proposal”
(as defined in the Merger Agreement) if it (acting on the recommendation of that board of directors’ special committee) determines
that the failure to so would be inconsistent with its duties to its stockholders. Either party’s board of directors may also, subject
to certain conditions, change its recommendation to its stockholders in response to the occurrence of certain material changes or developments
if it (acting on the recommendation of that board of directors’ special committee) determines that the failure to so change its
recommendation would be inconsistent with its duties to its stockholders.
A termination fee of $63 million
is payable upon termination of the Merger Agreement in certain circumstances, including a termination to enter into a “Superior
Proposal” by either of the board of directors of STAR or SAFE. In addition to the foregoing termination rights, either party may
terminate the Merger Agreement if the Merger is not consummated on or before September 30, 2023, subject to certain exceptions.
Voting Agreement
Concurrently with the execution
and delivery of the Merger Agreement, STAR entered into a voting agreement with SAFE (the “STAR Voting Agreement”).
The STAR Voting Agreement requires that STAR vote its shares representing 41.9% of the outstanding SAFE Common Stock to approve the Merger
and take certain other actions, including voting against any alternative acquisition proposal or other proposal which could reasonably
be expected to materially delay, postpone or materially adversely affect the consummation of the transactions contemplated by the Merger
Agreement. In accordance with the terms of the existing stockholders’ agreement between SAFE and STAR, the remainder of the SAFE
Common Stock owned by STAR will be voted in the same manner and proportion as the votes cast by the remaining shareholders of SAFE. The
STAR Voting Agreement and the obligations thereunder terminate upon the termination of the Merger Agreement in accordance with its terms.
SpinCo Spinoff
Prior to the Effective Time,
STAR and SpinCo intend to enter into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”),
pursuant to which, subject to the terms and conditions set forth therein, the Spin-Off will be consummated and the assets and liabilities
of STAR will be allocated between SpinCo and STAR. Pursuant to the Separation and Distribution Agreement, SpinCo will assume the assets
and liabilities primarily related to STAR’s legacy assets and operations and STAR will retain the assets and liabilities primarily
related to its ground lease and ground lease adjacent assets and operations, subject to certain exceptions as set forth therein. In addition,
STAR will contribute $50.0 million of cash and $400 million in shares of SAFE Common Stock owned by STAR to SpinCo prior to the Spin-Off
and these shares will be converted into shares of New SAFE Common Stock in the Merger.
In connection with the Spin-Off,
SpinCo or a subsidiary of SpinCo will enter into two separate financing arrangements: a $100.0 million secured term loan to be provided
by STAR and assumed by New SAFE in the Merger that will be primarily secured by SpinCo’s real estate assets, and an up to $140.0
million margin loan from a financial institution that will be secured by the shares of New SAFE Common Stock owned by SpinCo. The proceeds
of these financings will be used by STAR to redeem its outstanding unsecured senior notes. STAR has obtained commitments for both financings.
The financing commitments are each subject to certain conditions, including the negotiation of definitive documentation for the loans
and that all conditions to the Spin-Off and the Merger shall have been satisfied. STAR will pay customary fees and expenses in connection
with obtaining the margin loan commitment and has agreed to indemnify the lenders if certain losses are incurred by the lenders in connection
therewith. Among other termination rights, the obligations of the lender under the margin loan commitment will terminate automatically
upon the earlier of the outside date under the Merger Agreement or December 31, 2023.
Completion of the Spin-Off
is subject to (i) completion of the financing documents; (ii) the satisfaction or waiver of relevant conditions to the consummation of
the Merger; (iii) effectiveness of a Registration Statement on Form 10; (iv) the absence of an injunction or law preventing the consummation
of the Spin-Off, the distribution and the transactions related thereto; and (v) other customary closing conditions.
At or prior to the closing
of the Spin-Off, STAR and SpinCo will execute a management agreement (the “Management Agreement”), a governance agreement
(the “Governance Agreement”) and a registration rights agreement (the “Registration Rights Agreement”),
substantially in the forms agreed between the parties. Pursuant to the Management Agreement, a subsidiary of New SAFE will serve as SpinCo’s
external manager (the “Manager”). The Management Agreement will have an initial one year term and automatic annual
renewal terms thereafter, subject to certain termination rights. SpinCo will pay the Manager an annual management fee of $25.0 million,
$15.0 million, $10.0 million and $5.0 million for each of the first four annual terms, respectively, and 2.0% of the value of SpinCo’s
assets, excluding shares of New SAFE, for each annual term thereafter. In addition, SpinCo will reimburse the Manager for certain expenses.
The Governance Agreement will
provide, among other things, that: SpinCo will be subject to certain restrictions on the transfer of its shares of New SAFE Common Stock;
SpinCo will vote its shares of New SAFE Common Stock in accordance with the recommendations of the board of directors of New SAFE; and
SpinCo will be subject to certain standstill agreements with respect to New SAFE. The voting and standstill covenants are subject to termination
if New SAFE terminates the Management Agreement, the Management Agreement is terminated for any other reason and SpinCo beneficially owns
less than 7.5% of the outstanding New SAFE Common Stock or there is a “Change of Control” of New SAFE, as defined in the Governance
Agreement.
Pursuant to the Registration
Rights Agreement, New SAFE will agree to file within seven months following the closing of the Merger a shelf registration statement and
keep such shelf registration statement effective so long as SpinCo (and its permitted assigns) own Registrable Shares (as defined in the
Registration Rights Agreement). In addition, SpinCo (and its permitted assigns) will be able to cause New SAFE to undertake one demand
registration (including pursuant to an underwritten take down). The Registration Rights Agreement will also grant SpinCo certain customary
piggyback registration rights.
MSD Transaction
STAR has entered into an agreement
(the “MSD Stock Purchase Agreement”) with MSD Partners, L.P. (“MSD Partners”) and SAFE under which
STAR has agreed to sell and MSD Partners has agreed to buy 5,405,406 shares of SAFE Common Stock owned by STAR (the “MSD Stock
Purchase”) shortly before the closing of the Merger. If the Merger Agreement is terminated for any reason, the parties’
obligations to consummate the purchase and sale will also terminate. In addition to customary closing conditions, MSD Partners’
obligations to purchase the SAFE Common Stock are subject to the condition that the closing of the MSD Caret Purchase (as defined below)
will take place substantially concurrently with the closing of the MSD Stock Purchase. Upon closing of the transaction, MSD Partners will
have a right to designate an observer to the board of directors of New SAFE, a preemptive right on future equity issuances (subject to
certain exceptions) and registration rights. MSD Partners will be subject to a customary standstill and certain restrictions on sales
of its New SAFE Common Stock.
MSD Partners has also subscribed
to purchase 100,000 Caret units from SAFE for an aggregate purchase price of $20.0 million (the “MSD Caret Purchase”),
conditioned on the closing of the Spin-Off and the Merger. MSD Partners’ obligations to purchase the Caret units are also subject
to the closing of the MSD Stock Purchase and the implementation by SAFE of certain changes to its Caret program.
The foregoing descriptions
of the Merger, the Merger Agreement, the STAR Voting Agreement, the Separation and Distribution Agreement, the Governance Agreement, the
Registration Rights Agreement and the MSD Stock Purchase Agreement (together, the “Transaction Agreements”) do not
purport to be complete and are subject to, and qualified in their entirety by, (i) the full text of the Merger Agreement (including the
forms of Separation and Distribution Agreement, Governance Agreement and Registration Rights Agreement filed as exhibits to the Merger
Agreement), a copy of which is filed herewith as Exhibit 2.1 and is incorporated into this report by reference in its entirety, (ii) the
full text of the STAR Voting Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated into this report by reference
in its entirety and (iii) the full text of the MSD Stock Purchase Agreement, a copy of which is filed herewith as Exhibit 10.2 and is
incorporated into this report by reference in its entirety. The Transaction Agreements have been attached to provide investors with information
regarding their terms. They are not intended to provide any other factual information about the parties thereto or to modify or supplement
any factual disclosures about STAR or SAFE in their respective public reports filed with the U.S. Securities and Exchange Commission (the
“SEC”). The Transaction Agreements include representations, warranties and covenants of the parties thereto made solely
for the purposes of such Transaction Agreements and which may be subject to important qualifications and limitations agreed to by the
parties thereto in connection with the negotiated terms of the applicable Transaction Agreements. Moreover, some of those representations
and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different
from those generally applicable to STAR’s and SAFE’s respective SEC filings or may have been used for purposes of allocating
risk among STAR, SAFE and the other parties thereto, rather than establishing matters as facts. Accordingly, the representations and warranties
in the Transaction Agreements should not be relied on as characterizations of the actual state of facts about STAR, SAFE or the other
parties thereto.