The Company approved the pro rata rights offering because the proceeds are essential to retire the credit facility secured by Delano South Beach, which is a precondition for closing the transaction with Yucaipa. In addition, the rights offering is projected to raise $65 million of additional cash that will be used to fund general corporate purposes, including working capital, and growth through investment in Morgans' expanding pipeline of new hotel contracts.
The rights offering is structured to ensure there is no inherent dilution to shareholders' ownership interests or voting power. The rights offering will be available pro rata to all of the Company's shareholders at $6 per share, a discount to the Company's closing stock price on April 8 th. Holders of the rights, which will be fully transferable, will also be entitled to subscribe for additional shares of common stock up to 50% of their basic pro-rata subscription amount, depending upon the number of rights that expire unexercised and certain other limitations. To ensure that the Company raises the full $100 million needed by the Company to fund working capital and growth, Yucaipa agreed to fully backstop the rights offering, at no fee, and only to the extent that the rights are not exercised by existing shareholders (including existing shareholders' right to subscribe for additional shares up to 50% of their basic pro-rata subscription). OTK had the opportunity to backstop a material portion of the $6 rights offering and it did not. The rights offering and transaction with Yucaipa is the result of a 15-month process by a special committee of the Company's Board established to review strategic alternatives.
Mr. Gross added: "Among the benefits of the recently announced transaction with Yucaipa is the elimination of Yucaipa's consent rights over certain major decisions, including a sale of substantially all of the assets or outright sale of the company, in certain circumstances. The removal of these consent rights will provide our Board with significant flexibility to further explore all avenues to maximize shareholder value, and is another reason why the Yucaipa transaction and associated rights offering is in the best interest of all our shareholders."
The Company has not set a launch date for the rights offering, but currently expects this to occur in the second half of May 2013, with the expiration date occurring approximately one month later. The Company's 2013 annual meeting remains scheduled to take place on July 10, 2013 and the record date for the 2013 annual meeting remains set at May 29, 2013.The rights offering is being made pursuant to a shelf registration statement on Form S-3 that was previously filed with the Securities and Exchange Commission (the "SEC") and became effective on August 3, 2010. A prospectus supplement relating to the rights offering will be filed with the SEC. Additional information regarding the rights offering will be set forth in the prospectus supplement. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any of these securities, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.
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