Paramount Group Inc

ITEM 1A.RISK FACTORS

The following risk factors amends and supplements the risk factors described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, and should be read in conjunction with the other risk factors presented in the Annual Report on Form 10-K.

We may from time to time be subject to litigation which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common stock.

We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others, to which we may be subject from time to time, may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

The Division of Enforcement of the SEC is conducting an investigation into the adequacy of our disclosures concerning executive compensation, perquisites, the use of corporate assets, related party transactions, and conflicts of interest. The investigation also covers possible failures of our controls and procedures relating to the topics of those disclosures. We are cooperating with the SEC. While we are unable to estimate the likely outcome of this matter or a reasonably probable range of potential costs or exposure, or the potential duration of the process, at this time, responding to an investigation of this type can be costly and time-consuming. If the SEC believes that violations occurred, it could also seek remedies including, but not limited to, civil monetary penalties and injunctive relief, and/or file litigation against us. 

We have also received two demand letters from purported shareholders, requesting that the Board investigate alleged breaches of fiduciary duties or other violations of law resulting from our publicly disclosed related party transactions, which may result in costs for us and/or distractions for management.

Risks Related to the Proposed Mergers

We are subject to various risks related to the proposed Mergers with Rithm Capital Corp.

The risks, contingencies and other uncertainties that could result in the failure of the proposed Mergers to be completed or, if completed, that could have a material adverse effect on our business, financial condition or results of operations following the proposed transaction, and any anticipated benefits of the proposed Mergers, include:

the failure to obtain necessary stockholder approval for the consummation of the proposed Company Merger;

the failure to satisfy required closing conditions or complete the proposed Mergers in a timely manner or at all;

the effect of the announcement of the proposed Mergers on each companys ability to retain and hire key personnel, maintain business relationships, and on operating results and the business generally;

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the diversion of managements attention from our core business as we work to take all steps necessary to close the transaction;

any incurrence of significant transaction related costs in connection with the proposed Mergers that are, and will be, incurred regardless of whether the proposed transaction is completed;

the potential loss of tenants, vendors, and other business partners or the termination of existing contracts or relationships in response to the proposed Mergers; and

the occurrence of any event giving rise to the right to terminate the Merger Agreement.

Moreover, we have incurred and expect to incur a number of non-recurring costs associated with the proposed Mergers, for which we will receive little or no benefit if the Mergers are not completed. These costs include financial advisory, legal, accounting, consulting and other advisory fees, severance/employee benefit-related costs, financing-related fees and costs, public company filing fees and other regulatory fees, printing costs and other related costs. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses. Many of these costs are payable by us regardless of whether or not the proposed Mergers are completed and may relate to activities that we would not have undertaken other than to complete the Mergers.

The consummation of the Mergers is subject to certain closing conditions, including, among others, the approval of the Company Merger by our stockholders, some or all of which may not be satisfied or completed within the expected timeframe, if at all.

Completion of the Mergers is subject to a number of closing conditions, including, among others, the approval of the Company Merger by the affirmative vote of the holders of shares of our common stock entitled to cast a majority of all the votes entitled to be cast at a stockholders meeting on the Company Merger. We can provide no assurance that such approval will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, even if such approval can be obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance that other events will not intervene to delay or result in the termination of the proposed Mergers. Additionally, under circumstances specified in the Merger Agreement, we or Parent may terminate the Merger Agreement. Any adverse consequence of the pending Mergers could be exacerbated by any delays in completion of the Mergers or termination of the Merger Agreement.

Each partys obligation to consummate the Mergers is also subject to the accuracy of the representations and warranties of the other party (subject to customary materiality qualifications) and compliance in all material respects with the covenants and agreements contained in the Merger Agreement as of the closing of the Mergers, including, with respect to us, covenants to conduct our business in the ordinary course and to not engage in certain kinds of transactions prior to closing. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, in connection with a change in the recommendation of our Board of Directors to enter into an agreement for a Superior Proposal. As a result, we cannot assure you that the Mergers will be completed even if our stockholders approve the Company Merger, or that, if completed, it will be exactly on the terms set forth in the Merger Agreement or within the expected timeframe.

We may not complete the proposed Mergers within the timeframe anticipated or at all, which could have an adverse effect on our business, financial results and operations.

The proposed Mergers may not be completed within the expected timeframe, or at all, as a result of various factors and conditions, some of which may be beyond our control. If the Mergers are not completed for any reason, including as a result of the stockholders failing to approve the Company Merger, our stockholders will not receive any payment for their shares of our common stock. Instead, we will remain a public company, our common stock will continue to be listed and traded on The New York Stock Exchange and registered under the Exchange Act, and we will be required to continue to file periodic reports with the SEC. Moreover, our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:

we may experience negative reactions from the financial markets, including negative impacts on stock price, and it is uncertain when, if ever, the price of the shares would return to the prices at which the shares currently trade;

we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees and those with whom we do business;

we will still be required to pay certain significant costs relating to the Mergers, such as legal, accounting, financial advisory, regulatory, printing and other professional services fees, which may relate to activities that we would not have undertaken other than in connection with the Mergers;

we may be required to pay a cash termination fee to Parent of up to $57

9.7 million, as required under the Merger Agreement under certain circumstances;

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while the Merger Agreement is in effect, we are subject to restrictions on our business activities, including, among other things, restrictions on our ability to engage in certain kinds of material transactions, including, subject to certain exceptions, acquiring other properties or disposing of currently owned properties, making capital expenditures, or incurring indebtedness, which could prevent us from pursuing strategic business opportunities, taking actions with respect to the business that we may consider advantageous and responding effectively and/or timely to competitive pressures and industry developments, and may, as a result, materially adversely affect the business, results of operations and financial condition;

matters relating to the Mergers require substantial commitments of time and resources by management, which could result in the distraction of management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and

we may commit significant time and resources to defending against litigation related to the Mergers.

If the Mergers are not consummated, the risks described above may materialize, and they may have a material adverse effect on our business operations, financial results and stock price, particularly to the extent that the current market price of our common stock reflects an assumption that the Mergers will be completed.

We will be subject to various uncertainties while the Mergers are pending that may cause disruption and may make it more difficult to maintain relationships with tenants and other third-party business partners.

Our efforts to complete the Mergers could cause substantial disruptions in, and create uncertainty surrounding, the business, which may materially adversely affect results of operation and the business. Uncertainty as to whether the Mergers will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the Mergers are pending because employees may experience uncertainty about their roles following the Mergers. As mentioned above, a substantial amount of managements and employees attention is being directed toward the completion of the Mergers and thus is being diverted from its day-to-day operations. Uncertainty as to the future could adversely affect our business and our relationship with tenants and potential tenants. For example, tenants and other third parties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to or termination of existing business relationships could adversely affect our revenue, earnings and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the Mergers could be exacerbated by any delays in completion of the Mergers or termination of the Merger Agreement.

In certain instances, the Merger Agreement requires us to pay a termination fee to Parent, which could affect the decisions of a third party considering making an alternative acquisition proposal.

In certain specified circumstances further described in the Merger Agreement, in connection with the termination of the Merger Agreement, we will be required to pay Parent a termination fee of $59.7 million, including if Parent terminates the Merger Agreement after the Company Board changes its recommendation to the stockholders or if the Company terminates the Merger Agreement to enter into an alternative acquisition agreement with respect to a Superior Proposal. Pursuant to the Amendment, the definition of Company Termination Payment in the Original Merger Agreement was modified to provide that, notwithstanding the foregoing, the Company will instead be required to pay Parent a termination payment of $47.7 million if the Company enters into an alternative acquisition agreement providing for a Superior Proposal with certain persons. This payment could affect the structure, pricing and terms proposed by a third party seeking to acquire or merge with us and could discourage a third party from making a competing acquisition proposal or inquiry, including a proposal that would be more favorable to our stockholders than the Mergers. For these and other reasons, termination of the Merger Agreement could materially and adversely affect business operations and financial results, which in turn would materially and adversely affect the price of our common stock.

We may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Mergers from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the proposed Mergers, then that injunction may delay or prevent the proposed Mergers from being completed, which may adversely affect our business, financial position and results of operation.

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