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Silver Star Announces Flip-In Event/Double Share Increase in Latest Move Against Hartman

Silver Star Announces Flip-In Event/Double Share Increase in Latest Move Against Hartman. Alternative Investment, Hartman, Silver Star, REIT, Real Estate Investment Trust, Financial Services, Commercial Real Estate

The war between Silver Star Properties REIT, a publicly registered non-traded real estate investment trust formerly known as Hartman Short Term Income Properties XX Inc., and the company’s former CEO, Allen Hartman, continues.

Silver Star announced that its board of directors has “acted decisively to protect its business plan and the majority of its stakeholders” by doubling the number of shares of the company’s common stock for most shareholders at no additional cost.

According to Silver Star, in August 2023, the company entered into a rights agreement between Silver Star and Phoenix Financial Services, Inc., a third-party fund administrator, as the rights agent to protect itself and its investors from “a group of dissidents acting against their interests.” The board has since determined that Allen Hartman and his affiliated parties, presumably the “dissidents,” have become “acquiring persons,” which has instigated a flip-in event.

The Silver Star rights agreement defines an acquiring person as the beneficial owner of 10% or more of the outstanding common stock. As previously stated by Hartman, he and his affiliates own 13.2% of the company’s common stock, making them the largest shareholder and, according to the rights agreement, an acquiring person, the first occurrence of such an event referred to as the flip-in event.

Silver Star’s board claims that it may now, at its option, exchange part or all of the outstanding rights, excluding Hartman’s rights, for common stock at a ratio of one-to-one. Effectively, most shareholders, other than Hartman and his affiliates, will see their number of shares doubled.

A flip-in event is a common type of “poison pill” defense sometimes used by a board of directors in an effort to prevent a takeover. The event permits shareholders, other than the potential acquirer, to purchase or receive additional shares at a discount. This contributes to the dilution of shares held by the acquirer, causing the takeover attempt to become more costly and difficult to achieve.

This escalation is just the latest in the battle between Silver Star and Hartman. As previously reported by The DI Wire, Silver Star’s executive committee claimed that Hartman was seeking “personal control” of Silver Star and was attempting “to avoid paying for the damages that he has caused…” Hartman responded by doubling down on his previous allegations, claiming that Silver Star’s board had gone “rogue” and was putting its shareholders’ capital at risk.

These accusations coincide with a number of company resignations for Silver Star. CEO Mark Torok, resigned in May, just one month after reaching a long-term employment agreement with Silver Star. His replacement, Steve Treadwell was hired in August. Just two months later, Treadwell resigned.

Michael Racusin announced his resignation as Silver Star’s senior vice president, general counsel and corporate secretary in January. Adrienne Collins was recently named as his successor.

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