We have established an Audit Committee consisting of the following
individuals, each of whom qualifies as independent within the meaning of the applicable listing rules of the Nasdaq and meets the
criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act: Joseph L. Morea (Chair), Barbara D. Gilmore,
Lisa Harris Jones, Rajan C. Penkar and Elena B. Poptodorova. Our Board has determined that Ms. Gilmore meets the qualifications
of an “audit committee financial expert” under SEC rules.
Our Board is committed to corporate governance that promotes the long
term interests of our stockholders. Our Board has established Governance Guidelines that provide a framework for effective governance.
Our Board regularly reviews developments in corporate governance and updates our Governance Guidelines and other governance materials
as it deems necessary and appropriate.
We have also adopted a Code of Business Conduct and Ethics (the “Code”)
to, among other things, provide guidance to our and our subsidiaries’ directors, officers and employees and RMR, its officers and
employees and its parent’s and subsidiaries’ directors, trustees, officers and employees to ensure compliance with applicable
laws and regulations.
Our Board has an Audit Committee, Compensation Committee and Nominating
and Governance Committee. Our Audit Committee, Compensation Committee and Nominating and Governance Committee each have a written charter,
and each Board committee reviews its written charter on an annual basis to consider whether any changes are required.
Our Audit Committee, Compensation Committee and Nominating and Governance
Committee are each comprised entirely of Independent Directors under applicable Nasdaq rules who also meet the independence criteria
applicable to audit committees and compensation committees under the Sarbanes-Oxley Act of 2002 and the SEC’s implementing rules under
that law.
ITEM 11. |
Executive Compensation. |
Compensation Discussion and
Analysis
This Compensation Discussion and Analysis describes the fiscal year
2022 compensation of our named executive officers. For fiscal 2022, our named executive officers were:
Jonathan M. Pertchik, our Managing Director and Chief Executive Officer
Barry A. Richards, our President
Peter J. Crage, our Executive Vice President, Chief Financial Officer
and Treasurer
Mark R. Young, our Executive Vice President and General Counsel
Compensation Overview
We strive to maintain an executive compensation
program which reflects best practices. We compensate our executive officers with a combination of base salary, cash bonus and equity
compensation awards. Our executive compensation program is intended to recognize each executive officer’s scope of responsibilities,
reward demonstrated performance and leadership and motivate continued employment and high levels of service. One of our executive officers,
Jonathan M. Pertchik, is also an executive officer of RMR which provides business management services to us. The cash compensation we
pay to Messrs. Pertchik, Young and Crage is based on a percentage allocation of their business time and efforts to RMR and to us.
Because at least 80% of Messrs. Pertchik’s, Young’s and Crage’s business time during 2022, was devoted to services
to us, 80% of their cash compensation (that is, the combined base salary and cash bonus we and RMR pay to them) was paid by us, and the
remainder was paid by RMR. We believe the allocation of the compensation we paid to Messrs. Pertchik, Young and Crage reasonably
reflected their division of business time and efforts; however, periodically Messrs. Pertchik, Young and Crage may divide their
business time and efforts differently than they do currently and their compensation from us may become disproportionate to this division.
The competition for executive talent is strong
both nationally and locally where we are headquartered. Our ability to attract, retain and appropriately reward our executive officers
is essential to our business. Our Compensation Committee’s goals are to have comprehensive compensation programs that incentivize
and reward executives toward achievement of our operational, financial and strategic goals. This includes maintaining a “pay-for-performance”
culture, in which substantial portions of total compensation are “at risk” and based upon attainment of our business objectives
and our executives’ performance and skills. Our compensation program is also designed to align executives’ interests with
those of our shareholders and to incentivize our executives based upon our performance. Awards of equity-based compensation encourage
executives to focus on long-term growth and are tied to the interests of our shareholders.
Summary of Fiscal 2022 Named Executive Officer
Compensation.
In fiscal 2022, we paid each of our named executive
officers cash compensation for services provided by the officers to us. The cash compensation comprised base salary and discretionary
cash bonus.
We did not provide guaranteed cash bonuses to
our named executive officers during fiscal 2022 and did not set specific performance targets on which bonuses would be payable to them.
Instead, the annual cash bonuses we paid to our named executive officers in fiscal 2022 were based on a performance evaluation conducted
by our Board Chair and Managing Director with respect to Mr. Pertchik, and by our Managing Director and Chief Executive Officer
regarding the other executive officers’ performances. These evaluations were presented to our Compensation Committee, and our Compensation
Committee also evaluated our Managing Director and Chief Executive Officer’s performance as well as the performances of our other
executive officers.
As part of these considerations, we awarded 100,000
shares of common stock of the Company (“Common Shares”) with a grant date fair value of $4,669,000 to Mr. Pertchik,
15,000 Common Shares to each of Messrs. Richards, Crage and Young with a grant date fair value of $700,350. With respect to Mr. Pertchik’s
award of shares in 2022 our Compensation Committee determined to use a vesting schedule under which one tenth of the shares vested immediately
upon grant and the remaining shares are scheduled to vest in nine equal consecutive annual installments commencing on the first anniversary
of the date of award. With respect to the award of shares in 2022 to the other named executive officers, one fifth of the shares awarded
vested on the award date and an additional one fifth are scheduled to vest on each of the next four anniversaries of the award date.
The share awards are subject to the named executive officer continuing to render significant services as an employee or otherwise, to
us, RMR or any company that is affiliated with us or RMR during the vesting period and to accelerated vesting under certain circumstances.
Messrs. Pertchik, Crage and Young also
received equity awards from RMR Inc. and from the other public clients of RMR (the “Other RMR Clients”) and cash
compensation from RMR, which cash amount reflected the 20% of their total cash compensation paid to them by us and RMR. The equity
awards from RMR Inc. and the Other RMR Clients are determined by the compensation committees of RMR Inc. and the Other RMR Clients,
respectively, which are comprised solely of independent board members.
Named Executive Officer Compensation Philosophy
and Process.
The key principle of our compensation philosophy
for all employees, including our named executive officers, is to pay for performance. We maintain a rigorous and thorough talent and
compensation review process to ensure that our employees are in appropriate roles that maximize their full potential. This process also
ensures that there is strong leadership guiding employees and that there is a succession and development plan for each role. Our goal
is to make employee and leadership development an integral part of our culture, supporting each employee’s and our continued success.
Our named executive officer compensation planning
process incorporates key areas of evaluation, including:
| · | internal
benchmarking; and |
| · | quantitative
and qualitative assessments of our company, group and individual performance. |
Named Executive
Officer Compensation Practices. Our pay for performance compensation philosophy is reflected in our compensation practices,
which for 2022 included the following:
| · | no
guaranteed salary increases or guaranteed cash bonuses; |
| · | no
specific performance targets on which bonuses would be paid; |
| · | no
specific incentive or additional performance awards for exceeding specific revenue, profit
or return targets; |
| · | no
excessive perquisites; |
| · | annual
assessment of named executive officer compensation against peer companies and best practices; |
| · | holistic
performance evaluations; and |
Components of
the Named Executive Officers’ Compensation. Our executive compensation program includes an annual base salary, a
cash bonus and an equity award. In addition to the Common Shares we award to our named executive officers, some of our named
executive officers also receive equity awards from RMR Inc. and the Other RMR Clients and cash compensation from RMR as described
above. The equity awards from RMR Inc. and the Other RMR Clients are determined by the compensation committees of RMR Inc. and the
Other RMR Clients, respectively, which are comprised solely of independent board members. The cash bonuses we pay to our named
executive officers are discretionary in amount and are based on a performance evaluation. The evaluation involves an analysis of
both (i) our overall performance and (ii) the performance of the individual officer and his, her or their contributions,
and services provided, to us. We believe this evaluation process allows us to link pay with performance in the closest way possible
and provides us with the flexibility necessary to take all relevant factors into account in determining the bonus amounts, including
the named executive officer’s ability to react to changing circumstances that impact our businesses.
We also annually award Common Shares to our named
executive officers. In general, one fifth of the shares awarded vest on the award date and an additional one fifth are scheduled to vest
on each of the next four anniversaries of the award date, subject to the named executive officer continuing to render significant services
as an employee or otherwise, to us, RMR or any company that is affiliated with us or RMR during the vesting period and to accelerated
vesting under certain circumstances. With respect to Mr. Pertchik’s award of shares in 2022, one tenth of the shares awarded
vest on the award date and an additional one tenth are scheduled to vest on each of the next nine anniversaries of the award date, subject
to those same service conditions. The table below describes the objectives supported by each of our primary compensation elements, along
with an overview of the key design features of each element.
Compensation Element |
What It Does |
Key Measures |
Base Salary |
· |
Provides a level of fixed pay appropriate to an executive’s
role and responsibilities |
· |
Experience,
duties and scope of responsibility |
|
· |
Evaluated
on an annual basis |
· |
Internal
and external market factors |
|
|
|
|
|
Discretionary Cash Bonus |
· |
Provides
a competitive annual cash incentive opportunity |
· |
Based
on holistic performance evaluation |
|
· |
Links
executives’ interests with shareholders’ interests |
|
|
· |
Incentivizes
and rewards superior individual and Company performance |
|
|
|
|
|
Equity Compensation |
· |
Links
executives’ interests with long-term interests of shareholders |
· |
Based
on holistic performance evaluation |
|
· |
Incentivizes
and rewards superior individual and Company performance |
|
Named Executive
Officer Pay Mix. Our compensation program is designed so that the majority of compensation is performance based to promote
alignment of our named executive officers’ interests with those of our shareholders.
The base salary payments of our named executive
officers (which represent the fixed portion of their compensation packages) are reviewed annually and may be adjusted as we deem appropriate.
We historically adjust salary payments on January 1, the first day of our fiscal year. During 2022, we paid each of our named executive
officers a base salary of $300,000.
Our Compensation Committee considers a number
of factors in determining bonus compensation, including our overall financial performance. For 2022, our Compensation Committee considered,
among other things, the increase in our revenues, net income and adjusted earnings before interest, taxes and depreciation, our return
to the Fortune 500 list, the successful completion of the transformation stage of our strategic plan, the completion of certain acquisitions,
the opening of new travel centers, the refreshment of other locations, the expansion of our franchise operations and our ability to navigate
uncertain macroeconomic and business conditions, including inflation, supply chain disruptions and labor availability and cost challenges
(collectively, the “Significant Achievements”).
We also awarded Common Shares to each of our
named executive officers in 2022 as described above.
Because the annual bonus and share award components
are discretionary and based on a number of factors, there is no pre-set pay mix that applies to the compensation of our named executive
officers as a whole.
Overview of 2022 Compensation
Actions
Our Compensation Committee evaluated and administered
our executive compensation program. This evaluation typically includes an assessment of our performance, the effectiveness of existing
programs in achieving the goals of the program, developments in our business and goals, executive compensation best practices, tax and
accounting considerations, investor feedback and such other factors as our Compensation Committee determines appropriate to consider
from time to time. As part of this evaluation, our Compensation Committee received input from our Chief Executive Officer (with respect
to executives other than himself) and from our Board Chair and Managing Director.
These evaluations also typically include an assessment
of the risk associated with the program and each element thereof and also take into account developments in the overall market for executive
talent. Our Compensation Committee does not engage in any formal compensation external benchmarking, but does take note of compensation
practices and trends from an identified peer group of companies in making its decisions. For 2022, the peer group of companies which
informed Compensation Committee decisions consisted of a core group comprised of (but not limited to) the following companies: Advance
Autoparts Inc., Alimentation Couche-Tard Inc., Autozone Inc., Brinker International Inc., Caseys General Stores Inc., Cracker Barrel
Old Country Store, Inc., Darden Restaurants Inc., Delek US Holdings, Inc., Jack In The Box Inc., Marathon Petroleum Corp.,
Murphy USA Inc., Rush Enterprises Inc., Sunoco LP, and Wendy’s Co.
Our Compensation Committee also does not have
rules or policies with respect to allocation of compensation to short or long term vehicles or as between cash or non-cash elements
of compensation; such determinations are made by our Compensation Committee on a discretionary basis under the facts and circumstances
applicable from time to time.
In September 2022, the Chair of our
Compensation Committee met with our Board Chair and Managing Director and the President and Chief Executive Officer of RMR, Adam D.
Portnoy, and the chairs of the compensation committees of RMR Inc. and of the Other RMR Clients, which included: Diversified
Healthcare Trust (“DHC”); Industrial Logistics Properties Trust (“ILPT”); Office Properties Income Trust
(“OPI”); Service Properties Trust (“SVC”); Seven Hills Realty Trust (“SEVN”); and AlerisLife
Inc. (“ALR”). The purposes of this meeting were, among other things, to discuss compensation philosophy and factors that
may affect compensation decisions, to provide a comparative understanding of potential share awards by RMR Inc. and the Other RMR
Clients and consider other market practices, including shareholder feedback received during shareholder outreach with respect to the
percentage of executive officer compensation received in share awards. At a Compensation Committee meeting held in
December 2022, the Compensation Committee conducted a review of the executive compensation and considered recommendations
arising from the September 2022 meeting, recommendations provided by RMR, management and other factors, such as, with respect
to the 2022 share awards: (i) the value of the proposed share awards; (ii) the historical awards previously awarded to
these named executive officers and the corresponding values at the time of the awards; (iii) recommendations of RMR and
management as presented by Messrs. Portnoy and Pertchik, as applicable; (iv) the value of share awards to executive
officers providing comparable services at RMR and the Other RMR Clients; (v) the scope of, and any changes to, the
responsibilities assigned to, or assumed by, these named executive officers during the past year and on a going forward basis;
(vi) the length of historical services by these named executive officers; (vii) our Compensation Committee’s
assessment of the quality of the services provided by these named executive officers in carrying out those responsibilities; and
(viii) our financial and operating performance in the past year and our perceived future prospects. Our Compensation Committee
considered these multiple factors in determining whether to increase or decrease the amounts of the prior year’s awards. There
was no formulaic approach in the use of these various factors in determining the number of shares to award to each named executive
officer. The share amounts we awarded were determined by our Compensation Committee on a discretionary basis, using the various
factors. The named executive officers were not involved in determining or recommending the amount or form of compensation they
received from us. The share amounts awarded by RMR Inc. and the Other RMR Clients were determined by their respective compensation
committees.
Analysis of 2022 Cash Compensation
As discussed above, our compensation program
is designed so that the majority of compensation is performance based to promote alignment of our named executive officers’ interests
with those of our shareholders. Our Compensation Committee determines the cash compensation of Messrs. Pertchik, Crage and Young,
and RMR pays 20% of their total cash compensation paid by us and RMR; our Compensation Committee recommends to our Board, and our Board
approves, the cash compensation we pay to Mr. Richards.
Base
Salary. The base salary payments for our named executive officers (which represents the fixed portion of their compensation
packages) are reviewed annually and may be adjusted as we deem appropriate. We have historically set annual caps on annual base salary
for our executive officers, with a cap for 2022 of $300,000. We historically adjust salary payments on January 1, the first day
of our fiscal year. We paid each of our named executive officers an annual base salary of $300,000. These annual base salary levels are
consistent with our pay for performance philosophy, which emphasizes “at risk” compensation as a larger proportion of named
executive officer compensation.
Annual
Cash Bonuses. Annual cash bonuses are a key component of our named executive officer compensation and represented
the majority of the cash compensation we paid to each of our named executive officers for 2022. We did not provide guaranteed cash bonuses
to any of our named executive officers for 2022 and did not set specific performance targets on which bonuses would be payable. Instead,
the annual cash bonuses we paid to our named executive officers for 2022 were discretionary in amount and were based on a performance
evaluation conducted by our Compensation Committee and, with respect to Mr. Richards, our Board. The evaluation by our Compensation
Committee and Board, as applicable, involved an analysis of both (i) our overall performance and (ii) the performance of the
individual officer and his, her or their contributions to us. We believe this evaluation process allowed us to link pay with performance
in the closest way possible and provided us with the flexibility necessary to take all relevant factors into account in determining the
bonus amounts, including our named executive officers’ ability to react to changing circumstances that impact our business.
We believe our compensation process provided
us with a better compensation structure than a formulaic bonus structure based solely on the achievement of specific pre-established
performance targets which may not capture all appropriate factors that materially impacted us or the individual named executive officer’s
performance. In 2022, we increased bonus compensation as compared to fiscal 2021 after considering the factors noted above and in recognition
of the Significant Achievements, among other considerations.
Analysis of Fiscal 2022 Equity
Awards
The TravelCenters of America Inc. Second Amended
and Restated 2016 Omnibus Equity Plan (the “Equity Compensation Plan”) rewards our named executive officers and other employees
and aligns their interests with those of our shareholders. We award shares under the Equity Compensation Plan to recognize our named
executive officers’ scope of responsibilities, reward demonstrated performance and leadership, motivate future performance, align
the interests of our executives with those of our other shareholders and motivate our executives to remain our employees and to continue
to provide services to us through the term of the awards. Our Compensation Committee considered these multiple factors in determining
whether to increase or decrease the amounts of the prior year’s awards.
Under its charter, our Compensation Committee
evaluates, approves and administers our equity compensation plans, including the Equity Compensation Plan. Our Compensation Committee
has historically determined to use awards of Common Shares under the Equity Compensation Plan rather than seek to issue stock options
as equity compensation. We believe that the use of share awards vesting over time rather than stock options mitigates the incentives
for our management to undertake undue risks and encourages management to make long term and appropriately risk balanced decisions.
Our Compensation Committee also considers the
equity awards granted to our named executive officers by RMR Inc. and the Other RMR Clients in determining the appropriate award of
Common Shares to our named executive officers. In fiscal 2022, our Compensation Committee considered the foregoing factors and the
factors set forth above in “Overview of Fiscal 2022 Compensation Actions” and decided to award an aggregate of 145,000
Common Shares to our named executive officers which represents the same number of Common Shares awarded to each of the respective
officers in fiscal 2021.
Our Compensation
Committee has imposed, and may impose, vesting and other conditions on the awarded Common Shares because it believes that time based
vesting encourages the recipients of the share awards to remain employed by us and to continue to provide services to us. For named executive
officers other than our Chief Executive Officer, our Compensation Committee typically uses a vesting schedule under which one fifth of
the shares subject to the award vest immediately and the remaining shares are scheduled to vest in four equal, consecutive annual installments
commencing on the first anniversary of the date of the award, subject to continued employment or service requirements. With respect to
Mr. Pertchik’s award of shares in 2022 our Compensation Committee determined to use a vesting schedule under which one tenth
of the shares subject to the award vested immediately and the remaining shares are scheduled to vest in nine equal consecutive annual
installments commencing on the first anniversary of the date of award, subject to continued employment or service requirements. Our Compensation
Committee utilizes these time based vesting schedules to provide an incentive to provide services for a long term and in consideration
of the tax treatment of the share awards to us and to the recipients. As noted above, in the event a recipient who received a share award
ceases to render significant services as an employee or otherwise, to us, RMR or any company that is affiliated with us or RMR
during the vesting period, we may cause the forfeiture of the Common Shares that have not yet vested. As with other issued Common Shares,
vested and unvested shares awarded under the Equity Compensation Plan are entitled to receive distributions that we make, if any, on
the Common Shares.
Because the consideration of share awards by
our Compensation Committee is determined on a regular schedule (i.e., in December for our officers and employees and at the first
meeting of our Board after the annual meeting of shareholders for the Directors), any proximity of any awards to earnings announcements
or other market events is coincidental.
Our Compensation Committee believes that its
compensation philosophy and programs are designed to foster a business culture that aligns the interests of our named executive officers
with those of our shareholders. Our Compensation Committee believes that the equity compensation of our named executive officers is appropriate
to the goal of providing shareholders dependable, long term returns.
Employment Agreements; Severance Arrangements
We had no employment agreements with our named
executive officers or any of our other employees during the fiscal year ended December 31, 2022. On February 15, 2023, we entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with BP Products North America Inc., a Maryland corporation
(“BP”), and Bluestar RTM Inc., a Maryland corporation and an indirect wholly-owned subsidiary of BP (“Merger Subsidiary”),
pursuant to which Merger Subsidiary will be merged with and into the Company (the “Merger”), with the Company surviving the
Merger as a wholly owned subsidiary of BP, subject to the terms and conditions of the Merger Agreement. In connection with the Merger,
we entered into executive agreements with our named executive officers, which are described in our definitive proxy statement filed on
April 3, 2023 with the SEC in respect of the special meeting of stockholders we are convening to consider approval of the Merger.
Pursuant to the
Equity Compensation Plan, awards of restricted Common Shares to our named executive officers provide for accelerated vesting in
the event of certain termination and change in control events (as defined in the applicable award documentation). Our Compensation Committee
has determined that such provisions are consistent with market practice and appropriate to further its goals of recruitment and retention.
The vesting of the awards of restricted Common Shares to our named executive officers will be accelerated in connection with the Merger.
For further information regarding the vesting of shares in the event of certain termination and change in control events, please see
the below “Potential Payments upon Termination or Change of Control” section.
Accounting and Tax Considerations
Our Compensation Committee takes note of the tax and accounting consequences
of the compensation program for our named executive officers; however, those consequences do not dictate our Compensation Committee’s
decisions, which are instead based on our Compensation Committee’s view of our overall best interests.
REPORT OF OUR COMPENSATION COMMITTEE
The Compensation Committee (our “Compensation Committee”)
of the Board of Directors (our “Board of Directors”) of TravelCenters of America Inc., has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, our Compensation
Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2022.
|
|
|
Rajan
C. Penkar, Chair |
|
Barbara
D. Gilmore |
|
Lisa
Harris Jones |
Executive
Compensation
The following tables and footnotes summarize
the total compensation we paid to our Chief Executive Officer, President, Executive Vice President, Chief Financial Officer and Treasurer
and Executive Vice President and General Counsel who were serving as such officers as of December 31, 2022, or our “named
executive officers.” The compensation information for the persons included in the compensation tables are for services rendered
to us and our subsidiaries and does not include information regarding any compensation received by such persons for services rendered
to RMR. Please see the “Related Person Transactions” section for further information regarding compensation received by the
named executive officers. For information regarding the compensation paid by RMR and RMR Inc. to the named executive officers of RMR
Inc., please see the documents filed by RMR Inc. with the SEC, including its Annual Report on Form 10-K for the fiscal year ended
September 30, 2022, and its Proxy Statement on Schedule 14A for its 2023 Annual Meeting of Shareholders. RMR Inc.’s filings
with the SEC are not incorporated by reference into this Amendment.
Summary
Compensation Table
Name
and
Principal Position |
|
Year |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards
($)(1) |
|
|
All
Other
Compensation ($)(2) |
|
|
Total
($) |
|
Jonathan M. Pertchik |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer |
|
2022 |
|
|
|
300,000 |
|
|
|
2,300,000 |
|
|
|
4,778,110 |
|
|
|
— |
|
|
|
7,378,110 |
|
|
|
2021 |
|
|
|
300,000 |
|
|
|
2,100,000 |
|
|
|
4,878,620 |
|
|
|
— |
|
|
|
7,278,620 |
|
|
|
2020 |
|
|
|
300,000 |
|
|
|
1,600,000 |
|
|
|
1,690,300 |
|
|
|
150,000 |
|
|
|
3,740,300 |
|
Barry A. Richards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President |
|
2022 |
|
|
|
300,000 |
|
|
|
875,000 |
|
|
|
700,350 |
|
|
|
— |
|
|
|
1,875,350 |
|
|
|
2021 |
|
|
|
300,000 |
|
|
|
750,000 |
|
|
|
718,500 |
|
|
|
— |
|
|
|
1,768,500 |
|
|
|
2020 |
|
|
|
300,000 |
|
|
|
600,000 |
|
|
|
497,100 |
|
|
|
— |
|
|
|
1,397,100 |
|
Peter
J. Crage(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President, Chief
Financial Officer and Treasurer |
|
2022 |
|
|
|
300,000 |
|
|
|
800,000 |
|
|
|
700,350 |
|
|
|
— |
|
|
|
1,800,350 |
|
|
|
2021 |
|
|
|
300,000 |
|
|
|
720,000 |
|
|
|
718,500 |
|
|
|
— |
|
|
|
1,738,500 |
|
Mark R. Young |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Vice President and General Counsel |
|
2022 |
|
|
|
300,000 |
|
|
|
800,000 |
|
|
|
700,350 |
|
|
|
— |
|
|
|
1,800,350 |
|
|
|
2021 |
|
|
|
300,000 |
|
|
|
720,000 |
|
|
|
718,500 |
|
|
|
— |
|
|
|
1,738,500 |
|
|
|
2020 |
|
|
|
300,000 |
|
|
|
600,000 |
|
|
|
497,100 |
|
|
|
— |
|
|
|
1,397,100 |
|
(1) | Represents
the grant date fair value of Common Share awards in 2022, 2021 and 2020, as applicable, calculated
in accordance with ASC 718 (which equals the closing price of the shares on the award date
multiplied by the number of shares subject to the grant). No assumptions were used in this
calculation. The values listed in this column for Mr. Pertchik for each of 2022, 2021
and 2020 include the value of 3,000 Common Shares awarded to him for services as a Managing
Director in each of 2022, 2021 and 2020 and 100,000, 100,000 and 50,000 shares awarded to
him in connection with his services as Chief Executive Officer in 2022, 2021 and 2020, respectively. |
(2) | The
amount listed in this column includes $150,000 for relocation expenses for Mr. Pertchik
in 2020. |
(3) | Only
two years of information has been provided for Mr. Crage because he was not a named
executive officer prior to 2021. |
2022
Grants of Plan Based Awards
The following table shows the total
Common Shares awarded by us to our named executive officers in their capacity as our officers in 2022 and does not include the shares
awarded to Mr. Pertchik in his capacity as a Managing Director.
Name |
|
Grant
Date |
|
All
Other Stock Awards: Number of Shares of Stock or Units (#) |
|
|
Grant
Date Fair Value of Stock and Option Awards ($)(1) |
|
Jonathan M. Pertchik |
|
12/12/2022 |
|
|
100,000 |
|
|
|
4,669,000 |
|
Barry A. Richards |
|
12/12/2022 |
|
|
15,000 |
|
|
|
700,350 |
|
Peter J. Crage |
|
12/12/2022 |
|
|
15,000 |
|
|
|
700,350 |
|
Mark R. Young |
|
12/12/2022 |
|
|
15,000 |
|
|
|
700,350 |
|
(1) | Equals
the number of Common Shares awarded multiplied by the closing price on the date of the award,
which is also the grant date fair value under ASC 718. No assumptions were used in this calculation. |
2022
Outstanding Equity Awards at Fiscal Year End
Share awards made by us to our Chief
Executive Officer in 2022 and 2021 in that capacity provide that one tenth of each award vested on the date of the award and an additional
one tenth vests on each of the next nine anniversaries of the award date, subject to continued employment or service. Share awards made
by us to our Chief Executive Officer prior to 2021 in that capacity, and to our President, to our Executive Vice President, Chief Financial
Officer and Treasurer and to our Executive Vice President and General Counsel provide that one fifth of each award vested on the date
of the award and an additional one fifth vests on each of the next four anniversaries of the award date, subject to continued employment
or service. In the event a recipient who has been granted a Common Share award ceases continuing to render significant services as an
employee or otherwise, to the Company, RMR or any Other RMR Client or any company that is affiliated with us or RMR during the vesting
period, at the Company’s option, the recipient shall forfeit the Common Shares that have not yet vested. Holders of unvested Common
Shares awarded under the Equity Compensation Plan, receive distributions that we make, if any, on our Common Shares on the same terms
as other holders of the Common Shares.
The following table shows the total
Common Shares awarded by us to our named executive officers in their capacity as our officers that were unvested as of December 31,
2022.
|
|
|
|
|
Stock Awards |
|
Name |
|
Year
Granted |
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)(1) |
|
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)(2) |
|
Jonathan M. Pertchik |
|
2022 |
|
|
|
90,000 |
|
|
|
4,030,200 |
|
|
|
2021 |
|
|
|
80,000 |
|
|
|
3,582,400 |
|
|
|
2020 |
|
|
|
20,000 |
|
|
|
895,600 |
|
|
|
2019 |
|
|
|
10,000 |
|
|
|
447,800 |
|
Barry A. Richards |
|
2022 |
|
|
|
12,000 |
|
|
|
537,360 |
|
|
|
2021 |
|
|
|
9,000 |
|
|
|
403,020 |
|
|
|
2020 |
|
|
|
6,000 |
|
|
|
268,680 |
|
|
|
2019 |
|
|
|
4,800 |
|
|
|
214,944 |
|
Peter J. Crage |
|
2022 |
|
|
|
12,000 |
|
|
|
537,360 |
|
|
|
2021 |
|
|
|
9,000 |
|
|
|
403,020 |
|
|
|
2020 |
|
|
|
11,400 |
|
|
|
510,492 |
|
Mark R. Young |
|
2022 |
|
|
|
12,000 |
|
|
|
537,360 |
|
|
|
2021 |
|
|
|
9,000 |
|
|
|
403,020 |
|
|
|
2020 |
|
|
|
6,000 |
|
|
|
268,680 |
|
|
|
2019 |
|
|
|
3,600 |
|
|
|
161,208 |
|
(1) | Common
Share awards granted by us to our Chief Executive Officer in 2022 and 2021 provide that one
tenth of each award vests on the date of the award and one tenth vests on each of the next
nine anniversaries of the date of the award, and the other Common Share awards granted by
us to our executive officers provide that one fifth of each award vests on the date of the
award and one fifth vests on each of the next four anniversaries of the date of the award.
The Common Shares granted in 2022, 2021, 2020 and 2019 were granted on December 12,
2022, December 13, 2021, December 2, 2020, and December 4, 2019, respectively. |
(2) | Equals
the number of Common Shares not vested multiplied by the closing price of the Common Shares
on December 30, 2022. |
2022
Stock Vested
The following table shows Common Share
awards made in 2022 and prior years to our named executive officers that vested in 2022 and does not include the shares awarded to Mr. Pertchik
in his capacity as a Managing Director.
| |
Stock Awards | |
Name | |
Number of Shares Acquired on Vesting (#) | | |
Value Realized on Vesting ($)(1) | |
Jonathan M. Pertchik | |
| 40,000 | | |
| 1,936,920 | |
Barry A. Richards | |
| 17,000 | | |
| 835,268 | |
Peter J. Crage | |
| 11,700 | | |
| 565,872 | |
Mark R. Young | |
| 15,000 | | |
| 734,196 | |
(1) | Equals
the number of vesting Common Shares multiplied by the closing price on the date that such
Common Shares vested in 2022. |
Potential
Payments upon Termination or Change in Control
The Equity Compensation Plan and the
form of share award agreement for awards made to our named executive officers provide for acceleration of vesting of all share awards
upon the occurrence of (i) a change in control of the Company (a “Change in Control”) or (ii) RMR ceasing to be
the manager or shared services provider to the Company or certain employment termination events (each, a “Termination Event”).
The following table describes the potential
payments to our named executive officers upon a Change in Control or Termination Event, if such event had occurred on December 31,
2022.
Name | |
Number of Shares Vested Upon Change in Control or Termination Event (#) | | |
Value Realized on Change in Control or Termination Event as of December 31, 2022 ($)(1)(2) | |
Jonathan M. Pertchik | |
| 200,000 | | |
| 8,956,000 | |
Barry A. Richards | |
| 31,800 | | |
| 1,424,004 | |
Peter J. Crage | |
| 32,400 | | |
| 1,450,872 | |
Mark R. Young | |
| 30,600 | | |
| 1,370,268 | |
(1) | Equals
the number of Common Shares multiplied by the closing price of the Common Shares on December 30,
2022. |
(2) | In
connection with the Merger, we have entered into executive agreements with certain of our
officers that provide for additional consideration to such officers upon consummation of
the Merger as disclosed in our definitive proxy statement filed on April 3, 2023 with
the SEC. The information in this table does not reflect the additional compensation that
may be payable to such persons under the executive agreements. |
Although we have no formal policy, plan
or arrangement for payments to our employees in connection with the termination of their employment with us, we may in the future provide
on a discretionary basis for the acceleration of vesting of Common Shares previously awarded to them under the Equity Compensation Plan
or other payments or benefits depending on various factors we then consider relevant and if we believe it is in our best interests to
do so.
For a discussion of the consequences
of a Change in Control or Termination Event under our business management agreement with RMR, see the “Related Person Transactions”
section.
Pay
Ratio
As required by Section 953(b) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are required to disclose the
median of the annual total compensation we paid to our employees (excluding our principal executive officer), the annual total compensation
we paid to our principal executive officer, Mr. Pertchik, and the ratio of these two amounts.
For 2022, our last completed fiscal
year:
| · | the
median of the annual total compensation we paid to all employees of the Company (excluding
Mr. Pertchik) was $28,579; and |
| · | the
annual total compensation we paid to Mr. Pertchik, as reported in the Summary Compensation
Table on page 17, was $7,378,110. |
Based on this information, for 2022,
the ratio of the annual total compensation we paid to Mr. Pertchik to the median of the annual total compensation we paid to all
other employees was 258 to 1.
We identified the median employee by
totaling (1) cash compensation (i.e., wages, overtime and bonus) as reflected on our payroll records for 2022 and (2) the value
of Common Shares that were awarded in 2022, for all individuals (excluding our Chief Executive Officer), who we employed on December 31,
2022 (whether on a full-time or part-time basis). In addition, we annualized the wages of full-time employees who were hired during 2022
but did not work for us the entire year. We did not make any other assumptions, adjustments or estimates with respect to total cash compensation
or stock compensation.
After identifying the median employee,
we calculated annual total compensation for 2022 for the median employee using the same methodology we use for our named executive officers
as set forth in the Summary Compensation Table.
We believe that the pay ratio reported
above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology
described above. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that
employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make
reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported by other
companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation
practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
DIRECTOR
COMPENSATION
Compensation
of Directors
Our Board believes that competitive
compensation arrangements are necessary to attract and retain qualified Independent Directors.
Under the currently effective Director
compensation arrangements, each Independent Director receives an annual fee of $75,000 for services as a Director. The annual fee for
any new Independent Director is prorated for the initial year. Each Independent Director who serves as a committee chair of our Audit
Committee, Compensation Committee or Nominating and Governance Committee or as our liaison to our Gaming Compliance Committee also receives
an additional annual fee of $25,000, $15,000, $15,000 and $15,000, respectively, and the Lead Independent Director also receives an additional
annual cash retainer fee of $20,000 for serving in this role. Directors are reimbursed for travel expenses they incur in connection with
their duties as Directors and for out of pocket costs they incur in connection with their attending certain continuing education programs,
if any.
Each Independent Director and Managing
Director also receives an award of Common Shares annually, which consisted of 3,000 Common Shares in 2022. Managing Directors do not
receive cash compensation for their services as Directors.
Director
Share Ownership Guidelines
Our Board believes it is important to
align the interests of Directors with those of our stockholders, and for Directors to hold equity ownership positions in our Company.
Accordingly, each Director is expected to retain at least 15,000 Common Shares (which number shall automatically adjust in respect of
stock splits or similar events) whether vested or not, by the following times: (i) for persons serving as Directors as of June 10,
2021, by the date of our 2025 annual meeting of stockholders, and (ii) for persons elected as Directors after June 10, 2021:
if such person initially became a Director by election by our stockholders, by the date of our annual meeting of stockholders held in
the fourth year following the annual meeting of stockholders at which such Director was initially elected; or if such person initially
became a Director by election by our Board, by the date of our annual meeting of stockholders in the fourth year following the first
annual meeting of stockholders following the initial election of such Director to our Board. Compliance with these ownership guidelines
is measured annually. Any Director who is prohibited by law or by applicable regulation of his, her or their employer from owning equity
in our Company is exempt from this requirement. Our Nominating and Governance Committee may consider whether exceptions should be made
for any Director on whom this requirement could impose a financial hardship.
As of April 20, 2023, all Directors
have met or, within the applicable period, are expected to meet, these share ownership guidelines.
Fiscal
Year 2022 Director Compensation
The following table details the total
compensation of the Directors for the fiscal year ended December 31, 2022 for services as a Director.
Name | |
Fees Earned or Paid in Cash ($)(1) | | |
Stock Awards ($)(2) | | |
All Other Compensation ($) | | |
Total ($) | |
Barbara D. Gilmore | |
| 95,000 | | |
| 109,110 | | |
| — | | |
| 204,110 | |
Lisa Harris Jones | |
| 90,000 | | |
| 109,110 | | |
| — | | |
| 199,110 | |
Joseph L. Morea | |
| 100,000 | | |
| 109,110 | | |
| — | | |
| 209,110 | |
Rajan C. Penkar | |
| 90,000 | | |
| 109,110 | | |
| — | | |
| 199,110 | |
Jonathan M. Pertchik(3) | |
| — | | |
| 109,110 | | |
| — | | |
| 109,110 | |
Elena B. Poptodorova | |
| 90,000 | | |
| 109,110 | | |
| — | | |
| 199,110 | |
Adam D. Portnoy(3) | |
| — | | |
| 109,110 | | |
| — | | |
| 109,110 | |
(1) | The
amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by
each Independent Director in 2022, consisting of a $75,000 annual cash fee and, for each
of Ms. Poptodorova and Mr. Penkar and Mr. Morea, an additional $15,000, $15,000
and $25,000, respectively, for service as a committee chair in 2022. In addition, Ms. Harris
Jones earned $15,000 for her service as our Board’s liaison to the Gaming Compliance
Committee in 2022. Ms. Gilmore earned $20,000 in her role as Lead Independent Director
in 2022. |
(2) | With
respect to each Director, equals 3,000 Common Shares multiplied by the closing price of such
shares on June 9, 2022, the date of grant. Amounts shown are also the compensation cost
for the award recognized by us for financial reporting purposes pursuant to Financial Accounting
Standards Board Accounting Standards Codification Topic 718, “Compensation—Stock
Compensation” (“ASC 718”) (which equals the closing price of the shares
on the award date, multiplied by the number of shares subject to the award). No assumptions
were used in this calculation. All Common Share awards are fully vested on the grant date. |
(3) | Managing
Directors do not receive cash compensation for their services as Directors. The compensation
of Mr. Pertchik for his service as our Chief Executive Officer is not included here
and is described above under “Executive Compensation.” |
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Our Compensation Committee is comprised
entirely of the three Independent Directors listed above. No member of our Compensation Committee is a current, or during 2022 was a
former, officer or employee of ours. In 2022, none of our executive officers served (i) on the compensation committee of any entity
that had one or more of its executive officers serving on our Board or our Compensation Committee or (ii) on the board of directors
or board of trustees of any entity that had one or more of its executive officers serving on our Compensation Committee. Members of our
Compensation Committee serve as independent trustees or independent directors and compensation committee members of Other RMR Clients.
Ms. Gilmore serves as an independent trustee and compensation committee member of OPI and SEVN. Ms. Harris Jones serves as
an independent trustee of ILPT and an independent trustee and compensation committee member of DHC. The disclosures regarding our relationships
with these foregoing entities and certain transactions with or involving them under the section entitled “Related Person Transactions”
are incorporated by reference herein.
ITEM 13. |
Certain Relationships and Related Transactions and Director Independence |
Director Independence
Under the corporate governance listing standards of the Nasdaq, to
be considered independent:
| · | a director must not have a disqualifying relationship, as defined in the
corporate governance section of the Nasdaq rules; and |
| · | a board must affirmatively determine that the director otherwise has no relationship
which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To facilitate the
director independence assessment process, our Board has adopted written Governance Guidelines as described below. |
Our Board is comprised of seven Directors,
including five Independent Directors and two Managing Directors. Under our Bylaws, so long as the number of directors is less than five,
at least one director must meet the qualifications of a Managing Director and, so long as the number of directors is five or greater,
at least two directors must meet the qualifications of a Managing Director. Our Bylaws require that a majority of our Board be Independent
Directors. Under our Bylaws, Independent Directors are Directors who are not employees of the Company or RMR, are not involved in
the Company’s day to day activities and are persons who qualify as an independent director under the applicable rules of the
Nasdaq and the SEC. As set forth in our Bylaws, Managing Directors are Directors who are not Independent Directors and who have
been employees or officers of the Company or RMR or involved in the day to day activities of the Company for at least one year prior to
such Director’s election.
Our Board affirmatively determines whether Directors have a
direct or indirect material relationship with us, including our subsidiaries, other than serving as our Directors or trustees or
directors of our subsidiaries. In making independence determinations, our Board observes the Nasdaq and SEC criteria, as well as the
criteria set forth in our governing documents. When assessing a Director’s relationship with us, our Board considers all
relevant facts and circumstances, not merely from the Director’s standpoint, but also from that of the persons or
organizations with which the Director has an affiliation. Based on our Board’s review, our Board has determined that Barbara
D. Gilmore, Lisa Harris Jones, Joseph L. Morea, Rajan C. Penkar and Elena B. Poptodorova currently qualify as independent directors
under applicable Nasdaq and SEC criteria and as Independent Directors under our Bylaws. In making these independence determinations,
our Board reviewed and discussed additional information provided by us and our Directors with regard to each of the Directors’
relationships with us, RMR or RMR Inc., the managing member of RMR, and the Other RMR Clients, including, for example, relevant
information related to Mr. Penkar’s service as a director of USA Truck. Our Board determined that our business with USA
Truck is not material to us and that Mr. Penkar’s service on the board of directors of USA Truck did not create a
conflict of interest or impair Mr. Penkar’s judgment with respect to his responsibilities as an Independent Director. Our
Board has concluded that none of these five Directors possessed or currently possesses any relationship that could impair her or his
judgment in connection with her or his duties and responsibilities as a Director or that could otherwise be a direct or indirect
material relationship under applicable Nasdaq and SEC standards.
Related Person Transactions
The descriptions of agreements in this “Related Person Transactions”
section do not purport to be complete and are subject to, and qualified in their entirety by, reference to the actual agreements, copies
of certain of which are filed as exhibits to our Annual Report.
A “related person transaction” is a transaction, arrangement
or relationship (or any series of similar transactions, arrangements or relationships) or a proposed transaction in which (i) we
were, are or will be a participant, (ii) the amount involved exceeds $120,000 and (iii) any related person had, has or will
have a direct or indirect material interest.
A “related person” means any person who is, or at any time
since January 1, 2022 was:
| · | a Director, a nominee for Director or an executive officer of ours; |
| · | known to us to be the beneficial owner of more than 5.0% of the outstanding
Common Shares when a transaction in which such person had a direct or indirect material interest occurred or existed; |
| · | an immediate family member of any of the persons referenced in the preceding
two bullets, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law of any of the persons referenced in the preceding two bullets, and any person (other than a tenant or
employee) sharing the household of any of the persons referenced in the preceding two bullets; or |
| · | a firm, corporation or other entity in which any of the foregoing persons
is a partner or principal or in a similar position or in which such person has a 10.0% or greater beneficial ownership interest. |
We have adopted written Governance Guidelines that describe the consideration
and approval of related person transactions. Under these Governance Guidelines, we may not enter into a transaction in which any Director
or executive officer, any member of the immediate family of any Director or executive officer or other related person, has or will have
a direct or indirect material interest unless that transaction has been disclosed or made known to our Board and our Board reviews and
approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Directors, even if the disinterested Directors
constitute less than a quorum. If there are no disinterested Directors, the transaction must be reviewed, authorized and approved or ratified
by both (i) the affirmative vote of a majority of our Board and (ii) the affirmative vote of a majority of the Independent Directors.
In determining whether to approve or ratify a transaction, our Board, disinterested Directors or Independent Directors, as the case
may be, also act in accordance with any applicable provisions of our Charter and Bylaws, consider all of the relevant facts and circumstances
and approve only those transactions that they determine are fair and reasonable to us. All related person transactions described herein
were reviewed and approved or ratified by a majority of the disinterested Directors or otherwise in accordance with our policies, Charter
and Bylaws, each as described above, and Maryland law. In the case of any transactions with us by employees of the Company who are subject
to the Code but who are not our Directors or executive officers, the employee must seek approval from an executive officer who has no
interest in the matter for which approval is being requested. Copies of our Governance Guidelines and the Code are available on our website,
www.ta-petro.com.
Relationships with RMR and Others
Related to It. We have relationships and historical and continuing transactions with SVC, RMR, RMR Inc., and others related
to them, including Other RMR Clients and some of which have directors, trustees or officers who are also our Directors or officers. The
Chair of our Board and one of our Managing Directors, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder
of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board, a managing director and the president and chief
executive officer of RMR Inc. and an officer and employee of RMR. Jonathan M. Pertchik, our other Managing Director and Chief Executive
Officer, also serves as an officer and employee of RMR. Our Executive Vice President, Chief Financial Officer and Treasurer, Executive
Vice President and General Counsel, and Secretary are officers and employees of RMR. Some of our Independent Directors also serve as independent
trustees or independent directors of Other RMR Clients. RMR Inc. is the managing member of RMR. Mr. Portnoy also serves as the chair
of the boards and as a managing trustee of each of the Other RMR Clients, including serving as the chair of the board
of trustees and as a managing trustee of SVC. Mr. Portnoy is the largest owner and a director of Sonesta International Hotels Corporation
(“Sonesta”) and Sonesta is SVC’s largest hotel operator. One of Sonesta’s other directors serves as RMR’s
and RMR Inc.’s executive vice president, general counsel and secretary and as our Secretary. Sonesta’s other director, president
and chief executive officer is a managing trustee and the former president and chief executive officer of SVC and an officer of RMR. Certain
other officers and employees of Sonesta are former officers and employees of RMR. RMR provides management services to both the Company
and SVC and provides certain services to Sonesta.
As of March 31, 2023, RMR owned 662,000 Common Shares (including
indirectly through RMR), representing approximately 4.4% of our Common Shares.
Relationship with SVC.
The Company was a 100% owned subsidiary of SVC until SVC distributed the Common Shares it then owned to its stockholders in 2007. We are
SVC’s largest tenant and SVC is our principal landlord and a significant stockholder of ours. As of March 31, 2023, SVC owned
1.185 million Common Shares, representing approximately 7.8% of our outstanding Common Shares.
Spin-Off Transaction Agreement. In
connection with our spin-off from SVC in 2007, we entered a transaction agreement with SVC and RMR, pursuant to which we granted SVC a
right of first refusal to purchase, lease, mortgage or otherwise finance any interest we own in a travel center before we purchase, lease,
mortgage or otherwise finance that travel center to or with another party, and we granted SVC and any Other RMR Client a right of first
refusal to acquire or finance any real estate of the types in which SVC or such other companies invest before we do. We also agreed that
for so long as we are a tenant of SVC we will not permit: the acquisition by any person or group of beneficial ownership of 9.8% or more
of the voting shares or the power to direct our management and policies or any of our subsidiary tenants or guarantors under our leases
with SVC; the sale of a material part of our assets or of any such tenant or guarantor; or the cessation of certain of the Directors to
continue to constitute a majority of our Board or any such tenant or guarantor. Also, we agreed not to take any action that might reasonably
be expected to have a material adverse impact on SVC’s ability to qualify as a real estate investment trust and to indemnify SVC
for any liabilities it may incur relating to our assets and business.
SVC Leases. As of December 31,
2022, we leased from SVC a total of 177 properties under five leases, which we refer to collectively as the SVC Leases. The SVC Leases
expire between 2029 and 2035, subject to our right to extend those leases. We have two renewal options of 15 years
each under each of the SVC Leases. The SVC Leases are “triple net” leases that require us to pay all costs incurred in the
operation of the leased properties, including costs related to personnel, utilities, inventory acquisition and provision of services to
customers, insurance, real estate and personal property taxes, environmental related expenses, underground storage tank removal costs
and ground lease payments at those properties at which SVC leases the property and subleases it to us. We also are required generally
to indemnify SVC for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation
of the leased properties and, at lease expiration, we are required to pay an amount equal to an estimate of the cost of removing underground
storage tanks on the leased properties. The SVC Leases require us to maintain the leased properties, including structural and non-structural
components.
We recognized total real estate rent expense under the SVC Leases of
$256.2 million for the year ended December 31, 2022. The SVC Leases provide for payment to SVC of percentage rent, calculated at
3.5% of the increase in total nonfuel revenues at each property over applicable base year levels. As of December 31, 2022, the estimated
future payments related to underground storage tanks at our SVC leased properties were $27.3 million.
We paid deferred rent to SVC of $17.6 million in 2022 pursuant to our
rent deferral agreement with SVC. We paid the remaining deferred rent amount we owed of $4.4 million to SVC in January 2023.
Under the SVC Leases, we may request that SVC purchase approved amounts
of renovations, improvements and equipment at the leased properties in return for increases in our annual minimum rent according to the
following formula: the annual minimum rent will be increased by an amount equal to the amount paid by SVC multiplied by the greater of
(i) 8.5% or (ii) a benchmark U.S. Treasury interest rate plus 3.5%. During the year ended December 31, 2022, we did not
sell to SVC any improvements we made to properties leased from SVC.
As permitted by the SVC Leases, we sublease a portion of certain travel
centers to third parties to operate other retail operations. We recognized sublease rental income of approximately $1.9 million for the
year ended December 31, 2022.
In connection with our entering into the Merger Agreement, on February 15,
2023, we and TA Operating LLC (together the “TCA Parties”), entered into a Consent Agreement with SVC (the “SVC Consent
Agreement”) pursuant to which SVC and its applicable subsidiaries: (1) consented to our entering into the Merger Agreement
and the consummation of the Merger and the other transactions contemplated by the Merger Agreement, (the “BP Acquisition”);
(2) agreed to amend and restate the SVC Leases and guaranty agreements with the applicable TCA Parties, effective at the time of
the Merger; and (3) agreed to sell to us certain tradenames and trademarks associated with our business that SVC or its applicable
subsidiaries own at their current book value of $89.4 million, effective at the time of the Merger.
Sonesta Franchising Agreement.
We entered into a franchising agreement, or Franchising Agreement, with Sonesta RL Hotels Franchising Inc., a subsidiary of Sonesta concerning
a hotel owned by SVC and operated by us in Sparks, Nevada. The Franchising Agreement provides for an initial term of six years, with renewal
options. Pursuant to the Franchise Agreement, we will pay a monthly fee of $3,207, or an aggregate fee of $0.2 million over six years.
Because at least 80% of Messrs. Pertchik’s, Crage’s
and Young’s business time is devoted to services to us, we pay 80% of Messrs. Pertchik’s, Crage’s and Young’s
total cash compensation (that is, the combined base salary and cash bonus paid by the Company and RMR) and RMR pays the remainder. Messrs. Pertchik,
Crage and Young are also eligible to participate in certain RMR benefit plans and to receive share awards from RMR Inc. and Other RMR
Clients. We believe the compensation we paid to these officers reasonably reflected their division of business time and efforts; however,
periodically, these individuals may divide their business time and efforts differently than they do currently and their compensation from
us may become disproportionate to this division.
Additionally, each of Messrs. Pertchik, Crage, and Young during
2022 received share awards from RMR Inc. and Other RMR Clients, including SVC, in their capacities as officers of RMR.
During 2022, we purchased approximately 48,000 Common Shares, at the
closing price of the Common Shares on the Nasdaq on the date of purchase, from certain of our officers and employees and officers and
employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of Common Shares.
We have a business management agreement
with RMR to provide management services to us that relate to various aspects of our business generally, including, but not limited to,
services related to compliance with various laws and rules applicable to our status as a public company, advice and supervision with
respect to our travel centers, site selection for properties on which new travel centers may be developed, identification of, and purchase
negotiation for, travel center properties and companies, accounting and financial reporting, capital markets and financing activities,
investor relations and general oversight of our daily business activities, including legal matters, human resources, insurance programs,
management information systems and the like. This agreement is described below, see “— Business Management Agreement
with RMR.”
Business Management Agreement with
RMR. Under our business management agreement with RMR, we pay RMR an annual business management fee equal to 0.6% of the sum
of our fuel gross margin (which is our fuel revenues less our fuel cost of goods sold) plus our total nonfuel revenues. The fee is payable
monthly and totaled approximately $16.2 million for 2022.
The current term of our business
management agreement with RMR ends on December 31, 2023, and automatically renews for successive one year terms unless we or
RMR gives notice of non-renewal before the end of an applicable term. RMR may terminate the business management agreement upon
120 days’ written notice, and we have the right to terminate the business management agreement upon 60 days’
written notice, subject to approval by a majority vote of our Independent Directors. If we terminate or do not renew the business
management agreement other than for cause, as defined, we are obligated to pay RMR a termination fee equal to 2.875 times the
annual base management fee and the annual internal audit services expense, which amounts are based on averages during the 24
consecutive calendar months prior to the date of notice of termination or nonrenewal. Upon consummation of the transactions
contemplated by the Merger Agreement, we will terminate our business management agreement with RMR pursuant to its terms and pay the
termination fee currently estimated to be approximately $45.0 million.
Expense Reimbursement.
Pursuant to our business management agreement, we are also generally responsible for all of our expenses and certain expenses incurred
or arranged by RMR on our behalf. RMR also provides internal audit services to us in return for our share of the total internal audit
costs incurred by RMR for us and Other RMR Clients. The internal audit costs allocated to and paid by us were approximately $0.3 million
for the year ended December 31, 2022. These amounts are in addition to the business management fees paid to RMR.
Transition Services. In
addition, RMR has agreed to provide certain transition services to us for 120 days following termination by us or notice of termination
by RMR.
Vendors. Pursuant to our
business management agreement, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the
procurement of services to us. As part of this arrangement, we may enter agreements with RMR and other companies to which RMR provides
management services for the purpose of obtaining more favorable terms from such vendors and suppliers.
Stock Awards to RMR Employees. We
award Common Shares to certain employees of RMR under the Equity Compensation Plan who are not also Directors, officers or employees of
the Company. During 2022, we awarded approximately 28,000 Common Shares to such persons. Those awards had an aggregate value of approximately
$1.3 million, based upon the closing prices of the Common Shares on the Nasdaq on the date of the award. One fifth of those stock awards
vested on the date of the award and one fifth vests on each of the next four anniversaries of the date of the award. These stock awards
to RMR employees are in addition to the fees we pay to RMR and the stock awards to our Directors, officers and employees (some of whom
are also officers and employees of RMR).
On occasion, we have entered into arrangements
with former employees of RMR in connection with the termination of their employment with RMR, providing for the acceleration of vesting
of Common Share awards previously awarded to them under our Equity Compensation Plan. The aggregate value of the Common Share awards
we so accelerated, measured as of the effective dates of acceleration, was less than $0.1 million, in aggregate, for the year ended December 31,
2022.
Directors’ and Officers’
Liability Insurance. We, RMR Inc. and certain Other RMR Clients participate in a combined directors’ and officers’
liability insurance policy. The current combined policy expires in September 2024. We paid an aggregate premium of approximately
$0.4 million for this policy for the year ended December 31, 2022.
The foregoing descriptions of our agreements with RMR, SVC and Sonesta
are summaries and are qualified in their entirety by the terms of the agreements. A further description of the terms of certain of those
agreements is included in the Original Filing. In addition, copies of certain of the agreements
evidencing these relationships are filed with the SEC and may be obtained from the SEC’s website, www.sec.gov. We may engage in
additional transactions with related persons, including businesses to which RMR provides management services.