Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On February 14,
2017, Fortress Investment Group LLC, a Delaware limited liability company (the
Company
), entered into an Agreement and Plan of Merger (the
Merger Agreement
) with SB Foundation Holdings LP, a Cayman Islands
exempted limited partnership (
Parent
), and Foundation Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (
Merger Sub
), pursuant to which, among other things, Merger Sub
will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the
Merger
).
At the effective
time of the Merger (the
Effective Time
), each Class A Share of the Company issued and outstanding immediately prior to the Effective Time (other than shares (i) held by the Company as treasury stock or (ii) owned by
Parent, Merger Sub or any subsidiary of the Company) and each restricted stock unit (
RSU
) with respect to the Class A Shares outstanding immediately prior to the Effective Time will be converted into the right to receive
$8.08 in cash, without interest, less any applicable taxes required to be withheld. Each Class B Share of the Company outstanding immediately prior to the Effective Time will be cancelled and retired in exchange for no consideration. The Merger
Agreement also provides that the Companys shareholders may also receive up to two regular quarterly dividends prior to the closing, each in an amount not to exceed $0.09 per Class A Share. There are no appraisal or dissenters rights
available with respect to the Merger.
The Companys Board of Directors (the
Board
), acting on the unanimous recommendation of a
special committee consisting entirely of independent and disinterested directors (the
Special Committee
), unanimously approved the terms of the Merger Agreement and unanimously recommended the approval of the Merger by the
Companys shareholders (the
Board Recommendation
). The Board established the Special Committee to consider and evaluate possible strategic transactions and designated the Special Committee as a Conflicts Committee (as defined
in the LLC Agreement (as defined below)). The Special Committee has determined that (i) each member thereof is independent and disinterested with respect to (A) the management of the Company and (B) the Merger and the other
Contemplated Transactions (as defined in the Merger Agreement) and (ii) the Special Committees approval of the Merger and the other Contemplated Transactions constitutes a Special Approval (as defined in, and for purposes of
Section 5.20 of, the LLC Agreement).
Consummation of the Merger is subject to certain customary conditions, including, without limitation,
(i) the approval by the holders of a majority of the Class A Shares and Class B Shares (voting as one class) outstanding on the record date for the Company shareholders special meeting (the
Meeting
) to approve the
Merger (the
Required Vote
); (ii) the receipt of approvals, or the expiration or termination of waiting periods under, certain regulatory laws or from certain regulatory authorities (including the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, certain foreign competition authorities, the Committee on Foreign Investment in the United States, the International Traffic in Arms Regulations, the UK Financial Conduct Authority, the Financial Industry Regulatory
Authority, the Bank of Italy and the European Central Bank); and (iii) the absence of any order, preliminary or permanent injunction or other order preventing the consummation of the Merger. Each partys obligation to consummate the Merger
is subject to certain other conditions, including (a) the accuracy of the other partys representations and warranties and (b) the other partys compliance with its covenants and agreements contained in the Merger Agreement (in
each case, subject to certain qualifications). In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to (x) the absence of a Material Adverse Effect (as defined in the Merger Agreement), (y) the receipt
of consent of advisory clients representing at least 87.5% of Base Aggregate Management Fees (as defined in the Merger Agreement) and (z) the continuing effectiveness of the Founders Agreement and TRA Waiver (each as defined below).
Consummation of the Merger is not subject to a financing condition.
The Company has made customary representations and warranties in the Merger Agreement
and has agreed to customary covenants, including with respect to, among other things, the operation of the business of the Company and its subsidiaries prior to the closing, convening and holding the Meeting and, subject to certain customary
exceptions, recommending that the Companys shareholders vote to adopt the Merger Agreement and approve the Merger at the Meeting. In addition, the Merger Agreement contains a customary no shop provision that, in general, restricts
the Companys ability to solicit alternative acquisition proposals and to provide non-public information to and engage in discussions or negotiations regarding alternative acquisition proposals, subject to a customary fiduciary out
exception.
The Merger Agreement contains certain customary termination rights for the Company and Parent. Subject to certain
limitations, the Merger Agreement may be terminated by either Parent or the Company if (i) the Merger is not consummated on or before December 31, 2017; (ii) the Merger becomes subject to a final and non-appealable order permanently
restraining, enjoining or otherwise prohibiting the Merger; (iii) the Required Vote is not obtained following a vote of shareholders taken thereon; (iv) any of the other partys representations or warranties contained in the Merger
Agreement shall be inaccurate, or such partys covenants or obligations contained in the Merger Agreement shall have been breached, such that the applicable condition to closing would not be satisfied; or (v) a CFIUS Turndown occurs (as
defined in the Merger Agreement). In addition, (a) Parent may terminate the Merger Agreement if the Board or the Special Committee has withdrawn or modified the Board Recommendation or failed to reaffirm the Board Recommendation as required
under the Merger Agreement or if any other Triggering Event (as defined in the Merger Agreement) shall have occurred, and (b) subject to the Companys compliance with certain provisions contained in the Merger Agreement, the Company and
the Special Committee may terminate the Merger Agreement to enter into an acquisition agreement with respect to a Superior Offer (as defined in the Merger Agreement).
Upon termination of the Merger Agreement under specified circumstances, including with respect to the Companys entry into an agreement with respect to a
Superior Offer, the Company will be required to pay Parent a termination fee of $98,350,000. Upon termination of the Merger Agreement by Parent following the Boards withdrawal or modification of the Company Board Recommendation based on an
Intervening Event (as defined in the Merger Agreement), the Company will be required to pay Parent a termination fee of $131,140,000.
Parent has secured
committed equity financing for the entire amount of the purchase price payable under the Merger Agreement and the Founders Agreement from Softbank Group Corp, a corporation incorporated under the laws of Japan (the
Sponsor
), who
has agreed to capitalize Parent, subject to the terms and conditions set forth in an equity commitment letter entered into by Sponsor and Parent (the
Equity Commitment Letter
). Further, Sponsor has provided the Company and the
Founders (as defined below) with a limited guarantee in favor of the Company and the Founders (the
Guarantee
), (i) guaranteeing all the monetary obligations that may be owed by Parent to the Company and the Founders pursuant
to the Merger Agreement and the Founders Agreement, respectively, up to a cap equal to the purchase price under the Merger Agreement and the Founders Agreement plus certain additional amounts for expenses and certain other related payments, and
(ii) requiring the Sponsor to comply with certain specified covenants and agreements under the Merger Agreement. The Merger Agreement permits the syndication of a portion of Parents equity, subject to certain conditions and limitations;
provided that no such syndication will reduce the Sponsors obligations under the Equity Commitment Letter or the Guarantee.
The Merger Agreement
may not be amended without mutual written consent of the parties (in the case of the Company, acting upon the recommendation of the Special Committee).
The representations, warranties, covenants and agreements of the Company contained in the Merger Agreement have been made solely for the benefit of Parent and
Merger Sub. In addition, such representations, warranties and covenants (i) have been made only for purposes of the Merger Agreement; (ii) have been qualified by (a) matters specifically disclosed in the Companys filings with
the Securities and Exchange Commission (the
SEC
) on or after December 31, 2014 and prior to the date of the Merger Agreement and (b) confidential disclosures made to Parent and Merger Sub in the disclosure schedule
delivered in connection with the Merger Agreement; (iii) are subject to materiality qualifications contained in the Merger Agreement, which may differ from what may be viewed as material by investors; (iv) were made only as of the date of
the Merger Agreement or, in the event that the closing occurs, as of the date of the closing, or such other date as is specified in the Merger Agreement; and (v) have been included in the Merger Agreement for the purpose of allocating risk
between the contracting parties rather than establishing matters as fact. Accordingly, the Merger Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide
investors with any other factual information regarding the Company or its business.
Investors should not rely on the representations, warranties,
covenants or agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations
and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Companys public disclosures. The Merger Agreement should not be read alone, but should instead be read in
conjunction with the other information regarding the Company that is or will be contained in, or incorporated by reference into, the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other documents that
the Company files or furnishes with the SEC.
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The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be
complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement filed as Exhibit 2.1 hereto and incorporated herein by reference.
Founders Agreement
On February 14, 2017,
concurrently with the entry into the Merger Agreement, Parent entered into a Founders Agreement (the
Founders Agreement
) with the Company, FIG Corp., a Delaware corporation and a subsidiary of the Company, FIG Asset Co. LLC, a
Delaware limited liability company and a subsidiary of the Company (together with FIG Corp., the
Buyers
), Randal Nardone, Principal, Chief Executive Officer and Director of the Company, Wesley Edens, Principal and Co-Chairman of
the Company, and Peter Briger, Principal and Co-Chairman of the Company (each, a
Founder
), and their related parties that own FOG Units (as defined below) (collectively with the Founders, the
Sellers
), pursuant
to which, among other things, the Buyers will purchase from the Sellers 100% of the common limited partnership units that are not already owned by the Company and its subsidiaries of each of Fortress Operating Entity I LP, FOE II (NEW) LP and
Principal Holdings I LP, the limited partnerships through which the Company conducts its business (collectively, the
Fortress Operating Group
), which units (together with Class B Shares of the Company), are exchangeable into
Class A Shares of the Company (the
FOG Units
).
At the closing of the transactions contemplated by the Founders Agreement (the
Founders Closing
), which is to occur substantially concurrently with the closing of the Merger, each FOG Unit will be acquired from the Sellers in exchange for $8.08 in cash, subject to reduction for, among other things, certain
tax distributions made to the Sellers with respect to their FOG Units.
Each Seller will place 50% of the after-tax proceeds from the sale of its FOG
Units into escrow at the Founders Closing. Eighty percent (80%) of the escrowed amount will be released to the applicable Seller upon the fourth anniversary of the Founders Closing, and the remaining escrowed amount will be released to the
applicable Seller upon the fifth anniversary of the Founders Closing. If, prior to the applicable release date, (i) the Founders employment is terminated by the Company for any reason, (ii) Founder resigns for good reason (as
defined in the Founders Agreement) or (iii) the Founders employment is terminated due to death or disability (each, an Early Release Event), the escrowed proceeds will be released to the applicable Seller. If, prior to the
applicable release date, the applicable Founders employment is terminated by the Founder for any reason other than due to a resignation with good reason or the Founders death or disability, the escrowed proceeds will be
forfeited to Parent. Each Seller is also required to retain investments in Company vehicles and certain other agreed investments equal to 90% of its existing investments until the earlier of the fourth anniversary of the Founders Closing or upon an
Early Release Event. These escrowed proceeds and retained investments will be invested in funds and investment vehicles of the Company or Sponsor, or in stock of Sponsor.
The Sellers have made customary representations and warranties in the Founders Agreement and have agreed to be personally liable to Parent or Merger Sub, in
an amount up to the aggregate proceeds received by any Seller under the Founders Agreement, for certain losses. The Founders have also agreed to covenants regarding non-competition, non-solicitation of employees and non-solicitation of investors for
a period of 24 months after termination of employment. From and after the Founders Closing, each Founder will have the right to sit on the post-closing Board so long as he is employed by the Company or its subsidiaries, and the Boards
compensation committee must include at least two Founders.
Consummation of the Founders Closing is subject to certain conditions, including, without
limitation, (i) the satisfaction of the conditions to the Merger or the waiver of such conditions by the applicable parties thereto; (ii) the absence of a temporary order, preliminary or permanent injunction or other order or legal
requirements preventing the consummation of the Founders Closing; (iii) the accuracy of the other partys representations and warranties and the other partys compliance with its covenants and agreements contained in the Founders
Agreement (in each case, subject to certain qualifications); and (iv) the effectiveness of the Escrow Agreements (as defined in the Founders Agreement), the TRA Waiver (as defined below) and the amendment of the PCP described herein.
The Founders Agreement may not be amended without mutual written consent of the parties and, if prior to the Founders Closing, approval of the Special
Committee. The Founders Agreement automatically terminates upon termination of the Merger Agreement or by mutual written consent of the parties and the Special Committee.
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The foregoing summary of the Founders Agreement and the transactions contemplated thereby does not purport to be
complete and is subject to, and qualified in its entirety by, the full text of the Founders Agreement filed as Exhibit 2.2 hereto and incorporated herein by reference.
Support Agreements
In connection with entering
into the Merger Agreement, on February 14, 2017, Parent entered into a Voting and Support Agreement (each, a
Support Agreement
) with each Founder and his related parties that own voting shares of the Company (collectively,
the
Supporting Members
). The Support Agreements generally require that the Supporting Members vote their Covered Securities (as defined in the Support Agreement) of the Company that represent, in the aggregate, 34.99% of the total
voting power of the Company, in favor of the adoption of the Merger Agreement and against any competing acquisition proposals, and take certain other actions in furtherance of the transactions contemplated by the Merger Agreement, in each case
subject to the limitations set forth in the Support Agreements.
Subject to certain exceptions, the Support Agreements prohibit transfers by the
Supporting Members of any of their Covered Securities prior to the termination of the Support Agreement and other actions that would impair their ability to fulfill their obligations under the Support Agreements.
The foregoing summary of the Support Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of each of
the Support Agreements, respectively, filed as Exhibits 99.1, 99.2 and 99.3 hereto and incorporated herein by reference.
TRA Waiver
Under the existing tax receivables agreement (the
TRA
) between the Founders, FIG Corp., a Delaware corporation and a subsidiary of the
Company (
FIG Corp
), and certain other parties, the Founders are entitled to receive certain payments from FIG Corp. equal to a percentage of the future tax benefits that FIG Corp. realizes as a result of certain transactions,
including the Founders exchange of FOG Units for Class A shares of the Company. In connection with entering into the Merger Agreement, on February 14, 2017, FIG Corp. entered into a Waiver Agreement (the
TRA
Waiver
) with certain other subsidiaries of the Company and the Founders, effective as of and subject to the occurrence of the Founders Closing, pursuant to which the Founders waive their rights to receive any payments under the TRA arising
out of the transactions contemplated by the Founders Agreement and other transactions occurring after February 14, 2017. Under the TRA Waiver, the Founders will also agree to amend certain key tax assumptions that affect the timing and amount of
future payments to be received by the Founders with respect to transactions that occur prior to the Founders Closing (
Pre-Transaction Exchanges
). Subject to those amendments, future payments under the TRA attributable to
Pre-Transaction Exchanges will generally continue to be contingent on FIG Corp. having sufficient future operating income to utilize the applicable tax benefits. In addition, under the TRA Waiver, the aggregate amount of a Founders future
payments under the tax receivables agreement will be capped at such Founders pro rata share of the liability for such payments recorded on the Companys audited consolidated financial statements for the year ending December 31, 2016.
The waivers and amendments provided for in the TRA Waiver will generally have the effect of reducing and/or deferring the payments to which the Founders would otherwise have been entitled under the TRA.
The foregoing summary of the TRA Waiver does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the TRA Waiver,
filed as Exhibit 10.1 hereto and incorporated herein by reference.