Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On February 17,
2017, B. Riley Financial, Inc. (the
Company
) entered into an Agreement and Plan of Merger (the
Merger Agreement
) with FBR & Co. (
FBR
), pursuant to which FBR will merge with and into
the Company (or a subsidiary of the Company), with the Company (or its subsidiary) as the surviving corporation (the
Merger
).
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the
Effective Time
),
each outstanding share of FBR common stock, par value $0.001 per share (
FBR Common Stock
), excluding certain specified shares, will be converted into the right to receive 0.671 of a share of the Companys common stock, par
value $0.0001 per share (
Company Common Stock
).
In addition, prior to the closing of the Merger, the board of
directors of FBR (the
FBR Board
) may declare and pay a cash dividend (the
Pre-Closing
Dividend
) to holders of FBR Common Stock and FBR equity awards. The
Pre-Closing
Dividend on a per share basis will be equal to the value of cash and certain specified investments on FBRs balance sheet in excess of $33,500,000 divided by the total number of fully diluted shares
of FBR Common Stock outstanding (subject to certain adjustments if the
Pre-Closing
Dividend would be equal to or more than $8.50 per fully diluted share of FBR Common Stock).
The Company and FBR have made customary representations, warranties and covenants in the Merger Agreement for a transaction of this nature.
The Company and FBR have also agreed, among other things, to covenants relating to (i) the conduct of their respective businesses during the interim period between the execution of the Merger Agreement and the consummation of the Merger,
(ii) facilitating FBRs shareholders and the Companys stockholders consideration of, and voting upon, the adoption or approval of the Merger Agreement and certain related matters (including, in the case of the Company,
the approval of the issuance of shares of Company Common Stock in connection with the Merger (the
Share Issuance
), (iii) the recommendation by the FBR Board in favor of the Merger Agreement, (iv) the recommendation of the
board of directors of the Company (the
Company Board
) in favor of the approval of the Share Issuance and certain related matters, and (v) the use of their respective reasonable best efforts to obtain necessary regulatory
approvals and to do or cause to be done all things reasonably necessary, proper or advisable to consummate and make effective the Merger. In addition, FBR has agreed to
non-solicitation
obligations relating to
alternative business combination transactions subject to certain exceptions.
Consummation of the Merger is subject to certain closing
conditions, including: (i) the approval of the Merger Agreement by the holders of a majority of the outstanding shares of FBR Common Stock as of the applicable record date, (ii) the
adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Company Common Stock as of the applicable record date, (iii) the approval of the Share Issuance by
a majority of the votes cast on the issuance, (iv) the absence of any law or order prohibiting the Merger or the other transactions contemplated by the Merger Agreement, (v) the receipt of certain required regulatory approvals that do not
contain materially burdensome regulatory conditions, subject to certain exceptions and (vi) effectiveness of the registration statement for the Share Issuance. The obligation of each party to consummate the Merger is also conditioned upon the
accuracy of the other partys representations and warranties (subject to customary materiality qualifiers), the other partys performance in all material respects of its obligations contained in the Merger Agreement and the receipt by such
party of a tax opinion to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The obligation of the Company to consummate the Merger is also conditioned
upon FBR having $33,500,000 in cash and certain specified investments at the Effective Time.
The Merger Agreement contains certain
termination rights for both the Company and FBR, including (i) if the consummation of the Merger is legally prohibited or enjoined, (ii) the failure of the Merger to be consummated by September 30, 2017 (the
Outside
Date
) or (iii) in the event that the approval of FBR shareholders or the Companys stockholders is not obtained. In addition, in certain circumstances, the Company may terminate the Merger Agreement prior to FBRs
shareholder approval of the Merger in the event that (A) FBR materially breaches certain
non-solicitation
obligations relating to alternative business combination transactions, (B) the FBR Board
changes its recommendation or (C) the FBR Board recommends a tender offer or fails to recommend against such tender offer within 10 business days after commencement thereof. The Merger Agreement also provides that FBR will be obligated to pay a
termination fee of $5 million to the Company if the Merger Agreement (i) is terminated by the Company in the circumstances described in the preceding sentence or (ii) (A) if an acquisition proposal is made to FBR or to its
shareholders publicly, (B) the Merger Agreement is terminated for failure to consummate the Merger by the Outside Date or for failure to obtain the approval of FBRs shareholders and (C) FBR enters into a definitive agreement with
respect to or consummates certain acquisition proposals within 12 months of termination of the Merger Agreement.
The Merger Agreement
further provides that, at or prior to the Effective Time, the number of directors comprising the full Company Board will be increased by one, with Richard J. Hendrix, Chairman, President and Chief Executive Officer of FBR, being appointed to fill
the new seat in accordance with the terms of the employment agreement described below.
In connection with the execution of the Merger
Agreement, on February 17, 2017, B. Riley & Co., LLC and the Company entered into an employment agreement with Mr. Hendrix, which provides that, following the closing of the Merger, Mr. Hendrix will become President and Chief
Executive Officer of the combined business of FBR and B. Riley & Co., LLC and will be appointed to the Company Board, contingent on Mr. Hendrix remaining employed by FBR through the closing of the Merger.
Voting Agreements
On February 17, 2017, certain officers and directors of FBR entered into voting agreements with the Company with respect to shares of
FBR Common Stock held by such officers or directors, and certain officers and directors of the Company entered into voting agreements with FBR with respect to shares of Company Common Stock held by such officers or directors (collectively, the
Voting Agreements
) on substantially the same terms, as described below.
The Voting Agreements generally require each
stockholder party thereto (each a
Stockholder
,) in his or her capacity as a stockholder, to vote all of the shares of common stock over which such Stockholder has voting control in favor of adoption of the Merger Agreement and
certain related matters (including, in the case of the Company, the Share Issuance) and against alternative transactions and generally prohibit them from transferring their shares of common stock, subject to certain exceptions. The Voting Agreements
will terminate in certain circumstances, including upon the consummation of the Merger or the termination of the Merger Agreement in accordance with its terms.
The foregoing descriptions of the Merger Agreement and the Voting Agreements do not purport to be complete and are qualified in their
entirety by reference to the respective agreements attached hereto as Exhibits 2.1, 99.1 and 99.2, respectively, which are incorporated by reference herein.
The Merger Agreement and the above description of the Merger Agreement have been included to provide investors and securityholders with
information regarding the terms of the Merger Agreement. The Merger Agreement and the above description are not intended to provide any other factual information about the Company, FBR, or their respective subsidiaries or affiliates. The
representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement; may be subject to
limitations agreed upon by the parties, including being qualified by confidential disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them rather than establishing these matters as facts;
and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations,
warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the Company, FBR or any of their respective subsidiaries, affiliates or businesses. Moreover, information concerning the subject
matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company or FBR. The Merger Agreement should not be
read alone, but should instead be read in conjunction with the other information about the Company or FBR and their respective subsidiaries, the Merger Agreement and the Merger that will be contained in, or incorporated by reference into the
Registration Statement on Form
S-4
that will include a Joint Proxy Statement of FBR and the Company, as well as in the reports, statements and other filings each of the Company and FBR make with the United
States Securities and Exchange Commission (the
SEC
).