Item 1.01 Entry into a Material Definitive
Agreement.
On June 23, 2016, Full Circle Capital
Corporation (the “Company”) and Great Elm Capital Corp., a Maryland corporation (“GECC”) entered into
a definitive merger agreement (the “Merger Agreement”) under which the Company will merge with and into GECC,
with GECC as the surviving corporation (the “Merger”). Concurrently with the execution of the Merger
Agreement, GECC, Great Elm Capital Group, Inc. (“Great Elm”) and certain investment funds (the “Funds”)
managed by MAST Capital Management, LLC (“MAST”) entered into a subscription agreement (the “Subscription
Agreement”). Pursuant to the Subscription Agreement, (i) Great Elm has contributed $30 million in cash to GECC in
exchange for shares of GECC's common stock and (ii) the Funds have agreed to contribute an investment portfolio, presently
valued at approximately $90 million, also in exchange for shares of GECC's common stock. The contribution of the investment
portfolio will occur prior to the closing of the Merger. When the Merger becomes effective, GECC, as the
surviving corporation (the “Surviving Corporation”), will be externally managed by Great Elm Capital Management,
Inc. (“GECM”), pursuant to a new investment advisory agreement. GECM will be owned by Great Elm. Great Elm has
advised the Company that GECM will employ substantially all of the investment and back office personnel of MAST. The
obligations of the parties to the Merger Agreement and the Subscription Agreement are subject to various conditions.
The Company has entered into an agreement (the “Termination Agreement”) with Full Circle Advisors, LLC, its
manager (the “Manager”) and Full Circle Service Company, LLC, its administrator (the
“Administrator”), providing for the future termination of the Company's existing investment advisory agreement
dated July 13, 2010 and administration agreement dated July 14, 2010, as required under the Merger Agreement.
Merger Agreement
The Merger Agreement provides that,
upon the terms and subject to the conditions set forth in the Merger Agreement, (i) the Company will merge with and into GECC
with GECC continuing as the Surviving Corporation. In the Merger, all of the Company’s outstanding shares of common
stock will be converted into shares of the Surviving Corporation's common stock. The amount of Surviving Corporation common
stock to be received by the Company’s stockholders will be derived from an exchange ratio (the "Exchange
Ratio") which will be calculated based on the Company’s net asset value as of the month-end preceding the date on
which the definitive proxy statement relating to the Merger is mailed to the Company’s stockholders, subject to
adjustments as described below.
Pursuant to the Merger Agreement, the Company
will declare and pay a special cash distribution to the Company’s stockholders of record as of the close of business on the
day on which the Merger becomes legally effective. The amount of the special cash distribution will be $5 million plus undistributed
earnings through the effective time of the Merger. The amount of the special cash distribution will be deducted from the net asset
value of the Company that is used to calculate the Exchange Ratio. The Merger Agreement provides for the special cash distribution
to be paid to the Company’s stockholders at the same time they receive their shares of common stock in the Surviving Corporation.
The closing of the Merger is subject to
the satisfaction of customary closing conditions, including, among others, the registration and listing of the shares of common
stock of the Surviving Corporation that will be issued in the Merger and the approval of the Merger by the holders of
a majority of the outstanding shares of the common stock of the Company (the "Company Stockholder Approval").
The Merger Agreement contains customary
representations, warranties and covenants of each party, including covenants providing for the Company and GECC (i) to conduct
their respective businesses in all material respects in the ordinary course of business and in a manner consistent with past practice
during the period between the execution of the Merger Agreement and the effective time of the Merger, (ii) not to engage in certain
kinds of transactions during such period, and (iii) only with respect to the Company, to convene and hold a meeting of its stockholders
to consider and vote upon the approval of the Merger.
The Merger Agreement contains a customary
“no-shop” provision which prohibits the Company and its subsidiaries from engaging in certain actions with respect
to any other offer or proposal relating to an acquisition, merger or business combination resulting in ownership of more than 25%
of the Company or the Company’s assets (an “Acquisition Proposal”). Subject to certain exceptions, the Company
may not: (i) initiate, solicit or knowingly encourage any inquiries with respect to any Acquisition Proposal; (ii) engage in negotiations
or discussions that reasonably could be expected to lead to an Acquisition Proposal; (iii) approve, endorse or recommend any Acquisition
Proposal; or (iv) execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or
any similar agreement relating to any Acquisition Proposal.
The “no shop” provision is
subject to a customary “fiduciary out” provision that allows the Company, under certain circumstances and in compliance
with certain obligations, to provide non-public information and engage in discussions and negotiations with any third party making
an Acquisition Proposal if the Company's board of directors determines in good faith, after consultation with counsel and its financial
advisor, that such third party is reasonably likely to submit a Superior Proposal. A “Superior Proposal” is a bona
fide proposal in writing relating to an acquisition, merger or business combination resulting in ownership of more than 50% of
the Company or the Company’s assets that is reasonably likely to be consummated and which has terms more favorable to the
Company and its stockholders from a financial point of view than those set forth in the Merger Agreement and related documents.
At any time prior to obtaining the Company
Stockholder Approval, subject to certain conditions, the Company’s board of directors may endorse the Superior Proposal and
may change its recommendation regarding the Merger if the board of directors has determined in good faith (after consultation with
counsel) that the failure to take action would be inconsistent with the directors’ fiduciary duties. Any such action can
be taken only after giving three business days advance notice to GECC and during those three business days the Company must negotiate
with GECC (if GECC wishes to negotiate) to adjust the terms and conditions of the Merger Agreement to make them at least as favorable
to the Company's stockholders as the Superior Proposal.
The Merger Agreement contains certain termination
rights for both the Company and GECC, including if the Merger is not completed on or before October 31, 2016 (subject to extension
under certain circumstances), or if the Company Stockholder Approval is not obtained. In the event of a termination of the Merger
Agreement under certain circumstances, including termination of the Merger Agreement by the Company to enter into a definitive
agreement with respect to a Superior Proposal or termination by GECC as a result of a change of recommendation by the Company’s
board of directors, the Company will be required to pay GECC a termination fee of $3 million. Additionally, in the event that
the Company Stockholder Approval is not obtained and a proposal for a business combination with a third party or an acquisition
by a third party of 50% of more of the shares or assets of the Company (each, an “Alternative Transaction”) has been
publicly announced and not withdrawn, upon termination of the Merger Agreement by the Company or GECC, the Company will be required
to reimburse GECC for its out of pocket expenses, up to a maximum of $1 million (the "Expense Reimbursement"). If the
Company enters into a definitive agreement for one or more Alternative Transactions within 12 months after termination of the Merger
Agreement, the Company will be required to pay GECC a termination fee of $3 million, less the Expense Reimbursement.
This summary description of the Merger
Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Exhibit 2.1 and incorporated herein by reference. The Merger Agreement has been included to provide investors
and security holders with information regarding its terms. It is not intended to provide any other factual information about the
Company or any of its subsidiaries or affiliates.
The representations and warranties of each
of the parties set forth in the Merger Agreement have been made solely for the benefit of the other parties to the Merger Agreement
and such representations and warranties should not be relied on by any other person. In addition, such representations and warranties
(i) have been qualified by disclosures made to the other parties in connection with the Merger Agreement, (ii) are subject to the
materiality standards contained in the Merger Agreement that may differ from what may be viewed as material by investors, and (iii)
were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement.
Subscription Agreement
Pursuant to the Subscription Agreement,
Great Elm has contributed $30 million in cash to GECC in return for shares of GECC common stock, and the Funds will contribute
an investment portfolio, presently valued at approximately $90 million, to GECC in exchange for shares of GECC's common stock.
The Company is not a party to the Subscription Agreement but it is a third party beneficiary of that Agreement.
The Subscription Agreement also
provides that, prior to the consummation of the Merger, GECC and GECM will enter into an investment management agreement and
an administration agreement pursuant to which the GECM will provide services to the Surviving Corporation. The agreed form of
each of these agreements is included as an annex to the Subscription Agreement attached hereto as Exhibit 2.2.
The Subscription Agreement contains customary
representations, warranties and covenants of each party, including covenants providing for GECC to conduct its business in all
material respects in the ordinary course of business and in a manner consistent with past practice during the period between the
execution of the Merger Agreement and the effective time of the Merger.
The Subscription Agreement contains an
indemnification provision that provides for indemnification by MAST and Great Elm of the Company, the Manager, the Administrator
and certain persons affiliated with each of them, for losses arising from any action or claim by a MAST Investor (as defined in
the Subscription Agreement) alleging breach of a fiduciary duty or other obligation of MAST relating to the transactions contemplated
by the Subscription Agreement or the related compensation of MAST.
This summary description of the Subscription
Agreement does not purport to be complete and is qualified in its entirety by reference to the Subscription Agreement, a copy of
which is attached hereto as Exhibit 2.2 and incorporated herein by reference. The Subscription Agreement has been included to provide
investors and security holders with information regarding its terms. It is not intended to provide any other factual information
about the Company or any of its subsidiaries or affiliates.
The representations and warranties of each
of the parties set forth in the Subscription Agreement have been made solely for the benefit of the other parties to the Subscription
Agreement and such representations and warranties should not be relied on by any other person. In addition, such representations
and warranties (i) have been qualified by disclosures made to the other parties in connection with the Subscription Agreement,
(ii) are subject to the materiality standards contained in the Subscription Agreement that may differ from what may be viewed as
material by investors, and (iii) were made only as of the date of the Subscription Agreement or such other date as is specified
in the Subscription Agreement.
Termination Agreement
Concurrently with the execution of the
Merger Agreement, the Company entered into the Termination Agreement with the Manager and the Administrator, pursuant to which
the Manager has agreed that, at the effective time of the Merger, the investment advisory agreement dated July 13, 2010 will terminate
and the Administrator has agreed the administration agreement dated July 14, 2010 will be terminable after the Merger in accordance
with the terms described in the Merger Agreement.
This summary description of the Termination
Agreement does not purport to be complete and is qualified in its entirety by reference to the Termination Agreement, a copy of
which is attached hereto as Exhibit 10.1 and incorporated herein by reference.