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Item 1.01
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Entry into a Material Definitive Agreement.
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Agreement and Plan of Merger
On December 23, 2020, Harvest Capital Credit
Corporation, a Delaware corporation (“HCAP”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), Rye Acquisition
Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Acquisition Sub”), and Sierra
Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (“Sierra
Crest”).
The Merger Agreement provides that (i) Acquisition
Sub will merge with and into HCAP (the “First Merger”), with HCAP continuing as the surviving corporation and
as a wholly-owned subsidiary of PTMN, and (ii) immediately after the effectiveness of the First Merger, HCAP will merge with and
into PTMN (the “Second Merger” and, together with the First Merger, the “Mergers”), with
PTMN continuing as the surviving corporation.
The board of directors of HCAP (other than
directors affiliated with HCAP Advisors, LLC, HCAP’s external investment adviser, who abstained from voting), on the unanimous
recommendation of a special committee thereof comprised solely of the independent directors of HCAP, has approved the Merger Agreement
and the transactions contemplated thereby. The boards of directors of each of PTMN and Acquisition Sub, and the managing member
of Sierra Crest, have each unanimously approved the Merger Agreement and the transactions contemplated thereby.
Merger Consideration
At the closing of the First Merger (the
“Closing”), PTMN shall issue, in respect of all of the issued and outstanding shares of common stock, par value
$0.001 per share, of HCAP (“HCAP Common Stock”) (excluding shares held by subsidiaries of HCAP or held, directly
or indirectly, by PTMN or Acquisition Sub and all treasury shares (“Cancelled Shares”)) in the aggregate, a
number of shares of common stock, par value $0.01 per share, of PTMN (“PTMN Common Stock”) equal to 19.9% of
the number of shares of PTMN Common Stock issued and outstanding immediately prior to the Closing (such number of shares of PTMN
Common Stock, the “Total Stock Consideration”). Two days prior to the Closing Date (as defined in the Merger
Agreement) (the “Determination Date”), PTMN shall deliver to HCAP a calculation of the amount by which (A) HCAP’s
net asset value as of 5:00 p.m. New York City time on the Determination Date exceeds (B) the product of (i) the Total Stock Consideration
multiplied by (ii) PTMN’s net asset value as of 5:00 p.m. New York City time on the Determination Date (such product,
the “Aggregate Cash Consideration”), calculated in good faith; provided, that the PTMN shall update and
redeliver the calculation of the Aggregate Cash Consideration, in certain circumstances described in the Merger Agreement.
Each person who as of the date and time
when the First Merger becomes effective (the “Effective Time”) is a record holder of shares of HCAP Common Stock
shall be entitled, with respect to all or any portion of such shares, to make an election to receive payment for their shares of
HCAP Common Stock in cash (an “Election”), subject to the conditions and limitations set forth in the Merger
Agreement. Any record holder of shares of HCAP Common Stock at the record date who does not make an Election shall be deemed to
have elected to receive payment for their shares of HCAP Common Stock in the form of PTMN Common Stock. For the purpose of making
Elections, a record holder of HCAP Common Stock that is a registered clearing agency and whose legal title on behalf of multiple
ultimate beneficial owners shall be entitled to submit elections as if each ultimate beneficial owner were a record holder of HCAP
Common Stock.
Each share of HCAP Common Stock (other than
a Cancelled Share) with respect to which an Election has been made (an “Electing Share”) shall be entitled to
receive the number of shares of PTMN Common Stock (the “Per Share Stock Amount”) with a value equal to the Per
Share Cash Price (as defined below), subject to certain adjustments as described below.
The “Per Share Cash Price”
will be the quotient of (i) the sum of (a) the product of Total Stock Consideration multiplied by the average of the volume weighted
average price per share of PTMN Common Stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative
source mutually selected by PTMN and HCAP) on each of the ten (10) consecutive trading days ending with the Determination Date
(such value the “Total Stock Consideration Value”) and (b) the Aggregate Cash Consideration (such sum, the “Total
Consideration Value”), divided by (ii) the number of shares of HCAP Common Stock issued and outstanding immediately prior
to the Closing.
Each share of HCAP Common Stock with respect
to which an Election has not been made (a “Non-Electing Share”) shall be converted into the right to receive
a number of validly issued, fully paid and non-assessable shares of PTMN Common Stock, equal to the Per Share Stock Amount (the
“Proposed Stock Issuance Amount”), subject to certain adjustments as described below. The amount of PTMN Common
Stock to be issued for each Non-Electing Share as ultimately determined pursuant to the foregoing sentence shall be referred to
as the “Per Share Stock Consideration.”
If the Proposed Aggregate Stock Issuance
Amount (as defined below) is greater than the Total Stock Consideration, then the number of Non-Electing Shares shall be reduced
by converting Non-Electing Shares into Electing Shares, until the Total Stock Consideration is equal to the Proposed Aggregate
Stock Issuance Amount (determined on a whole-share basis). Any such reduction in the number of Non-Electing Shares shall be applied
among all stockholders who hold Non-Electing Shares, pro rata based on the aggregate number of Non-Electing Shares held by each
such stockholder. The term “Proposed Aggregate Stock Issuance Amount” shall mean the product of (x) the Proposed
Stock Issuance Amount multiplied by (y) the aggregate number of Non-Electing Shares.
If the Proposed Cash Consideration (as defined
below) is an amount greater than the Aggregate Cash Consideration, then the number of Electing Shares shall be reduced by converting
Electing Shares into Non-Electing Shares, until the Aggregate Cash Consideration is equal to the Proposed Cash Consideration (determined
on a whole-share basis). Any such reduction in the number of Electing Shares shall be applied among all stockholders who hold Electing
Shares, pro rata based on the aggregate number of Electing Shares held by each such stockholder. The term “Proposed Cash
Consideration” shall mean the product of (i) the number of Electing Shares, multiplied by (ii) the Per Share Cash Price.
HCAP shall prepare and mail a form of election
(each, a “Form of Election”), with the proxy statement relating to the HCAP Stockholders Meeting (as defined
below) (the “Proxy Statement”), to record holders of HCAP Common Stock as of the record date for the HCAP Stockholders
Meeting, which shall be used by each holder of HCAP Common Stock who wishes to elect to receive the Per Share Cash Price for any
or all shares of HCAP Common Stock held by such holder. In addition, HCAP shall use its best efforts to make the Form of Election
and the Proxy Statement available to all persons who become holders of HCAP Common Stock during the period between such record
date and the HCAP Stockholders Meeting. Any such holder's election to receive the Per Share Cash Price will be properly made only
if the exchange agent has received at its designated office, by 5:00 p.m., New York City time, no later than the business day that
is five (5) business days preceding the Closing Date (the “Election Date”), a Form of Election properly completed
and signed and accompanied by (if such shares are not book-entry shares) the stock certificate or certificates to which such Form
of Election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of HCAP (or by an appropriate
guarantee of delivery of such certificate or certificates as set forth in such Form of Election from a firm which is a member of
a registered national securities exchange or of the Financial Industry Regulatory Authority, Inc. or a commercial bank of trust
company having an office or correspondent in the United States, provided such certificates are in fact delivered to the exchange
agent within three trading days after the date of execution of such guarantee of delivery).
Any Form of Election may be revoked by the
holder of HCAP Common Stock submitting such Form of Election to the exchange agent only by written notice received by the exchange
agent (i) prior to 5:00 p.m., New York City time, on the Election Date or (ii) after the date of the HCAP Stockholders Meeting,
if the exchange agent is legally required to permit such revocations and the Effective Time has not occurred prior to such revocation.
In addition, all Forms of Election shall automatically be revoked if the exchange agent is notified in writing by PTMN and HCAP
that the First Merger has been abandoned. If a Form of Election is so revoked, the certificate or certificates (or guarantee of
delivery, as appropriate) for the shares of HCAP Common Stock to which such Form of Election relates shall be promptly returned
to the holder of HCAP Common Stock submitting such Form of Election to the exchange agent. Any holder of HCAP Common Stock who
has revoked their Form of Election and has not submitted a separate Form of Election by the proper time on the Election Date shall
be deemed not to have made an Election, the shares held by such holder shall be treated by the exchange agent as Non-Electing Shares.
The exchange agent shall have discretion
to determine whether or not an election to receive the Per Share Cash Price has been properly made or revoked with respect to shares
of HCAP Common Stock and when elections and revocations were received by it. If the exchange agent determines that any election
to receive the Per Share Cash Price was not properly made with respect to shares of HCAP Common Stock, such shares shall be treated
by the exchange agent as shares that were Non-Electing Shares. The exchange agent shall also make all computations as to the allocation
and the proration contemplated by the provisions of the Merger Agreement and any such computation shall be conclusive and binding
on the holders of HCAP Common Stock. The exchange agent may, with the mutual agreement of PTMN and HCAP, make such rules as are
consistent with the provisions of the Merger Agreement for the implementation of the Elections provided for therein as shall be
necessary or desirable fully to effect such Elections.
Additional Cash Consideration
In connection with the transactions contemplated
by the Merger Agreement, as additional consideration to the holders of shares of HCAP Common Stock that are issued and outstanding
immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders
an aggregate amount in cash equal to $2.15 million.
Representations, Warranties and Covenants
The Merger Agreement contains customary
representations and warranties of HCAP, PTMN and Sierra Crest. Additionally, the Merger Agreement contains customary pre-closing
covenants, including covenants requiring HCAP and PTMN (i) to use reasonable best efforts to cause the consummation of the transactions
contemplated by the Merger Agreement, (ii) to conduct its business in the ordinary course and (iii) to refrain from taking certain
actions prior to the consummation of the Mergers without the other party’s consent (which consent shall not be unreasonably
withheld, delayed or conditioned).
The Merger Agreement contains “no-shop”
provisions that restrict HCAP’s ability to solicit or initiate discussions or negotiations with third parties regarding other
proposals to acquire HCAP, and HCAP is restricted in its ability to respond to such proposals. In addition, HCAP must (i) call
and hold a meeting of the holders of HCAP stockholders solely for the purpose of seeking the adoption of the Merger Agreement by
the holders of at least a majority of the outstanding shares of HCAP Common Stock entitled to vote thereon (such approval, the
“HCAP Stockholder Approval” and such meeting, the “HCAP Stockholders Meeting”), (ii) include,
in the Proxy Statement, the recommendation of the board of directors of HCAP that the stockholders of HCAP adopt the Merger Agreement
and approve the transactions contemplated thereby (the “HCAP Recommendation”) and (iii) not withhold or withdraw,
or modify or qualify in a manner adverse to PTMN or Acquisition Sub, the HCAP Recommendation.
Conditions to the Mergers
The consummation of the Mergers is subject
to the satisfaction or (to the extent permitted by law) waiver of certain customary closing conditions, including obtaining the
HCAP Stockholder Approval. The obligation of each party to consummate the Mergers is also conditioned upon the other party’s
representations and warranties being true and correct (subject to certain materiality exceptions) and the other party having performed
in all material respects its obligations under the Merger Agreement.
Termination
The Merger Agreement contains customary
termination rights. In particular, at any time prior to receipt of the HCAP Stockholder Approval, HCAP may terminate the Merger
Agreement in order to substantially concurrently enter into a binding definitive agreement providing for the consummation of a
Superior Proposal (as defined in the Merger Agreement), subject to HCAP’s compliance with notice and other specified conditions
contained in the non-solicitation covenants, including giving PTMN the opportunity to propose revisions to the terms of the transactions
contemplated by the Merger Agreement during a period following notice, and provided that HCAP has not otherwise materially breached
any provision of the non-solicitation covenants.
If the Merger Agreement is terminated by
HCAP as provided in the foregoing paragraph or is terminated under certain other circumstances, upon notice by PTMN, HCAP must
pay PTMN a termination fee equal to $2,121,668, minus any amounts that HCAP previously paid to PTMN in the form of expense reimbursement.
Similarly, if the Merger Agreement is terminated under certain other circumstances by PTMN, upon notice by HCAP, PTMN must pay
HCAP a termination fee equal to $2,121,668.
Letter Agreement
Concurrently with PTMN entering into the
Merger Agreement, HCAP also entered into a letter agreement (the “Letter Agreement”) with Joseph A. Jolson,
HCAP’s Chairman and Chief Executive Officer, with respect to 894,273 shares of HCAP Common Stock owned by Mr. Jolson (the
“Jolson Shares”). Pursuant to the Letter Agreement, Mr. Jolson has agreed (i) to elect to receive shares of
PTMN Common Stock as consideration in connection with the Merger for all of the Jolson Shares, (ii) to not, directly or indirectly,
transfer, sell, offer, exchange, assign, pledge, convey any legal or beneficial ownership interest in or otherwise dispose of,
or encumber any of the Jolson Shares or enter into any contract, option, or other agreement with respect to, or consent to, a transfer
of, any of the Jolson Shares or his voting or economic interest therein other than pursuant to the Merger Agreement and in connection
with the Merger during the period commencing on the date of the Letter Agreement and ending on the Closing Date and (iii) to not
transfer any shares of PTMN Common Stock received in exchange for the Jolson Shares in the First Merger (the “Locked Up
Securities”) or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the Locked Up Securities for 90 days following the Closing.
General
The foregoing summary description of the
Merger Agreement, the transactions contemplated thereby and the Letter Agreement is subject to and qualified in its entirety by
reference to the Merger Agreement and the Letter Agreement, copies of which are attached hereto as Exhibits 2.1 and 10.1, respectively,
and the terms of which are incorporated herein by reference.
The Merger Agreement has been attached as
an exhibit to this Current Report on Form 8-K in order to provide investors and security holders with information regarding its
terms. It is not intended to provide any other financial information about the parties thereto or their respective subsidiaries
and affiliates. The Merger Agreement contains representations, warranties, covenants and agreements that 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 (except as
may be expressly set forth in the Merger Agreement); may be subject to limitations agreed upon by the parties, including being
qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement
instead of 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 and security holders should not rely on such representations, warranties,
covenants or agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any of
the parties to the Merger Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the
subject matter of the representations, warranties, covenants and agreements may change after the date of the Merger Agreement,
which subsequent information may or may not be fully reflected in public disclosures by the parties to the Merger Agreement.