Item 1.01.
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Entry into a Material Definitive Agreement.
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Merger Agreement
On May 2, 2018, MTGE Investment Corp., a Maryland corporation (MTGE), Annaly Capital Management, Inc., a Maryland
corporation (Annaly), and Mountain Merger Sub Corporation, a Maryland corporation and a wholly owned subsidiary of Annaly (Purchaser), entered into an Agreement and Plan of Merger (the Merger Agreement).
Pursuant to the Merger Agreement, and upon the terms and conditions thereof, Purchaser will commence an exchange offer (the Offer)
to purchase all of MTGEs issued and outstanding shares of common stock, par value $0.01 per share (the MTGE Common Stock). In the Offer, holders of MTGE Common Stock will have the option to elect from among three forms of
consideration for each share of MTGE Common Stock (subject to proration as described below):
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$9.82 in cash and 0.9519 shares of Annaly common stock (the Mixed Consideration Option);
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$19.65 in cash (the Cash Consideration Option); or
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1.9037 shares of Annaly common stock (the Stock Consideration Option).
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Holders of
MTGE Common Stock who do not make a valid election will receive the Mixed Consideration Option for their shares of MTGE Common Stock. Holders who elect to receive the Cash Consideration Option or Stock Consideration Option will be subject to
proration to ensure that approximately 50% of the aggregate consideration paid to holders of MTGE Common Stock in the Offer will be paid in the form of Annaly common stock and approximately 50% of the aggregate consideration paid to holders of MTGE
Common Stock in the Offer will be paid in cash.
It is a condition to the closing of the Offer that a majority of the outstanding shares
of MTGE Common Stock, when added to any shares of MTGE Common Stock owned by Annaly and Purchaser, are validly tendered and not validly withdrawn. In addition to the minimum tender condition, completion of the Offer is subject to the satisfaction or
waiver of a number of other customary closing conditions as set forth in the Merger Agreement, including the effectiveness of a Registration Statement on Form
S-4
registering the shares of Annaly common stock
to be issued in connection with the Offer and the Merger and the receipt of certain regulatory approvals.
Immediately following the
closing of the Offer, subject to the terms and conditions set forth in the Merger Agreement, MTGE will be merged with and into Purchaser (the Merger), with Purchaser surviving the Merger. The Merger Agreement contemplates that, if the
Offer is completed, the Merger will be effected pursuant to
Section 3-106.1
of the Maryland General Corporation Law, which permits completion of the Merger without a vote of the holders of MTGE Common
Stock upon the acquisition by Purchaser of at least a majority of outstanding shares of MTGE Common Stock that are then issued and outstanding. In the Merger, holders of MTGE Common Stock will be entitled to the same election options as described
above for the Offer and subject to the same proration rules.
Each share of MTGE 8.125% Series A Cumulative Redeemable Preferred Stock,
par value $0.01 per share (MTGE Preferred Stock), that is outstanding as of immediately prior to the Merger will be converted into one share of a newly-designated series of Annaly preferred stock, par value $0.01 per share, which Annaly
expects will be classified and designated as 8.125% Series H Cumulative Redeemable Preferred Stock, and which will have rights, preferences, privileges and voting powers substantially the same as shares of MTGE Preferred Stock immediately prior to
the Merger.
Pursuant to the Merger Agreement, each restricted stock unit of MTGE outstanding at the effective
time of the Merger, whether vested or unvested, will be cancelled and converted into the right to receive the Mixed Consideration Option in respect of each such restricted stock unit, less applicable tax withholding.
Prior to the closing of the transactions contemplated by the Merger Agreement, each of MTGE and Annaly will declare a prorated common dividend
to their respective stockholders with a record date on the last business day prior to the completion of the Offer. Each of the dividends will be prorated based on the number of days that elapsed since the record date for the most recent quarterly
dividend paid to MTGE and Annaly stockholders, respectively, and the amount of such prior quarterly dividend, as applicable.
The MTGE
board of directors (the MTGE Board) has agreed, based on the unanimous recommendation of the special committee of the MTGE Board (composed entirely of independent directors), to recommend that holders of MTGE Common Stock tender their
shares into the Offer, and has agreed not to solicit alternative transactions, subject to customary exceptions.
The Merger Agreement
contains certain termination rights for MTGE and Annaly. If the Merger Agreement is terminated under specified circumstances, including with respect to a change of the recommendation of the MTGE Board, MTGE will pay Annaly a termination fee equal to
approximately $35.1 million.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 hereto and is incorporated herein by reference.
A copy
of the Merger Agreement has been included as an exhibit hereto to provide investors with information regarding its terms. It is not intended to provide any other factual information about Annaly or MTGE. In particular, the assertions embodied in the
representations and warranties contained in the Merger Agreement are qualified by information in confidential disclosure letters provided by each of MTGE and Annaly to each other in connection with the signing of the Merger Agreement or in filings
of the parties with the Securities and Exchange Commission (SEC). These confidential disclosure letters contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set
forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purposes of allocating risk between MTGE and Annaly rather than establishing matters of fact. Accordingly, the representations
and warranties in the Merger Agreement should not be relied on as characterization of the actual state of facts about Annaly or MTGE.
Management
Agreement Amendment
In connection with the execution of the Merger Agreement, MTGE and its external manager, MTGE Management, LLC,
a Delaware limited liability company (the Manager) entered into an amendment (the Management Agreement Amendment) to the management agreement, dated July 1, 2016 (the Management Agreement). The
Management Agreement Amendment provides that one month following the completion of the transactions contemplated by the Merger Agreement, the Management Agreement will terminate, and as a result of the completion of the transactions contemplated by
the Merger Agreement and the subsequent termination of the Management Agreement, MTGE will reimburse the Manager for certain unpaid expenses, pay all accrued management fees then owed and pay the Manager a termination fee of approximately
$41.7 million as and when specified in the Management Agreement Amendment.
The foregoing description of the Management Agreement Amendment does not purport to be complete
and is qualified in its entirety by reference to the Management Agreement Amendment, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.