Item 1.01 Entry into a Material Definitive Agreement.
On April 24, 2017, Equus Total Return, Inc.
(“Equus” or the “Company”) entered into a Stock Purchase Agreement and Plan of Merger (“Merger Agreement”)
with ETR Merger Sub, Inc., a newly-formed wholly-owned subsidiary of the Company, certain shareholders of U.S. Gas & Electric,
Inc. (“USG&E”), and MVC Capital, Inc. (“MVC”) as a selling shareholder of USG&E and as representative
of the selling USG&E shareholders. The transactions embodied in the Merger Agreement constitute a “Consolidation”
as defined in the Company’s Plan of Reorganization within the meaning of Section 2(a)(33) of the Investment Company Act of
1940 (the “1940 Act”). The full text of the Merger Agreement is attached as an exhibit to this Current Report.
The Merger Agreement provides for a two-stage
transaction to accomplish the Consolidation. The first stage of the Consolidation consists of the “Acquisition”, which
is the acquisition of approximately 90% of the common and preferred stock of USG&E by the Company. The second stage of the
Consolidation consists of the “Merger”, which is the merger of Merger Sub with and into USG&E. USG&E will survive
the merger as a wholly-owned subsidiary of the Company and the separate corporate existence of Merger Sub will cease. After the
completion of the Merger, the Certificate of Incorporation of Merger Sub in effect immediately prior to the effective time will
be the Certificate of Incorporation of the surviving entity. After the completion of the Merger, the officers of USG&E immediately
prior to the effective time will be the officers of the surviving entity and the individuals designated by the Company in accordance
with the Merger Agreement prior to the closing of the Merger will be the members of the board of directors of the surviving entity.
Summary of the Merger Agreement
The Consolidation will result in USG&E becoming
a wholly-owned subsidiary of the Company, and the operations of USG&E, as an energy services company, becoming the predominant
operations of the consolidated companies.
Stage 1 – Acquisition of 90% of USG&E
.
The first stage of the Consolidation involves the Acquisition by the Company, from certain USG&E shareholders, including MVC
(collectively, the “Initial Sellers”), of at least 90% of the common and preferred stock of USG&E. The closing
of the Acquisition is referred to herein as the “Initial Closing”.
Stage 2 – Merger of Merger Sub with
and into USG&E
. The second stage of the Consolidation involves the Merger of Merger Sub with and into USG&E, with USG&E
as the surviving entity. Notably, the stockholders of USG&E remaining after the Initial Closing will, as a result of the Merger,
cease to be stockholders of USG&E and will instead have the right to receive their pro rata portion of the consideration paid
by Buyer pursuant to the Merger Agreement and become stockholders of the Company.
Issuance of Consideration Shares
.
The aggregate consideration to be tendered by the Company to the stockholders of USG&E as part of the Consolidation
consists of 32,606,539 newly-issued common stock of the Company (the “Common Consideration Shares”) and $40
million of newly-issued Series A Convertible Preferred Stock of the Company (the “Preferred Consideration
Shares”), which will have the rights, designations, and preferences set forth in the Certificate of Designations
attached as an exhibit to this Current Report. The Common Consideration Shares and the
Preferred Consideration Shares (together, the “Consideration Shares”) to be issued in connection with the
Acquisition will be sold pursuant to an exemption to registration under Section 4(a)(2) of the Securities Act of 1933, as
amended. With respect to the issuance of Consideration Shares in the Merger, the Company will prepare, and the
Company will file with the Securities and Exchange Commission (“SEC”), a registration statement on Form S-4.
Change of Corporate Name
. Upon completion
of the Acquisition, the Company will change its corporate name from Equus Total Return, Inc. to “USG&E, Inc.”
Representations and Warranties.
The Merger
Agreement generally contains reciprocal representations and warranties of each of the Initial Sellers, USG&E and the Company
that are typical for a public company merger, and are qualified by information contained in SEC filings made by any party to the
agreement.
Conditions to Completion
. The completion
of the Consolidation is subject to the satisfaction or, to the extent legally permissible, the waiver of a number of conditions
in the Merger Agreement, such as:
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the absence of any injunctions, writs, or restraining orders enjoining the Acquisition, Merger
or other transaction contemplated by the Merger Agreement;
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the withdrawal of the Company’s election to be classified as a business development company
under the 1940 Act;
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the expiration of all applicable waiting periods under the Hart-Scott Rodino Antitrust Improvements
Act of 1976, as amended, Delaware law, the Securities Exchange Act of 1934, or any other relevant governmental authority;
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authorization from the Federal Energy Regulatory Commission in accordance with Section 203 of
the Federal Power Act;
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approval for listing of the Common Consideration Shares and the shares of the common stock issuable
upon conversion of the Preferred Consideration Shares by the New York Stock Exchange;
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the accuracy of certain representations and warranties concerning the Company, USG&E, and
the stockholders of USG&E as set forth in the Merger Agreement;
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the compliance of the Company, USG&E, and the Initial Sellers with all applicable covenants
as set forth in the Merger Agreement;
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the filing of certain notices and the receipt of certain consents to the Consolidation by USG&E;
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the redemption of certain shares of preferred stock issued by USG&E; and
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with respect to the Merger, the effectiveness of a Registration Statement on Form S-4
registering the Consideration Shares to be received by the Remaining USG&E Shareholders pursuant to the
Merger.
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Covenants.
The Merger Agreement also
contains mutual customary pre-closing covenants of the Company and USG&E, including covenants, among others, each to conduct
their businesses in the ordinary course and in compliance in all material respects with all applicable laws and to refrain from
taking certain actions without the other party’s consent.
Termination of the Merger Agreement
.
The Merger Agreement may be terminated at any time prior to the completion of the Acquisition in any of the following ways:
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by the mutual written consent of the parties to the Merger Agreement; and
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by the Company, USG&E, or MVC as the “Sellers’ Representative” of the USG&E
stockholders in certain circumstances.
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The foregoing description of the Merger Agreement
does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is
filed as Exhibit 2.1 and is incorporated by reference into this report.
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, USG&E, MVC or any of their respective subsidiaries or affiliates. The representations, warranties and covenants
contained in the Merger Agreement (a) were made by the parties thereto only for purposes of that agreement and as of specific dates;
(b) were made solely for the benefit of the parties to the Merger Agreement; (c) may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the
execution of the Merger Agreement (such disclosures include information that has been included in public disclosures, as well as
additional non-public information); (d) may have been made for the purposes of allocating contractual risk between the parties
to the Merger Agreement instead of establishing these matters as facts; and (e) may be subject to standards of materiality applicable
to the contracting parties that differ from those applicable to investors. 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, USG&E, MVC or their respective businesses. Investors should not rely on
the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or
condition of the Company, USG&E, MVC or any of their respective subsidiaries or affiliates. Additionally, the representations,
warranties, covenants, conditions and other terms of the Merger Agreement may be subject to subsequent waiver or modification.
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 the Company’s 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 Forms 10-K, Forms 10-Q and other documents that
are filed with the SEC.
Other Agreements
At the Initial Closing,
MVC and the Company will enter into a Stockholder Agreement, pursuant to which the parties will agree that for a period of ten
months following the Initial Closing, the Board of Directors of the Company will be comprised of nine (9) directors, (i) five (5)
of whom shall be designated by MVC and (ii) four (4) of whom shall be the individuals who are currently members of the Board of
Directors of the Company and set forth on Exhibit A thereto (the “Legacy Directors”) and certain other matters relating
to the removal and replacement of the Legacy Directors during such period, subject to the terms and conditions of the Stockholder
Agreement. A form of the Stockholder Agreement, which is incorporated herein by reference, is included as Exhibit M to the Merger
Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated by reference into this report.
In addition, at the Initial Closing, MVC
and the Company will enter into a Lock-Up Agreement, pursuant to which MVC will agree for a period of twelve months following
the Initial Closing not to transfer any of the Consideration Shares received by MVC, subject to the terms and conditions of the
Lock-Up Agreement and certain exceptions as set forth in the Lock-Up Agreement. A form of the Lock-Up Agreement, which is
incorporated herein by reference, is included as Exhibit H to the Merger Agreement, which is filed as Exhibit 2.1 to this
Current Report on Form 8-K and incorporated by reference into this report.
AMENDMENT TO SHARE EXCHANGE AGREEMENT
On April 24, 2017, in connection with the entry
into the Merger Agreement, MVC and the Company entered into Amendment No. 1 to the Share Exchange Agreement, between the Company
and MVC, dated as of May 14, 2014 (the “Amendment”), pursuant to which the parties agreed that the Company’s
obligation to use reasonable best efforts to effect the events of reorganization as described in the Share Exchange Agreement are
removed from the Share Exchange Agreement, provided that such Amendment is subject to termination in connection with the termination
of the Merger Agreement in certain circumstances, as set forth in the Amendment, in which event the termination provided for in
the Amendment will be deemed null and void and of no force or effect. The foregoing description of the Amendment does not purport
to be complete and is subject to, and qualified in its entirety by, the full text of the Amendment, which is filed as Exhibit 2.2
to this Current Report on Form 8-K and incorporated by reference into this report.