Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On June 7, 2018,
Taylor Morrison Home Corporation, a Delaware corporation (the
Company
), Taylor Morrison Communities, Inc. a Delaware corporation and an indirect subsidiary of the Company (the
Intermediate
Parent
), and Thor Merger Sub, Inc., a Delaware corporation and an indirect subsidiary of the Company (
Merger Sub
), entered into an Agreement and Plan of Merger (the
Merger
Agreement
) with AV Homes, Inc., a Delaware corporation (
AV Homes
), pursuant to which Merger Sub will be merged with and into, AV Homes (the
Merger
), with AV Homes
continuing as the surviving entity in the Merger as an indirect subsidiary of the Company.
Subject to the terms and conditions set forth in the Merger
Agreement, at the effective time of the Merger (the
Effective Time
), each issued and outstanding share of common stock, par value $1.00 per share, of AV Homes (the
Target Common
Shares
) (excluding any shares (i) subject to vesting, repurchase or other lapse restriction granted under an AV Homes equity plan that is outstanding immediately prior to the Effective Time; (ii) held by any stockholder
who properly demands and perfects his, her or its appraisal rights with respect to such shares; or (iii) owned directly by AV Homes (or any wholly owned subsidiary of AV Homes, the Company or Merger Sub immediately prior to the Effective Time)
will be converted into the right to receive and become exchangeable for (A) 0.9793 validly issued, fully paid and nonassessable shares of Class A common stock, $0.00001 par value per share, of the Company (
Company
Shares
), pursuant to applicable election procedures (subject to the pro ration as described below,
Stock Election Consideration
); (B) $21.50 in cash, without any interest thereon, pursuant to
applicable election procedures (subject to the pro ration as described below, the
Cash Election Consideration
); or (C) $12.64 in cash, without any interest thereon and 0.4034 validly issued, fully paid and
nonassessable Company Shares (the
Mixed Election Consideration
and, together with the Cash Election Consideration and the Stock Election Consideration,
Merger Consideration
). The per
share Cash Election Consideration and Stock Election Consideration are subject to adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration will consist of approximately 58.8% cash and approximately 41.2%
Company Shares. No fractional Company Shares will be issued in the Merger, and AV Homes stockholders will receive cash in lieu of any fractional shares.
The Merger Agreement provides that, at the Effective Time, (a) each outstanding stock option to purchase Target Common Shares and (b) each
restricted stock unit or deferred stock unit award corresponding to Target Common Shares (each, a
Target RSU Award
) that is held by a
non-employee
director will vest (to the
extent unvested) and be cancelled and converted into the right to receive an amount in cash equal to the Cash Election Consideration in respect of each share of Target Common Shares underlying such award (less the applicable exercise price, in the
case of stock options). In addition, each (i) award of restricted Target Common Shares (
Target Restricted Stock Award
) and (ii) each Target RSU Award held by an employee will be assumed by the Company and
converted into a corresponding award in respect of Company Shares (a
Company Award
), with the number of shares underlying each such Company Award to equal the product of (A) the number of Target Common Shares
subject to the Target Restricted Stock Award (assuming applicable performance conditions are fully achieved) or Target RSU Award (assuming applicable performance conditions are achieved at target levels) immediately prior to the Effective Time and
(B) the Stock Election Consideration. Each such Company Award will have the same vesting and acceleration of vesting terms and conditions (other than any performance-based vesting conditions) as, and other terms and conditions that are
substantially similar to, those that applied to the corresponding Target Restricted Stock Award or Target RSU Award, as applicable, prior to the Effective Time.
The Company will file with the U.S. Securities and Exchange Commission (the
SEC
) a registration statement on Form
S-4
(the
Form
S-4
) in connection with the issuance of Company Shares in the Merger, which will include a prospectus and a proxy statement
relating to the meeting of AV Homes stockholders to be held to vote on the adoption of the Merger Agreement and approval of the Merger.
The
completion of the Merger is subject to the satisfaction or waiver of certain customary conditions, including (i) the adoption of the Merger Agreement by AV Homes stockholders, (ii) the absence of any law or order prohibiting the
Merger, (iii) the effectiveness of the Form
S-4
and the approval for listing on the NYSE of the Company Shares to be issued pursuant to the Merger; (iv) the absence of a material adverse effect on AV
Homes and (v) certain other customary conditions relating to the parties representations and warranties in the Merger Agreement and the performance of their respective obligations. The Merger is not subject to approval by the stockholders
of the Company or to any financing condition, and the Company represents and warrants in the Merger Agreement that it will have at the Effective Time cash on hand and available borrowing capacity sufficient in the aggregate to fund all of its
payment obligations under the Merger Agreement and in connection with the transactions contemplated thereby, including the Merger.
The Merger Agreement contains customary representations and warranties made by each of AV Homes and the Company,
and also contains customary
pre-closing
covenants, including covenants, among others, (i) by AV Homes to operate its businesses in the ordinary course consistent with past practice and to refrain from
taking certain actions without the Companys consent, (ii) by AV Homes not to initiate, solicit, knowingly facilitate or knowingly encourage and, subject to certain exceptions, not to participate in any discussions or negotiations with,
any person making any proposal for an alternative transaction, (iii) by AV Homes to call and hold a special stockholders meeting and, subject to certain exceptions, require the board of directors of AV Homes (the
Target
Board
) to recommend to AV Homes stockholders that they vote in favor of the adoption of the Merger Agreement and approval of the Merger and (iv) by each of the Company, Merger Sub and AV Homes to use reasonable best
efforts to obtain governmental and third party approvals.
The Merger Agreement contains certain termination rights, including (i) in the event that
the parties mutually agree to termination, (ii) for either of AV Homes or the Company, if the Merger is not consummated on or before December 7, 2018 (the
Outside Date
), (iii) for either of AV Homes or the
Company, if any law or order permanently prohibits consummation of the Merger, (iv) for either of AV Homes or the Company, if the requisite approval of AV Homes stockholders is not obtained, (v) for either of AV Homes or the Company,
if the other party is in breach of its respective representations and warranties or covenants under the Merger Agreement such that a closing condition is not satisfied (subject to notice and cure and other customary exceptions), (vi) for the
Company, if the Target Board changes its recommendation to AV Homes stockholders or (vii) for AV Homes, in order to enter into an agreement providing for a superior alternative transaction.
The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, AV Homes may be required to pay
to the Company a termination fee equal to $18,472,000 in cash. However, the termination fee payable by AV Homes to the Company will be $10,000,000 in cash if the Merger Agreement is terminated prior to the Window Period End Time by
(a) the Company in response to the AV Homes board of directors change in its recommendation with respect to a superior proposal by a Qualified Bidder or (b) by AV Homes in order for AV Homes to accept a superior proposal by a
Qualified Bidder. Under the terms of the Merger Agreement, a Qualified Bidder is a bidder that shall have delivered an acquisition proposal on or prior to 11:59 p.m. (New York time) on July 7, 2018 with respect to
which, on or prior to such date, the AV Homes board of directors determined in good faith (after consultation with its outside legal counsel and its financial advisors) constituted or would reasonably be expected to lead to a superior proposal. In
addition, the term Window Period End Time in the Merger Agreement means, with respect to a Qualified Bidder, the later of (i) 11:59 p.m. (New York time) on July 22, 2018 and (ii) one day after the end of a required
notice period with respect to a superior proposal (or new notice periods in respect thereof) by such Qualified Bidder, provided that such initial notice period began on or prior to 11:59 p.m. (New York time) on July 22, 2018.
The foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement, which is attached hereto as Exhibit 2.1 and incorporated herein by reference. The Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other
factual information about the Company or AV Homes. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement are qualified by information in confidential disclosure schedules provided by each of
the Company and AV Homes in connection with the signing of the Merger Agreement. These confidential disclosure schedules 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 purpose of allocating risk between the Company and AV Homes rather than establishing matters as facts. Accordingly, the
representations and warranties in the Merger Agreement should not be relied upon as characterizations of the actual state of facts about the Company or AV Homes.
Voting Agreement
Concurrently with the execution
and delivery of the Merger Agreement, on June 7, 2018, the Company and TPG Aviator LP (
TPG
) entered into a voting agreement (the
Voting Agreement
) to become effective immediately
following approval from AV Homes board of directors of the Voting Agreement and the Merger Agreement. Pursuant to the terms of the Voting Agreement, TPG agreed, among other things, to vote all outstanding Target Common Shares currently held or
thereafter acquired by TPG (the
TPG Shares
) in favor of the adoption of the Merger Agreement and against any proposal by third parties to acquire AV Homes, and to take certain other actions in furtherance of the
transactions contemplated by the Merger Agreement, including electing to receive solely Stock Election Consideration, in each case subject to the limitations set forth in the Voting Agreement.
Subject to certain exceptions, the Voting Agreement prohibits certain transfers by TPG of any of the TPG Shares and certain other actions that would impair
the ability of TPG to fulfill its obligations under the Voting Agreement. The Voting Agreement also contains
non-solicitation
covenants with respect to alternative transactions generally similar to those
contained in the Merger Agreement with respect to AV Homes.
The Voting Agreement will terminate automatically on the first to occur of (i) a change in the
recommendation of the Target Board, (ii) certain amendments or waivers of the Merger Agreement without TPGs prior consent, (iii) the Effective Time and (iv) the termination of the Merger Agreement.
The foregoing description of the Voting Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full
text of the Voting Agreement, which is attached hereto as Exhibit 10.1 and incorporated herein by reference.