Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On September 21, 2021, Barings BDC, Inc., a Maryland corporation ("BBDC"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") by and
among BBDC, Mercury Acquisition Sub, Inc., a Maryland corporation and a direct
wholly owned subsidiary of BBDC ("Acquisition Sub"), Sierra Income Corporation,
a Maryland corporation ("Sierra"), and Barings LLC, a Delaware limited liability
company and investment adviser to BBDC ("Barings"). The Merger Agreement
provides that, on the terms and subject to the conditions set forth in the
Merger Agreement, Acquisition Sub will merge with and into Sierra, with Sierra
continuing as the surviving company and as a wholly owned subsidiary of BBDC
(the "First Merger") and, immediately thereafter, Sierra will merge with and
into BBDC, with BBDC continuing as the surviving company (the "Second Merger"
and, together with the First Merger, the "Merger"). The boards of directors of
both BBDC and Sierra, including all of the respective independent directors,
have approved the Merger Agreement and the transactions contemplated therein.
The parties to the Merger Agreement intend the Merger to be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
In the First Merger, each share of Sierra common stock issued and outstanding
immediately prior to the effective time of the First Merger (excluding any
shares cancelled pursuant to the Merger Agreement) will be converted into the
right to receive (i) $0.9783641 per share in cash, without interest, from
Barings (such amount of cash, the "Cash Consideration") and (ii) 0.44973 (such
ratio, as may be adjusted pursuant to the Merger Agreement, the "Exchange
Ratio") of a validly issued, fully paid and non-assessable share of BBDC common
stock, par value $0.001 per share (the "Share Consideration" and, together with
the Cash Consideration, the "Merger Consideration").
The Merger Agreement contains representations, warranties and covenants,
including, among others, covenants relating to the operation of each of BBDC's
and Sierra's businesses during the period prior to the closing of the Merger.
BBDC and Sierra have agreed to convene and hold stockholder meetings for the
purpose of obtaining the approvals required of BBDC's and Sierra's stockholders,
respectively, and the boards of directors of BBDC and Sierra have agreed to
recommend that their respective stockholders approve the applicable proposals
(as described below).
The Merger Agreement provides that Sierra shall not, and shall cause its
subsidiaries and instruct its representatives not to, directly or indirectly,
solicit proposals relating to alternative transactions, or, subject to certain
exceptions, initiate or participate in discussions or negotiations regarding, or
provide information with respect to, any proposal for an alternative
transaction. However, the Sierra board of directors may, subject to certain
conditions, change its recommendation to the Sierra stockholders or, on payment
of a termination fee of $11.0 million to BBDC and the reimbursement of up to
$2.0 million in expenses incurred by BBDC and Barings, terminate the Merger
Agreement and enter into an Alternative Acquisition Agreement (as defined in the
Merger Agreement) for a Superior Proposal (as defined in the Merger Agreement)
if it determines in good faith, after consultation with its outside legal
counsel, that failure to do so would be inconsistent with the directors' duties
under applicable law.
Consummation of the First Merger, which is currently anticipated to occur during
the first quarter of fiscal year 2022, is subject to certain customary closing
conditions, including (1) approval of the First Merger by the holders of at
least a majority of the outstanding shares of Sierra common stock entitled to
vote thereon, (2) approval of the issuance of BBDC common stock to be issued in
the First Merger by a majority of the votes cast by the BBDC stockholders on the
matter at the BBDC stockholders meeting, (3) approval of the issuance of BBDC's
common stock in connection with the First Merger at a price below the
then-current net asset value per share of BBDC common stock, if applicable, by
the vote specified in Section 63(2)(A) of the Investment Company Act of 1940, as
amended, (4) the absence of certain legal impediments to the consummation of the
Merger, (5) effectiveness of the registration statement for the BBDC common
stock to be issued as consideration in the First Merger, (6) approval for
listing on the New York Stock Exchange of the BBDC common stock to be issued as
consideration in the First Merger, (7) subject to certain materiality standards,
the accuracy of the representations and warranties and compliance with the
covenants of each party to the Merger Agreement, and (8) required regulatory
approvals (including expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or early
termination thereof).
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Barings, as party to the Merger Agreement, agreed to vote all shares of BBDC
common stock over which it has voting power (other than in its fiduciary
capacity) in favor of the proposals to be submitted by BBDC to its stockholders
for approval relating to the Merger.
In addition, BBDC and Sierra will take steps necessary to provide for the
repayment at closing of Sierra's existing loan agreement. The Merger Agreement
also contains certain termination rights in favor of BBDC and Sierra, including
if the First Merger is not completed on or before March 31, 2022 or if the
requisite approvals of BBDC stockholders or Sierra stockholders are not
obtained.
Further, BBDC will enter into an amendment and restatement of its investment
advisory agreement with Barings, effective as of the closing of the Merger, to
raise the annualized hurdle rate thereunder from 8.0% to 8.25%. Following the
closing of the Merger, BBDC will also enter into a credit support agreement with
Barings, for the benefit of the combined company, to protect against net
cumulative unrealized and realized losses of up to $100.0 million on the
acquired Sierra investment portfolio over the next ten years. The terms of the
credit support agreement and the form of the second amended and restated
investment advisory agreement are included as Exhibit B and Exhibit C,
respectively, to the Merger Agreement, which is filed as Exhibit 2.1 to this
Current Report on Form 8-K and incorporated by reference herein.
The description above is only a summary of the material provisions of the Merger
Agreement and is qualified in its entirety by reference to a copy of the Merger
Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and
incorporated by reference herein.
The representations and warranties and covenants set forth in the Merger
Agreement have been made only for purposes of such agreement and were solely for
the benefit of the parties to the Merger Agreement, may be subject to
limitations agreed upon by the contracting parties, including qualification by
confidential disclosures made for 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.
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 factual information regarding the parties to the
Merger Agreement or their respective businesses.
Item 7.01. Regulation FD Disclosure.
On September 21, 2021, BBDC and Sierra issued a joint press release announcing
the entry into the Merger Agreement and BBDC provided an investor presentation.
The joint press release and investor presentation are furnished herewith as
Exhibits 99.1 and 99.2, respectively.
The information in Item 7.01 of this Current Report on Form 8-K, including
Exhibits 99.1 and 99.2 furnished herewith, is being furnished and shall not be
deemed "filed" for any purpose of Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities
of such Section. The information in this Current Report on Form 8-K shall not be
deemed to be incorporated by reference into any filing under the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act, except as shall
be expressly set forth by specific reference in such filing.
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Forward-Looking Statements
This Current Report on Form 8-K contains "forward-looking statements," which are
statements other than statements of historical facts, are not guarantees of
future performance or results of BBDC, Sierra, or, following the Merger, the
combined company, and involve a number of risks and uncertainties, including
statements regarding the completion of the proposed transactions between BBDC
and Sierra contemplated by the Merger Agreement (collectively, the
"Transaction"). Such forward-looking statements may include statements preceded
by, followed by or that otherwise include the words "may," "might," "will,"
"intend," "should," "could," "can," "would," "expect," "believe," "estimate,"
"anticipate," "predict," "potential," "plan" or similar words. Actual results
may differ materially from those in the forward-looking statements as a result
of a number of factors, including those described from time to time in filings
made by BBDC or Sierra with the Securities and Exchange Commission ("SEC"),
including those contained in the Proxy Statement (as defined below), when such
documents become available. Certain factors could cause actual results and
conditions to differ materially from those projected, including the
uncertainties associated with (i) the timing or likelihood of the Transaction
closing, (ii) the expected synergies and savings associated with the
Transaction, (iii) the expected elimination of certain expenses and costs due to
the Transaction, (iv) the percentage of Sierra's stockholders voting in favor of
the First Merger, (v) the percentage of BBDC's stockholders voting in favor of
the relevant Proposals (as defined below), (vi) the possibility that competing
offers or acquisition proposals for Sierra will be made; (vii) the possibility
that any or all of the various conditions to the consummation of the Transaction
may not be satisfied or waived; (viii) risks related to diverting the attention
of BBDC's management or Sierra's management from ongoing business operations,
(ix) the risk that stockholder litigation in connection with the Transaction may
result in significant costs of defense and liability, (x) the future operating
results of the combined company or BBDC's, Sierra's or the combined company's
portfolio companies, (xi) regulatory approvals and other factors, (xii) changes
in regional or national economic conditions, including but not limited to the
impact of the COVID-19 pandemic, and their impact on the industries in which
BBDC and Sierra invest, (xiii) changes to the form and amounts of Sierra's tax
obligations, (xiv) fluctuations in the market price of BBDC's common stock, (xv)
the Transaction's effect on the relationships of BBDC or Sierra with their
respective investors, portfolio companies, lenders and service providers,
whether or not the Transaction is completed, (xvi) the reduction in BBDC's
stockholders' and Sierra's stockholders' percentage ownership and voting power
in the combined company, (xvii) the challenges and costs presented by the
integration of BBDC and Sierra, (xviii) the uncertainty of third-party
approvals, (xix) the significant transaction costs, (xx) the restrictions on
BBDC's and Sierra's conduct of business set forth in the Merger Agreement and
(xxi) other changes in the conditions of the industries in which BBDC and Sierra
invest and other factors enumerated in BBDC's and Sierra's filings with the SEC.
You should not place undue reliance on such forward-looking statements, which
are and will be based upon BBDC management's and Sierra management's respective
then-current views and assumptions regarding future events and operating
performance, and speak only as of the date any such statement is made. Neither
BBDC nor Sierra undertakes any duty to update any forward-looking statement made
herein. All forward-looking statements speak only as of the date of this Current
Report on Form 8-K.
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Additional Information and Where to Find It
This communication relates to a proposed business combination involving BBDC and
Sierra, along with related proposals for which stockholder approval will be
sought (collectively, the "Proposals").
In connection with the proposed Transaction, BBDC and Sierra plan to file with
the SEC and mail to their respective stockholders a joint proxy statement on
Schedule 14A (the "Proxy Statement"), and BBDC plans to file with the SEC a
registration statement on Form N-14 (the "Registration Statement") that will
include the Proxy Statement and a prospectus of BBDC. The Proxy Statement and
the Registration Statement will each contain important information about BBDC,
Sierra, the proposed Transaction and related matters. STOCKHOLDERS OF EACH OF
BBDC AND SIERRA ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY ALL RELEVANT
DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT AND THE REGISTRATION
STATEMENT WHEN THEY BECOME AVAILABLE, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS
THERETO, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT BBDC, SIERRA, THE
TRANSACTION AND THE PROPOSALS. Investors and security holders will be able to
obtain the documents filed with the SEC free of charge at the SEC's web site at
http://www.sec.gov and, for documents filed by BBDC, from the BBDC website at
http://www.baringsbdc.com or for documents filed by Sierra, from the Sierra
website at http://www.sierraincomecorp.com.
Participants in the Solicitation
BBDC and Sierra and their respective directors, executive officers and certain
other members of management and employees of Barings, SIC Advisors LLC and their
respective affiliates, may be deemed to be participants in the solicitation of
proxies from the stockholders of BBDC and Sierra in connection with the
Proposals. Information about the directors and executive officers of BBDC is set
forth in its proxy statement for its 2021 annual meeting of stockholders, which
was filed with the SEC on March 26, 2021. Information about the directors and
executive officers of Sierra is set forth in its proxy statement for its 2021
annual meeting of stockholders, which was filed with the SEC on April 28, 2021.
Information regarding the persons who may, under the rules of the SEC, be
considered participants in the solicitation of BBDC's and Sierra's stockholders
in connection with the Proposals will be contained in the Proxy Statement and
other relevant materials to be filed with the SEC when such documents become
available. Investors should read the Proxy Statement and Registration Statement
carefully and in their entirety when they become available before making any
voting or investment decisions. These documents may be obtained free of charge
from the sources indicated above.
No Offer or Solicitation
This Current Report on Form 8-K is not, and under no circumstances is it to be
construed as, a prospectus or an advertisement and the communication of this
Current Report on Form 8-K is not, and under no circumstances is it to be
construed as, an offer to sell or a solicitation of an offer to purchase any
securities in BBDC, Sierra or in any fund or other investment vehicle. No offer
of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit
No. Description
2.1* Agreement and Plan of Merger, by and among Barings BDC, Inc., Mercury
Acquisition Sub, Inc., Sierra Income Corporation and Barings LLC, dated as
of September 21, 2021.
99.1 Joint press release of Barings BDC, Inc. and Sierra Income Corporation,
dated September 21, 2021.
99.2 Investor presentation, dated September 21, 2021.
* Exhibits and schedules to this Exhibit have been omitted in accordance with
Item 601 of Regulation S-K. The registrant agrees to furnish supplementally a
copy of all omitted exhibits and schedules to the SEC upon its request.
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