0001140361-23-043995 PRER14A 11 20230914 20230914 Sculptor Capital Management, Inc. 0001403256 6282 000000000 DE 1231 PRER14A 34 001-33805 231255898 9 WEST 57TH STREET FL 39 NEW YORK NY 10019 (212)790-0000 9 WEST 57TH STREET FL 39 NEW YORK NY 10019 Och-Ziff Capital Management Group Inc. 20190508 Och-Ziff Capital Management Group LLC 20070614 PRER14A 1 ny20009939x6_prer14a.htm PRER14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-12
SCULPTOR CAPITAL MANAGEMENT, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11

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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION
DATED SEPTEMBER 14, 2023

SCULPTOR CAPITAL MANAGEMENT, INC.

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT
[•], 2023
Dear Stockholder:
On behalf of the Board of Directors of Sculptor Capital Management, Inc. (the “Company”), we are pleased to invite you to attend a special meeting of stockholders (the “Special Meeting”) of the Company. This Special Meeting will be held virtually on [•], 2023 at [•] A.M. (Eastern time), at www.virtualshareholdermeeting.com/SCU2023SM. The Notice of the Special Meeting of stockholders and Proxy Statement that follow describe the business to be conducted at the Special Meeting.
The Company, Sculptor Capital LP, a Delaware limited partnership and subsidiary of the Company (“Capital LP”), Sculptor Capital Advisors LP, a Delaware limited partnership and subsidiary of the Company (“Advisors LP”), Sculptor Capital Advisors II LP, a Delaware limited partnership and subsidiary of the Company (“Advisors II LP”, together with Capital LP and Advisors LP, the “Operating Partnerships” and each an “Operating Partnership”), Rithm Capital Corp., a Delaware corporation (“Parent”), Calder Sub, Inc., a Delaware corporation and subsidiary of Parent (“Merger Sub Inc.”), Calder Sub I, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub I”), Calder Sub II, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub II”), and Calder Sub III, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub III”), have entered into an Agreement and Plan of Merger, dated as of July 23, 2023 (as it may be amended from time to time, the “Merger Agreement”), providing for (i) the merger (the “Public Merger”) of Merger Sub Inc. with and into the Company, with the Company surviving such merger as the surviving corporation, (ii) the merger (the “LP Merger I”) of Merger Sub I with and into Capital LP, with Capital LP surviving such merger as the surviving partnership, (iii) the merger (the “LP Merger II”) of Merger Sub II with and into Advisors LP, with Advisors LP surviving such merger as the surviving partnership and (iv) the merger (the “LP Merger III”, and together with the Public Merger, LP Merger I and LP Merger II, the “Mergers”) of Merger Sub III with and into Advisors II LP, with Advisors II LP surviving such merger as the surviving partnership.
If the Mergers are completed, subject to the terms and conditions of the Merger Agreement, you will be entitled to receive $11.15 in cash (the “Public Merger Consideration”), without interest, less any applicable withholding taxes, for each share of the Company’s Class A Common Stock that you hold immediately prior to the effective time of the Public Merger, representing a premium of approximately 18% over the closing price of the Company’s Class A Common Stock on July 21, 2023 (the last trading day before the date that the Merger Agreement was signed) and a premium of approximately 31% over the unaffected closing price of the Company’s Class A Common Stock on November 17, 2022 (the day prior to the Company’s announcement of the formation of a special committee of independent directors of the Board of Directors). If the Mergers are completed, the aggregate consideration payable to holders of Class A Common Stock (including vested performance awards and vested RSU awards relating to Class A Common Stock, as described in the attached Proxy Statement) will be approximately $291.3 million. Additionally, if the Mergers are completed, each share of Class B Common Stock of the Company will be cancelled and retired, for no consideration. However, holders of such shares will receive consideration in cash (or, if elected and subject to certain conditions set forth in rollover arrangements contemplated under the Merger Agreement, equity interests in certain subsidiary partnerships of Parent) in respect of each corresponding partnership unit as described in the attached Proxy Statement, for

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aggregate consideration payable to holders of such partnership units (inclusive of the aggregate value of the rollover equity interests, if any) of $167,367,690, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
At the Special Meeting, you will be asked:
1.
to adopt the Merger Agreement, thereby approving the transactions contemplated by the Merger Agreement, including the Mergers (the “Transactions,” and such proposal, the “Merger Proposal”);
2.
to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers (the “Non-Binding Compensation Proposal”); and
3.
to approve the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes for the approval of the Merger Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
In order to complete the Transactions, the holders of shares of the Company’s Class A Common Stock and Class B Common Stock are required to approve the Merger Proposal. Specifically, approval of the Merger Proposal requires the affirmative vote of (i) holders representing a majority of the aggregate voting power of the shares of Class A Common Stock and Class B Common Stock (voting together as a single class) outstanding and entitled to vote on the proposal (the “Company Stockholder Approval”) and (ii) holders representing a majority of the aggregate voting power of the shares of Class A Common Stock outstanding and entitled to vote on the proposal, excluding shares held by (x) Company stockholders that hold Class A common units or Class A-1 common units of the Operating Partnerships and their respective affiliates and (y) all executive managing directors employed by the Company or its subsidiaries as of the date of the Merger Agreement or the date of the Special Meeting (the “Company Non-Unitholder Stockholder Approval”). Approval of each of the Non-Binding Compensation Proposal and the Adjournment Proposal requires that holders of a majority of votes cast (with the shares of Class A Common Stock and Class B Common Stock voting together as a single class) at the Special Meeting vote FOR each proposal. Because the Company Stockholder Approval and the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal are each based on the voting power of the applicable shares outstanding, abstentions and failures to vote will have the same effect as voting AGAINST the approval of the Merger Proposal.
Your vote is very important. Whether or not you plan to attend the Special Meeting virtually, to ensure your representation at the Special Meeting, we urge you to vote via the Internet at www.proxyvote.com or by telephone at 1-800-690-6903 by following the instructions on the physical proxy card you received in the mail and that are also provided on that website; or by signing, voting and returning the enclosed proxy card by mail in the prepaid reply envelope. All stockholders are cordially invited to attend the Special Meeting. If you attend the Special Meeting, you may vote electronically at the meeting even if you have previously returned your proxy card or have voted via the Internet or by telephone, and your electronic vote at the Special Meeting will revoke any proxy or vote that you have previously submitted.
If you are a beneficial owner of shares of Company Common Stock held in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form provided to you by your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the Merger Proposal, without instructions.

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After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and its stockholders; (ii) authorized and approved the Merger Agreement and the Company’s and each Operating Partnerships’ execution, delivery and performance thereof; (iii) instructed Sculptor Capital Holding Corporation, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions; (iv) directed that the Merger Agreement be submitted to the Company stockholders for their consideration and adoption at a meeting of the Company stockholders; and (v) recommended that the Company stockholders vote in favor of the adoption of the Merger Agreement. The Board of Directors unanimously recommends that you vote:
1.
FOR the Merger Proposal;
2.
FOR the Non-Binding Compensation Proposal; and
3.
FOR the Adjournment Proposal.
We encourage you to read the enclosed proxy statement and its appendices, including the Merger Agreement, carefully and in their entirety. You may also obtain more information about the Company from documents we file with the Securities and Exchange Commission from time to time.
If you have any questions about the Mergers or how to submit your proxy or need assistance voting your shares of Class A Common Stock or Class B Common Stock, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (877) 456-3513 (toll-free). Banks and brokers may call (212) 750-5833.
On behalf of your Board of Directors, we thank you for your support and appreciate your consideration of this matter.
 
Sincerely,
 
 
 
 
 
Marcy Engel
Chairperson, Independent Director
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the Mergers, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
The Proxy Statement (together with the form of proxy) is dated [•], 2023 and is first being mailed to stockholders of the Company on or about [•], 2023.

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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION
DATED SEPTEMBER 14, 2023

Sculptor Capital Management, Inc.
9 West 57th Street,
New York, New York 10019
NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [•], 2023
To Our Stockholders:
Notice is hereby given that Sculptor Capital Management, Inc. (the “Company”) will hold a special meeting of stockholders (the “Special Meeting”) virtually on [•], 2023 at [•] A.M. (Eastern time), at www.virtualshareholdermeeting.com/SCU2023SM. To attend the Special Meeting, you will need your 16-digit control number as provided in your proxy materials.
The matters to be considered and voted upon at the Special Meeting, which are described in detail in the accompanying materials, are:
1.
the proposal to adopt the Agreement and Plan of Merger, dated as of July 23, 2023 (as it may be amended from time to time, the “Merger Agreement”), by and among the Company, Sculptor Capital LP, a Delaware limited partnership and subsidiary of the Company (“Capital LP”), Sculptor Capital Advisors LP, a Delaware limited partnership and subsidiary of the Company (“Advisors LP”), Sculptor Capital Advisors II LP, a Delaware limited partnership and subsidiary of the Company (“Advisors II LP”, together with Capital LP and Advisors LP, the “Operating Partnerships” and each an “Operating Partnership”), Rithm Capital Corp., a Delaware corporation (“Parent”), Calder Sub, Inc., a Delaware corporation and subsidiary of Parent (“Merger Sub Inc.”), Calder Sub I, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub I”), Calder Sub II, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub II”), and Calder Sub III, LP, a Delaware limited partnership and subsidiary of Parent (“Merger Sub III”), thereby approving the transactions contemplated by the Merger Agreement, including the mergers of (i) Merger Sub Inc. with and into the Company, (ii) Merger Sub I with and into Capital LP, (iii) Merger Sub II with and into Advisors LP and (iv) Merger Sub III with and into Advisors II LP (collectively, the “Mergers”) (the “Transactions”), after the completion of which each of the Company, Capital LP, Advisors LP and Advisors II LP will survive such merger and become a direct or indirect subsidiary of Parent (the “Merger Proposal”);
2.
the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers (the “Non-Binding Compensation Proposal”); and
3.
the proposal to approve the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
You may vote at the Special Meeting, or at any adjournment or postponement thereof, if you were a Company stockholder of record at the close of business on [•], 2023 (the “Record Date”).
Your vote is very important. Whether or not you plan to attend the Special Meeting virtually, to ensure your representation at the Special Meeting, we urge you to vote via the Internet at www.proxyvote.com or by telephone at 1-800-690-6903 by following the instructions on the physical proxy card you received in the mail and which are also provided on that website; or by signing, voting and returning the enclosed proxy

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card by mail in the prepaid reply envelope. If you attend the Special Meeting, you may vote electronically at the meeting even if you have previously returned your proxy card or have voted via the Internet or by telephone, and your electronic vote at the Special Meeting will revoke any proxy or vote that you have previously submitted.
A quorum of stockholders is necessary to hold the Special Meeting. For purposes of the Special Meeting, to establish a quorum and transact business, holders of a majority of the Company’s shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock, issued and outstanding as of the Record Date and entitled to vote at the Special Meeting, must be present, either in person or by proxy, at the Special Meeting. In accordance with our bylaws, the Special Meeting may be adjourned from time to time by the chairperson of the meeting to another place or time, without regard to the presence of a quorum or whether Company Stockholders have approved the Adjournment Proposal. Our bylaws also provide that the Special Meeting may be postponed by resolution of the Board of Directors upon notice given prior to the scheduled date of the Special Meeting.
Each holder of shares of Class A Common Stock, including restricted Class A shares, or shares of Class B Common Stock is entitled to one vote per share. Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on the Merger Proposal. Approval of the Merger Proposal requires the affirmative vote of (i) holders representing a majority of the aggregate voting power of the shares of Class A Common Stock and Class B Common Stock (voting together as a single class) outstanding and entitled to vote on the proposal (the “Company Stockholder Approval”) and (ii) holders representing a majority of the aggregate voting power of the shares of Class A Common Stock outstanding and entitled to vote on the proposal, excluding shares held by (x) Company stockholders that hold Class A common units or Class A-1 common units of the Operating Partnerships and their respective affiliates and (y) all executive managing directors employed by the Company or its subsidiaries as of the date of the Merger Agreement or the date of the Special Meeting (the “Company Non-Unitholder Stockholder Approval”). Approval of each of the Non-Binding Compensation Proposal and the Adjournment Proposal requires that holders of a majority of votes cast (with the shares of Class A Common Stock and Class B Common Stock voting together as a single class) at the Special Meeting vote FOR each proposal. Because the Company Stockholder Approval and the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal are each based on the voting power of the applicable shares outstanding, abstentions and failures to vote will have the same effect as voting AGAINST the approval of the Merger Proposal.
For the Non-Binding Compensation Proposal and the Adjournment Proposal, holders of the shares of Class A Common Stock and shares of Class B Common Stock (collectively, the “Company Common Stock”) will vote together as a single class. Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, each of the Non-Binding Compensation Proposal and the Adjournment Proposal. Holders of a majority of votes cast (with the shares of Class A Common Stock and shares of Class B Common Stock voting together as a single class) at the Special Meeting must vote FOR each of the Non-Binding Compensation Proposal and the Adjournment Proposal, in order for such proposal to be approved. Abstentions and failures to vote will have no effect on the outcome of either proposal.
Under Delaware law, stockholders who do not vote in favor of the adoption of the Merger Proposal will have the right to seek appraisal of the fair value of their shares of Class A Common Stock as determined by the Delaware Court of Chancery if the Public Merger is completed, but only if such Company Stockholder submits a written demand for appraisal prior to the vote on the Merger Proposal and complies with the other Delaware law procedures for exercising statutory appraisal rights, which are summarized in the section titled “Dissenters Rights” in the accompanying Proxy Statement.
After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and its stockholders; (ii) authorized and approved the Merger Agreement and the Company’s and each Operating Partnerships’ execution, delivery and performance thereof; (iii) instructed Sculptor Capital Holding Corporation, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions; (iv) directed that the Merger Agreement be

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submitted to the Company stockholders for their consideration and adoption at a meeting of the Company stockholders; and (v) recommended that the Company stockholders vote in favor of the adoption of the Merger Agreement. The Board of Directors unanimously recommends that you vote:
1.
FOR the Merger Proposal;
2.
FOR the Non-Binding Compensation Proposal; and
3.
FOR the Adjournment Proposal.
 
By Order of the Board of Directors,
 
 
 
 
 
Dava Ritchea
Chief Financial Officer
 
 
New York, New York
[•], 2023
 

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FREQUENTLY USED TERMS
A number of terms frequently used in this Proxy Statement are set forth below and have the following meanings:
“Acceptable Confidentiality Agreement” means a confidentiality agreement on terms no less restrictive in any material respect to the counterparty than those contained in the Confidentiality Agreement, dated as of November 14, 2022, between Parent and the Company, as amended on June 28, 2023 (the “Company Confidentiality Agreement”); provided that such confidentiality agreement (a) need not include any “standstill” or similar terms and (b) does not contain terms that prevent the Acquired Companies from complying with their respective obligations under the Merger Agreement.
“Acquired Companies” means, collectively, the Company, the Operating Partnerships and each of its and their respective subsidiaries; provided that no fund, subsidiary of a fund, company facilitator vehicle or portfolio company is deemed to be an Acquired Company;
“Acquisition Proposal” means, other than the Transactions or any other proposal or offer from Parent or any of its subsidiaries, any inquiry, proposal, offer or indication of interest from a third party relating to (a) any acquisition or purchase, in a single transaction or series of related transactions, of (i) 15% or more of the consolidated revenue, net income or assets of the Acquired Companies (including equity interests of the subsidiaries thereof), taken as a whole, or (ii) 15% or more of any class of equity securities of the Acquired Companies; (b) any tender offer or exchange offer that if consummated would result in any Person or group acquiring beneficial ownership of 15% or more of any class of equity securities of the Acquired Companies; or (c) any merger, consolidation, business combination, joint venture, partnership, spin off, split off, reclassification, recapitalization, liquidation, dissolution, share exchange or other transaction involving the Company or any of its subsidiaries in which a third party or its equityholders, if consummated, would hold 15% or more of any class of equity securities of the Acquired Companies or the surviving entity or the resulting direct or indirect parent of the applicable Acquired Company (or Acquired Companies) or such surviving entity.
“Adjournment Proposal” means, the proposal to approve the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the Merger Proposal;
“Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder by the SEC;
“Advisors LP” means Sculptor Capital Advisors LP, a Delaware limited partnership and subsidiary of the Company;
“Advisors II LP” means Sculptor Capital Advisors II LP, a Delaware limited partnership and subsidiary of the Company;
“Board of Directors” and the “Board” mean, the Board of Directors of the Company;
“Capital LP” means Sculptor Capital LP, a Delaware limited partnership and subsidiary of the Company;
“Class A Unitholder Stockholders” means Company Stockholders that hold LP Class A Units or LP Class A-1 Units and their respective affiliates that are holders of Company Common Stock;
“Class A Common Stock” means shares of Class A common stock of the Company, $0.01 par value, which are listed and traded on the NYSE;
“Class B Common Stock” means shares of Class B common stock of the Company, $0.01 par value, which are not publicly traded;
“Class B Shareholders Agreement” means the Class B Shareholders Agreement, dated as of November 13, 2007, by and among Och-Ziff Capital Management Group LLC, Messrs. Daniel S. Och, David Windreich, Joel Frank, Arnaud Achache, Massimo Bertoli, James-Keith Brown, Michael Cohen, Anthony Fobel, Kaushik Ghosh, Harold Kelly, Richard Lyon, Dan Manor, James O’Connor, Joshua Ross, Raaj Shah, Boaz Sidikaro, David Stonehill and Zoltan Varga, as it may be amended from time to time;
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“Client” means any Person to which the Company or any of its subsidiaries provides Investment Management Services;
“Client Consent” means that the consent required for the “assignment” (as defined in the Advisers Act) of a Client of a Mandate (or the consent of an investor or investors in a pooled investment vehicle that is a Client, as applicable) resulting from the consummation of the Transactions has been received in a manner required under the Mandate and applicable law (including the Advisers Act); provided that receipt of consent pursuant to the consent process set forth in the Revenue Run Rate Schedule to the Merger Agreement as it relates to any particular Client will be deemed to constitute a valid Client Consent with respect to such Client;
“Company” or “we,” “our,” “us” and similar words, means Sculptor Capital Management, Inc., a Delaware corporation;
“Company Common Stock” means, collectively, the Class A Common Stock and the Class B Common Stock;
“Company Credit Agreement” means that certain Credit Agreement, dated as of September 25, 2020, among Capital LP, as borrower, Delaware Life Insurance Company, as administrative agent and lender, and certain other subsidiaries of the Company, as guarantors, as amended;
“Company Non-Unitholder Stockholder Approval” means the affirmative vote of holders representing a majority of the aggregate voting power of the shares of Class A Common Stock outstanding and entitled to vote on the Merger Proposal, excluding shares held by (x) Company stockholders that hold Class A common units or Class A-1 common units of the Operating Partnerships and their respective affiliates and (y) all executive managing directors employed by the Company or its subsidiaries as of the date of the Merger Agreement or the date of the Special Meeting;
“Company Performance Award” means (a) an outstanding award of performance-based restricted stock units in respect of shares of Class A Common Stock granted pursuant to a Company Stock Plan and (b) an outstanding award of performance-based restricted shares of Class A Common Stock granted pursuant to a Company Stock Plan;
“Company Restricted Stock Award” means an outstanding award of service-based restricted shares of Class A Common Stock granted pursuant to a Company Stock Plan which vests solely based on the passage of time;
“Company RSU Award” means an outstanding award of service-based restricted stock units in respect of shares of Class A Common Stock granted pursuant to a Company Stock Plan which vests solely based on the passage of time;
“Company Service Provider” means each current or former director, officer, employee or independent contractor or other service provider of any of the Acquired Companies;
“Company Stock Awards” means each Company RSU Award, Company Performance Award and Company Restricted Stock Award;
“Company Stock Plans” the Company’s Amended and Restated 2007 Equity Incentive Plan, 2013 Incentive Plan and 2022 Incentive Plan, each as amended from time to time;
“Company Stockholders” means holders of Class A Common Stock and/or Class B Common Stock;
“Company Stockholder Approval” means the affirmative vote of holders representing a majority of the aggregate voting power of the shares of Class A Common Stock and Class B Common Stock (voting together as a single class) outstanding and entitled to vote on the Merger Proposal;
“Company Warrant” means warrants for the purchase of shares of Class A Common Stock held by Delaware Life Insurance Company (or its permitted assigns);
“Contributed Value” means the aggregate value of the Rollover Interests, as set forth in the Rollover Agreement.
“DGCL” means the Delaware General Corporation Law;
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“Dissenting Company Stockholder” means a holder of Dissenting Shares;
“Dissenting Shares” means shares of Class A Common Stock held by a holder who has not voted in favor of the Merger Proposal or consented thereto in writing with respect to such shares of Class A Common Stock and for which the holder or beneficial owner has properly exercised appraisal rights of such shares of Class A Common Stock in accordance with Section 262 of the DGCL and has not effectively withdrawn or lost its rights to appraisal;
“Effective Time” means the effective time of the Public Merger;
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;
“FCA” means the United Kingdom Financial Conduct Authority or any successor entity from time to time;
“GAAP” means U.S. generally accepted accounting principles, consistently applied;
“Governmental Authority” means any supranational, national, federal, state, territorial, provincial, municipal, local foreign or domestic government, governmental authority, regulatory, legislative, tax or administrative agency, governmental commission, board, bureau, agency or instrumentality, arbitral body (public or private), court or tribunal or any self-regulatory organization or other non-governmental regulatory department (including, NYSE, the National Futures Association and the Asset Management Association of China), or any political other subdivision, department or branch of any of the foregoing;
“HoldCo A” means Calder Holdco I, LP, a Delaware partnership and subsidiary of Parent;
“HoldCo B” means Calder Holdco II, LP, a Delaware partnership and subsidiary of Parent;
“HoldCo C” means Calder Holdco III, LP, a Delaware partnership and subsidiary of Parent (collectively with HoldCo A and HoldCo B, the “HoldCos” and each a “HoldCo”);
“Intervening Event” means any Effect (other than any Effect resulting from a breach of the Merger Agreement by the Company or that involves or relates to an Acquisition Proposal or Superior Proposal or any inquiry or communications or matters relating thereto) that, (a) individually or in the aggregate, is material and is not, or the magnitude or consequences of which is not, known or reasonably foreseeable to or by the Board of Directors or the Special Committee as of the date of the Merger Agreement, which Effect (or the magnitude or consequences of which) first becomes known or reasonably foreseeable to or by the Board of Directors or Special Committee prior to the Special Meeting, (b) does not relate to (i) the mere fact in and of itself that the Company or Parent meets or exceeds (or fails to meet) any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other financial or operating metrics or (ii) changes in the market price or trading volume of the Company Common Stock, the common stock, par value $0.01 per share, of Parent or the credit rating of the Company or Parent and (c) does not result from the announcement, pendency or consummation of the Merger Agreement or the Transactions or any actions required to be taken or to be refrained from being taken pursuant to the Merger Agreement;
“Investment Advisory Arrangement” means a contract (including any limited partnership agreement, limited liability company agreement or similar governing document of a Client) under which the Company or any of its subsidiaries provides Investment Management Services;
“Investment Company Act” means the Investment Company Act of 1940, as amended, and the rules and regulations promulgated by the SEC;
“Investment Management Services” means investment management or advisory services, including sub-advisory services, administrative services, underwriting, distribution or marketing services or any other services related to the provision of investment management or investment advisory services, including any similar services deemed to be “investment advice” pursuant to the Advisers Act.
“LP Class A Units” means the Class A common units of the Operating Partnerships;
“LP Class A-1 Units” means the Class A-1 common units of the Operating Partnerships;
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“LP Class B Units” means the Class B common units of the Operating Partnerships;
“LP Class C Units” means the Class C non-equity interests of the Operating Partnerships;
“LP Class E Units” means, collectively, the LP Class E Additional Units, LP Class E-1, LP Class E-2, LP Class E-3, LP Class E-4, LP Class E-5, LP Class E-6, LP Class E-7 and LP Class E-8 common units of the Operating Partnerships;
“LP Class P Units” means the Class P common units of the Operating Partnerships;
“LP Class P-4 Units” means the Class P-4 common units of the Operating Partnerships;
“LP Merger Consideration” means, with respect to any Partnership Unit, the per-unit amount that a holder of such Partnership Unit would be entitled to receive in a liquidity event pursuant to the terms of the applicable limited partnership agreement of the applicable Operating Partnership (including in accordance with Section 3.1(h) of such limited partnership agreements), assuming the aggregate amount payable by the Operating Partnerships (other than in respect of LP Class B Units) is $167,367,690 and taking into account any Threshold Value (as defined in the applicable limited partnership agreement of the applicable Operating Partnership) applicable to such Partnership Unit;
“LP Mergers Effective Time” means the effective time of the LP Mergers;
“LP Mergers” means, collectively, LP Merger I, LP Merger II and LP Merger III;
“LP Merger I” means, the merger, pursuant to the Merger Agreement, of Merger Sub I with and into Capital LP, with Capital LP surviving as a direct or indirect subsidiary of Parent;
“LP Merger II” means, the merger, pursuant to the Merger Agreement, of Merger Sub II with and into Advisors LP, with Advisors LP surviving as a direct or indirect subsidiary of Parent;
“LP Merger III” means, the merger, pursuant to the Merger Agreement, of Merger Sub III with and into Advisors II LP, with Advisors II LP surviving as a direct or indirect subsidiary of Parent;
“LP Merger Subs” means, collectively, Merger Sub I, Merger Sub II and Merger Sub III;
“LP Profit Sharing Interests” means the profit sharing interests of the Operating Partnerships;
“Mandate” means, with respect to any Client, an Investment Advisory Arrangement or similar agreement pursuant to which such Client agrees to, or has agreed to, a commitment of capital or renewal or extension of such commitment, or contribution of capital or has otherwise agreed to pay a fee in exchange for the provision of Investment Management Services;
“Mergers” means, collectively, the Public Merger and the LP Mergers;
“Merger Agreement” means the Agreement and Plan of Merger, dated as of July 23, 2023, by and among Parent, the Merger Subs, the Operating Partnerships and the Company, as it may be amended from time to time, which is attached to this Proxy Statement as Annex A;
“Merger Proposal” means the proposal to adopt the Merger Agreement, thereby approving the Transactions, including the Mergers;
“Merger Subs” means, collectively, Merger Sub Inc. and the LP Merger Subs;
“Merger Sub Inc.” means Calder Sub, Inc., a Delaware corporation and subsidiary of Parent;
“Merger Sub I” means Calder Sub I, LP, a Delaware limited partnership and subsidiary of Parent;
“Merger Sub II” means Calder Sub II, LP, a Delaware limited partnership and subsidiary of Parent;
“Merger Sub III” means Calder Sub III, LP, a Delaware limited partnership and subsidiary of Parent;
“Non-Binding Compensation Proposal” means the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers;
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“Non-Unitholder Stockholders” means the holders of Class A Common Stock, other than the Class A Unitholder Stockholders and all executive managing directors of the Company employed by the Company or its subsidiaries as of the date of the Merger Agreement or the date of the Special Meeting;
“NYSE” means the New York Stock Exchange or any successor exchange;
“Operating Partnerships” means, collectively, Capital LP, Advisors LP and Advisors II LP, together being the limited partnerships through which the Company conducts its business and holds its investments;
“Parent” or “Rithm” means Rithm Capital Corp., a Delaware corporation;
“Partnership Units” means, collectively, the LP Class A Units, LP Class A-1 Units, LP Class B Units, LP Class C Units, LP Class D Units, LP Class E Units, LP Class P Units, LP Class P-4 Units and LP Profit Sharing Interests;2
“Partnership Unitholders” means holders of Partnership Units;
“Person” means any individual, firm, corporation, partnership (limited or general), limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or instrumentality or other entity of any kind;
“Public Merger” means the Merger, pursuant to the Merger Agreement, of Merger Sub, Inc. with and into the Company, with the Company surviving as a direct or indirect subsidiary of Parent;
“Representatives” means, with respect to any Person, (a) such Person’s affiliates and (b) such Person’s and each such affiliate’s respective officers, directors, employees, agents, attorneys, accountants, advisors, consultants and other authorized representatives;
“Required Company Stockholder Approval” means (a) the Company Stockholder Approval and (b) the Company Non-Unitholder Stockholder Approval;
“Rollover” means the contribution by each Rollover Holder of the Rollover Interests to each of the HoldCos immediately prior to the LP Mergers Effective Time, conditioned upon the Closing (including the consummation of the Mergers), in exchange for a number of equity interests in such HoldCo having an aggregate value equal to the Contributed Value;
“Rollover Agreement” means the rollover agreement by and among the Rollover Holders electing to participate in the Rollover, Parent and the HoldCos;
“Rollover Holders” means certain existing limited partners of the Operating Partnerships who are eligible to participate in the Rollover, and any and all affiliates entities (including trusts and similar vehicles) for each of the foregoing;
“Rollover Interests” means the equity interests of the Operating Partnerships contributed by the Rollover Holders to each of the HoldCos pursuant to the Rollover;
“SEC” means the United States Securities and Exchange Commission or any successor thereto;
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder;
“SFC” means the Hong Kong Securities and Futures Commission;
“Special Committee” means the special committee of the Board of Directors, formed as described in “The Mergers — Background of the Mergers” and comprised solely of independent and disinterested directors;
“Special Meeting” means the special meeting of stockholders of the Company that will be held virtually on [•], 2023 at [•] A.M. (Eastern time), at www.virtualshareholdermeeting.com/SCU2023SM to conduct the business described in the Notice of the Special Meeting of Stockholders and this Proxy Statement;
2
Each individual Partnership Unit referenced in this Proxy Statement refers to the applicable Partnership Unit held, in the aggregate, across the three Operating Partnerships.
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“Specified Stockholders” means James Levin, Wayne Cohen, Brett Klein and Peter Wallach.
“Superior Proposal” means a bona fide written Acquisition Proposal (except the references therein to “fifteen percent (15%)” shall be replaced by “fifty percent (50%)”) (other than an Acquisition Proposal resulting from a material breach of the Merger Agreement) that the Board of Directors (acting upon the recommendation of the Special Committee) determines in good faith, after consultation with its outside financial and outside legal advisors, taking into account such factors as the Board of Directors considers to be appropriate, including the timing, likelihood of consummation, legal, financial, regulatory and other aspects of such Acquisition Proposal (including the sources and terms of any financing, financing market conditions and the existence of a financing contingency and the identity of the Person making the proposal) and any revisions to the terms of the Merger Agreement made or proposed in writing by Parent, is reasonably likely to be consummated in accordance with its terms, and if consummated, would be more favorable, from a financial point of view, to the Company Stockholders (in their capacity as such) than the Transactions.
“TRA” means the First Amended and Restated Tax Receivable Agreement, dated as of January 12, 2009, by and among the Company, the Operating Partnerships and certain other parties, publicly filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K (File No. 001-33805) filed on March 12, 2009, as amended;
“Transactions” means the transactions contemplated by the Merger Agreement (including the Mergers);
“Unvested Partnership Units” means any Partnership Units held by a Company Service Provider that is unvested at the LP Mergers Effective Time and that does not vest as a result of the consummation of the Transactions, in each case, in accordance with the applicable limited partnership agreement of the applicable Operating Partnership and any applicable award agreement;
“Vested Company Performance Award” means each Company Performance Award that is outstanding immediately prior to the Effective Time that is vested or that vests at the Effective Time pursuant to its terms;
“Vested Company Restricted Stock Award” means each Company Restricted Stock Award (or portion thereof) that is vested as of the Effective Time or that vests at the Effective Time pursuant to its terms;
“Vested Company RSU Award” means each Company RSU Award that is outstanding immediately prior to the Effective Time that is vested or that vests at the Effective Time pursuant to its terms;
“Vested Company Stock Award” means the Vested Company Performance Awards, Vested Company Restricted Stock Awards and Vested Company RSU Awards;
“Voting Agreement” means the Voting Agreement, dated as of July 23, 2023, by and between Parent and each of the Specified Stockholders; and
“Warrant Consideration” means with respect to each share of Class A Common Stock into which a Company Warrant is exercisable immediately prior to the Closing in accordance with the terms of such Company Warrant, an amount in cash equal to the Public Merger Consideration less the per-share exercise price for each such Company Warrant as set forth in the applicable Company Warrant.
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SUMMARY
This summary highlights selected information from this Proxy Statement related to the Special Meeting and the Mergers. This Proxy Statement may not contain all of the information that is important to you. To understand the Mergers more fully, and for a more complete description of the legal terms of the Mergers, you should carefully read this entire Proxy Statement, the appendices to this Proxy Statement, including the Merger Agreement, and the documents we incorporate by reference in this Proxy Statement. You may obtain the documents and information incorporated by reference in this Proxy Statement without charge by following the instructions under “Additional Information” beginning on page 152.
Parties Involved in the Mergers (page 34)
Sculptor Capital Management, Inc. (page 34)
The Company, a Delaware corporation, together with its subsidiaries, is a leading institutional alternative asset manager, with approximately $34.0 billion in assets under management as of August 1, 2023 and a global presence with offices in New York, London, Hong Kong, and Shanghai. The Company’s approach to asset management is based on the same fundamental elements that the Company has employed since it was founded in 1994.
As of July 31, 2023, the Company’s worldwide headcount was 318, including 30 active executive managing directors and 47 managing directors, consisting of 99 investment professionals, 194 global infrastructure professionals and 25 client partner group professionals.
For more information about the Company, please visit our website at www.sculptor.com. The website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this Proxy Statement or any other report or document on file with or furnished to the SEC. See also “Additional Information” beginning on page 152.
Our shares of Class A Common Stock are listed and traded on the NYSE under the symbol “SCU.”
Operating Partnerships (page 34)
The Company conducts its business through the Operating Partnerships. Historically, the Company has used more than one Operating Partnership to segregate its operations for business, financial, tax and other reasons. The Operating Partnerships currently consist of Capital LP, Advisors LP and Advisors II LP, and each of their consolidated subsidiaries. The Company holds its interests in the Operating Partnerships indirectly through Sculptor Capital Holding Corporation (“Holding Corp”), its wholly owned subsidiary. Holding Corp is the sole general partner of each of the Operating Partnerships and, therefore, generally controls the business and affairs of such entities, subject to the organizational documents of the Operating Partnerships. Holding Corp holds a general partnership interest and LP Class B Units in each of the Operating Partnerships. Holding Corp owns 100% of the LP Class B Units.
Parent (page 34)
Parent, a Delaware corporation, is an asset manager focused on the real estate and financial services industries. Parent’s investments in operating entities include leading origination and servicing platforms held through its wholly owned subsidiaries, Newrez LLC, Caliber Home Loans Inc., and Genesis Capital LLC, as well as investments in affiliated businesses that provide residential and commercial real estate related services. Parent seeks to provide attractive risk-adjusted returns across interest rate environments. Parent is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes and is headquartered in New York City.
Merger Subs (page 35)
Merger Sub Inc. is a Delaware corporation that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub Inc. is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the Public Merger, Merger Sub Inc. will cease to exist and the Company will continue as the corporation surviving the Public Merger (the “Surviving Corporation”).
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Merger Sub I is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub I is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub I will cease to exist and Capital LP will continue as a Surviving Partnership and a direct or indirect subsidiary of Parent and the Company.
Merger Sub II is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub II is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub II will cease to exist and Advisors LP will continue as a Surviving Partnership and a direct or indirect subsidiary of Parent and the Company.
Merger Sub III is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub III is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub III will cease to exist and Advisors II LP will continue as a Surviving Partnership and a direct or indirect subsidiary of Parent and the Company.
The Special Meeting (page 30)
Date, Time and Place of the Special Meeting (page 30)
The Special Meeting will be held virtually on [•], 2023, at [•] A.M. (Eastern time). At the Special Meeting, Company Stockholders will be asked to, among other things, vote for the Merger Proposal. Company Stockholders will be able to attend the Special Meeting by visiting www.virtualshareholdermeeting.com/SCU2023SM, where you, or your proxy, will be able to vote electronically and examine the list of stockholders entitled to vote at the Special Meeting. To attend the Special Meeting, you will need your 16-digit control number as provided in your proxy materials. The Company is conducting the Special Meeting solely online via the Internet through a live webcast and online stockholder tools, and you will not be able to attend physically in person. For purposes of attendance at the Special Meeting, all references in this Proxy Statement to “present in person” or “in person” shall mean virtually present at the Special Meeting.
Record Date (page 30)
The Board of Directors has fixed the close of business on [•], 2023 as the Record Date (the “Record Date”) for determination of the Company Stockholders entitled to notice and to vote at the Special Meeting. Only Company Stockholders of record as of the close of business on the Record Date are entitled to vote at the Special Meeting.
Voting Securities (page 30)
Holders of Class A Common Stock and Class B Common Stock, as recorded in the Company’s share register at the close of business on the Record Date, may vote at the Special Meeting. As of the Record Date, there were [•] shares of Class A Common Stock, including restricted Class A shares, and [•] shares of Class B Common Stock outstanding. Each holder of shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock is entitled to one vote per share, and the shares of Class A Common Stock and shares of Class B Common Stock will vote together as a single class for purposes of each matter to be voted upon at the Special Meeting, except the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal, which requires the vote of only Non-Unitholder Stockholders.
Pursuant to a February 7, 2019 governance agreement between the Company, Daniel S. Och (in his capacity as an individual, and in his capacity as the sole member of the Class B Shareholders Committee (as such term is defined in the Class B Shareholders Agreement)) and certain of the Company’s subsidiaries, 436,810 shares of Class B Common Stock that relate to the LP Class A-1 Units, which represent less than 1% of the total aggregate voting power of the Company’s outstanding voting stock, will be voted pro rata in accordance with the vote of the shares of Class A Common Stock.
In addition, in connection with the execution of the Merger Agreement, on July 23, 2023, Parent entered into Voting Agreements with each of the Specified Stockholders, pursuant to which, among other things, each Specified Stockholder agreed to vote all shares of Company Common Stock held by such Specified Stockholder in favor of the Merger Proposal at the Special Meeting. As of the Record Date, the Specified Stockholders
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collectively controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock. The vote of the Specified Stockholders will not be counted towards satisfaction of the Company Non-Unitholder Stockholder Approval. For more information, see “Summary — Voting Agreements” beginning on page 15 and “Voting Agreements” beginning on page 143.
Quorum and Votes Needed (page 31)
A quorum of Company Stockholders is necessary to hold the Special Meeting. For purposes of the Special Meeting, to establish a quorum and transact business, holders of a majority of the shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock, considered together as a single class, issued and outstanding as of the Record Date and entitled to vote at such meeting, must be present, either in person or by proxy, at the Special Meeting.
Company Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, any of the proposals presented at the Special Meeting. Votes cast FOR or AGAINST any of the proposals will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum and will be counted in the number of votes cast on the matter. Votes cast as ABSTAIN on any of the proposals will be treated as shares that are present and entitled to vote for the purposes of determining the presence of a quorum.
In accordance with our bylaws, the Special Meeting may be adjourned from time to time by the chairperson of the meeting to another place or time, without regard to the presence of a quorum or whether Company Stockholders have approved the Adjournment Proposal. Our bylaws also provide that the Special Meeting may be postponed by resolution of the Board of Directors upon notice given prior to the scheduled date of the Special Meeting.
Approval of the Merger Proposal requires the affirmative vote of holders representing a majority of the aggregate voting power of each of (i) the shares of the Class A Common Stock and Class B Common Stock outstanding and entitled to vote on the proposal, voting together as a single class, and (ii) the shares of Class A Common Stock owned by the Non-Unitholder Stockholders outstanding and entitled to vote on the proposal. Because the foregoing votes on the Merger Proposal are based on the voting power of the applicable shares outstanding, abstentions and failures to vote will have the same effect as voting AGAINST the approval of such proposal.
Approval of the Non-Binding Compensation Proposal and Adjournment Proposal require holders of a majority of votes cast (with the shares of Class A Common Stock and shares of Class B Common Stock voting together as a single class) at the Special Meeting to vote FOR the Non-Binding Compensation Proposal and the Adjournment Proposal, respectively. Abstentions and failures to vote will have no effect on the outcome of either proposal.
If a Company Stockholder holds shares through a broker, bank or other nominee, the broker, bank or other nominee must vote the shares it holds in accordance with instructions received. If a Company Stockholder does not give instructions to a broker, bank or other nominee, the proposals cannot be voted upon by such broker.
Voting of Proxies (page 32)
You may vote by any one of the following means:
By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a broker, bank or other nominee, they will give you separate instructions for voting your shares.
By Telephone or on the Internet: Company Stockholders of record can vote by telephone by calling the toll-free telephone number provided on the proxy card. Company Stockholders of record can vote by Internet by visiting www.proxyvote.com. Please have your proxy card handy when you call or go online. Telephone and Internet voting facilities for Company Stockholders of record will be available 24 hours a day and will close at 11:59 P.M. (Eastern time) on [•], 2023. If you hold your shares through a broker, bank or other nominee, the availability of telephonic or Internet voting will depend on the voting processes of your broker, bank or other nominee. Please check with your broker, bank or other nominee and follow the voting procedures your broker, bank or other nominee provides to vote your shares of Company Common Stock.
Voting at the Special Meeting or by Proxy: If you are a holder of record of shares of Company Common Stock, you may attend and vote via webcast at the Special Meeting. If you are a beneficial
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owner of shares of Company Common Stock held in the name of a broker, bank or other nominee, you must obtain a “legal proxy,” executed in your favor, from such broker, bank or other nominee to be able to vote at the Special Meeting. Follow the instructions from your broker, bank or other nominee included with these proxy materials or contact your broker, bank or other nominee to request a “legal proxy.” You should allow yourself enough time prior to the Special Meeting to obtain this “legal proxy” from the holder of record.
Even if you plan to attend the Special Meeting, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares at the Special Meeting if you deliver to our Corporate Secretary a written revocation of any proxy you previously submitted.
If you have any questions concerning the Merger Agreement, the Mergers or the other Transactions, the Special Meeting or this Proxy Statement, would like additional copies of the this Proxy Statement, or need help submitting a proxy to have your shares of Company Common Stock voted, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (877) 456-3513 (toll-free). Banks and brokers may call (212) 750-5833.
Revocability of Proxy (page 33)
Any Company Stockholder returning a proxy may revoke it at any time before the proxy is exercised by (i) returning a later-dated signed proxy card to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary; (ii) delivering a later-dated written notice of revocation to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary; (iii) submitting a later-dated proxy by telephone or Internet (only your last telephone or Internet proxy will be counted) prior to the Special Meeting; or (iv) attending the Special Meeting and properly voting via webcast. Any proxy not properly revoked will be voted as previously specified by the Company Stockholder. Mere attendance at the Special Meeting will not cause your previously granted proxy to be revoked.
If you want to revoke your proxy by sending a new proxy card or an instrument revoking the proxy to the Company, you should ensure that you send your new proxy card or instrument revoking the proxy in sufficient time for it to be received by the Company prior to the Special Meeting. If you are a beneficial owner of shares of Company Common Stock held in “street name,” you must contact your bank, broker or other nominee to change your vote or obtain a “legal proxy” to vote your shares electronically at the Special Meeting.
Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow Company Stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.
The Mergers (page 34)
Certain Effects of the Mergers on the Company (page 35)
Upon the terms and subject to the conditions of the Merger Agreement, (i) Merger Sub Inc. will be merged with and into the Company, with the Company continuing as the Surviving Corporation, (ii) Merger Sub I will be merged with and into Capital LP, with Capital LP continuing as the surviving partnership, (iii) Merger Sub II will be merged with and into Advisors LP, with Advisors LP continuing as the surviving partnership and (iv) Merger Sub III will be merged with and into Advisors II LP, with Advisors II LP continuing as the surviving partnership. Each surviving partnership referenced in clauses (ii), (iii) and (iv) are referred to individually as a “Surviving Partnership” and collectively as the “Surviving Partnerships.” After the completion of the Mergers, the Company, Capital LP, Advisors LP and Advisors II LP will each become a direct or indirect subsidiary of Parent. The Company will cooperate with Parent to de-list the shares of Class A Common Stock from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective times of the Mergers, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the Mergers are completed, you will not own any shares of the Surviving Corporation or Partnership Units of the Surviving Partnerships. If the Rollover Condition (as defined in the section titled “The Mergers — Rollover Matters”) is satisfied or waived, a Rollover Holder who elects to participate in the Rollover will own equity interests of the HoldCos having an aggregate value equal to the Contributed Value of its Rollover Interests.
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Effect on the Company if the Mergers Are Not Completed (page 36)
If the Merger Proposal is not approved by the Company Stockholders or if the Mergers are not completed for any other reason, the Company Stockholders and the Partnership Unitholders will not receive any payment for their shares of Class A Common Stock or their Partnership Units, respectively. Instead, the Company will remain a public company, our Class A Common Stock will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC. See “The Mergers — Effect on the Company if the Mergers are Not Completed” beginning on page 36, “The Mergers — Purpose and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers,” beginning on page 79, and “Additional Information” beginning on page 152.
In addition, under specified circumstances, the Company may be required to pay Parent a termination fee or reimburse up to a specified amount of Parent’s expenses upon the termination of the Merger Agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 141.
Merger Consideration (page 36)
If the Public Merger is completed, each share of Class A Common Stock issued and outstanding immediately prior to the Effective Time (other than (i) such shares held immediately prior to the Effective Time by (x) Parent or Merger Sub Inc. or any of their subsidiaries or the Company as treasury stock (collectively, the “Cancelled Shares”) or (y) a Dissenting Company Stockholder and (ii) any Company Restricted Stock Award that is unvested and will not vest at the Effective Time (the treatment of which is described in this Proxy Statement)) will be cancelled and automatically converted into the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes. The aggregate consideration payable to holders of shares of Class A Common Stock (including any Vested Company Stock Award) in the Public Merger will be approximately $291.3 million. Thereafter, each certificate or book-entry formerly representing any of the shares of Class A Common Stock will represent only the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes. If the Mergers are completed, each share of Class B Common Stock will be cancelled and retired, for no consideration. However, holders of such shares of Class B Common Stock will receive consideration in cash (or, if the Rollover Condition (as defined in the section titled “The Mergers — Rollover Matters”) is satisfied and such holder is a Rollover Holder who elects to participate in the Rollover, equity interests of the HoldCos pursuant to the Rollover) in respect of corresponding Partnership Units as described in “The Merger Agreement – Merger Consideration; Treatment of Company Common Stock and Company Warrants; Treatment of Partnership Units; Treatment of Company Stock Awards” beginning on page 122, for aggregate consideration payable to such Partnership Unitholders (inclusive of the Contributed Value) of $167,367,690, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the Public Merger is completed, each Company Warrant issued and outstanding immediately prior to the Effective Time will survive the Public Merger and remain outstanding but will, upon any subsequent exercise of such Company Warrant, be entitled to receive only the Warrant Consideration for each share of Company Common Stock for which such Company Warrant was exercisable immediately prior to the Closing. Alternatively, in accordance with the terms of the Company Warrants, the holder of any Company Warrant may notify the Surviving Corporation before the 30th day after the Closing Date that such holder is exercising the holder’s right to cause the Company to purchase such Company Warrant from such holder for the Black-Scholes Value (as defined in the applicable Company Warrant) of the remaining unexercised portion of such Company Warrant in accordance with its terms. The Company Warrants are exercisable for 4,338,015 shares of Class A Common Stock at an exercise price of $7.95 per share. Assuming no dividends are paid on the shares of Class A Common Stock prior to the Closing Date (which the Company is not permitted to do without Parent’s consent, as described in this Proxy Statement), this exercise price will not change. The estimated Black-Scholes Value is approximately $34 million.
If the LP Mergers are completed, each LP Class A Unit, LP Class A-1 Unit, LP Class E Unit, LP Class P Unit and LP Class P-4 Unit issued and outstanding immediately prior to the LP Mergers Effective Time that is vested at such time or that vests as a result of the consummation of the Transactions, in each case, in accordance with the limited partnership agreements of the Operating Partnerships and any applicable award agreement (other than (i) any Partnership Units held immediately prior to the LP Mergers Effective Time (x) by Parent, the Merger Subs or any of their subsidiaries or (y) in the treasury of the Operating Partnerships (collectively, the “Cancelled Units”), (ii) any Unvested Partnership Unit and (iii) any Rollover Interest) will be cancelled and converted
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automatically into the right to receive an amount in cash equal to its applicable LP Merger Consideration, without interest, less any applicable withholding taxes. Thereafter, each certificate or book-entry formerly representing any of the Partnership Units receiving LP Merger Consideration will represent only the right to receive the LP Merger Consideration, without interest, less any applicable withholding taxes, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the LP Mergers are completed, each of the (i) Unvested Partnership Units, (ii) LP Profit Sharing Interests and (iii) LP Class C Units will be cancelled and retired for no consideration. Following the LP Mergers, all LP Class B Units issued and outstanding immediately prior to the LP Mergers Effective Time will continue to remain outstanding as LP Class B Units of the applicable Surviving Partnership, and the holder of such LP Class B Units that is the general partner of the Operating Partnerships immediately prior to the LP Mergers Effective Time will continue as the general partner of the Surviving Partnerships.
Purpose and Reasons of the Company for the Mergers; Recommendation of Our Board of Directors and the Special Committee; Fairness of the Mergers (page 79)
Special Committee
On July 23, 2023, the Special Committee, after careful consideration of various factors, including those described herein, and after consultation with the Special Committee’s independent legal and financial advisors, unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and the Company Stockholders and (ii) recommended that the Board of Directors (x) approve the Merger Agreement and the Transactions, (y) recommend the Merger Agreement be approved and adopted by the Company Stockholders and (z) instruct Holding Corp, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions. On August 28, 2023, the Special Committee unanimously recommended that the Board of Directors re-affirm its recommendation to Company Stockholders with respect to the Merger Agreement and the Transactions.
Board of Directors
After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, on July 23, 2023, the Board of Directors unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and its stockholders; (ii) authorized and approved the Merger Agreement and the Company’s and each Operating Partnerships’ execution, delivery and performance thereof; (iii) instructed Holding Corp, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions; (iv) directed that the Merger Agreement be submitted to the Company Stockholders for their consideration and adoption at the Special Meeting; and (iv) recommended that the Company Stockholders vote in favor of the adoption of the Merger Agreement. Furthermore, on August 30, 2023, the Board of Directors unanimously re-affirmed its recommendation that the Company Stockholders vote in favor of the adoption of the Merger Agreement.
The Board of Directors unanimously recommends that you vote:
1.
FOR the Merger Proposal;
2.
FOR the Non-Binding Compensation Proposal; and
3.
FOR the Adjournment Proposal.
For a discussion of the material factors considered by the Special Committee and the Board in reaching its conclusions, see the section titled “The Mergers — Purpose and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers,” beginning on page 79. In addition, in considering the recommendation of the Board with respect to the Merger Proposal, you should be aware that our directors and executive officers have certain interests that may be different from, or in addition to, the interests of the Company Stockholders generally. See the section titled “The Mergers — Interests of the Directors and Executive Officers of the Company in the Mergers,” beginning on page 107.
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Opinions of Financial Advisors (page 93)
Opinion of PJT Partners LP (page 93 and Annex F)
PJT Partners LP (“PJT Partners”) was retained by the Special Committee to act as its financial advisor in connection with the Transactions and, upon the Special Committee’s request, to render its fairness opinion to the Special Committee in connection therewith. The Special Committee selected PJT Partners to act as its financial advisor based on PJT Partners’ qualifications, expertise and reputation, its knowledge of the Company’s industry and its knowledge and understanding of the business and affairs of the Company. At a meeting of the Special Committee on July 23, 2023, PJT Partners rendered its oral opinion, subsequently confirmed in its written opinion dated July 23, 2023, to the Special Committee that, as of the date thereof and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated in its written opinion), the Public Merger Consideration to be received by the holders of shares of Class A Common Stock (other than holders of shares of Class A Common Stock that hold Partnership Units and their respective affiliates that are holders of shares of Class A Common Stock) in the Transactions was fair to such holders from a financial point of view.
The full text of PJT Partners’ written opinion delivered to the Special Committee, dated July 23, 2023, is attached as Annex F and incorporated into this Proxy Statement by reference in its entirety. PJT Partners’ written opinion has been provided by PJT Partners at the request of the Special Committee and is subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated therein). You are encouraged to read the opinion carefully in its entirety. PJT Partners provided its opinion to the Special Committee, in its capacity as such, in connection with and for purposes of its evaluation of the Transactions only and PJT Partners’ opinion does not constitute a recommendation as to any action the Special Committee or the Board of Directors should take with respect to the Transactions or how any holder of Company Common Stock should vote or act with respect to the Transactions or any other matter. The summary of the PJT Partners opinion contained in this Proxy Statement is qualified in its entirety by reference to the full text of PJT Partners’ written opinion. For a summary of PJT Partners’ opinion and the methodology that PJT Partners used to render its opinion, see the section titled “The Mergers — Opinions of Financial Advisors — Opinion of PJT Partners LP,” beginning on page 93.
Opinion of J.P. Morgan Securities LLC (page 100 and Annex G)
In connection with the Mergers, on July 23, 2023, J.P. Morgan Securities LLC (“J.P. Morgan”), the Company’s financial advisor, delivered to the Board of Directors an oral opinion, which was confirmed by delivery of a written opinion dated July 23, 2023, to the effect that, as of July 23, 2023 and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the Public Merger Consideration to be paid to the holders of Class A Common Stock in the Mergers was fair, from a financial point of view, to such holders.
The full text of the written opinion of J.P. Morgan, dated July 23, 2023, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex G. The summary of J.P. Morgan’s opinion contained in this Proxy Statement is qualified in its entirety by reference to the full text of the written opinion. The holders of Class A Common Stock are urged to read the opinion in its entirety. J.P. Morgan provided advisory services and its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Mergers. J.P. Morgan did not express any opinion as to the fairness of any consideration to be paid in connection with the Mergers to the holders of any other class of securities, creditors or other constituencies of the Company, or as to the underlying decision by the Company to engage in the Mergers. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. J.P. Morgan’s opinion is not a recommendation as to how any holder of Class A Common Stock should vote with respect to the approval of the Mergers or any other matter. For a description of the opinion that the Board of Directors received from J.P. Morgan, see the section titled “The Mergers — Opinions of Financial Advisors — Opinion of J.P. Morgan Securities LLC” beginning on page 93.
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Regulatory Approvals and Related Matters (page 105)
Under the Merger Agreement, the Mergers cannot be completed until, among other things:
the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), has expired or been terminated;
receipt of the written confirmation from the FCA that it has approved, or the FCA having been treated as having approved, the requisite “change in control” arising from the Transactions pursuant to section 189(4) or (if applicable) section 189(6) of the Financial Services and Markets Act 2000 (“FSMA”) (the “FCA Approval”);
receipt of written approval from the SFC in accordance with section 132 of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) (the “SFO”) for Parent and any other person who will become a “substantial shareholder” (as defined in Section 6 of Part 1 of Schedule 1 to the SFO) of Sculptor Capital Management Hong Kong Limited (each, a “Substantial Shareholder”) as a result of the Mergers to become Substantial Shareholders, as required under section 131 of the SFO (the “SFC Approval”); and
the other closing conditions specified in the Merger Agreement have been satisfied (or waived by all parties if permissible under applicable law, except with respect to the Required Company Stockholder Approval (comprising the Company Stockholder Approval and the Company Non-Unitholder Stockholder Approval) and the approval of the Merger Agreement by Holding Corp, as general partner of each of the Operating Partnerships, which will not be waivable).
On August 4, 2023, the Company and Parent filed their respective notification and report forms under the HSR Act with respect to the Mergers with the Federal Trade Commission (the “FTC”) and Antitrust Division of the Department of Justice (the “DOJ”), which triggered the start of the HSR Act 30-day waiting period. The HSR Act waiting period expired at 11:59 P.M. (Eastern Time) on September 5, 2023. On August 11, 2023, Parent and each other proposed controller required to give notice under s178 of the FSMA submitted their respective notification forms to the FCA requesting FCA Approval. On August 15, 2023, the FCA confirmed that the notifications were considered to be complete for purposes of s179 of the FSMA, triggering the start of a sixty working day statutory assessment period (subject to a possible additional 30 working day interruption if further information were required). On August 23, 2023, Parent received written confirmation of the FCA Approval. On August 18, 2023, Parent and each other person who will become a Substantial Shareholder submitted their applications to the SFC as required under Section 131 of the SFO. On August 28, 2023, Parent received written confirmation that the SFC had accepted such applications. For a description of these regulatory matters, see “The Mergers — Regulatory Approvals and Related Matters” and “The Merger Agreement — Conditions to the Closing of the Mergers” beginning on page 105 and page 138, respectively.
Litigation Related to the Mergers (page 106)
The Company has received four demand letters (the “Disclosure Demand Letters”) from purported stockholders of the Company claiming that the preliminary proxy statement filed on August 21, 2023 contained material misstatements and omissions with respect to the discussion of the Mergers. In addition, two lawsuits have been filed by purported stockholders of the Company making similar allegations: Yale David v. Sculptor Capital Management, Inc. et al., No. 23-cv-07921 (S.D.N.Y. September 7, 2023); and Edward Edgerton v. Sculptor Capital Management, Inc., et al. No. 23-cv-07999 (S.D.N.Y. September 11, 2023) (together, the “Disclosure Complaints”). The Company believes that the disclosures set forth in the preliminary proxy statement comply with applicable law and that the allegations asserted in both the Disclosure Demand Letters and Disclosure Complaints are without merit.
On September 11, 2023, stockholder Gilles Beauchemin filed a purported class action against the Company and each of the Company’s directors in the Court of Chancery of the State of Delaware, captioned Gilles Beauchemin v. Marcy Engel, et al., No. 2023-0921- (Del. Ch. September 11, 2023) (the “Beauchemin Action”). The Beauchemin Action alleges, among other things, that the Board and Special Committee violated their fiduciary duties by refusing to waive certain restrictions in the standstill agreement, specifically by not allowing Bidder J to publicly respond to the Board’s characterization of its bid, or to directly present to the public stockholders a competing bid. The Beauchemin Action seeks, among other things, a preliminary and permanent injunction enjoining the Board and Special Committee from enforcing the terms of the standstill against Bidder J,
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and a preliminary and permanent injunction enjoining the Board and Special Committee from consummating the Transactions. The plaintiff in the Beauchemin Action has filed a motion for a preliminary injunction in furtherance of the same, and a motion to expedite seeking expedited relief from the court. The Company, Board and Special Committee deny any alleged wrongdoing, and intend to oppose the motions for expedition and a preliminary injunction and defend against the Beauchemin Action.
The Company has also received three books and records demands pursuant to 8 Del. C. § 220 (the “Section 220 Demands”), including one submitted by the Former EMD Group, seeking, among other things, meeting minutes concerning the Mergers or any strategic alternatives, all materials considered by the Board and Special Committee in connection with its consideration of the Mergers or any strategic alternatives, and communications from the Board, the Special Committee, and the Company’s management related to the same. The Company has sent a letter objecting to each of the Section 220 Demands. The Company has commenced production in response to the demands, and will produce additional records in response to the Section 220 Demands as deemed appropriate. The Company has entered into an NDA with each Section 220 shareholder, which governs the treatment of all materials produced in response to the Section 220 Demands.
Interests of the Directors and Executive Officers of the Company in the Mergers (page 107)
When considering the recommendation of the Board of Directors that you vote for the Merger Proposal, you should be aware that our directors and executive officers may have certain interests in the Mergers that are different from, or in addition to, your interests as a Company Stockholder generally. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the Merger Agreement, and in recommending that the Board of Directors (i) approve the Merger Agreement and the Transactions, (ii) recommend the Merger Agreement be approved and adopted by the Company Stockholders and (iii) instruct the general partner of the Operating Partnerships to approve the Merger Agreement and the Transactions. The Board of Directors was also aware of these interests in (i) approving the Merger Agreement and the Transactions, (ii) recommending that the Merger Agreement be approved and adopted by the Company Stockholders and (iii) instructing the general partner of the Operating Partnerships to approve the Merger Agreement and the Transactions. These interests include the following:
with respect to Company Stock Awards held by the Company’s executive officers, the accelerated vesting and cash out of a portion of certain Company Performance Awards at the Effective Time, with the unvested portion of Company Restricted Stock Awards and Company RSU Awards converted into restricted cash awards based on the Public Merger Consideration, which will vest and be paid on an accelerated basis upon certain qualifying terminations of employment following the Effective Time;
for certain of the Company’s directors, the accelerated vesting of Company RSU Awards at the Effective Time;
the accelerated vesting and payment of outstanding DCI awards upon a qualifying termination that occurs within 12 months following the Effective Time;
in the event of a qualifying termination, the right of Mr. Levin to receive an Annual Fund Performance Payment for the year in which the termination occurs and, if so elected by the Operating Partnerships, a payment in exchange for an increase in the duration of his non-compete period from one to two years, in each case, in accordance with the terms of his partner agreements with the Operating Partnerships;
Mr. Levin has entered into a letter agreement with Parent, which sets forth the terms of Mr. Levin’s role and compensation following the Closing and includes a mutual release of claims, in each case, subject to certain exceptions;
the Company’s executive officers are eligible to be granted restricted shares and restricted stock units of Parent under a retention program established by Parent, with Mr. Levin receiving a $5 million award under such program;
the Company’s executive officers are eligible to participate in a long-term incentive program established by Parent for certain members of the Company’s leadership team who support the Company’s business following the Closing;
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certain executive officers that are holders of LP Class A Units and LP Class A-1 Units may be entitled to payments under the TRA;
continued indemnification and directors’ and officers’ liability insurance (see “The Merger Agreement — Additional Agreements — Indemnification of Officers and Directors” beginning on page 136 for a description of this continued liability insurance);
with respect to the director of the Board designated by Delaware Life Insurance Company (“Delaware Life”), (i) upon consummation of the Transactions, certain existing loans made to the Company by Delaware Life will be repaid, and Delaware Life will be entitled to receive certain payments in consideration of the Company Warrants, and (ii) such director and his firm provide investment advice to Delaware Life in respect of certain of its investments, including but not limited to the foregoing loans to the Company and the Company Warrants, in exchange for management fees and incentive compensation based on the performance of those investments as a whole;
the cancellation, for no consideration, of unvested Company Performance Awards that did not vest upon the Effective Time and would not reasonably be expected to vest based on the value of the Public Merger Consideration;
the receipt of $0 for each LP Class E Unit, which were originally allocated to certain executive officers in connection with a reduction in annual compensation or in the ordinary course as annual bonus compensation or long term retention compensation, and which will be cancelled for no consideration upon the LP Mergers Effective Time under the terms of the limited partnership agreements of the Operating Partnerships based on the value of the Public Merger Consideration; and
the fact that in the absence of the Mergers and the Transactions, Partnership Unitholders (including the executive officers) would have been eligible to receive future distributions on their LP Class A Units, LP Class E Units and LP Class P Units upon termination of the “Distribution Holiday” to the extent that such partnership units would have participated in any such distribution under the terms of the limited partnership agreements of the Operating Partnerships.
Treatment of Company Stock Awards (page 107)
Company Performance Awards
At the Effective Time, (i) each Company Performance Award that is outstanding immediately prior to the Effective Time and is permitted to be cancelled pursuant to its terms in effect on the date of the Merger Agreement will be cancelled and retired without any conversion thereof and will cease to exist and no payment will be made in respect thereof and (ii) each Vested Company Performance Award will be converted into the right to receive an amount in cash (without interest and subject to applicable withholdings) equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock underlying such Vested Company Performance Award immediately prior to the Effective Time by (y) the Public Merger Consideration (the “Vested Performance Consideration”).
Company RSU Awards
At the Effective Time, (i) each Vested Company RSU Award will be converted into the right to receive an amount in cash (without interest and subject to applicable withholdings) equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock underlying such Vested Company RSU Award immediately prior to the Effective Time by (y) the Public Merger Consideration (the “Vested RSU Consideration”) and (ii) each unvested Company RSU Award outstanding as of the Effective Time will automatically be cancelled and converted into a restricted cash award (“Converted RSU Award”) with a cash value equal to the product of (x) the aggregate number of shares of Company Common Stock underlying such Converted RSU Award immediately prior to the Effective Time multiplied by (y) the Public Merger Consideration. Each Converted RSU Award will be subject to substantially the same terms and conditions as applied to the corresponding unvested Company RSU Award immediately prior to the Effective Time and will be paid (without interest and subject to applicable withholdings) promptly upon vesting (the “Unvested RSU Consideration” and, together with the Vested RSU Consideration, the “RSU Consideration”).
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Company Restricted Stock Awards
At the Effective Time, (i) each Vested Company Restricted Stock Award will be treated as Class A Common Stock and will be converted into the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes (the “Vested Restricted Stock Consideration”) and (ii) each unvested Company Restricted Stock Award outstanding as of the Effective Time will automatically be cancelled and converted into a restricted cash award (“Converted Restricted Stock Award”) with a cash value equal to the product of (x) the aggregate number of shares of Company Common Stock underlying such unvested Company Restricted Stock Award immediately prior to the Effective Time multiplied by (y) the Public Merger Consideration. Each Converted Restricted Stock Award will be subject to substantially the same terms and conditions as applied to the corresponding unvested Company Restricted Stock Award immediately prior to the Effective Time and will be paid (without interest and subject to applicable withholdings) promptly upon vesting (the “Unvested Restricted Stock Consideration” and, together with the Vested Restricted Stock Consideration, the “Restricted Stock Consideration”).
Financing of the Mergers (page 115)
We anticipate that the total amount of funds necessary to complete the Mergers and the Transactions will be approximately $642 million, including the funds needed to:
pay the Company Stockholders and Partnership Unitholders the amounts due to them under the Merger Agreement;
repay in full the Company Credit Agreement and pay the Warrant Consideration per share of Company Common Stock for which each Company Warrant is exercisable immediately prior to the Closing or, if such right is exercised by the holders of the Company Warrants, the Black-Scholes Value of the remaining unexercised portion of the applicable Company Warrant; and
pay amounts that will become payable in respect of Converted Restricted Stock Awards and Converted RSUs, assuming the vesting thereof.
This total amount is expected to be funded through cash on hand and available liquidity of Parent. The closing of the Mergers is not conditioned upon Parent obtaining any financing.
Rollover Matters (page 115)
The Rollover Holders may be offered the opportunity to enter into a Rollover Agreement with Parent and the HoldCos pursuant to which, among other things, each Rollover Holder would agree, subject to the terms and conditions set forth in the Rollover Agreement, immediately prior to the LP Mergers Effective Time, and conditioned upon the Closing (including the consummation of the Mergers), to contribute its Rollover Interests to each of the HoldCos, and each HoldCo will accept the Rollover Interests from each such Rollover Holder, in exchange for a number of equity interests in such HoldCo having an aggregate value equal to the Contributed Value.
However, Parent’s obligation to proceed with the Rollover is conditioned, among other conditions, upon Rollover Holders with Rollover Interests having an aggregate Contributed Value of no less than 50% of the total value of all of the LP Class A Units and LP Class A-1 Units electing to participate in the Rollover (the “Rollover Condition”), which Rollover Condition may be waived in Parent’s sole discretion. Additionally, the transaction documents provide that if any member of the Former EMD Group makes any communication to any third party that, among other things, criticizes, disparages or creates a negative impression of the Transactions, Parent or the Company, then Parent will have no obligation to offer the Rollover to the Former EMD Group.
Dissenters’ Rights (page 115)
Pursuant to Section 262 of the DGCL, Dissenting Company Stockholders will be entitled to seek appraisal of their shares of Class A Common Stock in connection with the Public Merger under Section 262 of the DGCL. The “fair value” of such shares as determined by the Delaware Court of Chancery could be greater than, the same as, or less than the Public Merger Consideration.
The right to seek appraisal will be lost if a Company Stockholder votes FOR the Merger Proposal. However, abstaining or voting against the Merger Proposal is not in itself sufficient to perfect appraisal rights because additional actions must also be taken to perfect such rights. To exercise appraisal rights, Company Stockholders
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who wish to exercise the right to seek an appraisal of their shares of Class A Common Stock must so advise the Company by submitting a written demand for appraisal to the Company prior to the taking of the vote on the Merger Proposal at the Special Meeting, and must otherwise strictly follow the applicable procedures and requirements prescribed by Section 262 of the DGCL. A Person having a beneficial interest in shares of Company Common Stock held of record in the name of another Person, such as a bank, broker or other nominee, may perfect appraisal rights in such Person’s name if such beneficial owner continuously owns such shares through the Effective Time and otherwise satisfies the requirements applicable to Company Stockholders of record under Section 262(a) of the DGCL. In addition, the beneficial owner must (1) reasonably identify in his, her or its demand the holder of record of the shares of Class A Common Stock for which the demand is made, (2) provide documentary evidence of such beneficial owner’s beneficial ownership and a statement that such documentary evidence is a true and correct copy of what it purports to be and (3) provide an address at which such beneficial owner consents to receive notices given by the Company and to be set forth on the verified list of Persons who have demanded appraisal for their shares pursuant to Section 262(f) of the DGCL. In addition, under Section 262 of the DGCL, the Delaware Court of Chancery will dismiss any appraisal proceedings as to all Company Stockholders who have perfected their appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of Class A Common Stock or (2) the value of the Public Merger Consideration multiplied by the total number of shares of Class A Common Stock entitled to appraisal exceeds $1 million. In view of the complexity of Section 262 of the DGCL, Company Stockholders that may wish to pursue appraisal rights are urged to consult their legal and financial advisors.
Material U.S. Federal Income Tax Consequences of the Public Merger (page 118)
The receipt of cash by a U.S. Holder (as defined under “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118) in exchange for such U.S. Holder’s shares of Class A Common Stock in the Public Merger (or receipt of cash upon exercise of appraisal rights) will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other non-U.S. tax laws. Accordingly, a U.S. Holder will generally recognize gain or loss in an amount equal to the difference, if any, between (i) the Public Merger Consideration received by such U.S. Holder in the Public Merger (or cash received upon exercise of appraisal rights) and (ii) such U.S. Holder’s adjusted tax basis in the shares of Class A Common Stock exchanged therefor. A Company Stockholder that is a Non-U.S. Holder (as defined under “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118), generally will not be subject to U.S. federal income tax on any gain recognized in connection with the Public Merger unless such Non-U.S. Holder has certain connections with the United States. However, the tax consequences of the Public Merger to a Company Stockholder will depend on the stockholder’s particular circumstances, and Company Stockholders should consult their own tax advisors to determine the particular tax consequences to them of the Public Merger (including the application of any U.S. federal non-income, state, local or non-U.S. tax laws). For further information about the material U.S. federal income tax consequences of the Public Merger, see “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118 of this Proxy Statement.
The Merger Agreement (page 121)
No Solicitation (page 130)
The Merger Agreement generally restricts the Company’s ability to:
solicit, initiate, seek or knowingly encourage (including by way of furnishing non-public information relating to any Acquired Company) any inquiry, discussion, offer or request that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal;
enter into, continue or otherwise participate in any discussions or negotiations with, or furnish any non-public information relating to the Acquired Companies to, or afford access to the books or records or officers of the Acquired Companies to any third party, in each case, with respect to, or that could reasonably be expected to lead to, an Acquisition Proposal;
grant any waiver, amendment or release of any third party under any “standstill” or confidentiality agreement; provided that the Company will be permitted to grant a waiver of or terminate any “standstill” or similar agreement or obligation of any third party to the extent such agreement or obligations prohibits a confidential proposal being made to the Board of Directors or the Special
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Committee if the Board of Directors (acting upon the recommendation of the Special Committee) has determined in good faith, after consultation with its outside financial and outside legal advisors, that failure to take such action would be inconsistent with its fiduciary duties under applicable law;
approve, endorse recommend or enter into, or publicly propose to approve, endorse recommend or enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other contract with respect to any Acquisition Proposal other than an Acceptable Confidentiality Agreement (an “Alternative Acquisition Agreement”);
take any action to exempt any third party from restrictions on “business combinations” contained in Section 203 of the DGCL or any other applicable anti-takeover statute or regulation (each, a “Takeover Statute”) or otherwise cause such restrictions not to apply; or
resolve, agree, authorize or commit to do any of the foregoing.
For a further discussion of the limitations on solicitation of acquisition inquiries and Acquisition Proposals from third parties, see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 130.
Adverse Recommendation Change (page 132)
Prior to the adoption of the Merger Agreement by the Required Company Stockholder Approval, if the Company receives a bona fide written Acquisition Proposal not resulting from a material breach of the applicable terms of the Merger Agreement that the Board (acting upon the recommendation of the Special Committee) has determined in good faith (after consultation with its outside financial and outside legal advisors) (i) constitutes, or is reasonably expected to lead to, a Superior Proposal and (ii) failure to take the foregoing actions would be inconsistent with the Board’s fiduciary duties, the Company may (x) enter into an Acceptable Confidentiality Agreement with such third party and/or its affiliates and Representatives and, subject to the terms and conditions of such Acceptable Confidentiality Agreement, furnish non-public information and afford access to the books or records or officers of the Acquired Companies to such third party and its affiliates and Representatives and (y) engage in discussions and negotiations with such third party and its affiliates and Representatives regarding such Acquisition Proposal, subject to prompt notification to Parent of such actions and provision to Parent of any non-public information concerning the Acquired Companies made available to such third party and not previously made available to Parent.
The Special Committee and the Board generally are not permitted under the Merger Agreement to change the Board’s recommendation to the Company Stockholders to adopt the Merger Agreement. However, prior to the adoption of the Merger Agreement by the Required Company Stockholder Approval, the Special Committee and the Board, acting on the recommendation of the Special Committee, are permitted to make an Adverse Recommendation Change (as defined in the section titled “The Merger Agreement — Additional Agreements — Adverse Recommendation Change”) in response to certain unforeseen, intervening events or to accept a Superior Proposal if, in either case, and among things, the Company has provided Parent with a Notice of Adverse Recommendation Change (as defined in the section titled “The Merger Agreement — Additional Agreements — Adverse Recommendation Change”) or a Notice of Intervening Event (as defined in the section titled “The Merger Agreement — Additional Agreements — Adverse Recommendation Change”), and for a three business day period following delivery thereof and prior to effecting an Adverse Recommendation Change, the Company has negotiated in good faith with Parent and its Representatives, to the extent desired by Parent, to make amendments to the terms and conditions of the Merger Agreement and related documents such that the Superior Proposal would cease to constitute a Superior Proposal or, in the case of an Adverse Recommendation Change that is not related to a Superior Proposal, that failure to make such Adverse Recommendation Change could reasonably be expected to be inconsistent with its fiduciary duties under applicable law.
For more information, see “The Merger Agreement — Additional Agreements — Adverse Recommendation Change” beginning on page 132.
Client Consents (page 135)
The Company has agreed, and has agreed to cause its subsidiaries to, use reasonable best efforts to obtain, as promptly as reasonably practicable following the date of the Merger Agreement, the Client Consents pursuant to the procedures set forth in the Merger Agreement. In connection with obtaining such Client Consents, the Company has agreed to take reasonable steps to keep Parent promptly informed of the status of obtaining such
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Client Consents (including the receipt of written notice from any investor in any Client that such investor is not providing its consent to the consummation of the Transactions) and, upon Parent’s reasonable request, make available to Parent copies of any executed Client Consents and related materials.
Parent has agreed to cooperate and use reasonable best efforts to assist the Company in all reasonable respects in connection with the seeking of the Client Consents (including by promptly providing any information reasonably requested by the Company in connection therewith with respect to Parent or its affiliates).
Employee Matters (page 137)
With respect to benefit plans (excluding any defined benefit pension or retiree benefit plans) maintained by Parent or any of its subsidiaries, including the Surviving Corporation (including any vacation, paid time-off and severance plans), for all purposes, including determining eligibility to participate, level of benefits and vesting, the service of each employee of the Acquired Companies who is employed by the Acquired Companies who continues to be employed at the Closing with Parent, the Surviving Corporation, the Surviving Partnerships or any of their subsidiaries (“Continuing Employees”) with the Company or any of its subsidiaries, as reflected in the Company’s records, will be treated as service with Parent or any of its subsidiaries (including the Surviving Corporation); provided, however, that such service will not be recognized to the extent that such recognition would result in any duplication of benefits.
Parent will, or will cause one of its subsidiaries (including the Surviving Corporation) to, use reasonable best efforts to waive, or cause to be waived, any pre-existing condition limitations, exclusions, evidence of insurability, actively-at-work requirements and waiting periods under any group health benefit plan maintained by Parent or any of its subsidiaries in which Continuing Employees (and their eligible dependents) will be eligible to participate from and after the Effective Time, except to the extent that such pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods were not satisfied or waived under the corresponding benefit plans of the Company in which such Continuing Employee participated immediately prior to the Effective Time. Parent will, or will cause one of its subsidiaries (including the Surviving Corporation), to use reasonable best efforts to recognize, or cause to be recognized, in the plan year in which the Closing occurs, the dollar amount of all co-payments, deductibles and similar expenses incurred and paid by each Continuing Employee (and his or her eligible dependents) and credited under the benefit plan of the Company that is a group health plan during the calendar year in which the Effective Time occurs for purposes of satisfying such year’s deductible and co-payment limitations under the corresponding group health benefit plan of Parent or one of its subsidiaries in which such Continuing Employee (and dependents) participates from and after the Effective Time.
Conditions to the Closing of the Mergers (page 138)
The obligations of the Company, the Operating Partnerships, Parent and the Merger Subs to consummate the Mergers are subject to the satisfaction (or waiver by all parties if permissible under applicable law, except with respect to the first bullet below which will not be waivable), at or prior to the Closing Date, of the following conditions:
the Required Company Stockholder Approval (comprising the Company Stockholder Approval and the Company Non-Unitholder Stockholder Approval) and the approval of the Merger Agreement by Holding Corp, as general partner of each of the Operating Partnerships, having been obtained;
(i) the expiration or termination of any applicable waiting periods under the HSR Act and (ii) the FCA Approval and the SFC Approval having been obtained (see the section titled “The Mergers — Regulatory Approvals and Related Matters” beginning on page 105); and
no law or order, whether preliminary, temporary or permanent, will be in effect that enjoins, prevents, prohibits or makes illegal the consummation of the Transactions.
The obligations of Parent and the Merger Subs to consummate the Mergers are subject to the satisfaction or waiver by Parent of the following additional conditions at or prior to the Closing Date:
subject to certain materiality and other qualifiers, the accuracy of the representations and warranties of the Company;
the Company and the Operating Partnerships having performed in all material respects all of the covenants and obligations of the Merger Agreement required to be performed and complied with by such parties at or prior to the Closing;
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the receipt of Client Consents representing at least 85% of such parties’ revenue run rate (subject to certain adjustments as set forth in the Merger Agreement);
since the date of the Merger Agreement, no Company Material Adverse Effect (as defined in the section titled “The Merger Agreement — Representations and Warranties”) having occurred that is continuing; and
the delivery of a certificate signed by an executive officer of the Company certifying each of the above conditions having been satisfied.
The obligations of the Company to consummate the Mergers are subject to the satisfaction or waiver by the Company of the following additional conditions at or prior to the Closing Date:
subject to certain materiality and other qualifiers, the accuracy of the representations and warranties of Parent and the Merger Subs;
the Company and the Merger Subs having performed in all material respects all of the covenants and obligations of the Merger Agreement required to be performed and complied with by such parties at or prior to the Closing; and
the delivery of a certificate signed by an officer of Parent certifying each of the above conditions having been satisfied.
Termination of the Merger Agreement (page 140)
In general, the Merger Agreement may be terminated in accordance with the specific termination rights enumerated therein at any time prior to the effective times of the Mergers, whether before or after approval of the Merger Proposal by the Company Stockholders. See “The Merger Agreement — Termination of the Merger Agreement — Termination” beginning on page 140 for more information about the circumstances in which either the Company or Parent could terminate the Merger Agreement.
Termination Fees (page 141)
Under the Merger Agreement, the Company may be required to pay Parent a termination fee in the amount of $16,576,819 or reimburse up to $5,100,560 of Parent’s expenses if the Merger Agreement is terminated under specified circumstances. For information about when the Company must pay this fee, see “The Merger Agreement — Termination Fees” beginning on page 141.
Specific Performance (page 142)
In the event of any breach or threatened breach by a party of the Merger Agreement, the other party will be entitled to, without proof of actual damages (and in addition to any other remedy to which such other party may be entitled at law or in equity) or the requirement to post a bond or other security: (a) an injunction or injunctions preventing such breaches; and (b) specific performance or other equitable relief to enforce the terms and provisions of the Merger Agreement. The parties have agreed that neither party will oppose the granting of such injunction, specific performance or other equitable remedy on the basis that the other party has an adequate remedy at law or assert that a remedy of specific enforcement is unenforceable, invalid, contrary to law or inequitable for any reason or that a remedy of monetary damages would provide an adequate remedy.
Fees and Expenses (page 142)
Except as otherwise specifically provided in the Merger Agreement, all fees and expenses incurred in connection with the Merger Agreement and the Transactions will be paid by the party incurring such fees and expenses, whether or not the Mergers are consummated. However, if the Transactions are not consummated, Parent will pay all fees and expenses in connection with any financing arrangements incurred or contemplated to be incurred as reasonably requested by Parent. The Acquired Companies will pay all transfer taxes and file all tax returns and other documentation, at its expense, with respect to such transfer taxes.
Voting Agreements (page 143)
In connection with the execution of the Merger Agreement, on July 23, 2023, Parent entered into Voting Agreements with each of the Specified Stockholders. As of the Record Date, the Specified Stockholders collectively controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock.
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The Specified Stockholders have agreed, on the terms and subject to the conditions set forth in the Voting Agreement, to vote their respective shares of Company Common Stock as follows:
in favor of the Merger Proposal and any other transactions or matters expressly contemplated by the Merger Agreement at any stockholder meeting at which such vote is requested;
against any Acquisition Proposal or any other transaction, proposal, agreement or action that would or would reasonably expected to (i) prevent or delay the consummation of the Transactions, including the Mergers, or (ii) result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the Merger Agreement or of any Specified Stockholder contained in the Voting Agreement; and
in favor of any other matter necessary to the consummation of the Transactions, including the Mergers.
In addition, under the Voting Agreement, each Specified Stockholder has agreed not to transfer or dispose of any shares of Company Common Stock or other securities of the Acquired Companies, except for permitted transfers, during the term of the Voting Agreement. The Specified Stockholders also agreed to adhere to certain non-solicitation restrictions. See “Voting Agreements” beginning on page 143.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGERS
The Board of Directors is soliciting proxies to be voted at the Special Meeting. The following questions and answers are intended to address briefly some commonly asked questions regarding the Mergers, the Merger Agreement, the other agreements described herein and the Special Meeting. These questions and answers may not address all questions that may be important to you as a Company Stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this Proxy Statement, the appendices to this Proxy Statement and the documents incorporated by reference or referred to in this Proxy Statement, which you should read carefully and in their entirety.
Q:
Why am I receiving these materials?
A:
The Board is furnishing this Proxy Statement and form of proxy and voting instructions to the Company Stockholders in connection with the solicitation of proxies to be voted at the Special Meeting or at any adjournment or postponement of the Special Meeting.
Q:
When and where is the Special Meeting?
A:
The Special Meeting will be held virtually on [•], 2023 at [•] A.M. Eastern time, at www.virtualshareholdermeeting.com/SCU2023SM. The Company is conducting the Special Meeting solely online via the Internet through a live webcast and online stockholder tools.
Q:
Who is entitled to vote at the Special Meeting?
A:
Only Company Stockholders of record as of the close of business on [•], 2023 are entitled to receive notice of, and to vote at, the Special Meeting. Each Company Stockholder is entitled to cast one vote on each matter properly brought before the Special Meeting for each share of Class A Common Stock and share of Class B Common Stock that such Company Stockholder owned as of the Record Date.
Pursuant to a February 7, 2019 governance agreement between the Company, Daniel S. Och (in his capacity as an individual, and in his capacity as the sole member of the Class B Shareholders Committee (as such term is defined in the Class B Shareholders Agreement)) and certain of the Company’s subsidiaries, 436,810 shares of Class B Common Stock that relate to the LP Class A-1 Units, which represent less than 1% of the total aggregate voting power of the Company’s outstanding voting stock, will be voted pro rata in accordance with the vote of the shares of Class A Common Stock.
In addition, in connection with the execution of the Merger Agreement, on July 23, 2023, Parent entered into Voting Agreements with each of the Specified Stockholders, pursuant to which, among other things, each Specified Stockholder agreed to vote all shares of Company Common Stock held by such Specified Stockholder in favor of the Merger Proposal at the Special Meeting. As of the Record Date, the Specified Stockholders collectively controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock. The vote of the Specified Stockholders will not be counted towards satisfaction of the Company Non-Unitholder Stockholder Approval. For more information, see “Voting Agreements” beginning on page 143.
Q:
What is the difference between shares of Class A Common Stock and shares of Class B Common Stock?
A:
Our shares of Class A Common Stock are listed on the NYSE. The holders of shares of Class A Common Stock, including restricted Class A shares, are entitled to one vote per share. The shares of Class A Common Stock will vote together with the shares of Class B Common Stock on each matter submitted to a vote of Company Stockholders at the Special Meeting, except the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal, which requires the vote of only Non-Unitholder Stockholders.
Our shares of Class B Common Stock are held by our Partnership Unitholders. They have no economic rights (and therefore no rights to any dividends or distributions we may pay) in the Company and are not publicly traded, but rather entitle the holders to one vote per share together with holders of shares of Class A Common Stock. The shares of Class B Common Stock are intended solely to provide our Partnership Unitholders with voting interests in the Company commensurate with their economic interests in the Operating Partnerships. For purposes of the Special Meeting, as described above, the vote of holders of Class B Common Stock will not be counted towards the satisfaction of the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal, which requires the vote of only Non-Unitholder Stockholders.
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Q:
May I attend the Special Meeting and vote in person?
A:
The Company is hosting the Special Meeting virtually. There will be no physical location for Company Stockholders to attend. Company Stockholders will be able to attend the Special Meeting by visiting www.virtualshareholdermeeting.com/SCU2023SM and entering your 16-digit control number as provided in your proxy materials.
Company Stockholders of record: If you were a Company Stockholder of record as of the Record Date, in order to participate in the Special Meeting, you will need your control number included on the proxy card or the voting instruction form previously distributed to you. If you are a Company Stockholder of record, you may vote electronically during the Special Meeting using your control number by following the instructions available at www.proxyvote.com.
Company Stockholders holding shares through a broker, bank or other nominee: If your shares of Company Common Stock are held through a broker, bank or other nominee and you do not have a control number, in order to participate in the Special Meeting, you must first obtain a legal proxy from your broker, bank or other nominee reflecting the number of shares of Company Common Stock you held as of the Record Date, your name and email address. If your shares of Company Common Stock are held through a broker, bank or other nominee, you must obtain the appropriate documents from your broker, bank, or nominee, giving you the right to vote the shares at the Special Meeting.
Instructions on how to attend and participate in the Special Meeting via the webcast are available at www.virtualshareholdermeeting.com/SCU2023SM.
You should ensure that you have a strong Internet connection and allow plenty of time to log in and ensure that you can hear streaming audio. You may begin to log in to the virtual-only meeting platform 15 minutes prior to the start of the Special Meeting. We will offer live technical support for all Company Stockholders attending the meeting. Technical support phone numbers will be available on the virtual-only meeting platform.
Q:
What am I being asked to vote on at the Special Meeting?
A:
At the Special Meeting, you will be asked:
1.
to vote FOR the Merger Proposal;
2.
to vote FOR the Non-Binding Compensation Proposal; and
3.
to vote FOR the Adjournment Proposal.
Q:
What are the Mergers and what effects will they have on the Company?
A:
The Mergers are the transactions through which Parent will acquire the Acquired Companies pursuant to the Merger Agreement. If the Merger Proposal is approved by the Company Stockholders as described in this Proxy Statement and the other closing conditions set forth in the Merger Agreement have been satisfied or waived, (i) Merger Sub Inc. will merge with and into the Company, (ii) Merger Sub I will merge with and into Capital LP, (iii) Merger Sub II will merge with and into Advisors LP and (iii) Merger Sub III will merge with and into Advisors II LP. Upon completion of the Mergers, each of the Merger Subs will cease to exist and each of the Company, Capital LP, Advisors LP and Advisors II LP will continue as the Surviving Corporation or Surviving Partnership, as applicable, and become a direct or indirect subsidiary of Parent. Following the Mergers, there will be no further market for our shares of Class A Common Stock, and the Company will de-list the shares of Class A Common Stock from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective times of the Mergers. At such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the Mergers are completed, you will not own any shares of the Surviving Corporation or Partnership Units of the Surviving Partnerships. If the Rollover Condition is satisfied or waived, a Rollover Holder who elects to participate in the Rollover will own equity interests of the HoldCos having an aggregate value equal to the Contributed Value of its Rollover Interests.
Q:
What will I receive if the Mergers are completed?
A:
If the Public Merger is completed, each share of Class A Common Stock issued and outstanding immediately prior to the Effective Time (other than the Cancelled Shares, Dissenting Shares or unvested
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Company Restricted Stock Awards) will be cancelled and automatically converted into the right to receive an amount in cash equal to $11.15 (the “Public Merger Consideration”), without interest, less any applicable withholding taxes. The aggregate consideration payable to holders of shares of Class A Common Stock (including any Vested Company Stock Award) in the Public Merger will be approximately $291.3 million. Thereafter, each certificate or book-entry formerly representing any of the shares of Class A Common Stock will represent only the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes. If the Mergers are completed, each share of Class B Common Stock will be cancelled and retired, for no consideration. However, holders of such shares of Class B Common Stock will receive consideration in cash (or, if the Rollover Condition is satisfied or waived and such holder is a Rollover Holder who has elected to participate in the Rollover, equity interests of the HoldCos pursuant to the Rollover) in respect of corresponding Partnership Units as described in “The Merger Agreement – Merger Consideration; Treatment of Company Common Stock and Company Warrants; Treatment of Partnership Units; Treatment of Company Stock Awards” beginning on page 122, for aggregate consideration payable to such Partnership Unitholders (inclusive of the Contributed Value) of $167,367,690, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the Public Merger is completed, each Company Warrant issued and outstanding immediately prior to the Effective Time will survive the Public Merger and remain outstanding but will, upon any subsequent exercise of such Company Warrant, be entitled to receive only the Warrant Consideration for each share of Company Common Stock for which such Company Warrant was exercisable immediately prior to the Closing. Alternatively, in accordance with the terms of the Company Warrants, the holder of any Company Warrant may notify the Surviving Corporation before the 30th day after the Closing Date that such holder is exercising the holder’s right to cause the Company to purchase such Company Warrant from such holder for the Black-Scholes Value (as defined in the applicable Company Warrant) of the remaining unexercised portion of such Company Warrant in accordance with its terms. The Company Warrants are exercisable for 4,338,015 shares of Class A Common Stock at an exercise price of $7.95 per share. Assuming no dividends are paid on the shares of Class A Common Stock prior the Closing Date (which the Company is not permitted to do without Parent’s consent, as described in this Proxy Statement), this exercise price will not change. The estimated Black-Scholes Value is approximately $34 million.
If the LP Mergers are completed, each LP Class A Unit, LP Class A-1 Unit, LP Class E Unit, LP Class P Unit and LP Class P-4 Unit issued and outstanding immediately prior to the LP Mergers Effective Time that is vested at the LP Mergers Effective Time or that vests as a result of the consummation of the Transactions, in each case, in accordance with the limited partnership agreements of the Operating Partnerships and any applicable award agreement (other than the Cancelled Units, any Unvested Partnership Unit and any Rollover Interests) will be cancelled and converted automatically into the right to receive an amount in cash equal to its applicable LP Merger Consideration, without interest, less any applicable withholding taxes. Thereafter, each certificate or book-entry formerly representing any of the Partnership Units receiving LP Merger Consideration will represent only the right to receive the LP Merger Consideration, without interest, less any applicable withholding taxes, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the LP Mergers are completed, each of the (i) Unvested Partnership Units, (ii) LP Profit Sharing Interests and (iii) LP Class C Units will be cancelled and retired for no consideration. Following the LP Mergers, all LP Class B Units issued and outstanding immediately prior to the LP Mergers Effective Time will continue to remain outstanding as LP Class B Units of the applicable Surviving Partnership and the holder of such LP Class B Units that is the general partner of the Operating Partnerships immediately prior to the LP Mergers Effective Time will continue as the general partner of the Surviving Partnerships.
Q:
How does the Public Merger Consideration compare to the market price of the shares of Class A Common Stock prior to the public announcement of the Merger Agreement?
A:
The Public Merger Consideration represents a premium of approximately 18% over the closing price of the Class A Common Stock on July 21, 2023 (the last trading day before the date that the Merger Agreement was signed) and a premium of approximately 31% over the unaffected closing price of the Class A Common Stock on November 17, 2022 (the day prior to the Company’s announcement of the formation of the Special Committee).
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Q:
What do I need to do now?
A:
We encourage you to read this Proxy Statement, the appendices to this Proxy Statement, including the Merger Agreement, and the documents we refer to in this Proxy Statement carefully and consider how the Mergers affect you. Whether or not you plan to attend the Special Meeting virtually, please submit your proxy as soon as possible, whether over the Internet, by telephone or by completing, signing and returning the enclosed proxy card by mail in the prepaid reply envelope. If you hold your shares of Company Common Stock through a broker, bank or other nominee, the availability of telephonic or Internet voting will depend on the voting processes of your broker, bank or other nominee. Please check with your broker, bank or other nominee and follow the voting procedures your broker, bank or other nominee provides to vote your shares of Company Common Stock. If you are a beneficial owner of shares held in the name of a broker, bank or other nominee, and would like to vote via webcast at the Special Meeting, you must obtain a “legal proxy,” executed in your favor, from such broker, bank or other nominee. Follow the instructions from your broker, bank or other nominee included with these proxy materials or contact your broker, bank or other nominee to request a “legal proxy.” You should allow yourself enough time prior to the Special Meeting to obtain this “legal proxy” from the holder of record.
Q:
Should I send in my Class A share certificates or Partnership Unit certificates now?
A:
No. Promptly after the Mergers are completed, under the terms of the Merger Agreement, holders of record of (i) Class A Common Stock as of the Effective Time and (ii) Partnership Units as of LP Mergers Effective Time the will receive a letter of transmittal with instructions for use in surrendering their certificates in exchange for the Public Merger Consideration or LP Merger Consideration, as applicable. You should use and return the letter of transmittal to exchange your Class A Common Stock certificates or Partnership Unit certificates for the cash payment to which you are entitled upon completion of the Mergers. Please do not send in your share or unit certificates now.
Q:
What happens if I sell or otherwise transfer my shares of Class A Common Stock after the Record Date but before the Special Meeting?
A:
The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the Mergers are expected to be completed. If you sell or transfer your shares of Class A Common Stock after the Record Date, but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the Person to whom you sell or otherwise transfer your shares of Class A Common Stock and each of you notifies the Company in writing of such special arrangements, you will transfer the right to receive the Public Merger Consideration, if the Mergers are completed, to the Person to whom you sell or transfer your shares of Class A Common Stock, but you will retain your right to vote these shares at the Special Meeting. Even if you sell or otherwise transfer your shares of Class A Common Stock after the Record Date, we encourage you to complete, date, sign and return the enclosed proxy or vote via the Internet or telephone.
Q:
How does the Board of Directors recommend that I vote?
A:
After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and its stockholders; (ii) authorized and approved the Merger Agreement and the Company’s and each Operating Partnerships’ execution, delivery and performance thereof; (iii) instructed Holding Corp, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions; (iv) directed that the Merger Agreement be submitted to the Company Stockholders for their consideration and adoption at the Special Meeting; and (iv) recommended that the Company Stockholders vote in favor of the adoption of the Merger Agreement. The Board of Directors unanimously recommends that you vote:
1.
FOR the Merger Proposal;
2.
FOR the Non-Binding Compensation Proposal; and
3.
FOR the Adjournment Proposal.
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For a discussion of the factors that the Board considered in determining to recommend the proposals, please see “The Mergers — Purpose and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers” beginning on page 79.
Q:
Will the Company continue to pay a quarterly dividend?
A:
Under the terms of the Merger Agreement, during the period prior to the Closing Date, the Company is not permitted to declare or pay dividends on the shares of its Class A Common Stock, unless the Company obtains the prior written consent of Parent (which will not be unreasonably withheld, conditioned or delayed). See “The Merger Agreement — Conduct of the Company Pending the Public Merger” beginning on page 128.
Q:
What happens if the Mergers are not completed?
A:
If the Merger Proposal is not approved by the Company Stockholders or if the Mergers are not completed for any other reason, the Company Stockholders and the Partnership Unitholders will not receive any payment for their shares of Class A Common Stock or Partnership Units, respectively. Instead, the Company will remain a public company, our Class A Common Stock will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC. See “The Mergers — Effect on the Company if the Mergers Are Not Completed” beginning on page 36, “The Mergers — Purpose and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers,” beginning on page 79 and “Additional Information” beginning on page 152.
In addition, under specified circumstances, the Company may be required to pay Parent a termination fee or reimburse up to a specified amount of Parent’s expenses upon the termination of the Merger Agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 141.
Q:
Do any of the Company’s directors or officers have interests in the Mergers that may differ from those of the Company Stockholders generally?
A:
Yes. When considering the recommendation of the Board of Directors that you vote for the Merger Proposal, you should be aware that our directors and executive officers may have certain interests in the Mergers that are different from, or in addition to, your interests as a Company Stockholder generally. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the Merger Agreement, and in recommending that the Board of Directors (i) approve the Merger Agreement and the Transactions, (ii) recommend the Merger Agreement be approved and adopted by the Company Stockholders and (iii) instruct the general partner of the Operating Partnerships to approve the Merger Agreement and the Transactions. The Board of Directors was also aware of these interests in (i) approving the Merger Agreement and the Transactions, (ii) recommending that the Merger Agreement be approved and adopted by the Company Stockholders and (iii) instructing the general partner of the Operating Partnerships to approve the Merger Agreement and the Transactions. For a description of the interests of our directors and executive officers in the Mergers, see “The Mergers - Interests of the Directors and Executive Officers of the Company in the Mergers” beginning on page 107.
Q:
What vote is required to approve the Merger Proposal?
A:
Approval of the Merger Proposal requires the affirmative vote of holders representing a majority of the aggregate voting power of each of (i) the shares of the Class A Common Stock and Class B Common Stock outstanding and entitled to vote on the proposal, voting together as a single class, and (ii) the shares of Class A Common Stock owned by the Non-Unitholder Stockholders outstanding and entitled to vote on the proposal.
Because the foregoing votes on the Merger Proposal are based on the voting power of the applicable shares outstanding, abstentions and failures to submit a proxy or provide your bank, brokerage firm or other nominee with instructions, as applicable, will have the same effect as voting AGAINST the approval of the proposal. The Merger Proposal cannot be voted upon by your brokers, banks or other nominee if you do not instruct your brokers, banks or other nominee as to how to vote on such proposal. See “The Special Meeting—Quorum and Votes Needed” beginning on page 31.
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As of the Record Date, there were [•] shares of Class A Common Stock, including restricted Class A shares, and [•] shares of Class B Common Stock outstanding. Each holder of shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock is entitled to one vote per share, and the shares of Class A Common Stock and shares of Class B Common Stock will vote together as a single class for purposes of each matter to be voted upon at the Special Meeting, except the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal, which requires the vote of only Non-Unitholder Stockholders.
Pursuant to a February 7, 2019 governance agreement between the Company, Daniel S. Och (in his capacity as an individual, and in his capacity as the sole member of the Class B Shareholders Committee (as such term is defined in the Class B Shareholders Agreement)) and certain of the Company’s subsidiaries, 436,810 shares of Class B Common Stock that relate to the LP Class A-1 Units, which represent less than 1% of the total aggregate voting power of the Company’s outstanding voting stock, will be voted pro rata in accordance with the vote of the shares of Class A Common Stock.
In addition, in connection with the execution of the Merger Agreement, on July 23, 2023, Parent entered into Voting Agreements with each of the Specified Stockholders, pursuant to which, among other things, each Specified Stockholder agreed to vote all shares of Company Common Stock held by such Specified Stockholder in favor of the Merger Proposal at the Special Meeting. As of the Record Date, the Specified Stockholders collectively controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock. The vote of the Specified Stockholders will not be counted towards satisfaction of the Company Non-Unitholder Stockholder Approval. For more information, see “Voting Agreements” beginning on page 143.
Q:
What vote is required to approve the Non-Binding Compensation Proposal and the Adjournment Proposal?
A:
The proposal to approve the Non-Binding Compensation Proposal requires that holders of a majority of votes cast (with the holders of shares of Class A Common Stock and shares of Class B Common Stock voting together as a single class) at the Special Meeting must vote FOR the proposal in order for it to be approved.
The proposal to approve the Adjournment Proposal requires that holders of a majority of votes cast (with the holders of shares of Class A Common Stock and shares of Class B Common Stock voting together as a single class) at the Special Meeting must vote FOR the proposal in order for it to be approved.
Abstentions and the failures to submit a proxy or provide your bank, brokerage firm or other nominee with instructions, as applicable, will have no effect on the outcome (assuming a quorum is present) of the Non-Binding Compensation Proposal and of the Adjournment Proposal.
Neither proposal can be voted upon by your brokers, banks or other nominee if you do not instruct your brokers, banks or other nominee as to how to vote on the proposal. See “The Special Meeting—Quorum and Votes Needed” beginning on page 31.
Q:
Why am I being asked to cast a non-binding, advisory vote regarding certain compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers?
A:
SEC rules require the Company to seek a non-binding, advisory vote regarding certain compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers.
Q:
What is the compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers for purposes of this advisory vote?
A:
Certain compensation that is tied to or based on the Mergers may become payable by the Company to its named executives in connection with the Mergers. For further detail, please see “Proposal Number Two: Non-Binding Compensation Proposal” beginning on page 145.
Q:
What will happen if, at the Special Meeting, Company Stockholders do not approve the compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers?
A:
Approval by the Company Stockholders of the compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers is not a condition to completion of
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the Mergers. The vote with respect to the compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers is an advisory vote and will not be binding on the Company or Parent. If the Mergers are completed, the compensation that will or may become payable by the Company to its named executive officers in connection with the Mergers may be paid to the Company’s named executive officers even if Company Stockholders fail to approve the payment of that compensation.
Q:
What is a quorum?
A:
A quorum of Company Stockholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, holders of a majority of the shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock, voting together as a single class, issued and outstanding as of the Record Date, and entitled to vote at such meeting, must be present, either in person or by proxy, at the virtual Special Meeting.
Q:
What is the difference between holding shares as a Company Stockholder of record and as a beneficial owner?
A:
If your shares of Company Common Stock are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, to be the “Company Stockholder of record.” In this case, this Proxy Statement and your proxy card have been sent directly to you by the Company. As a Company Stockholder of record, you have the right to vote, grant your voting rights directly to the Company or to a third party or to vote in person at the Special Meeting.
If your shares of Company Common Stock are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the shares held in “street name.” In that case, this Proxy Statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, to be the Company Stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting virtually. However, because you are not the Company Stockholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid proxy from your broker, bank or other nominee.
Q:
How may I vote?
A:
You may vote by any one of the following means:
By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a broker, bank or other nominee, they will give you separate instructions for voting your shares.
By Telephone or on the Internet: Company Stockholders of record can vote by telephone by calling the toll-free telephone number provided on the proxy card. Company Stockholders of record can vote by Internet by visiting www.proxyvote.com. Please have your proxy card handy when you call or go online. Telephone and Internet voting facilities for Company Stockholders of record will be available 24 hours a day and will close at 11:59 P.M. (Eastern time) on [•], 2023. If you hold your shares through a broker, bank or other nominee, the availability of telephonic or Internet voting will depend on the voting processes of your broker, bank or other nominee. Please check with your broker, bank or other nominee and follow the voting procedures your broker, bank or other nominee provides to vote your shares of Company Common Stock.
Voting at the Special Meeting or by Proxy: If you are a holder of record of shares of Company Common Stock, you may attend and vote via webcast at the Special Meeting. If you are a beneficial owner of shares of Company Common Stock held in the name of a broker, bank or other nominee, you must obtain a “legal proxy,” executed in your favor, from such broker, bank or other nominee to be able to vote at the Special Meeting. Follow the instructions from your broker, bank or other nominee included with these proxy materials or contact your broker, bank or other nominee to request a “legal proxy.” You should allow yourself enough time prior to the Special Meeting to obtain this “legal proxy” from the holder of record.
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Even if you plan to attend the Special Meeting, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares at the Special Meeting if you deliver to our Corporate Secretary a written revocation of any proxy you previously submitted.
If you have any questions concerning the Merger Agreement, the Mergers or the other Transactions, the Special Meeting or this Proxy Statement, would like additional copies of the this Proxy Statement, or need help submitting a proxy to have your shares of Company Common Stock voted, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (877) 456-3513 (toll-free). Banks and brokers may call (212) 750-5833.
Q:
If I hold my shares of Company Common Stock as a beneficial owner will my broker vote my shares for me?
A:
No, not without your direction. Your broker, bank or other nominee must generally vote your shares on any proposal if you instruct your broker, bank or other nominee on how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. Under applicable stock exchange rules, brokers, banks or other nominees can vote your shares on “discretionary” or routine proposals if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. None of the proposals to be presented to Company Stockholders at the Special Meeting are considered to be “discretionary” or routine proposals. As a result, your shares will NOT be voted upon if you do not instruct your broker, bank or other nominee as to how to vote on the proposal. Therefore it is important that you instruct your broker, bank or other nominee on how you wish to vote your shares.
Q:
May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote by proxy?
A:
Yes. If you are a Company Stockholder of record, you may change your vote or revoke your proxy at any time before the proxy is exercised by:
Returning a later-dated signed proxy card to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary;
Delivering a later-dated written notice of revocation to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary;
Submitting a later-dated proxy by telephone or Internet (only your last telephone or Internet proxy will be counted) prior to the Special Meeting; or
Attending the Special Meeting virtually and properly voting via webcast.
Any proxy not properly revoked will be voted as previously specified by the Company Stockholder. Mere attendance at the Special Meeting will not cause your previously granted proxy to be revoked.
If you have instructed a bank, broker or other nominee to vote your shares of Company Common Stock, you must follow the instructions received from your bank, broker or other nominee to change your vote.
Q:
What is a proxy?
A:
A proxy is your legal designation of another Person, referred to as a “proxy,” to vote your shares. The written document describing the matters to be considered and voted on at the Special Meeting is called a “Proxy Statement.” The document used to designate a proxy to vote shares is called a “proxy card.”
Q:
If a Company Stockholder gives a proxy, how are the shares voted?
A:
Regardless of the method by which you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares of Company Common Stock in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares of Company Common Stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.
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If you properly sign your proxy card but do not mark the boxes showing how your shares of Company Common Stock should be voted on a matter, the shares represented by your properly signed proxy will be voted FOR the Merger Proposal, thereby voting to approve the Transactions (including the Mergers), FOR the Non-Binding Compensation Proposal and FOR the Adjournment Proposal.
Q:
Who will count the votes?
A:
Broadridge Financial Solutions, Inc., our independent tabulating agent, will count the votes and act as the inspector of elections.
Q:
Where can I find the voting results of the Special Meeting?
A:
The Company intends to announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC within four business days of the Special Meeting. All reports that the Company files with the SEC are publicly available when filed. See “Additional Information” beginning on page 152.
Q:
Will I be subject to U.S. federal income tax upon the exchange of the shares of Class A Common Stock for cash pursuant to the Public Merger?
A:
The exchange of shares of Class A Common Stock for cash in the Public Merger (or cash upon exercise of appraisal rights) will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under state and local and other non-U.S. tax laws. In general, if you are a U.S. Holder (as defined under “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118), you will recognize gain or loss equal to the difference between (1) the Public Merger Consideration you receive (or cash received upon exercise of appraisal rights) and (2) the adjusted tax basis of the shares of Class A Common Stock you surrender in the Public Merger. A Non-U.S. Holder (as defined under “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118), generally will not be subject to U.S. federal income tax on any gain recognized in connection with the Public Merger unless you have certain connections with the United States. However, the tax consequences of the Public Merger to a Company Stockholder will depend on the stockholder’s particular circumstances, and Company Stockholders should consult their own tax advisors to determine the particular tax consequences to them of the Public Merger (including the application of any U.S. federal non-income, state, local and non U.S. tax laws) of the Mergers. For further information about the material U.S. federal income tax consequences of the Public Merger, see “The Mergers — Material U.S. Federal Income Tax Consequences of the Public Merger” beginning on page 118 of this Proxy Statement.
Q:
What will the holders of the Company Restricted Stock Awards receive in the Mergers?
A:
Effective as of immediately prior to the Effective Time, (i) each Vested Company Restricted Stock Award will be treated as Class A Common Stock and will be converted into the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes and (ii) each unvested Company Restricted Stock Award outstanding as of the Effective Time will automatically be cancelled and converted into a restricted cash award (“Converted Restricted Stock Award”) with a cash value equal to the product of (x) the aggregate number of shares of Company Common Stock underlying such unvested Company Restricted Stock Award immediately prior to the Effective Time multiplied by (y) the Public Merger Consideration. Each Converted Restricted Stock Award corresponding to a Company Restricted Stock Award outstanding as of the date of the Merger Agreement will be subject to substantially the same terms and conditions as applied to the corresponding Company Restricted Stock Award immediately prior to the Effective Time and will be paid (without interest and subject to applicable withholdings) promptly upon vesting.
Q:
What will the holders of Company RSU Awards receive in the Mergers?
A:
At the Effective Time, (i) each Vested Company RSU Award will be converted into the right to receive the Vested RSU Consideration and (ii) each unvested Company RSU Award outstanding as of the Effective Time will automatically be cancelled and converted into a Converted RSU Award with a cash value equal to the product of (x) the aggregate number of shares of Company Common Stock underlying such Converted RSU Award immediately prior to the Effective Time multiplied by (y) the Public Merger Consideration.
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Each Converted RSU Award will be subject to substantially the same terms and conditions as applied to the corresponding unvested Company RSU Award immediately prior to the Effective Time and will be paid (without interest and subject to applicable withholdings) promptly upon vesting.
Q:
What will the holders of Company Performance Awards receive in the Mergers?
A:
At the Effective Time, (i) each Company Performance Award that is outstanding immediately prior to the Effective Time and is permitted to be cancelled pursuant to its terms in effect on the date of the Merger Agreement will be cancelled and retired without any conversion thereof and will cease to exist and no payment will be made in respect thereof and (ii) each Vested Company Performance Award will be converted into the right to receive an amount in cash (without interest and subject to applicable withholdings) equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock underlying such Vested Company Performance Award immediately prior to the Effective Time by (y) the Public Merger Consideration.
Q:
What will the holders of Company Warrants receive in the Mergers?
A:
If the Public Merger is completed, each Company Warrant issued and outstanding immediately prior to the Effective Time will survive the Public Merger and remain outstanding but will, upon any subsequent exercise of such Company Warrant, be entitled to receive only the Warrant Consideration for each share of Company Common Stock for which such Company Warrant was exercisable immediately prior to the Closing. Alternatively, in accordance with the terms of the Company Warrants, the holder of any Company Warrant may notify the Surviving Corporation before the 30th day after the Closing Date that such holder is exercising the holder’s right to cause the Company to purchase such Company Warrant from such holder for the Black-Scholes Value (as defined in the applicable Company Warrant) of the remaining unexercised portion of such Company Warrant in accordance with its terms. The Company Warrants are exercisable for 4,338,015 shares of Class A Common Stock at an exercise price of $7.95 per share. Assuming no dividends are paid on the shares of Class A Common Stock prior the Closing Date (which the Company is not permitted to do without Parent’s consent, as described in this Proxy Statement), this exercise price will not change. The estimated Black-Scholes Value is approximately $34 million.
Q:
When do you expect the Mergers to be completed?
A:
We are working toward completing the Mergers as quickly as possible and currently expect to complete the Mergers in the fourth quarter of 2023. However, the exact timing of the completion of the Mergers cannot be predicted because the Mergers are subject to conditions, including the adoption of the Merger Agreement by our Company Stockholders as described in this Proxy Statement and the receipt of regulatory approvals.
Q:
Am I entitled to dissenters’ rights?
A:
If the Public Merger is completed, Dissenting Company Stockholders will be entitled to seek appraisal of their shares of Class A Common Stock in connection with the Public Merger under Section 262 of the DGCL. This means that holders of shares of Class A Common Stock are entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Class A Common Stock, exclusive of any elements of value arising from the accomplishment or expectation of the Public Merger, together with interest on the amount determined to be the fair value, if any, as determined by the court (or, in certain circumstances described below, on the difference between the amount determined to be the fair value and the amount paid to each Company Stockholder entitled to appraisal prior to the entry of judgment in the appraisal proceeding). Holders of shares of Class A Common Stock who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. The requirements under Section 262 of the DGCL for exercising appraisal rights are described in additional detail in this Proxy Statement, and Section 262 of the DGCL regarding appraisal rights is accessible without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262. Failure to comply with the provisions of Section 262 of the DGCL in a timely and proper manner may result in the loss of appraisal rights. See “The Mergers — Dissenters’ Rights” beginning on page 115.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares of Company
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Common Stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a Company Stockholder of record and your shares of Company Common Stock are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive.
Q:
What is householding and how does it affect me?
A:
The SEC permits companies to send a single set of proxy materials to any household at which two or more Company Stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each Company Stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of Company Common Stock held through brokerage firms. If your family has multiple accounts holding Company Common Stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this Proxy Statement. The broker will arrange for delivery of a separate copy of this Proxy Statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies. For additional information, see the section titled “Householding” beginning on page 154.
Q:
Who can help answer my questions?
A:
If you have any questions concerning the Merger Agreement, the Mergers or the other Transactions, the Special Meeting or this Proxy Statement, would like additional copies of the this Proxy Statement, or need help submitting a proxy to have your shares of Company Common Stock voted, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at the following address and telephone number:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022

Company Stockholders may call toll free: (877) 456-3513
Banks and brokers may call collect: (212) 750-5833
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement, and the documents to which we refer you in this Proxy Statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are generally identified by the use of words such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “would,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “pipeline,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve” or the negative version of those words or other comparable words. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs as of the date of this Proxy Statement regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control.
Numerous factors could cause actual events to differ from these forward-looking statements, and any such differences could cause our actual results to differ materially from the results expressed or implied by these forward- looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this Proxy Statement, and the following factors:
the risk that the Mergers may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of shares of Class A Common Stock;
the failure to satisfy any of the conditions to the consummation of the Mergers, including the receipt of certain regulatory approvals (or the imposition of any conditions, limitations or restrictions on such approvals);
the failure to obtain Company Stockholder Approval or Company Non-Unitholder Stockholder Approval of the Merger Proposal;
the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement, including in circumstances requiring the Company to pay a termination fee of $16,576,819;
risks that the proposed Mergers, or failure to complete the Mergers, disrupt the Company’s current plans and operations or affect the Company’s ability to retain or recruit key employees;
the effect of the announcement or pendency of the Mergers on the Company’s business relationships, operating results and business generally;
the amount of the costs, fees, expenses and charges related to the Merger Agreement or the Transactions;
risks related to diverting management’s or employees’ attention from ongoing business operations;
the risk that the Company’s stock price may decline significantly if the Mergers are not completed;
unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism, war or hostilities or the COVID-19 pandemic, as well as management’s response to any of the aforementioned factors;
the tax consequences of the Mergers;
the nature, cost and outcome of pending and future (i) litigation and other legal proceedings, including any such proceedings related to the Mergers and instituted against the Company and others or (ii) other challenges to the consummation of the Transactions;
impact of inflation on the Company's business;
impact of the United Kingdom’s withdrawal from the European Union;
impact of regulatory developments related to, among other things, financial institutions and markets, government oversight, fiscal and tax policy;
impact of poor investment performance of, or lack of capital flows into, the funds the Company manages;
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risk of investors redeeming a significant amount of assets under management during any given period;
competitive pressures in the asset management business; and
general economic, business, market and geopolitical conditions.
Consequently, all of the forward-looking statements we make in this Proxy Statement are qualified by the information contained or incorporated by reference herein, including, but not limited to, (a) the information contained under this heading and (b) the information contained under the headings “Forward-Looking Statements” and “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-K and 10-Q (see “Additional Information” beginning on page 152). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.
Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Our Company Stockholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
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THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
The Special Meeting will be held virtually on [•], 2023, at [•] A.M. (Eastern time). At the Special Meeting, Company Stockholders will be asked to, among other things, vote for the Merger Proposal. Stockholders will be able to attend the Special Meeting by visiting www.virtualshareholdermeeting.com/SCU2023SM, where you, or your proxy, will be able to vote electronically and examine the list of stockholders entitled to vote at the Special Meeting. To attend the Special Meeting, you will need your 16-digit control number as provided in your proxy materials. The Company is conducting the Special Meeting solely online via the Internet through a live webcast and online stockholder tools, and you will not be able to attend physically in person. For purposes of attendance at the Special Meeting, all references in this Proxy Statement to “present in person” or “in person” shall mean virtually present at the Special Meeting.
The Notice of the Special Meeting, Proxy Statement, form of proxy and voting instructions are first being mailed on or about [•], 2023.
Matters to Be Considered at the Special Meeting
The matters to be considered and voted upon at the Special Meeting, which are described in detail in the accompanying materials, are:
1.
the Merger Proposal;
2.
the Non-Binding Compensation Proposal; and
3.
the Adjournment Proposal.
Recommendations of the Board of Directors
After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the Merger Agreement and the Transactions, on the terms and subject to the conditions set forth therein, are fair to, advisable and in the best interests of the Company and its stockholders; (ii) authorized and approved the Merger Agreement and the Company’s and each Operating Partnerships’ execution, delivery and performance thereof; (iii) instructed Holding Corp, in its capacity as general partner of the Operating Partnerships, to approve the Merger Agreement and the Transactions; (iv) directed that the Merger Agreement be submitted to the Company Stockholders for their consideration and adoption at the Special Meeting; and (iv) recommended that the Company Stockholders vote in favor of the adoption of the Merger Agreement. The Board of Directors unanimously recommends that you vote:
1.
FOR the Merger Proposal;
2.
FOR the Non-Binding Compensation Proposal; and
3.
FOR the Adjournment Proposal.
Record Date
Our Board has fixed the close of business on [•], 2023 as the Record Date for determination of the Company Stockholders entitled to notice and to vote at the Special Meeting. Only Company Stockholders of record as of the close of business on the Record Date are entitled to vote at the Special Meeting.
Voting Securities
Holders of Class A Common Stock and Class B Common Stock, as recorded in the Company’s share register at the close of business on the Record Date, may vote at the Special Meeting. As of the Record Date, there were [•] shares of Class A Common Stock, including restricted Class A shares, and [•] shares of Class B Common Stock outstanding. Each holder of shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock is entitled to one vote per share, and the shares of Class A Common Stock and shares of Class B Common Stock will vote together as a single class for purposes of each matter to be voted upon at the Special Meeting, except the Company Non-Unitholder Stockholder Approval in respect of the Merger Proposal, which requires the vote of only Non-Unitholder Stockholders.
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Pursuant to a February 7, 2019 governance agreement between the Company, Daniel S. Och (in his capacity as an individual, and in his capacity as the sole member of the Class B Shareholders Committee (as such term is defined in the Class B Shareholders Agreement)) and certain of the Company’s subsidiaries, 436,810 shares of Class B Common Stock that relate to the LP Class A-1 Units, which represent less than 1% of the total aggregate voting power of the Company’s outstanding voting stock, will be voted pro rata in accordance with the vote of the shares of Class A Common Stock.
In addition, in connection with the execution of the Merger Agreement, on July 23, 2023, Parent entered into Voting Agreements with the Specified Stockholders, pursuant to which, among other things, each Specified Stockholder agreed to vote all shares of Company Common Stock held by such Specified Stockholder in favor of the Merger Proposal at the Special Meeting. As of the Record Date, the Specified Stockholders collectively controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock. The vote of the Specified Stockholders will not be counted towards satisfaction of the Company Non-Unitholder Stockholder Approval. For more information, see “Summary — Voting Agreements” beginning on page 15 and “Voting Agreements” beginning on page 143.
Quorum and Votes Needed
Quorum
A quorum of Company Stockholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, holders of a majority of the shares of Class A Common Stock, including restricted Class A shares, and shares of Class B Common Stock, voting together as a single class, issued and outstanding as of the Record Date and entitled to vote at such meeting, must be present, either in person or by proxy, at the Special Meeting.
Company Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, any of the proposals presented at the Special Meeting. Votes cast FOR or AGAINST any of the proposals will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum and will be counted in the number of votes cast on the matter. Votes cast as ABSTAIN on any of the proposals will be treated as shares that are present and entitled to vote for the purposes of determining the presence of a quorum.
In accordance with our bylaws, the Special Meeting may be adjourned from time to time by the chairperson of the meeting to another place or time, without regard to the presence of a quorum or whether Company Stockholders have approved the Adjournment Proposal. Our bylaws also provide that the Special Meeting may be postponed by resolution of the Board of Directors upon notice given prior to the scheduled date of the Special Meeting.
Votes Needed; Effect of Abstentions; Broker Non-Votes
Company Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, the Merger Proposal.
Approval of the Merger Proposal requires the affirmative vote of holders representing a majority of the aggregate voting power of each of (i) the shares of the Class A Common Stock and Class B Common Stock outstanding and entitled to vote on the proposal, voting together as a single class, and (ii) the shares of Class A Common Stock owned by the Non-Unitholder Stockholders outstanding and entitled to vote on the proposal. Because the foregoing votes on the Merger Proposal are based on the voting power of the applicable shares outstanding, abstentions and failures to vote will have the same effect as voting AGAINST the approval of such proposal.
Company Stockholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, each of the Non-Binding Compensation Proposal and the Adjournment Proposal. Holders of a majority of votes cast (with the shares of Class A Common Stock and shares of Class B Common Stock voting together as a single class) at the Special Meeting must vote FOR each of the Non-Binding Compensation Proposal and the Adjournment Proposal, in order for each such proposal to be approved. Abstentions and failures to vote will have no effect on the outcome of either proposal.
A “broker non-vote” with respect to Company Common Stock occurs when (i) shares of Company Common Stock held by a broker or other nominee are represented, in person or by proxy, at a meeting of Company Stockholders, (ii) the bank, broker or other nominee has not received voting instructions from the beneficial
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owner on a particular proposal and (iii) the bank, broker or other nominee does not have the discretion to direct the voting of the shares of Company Common Stock on a particular proposal but has discretionary voting power on other proposals. A bank, broker, trust or other nominee may exercise discretion in voting on “discretionary” or routine matters under the rules of the NYSE but may not exercise discretion, and therefore will not vote, on non-routine matters if instructions are not given. None of the proposals to be presented to the Company Stockholders at the Special Meeting are considered to be “discretionary” or routine proposals. As a result, there will not be any “broker non-votes” at the Special Meeting.
Accordingly, if you hold your shares of Company Common Stock through a bank, broker, trust or other nominee, such bank, broker, trust or other nominee will not be able to vote your shares, and your shares will not be counted in determining the presence of a quorum, unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the votes required on the Merger Proposal are based on the voting power of applicable shares outstanding, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote AGAINST the Merger Proposal. Because the approval of the Non-Binding Compensation Proposal and the Adjournment Proposal are based on votes cast at the Special Meeting, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on either proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions on the Non-Binding Compensation Proposal and the Adjournment Proposal will have no effect on approval of those proposals, assuming a quorum is present.
Voting of Proxies
You may vote by any one of the following means:
By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a broker, bank or other nominee, they will give you separate instructions for voting your shares.
By Telephone or on the Internet: Company Stockholders of record can vote by telephone by calling the toll-free telephone number provided on the proxy card. Company Stockholders of record can vote by Internet by visiting www.proxyvote.com. Please have your proxy card handy when you call or go online. Telephone and Internet voting facilities for Company Stockholders of record will be available 24 hours a day and will close at 11:59 P.M. (Eastern time) on [•], 2023. If you hold your shares through a broker, bank or other nominee, the availability of telephonic or Internet voting will depend on the voting processes of your broker, bank or other nominee. Please check with your broker, bank or other nominee and follow the voting procedures your broker, bank or other nominee provides to vote your shares of Company Common Stock.
Voting at the Special Meeting or by Proxy: If you are a holder of record of shares of Company Common Stock, you may attend and vote via webcast at the Special Meeting. If you are a beneficial owner of shares of Company Common Stock held in the name of a broker, bank or other nominee, you must obtain a “legal proxy,” executed in your favor, from such broker, bank or other nominee to be able to vote at the Special Meeting. Follow the instructions from your broker, bank or other nominee included with these proxy materials or contact your broker, bank or other nominee to request a “legal proxy.” You should allow yourself enough time prior to the Special Meeting to obtain this “legal proxy” from the holder of record.
Even if you plan to attend the Special Meeting, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares at the Special Meeting if you deliver to our Corporate Secretary a written revocation of any proxy you previously submitted.
If you have any questions concerning the Merger Agreement, the Mergers or the other Transactions, the Special Meeting or this Proxy Statement, would like additional copies of this Proxy Statement, or need help submitting a proxy to have your shares of Company Common Stock voted, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (877) 456-3513 (toll-free). Banks and brokers may call (212) 750-5833.
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If you properly sign and return your proxy card but do not indicate voting instructions with respect to any proposal, the shares represented by the proxy will be voted FOR each of the following proposals:
1.
the Merger Proposal;
2.
the Non-Binding Compensation Proposal; and
3.
the Adjournment Proposal.
Revocability of Proxy
Any Company Stockholder returning a proxy may revoke it at any time before the proxy is exercised by (i) returning a later-dated signed proxy card to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary; (ii) delivering a later-dated written notice of revocation to us, prior to the Special Meeting, at Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Corporate Secretary; (iii) submitting a later-dated proxy by telephone or Internet (only your last telephone or Internet proxy will be counted) prior to the Special Meeting; or (iv) attending the Special Meeting virtually and properly voting via webcast. Any proxy not properly revoked will be voted as previously specified by the Company Stockholder. Mere attendance at the Special Meeting will not cause your previously granted proxy to be revoked.
If you want to revoke your proxy by sending a new proxy card or an instrument revoking the proxy to the Company, you should ensure that you send your new proxy card or instrument revoking the proxy in sufficient time for it to be received by the Company prior to the Special Meeting. If you are a beneficial owner of shares of Company Common Stock held in “street name,” you must contact your bank, broker or other nominee to change your vote or obtain a “legal proxy” to vote your shares electronically at the Special Meeting.
Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow Company Stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.
Persons Making the Solicitation
This Proxy Statement is sent on behalf of, and the proxies are being solicited by, the Board of Directors. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, to solicit proxies in connection with the Special Meeting at a cost of approximately $50,000, plus a success fee of $50,000, and will reimburse Innisfree for certain expenses. We have also agreed to indemnify Innisfree M&A Incorporated against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions). In addition to solicitations by mail, our directors, officers and regular employees, without additional remuneration, may solicit proxies by mail, telephone, telecopy, e-mail and personal interviews. We will request brokers, banks, custodians and other fiduciaries to forward proxy soliciting materials to the beneficial owners of our shares of Class A Common Stock and shares of Class B Common Stock that such custodians hold of record. We will reimburse them for their reasonable out-of-pocket expenses incurred in connection with the distribution of the proxy materials.
Voting Results
Broadridge Financial Solutions, Inc., our independent tabulating agent, will count the votes and act as the inspector of elections. We will publish the voting results in a Current Report on Form 8-K, which will be filed with the SEC within four business days of the Special Meeting.
Confidentiality of Voting
We keep all proxies, ballots and voting tabulations confidential as a matter of practice. We permit only our inspector of elections, Broadridge Financial Solutions, Inc., to examine these documents.
Questions and Additional Information
If you have questions about the Mergers or how to submit your proxy, or if you need additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, please contact Innisfree M&A Incorporated which is assisting the Company with the solicitation of proxies, at (877) 456-3513 (toll-free). Banks and brokers may call (212) 750-5833.
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THE MERGERS
This discussion of the Mergers is qualified in its entirety by reference to the Merger Agreement, which is attached to this Proxy Statement as Annex A and incorporated into this Proxy Statement by reference. You should read the entire Merger Agreement carefully as it is the legal document that governs the Mergers.
Parties Involved in the Mergers
Sculptor Capital Management, Inc.
9 West 57th Street
New York, New York 10019
(212) 798-6100
The Company, a Delaware corporation, together with its subsidiaries, is a leading institutional alternative asset manager, with approximately $34.0 billion in assets under management as of August 1, 2023 and a global presence with offices in New York, London, Hong Kong, and Shanghai.
The Company’s approach to asset management is based on the same fundamental elements that the Company has employed since it was founded in 1994. The Company’s investment model benefits from full collaboration among its tenured investment team. Bringing to bear all of their resources, technology and market perspectives the Company ensures maximum intellectual honesty while generating unique investment ideas, creative structures and underwriting for the fullest range of scenarios.
As of July 31, 2023, the Company’s worldwide headcount was 318, including 30 active executive managing directors and 47 managing directors, consisting of 99 investment professionals, 194 global infrastructure professionals and 25 client partner group professionals.
For more information about the Company, please visit our website at www.sculptor.com. The website address is provided as an inactive textual reference only. The information contained on the website is not incorporated into, and does not form a part of, this Proxy Statement or any other report or document on file with or furnished to the SEC. See also “Additional Information” beginning on page 152.
The Company’s shares of Class A Common Stock are listed and are traded on the NYSE under the symbol “SCU.”
Operating Partnerships
9 West 57th Street
New York, New York 10019
(212) 798-6100
The Company conducts its business through the Operating Partnerships. Historically, the Company has used more than one Operating Partnership to segregate its operations for business, financial, tax and other reasons. The Operating Partnerships currently consist of Capital LP, Advisors LP and Advisors II LP, and each of their consolidated subsidiaries. The Company holds its interests in the Operating Partnerships indirectly through Holding Corp, its wholly owned subsidiary. Holding Corp is the sole general partner of each of the Operating Partnerships and, therefore, generally controls the business and affairs of such entities, subject to the organizational documents of the Operating Partnerships. Holding Corp holds a general partnership interest and LP Class B Units in each of the Operating Partnerships. Holding Corp owns 100% of the LP Class B Units.
Parent
799 Broadway
New York, New York 10003
(212) 850-7770
Parent, a Delaware corporation, is an asset manager focused on the real estate and financial services industries. Parent’s investments in operating entities include leading origination and servicing platforms held through its wholly owned subsidiaries, Newrez LLC, Caliber Home Loans Inc., and Genesis Capital LLC, as well as investments in affiliated businesses that provide residential and commercial real estate related services. Parent seeks to provide attractive risk-adjusted returns across interest rate environments. Parent is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes and is headquartered in New York City.
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Merger Subs
799 Broadway
New York, New York 10003
(212) 850-7770
Calder Sub, Inc.
Merger Sub Inc. is a Delaware corporation that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub Inc. is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the Public Merger, Merger Sub Inc. will cease to exist and the Company will continue as the Surviving Corporation.
Calder Sub I, LP
Merger Sub I is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub I is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub I will cease to exist and Capital LP will continue as a Surviving Partnership and a subsidiary of Parent and the Company.
Calder Sub II, LP
Merger Sub II is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub II is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub II will cease to exist and Advisors LP will continue as a Surviving Partnership and a subsidiary of Parent and the Company.
Calder Sub III, LP
Merger Sub III is a Delaware limited partnership that was formed on June 9, 2023 for the sole purpose of entering into the Merger Agreement and completing the Transactions. Merger Sub III is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. Upon completion of the LP Mergers, Merger Sub III will cease to exist and Advisors II LP will continue as a Surviving Partnership and a subsidiary of Parent and the Company.
Certain Effects of the Mergers on the Company
Upon the terms and subject to the conditions of the Merger Agreement, (i) Merger Sub Inc. will be merged with and into the Company, with the Company continuing as the Surviving Corporation, (ii) Merger Sub I will be merged with and into Capital LP, with Capital LP continuing as the Surviving Partnership, (iii) Merger Sub II will be merged with and into Advisors LP, with Advisors LP continuing as the Surviving Partnership and (iv) Merger Sub III will be merged with and into Advisors II LP, with Advisors II LP continuing as the Surviving Partnership. After the completion of the Mergers, the Company, Capital LP, Advisors LP and Advisors II LP will each become a direct or indirect subsidiary of Parent. The Company will cooperate with Parent to de-list the shares of Class A Common Stock from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective times of the Mergers, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the Mergers are completed, you will not own any shares of the Surviving Corporation or Partnership Units of the Surviving Partnerships. If the Rollover Condition is satisfied or waived and you are a Rollover Holder who has elected to participate in the Rollover, you will own equity interests of the HoldCos having an aggregate value equal to the Contributed Value of your Rollover Interests.
The effective times of the Mergers will occur on the Closing Date, upon the filing of the certificates of merger with the Secretary of State of the State of Delaware (or at such later time as we and Parent may agree and specify in the certificates of merger).
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Effect on the Company if the Mergers Are Not Completed
If the Merger Proposal is not approved by the Company Stockholders or if the Mergers are not completed for any other reason, the Company Stockholders and the Partnership Unitholders will not receive any payment for their shares of Class A Common Stock or Partnership Units, respectively. Instead, the Company will remain a public company, our Class A Common Stock will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC.
If the Mergers are not completed, there can be no assurance as to the effect of the risks and opportunities on the future value of your shares of Class A Common Stock or Partnership Units, including the risk that the market price of Class A Common Stock may decline significantly. If the Mergers are not completed, the Board will continue to evaluate and review the Company’s business operations, properties, dividend policy and capitalization, among other things, and make such changes as are deemed appropriate and continue to seek to enhance Company Stockholder value. If the Merger Proposal is not approved by the Company Stockholders or if the Mergers are not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered or that the Company’s business, prospects or results of operation will not be adversely impacted. See “The Mergers — Purpose and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers,” beginning on page 79.
In addition, under specified circumstances, the Company may be required to pay Parent a termination fee or reimburse up to a specified amount of Parent’s expenses upon the termination of the Merger Agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 141.
Merger Consideration
If the Public Merger is completed, each share of Class A Common Stock issued and outstanding immediately prior to the Effective Time (other than the Cancelled Shares, Dissenting Shares or unvested Company Restricted Stock Awards) will be cancelled and automatically converted into the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes. The aggregate consideration payable to holders of shares of Class A Common Stock (including any Vested Company Stock Award) in the Public Merger will be approximately $291.3 million. Thereafter, each certificate or book-entry formerly representing any of the shares of Class A Common Stock will represent only the right to receive the Public Merger Consideration, without interest, less any applicable withholding taxes. If the Mergers are completed, each share of Class B Common Stock will be cancelled and retired, for no consideration. However, holders of such shares of Class B Common Stock will receive consideration in cash (or, if the Rollover Condition is satisfied or waived and such holder is a Rollover Holder who has elected to participate in the Rollover, equity interests of the HoldCos pursuant to the Rollover) in respect of corresponding Partnership Units as described in “The Merger Agreement — Merger Consideration; Treatment of Company Common Stock and Company Warrants; Treatment of Partnership Units; Treatment of Company Stock Awards” beginning on page 122, for aggregate consideration payable to such Partnership Unitholders (inclusive of the Contributed Value) of $167,367,690, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the Public Merger is completed, each Company Warrant issued and outstanding immediately prior to the Effective Time will survive the Public Merger and remain outstanding but will, upon any subsequent exercise of such Company Warrant, be entitled to receive only the Warrant Consideration for each share of Company Common Stock for which such Company Warrant was exercisable immediately prior to the Closing. Alternatively, in accordance with the terms of the Company Warrants, the holder of any Company Warrant may notify the Surviving Corporation before the 30th day after the Closing Date that such holder is exercising the holder’s right to cause the Company to purchase such Company Warrant from such holder for the Black-Scholes Value (as defined in the applicable Company Warrant) of the remaining unexercised portion of such Company Warrant in accordance with its terms. The Company Warrants are exercisable for 4,338,015 shares of Class A Common Stock at an exercise price of $7.95 per share. Assuming no dividends are paid on the shares of Class A Common Stock prior the Closing Date (which the Company is not permitted to do without Parent’s consent, as described in this Proxy Statement), this exercise price will not change. The estimated Black-Scholes Value is approximately $34 million.
If the LP Mergers are completed, each LP Class A Unit, LP Class A-1 Unit, LP Class E Unit, LP Class P Unit and LP Class P-4 Unit issued and outstanding immediately prior to the LP Mergers Effective Time that is vested
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at the LP Mergers Effective Time or that vests as a result of the consummation of the Transactions, in each case, in accordance with the limited partnership agreements of the Operating Partnerships and any applicable award agreement (other than the Cancelled Units, any Unvested Partnership Unit and any Rollover Interests) will be cancelled and converted automatically into the right to receive an amount in cash equal to its applicable LP Merger Consideration, without interest, less any applicable withholding taxes. Thereafter, each certificate or book-entry formerly representing any of the Partnership Units receiving LP Merger Consideration will represent only the right to receive the LP Merger Consideration, without interest, less any applicable withholding taxes, which equates to approximately $6.90 for each LP Class A Unit and LP Class A-1 Unit and $0 for each LP Class E Unit, LP Class P Unit and LP Class P-4 Unit.
If the LP Mergers are completed, each of the (i) Unvested Partnership Units, (ii) LP Profit Sharing Interests and (iii) LP Class C Units will be cancelled and retired for no consideration. Following the LP Mergers, all LP Class B Units issued and outstanding immediately prior to the LP Mergers Effective Time will continue to remain outstanding as LP Class B Units of the applicable Surviving Partnership and the holder of such LP Class B Units that is the general partner of the Operating Partnerships immediately prior to the LP Mergers Effective Time will continue as the general partner of the Surviving Partnerships.
After the Mergers are completed, under the terms of the Merger Agreement, you will have the right to receive the Public Merger Consideration or the LP Merger Consideration, if any, for each share of Class A Common Stock or Partnership Unit that you hold (other than, in the case of Rollover Holders, each Rollover Interest, which will treated in accordance with the Rollover Agreement) upon compliance with the exchange procedures set forth in the Merger Agreement, but you will no longer have any rights as a Company Stockholder or Partnership Unitholder. Following the LP Mergers Effective Time, Rollover Holders will have rights as limited partners of the HoldCos pursuant to the terms of the amended and restated limited partnership agreement for each HoldCo entered into by the Rollover Holders.
Background of the Mergers
The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. This chronology does not purport to catalogue every conversation of or among members of the Special Committee, the Board of Directors, the Company’s management, the Company’s advisors and representatives, Rithm, Rithm’s management, Rithm’s advisors and representatives, or any other parties. Other than as described herein, there have been no material contacts between the Company and Rithm in the past two years.
The Board of Directors, together with the Company’s management and with the assistance of the Company’s advisors, has periodically reviewed and assessed the Company’s operations, financial performance, competitive position, and growth opportunities in the context of the Company’s long-term strategic goals and plans. The Board of Directors regularly reviews potential opportunities to enhance stockholder value and considers various strategic alternatives.
In late March 2022, the Board of Directors received an unsolicited outreach from an institution (referred to as “Bidder A”) regarding Bidder A’s interest in a potential acquisition transaction involving the Company. No price or other terms were specified by Bidder A at that time. The Company entered into a non-disclosure agreement (“NDA”) with Bidder A on April 4, 2022, which did not contain a standstill provision.
In connection with evaluating this potential transaction, the Board of Directors sought advice from internal and outside counsel regarding fiduciary duties of directors and appropriate approaches to identify and manage potential conflicts of interest, including the circumstances in which it may be prudent to form a special committee of independent and disinterested directors. On such advice, on May 23, 2022, the Board of Directors established the Special Committee, comprised of independent and disinterested directors Marcy Engel and Charmel Maynard, to (a) conduct an independent review of such potential transaction and make an independent determination with respect thereto; (b) evaluate strategic alternatives that may otherwise be available to the Company; and (c) take all other actions relating to such a potential transaction and any alternatives as the Special Committee may deem to be necessary or appropriate in order for the Special Committee to discharge its duties. The Board of Directors further resolved that the Board of Directors shall not approve or recommend for approval by the Company’s stockholders any potential strategic transaction without a prior favorable recommendation by the Special Committee. Following interviews of multiple law firms, the Special Committee retained Latham & Watkins LLP (“Latham & Watkins”) as its independent legal advisor. The Company separately retained Weil, Gotshal & Manges LLP (“Weil”) as legal advisor to the Company.
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On May 26, 2022, the Special Committee met with representatives of Latham & Watkins to discuss the unsolicited outreach from Bidder A, at which time representatives of Latham & Watkins advised the Special Committee of the duties of the Special Committee under Delaware law. At that meeting, the Special Committee authorized the Company’s management to engage with Bidder A to determine whether a proposal regarding a potential transaction would be forthcoming, but instructed the Company’s management that any discussion or negotiation regarding the terms of such a proposal must be led by the Special Committee.
On June 13, 2022, at a meeting of the Special Committee with representatives of Latham & Watkins present, the Special Committee discussed engaging a financial advisor to advise the Special Committee on matters related to the evaluation of a potential transaction. The Special Committee determined that it would interview several financial advisors to act as the independent financial advisor to the Special Committee.
On June 20, 2022, the Special Committee authorized the Company to separately retain J.P. Morgan as financial advisor to the Company in connection with a potential transaction, which engagement was ultimately approved by the Board of Directors. The Company selected J.P. Morgan to act as financial advisor to the Company based on J.P. Morgan’s familiarity with the Company, its qualifications and relevant experience in the industry in which the Company operates and its experience advising on prior strategic transactions for the Company.
On June 21, 2022, at a meeting of the Special Committee with representatives of Latham & Watkins and the Company’s management present, the Special Committee and the Company’s management met to discuss the preparation of financial projections in anticipation of a request for forward-looking financial information from one or more bidders in connection with a potential transaction. The Special Committee instructed the Company’s management (a) to prepare financial projections for the Company and (b) not to share financial projections with any potential acquirors until the Special Committee had reviewed and approved them. Company management noted that any financial projections prepared on the basis of the Company’s standalone prospects would reflect a decline in the profitability of the business which the Company believed was due to certain disputes with the founder and former Chief Executive Officer of Och-Ziff Capital Management LLC, Daniel S. Och, including those involving what the Company believed to be inaccurate assertions with respect to the Board of Directors and the Company’s management. As a result of such ongoing disputes, the Company’s management reported that investors in funds managed or advised by the Company and its affiliates had become increasingly concerned about the Company’s stability, in particular in relation to retention of key investment professionals and retention and attraction of additional investor capital. Accordingly, the Special Committee instructed the Company’s management to prepare financial projections based on (i) the Company’s prospects following completion of a potential acquisition transaction, and (ii) the Company’s prospects in the event that the Company did not enter into a potential acquisition transaction, and instead pursued a standalone strategy without resolution of the ongoing disputes with the Former EMD Group.
At the same meeting, the Company’s management reported to the Special Committee that Bidder A had indicated that it expected to make a proposal, which the Special Committee awaited. Bidder A ultimately never submitted a proposal, citing to the Company’s management the uncertainty and perceived instability associated with the ongoing disputes with the Former EMD Group, including the Section 220 claim and associated Schedule 13D filings discussed below, as reasons for declining to make a proposal.
On August 24, 2022, Mr. Och, Harold Kelly, Richard Lyon, James O’Connor and Zoltan Varga, former executive managing directors of the Company (the “Former EMD Group”) filed a claim under Section 220 of the DGCL against the Company in the state of Delaware, demanding to inspect certain books and records of the Company for the purposes of reviewing the compensation of James Levin, the Company’s Chief Executive Officer and Chief Investment Officer, and other members of the Company’s management. Upon receiving notice of the lawsuit on such date, the Special Committee held a meeting and discussed the litigation with representatives of Latham & Watkins.
By October 2022, the Company’s management had reported to the Special Committee that the uncertainty and perceived instability relating to the disputes with the Former EMD Group were continuing to have a negative impact on the Company, both with respect to certain clients, who were citing the disputes with the Former EMD Group as a reason for redemptions and/or a failure to commit additional capital, and with respect to investment professionals, who the Company’s management viewed as at risk of leaving the Company. Because (i) there have been disputes with the Former EMD Group for several years, and (ii) the Company had been unable to reach a resolution with Mr. Och on such matters or with the Former EMD Group relating to their litigation, and
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recognizing that a sale transaction could potentially address the instability relating to the disputes with the Former EMD Group, the Special Committee made a determination to initiate a process to engage with third parties that may be interested in a potential acquisition transaction.
On October 4, 2022, Mr. Och sent a letter to the Board of Directors stating that following the filing of the Former EMD Group’s Section 220 claim, several third parties had contacted the Former EMD Group regarding potential transactions with the Company that would not involve current senior management continuing to run the Company. Mr. Och publicly disclosed this letter in a Schedule 13D filing on the same day. Mr. Och did not identify any such third parties to the Board of Directors.
On October 11, 2022, at a meeting of the Special Committee with representatives of Latham & Watkins, J.P. Morgan and the Company’s management present, the Company’s management inquired about the process for preparing materials to share with potential acquirors, including a set of financial projections of the Company. After representatives of Latham & Watkins discussed the importance of providing the Special Committee with such materials in advance of sharing with potential acquirors, the Special Committee confirmed that it will review all such materials in detail and provide approval prior to the distribution of such materials to potential acquirors.
On October 12, 2022, a representative of an asset management company (referred to as “Bidder B”) contacted J.P. Morgan to express interest in a potential transaction between Bidder B and the Company. On the same day, a representative of another asset management company (referred to as “Bidder C”) also contacted J.P. Morgan to express interest in a potential transaction between Bidder C and the Company.
On October 13, 2022, the Special Committee convened a meeting, with representatives of Latham & Watkins present, to discuss Bidder B’s and Bidder C’s interest in exploring a potential transaction with the Company. Following such discussion, the Special Committee authorized the Company to enter into an NDA with each of Bidder B and Bidder C (which the Company did thereafter) and J.P. Morgan to engage in discussions with each of Bidder B and Bidder C.
On October 19, 2022, the Special Committee convened a meeting with the Company’s management to discuss the ongoing conversations between representatives of J.P. Morgan and each of Bidder B and Bidder C with respect to a potential transaction. The Special Committee authorized (a) the Company’s management to meet with Bidder C to discuss a potential transaction, with the instruction that no material non-public information or Company financial projections be provided to Bidder C, and (b) J.P. Morgan to seek additional information from Bidder B and Bidder C regarding their interest in acquiring the Company. Following this meeting, at the direction of the Special Committee, representatives of J.P. Morgan discussed with representatives of Bidder B and Bidder C their respective interest in a potential transaction with the Company.
During October 2022, the Special Committee, with representatives of Latham & Watkins present, held several meetings and conducted multiple interviews with several financial advisors, including PJT Partners, for the purpose of selecting an independent financial advisor to the Special Committee. The Special Committee determined to retain PJT Partners to act as independent financial advisor to the Special Committee, based on PJT Partners’ qualifications and relevant experience in the industry in which the Company operates.
On October 31, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of PJT Partners discussed with the Special Committee PJT Partners’ and J.P. Morgan’s discussions with Bidder B and Bidder C. In addition, representatives of J.P. Morgan proposed a list of approximately thirty-one potential acquirors it proposed conducting outreach to in connection with a potential transaction. The Special Committee consulted its financial and legal advisors and, following discussion, authorized PJT Partners and J.P. Morgan to commence an outreach to the identified parties.
On November 2, 2022, at a meeting of the Special Committee with representatives of Latham & Watkins present, the Special Committee authorized J.P. Morgan and PJT Partners to work together to develop a strategy for a potential general outreach to additional acquirors in connection with a potential transaction. Later that same day, at a subsequent meeting of the Special Committee with representatives of Latham & Watkins and PJT Partners present, representatives of PJT Partners discussed with the Special Committee an additional potential acquiror not included in J.P. Morgan’s October 31, 2022 list for potential further outreach in connection with a potential transaction. The Special Committee approved outreach to this additional potential acquiror (which was subsequently conducted by PJT Partners and/or J.P. Morgan). In addition, the Special Committee authorized PJT
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Partners to coordinate with the Company’s management and other advisors to populate a virtual data room with various diligence materials that potential acquirors would eventually require access to in connection with their diligence of the Company and evaluation of a potential transaction. The Special Committee instructed the Company’s management and PJT Partners and J.P. Morgan not to post any forward-looking financial information or projections without first reviewing with, and obtaining approval from, the Special Committee.
On November 3, 2022, the Former EMD Group filed a Schedule 13 D/A with the SEC which disclosed that the Former EMD Group had sent a letter to the Board of Directors which detailed, among other things, the Section 220 action brought against the Company by the Former EMD Group on August 24, 2022 and the Former EMD Group’s request that the Board of Directors pursue a broad review of strategic alternatives carried out by a committee of independent directors.
On November 4, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and the Company’s management present, the Special Committee discussed the Schedule 13D/A filed by the Former EMD Group. The Special Committee discussed potential avenues for public and private responses to the Former EMD Group’s letter, including making an announcement that a special committee had in fact been formed earlier that year and was already actively engaged in the process of evaluating potential transactions. There was additional discussion of the potential that the existence of an ongoing lawsuit by the Former EMD Group was harming the process of soliciting potential acquirors. The Special Committee discussed the potential impact of the lawsuit and disputes with the Former EMD Group on potential acquirors. It was also discussed that the Company’s management had reported that employees and clients of the Company continued to express concern over the disputes with the Former EMD Group and that there continued to be elevated redemptions and a decline in new capital committed on account of such concerns, which could result in lower valuations from potential acquirors. The Special Committee concluded that some form of resolution with the Former EMD Group would likely be in the best interest of the Company Stockholders. The Special Committee authorized Latham & Watkins to organize discussions with Quinn Emmanuel Urquhart & Sullivan, LLP (“Quinn Emmanuel”), counsel to the Company in connection with the Section 220 action brought by the Former EMD Group, regarding potential negotiations on the Company’s behalf with the Former EMD Group.
Between November 4, 2022 and November 8, 2022, representatives of Latham & Watkins and Quinn Emmanuel engaged with representatives of Dechert LLP, legal counsel to the Former EMD Group (“Dechert”), regarding a potential resolution of the Section 220 action brought against the Company by the Former EMD Group.
On November 8, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of Quinn Emmanuel presented to the Special Committee the status of the ongoing Section 220 action brought against the Company by the Former EMD Group and briefed the Special Committee on terms the Former EMD Group were likely to seek in order to settle the Section 220 claim. Following such discussion, the Special Committee affirmed that Quinn Emmanuel should continue its engagement with Dechert and the Former EMD Group regarding a potential settlement agreement between the Company and the Former EMD Group. At the same meeting, representatives of J.P. Morgan provided an update to the Special Committee on its outreach to potential acquirors in connection with a potential transaction.
On November 9, 2022, the Company filed its quarterly report on Form 10-Q, which reported that if the disputes with the Former EMD Group persisted, there would be a continuation of adverse impacts to the Company’s business, which included affecting the Company’s ability to retain and attract fund investors and highly qualified employees and its ability to raise new funds.
On November 13, 2022, the Special Committee received a preliminary, non-binding indication of interest from Bidder B. Bidder B’s indication of interest proposed an equity valuation of $800 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence.
On November 14, 2022, Rithm and the Company entered into an NDA.
During the period from early to mid-November 2022, representatives of Quinn Emmanuel and Latham & Watkins, acting on instructions from the Special Committee, negotiated a settlement agreement between the Company and the Former EMD Group with representatives of Dechert, which was entered into on November 17, 2022 (the “Settlement Agreement”).
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The Company took certain actions in connection with its entry into the Settlement Agreement, including (a) memorializing in a written resolution the prior directive the Special Committee had issued to the Company’s management that the Company’s management would not be permitted to engage in any negotiations with any prospective counterparties to a potential transaction regarding (i) terms that may impact the Company’s management on a post-closing basis, including, but not limited to, go-forward employment terms or a management rollover,2 until the principal economic terms of a potential transaction had been approved by the Special Committee and the Special Committee had expressly authorized such negotiations and (ii) any other terms of a potential transaction, in each case, unless requested to do so by and under the supervision and direction of the Special Committee and (b) issuing a press release on November 18, 2022, the form of which had been agreed with the Former EMD Group, announcing that (i) the Board of Directors had formed the Special Committee to explore potential interest from third parties in a strategic transaction with the Company that maximized value for shareholders; (ii) the Special Committee had retained PJT Partners as its financial advisor and Latham & Watkins as its legal counsel and had approved the retention of J.P. Morgan as financial advisor to the Company and (iii) the Company and the Former EMD Group had settled the Former EMD Group’s Section 220 action against the Company, with the Company having agreed to provide additional books and records requested by the Former EMD Group, and the Former EMD Group having agreed to dismiss its Section 220 action with prejudice.
By November 16, 2022, representatives of J.P. Morgan, acting with the authorization of the Special Committee and in consultation with representatives of PJT Partners and Latham & Watkins, had prepared a bid process letter for the first round of the bid process for a potential transaction. The first round bid process letter requested that potential acquirors provide, among other items, (a) an offer price reflecting the aggregate value of 100% of the equity of the Company presented as a specific amount, not a range of values, (b) assumptions underlying the offer price and (c) any financing sources and the structure of any financing that may be necessary to finance the potential transaction. In addition, the first round bid process letter (i) specified that interested parties would not be required to retain any Company personnel following the closing of the potential transaction and (ii) instructed interested parties to refrain from discussions or negotiations with the Company’s management regarding go-forward employment terms and/or management rollover, unless and until the principal economic terms of the potential transaction had been approved by the Special Committee and the Special Committee had expressly authorized such discussions or negotiations, but interested parties were permitted to indicate their intentions to the Special Committee with respect to management and employees of the Company if a party believed it relevant to the Special Committee’s evaluation of its proposal. The first round bid process letter contained a deadline of November 29, 2022 to submit initial indications of interest. The Special Committee authorized J.P. Morgan and PJT Partners to distribute the first round bid process letter to nineteen potential acquirors who had entered into NDAs with the Company in connection with a potential transaction.
On November 18, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, there was discussion regarding the November 13, 2022 non-binding indication of interest from Bidder B. Representatives of PJT Partners and J.P. Morgan advised the Special Committee and Latham & Watkins that Bidder B did not have committed equity or debt financing or available capital to support payment of the consideration indicated in its non-binding indication of interest. The Special Committee instructed PJT Partners and J.P. Morgan to continue engaging with Bidder B and the other potential acquirors and report any additional developments to the Special Committee.
On November 22, 2022, the Company and an asset management company (referred to as “Bidder D”) entered into an NDA in connection with the potential transaction.
On November 23, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of PJT Partners and J.P. Morgan informed the Special Committee that twelve potential acquirors remained involved in the bid process, including Rithm. Representatives of J.P. Morgan discussed that the Former EMD Group had requested (a) information about the bid process timeline and the potential transaction, and (b) that the legal advisors to the Special Committee engage in weekly discussions with the Former EMD Group’s counsel (Dechert). The Special Committee discussed the request from the Former EMD Group, and instructed its advisors and the Company’s management that while it was generally amenable to conversations occurring, no material non-public information should be shared with the Former EMD
2
References to a “rollover” through this section refer to an ability of a selling equityholder to receive as consideration equity interests in the buyer as opposed to cash consideration.
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Group or Dechert until the Company and the Former EMD Group entered into an NDA. The Special Committee instructed Latham & Watkins to prepare a form of NDA with the Former EMD Group for the Special Committee’s review. Latham & Watkins prepared this form and, following discussions with and approval from the Special Committee, provided the NDA to Dechert on December 7, 2022.
On November 29, 2022, representatives of J.P. Morgan and PJT Partners received a preliminary, non-binding indication of interest from an asset management company that had received the first round bid process letter (referred to as “Bidder E”). Bidder E’s indication of interest proposed an equity valuation of $574 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence. On the same date, representatives of J.P. Morgan and PJT Partners received a preliminary, non-binding indication of interest from Rithm. Rithm’s indication of interest proposed an equity valuation of $700 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence. On the same date, representatives of J.P. Morgan and PJT Partners received a preliminary, non-binding indication of interest from Bidder C. Bidder C’s indication of interest proposed an equity valuation of $750 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence. On the same date, representatives of PJT Partners received a preliminary, non-binding indication of interest from an asset management company (referred to as “Bidder F”). Bidder F’s indication of interest proposed a potential transaction in which the Company would sell assets relating to its Institutional Credit Strategies business line (including its collateralized loan obligation (“CLO”) business line), and following such sale Bidder F’s existing business would merge with the Company, with the Company’s current shareholders retaining 80% of the publicly traded equity of the combined business. Bidder F’s indication of interest did not contain further information supporting the valuation of either Bidder F’s existing business or the Company. Each of these proposals (and the proposal referenced below that would follow) made different assumptions, which had varying impacts on the nominal consideration the proposals purported to offer.
On November 30, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors present, the Special Committee discussed the status of the first round of the process and authorized PJT Partners and J.P. Morgan to engage with each potential acquiror who had submitted a proposal to gather additional information about their respective proposals, including information that would enable the Special Committee and their advisors to evaluate the bids on an equivalent basis. Representatives of Latham & Watkins and PJT Partners discussed with the Special Committee potential additional financial due diligence on Bidder F in connection with the Special Committee’s evaluation of Bidder F’s proposal relative to other proposals, which the Special Committee approved. Later on November 30, 2022, at another meeting of the Special Committee, each proposal submitted in the first round was discussed with representatives of Latham & Watkins, PJT Partners and J.P. Morgan. Representatives of J.P. Morgan informed the Special Committee that additional potential acquirors were expected to submit indications of interest in the near term, and the Special Committee approved J.P. Morgan and PJT Partners to engage with potential acquirors in an effort to seek additional proposals.
On December 1, 2022, representatives of J.P. Morgan and PJT Partners received a preliminary, non-binding indication of interest from Bidder D. Bidder D’s indication of interest proposed an equity valuation between $640 million and $830 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence.
On December 2, 2022, representatives of J.P. Morgan received a preliminary, non-binding indication of interest from an asset management company (referred to as “Bidder G”). Bidder G’s indication of interest proposed an equity valuation of $800 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence.
Also on December 2, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan discussed with the Special Committee an overview and evaluation of all indications of interest submitted to date, including a normalized comparison of the per-share consideration that would be payable to the Company’s public stockholders in connection with each proposal. It was reported at this meeting that seventy potential acquirors had been in contact with advisors to the Company either through outreach by J.P. Morgan and/or PJT Partners or through inbound inquiries following the November 18, 2022 press release making public that the Company was pursuing a potential transaction. Included in this group were Bidder A, the thirty-one potential acquirors approved by the Special Committee on October 31, 2022 and the thirty-eight additional potential acquirors, including Rithm, approved by the Special Committee on November 2, 2022, which included financial sponsors, private and publicly traded alternative asset managers, financial services companies and financial institutions. Twenty-five of the seventy potential acquirors,
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including Rithm, executed NDAs with the Company. Of the twenty-five NDAs executed with potential acquirors, twenty-four contained a standstill provision (all but Bidder A), twenty-two of the standstill provisions contained “don’t ask/don’t waive” provisions, all of which the Board of Directors has since waived through adoption of a resolution that permits each counterparty to submit confidential proposals to the Board of Directors or the Special Committee, and five of the standstill provisions terminated automatically upon the announcement of the Merger Agreement. Any parties not specifically discussed in this section did not submit an indication of interest to the Special Committee, the Company, J.P. Morgan or PJT Partners. Representatives of J.P. Morgan noted that Bidder G’s indication of interest received that day was competitive on valuation with the other indications of interest received to date, and Bidder G had financing to support its bid. Representatives of J.P. Morgan then discussed with the Special Committee J.P. Morgan’s evaluation of Bidder F’s non-conforming proposal, including potential execution risks associated therewith. During an executive session of the Special Committee meeting, representatives of PJT Partners discussed with the Special Committee PJT Partners’ independent preliminary financial analysis of the proposals received. Representatives of PJT Partners also reviewed with the Special Committee PJT Partners’ preliminary financial analysis of Bidder F’s proposal and outlined certain risks of such proposal to the Company and public stockholders.
On December 4, 2022, representatives of J.P. Morgan and PJT Partners received a preliminary, non-binding indication of interest from an asset management company (referred to as “Bidder H”). Bidder H’s indication of interest proposed an enterprise valuation between $705 million to $800 million for 100% of the equity of the Company, subject to a number of assumptions and further due diligence.
Later that day, on December 4, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, the Special Committee requested that PJT Partners and J.P. Morgan provide feedback to (a) Bidder E that the headline price of Bidder E’s proposal was too low to be included in the second round of the process and to attempt, if possible, to encourage Bidder E to increase its price and (b) Bidder F that the Special Committee did not believe pursuing Bidder F’s non-conforming proposal (given the conditionality, structure and uncertain valuation) was in the best interests of the Company’s public stockholders.
On December 6, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan discussed with the Special Committee an update on the status of the process, including that (a) Bidder D and Bidder G had indicated their desire to move forward into the second round of the process and (b) Bidder E had indicated that it was unlikely to increase the valuation in its proposal due to liquidity constraints. Following a discussion of the remaining proposals, representatives of J.P. Morgan and PJT Partners discussed with the Special Committee whether to permit Bidder F to participate in the second round of the process in light of the concerns previously identified. The Special Committee authorized J.P. Morgan to communicate to Bidder F that it would not be invited to participate in the second round. Later in the meeting, representatives of J.P. Morgan discussed with the Special Committee an overview of the proposed transaction structures contained in the proposals received by the Company, including certain tax implications. The Special Committee noted that bidders were using different assumptions to inform their respective bids, and discussed that it would be beneficial to the process for the bidders to receive more detailed information including, without limitation, information regarding the Company’s capitalization, certain tax matters and how proceeds in a potential transaction would be allocated, to inform their offer price, thereby enhancing direct comparability of proposals. Representatives of Latham & Watkins advised that it would be customary and appropriate to provide the potential acquirors remaining in the process with access to additional diligence information and specific instructions regarding assumptions to be used in bids delivered in the second round of the process. The Special Committee approved the provision of additional diligence materials to all potential acquirors invited to participate in the second round, which included Bidder B, Bidder C, Bidder D, Bidder G, Bidder H and Rithm, and instructed J.P. Morgan and PJT Partners to inform such bidders that they would advance to the second round of the process. The Special Committee reiterated its instructions that any forward-looking financial information to be shared with potential acquirors first be reviewed with and approved by the Special Committee. The Special Committee further instructed the Company’s management as well as PJT Partners and J.P. Morgan to ensure that Latham & Watkins had reviewed and approved for inclusion in the data room any other due diligence materials prior to making the information available to potential acquirors.
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On December 13, 2022, J.P. Morgan received a preliminary, non-binding indication of interest from a fintech company (referred to as “Bidder I”) for 100% of the equity of the Company, which proposed an equity valuation for the Company at a 15% to 20% premium to the undisturbed stock price of $8.50 as of market close on November 17, 2022, subject to a number of assumptions and further due diligence.
On December 14, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors present, the Special Committee and representatives of PJT Partners and Latham & Watkins discussed the non-binding indication of interest received from Bidder I, noting that the price was less than the other proposals invited to participate in the second round of the process. The Special Committee authorized J.P. Morgan to indicate to Bidder I that it would not be invited to participate in the second round on the basis of the proposal it submitted and to inquire into whether Bidder I had flexibility to increase its price. At that same meeting, representatives of Latham & Watkins presented a draft merger agreement in connection with the potential transaction and solicited and received input from the Special Committee. The Special Committee authorized Latham & Watkins to update the draft merger agreement to reflect their input and to solicit input from the Company’s management and Weil.
On December 19, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of PJT Partners informed the Special Committee that an asset management company (referred to as “Bidder J”) expressed interest in a potential transaction with the Company. The Special Committee authorized J.P. Morgan and PJT Partners to continue discussions with Bidder J and to request a formal indication of interest in order to evaluate the proposed economic terms and other material terms compared to the other indications of interests received. In addition, the Special Committee instructed J.P. Morgan and Latham & Watkins to prepare a second-round process letter for the Special Committee’s review.
On December 20, 2022, at a meeting of the Special Committee with representatives of its financial and legal advisors present, the Special Committee, representatives of Latham & Watkins and representatives of PJT Partners discussed the allocation of potential transaction proceeds under the existing partnership agreements of the Operating Partnerships based on existing capital accounts of the equityholders in the Operating Partnerships. The Special Committee further discussed the discretion of the general partners of the Operating Partnerships (acting at the direction of the Special Committee) under the Operating Partnerships’ partnership agreements to (a) reflect currently in the capital accounts of the Operating Partnerships revaluations under applicable Treasury Regulations for historical events, resulting in certain classes of equity securities of the Company achieving their “book-up targets” under the terms of the Operating Partnership agreements, and (b) equalize (on a per unit basis) the allocation of transaction proceeds among all equityholders in the Operating Partnerships (collectively, the “Proceeds Allocation Considerations”). The Special Committee engaged in a series of extended discussions at this meeting (and others) on this topic. The decisions regarding the Proceeds Allocation Considerations had significant implications for holders of LP Class E Units of the Operating Partnerships, most of whom remained employees of the Company, who had been granted these LP Class E Units as equity incentive compensation and substantially all of which had vested. The Special Committee understood that a decision not to revalue the Operating Partnerships’ assets for historical events and “book up” these units could result in these LP Class E Units receiving no consideration in a transaction at the valuations proposed in the first round of the process.3 The December 20, 2022 meeting ended with the Special Committee instructing Latham & Watkins to confer with Weil and other advisors regarding the Proceeds Allocation Considerations to better understand the extent to which the Special Committee had authority to exercise discretion under the terms of the partnership agreements of the Operating Partnerships and the implications of taking such action, and the Special Committee resolved to continue its deliberations related to the Proceeds Allocation Considerations following such discussions. At several meetings in December 2022 and early January 2023, the Special Committee continued to discuss and consider the Proceeds Allocation Considerations with representatives of Latham & Watkins, PJT Partners and J.P. Morgan.
On December 21, 2022, Bidder J entered into an NDA with the Company in connection with the potential transaction.
On January 3, 2023, acting on authorization of the Special Committee, representatives of J.P. Morgan and PJT Partners distributed a letter describing the second round of the process to Rithm, Bidder B, Bidder C, Bidder D, Bidder G and Bidder H, including the Special Committee’s expectations regarding the substance and timing of final proposals, which included providing a description of (a) the bidder, (b) the offer price and form of
3
For context, the Company estimates that, at the valuation set forth in the Merger Agreement entered into with Rithm, the LP Class E Units would have been allocated $112.98 million in aggregate proceeds if they were fully “booked up”. As noted below, the LP Class E Units will be cancelled for no consideration in the Transactions.
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consideration, (c) key assumptions underlying offer price, (d) considerations relevant to soliciting investor consents (including post-closing governance plans) and (e) financing plans. The letter also indicated (i) that each bidder would be provided a draft merger agreement that should be marked to indicate any proposed changes to such draft merger agreement in connection with its final offer and (ii) retention of the Company’s management was not a requirement and that, if a bidder elected to seek to retain the Company’s management, no discussion of employment terms should occur before the Special Committee expressly authorized such discussions. The deadline for final offers was set for January 25, 2023. The letter also requested that each bidder’s proposal assume (and that its proposed consideration reflect) that the Company’s tax receivable agreement (the “TRA”)4 would remain outstanding following the consummation of a potential transaction (without early acceleration or any amendments thereto). In the view of the Special Committee, the treatment of the TRA was a material component to bidders’ valuation of the Company due to the liabilities of the Company contained therein. The Special Committee noted that the Company had previously disclosed in the Company’s 2022 Form 10-K that these liabilities under the TRA generally become fixed under the change of control assumptions upon a merger or other change of control, whereas the associated tax asset may become significantly less valuable. Therefore, the cost of the TRA was likely to reduce the consideration paid to the Company’s equityholders upon a merger or other change of control of the Company, as potential acquirors would factor the cost of the TRA into their valuations of the Company.
On January 6, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update on the progress of the second round of the process. The Special Committee reconvened later on January 6, 2023, with representatives of its financial and legal advisors present to discuss the approach regarding the Proceeds Allocation Considerations. Following input from its legal advisors, the Special Committee determined that any transaction proceeds should be allocated in accordance with the existing capital accounts under the Operating Partnerships’ partnership agreements and that there would be no retroactive “book up” of any Operating Partnership units. This decision maximized the proceeds to be received by the public stockholders (as well as holders of LP Class A Units and LP Class A-1 Units) but decreased (or for employees that only held LP Class E Units, eliminated) the proceeds that would be payable to current employees holding LP Class E Units at the Operating Partnerships, which LP Class E Units would be canceled for no consideration in connection with the consummation of a potential transaction. The Special Committee and its advisors discussed the presentation of the allocation of proceeds and the Special Committee approved sharing such information (in the discussed format) with potential acquirors during the second-round diligence process.
On January 9, 2023, representatives of Bidder G informed representatives of J.P. Morgan that it was withdrawing from the bid process.
On January 11, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of PJT Partners discussed an update on the progress of the potential transaction, noting that (a) Bidder C had communicated it would likely not submit a final proposal or continue to participate in the process, (b) Bidder G had communicated that it was withdrawing from the bid process, and (c) additional
4
At the time of its IPO in 2007, the Company entered into the TRA with holders of LP Class A Units at the time, the primary beneficiaries of which are the Former EMD Group as well as other former executive managing directors of the Company who hold, or previously held, LP Class A Units. The TRA provides for the payment by the Company of a portion of the cash savings in U.S. federal, state and local income tax that the Company realizes as a result of the increased depreciation and amortization deductions and reduced gain on sale from (i) the increases in the tax basis of the tangible and intangible assets of the Operating Partnerships that results from taxable acquisitions by the Company (and certain affiliates and successors) of LP Class A Units and (ii) certain other tax benefits attributable to payments under the TRA. The purchase of LP Class A Units from the Former EMD Group and other holders of LP Class A Units in the IPO, and subsequent taxable exchanges of LP Class A Units for shares of Class A Common Stock, resulted in such an increase in the tax basis of the assets of the Operating Partnerships and their consolidated subsidiaries. As of June 30, 2023, the Company had an obligation to pay approximately $173.4 million in future payments under the TRA to the Former EMD Group and other holders of LP Class A Units (none of which are payable to any current executive managing director of the Company), assuming the Company earns sufficient income to realize the tax savings. In addition, a taxable acquisition of LP Class A Units and LP Class A-1 Units in the Mergers may result in a tax basis increase and additional TRA liabilities. The TRA includes certain “change of control” assumptions, such as the assumption that the Company (or its successor) has sufficient taxable income to utilize the relevant tax benefits, that limitations on the use of loss carryforwards do not apply, and that non-amortizable assets are deemed disposed of at the earlier of an actual disposition or fifteen years after the change of control. As a result, irrespective of whether the Company can otherwise utilize any tax assets on a go forward basis, the Company would calculate payments under the TRA assuming that these limitations do not apply. As disclosed in the Company’s 2023 Form 10-K, obligations under the TRA are likely to result in it being more expensive for third parties to acquire control of the Company due to the amount and certainty of the future payments owed under the TRA and the corresponding material reduction in the tax deductions available to the Company to benefit from such payments. Therefore, the cost of the TRA was likely to reduce the consideration paid to the Company’s equityholders upon a merger or other change of control of the Company, as potential acquirors would factor the cost of the TRA into their valuations of the Company.
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conversations were ongoing with Bidder B, Bidder H and Rithm regarding their respective proposals. Representatives of PJT Partners noted that certain potential acquirors requested to begin having high-level discussions regarding the post-closing compensation philosophy with the Company’s management. Representatives of Latham & Watkins advised that while high-level conversations between the Company’s management and potential acquirors could occur, there should be no negotiation of a specific compensation framework or any discussions of specific amounts. Representatives of Latham & Watkins also advised that any discussions regarding compensation philosophy should only occur with clearly established ground rules that potential acquirors agree to abide by and under the supervision of advisors to the Special Committee. After discussion, the Special Committee approved limited discussions between the Company’s management and potential acquirors on the foregoing basis.
On January 16, 2023, Bidder J submitted a preliminary non-binding indication of interest to acquire 100% of the shares of Class A Common Stock at a price of $11.00-12.00 share, subject to a number of assumptions and further due diligence.
On January 17, 2023, the Former EMD Group sent a letter to the Special Committee asserting its belief that (a) that the Company had not provided all of the books and records the Former EMD Group believed they were entitled to under the Settlement Agreement or information regarding the potential transaction, (b) potential acquirors were being discouraged from bidding on individual business units of the Company, (c) the compensation of the Company’s management was discouraging potential acquirors and reducing the value of the bids and (d) the Special Committee was conditioning a potential transaction on retention of the Company’s management. The letter also asserted their view that the draft NDA provided to them in December 2022 was not appropriate.
On January 20, 2023, at the direction of the Special Committee, representatives of Latham & Watkins sent the Former EMD Group a letter on behalf of the Special Committee, denying the assertions set forth in the January 17, 2023 letter and confirming, among other things, that the bid process was being run by the Special Committee, with advice provided by its independent financial and legal advisors, in a manner fully consistent with both the Settlement Agreement and Delaware law. The letter expressed disappointment at what the Special Committee viewed as the Former EMD Group taking actions that were detrimental to the process. The letter further requested the Former EMD Group to send specific comments back on the NDA, as the Former EMD Group had not identified its particular concerns with the NDA, and indicated the Special Committee desired to enter into this NDA in order to provide information that would establish that the Former EMD Group’s concerns were misplaced. Thereafter, representatives of Dechert, on behalf of the Former EMD Group, provided comments to the NDA on January 27, 2023, and after a series of negotiations between representatives of Dechert and representatives of Latham & Watkins (which consulted with the Special Committee on all substantive terms), the Company and the Former EMD Group entered into an NDA on February 15, 2023.
On January 24, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of PJT Partners provided an update on the bid process, noting that (a) Bidder B and Rithm had indicated that they would each submit offers the next day, (b) Bidder D and Bidder H were engaged in diligence but had not communicated a date on which they would submit an offer and (c) Bidder J continued to engage in diligence and indicated it remained interested in a potential transaction with the Company, but that Bidder J was a late entrant to the bid process and had not secured committed financing for the proposed transaction.
On January 25, 2023, Bidder B submitted a revised non-binding indication of interest to acquire 100% of the shares of Class A Common Stock at the price of $11.50 per share, subject to a number of assumptions and further due diligence.
On January 27, 2023, Bidder D submitted an updated non-binding indication of interest to acquire 100% of the shares of Class A Common Stock at a price range of $11.75-12.50 per share, subject to a number of assumptions and further due diligence, along with an issues list with respect to the draft merger agreement. Also on January 27, 2023, the financial advisor to Bidder J contacted representatives of PJT Partners to reiterate Bidder J’s interest in the potential transaction following further conversations between representatives of the financial advisors.
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On January 29, 2023, Rithm submitted (i) an updated non-binding indication of interest to acquire the Company at an aggregate equity purchase price of $550 million subject to a number of assumptions, including that Rithm would have no future obligation or liability with respect to the TRA or any persons who hold any rights pursuant to the TRA, and (ii) an issues list with respect to the draft merger agreement.
On January 30, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan discussed that Bidder B, Bidder D and Rithm had submitted updated proposals in connection with the second round of the process. Representatives of J.P. Morgan presented a summary of the proposals received, noting that Bidder B and Bidder D had submitted proposals under which they would assume the TRA obligations as part of their proposals and that Rithm did not appear to price in the cost of assuming the TRA into its offer, resulting in a lower headline price than the offer indicated on its face. J.P. Morgan also noted that each bidder was requesting varying degrees of signing and/or closing conditions relating to the Former EMD Group, and that Bidder D had indicated that it would not proceed with a potential transaction unless the Former EMD Group would support such a transaction due to the potential public relations and business risks of signing a transaction and facing opposition from the Former EMD Group. J.P. Morgan further indicated that Bidder D had provided an issues list with respect to the draft merger agreement, that further negotiations with Bidder D would solidify the price per share in its proposal and that, on the terms presented in the proposals, Bidder D presented the highest price per share of Class A Common Stock. Representatives of J.P. Morgan provided an update on discussions with Bidder J, noting that it believed Bidder J was at best several weeks away from securing the financing required to consummate the potential transaction.
In addition, at that same meeting, and following Bidder F’s and Bidder J’s separate inquiries into a pre-closing divestiture of the Company’s CLO business line (the “CLO Business”), the Special Committee discussed with its advisors a potential sale of the Company’s CLO Business, including (i) the risk that a divestiture of the CLO Business may put the remaining Company at risk of being unable to continue as a going concern, as certain contracts and commitments of the Company include minimum assets under management (“AUM”) tests that may be breached as a result of a divestiture of the CLO Business, and (ii) issues related to tax considerations and transaction costs that would be incurred as a result of a potential divestiture of the CLO Business. Representatives of J.P. Morgan further noted that (a) only nine out of the seventy potential acquirors engaged in the bid process had expressed interest in acquiring a specific business line of the Company, (b) none of those potential acquirors had offered a high enough price for any specific business line that would justify such a divestiture by the Company and (c) certain business lines had not garnered any interest from potential acquirors, and therefore it was not reasonably certain that each business line of the Company could eventually be sold in a “sum of the parts” transaction where various business lines were sold to different bidders, creating a potential risk that the unsold businesses would need to be wound down at substantial cost to the Company and its equity holders.
On February 1, 2023, representatives of J.P. Morgan and PJT Partners discussed preliminary high-level compensation philosophy with representatives of Rithm’s management and Rithm’s financial advisor, Citigroup Global Markets Inc. (“Citi”). Later that day, representatives of Skadden provided to representatives of Latham & Watkins a revised version of Rithm’s issues list with respect to the draft merger agreement.
On February 2, 2023, following authorization by the Special Committee in light of the tentative agreement with Bidder D on price and material terms, the Company’s management met with two senior principals of Bidder D, with representatives of J.P. Morgan and PJT Partners present. The Company’s management and the representatives of Bidder D discussed the compensation philosophy that the Company currently utilized to compensate investment professionals across its business lines, and Bidder D shared in general terms the compensation structure and philosophy that it employed throughout its business lines. No specific terms of employment or compensation with respect to any members of management of the Company or other employees were discussed at this meeting.
The Special Committee convened a meeting on the same day with representatives of its financial and legal advisors and J.P. Morgan present. At that meeting representatives of Latham & Watkins advised on the legal and contractual requirements for the Company to secure the consent of its clients in connection with a potential transaction. Representatives of Latham & Watkins discussed that the auction draft merger agreement would contain a condition to the buyer’s obligation to consummate the transaction that Company clients representing a
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threshold amount of revenue run rate have provided their consent to the transaction,5 and described to the Special Committee the range of customary percentage thresholds in asset management transactions of this nature. Representatives of Latham & Watkins noted that client consent conditions are customary in asset management transactions in which the potential acquiror is not proposing to materially change the investment strategy or team of key investment professionals at the Company. The Special Committee approved the framework of the client consent condition and then authorized Latham & Watkins to discuss the client consent condition (and the appropriate percentage threshold to be included) with the Company’s management and to obtain from the Company’s management additional information regarding the revenue run rate associated with current clients. The Company’s management assisted in this analysis and provided input on its expectations as to the achievability of the client consent condition at various thresholds. Upon further discussion, the Special Committee determined to propose an 80% threshold and the specific legal terms of the client consent condition were shared with potential acquirors on February 10, 2023.
The Special Committee convened a second time on February 2, 2023 with representatives of its financial and legal advisors present, where representatives of PJT Partners discussed the development of independent valuations of the Company for the purposes of negotiating with potential acquirors and for purposes of PJT Partners’ financial analyses in connection with rendering a potential opinion as to the fairness to the public stockholders of a potential proposal selected by the Special Committee. After discussion, the Special Committee instructed PJT Partners to engage with the Company’s management to obtain financial information for purposes of PJT Partners’ financial analyses.
On February 7, 2023, members of the Company’s management met with representatives of Bidder J, including its founder and one of its partners, with representatives of J.P. Morgan and PJT Partners in attendance, to provide an overview of the Company and discuss investment strategies.
On February 8, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of Latham & Watkins provided an overview of its analysis regarding required payments and future obligations under the TRA following an acquisition of the Company. Representatives of J.P. Morgan discussed with the Special Committee the likelihood that providing potential acquirors with information on the TRA may facilitate negotiations with respect to the potential transaction and help compare the potential acquirors’ respective valuations. The Special Committee authorized J.P. Morgan to share a summary of required payments under the TRA with potential acquirors. Representatives of J.P. Morgan also discussed Bidder J’s continued interest in a potential transaction with the Company, noting however that Bidder J’s offer was prospective at this point because Bidder J had not demonstrated that it had sufficient committed equity or debt financing or available capital to support payment of the consideration indicated in its previous non-binding indication of interest. In addition, it was discussed that Bidder J’s business overlapped and competed with portions of the Company’s business and that there was concern that certain diligence information could be used by Bidder J to solicit employees and clients of the Company or to otherwise gain a competitive advantage over the Company. Accordingly, while the Special Committee authorized the granting of access to certain diligence materials contained in the virtual data room in order to progress Bidder J’s proposal, it instructed the Company’s advisors not to share certain competitively sensitive information about the Company at this preliminary stage. Furthermore, the Special Committee instructed J.P. Morgan to provide Bidder J with bid instructions and request that they submit, as soon as possible, a bid and a list of high priority diligence requests.
The Special Committee convened again on February 8, 2023, with representatives of its financial and legal advisors and the Company’s management present. At this meeting, the Company’s management presented draft financial projections that the Company’s management had prepared showing (a) the Company’s prospects following completion of a potential transaction, and (b) the Company’s prospects in the event that the Company does not enter into a potential transaction, and instead pursued a standalone strategy. With respect to the projections presenting the Company’s standalone strategy, representatives of the Company’s management noted that the Company was experiencing elevated redemption requests and negative impact on the Company’s ability
5
The client consent closing condition is generally formulated to refer to a threshold percentage of consenting client revenue run rate, which is calculated by reference to the quotient of (a) the revenue run rate associated with clients of the Company that have provided the requisite “consent” to the transaction as of the closing (the “Closing Revenue Run Rate”) divided by (b) the revenue run rate of all clients as of a date prior to signing (generally adjusted to take into account known redemptions) (the “Signing Revenue Run Rate”). The specific calculations to arrive at the Signing Revenue Run Rate and Closing Revenue Run Rate are often bespoke but the Closing Revenue Run Rate is generally calculated in a market-neutral manner such that changes in the value of AUM due to market factors (e.g., a change in the stock price of a publicly traded security held by a fund) are not taken into account, but any changes to the fee rate or AUM due to client redemption or inflows are taken into account.
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to raise new capital from investors into its funds in 2023, which the Company believed was driven by a variety of factors, primarily resulting from the uncertainty and perceived instability relating to the disputes with the Former EMD Group. The Special Committee instructed the Company’s management to revise the draft financial projections to reflect additional assumptions and updates resulting from the Company’s year-to-date financial performance.
From February 9, 2023, to February 10, 2023, representatives of J.P. Morgan and PJT Partners engaged in discussions with representatives of Bidder D regarding the TRA, including discussions on settling the TRA prior to entering into a definitive merger agreement with respect to a potential transaction.
From February 6, 2023, to February 10, 2023, representatives of J.P. Morgan engaged in discussions with representatives of Rithm regarding the price per share of Class A Common Stock in Rithm’s offer, considerations with respect to settlement of the TRA and the potential risks for a potential transaction.
On February 10, 2023, representatives of Bidder B informed representatives of J.P. Morgan that it was withdrawing from the bid process and cited a range of concerns, including securing committed financing from its limited partners and uncertainty and perceived instability relating to the disputes with the Former EMD Group.
On February 12, 2023, Bidder D submitted a revised proposal in connection with the proposed transaction at a price of $11.80 per share, along with a revised issues list with respect to the draft merger agreement and a markup of the client consent condition and a request for exclusivity. Bidder D’s revised proposal and issues list included, among other things, requests for (a) voting and support agreements from certain key shareholders, including Mr. Levin and Mr. Och, (b) releases from the Former EMD Group as it related to their potential claims against the Company as a condition to closing and (c) discussions with the Company’s management regarding post-closing employment arrangements.
On February 13, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan discussed with the Special Committee an overview of the second stage of the bid process and the proposals received to date. Representatives of J.P. Morgan discussed that Bidder D’s indication of interest contemplated that the TRA would be assumed by Bidder D and that Bidder D solidified its proposed price per share at $11.80. Bidder D had generally accepted the client consent condition framework but proposed a threshold of 87.5% instead of 80%. Representatives of J.P. Morgan communicated that Rithm’s offered price per share of Class A Common Stock was, according to calculations of the Company’s management, an inferior price per share of Class A Common Stock than Bidder D’s proposal, with the assumption that the TRA would be retained by the Company. Additionally, representatives of Latham & Watkins communicated that Rithm proposed a client consent condition threshold of 85%, but revised the framework of the condition itself so that the condition was harder to achieve than the (higher) percentage articulated by Bidder D. In addition, representatives of J.P. Morgan indicated that Bidder D indicated potential flexibility on the extent to which it would require a formal voting agreement or release from the Former EMD Group as a condition to signing or closing the potential transaction, but that it expressly conditioned the signing of a definitive merger agreement with respect to a potential transaction on having a pre-signing conversation with the Former EMD Group. Bidder D expressed concerns about the potential public relations risks of signing a transaction and facing opposition from the Former EMD Group and wanted assurances from the Former EMD Group that the Former EMD Group would not publicly oppose the transaction. Representatives of J.P. Morgan further noted that (a) the terms of the Bidder D offer were otherwise superior to the other proposals received such that if such offer were accepted by the Special Committee, it was J.P. Morgan’s view that the Special Committee could reasonably enter into exclusivity with Bidder D, (b) Bidder D did not present any financing risk as it was able to fund the potential transaction using existing financial resources and (c) it was their view that it was possible that the Former EMD Group would respond positively to Bidder D as a potential acquiror, including because Bidder D submitted the highest offer price with the fewest conditions to closing and indicated a willingness to pursue a short timeline to execution. J.P. Morgan suggested that the Special Committee request that Bidder D improve its offered price per share from $11.80 to $12.05 and lower the client consent condition threshold to 82-83%, and the Special Committee authorized J.P. Morgan to make this request. In addition, because Bidder D would require, at a minimum, assurances from the Former EMD Group that the Former EMD Group would support the transaction as a condition to signing a definitive merger agreement with respect to a potential transaction, the Special Committee requested that J.P. Morgan engage with the Former EMD Group to provide them information on the bid process and Bidder D to set the stage for an eventual conversation between Bidder D and the Former EMD Group.
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On February 15, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan updated the Special Committee on discussions between J.P. Morgan and Bidder D. Representatives of J.P. Morgan reported that Bidder D had increased its proposed price per share to $12.00 and reduced the client consent condition threshold to 85%. However, Bidder D had reiterated that it would not be willing to sign a definitive merger agreement with respect to a potential transaction without the support of the Former EMD Group. Representatives of J.P. Morgan provided an update on discussions with Rithm, noting that it expected Rithm to submit a revised proposal at an increased price per share of $10.00 that expressly assumed the TRA. Rithm did submit such an offer later that day, but the offer did not change the terms of the client consent condition. Representatives of J.P. Morgan discussed that Bidder J submitted a preliminary, non-binding indication of interest at an equity value of $700 million but that Bidder J still did not have any committed debt or equity financing in place in order to execute on its proposal and was behind Bidder D and Rithm in terms of a timeline to sign a merger agreement with respect to the potential transaction, each of which had delivered full mark-ups of the draft merger agreement in addition to demonstrating credit-worthiness. Representatives of J.P. Morgan also provided an update on discussions with the Former EMD Group, noting that the Former EMD Group had agreed to sign the draft NDA and committed to considering the information presented by J.P. Morgan regarding the sale process in good faith for the purposes of being informed on the bid process. Following a discussion, the Special Committee authorized the Company to (a) enter into exclusivity with Bidder D in order to negotiate a definitive merger agreement with respect to a potential transaction and (b) facilitate an information exchange regarding the potential transaction. The Special Committee further authorized the Company’s management to engage in compensation discussions with Bidder D following the execution of an exclusivity agreement with Bidder D (the “Exclusivity Agreement”). The Special Committee also authorized J.P. Morgan to schedule a call with the Former EMD Group regarding the $12.00 per share of Class A Common Stock proposal made by Bidder D.
On February 18, 2023, representatives of J.P. Morgan and PJT Partners engaged in discussions with representatives of Bidder D and Dechert to provide, with the permission of Bidder D, information to the Former EMD Group regarding Bidder D’s offer and identity.
Later on February 18, 2023, representatives of J.P. Morgan, PJT Partners, Weil and Latham & Watkins met with representatives of the Former EMD Group, including J. Morgan Rutman, Richard Lyon and representatives of Dechert, to discuss the potential transaction between Bidder D and the Company and the material terms of such potential transaction.
Bidder D and the Company entered into the Exclusivity Agreement on the same day, which provided for an exclusivity period that continued until the earlier of termination by Bidder D or three days after the delivery of a notice of termination by the Company (which could be delivered no earlier than March 15, 2023). The Special Committee instructed its advisors and the Company’s management to cease engaging in discussions with other potential acquirors.
Later that day (and following the execution of the Exclusivity Agreement), Bidder J submitted a revised proposal offering $12.00 to $14.00 per share of Class A Common Stock, which offer continued to lack committed debt or equity financing necessary to pay the consideration contained in such proposal. Consistent with its obligations under the Exclusivity Agreement, the Special Committee and its advisors did not respond to such proposal.
On February 21, 2023, representatives of Bidder J informed representatives of PJT Partners and J.P. Morgan that Bidder J remained interested in the potential transaction at a price per share of Class A Common Stock of $12.00-14.00 but that Bidder J reported that, to date, it had only secured $50 million in financing and would need to raise third party capital to execute its proposal. Consistent with its obligations under the Exclusivity Agreement, the Special Committee and its advisors did not respond to such outreach.
On February 26, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of Latham & Watkins informed the Special Committee that the Former EMD Group had requested from J.P. Morgan and PJT Partners information regarding payments that would be made to the Former EMD Group under the TRA in connection with the potential transaction with Bidder D and supporting analysis and assumptions. The Special Committee discussed this request with PJT Partners and Latham & Watkins and authorized J.P. Morgan to share this analysis with the Former EMD Group on February 27, 2023.
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On March 3, 2023, the Company filed its annual report on Form 10-K, which reported that the Company was experiencing elevated redemption requests and negative impact on its ability to raise new capital from investors into its funds so far in 2023, which the Company believed was driven by a variety of factors, primarily the uncertainty and perceived instability relating to the disputes with the Former EMD Group.
Later on March 3, 2023, the Special Committee received a letter from the Former EMD Group stating that the Former EMD Group would not support the proposed transaction with Bidder D because, in the Former EMD Group’s view, Bidder D’s price undervalued the Company. Further, the Former EMD Group stated in the letter that it believed that the Company’s compensation structure was the primary cause of what it viewed as insufficient valuation in the proposals from Bidder D.
On March 5, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and the Company’s management present, the Special Committee and representatives of Latham & Watkins and PJT Partners discussed the Former EMD Group’s March 3, 2023 letter to the Special Committee, the conversations between representatives of J.P. Morgan and the Former EMD Group, the fact that Bidder D had indicated that it would be unwilling to proceed with a potential transaction without the support of the Former EMD Group, and the prospect of trying to arrange further meetings between the Former EMD Group and J.P. Morgan. After discussion, the Special Committee instructed PJT Partners and Latham & Watkins to consult with Weil and the Company’s management to progress discussions about how to best secure the Former EMD Group’s support for a potential transaction with Bidder D, since Bidder D had indicated that it would only proceed on that basis.
On March 10, 2023, the Company provided a revised draft of the merger agreement to Bidder D.
On March 16, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan advised that Bidder D continued to require the Former EMD Group’s support as a condition to signing a definitive merger agreement and proceeding with the potential transaction and that J.P. Morgan and Bidder D were continuing to attempt to engage with the Former EMD Group to gain its support. Representatives of J.P. Morgan also informed the Special Committee that Bidder D had indicated that it would be reverting with a proposal on management compensation and an updated draft of the merger agreement. The Special Committee resolved to reconvene upon receipt of Bidder D’s draft of the merger agreement and management compensation proposal.
On March 22, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan reported that Bidder D reported that it had attempted to engage directly in discussions with members of the Former EMD Group and that members of the Former EMD Group declined an offer to meet with Bidder D. Representatives of J.P. Morgan indicated that they urged Bidder D to consider the circumstances under which it would proceed without the Former EMD Group’s support, and that Bidder D indicated that it would require, at a minimum, a meeting with the Former EMD Group prior to making such determination. After discussing with representatives of PJT Partners, J.P. Morgan and Latham & Watkins, the Special Committee authorized J.P. Morgan and PJT Partners to try to again arrange direct discussions between the Former EMD Group and Bidder D.
Following Bidder D’s outreach to the Former EMD Group in March 2023, the Former EMD Group requested from the Company additional information regarding a breakdown of future TRA payments that would be due to the Former EMD Group in connection with the transaction with Bidder D, based on a variety of different assumptions. Following authorization from the Special Committee, J.P. Morgan shared this information on March 26, 2023.
On March 27, 2023, representatives of Bidder D (including its founder and one of its partners), J.P. Morgan and PJT Partners met with certain representatives of the Former EMD Group, including J. Morgan Rutman, Richard Lyon and representatives of Dechert, to discuss the potential transaction between Bidder D and the Company.
On March 27, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of PJT Partners and J.P. Morgan provided an update on the discussions between representatives of J.P. Morgan, PJT Partners, the Former EMD Group and Bidder D regarding the potential transaction. The Special Committee next discussed with representatives of PJT Partners, J.P. Morgan and Latham & Watkins whether to terminate the Exclusivity Agreement with Bidder D. The Special Committee considered the fact that the transaction with Bidder D was substantially progressed, citing the
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advanced state of Bidder D’s diligence and the substantially progressed draft merger agreement, and noted that the key gating item to a final definitive merger agreement with respect to a potential transaction with Bidder D was Bidder D either (a) receiving the positive assurances it sought from the Former EMD Group that the Former EMD Group would not publicly oppose the potential transaction or (b) agreeing to sign the definitive merger agreement with respect to a potential transaction without the Former EMD Group’s support. The Special Committee resolved to reevaluate the Exclusivity Agreement after confirming whether Bidder D would consider moving forward with a potential transaction without receiving the Former EMD Group’s support for such potential transaction. The Special Committee instructed J.P. Morgan to urge Bidder D to articulate a definitive position as, thus far, Bidder D had only indicated that it was continuing to assess the situation.
On March 30, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update on J.P. Morgan’s discussions with each of Bidder D and the Former EMD Group. Representatives of J.P. Morgan stated that they had conveyed to Bidder D the Special Committee’s frustration with the delay of signing the definitive merger agreement with respect to the potential transaction and inquired as to whether Bidder D had definitively determined it would only proceed to signing with the Former EMD Group’s support. The Special Committee and representatives of PJT Partners, J.P. Morgan and Latham & Watkins then discussed alternative approaches to the potential transaction that might either (a) persuade Bidder D to execute a definitive merger agreement with respect to a potential transaction without the Former EMD Group’s support and/or (b) provide the Former EMD Group certain benefits that would persuade the Former EMD Group to support the potential transaction6 (collectively, the “Alternative Transaction Approaches”). After discussion, the Special Committee authorized J.P. Morgan to discuss the Alternative Transaction Approaches with Bidder D. The meeting concluded following a revisiting of the Former EMD Group’s letter to the Special Committee dated March 3, 2023, and the Special Committee resolved to forego a formal written response given that there had been numerous discussions between advisors regarding the issues described therein.
On April 3, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of J.P. Morgan provided an overview of its discussions with Bidder D. Bidder D remained unwilling to progress the potential transaction without support from the Former EMD Group, citing (a) public relations concerns that would stem from the Former EMD Group publicly opposing the potential transaction and/or commencing litigation and (b) a lack of confidence that support from the Former EMD Group would be forthcoming, given that the Former EMD Group had sent several communications expressly stating they would not support the transaction with Bidder D and had declined to meet directly with Bidder D in the month and a half since the Former EMD Group learned of the potential transaction with Bidder D. Representatives of J.P. Morgan indicated that they were continuing to attempt to progress conversations with Bidder D regarding the Alternative Transaction Approaches. The Special Committee, the Company’s management, PJT Partners, J.P. Morgan and Latham & Watkins then discussed potential alternative acquirors if the Company were to terminate the Exclusivity Agreement with Bidder D.
On April 4, 2023, at meetings of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan noted that, following the authorization by the Special Committee on February 15 for Bidder D to engage in management compensation discussions following the execution of the Exclusivity Agreement, the Company’s management and representatives of Bidder D had discussed the Company’s existing compensation philosophy and framework and compared it to Bidder D’s existing compensation philosophy and framework. Representatives of J.P. Morgan further noted that, no terms had been agreed upon during these discussions or afterward, but that Mr. Levin had reported that he was comfortable that Bidder D would continue to compensate the investment professionals of the Company in a manner that would encourage retention and facilitate the achievement of the client consent condition set forth in the draft merger agreement with respect to the potential transaction. Additionally, Mr. Levin indicated that, if asked, he would be amenable to agreeing to an employment arrangement with Bidder D in which (a) Mr. Levin would no longer act as the Chief Executive Officer of the Company’s business, and (b) Mr. Levin was
6
For context, the Special Committee and its legal and financial advisors discussed that the Former EMD Group’s economic interests diverge in certain respects from those of a public company shareholder due in part to, among other things, (a) the fact that absent a “roll over” of LP Class A Units and LP Class A-1 Units in a tax-deferred transaction, members of the Former EMD Group would recognize significant taxable gain in excess of the proceeds received in the Mergers (as a result of taxable gain attributable in large part to tax-deferred distributions previously received by the Former EMD Group) and (b) the fact that the members of the Former EMD Group are beneficiaries under the TRA and thus entitled to certain future payments pursuant to the TRA following the closing of a potential transaction (the “Former EMD Considerations”). The Alternative Transaction Approach generally centered on these Former EMD Considerations, as well as certain requests that the Former EMD Group had made publicly regarding a desire to see Mr. Levin’s compensation significantly decline.
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compensated in a manner that was consistent with Bidder D’s existing compensation philosophy and framework. In addition, representatives of J.P. Morgan provided an update on the ongoing discussions with Bidder D concerning the Alternative Transaction Approaches. Representatives of J.P. Morgan stated that Bidder D intended to propose certain of the Alternative Transaction Approaches to the Former EMD Group, centered primarily around the Former EMD Considerations, in exchange for gaining the Former EMD Group’s support.
On April 5, 2023, the Special Committee received another letter from the Former EMD Group stating its unwillingness to support the potential transaction as currently structured, again asserting that the Company’s current executive compensation arrangements were resulting in a reduced valuation.
Between April 10 and April 18, 2023, the Special Committee held several meetings with its financial and legal advisors and J.P. Morgan present to discuss the Alternative Transaction Approaches, including a new Alternative Transaction Approach proposed by Bidder D whereby Bidder D would execute the definitive merger agreement without the Former EMD Group’s support but the draft merger agreement would be revised to provide that the closing of the proposed transaction would be conditioned on the Former EMD Group providing its support for the proposed transaction, and in the event such condition to closing was not satisfied, then the Company would sell the CLO Business to Bidder D (the “CLO Sale Requirement”). Representatives of J.P. Morgan provided an overview of the potential acquirors who had indicated an interest in acquiring the Company’s CLO Business during the course of the bid process and revisited prior discussions regarding the implications of a sale of only the CLO Business. Per a request from the Special Committee, representatives of J.P. Morgan provided the Special Committee with a preliminary overview of the potential economics of a sale of the Company’s CLO Business. In addition to considering this proposal, discussions between representatives of J.P. Morgan, PJT Partners and Bidder D continued during this period around other Alternative Transaction Approaches, including regarding the package of “inducements” that Bidder D had indicated it would offer the Former EMD Group in exchange for their support, which inducements included a potential rollover of the Former EMD Group’s LP Class A Units or LP Class A-1 Units into equity of Bidder D in a tax-deferred transaction. Also discussed was the possibility of the Company seeking Bidder D’s consent to publicly announce the current status of the potential transaction to the Company’s shareholders. The Special Committee consulted with its advisors on the various Alternative Transaction Approaches. During this period, the Special Committee decided to maintain the exclusive relationship between the Company and Bidder D for an additional period to assess whether Bidder D could make further progress with the Former EMD Group on the potential transaction.
On April 25, 2023, representatives of Bidder D, J.P. Morgan and PJT Partners met with representatives of the Former EMD Group to discuss certain of the Alternative Transaction Approaches centered primarily around the Former EMD Considerations and, in particular offering the Former EMD Group (and the other holders of any LP Class A Units or LP Class A-1 Units (collectively, the “Class A Unitholders” and each individually, a “Class A Unitholder”)) the ability to rollover their Class A Units into equity of Bidder D in a tax-deferred transaction.
On April 25, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of J.P. Morgan provided the Special Committee with an overview of its discussions with the Former EMD Group and Dechert and reported that at this time, the Former EMD Group would not indicate when the Company could expect an answer from the Former EMD Group.
On May 1, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present, representatives of J.P. Morgan provided the Special Committee, its financial and legal advisors, Weil and the Company’s management with a summary of its discussions with the Former EMD Group and Dechert. In particular, representatives of J.P. Morgan reported that the Former EMD Group indicated it would require a significant amount of additional information before it would consider the package of Alternative Transaction Approaches offered by Bidder D. After discussion, the Special Committee authorized J.P. Morgan to convey to Bidder D the Former EMD Group’s requirements and request that Bidder D either (a) engage with the Former EMD Group on their requests in an effort to gain their support or (b) execute a definitive merger agreement without the Former EMD Group’s support.
On May 2, 2023, the Special Committee received a letter from the Former EMD Group, as previewed to representatives of J.P. Morgan and discussed at the meeting of the Special Committee on May 1, setting out the information requests regarding the proposed transaction with Bidder D, which were passed on to Bidder D.
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On May 5, 2023, the Company filed its quarterly report on Form 10-Q, which reported that the Company was experiencing elevated redemption requests and negative impact on its ability to raise new capital from investors into its funds so far in 2023, which the Company believed was driven by a variety of factors, primarily the uncertainty and perceived instability relating to the disputes with the Former EMD Group.
Between May 2, 2023, and May 10, 2023, despite outreach at the direction of the Special Committee by representatives of PJT Partners, Bidder D did not engage substantively with the Special Committee, the Company or their respective advisors.
Bidder D had stated to J.P. Morgan over the course of the negotiation process that Bidder D was not willing to move forward with the potential transaction without the Former EMD Group’s support. With that context and following the lack of communication from Bidder D following its receipt of the Former EMD Group’s May 2 letter, the Special Committee authorized the Company to terminate exclusivity with Bidder D on May 11, 2023, and to engage with other potential acquirors regarding their willingness to consider a potential transaction that did not involve support of the Former EMD Group as a condition to signing or closing since this condition had been the gating item to executing a definitive merger agreement with respect to a potential transaction with Bidder D. Following termination of the Exclusivity Agreement, Bidder D discontinued its engagement with the Special Committee, the Company and their respective advisors regarding a potential transaction.
On May 11, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, the Special Committee and representatives of PJT Partners, J.P. Morgan and Latham & Watkins discussed the termination of exclusivity with Bidder D and the Special Committee’s strategy for engaging with alternative potential acquirors regarding a potential transaction. After discussion, representatives of J.P. Morgan provided an overview of potential acquirors that may be interested in participating in a renewed bid process, including Rithm, Bidder B, Bidder E, Bidder H and Bidder J. Representatives of PJT Partners then led a discussion of the guidelines of the renewed bid process run by the Special Committee. After discussion, the Special Committee authorized J.P. Morgan to commence outreach on the basis discussed with the Special Committee.
On May 12, 2023, the Company’s management provided to the Special Committee an updated financial projection case of the Company following the consummation of a potential transaction, with assumptions, among others, that the then-existing corporate structure remained and that the Company generated sustained investment performance in its core strategies, and did not include any potential impacts from future market volatility, derivative actions, potential strategic growth opportunities, or synergies that may be pursued with a strategic partner or from being a private company (such financial projections, the “Transaction Forecasts”). On May 13, 2023, the Special Committee approved the Transaction Forecasts and authorized the Company’s management to share the Transaction Forecasts with Rithm (as well as other potential acquirors who remained involved in the process) to facilitate its due diligence with respect to a potential transaction. On May 15, 2023, the Company’s management provided the Transaction Forecasts to Rithm.
On May 16, 2023, J.P. Morgan, acting on instructions from the Special Committee, shared an updated version of the merger agreement with Rithm, Bidder H and Bidder J in the virtual data room. The updated draft merger agreement was in substantially the same form as had been negotiated with Bidder D and bidders were instructed that comments should be limited accordingly.
On May 23, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update regarding the bid process in connection with the potential transaction, reporting that Rithm had conveyed that it intended to submit a proposal in the near term for a potential transaction which was not conditioned on the support of the Former EMD Group. Representatives of J.P. Morgan also communicated that both Bidder H and Bidder J conveyed that they remained interested in a potential transaction and were progressing their respective offers. Representatives of J.P. Morgan then noted that representatives of an asset management company not previously involved in the process (referred to as “Bidder K”) had contacted representatives of J.P. Morgan to express interest in a potential transaction.
On May 24, 2023, representatives of Rithm submitted an updated proposal to representatives of PJT Partners and J.P. Morgan to acquire the Class A Common Stock for $11.00 per share, subject to a number of assumptions and further due diligence, along with an issues list with respect to the draft merger agreement. Rithm also requested an exclusivity period of fourteen days as part of its proposal. Rithm’s updated proposal and issues list indicated that voting agreements and post-closing employment agreements were subject to discussion, the TRA would remain in place upon consummation of the proposed transaction, and that Rithm expected to enter into
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employment agreements with a select group of employees concurrently with executing a definitive merger agreement with respect to a potential transaction. Rithm’s updated letter additionally indicated that Rithm was open to offering a rollover to the Class A Unitholders (including the Former EMD Group), but Rithm noted that any rollover would need to be accompanied by governance and stockholder approval mechanisms that were appropriate for a transaction in which different classes of stockholders were offered different consideration options. PJT Partners and J.P. Morgan promptly informed the Special Committee of this proposal.
On May 25, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of J.P. Morgan provided an update on the renewed bid process in connection with the potential transaction and the progress of other potential acquirors, including that (a) Bidder H remained interested, but continued to propose a lower price per share than Rithm and had not confirmed if it would condition the signing or closing of the potential transaction on receiving the support of the Former EMD Group, (b) Bidder J remained several weeks away from being able to submit an offer, continued to lack committed financing and had indicated that discussions with the Former EMD Group were a condition to signing a definitive merger agreement with respect to a potential transaction, (c) Bidder K had entered into an NDA with the Company, gained access to the virtual data room and was performing preliminary diligence, (d) neither Bidder B nor Bidder D had responded to recent inquiries regarding the potential transaction, and (e) Bidder E had conveyed that it does not have the financing commitments to pursue the potential transaction. Representatives of J.P. Morgan further communicated that Rithm conveyed, in response to feedback from J.P. Morgan, that it intended to submit an updated offer letter that expressed more definitive positions on certain key deal points. In addition, representatives of J.P. Morgan explained that Rithm was willing to offer the Former EMD Group and all other Class A Unitholders the option to forgo the cash consideration they would otherwise receive and instead rollover their units into stock of either a subsidiary of Rithm or into Rithm itself, which may allow for those Class A Unitholders to continue to benefit from deferral of taxes. Representatives of J.P. Morgan stated that representatives of Rithm communicated to representatives of J.P. Morgan that it did not intend to condition the signing or closing of the potential transaction on the execution of a support or voting agreement with the Former EMD Group. After discussion, the Special Committee authorized its advisors to engage in negotiations with Rithm upon receipt of Rithm’s full package of proposed terms. After the attending members of the Company’s management left the meeting, representatives of J.P. Morgan discussed with the Special Committee the proposed price per share contained in the Rithm proposal of $11.00 per share of Class A Common Stock. The Special Committee resolved to reconvene upon receipt of the full package of proposed terms from Rithm.
Later that day, Rithm submitted to representatives of PJT Partners and J.P. Morgan an updated proposal to acquire the Class A Common Stock for $11.00 per share, which was substantially identical to their May 24th proposal letter, except that it: (a) clarified that Rithm may be interested in negotiating a buyout of the TRA, but only after a definitive merger agreement with respect to a potential transaction was executed, and (b) specifically indicated that Rithm would require Mr. Levin and a limited number of other key executives to enter into new employment agreements concurrently with executing a definitive merger agreement with respect to a potential transaction and that it may seek voting agreements from key employees (but not from any non-employee equityholders, including members of the Former EMD Group). Rithm’s updated letter again indicated that Rithm was open to offering a rollover to the Class A Unitholders (including the Former EMD Group), but Rithm noted that any rollover would need to be accompanied by governance and stockholder approval mechanisms that were appropriate for a transaction in which different classes of stockholders were offered different consideration options. Representatives of PJT Partners and J.P. Morgan promptly informed the Special Committee of such proposal. Rithm later clarified to J.P. Morgan that it would be willing to proceed with a potential transaction if only Mr. Levin (and no other key executives of the Company) entered into a new employment agreement with respect to a potential transaction.
On June 1, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present, representatives of J.P. Morgan reported on their recent discussions with Rithm, Bidder H, and Bidder K. Representatives of J.P. Morgan reported that Bidder H intended to submit a proposal of $10.00 per share for 100% of the shares of Class A Common Stock, but that (a) such proposal would require divestiture of the real estate business of the Company to fund a portion of the $10.00 per share consideration and other onerous closing conditions and would not be accompanied by a revised draft of the merger agreement and (b) Bidder H had not yet conducted substantial diligence on the Company. Representatives of J.P. Morgan also stated that Bidder K intended to conduct additional due diligence before
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submitting a proposal and that Rithm indicated that it intended to send a revised draft of the merger agreement. The Special Committee authorized (i) J.P. Morgan to continue to engage with Rithm regarding the open points in the offer it had submitted on May 25, 2023, and (ii) Latham & Watkins to engage with Rithm’s legal counsel, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), to progress the draft merger agreement once it was received. On the same day, representatives of Bidder H submitted an offer letter to representatives of PJT Partners and J.P. Morgan to purchase 100% of the shares of Class A Common Stock for $10.00 per share, subject to a number of assumptions and further due diligence. Representatives of PJT Partners and J.P. Morgan promptly informed the Special Committee of such proposal. On June 2, 2023, at the direction of Rithm’s management, representatives of its financial advisor, Citi, sent representatives of PJT Partners and J.P. Morgan the high-level terms that would apply to the rollover being offered to the Class A Unitholders as described in the Rithm offer.
Throughout the month of June, at the instruction of the Special Committee, representatives of Latham & Watkins and Skadden continued to discuss the potential terms and structure of a rollover that could be offered to Class A Unitholders, which would allow Class A Unitholders to elect to (subject to certain terms and conditions) forgo the cash consideration they would otherwise receive and instead rollover their units into stock of either a subsidiary of Rithm or into Rithm itself. Such discussions also addressed whether such a rollover structure, if implemented, should be accompanied by a non-waivable closing condition requiring an affirmative vote of a majority of the holders of Class A Common Stock who were not eligible to participate in such a rollover (a “Majority of Unaffiliated Vote Condition”). Ultimately Latham & Watkins and Skadden agreed that if Rithm and the Company agreed to proceed with a potential transaction that included a rollover option for Class A Unitholders, then a Majority of Unaffiliated Vote Condition would be included in the definitive merger agreement with respect to such a transaction.
On June 2, 2023, at the direction of Rithm’s management, representatives of Citi sent representatives of PJT Partners and J.P. Morgan the high-level terms that would potentially apply to the rollover being considered for the Class A Unitholders as described in the Rithm offer. Representatives of PJT Partners and J.P. Morgan promptly notified the Special Committee of such terms.
On June 3, 2023, at a meeting of the Special Committee with representatives of its legal advisor and J.P. Morgan present, representatives of J.P. Morgan again reported on its recent discussions with Rithm and Bidder K. Representatives of J.P. Morgan informed the Special Committee that Rithm had indicated it would, in response to requests by the Special Committee and its financial and legal advisors, submit certain items pertaining to the open points in the Rithm proposal, including a more detailed term sheet for the potential rollover terms, a draft employment agreement for Mr. Levin and revisions to the client consent condition. Representatives of Latham & Watkins stated that it would follow-up with Skadden on these open points. In addition, representatives of J.P. Morgan conveyed that (a) Bidder K indicated that it would submit a proposal the following week and (b) Bidder H would require an additional partner or partners to purchase the real estate business of the Company as a condition to its offer.
On June 4, 2023, representatives of Skadden sent representatives of Latham & Watkins the draft term sheet setting forth the terms of the rollover.
On June 5, 2023, representatives of Skadden sent representatives of Latham & Watkins the draft voting and support agreement that Rithm was requesting from Mr. Levin and certain other employees of the Company.
On June 6, 2023, J.P. Morgan and PJT Partners received a proposal from Bidder J at a price of $11.00 per share of Class A Common Stock, subject to a number of assumptions and further due diligence. Bidder J’s updated proposal provided details regarding Bidder J’s expected sources of financing to support the payment of consideration indicated in its proposal, but Bidder J did not provide evidence of commitments with respect to such financing. The updated proposal also included requests for the Special Committee’s consent under Bidder J’s NDA for Bidder J to: (a) speak to the Former EMD Group prior to entry into any definitive agreement with respect to a potential transaction, and (b) potentially co-bid with Bidder H and certain other third parties who may be interested in acquiring the Company’s CLO business line. PJT Partners and J.P. Morgan promptly informed the Special Committee of such proposal. After consideration with its financial and legal advisors, the Special Committee ultimately provided its consent for Bidder J to co-bid with Bidder H, but did not provide its consent for Bidder J to contact the Former EMD Group.
On June 7, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update on the renewed bid process, noting
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that (a) the offer received from Bidder J on the prior day indicated that Bidder J (i) had yet to secure the financing commitments required to enter into a definitive merger agreement with respect to a potential transaction, (ii) was not willing to execute definitive agreements with respect to a potential transaction without first speaking with the Former EMD Group and (iii) remained several weeks away from completing its due diligence and submitting a definitive offer, (b) Bidder K had stated an intention to submit an offer in the coming days, (c) Bidder H’s outstanding offer remained less favorable than the other offers received to date and (d) Rithm had requested to engage with Mr. Levin regarding a proposed compensation framework for his employment agreement. Representatives of J.P. Morgan also indicated that, while Rithm continued to express its willingness to execute a definitive merger agreement prior to any negotiations with the Former EMD Group, Rithm wanted to provide the Former EMD Group a briefing prior to the public announcement of the transaction. Following discussions, the Special Committee determined that Rithm should be permitted to share with Mr. Levin an indicative compensation framework for the Company’s employees following the consummation of the potential transaction, and Mr. Levin should report his feedback on such indicative compensation framework to the Special Committee so the Special Committee may assess the viability of a potential transaction with Rithm that was conditioned on Mr. Levin executing an amendment to his employment agreement.
On June 8, 2023, Rithm, through Citi, sent J.P. Morgan and Mr. Levin an indicative compensation framework for the Company’s employees following the consummation of the potential transaction and a term sheet for a long-term incentive plan.
On the same day, Bidder K sent J.P. Morgan an offer letter with a price of approximately $11.00 per share of Class A Common Stock, made up of $2.60 in cash, Bidder K shares worth approximately $6.40 and a contingent value right (“CVR”), capped at a value of $2.00 per CVR, subject to a number of assumptions and further due diligence.
On June 9, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of J.P. Morgan provided an update on the proposals received to date and noted that Bidder K’s inclusion of a CVR in its proposal reduced the present value of its offer below $11.00 per share of Class A Common Stock, and that, therefore, the offer was less attractive than Rithm’s existing offer of $11.00 per share of Class A Common Stock. The Company’s management then discussed their review of Rithm’s indicative compensation framework, reporting that they believed that it would likely be possible to reach agreement under the framework outlined, but that additional discussions would be necessary to discuss specific terms in more detail. After discussion, the Special Committee authorized J.P. Morgan to request that Rithm increase its offer price to $12.00 per share for Class A Common Stock and indicate that if Rithm accepted the increased offer price, Rithm would be authorized to negotiate with Mr. Levin regarding a new employment agreement.
On June 10, 2023, representatives of J.P. Morgan transmitted to the Board of Directors a written memorandum disclosing J.P. Morgan’s material relationships with Rithm, Bidder H, Bidder J and Bidder K.
On June 10, 2023, representatives of Bidder H sent representatives of J.P. Morgan and PJT Partners a revised offer of $10.92 per share of Class A Common Stock, subject to a number of assumptions and further due diligence. Representatives of PJT Partners and J.P. Morgan promptly informed the Special Committee of such proposal.
On June 11, 2023, the Special Committee held a series of meetings with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present. Representatives of J.P. Morgan updated the Special Committee on discussions with Rithm, reporting that after extensive discussions and negotiations over the course of June 10th and June 11th, Rithm had conditionally agreed to increase its proposed price to $12.00 per share of Class A Common Stock on the basis that its assumptions regarding the aggregate amount it would need to expend on employment compensation would be accurate. Accordingly, the Special Committee authorized J.P. Morgan to grant Rithm permission to negotiate an employment and compensation package with Mr. Levin.
The Special Committee then discussed the proposal from Bidder K, including a revised draft of the merger agreement that Bidder K had sent to J.P. Morgan on June 9, 2023. Representatives of Latham & Watkins noted that the Bidder K merger agreement contained significant deviations from the form provided, resulting in significantly more conditionality and less deal certainty than the Rithm merger agreement. The Special
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Committee authorized J.P. Morgan to communicate to Bidder K that Bidder K’s offer differed from the expectations of the Special Committee with respect to conditionality. The Special Committee additionally authorized J.P. Morgan to engage with the advisors to the Special Committee on open matters in the Bidder K offer and to continue discussions with Bidder K.
Representatives of J.P. Morgan then updated the Special Committee on the proposal received from Bidder H of $10.92 per share of Class A Common Stock, noting that the Bidder H proposal contained the most burdensome closing conditions provisions and the lowest price per share of all of the current proposals received in connection with the renewed bid process for the potential transaction.
Representatives of J.P. Morgan next updated the Special Committee on the proposal received from Bidder J of $11.00 per share of Class A Common Stock, noting that Bidder J still did not have the financing commitments in place in order to imminently enter into a definitive merger agreement with respect to a potential transaction and that the terms on which Bidder J was willing to transact were not known as it had not provided a mark-up of the merger agreement. Following discussion, the Special Committee authorized J.P. Morgan to request that Bidder J provide a revised merger agreement in order for the Special Committee to assess the Bidder J’s proposal.
The Company’s management next provided to the Special Committee an updated financial projection case of the Company if it were to not proceed with a potential transaction and instead pursued a standalone strategy, with assumptions, among others, that (i) the disputes with the Former EMD Group continued to (x) negatively impact the business, (y) challenge fundraising and (z) have an additional impact to redemptions, (ii) an agreement to cease the disputes with the Former EMD Group could not be reached with the Former EMD Group, (iii) that the failure to consummate a potential transaction upon completion of the strategic alternatives review would have a negative impact on the business of the Company, (iv) redemptions would not reach a level which would have a material adverse effect on the Company and (v) the Company would be able to continue as a going concern and would not pursue a winddown (such financial projections, the “Standalone Strategy Forecasts”). The Company’s management noted that the Standalone Strategy Forecasts included the results of the first fiscal quarter of 2023, as well as additional expenses for advisors given the extended length of the offer process in connection with a potential transaction. At the conclusion of this meeting, the Special Committee approved the Standalone Strategy Forecasts as the comparison case for the potential transaction and directed PJT Partners to use the Standalone Strategy Forecasts in connection with rendering its fairness opinion to the Special Committee and performing its related financial analysis, as described above in the sections titled “The Mergers — Opinions of Financial Advisors — Opinion of PJT Partners LP.” The Company (acting on the recommendation of the Special Committee) also directed J.P. Morgan to use the Standalone Strategy Forecasts in connection with rendering its fairness opinion to the Board of Directors and performing its related financial analysis, as described above in the sections titled “The Mergers — Opinions of Financial Advisors — Opinion of J.P. Morgan Securities LLC.”
On June 13, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update on the progress of the potential transactions, noting that (a) Bidder H remained interested in the potential transaction but did not intend to increase its offer price, (b) Bidder J intended to submit a merger agreement markup in the coming days and (c) Bidder K conducted diligence calls with the Company over the previous few days and requested to speak with Mr. Levin and other senior members of management regarding a compensation framework. The Special Committee noted that the Bidder K’s proposed price was not competitive with the proposals received from other potential acquirors, and that the Bidder K merger agreement continued to contain significant conditionality, and so declined to authorize compensation discussions between Bidder K and Mr. Levin. The Special Committee then authorized J.P. Morgan to convey to Bidder K that it must advance its proposed timeline for entering into a definitive merger agreement with respect to a potential transaction with the Company, increase the proposed price and reduce conditionality before the Special Committee would be prepared to authorize discussions on compensation between the Company’s management and Bidder K.
On June 14, 2023, representatives of Bidder J sent a revised merger agreement to representatives of Latham & Watkins.
On June 15, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan discussed the progress of potential acquirors in connection with the potential transaction, noting that representatives of J.P. Morgan communicated to (a) Bidder H that the Special Committee did not intend to move forward with Bidder H’s proposal and (b) Bidder K that
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Bidder K’s proposal had a lower offer price and more burdensome conditions to closing than the Special Committee was willing to accept at this time. Representatives of J.P. Morgan discussed conversations between Rithm and Mr. Levin regarding compensation of the Company’s management. Representatives of J.P. Morgan also raised that Bidder J submitted a revised merger agreement. Representatives of Latham & Watkins then discussed the revised merger agreement received from Bidder J. It was noted that the revised merger agreement proposed by Bidder J contained significantly more conditionality than the Rithm offer and was also behind from a “speed to execution” perspective. Notably, unlike the Rithm offer, which had a creditworthy counterparty that the Company could seek recourse against to pay the closing consideration and damages in the event of a breach of the merger agreement, Bidder J did not provide any financing commitments from creditworthy parties to support payment of the closing consideration, and delivered a merger agreement that prevented the Company from seeking any damages from a creditworthy counterparty in the event of a breach of the merger agreement. In addition, it was discussed that the transaction proposed by Bidder J may make client consent more difficult to obtain because Bidder J had indicated its intent to not have Mr. Levin (considered a “key man”2 under certain client arrangements) continue in a long-term role at the Company following the closing of the potential transaction, and instead Bidder J intended that the Company’s investment function would be overseen by an “Office of the CIO” which would include (without limitation) representatives of Bidder J and certain third parties that had no affiliation with the Company but would be selected and hired by Bidder J. As such it was discussed that the client consent condition as currently proposed by Bidder J — while similar to the one negotiated with Rithm — may be more difficult for the Company to satisfy. Latham & Watkins also advised that there were a number of material terms in the revised merger agreement which remained subject to further diligence or consideration by Bidder J, including all tax matters (which were reserved for comment), the extent to which Bidder J would need to carve-out and divest the CLO Business to an unaffiliated third party contemporaneously with the closing of the proposed transaction, the terms of a rollover that would be offered to Class A Unitholders and the extent to which any additional third-party consents would be closing conditions to the potential transaction. The Special Committee authorized Latham & Watkins to provide feedback on the revised merger agreement to Bidder J’s outside counsel (which representatives of Latham & Watkins did later that day).
On June 19, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and Weil present, representatives of J.P. Morgan provided an update on J.P. Morgan’s discussions with Rithm and Bidder J. Representatives of J.P. Morgan informed the Special Committee that Bidder J continued to progress its proposal but communicated that it had not yet secured the financing in order to consummate the potential transaction and that it wanted access to additional diligence materials. The Special Committee authorized its financial and legal advisors to prepare responses to Bidder J’s diligence requests and provide Bidder J this additional access.
On June 23, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and Weil present, J.P. Morgan provided an update on the potential acquirors involved in the potential transaction, noting that Bidder K conveyed to J.P. Morgan that Bidder K did not intend to progress its offer and communicated it was no longer willing to proceed with a potential transaction on the price contained in its prior proposal.
Also on June 23, at the instruction of the Special Committee, Latham & Watkins sent Skadden a revised draft merger agreement which (a) required Rithm to offer a rollover to Class A Unitholders, subject to certain terms and conditions, and (b) included a Majority of Unaffiliated Vote Condition. On June 26, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present, representatives of Latham & Watkins reported that Rithm had requested to arrange discussions with the Former EMD Group, and representatives of J.P. Morgan reported that Rithm was unwilling to execute a definitive merger agreement with respect to a potential transaction unless Rithm was authorized to engage with the Former EMD Group prior to the planned signing date.
2
A “key man” provision generally provides that, in the event that certain identified personnel cease to devote a sufficient amount of time and efforts to the management of the investment activities of the client or fund (an “Exit”), clients in open-ended funds will have a liquidity right, and in the case of closed-ended funds, investment activities will become suspended and permanently terminate, and the funds will be put into wind down following a harvest period or immediately, absent receiving requisite client consent. Clients of the Company representing over half of the Signing Revenue Run Rate (as defined herein) have the benefit of one of these “key man” provisions involving Mr. Levin, which generally take the form of one of the following formulations: (1) triggered if Mr. Levin Exits or (2) triggered if four members of the Portfolio Committee (of which Mr. Levin is a member) Exit within an 18-month period. One member of the Portfolio Committee Exited in January 2023, so the second formulation will trigger if three more members Exit by July 27, 2024.
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On June 27, 2023, representatives of Rithm, Skadden, Citi, Latham & Watkins, Weil, J.P. Morgan, PJT Partners and the Company’s management discussed the Rithm proposal, the ongoing negotiations of transaction documents and the potential for discussions between Rithm and the Former EMD Group. During these discussions, Rithm confirmed that it would be unwilling to execute a definitive merger agreement with respect to a potential transaction unless Rithm was authorized to engage with the Former EMD Group prior to the planned signing date.
On June 28, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of Latham & Watkins updated the Special Committee on discussions between Latham & Watkins and Skadden regarding the draft merger agreement and Rithm’s proposed engagement with the Former EMD Group. The Special Committee determined that it would not consent to Rithm engaging with the Former EMD Group unless Rithm reconfirmed its proposed offer price of $12.00 per share of Class A Common Stock.
On June 30, 2023, representatives of Citi sent representatives of J.P. Morgan a proposal on behalf of Rithm for $11.00 per share of Class A Common Stock. On the same day, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, J.P. Morgan informed the Special Committee that Rithm revised its offer price to $11.00 per share of Class A Common Stock, noting that the revised price was due to Rithm’s belief that it would need to spend more money than anticipated in the form of a long-term incentive plan and retention plan for the Company’s senior leadership (excluding Mr. Levin, with whom Rithm intended to enter into revised employment agreement terms which substantially reduce his compensation). J.P. Morgan explained that Rithm had concluded, following additional diligence and focus on the proceeds allocation among the key employees, that it would be required to spend more than was provided for in its original model in order to retain and incentivize key members of senior leadership of the Company (excluding Mr. Levin), particularly in light of the significant amount of equity incentives (including the LP Class E Units referenced above) which would not receive any consideration in connection with the potential transaction. As a result, Rithm had agreed to establish (a) a long-term incentive plan and (b) a $30 million retention pool (in which Mr. Levin would not participate), also for incentive purposes. Following a discussion, the Special Committee authorized J.P. Morgan and PJT Partners to discuss the Rithm proposal with Citi in an effort to increase Rithm’s offered per share price.
On July 2, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present, the Company’s management informed the Special Committee that, as authorized and directed by the Special Committee, Rithm and Mr. Levin had made significant progress on an employment and compensation package and voting and support agreement and that Rithm had proposed a draft long-term incentive plan and retention plan for the Company’s management (excluding Mr. Levin) following the closing of the potential transaction. Representatives of J.P. Morgan raised that with the Special Committee’s approval, it would discuss the Rithm offer with Citi in an effort to increase Rithm’s offered per share price.
On July 4, 2023, representatives of Rithm and Citi communicated to representatives of J.P. Morgan that Rithm would increase its offer to $11.05 per share of Class A Common Stock and would target an announcement date of July 10, 2023. Representatives of J.P. Morgan reported the increased proposed price to the Special Committee, and accordingly the Special Committee authorized Rithm to engage in discussions with the Former EMD Group prior to the target announcement date. Representatives of Skadden sent representatives of Dechert a draft confidentiality agreement to be entered into between the Former EMD Group and Rithm.
On July 5, 2023, representatives of PJT Partners transmitted to the Special Committee a written memorandum disclosing PJT Partners’ material relationships with respect to Rithm and Bidder K.
On July 6, 2023, the Former EMD Group entered into a confidentiality agreement with Rithm.
On July 7, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan and the Company’s management present, representatives of PJT Partners reported that Bidder J had conveyed a revised proposal with a price of $11.50 per share of Class A Common Stock and a client consent threshold of 75%. When asked about the ability to meet the client consent threshold of 75%, the Company’s management conveyed its view that, given Bidder J’s stated post-closing business plans (including that the Company’s investment function would be overseen by an “Office of the CIO” which would include (without limitation) representatives of Bidder J and certain third parties that had no affiliation with the Company but would be selected and hired by Bidder J), the Company’s management remained concerned about its ability to
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retain current key employees, and the likelihood of achieving the client consent condition. The Special Committee also noted that Bidder J had still not delivered any financing commitments from creditworthy parties to support payment of the closing consideration. Additionally, at this meeting, representatives of PJT Partners reviewed with the Special Committee PJT Partners’ preliminary financial analysis of the Rithm proposal, and representatives of J.P. Morgan reviewed with the Special Committee J.P. Morgan’s preliminary financial analysis of the Rithm proposal. The Company’s management informed the Special Committee of its belief that the Company would likely be able to meet the client consent condition and other closing conditions contained in the draft merger agreement with Rithm. Representatives of the Company’s management noted that voting and support agreements between Rithm and certain members of the Company’s management had been finalized. The Company’s management also reported that while the employment agreement amendment with Mr. Levin was substantially complete, there remained open issues that Rithm and Mr. Levin would continue to work through.
Following the July 7, 2023 meeting of the Special Committee, the Board of Directors convened a meeting attended by its legal advisors and financial advisors. At that meeting, representatives of J.P. Morgan discussed the bid process conducted by the Special Committee and the key terms of the Rithm proposal and the Board of Directors discussed the proposed price of the Rithm proposal and the request from Rithm to engage in discussions with the Former EMD Group regarding the potential transaction. The Special Committee discussed with the Board of Directors the process run by the Special Committee over the offer process and the counsel they received from their financial and legal advisors. Representatives of the Company’s management informed the Special Committee of the Company’s management’s expectation that the Company would likely be able to meet the client consent condition and other closing conditions contained in the draft merger agreement with Rithm and discussed an overview of the proposed changes to the compensation and retention of the Company’s management. Representatives of J.P. Morgan reviewed J.P. Morgan’s preliminary financial analysis of the Rithm proposal.
On July 8, 2023, at the direction of the Special Committee, representatives of PJT Partners and the financial advisor to Bidder J discussed the Bidder J offer, and, at the direction of the Special Committee, representatives of PJT Partners relayed to the financial advisor to Bidder J that the Special Committee would look to Bidder J to revise its proposed client consent condition.
On July 8, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, Ms. Engel reported that she had spoken to Mr. Levin, who had indicated that one issue with respect to Mr. Levin’s employment arrangements with Rithm remained. The Special Committee determined not to intervene in negotiations between Mr. Levin and Rithm on this matter and instructed Latham & Watkins to inform Skadden that all negotiations regarding Mr. Levin’s employment and compensation arrangements should continue to be conducted directly between Rithm and Mr. Levin and his separate counsel.
On July 9, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of PJT Partners provided an overview of discussions between PJT Partners and the financial advisor to Bidder J, noting that the financial advisor to Bidder J proposed to arrange discussions between Mr. Levin and Bidder J’s CEO regarding the Company’s management following the closing of the potential transaction and that the financial advisor to Bidder J indicated that it intended to propose an alternative to the proposed construct of the client consent condition but that Bidder J may revise its offer price downward based on the revisions it would make to the client consent condition construct. Representatives of Latham & Watkins confirmed that, based on discussions with the legal counsel to Bidder J, Bidder J was willing to revise the proposed construct of the client consent condition. Latham & Watkins additionally confirmed that, based on its conversations with legal counsel to Bidder J, it was of the belief that Bidder J would require additional time to complete its legal diligence on the Company.
On July 10, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, Ms. Engel reported that she had spoken to Mr. Levin and J.P. Morgan, and learned that (a) Rithm had agreed to increase the retention incentive program from $30 million to $35 million and allocate $5 million of its retention incentive program to Mr. Levin, (b) the offer price would not be reduced and (c) accordingly Rithm and Mr. Levin had reached an agreement on the final outstanding items in the employment arrangement. Both Rithm and Mr. Levin reported that all employment related arrangements were final and no additional open issues remained. The Special Committee and its advisors then discussed the Bidder J proposal, noting that if Bidder J were to propose a price of $11.00 per share of Class A Common Stock without a client consent condition, then the Special Committee would want to pursue a transaction in parallel with Bidder J, but that the client consent
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condition as drafted presented significant closing risk that was not present in the Rithm offer, and that Bidder J also lagged behind Rithm in terms of its ability to enter into a transaction and did not provide any financing commitments from creditworthy parties to support payment of the closing consideration.
On the same day, at a subsequent meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update that Rithm requested that the Company enter into an exclusivity agreement with Rithm. Representatives of Latham & Watkins advised the Special Committee that an exclusivity agreement between the Company and Rithm would prevent the Special Committee advisors from working with Bidder J to progress its offer. The Special Committee determined that it would not authorize the Company to enter into an exclusivity agreement with Rithm. Representatives of J.P. Morgan and Latham & Watkins discussed that Rithm was scheduling discussions with the Former EMD Group and had set a target announcement date of July 17, 2023. The Special Committee authorized Latham & Watkins to engage with legal counsel to Bidder J to negotiate a more favorable client consent condition. On the same day, the financial advisor to Bidder J provided representatives of J.P. Morgan and PJT Partners with a revised client consent provision, which J.P. Morgan and PJT Partners promptly provided to the Special Committee.
Between July 10, 2023 and July 17, 2023, the financial and legal advisors of Bidder J and financial and legal advisors to the Special Committee, acting at the direction of the Special Committee, exchanged a variety of proposals and counterproposals regarding the content of the client consent condition and related provisions of the draft merger agreement with respect to a potential transaction. The final proposal was delivered by representatives of Bidder J to representatives of PJT Partners on July 17, 2023, and PJT Partners promptly provided such proposal to the Special Committee, which proposal confirmed that Bidder J would be willing to proceed with a transaction with a price of $11.00 per share of Class A Common Stock and a closing condition requiring a 80% client consent threshold for the Company CLO business line, an 80% client consent threshold for its Real Estate business line, and that Bidder J may be willing to forego a client consent threshold in respect of the Company’s Multi-Strategy and Opportunistic Credit Funds business lines, subject to ongoing discussion among Bidder J’s legal counsel and Latham & Watkins. The Special Committee authorized Latham & Watkins to prepare a revised draft of the merger agreement reflecting the terms outlined in the latest proposal from Bidder J, which it delivered on July 20, 2023, together with a renewed request for Bidder J to provide the draft equity commitment letters referenced in their form merger agreement.
Between July 11, 2023 and July 17, 2023, the Special Committee held a series of meetings, with representatives of its financial and legal advisors and J.P. Morgan present, to receive reports regarding, and discuss the status of, Rithm’s discussions with the Former EMD Group. Representatives of Latham & Watkins, PJT Partners and J.P. Morgan reported back details on the conversations between Rithm and the Former EMD Group that were relayed to them by Skadden and/or Citi, including that the Former EMD Group had provided a list of information requests and diligence-type questions regarding the potential transaction and Rithm’s proposed plans for the operation of the Company following the consummation of the potential transaction. In addition, the Former EMD Group requested copies of all transaction documentation, which at this stage had been fully negotiated between Rithm and the Company or, in the case of employment arrangements, between Rithm and Mr. Levin. Following Rithm’s request, the Special Committee authorized the provision of all documentation to which the Company was a party.
On July 17, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, representatives of PJT Partners informed the Special Committee that Rithm had conveyed that the Former EMD Group had raised a number of issues in connection with Rithm’s proposal for the Former EMD Group to enter into a support agreement in connection with the proposed transaction. The issues included, among other things: (a) the structure and terms of the potential rollover, including tax implications for the Former EMD Group related thereto, (b) issues relating to payments in connection with the TRA, including a request to prepay a portion of the TRA at the closing of the potential transaction, (c) requests that Rithm reimburse the Former EMD Group for historical legal fees, (d) requests that the Former EMD Group have consent rights over any press releases or public filings made in connection with the transaction, (e) the terms of a release (and exceptions thereto) from the Former EMD Group as it related to potential claims against the Company, (f) requests that Rithm reopen the agreements it had made with Mr. Levin regarding Mr. Levin’s post-closing compensation arrangements to further decrease Mr. Levin’s compensation and (g) increasing the price per share Rithm is offering to holders of Class A Common Stock and Class A Unitholders. Representatives of PJT Partners and J.P.
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Morgan reported that Rithm communicated a desire to secure a support agreement from the Former EMD Group and that it sought to delay the execution of the definitive merger agreement to finalize negotiations with the Former EMD Group. Representatives of PJT Partners and J.P. Morgan reported that Rithm had communicated that it would continue to engage in negotiations regarding the Former EMD Considerations, consider the request for a price-share increase and that it intended to send Mr. Levin a revised employment agreement amendment that reflected a revised employment construct that reduced Mr. Levin’s compensation to an extent, and in a manner, that they believed the Former EMD Group would support (which employment agreement amendment was sent to Mr. Levin later on July 17, 2023).
On July 20, 2023, representatives of Citi reported to representatives of J.P. Morgan that Rithm was not able to reach agreement with the Former EMD Group on the various points referenced above and did not view a resolution of these points as likely in the near term. As such, at the request of Rithm, representatives of Citi reported to representatives of J.P. Morgan that Rithm was prepared to enter into a definitive merger agreement with respect to the potential transaction without a signed support agreement from the Former EMD Group and that it would leave open the possibility of reaching resolution on the open points relating to the Former EMD Considerations in exchange for an executed support agreement in the period following the execution of definitive documentation. However, representatives of J.P. Morgan further reported that because Rithm was ultimately hoping to continue negotiations post-signing with the Former EMD Group, Rithm did still want Mr. Levin to further decrease his compensation, and that if Mr. Levin met Rithm’s request, it would consider an increased price per share of Class A Common Stock, LP Class A Units and LP Class A-1 Units.
Between July 20, 2023, and July 22, 2023, Mr. Levin engaged in negotiations with Rithm and agreed to further decrease his overall compensation in his amended employment agreement in exchange for Rithm agreeing to increase its offer price per share of Class A Common Stock. Mr. Levin’s employment counsel and Debevoise & Plimpton LLP, employment counsel to Rithm, continued to negotiate the documentation of these new terms of Mr. Levin’s employment and compensation package, which was finalized on July 22, 2023.
On July 22, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and J.P. Morgan present, representatives of J.P. Morgan provided an update on the status of negotiations with Rithm, including that Rithm proposed to increase the proposed price to $11.15 per share of Class A Common Stock. The Special Committee discussed the revised price with its financial and legal advisors, the risks to the potential transaction if the Special Committee were to insist on another price increase and the steps necessary to execute the definitive documents for a potential transaction with Rithm. The Special Committee asked representatives of J.P. Morgan for their view regarding the likelihood of Rithm increasing its offer price above $11.15 per share of Class A Common Stock, and representatives of J.P. Morgan reported that representatives of Citi had indicated that $11.15 represented Rithm’s best and final offer. After discussion, the Special Committee authorized J.P. Morgan to convey that the Special Committee was prepared to recommend the current draft of the merger agreement to the Board of Directors, subject to resolution of any outstanding points in the definitive documentation with respect to the potential transaction and instructed Latham & Watkins to engage with Skadden accordingly.
On July 23, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors present, the Special Committee reviewed the final outcome of negotiations with Rithm, including a presentation by representatives of Latham & Watkins of the legal obligations of the members of the Special Committee and the key provisions of the draft merger agreement. At the request of the Special Committee, representatives of Latham & Watkins provided an update on discussions with Bidder J, who was not prepared to execute a definitive agreement with respect to a potential transaction at the time of the meeting. PJT Partners rendered its oral opinion, subsequently confirmed in its written opinion, dated as of July 23, 2023, to the Special Committee that, as of the date thereof and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion (which are stated in its written opinion), the Public Merger Consideration to be received by the holders of shares of Class A Common Stock (other than holders of shares of Class A Common Stock that hold Partnership Units and their respective affiliates that are holders of shares of Class A Common Stock) in the Transactions was fair to such holders from a financial point of view. After discussing the final
1
The Company is party to a customary NDA with Bidder J, entered into on December 21, 2022, that prohibits the Company from publicly disclosing the identity of Bidder J or any members of the Consortium. All NDAs entered into by the Company with other potential acquirers include a similar prohibition.
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terms of the Merger Agreement, noting: (1) the extensive bidder outreach activity by J.P. Morgan and PJT Partners since October 2022 (including engaging seventy potential acquirors, twenty-five of which signed confidentiality agreements and commenced due diligence and eleven of which submitted offers to acquire the Company or certain of its assets), (2) the fact that the Company had issued a press release in November 2022 indicating that the Special Committee had commenced a review of strategic alternatives and had yet to announce a transaction, which was creating uncertainty among fund investors, (3) the extensive deliberation of the Special Committee over the course of the strategic alternative review process, including meeting in excess of 110 times, with many of such meetings including executive sessions in which only the Special Committee and representatives of its independent financial and legal advisors were present, (4) the fact that neither Bidder J nor any other bidder was prepared to execute a definitive merger agreement with respect to a potential transaction on the same terms or timeline that Rithm was willing to execute the Merger Agreement, (5) the fact that no other bidder who remained involved in the bid process was willing to acquire the Company at a price at or in excess of $11.15 per share of Class A Common Stock, (6) the fact that, absent a potential transaction, the Company was unlikely to resolve the uncertainty and perceived instability relating to the disputes with the Former EMD Group, and as such the Company was likely to continue to experience negative effects on fund investor sentiment, and (7) the high degree of deal certainty reflected in the terms of the Merger Agreement, the Special Committee unanimously recommended that the Board of Directors approve the execution by the Company of definitive transaction documents and recommend that the Company Stockholders vote to adopt the Merger Agreement.
On the same day, the Board of Directors convened a meeting with representatives of its financial and legal advisors, PJT Partners and Latham & Watkins present, at which time the Special Committee conveyed its recommendation that the Board of Directors approve the execution by the Company of definitive transaction documents and recommend that the Company Stockholders vote to adopt the Merger Agreement. The Board of Directors then reviewed with the Company’s management, together with the Company’s legal and financial advisors, including representatives of J.P. Morgan, PJT Partners, Weil and Latham & Watkins, the final outcome of negotiations. Representatives of J.P. Morgan, as financial advisor to the Company, rendered an oral opinion to the Board of Directors, subsequently confirmed by delivery of a written opinion, dated July 23, 2023, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, as of July 23, 2023, the per share merger consideration of $11.15 to be received by the holders of Class A Common Stock in the merger of Rithm and the Company is fair to such stockholders from a financial point of view. After discussing potential reasons for and against the proposed Mergers described below and in the section titled “The Mergers — Purposes and Reasons of the Company for the Mergers; Recommendation of the Board of Directors and the Special Committee; Fairness of the Mergers” beginning on page 79, the Board of Directors unanimously approved and declared advisable the Merger Agreement with Rithm, the Mergers and all of the other Transactions contemplated by the Merger Agreement; declared that it is in the best interests of the Company and the Company Stockholders that the Company enter into the Merger Agreement and consummate the Transactions; and recommended that Company Stockholders vote in favor of the adoption of the Transactions and the Merger Agreement. Later on July 23, 2023, the Company, Rithm and the other parties thereto executed the Merger Agreement.
On July 24, 2023, the Company and Rithm issued a joint press release announcing the execution of the Merger Agreement before the opening of trading on NYSE.
On August 12, 2023, representatives of J.P. Morgan and PJT Partners received an unsolicited, non-binding proposal from a consortium of bidders led by the founder of Bidder J1 (the “Consortium”) offering to acquire the Company for $12.25 per share of Class A Common Stock (such proposal, as later supplemented by the August 14 Clarifications, the “August 12 Proposal”) but which proposal, from the Special Committee’s perspective, raised a number of questions as to the adequacy of committed financing and closing certainty, as described below. The August 12 Proposal contemplated the following:
unspecified portions of the Company’s CLO and CFO business lines would be sold to Bidder H in an asset sale (the “CLO Sale”), and then a newly-formed shell entity would acquire the Company on similar terms and conditions as contemplated in the Merger Agreement with Rithm, except with respect to the key differences noted below;
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the Consortium stated that its newly-formed shell entity would be financed by a combination of: (a) $288 million of equity financing from four unaffiliated parties, (b) $50 million of debt financing from Bidder H, (c) approximately $210 million in proceeds from the CLO Sale from Bidder H, and (d) cash on the Company’s balance sheet (collectively, the “Potential Funding Sources”);
the Consortium delivered five cross-conditioned commitment letters from four unaffiliated parties to fund up to a maximum amount of approximately $288 million (each of which conditioned the funding of the commitments in its letter upon the full funding of the commitments under all the other letters);
the Consortium did not deliver any commitment letters or other documentation from Bidder H in respect of the $260 million purported to be provided by Bidder H in respect of the debt financing or the CLO Sale;
the Consortium limited their monetary liability for damages (including damages arising from a failure to fund and close the transaction) to $19.6 million;
the closing of the proposed transaction would be conditioned upon the Company achieving an 80% client run-rate consent threshold for its CLO business line (which would require clients to consent to Bidder H acquiring the CLO business), an 80% client run-rate consent threshold for its Real Estate business line, and a 50.1% client run-rate consent threshold in respect of the Company’s Multi-Strategy and Opportunistic Credit business lines (collectively, the “Consortium Client Consent Condition”);
the Consortium stated that it would offer a similar rollover option to Class A Unitholders as is offered under the Merger Agreement, but its rollover would not be conditioned upon a minimum percentage of Class A Unitholders electing to participate in the rollover;
the Consortium stated that it would be willing to employ certain key executives of the Company, including Mr. Levin and Mr. Orbuch, and provide a compensation package no worse than under the compensation package they would have in a proposed transaction with Rithm, but the Consortium did not specify the employment terms that the Consortium was prepared to offer to such key executives or the ongoing role these executives would have in the Company’s Investment Function going forward; and
upon closing of the transaction outlined in the August 12 Proposal, the Company’s Investment Function would be overseen by an “Office of the CIO” which would include (without limitation) representatives of Bidder J, Mr. Levin, and certain third parties (two of whom had been previously identified by Bidder J) who were not currently employed by the Company or the Consortium but who would be selected and hired by the founder of Bidder J.
On August 13, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, and the Company’s management present, the Special Committee discussed the August 12 Proposal with all attendees, including the steps required to evaluate the proposal and the initial impressions of the proposal. Representatives of Latham & Watkins described the restrictions imposed by the Merger Agreement on the Company and its representatives’ ability to discuss the August 12 Proposal with the Consortium and certain factors that the Special Committee should consider in evaluating whether the August 12 Proposal constituted, or was reasonably expected to lead to, a Superior Proposal (any such conclusion in the affirmative, a “Superior Proposal Determination”). In particular, representatives of Latham & Watkins made clear that the terms of the Merger Agreement with Rithm included a customary non-solicitation provision that prohibits any discussions or negotiations with the Consortium (or any other third party) unless the Special Committee and the Board (acting on recommendation of the Special Committee) makes a Superior Proposal Determination and that
2
As background, institutional clients, like those invested in the Company’s investment funds, generally spend significant time and resources (including the use of third party due diligence and consulting services) underwriting the investment capability, strategies, controls, processes, personnel, track record, risk mitigation and many other elements of a potential fund manager prior to making an investment. In general, this underwriting focuses on evaluating the following three core parts of a manager’s investment function (the “Investment Function”) across a long period of time and over multiple market cycles:

Investment Strategy: The investment objective (risk and reward) of the fund and the specific strategies that will be pursued to accomplish the objective, including risk tolerance, volatility, hedging etc.;

Investment Process: The decision-making, guidelines, processes and controls that govern the manager’s application of the investment strategy; and

Investment Team: The people responsible for implementing the investment strategy and investment process, including their tenure working together, their experience managing the fund in question and their track record in managing the fund.
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a failure to abide by these terms could result in a breach of the Merger Agreement with Rithm that could potentially result in Rithm having an ability not to close the transaction or to terminate the Merger Agreement. Representatives of Latham & Watkins indicated further that the Merger Agreement with Rithm did allow the Special Committee to ask clarifying questions of the Consortium to the extent necessary to further assess any unsolicited offer.
The Special Committee discussed the August 12 Proposal and noted that while the price per share of Class A Common Stock was higher than the price per share of Class A Common Stock in the Public Merger, the Consortium had not delivered (a) documentation evidencing a binding commitment from Bidder H in respect of $260 million necessary for the Consortium to consummate the proposed transaction, (b) evidence that the amounts supplied by the Potential Funding Sources, if delivered at all, would be sufficient to pay the consideration and other fees and expenses that would be due in connection with the consummation of the transactions outlined in the August 12 Proposal, or (c) information regarding the Consortium’s anticipated timeline to signing a definitive merger agreement or satisfying applicable conditions to closing.
The Special Committee authorized its legal and financial advisors to (1) notify Rithm of the unsolicited proposal in accordance with the Company’s obligations under the Merger Agreement and (2) request that the Consortium clarify certain points in the August 12 Proposal, including, among other things, that it provide (i) documentation evidencing the debt financing commitment from Bidder H and the CLO Sale to Bidder H, (ii) a detailed sources and uses table that would set forth the Consortium’s assumptions regarding the amount of consideration necessary to consummate the transaction and the identity of each source of funding therefor, (iii) the scope of anticipated regulatory approvals that would be required in light of the Consortium members’ respective businesses, (iv) more detailed information about the proposed terms for the rollover, equity incentive arrangements and employment arrangements that were referenced in the August 12 Proposal, and (v) information regarding the proposed “Office of the CIO” to assess the nature of any proposed changes to the Company’s Investment Function following the Closing.
Later that day, at the direction of the Special Committee, (a) representatives of Latham & Watkins notified representatives of Rithm and Skadden of the August 12 Proposal as required under the terms of the Merger Agreement and (b) representatives of PJT Partners sent the Special Committee’s requested clarifications to the August 12 Proposal to representatives of the Consortium and its financial and legal advisors.
On August 14, 2023, at a meeting of the Special Committee with representatives of Latham & Watkins present, the Special Committee continued to discuss the August 12 Proposal in order to evaluate whether to make a Superior Proposal Determination.
Later that day, representatives of the Consortium provided responses to the requested clarifications to representatives of PJT Partners and J.P. Morgan, including a detailed sources and uses file (the “August 14 Clarifications”). The August 14 Clarifications indicated that, among other things: (a) the Consortium did not have documentation evidencing a binding commitment from Bidder H to fund $260 million in respect of the debt financing or the CLO Sale, (b) the Consortium estimated that the total funds required to consummate the transactions would be approximately $433 million (after taking into account cash that the Consortium anticipated to be available for use on the Company’s balance sheet at the closing of a potential transaction), and (c) the Consortium did not anticipate that the timeline to signing a definitive merger agreement and closing would be substantially longer than the timeline contemplated in the transaction with Rithm, but that the Consortium (i) was not in a position to provide detail with respect to these timelines without further information and engagement from the Company and (ii) would need to conduct additional diligence after signing a definitive merger agreement regarding the previous criminal plea by a former subsidiary of the Company and regulatory status in order to assess whether the Consortium would require the SEC to issue a 9(c) exemptive order prior to the closing of the proposed transaction. Representatives of PJT Partners promptly notified the Special Committee of the August 14 Clarifications.
On August 15, 2023, representatives of Latham & Watkins notified representatives of Rithm and Skadden of the August 14 Clarifications, as required by the terms of the Merger Agreement.
On August 16, 2023, the Former EMD Group sent a letter to the Special Committee (the “August 16 Letter”) expressing concerns that the Transactions undervalue the Company and requesting that the Company release all bidders involved in the bid process from the standstill obligations in their NDAs. Daniel Och (who is a member of the Former EMD Group) simultaneously filed a Schedule 13D/A publicly disclosing the August 16 Letter. The
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transaction documents for the Public Merger provide that if any member of the Former EMD Group makes any communication to any third party that, among other things, criticizes, disparages or creates a negative impression of the Transactions, Parent or the Company, then Parent will have no obligation to offer the Rollover to the Former EMD Group. As a result, the public disclosure by Mr. Och of the August 16 Letter resulted in Parent no longer having an obligation to offer the Rollover to members of the Former EMD Group.
Later that day, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, Weil and the Company’s management present, representatives of Latham & Watkins led a discussion of the August 16 Letter, the terms and conditions of the August 12 Proposal and key differences between the August 12 Proposal and the terms of the Merger Agreement. Representatives of J.P. Morgan and PJT Partners then discussed with the Special Committee the sources and uses file provided by the Consortium in the August 14 Clarifications. In particular, the Special Committee discussed that the August 12 Proposal understated the amount of funds necessary to consummate the transaction by approximately $217 million, including by overstating the amount of cash on the Company’s balance sheet that would be available to pay closing consideration by approximately $131 million. Additionally, the Special Committee discussed that the August 12 Proposal failed to take into account (i) the requirement to potentially repurchase the Company Warrants at a Black-Scholes Value of approximately $33 million, (ii) approximately $14 million that would be required to be paid as additional merger consideration to the Class A Shareholders and Class A Unitholders assuming a per-Class A Share price of $12.25, (iii) approximately $3 million in change of control prepayment fees under the Company’s existing indebtedness, (iv) approximately $27 million of payments required to be made under the TRA to former executive managing directors of the Company in connection with the proposed CLO Sale, and (v) certain other severance and accelerated equity incentive payments that would become payable upon the consummation of the transaction described in the August 12 Proposal.
The Special Committee then held an executive session with representatives of its legal and financial advisors present and without representatives of J.P. Morgan, Weil or the Company’s management present. The Special Committee and its financial and legal advisors further discussed the August 12 Proposal’s terms and conditions and asked additional questions of the Special Committee’s legal and financial advisors. Following discussion, the Special Committee determined that:
the August 12 Proposal underestimated the financing and funding that would be necessary to consummate the transactions contemplated by the August 12 Proposal by approximately $217 million and did not identify any source of funding (committed or not) for this incremental $217 million;
there was a question as to whether the Consortium would be willing to pay the proposed $12.25 consideration after it took into account the additional $217 million of consideration the Special Committee identified as necessary to consummate the transactions contemplated in the August 12 Proposal;
the Consortium had only delivered documentation evidencing committed financing for approximately $288 million of the $650 million (in addition to (and assuming use of) available cash on the balance sheet of the Company) required to consummate the transactions contemplated by the August 12 Proposal;
while the Consortium purported to have $260 million of funding from Bidder H, the Special Committee doubted that such funding was committed because the Consortium had not provided the Special Committee with any written documentation from Bidder H, and indicated that it would only provide this written documentation of such commitment after the Special Committee had made a Superior Proposal Determination;
the August 12 Proposal’s financing conditionality was greater than the financing conditionality associated with the Merger Agreement because:
the Consortium buyer signing the merger agreement would be a shell entity with no cash or other assets and would require 5 separate entities or persons to provide it funding in order for it to pay consideration (as opposed to the Rithm transaction, whereby Rithm, itself a creditworthy entity, signed the Merger Agreement);
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the commitment letters delivered in connection with the August 12 Proposal were cross-conditioned (such that if one party failed to fund, the other parties did not have to fund) and required the Company to bring lawsuits against five separate counterparties to enforce the funding obligations thereunder (as opposed to the Rithm transaction where the Company has recourse to a single creditworthy counterparty);
the commitments contemplated by the commitment letters were not sufficient in amount to consummate the August 12 Proposal; and
the monetary damages that could be recovered against the Consortium if the Consortium failed to close the transaction were limited to $19.6 million (as opposed to the Rithm transaction, whereby Rithm would be responsible for all damages determined to be owed to the Company) which would make it materially less costly for the Consortium to decide to walk away from the transaction in the event it no longer wanted to purchase the Company for the agreed price (including because of client redemptions, general market conditions or other factors that may cause the Company’s business to become less profitable);
the Consortium would require additional time to negotiate and enter into definitive agreements, including agreements with respect to a potential rollover, which would delay consummation of a potential sale of the Company and during which time the pending transaction would remain subject to risks related to the performance of the Company, each counterparty and macroeconomic factors;
as assessed by the Special Committee and communicated to Bidder J on several occasions prior to the announcement of the transaction with Rithm, the Special Committee had substantial concerns as to the likelihood of satisfying the Consortium Client Consent Condition included in the August 12 Proposal, and therefore whether the transaction proposed by the Consortium could be closed at all;
while the 85% client run-rate consent condition threshold in the Merger Agreement (the “Rithm Client Consent Condition”) is, on its face, higher than the thresholds in the Consortium Client Consent Condition, the Special Committee did not believe the Rithm Client Consent Condition is more onerous because, among other reasons, the Special Committee had a significantly higher degree of confidence that the Rithm Client Consent Condition could actually be satisfied, based on (i) Rithm’s stated intention that it will not meaningfully change the Company’s Investment Function, (ii) the lower likelihood of client withdrawals and redemptions (as withdrawals and redemptions negatively impact the ability to achieve the client run-rate consent condition) and (iii) general client feedback received to date;
the August 12 Proposal contemplated that the CLO Sale would occur shortly after or immediately prior to the consummation of the closing of a potential sale of the Company, which structure the Special Committee viewed as potentially increasing the risk of not obtaining client run-rate consents (because clients of the Company would be asked to consent to Bidder H acquiring the CLO business on terms that had not yet been disclosed) and introducing additional timing and closing risks that the Special Committee would not be in a position to assess until the Consortium delivered documentation evidencing commitments from Bidder H in respect of the CLO Sale;
the Consortium indicated that, subject to reviewing the applicable employment arrangements with Mr. Levin and Mr. Orbuch, it may enter into employment arrangements substantially similar to those executed by Rithm (with respect to Mr. Levin’s employment arrangement) and those in place with the Company (with respect to Mr. Orbuch’s employment arrangement), but the Consortium indicated that it was not in a position to provide draft agreements or proposed changes for the Special Committee’s consideration; and
the Consortium had not provided substantive responses as to how the “Office of the CIO” construct was envisioned to operate or to questions regarding the post-closing Investment Function of the Company.
In light of the above, the Special Committee, following discussion with its financial and legal advisors, did not make a Superior Proposal Determination and directed the Company and its Representatives not to engage further with the Consortium with respect to the August 12 Proposal.
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On August 18, 2023, in connection with the Board of Directors authorizing the filing of the preliminary proxy statement with the SEC, the Board (acting upon the recommendation of the Special Committee) adopted a resolution providing a waiver of existing “standstill” provisions under all NDAs entered into by the Company in connection with the potential transactions solely to the extent necessary to permit each counterparty to submit confidential proposals to the Board of Directors or the Special Committee. However, all other confidentiality and “standstill” provisions under such NDAs remain in full force and effect, and accordingly all parties to such an NDA with the Company (including Bidder J) are not permitted, among other things, to make public announcements with respect to proposals to acquire the Company. The Special Committee and the Board of Directors determined that the “standstill” waiver that allows confidential acquisition proposals to be submitted was consistent with its fiduciary duties and the applicable terms of the Merger Agreement, and that granting a full waiver of all applicable “standstill” provisions and allowing potential bidders who had previously signed an NDA to publicly disclose such proposals would not increase the likelihood of receiving a proposal constituting a Superior Proposal, but could cause meaningful disruption for the Company’s clients and employees. All such counterparties were informed of such waiver on August 21, 2023.
On August 22, 2023, the Former EMD Group: (i) sent a letter to the Special Committee (the “August 22 Letter”) expressing additional purported concerns about the role of the Company’s management in the sale process and requesting that the Company release certain bidders involved in the sale process from the standstill obligations in their NDAs and (ii) sent a demand pursuant Section 220 of the DGCL (the “August 22 Demand”) to the Company, seeking to inspect certain books and records of the Company. Mr. Och filed a Schedule 13D/A publicly disclosing the August 22 Letter and the August 22 Demand.
On August 24, 2023, representatives of J.P. Morgan and PJT Partners received a further updated unsolicited, non-binding proposal from the Consortium (the “August 24 Proposal”). The August 24 Proposal included the following material updates from the August 12 Proposal:
the Consortium increased the total “sources” to fund the transaction consideration to $765 million;
the Consortium’s newly-formed shell entity buyer would be financed by a combination of: (a) $288 million of equity financing from four unaffiliated parties, (b) $217 million of shareholder loans from three of the four equity financing sources, (c) $60 million of debt financing from Bidder H, and (d) approximately $200 million in proceeds from the CLO Sale from Bidder H;
the Consortium delivered five binding commitment letters from four unaffiliated parties to fund up to $505 million, comprising $288 million of equity and $217 million of shareholder loans;
the Consortium did not deliver any commitment letters or other documentation from Bidder H in respect of the $260 million purported to come from Bidder H in respect of the debt financing or the CLO Sale;
the Consortium limited its monetary liability for damages (including damages arising from a failure to fund and close the transaction) to $39.2 million (up from $19.6 million);
the Consortium did not make any changes to the Consortium Client Consent Condition proposed in the August 12 Proposal but expressed that the Consortium was confident in the Company’s ability to secure the requisite level of client consents based on the Consortium members’ reputation in the hedge fund industry, the Consortium’s plans with respect to the “Office of the CIO,” and the fact that their proposed consent thresholds were lower than those in the Rithm Client Consent Condition; and
all other conditions to signing and closing of the proposed transaction remained substantially unchanged from the August 12 Proposal.
The August 24 Proposal also included requests that the Special Committee release the Consortium from certain of its obligations under its NDA with the Company in order to enable the Consortium to (i) make public statements regarding its proposals, and (ii) engage with the Former EMD Group in order to garner support for, and potentially improve, the August 24 Proposal (the “August 24 Requests”). In connection with the August 24 Proposal, the Consortium also delivered a separate letter highlighting what it perceived to be mischaracterizations in the Company’s preliminary proxy statement regarding Bidder J’s participation in the sale process to date. Representatives of PJT Partners and J.P. Morgan promptly notified the Special Committee of the August 24 Proposal.
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Later that day, representatives of Latham & Watkins notified representatives of Rithm and Skadden of the August 24 Proposal as required under the terms of the Merger Agreement.
On August 25, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, and the Company’s management present, the Special Committee discussed the August 24 Proposal, including steps required to evaluate the proposal and initial reactions to the proposal. Representatives of J.P. Morgan and PJT Partners then reviewed with the Special Committee the updated sources and uses file provided by the Consortium in its August 24 Proposal that set forth certain assumptions regarding the amount of consideration necessary to consummate the transaction and the identity of each source of funding therefor. In addition, the Company’s management provided a report, based on feedback from clients to the client relations team, regarding reactions the Company had received from clients of the Company following the Company’s filing of the preliminary proxy statement and reports in the press that a group of investors was making a competing offer to buy the Company. Feedback received from investors included that (i) clients had elected to remain invested with the Company due to its existing Investment Function and would disfavor any material changes to the Investment Function, (ii) clients had a negative reaction to (and in some cases expressed an intention to redeem assets in the event that) the individuals publicly reported in the press as seeking to buy the Company were to acquire the Company and (iii) clients continued to express concern about the disruption created by disputes with the Former EMD Group and about a post-closing governance structure in which the Former EMD Group would continue to have oversight over the Company.
Later that day, the Special Committee held a meeting in executive session with representatives of its legal and financial advisors present and without representatives of J.P. Morgan or the Company’s management present. The Special Committee discussed the potential benefits of retaining an independent consultant to aid the Special Committee in assessing the degree of closing risk associated with the Consortium Client Consent Condition proposed by the Consortium and the various feedback received from clients. The Special Committee considered the retention of a specific nationally recognized independent consultant with extensive experience consulting in the asset management industry (the “Asset Management Consultant”). The Special Committee then discussed the August 24 Proposal’s terms and conditions and asked additional questions of the Special Committee’s legal and financial advisors. Following discussion, the Special Committee determined that:
the Consortium had only delivered documentation evidencing committed financing for approximately $505 million of the $650 million (in addition to (and assuming use of) available cash on the balance sheet of the Company) to consummate the transactions contemplated by the August 24 Proposal;
while the Consortium purported to have $260 million of funding from Bidder H, the Special Committee continued to doubt whether such funding was committed, because the Consortium had still not responded to the Special Committee’s prior requests to deliver written documentation of such commitment;
the August 24 Proposal’s financing conditionality continued to be greater than the financing conditionality associated with the Merger Agreement for all of the same reasons as described above with respect to the August 12 Proposal:
the Special Committee continued to have substantial concerns as to whether the Consortium Client Consent Condition (unchanged from the August 12 Proposal) could be satisfied, and therefore whether the transaction with the Consortium could be closed at all, which concerns were reinforced in light of the reactions of certain of the Company’s clients since the filing of the Company’s preliminary proxy statement and other reports in the press;
the Special Committee continued not to believe the Rithm Client Consent Condition is more onerous because, among other reasons, the Special Committee continued to have a significantly higher degree of confidence that the Rithm Client Consent Condition could actually be satisfied, based on (i) Rithm’s stated intention that it will not meaningfully change the Company’s Investment Function, (ii) the lower likelihood of client withdrawals and redemptions (as withdrawals and redemptions negatively impact the ability to achieve the client run-rate consent condition), (iii) general client feedback received to date and (iv) the level of client consents received for the Transactions with Rithm to date;
the Special Committee intended to retain an independent consultant to aid the Special Committee in assessing the degree of closing risk associated with the Consortium Client Consent Condition; and
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the Consortium’s August 24 Proposal did not address any of the Special Committee’s other concerns with the August 12 Proposal, despite the fact that such concerns had been publicly disclosed in the Company’s preliminary proxy statement and, in the case of certain issues, such as the Consortium Client Consent Condition, in multiple prior interactions with Bidder J and its advisors.
In light of the above, the Special Committee, after discussion with its financial and legal advisors, did not make a Superior Proposal Determination and directed the Company and its Representatives not to engage further with the Consortium with respect to the August 24 Proposal. Additionally, the Special Committee determined that the Special Committee was not permitted to grant either of the August 24 Requests, given that the Company was subject to customary non-solicitation obligations under the Merger Agreement (see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 130). Furthermore, the Special Committee reviewed the Consortium’s separate letter delivered on August 24 and determined that the Consortium’s assertions regarding perceived mischaracterizations in the Company’s preliminary proxy statement were without merit.
Also on August 25, 2023, a representative of Dechert contacted a representative of Latham & Watkins to reiterate the request from the August 22 Letter that the Former EMD Group be released from its obligations under its NDA with the Company in order to seek information from, negotiate and enter into agreements with any other person that already has an NDA with the Company (including, but not limited to, Bidder H, Bidder J, and the Consortium). On August 26, 2023, at the instruction of the Special Committee, representatives of Latham & Watkins responded to the representative of Dechert explaining that such an action was prohibited pursuant to the Company’s customary non-solicitation obligations under the Merger Agreement (see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 130), and accordingly that the requested release was not granted and all provisions of the NDA remained in full force and effect.
Later on August 25, 2023, at the instruction of the Special Committee, representatives of Latham & Watkins contacted representatives of the Asset Management Consultant to potentially engage the Asset Management Consultant to assist the Special Committee to collect information that would be helpful to the Special Committee in evaluating the risk that the Consortium Client Consent Condition would not be able to be satisfied (the “Consortium Client Consent Condition Risk”).
On August 26, 2023, representatives of J.P. Morgan and PJT Partners received a further updated unsolicited, non-binding proposal from the Consortium (the “August 26 Proposal”) offering to acquire the Company for $12.76 per share of Class A Common Stock. The August 26 Proposal included the following material updates from the August 12 Proposal and the August 24 Proposal:
the Consortium stated that its newly-formed shell entity buyer would be financed by a combination of: (a) $304 million of equity financing from four unaffiliated parties, (b) $217 of shareholder loans from three of the four equity financing sources, and (c) $237 of debt financing from two of the four equity financing sources and delivered five binding commitment letters from four unaffiliated parties for these commitments;
the $237 million of debt financing commitments would be subject to negotiation of long-form documentation and additional conditions not applicable to the equity or shareholder loan commitments;
the Consortium no longer required any financing from Bidder H, but reserved the right to proceed with the CLO Sale between signing and closing of the proposed transaction (without specifying how the client run-rate consent condition for the CLO business line would be satisfied if a buyer for the CLO business line were not identified at the time consents were sought); and
all other conditions to signing and closing of the proposed transaction remained substantially unchanged from the August 12 Proposal and the August 24 Proposal.
Representatives of PJT Partners and J.P. Morgan promptly notified the Special Committee of the August 26 Proposal. Later that day, representatives of Latham & Watkins notified representatives of Rithm and Skadden of the August 26 Proposal as required under the terms of the Merger Agreement.
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On August 27, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors, J.P. Morgan, and the Company’s management present, the Special Committee discussed the August 26 Proposal, including steps required to evaluate the proposal and initial reactions to the proposal. Representatives of J.P. Morgan and PJT Partners then reviewed with the Special Committee the updated sources and uses file provided by the Consortium in its August 26 Proposal.
The Special Committee then held an executive session with representatives of its legal and financial advisors present and without representatives of J.P. Morgan or the Company’s management present. The Special Committee further discussed the August 26 Proposal’s terms and conditions with the Special Committee’s legal and financial advisors. Following discussion, the Special Committee determined that:
While the Consortium had delivered documentation in the August 26 Proposal evidencing committed financing for the full amount of the consideration required to consummate the transactions contemplated therein, the August 26 Proposal’s financing conditionality was still greater than the financing conditionality associated with Merger Agreement in that it had all of the same conditionality issues identified in connection with the August 12 Proposal and August 24 Proposal, but now also introduced additional conditionality because it included incremental conditions to funding of the debt commitments that did not apply to the equity or shareholder loan commitments;
Due to the unusual fact that the Consortium is both the debt “borrower” and the debt “lender” under such debt commitments, there was a substantial risk that if the Consortium failed to reach agreement among its members on terms of the debt, these commitments could not be specifically enforced to compel a closing (in which case the Company would only be able to seek up to $39.2 million in damages);
The Special Committee continued to have substantial concerns as to whether the Consortium Client Consent Condition (unchanged from the August 12 Proposal) could be satisfied, and therefore whether the transaction with the Consortium could be closed at all, which concerns were reinforced in light of the reactions of certain of the Company’s clients since the filing of the Company’s preliminary proxy statement and other reports in the press, and the Special Committee intended to retain an independent consultant that could aid in this assessment; and
The Consortium’s August 26 Proposal did not address any of the Special Committee’s other material concerns with the August 12 Proposal or the August 24 Proposal, despite the fact that the Special Committee’s concerns with respect to the August 12 Proposal had been publicly disclosed in the Company’s preliminary proxy statement and, in the case of certain issues such as the Consortium Client Consent Condition, in multiple prior interactions with Bidder J and its advisors.
In light of the above, the Special Committee, after discussion with its financial and legal advisors, did not make a Superior Proposal Determination. The Special Committee also determined to send a letter to the Consortium outlining the threshold issues that continued to prevent the Consortium’s proposals from being reasonably expected to lead to a Superior Proposal and describing ways in which the Consortium could modify its proposals to resolve such threshold issues. Because the Company remained subject to non-solicitation obligations under the Merger Agreement that prevented any such communication (see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 130), the Special Committee instructed Latham & Watkins to seek Rithm’s consent to the Special Committee sending such a letter. Latham & Watkins did so, and on August 28, 2023, Skadden indicated that Rithm had agreed to provide such a consent.
On August 28, 2023, at a meeting of the Board of Directors with representatives of J.P. Morgan, PJT Partners and Latham & Watkins present, the Board of Directors discussed the August 24 Proposal and the August 26 Proposal, the Special Committee’s determinations with respect thereto and the Special Committee’s desire to send a letter to the Consortium to provide specific feedback on the August 24 Proposal and the August 26 Proposal. The Board of Directors also discussed certain incorrect information that was being publicly reported and the negative impact these inaccurate reports could have on the Company and the Company Stockholders, and considered making a public statement with respect to the August 24 Proposal and August 26 Proposal. The Board of Directors noted that, pursuant to the terms of the Merger Agreement, in the event the Company made such a public statement, Rithm was entitled to ask the Board of Directors to re-affirm their recommendation with respect to the Transactions (which Rithm ultimately requested). The Board of Directors determined that, if the
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Special Committee determined that such a public statement was in the best interest of the Company Stockholders, then the Board of Directors would include a re-affirmation of its recommendation to the Company Stockholders with respect to its support for the Transactions with Rithm in any such public statement.
On August 29, 2023, the Former EMD Group sent a letter to the Special Committee (the “August 29 Letter”) expressing concerns about the Transactions and the bid process, and Mr. Och filed a Schedule 13D/A publicly disclosing the August 29 Letter. The August 29 Letter reiterated the request from the August 16 Letter for the Company to release Bidder J, Bidder H and the Former EMD Group from the standstill obligations in their NDAs.
Later that day, at approximately 12:30 P.M. Eastern Time, representatives of J.P. Morgan and PJT Partners received a letter from the Consortium, which they promptly relayed to the Special Committee, in which the Consortium requested that the Special Committee respond by 4:00 P.M. Eastern Time on the same day with (i) responses to the August 24 Requests, and (ii) confirmation as to whether the Special Committee had made a Superior Proposal Determination. On the same day, representatives of Latham & Watkins notified representatives of Rithm and Skadden of this letter.
Later that day, at the direction of the Special Committee, PJT Partners delivered a letter from the Special Committee (the “August 29 Feedback Letter”) to the Consortium, in which the Special Committee explained that certain threshold issues continued to prevent the Consortium’s proposals from being reasonably expected to lead to a Superior Proposal. Key excerpts of the letter identifying the threshold issues are included below:3
Financing Uncertainty: The [Consortium’s proposals] have consistently introduced significantly more financing conditionality, and therefore closing uncertainty, than the transaction with Rithm, in which the Company has recourse to a creditworthy entity to seek payment of all transaction consideration and to recover for the benefit of the Company’s stockholders full damages in the event Rithm were to breach its obligation to close the transaction. Key shortcomings as set forth in the August 26 Proposal [were] as follows:
The proposal requires debt financing – from [members of the Consortium itself] – to consummate the transaction. The debt funding is subject to additional conditions not applicable to the equity commitments, and the unusual fact that [the Consortium acts as] both the debt “borrower” and the debt “lender” creates increased risk that these commitments could never be effectively enforced.
The issues above are magnified because the August 26 Proposal caps [the Consortium’s] financial exposure for damages claims at $39.2 million (approximately 5% of the [total] consideration [for the proposed transaction]) – an amount that would be unlikely to compensate the Company’s stockholders for the loss in value that would result if [the Consortium] breached its obligations and failed to close.
This combination of factors creates a meaningfully increased risk for the Company’s stockholders, because [the Consortium would] have the means to orchestrate a failure to close, cause the Company to need to litigate whether that failure constitutes a qualifying breach, and then leave the Company and its stockholders damaged even if [the Company were to] win the lawsuit – after all of the expense and negative publicity around these events. It is not appropriate to ask the Company stockholders to bear this risk.
Client [Run-Rate] Consents and Closing Uncertainty:
[The Consortium’s proposals] all contemplate that closing will not occur unless the Company secures a specified threshold level of consent from the clients in its Credit, Multi-Strategy, CLO and Real Estate business lines. However, [such proposals] also contemplate varying degrees of changes to the investment process (including the individual(s) with the ultimate authority to make investment decisions) and, in all cases, contemplate a new control structure whereby [Consortium members] and other individuals not currently affiliated with the Company will ultimately sit at the top of the corporate structure in a newly formed “Office of the CIO” that will have input and oversight on investment decisions and strategy.
3
Certain terms and phrases were added for context or conformed to the terms defined in this Proxy Statement. These additions and conformations are noted by brackets.
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[The Special Committee and its advisors] have consistently communicated that retaining the Company’s management is not a condition to acquiring the Company. However, deal certainty is. As [the Consortium] know[s] well from running [its] own asset management business, clients care about who is managing their money. And so [the review of the Special Committee and its advisors] of [the August 12 Proposal, August 24 Proposal, and August 26 Proposal] has necessarily included requesting information regarding post-closing plans, including with respect to key employees, and in [the case of the Consortium], information (much of which has yet to be provided) regarding the governance/control structure among [the Consortium] members, whether [the Former EMD Group] who may collectively hold significant minority positions following the rollover detailed in [the August 12 Proposal, August 24 Proposal, and August 26 Proposal] will have a role in the governance/control structures and the intended operation of (and allocation of investment discretion among) the “Office of the CIO” referenced in the [August 12 Proposal, August 24 Proposal, and August 26 Proposal].
Throughout the sale process, the Special Committee and its advisors have consistently communicated to [the Consortium] that the Special Committee is unwilling to ask the Company’s stockholders to bear the risk that clients will not be comfortable with [the Consortium’s] go-forward strategy regarding who will be ultimately responsible for investment strategy. The Special Committee’s reasoned judgement, including as informed by the reaction of certain clients to the extensive press coverage of the leaked August 12 Proposal, is that there is meaningful risk that the client [run-rate] consent conditions proposed [by the Consortium] may not be satisfied. If [the Consortium] believe[s] that [its] members’ reputation and experience are such that clients would in fact grant their consent, then [the Consortium], and not the Company’s stockholders, should bear the risk of obtaining the client [run-rate] consents.
Signing Uncertainty: The Special Committee is not willing to engage in extensive discussions or negotiations with respect to [the Consortium’s proposals] unless there is a clear path to signing a definitive merger agreement on an accelerated timeline. It is not clear from [the August 12 Proposal, August 24 Proposal, or August 26 Proposal] whether [the Consortium] require[s] any of the following prior to signing a definitive merger agreement: (1) voting agreements with the individuals who signed voting agreements in favor of the Rithm transaction, (2) employment agreements with any key employees of the Company, or (3) discussions or entry into definitive documentation with [the Former EMD Group] with respect to a rollover or [their] support of a transaction more generally. Consistent with the approach taken with all other bidders involved in the sale process, permission to proceed with any of the above discussions will not be granted by the Special Committee unless and until the principal economic terms of a potential transaction have been approved by the Special Committee. It is also unclear as to what additional diligence [the Consortium] may require before executing a definitive merger agreement.”
The August 29 Feedback Letter further explained that the Special Committee did not view the above challenges as insurmountable, and that the Consortium could resolve the above threshold issues by making the following modifications to its proposals. Key excerpts of the letter identifying the solutions to address the threshold identified are included below:
Financing Certainty:
Each member of [the Consortium would need] to provide equity financing commitments that total the full $743 million necessary to pay the consideration in the transaction (the “Commitment Amount”). To the extent the [C]onsortium [was] able to secure funded debt financing by the closing [of a proposed transaction], such funded debt commitments could of course be utilized (and the Commitment Amount would be reduced accordingly).
The “Damages Commitment” [(e.g., the cap on monetary damages in the event the Consortium fails to consummate the transaction) must equal the Commitment Amount and] must be payable to the extent damages allowable under [the merger agreement] are ordered by a court of competent jurisdiction.
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Each [individual or entity delivering an equity financing commitment would need] to provide [a] balance sheet and/or other financial information necessary for the Special Committee to confirm that [it] has sufficient liquid cash to honor its Commitment Amount, and each [such individual or entity] should make representations and warranties with respect to such information.
The Company to have express third party beneficiary rights to enforce all obligations under the equity commitment letters, and all representations and warranties in the equity commitment letter should be made to the Company.
While each [s]ponsor will have customary rights to assign its commitment to controlled affiliates, each [s]ponsor to remain principally liable for its commitment. Additionally, each [s]ponsor must have an obligation to fund the Commitment or Damages Commitment regardless of whether other members of the [C]onsortium have funded their portion.
Client [Run-Rate] Consent and Closing Certainty: In order for the Special Committee to be able to determine that a transaction with [the Consortium] would have a high likelihood of being consummated, all client [run-rate] consent conditions to be removed from the merger agreement in their entirety and the draft merger agreement should clearly place the risk of business deterioration due to the announcement of the transaction (including the risk of adverse client and employee reactions) on the [Consortium].
Signing Certainty:
[The Consortium] should confirm that [they] do not require any additional documentation to be executed, or any other action to be taken, prior to the execution of a definitive merger agreement including, without limitation: (1) entry into voting agreements with any Company stockholders, (2) entry into employment agreements with any employees of the Company, or (3) discussions or negotiations with [the Former EMD Group].
[The Special Committee asked the Consortium to] confirm the extent of any diligence that [it would] require prior to executing a definitive merger agreement[, including any diligence necessary] to determine whether any incremental regulatory, antitrust or foreign direct investment approvals will be required.”
Also on August 29, 2023, the Company formally responded to the Former EMD Group regarding the August 22 Demand and issued a press release publicly disclosing such response.
Also on August 29, 2023, the Special Committee formally authorized the engagement of the Asset Management Consultant as an independent consultant to the Special Committee for the purpose of assisting the Special Committee in collecting information that would be helpful to the Special Committee in evaluating the Consortium Client Consent Condition Risk.
Between August 30, 2023 and September 13, 2023, representatives of the Asset Management Consultant took a series of steps in connection with assisting the Special Committee in evaluating the Consortium Client Consent Condition Risk. These steps included, without limitation, (i) arranging meetings with key investment professionals and client relations professionals of the Company, (ii) undertaking an independent review of certain information provided by the Company, including with respect to the Investment Function of the Company, client base and client intermediaries, revenue run rate/client concentration, key-man provisions and redemption rights contained in certain client agreements, and certain feedback received from clients relevant to the Consortium Client Consent Condition Risk analysis, (iii) reviewing the proposals from the Consortium (and responses to clarifying questions received from the Consortium) and (iv) other publicly available information (collectively, the “Assessment Steps”).
On August 30, 2023, after being informed that certain news outlets were planning to publish leaked reports regarding the August 26 Proposal that the Special Committee believed may be incomplete and misleading, the Company (on instruction from the Special Committee) issued a press release (the “August 30 Press Release”) confirming receipt of the August 24 Proposal and August 26 Proposal and reporting that (i) the Special Committee did not make a Superior Proposal Determination, for the reasons described above, and (ii) the Board of Directors had re-affirmed its recommendation that the Company Stockholders vote in favor of the adoption of the Merger Agreement.
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In response to the August 29 Feedback Letter and the August 30 Press Release, on August 31, 2023, representatives of J.P. Morgan and PJT Partners received a further updated unsolicited, non-binding proposal from the Consortium (the “August 31 Proposal”) purporting to resolve all issues raised in the August 29 Feedback Letter and offering to acquire the Company for $12.76 per share of Class A Common Stock. The August 31 Proposal included the following material updates from the August 26 Proposal:
the Consortium did not deliver commitment letters that included equity commitments for the full amount of the transaction consideration as requested in the August 29 Feedback Letter but instead stated that the $743 million of financial obligations of its newly-formed shell entity would be guaranteed by a single member of the Consortium (the “Consortium Guarantor”);
the Consortium stated that the cap on its monetary liability for damages would be increased to $743 million, which would also be guaranteed by the Consortium Guarantor;
the Consortium reaffirmed its previous position with respect to the Consortium Client Consent Condition;
as conditions to signing a definitive merger agreement, the Consortium stated that it would require permission to speak to Mr. Orbuch and Mr. Och (and reiterated the request for a waiver under its NDA to speak with Mr. Och);
the Consortium provided additional biographical information regarding the identities of certain of the individuals that were proposed to occupy an “Office of the CIO” that would oversee the Company’s investments following the closing;
the Consortium expressed that it believed it could execute documentation within a week of engagement; and
all other conditions to signing and closing of the proposed transaction remained substantially unchanged from the August 26 Proposal.
Representatives of PJT Partners and J.P. Morgan promptly notified the Special Committee of the August 31 Proposal.
Also on August 31, 2023, Rob Shafir, former Chief Executive Officer of the Company, released an open letter to the Special Committee stating that is not credible that the Consortium (i) would not be acceptable to the Company’s limited partners and (ii) does not have committed financing required to complete a definitive transaction with the Company. Mr. Shafir further stated he will not be supporting the Mergers.
On September 1, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and the Asset Management Consultant present, the Special Committee discussed the August 31 Proposal, including steps required to evaluate the proposal and initial reactions to the proposal. At the request of the Special Committee, representatives of the Asset Management Consultant provided updates regarding their work conducted to date and the information that the Asset Management Consultant would require from the Company to complete its work. Representatives of Latham & Watkins also noted additional information needed to appropriately assess the August 31 Proposal. The Special Committee instructed Latham & Watkins to assist in preparing a set of clarifying questions for the Special Committee’s approval that would help the Special Committee and its independent advisors to more fully assess the August 31 Proposal (which it did, following discussion with PJT Partners and, as it related to questions regarding the Consortium Client Consent Condition Risk, the Asset Management Consultant).
Later that day, at a meeting of the Special Committee with representatives of its financial and legal advisors present, the Special Committee reviewed the draft clarifying questions related to the August 31 Proposal (the “September 1 Clarifying Questions”), which included a variety of questions relevant to the Special Committee’s assessment of the Consortium Client Consent Condition Risk, including relating to (a) the proposed “Office of the CIO”, including details regarding its role, discretion and oversight of, and its impact on, the Company’s Investment Function and the identity of the individual(s) having ultimate discretion over investment decisions and employment decisions, as well as whether such individuals had a track record of working together in a similar CIO function, (b) the role the members of the Consortium are expected to play in the Investment Function and operation of the business, (c) the nature of the governance arrangements relating to the Consortium’s control over the Company (and its investment decisions), and (d) the Consortium’s proposed plans
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for identifying and mitigating conflicts of interest that may arise because members of the Consortium or “Office of the CIO” may continue in their roles at competing asset management firms. The September 1 Clarifying Questions also included questions regarding (i) the form of financial guarantee proposed by the Consortium, (ii) the Consortium’s requirements with respect to proposed regulatory approvals, and (iii) any diligence or discussions that would be a condition to the Consortium signing a definitive merger agreement. The Special Committee authorized PJT Partners to provide the September 1 Clarifying Questions to the Consortium and request that the Consortium respond as soon as practicable.
On the same day, (a) representatives of Latham & Watkins notified representatives of Rithm and Skadden of the August 31 Proposal, as required under the terms of the Merger Agreement and (b) per the direction of the Special Committee, representatives of PJT Partners sent the September 1 Clarifying Questions to representatives of the Consortium and its financial and legal advisors.
On September 3, 2023, representatives of the Consortium provided responses to the September 1 Clarifying Questions to representatives of PJT Partners and J.P. Morgan (the “September 3 Clarifications”), including a draft guarantee and revised draft merger agreement. The September 3 Clarifications indicated that, among other things:
the Consortium contemplated significant changes to the Company’s Investment Function, including:
the “Office of the CIO” (and ultimately the founder of Bidder J) would have ultimate decision-making authority over investments and the overall risk profile of assets managed by the Company, and Mr. Levin would no longer have ultimate decision-making authority over investments;
the “Office of the CIO” would be comprised of: (a) the founder of Bidder J, who would also continue in his role as CIO of Bidder J (an asset management firm with competing strategies to the Company) in parallel, (b) two individuals who have no affiliation with the Company or the Consortium and who have never worked together in a CIO role, and (c) Mr. Levin, should he elect to continue his employment with the Company in this new role;
in the event of a disagreement between members of the proposed “Office of the CIO,” the founder of Bidder J would have ultimate decision-making authority and would also have authority to add or remove members of the “Office of the CIO”;
while other members of the Consortium may sit on the board of directors of the Company, they were not envisioned to be involved in the day-to-day investment decisions or operation of the Company;
the board of directors of the Company (which may include members of the Consortium) would be tasked with reviewing and approving policies and procedures to identify and address conflicts of interest, confidentiality and other matters, as well as overseeing risk management (no further details were provided regarding proposed processes for identifying and mitigating conflicts of interest that may arise because members of the Consortium or “Office of the CIO” may continue in their roles at competing asset management firms); and
the founder of Bidder J would lead a “tail hedging strategy” through a sub-advisory relationship between the Company and Bidder J pursuant to which the Company would pay Bidder J a fee to manage this strategy, and this strategy would be implemented in the Company’s existing investment funds;
the proposed form of guarantee was not a standard unconditional guarantee to fund all obligations of the Consortium buyer when and as required under the definitive transaction documentation; instead the guarantee was subject to the same conditions to funding that the Special Committee previously indicated in the August 29 Feedback Letter would be unacceptable because these conditions created undue risk of not closing;
the Consortium did not require as a condition to signing the merger agreement any voting agreements or employment agreements from any employee of the Company or any release or rollover agreement with the Former EMD Group;
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the Company would be required to seek client run-rate consents for a transfer of the CLO business line to the Consortium, but in the event the Consortium were to proceed with the CLO Sale, the Company would also be required to seek client run-rate consents for a sale to the buyer of the CLO business (such latter consent would not be a separate condition to the closing of the transaction); and
the Consortium would need to conduct additional diligence, including engaging directly with the SEC, regarding the Company’s previous criminal plea and regulatory status in order to assess whether individual members of the Consortium would be prohibited from acting as investment manager to mutual funds, closed end funds, business development companies and other pooled vehicles under the Investment Company Act, and in the event such prohibition did in fact extend to any such members of the Consortium, whether a waiver under section 9(c) of the Investment Company Act would be needed prior to the closing of the proposed transaction.
On September 5, 2023, at a meeting of the Special Committee with representatives of its independent financial and legal advisors and the Asset Management Consultant present, the Special Committee discussed with representatives of the Asset Management Consultant the Consortium Client Consent Condition Risk. The Special Committee discussed with its advisors that, among other things, (i) the September 3 Clarifications outlined meaningful proposed changes to the Company’s Investment Function, including the extent to which certain key employees would be able to exercise investment discretion and made it clear that the individuals that were proposed to occupy the “Office of the CIO” had never worked together in a similar capacity or managed money together, and thus were likely to be viewed by clients as not having a track record (collectively, the “Investment Process Changes”), (ii) based on feedback from clients to the client relations team, a number of clients of the Company had already raised concerns about the potential for changes to the Investment Function and that, given the large concentration of revenue run rate in a small number of clients, a small number of clients failing to provide consent could result in a failure to satisfy the Consortium Client Consent Condition, and (iii) these Investment Process Changes increased the risk that certain key employees would not remain with the Company. The Special Committee determined that it would continue to review and consider the August 31 Proposal and the September 3 Clarifications and would not make any formal determination with respect to the August 31 Proposal until it had an opportunity to review the information collected by the Asset Management Consultant in full.
On September 7, 2023, at a meeting of the Special Committee with representatives of its independent financial and legal advisors and the Asset Management Consultant present, representatives of the Asset Management Consultant discussed the information collected to date. The Asset Management Consultant noted that typical drivers of client loss following a change of control include (i) departures of key persons and/or destabilization of an investment team, (ii) material changes to the Investment Function and (iii) concerns about overall firm governance and ownership.
On September 8, 2023, representatives of J.P. Morgan and PJT Partners received an e-mail from representatives of the Consortium (the “September 8 E-mail”), which they promptly provided to the Special Committee, in which such representatives speculated that the reason that the Special Committee had not responded to the August 31 Proposal was because the Special Committee was prepared to reject the August 31 Proposal due to concerns about the likelihood of satisfying the Consortium Client Consent Condition. The Consortium expressed their view that the Special Committee’s unwillingness to find the Consortium Client Consent Condition superior to the Rithm Client Consent Condition did not account for the Company’s obligations to its clients.
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On September 13, 2023, at a meeting of the Special Committee with representatives of its financial and legal advisors and the Asset Management Consultant present, the Special Committee discussed the Consortium Client Consent Condition with the Asset Management Consultant and reviewed the information provided by the Asset Management Consultant. After the Asset Management Consultant had exited the meeting, the Special Committee and its financial and legal advisors further discussed the August 31 Proposal’s terms and conditions and the Special Committee asked additional questions of its legal and financial advisors. Following discussion, the Special Committee determined that there were a variety of factors that created risk that a transaction could ever be signed with the Consortium and then closed including, without limitation, that:
the Consortium had not complied with the instruction provided in the August 29 Feedback Letter to provide a customary “full equity backstop” and deliver equity commitment letters covering the full amount of the transaction consideration, and instead continued to rely on the more conditional debt commitment letters from their own Consortium members to financing the transaction;
while the Consortium had delivered a guarantee, the proposed form of guarantee was not a standard unconditional guarantee to fund all obligations of the Consortium buyer when and as required under the definitive transaction documentation; instead the guarantee was subject to the same conditions to funding that the Special Committee previously indicated in the August 29 Feedback Letter would be unacceptable because these conditions created undue risk of not closing;
as assessed by the Special Committee and as supplemented by the information provided by the Asset Management Consultant and the reaction of certain of the Company’s clients since the filing of the Company’s preliminary proxy statement, there was material risk that the Consortium Client Consent Conditions (which remained unchanged from the original August 12 Proposal) could not be satisfied and that such a transaction with the Consortium could not be consummated;
the Special Committee continued to have a significantly higher degree of confidence that the Rithm Client Consent Condition could be satisfied, based on Rithm’s stated intention not to meaningfully change the Company’s Investment Function, general client feedback received to date and the level of client consents received for the Transactions with Rithm to date; and
the Consortium is made up of sophisticated investors who have retained experienced legal and financial advisors, all of whom are likely to understand what would be necessary in order for an unsolicited proposal to constitute a Superior Proposal, and the Special Committee has given express feedback (including in its August 29 Feedback Letter) regarding changes the Consortium could make to resolve the threshold issues that continued to prevent the Consortium’s proposals from being reasonably expected to lead to a Superior Proposal, and yet the Consortium has not made a proposal that resolved all of the threshold issues.
In light of the above, the Special Committee did not make a Superior Proposal Determination with respect to the August 31 Proposal. The Special Committee also considered whether it would be beneficial to send further feedback regarding the August 31 Proposal and the September 8 E-mail to the Consortium, however, the Special Committee determined that the August 29 Feedback Letter was comprehensive and still represented the Special Committee’s position with respect to all threshold issues that continued to prevent the Special Committee from making a Superior Proposal Determination. Accordingly, the Special Committee determined not to send feedback to the Consortium, consistent with its non-solicitation obligations under the Merger Agreement (see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 130).
Purpose and Reasons of the Company for the Mergers; Recommendation of Our Board of Directors and the Special Committee; Fairness of the Mergers
As described in the section titled “The Mergers — Background of the Mergers” beginning on page 37, the Board of Directors duly established the Special Committee and delegated to it the exclusive power and authority, among other things, to (i) conduct an independent review of an unsolicited outreach from Bidder A regarding a potential strategic transaction and make an independent determination with respect thereto; (ii) evaluate strategic alternatives that may otherwise be available to the Company; and (iii) take all other actions relating to such a potential strategic transaction and any alternatives as the Special Committee may deem to be necessary or appropriate in order for the Special Committee to discharge its duties, including, but not limited to, the power to (A) negotiate or direct the negotiation of a potential strategic transaction, and ultimately determine whether any
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proposed potential strategic transaction is advisable, fair to, and in the best interests of, the Company and the Company Stockholders, (B) obtain assistance from the officers, employees, and agents of the Company as the Special Committee may deem to be necessary or appropriate and (C) retain and employ, or direct the Company to retain and employ, legal, financial and other advisors to advise it and assist it in connection with fulfilling its duties and functions. In forming the Special Committee, the Board of Directors also resolved not to approve or recommend for approval by the Company Stockholders any potential strategic transaction without a prior favorable recommendation by the Special Committee.
The Special Committee, acting with the advice and assistance of its independent legal and financial advisors, as well as the Company’s financial advisor, evaluated and negotiated the Merger Agreement and the Transactions, and after careful consideration, at a meeting of the Special Committee held on July 23, 2023, the Special Committee, among other things, unanimously:
determined that the Merger Agreement and the Transactions are fair, advisable and in the best interests of the Company and the Company Stockholders;
recommended that the Board of Directors (i) approve and declare advisable the Merger Agreement and the Transactions and (ii) recommend the Merger Agreement to the Company Stockholders for approval and adoption; and
recommended that the Board of Directors instruct Holding Corp, as general partner of each Operating Partnership, to approve the Merger Agreement and the Transactions.
On August 28, 2023, the Special Committee unanimously recommended that the Board of Directors re-affirm its recommendation of the Merger Agreement to Company Stockholders for approval and adoption.
On July 23, 2023, after careful consideration, based in part on the unanimous recommendation of the Special Committee, the Board of Directors, pursuant to resolutions adopted at a meeting of the Board of Directors, among other things, unanimously:
declared that the Merger Agreement and the Transactions are fair to, advisable and in the best interests of the Company and the Company Stockholders;
authorized, approved, confirmed and adopted in all respects the Merger Agreement and the Company’s and each of the Operating Partnerships’ execution, delivery and performance of the Merger Agreement;
instructed that Holding Corp, general partner of each Operating Partnership, approve the Merger Agreement and the Transactions;
approved the Voting Agreements and the transactions contemplated thereby;
directed that the Merger Agreement be submitted to the Company Stockholders for their consideration and adoption at the Special Meeting; and
recommended the adoption of the Merger Agreement by the Company Stockholders and that the Company Stockholders vote to approve all other actions or matters necessary, appropriate, advisable or desirable in order to give effect to the foregoing pursuant to the DGCL.
On August 30, the Board of Directors unanimously re-affirmed its recommendation of the Merger Agreement to the Company Stockholders for approval and adoption.
On July 23, 2023, based on the unanimous recommendation of the Special Committee and the instruction of the Board of Directors, Holding Corp, as the general partner of the Operating Partnerships, pursuant to resolutions adopted by written consent in lieu of a meeting, among other things, approved, authorized, confirmed, ratified, accepted and adopted the Merger Agreement and the Mergers in all respects. No other partnership proceedings on the part of the Operating Partnerships are necessary for the Operating Partnerships to consummate the Transactions, including the LP Mergers, other than the filing of certificates of merger with respect to the LP Mergers with the Delaware Secretary of State.
Accordingly, the Board of Directors recommends that you vote FOR the Merger Proposal to adopt the Merger Agreement, thereby approving the Transactions, including the Mergers, at the Special Meeting.
In considering the recommendation of the Board of Directors with respect to the Mergers, you should be aware
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that executive officers and directors have certain interests in the Mergers that may be different from, or in addition to, the interests of the Company Stockholders generally. The Special Committee, consisting entirely of independent directors, and the Board of Directors were aware of these interests and considered them, among other matters, in evaluating the Merger Agreement and the Transactions and in making its decision to recommend that the Board of Directors adopt and approve the Merger Agreement and the Transactions. For more information about these interests, refer to the section titled “The Mergers — Interests of the Directors and Executive Officers of the Company in the Mergers,” beginning on page 107. The Special Committee and the Board of Directors believe that the Merger Agreement and the Transactions are fair to the Company Stockholders.
The Special Committee engaged its own legal and financial advisors and received advice throughout the negotiations from such advisors. Since the members of the Special Committee are disinterested with respect to the Transactions, independent of, and not affiliated with, Parent, the Class A Unitholder Stockholders or the Rollover Holders, the Special Committee believed that it could effectively represent the interests of the Non-Unitholder Stockholders in negotiating the terms of the Merger Agreement and the Transactions and in making its decision to recommend that the Board of Directors approve and declare advisable the Merger Agreement and the Transactions.
In evaluating the Merger Agreement and the Transactions and making the decisions, determinations and recommendations described above, including the decision to re-affirm their prior recommendations on August 28, 2023 and August 30, 2023, respectively, the Special Committee and the Board of Directors, considered, among other things, the following potentially positive factors, which are not intended to be exhaustive and are not presented in any relative order of importance:
that the Special Committee and the Board of Directors, with the assistance of their respective independent legal and other advisors, had considered alternatives, including continuing to operate the Company on a standalone basis, other potential value creating options or a sale to an alternative buyer or a sale of certain assets or business lines of the Company, and considered the risks and uncertainties associated with such alternatives, and each respectively formed the view that no other alternatives were reasonably likely to create greater value for the Company Stockholders than the Mergers, taking into account the alternatives reasonably available to the Company and the risk of execution, as well as business, competitive, industry and market risks (which are summarized in the section titled “The Mergers — Background of the Mergers,” beginning on page 37);
certain challenges and limitations on the Company of continuing as a standalone public company, including:
the potential for continued business disruption and negative stock price reaction to elevated redemption requests and the Company’s limited ability to raise new capital from investors into its funds to date in 2023, which the Company believes are driven by a variety of factors, primarily the uncertainty and perceived instability relating to the disputes with the Former EMD Group;
the risks and uncertainties relating to the disputes with the Former EMD Group, which the Company believes have had negative effects on fund investor sentiment and which the Company expects to continue until there is a resolution that gives investors confidence that there will be no further adverse actions against the Company; and
the Company’s belief that it could not reach a mutually agreeable resolution with the Former EMD Group so long as the Company remained a standalone public company based on, among other reasons, the Former EMD Group’s filing of a Schedule 13D/A requesting that the Board of Directors pursue a broad review of strategic alternatives;
the reviews undertaken by, and understandings of, the Special Committee and the Board of Directors with respect to economic and market conditions and trends, as well as the challenges and uncertainty surrounding such conditions and trends, both on a historical and prospective basis, in the near term and the long term, such as:
the risks and uncertainties relating to the Company’s ability to retain and attract fund investors and to raise new funds, including that the Company believes that the disputes with the Former EMD Group will continue to have a negative effect on fund investor sentiment;
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the risks and uncertainties relating to ongoing industry consolidation and competition, including the ability of the Company to be able to compete effectively in the markets in which the Company operates or may operate in the future without significant further investment by the Company;
the risks and uncertainties relating to potential increases in interest rates and the impact on debt and equity markets arising from inflationary pressures, changes in monetary policies and other factors affecting global economic activity; and
the nature of the industry in which the Company operates, including anticipated industry trends and rapidly changing competitive and regulatory dynamics;
certain factors related to the Company’s business, financial condition and results of operations, and the Company’s prospects and plans, including:
the reviews undertaken by, and understandings of, the Special Committee and the Board of Directors with respect to the Company’s business, operations, assets, financial condition, earnings, ownership structure, management, strategy, competitive position, current, historical and projected financial performance, prospects and plans, as well as the associated risks involved achieving such projections, prospects and plans;
the risks and uncertainties relating to the concentration of the Company’s voting power among certain current and former executive managing directors of the Company, including the Former EMD Group;
the management forecasts prepared by the Company’s management for, or otherwise made available to, the Special Committee and the Board of Directors (which are summarized in the section titled “The Mergers — Certain Unaudited Prospective Financial Information” beginning on page 89);
the potential risks to the Company of continuing to have publicly traded common stock, including the risks of market volatility; and
certain compliance costs and obligations imposed on the Company as a result of having publicly traded common stock;
the fact that the Public Merger Consideration consists solely of cash, providing Non-Unitholder Stockholders with certainty of value and immediate liquidity at an attractive equity value without the market or execution risks associated with continued independence;
the fact that the Public Merger Consideration represents a premium of approximately 18% over the closing price of the Class A Common Stock on July 21, 2023 (the last trading day before the date that the Merger Agreement was signed) and a premium of approximately 31% over the unaffected closing price of the Class A Common Stock on November 17, 2022 (the day prior to the Company’s announcement of the formation of the Special Committee);
the conclusions of the Special Committee and the Board of Directors that the Public Merger represents the best transaction reasonably available for the Company Stockholders in light of the foregoing factors as well as, among other things:
the views of the Special Committee and the Board of Directors that the Public Merger Consideration to be paid to the Non-Unitholder Stockholders in accordance with the Merger Agreement represented the highest per share consideration that could reasonably be obtained;
the conclusion of the Special Committee and the Board of Directors that the Public Merger Consideration to be paid to the Non-Unitholder Stockholders was more favorable to such holders than the potential value that might result from other alternatives reasonably available to the Company, including the alternative of remaining an independent company and pursuing the Company’s current strategic plan, and other strategic or financial alternatives that might be undertaken as an independent company, in light of a number of factors, including the risks and uncertainties associated with those alternatives and the administrative and compliance costs associated with operating the Company as a publicly traded company;
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the conclusions of the Special Committee and the Board of Directors that, after a thorough process, including extensive outreach to and negotiations with potential buyers, conducted at the direction of the Special Committee, with the assistance of experienced independent legal and financial advisors, the Company obtained the best terms and highest price that Parent is willing to pay for the Company and that further negotiations would have created a risk of causing Parent to abandon the Mergers altogether or materially delay the entry into definitive transaction agreements with respect to the Mergers;
solely with respect to the decision to re-affirm their prior recommendations on August 28, 2023 and August 30, 2023, respectively, the fact that the Special Committee considered the August 12 Proposal (as supplemented by the August 14 Clarifications), the August 24 Proposal and the August 26 Proposal submitted by the Consortium and did not determine that any such proposal was reasonably expected to lead to a Superior Proposal for the reasons described in the disclosure under the heading “The Mergers — Background of the Mergers”;
solely with respect to the decision to re-affirm their prior recommendations on August 28, 2023 and August 30, 2023, respectively, the fact that since the public announcement of the Merger Agreement, none of the Company, Parent, the Special Committee, the Board of Directors, nor any of their respective independent legal and financial advisors, as applicable, has received any other inbound inquiries from third parties that the Board of Directors has determined would reasonably be expected to lead to a Superior Proposal; and
the reviews undertaken by the Special Committee and the Board of Directors of the Merger Agreement and the structure of the Transactions, including, among others, the specific financial and other terms and conditions set out below;
the terms of the Merger Agreement permitting the Company to receive Acquisition Proposals that do not result from a material breach of the non-solicitation obligations in the Merger Agreement, and the other terms and conditions of the Merger Agreement, including:
that at any time prior to obtaining the Required Company Stockholder Approval the Company may, in certain circumstances described in the Merger Agreement, (i) furnish non-public information, and afford access to the books or records or officers of the Acquired Companies, to such soliciting third party and its Representatives and (ii) engage in discussions and negotiations with such third party and its Representatives with respect to such Acquisition Proposal;
that the Merger Agreement may be terminated, in certain circumstances, including, among others, by the Company at any time prior to obtaining the Required Company Stockholder Approval in order to enter into a definitive agreement with respect to a Superior Proposal either concurrently with or immediately following such termination, provided that the Company shall pay Parent a termination fee of $16,576,819 within three business days following such termination to accept and enter into a definitive agreement with respect to a Superior Proposal, which amount the Special Committee and the Board of Directors believe to be reasonable under the circumstances and taking into account the range of such termination fees in similar transactions, and the unlikelihood that a fee of such size would be a meaningful deterrent to other Acquisition Proposals; and
that the Board of Directors may effect an Adverse Recommendation Change upon the recommendation of the Special Committee in certain circumstances, including (i) in the event that the Company has received a bona fide written Acquisition Proposal that did not result from a material breach of the non-solicitation obligations in the Merger Agreement and the Board of Directors (acting upon the recommendation of the Special Committee), among other requirements, determines in good faith (after consultation with its outside financial and outside legal advisors) that such Acquisition Proposal is a Superior Proposal or (ii) in response to an Intervening Event;
in each case, subject to and in accordance with the terms and conditions of the Merger Agreement;
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the likelihood of the Mergers being completed, based on, among other matters:
Parent’s ability to fund the Public Merger Consideration and the LP Merger Consideration through cash on hand and available liquidity;
the absence of a financing condition in the Merger Agreement;
the Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance of Parent’s obligation to cause the Mergers to occur;
the requirement that the parties use their respective reasonable best efforts to take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under applicable law, including antitrust law, or otherwise to consummate and make effective the Transactions as promptly as practicable, subject to and in accordance with the terms and conditions of the Merger Agreement (as summarized in the section titled “The Mergers — Regulatory Approvals and Related Matters” beginning on page 105); and
the likelihood and anticipated timing of completing the Mergers in light of the scope of the conditions to completion, including (i) that the framework and threshold percentage of consenting client run rate contained in the client consent condition in the Merger Agreement was substantially similar to the framework and threshold percentage offered to other potential acquirors and (ii) the Company’s management’s opinion, as communicated to the Special Committee and Board of Directors, that the Company will be able to meet the client consent condition and other closing conditions contained in the Merger Agreement;
other terms and conditions of the Merger Agreement, including:
the conclusions of the Special Committee and the Board of Directors that the termination fee payable by the Company under certain circumstances (which represents 3.25% of the total equity value of the Company in the Transactions) is reasonable in light of, among other matters, the benefit of the Mergers to the Company Stockholders, the size of such termination fee in similar transactions and the enterprise value of the Company;
the terms of the Merger Agreement providing the Company sufficient operating flexibility to conduct its business in the ordinary course until the earlier of the consummation of the Mergers or the termination of the Merger Agreement;
the Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance to prevent certain breaches of the Merger Agreement by Parent and any Merger Sub; and
the scope of the representations, warranties and covenants being made by the Company and Parent;
the fact that PJT Partners rendered its July 23, 2023 oral opinion, subsequently confirmed in its written opinion dated July 23, 2023, to the Special Committee that, as of the date thereof, and based upon and subject to, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by PJT Partners in connection with the opinion, (which are stated in its written opinion), the Public Merger Consideration to be received by the holders of shares of Class A Common Stock (other than holders of shares of Class A Common Stock that hold Partnership Units and their respective affiliates that are holders of shares of Class A Common Stock) in the Transactions was fair to such holders from a financial point of view (as more fully described in the section titled “The Mergers — Opinions of Financial Advisors — Opinion of PJT Partners LP” beginning on page 93). In preparing PJT Partners’ fairness opinion, PJT Partners did not consider the relative merits of the Transactions as compared to any other business plan or opportunity that might be available to the Company or the effect of any other arrangement in which the Company might engage, and PJT Partners’ fairness opinion did not address the underlying decision by the Company to engage in the Transactions. The full text of the written opinion of PJT Partners, dated July 23, 2023, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken in connection with its opinion, is attached as Annex F to this Proxy Statement and is incorporated herein by reference;
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the fact that the Board of Directors considered the financial analyses presented by representatives of J.P. Morgan at the Board of Director’s meeting on July 23, 2023, as well as the oral opinion delivered by J.P. Morgan to the Board of Directors on July 23, 2023, which was subsequently confirmed by delivery of J.P, Morgan’s written opinion to the Board of Directors, dated July 23, 2023, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, it is the opinion of J.P. Morgan that the Public Merger Consideration to be paid to the holders of the Class A Common Stock in the Mergers was fair, from a financial point of view, to such holders (as more fully described in the section titled “The Mergers — Opinions of Financial Advisors — Opinion of J.P. Morgan Securities LLC” beginning on page 100). J.P. Morgan expressed no opinion as to the fairness of the consideration to be paid in connection with the Mergers to the holders of any other class of securities, creditors or other constituencies of the Company (including the Class B Common Stock) or any of the Operating Partnerships, as to the relative merits of the Mergers as compared to any alternative transactions or strategies that might be available to the Company, or as to the underlying decision by the Company to engage in the Mergers. The full text of the written opinion of J.P. Morgan, dated July 23, 2023, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Annex G to this Proxy Statement and is incorporated herein by reference;
the conclusions of the Special Committee and the Board of Directors that they were fully informed about the extent to which the interests of the Class A Unitholder Stockholders and Rollover Holders in the Mergers differ from those of the Company’s other stockholders;
the fact that the Specified Stockholders, who as of the Record Date controlled approximately [•]% of the total voting power of the Company’s outstanding voting stock, have duly executed and entered into the Voting Agreements, pursuant to which they have agreed to vote their shares of Company Common Stock in favor of the adoption and approval of the Merger Agreement and the Transactions, subject to and in accordance with the terms and conditions of the Voting Agreements;
the fact that the Voting Agreements terminate in the event that the Merger Agreement is validly terminated in accordance with its terms, as more fully described in the section titled “Voting Agreements” beginning on page 143; and
the current and historical market prices of the Class A Common Stock, including as set forth in the table under “Market Prices and Dividend Data,” taking into account the market performance of the Class A Common Stock relative to the common stock of other participants in the industry in which the Company operates and general market indices.
In evaluating the Merger Agreement and the Transactions and making the decisions, determinations and recommendations described above, the Special Committee and the Board of Directors considered, among other things, a number of procedural safeguards that they believed were and are present to ensure the fairness of the Merger Agreement and the Transactions, and to permit the Special Committee to represent effectively the interests of the Non-Unitholder Stockholders. These procedural safeguards include, among other things, the following, which are not intended to be exhaustive and are not presented in any relative order of importance:
that the Special Committee was formed at the outset of the Board of Directors’ consideration of a potential transaction prior to any consideration of the terms of the Merger Agreement;
that the Special Committee consists entirely of directors who are independent of, and not affiliated with, the Class A Unitholder Stockholders or the Rollover Holders or any of their respective affiliates, and who are not members of the Company’s management;
that the members of the Special Committee are disinterested with respect to the Transactions and had no financial interest in the Transactions different from, or in addition to, the Non-Unitholder Stockholders generally, other than as described in the section titled “The Mergers — Interests of the Directors and Executive Officers of the Company in the Mergers” beginning on page 107;
that the Special Committee had exclusive authority to decide whether or not to proceed with a transaction or any alternative thereto, subject to the Board of Directors’ approval of the transactions;
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that the Special Committee retained and was advised by its own experienced legal and financial advisors;
that the Special Committee had the exclusive power and authority, among other things, to (i) review and evaluate the terms and conditions, and determine the advisability of any potential transactions with respect to the Company and any alternative thereto, (ii) negotiate with the counterparties to any such potential transaction or any other party the Special Committee deems appropriate with respect to the terms and conditions of any such potential transaction or any alternatives thereto and (iii) determine whether such proposed transaction or any alternative thereto negotiated by the Special Committee is fair to, and in the best interests of, the Company and all of its stockholders, and (iv) recommend to the full Board of Directors what action, if any, should be taken by the Board of Directors with respect to such proposed transaction or any alternative thereto;
that the Board of Directors was not permitted to recommend any potential transaction or any alternative thereto for approval by the Company’s stockholders or otherwise approve any proposed transaction or any alternative thereto without a prior favorable recommendation of such proposed transaction or alternative thereto by the Special Committee;
that the Special Committee had no obligation to recommend any transaction, including a transaction with Parent, and that the Special Committee had the authority to reject any proposals made by Parent or any other person;
that prior to the entry into the Merger Agreement, the Special Committee was permitted to solicit, initiate, propose or introduce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that could constitute a potential transaction with respect to the Company from any person;
that the Special Committee, in consultation with its independent financial and legal advisors, conducted an extensive process, involving frequent and extensive deliberations and negotiations over a period of time, to consider:
potential transactions and alternatives thereto, including engaging with potential counterparties; and
the Merger Agreement and the Transactions;
and, in each case, each member of the Special Committee was actively engaged in that process on a regular basis and was provided with full access to the Company’s management and its advisors in connection with the evaluation process (as summarized in the section titled “The Mergers — Background of the Mergers,” beginning on page 37);
the consummation of the Transactions is subject to the Company Non-Unitholder Stockholder Approval, which includes a “majority of the minority” voting requirement, pursuant to which the Merger Agreement must be adopted, and the Transactions, including the Public Merger, must be approved by the affirmative vote of the holders representing at least a majority of the aggregate voting power of the outstanding shares of Class A Common Stock owned by Non-Unitholder Stockholders entitled to vote thereon in accordance with the DGCL;
that the terms of the Merger Agreement, including the Public Merger Consideration, were the product of extensive negotiations between the Special Committee in consultation with its legal and financial advisors, on the one hand, and Parent and its affiliates and advisors, on the other hand, that resulted in the improvement, from the perspective of the Company, of other terms of the Mergers and the Merger Agreement, including the operating covenants, treatment of employee equity incentives and the amount of the termination fees, relative to Parent’s initial proposed terms;
the various terms of the Merger Agreement that are intended to help ensure that the Company’s stockholders receive the highest price per share of Class A Common Stock reasonably available, including:
that the Merger Agreement may be terminated, in certain circumstances, including, among others, by the Company at any time prior to obtaining the Required Company Stockholder Approval in order to enter into a definitive agreement with respect to a Superior Proposal either concurrently with or immediately following such termination, provided that the Company shall pay Parent a
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termination fee of $16,576,819 within three business days following such termination to accept and enter into a definitive agreement with respect to a Superior Proposal, which amount the Special Committee and the Board of Directors believe to be reasonable under the circumstances and taking into account the range of such termination fees in similar transactions, and the unlikelihood that a fee of such size would be a meaningful deterrent to other acquisition proposals;
that the Board of Directors may effect an Adverse Recommendation Change upon the recommendation of the Special Committee in certain circumstances, including (i) in the event that the Company has received a bona fide written Acquisition Proposal that did not result from a material breach of the non-solicitation obligations in the Merger Agreement and the Board of Directors (acting upon the recommendation of the Special Committee), among other requirements, determines in good faith (after consultation with its outside financial and outside legal advisors) that such Acquisition Proposal is a Superior Proposal or (ii) in response to an Intervening Event;
in each case, subject to and in accordance with the terms and conditions of the Merger Agreement;
that the Special Committee made its evaluation of the Merger Agreement and the Transactions based upon the factors discussed in this Proxy Statement and with the full knowledge of the interests of the Class A Unitholder Stockholders and the Rollover Holders in the Mergers; and
the right of holders of Class A Common Stock to exercise their statutory appraisal rights under the Section 262 of the DGCL and receive payment of the fair value of their shares of Class A Common Stock in lieu of the Public Merger Consideration to be paid per share of Class A Common Stock, subject to and in accordance with the terms and conditions of the Merger Agreement and the DGCL, unless and until any such Company Stockholder fails to perfect or effectively withdraws or loses its or their rights to appraisal and payment under the DGCL.
In evaluating the Merger Agreement and the Transactions and making the decisions, determinations and recommendations described above, the Special Committee and the Board of Directors also considered, among other things, certain countervailing factors, including the following uncertainties, risks and other potentially negative factors, which are not intended to be exhaustive and are not presented in any relative order of importance:
that, following the completion of the Mergers, the Company will no longer exist as an independent public company and that the consummation of the Mergers and receipt of the Public Merger Consideration and LP Merger Consideration, while providing relative certainty of value, will not allow the Company Stockholders (other than the Rollover Holders) to participate in potential further growth in the Company’s assets, future earnings growth, future appreciation in value of the Company Common Stock or any future dividends after the Mergers;
the risk that the Transactions may not be consummated in a timely manner or at all, for a variety of reasons, and the consequences thereof, including (i) the potential loss of value to the Company Stockholders, including the reduction of the trading price of the Class A Common Stock, (ii) the potential negative impact on the operations and prospects of the Company, including the risk of loss of key personnel and certain key members of senior management, and (iii) the market’s perception of the Company’s prospects could be adversely affected if such transactions were delayed or were not consummated;
the risk that the Former EMD Group may seek to oppose the Transactions, including by suits, actions or proceedings in respect of the Merger Agreement or the Transactions, or by voting against the Merger Proposal and encouraging other Company Stockholders to vote against the Merger Proposal;
the possible effects of the pendency or consummation of the Transactions, including the potential for suits, actions or proceedings in respect of the Merger Agreement or the Transactions, the risk of any loss or change in the relationship of the Company and its subsidiaries with their respective employees, agents, customers and other business relationships, and any possible effect on the Company’s ability to attract and retain key employees, including that certain key members of senior management might choose not to remain employed with the Company prior to the completion of the Mergers;
the risk of incurring substantial expenses related to the Mergers, including in connection with any
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litigation that may arise in the future;
the risks and potentially negative factors described in “The Mergers — Certain Effects of the Mergers on the Company,” beginning on page 35, and “The Mergers — Effect on the Company if the Mergers Are Not Completed,” beginning on page 36, respectively;
that the Company’s directors, officers and employees have expended and will expend extensive efforts attempting to complete the Transactions and such persons have experienced and will experience significant distractions from their work during the pendency of such transactions and that the Company has incurred and will incur substantial costs in connection with such transactions, even if such transactions are not consummated;
that the receipt of the Public Merger Consideration in exchange for shares of Company Common Stock pursuant to the Merger Agreement will be a taxable transaction for U.S. federal income tax purposes;
that the receipt of the LP Merger Consideration in exchange for Partnership Units pursuant to the Merger Agreement will be a taxable transaction for U.S. federal income tax purposes;
the restrictions imposed by the Merger Agreement on the Company’s solicitation of Acquisition Proposals from third parties, and that prospective bidders may perceive Parent’s right under the Merger Agreement to negotiate with the Company to match the terms of any Superior Proposal prior to the Company being able to terminate the Merger Agreement and accept a Superior Proposal to be a deterrent to making alternative proposals;
that the existing ownership interest of the Specified Stockholders in the Company and obligations under the Voting Agreements would likely be taken into account by third parties considering whether to make an Acquisition Proposal;
the possibility that the Company may be required to pay Parent a termination fee of $16,576,819 or expense reimbursement of up to $5,100,560 in cash under certain circumstances, including upon termination of the Merger Agreement to accept a Superior Proposal (as more fully described in the section titled “The Merger Agreement — Termination Fee” beginning on page 141);
the understanding that the Class A Unitholder Stockholders, the Rollover Holders, their affiliates and various executive officers and directors have certain interests in the Mergers that may be different from, or in addition to, the interests of the Company Stockholders generally (which are summarized in the sections titled “The Mergers — Interests of the Directors and Executive Officers of the Company in the Mergers,” beginning on page 107, and “The Mergers — Rollover Matters,” beginning on page 115); and
the restrictions placed on the conduct of the Company’s business prior to the completion of the Mergers pursuant to the terms of the Merger Agreement, which could delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company absent the pending completion of the Mergers.
The Special Committee and the Board of Directors concluded that, overall, the potentially positive factors outweighed the uncertainties, risks and potentially negative factors relevant to the Merger Agreement and the Transactions. Accordingly, the Special Committee and the Board of Directors determined that the Merger Agreement and the Transactions are fair to, advisable and in the best interests of the Company and the Company Stockholders.
Accordingly, the Board of Directors unanimously recommends that you vote FOR the Merger Proposal to adopt the Merger Agreement, thereby approving the Transactions, including the Mergers, at the Special Meeting.
The foregoing discussion is not exhaustive, but is intended to summarize the material information and factors considered by the Special Committee and the Board of Directors in their consideration of the Merger Agreement and the Transactions. The Special Committee and the Board of Directors reached the decision to approve the entry into the Merger Agreement and recommend its adoption by the Company Stockholders in light of the factors described above and other factors that the Special Committee and the Board of Directors believed were appropriate. In view of the variety of factors and the quality and amount of information considered, the Special
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Committee and the Board of Directors did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations. In addition, each of the directors of the Special Committee and the Board of Directors may have given different weight to different factors. The Special Committee and the Board of Directors conducted an overall review of the factors described above, including through discussions with the Company’s management and their respective legal and financial advisors, and considered the factors overall to be favorable to, and to support, their decisions, determinations and recommendations. It should be noted that this explanation of the reasoning of the Special Committee and the Board of Directors and certain information presented in this section is forward looking in nature and should be read in light of the factors set forth in the section titled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 28.
Certain Unaudited Prospective Financial Information
Certain Unaudited Prospective Financial Information
Except for annual guidance, the Company does not, as a matter of course, publicly disclose forecasts or projections as to future performance, earnings or other results due to the inherent uncertainty, unpredictability and subjectivity of the underlying assumptions, estimates and projections.
Transaction Forecasts
In connection with the Special Committee’s consideration of a potential transaction and discussions with Bidder A, the Special Committee directed the Company’s management to prepare an ordinary-course financial projection case of the Company following the consummation of a potential transaction. From June 21, 2022 through May 2023, over the course of the strategic alternatives review process initiated by the Special Committee, the Company’s management presented several drafts of financial projections for the then-existing core operating businesses and strategies of the Company to the Special Committee, and the Special Committee instructed the Company’s management to revise the draft financial forecasts to reflect additional assumptions and updates resulting from the Company’s year-to-date financial performance.
In connection with the Special Committee’s consideration of a potential transaction with Rithm, on May 12, 2023, the Company’s management provided to the Special Committee an updated financial projection case of the Company following the consummation of a potential transaction, with assumptions, among others, that the then-existing corporate structure remained and that the Company generated sustained investment performance in its core strategies, and did not include any potential impacts from future market volatility, derivative actions, potential strategic growth opportunities, or synergies that may be pursued with a strategic partner or from being a private company. On May 13, 2023, the Special Committee approved the Transaction Forecasts and authorized the Company’s management to share the Transaction Forecasts with Rithm to facilitate its due diligence with respect to a potential transaction. On May 15, 2023, the Company’s management provided the Transaction Forecasts to Rithm.
The following is a summary of the Transaction Forecasts (unaudited):
 
Management Forecast
 
2023E
2024E
2025E
2026E
Total Assets Under Management(1)
$35,555
$40,261
$44,139
$48,139
Total Management Fees(2)
$232
$279
$303
$331
Total Realized Incentive Income(3)
$104
$212
$441
$426
Performance-Related Earnings(4)
$(20)
$71
$275
$132
Adj. Fee Related Earnings(5)
$16
$57
$80
$108
ABURI Adjusted Performance-Related Earnings(6)
$36
$120
$145
$186
ABURI Adj. Distributable Earnings(7)
$34
$131
$189
$249
All numbers in millions.
(1)
Total assets under management (“AUM”) refers to the assets for which we provide investment management, advisory or certain other investment-related services. Specifically:
a.
AUM for our multi-strategy and opportunistic credit funds is generally based on the net asset value of those funds plus any unfunded commitments, if applicable. AUM is reduced for unfunded commitments that will be funded through transfers from other funds.
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b.
AUM for Institutional Credit Strategies is generally based on the amount of equity outstanding for CLOs and CBOs (during the warehouse period) and the par value of the collateral assets and cash held (after warehouse period). For aircraft securitization vehicles, AUM is based on the adjusted portfolio appraisal values for the aircraft collateral within the securitization. AUM is reduced for any investments in these CLOs and securitization vehicles held by our other funds. AUM also includes the net asset value of other investment vehicles within this strategy.
c.
AUM for our real estate funds is generally based on the amount of capital committed by our fund investors during the investment period and the amount of actual capital invested for periods following the investment period. AUM is reduced for unfunded commitments that will be funded through transfers from other funds.

AUM includes amounts that are not subject to management fees, incentive allocation or other amounts earned on AUM, including without limitation, investments by the Company, its executive managing directors, employees and certain other related parties. Our calculation of AUM may differ from the calculations of other asset managers, and as a result, may not be comparable to similar measures presented by other asset managers. Our calculations of AUM are not based on any definition set forth in the governing documents of the investment funds and are not calculated pursuant to any regulatory definitions.
(2)
Total management fees are generally calculated and paid on a quarterly basis in advance, based on the amount of AUM at the beginning of the quarter. Management fees are prorated for capital inflows and redemptions during the quarter. Accordingly, changes in our management fee revenues from quarter to quarter are driven by changes in the quarterly opening balances of AUM, the relative magnitude and timing of inflows and redemptions during the respective quarter, the impact of differing management fee rates charged on those inflows and redemptions, as well as the impact of the deferral of subordinated management fees from certain CLOs.
(3)
Total Realized Incentive Income is defined as the total amount of incentive income for which it is deemed probable that a significant reversal will not occur. The Company earns incentive income based on the cumulative performance of its funds over a commitment period which may or may not be subject to a hurdle rate depending on the underlying fund terms. Total Realized Incentive Income is inclusive of carried interest.