Page 11 of 20 SEC Filing
Pursuant to the Purchase Agreement, RNIP agreed to irrevocably withdraw and rescind (i) its nomination of each of Messrs. Rochman, Steingraber and Wise for election at the 2016 Annual Meeting of FSC and (ii) its previously submitted business proposal seeking FSC stockholder approval at the Annual Meeting to terminate the Second Amended and Restated Investment Advisory Agreement, dated as of May 2, 2011, by and between FSC and Fifth Street Management LLC.
Additionally, pursuant to the Purchase Agreement, Holdings and RiverNorth entered into an escrow agreement with JPMorgan Chase Bank, N.A., as escrow agent (the “Escrow Agent”), pursuant to which Holdings deposited $10,000,000 with the Escrow Agent. Holdings has agreed to use reasonable best efforts to deposit into the escrow account, on or prior to March 24, 2016, an additional $24,577,250 (together with the initial $10,000,000 deposit, and together with interest thereon, the “Escrow Funds”). On the Closing Date, Holdings and RiverNorth have agreed to direct the Escrow Agent to release the Escrow Funds to RiverNorth, and the Escrow Funds will be credited (after deducting, if applicable, the $5,000,000 fee payable described above) against any other amounts owed by Buyers pursuant to the Purchase Agreement on the Closing Date.
The Purchase Agreement also contains (i) standstill provisions, pursuant to which the Reporting Persons agreed not to take certain actions with respect to the securities of each of FSC and Fifth Street Senior Floating Rate Corp. (“FSFR”), for a period ending on the date of the latter of the certification of votes for the 2017 Annual Meeting of Stockholders of the Company or the certification of votes for the 2017 Annual Meeting of Stockholders of FSFR; and (ii) voting provisions, pursuant to which the Reporting Persons agreed to appear, or cause all Shares being purchased from the Reporting Persons by the Buyers on the Closing Date, or shares of FSFR common stock owned by the Reporting Persons, to be counted as present, at each of FSC’s and FSFR’s 2016 Annual Meeting of Stockholders, as applicable, and vote (or cause to be voted) all such Shares, or shares of FSFR, as applicable, in accordance with the recommendations of each of the boards of directors of FSC and FSFR, also as applicable.
The foregoing summary of the Purchase Agreement and the transactions contemplated thereby is qualified in its entirety by reference to the complete text of the Purchase Agreement, a form of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Concurrently with entering into the Purchase Agreement, FSAM issued a warrant (the “Warrant”) to RiverNorth Management. RiverNorth Management may exercise the Warrant, in whole but not in part, at any time after April 16, 2016, and prior to March 18, 2017. If RiverNorth Management duly exercises the Warrant, FSAM must pay RiverNorth Management a cash settlement amount equal to the lesser of (i) $5,000,000 and (ii) the “Spread Value” determined pursuant to the following formula: Spread Value = the product of (a) the difference between the fair market value of one share of the FSAM’s Class A common stock (“Class A Common Stock”), and the warrant strike price, each as determined in accordance with the Warrant, multiplied by (b) the number shares of Class A Common Stock subject to the Warrant (i.e., the number of shares of Class A Common Stock equal to the quotient of $10,000,000 divided by the warrant strike price). Instead of paying the cash settlement amount described above, FSAM may elect, prior to December 18, 2016, to settle all or part of the Warrant by delivering to RiverNorth Management a number of shares of Class A Common Stock in the amount determined pursuant to the terms of the Warrant.
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