Merger-Related Named
Executive Officer Compensation Proposal
(Proposal 3 on the AMTG Proxy Card)
AMTG is required, pursuant to Section 14A of the Exchange Act to include in this proxy statement/prospectus a proposal with respect to a non-binding,
advisory vote on the compensation payable to each of its named executive officers as determined in accordance with Item 402(t) of Regulation S-K, in connection with the mergers, pursuant to arrangements entered into with AMTG, and
AMTG is therefore asking its stockholders to approve the following non-binding resolution:
RESOLVED that the compensation that may be
paid or become payable to AMTGs named executive officers in connection with the mergers, as disclosed pursuant to Item 402(t) of Regulation S-K in this Merger-Related Named Executive Officer Compensation Proposal, is hereby approved.
The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information
about certain compensation for each AMTG named executive officer that is based on or otherwise relates to the mergers. For purposes of calculating the amounts in this table, AMTG has assumed a closing date for the mergers of August 26, 2016 and Per
Common Share Merger Consideration in the amount of approximately $13.83 (based on the average closing price per share of ARI as quoted on the NYSE over the first five business days following the first public announcement of the Merger Agreement).
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Name
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Cash
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Equity
(1)
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Total
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Michael A. Commaroto
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$
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651,014
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$
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618,736
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$
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1,269,758
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Teresa D. Covello
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Gregory W. Hunt
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(1)
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Represents the value of unvested restricted stock units held by AMTGs named executive officers that will become vested in connection with the mergers and be converted into the right to receive the Per Common Share
Merger Consideration.
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Narrative Disclosure to Merger-Related Compensation Table
The AMTG Board has exercised its discretion under AMTGs 2011 Equity Incentive Plan to provide for accelerated vesting of all unvested equity awards held
by the named executive officers on the closing date of the mergers, subject to the consummation of the mergers. The AMTG shares underlying such equity awards will be converted into the right to receive the Per Common Share Merger Consideration, less
applicable withholding. For more information regarding the equity awards held by the named executive officers and the treatment thereof in connection with the mergers, see
Special FactorsInterests of AMTGs Directors and Officers
in the Transaction
beginning on page 84. No named executive officer of AMTG is entitled to receive any other payment from AMTG in connection with the mergers or any related termination of employment.
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Vote Required and Recommendation of the AMTG Board
The vote on this proposal is separate and apart from the vote to approve the First Merger and other transactions contemplated by the merger agreement. The vote
to approve the Merger-Related Named Executive Officer Compensation Proposal is advisory in nature and, therefore, is not binding on AMTG or the AMTG Board or the AMTG Special Committee, regardless of whether the First Merger and other transactions
contemplated by the merger agreement are approved. Approval of the Merger-Related Named Executive Officer Compensation Proposal requires the affirmative vote of a majority of the votes cast on such proposal. Approval of the Merger-Related Named
Executive Officer Compensation Proposal is not a condition to completion of the mergers, and failure to approve this advisory matter will have no effect on the vote to approve the First Merger and the other transactions contemplated by the merger
agreement. The merger-related named executive officer compensation to be paid in connection with the mergers is based on contractual arrangements with AMTGs named executive officers and accordingly the outcome of this advisory vote will not
affect the obligation to make these payments.
The AMTG Board, acting upon the unanimous recommendation of the AMTG Special Committee, unanimously
recommends AMTG stockholders vote FOR the Merger-Related Named Executive Officer Compensation Proposal.
Other Matters
: AMTG is not
aware of any other business to be presented or acted upon at the AMTG special meeting or any postponement or adjournment thereof and only matters specified in the notice of the meeting may be acted upon at the AMTG special meeting. If, however,
other matters are properly brought before the AMTG special meeting or any postponement or adjournment thereof, the persons named as proxies will vote on those matters in their discretion.
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THE MERGERS AND RELATED TRANSACTIONS
The following is a description of certain material aspects of the mergers and other transactions contemplated by the merger agreement. While AMTG and ARI
believe that the following description covers the material terms of the transactions, the description may not contain all of the information that is important to you. The discussion of the transaction in this proxy statement/prospectus is qualified
in its entirety by reference to the merger agreement (which is attached as Annex A to this proxy statement/prospectus and is incorporated herein by reference), the asset purchase agreement (which is attached as Annex B to this proxy
statement/prospectus and is incorporated herein by reference), the Bridge Loan Commitment Letter (which is attached as Annex C to this proxy statement/prospectus and is incorporated herein by reference), the stock purchase agreement (which is
attached as Annex D to this proxy statement/prospectus and is incorporated herein by reference) and certain letter agreements entered into in connection with the transaction (which are attached as Annexes E and F to this proxy
statement/ prospectus and are incorporated herein by reference). We encourage you to read carefully this entire proxy statement/prospectus, including the merger agreement, for a more complete understanding of the transaction.
The Mergers
ARI will acquire
AMTG pursuant to the terms and subject to the conditions of the merger agreement. First, Merger Sub will merge with and into AMTG, with AMTG surviving the First Merger as a subsidiary of ARI. The merger agreement provides that, at the effective time
of the First Merger, holders of AMTG common stock will be entitled to receive a combination of cash and ARI common stock as described below under
The AgreementsDescription of the Merger AgreementMerger Consideration; Treatment
of Securities
beginning on page 159. Promptly following the effective time of the First Merger, AMTG will merge with and into ARI, with ARI surviving the Second Merger. As a result of the Second Merger, holders of AMTG Series A Preferred
Stock will be entitled to receive ARI Series C Preferred Stock as described below under
The AgreementsDescription of the Merger AgreementMerger Consideration; Treatment of Securities
beginning on page 159. As a result
of the mergers, both Merger Sub and AMTG will cease to exist and ARI (sometimes referred to as the Combined Company following the closing) will possess all properties, rights, privileges, powers and franchises of AMTG and Merger Sub.
Related ARI Transactions
In connection with the merger agreement, ARI also entered into a series of agreements with certain subsidiaries of Athene, including (i) the Bridge Loan
Commitment Letter with Athene USA, (ii) the asset purchase agreement with Athene Annuity, and (iii) the stock purchase agreement with Athene USA. Each of these arrangements is described in detail below under
The
Agreements
beginning on page 158.
Accounting Treatment of the Transaction
In accordance with GAAP, ARI will account for the transactions using the acquisition method of accounting with ARI treated as the acquiror of AMTG for
accounting purposes. Under acquisition accounting, the assets of AMTG acquired and liabilities of AMTG assumed will be recorded as of the acquisition date, at their respective fair values, and added to those of ARI. Any excess of the fair values
over the purchase price will be recorded as a gain from a bargain purchase. Consolidated financial statements of ARI issued after the transactions would reflect AMTGs fair values after the completion of the transactions, but will not be
restated retroactively to reflect the historical consolidated financial position or results of operations of AMTG.
Listing
of Newly Issued ARI Common Stock
It is a condition to AMTGs obligation to complete the mergers that the shares of ARI common stock issuable to
holders of AMTG common stock in the First Merger be approved for listing on the NYSE, subject to official notice of issuance. ARI will use commercially reasonable efforts to obtain such approval for such listing, subject to official notice of
issuance, prior to the effective time of the First Merger.
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Listing of Newly Issued ARI Series C Preferred Stock
It is a condition to AMTGs obligation to complete the mergers that the shares of ARI Series C Preferred Stock issuable to holders of AMTG Series A
Preferred Stock in the Second Merger be approved for listing on the NYSE, subject to official notice of issuance. ARI will use commercially reasonable efforts to obtain such approval for such listing, subject to official notice of issuance, prior to
the effective time of the First Merger.
Delisting and Deregistration of AMTG Capital Stock
After the mergers are completed, AMTG common stock and AMTG Series A Preferred Stock will be delisted from the NYSE and deregistered under the Exchange Act,
and AMTG will no longer file periodic reports with the SEC. Both ARI and AMTG agree to cooperate with the other party to take all actions necessary to delist the AMTG common stock and the AMTG Series A Preferred Stock from the NYSE and terminate
their registration under the Exchange Act.
Restriction on Sales of ARI Common Stock and Preferred Stock
ARI common stock and ARI Series C Preferred Stock issued in the mergers will not be subject to any restrictions on transfers arising under the Securities Act,
except for ARI common stock and ARI Series C Preferred Stock issued to any holder of AMTG common stock or AMTG Series A Preferred Stock who may be deemed an affiliate of ARI after the completion of the mergers. This proxy
statement/prospectus does not cover resales of ARI common stock or ARI Series C Preferred Stock received by any person upon the completion of the mergers, and no person is authorized to make any use of this proxy statement/prospectus in connection
with any resale. The shares of ARI common stock and ARI Series C Preferred Stock issued in the mergers will be subject to restrictions on ownership and transfers set forth in ARIs charter. For additional information on the restrictions on the
ARI common stock and ARI preferred stock,
Restrictions on Ownership and Transfer
beginning on page 217.
Material U.S. Federal Income Tax Considerations
The following is a summary of the material U.S. federal income tax consequences of the mergers to holders of AMTG common stock and AMTG Series A Preferred
Stock and certain material U.S. federal income tax considerations relating to ARIs qualification and taxation as a REIT and of the acquisition, holding and disposition of ARI common stock and ARI Series C Preferred Stock received in the
mergers. For purposes of this section, references to ARI mean only ARI, and not ARIs subsidiaries or other lower-tier entities, references to AMTG stock include AMTG common stock and AMTG Series A Preferred Stock, and
references to ARI stock include ARI common stock and ARI Series C Preferred Stock, except as otherwise indicated. This summary is based upon the Internal Revenue Code, the regulations promulgated by the U.S. Treasury Department, or the
Treasury regulations, current administrative interpretations and practices of the Internal Revenue Service (the IRS) (including administrative interpretations and practices expressed in private letter rulings which are binding on the IRS
only with respect to the particular taxpayers who requested and received those rulings) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No
assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in
this summary. The summary is also based upon the assumption that the operation of ARI, and of its subsidiaries and other lower-tier and affiliated entities will, in each case, be in accordance with its applicable organizational documents. This
summary assumes that stockholders will hold AMTG stock and ARI stock as capital assets, which generally means as property held for investment. This summary is for general information only, and does not purport to discuss all aspects of U.S. federal
income taxation that may be important to a particular stockholder in light of its investment or tax circumstances or to stockholders subject to special tax rules, such as:
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persons who elect to use a mark-to-market method of accounting;
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subchapter S corporations;
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U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar;
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financial institutions;
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regulated investment companies, or RICs;
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stockholders who receive AMTG stock (or, in connection with the mergers, ARI stock) through the exercise of employee stock options or otherwise as compensation;
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persons holding AMTG stock (or, following the mergers, ARI stock) as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment;
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persons subject to the alternative minimum tax provisions of the Internal Revenue Code;
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persons holding their interest through a partnership or similar pass-through entity;
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persons holding a 10% or more (by vote or value) beneficial interest in ARI; and
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except to the extent discussed below, tax-exempt organizations and non-U.S. stockholders (as defined below).
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For purposes of this discussion, a U.S. stockholder is a beneficial owner of AMTG stock or ARI stock, as applicable, that for U.S. federal income tax purposes
is:
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an individual who is a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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a trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or
(2) it has a valid election in place to be treated as a U.S. person.
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A non-U.S. stockholder is a beneficial owner of AMTG stock or ARI
stock, as applicable, that is neither a U.S. stockholder nor an entity that is treated as a partnership for U.S. federal income tax purposes.
If an
entity or arrangement treated as a partnership for U.S. federal income tax purposes holds AMTG stock or ARI stock, as applicable, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the
partner, the activities of the partnership and certain determinations made at the partner level. A partner of a partnership holding AMTG stock or ARI stock, as applicable, should consult its tax advisor regarding the U.S. federal income tax
consequences to the partner of the mergers and the ownership and disposition of AMTG stock or ARI stock, as applicable, by the partnership.
THIS SUMMARY
IS FOR GENERAL INFORMATION ONLY, IS NOT TAX ADVICE AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGERS OR ALL TAX CONSIDERATIONS APPLICABLE TO HOLDERS OF ARI STOCK. THE U.S. FEDERAL INCOME TAX
TREATMENT OF ARI AS A REIT AND HOLDERS OF ARI STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION,
THE TAX CONSEQUENCES OF
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THE MERGERS AND OF HOLDING AND DISPOSING OF ARI STOCK TO ANY PARTICULAR STOCKHOLDER WILL DEPEND ON THE STOCKHOLDERS PARTICULAR TAX CIRCUMSTANCES. AMTG STOCKHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR NON-U.S. INCOME AND OTHER TAX LAWS) OF THE MERGERS AND OF ACQUIRING, HOLDING AND DISPOSING OF ARI STOCK.
Material U.S. Federal Income Tax Consequences of the Mergers
The following is a summary of the material U.S. federal income tax consequences of the mergers to holders of AMTG stock. Except to the extent specifically
discussed below, this summary does not address the tax consequences of any transaction other than the mergers. In addition, no information is provided with respect to the tax consequences of the mergers under applicable state, local or non-U.S. laws
or U.S. federal tax laws other than U.S. federal income tax laws.
Consequences of the Mergers to U.S. Stockholders
General
. A U.S. stockholders receipt of (1) cash and ARI common stock in exchange for AMTG common stock pursuant to the First Merger or
(2) ARI Series C Preferred Stock in exchange for AMTG Series A Preferred Stock pursuant to the Second Merger, as applicable, will be a taxable transaction for U.S. federal income tax purposes. A holder of AMTG common stock generally will
recognize gain or loss for U.S. federal income tax purposes measured by the difference, if any, between (1) the amount of cash received and the fair market value of the ARI
c
ommon
s
tock received on the effective date of the First
Merger and (2) such stockholders adjusted tax basis in its AMTG common stock exchanged for the merger consideration. Generally, a holder of AMTG Series A Preferred Stock will recognize gain or loss for U.S. federal income tax purposes
measured by the difference, if any, between (1) the fair market value of the ARI Series C Preferred Stock received on the effective date of the Second Merger and (2) such holders adjusted tax basis in its AMTG Series A Preferred
Stock exchanged for the merger consideration.
Generally, such capital gain or loss will constitute long-term capital gain or loss if a U.S. stockholder
has held the AMTG stock for more than one year as of the effective date of the mergers. The deductibility of capital losses may be subject to limitations. A U.S. stockholder who has held blocks of AMTG stock that were acquired at different times or
prices, must separately calculate its gain or loss for each block of shares.
A U.S. stockholder that receives cash in lieu of a fractional share of ARI
common stock in the First Merger will be treated as having sold such fractional share for cash and generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash
received and the U.S. stockholders tax basis in the fractional share and will be subject to U.S. federal income taxation in a manner described below in
Material U.S. Federal Income Tax Considerations Applicable to ARI and Holders of
the ARI StockTaxation of Taxable U.S. StockholdersDispositions of ARI Stock
.
Special Rule for U.S. Stockholders Who Have Held
Shares For Six Months or Less
. A U.S. stockholder who has held AMTG stock for six months or less at the effective time of the mergers, taking into account certain holding period rules, and who recognizes a loss on the exchange of AMTG stock in
the mergers, will be treated as recognizing a long-term capital loss to the extent of any capital gain dividends received from AMTG, or such stockholders share of any designated retained capital gains, with respect to those shares.
Consequences of the Mergers to Non-U.S. Stockholders
General
. A non-U.S. stockholders gain or loss from the mergers will be determined in the same manner as that of a U.S. stockholder. A non-U.S.
stockholder of AMTG stock should not be subject to U.S. federal income taxation on any gain recognized from the mergers, unless (1) the gain is effectively connected with a U.S. trade
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or business of the non-U.S. stockholder, (2) the stockholder is an individual who has been present in the United States for 183 days or more during the taxable year of disposition and
certain other conditions are satisfied, or (3) the stockholders AMTG stock constitutes a U.S. real property interest, or a USRPI, within the meaning of the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA.
A non-U.S. stockholder whose gain is effectively connected with the conduct of trade or business in the United States (and, if required by an applicable
income tax treaty, the non-U.S. stockholder maintains a permanent establishment in the United States to which such gain is attributable) will be subject to U.S. federal income tax on such gain on a net basis in the same manner as a U.S. stockholder.
In addition, a non-U.S. stockholder that is a corporation may be subject to a branch profits tax equal to 30% (or lesser rate under an applicable income tax treaty) on the after-tax amount of such effectively connected gain.
If the non-U.S. stockholder is an individual who has been present in the United States for 183 days or more during the taxable year of disposition and certain
other conditions are satisfied, that stockholder will be subject to a 30% tax on the stockholders net capital gains.
If the non-U.S.
stockholders AMTG stock constitutes a USRPI under FIRPTA, such stockholder will be subject to U.S. federal income tax on the gain recognized in the mergers on a net basis in the same manner as a U.S. stockholder. The AMTG stock will not be
treated as a USRPI to a non-U.S. stockholder under FIRPTA if (1) AMTG is treated as a domestically controlled REIT on the effective date of the mergers, (2) the non-U.S. stockholder owned (after application of certain
constructive ownership rules), in the case of a non-U.S. stockholder holding common stock, not more than 10% of the AMTG common stock and, in the case of a non-U.S. stockholder holding AMTG Series A Preferred Stock, not more than 10% of the AMTG
Series A Preferred Stock (based on the fair market value of AMTG common stock and AMTG Series A Preferred Stock) at any time during the five years preceding the effective date of the mergers, or (3) AMTG is not and has not been at any time
during the shorter of the five years preceding the mergers or the U.S. stockholders holding period for its AMTG stock, a United States real property holding corporation (a USRPHC). AMTG believes that it is a domestically
controlled REIT, and that it will not be a USRPHC at the effective date of the mergers or at any time during the five year period preceding the effective date of the mergers, although there can be no assurances to such effect.
A non-U.S. stockholder that receives cash in lieu of a fractional share of ARI common stock in the First Merger will be treated as having sold such fractional
share for cash and generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received and the non-U.S. stockholders tax basis in the fractional share and
will be subject to U.S. federal income taxation in a manner described below in
Material U.S. Federal Income Tax Considerations Applicable to ARI and Holders of the ARI StockTaxation of Non-U.S. StockholdersDispositions of ARI
Stock
.
Information Reporting and Backup Withholding
Information reporting and backup withholding may apply to payments made in connection with the mergers. Backup withholding will not apply, however, to a
stockholder who (a) in the case of a U.S. stockholder, furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on IRS Form W-9 or successor form, (b) in the case of a non-U.S.
stockholder, furnishes an applicable IRS Form W-8 or substitute or successor form, or (c) is otherwise exempt from backup withholding and complies with other applicable rules and certification requirements. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against such stockholders U.S. federal income tax liability provided the required information is furnished to the IRS on a timely basis.
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Material U.S. Federal Income Tax Considerations Applicable to ARI and Holders of the ARI Stock
Taxation of ARIGeneral
ARI has elected to be
taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with ARIs taxable year ended December 31, 2009. ARI believes that ARI has been organized and operated, and ARI intends to continue to be organized and
to operate, in a manner that will allow ARI to qualify for taxation as a REIT under the Internal Revenue Code.
In connection with the closing of the
mergers, ARI will receive an opinion of Clifford Chance US LLP to the effect that, commencing with ARIs taxable year ended December 31, 2009, ARI has been organized and has operated in conformity with the requirements for qualification
and taxation as a REIT under the Internal Revenue Code, and ARIs current and proposed method of operation will enable ARI to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be
emphasized that the opinion of Clifford Chance US LLP will be based on various assumptions relating to ARIs organization and operation, including that all factual representations and statements set forth in all relevant documents, records and
instruments are true and correct, all actions described in this proxy statement/prospectus are completed in a timely fashion and that ARI will at all times operate in accordance with the method of operation described in ARIs organizational
documents and this proxy statement/prospectus. Additionally, the opinion of Clifford Chance US LLP will be conditioned upon (i) factual representations and covenants made by ARI management and affiliated entities regarding ARIs
organization, assets, present and future conduct of ARIs business operations and other items regarding ARIs ability to meet the various requirements for qualification as a REIT and (ii) factual representations and covenants made by
AMTGs management and affiliated entities regarding AMTGs asset, business operations, and other items regarding AMTGs ability to have met the requirements for qualification as a REIT, and assumes that such representations and
covenants are accurate and complete and that they and ARI will take no action inconsistent with ARIs qualification as a REIT. In addition, to the extent ARI makes certain investments, such as investments in commercial mortgage loan
securitizations, the accuracy of such opinion will also depend on the accuracy of certain opinions rendered to ARI in connection with such transactions. While ARI believes that ARI is organized and operated, and ARI intends to continue to operate,
so that ARI will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in ARIs circumstances or applicable law, no assurance can
be given by Clifford Chance US LLP or ARI that ARI has qualified or will qualify as a REIT for any particular year. Clifford Chance US LLP will have no obligation to advise ARI or the holders of shares of ARI common stock of any subsequent change in
the matters stated, represented or assumed or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set
forth in such opinions.
Qualification and taxation as a REIT depends on ARIs ability to meet, on a continuing basis, through actual results of
operations, distribution levels, diversity of share ownership and various qualification requirements imposed upon REITs by the Internal Revenue Code, the compliance with which will not be reviewed by Clifford Chance US LLP. In addition, ARIs
ability to qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which ARI invests, which could include entities that have made
elections to be taxed as REITs, the qualification of which will not have been reviewed by Clifford Chance US LLP. In that regard, AMTGs failure to qualify as a REIT for any taxable year could adversely affect ARIs ability to qualify as a
REIT following the mergers. ARIs ability to qualify as a REIT also requires that ARI satisfy certain asset and income tests, some of which depend upon the fair market values of assets directly or indirectly owned by ARI or which serve as
security for loans made by ARI. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of ARIs operations for any taxable year will satisfy the requirements for
qualification and taxation as a REIT.
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Taxation of REITs in General
As indicated above, qualification and taxation as a REIT depends upon ARIs ability to meet, on a continuing basis, various qualification requirements
imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below, under
Requirements for Qualification as a REIT
. While ARI believes that ARI has operated and intends to continue
to operate so that ARI qualifies as a REIT, no assurance can be given that the IRS will not challenge ARIs qualification as a REIT or that ARI will be able to operate in accordance with the REIT requirements in the future. See
Failure to Qualify
.
Provided that ARI qualifies as a REIT, ARI generally will be entitled to a deduction for dividends that ARI
pays to its stockholders and, therefore, will not be subject to U.S. federal corporate income tax on ARIs taxable income that is currently distributed to ARI stockholders. This treatment substantially eliminates the double taxation
at the corporate and stockholder levels that results generally from investment in a corporation. Rather, income generated by a REIT generally is taxed only at the stockholder level, upon a distribution of dividends by the REIT.
Stockholders who are individual U.S. stockholders (as defined above) generally are taxed on corporate dividends at a maximum rate of 20% (the same as
long-term capital gains), thereby substantially reducing, though not completely eliminating, the double taxation that has historically applied to corporate dividends. With limited exceptions, however, dividends received by individual U.S.
stockholders from ARI or from other entities that are taxed as REITs will continue to be taxed at rates applicable to ordinary income, which currently are as high as 39.6%. Net operating losses, foreign tax credits and other tax attributes of a REIT
generally do not pass through to the stockholders of the REIT, subject to special rules for certain items, such as capital gains, recognized by REITs. See
Taxation of Taxable U.S. Stockholders
.
Even if ARI qualifies for taxation as a REIT, ARI will be subject to U.S. federal income taxation as follows:
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ARI will be taxed at regular U.S. federal corporate rates on any undistributed income, including undistributed net capital gains.
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ARI may be subject to the alternative minimum tax on ARIs items of tax preference, if any.
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If ARI has net income from prohibited transactions, which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure
property, such income will be subject to a 100% tax. See
Prohibited Transactions
and
Foreclosure Property
below.
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If ARI elects to treat property that ARI acquires in connection with a foreclosure of a mortgage loan or from certain leasehold terminations as foreclosure property, ARI may thereby avoid (a) the 100%
tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction) and (b) the inclusion of any income from such property not qualifying for purposes of the REIT gross income tests discussed below, but
the income from the sale or operation of the property may be subject to U.S. federal corporate income tax at the highest applicable rate (currently 35%).
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If ARI fails to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintains its qualification as a REIT because other requirements are met, ARI will be subject to a 100%
tax on an amount equal to (a) the greater of (1) the amount by which ARI fails the 75% gross income test or (2) the amount by which ARI fails the 95% gross income test, as the case may be, multiplied by (b) a fraction intended to
reflect ARIs profitability.
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If ARI fails to satisfy any of the REIT asset tests, as described below, other than a failure of the 5% or 10% REIT asset test that does not exceed a statutory de minimis amount as described more fully below, but
ARIs failure is due to reasonable cause and not due to willful neglect and ARI nonetheless maintains its REIT qualification because of specified cure provisions, ARI will be required to pay a tax equal to the greater of $50,000 or the highest
corporate tax rate (currently 35%) of the net income generated by the nonqualifying assets during the period in which ARI failed to satisfy the asset tests.
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If ARI fails to satisfy any provision of the Internal Revenue Code that would result in ARIs failure to qualify as a REIT (other than a gross income or asset test requirement) and the violation is due to
reasonable cause and not due to willful neglect, ARI may retain its REIT qualification but ARI will be required to pay a penalty of $50,000 for each such failure.
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If ARI fails to distribute during each calendar year at least the sum of (a) 85% of ARIs REIT ordinary income for such year, (b) 95% of ARIs REIT capital gain net income for such year and
(c) any undistributed taxable income from prior periods, or the required distribution, ARI will be subject to a 4% excise tax on the excess of the required distribution over the sum of (1) the amounts actually distributed (taking into
account excess distributions from prior years), plus (2) retained amounts on which income tax is paid at the corporate level.
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ARI may be required to pay monetary penalties to the IRS in certain circumstances, including if ARI fails to meet record-keeping requirements intended to monitor its compliance with rules relating to the composition of
ARI stockholders, as described below in
Requirements for Qualification as a REIT
.
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A 100% excise tax may be imposed on some items of income and expense that are directly or constructively paid between ARI and any taxable REIT subsidiaries, or TRSs, ARI may own if and to the extent that the IRS
successfully adjusts the reported amounts of these items.
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If ARI acquires appreciated assets from a corporation that is not a REIT in a transaction in which the adjusted tax basis of the assets in ARIs hands is determined by reference to the adjusted tax basis of the
assets in the hands of the non-REIT corporation, ARI will be subject to tax on such appreciation at the highest U.S. federal corporate income tax rate then applicable if ARI subsequently recognizes gain on a disposition of any such assets during the
five-year period following their acquisition from the non-REIT corporation. The results described in this paragraph assume that the non-REIT corporation will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is
acquired by ARI.
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ARI generally will be subject to tax on the portion of any excess inclusion income derived from an investment in residual interests in certain mortgage loan securitization structures (i.e., a taxable
mortgage pool or a residual interest in a real estate mortgage investment conduit, or REMIC) to the extent that ARI common stock is held by specified types of tax-exempt organizations known as disqualified organizations that are
not subject to tax on unrelated business taxable income. To the extent that ARI owns a REMIC residual interest or a taxable mortgage pool through a TRS, ARI will not be subject to this tax. See
Effect of Subsidiary
EntitiesTaxable Mortgage Pools
and
Excess Inclusion Income
.
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ARI may elect to retain and pay U.S. federal income tax on ARIs net long-term capital gain. In that case, a stockholder would include its proportionate share of ARIs undistributed long-term capital gain (to
the extent ARI makes a timely designation of such gain to the stockholder) in its income, would be deemed to have paid the tax that ARI paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid,
and an adjustment would be made to increase the stockholders basis in ARI common stock. Stockholders that are U.S. corporations will also appropriately adjust their earnings and profits for the retained capital gains in accordance with
Treasury regulations to be promulgated.
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ARI may have subsidiaries or own interests in other lower-tier entities that are subchapter C
corporations, the earnings of which could be subject to U.S. federal corporate income tax.
In addition, ARI may be subject to a variety of taxes other
than U.S. federal income tax, including state, local, and foreign income, franchise property and other taxes. ARI could also be subject to tax in situations and on transactions not presently contemplated.
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Requirements for Qualification as a REIT
The Internal Revenue Code defines a REIT as a corporation, trust or association:
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1.
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that is managed by one or more trustees or directors;
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2.
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the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
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3.
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that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;
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4.
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that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;
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5.
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the beneficial ownership of which is held by 100 or more persons;
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6.
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in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include specified entities);
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7.
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that makes an election to be a REIT for the current taxable year or has made such an election for a previous taxable year that has not been terminated or revoked;
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8.
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that uses a calendar year for U.S. federal income tax purposes;
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9.
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that has no earnings and profits from any non-REIT taxable year at the close of any taxable year; and
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10.
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which meets other tests, and satisfies all of the relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT qualification described below, including with
respect to the nature of its income and assets and the amount of its distributions.
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The Internal Revenue Code provides that conditions
(1) through (4) must be met during the entire taxable year, that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year, and that conditions
(5) and (6) do not need to be satisfied for the first taxable year for which an election to become a REIT has been made. ARI believes that it has issued common stock with sufficient diversity of ownership to satisfy the requirements
described in conditions (5) and (6) above. ARIs charter provides restrictions regarding the ownership and transfer of shares of ARI stock, which are intended, among other purposes, to assist ARI in satisfying the share ownership
requirements described in conditions (5) and (6) above. For purposes of condition (6), an individual generally includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust.
To monitor
compliance with the share ownership requirements, ARI generally is required to maintain records regarding the actual ownership of shares of ARI stock. To do so, ARI must demand written statements each year from the record holders of significant
percentages of shares of ARI stock, in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the dividends paid by ARI). A list of those persons failing or refusing to comply
with this demand must be maintained as part of ARIs records. Failure by ARI to comply with these record-keeping requirements could subject ARI to monetary penalties. If ARI satisfies these requirements and after exercising reasonable diligence
would not have known that condition (6) is not satisfied, ARI will be deemed to have satisfied such condition. A stockholder that fails or refuses to comply with the demand is required by Treasury regulations to submit a statement with its tax
return disclosing the actual ownership of the shares and other information.
For purposes of condition (8), ARI has adopted December 31 as its year
end, and thereby satisfy this requirement.
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Effect of Subsidiary Entities
Ownership of Partnership Interests
In the case of a REIT
that is a partner in a partnership, Treasury regulations provide that the REIT is deemed to own its proportionate share of the partnerships assets and to earn its proportionate share of the partnerships gross income based on its pro rata
share of capital interests in the partnership for purposes of the asset and gross income tests applicable to REITs, as described below. However, solely for purposes of the 10% value test, described below, the determination of a REITs interest
in partnership assets will be based on the REITs proportionate interest in any securities issued by the partnership, excluding for these purposes, certain excluded securities as described in the Internal Revenue Code. In addition, the assets
and gross income of the partnership generally are deemed to retain the same character in the hands of the REIT. Thus, ARIs proportionate share of the assets and items of income of partnerships in which ARI owns an equity interest (including
equity interests in any lower tier partnerships) is treated as assets and items of income of ARI for purposes of applying the REIT requirements described below. Consequently, to the extent that ARI directly or indirectly holds a preferred or other
equity interest in a partnership, the partnerships assets and operations may affect ARIs ability to qualify as a REIT, even though ARI may have no control or only limited influence over the partnership.
Recent legislation may alter who bears the liability in the event any subsidiary partnership is audited and an adjustment is assessed. Under the Bipartisan
Budget Act of 2015, Congress recently revised the rules applicable to federal income tax audits of partnerships and the collection of any tax resulting from any such audits or other tax proceedings, generally for taxable years beginning after
December 31, 2017. Under the new rules, the partnership itself may be liable for a hypothetical increase in partner-level taxes (including interest and penalties) resulting from an adjustment of partnership tax items on audit, regardless of
changes in the composition of the partners (or their relative ownership) between the year under audit and the year of the adjustment. The new rules also include an elective alternative method under which the additional taxes resulting from the
adjustment are assessed from the affected partners, subject to a higher rate of interest than otherwise would apply. Many questions remain as to how the new rules will apply, especially with respect to partners that are REITs, and it is not clear at
this time what effect this new legislation will have on ARI. However, these changes could increase the U.S. federal income tax, interest, and/or penalties otherwise borne by ARI in the event of a federal income tax audit of a subsidiary partnership.
Disregarded Subsidiaries
If a REIT owns a corporate
subsidiary that is a qualified REIT subsidiary, that subsidiary is disregarded for U.S. federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets,
liabilities and items of income, deduction and credit of the REIT itself, including for purposes of the gross income and asset tests applicable to REITs, as summarized below. A qualified REIT subsidiary is any corporation, other than a TRS, that is
wholly owned by a REIT, by other disregarded subsidiaries of a REIT or by a combination of the two. Single member limited liability companies that are wholly owned by a REIT are also generally disregarded as separate entities for U.S. federal income
tax purposes, including for purposes of the REIT gross income and asset tests. Disregarded subsidiaries, along with partnerships in which ARI holds an equity interest, are sometimes referred to herein as pass-through subsidiaries.
In the event that a disregarded subsidiary ceases to be wholly owned by ARI (for example, if any equity interest in the subsidiary is acquired by a person
other than ARI or another disregarded subsidiary of ARI), the subsidiarys separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, it would have multiple owners and would be treated as either a
partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect ARIs ability to satisfy the various asset and gross income tests applicable to REITs, including the requirement that REITs generally
may not own, directly or indirectly, more than 10% of the value or voting power of the outstanding securities of another corporation. See
Asset Tests
and
Gross Income Tests
.
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Taxable REIT Subsidiaries
A REIT, in general, may jointly elect with a subsidiary corporation, whether or not wholly owned, to treat the subsidiary corporation as a TRS. ARI generally
may not own more than 10% of the securities of a taxable corporation, as measured by voting power or value, unless ARI and such corporation elect to treat such corporation as a TRS. The separate existence of a TRS or other taxable corporation,
unlike a disregarded subsidiary as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly, a TRS generally would be subject to U.S. federal corporate income tax and any applicable state and local taxes on its earnings,
which may reduce the cash flow generated by ARI and its subsidiaries in the aggregate and ARIs ability to make distributions to ARI stockholders.
ARI has made TRS elections with respect to ACREFI I TRS, Inc., a Delaware corporation that is wholly owned by ARI, or ACREFI I TRS, and ACREFI II TRS, Ltd., a
Cayman company that is wholly owned by ARI, or ACREFI II TRS, and may make TRS elections with respect to additional entities ARI may form in the future. In connection with the Second Merger, ARI will acquire the stock of ARM TRS, LLC, formerly a TRS
of AMTG, and will make a TRS election with respect to ARM TRS, LLC. The Internal Revenue Code and the Treasury regulations promulgated thereunder provide a specific exemption from U.S. federal income tax that applies to a non-U.S. corporation (or a
non-U.S. entity treated as a corporation for U.S. federal income tax purposes) that restricts its activities in the United States to trading in stock and securities (or any activity closely related thereto) for its own account whether such trading
(or such other activity) is conducted by such a non-U.S. corporation or its employees or through a resident broker, commission agent, custodian or other agent. ACREFI II TRS believes that it has operated and intends to continue to operate in a
manner so that it is not subject to U.S. federal income tax on its net income. Therefore, despite the status of ACREFI II TRS as a TRS, it should generally not be subject to U.S. federal corporate income tax on its earnings. However, certain U.S.
stockholders of non-U.S. corporations are required to include in their income currently their proportionate share of certain earnings of such a corporation, whether or not such earnings are distributed. As a result, ARI is required to include in its
income, on a current basis, any earnings of ACREFI II TRS and under certain circumstances earnings of any other non-U.S. corporation in which ARI owns a direct or indirect interest. This could affect ARIs ability to comply with the REIT income
tests and distribution requirement. See
Gross Income Tests
and
Annual Distribution Requirements
. A REIT is not treated as holding the assets of a TRS or other taxable subsidiary corporation or as
receiving any income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from the subsidiary. This treatment
can affect the gross income and asset test calculations that apply to the REIT, as described below. Because a parent REIT does not include the assets and income of such subsidiary corporations in determining the parents compliance with the
REIT requirements, such entities may be used by the parent REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries or render commercially unfeasible (for
example, activities that give rise to certain categories of income such as non-qualifying hedging income or inventory sales). ARI may hold a significant number of assets in one or more TRSs, subject to the limitation that securities in TRSs may not
represent more than 25% of ARIs total assets (such limitation is decreased to 20% of ARIs total assets for taxable years beginning after December 31, 2017). To the extent that ARI acquires loans with an intention of selling such
loans in a manner that might expose ARI to a 100% tax on prohibited transactions, such loans will be acquired by a TRS. If dividends are paid to ARI by one or more domestic TRSs ARI owns, then a portion of the dividends that ARI
distributes to stockholders who are taxed at individual rates generally will be eligible for taxation at preferential qualified dividend income tax rates rather than at ordinary income rates. See
Taxation of Taxable U.S.
Stockholders
and
Annual Distribution Requirements
.
Certain restrictions imposed on TRSs are intended to ensure that
such entities will be subject to appropriate levels of U.S. federal income taxation. First, if certain tests regarding the TRSs debt-to-equity ratio are not satisfied, a TRS may not deduct interest payments made in any year to an affiliated
REIT to the extent that such payments exceed, generally, 50% of the TRSs adjusted taxable income for that year (although such TRS may carry forward to, and deduct in, a succeeding year the disallowed interest amount if the 50% test is
satisfied in
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that year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between a REIT, its tenants and/or the TRS, that exceed the amount that would be paid to or
deducted by a party in an arms-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. Under the recently enacted PATH Act (as defined below), a 100% excise tax is also imposed on
redetermined TRS service income, which is income of a TRS attributable to services provided to, or on behalf of, its associated REIT and which would otherwise be increased on distribution, apportionment, or allocation under
Section 482 of the Code. ARI intends to monitor its transactions with its subsidiaries that are treated as TRSs in an effort to ensure that ARI will not become subject to this excise tax, however, no assurance can be provided that ARI will be
successful in avoiding this excise tax.
Taxable Mortgage Pools
An entity, or a portion of an entity, may be classified as a taxable mortgage pool, or TMP, under the Internal Revenue Code if:
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substantially all of its assets consist of debt obligations or interests in debt obligations;
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more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates;
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the entity has issued debt obligations that have two or more maturities; and
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the payments required to be made by the entity on its debt obligations bear a relationship to the payments to be received by the entity on the debt obligations that it holds as assets.
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Under Treasury regulations, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are
considered not to comprise substantially all of its assets, and therefore the entity would not be treated as a TMP. ARI may enter into financing and securitization arrangements that give rise to TMPs. A TMP generally is treated as a
corporation for U.S. federal income tax purposes. However, special rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that is a TMP. If a REIT owns directly, or indirectly through one or more qualified REIT subsidiaries or
other entities that are disregarded as a separate entity for U.S. federal income tax purposes, 100% of the equity interests in the TMP, the TMP will be a qualified REIT subsidiary and, therefore, ignored as an entity separate from the REIT for U.S.
federal income tax purposes and would generally not affect the qualification of the REIT. Rather, the consequences of the TMP classification would generally, except as described below, be limited to the REITs stockholders. See
Excess Inclusion Income
.
Gross Income Tests
In order to maintain ARIs qualification as a REIT, ARI annually must satisfy two gross income tests. First, at least 75% of ARIs gross income for
each taxable year, excluding gross income from sales of inventory or dealer property in prohibited transactions and certain hedging and foreign currency transactions, must be derived from investments relating to real property or
mortgages on real property or interests in real property, including rents from real property, dividends received from and gains from the disposition of other shares of REITs, interest income derived from mortgage loans secured by real
property (including certain types of mortgage-backed securities), and gains from the sale of real estate assets, as well as income from certain kinds of temporary investments. Second, at least 95% of ARIs gross income in each taxable year,
excluding gross income from prohibited transactions and certain hedging and foreign currency transactions, must be derived from some combination of income that qualifies under the 75% income test described above, as well as other dividends,
interest, gain from the sale or disposition of stock or securities, and other income that the IRS determines to be qualified income for this purpose, which need not have any relation to real property. ARI intends to monitor the amount of its
non-qualifying income and manage its portfolio of assets to comply with the gross income tests, but no assurance can be provided that ARI will be successful in this effort.
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For purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned a proportionate share of the
income earned by any partnership, or any limited liability company treated as a partnership for U.S. federal income tax purposes, in which it owns an interest, which share is determined by reference to its capital interest in such entity, and is
deemed to have earned the income earned by any qualified REIT subsidiary.
Interest Income
Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation is secured by a mortgage
on real property. If ARI receives interest income with respect to a mortgage loan that is secured by both real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value
of the real property on the date of ARIs binding commitment to make or purchase the mortgage loan, the interest income will be apportioned between the real property and the other property, and ARIs income from the arrangement will
qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property or is undersecured, the income that it generates may nonetheless qualify for
purposes of the 95% gross income test. In addition, for taxable years beginning after December 31, 2015, in the case of a mortgage that is secured by both real property and personal property, if the fair market value of such personal property
does not exceed 15% of the fair market value of the real and personal property securing the mortgage and certain other requirements are met, then the personal property securing the mortgage will be treated as real property for purposes of
determining whether the interest on such mortgage is qualifying income for purposes of the 75% gross income test.
In the event that ARI invests in a
mortgage loan that is not fully secured by real property and is secured by other property, except to the extent such loan qualifies for purposes of the foregoing 15% exception, ARI would be required to apportion its annual interest income to the
real property security based on a fraction, the numerator of which is the value of the real property securing the loan, determined when ARI commits to acquire the loan, and the denominator of which is the highest principal amount of the
loan during the year. The IRS has issued Revenue Procedure 2011-16 and Revenue Procedure 2014-51 addressing a REITs investment in distressed debt, or the Distressed Debt Revenue Procedures. The Distressed Debt Revenue Procedures interpret the
principal amount of the loan to be the face amount of the loan, despite the Internal Revenue Code requiring taxpayers to treat gain attributable to any market discount, that is the difference between the purchase price of the loan and
its face amount, for all purposes (other than certain withholding and information reporting purposes) as interest. Any mortgage loan that ARI invests in that is not fully secured by real property and is secured in part by other property will
therefore be subject to the interest apportionment rules and the position taken in the Distressed Debt Revenue Procedures, as described above, except to the extent such loan qualifies for purposes of the foregoing 15% exception.
To the extent that ARI derives interest income from a loan where all or a portion of the amount of interest payable is contingent, such income generally will
qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales and not the net income or profits of any person. This limitation does not apply, however, to a mortgage loan where the borrower derives substantially
all of its income from the property from the leasing of substantially all of its interest in the property to tenants, to the extent that the rental income derived by the borrower would qualify as rents from real property had it been earned directly
by ARI.
To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property
securing the loan (or a shared appreciation provision), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95%
gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or ARI.
Any amount includible in
ARIs gross income with respect to a regular or residual interest in a REMIC generally is treated as interest on an obligation secured by a mortgage on real property. If, however, less than 95% of the
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assets of a REMIC consists of real estate assets (determined as if ARI held such assets), ARI will be treated as directly receiving ARIs proportionate share of the income of the REMIC for
purposes of determining the amount that is treated as interest on an obligation secured by a mortgage on real property.
Among the assets ARI holds are
certain mezzanine loans secured by equity interests in a pass-through entity that directly or indirectly owns real property, rather than a direct mortgage on the real property. The IRS issued Revenue Procedure 2003-65, or the Revenue Procedure,
which provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated as a real estate asset for purposes of the REIT asset tests, and interest derived from it will
be treated as qualifying mortgage interest for purposes of the 75% gross income test (described above). Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. ARI treats
certain mezzanine loans that may not meet all of the requirements for reliance on this safe harbor as real estate assets giving rise to qualifying mortgage interest for purposes of the REIT asset and income requirements, or otherwise not adversely
affecting ARIs qualification as a REIT. Hence, there can be no assurance that the IRS will not challenge the qualification of such assets as real estate assets or the interest generated by these loans as qualifying income under the 75% gross
income test. To the extent ARI makes corporate mezzanine loans or acquire other commercial real estate corporate debt, such loans generally will not qualify as real estate assets and interest income with respect to such loans will not be qualifying
income for the 75% gross income test. To the extent that such non-qualification causes ARI to fail the 75% gross income test, ARI could be required to pay a penalty tax or fail to qualify as a REIT.
ARI believes that the interest income that it receives from its mortgage-related investments and securities generally will be qualifying income for purposes
of both the 75% and 95% gross income tests. However, to the extent ARI owns non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or
debt securities that are not secured by mortgages on real property or interests in real property, except to the extent such loan meets the above 15% exception, the interest income received with respect to such securities generally will be qualifying
income for purposes of the 95% gross income test, but not the 75% gross income test. In addition, the loan amount of a mortgage loan that ARI owns may exceed the value of the real property securing the loan. In the case of a mortgage loan that is
not fully secured, income from the loan will be qualifying income for purposes of the 95% gross income test, but the interest attributable to the amount of the loan that exceeds the value of the real property securing the loan will not be qualifying
income for purposes of the 75% gross income test.
ARI may hold certain participation interests, including B Notes, in mortgage loans and mezzanine loans.
B Notes are interests in underlying loans created by virtue of participations or similar agreements to which the originators of the loans are parties, along with one or more participants. The borrower on the underlying loan is typically not a party
to the participation agreement. The performance of this investment depends upon the performance of the underlying loan and, if the underlying borrower defaults, the participant typically has no recourse against the originator of the loan. The
originator often retains a senior position in the underlying loan and grants junior participations which absorb losses first in the event of a default by the borrower. ARI generally expect to treat its participation interests as qualifying real
estate assets for purposes of the REIT asset tests described below and interest that ARI derives from such investments as qualifying mortgage interest for purposes of the 75% gross income test. The appropriate treatment of participation interests
for U.S. federal income tax purposes is not entirely certain, however, and no assurance can be given that the IRS will not challenge ARIs treatment of ARIs participation interests. In the event of a determination that such participation
interests do not qualify as real estate assets, or that the income that ARI derives from such participation interests does not qualify as mortgage interest for purposes of the REIT asset and income tests, ARI could be subject to a penalty tax, or
could fail to qualify as a REIT.
ARI expects that the CMBS that it invests in will be treated either as interests in a grantor trust or as interests in a
REMIC for U.S. federal income tax purposes and that all interest income, original issue discount and market discount from such CMBS will be qualifying income for the 95% gross income test. In the case of CMBS treated
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as interests in grantor trusts, ARI would be treated as owning an undivided beneficial ownership interest in the mortgage loans held by the grantor trust. The interest, original issue discount
and market discount on such mortgage loans would be qualifying income for purposes of the 75% gross income test to the extent that the obligation is secured by real property, as discussed above. In the case of CMBS treated as interests in a REMIC,
income derived from REMIC interests will generally be treated as qualifying income for purposes of the 75% and 95% gross income tests. As discussed above, if less than 95% of the assets of the REMIC are real estate assets, however, then only a
proportionate part of ARIs income derived from the REMIC interest will qualify for purposes of the 75% gross income test. In addition, some REMIC securitizations include imbedded interest swap or cap contracts or other derivative instruments
that potentially could produce non-qualifying income for the holder of the related REMIC securities. ARI expects that substantially all of its income from CMBS will be qualifying income for purposes of the REIT gross income tests.
Although a debt instrument issued by a publicly offered REIT (i.e., a REIT that is required to file annual and periodic reports with the SEC under
the Exchange Act) is treated as a real estate asset for purposes of the asset tests described below for taxable years beginning after December 31, 2015, neither the gain from the sale of such debt instruments nor interest on such
debt instruments is treated as qualifying income for the 75% gross income test except to the extent the debt instrument is secured by real property or an interest in real property under the rules described above.
Fee Income
ARI may receive various fees in
connection with its operations. Such fees generally will be qualifying income for purposes of both the 75% and 95% gross income tests if they are received in consideration for entering into an agreement to make a loan secured by real property and
the fees are not determined by income or profits. Other fees are not qualifying income for purposes of either the 75% or 95% gross income test. Any fees earned by a TRS are not included for purposes of the gross income tests.
Dividend Income
ARI may receive distributions
from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions generally are classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions
generally constitute qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. Any dividends received by ARI from a REIT will be qualifying income in ARIs hands for purposes of both the 95% and 75% gross
income tests.
Income inclusions from equity investments in certain foreign corporations, such as ACREFI II TRS, are technically neither dividends nor any
of the other enumerated categories of income specified in the 95% gross income test for U.S. federal income tax purposes. However, several private letter rulings (which may not be relied on as precedent, but which generally indicate the IRSs
view on the issue), the IRS exercised its authority under Internal Revenue Code Section 856(c)(5)(J)(ii) to treat such income as qualifying income for purposes of the 95% gross income test notwithstanding the fact that the income is not
included in the enumerated categories of income qualifying for the 95% gross income test. As a result, based on advice of counsel, ARI treats such income inclusions that meet certain requirements as qualifying income for purposes of the 95% gross
income test. Notwithstanding the IRSs determination in the private letter rulings described above, it is possible that the IRS could assert that such income does not qualify for purposes of the 95% gross income test, which, if such income
together with other income ARI earns that does not qualify for the 95% gross income test exceeded 5% of ARIs gross income, could cause ARI to be subject to a penalty tax and could adversely affect ARIs ability to qualify as a REIT. See
Failure to Satisfy the Gross Income Tests
and
Failure to Qualify
.
Hedging Transactions
ARI may enter into hedging transactions with respect to one or more of ARIs assets or liabilities. Hedging transactions could take a variety
of forms, including hedging instruments such as interest rate swap agreements,
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interest rate cap agreements, interest rate floor or collar agreements, interest only strips, options, futures contracts, forward rate agreements, swaptions, similar financial instruments or
other financial instruments that ARI deems appropriate. Except to the extent provided by Treasury regulations, any income from a hedging transaction (including gain from the sale or disposition of such a transaction) ARI enters into (1) in the
normal course of ARIs business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real
estate assets, (2) primarily to manage risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests, or (3) after December 31, 2015 to hedge a prior
qualifying hedge of liabilities or property described in clauses (1) or (2) which has been disposed of, in each case which is clearly identified as such before the close of the day on which it was acquired, originated, or entered into,
will not constitute gross income for purposes of the 75% or 95% gross income tests. To the extent that ARI enters into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for
purposes of both of the 75% and 95% gross income tests. While ARI intends to structure any hedging transactions in a manner that does not jeopardize ARIs qualification as a REIT, there can be no assurances ARI will be successful in this
regard.
Rents from Real Property
To the
extent that ARI owns real property or interests therein, rents ARI receives qualify as rents from real property in satisfying the gross income tests described above, only if several conditions are met, including the following. If rent
attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under any particular lease, then all of the rent attributable to such personal property will not qualify as rents
from real property. The determination of whether an item of personal property constitutes real or personal property under the REIT provisions of the Internal Revenue Code is subject to both legal and factual considerations and therefore is subject
to different interpretations. While ARI intends to structure any leases so that the rent payable thereunder qualifies as rents from real property, there can be no assurance ARI will be successful in this regard.
In addition, in order for rents received by ARI to qualify as rents from real property, the rent must not be based in whole or in part on the
income or profits of any person. However, an amount will not be excluded from rents from real property solely by being based on a fixed percentage or percentages of sales or if it is based on the net income of a tenant that derives substantially all
of its income with respect to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would qualify as rents from real property if earned directly by ARI. Moreover, for rents received
to qualify as rents from real property, ARI generally must not operate or manage the property or furnish or render certain services to the tenants of such property, other than through an independent contractor who is
adequately compensated and from which ARI derives no income or through a TRS. ARI is permitted, however, to perform services that are usually or customarily rendered in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant of the property. In addition, ARI may directly or indirectly provide non-customary services to tenants of ARIs properties without disqualifying all of the rent from the property if the greater of
150% of ARIs direct cost in furnishing or rendering the services or the payment for such services does not exceed 1% of the total gross income from the property. In such a case, only the amounts for non-customary services are not treated as
rents from real property and the provision of the services does not disqualify the related rent.
Rental income will qualify as rents from real property
only to the extent that ARI does not directly or constructively own, (1) in the case of any tenant which is a corporation, stock possessing 10% or more of the total combined voting power of all classes of stock entitled to vote, or 10% or more
of the total value of shares of all classes of stock of such tenant, or (2) in the case of any tenant which is not a corporation, an interest of 10% or more in the assets or net profits of such tenant.
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Phantom Income
Due to the nature of the assets in which ARI invests, ARI may be required to recognize taxable income from those assets in advance of ARIs receipt of
cash flow on or proceeds from disposition of such assets, and may be required to report taxable income that exceeds the economic income ultimately recognized on such assets.
ARI may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount generally will be treated as
market discount for U.S. federal income tax purposes. Accrued market discount is reported as income when, and to the extent that, any payment of principal of the debt instrument is made, unless ARI elects to include accrued market
discount in income as it accrues. Principal payments on certain loans are made monthly, and consequently accrued market discount may have to be included in income each month as if the debt instrument were assured of ultimately being collected in
full. If ARI collects less on the debt instrument than ARIs purchase price plus the market discount ARI had previously reported as income, ARI may not be able to benefit from any offsetting loss deductions in a subsequent taxable year.
Some of the CMBS that ARI acquires may have been issued with original issue discount. In general, ARI will be required to accrue original issue discount based
on the constant yield to maturity of the CMBS, and to treat it as taxable income in accordance with applicable U.S. federal income tax rules even though smaller or no cash payments are received on such debt instrument. As in the case of the market
discount discussed in the preceding paragraph, the constant yield in question will be determined and ARI will be taxed based on the assumption that all future payments due on CMBS in question will be made, with consequences similar to those
described in the previous paragraph if all payments on the CMBS are not made.
In addition, in the event that any debt instruments or CMBS acquired by ARI
are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular debt instrument are not made when due, ARI may nonetheless be required to continue to recognize the unpaid interest as taxable
income. Similarly, ARI may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of whether corresponding cash payments are received.
Finally, ARI may be required under the terms of indebtedness that ARI incurs to private lenders to use cash received from interest payments to make principal
payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution to ARI stockholders.
Due to each of these potential timing differences between income recognition or expense deduction and the related cash receipts or disbursements, there is a
significant risk that ARI may have substantial taxable income in excess of cash available for distribution. In that event, ARI may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which
this phantom income is recognized. See
Annual Distribution Requirements
.
Failure to Satisfy the Gross Income
Tests
ARI intends to monitor ARIs sources of income, including any non-qualifying income received by ARI, and manage ARIs assets so as
to ensure ARIs compliance with the gross income tests. ARI can provide no assurance, however, that ARI will be able to satisfy the gross income tests. If ARI fails to satisfy one or both of the 75% or 95% gross income tests for any taxable
year, ARI may still qualify as a REIT for the year if ARI is entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions generally will be available if the failure of ARI to meet these tests was due to
reasonable cause and not due to willful neglect and, following the identification of such failure, ARI sets forth a description of each item of ARIs gross income that satisfies the gross income tests in a schedule for the taxable year filed in
accordance with the Treasury regulations. It is not possible to state whether ARI would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances
involving ARIs failure to satisfy the gross income tests, ARI will not qualify as a REIT. As discussed above under
Taxation of
REITs in General
, even where these relief provisions apply, a tax would be imposed
upon the profit attributable to the amount by which ARI fails to satisfy the particular gross income test, which could be a significant amount.
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Asset Tests
ARI, at the close of each calendar quarter, must also satisfy four tests relating to the nature of ARIs assets. First, at least 75% of the value of
ARIs total assets must be represented by some combination of real estate assets, cash, cash items, U.S. government securities and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose,
real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, debt instruments issued by publicly offered REITS, personal property leased with real property to the extent rent
attributable to such personal property does not exceed 15% of the total rent for the taxable year attributable to both the real and personal property under such lease for taxable years beginning after December 31, 2015, stock of other
corporations that qualify as REITs and certain kinds of CMBS and mortgage loans. Regular or residual interests in REMICs generally are treated as a real estate asset. If, however, less than 95% of the assets of a REMIC consists of real estate assets
(determined as if ARI held such assets), ARI will be treated as owning ARIs proportionate share of the assets of the REMIC. Assets that do not qualify for purposes of the 75% test are subject to the following additional asset tests:
(i) the value of any one issuers securities owned by ARI may not exceed 5% of the value of ARIs total assets; (ii) ARI may not own more than 10% of any one issuers outstanding securities, as measured by either voting
power or value; and (iii) the aggregate value of all securities of TRSs held by ARI may not exceed 25% of the value of ARIs total assets (such limitation is decreased to 20% of ARIs total assets for taxable years beginning after
December 31, 2017). Debt instruments issued by publicly offered REITs that otherwise do not qualify as real estate mortgages may not exceed 25% of ARIs gross assets.
The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries. The 10% value test does not apply to certain straight
debt and other excluded securities, as described in the Internal Revenue Code, including but not limited to any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition,
(a) a REITs interest as a partner in a partnership is not considered a security for purposes of applying the 10% value test; (b) any debt instrument issued by a partnership (other than straight debt or other excluded security) will
not be considered a security issued by the partnership if at least 75% of the partnerships gross income is derived from sources that would qualify for the 75% REIT gross income test; and (c) any debt instrument issued by a partnership
(other than straight debt or other excluded security) will not be considered a security issued by the partnership to the extent of the REITs interest as a partner in the partnership.
For purposes of the 10% value test, straight debt means a written unconditional promise to pay on demand or on a specified date a sum certain in
money if (i) the debt is not convertible, directly or indirectly, into stock, (ii) the interest rate and interest payment dates are not contingent on profits, the borrowers discretion, or similar factors other than certain
contingencies relating to the timing and amount of principal and interest payments, as described in the Internal Revenue Code and (iii) in the case of an issuer which is a corporation or a partnership, securities that otherwise would be
considered straight debt will not be so considered if ARI, and any of ARIs controlled taxable REIT subsidiaries as defined in the Internal Revenue Code, hold any securities of the corporate or partnership issuer which (a) are
not straight debt or other excluded securities (prior to the application of this rule), and (b) have an aggregate value greater than 1% of the issuers outstanding securities (including, for the purposes of a partnership issuer, ARIs
interest as a partner in the partnership).
Failure to Satisfy the Asset Tests
After initially meeting the asset tests at the close of any quarter, ARI will not lose ARIs qualification as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values. If ARI fails to satisfy the asset tests because ARI acquires or increases ARIs ownership interest in securities during a quarter, ARI can cure this failure by
disposing of sufficient non-qualifying assets within 30 days after the close of that quarter. If ARI fails the 5% asset test, or the 10% vote or value asset tests at the end of any quarter and such failure is not cured within 30 days thereafter, ARI
may dispose of sufficient assets (generally within six months after the last day of the quarter in which ARIs identification of the failure to satisfy these asset tests occurred) to cure such a violation that does not exceed the lesser of 1%
of ARIs assets at the end of the relevant quarter or $10,000,000. If ARI fails any of the other asset tests or ARIs failure of the 5% and 10% asset tests is in excess of the de minimis amount described above, as long as such failure was
due to reasonable cause and not
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willful neglect, ARI is permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps including the disposition of sufficient assets to meet the asset test
(generally within six months after the last day of the quarter in which ARIs identification of the failure to satisfy the REIT asset test occurred) and paying a tax equal to the greater of $50,000 or the highest U.S. federal corporate income
tax rate (currently 35%) of the net income generated by the non-qualifying assets during the period in which ARI failed to satisfy the asset test.
ARI
expects that the assets comprising ARIs mortgage-related investments and securities that ARI owns generally will continue to be qualifying assets for purposes of the 75% asset test, and that ARIs holdings of TRSs and other assets will
continue to be structured in a manner that will comply with the foregoing REIT asset requirements, and ARI monitors compliance on an ongoing basis. There can be no assurance, however, that ARI will continue to be successful in this effort. ARI does
not expect to obtain independent appraisals to support ARIs conclusions as to the total value of ARIs assets or the value of any particular security or other asset. Moreover, values of some assets including ARIs interests in
ARIs TRSs may not be susceptible to a precise determination and are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some
circumstances, which could affect the application of the REIT asset tests. Accordingly, there can be no assurance that the IRS will not contend that ARIs interests in subsidiaries or in the securities of other issuers cause a violation of the
REIT asset tests.
In addition, ARI has and may continue to enter into repurchase agreements under which ARI nominally sells certain of ARIs assets
to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. ARI believes that ARI will be treated for U.S. federal income tax purposes as the owner of the assets that are the subject of any such agreements
notwithstanding that ARI may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that ARI did not own the assets during the term of the repurchase
agreement, in which case ARI could fail to qualify as a REIT.
Annual Distribution Requirements
In order to qualify as a REIT, ARI is required to distribute dividends, other than capital gain dividends, to ARI stockholders in an amount at least equal to:
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90% of ARIs REIT taxable income (computed without regard to ARIs deduction for dividends paid and ARIs net capital gains); and
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90% of the net income (after tax), if any, from foreclosure property (as described below); minus
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(b)
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the sum of specified items of non-cash income that exceeds a percentage of ARIs income.
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These
distributions must be paid in the taxable year to which they relate or in the following taxable year if such distributions are declared in October, November or December of the taxable year, are payable to stockholders of record on a specified date
in any such month and are actually paid before the end of January of the following year. Such distributions are treated as both paid by ARI and received by each stockholder on December 31 of the year in which they are declared. In addition, at
ARIs election, a distribution for a taxable year may be declared before ARI timely files ARIs tax return for the year and be paid with or before the first regular dividend payment after such declaration, provided that such payment is
made during the 12-month period following the close of such taxable year. These distributions are taxable to ARI stockholders in the year in which paid, even though the distributions relate to ARIs prior taxable year for purposes of the 90%
distribution requirement.
To the extent that ARI distributes at least 90%, but less than 100%, of ARIs REIT taxable income, as
adjusted, ARI will be subject to tax at ordinary U.S. federal corporate tax rates on the retained portion. In addition, ARI may elect to retain, rather than distribute, ARIs net long-term capital gains and pay tax on such gains. In this case,
ARI could elect to have ARI stockholders include their proportionate share of such undistributed long-term capital gains in income and receive a corresponding credit or refund, as the case may be, for their proportionate
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share of the tax paid by ARI. ARI stockholders would then increase the adjusted basis of their stock in ARI by the difference between the designated amounts included in their long-term capital
gains and the tax deemed paid with respect to their proportionate shares. Stockholders that are U.S. corporations would also appropriately adjust their earnings and profits for the retained capital gains in accordance with Treasury regulations to be
promulgated.
If ARI fails to distribute during each calendar year at least the sum of (a) 85% of ARIs REIT ordinary income for such year,
(b) 95% of ARIs REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, ARI will be subject to a 4% excise tax on the excess of such required distribution over the sum of (x) the
amounts actually distributed (taking into account excess distributions from prior periods) and (y) the amounts of income retained on which ARI has paid U.S. federal corporate income tax. ARI intends to make timely distributions so that ARI is
not subject to the 4% excise tax.
It is possible that ARI, from time to time, may not have sufficient cash to meet the distribution requirements due to
timing differences between (a) the actual receipt of cash, including receipt of distributions from ARIs subsidiaries and (b) the inclusion of items in income by ARI for U.S. federal income tax purposes. For example, ARI may acquire
debt instruments or notes whose face value may exceed its issue price as determined for U.S. federal income tax purposes, resulting in original issue discount, such that ARI will be required to include in ARIs income a portion of the original
issue discount each year that the instrument is held before ARI receives any corresponding cash. Furthermore, ARI likely will invest in assets that accrue market discount, which may require ARI to defer a portion of the interest deduction for
interest paid on debt incurred to acquire or carry such assets. In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary to arrange for short-term, or possibly long-term, borrowings, to
use cash reserves, to liquidate non cash assets at rates or times ARI regards as unfavorable, or to pay dividends in the form of taxable in-kind distributions of property including taxable stock dividends. In the case of a taxable stock dividend,
stockholders would be required to include the dividend as income and would be required to satisfy the tax liability associated with the distribution with cash from other sources including sales of ARI common stock. Both a taxable stock distribution
and sale of common stock resulting from such distribution could adversely affect the price of ARI common stock. ARI may be able to rectify a failure to meet the distribution requirements for a year by paying deficiency dividends to
stockholders in a later year, which may be included in ARIs deduction for dividends paid for the earlier year. In this case, ARI may be able to avoid losing ARIs qualification as a REIT or being taxed on amounts distributed as deficiency
dividends. However, ARI will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.
Recordkeeping Requirements
ARI is required to
maintain records and request on an annual basis information from specified stockholders. These requirements are designed to assist ARI in determining the actual ownership of ARIs outstanding stock and maintaining ARIs qualifications as a
REIT.
Excess Inclusion Income
A portion of
ARIs income from a TMP arrangement, which might be non-cash accrued income, could be treated as excess inclusion income. A REITs excess inclusion income, including any excess inclusion income from a residual interest in a
REMIC, must be allocated among its stockholders in proportion to dividends paid. ARI is required to notify stockholders of the amount of excess inclusion income allocated to them. A stockholders share of excess inclusion income:
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cannot be offset by any net operating losses otherwise available to the stockholder,
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in the case of a stockholder that is a REIT, a RIC, or a common trust fund or other pass through entity, is considered excess inclusion income of such entity,
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is subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from U.S. federal income tax,
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results in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of
non-U.S. stockholders, and
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is taxable (at the highest U.S. federal corporate tax rate, currently 35%) to the REIT, rather than its stockholders, to the extent allocable to the REITs stock held in record name by disqualified organizations
(generally, tax-exempt entities not subject to unrelated business income tax, including governmental organizations).
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The manner in which
excess inclusion income is calculated, or would be allocated to stockholders, including allocations among shares of different classes of stock, is not clear under current law. As required by IRS guidance, ARI intends to make such determinations
using a reasonable method.
Tax-exempt investors, RIC or REIT investors, non-U.S. investors and taxpayers with net operating losses should carefully
consider the tax consequences described above, and are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in ARIs securities.
If a subsidiary partnership of ARI that ARI does not wholly-own, directly or through one or more disregarded entities, were a TMP, the foregoing rules would
not apply. Rather, the partnership that is a TMP would be treated as a corporation for U.S. federal income tax purposes, and potentially would be subject to U.S. federal corporate income tax or withholding tax. In addition, this characterization
would alter ARIs income and asset test calculations, and could adversely affect ARIs compliance with those requirements. ARI intends to monitor the structure of any TMPs in which ARI will have an interest to ensure that they will not
adversely affect ARIs qualification as a REIT.
Prohibited Transactions
Net income ARI derives from a prohibited transaction is subject to a 100% tax. The term prohibited transaction generally includes a sale or other
disposition of property (other than foreclosure property) that is held as inventory or primarily for sale to customers, in the ordinary course of a trade or business by a REIT, by a lower-tier partnership in which the REIT holds an equity interest
or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the REIT. ARI intends to conduct its operations so that no asset owned by ARI or ARIs pass-through subsidiaries will be held as inventory or
primarily for sale to customers, and that a sale of any assets owned by ARI directly or through a pass-through subsidiary will not be in the ordinary course of business. However, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business depends on the particular facts and circumstances. No assurance can be given that any particular asset in which ARI holds a direct or indirect interest will not be treated as property
held as inventory or primarily for sale to customers or that certain safe harbor provisions of the Internal Revenue Code that prevent such treatment will apply. The 100% tax will not apply to gains from the sale of property that is held through a
TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular U.S. federal corporate income tax rates.
Foreclosure Property
Foreclosure property is real
property and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid on the property at foreclosure or having otherwise reduced the property to ownership or possession by agreement
or process of law after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was acquired by the REIT at a time when
default was not imminent or anticipated and (3) for which such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum U.S. federal corporate tax rate (currently 35%) on any
net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of
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property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise
constitute inventory or dealer property in the hands of the selling REIT. ARI does not anticipate that it will receive any income from foreclosure property that is not qualifying income for purposes of the 75% gross income test, but, if ARI does
receive any such income, it intends to elect to treat the related property as foreclosure property.
Failure to Qualify
In the event that ARI violates a provision of the Internal Revenue Code that would result in ARIs failure to qualify as a REIT, ARI may nevertheless
continue to qualify as a REIT under specified relief provisions that will be available to ARI to avoid such disqualification if (1) the violation is due to reasonable cause and not due to willful neglect, (2) ARI pays a penalty of $50,000
for each failure to satisfy a requirement for qualification as a REIT and (3) the violation does not include a violation under the gross income or asset tests described above (for which other specified relief provisions are available). This
cure provision reduces the instances that could lead to ARIs disqualification as a REIT for violations due to reasonable cause. If ARI fails to qualify for taxation as a REIT in any taxable year and none of the relief provisions of the
Internal Revenue Code apply, ARI will be subject to tax, including any applicable alternative minimum tax, on ARIs taxable income at regular corporate rates. Distributions to ARI stockholders in any year in which ARI is not a REIT will not be
deductible by ARI, nor will they be required to be made. In this situation, to the extent of current or accumulated earnings and profits, and, subject to limitations of the Internal Revenue Code, distributions to ARI stockholders generally will be
taxable in the case of ARI stockholders who are individual U.S. stockholders (as defined below), at a maximum rate of 20%, and dividends in the hands of ARIs corporate U.S. stockholders may be eligible for the dividends received deduction.
Unless ARI is entitled to relief under the specific statutory provisions, ARI also will be disqualified from re-electing to be taxed as a REIT for the four taxable years following a year during which qualification was lost. It is not possible to
state whether, in all circumstances, ARI will be entitled to statutory relief.
Taxation of Taxable U.S. Stockholders
This section summarizes the taxation of U.S. stockholders (as defined above) that are not tax-exempt organizations.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ARI stock, the U.S. federal income tax treatment of a partner
generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding ARI common stock should consult its tax advisor regarding the U.S. federal income tax consequences to the partner of the
acquisition, ownership and disposition of ARI stock by the partnership.
Distributions
Provided that ARI continues to qualify as a REIT, distributions made to ARIs taxable U.S. stockholders out of ARIs current and accumulated earnings
and profits, and not designated as capital gain dividends, generally will be taken into account by them as ordinary dividend income and will not be eligible for the dividends received deduction for corporations. In determining the extent to which a
distribution with respect to ARI common stock constitutes a dividend for U.S. federal income tax purposes, ARIs earnings and profits will be allocated first to distributions with respect to ARI preferred stock, including its Series C Preferred
Stock to be issued in the Second Merger, and then to ARI common stock. Dividends received from REITs generally are not eligible to be taxed at the preferential qualified dividend income rates applicable to individual U.S. stockholders who receive
dividends from taxable subchapter C corporations.
In addition, distributions from ARI that are designated as capital gain dividends will be taxed to U.S.
stockholders as long-term capital gains, to the extent that they do not exceed the actual net capital gain of ARI
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for the taxable year, without regard to the period for which the U.S. stockholder has held its stock. For taxable years beginning after December 31, 2015, such capital gain dividends may not
exceed ARIs dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. To the extent that ARI elects under the applicable provisions of the Internal Revenue Code to retain
ARIs net capital gains, U.S. stockholders will be treated as having received, for U.S. federal income tax purposes, ARIs undistributed capital gains as well as a corresponding credit for taxes paid by ARI on such retained capital gains.
U.S. stockholders will increase their adjusted tax basis in ARI common stock by the difference between their allocable share of such retained capital gain and their share of the tax paid by ARI. Corporate U.S. stockholders may be required to treat
up to 20% of some capital gain dividends as ordinary income. Long-term capital gains generally are taxable at maximum U.S. federal rates of 20% in the case of U.S. stockholders who are individuals, and 35% for corporations. Capital gains
attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum U.S. federal income tax rate for U.S. stockholders who are individuals, to the extent of previously claimed depreciation deductions.
Distributions in excess of ARIs current and accumulated earnings and profits will not be taxable to a U.S. stockholder to the extent that they do not
exceed the adjusted tax basis of the U.S. stockholders shares of ARI stock in respect of which the distributions were made, but rather will reduce the adjusted tax basis of these shares. To the extent that such distributions exceed the
adjusted tax basis of a U.S. stockholders shares of ARI stock, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend declared by ARI
in October, November or December of any year and payable to a U.S. stockholder of record on a specified date in any such month will be treated as both paid by ARI and received by the U.S. stockholder on December 31 of such year, provided that
the dividend is actually paid by ARI before the end of January of the following calendar year.
With respect to U.S. stockholders who are taxed at the
rates applicable to individuals, ARI may elect to designate a portion of ARIs distributions paid to such U.S. stockholders as qualified dividend income. A portion of a distribution that is properly designated as qualified dividend
income is taxable to non-corporate U.S. stockholders as capital gain, provided that the U.S. stockholder has held ARI stock with respect to which the distribution is made for more than 60 days during the 121-day period beginning on the date that is
60 days before the date on which such stock became ex-dividend with respect to the relevant distribution. The maximum amount of ARIs distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum
of:
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the qualified dividend income received by ARI during such taxable year from non-REIT C corporations (including any domestic TRS in which ARI may own an interest);
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(b)
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the excess of any undistributed REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by ARI with respect to such undistributed REIT taxable income; and
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the excess of any income recognized during the immediately preceding year attributable to the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a non-REIT C corporation over the U.S.
federal income tax paid by ARI with respect to such built-in gain.
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Generally, dividends that ARI receives will be treated as qualified
dividend income for purposes of (a) above if the dividends are received from a domestic C corporation (other than a REIT or a RIC), any domestic TRS ARI may form, or a qualified foreign corporation and specified holding period
requirements and other requirements are met.
To the extent that ARI has available net operating losses and capital losses carried forward from prior tax
years, such losses may reduce the amount of distributions that must be made in order to comply with the REIT distribution requirements. See
Taxation of ARIGeneral
and
Annual Distribution
Requirements
. Such losses, however, are not passed through to U.S. stockholders and do not offset income of U.S. stockholders from
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other sources, nor do they affect the character of any distributions that are actually made by ARI, which generally are subject to tax in the hands of U.S. stockholders to the extent that ARI has
current or accumulated earnings and profits.
If excess inclusion income from a taxable mortgage pool or REMIC residual interest is allocated to any
stockholder, that income will be taxable in the hands of the stockholder and would not be offset by any net operating losses of the stockholder that would otherwise be available. See
Effect of Subsidiary EntitiesTaxable Mortgage
Pools
and
Excess Inclusion Income
. As required by IRS guidance, ARI intends to notify ARI stockholders if a portion of a dividend paid by ARI is attributable to excess inclusion income.
Dispositions of ARI Stock
In general, a U.S.
stockholder will realize gain or loss upon the sale, redemption or other taxable disposition of ARIs stock in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such
disposition and the U.S. stockholders adjusted tax basis in such ARI stock at the time of the disposition. In general, a U.S. stockholders adjusted tax basis will equal the U.S. stockholders acquisition cost, increased by the
excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed paid on it and reduced by returns of capital. In general, capital gains recognized by individuals and other non-corporate U.S. stockholders upon
the sale or disposition of shares of ARI stock will be subject to a maximum U.S. federal income tax rate of 20%, if such ARI stock is held for more than 12 months, and will be taxed at ordinary income rates of up to 39.6% if such ARI stock is held
for 12 months or less. Gains recognized by U.S. stockholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. The IRS has the authority to prescribe, but has
not yet prescribed, regulations that would apply a capital gain tax rate of 25% (which is generally higher than the long-term capital gain tax rates for non-corporate holders) to a portion of capital gain realized by a non-corporate holder on the
sale of REIT stock that would correspond to the REITs unrecaptured Section 1250 gain.
Capital losses recognized by a U.S.
stockholder upon the disposition of ARI stock held for more than one year at the time of disposition will be considered long-term capital losses, and generally are available only to offset capital gain income of the U.S. stockholder but not ordinary
income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of ARI stock by a U.S. stockholder who has held the shares for six months or less, after
applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from ARI that were required to be treated by the U.S. stockholder as long-term capital gain.
Passive Activity Losses and Investment Interest Limitations
Distributions made by ARI and gain arising from the sale or exchange by a U.S. stockholder of ARI stock will not be treated as passive activity income. As a
result, U.S. stockholders will not be able to apply any passive losses against income or gain relating to ARI stock. Distributions made by ARI, to the extent they do not constitute a return of capital, generally will be treated as
investment income for purposes of computing the investment interest limitation. A U.S. stockholder that elects to treat capital gain dividends, capital gains from the disposition of stock or qualified dividend income as investment income for
purposes of the investment interest limitation will be taxed at ordinary income rates on such amounts.
Medicare Tax on Unearned Income
U.S. stockholders that are individuals, estates or trusts are subject to an additional 3.8% U.S. federal income tax on, among other things, dividends on and
capital gains from the sale or other disposition of stock. U.S. stockholders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of ARI stock.
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Taxation of Tax-Exempt U.S. Stockholders
U.S. tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S.
federal income taxation. However, they are subject to taxation on their unrelated business taxable income, which we refer to as UBTI. The IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute
UBTI. Based on that ruling, and provided that (1) a tax-exempt U.S. stockholder has not held ARI stock as debt financed property within the meaning of the Internal Revenue Code (i.e., where the acquisition or holding of the property
is financed through a borrowing by the tax-exempt stockholder) and (2) ARI does not hold an asset that gives rise to excess inclusion income (see
Effect of Subsidiary Entities
, and
Excess
Inclusion Income
), distributions from ARI and income from the sale of ARI stock generally should not give rise to UBTI to a tax-exempt U.S. stockholder. As previously noted, ARI may engage in transactions that would result in a portion of
ARIs dividend income being considered excess inclusion income, and accordingly, it is possible that a portion of ARIs dividends received by a tax-exempt stockholder will be treated as UBTI.
Tax-exempt U.S. stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different UBTI rules, which generally will require them to characterize
distributions from ARI as UBTI, unless they are able to properly exclude certain amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in ARI stock. These prospective investors should
consult their tax advisors concerning these set aside and reserve requirements.
In certain circumstances, a pension trust (1) that is
described in Section 401(a) of the Internal Revenue Code, (2) that is tax exempt under Section 501(a) of the Internal Revenue Code, and (3) that owns more than 10% of ARI stock could be required to treat a percentage of the
dividends from ARI as UBTI if ARI is a pension-held REIT. ARI will not be a pension-held REIT unless (1) either (A) one pension trust owns more than 25% of the value of ARI stock, or (B) a group of pension trusts, each
individually holding more than 10% of the value of ARI stock, collectively owns more than 50% of such stock; and (2) ARI would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Internal Revenue Code provides that
stock owned by such trusts shall be treated, for purposes of the requirement that not more than 50% of the value of the outstanding stock of a REIT is owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities), as owned by the beneficiaries of such trusts. Certain restrictions on ownership and transfer of ARI stock should generally prevent a tax-exempt entity from owning more than 10% of the value of ARI
stock, or ARI from becoming a pension-held REIT.
Tax-exempt U.S. stockholders are urged to consult their tax advisors regarding the U.S. federal, state,
local and foreign tax consequences of owning ARI stock, including applicable tax reporting requirements.
Taxation of Non-U.S. Stockholders
The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of ARI stock applicable
to non-U.S. stockholders of ARI stock, as defined above. The discussion is based on current law and is for general information only. It addresses only selective and not all aspects of U.S. federal income taxation.
Non-U.S. stockholders should consult their tax advisors concerning the U.S. federal estate consequences of ownership of ARI stock.
Ordinary Dividends
The portion of dividends
received by non-U.S. stockholders payable out of ARIs earnings and profits that are not attributable to gains from sales or exchanges of U.S. real property interests and which are not effectively
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connected with a U.S. trade or business of the non-U.S. stockholder generally will be subject to U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by an applicable
income tax treaty. Under some treaties, however, lower rates generally applicable to dividends do not apply to dividends from REITs. In addition, any portion of the dividends paid to non-U.S. stockholders that are treated as excess inclusion income
will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate. As previously noted, ARI may engage in transactions that would result in a portion of ARIs dividends being considered excess inclusion income, and
accordingly, it is possible that a portion of ARIs dividend income will not be eligible for exemption from the 30% withholding rate or a reduced treaty rate. In the case of a taxable stock dividend with respect to which any withholding tax is
imposed on a non-U.S. stockholder, ARI may have to withhold or dispose of part of the shares otherwise distributable in such dividend and use such withheld shares or the proceeds of such disposition to satisfy the withholding tax imposed.
In general, non-U.S. stockholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of ARI stock. In
cases where the dividend income from a non-U.S. stockholders investment in ARI stock is, or is treated as, effectively connected with the non-U.S. stockholders conduct of a U.S. trade or business, the non-U.S. stockholder generally will
be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such dividends, and may also be subject to the 30% branch profits tax on the income after the application of the income tax
in the case of a non-U.S. stockholder that is a corporation.
Non-Dividend Distributions
Unless (A) ARI stock constitutes a U.S. real property interest with respect to a non-U.S. stockholder, or USRPI, or (B) either (1) the non-U.S.
stockholders investment in ARI stock is effectively connected with a U.S. trade or business conducted by such non-U.S. stockholder (in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders with respect
to such gain and, in the case of a non-U.S. stockholder that is a corporation, may also be subject to the 30% branch profits tax on such gain after the application of the income tax) or (2) the non-U.S. stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the taxable year and has a tax home in the United States (in which case the non-U.S. stockholder will be subject to a 30% tax on the individuals net
capital gain for the year), distributions by ARI which are not dividends out of ARIs earnings and profits will not be subject to U.S. federal income tax. If it cannot be determined at the time at which a distribution is made whether or not the
distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the non-U.S. stockholder may seek a refund from the IRS of any amounts withheld if
it is subsequently determined that the distribution was, in fact, in excess of ARIs current and accumulated earnings and profits.
If ARI stock
constitutes a USRPI with respect to a non-U.S. stockholder, as described below, distributions by ARI in excess of the sum of ARIs earnings and profits plus the non-U.S. stockholders adjusted tax basis in ARI stock will be taxed under the
Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. stockholder of the same type (e.g., an individual or a corporation, as the case may be), and
the collection of the tax will be enforced by a withholding at a rate of 15% of the amount by which the distribution exceeds the stockholders share of ARIs earnings and profits. As described below, ARI does not expect shares of ARI stock
to constitute USRPIs.
Capital Gain Dividends
Under FIRPTA, a distribution made by ARI to a non-U.S. stockholder, to the extent attributable to gains from dispositions of USRPIs held by ARI directly or
through pass-through subsidiaries, or USRPI capital gains, will be considered effectively connected with a U.S. trade or business of the non-U.S. stockholder and will be subject to U.S. federal income tax at the rates applicable to U.S.
stockholders, without regard to whether the distribution is designated as a capital gain dividend. In addition, ARI will be required to withhold tax equal to 35% (20% to
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the extent provided in Treasury Regulations) of the amount of capital gain dividends to the extent the dividends constitute USRPI capital gains. Distributions subject to FIRPTA may also be
subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. However, the 35% (20% to the extent provided in Treasury Regulations) withholding tax will not apply to any capital gain dividend with respect to
(1) any class of ARI stock which is regularly traded on an established securities market located in the United States if the non-U.S. stockholder did not own more than 10% of such class of stock at any time during the one-year period ending on
the date of such dividend or (2) a non-U.S. stockholder which is treated as a qualified shareholder or qualified foreign pension fund as discussed below. Instead, any capital gain dividend to a qualified shareholder or a
non-U.S. stockholder described in clause (1) of the preceding sentence will be treated as a distribution subject to the rules discussed above under
Taxation of Non-U.S. StockholdersOrdinary Dividends
. Also, the
branch profits tax will not apply to such a distribution. A distribution is not a USRPI capital gain if ARI held the underlying asset solely as a creditor, although the holding of a shared appreciation mortgage loan would not be solely as a
creditor. Capital gain dividends received by a non-U.S. stockholder from a REIT that are not USRPI capital gains generally are not subject to U.S. federal income or withholding tax, unless either (1) the non-U.S. stockholders investment
in ARI stock is effectively connected with a U.S. trade or business conducted by such non-U.S. stockholder (in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain and, in the case
of a non-U.S. stockholder that is a corporation, may also be subject to the 30% branch profits tax on such gain after the application of the income tax) or (2) the non-U.S. stockholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a tax home in the United States (in which case the non-U.S. stockholder will be subject to a 30% tax on the individuals net capital gain for the year). ARI does not
anticipate that a substantial portion of ARIs assets will constitute USRPIs.
Dispositions of ARI Stock
Unless ARI stock constitutes a USRPI with respect to a non-U.S. stockholder, a sale of the stock by a non-U.S. stockholder generally will not be subject to
U.S. federal income taxation under FIRPTA. Generally, with respect to any particular stockholder, ARI common stock will constitute a USRPI only if each of the following three statements is true:
|
(a)
|
Fifty percent or more of ARIs assets on any of certain testing dates during a prescribed testing period consist of interests in real property located within the United States, excluding for this purpose, interests
in real property solely in a capacity as creditor;
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(b)
|
ARI is not a domestically-controlled REIT. A domestically-controlled REIT includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S. persons at all times during a specified
testing period. Although ARI believes that it is currently a domestically-controlled REIT, because ARIs shares are publicly traded ARI cannot make any assurance that it will remain a domestically-controlled REIT; and
|
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(c)
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Either (i) ARI stock is not regularly traded, as defined by applicable Treasury regulations, on an established securities market; or (ii) the applicable class of ARI stock held by the non-U.S.
stockholder is regularly traded on an established securities market and the selling non-U.S. stockholder has actually or constructively held over 10% of such class of stock any time during the shorter of the five-year period ending on
the date of the sale or the period such selling non-U.S. stockholder held ARI such stock.
|
Specific wash sales rules applicable to sales of
stock in a domestically-controlled REIT could result in gain recognition, taxable under FIRPTA, upon the sale of ARI common or preferred stock, as the case may be, even if ARI is a domestically-controlled REIT. These rules would apply if a non-U.S.
stockholder (a) disposes of such ARI stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been taxable to such non-U.S. stockholder as gain from the sale or
exchange of a USRPI, and (b) acquires, or enters into a contract or option to acquire, other shares of ARI common or preferred
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stock, as the case may be, during the 61-day period that begins 30 days prior to such ex-dividend date unless such stock is regularly traded and the non-U.S. stockholder did not own
more than 5% of the stock at any time during the one-year period ending on the date of the distribution described in clause (a).
If gain on the sale of
ARI stock were subject to taxation under FIRPTA, the non-U.S. stockholder would be subject to the same treatment as a U.S. stockholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in
the case of non-resident alien individuals, and the purchaser of the stock could be required to withhold 15% of the purchase price and remit such amount to the IRS.
Gain from the sale of ARI stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. stockholder in
two cases: (a) if the non-U.S. stockholders investment in ARI common stock is effectively connected with a U.S. trade or business conducted by such non-U.S. stockholder, the non-U.S. stockholder will be subject to the same treatment as a
U.S. stockholder with respect to such gain, and, in the case of a non-U.S. stockholder that is a corporation, may also be subject to the 30% branch profits tax on such gain after the application of the income tax, or (b) if the non-U.S.
stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a tax home in the United States, the nonresident alien individual will be subject to a 30% tax on the
individuals net capital gain.
Qualified Shareholders
Subject to the exception discussed below, any distribution to a qualified shareholder who holds ARI common or preferred stock, as the case may be,
directly or indirectly (through one or more partnerships) generally will not be subject to U.S. federal income tax as income effectively connected with a U.S. trade or business and thus will not be subject to special withholding rules under FIRPTA.
However, a qualified shareholder will be subject to FIRPTA withholding on distributions to the extent certain non-U.S. investors of such qualified shareholder that are not also qualified shareholders hold interests in the qualified shareholder
(other than interests solely as a creditor) and hold more than 10% of ARI common or preferred stock, as the case may be (whether or not by reason of the investors ownership in the qualified shareholder).
In addition, a sale of shares of ARI common or preferred stock, as the case may be, by a qualified shareholder who holds such shares directly or indirectly
(through one or more partnerships) generally will not be subject to U.S. federal income tax under FIRPTA. As with distributions, a qualified shareholder will be subject to FIRPTA withholding on a sale of such ARI stock to the extent certain non-U.S.
investors of such qualified shareholder that are not also qualified shareholders hold interests in the qualified shareholder (other than interests solely as a creditor) and hold more than 10% of ARI common or preferred stock, as the case may be
(whether or not by reason of the investors ownership in the qualified shareholder).
A qualified shareholder is a foreign
person that (i) either is eligible for the benefits of a comprehensive income tax treaty which includes an exchange of information program and whose principal class of interests is listed and regularly traded on one or more recognized stock
exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect
to taxes with the United States and has a class of limited partnership units representing greater than 50% of the value of all the partnership units that is regularly traded on the NYSE or NASDAQ markets, (ii) is a qualified collective
investment vehicle (defined below), and (iii) maintains records on the identity of each person who, at any time during the foreign persons taxable year, is the direct owner of 5% or more of the class of interests or units (as applicable)
described in (i), above.
A qualified collective investment vehicle is a foreign person that (i) would be eligible for a reduced rate of
withholding under the comprehensive income tax treaty described above, even if such entity holds more than 10% of the stock of such REIT, (ii) is publicly traded, is treated as a partnership under the Internal Revenue Code, is a withholding
foreign partnership, and would be treated as a United States real property holding
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corporation if it were a domestic corporation, or (iii) is designated as such by the Secretary of the Treasury and is either (a) fiscally transparent within the meaning of
Section 894 of the Internal Revenue Code, or (b) required to include dividends in its gross income, but is entitled to a deduction for distributions to its investors.
Qualified Foreign Pension Funds
Any distribution
to a qualified foreign pension fund (or an entity all of the interests of which are held by a qualified foreign pension fund) who holds ARI stock directly or indirectly (through one or more partnerships) will not be subject to U.S.
federal income tax as income effectively connected with a U.S. trade or business and thus will not be subject to special withholding rules under FIRPTA. In addition, a sale of shares of ARI stock by a qualified foreign pension fund that holds such
shares directly or indirectly (through one or more partnerships) will not be subject to U.S. federal income tax under FIRPTA.
A qualified foreign
pension fund is any trust, corporation, or other organization or arrangement (i) which is created or organized under the law of a country other than the United States, (ii) which is established to provide retirement or pension
benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration for services rendered, (iii) which does not have a single participant or
beneficiary with a right to more than 5% of its assets or income, (iv) which is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which it is
established or operates, and (v) with respect to which, under the laws of the country in which it is established or operates, (a) contributions to such organization or arrangement that would otherwise be subject to tax under such laws are
deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (b) taxation of any investment income of such organization or arrangement is deferred or such income is taxed at a reduced rate.
Backup Withholding and Information Reporting
ARI
reports to its U.S. stockholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. Under the backup withholding rules, a U.S. stockholder may be subject to backup withholding with respect to
dividends paid unless the holder comes within an exempt category and, when required, demonstrates this fact or provides a taxpayer identification number or social security number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules. A U.S. stockholder that does not provide his or her correct taxpayer identification number or social security number may also be subject to penalties imposed by the
IRS. Backup withholding is not an additional tax. In addition, ARI may be required to withhold a portion of capital gain distribution to any U.S. stockholder who fails to certify their non-foreign status.
ARI must report annually to the IRS and to each non-U.S. stockholder the amount of dividends paid to such holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. stockholder resides under
the provisions of an applicable income tax treaty. A non-U.S. stockholder may be subject to backup withholding unless applicable certification requirements are met.
Payment of the proceeds of a sale of ARI stock within the United States is subject to both backup withholding and information reporting unless the beneficial
owner certifies under penalties of perjury that it is a non-U.S. stockholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an exemption. Payment of the
proceeds of a sale of ARI stock conducted through certain U.S. related financial intermediaries is subject to information reporting (but not backup withholding) unless the financial intermediary has documentary evidence in its records that the
beneficial owner is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise established.
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Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against such holders U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Foreign Accounts
Federal legislation imposes
withholding taxes on certain types of payments made to foreign financial institutions and certain other non-U.S. entities. Under this legislation, the failure to comply with additional certification, information reporting and other
specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. stockholders who own shares of ARI stock through foreign accounts or foreign intermediaries and certain non-U.S. stockholders.
Under Treasury regulations and administrative guidance, a 30% withholding tax is imposed on payments made with respect to dividends on, and after December 31, 2018, with respect to gross proceeds from the sale or other disposition of, ARI stock
paid to a foreign financial institution or to a foreign entity other than a financial institution, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign entity that is not a
financial institution either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. If the payee is a foreign financial institution (that is not otherwise exempt), it must
either enter into an agreement with the U.S. Treasury Department requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements, or in the case of a foreign financial institution that is resident in a jurisdiction that has entered into
an intergovernmental agreement to implement this legislation comply with the revised diligence and reporting obligations of such intergovernmental agreement. ARI stockholders should consult their tax advisors regarding this legislation.
State, Local and Foreign Taxes
ARI and its
stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business, own property or reside. The state, local or foreign tax treatment of ARI and its stockholders may not
conform to the U.S. federal income tax treatment discussed above. Any foreign taxes incurred by ARI would not pass through to stockholders as a credit against their U.S. federal income tax liability. ARI stockholders should consult their tax
advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in ARI stock.
Legislative or
Other Actions Affecting REITs
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department. No assurance can be given as to whether, when, or in what form, U.S. federal income tax laws applicable to ARI and its stockholders may be enacted. Changes to the U.S. federal
income tax laws and interpretations of U.S. federal income tax laws could adversely affect an investment in shares of ARI stock. Several REIT rules were recently amended under the Protecting Americans from Tax Hikes Act of 2015 (the PATH
Act), which was enacted December 18, 2015, some of which are discussed herein. These rules were enacted with varying effective dates, some of which are retroactive. Each stockholder should consult its tax advisor regarding the effect of
the PATH Act on its particular circumstances.
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THE AGREEMENTS
This section of this proxy statement/prospectus summarizes the material provisions of the merger agreement (which is attached as Annex A to this proxy
statement/prospectus and is incorporated herein by reference), the asset purchase agreement (which is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference), the bridge loan commitment (which is attached as
Annex C to this proxy statement/prospectus and is incorporated herein by reference), the stock purchase agreement (which is attached as Annex D to this proxy statement/prospectus and is incorporated herein by reference) and certain letter
agreements entered into in connection with the transaction (which are attached as Annexes D and E to this proxy statement prospectus and are incorporated herein by reference) (collectively referred to herein as the transaction
agreements). This section of this proxy statement/prospectus is qualified in its entirety by reference to those transaction agreements. As a stockholder, you are not a third party beneficiary of the merger agreement, the asset purchase
agreement, the bridge loan commitment, the stock purchase agreement or certain letter agreements entered into in connection with the transaction and therefore you may not directly enforce any of their terms and conditions.
This summary may not contain all of the information about the transaction agreements that is important to you. ARI and AMTG urge you to carefully read the
full text of the transaction agreements because they are the legal documents that govern the transaction. The transaction agreements are not intended to provide you with any factual information about ARI or AMTG. In particular, the assertions
embodied in the representations and warranties contained in the merger agreement (and summarized below) are qualified by information each of ARI and AMTG filed with the SEC prior to the effective date of the merger agreement, as well as by certain
disclosure letters each of the parties delivered to the other in connection with the signing of the merger agreement, which modify, qualify and create exceptions to the representations and warranties set forth in the merger agreement. Moreover, some
of those representations and warranties may not be accurate or complete as of any specified date, may apply contractual standards of materiality in a way that is different from what may be viewed as material by investors or that is different from
standards of materiality generally applicable under the U.S. federal securities laws or may not be intended as statements of fact, but rather as a way of allocating risk among the parties to the merger agreement. The representations and warranties
and other provisions of the transaction agreements and the description of such provisions in this proxy statement/prospectus should not be read alone but instead should be read in conjunction with the other information contained in the reports,
statements and filings that each of ARI and AMTG file with the SEC and the other information in this proxy statement/prospectus. See Where You Can Find More Information; Incorporation by Reference beginning on page 233.
ARI and AMTG acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, each of them is responsible for considering whether
additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this proxy statement/prospectus not misleading.
Description of the Merger Agreement
Form, Effective Time and Closing of the Mergers
The merger agreement provides for the combination of AMTG and ARI through (i) a merger of Merger Sub with and into AMTG (the First Merger),
with AMTG surviving the First Merger upon the terms and subject to the conditions set forth in the merger agreement and (ii) promptly following the effective time of the First Merger (and in any event on the same business day) AMTG merging with
and into ARI (the Second Merger and, together with the First Merger, the mergers), with ARI surviving the Second Merger upon the terms and subject to the conditions set forth in the merger agreement. Each of the First Merger
and the Second Merger will be effective upon the filing of the articles of merger with the State Department of Assessments and Taxation of Maryland or at a later date and time agreed to by ARI and AMTG and specified in the articles of merger
relating to the First Merger or the articles of merger relating to the Second Merger, as applicable, in each case, not to exceed thirty (30) days from the date that the applicable articles of merger have been accepted for record by the State
Department of Assessments and Taxation of Maryland.
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At the effective time of the First Merger, the charter and bylaws of AMTG, as in effect immediately prior to the
First Merger, will continue to be the charter and bylaws of AMTG. At the effective time of the Second Merger, the charter and bylaws of ARI, as in effect immediately prior to the Second Merger, will be the charter and bylaws of the Combined Company.
The merger agreement provides that the closing of the mergers will take place at 10:00 a.m. Eastern Time at the offices of Fried, Frank, Harris,
Shriver & Jacobson LLP in New York, NY on the second business day following the date on which the last of the conditions to closing of the mergers (described below under Conditions to Completion of the First Merger) have been
satisfied or waived (other than the conditions that by their terms are to be satisfied at the closing of the mergers, but subject to the satisfaction or waiver of those conditions), provided that ARI may, at its discretion, elect to postpone the
closing for up to an additional five (5) business days following such date; provided that if ARI elects to postpone the closing, it will not be entitled to make any claim on such later date that a material adverse effect with respect to AMTG
has occurred or would occur. In no event will ARI be entitled to postpone the closing if, as a result of the postponement, the closing would occur on or after the Outside Date (as defined below under
Termination of the Merger
AgreementTermination by Either AMTG or ARI
).
Board of Directors of the Combined Company
The members of the ARI Board immediately prior to the effective time of the Second Merger will serve as the board of directors of the Combined Company
following the mergers, with Jeffrey M. Gault continuing to serve as the Chairman.
The executive officers of ARI immediately prior to the effective time
of the Second Merger will serve as the executive officers of the Combined Company, with Stuart A. Rothstein continuing to serve as President and Chief Executive Officer.
Merger Consideration; Treatment of Securities
At the effective time of the First Merger, each outstanding share of AMTG common stock will be automatically converted into the right to receive
(i) 0.417571 shares of ARI common stock, or the Per Share Stock Consideration, (ii) an amount in cash equal to $6.86 less the per share amount of any dividend declared or paid by AMTG between the Pricing Date and the effective time of the
First Merger, or the Per Share Cash Consideration, and (iii) in the event the First Merger does not occur by the date that is 45 days after the Pricing Date, an amount of cash equal to 3% of AMTGs book value as of the Pricing Date on an
annualized basis accruing daily beginning on and including September 5, 2016 and ending on, but excluding, the last business day prior to the date on which the First Merger occurs, divided by 32,090,313 (which was the number of shares of AMTG common
stock outstanding as of the Pricing Date, on a fully diluted basis (calculated after giving effect to the vesting of all AMTG Restricted Shares)) (the Per Share Adjustment Amount). In lieu of the issuance of any fractional shares of ARI
common stock, holders of AMTG common stock will receive a cash payment (without interest) (the Fractional Share Consideration) in an amount representing such holders proportionate interest in the net proceeds from the sale by the
exchange agent, on behalf of all such holders, of ARI common stock that would otherwise be issued. The Per Share Stock Consideration, the Per Share Cash Consideration, the Per Share Adjustment Amount (if any) and the Fractional Share Consideration
(if any) are collectively referred to as the Per Common Share Merger Consideration.
Immediately prior to the effective time of the First
Merger, each outstanding AMTG Restricted Share which is not then vested will vest and, at the effective time of the First Merger, automatically be converted into the right to receive, with respect to each share of AMTG common stock underlying such
AMTG Restricted Share, the Per Common Share Merger Consideration.
At the effective time of the Second Merger, each outstanding share of AMTG Series A
Preferred Stock will be automatically converted into and become the right to receive one newly issued share of ARI Series C Preferred
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Stock (the Per Preferred Share Merger Consideration). The ARI Series C Preferred Stock will have preferences, rights and privileges substantially similar to the preferences, rights
and privileges of the AMTG Series A Preferred Stock prior to the First Merger.
Exchange Agent; Delivery of Consideration
The conversion of shares of AMTG common stock into the right to receive the Per Common Share Merger Consideration will occur automatically at the
effective time of the First Merger. In accordance with the merger agreement, ARI has appointed Wells Fargo Shareholder Services as the exchange agent to handle the payment and delivery of the Per Common Share Merger Consideration and the Per
Preferred Share Merger Consideration. On the date of the First Merger, ARI or Merger Sub will deliver to the exchange agent (i) evidence of a number of shares of ARI common stock in book-entry form equal to the Per Share Stock Consideration,
(ii) evidence of a number of shares of ARI Series C Preferred Stock in book entry form sufficient for the exchange agent to distribute the Per Preferred Share Merger Consideration and (iii) cash in immediately available funds in an amount
sufficient for the exchange agent to pay the aggregate Per Share Cash Consideration, the aggregate Per Share Adjustment Amount, and, as necessary from time to time thereafter, the aggregate Fractional Share Consideration (if any) and any dividends
or other distributions payable with respect to ARI common stock or ARI Series C Preferred Stock in accordance with the merger agreement. Promptly after the effective time of the First Merger, ARI will cause the exchange agent to mail (and make
available for collection by hand) to each record holder of shares of AMTG common stock, a letter of transmittal and instructions explaining how to surrender AMTG common share certificates to the exchange agent.
Following the consummation of the mergers, each AMTG common stockholder that surrenders its stock certificate evidencing AMTG common stock to the exchange
agent together with a duly completed letter of transmittal (and other documents that may be required pursuant to the instructions), and each AMTG common stockholder that holds book-entry shares of AMTG common stock, will receive the consideration
due to such stockholder (including cash in lieu of any fractional shares). After the effective time of the First Merger, each certificate that previously represented shares of AMTG common stock will only represent the right to receive the Per Common
Share Merger Consideration into which those shares of AMTG common stock have been converted.
Following the consummation of the mergers, each AMTG
preferred stockholder that surrenders its stock certificate evidencing AMTG Series A Preferred Stock to the exchange agent together with a duly completed letter of transmittal (and other documents that may be required pursuant to the instructions),
and each AMTG preferred stockholder that holds book-entry shares of AMTG Series A Preferred Stock, will receive the Per Preferred Share Merger Consideration due to such stockholder. After the effective time of the Second Merger, each certificate
that previously represented shares of AMTG Series A Preferred Stock will only represent the right to receive the Per Preferred Share Merger Consideration into which those shares of AMTG Series A Preferred Stock have been converted.
Lost, Stolen or Destroyed Certificates
In the
event that an AMTG stockholders stock certificate has been lost, stolen or destroyed, the exchange agent will issue to such AMTG stockholder the merger consideration due to such AMTG stockholder upon (i) the making of an affidavit by such
AMTG stockholder of the fact that such stock certificate has been lost, stolen or destroyed, (ii) delivery by such AMTG stockholder for the benefit of ARI of a bond or indemnity in an amount and upon such terms reasonably satisfactory to the
exchange agent, and (iii) execution and delivery by such AMTG stockholder of a letter of transmittal to the exchange agent.
Withholding
All payments under the merger agreement are subject to applicable withholding requirements.
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Representations and Warranties
The merger agreement contains a number of representations and warranties made by ARI and Merger Sub, on the one hand, and AMTG, on the other hand. The
representations and warranties were made by the parties as of the date of the merger agreement and do not survive the effective time of the First Merger. Certain of these representations and warranties are subject to specified exceptions and
qualifications contained in the merger agreement and qualified by information with respect to each of ARI and AMTG filed with the SEC on or after January 1, 2015 and prior to the date of the merger agreement, and information contained in the
confidential disclosure letters delivered in connection with the merger agreement.
Representations and Warranties of AMTG
The merger agreement includes representations and warranties by AMTG relating to, among other things:
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organization, valid existence, good standing and qualification to conduct business;
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capitalization and investments in other persons;
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due authorization, execution, delivery and validity of the merger agreement and the power and authority to complete the transactions contemplated by the merger agreement;
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board approval of the merger agreement and the transactions contemplated by the merger agreement;
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absence of any conflict with or violation of organizational documents or applicable laws, the absence of any filings required in connection with the proposed transactions, and absence of any violation or breach of, or
default or consent requirements under, certain agreements, in each case in connection with the transactions contemplated by the merger agreement;
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SEC filings and financial statements;
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internal controls over financial reporting;
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absence of certain changes since January 1, 2015, including the absence of any events that have had or would reasonably be expected to have a material adverse effect;
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absence of undisclosed liabilities;
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absence of certain litigation or investigation by governmental entities;
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employee benefit plans and employees;
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tax matters, including the qualification of AMTG as a REIT;
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inapplicability of the 1940 Act;
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compliance with laws and permits;
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tangible assets and real property;
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accuracy of information supplied for inclusion in this proxy statement/prospectus and the registration statement of which it forms a part;
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the opinion received by the AMTG Board from its financial advisor;
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related party transactions;
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brokers, finders and other fees;
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inapplicability of takeover statutes; and
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the required stockholder vote.
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Representations and Warranties of ARI and Merger Sub
The merger agreement includes representations and warranties by ARI and Merger Sub relating to, among other things:
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organization, valid existence, good standing and qualification to conduct business;
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capitalization and investments in other persons;
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due authorization, execution, delivery and validity of the merger agreement and the power and authority to complete the transactions contemplated by the merger agreement;
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board approval of the merger agreement and the transactions contemplated by the merger agreement;
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absence of any conflict with or violation of organizational documents or applicable laws, the absence of any filings required in connection with the proposed transactions, and the absence of any violation or breach of,
or default or consent requirements under, certain agreements, in each case in connection with the transactions contemplated by the merger agreement;
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SEC filings and financial statements;
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internal controls over financial reporting;
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absence of certain changes since January 1, 2015, including the absence of any events that have had or would reasonably be expected to have a material adverse effect;
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absence of undisclosed liabilities;
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absence of certain litigation or investigation by governmental entities;
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employee benefit plans; employees;
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tax matters, including the qualification of ARI as a REIT;
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inapplicability of the 1940 Act;
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compliance with laws and permits;
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accuracy of information supplied for inclusion in this proxy statement/prospectus and the registration statement of which it forms a part;
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the opinion received by the ARI Special Committee from its financial advisor;
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brokers, finders and other fees;
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sufficiency of funds to consummate the transactions contemplated by the merger agreement;
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ownership of AMTG common stock;
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related party transactions;
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inapplicability of takeover statutes; and
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absence of any required vote.
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Definition of Material Adverse Effect
Many of the representations of ARI, Merger Sub and AMTG are qualified by a material adverse effect standard (that is, they will not be deemed to be
untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would reasonably be expected to have a material adverse effect). For the purposes of the merger agreement, material adverse effect means
any change, effect, development, circumstance, condition, state of facts, event or occurrence that, individually or in the aggregate (A) prevents or materially delays the consummation of the transactions contemplated by the merger agreement or
(B) has a material adverse effect on the financial condition, business, assets, properties, or results of operations of ARI and its subsidiaries, taken as a
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whole, or AMTG and its subsidiaries, taken as a whole, as the case may be. However, any change, effect, development, circumstance, condition, state of facts, event or occurrence arising out of or
resulting from the following will not be considered a material adverse effect and will not be taken into account when determining whether a material adverse effect has occurred or is reasonably likely to exist or occur:
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any changes in the general U.S. or global economic conditions;
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conditions in the industry in which ARI or AMTG, as applicable, operates;
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changes in GAAP or applicable law, or interpretation thereof, or in legal, political and/or regulatory conditions;
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actions expressly required by, or the failure to take action expressly prohibited by, the merger agreement;
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the announcement or pendency of the merger agreement or the transactions contemplated by the merger agreement;
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any failure of ARI or AMTG, as applicable, to meet projections, estimates or expectations of earnings or other financial performance; and
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any changes in geopolitical conditions, acts or terrorism or sabotage, war, acts of armed hostility, natural disasters or other force majeure events;
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provided, in the case of first, second and third bullet points above, ARI and its subsidiaries, taken as a whole, or AMTG and its subsidiaries, taken as a
whole, as the case may be, are not disproportionately affected thereby as compared to other companies operating in the same industry in which ARI or AMTG, as applicable, operates.
Covenants and Agreements
Conduct of Business of AMTG Pending the Mergers
AMTG has
agreed to certain obligations and restrictions with respect to the conduct of the business of AMTG and its subsidiaries until the earlier of the effective time of the First Merger and the valid termination of the merger agreement. In general, except
with ARIs prior written consent (not to be unreasonably withheld, conditioned or delayed), or as otherwise expressly required or permitted by the merger agreement or required by law, AMTG will, and will cause each of its subsidiaries to,
conduct its business in all material respects in the ordinary course and in a manner consistent with past practice, and use its commercially reasonable efforts to (i) preserve intact in all material respects its current business organization,
goodwill, ongoing businesses and significant relationships with third parties, (ii) keep available the services of its present officers provided it does not require additional compensation, (iii) maintain all AMTG insurance policies, and
(iv) maintain the qualification of AMTG as a REIT. Without limiting the foregoing, AMTG has also agreed that, except with ARIs prior written consent (not to be unreasonably withheld, conditioned or delayed), or as otherwise expressly
required or permitted by the merger agreement or required by law, AMTG will not, and it will not permit any of its subsidiaries to (subject to certain exceptions), among other things:
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amend or propose to amend its organizational documents;
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issue, sell, pledge, dispose, encumber or grant any equity interests other than the issuance of AMTG common stock upon the settlement of AMTG Restricted Shares;
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split, combine, subdivide or reclassify any shares of stock of AMTG or any of its subsidiaries or other equity interests;
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declare, set aside or pay any dividends on or make any other distributions with respect to shares of capital stock or other equity securities or ownership interests in AMTG or any of its subsidiaries;
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redeem, purchase or otherwise acquire (or offer to redeem, purchase or acquire) any shares of AMTGs capital stock or other equity interests of AMTG or any of its subsidiaries;
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acquire real property, personal property, business organizations or any division or material amount of assets thereof;
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sell, pledge, assign, transfer, dispose of or encumber any property or assets, other than certain financial investments and instruments (including any securities, derivative instruments, currency hedging arrangements,
repurchase agreements, options, forwards, futures, swaps, or hybrid securities) owned by AMTG in accordance with the other provisions of the merger agreement;
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incur, create, assume, refinance, replace or prepay any indebtedness for borrowed money or issue or amend the terms of any debt securities of AMTG or any of its subsidiaries (other than as expressly provided elsewhere
in the merger agreement), or assume, guarantee or endorse, or otherwise become responsible (whether directly, contingently or otherwise) for the indebtedness of any other person;
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make any loans, advances or capital contributions to, or investments in, any other person or entity (including to any of its officers, trustees, affiliates, agents or consultants), make any change in its existing
borrowing or lending arrangements for or on behalf of such persons or entities, or enter into any keep well or similar agreement to maintain the financial condition of another entity;
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increase the compensation of any directors of AMTG, grant any officer or director of AMTG any increase in severance or termination pay, establish or adopt any collective bargaining agreement, hire any officer (with the
title of vice president or higher) of AMTG or promote any person to such position, enter into or terminate any employee benefit plan, accelerate the vesting or payment of any award under any equity plan of AMTG, grant any awards under any equity
plan or other compensation plan of AMTG, or grant bonuses to any person providing services to AMTG;
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enter into, renew, modify, amend or terminate, or waive, release, compromise or assign any rights or claims under, any material contract;
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make, change or revoke any material tax election, enter into any material closing agreement with a tax authority, file any amended tax return or change any material method of accounting for tax purposes or annual tax
accounting period;
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take any action that could reasonably be expected to, or fail to take any action, the failure of which could reasonably be expected to, cause AMTG to fail to qualify as a REIT;
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make, authorize or incur any capital expenditures or any obligations or liabilities in respect thereof in excess of certain thresholds;
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change an annual accounting period or change in any material respect any of the accounting methods used by it materially affecting its assets, liabilities or business;
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other than in connection with stockholder litigation arising in connection with the merger agreement or the transactions contemplated thereby, settle or compromise any material legal proceeding where the settlement
exceeds certain thresholds or enter into any consent decree or similar restraint that would reasonably be expected to restrict the operations of the business of AMTG and its subsidiaries (or of ARI and its subsidiaries, following the transaction
closing);
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take any action that could, or fail to take any action the failure of which could reasonably be expected to, result in AMTG or any of its subsidiaries being required to be registered as an investment company under the
1940 Act;
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adopt a plan of complete or partial liquidation, dissolution, restructuring or other reorganization (other than the mergers);
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amend the compensation terms or any of AMTGs obligations in its engagement letter with Morgan Stanley & Co. LLC relating to the transactions contemplated by the merger agreement; or
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enter into any contract with respect to, or agree to take or make any commitment to take, or cause the AMTG Board to adopt any resolutions approving, any of the foregoing.
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However, nothing in the merger agreement prohibits AMTG from taking any action that, in the reasonable judgment
of AMTG, upon advice of counsel, is reasonably necessary for AMTG to maintain its qualification as a REIT for any period or portion thereof ending on or prior to the effective time of the First Merger or to qualify or preserve the tax status of
certain AMTGs subsidiaries, including making dividend or other distribution payments to stockholders of AMTG.
Conduct of Business of ARI Pending
the Mergers
ARI has agreed to certain obligations and restrictions with respect to the conduct of the business of ARI and its subsidiaries until the
earlier of the effective time of the First Merger and the valid termination of the merger agreement. In general, except with AMTGs prior written consent (not to be unreasonably withheld, conditioned or delayed), or as otherwise expressly
required or permitted by the merger agreement or required by law, ARI will, and will cause each of its subsidiaries to, conduct its business in all material respects in the ordinary course and in a manner consistent with past practice, and use its
commercially reasonable efforts to (i) preserve intact in all material respects its current business organization, goodwill, ongoing businesses and significant relationships with third parties, and (iii) maintain the qualification of ARI
as a REIT. Without limiting the foregoing, ARI has also agreed that, except with AMTGs prior written consent (not to be unreasonably withheld, conditioned or delayed), or as otherwise expressly required or permitted by the merger agreement or
required by law, ARI will not, and it will not permit any of its subsidiaries to (subject to certain exceptions), among other things:
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amend or propose to amend its organizational documents, in a manner adverse to AMTG;
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issue or grant any equity interests at a price below the per share value of ARIs net assets as of the date of such issuance or grant;
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split, combine, subdivide or reclassify any shares of stock of ARI or any of its subsidiaries or other equity interests;
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declare, set aside or pay any dividends on or make any other distributions with respect to shares of capital stock or other equity securities or ownership interests in ARI or any of its subsidiaries, other than
ARIs regular quarterly dividend and a pro rata portion of ARIs regular quarterly dividend at or prior to closing;
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redeem, purchase or otherwise acquire (or offer to redeem, purchase or acquire) any shares of ARIs capital stock or other equity interests of ARI or any of its subsidiaries, subject to limited exceptions;
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make, change or revoke any material tax election, enter into any material closing agreement with a tax authority, file any amended tax return or change any method of accounting for tax purposes or annual tax accounting
period;
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take any action that could reasonably be expected to, or fail to take any action, the failure of which could, reasonably be expected to cause ARI to fail to qualify as a REIT;
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change an annual accounting period or change in any material respect any of the accounting methods used by it materially affecting its assets, liabilities or business;
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take any action that could, or fail to take any action the failure of which could reasonably be expected to, result in AMTG or any of its subsidiaries being required to be registered as an investment company under the
1940 Act; or
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adopt a plan of complete or partial liquidation, dissolution, restructuring or other reorganization (other than the mergers); or
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enter into any contract with respect to, or agree to take or make any commitment to take, or cause the ARI Board to adopt any resolutions approving any of the foregoing.
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However, nothing in the merger agreement prohibits ARI from taking any action that, in the reasonable judgment of ARI, upon advice of counsel, is reasonably
necessary for ARI to maintain its qualification as a REIT for any
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period or portion thereof ending on or prior to the effective time of the mergers or to qualify or preserve the tax status of certain ARI subsidiaries, including making dividend or other
distribution payments to stockholders of ARI.
Go-Shop Period; No Shop Period; Change in AMTG Recommendation
Go-Shop Period
The merger agreement provides that during
the period from February 26, 2016 until 11:59 p.m. (Eastern Time) on April 1, 2016 (which is referred to herein as the go-shop period), AMTG, its subsidiaries and their respective directors, officers, employees, consultants,
financial advisors, accountants, legal counsel, investment bankers, and other agents, advisors or representatives (collectively representatives) had the right to directly or indirectly:
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initiate, solicit, facilitate and encourage (publicly or otherwise) any inquiry or the making of any proposals or offers that constitute, may have reasonably been expected to lead to, any Acquisition Proposal (as
defined below), including by way of providing access to non-public information to any person or entity and its representatives, its affiliates and its prospective equity and debt financing sources; provided that prior to furnishing such non-public
information, AMTG has entered into an acceptable confidentiality agreement with such person or entity; provided, further, that AMTG was required to promptly make available to ARI any non-public information concerning AMTG or its subsidiaries that
AMTG provides to any person or entity if such information was not previously made available to ARI; and
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engage or enter into, continue or otherwise participate in any discussions or negotiations with any persons, entities or groups of persons and their representatives, their affiliates and their prospective equity and
debt financing sources with respect to any Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any Acquisition
Proposals.
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For purposes of the merger agreement (i) Acquisition Proposal means any proposal or offer (other than with
respect to the transactions contemplated by the merger agreement) with respect to any transaction or series of related transactions with a person, entity or group of persons concerning any (a) merger, consolidation, business combination, joint
venture or similar transaction, (b) acquisition (whether by tender offer, share exchange, or other manner), (c) issuance or sale or other disposition of the equity securities of AMTG, (d) sale, lease, license or other disposition
directly or indirectly of assets of AMTG, or (e) any combination of any of the foregoing, in each case, which if consummated would result in any person, entity or group of persons acquiring beneficial ownership (or the right to acquire
beneficial ownership), directly or indirectly, of equity securities of AMTG or any of its subsidiaries representing 20% or more of the issued and outstanding equity securities of AMTG (by vote or value), or 20% or more of the consolidated total
assets (including equity securities of AMTGs subsidiaries), revenues or net income of AMTG or its subsidiaries, taken as a whole; and (ii) acceptable confidentiality agreement means confidentiality agreement that contains
provisions that are not materially less favorable to AMTG than those contained in that certain confidentiality agreement, dated December 16, 2015, by and between AMTG and ARI (provided, that such confidentiality agreement does not need to
contain standstill provisions or prohibit the making of an Acquisition Proposal and does not prohibit disclosure to ARI of the identity of the counterparty and any terms proposed by such counterparty).
As promptly as reasonably practicable, and in any event within three business days following the expiration of the go-shop period, AMTG was required to
provide ARI with a written list identifying each excluded party, if any. Under the merger agreement, an excluded party means any person, entity or group of persons from whom AMTG has received during the go-shop period a bona
fide written Acquisition Proposal, (i) that remains pending as of, and shall not have been irrevocably withdrawn prior to, the expiration of the go-shop period, (ii) that the AMTG Board, or such committee thereof, determines in good faith
constitutes or would be reasonably expected to lead to a Superior Proposal and (iii) as of any date following the no-shop period start date, has not lapsed in accordance with its terms or been withdrawn.
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For purposes of the merger agreement, Superior Proposal means a bona fide written Acquisition
Proposal (provided, that for purpose of this definition, the percentages in the definition of Acquisition Proposal shall be 50% rather than 20%) that did not result from a breach of the go-shop/no-shop provisions of the merger agreement
that the AMTG Board, or an authorized committee thereof, determines in its good faith business judgment (after consultation with its outside legal counsel and financial advisor), after taking into account all terms of the Acquisition Proposal
(including, without limitation, the person or entity making such proposal, all legal, financial and regulatory aspects of such proposal, the anticipated time of completion of the proposed transaction and the conditions for completion of such
transaction), (a) is reasonably expected to be consummated in accordance with its terms, and (b) if consummated, would be more favorable from a financial point of view to the holders of AMTG Common Stock than the mergers and the other
transactions contemplated by the merger agreement (taking into account any offer by ARI to amend the terms of the merger agreement or the other documents contemplated thereby).
Upon the expiration of the go-shop period, AMTG and its subsidiaries and their respective representatives were required to (i) immediately cease any
solicitation activity with respect to any Acquisition Proposals or any discussions or negotiations with any person or entity (other than an excluded party for so long as such person or entity is an excluded person) that may be ongoing with respect
to any Acquisition Proposals and (ii) request that each person or entity (other than an excluded party for so long as such person or entity is an excluded party) promptly return to AMTG or its representatives or destroy any non-public
information previously furnished to such person or entity by AMTG or its representatives and terminate access of any person or entity (other than an excluded party for so long as such person or entity is an excluded party) to any electronic data
room maintained by AMTG with respect to the mergers and the other transactions contemplated by the merger agreement. Notwithstanding the expiration of the go-shop period, AMTG and its subsidiaries and their respective representatives may continue to
engage in the solicitation activities described above with any excluded party (for so long as such party remains an excluded party), including with respect to any amended Acquisition Proposal submitted by such excluded party, following the
expiration of the go-shop period, and the restrictions set forth in the no-shop provisions of the merger agreement will not apply with respect to such activities.
The go-shop period ended at 11:59 p.m. on April 1, 2016 and AMTG has not identified any person or entity that would be deemed an excluded party for
purposes of the merger agreement.
No-Shop Period
From April 2, 2016 until the earlier of the effective time of the First Merger and the termination of the merger agreement in accordance with its terms,
AMTG will not, nor will it permit any of its subsidiaries to, and it will use its commercially reasonable efforts to cause its and its subsidiaries representatives not to, directly or indirectly, (i) initiate, solicit, knowingly
facilitate or knowingly encourage (publicly or otherwise) any inquiries regarding, or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any non-public
information regarding AMTG to any person or entity, or (iii) engage in, enter into, continue or otherwise participate in any discussions or negotiations regarding, or provide any information concerning AMTG or its subsidiaries or afford access
to AMTGs or its subsidiaries books, records, management, employees or properties to any person or entity (other than discussions in the ordinary course of business that are unrelated to an Acquisition Proposal); provided, however, that
AMTG may continue to do any of the foregoing with an excluded party for so long as such person or entity is an excluded party.
Notwithstanding the
restrictions set forth in the first paragraph above, the merger agreement provides that, at any time prior to the approval of the First Merger by the AMTG common stockholders, the AMTG Board is permitted to, in response to a written Acquisition
Proposal by any person or group of persons that did not result from a breach of the no solicitation provisions of the merger agreement, (i) contact such person or group of persons solely to clarify the terms and conditions thereof,
(ii) subject to first entering into a confidentiality
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agreement having provisions that are no less favorable to those contained in the confidentiality agreement between ARI and AMTG (provided that such confidentiality agreement is not required to
contain standstill provisions) and notifying ARI, provide non-public information and data concerning AMTG and its subsidiaries to such person or group of persons and their representatives, affiliates and prospective debt and equity financing sources
and (iii) engage in discussions and negotiations with any such person or group of persons and which the AMTG Board determines in good faith (after consultation with outside legal counsel and a nationally recognized third party financial
advisor) constitutes or is reasonably likely to result in a Superior Proposal. AMTG will provide ARI with a copy of any nonpublic information or data provided to a third party substantially simultaneously with furnishing such information to such
third party.
Except as otherwise expressly permitted by the merger agreement, the AMTG Board may not withhold, withdraw, qualify, amend or modify (or
publicly propose or resolve to withhold, withdraw, qualify, amend or modify), in any manner adverse to ARI, the AMTG Boards recommendation to holders of AMTG common stock or approve, authorize, adopt or recommend or otherwise declare
advisable, or propose publicly to approve, authorize, adopt or recommend or otherwise declare advisable, any Acquisition Proposal or fail to include the AMTG Board recommendation in this proxy statement/prospectus. Furthermore, the AMTG Board may
not take any action to make the provisions of any fair price, moratorium, control share acquisition, business combination or other similar anti-takeover statute or regulation inapplicable to any
transaction contemplated by an Acquisition Proposal. Except as expressly contemplated by the merger agreement, the AMTG Board may not authorize, adopt, approve, recommend or otherwise declare advisable, or propose publicly to approve or recommend,
or cause or permit AMTG or any of its subsidiaries to execute or enter into any letter of intent, agreement in principle, memorandum or understanding or definitive merger, acquisition, purchase or joint venture agreement or other similar contract
(other than an acceptable confidentiality agreement) in respect of or relating to any Acquisition Proposal.
Notwithstanding the restrictions above, with
respect to an Acquisition Proposal, the AMTG Board may make a change in recommendation (and in the event that the AMTG Board determines the Acquisition Proposal to be a Superior Proposal, terminate the merger agreement in order to enter into a
definitive agreement with respect to such Superior Proposal (provided that AMTG pays the termination fee to ARI)) at any time prior to the approval of the First Merger and the other transactions contemplated by the merger agreement by AMTG common
stockholders, if (i) AMTG receives an Acquisition Proposal (which did not result from a breach of the no solicitation provisions of the merger agreement) that the AMTG Board (or an authorized committee thereof) has determined in good faith
(after consultation with outside legal counsel and a nationally recognized third party financial advisor) constitutes a Superior Proposal; (ii) the AMTG Board (or an authorized committee thereof) has determined in good faith (after consultation
with outside legal counsel) that failure to do so would be inconsistent with its duties under applicable law, (iv) five business days, which we refer to as the notice period, has elapsed since AMTG has given written notice to ARI advising ARI
that it intends to take such action and specifying all material terms and conditions of such Superior Proposal, including the identity of the person who made such Superior Proposal, the type and amount of consideration that AMTGs stockholders
will receive and all other terms and conditions which the AMTG Board (or authorized committee thereof) considered in making the determination that such Acquisition Proposal constituted a Superior Proposal, (v) during such notice period, the
AMTG Board has considered and, if requested by ARI, negotiated in good faith with ARI and its representatives to make revisions to the terms of the merger agreement proposed by ARI, and (vi) the AMTG Board (or authorized committee thereof),
following such notice period and after taking into consideration any changes to the merger agreement offered in writing by ARI in a manner that would form a binding contract if accepted by AMTG, continues to believe in its good faith business
judgment (after consultation with its outside legal counsel and a nationally recognized third party financial advisor) that such Acquisition Proposal continues to constitute a Superior Proposal and that, after consultation with outside legal
counsel, the failure to effect a change in recommendation or terminate the merger agreement to enter into a definitive agreement with respect to such Superior Proposal would be inconsistent with the AMTG Boards duties under applicable law.
Upon any material amendment to the financial or other material terms of the Superior Proposal giving rise to the notice, AMTG is required to deliver a new notice and commence a new negotiation period of three business days.
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In addition to the foregoing, in circumstances not involving or relating to an Acquisition Proposal, the AMTG
Board may, at any time prior to the approval of the First Merger and the other transactions contemplated by the merger agreement by AMTG common stockholders, make a change in recommendation if (i) any change, effect, development, circumstance,
condition, state of facts, event or occurrence (other than the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto) first occurs after February 26, 2016 (ii) the AMTG Board has determined in its good faith
business judgment (after consultation with its outside legal counsel) that, in light of such intervening event, the failure to do so would be inconsistent with its duties under applicable law, (iii) five business days, which we refer to as the
intervening event notice period, will have elapsed since AMTG has given a notice of recommendation change to ARI advising that the AMTG Board intends to take such action and specifying in reasonable detail the reasons therefor, (iv) during the
intervening event notice period, the AMTG Board has considered and, if requested by ARI, negotiated in good faith with ARI, making such revisions to the terms and conditions of the merger agreement such that the failure to effect a change in
recommendation would no longer be inconsistent with the AMTG Boards duties under applicable law, and (v) the AMTG Board, following such intervening event notice period, after taking into consideration any changes to the merger agreement
offered in writing by ARI in a manner that would form a binding contract if accepted by AMTG, continues to believe in its good faith business judgment (after consultation with outside legal counsel) that failure to do so would be inconsistent with
its duties under applicable law. Upon any material change to the facts and circumstances relating to such intervening event, AMTG is required to deliver a new notice and commence a new negotiation period of three business days.
Unless the merger agreement is validly terminated, notwithstanding a change in recommendation, AMTG has agreed to submit the approval of the First Merger and
the other transactions contemplated by the merger agreement to a vote of its stockholders.
Form S-4, Proxy Statement/Prospectus; Special Meeting
The merger agreement provides that ARI and AMTG will use their commercially reasonable efforts to (i) have this proxy statement cleared by
the SEC, and the registration statement on Form S-4, of which this proxy statement/prospectus forms a part, declared effective under the Securities Act as promptly as practicable after filing, (ii) ensure that the Form S-4, complies in all
material respects with the applicable provisions of the Exchange Act or Securities Act, and (iii) keep the Form S-4 effective for so long as necessary to complete the First Merger.
As promptly as reasonably practicable following the effectiveness of the Form S-4, AMTG will establish a record date for and give notice of the AMTG special
meeting to the holders of AMTG common stock, cause this proxy statement/prospectus to be mailed to its stockholders entitled to vote at the AMTG special meeting and, within 30 days of such record date, hold the AMTG special meeting (subject to
AMTGs right to postpone or adjourn the AMTG special meeting under certain circumstances specified in the merger agreement). AMTG also agreed to use commercially reasonable efforts to obtain the requisite approval of its stockholders, unless
the AMTG Board makes an adverse recommendation change in accordance with the provisions of the merger agreement described above.
Access to
Information; Confidentiality
The merger agreement requires both ARI and AMTG to provide to the other, upon reasonable advance notice and during
normal business hours, reasonable access to its properties, offices, books, contracts, commitments, personnel and records, and each of ARI and AMTG are required to furnish reasonably promptly to the other a copy of each report, schedule,
registration statement and other document filed prior to closing pursuant to U.S. federal or state securities laws and all other information concerning its business, properties and personnel as the other party may reasonably request.
Each of ARI and AMTG have agreed to hold, and cause its representatives and affiliates to hold, any non-public information in confidence to the extent
required by the terms of its existing confidentiality agreements.
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Efforts to Complete Transactions; Consents
Both ARI and AMTG have agreed to use their commercially reasonable efforts to take all actions and do all things necessary, proper or advisable under
applicable laws or pursuant to any contract or agreement to consummate and make effective, as promptly as practicable, the mergers and the other transactions contemplated by the merger agreement, including (i) taking all actions necessary to
cause the conditions to closing to be satisfied, (ii) obtaining all necessary actions or nonactions, waivers, consents and approvals from governmental authorities or other persons or entities in connection with the mergers and the other
transactions contemplated by the merger agreement, (iii) defending any lawsuits or other legal proceedings challenging the merger agreement or the consummation of the mergers or other transactions contemplated by the merger agreement, and
(iv) executing and delivering all additional instruments necessary to consummate the mergers and the other transactions contemplated by the merger agreement and to fully carry out the purposes of the merger agreement. ARI and AMTG have agreed
to provide any necessary notices to third parties and use their reasonable best efforts to obtain any third-party consents that are necessary, proper or advisable to consummate the mergers and the other transactions contemplated by the merger
agreement.
Notification of Certain Matters; Transaction Litigation
Each of ARI and AMTG have agreed to provide prompt notice to the other of any notice received from any governmental authority in connection with the merger
agreement, the mergers or the transactions contemplated by the merger agreement, including the mergers, or from any person or entity alleging that its consent is or may be required in connection with any such transaction, if the subject matter of
such communication or the failure of ARI or AMTG, as applicable, to obtain such consent could be material to ARI or AMTG. Each of ARI and AMTG have agreed to provide prompt notice to the other of any legal proceeding commenced or, to such
partys knowledge, threatened in writing against, such party or otherwise relating to or involving or affecting such party or any of its subsidiaries or affiliates, in each case in connection with, arising from or otherwise relating to the
mergers or the other transactions contemplated by the Merger Agreement.
Each of ARI and AMTG have agreed to provide prompt notice to the other if any
representation or warranty made by it in the merger agreement becomes untrue or inaccurate, or if it fails to comply with or satisfy in any material respect any covenant, condition or agreement contained in the merger agreement, in each case such
that it would be reasonable to expect that the applicable closing conditions would be incapable of being satisfied by the Outside Date. In addition, each of ARI and AMTG have agreed to give prompt written notice to the other if, to the knowledge of
such party, the occurrence of any state of facts, change, development, event or condition would cause, or would reasonably be expected to cause, any of the conditions to closing set forth in the merger agreement not to be satisfied or satisfaction
to be materially delayed.
In the event any litigation related to the merger agreement, the mergers or the other transactions contemplated by the merger
agreement is brought against AMTG and/or its directors or officers, AMTG has agreed to keep ARI informed on a current basis with respect to the status thereof and has agreed to give ARI the opportunity to participate, subject to a customary joint
defense agreement, in, but not control, the defense and settlement of any such litigation, and has agreed not to agree to a settlement without ARIs prior written consent (not to be unreasonably withheld, conditioned or delayed).
Indemnification of Directors and Officers; Insurance
The merger agreement provides that, subject to certain limitations, the Combined Company has agreed to honor and fulfill in all respects the obligations of
AMTG to the fullest extent permissible under applicable law, under AMTGs organizational documents as in effect on February 26, 2016 and under any indemnification or other similar agreements in effect on February 26, 2016, which we
refer to as the Indemnification Agreements, to the individuals covered by such organizational documents or Indemnification Agreements, which we refer to as the Covered Persons, arising out of or relating to actions or omissions in their capacity as
such occurring at or prior to the effective time of the First Merger, including in connection with the approval of the merger agreement and the transactions contemplated by the merger agreement.
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In addition, for a period of 10 years from and after the closing date, the Combined Company has agreed to:
(i) indemnify and hold harmless each Covered Person against and from any costs or expenses (including attorneys fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, to the extent such claim, action, suit, proceeding or investigation arises out of or pertains to: (A) any action or omission or alleged action
or omission in such Covered Persons capacity as such, or (B) the merger agreement and any of the transactions contemplated by the merger agreement; and (ii) pay in advance of the final disposition of any such claim, action, suit,
proceeding or investigation the expenses (including attorneys fees) of any Covered Person upon receipt of an undertaking by or on behalf of such Covered Person to repay such amount if it will ultimately be determined that such Covered Person
is not entitled to be indemnified. The merger agreement contains certain limitations on the Combined Companys and each Covered Persons ability to settle or compromise or consent to the entry of any judgment or otherwise seek termination
with respect to any claim, action, suit, proceeding or investigation of a Covered Person for which indemnification may be sought under the merger agreement.
For a period of 10 years from and after the closing date, the charter and bylaws of ARI or any of its successors or assigns will contain provisions no less
favorable with respect to indemnification, advancement of expenses and exculpation of Covered Persons for periods prior to and including the effective time of the First Merger than are currently set forth in AMTGs organizational documents. The
Indemnification Agreements with Covered Persons that survive the mergers will continue in full force and effect in accordance with their terms.
Subject
to certain limitations set forth in the merger agreement, AMTG may, prior to closing, purchase a directors and officers liability insurance tail or runoff insurance program for a period of 10 years after the
closing date with respect to wrongful acts and/or omissions committed or allegedly committed at or prior to the effective time of the mergers, which coverage must have an aggregate coverage limit over the term of such policy in an amount not to
exceed the annual aggregate coverage limit under AMTGs existing directors and officers liability policy, and in all other respects shall be comparable to such existing coverage, provided that the cost of such program may not exceed
250% of the annual premiums paid as of February 26, 2016 by AMTG for directors and officers liability insurance, which we refer to as the base premium, and further provided that if such insurance coverage cannot be obtained at all,
or can only be obtained at a cost in excess of the base premium, AMTG may purchase the most advantageous policies of tail or run-off directors and officers insurance obtainable for a cost equal to the base
premium.
Publicity
Each of ARI and AMTG has
agreed to, subject to certain exceptions, obtain the other partys consent (which consent will not be unreasonably withheld, conditioned or delayed) before issuing any press release or other announcement with respect to the mergers or the
merger agreement.
Acceleration of AMTG Restricted Shares
Prior to the First Merger, AMTG has agreed to take all action necessary to accelerate the vesting of any outstanding AMTG Restricted Shares. Each AMTG
Restricted Share so accelerated by AMTG will, at the effective time of the First Merger, be converted into the right to receive the Per Share Merger Consideration.
Delisting and Deregistration of AMTG Capital Stock
Each of ARI and AMTG has agreed to cooperate with the other party in taking, or causing to be taken, all actions necessary to delist the AMTG common stock and
the AMTG Series A Preferred Stock from the NYSE and terminate their registration under the Exchange Act (
provided
, that such delisting and termination will not be effective until after the closing of the mergers).
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Director and Officer Resignations
AMTG is required to use commercially reasonable efforts to cause to be delivered to ARI resignations executed by each director and officer of AMTG and its
subsidiaries in office immediately prior to the effective time of the Second Merger.
Tax Opinions and Tax Representation Letters
ARI is required to use its reasonable best efforts to:
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obtain an opinion of Clifford Chance US LLP (or such other nationally recognized REIT counsel as may be reasonably acceptable to AMTG), dated the closing date, to the effect that for all taxable periods commencing with
its taxable year ended December 31, 2009, ARI has been organized and operated in conformity with the requirements for qualification and taxation as a REIT and that its proposed method of operation will enable ARI to continue to meet the
requirements for qualification and taxation as a REIT; and
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deliver to Clifford Chance US LLP (or such other nationally recognized REIT counsel) a tax representation letter, dated the closing date and signed by an officer of ARI, in customary form and substance and approved by
AMTG (which approval will not be unreasonably withheld, conditioned or delayed) containing representations of ARI as are reasonably determined by Clifford Chance US LLP (or such other counsel) to be necessary or appropriate to enable Clifford Chance
US LLP (or such other counsel) to render the opinion described above.
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AMTG is required to use its reasonable best efforts to:
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obtain an opinion of Clifford Chance US LLP (or such other nationally recognized REIT counsel as may be reasonably acceptable to ARI), dated the closing date, to the effect that for all taxable periods commencing with
its taxable year ended December 31, 2011 through the closing date, AMTG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT (other than the REIT distribution requirement for AMTGs
taxable year ending on the date of the Second Merger); and
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deliver to Clifford Chance US LLP (or such other nationally recognized REIT counsel) a tax representation letter, dated the closing date and signed by an officer of AMTG, in customary form and substance and approved by
ARI (which approval will not be unreasonably withheld, conditioned or delayed) containing representations of AMTG as are reasonably determined by Clifford Chance US LLP (or such other counsel) to be necessary or appropriate to enable Clifford Chance
US LLP (or such other counsel) to render the opinion described above.
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Listing of Newly Issued ARI Common Stock and ARI Series C
Preferred Stock
ARI is required to use its commercially reasonable efforts to cause the shares of ARI common stock and ARI Series C Preferred
Stock to be issued in the mergers to be approved for listing on the NYSE, subject to official notice of issuance, prior to the effective time of the First Merger.
Dividends
From the Pricing Date until the earlier
of the effective time of the First Merger and any termination of the merger agreement in accordance with its terms, AMTG is prohibited from making, declaring or setting aside any dividend or other distribution to its stockholders without the prior
written consent of ARI;
provided
,
however
, that the written consent of ARI will not be required (but prior written notice will be given by AMTG to ARI) for the authorization and payment of dividends (i) that are regular quarterly
dividends payable in respect of the
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AMTG Series A Preferred Stock in accordance with past practice, or (ii) to enable AMTG to maintain its qualification as a REIT and avoid incurring U.S. federal, state or local income or
excise taxes under the Internal Revenue Code or applicable state or local law, including payment of dividends under Internal Revenue Code Sections 858 or 860 (provided that any such dividend will be taken into account in calculating the Per Share
Cash Consideration).
Financing Cooperation
Prior to the closing of the transactions contemplated by the merger agreement, AMTG is required to use commercially reasonable efforts to cooperate (as well as
to cause its subsidiaries to use commercially reasonable efforts to cooperate, and to use its commercially reasonable efforts to cause its and its subsidiaries representatives to provide, on a timely basis, all reasonable cooperation requested
by ARI) in connection with the documentation and arrangement of any debt financing, including repurchase agreements (the Debt Financing), including:
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providing certain information regarding AMTG and its subsidiaries, including the financial information required to be delivered in connection with the Debt Financing and such other information as may be reasonably
requested by ARI in connection with the Debt Financing;
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assisting in the preparation of customary documents and materials, including confidential information memoranda, lender and investor presentations and similar documents and materials in connection with the Debt
Financing;
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participating in a reasonable number of meetings, due diligence sessions and presentations;
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providing reasonable and customary assistance to ARI and its debt financing sources in (A) the preparation of all agreements, certificates, opinions or documents, including customary certificates with respect to
solvency matters, in connection with the Debt Financing and (B) the negotiation, preparation and delivery of amendments to or the termination of any of AMTGs or its subsidiaries existing credit agreements, currency or interest
hedging agreements, or other agreements, including repurchase agreements and related documentation in respect of AMTGs or its subsidiaries borrowings collateralized by residential mortgage backed securities, securitized mortgage loans,
other mortgage and mortgage related assets or other investment securities (including by negotiating amendments, waivers or supplements reasonably satisfactory to ARI with respect to any and all obligations of AMTG and its subsidiaries under such
repurchase agreements and related documentation which are intended by ARI to be terminated in connection with the consummation of the transactions), in each case, on terms reasonably satisfactory to ARI and that are reasonably requested by ARI in
connection with the Debt Financing;
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permitting any cash and marketable securities of AMTG and its subsidiaries to be made available to ARI and Merger Sub following the effective time of the First Merger;
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cooperating reasonably with ARIs debt financing sources due diligence; and
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furnishing ARI and its debt financing sources promptly with all documentation and other information required by any governmental entity with respect to the financing under applicable know your customer and
anti-money laundering rules and regulations, including the PATRIOT Act.
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ARI has agreed to (i) promptly, upon request by AMTG,
reimburse AMTG for all reasonable and documented out-of-pocket costs (including reasonable and documented attorneys fees) incurred by AMTG or any of its subsidiaries in connection with the cooperation of AMTG and its subsidiaries described
above and in
Company Investment Activity
below and (ii) subject to certain exceptions, indemnify and hold harmless AMTG, its subsidiaries and their respective representatives from and against any and all losses,
damages, claims, costs or expenses suffered or incurred by any of them in connection with third party claims arising out of the arrangement of the Debt Financing or any of the actions or steps described above and in
AMTG Investment
Activity
below.
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Investment Guidelines; AMTG Investment Activity
AMTG is required to comply with certain agreed upon guidelines related to the hedging of some or all of the risk associated with AMTGs liabilities,
except (i) with ARIs prior written consent (not to be unreasonably withheld or delayed), (ii) as may be reasonably necessary or appropriate to maintain AMTGs qualification as a REIT, (iii) to the extent reasonably
necessary or appropriate to avoid becoming required to register as an investment company under the 1940 Act or (iv) prior to the Pricing Date as AMTG reasonably believes may be commercially prudent under then current market conditions, after
consultation with ARI. AMTG will promptly notify ARI in writing whenever, in reliance on any of the exceptions described in the immediately preceding sentence, it fails to comply with such guidelines.
In managing its liabilities prior to the closing date, AMTG is required to take commercially reasonable steps to manage the maturity of, and execute new
arrangements with respect to, AMTGs existing portfolio of repurchase agreements, hedging arrangements and other fixed term liabilities, in each case to the extent obtainable at commercially reasonable costs, such that the term or maturity of
such liabilities ends on or before the reasonably anticipated closing date. From and after the Pricing Date, AMTG will take the actions reasonably requested by ARI to adjust the maturity of or otherwise modify the terms of any such liability that
extends beyond the anticipated closing date such that such liability ends on such earlier maturity date requested by ARI. From and after the Pricing Date, AMTG will consult with ARI in setting such maturities to more closely align with the
anticipated closing date and will not extend such maturities beyond such anticipated closing date without the prior written consent of ARI. AMTG will promptly notify ARI in writing in the event that it determines, notwithstanding its compliance with
its obligations described in this paragraph, that it is or will likely be unable to cause the term or maturity of the relevant liabilities to end on or before the reasonably anticipated closing date.
Prior to the closing of the transactions contemplated by the merger agreement, AMTG is required to use commercially reasonable efforts to cooperate (as well
as to cause its subsidiaries to use commercially reasonable efforts to cooperate, and to use its commercially reasonable efforts to cause its and its subsidiaries representatives to provide, on a timely basis, all reasonable cooperation
requested by ARI) in connection with amending, terminating, rolling, novating and/or assigning or otherwise transferring to other counterparties any or all of AMTGs or its subsidiaries (i) repurchase agreements (whether in effect on
the date of the merger agreement or subsequently executed) and related documentation in respect of repurchase transactions in connection with residential mortgage backed securities, securitized mortgage loans, other mortgage and mortgage related
assets or other investment securities (such transactions, repurchase borrowings) and (ii) other investments of AMTG (including any securities, derivative instruments, currency hedging arrangements, repurchase agreements, options,
forwards, futures, swaps, or hybrid securities, and all contracts relating thereto) (whether in effect on the date of the merger agreement or subsequently executed), in each case to avoid defaults under, early terminations of and refusals to extend
the maturities of or roll such repurchase borrowings or such other investments and related contracts caused by the transactions contemplated by the merger agreement or to facilitate the termination of such repurchase borrowings or such other
investments and related contracts at or about the effective time of the First Merger.
AMTG Investments
Except as described in Investment Guidelines; AMTG Investment Activity above, AMTG will not enter into, renew, modify, amend or terminate any
contract related to any of its investments (including any securities, derivative instruments, currency hedging arrangements, repurchase agreements, options, forwards, futures, swaps, or hybrid securities) or acquire, sell, pledge, lease assign,
transfer, exclusively license, dispose of or encumber any such investment, other than in accordance with the certain agreed upon guidelines.
Ownership Limit
Prior to the effective time of
the First Merger, the AMTG Board will take all action necessary to provide a waiver with respect to the applicable stock ownership limits set forth in AMTGs charter, in order to permit ARI to acquire ownership of 100% of the AMTG common stock
in the First Merger. The granting of such waiver will
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be subject to the execution by ARI of a certificate containing certain representations and warranties with respect to its proposed acquisition and ownership of the AMTG common stock. The waiver
will be effective immediately prior to the First Merger.
Customary Covenants
The merger agreement also contains customary covenants relating to, among other things, (i) the tax treatment of the mergers, (ii) dispositions of
equity securities in the mergers by persons who may be subject to reporting requirements of Section 16(a) of the Exchange Act, (iii) limitations on the activities of Merger Sub, (iv) AMTGs complete control and supervision over
its operations prior to the effective time of the First Merger, and (v)
certain financial reporting to be provided by AMTG to ARI.
Conditions to Completion of the First Merger
Mutual Closing Conditions
The obligation of each of ARI,
Merger Sub and AMTG to effect the First Merger is subject to the satisfaction or, to the extent permitted by law, waiver, at or prior to the closing date, of the following conditions:
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the First Merger and the other transactions contemplated by the merger agreement shall have been approved by the affirmative vote of holders of a least a majority of the outstanding shares of AMTG common stock entitled
to vote upon the First Merger and at least a majority of the outstanding shares of AMTG Common Stock that are beneficially owned by persons who are not affiliates of Apollo;
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the Form S-4 registration statement, of which this proxy statement/prospectus is a part, having been declared effective and no stop order suspending the effectiveness of the Form S-4 shall have been issued by the SEC
and remain in effect, and no proceeding to that effect shall have been commenced or threatened; and
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the absence of any order or injunction or other legal restraint issued by any governmental entity of competent jurisdiction which prevents, prohibits or makes illegal the consummation of the First Merger, the Second
Merger or the other transactions contemplated by the merger agreement. The closing condition described in this bullet is referred to as the Absence of Injunction Condition.
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Additional Closing Conditions for the Benefit of ARI and Merger Sub
The obligations of ARI and Merger Sub to effect the First Merger are subject to the satisfaction or, to the extent permitted by law, waiver, at or prior to the
effective time of the First Merger, of the following additional conditions:
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the accuracy in all respects as of the date of the merger agreement and as of the effective time of the First Merger of certain representations and warranties made in the merger agreement by AMTG regarding authority
relative to the merger agreement, the required stockholder vote to approve the First Merger and the other transactions contemplated by the merger agreement, and brokers fees and similar expenses;
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the accuracy in all but de minimis respects as of the date specified in the merger agreement of certain representations and warranties made in the merger agreement by AMTG regarding certain aspects of its capital
structure;
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the accuracy of all other representations and warranties made in the merger agreement by AMTG as of the date of the merger agreement and as of the effective time of the First Merger (or, in the case of representations
and warranties that by their terms address matters only as of another specified date, as of that date), except where the failure of such representations or warranties to be true and correct (without giving effect to any materiality or material
adverse effect qualifications set forth therein) would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on AMTG;
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AMTG having performed in all material respects all obligations required to be performed by it under the merger agreement on or prior to the effective time of the First Merger, and receipt by ARI of a certificate signed
on behalf of AMTG by a duly authorized executive officer of AMTG to the effect that this condition and the conditions described in the preceding three bullet points have been satisfied;
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there not having occurred any events since February 26, 2016 that, individually or in the aggregate, constitute or would, with the passage of time constitute, a material adverse effect with respect to AMTG, and
receipt by ARI of a certificate signed on behalf of AMTG by a duly authorized executive officer of AMTG to the effect that this condition has been satisfied;
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receipt by ARI of an opinion from Clifford Chance US LLP (or such other nationally recognized REIT counsel reasonably acceptable to ARI), dated the closing date, to the effect that for all taxable periods commencing
with its taxable year ended December 31, 2011, through the closing date, AMTG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT (other than the REIT distribution requirement for
AMTGs taxable year ending on the date of the Second Merger); and
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receipt by ARI of a good standing certificate in respect of AMTG and each of its subsidiaries, dated a date no more than five business days prior to the closing date.
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Additional Closing Conditions for the Benefit of AMTG
The obligations of AMTG to effect the First Merger are subject to the satisfaction or, to the extent permitted by law, waiver, at or prior to the effective
time of the First Merger, of the following additional conditions:
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the accuracy in all respects as of the date of the merger agreement and as of the effective time of the First Merger of certain representations and warranties made in the merger agreement by ARI and Merger Sub regarding
authority relative to the merger agreement, ARIs sufficiency of funds to consummate the transactions contemplated by the merger agreement and brokers fees and similar expenses;
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the accuracy in all but de minimis respects as of the date specified in the merger agreement of certain representations and warranties made in the merger agreement by ARI and Merger Sub regarding certain aspects of
their capital structure;
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the accuracy of all other representations and warranties made in the merger agreement by ARI and Merger Sub as of the date of the merger agreement and as of the effective time of the First Merger (or, in the case of
representations and warranties that by their terms address matters only as of another specified date, as of that date), except where the failure of such representations or warranties to be true and correct (without giving effect to any materiality
or material adverse effect qualifications set forth therein) would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on ARI;
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ARI and Merger Sub having performed in all material respects all obligations required to be performed by it under the merger agreement on or prior to the effective time of the First Merger, and receipt by AMTG of a
certificate signed on behalf of ARI by a duly authorized executive officer of ARI to the effect that this condition and the conditions described in the preceding three bullet points have been satisfied;
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receipt by AMTG of an opinion from Clifford Chance US LLP (or such other nationally recognized REIT counsel reasonably acceptable to AMTG), dated the closing date, to the effect that for all taxable periods commencing
with its taxable year ended December 31, 2009, ARI has been organized and operated in conformity with the requirements for qualification and taxation as a REIT and that its proposed method of operation will enable ARI to continue to meet the
requirements for qualification and taxation as a REIT;
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there not having occurred any events since February 26, 2016 that, individually or in the aggregate, constitute or would, with the passage of time constitute, a material adverse effect with respect to ARI, and
receipt by AMTG of a certificate signed on behalf of ARI by a duly authorized executive officer of ARI to the effect that this condition has been satisfied;
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the shares of ARI common stock and ARI Series C Preferred Stock to be issued to AMTG stockholders in the mergers having been approved for listing on the NYSE, subject to official notice of issuance, and the Articles
Supplementary classifying the ARI Series C Preferred Stock shall have been filed with the State Department of Assessments and Taxation of Maryland; and
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the absence of any conditions precedent to the parties obligations to effect the Second Merger, other than consummation of the First Merger.
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Termination of the Merger Agreement
Termination by Mutual Agreement
The merger agreement may
be terminated at any time before the effective time of the First Merger by the mutual written consent of ARI and AMTG.
Termination by Either AMTG or
ARI
The merger agreement may also be terminated prior to the effective time of the First Merger by either AMTG or ARI if:
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the First Merger has not been consummated on or before 11:59 p.m. (Eastern time) on September 9, 2016 (which date may be extended to October 26, 2016 by either AMTG or ARI upon written notice to the other party if
on September 9, 2016 all conditions to closing have been satisfied or waived (or are then capable of being satisfied), other than the Absence of Injunction Condition described under
Mutual Closing Conditions
) (such date, as
may be extended, the Outside Date) (provided that this termination right will not be available to any party if the failure of the closing to occur by the Outside Date is due primarily to such partys failure to perform any of the
covenants or agreements required to be performed by it under the merger agreement);
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the holders of AMTG common stock fail to approve the First Merger and the other transactions contemplated by the merger agreement at the AMTG special meeting, including postponements and adjournments thereof; or
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a governmental authority of competent jurisdiction has issued a final, non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting consummation of the mergers (provided that the
party seeking to exercise this termination right shall have used commercially reasonable efforts to appeal, resolve or remove such order, decree or ruling).
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Termination by AMTG
The merger agreement may also be
terminated by AMTG by written notice to ARI:
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at any time prior to the requisite approval of the First Merger and the other transactions contemplated by the merger agreement by AMTG common stockholders, in order to enter into any alternative acquisition agreement
with respect to a Superior Proposal; provided, that AMTG must substantially concurrently pay the termination fee described below under
Termination Fee and Expenses Payable by AMTG to ARI
;
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at any time prior to the effective time of the First Merger, if there has been a breach by ARI or Merger Sub of
any of their covenants or agreements or an inaccuracy in any of the representations and warranties, set forth in the merger agreement on the part of ARI or Merger Sub, which breach, either
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individually or in the aggregate, would result in, if occurring or continuing on the closing date, the failure of certain closing conditions to be satisfied, and such breach cannot be or is not
cured prior to the earlier of (x) 30 calendar days after notice thereof is given by AMTG to ARI, or (y) the Outside Date (provided that this termination right will not be available to AMTG at any time when it is in breach of the merger
agreement and such breach would cause, or result in, the failure of certain specified conditions to ARIs obligations to effect the First Merger); and
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if (i) all of the conditions to ARIs obligation to effect the First Merger have been satisfied or waived (other than those conditions that by their nature cannot be satisfied other than at closing),
(ii) AMTG has confirmed by written notice to ARI that it is ready, willing and able to consummate the First Merger and (iii) ARI and Merger Sub fail to consummate the mergers and the other transactions contemplated by the merger agreement
within four business days after the date on which the closing should have occurred pursuant to the merger agreement (provided that during such four business day period, ARI is not entitled to terminate the merger agreement).
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Termination by ARI
The merger agreement may also be
terminated by ARI by written notice to AMTG:
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at any time prior to the requisite approval of the First Merger and the other transactions contemplated by the merger agreement by AMTG common stockholders, if (i) the AMTG Board has effected a change in
recommendation or AMTG failed to include in this proxy statement/prospectus the recommendation of the AMTG Board that AMTG common stockholders approve the First Merger and the other transactions contemplated by the merger agreement; (ii) AMTG
shall have failed to reaffirm the AMTG Boards recommendation within 10 business days after both (x) an Acquisition Proposal has been made public and (y) AMTG has received a written request from ARI to reaffirm the AMTG Board
recommendation; or (iii) AMTG has materially breached its obligations under the no solicitation provision of the merger agreement or its obligations regarding the preparation of this proxy statement/prospectus and such breach impairs, prevents
or materially delays the consummation of the transactions contemplated by the merger agreement and, in the case of any failure by AMTG to comply with its obligations regarding preparation of this proxy statement/prospectus, such breaches cannot be
or are not cured reasonably promptly after receipt of written notice of such breach; and
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at any time prior to the effective time of the First Merger, if there has been a breach by AMTG of any of the covenants or agreements or an inaccuracy in any of the representations and warranties set forth in the merger
agreement on the part of AMTG, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the closing date, the failure of certain closing conditions to be satisfied, and such breach cannot be or is not
cured prior to the earlier of (x) 30 calendar days after notice thereof is given by ARI to AMTG, or (y) the Outside Date (provided that this termination right will not be available to ARI at any time when it is in breach of the merger
agreement and such breach would cause, or result in, the failure of certain specified conditions to AMTGs obligations to effect the First Merger).
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Termination Fee and Expenses Payable by AMTG to ARI
AMTG has agreed to pay ARI a termination fee in the amount of $12 million if:
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the merger agreement is terminated by AMTG in order to enter into an alternative acquisition agreement with respect to a Superior Proposal in accordance with the provisions of the merger agreement;
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the merger agreement is terminated by ARI because (i) the AMTG Board has effected a change in recommendation
or failed to include in this proxy statement/prospectus the recommendation of the AMTG Board that AMTG common stockholders approve the First Merger and the other transactions
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contemplated by the merger agreement; (ii) AMTG has failed to reaffirm the AMTG Boards recommendation within 10 business days after (x) any Acquisition Proposal has been made
public and (y) AMTG has received a written request from ARI to reaffirm the AMTG Board recommendation, or (iv) AMTG has materially breached its non-solicitation obligations or its obligations with respect to the preparation and filing of
this proxy statement/prospectus and, in either case, such breach impairs, prevents or materially delays the consummation of the transactions contemplated by the merger agreement and, in the case of any failure by AMTG to comply with its obligations
regarding preparation of this proxy statement/prospectus, such breaches cannot be or are not cured reasonably promptly after receipt of written notice of such breach;
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all of the following occurs (in which case, the termination fee will be less, if applicable, any reimbursable expenses previously paid by AMTG to ARI):
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the merger agreement is terminated by either ARI or AMTG because (i) stockholders of AMTG failed to approve the First Merger and the other transactions contemplated by the merger agreement at a duly convened AMTG
special meeting, or (ii) the First Merger had not occurred by the Outside Date,
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(x) in the case of a termination in accordance with clause (i) in the immediately preceding bullet, at or prior to the AMTG special meeting a bona fide Acquisition Proposal shall have been publicly disclosed
or announced and not publicly withdrawn prior to the time of the AMTG special meeting and (y) in the case of a termination in accordance with clause (ii) in the immediately preceding bullet, a bona fide Acquisition Proposal shall have been
publicly disclosed or announced, and not publicly withdrawn prior to the termination of the merger agreement, and provided that the requisite approval by AMTG common stockholders of the First Merger and the other transactions contemplated by the
merger agreement shall not have been obtained, and
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within 12 months after termination of the merger agreement, AMTG consummates an Acquisition Proposal or enters into a definitive agreement with respect to any Acquisition Proposal (that is later consummated).
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In addition, AMTG has agreed to pay ARI a termination fee in the amount of $7.5 million if:
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the merger agreement is terminated by AMTG in order to enter into an alternative acquisition agreement with respect to a Superior Proposal made by an excluded party in accordance with the provisions of the merger
agreement; or
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the merger agreement is terminated by ARI because the AMTG Board has effected a change in recommendation in connection with a Superior Proposal made by an excluded party.
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The merger agreement provides generally that each party will pay its own fees and expenses in connection with the merger agreement and the transactions
contemplated thereby, except that:
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AMTG will pay ARI up to $6 million of ARIs out-of-pocket fees and expenses if the merger agreement is terminated by either AMTG or ARI (i) because stockholders of AMTG failed to approve the First Merger and
the other transactions contemplated by the merger agreement at a duly convened AMTG special meeting and (ii) either (x) an Acquisition Proposal has been publicly disclosed or announced, and not publicly withdrawn, prior to the AMTG special
meeting or (y) within 12 months after the date of termination, the AMTG Board (or authorized committee thereof) has adopted (or resolved or authorized AMTG to pursue) a plan of bankruptcy or reorganization or a plan of liquidation or
dissolution. In the event that such expense reimbursement is paid to ARI and the termination fee subsequently becomes payable, the expense reimbursement (to the extent actually paid) will be credited against the termination fee;
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AMTG and ARI will share equally (i) all expenses relating to the printing, filing and mailing of this proxy
statement/prospectus and the registration statement on Form S-4 of which this forms a part and
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(ii) any documentary, sales, use, real property transfer, real property gains, registration, value-added, transfer, stamp, recording and other similar taxes, fees and costs together with any
interest thereon or additional amounts with respect thereto.
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Remedies; Specific Performance
In the event AMTG pays the termination fee described above to ARI when required, AMTG will have no further liability to AMTG or Merger Sub, except
in the case of willful and intentional breach or fraud. In addition, the merger agreement provides that nothing in the merger agreement will relieve ARI or Merger Sub from any liability or damages in the event the merger agreement is terminated
under specified circumstances. In addition, the parties to the merger agreement are entitled to injunctions, specific performance and other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and
provisions of the merger agreement in addition to any and all other remedies at law or in equity.
Miscellaneous
Provisions
Amendment
The parties to the
merger agreement may amend the merger agreement by an instrument in writing signed by each of the parties, provided that, after approval of the First Merger and the other transactions contemplated by the merger agreement by AMTGs common
stockholders, no amendment may be made which by law requires further approval by such stockholders without such further approval. Certain provisions of the merger agreement relating to the bridge loan facility may not be modified, waived or
terminated in a manner that is materially adverse in any respect to the lender under the bridge loan facility or a party related to the lender without the prior written consent of the lender or such related party.
Waiver
Prior to the effective time of the
FirstMerger, ARI, Merger Sub or AMTG may extend the time for performance of any obligations of the other or waive any inaccuracies in the representations and warranties of the other or the other partys compliance with any agreements or
conditions contained in the merger agreement.
Governing Law
The merger agreement is governed by the laws of the State of Maryland, without giving effect to conflicts of laws principles.
Amendment
On June 30, 2016, the parties entered
into Amendment No. 1 to the merger agreement to extend the termination date from August 26, 2016 to September 9, 2016. A copy of the amendment is attached as Annex J to this proxy statement/prospectus.
Description of the Asset Purchase Agreement
Purchase and Sale; Assets; Consideration
Under the terms of the asset purchase agreement, promptly following the consummation of the First Merger and subject to the satisfaction or waiver of certain
conditions, Athene Annuity has agreed to purchase from ARI, and ARI has agreed to sell to Athene Annuity, approximately $1.2 billion (subject to increase or decrease in certain circumstances) of certain assets, primarily non-Agency residential
mortgage backed securities (referred to herein as the Assets), that are owned by AMTG or its subsidiaries (or, following the Second Merger, the Combined Company). The actual amount payable for the Assets at the closing contemplated by
the asset purchase agreement will be determined in accordance with the methodology set forth in the asset purchase agreement, which is based on (i) the actual amount of Assets to be sold to Athene Annuity at the closing (which cannot be
determined until just prior to the closing) and (ii) the value of each such Asset determined in accordance with the asset purchase agreement (which is based on the pricing methodology that was used to determine the Per Share Cash Consideration
payable in the First Merger under the merger agreement).
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Representations and Warranties
The asset purchase agreement contains a number of representations and warranties made by ARI, on the one hand, and by Athene Annuity, on the other hand. The
representations and warranties were made by the parties as of the date of the asset purchase agreement and will be remade as of closing date under the asset purchase agreement. The representations and warranties generally do not survive the closing
under the asset purchase agreement, other than the representation made by ARI with respect to Athene Annuity receiving good and valid title to the transferred Assets at the closing, which will survive for 12 months following the closing. Certain of
the parties representations and warranties are subject to specified exceptions and qualifications contained in the merger agreement and are qualified by information in the disclosure schedules delivered in connection with the asset purchase
agreement.
Covenants and Agreements
Conduct of ARI; Merger Agreement Rights
ARI has committed
to use reasonable best efforts to comply with its obligations under the merger agreement. In addition, ARI agreed not to amend, waive or consent to any amendment or waiver of, any provision of the merger agreement, where such amendment, waiver or
consent (i) would, or would reasonably be expected to have an adverse effect on the Assets, (ii) would, or would reasonably be expected to, materially delay or prevent the closing of the purchase and sale of the Assets, or (iii) would
alter any term of the asset purchase agreement, the stock purchase agreement or the Bridge Loan contemplated by the Bridge Loan Commitment Letter.
ARI
has agreed to promptly notify Athene Annuity of any material communication received from AMTG or any of AMTGs affiliates or representatives or any governmental entity, relating to or affecting the status of the transactions contemplated by the
merger agreement that have or would reasonably be expected to have any adverse effect on the Assets, the timing of the mergers or the other transactions contemplated by the asset purchase agreement.
Efforts to Close
ARI has agreed to use reasonable best
efforts to amend and terminate any repurchase agreement, and to obtain counterparty waivers and consents in connection with the repurchase agreements, in order to facilitate the delivery of the Assets at closing to Athene Annuity. ARI has committed
to use reasonable best efforts to sell to Athene Annuity Assets having an aggregate value (established in accordance with the asset purchase agreement) of (i) at least $500.0 million within three business days following the date on which the
First Merger occurs, and (ii) at least $1.0 billion within 15 business days following the date on which the First Merger occurs.
Efforts to
Complete Transactions; Consents
Both ARI and Athene Annuity have agreed to use their reasonable best efforts to take all actions and do all things
necessary, proper or advisable under applicable laws or pursuant to any contract or agreement, to ensure the conditions to closing of the purchase and sale of the Assets can occur, including obtaining all necessary waivers, consents and approvals
from governmental authorities or other persons or entities. In addition, each of ARI and Athene Annuity has agreed to use reasonable best efforts to defend any lawsuits or other legal proceedings challenging the asset purchase agreement or the
transactions contemplated by the asset purchase agreement.
Athene Annuity has agreed to use reasonable best efforts to obtain any applicable regulatory
approval as promptly as practicable following the date of the asset purchase agreement and shall keep ARI reasonably informed of any material communication received by Athene Annuity from the governmental authority responsible for granting such
regulatory approval.
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Exclusivity
Athene Annuity has agreed that, until the later of the closing under the asset purchase agreement or 12 months following termination of the asset purchase
agreement, neither Athene Annuity nor its affiliates will enter into any contract, or have discussions, with AMTG regarding any transaction in which Athene Annuity would acquire assets or equity of AMTG, whether by purchase, merger, consolidation or
otherwise.
Public Announcements
Each of ARI and
Athene Annuity has agreed to, subject to certain exceptions, obtain the other partys consent (which consent will not be unreasonably withheld, conditioned or delayed) before issuing any press release, public statement or other disclosure with
respect to the mergers or the asset purchase agreement.
Conditions to Completion of the Asset Sale
Mutual Closing Conditions
The obligation of each of ARI
and Athene Annuity to effect the purchase and sale of the Assets is subject to the satisfaction or, to the extent permitted by law, waiver, at or prior to the closing date, of the following conditions:
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the absence of any law, order, legal stipulation or other legal restraint being in effect which prevents, prohibits or makes illegal the consummation of the transactions contemplated by the asset purchase agreement; and
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the First Merger having been fully consummated in accordance with the terms of the merger agreement.
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Additional Closing Conditions for the Benefit of ARI
The
obligations of ARI to effect the purchase and sale of the Assets are subject to the satisfaction or, to the extent permitted by law, waiver, at or prior to the effective time of the purchase and sale of the Assets, of the following additional
conditions:
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the accuracy the representations and warranties made in the asset purchase agreement by Athene Annuity as of the date of the asset purchase agreement and as of date of the closing of the transactions contemplated by the
asset purchase agreement (or, in the case of representations and warranties that by their terms address matters only as of another specified date, as of that date), except where the failure of such representations or warranties to be true and
correct (without giving effect to any materiality or material adverse effect qualifications set forth therein) would not have, individually or in the aggregate, a material adverse effect on Athene Annuitys ability to consummate the
transactions contemplated by the asset purchase agreement;
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Athene Annuity having performed and complied in all material respects with all agreements and covenants required to be performed by it under the asset purchase agreement at or prior to the closing of the transactions
contemplated by the asset purchase agreement;
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the continued effectiveness of each of the stock purchase agreement and the Bridge Loan Commitment Letter, without any material default under either of those agreements by Athene USA; and
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Athene Annuitys delivery of certain closing instruments, including an executed cross-receipt with respect to the purchased Assets.
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Additional Closing Conditions for the Benefit of Athene Annuity
The obligations of Athene Annuity to effect the purchase and sale of the Assets are subject to the satisfaction or, to the extent permitted by law, waiver, at
or prior to the effective time of the purchase and sale of the Assets, of the following additional conditions:
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the accuracy the representations and warranties made in the asset purchase agreement by ARI as of the date of the asset purchase agreement and as of date of the closing of the transactions contemplated by the asset
purchase agreement (or, in the case of representations and warranties that by their terms address matters only as of another specified date, as of that date), except where the failure of such representations or warranties to be true and correct
(without giving effect to any materiality or material adverse effect qualifications set forth therein) would not have, individually or in the aggregate, a material adverse effect on ARIs ability to consummate the transactions contemplated by
the asset purchase agreement or on the Assets (excluding for these purposes certain effects arising from general economic conditions, changes in ARIs industry, changes in law and certain other agreed exclusions);
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ARI having performed and complied in all material respects with all agreements and covenants required to be performed by it under the asset purchase agreement at or prior to the closing of the transactions contemplated
by the asset purchase agreement;
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Athene Annuity having obtained any required consent to the transactions contemplated by the asset purchase agreement from the Iowa Insurance Division and the Delaware Department of Insurance, as applicable;
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each Asset to be sold to Athene Annuity being free and clear of all liens; and
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ARIs delivery of certain closing instruments, including an executed cross-receipt, with respect to the amount of the closing consideration.
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Termination of the Asset Purchase Agreement
Termination by Mutual Agreement
The asset purchase
agreement may be terminated at any time prior to the closing date by mutual written consent of ARI and Athene Annuity.
Termination by Either ARI or
Athene Annuity
The asset purchase agreement may also be terminated by either ARI or Athene Annuity prior to the closing date if:
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any law, order, legal stipulation or other legal restraint which prevents, prohibits or makes illegal the consummation of the transactions contemplated by the asset purchase agreement comes into effect and is final and
nonappealable;
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the merger agreement is terminated in accordance with its terms;
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a breach of or failure to perform any representation, warranty, covenant or agreement on the part of the other party shall have occurred, which breach or failure to perform (i) would cause the failure of one of the
conditions to the closing under the asset purchase agreement and (ii) such breach or failure cannot be cured prior to the closing date; provided, that the party terminating under this provision cannot then be in breach with respect to any of
its representations, warranties, covenants or other agreements contained in the asset purchase agreement; or
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all of the conditions to the other partys obligations to close the transactions contemplated by the asset purchase agreement have been satisfied or waived, the terminating party has confirmed in writing to the
other party that it stands ready, willing and able to consummate the transactions contemplated by the asset purchase agreement, and the other party fails to consummate the transactions within three business days.
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Termination by Athene Annuity
The asset purchase agreement may also be terminated by Athene Annuity in the event the closing under the asset purchase agreement has not occurred by
October 26, 2016.
Miscellaneous Provisions
Payment of Expenses
Each party will pay its own fees and
expenses in connection with the asset purchase agreement.
Specific Performance
Each of ARI and Athene Annuity is entitled to enforce the terms of the asset purchase agreement by a decree of specific performance.
Amendment
The parties to the asset purchase agreement
may amend the asset purchase agreement by an instrument in writing signed by each of the parties.
Governing Law
The asset purchase agreement is governed by the laws of the State of Maryland, without giving effect to conflicts of laws principles.
Description of the Bridge Loan Commitment
The mergers are not conditioned upon ARI having received any financing at or prior to the effective time of the mergers. However, in connection with the
mergers, ARI has entered into the Bridge Loan Commitment Letter pursuant to which Athene USA has agreed to provide the Bridge Loan. At or prior to the consummation of the mergers, ARI expects to enter into definitive documentation for the Bridge
Loan in substantially the form of the loan agreement attached as Exhibit A to the Bridge Loan Commitment Letter (the Bridge Loan Agreement). Pursuant to the terms of the Bridge Loan Agreement, the proceeds of the Bridge Loan will be
available upon the satisfaction of certain conditions precedent on completion of the mergers and, if drawn, will be used to finance, in part, the cash component of the merger consideration and to pay fees and expenses incurred in connection with the
mergers.
The obligations of Athene USA to provide the Bridge Loan are subject to a number of conditions (including conditions that do not relate directly
to the merger agreement), including without limitation: (i) consummation of the mergers in accordance with the merger agreement (without giving effect to any amendments, waivers, supplements or other modifications or consents to the merger
agreement by ARI that are materially adverse to the interests of Athene USA without the prior written consent of Athene USA); (ii) that since January 1, 2015, there has not been a material adverse effect with respect to AMTG (as such term
is defined in the merger agreement) that would excuse ARI from its obligations to consummate the mergers under the merger agreement; (iii) payment of all fees, expenses and amounts due and payable to Athene USA pursuant to the Bridge Loan
Commitment Letter; (iv) delivery of all documents and instruments necessary to grant Athene USA a perfected security interest in the collateral securing the Bridge Loan; (v) delivery of certain customary closing documents; and
(vi) the accuracy of certain customary representations and warranties.
The amount of the bridge loan commitment will be reduced by 100% of the Net
Cash Proceeds (as defined in the Bridge Loan Agreement) received by ARI or any of its subsidiaries as a result of the disposition of any Assets on or prior to the date of the closing of the mergers.
The Bridge Loan Commitment Letter will expire on the earliest of (i) the funding of the Bridge Loan, (ii) September 9, 2016, or if extended in
accordance with the terms of the merger agreement, October 26, 2016,
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(iii) the date of the termination of the merger agreement by ARI or with the written consent of ARI, in each case prior to the closing of the mergers, (iv) the date of the closing of
the mergers without the use of the Bridge Loan and (v) the date of the termination of the asset purchase agreement by ARI or with the written consent of ARI.
The Bridge Loan will mature on the earlier of (i) the date that is 364 days after the funding of the Bridge Loan, (ii) the date on which all of the
Assets have been sold by ARI and its subsidiaries and (iii) ARIs failure to sell (x) at least $500.0 million of Assets within three business days after the funding of the Bridge Loan and/or (y) at least $1.0 billion of Assets
within 15 business days after the funding of the Bridge Loan, in each case for this clause (iii) to the extent such failure is not outside of ARIs control (provided, however, that termination of repurchase agreements and similar
agreements with respect to the Assets is deemed to be within ARIs control) (the Bridge Loan Maturity Date).
The Bridge Loan will bear
interest at one-month LIBOR plus 7.0%. The Bridge Loan will not amortize and any amounts outstanding will be repaid in full on the Bridge Loan Maturity Date.
The Bridge Loan will constitute senior indebtedness of ARI, and will be guaranteed by, and secured by the equity interests of, certain subsidiaries of ARI and
AMTG.
The terms of the Bridge Loan will include (i) mandatory prepayment provisions including with respect to (x) the proceeds of indebtedness
and (y) the Net Cash Proceeds received by ARI or any of its subsidiaries from the sale of the Assets and (ii) representations and warranties, covenants and events of default as set forth in the Bridge Loan Agreement. The application of the
prepayment provision described in clause (i)(y) of the previous sentence is anticipated to result in the entire repayment of the Bridge Loan prior to its stated maturity date.
Description of the Stock Purchase Agreement
Pursuant to the terms of the stock purchase agreement, Athene USA has committed to purchase (or cause one of its subsidiaries to purchase), during the first 30
trading days commencing on the first day following the later of (i) the closing of the mergers, (ii) the date on which the conditions to Athene USAs obligations to consummate the transactions contemplated by the asset purchase
agreement have been satisfied and (iii) the date on which the conditions to Athene USAs obligation to extend the financing pursuant to the Bridge Loan Agreement have been satisfied (such 30-day period, the purchase period), up
to $20 million (subject to the maximum and conditional amounts described below) of shares of ARI common stock in the open market at the then-current market price if the quoted price of a share of ARI common stock on the NYSE at any time during such
specified period is less than the price per share at which ARI common stock is issued to holders of AMTG common stock in the First Merger (which is fixed at $16.75).
At all times during the purchase period, Athene USAs maximum obligation to purchase is limited to the lesser of (i) $210.0 million minus the amount
of Bridge Loan outstanding under the Bridge Loan Agreement (which may be an amount outstanding of up to $200.0 million) and (ii) the Conditional Amount. During the first three business days following the closing of the mergers, the Conditional
Amount is $5.0 million. During the remainder of the purchase period the Conditional Amount is equal to $0.00, unless Athene Annuity has purchased at least $500.0 million worth of Assets pursuant to the asset purchase agreement no later than the
third business day following the closing of the mergers, in which case the Conditional Amount is $20.0 million for the remainder of the purchase period.
In order to fulfill its purchase obligations under the stock purchase agreement, Athene USA has agreed to adopt and enter into a purchase plan established for
purposes of complying with Rule 10b5-1 and Rule 10b-18 as promulgated by the SEC pursuant to the Exchange Act with one or more broker-dealers or other agents. Athene USAs commitment to purchase shares of ARI common stock is subject to certain
other limitations, including compliance with ARIs charter and bylaws and any restrictions imposed by applicable law.
For a period of 180 days
following the purchase of any share of ARI common stock pursuant to the stock purchase agreement, Athene USA has agreed that it will not (and will cause its subsidiaries not to) (i) offer,
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pledge, sell, grant any option or right for the sale of, or otherwise dispose of, such share of ARI common stock or any securities convertible into or exchangeable or exercisable for such share
of ARI common stock, or (ii) enter into any swap or any other similar agreement that transfers any of the economic consequences of ownership of such share of ARI common stock, whether any such swap or other agreement is to be settled by
delivery of such share of ARI common stock or other securities, in cash or otherwise.
During the purchase period, ARI has agreed that it will not (and
will cause each of its affiliated purchasers (as defined in Rule 10b-18 under the Exchange Act) not to) purchase, offer to purchase or place any bid for the purchase of any ARI common stock or any securities convertible or exchangeable
into or exercisable for, or the value of which is derived from, ARI common stock.
The stock purchase agreement automatically terminates upon (i) the
termination of the merger agreement in accordance with its terms or (ii) subject to certain exceptions, the termination of the asset purchase agreement in accordance with its terms.
Description of Letter Agreements with the Managers
Concurrently with the execution of the merger agreement, ARI entered into the ARI Manager letter agreement, pursuant to which the ARI Manager agreed to perform
such services and activities as may be necessary to enable ARI to consummate the mergers and the other transactions contemplated by the merger agreement. In consideration for the services to be provided to ARI by the ARI Manager in connection with
the mergers and the process leading to the mergers, ARI agreed to pay the ARI Manager an aggregate amount of up to $500,000, in monthly installments of $150,000 payable on the first of each calendar month between the execution of the merger
agreement and the effective date of the mergers. The ARI Manager letter agreement also provides that, following the closing of the mergers and the other transactions contemplated by the merger agreement, and in accordance with the provisions of the
ARI management agreement, an additional amount (based on an agreed formula) will be added to Stockholders Equity (as defined in the ARI management agreement) for the purposes of calculating the amount of management fee payable by ARI to the
ARI Manager pursuant to the ARI management agreement. In addition, the ARI Manager acknowledged that, as a result of the Second Merger, the AMTG management agreement will be assigned to ARI and, following the mergers, any management fees paid by ARI
to the AMTG Manager pursuant to the AMTG management agreement will offset, and therefore reduce (but not below zero), ARIs obligation to pay corresponding management fees to the ARI Manager under the ARI management agreement. Those management
fee-related provisions will have the effect of reducing the aggregate amounts of management fees that otherwise would be payable to the ARI Manager and the AMTG Manager after the consummation of the mergers. If the mergers had been consummated on
January 1, 2015, the aggregate amount of management fees that would have been payable for 2015 under the ARI management agreement and the AMTG management agreement would have been approximately $22.6 million, which represents a reduction of
approximately $4.8 million from the aggregate amount of management fees actually paid for 2015 under the two management agreements.
Concurrently with the
execution of the Merger Agreement, AMTG entered into the AMTG Manager letter agreement, pursuant to which the AMTG Manager agreed to perform such services and activities as may be necessary to enable AMTG to consummate the mergers and other
transactions contemplated by the merger agreement.
186
LITIGATION RELATED TO THE MERGERS AND RELATED TRANSACTIONS
After the announcement of the execution of the merger agreement, two putative class action lawsuits challenging the proposed First Merger, captioned
Aivasian v. Apollo Residential Mortgage, Inc., et al.
, No. 24-C-16-001532 and
Wiener v. Apollo Residential Mortgage, Inc., et al.
, No. 24-C-16-001837 were filed in the Circuit Court for Baltimore City (or, the Court). A
putative class and derivative lawsuit was later filed in the same Court captioned Crago v. Apollo Residential Mortgage, Inc., No. 24-C-16-002610. Following a hearing on May 6, 2016, the Court entered orders among other things, consolidating the
three actions under the caption In Re Apollo Residential Mortgage, Inc. Shareholder Litigation, Case No.: 24-C-16-002610. The plaintiffs have designated the Crago complaint as the operative complaint. The operative complaint includes both direct and
derivative claims, names as defendants AMTG, the AMTG Board, ARI, Merger Sub, Apollo and Athene and alleges, among other things, that the members of the AMTG Board breached their fiduciary duties to the AMTG stockholders and that the other corporate
defendants aided and abetted such fiduciary breaches. The operative complaint further alleges, among other things, that the proposed First Merger involves inadequate consideration, was the result of an inadequate and conflicted sales process, and
includes unreasonable deal protection devices that purportedly preclude competing offers. It also alleges that the transactions with Athene are unfair and that the registration statement on Form S-4 filed with the SEC on April 6, 2016 contains
materially misleading disclosures and omits certain material information. The operative complaint seeks, among other things, certification of the proposed class, declaratory relief, preliminary and permanent injunctive relief, including enjoining or
rescinding the First Merger, unspecified damages, and an award of other unspecified attorneys and other fees and costs. On May 6, 2016, counsel for the plaintiffs filed with the Court a stipulation seeking the appointment of interim co-lead
counsel, which stipulation was approved by the court on June 9, 2016. The defendants believe that the claims asserted in the complaints are without merit and intend to vigorously defend the lawsuits.
187
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Statements
as of March 31, 2016 and for the year ended December 31, 2015
and the three months ended March 31, 2016
The following unaudited pro forma combined balance sheet as of March 31, 2016 and the unaudited pro forma combined statement of income
for the year ended December 31, 2015, and the three months ended March 31, 2016, are based on the historical financial statements of ARI and AMTG after giving effect to the mergers. The transaction will be completed using the acquisition
method of accounting and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements have been made as if the mergers had occurred as of March 31, 2016 for purposes of the pro forma combined balance
sheet and as of January 1, 2015 for purposes of the pro forma combined statement of income.
The transaction has been accounted for
as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification No. 805 (ASC 805), Business Combinations. Under the acquisition method of accounting, the total estimated
purchase price of $593.6 million is allocated to the net assets acquired and liabilities assumed in connection with the mergers, based on their estimated fair values. Management has made a preliminary allocation of the estimated purchase price based
on various preliminary estimates. The allocation of the estimated purchase price is preliminary pending finalization of those estimates and analyses. Final purchase accounting adjustments may differ materially from the pro forma adjustments
presented herein.
The unaudited pro forma combined financial statements are based upon available information, preliminary estimates and
certain assumptions that we believe are reasonable in the circumstances, as set forth in the notes to the unaudited pro forma combined financial statements. The unaudited pro forma combined financial statements do not take into account any synergies
or cost savings that may or are expected as a result of the mergers.
The unaudited pro forma combined financial statements are presented
for informational purposes only and are not necessarily indicative of the future financial position or results of operations of the Combined Company or the combined financial position or the results of operations that would have been realized had
the mergers been consummated during the period or as of the dates for which the unaudited pro forma combined financial statements are presented.
Certain reclassification adjustments have been made to the presentation of AMTGs historical financial statements to conform them to the
presentation followed by ARI. The unaudited pro forma combined financial statements should be read in conjunction with, and are qualified by reference to, our historical consolidated financial statements and notes thereto and those of AMTG, which
are incorporated herein by reference.
188
Apollo Commercial Real Estate Finance, Inc.
Pro Forma Balance Sheet
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
ARI
|
|
|
Historical
AMTG
|
|
|
Pro-forma
Adjustments
|
|
|
ARI Pro-
Forma
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, and cash equivalent
|
|
$
|
23,035
|
|
|
$
|
99,129
|
|
|
$
|
50,893
|
(A)
|
|
$
|
173,057
|
|
Restricted cash
|
|
|
55,781
|
|
|
|
54,947
|
|
|
|
|
|
|
|
110,728
|
|
Securities, at estimated fair value
|
|
|
472,464
|
|
|
|
2,752,865
|
|
|
|
(1,126,720
|
)
(B)
|
|
|
2,098,609
|
|
Securities, held-to-maturity
|
|
|
152,451
|
|
|
|
|
|
|
|
|
|
|
|
152,451
|
|
Commercial mortgage loans, held for investment, net
|
|
|
1,173,185
|
|
|
|
|
|
|
|
|
|
|
|
1,173,185
|
|
Securitized mortgage loans, at fair value
|
|
|
|
|
|
|
159,301
|
|
|
|
|
|
|
|
159,301
|
|
Subordinate loans, held for investment, net
|
|
|
930,401
|
|
|
|
|
|
|
|
|
|
|
|
930,401
|
|
Other investment securities, at fair value
|
|
|
|
|
|
|
159,917
|
|
|
|
(60,887
|
)
(B)
|
|
|
99,030
|
|
Other investments
|
|
|
|
|
|
|
45,644
|
|
|
|
(8,116
|
)
(C)
|
|
|
37,528
|
|
Investment in unconsolidated joint venture
|
|
|
23,728
|
|
|
|
|
|
|
|
|
|
|
|
23,728
|
|
Derivative instruments, at fair value
|
|
|
1,938
|
|
|
|
455
|
|
|
|
|
|
|
|
2,393
|
|
Investment related receivable
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
Interest receivable
|
|
|
23,495
|
|
|
|
8,143
|
|
|
|
|
|
|
|
31,638
|
|
Other assets
|
|
|
18
|
|
|
|
1,338
|
|
|
|
|
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,856,496
|
|
|
$
|
3,281,796
|
|
|
$
|
(1,144,831
|
)
|
|
$
|
4,993,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under repurchase agreements
|
|
$
|
1,083,665
|
|
|
$
|
2,549,701
|
|
|
$
|
(923,319
|
)
(B)
|
|
$
|
2,710,047
|
|
Convertible senior notes, net
|
|
|
248,617
|
|
|
|
|
|
|
|
|
|
|
|
248,617
|
|
Participations sold
|
|
|
116,952
|
|
|
|
|
|
|
|
|
|
|
|
116,952
|
|
Non-recourse securitized debt, at fair value
|
|
|
|
|
|
|
16,531
|
|
|
|
|
|
|
|
16,531
|
|
Derivative instruments, at fair value
|
|
|
|
|
|
|
18,580
|
|
|
|
|
|
|
|
18,580
|
|
Accounts payable and accrued expenses
|
|
|
8,562
|
|
|
|
9,875
|
|
|
|
19,721
|
(D)
|
|
|
38,158
|
|
Payable to related party
|
|
|
5,229
|
|
|
|
4,741
|
|
|
|
|
|
|
|
9,970
|
|
Dividends and dividend equivalents payable
|
|
|
36,421
|
|
|
|
19,217
|
|
|
|
|
|
|
|
55,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,499,446
|
|
|
|
2,618,645
|
|
|
|
(903,598
|
)
|
|
|
3,214,493
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, 3,450,000 shares issued and outstanding ($86,250 aggregate liquidation
preference)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Series B preferred stock, 8,000,000 shares issued and outstanding ($200,000 aggregate liquidation
preference)
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Series C Preferred Stock, $0.01 par value, 6,900,000 shares issued and outstanding ($172,500
aggregate liquidation preference) (formerly AMTG Series A Preferred Stock)
|
|
|
|
|
|
|
69
|
|
|
|
|
(F)
|
|
|
69
|
|
Common stock, $0.01 par value
|
|
|
674
|
|
|
|
319
|
|
|
|
(185
|
)
(E)
|
|
|
808
|
|
Additional paid-in-capital
|
|
|
1,409,489
|
|
|
|
789,573
|
|
|
|
(429,314
|
)
(F)
|
|
|
1,769,748
|
|
Retained earnings (accumulated deficit)
|
|
|
(50,973
|
)
|
|
|
(126,810
|
)
|
|
|
188,266
|
(G)
|
|
|
10,483
|
|
Accumulated other comprehensive loss
|
|
|
(2,255
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
1,357,050
|
|
|
|
663,151
|
|
|
|
(241,233
|
)
|
|
|
1,778,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
2,856,496
|
|
|
$
|
3,281,796
|
|
|
$
|
(1,144,831
|
)
|
|
$
|
4,993,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the unaudited pro forma combined financial statements are an integral part of these statements.
189
Apollo Commercial Real Estate Finance, Inc.
Pro Forma Income Statement
Three Months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
ARI
|
|
|
Historical
AMTG
|
|
|
Pro-forma
Adjustments
|
|
|
ARI Pro-
Forma
|
|
Net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from securities
|
|
$
|
8,049
|
|
|
$
|
28,577
|
|
|
$
|
(16,355
|
)
(A)
|
|
$
|
20,271
|
|
Interest income from securities, held-to-maturity
|
|
|
2,896
|
|
|
|
|
|
|
|
|
|
|
|
2,896
|
|
Interest income from commercial mortgage loans
|
|
|
21,127
|
|
|
|
|
|
|
|
|
|
|
|
21,127
|
|
Interest income from securitized mortgage loans and mortgage loans
|
|
|
|
|
|
|
3,265
|
|
|
|
|
|
|
|
3,265
|
|
Interest income from subordinate loans
|
|
|
29,375
|
|
|
|
|
|
|
|
|
|
|
|
29,375
|
|
Other interest income
|
|
|
|
|
|
|
3,019
|
|
|
|
(805
|
)
(A)
|
|
|
2,214
|
|
Interest expense
|
|
|
(14,642
|
)
|
|
|
(8,681
|
)
|
|
|
4,954
|
(A)
|
|
|
(18,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
46,805
|
|
|
|
26,180
|
|
|
|
(12,206
|
)
|
|
|
60,779
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(8,185
|
)
|
|
|
(7,189
|
)
|
|
|
|
|
|
|
(15,374
|
)
|
Management fees to related party
|
|
|
(5,229
|
)
|
|
|
(2,785
|
)
|
|
|
|
|
|
|
(8,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(13,414
|
)
|
|
|
(9,974
|
)
|
|
|
|
|
|
|
(23,388
|
)
|
Income from unconsolidated joint venture
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Interest income from cash balances
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Realized loss on sale of securities
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
296
|
|
Other than temporary impairments recognized
|
|
|
|
|
|
|
(695
|
)
|
|
|
571
|
(A)
|
|
|
(124
|
)
|
Unrealized gain (loss) on securities
|
|
|
(15,074
|
)
|
|
|
3,681
|
|
|
|
9,917
|
(A)
|
|
|
(1,476
|
)
|
Unrealized gain (loss) on securitized debt
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Unrealized gain (loss) on securitized mortgage loans
|
|
|
|
|
|
|
(3,759
|
)
|
|
|
|
|
|
|
(3,759
|
)
|
Unrealized gain (loss) on other investment securities
|
|
|
|
|
|
|
(308
|
)
|
|
|
903
|
(A)
|
|
|
595
|
|
Foreign currency gain (loss)
|
|
|
(4,474
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,474
|
)
|
Gain (loss) on derivative instruments
|
|
|
4,703
|
|
|
|
(28,474
|
)
|
|
|
|
|
|
|
(23,771
|
)
|
Other, net
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
18,616
|
|
|
|
(13,034
|
)
|
|
|
(815
|
)
|
|
|
4,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
(5,815
|
)
|
|
|
(3,450
|
)
|
|
|
|
|
|
|
(9,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
12,801
|
|
|
$
|
(16,484
|
)
|
|
$
|
(815
|
)
|
|
$
|
(4,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of common stockAs Previously Reported
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of common stockPro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.06
|
)
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
Apollo Commercial Real Estate Finance, Inc.
Pro Forma Income Statement
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
ARI
|
|
|
Historical
AMTG
|
|
|
Pro-forma
Adjustments
|
|
|
ARI Pro-
Forma
|
|
Net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from securities
|
|
$
|
33,188
|
|
|
$
|
137,238
|
|
|
$
|
(76,009
|
)
(A)
|
|
$
|
94,417
|
|
Interest income from securities, held-to-maturity
|
|
|
12,054
|
|
|
|
|
|
|
|
|
|
|
|
12,054
|
|
Interest income from commercial mortgage loans
|
|
|
56,092
|
|
|
|
|
|
|
|
|
|
|
|
56,092
|
|
Interest income from securitized mortgage loans and mortgage loans
|
|
|
|
|
|
|
13,444
|
|
|
|
|
|
|
|
13,444
|
|
Interest income from subordinate loans
|
|
|
90,830
|
|
|
|
|
|
|
|
|
|
|
|
90,830
|
|
Other interest income
|
|
|
|
|
|
|
9,418
|
|
|
|
(2,535
|
)
(A)
|
|
|
6,883
|
|
Interest expense
|
|
|
(48,861
|
)
|
|
|
(32,358
|
)
|
|
|
19,983
|
(A)
|
|
|
(61,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
143,303
|
|
|
|
127,742
|
|
|
|
(58,561
|
)
|
|
|
212,484
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(9,492
|
)
|
|
|
(15,415
|
)
|
|
|
|
|
|
|
(24,907
|
)
|
Management fees to related party
|
|
|
(16,619
|
)
|
|
|
(11,069
|
)
|
|
|
|
|
|
|
(27,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(26,111
|
)
|
|
|
(26,484
|
)
|
|
|
|
|
|
|
(52,595
|
)
|
Income from unconsolidated joint venture
|
|
|
3,464
|
|
|
|
|
|
|
|
|
|
|
|
3,464
|
|
Interest income from cash balances
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
1,239
|
|
Realized loss on sale of securities
|
|
|
(443
|
)
|
|
|
17,100
|
|
|
|
|
|
|
|
16,657
|
|
Other than temporary impairments recognized
|
|
|
|
|
|
|
(12,089
|
)
|
|
|
9,031
|
(A)
|
|
|
(3,058
|
)
|
Unrealized gain (loss) on securities
|
|
|
(17,408
|
)
|
|
|
(64,027
|
)
|
|
|
44,167
|
(A)
|
|
|
(37,268
|
)
|
Unrealized gain (loss) on securitized debt
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
1,031
|
|
Unrealized gain (loss) on securitized mortgage loans
|
|
|
|
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
(1,958
|
)
|
Unrealized gain (loss) on other investment securities
|
|
|
|
|
|
|
(6,376
|
)
|
|
|
2,823
|
(A)
|
|
|
(3,553
|
)
|
Foreign currency gain (loss)
|
|
|
(4,894
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,894
|
)
|
Gain (loss) on derivative instruments
|
|
|
4,106
|
|
|
|
(46,411
|
)
|
|
|
|
|
|
|
(42,305
|
)
|
Other, net
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
103,256
|
|
|
|
(11,595
|
)
|
|
|
(2,539
|
)
|
|
|
89,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
(11,884
|
)
|
|
|
(13,800
|
)
|
|
|
|
|
|
|
(25,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
91,372
|
|
|
$
|
(25,395
|
)
|
|
$
|
(2,539
|
)
|
|
$
|
63,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of common stockAs Previously Reported
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of common stockPro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.87
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
Combined Financial Statements
1. Description of Transaction
Merger Agreement. On
February 26, 2016, ARI entered into the merger agreement with AMTG, and Merger Sub, pursuant to which ARI will acquire AMTG for an aggregate purchase price equal to 89.25% of AMTGs book value as of the Pricing Date, plus the conversion in the
Second Merger of $172.5 million of AMTG Series A Preferred Stock into an equal amount of ARI Series C Preferred Stock. The book value of AMTG, and therefore the actual purchase price payable, was determined as of July 22, 2016, the Pricing
Date, and will be subject to adjustment under certain circumstances. Upon the closing of the First Merger, holders of AMTG common stock will receive a combination of cash and shares of ARI common stock. The aggregate number of shares of ARI common
stock issuable under the merger agreement is limited to 13.4 million shares, and the remainder of the consideration will be paid in cash. In addition, upon the closing of the Second Merger, each share of AMTG Series A Preferred Stock will be
converted into one share of ARI Series C Preferred Stock.
The merger agreement and related transactions were approved by all of the members of the ARI
Board (with the exception of Mark C. Biderman, who recused himself from deliberations relating to the mergers). Consummation of the mergers and other transactions contemplated by the merger agreement is subject to the satisfaction of customary
closing conditions, including the registration and listing of the shares of ARI common stock and ARI Series C Preferred Stock that will be issued in the mergers and the approval and adoption of the First Merger and the other transactions
contemplated by the merger agreement by the holders of a majority of the shares of AMTG common stock entitled to vote on the transaction, including a majority of the votes entitled to be cast by persons unaffiliated with Apollo. ARI stockholder
approval will not be required in connection with the transaction.
Arrangements with Athene. In connection with the transactions contemplated by the
merger agreement, on February 26, 2016 ARI entered into certain agreements with certain subsidiaries of Athene. These agreements are (i) a bridge loan commitment from Athene USA, pursuant to which Athene has committed to provide ARI with a term
loan in an aggregate amount of up to $200.0 million to consummate the mergers, (ii) an asset purchase agreement which provides that, promptly following the closing of the First Merger, ARI will sell to Athene up to approximately $1.2 billion
(subject to increase or decrease in certain circumstances) of primarily non-Agency residential mortgage backed securities at a price set (based on a pre-agreed methodology) as of the Pricing Date, and (iii) a stock purchase agreement, under which
Athene USA has committed to purchase, during a specified period of time following the closing of the mergers, up to $20.0 million (subject to reduction in certain circumstances) of ARI common stock in the open market at the then-current market price
if the quoted price of a share of ARI common stock on the NYSE at any time during such period is less than $16.75 (which is the value per share at which ARI common stock is to be issued to holders of AMTG common stock in the First Merger).
Letter Agreement with the ARI Manager. Concurrently with the execution of the merger agreement, ARI entered into the ARI Manager letter agreement, pursuant to
which the ARI Manager has agreed to perform such services and activities as may be necessary to enable ARI to consummate the mergers. In consideration of the services provided and to be provided to ARI by the ARI Manager in connection with the
mergers and the process leading to the mergers, ARI agreed to pay the ARI Manager an aggregate amount of up to $0.5 million, in monthly installments of $0.15 million payable on the first of each calendar month between the execution of the merger
agreement and the closing of the mergers. Upon consummation of the mergers, an additional amount (based on an agreed formula) will be added to Stockholders Equity (as defined in the ARI Management Agreement) for purposes of calculating the
amount of the management fee payable to the ARI Manager under the ARI Management Agreement. In addition, the ARI Manager acknowledged that, as a result of the mergers, the ARI Management Agreement will be assigned to ARI and, following the mergers,
any management fees paid by ARI to ARM Manager, LLC pursuant to the AMTG Management Agreement will offset, and therefore reduce (but not below zero), ARIs obligation to pay corresponding management fees to the ARI Manager.
192
2. Preliminary Estimate of Sources
ARI expects to fund the acquisition of AMTG with a combination of cash and ARI common stock, estimated to be $437.8 million, and the issuance of ARI Series C
Preferred Stock in exchange for the outstanding AMTG Series A Preferred Stock with an estimated fair value of $155.7 million and a liquidation value of $172.5 million. In addition, ARI expects to incur additional transaction costs aggregating $19.7
million. A preliminary estimate of the sources for the purchase price is as follows (amounts in thousands, except shares and share price):
|
|
|
|
|
Issuance of 13,400,000 shares of ARI common stock, at an offering price of $16.75
|
|
$
|
224,450
|
|
Borrowings under committed bridge facility
|
|
|
200,000
|
|
Assumption of AMTG Series A Preferred Stock
|
|
|
155,733
|
|
Cash
|
|
|
13,396
|
|
|
|
|
|
|
Total Sources
|
|
$
|
593,579
|
|
|
|
|
|
|
The table above assumes an equity issuance of $224.4 million to finance a portion of the purchase price. Cash proceeds will
vary based on the book value of AMTG as of the pricing date. Alternatively, the additional financing sources may include a combination of new debt or equity securities and/or borrowings under existing credit facilities, asset sales, and cash on hand
dependent on a number of factors, including the market conditions at closing, strategic alternatives, and ARIs liquidity position and outlook.
3. Fair value of assets acquired, liabilities assumed, and calculation of goodwill
Under the acquisition method of accounting, the total purchase price has been allocated for the accompanying pro forma financial statements based on a
preliminary valuation of AMTGs tangible and intangible assets and liabilities as if the transaction occurred as of March 31, 2016, is summarized as follows (amounts in thousands):
|
|
|
|
|
Assets Acquired
|
|
|
|
Cash
|
|
$
|
99,129
|
|
Restricted Cash
|
|
|
54,947
|
|
Securities
|
|
|
2,752,865
|
|
Securitized mortgage loans
|
|
|
159,301
|
|
Other investment securities
|
|
|
159,917
|
|
Other investments
|
|
|
37,528
|
|
Derivative instruments
|
|
|
455
|
|
Investment related receivable
|
|
|
57
|
|
Interest receivable
|
|
|
8,143
|
|
Other assets
|
|
|
1,338
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Borrowings under repurchase agreements
|
|
|
(2,549,701
|
)
|
Non-recourse securitized debt
|
|
|
(16,531
|
)
|
Derivative instruments
|
|
|
(18,580
|
)
|
Accounts payable and accrued expenses
|
|
|
(9,875
|
)
|
Payable to related party
|
|
|
(4,741
|
)
|
Dividends payable
|
|
|
(19,217
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
655,035
|
|
|
|
|
|
|
193
Bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and
liabilities assumed over the purchase price. This determination of bargain purchase gain is preliminary, and is subject to change when the evaluation is complete. A preliminary determination of the bargain purchase gain is as follows (amounts in
thousands):
|
|
|
|
|
Total purchase price
|
|
$
|
593,579
|
|
Preliminary estimate of the fair value of the net assets acquired
|
|
|
(655,035
|
)
|
|
|
|
|
|
Bargain purchase gain
|
|
$
|
61,456
|
|
|
|
|
|
|
4. Pro Forma Adjustments
The accompanying unaudited pro forma combined financial statements have been prepared as if the acquisition had occurred as of December 31, 2015 for balance
sheet purposes and as of January 1, 2015 for income statement purposes and reflect the following pro forma adjustments (amounts in thousands):
Pro
Forma Combined Balance Sheet as of March 31, 2016:
(A) Adjustment represents the impact on cash from the sale of primarily non-Agency Residential
Mortgage Backed Securities (assumed to be approximately $1.188 billion as of March 31, 2016) to Athene (net of the repayment of related repurchase agreements (assumed to be approximately $923 million as of March 31, 2016)) as well as the cash
consideration paid to the stockholders of AMTG.
(B) Adjustment represents the sale of primarily non-Agency Residential Mortgage Backed Securities (assumed
to be approximately $1.188 billion as of March 31, 2016) to Athene and the related repayment of repurchase agreements (assumed to be approximately $923 million as of March 31, 2016) and $200 million of debt financing from Athene.
(C) Adjustment to reflect the estimated fair value of the investments classified as other investments that ARI is acquiring.
(D) Represents the estimated additional remaining total third party costs, such as merger and acquisition fees, as well as legal, accounting, and other third
party due diligence costs. All such costs are required to be expensed immediately in the income statement under ASC 805. However, note that such amounts have not been reflected in the pro forma combined statement of income for the year ended
December 31, 2015 and three months ended March 31, 2016 as they do not have a recurring impact on net income.
(E) Adjustment represents the issuance, at
par value, of 13,400,000 shares of ARI common stock in exchange for the retirement, at par value, of 31,882,788 shares of AMTG common stock.
(F)
Adjustment represents the elimination of AMTGs additional paid-in-capital balance of $789.6 million, the fair value adjustment of $16.8 million for the AMTG preferred stock and the issuance of 13,400,000 shares of ARI common stock at $16.75 as
well as a reduction in capital of $19.7 million for additional expenses related to the transaction per (D) above.
(G) Adjustment represents the
elimination of AMTG accumulated deficit of $126.8 million, the fair value adjustments of $(8.1) million related to other investments and $16.8 million related to the AMTG preferred stock as well as the bargain purchase gain of $33.0 million.
Pro Forma Income Statement for the Year Ended March 31, 2016:
(A) Adjustment represents the elimination of revenues, gains and losses related to securities sold to Athene and the expenses related to the corresponding
repurchase agreements.
(B) Represents the pro forma combined earnings per share of ARI common stock, including the impact of the 13,400,000 shares of ARI
common stock assumed to be issued per Note 2 to the unaudited pro forma combined financial statements.
194
Pro Forma Income Statement for the Year Ended December 31, 2015:
(A) Adjustment represents the elimination of revenues, gains and losses related to securities sold to Athene and the expenses related to the corresponding
repurchase agreements.
(B) Represents the pro forma combined earnings per share of ARI common stock, including the impact of the 13,400,000 shares of ARI
common stock assumed to be issued per Note 2 to the unaudited pro forma combined financial statements.
195
MANAGEMENT AND BOARD OF COMBINED COMPANY
The members of the ARI Board immediately prior to the effective time of the Second Merger will serve as the board of directors of the Combined Company
following the mergers, with Jeffrey M. Gault continuing to serve as the Chairman.
The executive officers of ARI immediately prior to the effective time
of the Second Merger will serve as the executive officers of the Combined Company, with Stuart A. Rothstein continuing to serve as President and Chief Executive Officer.
Biographical Information about Officers and Directors
Biographical information concerning the directors and executive officers (some of whom are also directors) expected to serve as officers and directors of the
Combined Company following the completion of the mergers is set forth below.
Jeffrey M. Gault
, 70, has served as the Chairman of the ARI Board
since December 2014. Mr. Gault currently serves as the chairman of the board of Americold Logistics, LLC. Previously, Mr. Gault was president and chief executive officer of Americold Logistics from 2012 to 2014. Prior to joining Americold
Logistics, during the years 2005 to 2011, Mr. Gault was President of KB Urban, a division of KB Home (NYSE: KBH), general partner of LandCap Partners, an affiliate of Whitehall Funds, and manager of an affiliate of Westbrook Partners. Prior to
that, Mr. Gault served as chief operating officer of Empire Land from 2000 to 2005, general partner of the Pritzker Family affiliated partnerships from 1995 to 2000, general partner of Sun America Realty Partners, an affiliate of Sun America
Incorporated from 1990 to 1995, executive vice president and director of real estate at Home Savings of America & H.F. Ahmanson & Company from 1985 to 1990, and partner at Kennard, Dalahousie and Gault from 1971 to 1985. From
mid-2014 through May 2016, Mr. Gault served as a non-management director of Classic Party Rentals, a portfolio company of a fund managed by an affiliate of Apollo, and since June 2016, he has been a director and the interim chief executive officer
of Classic Party Rentals. Mr. Gault currently serves as an independent director of Great Wolf Resorts Inc. He was a director of Morgans Hotel Group Co. (NASDAQ: MHGC) from 2007 to 2011 and chairman of the Fisher Center Policy Advisory Board at
the University of California at Berkeley from 2005 to 2011. Mr. Gault received a Bachelor degree in Architecture from the University of California at Berkeley and a Master of Environmental Design from Yale University. Mr. Gault was
selected to serve on the board of the Combined Company because of his extensive knowledge about the real estate industry, construction finance and logistics, and his experience in a variety of executive, senior leadership and director roles.
Mark C. Biderman
, 70, has been on the ARI Board since November 2010. Since its initial public offering in July 2011, Mr. Biderman has also served
on the AMTG Board. Since February 2011, Mr. Biderman had served as a member of the board of directors of Atlas Energy G.P., LLC, General Partner of Atlas Energy, L.P., an energy-focused master limited partnership. In February of 2015, Atlas
Energy G.P., LLC completed a merger with a subsidiary of Targa Resources Group (NYSE: TRGP), forming a new public company. Mr. Biderman then ceased being a director of Atlas Energy G.P., LLC and became a director of Atlas Energy Group, LLC
(NYSE: ATLS). Since August 2010, Mr. Biderman has been a member of the Board of Directors of the Full Circle Capital Corporation (NASDAQ: FULL), an externally managed business development company. Mr. Biderman served as a member of the
Board of Directors of Atlas Energy, Inc., an independent natural gas producer that also owned an interest in an energy services provider, from July 2009 through February 2011. Since January 2009, Mr. Biderman has been a consultant focused on
the financial services sector. Mr. Biderman served as Vice Chairman of National Financial Partners Corp. (NYSE: NFP), a benefits, insurance and wealth management services firm, from September 2008 through December 2008. From November 1999 until
September 2008, he served as NFPs Executive Vice President and Chief Financial Officer. From 1987 to 1999, Mr. Biderman served as Managing Director and Head of the Financial Institutions Group at CIBC World Markets, or CIBC, an investment
banking firm, and its predecessor, Oppenheimer & Co., Inc. Prior to investment banking, he was an equity research analyst covering the commercial banking industry. Mr. Biderman was on the Institutional Investor All American
Research Team from 1973 to 1985 and was First Team Bank Analyst in 1974 and 1976. Mr. Biderman chaired the due diligence committee at CIBC and served on the commitment and credit committees. He serves on the Board of Governors and as Treasurer
of Hebrew Union College-Jewish Institute of
196
Religion, on the Board of Trustees of Congregation Rodeph Sholom, and as Chairman of the Board of Directors of Center for Jewish Life Princeton UniversityHillel. Mr. Biderman is a
Chartered Financial Analyst. Mr. Biderman received a BSE degree, with high honors, in chemical engineering from Princeton University and an MBA from the Harvard Graduate School of Business Administration. Mr. Biderman qualifies as an
audit committee financial expert under the guidelines of the Securities and Exchange Commission. Mr. Biderman was selected to serve as a director on the Combined Companys board of directors because of his business acumen and
valuable operational experience.
Robert A. Kasdin
, 58, has been one of ARIs directors since April 2014. Mr. Kasdin has served as senior
vice president and chief operating officer of Johns Hopkins Medicine since July 2015. Prior to joining Johns Hopkins Medicine, he served as senior executive vice president of Columbia University from September 2002 to June 2015. Prior to joining
Columbia University, he served as the executive vice president and chief financial officer of the University of Michigan from 1997 to 2002. Before his service at the University of Michigan, he was the treasurer and chief investment officer for the
Metropolitan Museum of Art in New York City from 1993 to 1997, and, from 1988 to 1992, served as vice president and general counsel for Princeton University Investment Company. He began his career as a corporate attorney at Davis Polk &
Wardwell LLP. Mr. Kasdin served on the Board of Directors of Noranda Aluminum Holding Corporation (NYSE: NOR) an Apollo affiliate, from February 2008 to March 2014 and the Harbor Funds since January 2014. Mr. Kasdin is also a trustee of
the National September 11 Memorial & Museum and is a member of the Council on Foreign Relations. Mr. Kasdin earned his A.B. from Princeton University and his J.D. from Harvard Law School. Mr. Kasdin was selected to serve on
the Combined Companys board of directors based on his legal experience as well as his leadership, financial, investment and management experience with large, complex institutions, including construction projects and major real estate
development on behalf of those institutions, which brings an important perspective to ARIs strategic planning.
Eric L. Press
, 50, has been
one of ARIs directors since June 2009. He is also a Vice President of the ARI Manager and a member of the ARI Managers Investment Committee. Mr. Press has been a Senior Partner-Private Equity of Apollo since November 1998.
Mr. Press joined Apollo in 1998. From 1992 to 1998, Mr. Press was associated with the law firm of Wachtell, Lipton, Rosen & Katz, specializing in mergers, acquisitions, restructurings and related financing transactions. From 1987
to 1989, Mr. Press was a consultant with The Boston Consulting Group, a management consulting firm focused on corporate strategy. Mr. Press serves on the boards of directors of Caesars Entertainment Corporation (NASD: CZR) (January
2008 to present), Princimar Chemical Holdings, LLC and affiliated entities (December 2013 to present) and Verso Paper Corp. (NYSE: VRS) (December 2008 to present). Previously, he served on the boards of directors of Affinion Group Holdings, Inc. and
its subsidiary Affinion Group Inc. (October 2005 to November 2015); Noranda Alumnium Holding Corporation (NYSE: NOR) (March 2007 to May 2015); Athene Holding Ltd. (July 2009 to February 2014); Athene Asset Management, L.P. (July 2009 to February
2014); Innkeepers USA (June 2007 to April 2010), Metals USA Holdings Corp. (November 2005 to April 2013); Quality Distribution, Inc. (NASD: QLTY) (May 2004 to May 2008); Wyndham International, Inc. (May 2005 to August 2005); and AEP Industries Inc.
(NASD: AEPI) (June 2004 to February 2005). Mr. Press graduated magna cum laude from Harvard College with an AB in Economics and a JD from Yale Law School, where he was a Senior Editor of the Yale Law Review. Mr. Press was selected to serve
on the Combined Companys board of directors because of his acute business judgment and his extensive experience serving on the boards of and advising publicly traded companies.
Scott S. Prince
, 53, has been one of ARIs directors since November 2013. Since 2015, Mr. Prince has been a Co-Founder of GPS Investment Partners
and Vice Chairman of Chiron Investment Management. He is also currently a Partner of Maxim Capital Group, a real estate investment and lending platform where he is a Member of the Board and Chairman of the Risk Committee. In 2012, Mr. Prince
co-founded Lake Success Rentals which in partnership with Tricon Capital Group has purchased over 7,000 distressed single family residences and created one of the largest single family rental businesses in the United States. Mr. Prince was formerly
Co-Managing Partner of Skybridge Capital from 2007 until January 2012. Prior to Skybridge, Mr. Prince was a Partner at Eton Park Capital Management from launch in 2004 until 2007, heading global trading and the funds derivatives business. Mr.
Prince
197
was Co-head of Equities Trading and Global Equity Derivatives at Goldman Sachs through 2004, named a Goldman Sachs Partner in 1998, and served on the firms Finance Committee, Equity
Divisions Risk and Operating Committees. He was a Director of the International Securities Exchange from 2002 to 2004. He is currently an Executive Board Member of the Wharton School, and is a Board Member of the Hope and Heroes Pediatric
Cancer Foundation. He received an MBA from the University of Chicago and a BS in Economics from the Wharton School of the University of Pennsylvania. Mr. Prince was selected to serve as a director on the board of directors of the Combined Company
because of his significant finance and capital markets expertise.
Stuart A. Rothstein
, 50, is President and Chief Executive Officer of ARI and one
of ARIs directors. From September 2009 through April 1, 2013, Mr. Rothstein also served as ARIs Chief Financial Officer, Treasurer and Secretary. He is also the Vice President of, and a member of, the Investment Committee of
the ARI Manager. Since 2009, Mr. Rothstein has been a partner and the Chief Operating Officer-Real Estate of Apollo. Mr. Rothstein is responsible for managing the day-to-day operations of the group as well as strategic planning and new
business development. Since its initial public offering in July 2011 through January 1, 2014, Mr. Rothstein served as the Chief Financial Officer, Treasurer and Secretary of AMTG. Prior to joining Apollo in 2009, Mr. Rothstein was a
Co-Managing Partner of Four Corners Properties, a privately held real estate investment company. Previously, he served as a Director of KKR Financial Advisors, LLC, overseeing all investments in commercial real estate and a Director at RBC Capital
Markets, responsible for the West Coast Real Estate Investment Banking practice. Prior to RBC, Mr. Rothstein was an Executive Vice President and Chief Financial Officer of the Related Capital Company, also serving as Chief Financial Officer for
three publicly traded companiesCenterline Holding Company (formerly CharterMac), American Mortgage Acceptance Company and Aegis Realty Inc. Mr. Rothstein began his career at Spieker Properties Inc., an office REIT subsequently acquired by
Equity Office Properties, and held various senior finance positions prior to being named Chief Financial Officer in 1999. Mr. Rothstein graduated from the Pennsylvania State University with a BS in Accounting and received an MBA from the
Stanford University Graduate School of Business. He is a member of Pennsylvania State Universitys Smeal College of Business Real Estate Advisory Board. Mr. Rothstein was selected to serve on the Combined Companys board of directors
because of the strategic leadership and business judgment he has demonstrated in his role as ARIs President and Chief Executive Officer, and previously as ARIs Chief Financial Officer, and his extensive managerial and executive
experience.
Michael E. Salvati
, 64, has been one of ARIs directors since September 2009. Since December 2000, Mr. Salvati has been
President at Oakridge Consulting, Inc., which provides interim management, management consulting and corporate advisory services to companies ranging in size from start-ups to multinational corporations. From February 2004 to May 2004,
Mr. Salvati served as Chief Financial Officer of AMI Semiconductor, Inc. From September 1998 to February 2000, Mr. Salvati was Executive Vice PresidentChief Operating Officer of National Financial Partners Corp. (NYSE: NFP), an
Apollo affiliated venture focusing on the consolidation of small financial services firms that service high net worth individuals. From June 1996 to June 1998, he was Chief Financial Officer of Culligan Water Technologies, Inc., an affiliate of
Apollo, where he oversaw the completion of nearly 50 acquisitions over a period of 18 months. Mr. Salvati was a partner at KPMG LLP from 1990 to 1996. Mr. Salvati is a Certified Public Accountant and member of the American Institute of
Certified Public Accountants, Illinois CPA Society. He has served as a member of the board of directors of Global Power Equipment Group, Inc. (OTC: GLPW) since August 2011, and he is currently a member of the audit committee. He also serves as a
member of MidCap FinCo Holdings, Limited, and MidCap FinCo Limited (affiliates of Apollo) where he is a member of the audit committee. Mr. Salvatis previous board memberships include Things Remembered, Inc., Lazydays, Inc., NCH Nu World
Marketing, Ltd., Coho Energy, Inc. (OTC: COHIQ), Prime Succession, Inc., and Castle Holdco 4, Ltd., an Apollo affiliate. Mr. Salvati received a BS in microbiology and a MS in accounting from the University of Illinois at Champaign-Urbana.
Mr. Salvati qualifies as an audit committee financial expert under the guidelines of the SEC. Mr. Salvati was selected to serve as a director on the Combined Companys board of directors due to his strong background in
public accounting and auditing.
Jai Agarwal
, 41, is the Chief Financial Officer, Treasurer and Secretary of ARI. Prior to joining ARI, he
served from 2014 until May 2016 as the chief financial officer and treasurer of CM Finance Inc. (Nasdaq: CMFN). Prior
198
to CM Finance, Mr. Agarwal was a senior vice president in Blackstones real estate finance group from 2012 to 2014 and director of finance and accounting from 2008 through 2012 at Capital
Trust, the predecessor to Blackstone Mortgage Trust (NYSE: BXMT). Prior to that, from 2000 until 2007, Mr. Agarwal held positions in finance and investments at iStar Inc. (NYSE: STAR). He holds a Bachelor of Science from University of Mumbai
and is a Certified Public Accountant.
199
CERTAIN BENEFICIAL OWNERS OF AMTG COMMON STOCK & AMTG SERIES A PREFERRED
STOCK
The following table sets forth information as of the Record Date regarding the beneficial ownership of AMTG common stock by (i) each person
known to AMTG to be the beneficial owner of 5% or more of the outstanding AMTG common stock, (ii) AMTGs named executive officers, (iii) AMTGs directors and (iv) all of AMTGs directors and executive officers as a
group. In addition, the following table sets forth information as of the Record Date regarding the beneficial ownership of AMTG Series A Preferred Stock by (i) each person known to AMTG to be the beneficial owner of 5% or more of the
outstanding AMTG Series A Preferred Stock, (ii) AMTGs named executive officers, (iii) AMTGs directors and (iv) all of AMTGs directors and executive officers as a group. Beneficial ownership includes any shares over
which the beneficial owner has sole or shared voting or investment power and also any shares that the beneficial owner has the right to acquire within 60 days of such date through the exercise of options or other rights. The percentages below are
based on 31,895,226 shares of AMTGs common stock outstanding as of the Record Date and 6,900,000 shares of AMTG Series A Preferred Stock outstanding as of the Record Date.
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Common Stock Beneficially Owned
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Series A Preferred Stock
Beneficially Owned
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Name and Business
Address
(1)
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Common
Stock
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Total
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Percent of
Class
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Series A
Preferred
Stock
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Total
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Percent of
Class
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Directors and Officers
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Michael A. Commaroto
(2)(3)
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247,332
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247,332
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*
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*
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Teresa D. Covello
(2)(3)(4)
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27,559
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27,559
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*
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*
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Gregory W. Hunt
(4)
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Frederick N. Khedouri
(2)(3)
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22,259
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22,259
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*
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*
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Mark C. Biderman
(2)(5)
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32,784
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32,784
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*
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*
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Thomas D. Christopoul
(2)(5)
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27,407
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27,407
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*
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*
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James E. Galowski
(6)
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6,831
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6,831
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*
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*
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Frederick J. Kleisner
(2)(5)
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44,007
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44,007
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*
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*
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Hope S. Taitz
(2)(5)
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27,407
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27,407
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*
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*
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All directors and executive officers as a group (8 persons)
(3)(4)(5)
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408,027
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408,027
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1.28
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%
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*
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5% or Greater Beneficial Owners
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Black Rock, Inc.
(7)
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2,762,776
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2,762,776
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8.66
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%
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*
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International Value Advisers, LLC
(8)
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*
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621,947
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621,947
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9.01
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%
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Morgan Stanley
(9)
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1,664,750
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1,664,750
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5.22
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%
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*
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*
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Represents less than 1% of issued and outstanding shares.
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(1)
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The business address of each director and named executive officer is c/o Apollo Residential Mortgage, Inc., 9 West 57th Street, 43rd Floor, New York, New York 10019.
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(2)
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Each director and named executive officer has sole voting and investment power with respect to these shares.
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(3)
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Includes restricted stock units granted under the 2011 Equity Incentive Plan as follows:
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(a)
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Mr. Commaroto94,900 restricted stock units; (b) Ms. Covello14,103 restricted stock units all of which were fully vested at the Record Date; and (c) Mr. Khedouri4,151 restricted
stock units. The vesting of all such unvested restricted stock units will accelerate immediately prior to the effective time of the First Merger.
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(4)
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Teresa D. Covello resigned as AMTGs Chief Financial Officer, Treasurer and Secretary effective March 15, 2016 and was succeeded on that date in these positions by Gregory W. Hunt.
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(5)
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As of the Record Date, includes unvested shares of restricted AMTG common stock granted to AMTGs directors pursuant to the AMTG 2011 Equity Incentive Plan as follows:
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(a)
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Mr. Biderman8,673 shares of restricted AMTG common stock; (b) Mr. Christopoul8,673 shares of restricted AMTG common stock;
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200
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(c)
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Mr. Kleisner8,673 shares of restricted AMTG common stock; and (d) Ms. Taitz8,673 shares of restricted AMTG common stock. The vesting of all unvested shares of restricted AMTG common
stock will accelerate immediately prior to the effective time of the First Merger.
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(6)
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Mr. Galowski holds 6,181 shares jointly with his spouse.
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(7)
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Based on the information provided in a Schedule 13G/A filed with the SEC on January 25, 2016, BlackRock, Inc. reported sole voting power with respect to 2,688,164 shares of AMTG Common Stock beneficially owned by
it and sole dispositive power with respect to 2,762,776 shares of AMTG Common Stock beneficially owned by it. The Schedule 13G/A reports a beneficial ownership percentage of shares of AMTG Common Stock of 8.7%, which does not include any shares
acquired or sold since such percentage was calculated for the purposes of the Schedule 13G/A. BlackRock, Inc.s address is 55 East 52
nd
Street, New York, New York 10055.
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(8)
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Based on the information provided in a Schedule 13G/A filed with the SEC on February 12, 2016, International Value Advisers, LLC reported sole voting power with respect to 699,700 shares of AMTG Series A Preferred
Stock beneficially owned by it and sole dispositive power with respect to 747,125 shares of AMTG Series A Preferred Stock beneficially owned by it. The Schedule 13G/A reports a beneficial ownership percentage of shares of AMTG Series A
Preferred Stock of 10.83%, which does not include any shares acquired or sold since such percentage was calculated for the purposes of the Schedule 13G/A. International Value Advisers, LLCs address is 717 Fifth Avenue, New York, New York
10022.
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(9)
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Based on the information provided in a Schedule 13G/A filed with the SEC on April 4, 2016, Morgan Stanley reported sole voting power with respect to 1,433,075 of AMTG Common Stock beneficially owned by it, shared voting
power with respect to 227,428 shares of AMTG Common Stock beneficially owned by it and shared dispositive power with respect to 1,664,750 shares of AMTG Common Stock beneficially owned by it. The Schedule 13G/A reports a beneficial ownership
percentage of shares of AMTG Common Stock of 5.2%, which does not include any shares acquired or sold since such percentage was calculated for the purposes of the Schedule 13G/A. Morgan Stanleys address is 1585 Broadway, New York, New York
10036.
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201
CERTAIN OTHER BENEFICIAL OWNERS OF AMTG COMMON STOCK & AMTG SERIES A
PREFERRED STOCK
Other than as set forth in the following table, as of the Record Date, the Apollo Participants, ARI, and their respective directors,
executive officers and controlling persons, as applicable, did not beneficially own any shares of AMTG common stock or AMTG Series A Preferred Stock. The number and percentage of AMTG common stock and AMTG Series A Preferred Stock beneficially owned
is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose.
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AMTG Stock Beneficially Owned
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Name and Business
Address
(1)(2)
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Common Stock
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Percent of Class
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Series A
Preferred Stock
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Percent of Class
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Stuart A. Rothstein
(3)
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11,361
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*
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Mark C. Biderman
(3)(4)
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32,784
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*
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Michael E. Salvati
(3)
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10,300
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*
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ARM Manager, LLC
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18,750
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*
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*
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Represents less than 1% of issued and outstanding shares of AMTG common stock.
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(1)
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The business address of each director and named executive officer of ARI is c/o Apollo Commercial Real Estate Finance, Inc., 9 West 57th Street, 43rd Floor, New York, New York 10019.
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(2)
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The business address of the Apollo Participants and each of their respective directors, executive officer and controlling persons is c/o Apollo Global Management, LLC, 9 West 57th Street, 43rd Floor, New York, New York
10019.
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(3)
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Each director and named executive officer has sole voting and investment power with respect to these shares.
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(4)
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As of the Record Date, includes 8,673 unvested shares of restricted AMTG common stock granted to Mark C. Biderman pursuant to the AMTG 2011 Equity Incentive Plan.
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202
DESCRIPTION OF ARI COMMON STOCK
The following summary of the material terms of the ARI common stock does not purport to be complete and is subject to and qualified in its entirety by
reference to Maryland law and to ARIs charter and bylaws, copies of which are filed as exhibits to ARIs Annual Report on Form 10-K for the fiscal year ended December 31, 2015. See
Where You Can Find More Information;
Incorporation by Reference
beginning on page 233. For a summary description of Maryland law and ARIs charter and bylaws, see
Description of Certain Provisions of the Maryland General Corporation Law and ARIs Charter
and Bylaws
beginning on page 221.
Common Stock
Shares of ARI common stock offered as merger consideration in connection with the First Merger will be duly authorized, and when issued upon the effective time
of the First Merger, will be validly issued, fully paid and nonassessable. Subject to the preferential rights of holders of ARIs Series A, Series B and Series C Preferred Stock and any other class or series of ARI stock that may be issued in
the future and to the provisions of the ARI charter regarding the restrictions on ownership and transfer of ARI stock, holders of outstanding shares of ARI common stock are entitled to receive dividends on such shares of common stock out of assets
legally available for such purposes if, as and when authorized by the ARI Board and declared by ARI, and the holders of outstanding shares of ARI common stock are entitled to share ratably in ARIs assets legally available for distribution to
ARI common stockholders in the event of ARIs liquidation, dissolution or winding up after payment of or adequate provision for all of ARIs known debts and liabilities.
The shares of ARI common stock that will be issued in connection with the First Merger will be issued by ARI and do not represent any interest in or
obligation of the ARI Manager, Apollo or any of their affiliates. Further, the shares are not a deposit or other obligation of any bank, are not an insurance policy of any insurance company and are not insured or guaranteed by the Federal Deposit
Insurance Company, any other governmental agency or any insurance company.
Subject to the provisions of the ARI charter regarding the restrictions on
ownership and transfer of ARI common stock and except as may otherwise be specified in the terms of any class or series of stock, each outstanding share of ARI common stock entitles the holder to one vote on all matters submitted to a vote of
stockholders, including the election of directors and, except as provided with respect to any other class or series of stock, the holders of shares of ARI common stock will possess the exclusive voting power. A plurality of the votes cast in the
election of directors is sufficient to elect a director and there is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of common stock are entitled to elect all of the directors
then standing for election (other than any directors elected solely by the holders of any other classes and series of ARI stock), and the holders of the remaining shares will not be able to elect any directors.
Holders of shares of ARI common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of ARI. Subject to the provisions of the ARI charter regarding the restrictions on ownership and transfer of ARI stock, shares of ARI common stock will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally may not dissolve, amend its charter, merge or consolidate with or convert into another entity, sell all or
substantially all of its assets or engage in a statutory share exchange unless the action is advised by its board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of all of the votes entitled to
be cast on the matter, unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is specified in the corporations charter. Subject to the voting rights of holders of any other class or
series of ARI stock, including ARI Series A, Series B, and Series C Preferred Stock, the ARI charter provides that these actions (other than certain amendments to the provisions of the ARI charter related to the removal of directors and the
restrictions on ownership and transfer of
203
ARI stock, and the vote required to amend such provisions, which must be approved by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the amendment) may be
approved by a majority of all of the votes entitled to be cast on the matter.
Power to Reclassify ARIs Unissued
Shares of Stock
The ARI charter authorizes the ARI Board to classify and reclassify from time to time any unissued shares of ARI common or preferred
stock into other classes or series of stock, including one or more classes or series of stock that have priority with respect to voting rights, dividends or distributions upon liquidation over the ARI common stock, and authorizes ARI to issue the
newly-classified shares. Prior to the issuance of shares of each new class or series, the ARI Board is required by Maryland law and by the ARI charter to set, subject to the provisions of the ARI charter regarding the restrictions on ownership and
transfer of ARI stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption for each class or series. Subject to the
rights of holders of any other class or series of ARI stock, including ARI Series A, Series B and Series C Preferred Stock, the ARI Board may take these actions without stockholder approval unless stockholder approval is required by applicable law
or the rules of any stock exchange or automatic quotation system on which ARI securities are listed or traded. Therefore, the ARI Board could authorize the issuance of shares of common or preferred stock with terms and conditions that could have the
effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for shares of ARI common stock or otherwise be in the best interest of ARI stockholders.
Power to Increase or Decrease Authorized Shares of Stock and Issue Additional Shares of Common and Preferred Stock
A majority of the entire ARI Board has the power, without any action by ARIs stockholders, to amend the ARI charter to increase or decrease the number of
authorized shares of stock of ARI. The ARI Board also has the power to authorize ARI to issue additional authorized but unissued shares of common or preferred stock and to classify or reclassify unissued shares of common or preferred stock and
thereafter to authorize ARI to issue such classified or reclassified shares of stock. The additional classes or series, as well as the additional shares of ARI common stock, will be available for issuance without further action by ARIs common
stockholders, unless such approval is required by applicable law or the rules of any stock exchange or automated quotation system on which ARI securities may be listed or traded.
Transfer Agent and Registrar
The transfer agent and registrar for ARI common stock is Wells Fargo Bank, N.A.
204
DESCRIPTION OF THE ARI SERIES C PREFERRED STOCK
The following description of certain terms and provisions of the ARI Series C Preferred Stock contained in this proxy statement/prospectus does not purport to
be complete and is in all respects subject to, and qualified in its entirety by reference to, ARIs charter, including the Articles Supplementary setting forth the terms of the ARI Series C Preferred Stock, ARIs bylaws and Maryland law.
Copies of ARIs charter and bylaws are filed as exhibits to ARIs Annual Report on Form 10-K for the fiscal year ended December 31, 2015. See
Where You Can Find More Information; Incorporation by Reference
beginning
on page 233. For a summary description of Maryland law and ARIs charter and bylaws, see
Description of Certain Provisions of the Maryland General Corporation Law and ARIs Charter and Bylaws
beginning on page 221. A
copy of the Articles Supplementary is filed as Annex I to this proxy statement/prospectus.
For purposes of this section, references to ARI
refers only to Apollo Commercial Real Estate Finance, Inc., a Maryland corporation, through the effective time of the Second Merger, and to the Combined Company, from and after the effective time of the Second Merger.
General
ARIs charter
provides that it may issue up to 50,000,000 shares of preferred stock, $0.01 par value per share. ARIs charter authorizes a majority of the entire ARI Board, without any action by ARIs stockholders, to amend ARIs charter to
increase or decrease the number of authorized shares of any class or series without stockholder approval.
Subject to the limitations prescribed by
ARIs charter, the ARI Board is authorized to classify any unissued shares of preferred stock and to reclassify any previously classified but unissued shares of any series of preferred stock previously authorized by the ARI Board. Prior to
issuance of shares of each class or series of preferred stock, the ARI Board is required by the MGCL and ARIs charter to fix the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each class or series.
Prior to the effective time of the First Merger, the ARI
Board will classify certain of ARIs authorized shares of preferred stock as shares of ARI Series C Preferred Stock and authorize the issuance thereof, and ARI will file the articles supplementary, setting forth the terms of the ARI Series C
Preferred Stock, with the State Department of Assessments and Taxation of Maryland. When issued in the Second Merger, the ARI Series C Preferred Stock will be validly issued, fully paid and nonassessable. The holders of ARI Series C Preferred Stock
will have no preemptive rights with respect to any shares of ARIs stock or any of ARIs other securities convertible into or carrying rights or options to purchase any shares of ARIs stock.
The ARI Series C Preferred Stock will not be subject to any sinking fund and ARI will have no obligation to redeem or retire the ARI Series C Preferred Stock.
Unless converted by a holder in connection with a Change of Control (as defined below) or redeemed by ARI, the ARI Series C Preferred Stock will have a perpetual term, with no maturity.
ARI may in the future issue additional shares of ARI Series C Preferred Stock without the consent of the ARI Series C Preferred Stock. Any additional shares
of ARI Series C Preferred Stock will have the same terms as the shares of ARI Series C Preferred Stock to be issued in the Second Merger. Any additional shares of ARI Series C Preferred Stock will, together with the shares of ARI Series C Preferred
Stock, constitute a single class of securities.
Ranking
The ARI Series C Preferred Stock will rank senior to the Junior Stock (as defined below), including shares of ARI common stock, and on parity with any other
Parity Stock (as defined below). While any shares of ARI Series C Preferred Stock are outstanding, ARI may not authorize or create, or increase the authorized number of
205
shares of, any class or series of stock that ranks senior to the ARI Series C Preferred Stock with respect to the payment of dividends or amounts upon ARIs liquidation, dissolution or
winding up without the affirmative vote of two-thirds of the votes entitled to be cast by holders of outstanding shares of ARI Series C Preferred Stock, voting together as a single class with the holders of any other class or series of Parity Stock
upon which like voting rights have been conferred and are exercisable. However, ARI may, among other things, create additional classes or series of stock, amend ARIs charter to increase the authorized number of shares of common or preferred
stock or create or issue shares of a class or series of preferred stock ranking on parity with, or junior to, the ARI Series C Preferred Stock with respect, in each case, to the payment of dividends and amounts upon ARIs liquidation,
dissolution or winding up, or Parity Stock, without the consent of any holder of ARI Series C Preferred Stock. See
Voting Rights
below for a discussion of the voting rights applicable if ARI seeks to create any class or
series of preferred stock senior to the ARI Series C Preferred Stock.
Dividends
Holders of ARI Series C Preferred Stock will be entitled to receive, when, as and if authorized by the ARI Board and declared by ARI, out of funds legally
available for payment of distributions, cumulative cash dividends at the rate of 8.00% per annum per share of its liquidation preference (equivalent to $2.00 per annum per share of ARI Series C Preferred Stock).
Dividends on each share of ARI Series C Preferred Stock issued in the Second Merger will be cumulative from the date on which the most recent dividend was
paid in respect of the AMTG Series A Preferred Stock and are payable quarterly in arrears on or about the last day of each January, April, July and October, commencing on the first calendar quarter end following the effectiveness of the Second
Merger at the then applicable annual rate; provided, however, that if any dividend payment date falls on any day other than a business day, as defined in the Articles Supplementary, the dividend due on such dividend payment date will be paid on the
immediately preceding business day, with the same force and effect as if made on such date. A dividend period is the period from and including a dividend payment date to, but excluding, the next dividend payment date (other than the initial dividend
period and the dividend period during which any shares of ARI Series C Preferred Stock shall be redeemed). Each dividend is payable to holders of record as they appear on ARIs stock records at the close of business on the record date, not
exceeding 45 days preceding the payment dates thereof as fixed by the ARI Board. Dividends are cumulative from the date of original issue or the most recent dividend payment date to which dividends on the ARI Series C Preferred Stock have been paid,
whether or not in any dividend period or periods there shall be funds of ARI legally available for the payment of such dividends, whether ARI has earnings or whether such dividends are authorized by the ARI Board. Accumulations of dividends on the
ARI Series C Preferred Stock will not bear interest and holders of the ARI Series C Preferred Stock will not be entitled to any dividends in excess of full cumulative dividends. Dividends payable on the ARI Series C Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the ARI Series C Preferred Stock for each full dividend period will be computed by dividing the
annual dividend rate by four.
No dividend or other distribution may be declared and paid or set apart for payment on any class or series of Parity Stock
unless full cumulative dividends have been declared and paid or are contemporaneously declared and paid or declared and funds sufficient for payment are set aside on the ARI Series C Preferred Stock for all prior full dividend periods; provided,
however, that if accrued dividends on the ARI Series C Preferred Stock for all prior full dividend periods have not been paid in full or a sum sufficient for such payment is not set apart, then any dividend declared on the ARI Series C Preferred
Stock for any dividend period and on any class or series of Parity Stock must be declared and paid ratably in proportion to accumulated and unpaid dividends on the ARI Series C Preferred Stock and such Parity Stock. All dividends paid on the Series
C Preferred Stock will be credited first to the earliest accrued and unpaid dividend with respect to such shares which remain payable.
ARI may not
(i) pay or set apart funds for the payment of any dividend or other distribution with respect to any Junior Stock, including common stock, (other than dividends or distributions paid solely in Junior Stock, or in options, warrants or rights to
subscribe for or purchase Junior Stock, or distributions required to preserve ARIs
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qualification as a REIT) or (ii) redeem, purchase or otherwise acquire for consideration any Junior Stock through a sinking fund or otherwise (other than a redemption or purchase or other
acquisition of shares of ARI common stock made for purposes of and in compliance with the requirements of an employee incentive or benefit plan of ARI or any subsidiary, a conversion into or exchange for Junior Stock or options, warrants or rights
to subscribe for or purchase Junior Stock or redemptions or other acquisitions pursuant to the provisions of ARIs charter (including the Articles Supplementary) relating to restrictions on the ownership and transfer of ARIs stock
intended to preserve ARIs qualification as a REIT), unless, in either case, full cumulative dividends for all full prior dividend periods with respect to the ARI Series C Preferred Stock outstanding at the time such dividends are payable have
been paid or funds have been set apart for payment of such dividends.
The ARI Board may not authorize and ARI may not declare, pay or set apart funds for
the payment of any dividend or other distribution (other than distributions required to preserve ARIs qualification as a REIT) at any time the terms and provisions of any agreement of ARIs, including any agreement relating to ARIs
indebtedness, prohibits such authorization, declaration, payment or setting apart for payment or provides that such authorization, declaration, payment or setting apart for payment would constitute a breach or default under such agreement, or if
such authorization, declaration, payment or setting apart for payment is restricted or prohibited by law.
As used herein, the term Junior
Stock means ARI common stock, and any other class or series of ARIs stock now or hereafter issued and outstanding that ranks junior to the ARI Series C Preferred Stock as to the payment of dividends or amounts upon ARIs
liquidation, dissolution and winding up.
As used herein, the term Parity Stock means ARIs 8.625% Series A Cumulative Redeemable
Perpetual Preferred Stock, $0.01 par value per share (the ARI Series A Preferred Stock), of ARI, ARIs 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (the ARI Series
B Preferred Stock), of ARI and any other class or series of ARIs stock now or hereafter issued and outstanding that ranks on parity with the ARI Series C Preferred Stock as to payment of dividends or amounts upon ARIs liquidation,
dissolution or winding up.
Optional Redemption
ARI may not redeem the ARI Series C Preferred Stock prior to September 20, 2017, except in certain limited circumstances relating to the provisions of
ARIs charter (including the Articles Supplementary) relating to restrictions on the ownership and transfer of ARIs stock intended to preserve ARIs qualification as a REIT or in connection with ARIs special optional redemption
right to redeem ARI Series C Preferred Stock upon a Change of Control. For further information regarding these exceptions, see
Restrictions on Ownership and Transfer
beginning on page 217. On and after September 20, 2017,
ARI, at its option, upon not less than 30 nor more than 60 days written notice, may redeem the ARI Series C Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25.00 per share, plus all accrued
and unpaid dividends thereon (whether or not declared) to, but not including, the date fixed for redemption, unless the applicable redemption date is after the record date fixed for a ARI Series C Preferred Stock dividend and prior to the
corresponding dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in the redemption price.
Special Optional Redemption
Upon the occurrence of a Change of Control, ARI will have the option, upon not less than 30 nor more than 60 days written notice, to redeem the ARI Series C
Preferred Stock, in whole, at any time, or in part, from time to time, within 120 days after the date on which such Change of Control has occurred for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends (whether or
not declared) to, but not including, the redemption date, unless the applicable redemption date is after the record date fixed for a ARI Series C Preferred Stock dividend and prior to the corresponding dividend payment date, in which case no
additional amount for such accrued and unpaid dividend will be included in the redemption price. If ARI exercises its special optional
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redemption right in connection with a Change of Control before the applicable conversion date, holders of ARI Series C Preferred Stock will not have the Change of Control Conversion Right
described below with respect to any shares of ARI Series C Preferred Stock called for redemption.
General Provisions
Applicable to Redemptions
A notice of optional redemption (which may be contingent on the occurrence of a future event) or a notice of special
optional redemption, as applicable, will be mailed, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the holders of record of the ARI Series C Preferred Stock at their addresses as they appear on
ARIs stock transfer records. A failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of the shares of ARI Series C Preferred Stock except as to the holder
to whom notice was defective or not given. Each notice will state:
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The number of shares of ARI Series C Preferred Stock to be redeemed;
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The place or places where the certificates, if any, representing the shares of ARI Series C Preferred Stock are to be surrendered for payment;
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Whether the shares of ARI Series C Preferred Stock are being redeemed pursuant to ARIs special optional redemption right in connection with the occurrence of a Change of Control and, if so, a brief description of
the transaction or transactions constituting such Change of Control;
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if the shares of ARI Series C Preferred Stock are being redeemed pursuant to ARIs special optional redemption right in connection with the occurrence of a Change of Control, that the holders of shares of ARI
Series C Preferred Stock to which the notice relates will not be able to tender such shares of ARI Series C Preferred Stock for conversion in connection with the Change of Control and each share of ARI Series C Preferred Stock tendered for
conversion that is selected, prior to the Change of Control Conversion Date (as defined below), for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date; and
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that dividends on the shares of ARI Series C Preferred Stock to be redeemed will cease to accrue on such redemption date.
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If fewer than all the shares of ARI Series C Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder will also specify the
number of shares of ARI Series C Preferred Stock to be redeemed from such holder or the method for determining such number. If fewer than all of the outstanding shares of ARI Series C Preferred Stock are to be redeemed, the shares to be redeemed
shall be selected by lot or pro rata or by any other equitable method ARI may choose (including by electing to exercise ARIs special optional redemption right only with respect to shares of the Series C Preferred Stock for which holders have
exercised their Change of Control Conversion Right discussed below).
On the redemption date, ARI must pay on each share of ARI Series C Preferred Stock
to be redeemed any accumulated and unpaid dividends (whether or not declared), to, but not including, the redemption date, unless a redemption date falls after the record date fixed for a ARI Series C Preferred Stock dividend and prior to the
corresponding dividend payment date, in which case, the holders of ARI Series C Preferred Stock at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date,
notwithstanding the redemption of such shares prior to such dividend payment date. Except as provided for in the preceding sentence, no payment or allowance will be made for unpaid dividends, whether or not in arrears, on any ARI Series C Preferred
Stock called for redemption.
If full cumulative dividends on the ARI Series C Preferred Stock for all full prior dividend periods have not been paid or
declared and set apart for payment, ARI may not purchase, redeem or otherwise acquire less than all of the outstanding shares of ARI Series C Preferred Stock and any class or series of Parity Stock other than in
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exchange for Junior Stock or Parity Stock or in exchange for options, warrants or rights to subscribe for or purchase any Junior Stock or Parity Stock; provided, however, that the foregoing will
not prevent a purchase or exchange offer made on the same terms to holders of all outstanding shares of ARI Series C Preferred Stock and all classes and series of Parity Stock or the purchase or other acquisition by ARI of shares of ARIs stock
pursuant to the provisions of the ARI charter (including the Articles Supplementary) relating to restrictions on the ownership and transfer of ARI stock intended to preserve ARIs qualification as a REIT. See
Description of ARI Common
StockRestrictions on Ownership and Transfer
above and
Restrictions on Ownership and Transfer
below.
On and after
any date fixed for the redemption of shares of ARI Series C Preferred Stock, provided that ARI has made available at the office of the registrar and transfer agent for the ARI Series C Preferred Stock a sufficient amount of cash to effect the
redemption of such shares, dividends will cease to accrue on the shares of ARI Series C Preferred Stock called for redemption (except that, in the case of a redemption date that is after the record date fixed for a ARI Series C Preferred Stock
dividend and prior to the related dividend payment date, holders of ARI Series C Preferred Stock on the dividend payment record date will be entitled on such dividend payment date to receive the dividend payable on such shares on the corresponding
dividend payment date), such shares will no longer be deemed to be outstanding and all rights of the holders of such shares as holders of ARI Series C Preferred Stock will cease except the right to receive the cash payable upon such redemption,
without interest from the date of such redemption.
Liquidation Preference
The holders of ARI Series C Preferred Stock will be entitled to receive in the event of any liquidation, dissolution or winding up of ARI, whether voluntary or
involuntary, $25.00 per share of ARI Series C Preferred Stock, which ARI refers to herein as the Liquidation Preference, plus an amount per share of ARI Series C Preferred Stock equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to, but not including, the date of final distribution to such holders.
Until the holders of ARI Series C Preferred Stock have
been paid the Liquidation Preference and all accrued and unpaid dividends in full (whether or not earned or declared) to, but not including, the date of final distribution to such holders, no payment will be made to any holder of Junior Stock (other
than dividends or distributions paid solely in Junior Stock, or in options, warrants or rights to subscribe for or purchase Junior Stock) upon the liquidation, dissolution or winding up of ARI. If, upon any liquidation, dissolution or winding up of
ARI, its assets, or the proceeds thereof, distributable among the holders of the ARI Series C Preferred Stock are insufficient to pay the full amount due to the holders of ARI Series C Preferred Stock and any class or series of Parity Stock, then
such assets, or the proceeds thereof, will be distributed among the holders of ARI Series C Preferred Stock and any such other class or series of Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of
ARI Series C Preferred Stock and any such other class or series Parity Stock if all amounts payable thereon were paid in full. None of (i) a consolidation or merger of ARI with one or more entities, (ii) a statutory share exchange by ARI
or (iii) a sale or transfer of all or substantially all of ARIs assets will be considered a liquidation, dissolution or winding up, voluntary or involuntary, of ARI. After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of ARI Series C Preferred Stock will have no right or claim to any of the remaining assets of ARI. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend,
redemption or otherwise, is permitted under Maryland law with respect to any share of any class or series of our stock, amounts that would be needed, if ARI were to be dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of shares of Series C Preferred Stock will not be added to ARIs total liabilities.
Voting
Rights
Except as described below, the holders of ARI Series C Preferred Stock will have no voting rights. If and whenever six quarterly dividends
(whether or not consecutive) payable on the ARI Series C Preferred Stock are
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in arrears, whether or not declared, the number of ARI directors will be increased automatically by two (unless the number of ARI directors has previously been so increased pursuant to the terms
of any class or series of Parity Stock upon which like voting rights have been conferred and are exercisable (any such other series, the Voting Preferred Stock) and with which the holders of ARI Series C Preferred Stock are entitled to
vote together as a single class in the election of such directors) and the holders of ARI Series C Preferred Stock, voting together as a single class with the holders of any other class or series of Voting Preferred Stock with which the holders of
ARI Series C Preferred Stock are entitled to vote together as a single class in the election of such directors, will have the right to elect two additional directors of ARI (the Preferred Stock Directors) at any annual meeting of
stockholders or properly called special meeting of the holders of the ARI Series C Preferred Stock, until all such dividends and dividends for the then current quarterly period on the ARI Series C Preferred Stock have been paid or declared and set
aside for payment. Whenever all such dividends on the shares of ARI Series C Preferred Stock then outstanding have been paid and full dividends on the ARI Series C Preferred Stock for the then-current quarterly dividend period have been paid in full
or declared and set apart for payment in full, then the right of the holders of the ARI Series C Preferred Stock to elect the Preferred Stock Directors will cease and, unless there remain outstanding shares of Voting Preferred Stock of any class or
series for which the right to vote in the election of Preferred Stock Directors remains exercisable, the terms of office of the Preferred Stock Directors will terminate automatically and the number of ARI directors will be reduced accordingly and
automatically. However, the right of the holders of the ARI Series C Preferred Stock to elect the Preferred Stock Directors will again vest if and whenever dividends are in arrears for six new quarterly periods, as described above. In no event will
the holders of ARI Series C Preferred Stock be entitled to nominate or elect a director if such individuals election as a director would cause ARI to fail to satisfy a requirement relating to director independence of any national securities
exchange on which any class or series of ARI stock is listed. In class votes with other Voting Preferred Stock, preferred stock of different series shall vote in proportion to the liquidation preference of the preferred stock.
In addition, the approval of at least two-thirds of the votes entitled to be cast by the holders of outstanding shares of ARI Series C Preferred Stock, voting
together as a single class with the holders of all outstanding shares of Parity Stock of any class or series upon which like voting rights have been conferred and with which holders of ARI Series C Preferred Stock are entitled to vote together as a
single class on such matters, is required (i) to amend, alter or repeal any provisions of the ARI charter (including the Articles Supplementary), whether by merger, consolidation or otherwise, to affect materially and adversely the voting
powers, rights or preferences of the ARI Series C Preferred Stock unless, in connection with any such amendment, alteration or repeal, the ARI Series C Preferred Stock remains outstanding without the terms thereof being materially and adversely
changed or is converted into or exchanged for equity securities of the surviving entity having preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and
conditions of redemption that are substantially similar to those of the ARI Series C Preferred Stock (taking into account that ARI may not be the surviving entity), or (ii) to authorize, create, or increase the authorized number of shares of
any class or series of stock having rights senior to the ARI Series C Preferred Stock with respect to the payment of dividends or amounts upon ARIs liquidation, dissolution or winding up (provided that if such amendment does not affect equally
the rights, preferences, privileges or voting powers of one or more classes or series of Parity Stock with which holders of ARI Series C Preferred Stock are entitled to vote together as a single class, the consent of the holders of at least
two-thirds of the outstanding shares of each class or series of preferred stock not affected equally, including the ARI Series C Preferred Stock, is required). In addition, the voting powers, rights or preferences of the ARI Series C Preferred Stock
will not be deemed to be materially and adversely affected by, and the holders of shares of ARI Series C Preferred Stock will not be entitled to vote with respect to, any (A) amendment to the ARI charter increasing or decreasing the total
number of authorized shares of stock of all classes and series, common stock, preferred stock without further designation as to class or series, ARI Series C Preferred Stock or any other class or series of Parity Stock or Junior Stock,
(B) issuance of shares of ARI Series C Preferred Stock or shares of any class or series of Parity Stock or Junior Stock or (C) classification or reclassification of authorized but unissued shares of ARI Series C Preferred Stock or any
classification or reclassification of shares of any class or series of Parity Stock or Junior Stock.
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Information Rights
During any period in which ARI is not subject to Section 13 or 15(d) of the Exchange Act and any shares of ARI Series C Preferred Stock are outstanding,
ARI will use its best efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of ARI Series C Preferred Stock, as their names and addresses appear in ARIs record books and without cost to such
holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that ARI would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if ARI were subject thereto (other than any
exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports to any prospective holder of ARI Series C Preferred Stock. ARI will use its best efforts to mail (or otherwise provide) the information to
the holders of ARI Series C Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required to be filed with the SEC if ARI
were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which ARI would be required to file such periodic reports if ARI were a non-accelerated filer within the meaning of the Exchange Act.
Conversion Rights
Definitions
As used in this proxy
statement/prospectus, the following terms shall have the following meanings:
A Change of Control will be deemed to have occurred at such time
after the original issuance of the ARI Series C Preferred Stock when the following have occurred:
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the acquisition by any person, including any syndicate or group deemed to be a person under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of ARI stock entitling that person to exercise more than 50% of the total voting power of all shares of ARI stock entitled to vote
generally in elections of directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition); and
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following the closing of any transaction referred to in clause (i) above, neither ARI nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the
NYSE, the NYSE MKT or the NASDAQ, or listed on an exchange that is a successor to the NYSE, NYSE MKT or the NASDAQ.
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The Common Stock
Price will be (i) if the consideration to be received in the Change of Control by holders of ARI common stock is solely cash, the amount of cash consideration per share of ARI common stock, (ii) if the consideration to be received in
the Change of Control by holders of ARI common stock is other than solely cash, the average of the closing prices per share of ARI common stock on the ten consecutive trading days immediately preceding, but not including, the effective date of the
Change of Control, and (iii) if there is not a readily determinable closing price for the ARI common stock or Alternative Form Consideration (as defined below), the fair market value of ARI common stock or such Alternative Form Consideration
(as determined by the ARI Board or a committee thereof).
Conversion
Upon the occurrence of a Change of Control, each holder of ARI Series C Preferred Stock will have the right, subject to ARIs redemption rights and
subject to the restrictions on ownership and transfer of ARI stock contained in the ARI charter (including the Articles Supplementary), to convert some or all of the shares of ARI Series C Preferred Stock held by such holder, or the Change of
Control Conversion Right, on the relevant
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Change of Control Conversion Date (as defined below) into a number of shares of ARI common stock per share of ARI Series C Preferred Stock to be converted, or the Common Stock Conversion
Consideration, equal to the lesser of (A) the quotient obtained by dividing (i) the sum of (x) $25.00, plus (y) an amount equal to any accrued and unpaid dividends (whether or not declared) to, but not including, the Change of
Control Conversion Date, except if such Change of Control Conversion Date is after a record date fixed for a ARI Series C Preferred Stock dividend and prior to the corresponding ARI Series C Preferred Stock dividend payment date, in which case, no
amount for such accrued and unpaid dividend will be included in such sum, by (ii) the Common Stock Price, and (B) 2.36967, which is the Share Cap.
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a dividend paid in shares of ARI common stock),
subdivisions or combinations (in each case, a Share Split) with respect to ARI common stock as follows: the adjusted Share Cap as the result of a Share Split will be the number of shares of ARI common stock that is equivalent to the
product of (i) the Share Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of shares of ARI common stock outstanding after giving effect to such Share Split and the
denominator of which is the number of shares of ARI common stock outstanding immediately prior to such Share Split.
For the avoidance of doubt, subject
to the immediately succeeding sentence, the aggregate number of shares of ARI common stock (or equivalent Alternative Conversion Consideration (as defined below), as applicable), subject to increase to the extent the underwriters option to
purchase additional Series C Preferred Stock is exercised, not to exceed shares of common stock in total (or equivalent Alternative Conversion Consideration, as applicable), or the Exchange Cap. The Exchange Cap is subject to pro rata adjustments if
the number of authorized shares of ARI Series C Preferred Stock increases after the Series C Original Issue Date or for any Share Splits with respect to ARI common stock as follows: the adjusted Exchange Cap as the result of a Share Split will be
the number of shares of ARI common stock that is equivalent to the product of (i) the Exchange Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of shares of ARI common
stock outstanding after giving effect to such Share Split and the denominator of which is the number of shares of ARI common stock outstanding immediately prior to such Share Split.
In the case of a Change of Control as a result of which holders of ARI common stock are entitled to receive consideration other than solely shares of common
stock, including cash, other securities, other property or assets (or any combination thereof), with respect to or in exchange for shares of ARI common stock, or the Alternative Form Consideration, a holder of ARI Series C Preferred Stock will be
entitled thereafter to receive upon conversion of such shares of ARI Series C Preferred Stock the kind and amount of Alternative Form Consideration which the holder of ARI Series C Preferred Stock would have owned or been entitled to receive upon
such Change of Control had such holder of ARI Series C Preferred Stock held a number of shares of ARI common stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control (the
Alternative Conversion Consideration, and the Common Stock Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, is referred to as the Conversion Consideration).
If the holders of ARI common stock have the opportunity to elect the form of consideration to be received in such Change of Control, the Conversion
Consideration will be the kind and amount of consideration actually received by holders of a majority of the shares of ARI common stock that participated in such election (if electing between two types of consideration) or holders of a plurality of
ARI common stock that voted for such an election (if electing between more than two types of consideration), as the case may be, and will be subject to any limitations to which all holders of ARI common stock are subject, including, without
limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.
ARI will not issue fractional shares of
ARI common stock upon the conversion of the ARI Series C Preferred Stock. Instead, ARI will pay the cash value of such fractional shares.
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Within 15 days following the occurrence of a Change of Control, ARI will provide to holders of ARI Series C
Preferred Stock notice of the occurrence of the Change of Control that describes the resulting Change of Control Conversion Right. Any failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the
proceedings for the conversion of any shares of ARI Series C Preferred Stock except as to the holder to whom notice was defective or not given. This notice will state the following:
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the events constituting the Change of Control;
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the date of the Change of Control;
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the last date on which the holders of ARI Series C Preferred Stock may exercise their Change of Control Conversion Right;
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the method and period for calculating the Common Stock Price;
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the Change of Control Conversion Date (defined below);
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that if, prior to the Change of Control Conversion Date, ARI has provided or ARI provides notice of an election to redeem all or any portion of the ARI Series C Preferred Stock, the holder will not be able to convert
any shares of ARI Series C Preferred Stock called for redemption and such shares of ARI Series C Preferred Stock will be redeemed on the related redemption date, even if they have already been tendered for conversion;
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if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of ARI Series C Preferred Stock;
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the name and address of the paying agent and the conversion agent;
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the procedures that the holders of ARI Series C Preferred Stock must follow to exercise the Change of Control Conversion Right; and
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the last date on which holders of ARI Series C Preferred Stock may withdraw shares surrendered for conversion and the procedures that such holders must follow to effect such a withdrawal.
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ARI will issue a press release for publication through either Dow Jones & Company, Inc., Business Wire, PR Newswire, Marketwire or Bloomberg Business
News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on
its website, in any event prior to the opening of business on the first business day following any date on which ARI provides the notice described above to the holders of ARI Series C Preferred Stock.
In order to exercise the Change of Control Conversion Right, a holder of ARI Series C Preferred Stock will be required to deliver, on or before the close of
business on the Change of Control Conversion Date, the certificates (if any) representing the shares of ARI Series C Preferred Stock to be converted, duly endorsed for transfer, together with a written conversion notice completed, to ARIs
transfer agent. The conversion notice must state:
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relevant Change of Control Conversion Date;
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the number of shares of ARI Series C Preferred Stock to be converted; and
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that the shares of ARI Series C Preferred Stock are to be converted pursuant to the applicable provisions of the ARI Series C Preferred Stock.
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The Change of Control Conversion Date will be a business day that is no less than 20 days nor more than 35 days after the date on which ARI
provides the notice described above to the holders of ARI Series C Preferred Stock.
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Holders of ARI Series C Preferred Stock may withdraw any notice of exercise of a Change of Control Conversion
Right (in whole or in part) by a written notice of withdrawal delivered to ARIs transfer agent prior to the close of business on the business day prior to the Change of Control Conversion Date. The notice of withdrawal must state:
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the number of withdrawn shares of ARI Series C Preferred Stock;
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if certificated shares of ARI Series C Preferred Stock have been issued, the certificate numbers of the withdrawn shares of ARI Series C Preferred Stock; and
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the number of shares of ARI Series C Preferred Stock, if any, which remain subject to the conversion notice.
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Notwithstanding the foregoing, if the shares of ARI Series C Preferred Stock are held in global form, the conversion notice and/or the notice of withdrawal,
as applicable, must comply with applicable procedures of The Depository Trust Company, or DTC.
Shares of ARI Series C Preferred Stock as to which the
Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion
Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, ARI has provided or ARI provides notice of an election to redeem such shares of ARI Series C Preferred Stock. If the Change of Control Conversion
date is after a record date fixed for a ARI Series C Preferred Stock dividend and prior to the corresponding dividend payment date, the holders of ARI Series C Preferred Stock at the close of business on such record date will be entitled to receive
the dividend payable on such shares on the corresponding dividend payment date, notwithstanding the conversion of such shares prior to such dividend date.
In connection with the exercise of any Change of Control Conversion Right, ARI will comply with all U.S. federal and state securities laws and stock exchange
rules in connection with any conversion of ARI Series C Preferred Stock into common stock. Notwithstanding any other provision of the ARI Series C Preferred Stock, no holder of the ARI Series C Preferred Stock will be entitled to convert such ARI
Series C Preferred Stock for ARI common stock to the extent that receipt of such common stock would cause such holder (or any other person) to exceed the stock ownership limits contained in the ARI charter. See
Restrictions on Ownership and
Transfer
beginning on page 217.
These Change of Control conversion and redemption features may make it more difficult for, or discourage, a
third party from taking over ARI.
Listing
ARI intends to file an application to list the ARI Series C Preferred Stock on the NYSE under the symbol ARI-C. ARI expects trading of the shares
of ARI Series C Preferred Stock on the NYSE, if listing is approved, to commence promptly following the consummation of the mergers.
Book-Entry Procedures
The Depository Trust Company, which ARI refers to herein as DTC, will act as securities depositary for the ARI Series C
Preferred Stock. ARI will issue one or more fully registered global securities certificates in the name of DTCs nominee, Cede & Co. These certificates will represent the total aggregate number of ARI Series C Preferred Stock. ARI will
deposit these certificates with DTC or a custodian appointed by DTC. ARI will not issue certificates to the holders of ARI Series C Preferred Stock that are received in exchange for their shares of AMTG Series A Preferred Stock, unless DTCs
services are discontinued as described below.
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Title to book-entry interests in the ARI Series C Preferred Stock will pass by book-entry registration of the
transfer within the records of DTC in accordance with their respective procedures. Book-entry interests in the securities may be transferred within DTC in accordance with procedures established for these purposes by DTC.
Each person owning a beneficial interest in the ARI Series C Preferred Stock must rely on the procedures of DTC and the participant through which such person
owns its interest to exercise its rights as a holder of the ARI Series C Preferred Stock.
DTC has advised ARI that it is a limited-purpose trust company
organized under the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code and a clearing agency registered under the provisions of
Section 17A of the Exchange Act. DTC holds securities that its participants, referred to as Direct Participants, deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations, and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly, referred to as Indirect Participants. The rules applicable to DTC and its Direct and Indirect Participants are on file with the SEC.
When the shares of ARI Series C Preferred Stock within the DTC system are exchanged for shares of AMTG Series A Preferred Stock, the exchange must be by or
through a Direct Participant. The Direct Participant will receive a credit for the ARI Series C Preferred Stock on DTCs records. You, as the actual owner of the ARI Series C Preferred Stock, are the beneficial owner. Your
beneficial ownership interest will be recorded on the Direct and Indirect Participants records, but DTC will have no knowledge of your individual ownership. DTCs records reflect only the identity of the Direct Participants to whose
accounts ARI Series C Preferred Stock are credited.
Holders of ARI Series C Preferred Stock will not receive written confirmation from DTC of the
exchange. The Direct or Indirect Participants through whom shares of AMTG Series A Preferred Stock were exchanged for the ARI Series C Preferred Stock should send written confirmations providing details of such transactions, as well as periodic
statements regarding each holders holdings of ARI Series C Preferred Stock. The Direct and Indirect Participants are responsible for keeping an accurate account of the holdings of their customers such as you.
Transfers of ownership interests held through Direct and Indirect Participants will be accomplished by entries on the books of Direct and Indirect
Participants acting on behalf of the beneficial owners.
The laws of some states may require that specified owners of securities take physical delivery of
the ARI Series C Preferred Stock in definitive form. These laws may impair the ability to transfer beneficial interests in the global certificates representing the ARI Series C Preferred Stock.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
ARI understands that, under DTCs existing practices, in the event that ARI requests any action of holders, or an owner of a beneficial interest in a
global security such as you desires to take any action which a holder is entitled to take under the ARI charter, DTC would authorize the Direct Participants holding the relevant shares to take such action, and those Direct Participants and any
Indirect Participants would authorize beneficial owners owning through those Direct and Indirect Participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them.
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Redemption notices will be sent to Cede & Co. If less than all of the shares of ARI Series C Preferred
Stock are being redeemed, DTC will reduce each Direct Participants holdings of ARI Series C Preferred Stock in accordance with its procedures. Notices regarding the occurrence of a Change of Control will also be sent to Cede & Co.
In those instances where a vote is required, neither DTC nor Cede & Co. itself will consent or vote with respect to the ARI Series C Preferred
Stock. Under its usual procedures, DTC would mail an omnibus proxy to ARI as soon as possible after the record date. The omnibus proxy assigns Cede & Co.s consenting or voting rights to those Direct Participants whose accounts the ARI
Series C Preferred Stock are credited on the record date, which are identified in a listing attached to the omnibus proxy.
Dividend payments on the ARI
Series C Preferred Stock will be made directly to DTC (or its successor, if applicable). DTCs practice is to credit participants accounts on the relevant payment date in accordance with their respective holdings shown on DTCs
records unless DTC has reason to believe that it will not receive payment on that payment date.
Payments by Direct and Indirect Participants to
beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name. These payments will be the responsibility
of the participant and not of DTC, ARI or any agent of ARI.
DTC may discontinue providing its services as securities depositary with respect to the ARI
Series C Preferred Stock at any time by giving reasonable notice to ARI. Additionally, ARI may decide to discontinue the book-entry only system of transfers with respect to the ARI Series C Preferred Stock. In that event, ARI will print and deliver
certificates in fully registered form for the ARI Series C Preferred Stock. If DTC notifies ARI that it is unwilling to continue as securities depositary, or it is unable to continue or ceases to be a clearing agency registered under the Exchange
Act and a successor depositary is not appointed by ARI within 90 days after receiving such notice or becoming aware that DTC is no longer so registered, ARI will issue the ARI Series C Preferred Stock in definitive form, at ARIs expense, upon
registration of transfer of, or in exchange for, such global security.
According to DTC, the foregoing information with respect to DTC has been provided
to the financial community for informational purposes only and is not intended to serve as a representation, warranty or contract modification of any kind.
Global Clearance and Settlement Procedures
. Initial settlement for the ARI Series C Preferred Stock will be made in immediately available funds.
Secondary market trading between DTCs Participants will occur in the ordinary way in accordance with DTCs rules and will be settled in immediately available funds using DTCs Same-Day Funds Settlement System.
Transfer Agent, Registrar, Dividend Disbursing Agent and Redemption Agent
The transfer agent, registrar, dividend disbursing agent and redemption agent for the ARI Series C Preferred Stock is Wells Fargo Bank, N.A.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER
The following summary with respect to restrictions on ownership and transfer of ARI stock sets forth certain general terms and provisions of ARIs
charter. This summary does not purport to be complete and is subject to and qualified in its entirety by reference to ARIs charter. Copies of ARIs charter and bylaws are filed as exhibits to ARIs Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See
Where You Can Find More Information; Incorporation by Reference
beginning on page 233. For a summary description of Maryland law and ARIs charter and bylaws, see
Description of Certain Provisions of the Maryland General Corporation Law and ARIs Charter and Bylaws
beginning on page 221. A copy of the Articles Supplementary is filed as Annex I to this proxy statement/prospectus.
In order for ARI to qualify as a REIT under the Internal Revenue Code, shares of its stock must be owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of ARIs stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
To qualify as a REIT, ARI must satisfy other requirements as well. See The Mergers and Related TransactionsMaterial U.S. Federal Income Tax ConsiderationsRequirements for Qualification as a REIT.
ARIs charter, including the Articles Supplementary, contains restrictions on the ownership and transfer of ARIs stock. The relevant sections of
ARIs charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own, beneficially or by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8%
by value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of ARI common stock, or 9.8% by value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of all classes and series
of ARIs stock. The Articles Supplementary for the ARI Series A Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock, respectively, prohibit any stockholder from beneficially or constructively owning more than 9.8% in
value or in number of shares, whichever is more restrictive, of the aggregate outstanding shares of the ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock, respectively. These limits are collectively referred
to as the ownership limit. An individual or entity is referred to as a prohibited owner if, but for the ownership limit or other restrictions on ownership and transfer of ARIs stock described below, had a violative
transfer or other event been effective, the individual or entity would have been a beneficial owner or, if appropriate, a record owner of shares of ARI stock.
The constructive ownership rules under the Internal Revenue Code are complex and may cause shares of stock owned actually or constructively by a group of
related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of ARI common stock,
ARI Series A Preferred Stock, ARI Series B Preferred Stock, ARI Series C Preferred Stock or capital stock of all classes and series (or the acquisition of an interest in an entity that owns, actually or constructively, shares of ARI stock by an
individual or entity), could, nevertheless, cause that individual or entity, or another individual or entity, to own constructively in excess of the ownership limit.
The ARI Board may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings,
prospectively or retroactively, waive all or any component of the ownership limit or establish a different limit on ownership, or excepted holder limit, for a particular stockholder, among other conditions, if the stockholders ownership in
excess of the ownership limit would not result in ARI being closely held within the meaning of Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable
year) or otherwise would result in ARI failing to qualify as a REIT. As a condition of its waiver or grant of excepted holder limit, the ARI Board may, but is not required to, require an opinion of counsel or ruling from the Internal Revenue
Service, or the IRS,
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satisfactory to the ARI Board in order to determine or ensure ARIs qualification as a REIT and may impose such other conditions and limitations as the ARI Board may determine. The ARI Board
has established an exemption from this ownership limit which permits Apollo and certain of its affiliates to collectively hold up to 25% of ARI common stock, a certain institutional investor to hold up to 19.9% of ARIs common stock and certain
institutional investors and certain of their specified affiliates to each collectively hold up to 15% of ARIs common stock.
In connection with
granting a waiver of the ownership limit, creating an excepted holder limit or at any other time, the ARI Board may from time to time increase or decrease all or any component of the ownership limit for all other individuals and entities unless,
after giving effect to such increase, five or fewer individuals could beneficially own in the aggregate more than 49.9% in value of the shares of all classes and series of ARI stock then outstanding or, with respect to an increase or decrease of the
ownership limit applicable to ARI common stock or all classes and series of ARI stock, ARI would otherwise fail to qualify as a REIT. Prior to the modification of the ownership limit, the ARI Board may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to determine or ensure ARIs qualification as a REIT. A reduced ownership limit will not apply to any person or entity whose percentage ownership of ARI common stock, ARI
Series A Preferred Stock, ARI Series B Preferred Stock, ARI Series C Preferred Stock or stock of all classes and series, as applicable, is in excess of such decreased ownership limit until such time as such individuals or entitys
percentage ownership of ARI common stock, ARI Series A Preferred Stock, ARI Series B Preferred Stock, ARI Series C Preferred Stock or stock of all classes and series, as applicable, equals or falls below the decreased ownership limit, but any
further acquisition of shares of ARI common stock, ARI Series A Preferred Stock, B Preferred Stock, ARI Series C Preferred Stock or stock of any other class or series, as applicable, in excess of such percentage ownership of ARI common stock, ARI
Series A Preferred Stock, B Preferred Stock, ARI Series C Preferred Stock or stock of all classes and series will be in violation of the ownership limit.
ARIs charter further prohibits:
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any person from beneficially or constructively owning, applying certain attribution rules of the Internal Revenue Code, shares of ARI stock that would result in ARI being closely held under
Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause ARI to fail to qualify as a REIT; and
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any person from transferring shares of ARI stock if such transfer would result in shares of ARI stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).
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Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of ARI stock that will or may
violate the ownership limit or any of the other foregoing restrictions on ownership and transfer of ARI stock, or who would have owned shares of ARI stock transferred to a trust as described below, must immediately give ARI written notice of the
event or, in the case of an attempted or proposed transaction, must give at least 15 days prior written notice to ARI and provide ARI with such other information as ARI may request in order to determine the effect of such transfer on ARIS
qualification as a REIT. The foregoing restrictions on ownership and transfer of ARI stock will not apply if the ARI Board determines that it is no longer in ARIs best interests to attempt to qualify, or to continue to qualify, as a REIT or
that compliance with the restrictions and limitations on ownership and transfer of ARI stock as described above is no longer required in order for ARI to qualify as a REIT.
If any transfer of shares of ARI stock would result in shares of ARI stock being beneficially owned by fewer than 100 persons, such transfer will be null and
void and the intended transferee will acquire no rights in such shares. In addition, if any purported transfer of shares of ARI stock or any other event would otherwise result in any person violating the ownership limit or an excepted holder limit
established by the ARI Board or in ARI being closely held under Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to
qualify as a REIT, then that number
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of shares (rounded up to the nearest whole share) that would cause such person to violate such restrictions will be automatically transferred to, and held by, a trust for the exclusive benefit of
one or more charitable organizations selected by ARI and the intended transferee will acquire no rights in such shares. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative
transfer or other event that results in a transfer to the trust. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable ownership limit or ARI being closely
held under Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT, then ARIs charter provides that the
transfer of the shares will be null and void.
Shares of stock transferred to the trustee are deemed offered for sale to ARI, or ARIs designee, at a
price per share equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the event that resulted in the transfer to the trust did not involve a purchase of such shares of stock at market price, the last reported
sales price on the NYSE (or other applicable exchange on which shares of ARI stock are listed) on the day of the event which resulted in the transfer of such shares of stock to the trust) and (2) the market price on the date ARI accepts, or
ARIs designee accepts, such offer. ARI may reduce this amount by the amount of any dividend or other distribution that ARI has paid to the prohibited owner before ARI discovered that the shares had been automatically transferred to the trust
and that are then owed to the trustee as described above, and ARI may pay the amount of any such reduction to the trustee for the benefit of the charitable beneficiary. ARI has the right to accept such offer until the trustee has sold the shares of
ARI stock held in the trust as discussed below. Upon a sale to ARI, the interest of the charitable beneficiary in the shares sold terminates, the trustee must distribute the net proceeds of the sale to the prohibited owner and any dividends or other
distributions held by the trustee with respect to such shares of stock will be paid to the charitable beneficiary.
If ARI does not buy the shares, the
trustee must, within 20 days of receiving notice from ARI of the transfer of shares to the trust, sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limit or the other
restrictions on ownership and transfer of ARI stock. After the sale of the shares, the interest of the charitable beneficiary in the shares transferred to the trust will terminate and the trustee must distribute to the prohibited owner an amount
equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the event which resulted in the transfer to the trust did not involve a purchase of such shares at market price, the last reported sales price on the NYSE
(or other applicable exchange) on the day of the event which resulted in the transfer of such shares of stock to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trust for the shares. The
trustee may (or in the case of shares of ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock transferred to the trust in connection with a violation of the ownership limit applicable to shares of ARI Series A
Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock, must) reduce the amount payable to the prohibited owner by the amount of any dividend or other distribution that ARI paid to the prohibited owner before ARI discovered
that the shares had been automatically transferred to the trust and that are then owed to the trustee as described above. Any net sales proceeds in excess of the amount payable to the prohibited owner must be immediately paid to the beneficiary of
the trust, together with any dividends or other distributions thereon. In addition, if, prior to discovery by ARI that shares of stock have been transferred to a trust, such shares of stock are sold by a prohibited owner, then such shares will be
deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount will be
paid to the trustee upon demand. The prohibited owner has no rights in the shares held by the trustee.
The trustee will be designated by ARI and will be
unaffiliated with ARI and with any prohibited owner. Prior to the sale of any shares by the trust, the trustee will receive, in trust for the beneficiary of the trust, all dividends and other distributions paid by ARI with respect to the shares held
in trust and may also exercise all voting rights with respect to the shares held in trust. These rights will be exercised for the exclusive benefit of the beneficiary of the trust. Any dividend or other distribution paid to a prohibited owner prior
to ARIs discovery that shares of stock have been transferred to the trust must be paid by the recipient to the trustee upon demand.
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Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee
will have the authority, at the trustees sole discretion:
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to rescind as void any vote cast by a prohibited owner prior to ARIs discovery that the shares have been transferred to the trust; and
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to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.
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However, if ARI has already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
In addition, if the ARI Board determines in good faith that a proposed transfer or other event would violate the restrictions on ownership and transfer of ARI
stock, the ARI Board may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing ARI to redeem the shares of stock, refusing to give effect to the transfer on ARIs
books or instituting proceedings to enjoin the transfer.
Every owner of more than 5% (or such lower percentage as required by the Internal Revenue Code
or the regulations promulgated thereunder) of ARI stock, within 30 days after the end of each taxable year, must give ARI written notice, stating the stockholders name and address, the number of shares of each class and series of ARI stock
that the stockholder beneficially owns and a description of the manner in which the shares are held. Each such owner must provide to ARI in writing such additional information as ARI may request in order to determine the effect, if any, of the
stockholders beneficial ownership on ARIs qualification as a REIT and to ensure compliance with the ownership limit applicable to ARI common stock or all classes and series of ARI stock. Every owner of ARI common stock, ARI Series A
Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock and each person holding ARI common stock, ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock on behalf of a beneficial or
constructive owner of ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock, as applicable must, within 30 days after the end of each taxable year, provide ARI with a completed questionnaire containing the
information regarding the ownership of such shares, as set forth in the regulations promulgated under the Internal Revenue Code, as in effect from time to time, and must, upon demand, provide ARI in writing with such information as ARI may request
in order to determine the effect, if any, of such persons actual or constructive ownership of ARI common stock, ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock on ARIs qualification as a REIT or
to ensure compliance with the ownership limit applicable to the ARI common stock, the ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI Series C Preferred Stock or any applicable excepted holder limit. In addition, each stockholder
must provide to ARI in writing such information as ARI may request in good faith in order to determine ARIs qualification as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such
compliance.
Any certificates representing shares of ARI stock must bear a legend referring to the restrictions described above.
These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change in control that might involve a premium price for the ARI
common stock or otherwise be in the best interest of the stockholders.
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DESCRIPTION OF CERTAIN PROVISIONS OF THE MARYLAND GENERAL
CORPORATION LAW AND ARIs CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of our charter and bylaws does not
purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and ARIs charter and bylaws. Copies of ARIs charter and bylaws are filed as exhibits to ARIs Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. See
Where You Can Find More Information; Incorporation by Reference
beginning on page 233. A copy of the Articles Supplementary is filed as Annex I to this proxy statement/prospectus.
ARIs Board of Directors
ARIs charter and
bylaws provide that, except as provided in the terms of ARI Series A Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock, the number of directors ARI has may be established only by the ARI Board but may not be fewer than
the minimum required under the MGCL, which is currently one, and ARIs bylaws provide that the number of ARIs directors may not be more than 15. Subject to the terms of any class or series of preferred stock, including ARI Series A
Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock, vacancies on the ARI Board may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any director
elected to fill a vacancy will hold office for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies.
At each annual meeting of ARIs stockholders, ARIs stockholders will elect each of ARIs directors to serve until the next annual meeting of
ARIs stockholders and until his or her successor is duly elected and qualifies. A plurality of the votes cast in the election of directors is sufficient to elect a director and holders of shares of common stock will have no right to cumulative
voting in the election of directors. Consequently, at each annual meeting of stockholders, subject to any applicable rights of holders of ARIs other securities, the holders of a majority of the shares of common stock entitled to vote will be
able to elect all of ARIs directors at any annual meeting.
Holders of ARI Series A Preferred Stock, ARI Series B Preferred Stock and ARI Series C
Preferred Stock generally have no voting rights in the election of directors. However, if and whenever dividends for six quarterly dividend periods (whether or not consecutive) payable on the ARI Series A Preferred Stock, ARI Series B Preferred
Stock or the ARI Series C Preferred Stock are in arrears, whether or not declared, the number of ARIs directors will be increased automatically by two (unless the number of ARIs directors has previously been so increased pursuant to the
terms of any class or series of preferred stock ranking on parity with the ARI Series A Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock, as applicable, with respect, in each case, to the payment of dividends and
amounts upon ARIs liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable (any such other series, the parity preferred stock) and with which the holders of ARI Series A
Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock are entitled to vote together as a single class in the election of such directors) and the holders of ARI Series A Preferred Stock, ARI Series B Preferred Stock or ARI
Series C Preferred Stock and the holders of any class or series of parity preferred stock with which the holders of ARI Series A Preferred Stock, ARI Series B Preferred Stock and ARI Series C Preferred Stock are entitled to vote together as a single
class in the election of such directors, voting as a single class, will have the right to elect two directors of ARI, or the Preferred Stock Directors, at any annual meeting of stockholders or properly called special meeting of the holders of the
ARI Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI Series C Preferred Stock (including to fill any vacancy on the board of directors resulting from the removal of a Preferred Stock Director), until all such prior dividends and
dividends for the then current quarterly period on the ARI Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI Series C Preferred Stock have been paid or declared and set aside for payment. Whenever all such dividends on the ARI
Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI Series C Preferred Stock, as applicable, then outstanding have been paid and
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full dividends on the ARI Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI Series C Preferred Stock, as applicable, for the then-current quarterly dividend period have been
paid in full or declared and set apart for payment in full, then the right of the holders of the ARI Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI Series C Preferred Stock, as applicable, to elect the Preferred Stock
Directors will cease and, unless there remain outstanding shares of parity preferred stock of any class or series for which the right to vote in the election of Preferred Stock Directors remains exercisable, the terms of office of the Preferred
Stock Directors will terminate automatically and the number of ARIs directors will be reduced accordingly and automatically. However, the right of the holders of the ARI Series A Preferred Stock, the ARI Series B Preferred Stock or the ARI
Series C Preferred Stock to elect the Preferred Stock Directors will again vest if and whenever dividends are in arrears for six new quarterly periods, as described above. In no event will the holders of ARI Series A Preferred Stock, ARI Series B
Preferred Stock and ARI Series C Preferred Stock be entitled to nominate or elect a director if such individuals election as a director would cause ARI to fail to satisfy a requirement relating to director independence of any national
securities exchange on which any class or series of ARIs stock is listed. In class votes with other parity preferred stock, preferred stock of different series may vote in proportion to the liquidation preference of the preferred stock.
Removal of Directors
ARIs charter provides that,
subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed with or without cause but only by the affirmative vote of at least two-thirds of the votes
entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of the ARI Board to fill vacancies, precludes stockholders from (1) removing incumbent directors except upon a two-thirds vote and
(2) filling the vacancies created by such removal with their own nominees. Preferred Stock Directors may be removed by the affirmative vote of a majority of the votes entitled to be cast in the election of Preferred Stock Directors.
Business Combinations
Under the MGCL, certain
business combinations (including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested
stockholder (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporations outstanding voting stock or an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation) or an affiliate of such an interested stockholder are prohibited for five years
after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must generally be recommended by the board of directors of the corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation and (b) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by
the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporations common stockholders
receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A person is not an interested stockholder under the
statute if the Maryland corporations board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. The board of directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and conditions determined by it.
Pursuant to the statute, the ARI Board has by resolution
exempted business combinations (1) between ARI and any other person, provided that such business combination is first approved by the ARI Board (including a majority of the directors for ARI who are not affiliates or associates of such person)
and (2) between ARI and Apollo or any of its affiliates and associates, or persons acting in concert with any of the foregoing. As a result, any person described above may be able to enter into business combinations with ARI that certain
stockholders
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believe may not be in the best interest of ARIs stockholders, without compliance with the supermajority vote requirements and other provisions of the statute. There is no assurance that
such resolution will not be amended or rescinded at any time in the future.
The business combination statute may discourage others from trying to acquire
control of ARI and increase the difficulty of consummating any offer.
Control Share Acquisitions
The MGCL provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting
rights with respect to the control shares except to the extent approved by the affirmative vote of two-thirds of the votes entitled to be cast by stockholders on the matter, other than: (1) the person who makes or proposes to make a control
share acquisition, (2) an officer of the corporation or (3) an employee of the corporation who is also a director of the corporation. Control shares are issued and outstanding voting shares of stock which, if aggregated with
all other such shares of stock owned by the acquiror, or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power
in electing directors within one of the following ranges of voting power: (A) one-tenth or more but less than one-third; (B) one-third or more but less than a majority; or (C) a majority of all voting power. Control shares do not
include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A control share acquisition means the acquisition of
issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and delivering an acquiring person statement as described in the MGCL), may compel the corporations board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence
of voting rights for the control shares, as of the date of any meeting of stockholders at which the voting rights of such shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by
the acquiror. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value
of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to, among other things, (a) shares acquired in a merger, consolidation or statutory share exchange
if the corporation is a party to the transaction or (b) acquisitions approved or exempted by the charter or bylaws of the corporation.
ARIs
bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of ARIs stock. There is no assurance that such provision will not be amended or eliminated at any time in the
future.
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Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three
independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which
provide for:
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a two-thirds vote requirement for removing a director;
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a requirement that the number of directors be fixed only by vote of the board of directors;
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a requirement that a vacancy on the board be filled only by the remaining directors in office and (if the board is classified) for the remainder of the remaining term of the class of directors in which the vacancy
occurred; and
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a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
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ARI has
elected in its charter to be subject to the provision of Subtitle 8 that provides that, except as provided in the terms of any class or series of stock of ARI, including the ARI Series A Preferred Stock, the ARI Series B Preferred Stock and the ARI
Series C Preferred Stock, vacancies on the ARI Board may be filled only by the remaining directors and that directors elected to fill vacancies will serve for the remainder of the term of the directorship in which the vacancy occurred. Through
provisions in the ARI charter and bylaws unrelated to Subtitle 8, ARI already (1) requires the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast generally in the election of
directors for the removal of any director (other than a Preferred Stock Director) from the ARI Board, with or without cause, (2) vests in the ARI Board the exclusive power to fix the number of directorships and (3) requires, unless called
by the chairman of the ARI Board, ARIs chief executive officer, ARIs president or the ARI Board, the written request of stockholders entitled to cast not less than a majority of all votes entitled to be cast at such a meeting to call a
special meeting.
Meetings of Stockholders
Pursuant
to ARIs bylaws, a meeting of ARIs stockholders for the election of directors and the transaction of any business will be held annually on a date and at the time and place set by the ARI Board. The chairman of the ARI Board, ARIs
chief executive officer, ARIs president or the ARI Board may call a special meeting of ARIs stockholders. Subject to the provisions of ARIs bylaws (and other than a special meeting called as described above for the purpose of
electing Preferred Stock Directors), a special meeting of ARIs stockholders to act on any matter that may properly be brought before a meeting of ARIs stockholders will also be called by ARIs secretary upon the written request of
the stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting on such matter and containing the information required by ARIs bylaws. ARIs secretary will inform the requesting stockholders of the
reasonably estimated cost of preparing and delivering the notice of meeting (including ARIs proxy materials), and the requesting stockholder must pay such estimated cost before ARIs secretary is required to prepare and deliver the notice
of the special meeting.
Exclusive Forum for Certain Litigation
ARIs bylaws provide that, unless it consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or if
that court does not have jurisdiction because the action asserts a federal claim, the U.S. district court for the district of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any derivative action or proceeding brought
on ARIs behalf, (b) any action asserting a claim of breach of any duty owed by any director, officer or other employee or agent to ARI or to ARIs stockholders, (c) any action asserting a claim against ARI or any director,
officer or other employee or agent of ARI arising pursuant to any provision of the MGCL or ARIs charter or bylaws or (d) any action asserting a claim against ARI or any director, officer or other employee or agent that is governed by the
internal affairs doctrine.
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Amendment to ARIs Charter and Bylaws
Except for amendments to the provisions of ARIs charter relating to the removal of directors and the restrictions on ownership and transfer of ARIs
stock, and the vote required to amend these provisions (each of which must be advised by the ARI Board and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of all the votes entitled to be cast on the matter),
ARIs charter generally may be amended only if advised by the ARI Board and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. The affirmative vote of at least
two-thirds of the votes entitled to be cast by holders of outstanding shares of ARI Series A Preferred Stock, ARI Series B Preferred Stock, ARI Series C Preferred Stock and any other class or series of parity preferred stock upon which like voting
rights have been conferred (voting together as a single class) is required to amend ARIs charter (including the Articles Supplementary) in a manner that materially and adversely affects the rights of the ARI Series A Preferred Stock, ARI
Series B Preferred Stock, ARI Series C Preferred Stock and any such other class or series of parity preferred stock, except that, if such amendment does not affect equally the rights, preferences, privileges or voting powers of one or more class or
series of preferred stock so voting together as a single class, the consent of the holders of at least two-thirds of the outstanding shares of each class or series of preferred stock not affected equally (each voting as a separate class) is required
to approve such amendment.
The ARI Board has the exclusive power to adopt, alter or repeal any provision of ARIs bylaws and to make new bylaws.
Dissolution of ARI
The dissolution of ARI must be
advised by a majority of the entire ARI Board and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New Business
ARIs bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to the ARI Board and the proposal of
other business to be considered by stockholders may be made only (1) pursuant to ARIs notice of the meeting, (2) by or at the direction of the ARI Board or (3) by a stockholder who was a stockholder of record both at the time of
giving the notice required by the ARI bylaws and at the time of the meeting, who is entitled to vote at the meeting on such business or in the election of such nominee and who has provided notice to ARI within the time period containing the
information specified by the advance notice provisions set forth in ARIs bylaws.
With respect to special meetings of stockholders, only the
business specified in ARIs notice of meeting may be brought before the meeting. Nominations of individuals for election to the ARI Board may be made only (1) by or at the direction of the ARI Board or (2) provided that the meeting
has been called for the purpose of electing directors, by a stockholder who was a stockholder of record both at the time of giving the notice required by the ARI bylaws and at the time of the special meeting, who is entitled to vote at the meeting
in the election of such nominee and who has provided notice to us within the time period containing the information specified by the advance notice provisions set forth in the ARI bylaws.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of ARIs Charter and Bylaws
ARIs charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve
a premium price for shares of ARI common stock or otherwise be in the best interests of ARIs stockholders, including business combination provisions, supermajority vote requirements and advance notice requirements for director nominations and
stockholder proposals. Likewise, if the provision in the ARI bylaws opting out of the control share acquisition provisions of the MGCL were amended or rescinded by the ARI Board or if ARI were to opt in to the classified board or other provisions of
Subtitle 8, these provisions of the MGCL could have similar anti-takeover effects.
225
Limitation of Liability and Indemnification of Directors and Officers
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation
and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that was established by a final judgment and was material
to the cause of action. ARIs charter contains a provision that eliminates the liability of its directors and officers to ARI and its stockholders to the maximum extent permitted by Maryland law.
The MGCL requires ARI (unless its charter provides otherwise, which ARIs charter does not) to indemnify any of ARIs directors or officers who have
been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity to ARI. The MGCL permits ARI to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in
those or other capacities unless it is established that:
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the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty;
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the director or officer actually received an improper personal benefit in money, property or services; or
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in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
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Under the MGCL, ARI may not indemnify a director or officer in a suit brought by ARI or on ARIs behalf in which the director or officer was adjudged
liable to ARI or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably
entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a
suit by ARI or on ARIs behalf, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
In addition, the MGCL permits ARI to advance reasonable expenses to a director or officer upon ARIs receipt of:
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a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by ARI; and
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a written undertaking by the director or officer or on the directors or officers behalf to repay the amount paid or reimbursed by ARI if it is ultimately determined that the director or officer did not meet
the standard of conduct.
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ARIs charter authorizes ARI to obligate itself and ARIs bylaws obligate it, to the maximum extent
permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to:
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any present or former director or officer who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity; or
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any individual who, while a director or officer of ARI and at ARIs request, serves or has served as a director, officer, partner, manager, managing member or trustee of another corporation, real estate investment
trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.
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ARIs charter and bylaws also permit ARI to indemnify and advance expenses to any person who served a
predecessor of ARIs in any of the capacities described above and to any employee or agent of ARI or a predecessor of ARI.
ARI has entered into
indemnification agreements with each of its directors and officers that provide for indemnification to the maximum extent permitted by Maryland law.
Insofar as the foregoing provisions permit indemnification of directors, officers or persons controlling ARI for liability arising under the Securities Act,
ARI has been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. For a discussion of the indemnification provisions of the merger agreement, see
The Mergers and Related TransactionsIndemnification and Insurance
on page 88.
REIT Qualification
ARIs charter provides that the ARI Board may authorize ARI to revoke or otherwise terminate ARIs REIT election, without approval of ARIs
stockholders, if it determines that it is no longer in ARIs best interests to continue to qualify as a REIT.
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COMPARISON OF STOCKHOLDER RIGHTS
If the First Merger is consummated, the holders of AMTG common stock will become holders of the ARI common stock. The rights of AMTG stockholders are
currently governed by and subject to the provisions of the MGCL, and the charter and bylaws of AMTG. Upon consummation of the First Merger, the rights of the former AMTG common stockholders who receive ARI common stock will be governed by the MGCL
and the charter and bylaws of ARI, rather than the charter and bylaws of AMTG. Because both ARI and AMTG are governed by the MGCL and the charter and bylaws of ARI are substantially the same as the charter and bylaws of AMTG, there are no material
differences between the rights of holders of ARI common stock (which will be the rights of holders of the common stock of the Combined Company following the First Merger) and the holders of AMTG common stock under the MGCL or the charter and bylaws
of ARI and AMTG. For a summary description of Maryland law and ARIs charter and bylaws, see
Description of Certain Provisions of the Maryland General Corporation Law and ARIs Charter and Bylaws
beginning on page 221.
Additionally, if the Second Merger is consummated, the AMTG Series A Preferred Stock will be converted into ARI Series C Preferred Stock. The terms of
these securities are substantially similar.
You are urged to read carefully the relevant provisions of the MGCL, as well as the governing corporate
instruments of each of ARI and AMTG, copies of which are available, without charge, to any person, including any beneficial owner to whom this proxy statement/prospectus is delivered, by following the instructions listed under
Where You Can
Find More Information; Incorporation by Reference
beginning on page 233.
228
LEGAL MATTERS
The validity of the shares of ARI common stock and ARI Series C Preferred Stock to be issued in connection with the mergers will be passed upon for ARI by
Clifford Chance US LLP.
229
AMTG EXPERTS
The financial statements incorporated in this proxy statement/prospectus by reference from AMTGs Annual Report on Form
10-K
for the year ended December 31, 2015, and the effectiveness of AMTGs internal control over financial reporting have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is incorporated herein by reference. Such financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and
auditing.
ARI EXPERTS
The financial statements, and the related financial statement schedule, incorporated in this proxy statement/prospectus by reference from ARIs Annual
Report on Form 10-K for the year ended December 31, 2015, and the effectiveness of ARIs internal control over financial reporting have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report, which is incorporated herein by reference. Such financial statements and financial statement schedule have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and
auditing.
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DEADLINE FOR AMTG STOCKHOLDER PROPOSALS
In light of the expected timing of the completion of the mergers, AMTG expects to hold its 2016 annual meeting of stockholders only if the mergers are not
completed or if AMTG is otherwise required to do so under applicable law.
In the event AMTG holds a 2016 annual meeting of stockholders, any stockholder
intending to present a proposal at AMTGs 2016 annual meeting of stockholders and have the proposal included in the proxy statement and proxy card for such meeting (pursuant to Rule 14a-8 of the Exchange Act) must, in addition to complying with
the applicable laws and regulations governing submissions of such proposals, have submitted the proposal in writing to AMTG no later than December 31, 2015 and must otherwise be in compliance with the requirements of the SECs proxy rules.
However, pursuant to Rule 14a-8 of the Exchange Act, if AMTGs 2016 annual meeting of stockholders is changed by more than 30 days from the date of the previous years annual meeting of stockholders, a proposal must be submitted a
reasonable time before AMTG begins to print and send its proxy materials.
AMTGs bylaws currently provide that any stockholder intending to nominate
a director or present a stockholder proposal of other business for consideration at the 2016 annual meeting of stockholders, but not intending for such a nomination or proposal to be considered for inclusion in AMTGs proxy statement and proxy
card relating to such meeting (i.e., not pursuant to Rule 14a-8 of the Exchange Act), must notify AMTG in writing no earlier than the 150th day and not later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date
of the proxy statement for the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting with respect to which such notice is to be tendered is not held within 30 days before or after the
anniversary of the date of the preceding years annual meeting of stockholders, to be timely, notice by the stockholder must be received no later than the 150th day and not later than 5:00 p.m., Eastern Time, on the 120th day prior to the first
anniversary of the date of the immediately preceding annual meeting of stockholders, as originally convened, or the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made. The
written notice must have set forth the information and include the materials required by AMTGs bylaws. The advance notice procedures set forth in AMTGs bylaws do not affect the right of stockholders to request the inclusion of proposals
in AMTGs proxy statement pursuant to SEC rules.
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NO APPRAISAL RIGHTS
AMTGs charter provides that AMTGs stockholders shall not be entitled to exercise any rights of an objecting stockholder provided for under the
MGCL unless the AMTG Board, upon the affirmative vote of a majority of the AMTG Board, determines that such rights apply. The AMTG Board has not made (and is not permitted to make under the terms of the merger agreement) such determination.
232
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
ARI and AMTG each file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You may
read and copy any of this information at the SECs Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC also
maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including ARI and AMTG, who file electronically with the SEC. The address of that site is
www.sec.gov
.
Investors may also consult ARIs or AMTGs website for more information about ARI or AMTG, respectively. ARIs website is
www.apolloreit.com
. AMTGs website is
www.apolloresidentialmortgage.com
. Information included on these websites is not incorporated by reference into or otherwise a part of this proxy statement/prospectus.
ARI has filed with the SEC a registration statement on Form S-4 of which this proxy statement/prospectus forms a part. The registration statement registers
(i) the shares of ARI common stock to be issued to holders of AMTG common stock in the First Merger and (ii) the shares of ARI Series C Preferred Stock to be issued to holders of AMTG Series A Preferred Stock in the Second Merger. The
registration statement, including the exhibits and schedules thereto, contains additional relevant information about ARI common stock and the ARI Series C Preferred Stock. As allowed by SEC rules and regulations, this proxy statement/prospectus does
not contain all of the information you can find in the registration statement or the exhibits and schedules to the registration statement.
In addition,
the SEC allows ARI and AMTG to disclose important information to you by referring you to other documents filed separately with the SEC. This information is considered to be a part of this proxy statement/prospectus, except for any information that
is superseded by information included directly in this proxy statement/prospectus. This proxy statement/prospectus contains summaries of certain provisions contained in some of the ARI or AMTG documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by reference to the actual documents.
ARIs
Filings (SEC File No. 001-34452)
This proxy statement/prospectus incorporates by reference the documents listed below that ARI has previously
filed with the SEC;
provided
,
however
, that we are not incorporating by reference, in each case, any documents, portions of documents or information deemed to have been furnished and not filed in accordance with SEC rules. The
documents listed below contain important information about ARI, its financial condition or other matters.
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Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, filed with the SEC on April 27, 2016.
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Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 26, 2016.
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Current Reports on Form 8-K, filed on January 26, 2016, February 10, 2016, February 26, 2016, May 17, 2016 and June 30, 2016 (other than documents or portions of those documents not deemed to be
filed).
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Proxy Statement for ARIs 2016 Annual Meeting of Stockholders, on Schedule 14A filed with the SEC on April 1, 2016.
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In addition, ARI incorporates by reference herein any filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of the initial registration statement that contains this proxy statement/prospectus and prior to the effectiveness of this proxy statement/prospectus and any future filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this proxy statement/prospectus and prior to the effective date of the First Merger (other than information furnished pursuant to Item 2.02 or Item 7.01 of any Current Report on Form 8-K or exhibits filed
under Item 9.01 relating to those Items, unless expressly stated otherwise therein). Such documents are considered to be a part of this proxy statement/prospectus, effective as of the date such documents are filed. In the event of conflicting
information in these documents, the information in the latest filed document should be considered correct.
233
Because the First Merger is a going private transaction, the parties to the mergers have filed a
Transaction Statement on Schedule 13E-3 with respect to the proposed mergers with the SEC. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference as a part of it, is available for inspection as set forth above.
The Schedule 13E-3 will be amended to report promptly any material change in the information set forth in the most recent Schedule 13E-3 filed with the SEC with respect to the mergers.
You may obtain any of the documents listed above from the SEC, through the SECs website at the address described above or from ARI by requesting them in
writing or by telephone at the following address:
Apollo Commercial Real Estate Finance, Inc.
Attention: Secretary
c/o Apollo Global Management, LLC
9 W. 57
th
Street, 43
rd
Floor
New York, NY 10019
Telephone: (212) 515-3200
These documents are available from ARI without charge, excluding any exhibits to them unless the exhibit is specifically listed as an exhibit to the
registration statement of which this proxy statement/prospectus forms a part.
AMTGs Filings (SEC File No. 001-35246)
This proxy statement/prospectus also incorporates by reference the documents listed below that AMTG has previously filed with the SEC;
provided
,
however
, that we are not incorporating by reference, in each case, any documents, portion of documents or information deemed to have been furnished and not filed in accordance with SEC rules. The documents listed below contain important
information about AMTG, its financial condition or other matters.
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Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the SEC on May 10, 2016.
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Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 4, 2016.
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Annual Report on Form 10-K/A for the fiscal year ended December 31, 2015, filed with the SEC on April 28, 2016.
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Current Report on Form 8-K, filed on February 26, 2016 and June 30, 2016 (other than documents or portions of those documents not deemed to be filed).
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In addition, AMTG incorporates by reference any filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of the initial registration statement that contains this proxy statement/prospectus and prior to the effectiveness of this proxy statement/prospectus and any future filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement/prospectus and prior to the date of the AMTG special meeting (other than information furnished pursuant to Item 2.02 or Item 7.01 of any Current Report on Form 8-K or exhibits filed under
Item 9.01 relating to those Items, unless expressly stated otherwise therein). Such documents are considered to be a part of this proxy statement/prospectus, effective as of the date such documents are filed. In the event of conflicting
information in these documents, the information in the latest filed document should be considered correct.
You may obtain any of these documents from the
SEC, through the SECs website at the address described above, or AMTG will provide you with copies of these documents, without charge, upon written or oral request to:
Apollo Residential Mortgage, Inc.
Attention: Secretary
c/o Apollo
Global Management, LLC
9 W. 57
th
Street, 43
rd
Floor
New York, NY 10019
Telephone: (212) 515-3200
234
If you are a stockholder of AMTG and would like to request documents, please do so by August 16, 2016, to receive
them before the AMTG special meeting, as applicable. If you request any documents from ARI or AMTG, ARI or AMTG, as applicable, will mail them to you by first class mail, or another equally prompt means, within one business day after ARI or AMTG
receives your request.
If you have any questions about the mergers or how to submit your proxy, or you need additional copies of this proxy
statement/prospectus, the enclosed proxy card or voting instructions, you can also contact Alliance Advisors, LLC, AMTGs proxy solicitor at the following address and telephone number:
Alliance Advisors, LLC
200 Broadacres Drive, 3rd Floor
Bloomfield, NJ 07003
Toll-Free:
855-928-4478
Apollo@allianceadvisorsllc.com
This document is a prospectus of ARI and is a proxy statement of AMTG for the AMTG special meeting. Neither ARI nor AMTG has authorized anyone to give any
information or make any representation about the mergers or ARI or AMTG that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that ARI or AMTG has incorporated by reference into this
proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this proxy statement/prospectus speaks only as of the date of this proxy statement/prospectus unless the
information specifically indicates that another date applies.
235
Annex A
Execution Version
AGREEMENT AND PLAN OF MERGER
by and among
APOLLO
COMMERCIAL REAL ESTATE FINANCE, INC.,
ARROW MERGER SUB, INC.
and
APOLLO RESIDENTIAL
MORTGAGE, INC.
dated as of
February 26, 2016
TABLE OF CONTENTS
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ARTICLE I THE MERGERS
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A-2
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Section 1.1
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The Mergers
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A-2
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Section 1.2
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Closing
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A-2
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Section 1.3
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Effective Times
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A-2
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Section 1.4
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Effects of Mergers
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A-3
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Section 1.5
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Governing Documents
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A-3
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Section 1.6
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Directors and Officers of each Surviving Entity
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A-3
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Section 1.7
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Tax Consequences
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A-3
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Section 1.8
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Transaction Structure
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A-3
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Section 1.9
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Further Assurances
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A-4
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ARTICLE II TREATMENT OF SECURITIES
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A-4
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Section 2.1
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Treatment of Stock
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A-4
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Section 2.2
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Payment for Securities; Surrender of Certificates
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A-5
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Section 2.3
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Dissenters Rights
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A-8
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Section 2.4
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Treatment of Company Restricted Shares; and DRIP
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A-9
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Section 2.5
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Withholding
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A-9
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Section 2.6
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Fractional Shares
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A-9
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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A-10
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Section 3.1
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Organization and Qualification; Subsidiaries
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A-10
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Section 3.2
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Capitalization
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A-11
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Section 3.3
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Authorization; Validity of Agreement; Company Action
|
|
|
A-12
|
|
Section 3.4
|
|
Board Approvals
|
|
|
A-12
|
|
Section 3.5
|
|
Consents and Approvals; No Violations
|
|
|
A-12
|
|
Section 3.6
|
|
Company SEC Documents and Company Financial Statements
|
|
|
A-13
|
|
Section 3.7
|
|
Internal Controls; Sarbanes-Oxley Act
|
|
|
A-14
|
|
Section 3.8
|
|
Absence of Certain Changes
|
|
|
A-14
|
|
Section 3.9
|
|
No Undisclosed Liabilities
|
|
|
A-15
|
|
Section 3.10
|
|
Litigation
|
|
|
A-15
|
|
Section 3.11
|
|
Company Employee Benefit Plans; ERISA
|
|
|
A-15
|
|
Section 3.12
|
|
Taxes
|
|
|
A-16
|
|
Section 3.13
|
|
Contracts
|
|
|
A-18
|
|
Section 3.14
|
|
Investment Company Act
|
|
|
A-19
|
|
Section 3.15
|
|
Intellectual Property
|
|
|
A-19
|
|
Section 3.16
|
|
Compliance with Laws; Permits
|
|
|
A-19
|
|
Section 3.17
|
|
Assets and Properties
|
|
|
A-20
|
|
Section 3.18
|
|
Investments
|
|
|
A-20
|
|
Section 3.19
|
|
Information in the Proxy Statement
|
|
|
A-20
|
|
Section 3.20
|
|
Opinion of Company Financial Advisor
|
|
|
A-21
|
|
Section 3.21
|
|
Insurance
|
|
|
A-21
|
|
Section 3.22
|
|
Related Party Transactions
|
|
|
A-21
|
|
Section 3.23
|
|
Brokers; Expenses
|
|
|
A-21
|
|
Section 3.24
|
|
Takeover Statutes
|
|
|
A-21
|
|
Section 3.25
|
|
Vote Required
|
|
|
A-21
|
|
Section 3.26
|
|
No Other Representations or Warranties
|
|
|
A-22
|
|
Section 3.27
|
|
Acknowledgement by the Company
|
|
|
A-22
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
|
|
|
A-22
|
|
Section 4.1
|
|
Organization and Qualification
|
|
|
A-22
|
|
Section 4.2
|
|
Capitalization
|
|
|
A-23
|
|
Section 4.3
|
|
Authorization; Validity of Agreement; Parent Action
|
|
|
A-24
|
|
Section 4.4
|
|
Board Approvals
|
|
|
A-25
|
|
A-i
|
|
|
|
|
|
|
Section 4.5
|
|
Consents and Approvals; No Violations
|
|
|
A-25
|
|
Section 4.6
|
|
Parent SEC Documents and Parent Financial Statements
|
|
|
A-25
|
|
Section 4.7
|
|
Internal Controls; Sarbanes-Oxley Act
|
|
|
A-26
|
|
Section 4.8
|
|
Absence of Certain Changes
|
|
|
A-27
|
|
Section 4.9
|
|
No Undisclosed Liabilities
|
|
|
A-27
|
|
Section 4.10
|
|
Litigation
|
|
|
A-27
|
|
Section 4.11
|
|
Parent Employee Benefit Plans; ERISA
|
|
|
A-27
|
|
Section 4.12
|
|
Taxes
|
|
|
A-27
|
|
Section 4.13
|
|
Investment Company Act
|
|
|
A-29
|
|
Section 4.14
|
|
Compliance with Laws; Permits
|
|
|
A-30
|
|
Section 4.15
|
|
Information in the Proxy Statement
|
|
|
A-30
|
|
Section 4.16
|
|
Opinion of Parent Financial Advisor
|
|
|
A-30
|
|
Section 4.17
|
|
Brokers; Expenses
|
|
|
A-31
|
|
Section 4.18
|
|
Sufficiency of Funds
|
|
|
A-31
|
|
Section 4.19
|
|
Ownership of Company Common Stock
|
|
|
A-31
|
|
Section 4.20
|
|
Related Party Transactions
|
|
|
A-31
|
|
Section 4.21
|
|
Takeover Statutes
|
|
|
A-31
|
|
Section 4.22
|
|
Vote Required
|
|
|
A-31
|
|
Section 4.23
|
|
No Other Representations or Warranties
|
|
|
A-31
|
|
Section 4.24
|
|
Acknowledgement by Parent and Merger Sub
|
|
|
A-31
|
|
|
|
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE FIRST
MERGER
|
|
|
A-32
|
|
Section 5.1
|
|
Conduct of Business by the Company Pending the Closing
|
|
|
A-32
|
|
Section 5.2
|
|
Conduct of Business by Parent Pending the Closing
|
|
|
A-35
|
|
Section 5.3
|
|
Acquisition Proposals; Go-Shop Period
|
|
|
A-36
|
|
Section 5.4
|
|
Preparation of the Form S-4 and the Proxy Statement; Stockholders Meetings
|
|
|
A-40
|
|
|
|
ARTICLE VI ADDITIONAL AGREEMENTS
|
|
|
A-42
|
|
Section 6.1
|
|
Access; Confidentiality; Notice of Certain Events
|
|
|
A-42
|
|
Section 6.2
|
|
Consents and Approvals
|
|
|
A-43
|
|
Section 6.3
|
|
Publicity
|
|
|
A-44
|
|
Section 6.4
|
|
Directors and Officers Insurance and Indemnification
|
|
|
A-45
|
|
Section 6.5
|
|
Takeover Statutes
|
|
|
A-46
|
|
Section 6.6
|
|
Obligations of Merger Sub
|
|
|
A-46
|
|
Section 6.7
|
|
Rule 16b-3
|
|
|
A-46
|
|
Section 6.8
|
|
Control of Operations
|
|
|
A-46
|
|
Section 6.9
|
|
Transaction Litigation
|
|
|
A-46
|
|
Section 6.10
|
|
Delisting
|
|
|
A-46
|
|
Section 6.11
|
|
Director and Officer Resignations
|
|
|
A-47
|
|
Section 6.12
|
|
Certain Tax Matters
|
|
|
A-47
|
|
Section 6.13
|
|
Tax Opinions and Tax Representation Letters
|
|
|
A-47
|
|
Section 6.14
|
|
Stock Exchange Listing
|
|
|
A-47
|
|
Section 6.15
|
|
Dividends
|
|
|
A-47
|
|
Section 6.16
|
|
Financing Cooperation
|
|
|
A-48
|
|
Section 6.17
|
|
Company Investment Activity
|
|
|
A-49
|
|
Section 6.18
|
|
Company Investment Guidelines
|
|
|
A-49
|
|
Section 6.19
|
|
Certain Financial Reporting
|
|
|
A-50
|
|
Section 6.20
|
|
Ownership Limit
|
|
|
A-50
|
|
|
|
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE FIRST MERGER
|
|
|
A-50
|
|
Section 7.1
|
|
Conditions to Each Partys Obligations to Effect the First Merger
|
|
|
A-50
|
|
Section 7.2
|
|
Conditions to Obligations of Parent and Merger Sub
|
|
|
A-51
|
|
Section 7.3
|
|
Conditions to Obligations of the Company
|
|
|
A-51
|
|
A-ii
|
|
|
|
|
|
|
ARTICLE VIII TERMINATION
|
|
|
A-52
|
|
Section 8.1
|
|
Termination by Mutual Consent
|
|
|
A-52
|
|
Section 8.2
|
|
Termination by Either Parent or the Company
|
|
|
A-53
|
|
Section 8.3
|
|
Termination by the Company
|
|
|
A-53
|
|
Section 8.4
|
|
Termination by Parent
|
|
|
A-54
|
|
Section 8.5
|
|
Effect of Termination
|
|
|
A-54
|
|
|
|
ARTICLE IX MISCELLANEOUS
|
|
|
A-57
|
|
Section 9.1
|
|
Amendment and Modification; Waiver
|
|
|
A-57
|
|
Section 9.2
|
|
Non-Survival of Representations and Warranties
|
|
|
A-57
|
|
Section 9.3
|
|
Expenses
|
|
|
A-57
|
|
Section 9.4
|
|
Notices
|
|
|
A-57
|
|
Section 9.5
|
|
Certain Definitions
|
|
|
A-59
|
|
Section 9.6
|
|
Terms Defined Elsewhere
|
|
|
A-66
|
|
Section 9.7
|
|
Interpretation
|
|
|
A-68
|
|
Section 9.8
|
|
Counterparts
|
|
|
A-68
|
|
Section 9.9
|
|
Entire Agreement; Third-Party Beneficiaries
|
|
|
A-69
|
|
Section 9.10
|
|
Severability
|
|
|
A-69
|
|
Section 9.11
|
|
Governing Law; Jurisdiction
|
|
|
A-69
|
|
Section 9.12
|
|
Waiver of Jury Trial
|
|
|
A-70
|
|
Section 9.13
|
|
Assignment
|
|
|
A-70
|
|
Section 9.14
|
|
Enforcement; Remedies
|
|
|
A-70
|
|
Section 9.15
|
|
No Recourse
|
|
|
A-71
|
|
Schedules:
|
|
|
|
|
Schedule A
|
|
-
|
|
Parent Knowledge Parties
|
Schedule B
|
|
-
|
|
Company Knowledge Parties
|
Schedule C
|
|
-
|
|
Company Book Value Methodology
|
Schedule 2.4(a)
|
|
-
|
|
Rollover Restricted Shares
|
Schedule 6.17(a)
|
|
-
|
|
Hedging Guidelines
|
Schedule 6.18
|
|
-
|
|
Company Investment Guidelines
|
Company Disclosure Letter
Parent Disclosure Letter
Exhibits:
|
|
|
|
|
Exhibit A
|
|
-
|
|
Articles Supplementary to Parent Charter
|
Exhibit B-1
|
|
-
|
|
First Merger Articles of Merger
|
Exhibit B-2
|
|
-
|
|
Second Merger Articles of Merger
|
A-iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this
Agreement
), dated February 26, 2016, is by and among
Apollo Commercial Real Estate Finance, Inc., a Maryland corporation (
Parent
), Arrow Merger Sub, Inc., a Maryland corporation and a wholly owned subsidiary of Parent (
Merger Sub
), and Apollo Residential Mortgage,
Inc., a Maryland corporation (the
Company
). All capitalized terms used in this Agreement shall have the meaning ascribed to such terms in
Section 9.5
or as otherwise defined elsewhere in this Agreement unless the context
clearly provides otherwise. Parent, Merger Sub and the Company are each sometimes referred to herein as a
Party
and collectively as the
Parties
.
RECITALS
WHEREAS, the
board of directors of Parent (the
Parent Board
) established a special committee thereof (the
Parent Board Special Committee
) to review, evaluate and, if desirable, pursue a potential business combination
transaction with the Company which transaction (if any) is subject to the approval of the Parent Board;
WHEREAS, the board of directors
of the Company (the
Company Board
) has established a special committee thereof (the
Company Board Special Committee
) to evaluate a proposal from the Parent Board Special Committee regarding a business
combination transaction between Parent and the Company and to explore and evaluate other alternatives, including other strategic alternatives;
WHEREAS, the Parties wish to effect a business combination through (i) a merger of Merger Sub with and into the Company, with the Company as
the surviving entity (the
First Merger
) and, promptly thereafter, a merger of the Company with and into Parent (the
Second Merger
and, together with the First Merger, the
Mergers
), in each
case, on the terms and subject to the conditions set forth in this Agreement and in accordance with the Maryland General Corporation Law (the
MGCL
);
WHEREAS, upon the recommendation of the Company Board Special Committee, the Company Board has (a) approved this Agreement, the Mergers and
the other transactions contemplated by this Agreement (collectively, the
Transactions
), (b) determined and declared that it is advisable and in the best interests of the Company and its stockholders to enter into this Agreement
and to consummate the Mergers and the other Transactions on the terms and conditions set forth herein, (c) directed that the First Merger and the Transactions be submitted for consideration at a meeting of the Companys stockholders and (d)
resolved, subject to the terms and conditions of
Section 5.3
of this Agreement, to recommend that the Companys stockholders approve the First Merger and the Transactions (the
Company Board Recommendation
) and to
include such recommendation in the Proxy Statement;
WHEREAS, upon the recommendation of the Parent Board Special Committee, the Parent
Board has determined and declared that it is advisable and in the best interests of Parent and its Stockholders to enter into this Agreement, and to consummate the Mergers and the other Transactions on the terms and conditions set forth herein;
WHEREAS, (a) the board of directors of Merger Sub has (i) determined and declared that it is advisable and in the best interests of Merger Sub
and its sole stockholder to enter into this Agreement and to consummate the Mergers and the other Transactions on the terms and conditions set forth herein and (ii) approved this Agreement and (b) Parent, in its capacity as the sole stockholder of
Merger Sub, has approved this Agreement, the Mergers and the Transactions and taken all actions required for adoption, approval and due execution of this Agreement by Merger Sub and the consummation by Merger Sub of the First Merger and the other
Transactions (to the extent Merger Sub is a party thereto); and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the Mergers and also prescribe various conditions to the Mergers.
A-1
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
THE MERGERS
Section 1.1
The Mergers
.
(a) Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the MGCL,
at the First Merger Effective Time, Merger Sub shall be merged with and into the Company, whereupon the separate existence of Merger Sub will cease, with the Company surviving the First Merger (the Company, as the surviving corporation in the First
Merger, sometimes being referred to herein as the
First Merger Surviving Entity
), such that following the First Merger, the First Merger Surviving Entity will be a Subsidiary of Parent. The First Merger shall have the effects
provided in this Agreement and as specified in the MGCL.
(b) Promptly following the First Merger Effective Time, and in accordance with
this Agreement and the MGCL, the First Merger Surviving Entity shall be merged with and into Parent, whereupon the separate existence of the First Merger Surviving Entity will cease, with Parent surviving the Second Merger (Parent, as the surviving
corporation in the Second Merger, sometimes being referred to herein as the
Second Merger Surviving Entity
). The Second Merger shall have the effects provided in this Agreement and as specified in the MGCL.
Section 1.2
Closing
. The closing of the Mergers (the
Closing
) will take place at 10:00 a.m., Eastern time, at the
offices of Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, NY 10004 on the second (2nd) Business Day after the satisfaction or, to the extent permitted hereunder, waiver of the last of the conditions set forth in
Article VII
to be satisfied or waived by the Party entitled to the benefit of the same (other than any such conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted
hereunder, waiver of such conditions at the Closing), unless another date or place is agreed to in writing by the Company and Parent;
provided
,
however
, that Parent may, in its discretion, elect to postpone the Closing for up to an
additional five (5) Business Days following such date;
provided
further
that (i) if Parent elects to postpone the Closing beyond such second (2
nd
) Business Day in accordance with the
preceding proviso, Parent shall have no right, after such second (2
nd
) Business Day, to assert or claim that a Company Material Adverse Effect (or Events giving rise thereto) has occurred or would
occur, and (ii) Parent shall have no right to postpone the Closing beyond such second Business Day if, as a result of such postponement, the Closing would occur on or after the Outside Date. The date on which the Closing actually takes place is
referred to as the
Closing Date
.
Section 1.3
Effective Times
. On the Closing Date, the Company, Parent and
Merger Sub, as applicable, shall (i) cause articles of merger in substantially the form attached hereto as
Exhibit B-1
(the
First Merger Articles of Merger
) with respect to the First Merger to be duly executed, filed with
and accepted for record by the State Department of Assessments and Taxation of Maryland (the
SDAT
) in accordance with the MGCL, (ii) cause articles of merger in substantially the form attached hereto as
Exhibit B-2
(the
Second Merger Articles of Merger
and together with the First Merger Articles of Merger, the
Articles of Merger
) with respect to the Second Merger to be duly executed, filed with and accepted for record by the
SDAT in accordance with the MGCL and (iii) duly make any other filings, recordings or publications required to be made by Parent, the Company or Merger Sub under the MGCL in connection with the Mergers. The First Merger shall become effective
at the latest of such time as the First Merger Articles of Merger have been accepted for record by the SDAT or on such other date and time (not to exceed thirty (30) days from the date that the First Merger Articles of Merger have been accepted for
record by the SDAT) as shall be agreed to by the Company and Parent and
A-2
specified in the First Merger Articles of Merger (such date and time of effectiveness of the First Merger Articles of Merger being hereinafter referred to as the
First Merger Effective
Time
) and the Second Merger shall become effective promptly following the First Merger Effective Time and in any event on the same Business Day as the First Merger Effective Time (the
Second Merger Effective Time
).
Section 1.4
Effects of Mergers
. The Mergers shall have the effects specified in the applicable provisions of the MGCL, this
Agreement and the Articles of Merger. Without limiting the generality of the foregoing, and subject thereto, (i) from and after the First Merger Effective Time, the First Merger Surviving Entity shall possess all properties, rights, privileges,
powers and franchises of the Company and Merger Sub, and all of the claims, obligations, liabilities, debts and duties of the Company and Merger Sub shall become the claims, obligations, liabilities, debts and duties of the First Merger Surviving
Entity and (ii) from and after the Second Merger Effective Time, the Second Merger Surviving Entity shall possess all properties, rights, privileges, powers and franchises of Parent and the First Merger Surviving Entity, and all of the claims,
obligations, liabilities, debts and duties of the Parent and the First Merger Surviving Entity shall become the claims, obligations, liabilities, debts and duties of the Second Merger Surviving Entity.
Section 1.5
Governing Documents
.
(a) At the First Merger Effective Time, the charter of the First Merger Surviving Entity shall be the charter of the Company, as in effect
immediately prior to the First Merger Effective Time, and the bylaws of the First Merger Surviving Entity shall be the bylaws of the Company, as in effect immediately prior to the First Merger Effective Time.
(b) At the Second Merger Effective Time, the charter of the Second Merger Surviving Entity shall be the charter of Parent, as in effect
immediately prior to the Second Merger Effective Time, and the bylaws of the Second Merger Surviving Entity shall be the bylaws of Parent, as in effect immediately prior to the Second Merger Effective Time.
Section 1.6
Directors and Officers of each Surviving Entity
.
(a) The directors of Merger Sub immediately prior to the First Merger Effective Time shall be and become the directors of the First Merger
Surviving Entity as of the First Merger Effective Time, each to hold office in accordance with the charter and bylaws of the First Merger Surviving Entity and applicable law. The officers of Merger Sub immediately prior to the First Merger
Effective Time shall be and become the officers of the First Merger Surviving Entity as of the First Merger Effective Time.
(b) The
directors of Parent immediately prior to the Second Merger Effective Time shall continue to be the directors of the Second Merger Surviving Entity as of the Second Merger Effective Time, each to hold office in accordance with the charter and bylaws
of the Second Merger Surviving Entity and applicable law. The officers of Parent immediately prior to the Second Merger Effective Time continue to be the officers of the Second Merger Surviving Entity as of the Second Merger Effective Time.
Section 1.7
Tax Consequences
. It is intended that, for U.S. federal income tax purposes, (i) the First Merger shall be
treated as a taxable purchase by Parent of the Company Common Stock and (ii) the Second Merger shall be treated as a liquidation of the First Merger Surviving Entity pursuant to Section 332 of the Code.
Section 1.8
Transaction Structure
. In the event the Parent Board determines in good faith, after consultation with its outside
legal counsel, to effect the transactions contemplated by this Agreement through an alternative structure (including without limitation a share exchange), then, subject to the prior written consent of the Company (which shall not be unreasonably
withheld, conditioned or delayed), the Parties shall implement the alternative structure and make such modifications to this Agreement as necessary to effect such alternative structure.
A-3
Section 1.9
Further Assurances
. At and after the First Merger Effective Time, the
officers and directors of Parent, Merger Sub or the First Merger Surviving Entity, as applicable, shall be authorized to execute and deliver, in the name and on behalf of the First Merger Surviving Entity, Merger Sub, Parent or the Company, any
deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the First Merger Surviving Entity, Merger Sub, Parent or the Company, any other actions and things necessary to vest, perfect or confirm of record or
otherwise in the First Merger Surviving Entity, Merger Sub or Parent any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the First Merger Surviving Entity, Merger Sub or
Parent, as applicable, as a result of, or in connection with, the First Merger.
ARTICLE II
TREATMENT OF SECURITIES
Section 2.1
Treatment of Stock
.
(a) At the First Merger Effective Time, by virtue of the First Merger and without any action on the part of the holders of any securities of
the Company or of Merger Sub:
(i)
Treatment of Company Common Stock
. Each share of the Companys common stock, par value
$0.01 per share (the
Company Common Stock
or
Company Common Shares
) issued and outstanding immediately prior to the First Merger Effective Time (other than Company Common Shares to be cancelled in accordance
with
Section 2.1(a)(iii)
) shall automatically be converted, subject to the terms, conditions and procedures set forth in this Agreement, into the right to receive (i) the Per Share Common Stock Merger Consideration, (ii) the Per Share Common
Cash Merger Consideration and (iii) the Per Share Adjustment Amount, if any, subject to adjustment as provided in
Section 2.1(a)(v)
(collectively, the
Per Common Share Merger Consideration
). From and after the First
Merger Effective Time, all such Company Common Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a Company Common Share shall cease to have any rights with respect thereto, except
the right to receive the Per Common Share Merger Consideration therefor upon the surrender of such Company Common Share in accordance with
Section 2.2
, including the right to receive, pursuant to
Section 2.6
, cash in lieu of fractional
shares of Parent Common Stock, if any, into which such shares of Company Common Stock have been converted pursuant to this
Section 2.1(a)(i)
(the
Fractional Share Consideration
), together with the amounts, if any,
payable pursuant to
Section 2.2(f)
.
(ii)
Treatment of Company Series A Preferred Stock
. Each share of Company Series
A Preferred Stock issued and outstanding immediately prior to the First Merger Effective Time shall remain issued and outstanding as a result of the First Merger.
(iii)
Cancellation of Company Common Stock
. All Company Common Shares or other securities representing stock in the Company
owned, directly or indirectly, by any Company Subsidiary, Parent, Merger Sub or by any of their respective Subsidiaries immediately prior to the First Merger Effective Time shall automatically be cancelled and retired and shall cease to exist, and
no consideration shall be delivered in exchange therefor.
(iv)
Treatment of Merger Sub Stock
. Each share of common stock,
par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the First Merger Effective Time shall be converted into and become one (1) share of common stock, par value $0.01 per share, of the First Merger Surviving Entity.
(v)
Adjustments
. The Per Common Share Merger Consideration shall be adjusted appropriately and proportionately to reflect
fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock), reorganization, recapitalization, reclassification, combination, exchange of
shares or other similar transaction at any time during the period from
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the date hereof to the First Merger Effective Time which changes the number of shares of Company Common Stock issued and outstanding, in each case other than pursuant to the Transactions after
the date hereof and prior to the First Merger Effective Time.
(b) At the Second Merger Effective Time, by virtue of the Second Merger and
without any further action on the part of the holders of any securities of Parent or the First Merger Surviving Entity:
(i)
Cancellation of First Merger Surviving Entity Common Stock
. All shares of the common stock, par value $0.01 per share, of the First Merger Surviving Entity and any other securities representing stock in the First Merger Surviving Entity
owned, directly or indirectly, by Parent or by any of its respective Subsidiaries immediately prior to the Second Merger Effective Time shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(ii)
Treatment of Company Series A Preferred Stock
. Each share of Company Series A Preferred Stock issued and
outstanding immediately prior to the Second Merger Effective Time shall be automatically converted into and become the right to receive one newly issued share of Parent Series C Preferred Stock (the
Per Preferred Share Merger
Consideration
and collectively, the
Preferred Stock Merger Consideration
). From and after the Second Merger Effective Time, all such shares of Company Series A Preferred Stock shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each holder of a share of Company Series A Preferred Stock shall cease to have any rights with respect thereto, except the right to receive the Per Preferred Share Merger Consideration
therefor upon the surrender of such share of Company Series A Preferred Stock in accordance with
Section 2.2
.
Section 2.2
Payment for Securities; Surrender of Certificates
.
(a)
Exchange Fund
. Prior to the Closing Date, Parent or Merger Sub shall
designate an agent reasonably acceptable to the Company to act as the paying and exchange agent in connection with the Mergers (the
Exchange Agent
). On the Closing Date, Parent or Merger Sub shall deposit, or cause to be
deposited, with the Exchange Agent (i) evidence of a number of shares of Parent Common Stock in book-entry form equal to the Stock Consideration, (ii) evidence of a number of shares of Parent Series C Preferred Stock in book-entry form issuable
pursuant to
Section 2.1(b)(ii)
sufficient in order for the Exchange Agent to distribute the Per Preferred Share Merger Consideration, and (iii) cash in immediately available funds in an amount sufficient for the Exchange Agent to
distribute the Aggregate Cash Consideration and the Adjustment Amount (such evidence of book-entry shares of Parent Common Stock and Parent Series C Preferred Stock and cash deposited with the Exchange Agent, collectively, the
Exchange
Fund
), in each case, for the sole benefit of the holders of shares of Company Common Stock or holders of shares of Company Series A Preferred Stock, as applicable. In addition, Parent shall deposit with the Exchange Agent, as necessary
from time to time thereafter, any Fractional Share Consideration and any dividends or other distributions payable pursuant to
Section 2.2(f) or Section 2.2(g)
. In the event the cash portion of the Exchange Fund shall be insufficient to
pay the Aggregate Cash Consideration and Adjustment Amount, Parent shall promptly deposit additional funds with the Exchange Agent in an amount which is equal to the deficiency in the amount required for the Exchange Agent to make such payments.
Parent shall cause the Exchange Agent to make, and the Exchange Agent shall make delivery of the Aggregate Cash Consideration, Stock Consideration, the Adjustment Amount, the Preferred Stock Merger Consideration and payment of all other amounts
required to be paid out of the Exchange Fund in accordance with this Agreement. In connection with the foregoing, Parent shall enter into an Exchange Agent Agreement with the Exchange Agent, in a form reasonably acceptable to the Company,
setting forth the procedures to be used in accomplishing the deliveries and other actions contemplated by this
Section 2.2
. The Exchange Fund shall not be used for any purpose that is not expressly provided for in this
Agreement. The cash portion of the Exchange Fund shall be invested by the Exchange Agent as reasonably directed by Parent in accordance with the Exchange Agent Agreement. Any interest and other income resulting from such investments shall be
paid to Parent on the earlier of (i) six (6) months after the Closing Date or (ii) the full payment of the Aggregate Cash Consideration and Adjustment Amount, if any.
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(b)
Procedures for Surrender
.
(i)
Company Common Stock
. Promptly after the First Merger Effective Time, Parent shall cause the Exchange Agent to mail (and make
available for collection by hand) to each holder of record of a certificate or certificates which immediately prior to the First Merger Effective Time represented outstanding Company Common Shares (the
Common Certificates
) or
non-certificated Company Common Shares represented by book-entry (
Book-Entry Common Shares
) and whose Company Common Shares were converted pursuant to
Section 2.1(a)
into the right to receive the Per Common Share
Merger Consideration (i) a letter of transmittal, which shall specify that delivery shall be effected, and risk of loss and title shall pass, only upon delivery of the Common Certificates (or affidavits of loss in lieu thereof) or transfer of the
Book-Entry Common Shares to the Exchange Agent and which shall otherwise be in such form and have such other provisions as Parent may reasonably specify and (ii) instructions for use in effecting the surrender of the Common Certificates (or
affidavits of loss in lieu thereof) or Book-Entry Common Shares in exchange for payment of the Per Common Share Merger Consideration, including any amount payable in respect of Fractional Share Consideration in accordance with
Section 2.6
.
Upon (i) surrender to the Exchange Agent or to such other agent or agents as may be appointed by Parent of a Common Certificate for cancellation (or an affidavit of loss in lieu thereof) or (ii) receipt of an agents message by the
Exchange Agent (or such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of a book-entry transfer of a Book-Entry Common Share, together with a letter of transmittal duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Common Certificate or Book-Entry Common Share shall be entitled to receive in exchange therefor the Per Common
Share Merger Consideration in respect of each share of Company Common Stock formerly represented by such Common Certificate or Book-Entry Common Share pursuant to the provisions of this
Article II
, including any Fractional Share Consideration
that such holder has the right to receive pursuant to the provisions of
Section 2.6
. The Parent Common Stock constituting part of the Per Common Share Merger Consideration shall be in uncertificated book-entry form, unless a physical
certificate is requested by a holder of Company Common Stock or is otherwise required under applicable Law. The Exchange Agent shall accept such Common Certificates (or affidavits of loss in lieu thereof) or Book-Entry Common Shares upon
compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. If payment of the Per Common Share Merger Consideration is to be made to a
Person other than the Person in whose name the Company Common Stock surrendered in exchange therefor is registered, it shall be a condition precedent of payment that either the Common Certificate so surrendered shall be properly endorsed or such
Common Certificate (or affidavit of loss in lieu thereof) shall otherwise be in proper form for the transfer or such Book-Entry Common Share shall be properly transferred. Until surrendered as contemplated by this
Section 2.2
, each Common
Certificate and Book-Entry Common Share shall be deemed at any time after the First Merger Effective Time to represent only the right to receive the applicable Per Common Share Merger Consideration as contemplated by this
Article II
,
including any amount payable in respect of Fractional Share Consideration in accordance with
Section 2.6
, and any dividends or other distributions on shares of Parent Common Stock in accordance with
Section 2.2(f)
, without
interest thereon. The issuance or payment of the Per Common Share Merger Consideration and the payment of any Fractional Share Consideration pursuant to
Section 2.6
in respect of Parent Common Stock in accordance with this Agreement
shall be deemed issued and paid in full satisfaction of all rights pertaining to such Company Common Stock (other than the right to receive dividends or other distributions, if any, in accordance with
Section 2.2(f)
).
(ii)
Company Series A Preferred Stock
. Promptly after the Second Merger Effective Time, Parent shall cause the Exchange Agent to mail
(and make available for collection by hand) to each holder of record of a certificate or certificates which immediately prior to the Second Merger Effective Time represented outstanding shares of Company Series A Preferred Stock (the
Preferred Certificates
) or non-certificated shares of Company Series A Preferred Stock represented by book-entry (
Book-Entry Preferred Shares
) and whose shares of Company Series A Preferred Stock were converted
pursuant to
Section 2.1(b)
into the right to receive the Per Preferred Share Merger Consideration (i) a letter of transmittal, which shall specify that delivery shall be effected, and risk of loss and title shall pass, only upon delivery
of the Preferred Certificates (or affidavits of loss
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in lieu thereof) or transfer of the Book-Entry Preferred Shares to the Exchange Agent and which shall otherwise be in such form and have such other provisions as Parent may reasonably specify and
(ii) instructions for use in effecting the surrender of the Preferred Certificates (or affidavits of loss in lieu thereof) or Book-Entry Preferred Shares in exchange for payment of the Per Preferred Share Merger Consideration. Upon (i) surrender to
the Exchange Agent or to such other agent or agents as may be appointed by Parent of a Preferred Certificate for cancellation (or an affidavit of loss in lieu thereof) or (ii) receipt of an agents message by the Exchange Agent (or
such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of a book-entry transfer of a Book-Entry Preferred Share, together with a letter of transmittal duly completed and validly executed in accordance with
the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Preferred Certificate or Book-Entry Preferred Share shall be entitled to receive in exchange therefor the Per Preferred Share
Merger Consideration in respect of each share of Company Series A Preferred Stock formerly represented by such Preferred Certificate or Book-Entry Preferred Share pursuant to the provisions of this
Article II
. The Parent Series C
Preferred Stock constituting the Per Preferred Share Merger Consideration shall be in uncertificated book-entry form, unless a physical certificate is requested by a holder of Company Preferred Stock or is otherwise required under applicable
Law. The Exchange Agent shall accept such Preferred Certificates (or affidavits of loss in lieu thereof) or Book-Entry Preferred Shares upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. If payment of the Per Preferred Share Merger Consideration is to be made to a Person other than the Person in whose name the Company Series A Preferred Stock surrendered in
exchange therefor is registered, it shall be a condition precedent of payment that either the Preferred Certificate so surrendered shall be properly endorsed or such Preferred Certificate (or affidavit of loss in lieu thereof) shall otherwise be in
proper form for the transfer or such Book-Entry Preferred Share shall be properly transferred. Until surrendered as contemplated by this
Section 2.2
, each Preferred Certificate and Book-Entry Preferred Share shall be deemed at any time after
the Second Merger Effective Time to represent only the right to receive the applicable Per Preferred Share Merger Consideration as contemplated by this
Article II
, and any dividends or other distributions on shares of Parent Series C
Preferred Stock in accordance with
Section 2.2(g)
, without interest thereon. The issuance or payment of the Per Preferred Share Merger Consideration in accordance with this Agreement shall be deemed issued and paid in full satisfaction
of all rights pertaining to such Company Series A Preferred Stock (other than the right to receive dividends or other distributions, if any, in accordance with
Section 2.2(g)
).
(c)
Transfer Books; No Further Ownership Rights in Company Shares
. At the First Merger Effective Time, the stock transfer books of
the Company shall be closed and thereafter there shall be no further registration of transfers of Company Common Stock or Company Series A Preferred Stock on the records of the Company. From and after the First Merger Effective Time, with
respect to the holders of shares of Company Common Stock outstanding immediately prior to the First Merger Effective Time and, from and after the Second Merger Effective Time, with respect to the holders of shares of Company Series A Preferred Stock
outstanding immediately prior to the Second Merger Effective Time, such holders shall cease to have any rights with respect to such Company Common Stock or Company Series A Preferred Stock except as otherwise provided for herein or by applicable
Law. If, after the Second Merger Effective Time, Common Certificates, Preferred Certificates, Book-Entry Common Shares or Book-Entry Preferred Shares are presented to the Second Merger Surviving Entity for any reason, they shall be cancelled and
exchanged as provided in this Agreement.
(d)
Termination of Exchange Fund; No Liability
. At any time following twelve (12) months
after the Closing Date, Parent shall be entitled to require the Exchange Agent to deliver to it any funds (including any interest received with respect thereto) remaining in the Exchange Fund that have not been disbursed, or for which
disbursement is pending subject only to the Exchange Agents routine administrative procedures, to holders of Common Certificates, Preferred Certificates, Book-Entry Common Shares or Book-Entry Preferred Shares, and thereafter such holders
shall be entitled to look only to Parent (subject to abandoned property, escheat or other similar Laws) as general creditor thereof with respect to the applicable Per Common Share Merger Consideration or Per Preferred Share Merger Consideration,
including any amount payable in respect of Fractional Share Consideration in accordance with
Section 2.6
, and any dividends or other distributions on shares of Parent
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Common Stock in accordance with
Section 2.2(f)
or on the Parent Series C Preferred Stock in accordance with
Section 2.2(g),
payable upon due surrender of their Common
Certificates, Preferred Certificates, Book-Entry Common Shares or Book-Entry Preferred Shares, as applicable, and compliance with the procedures in
Section 2.2(b)
, without any interest thereon. Notwithstanding the foregoing, neither Parent
nor the Exchange Agent shall be liable to any holder of a Common Certificate, Preferred Certificate, Book-Entry Common Share or Book-Entry Preferred Share for any Per Common Share Merger Consideration, Per Preferred Share Merger Consideration or
other amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.
(e)
Lost, Stolen
or Destroyed Certificates
. In the event that any Common Certificates or Preferred Certificates shall have been lost, stolen or destroyed, upon (i) the making of an affidavit of that fact by the holder thereof, (ii) delivery for the benefit
of Parent of a bond or indemnity in an amount and upon terms reasonably satisfactory to the Exchange Agent and (iii) execution and delivery by such Person of a letter of transmittal, the Exchange Agent shall issue in exchange for such lost, stolen
or destroyed Common Certificates or Preferred Certificates, the applicable Per Common Share Merger Consideration or Per Preferred Share Merger Consideration payable in respect of the Company Common Stock or Company Series A Preferred Stock
represented by such Common Certificates or Preferred Certificates, pursuant to
Section 2.1
, including any amount payable in respect of Fractional Share Consideration in accordance with
Section 2.6
, and any dividends or other
distributions (x) on shares of Parent Common Stock in accordance with
Section 2.2(f)
or (y) on shares of Parent Series C Preferred Stock in accordance with
Section 2.2(g)
.
(f)
Dividends with Respect to Parent Common Stock
. No dividends or other distributions with respect to Parent Common Stock with a
record date after the First Merger Effective Time shall be paid to the holder of any unsurrendered Common Certificate or Book-Entry Common Share with respect to the shares of Parent Common Stock issuable hereunder, and all such dividends and other
distributions shall be paid by Parent to the Exchange Agent and shall be included in the Exchange Fund, in each case until the surrender of such Common Certificate (or affidavit of loss in lieu thereof) or Book-Entry Common Share in accordance with
this Agreement. Subject to applicable Laws, following surrender of any such Common Certificate (or affidavit of loss in lieu thereof) or Book-Entry Common Share there shall be paid to the holder thereof, without interest, (i) the amount of
dividends or other distributions with a record date after the First Merger Effective Time theretofore paid with respect to such shares of Parent Common Stock to which such holder is entitled pursuant to this Agreement and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date after the First Merger Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such shares of Parent
Common Stock.
(g)
Dividends with Respect to Parent Series C Preferred Stock
. No dividends or other distributions with respect
to Parent Series C Preferred Stock with a record date after the Second Merger Effective Time shall be paid to the holder of any unsurrendered Preferred Certificate or Book-Entry Preferred Share with respect to the shares of Parent Series C Preferred
Stock issuable hereunder, and all such dividends and other distributions shall be paid by Parent to the Exchange Agent and shall be included in the Exchange Fund, in each case until the surrender of such Preferred Certificate (or affidavit of loss
in lieu thereof) or Book-Entry Preferred Share in accordance with this Agreement. Subject to applicable Laws, following surrender of any such Preferred Certificate (or affidavit of loss in lieu thereof) or Book-Entry Preferred Share there shall
be paid to the holder thereof, without interest, (i) the amount of dividends or other distributions with a record date after the Second Merger Effective Time theretofore paid with respect to such shares of Parent Series C Preferred Stock to which
such holder is entitled pursuant to this Agreement and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Second Merger Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such shares of Parent Series C Preferred Stock.
Section 2.3
Dissenters
Rights
. No dissenters or appraisal rights shall be available with respect to the Mergers or the other Transactions.
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Section 2.4
Treatment of Company Restricted Shares; and DRIP
.
(a) Immediately prior to the First Merger Effective Time, with respect to each outstanding share of restricted stock or each outstanding
restricted stock unit that settles in shares of Company Common Stock, in each case that vest upon continued service under the Company Equity Plan (each a
Company Restricted Share
), the restrictions and vesting conditions
applicable to such Company Restricted Share shall lapse and each such Company Restricted Share shall, by virtue of the First Merger and without any action on the part of the holder thereof, be converted as of the First Merger Effective Time into the
right to receive, with respect to the share of Company Common Stock underlying such Company Restricted Share, the Per Common Share Merger Consideration in accordance with
Section 2.1
, less applicable Tax withholdings. Applicable Tax
withholdings with respect to the converted Company Restricted Shares first shall reduce the Per Share Common Cash Merger Consideration received with respect to the Exchanged Restricted Shares held by an individual holder and then shall reduce the
Per Share Common Stock Merger Consideration, with the value of any tax withholdings that reduce the Per Share Common Stock Merger Consideration to be based on the Parent Stock Price. For the purposes of this
Section 2.4(a)
,
Parent Stock Price
means the average of the volume weighted averages of the trading prices of Parent Common Stock on the NYSE (as reported by Bloomberg L.P.) on each of the five (5) consecutive trading days ending on the
trading day prior to the Closing Date.
(b) Prior to the First Merger Effective Time, the Company shall adopt resolutions and take all
necessary and appropriate actions to (i) effectuate the treatment of the Company Restricted Shares as contemplated by this
Section 2.4
and (ii) provide that, as of the First Merger Effective Time, the Company Equity Plan shall terminate and
all rights under any provision of any other plan, program or arrangement of the Company providing for the issuance or grant of any other interest in respect of the capital stock or other equity interests of the Company shall be cancelled without
obligation (including any payment ) of the Company other than as expressly provided herein.
(c) The Company Board has, no later than the
date hereof, taken all actions to either (i) suspend or terminate the DRIP, and following such suspension or termination, will not issue any shares of Company Common Stock under the DRIP or (ii) elect to satisfy the obligations to provide Company
Common Stock pursuant to the DRIP through open market purchases rather than new share issuances.
Section 2.5
Withholding
. Any
payments made pursuant to this Agreement shall be net of all applicable withholding Taxes that Parent, Merger Sub, the First Merger Surviving Entity, the Second Merger Surviving Entity and the Exchange Agent, as the case may be, shall be required to
deduct and withhold under applicable Law. To the extent that amounts are so deducted and withheld by the applicable payor and remitted to the appropriate Governmental Entity, such amounts shall be treated for all purposes of this Agreement as having
been paid to the Person in respect of which such deduction and withholding was made.
Section 2.6
Fractional Shares
. No certificate
or scrip or book-entry securities representing less than one (1) share of Parent Common Stock shall be issued in the First Merger upon the surrender for exchange of Common Certificates or Book-Entry Common Shares, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a stockholder of Parent. Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock converted pursuant to the First Merger who would
otherwise have been entitled to receive a fraction of a share of Parent Common Stock shall receive, in lieu thereof, cash, without interest, representing such holders proportionate interest, if any, in the proceeds from the sale by the
Exchange Agent (reduced by any fees of the Exchange Agent attributable to such sale) in one or more transactions of shares of Parent Common Stock equal to the excess of (i) the aggregate number of shares of Parent Common Stock to be delivered to the
Exchange Agent by Parent pursuant to
Section 2.2(a)(i)
over (ii) the aggregate number of whole shares of Parent Common Stock to be distributed to holders of Company Common Stock pursuant to
Sections 2.1
and
2.2(b)(i)
(such
excess being, the
Excess Shares
). The Parties acknowledge that payment of the cash consideration in lieu of issuing fractional shares was not separately bargained-for consideration but merely represents a mechanical rounding off
for purposes of avoiding the expense and
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inconvenience to Parent that would otherwise be caused by the issuance of fractional shares. As soon as practicable after the Effective Time, the Exchange Agent, as agent for the holders of the
certificates representing shares of Parent Common Stock that would otherwise receive fractional shares, shall sell the Excess Shares at then prevailing prices on the NYSE (or such other market in which the Parent Common Stock then trades).
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The following representations and warranties by the Company are qualified in their entirety by reference to the disclosures (i) in the Company
SEC Documents filed or furnished to the SEC as applicable, on or after January 1, 2015, except for the representations and warranties set forth in
Section 3.3
,
Section 3.5
,
Section 3.8(b)
and
Section 3.19
, and prior to
February 22, 2016 (excluding any risk factor disclosures contained in such documents under the heading Risk Factors and any disclosure of risks included in any forward-looking statements disclaimer or other statements that
are cautionary, predictive or forward-looking in nature) and (ii) set forth in the disclosure letter delivered by the Company to Parent immediately prior to the execution of this Agreement (the
Company Disclosure Letter
). Each
disclosure set forth in the Company Disclosure Letter shall qualify or modify the Section to which it corresponds and any other Section to the extent the applicability of the disclosure to such other Section is reasonably apparent on its face from
the text of the disclosure made.
Section 3.1
Organization and Qualification; Subsidiaries
.
(a) The Company is a corporation duly organized, validly existing and in good standing under the Laws of Maryland and has the requisite
corporate power and authority to conduct its business as now being conducted. The Company is duly qualified or licensed to do business and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not
have or reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The Company is in compliance with the terms of the Company Governing Documents.
(b)
Section 3.1(b)
of the Company Disclosure Letter sets forth a true and complete list of the Subsidiaries of the Company (each a
Company Subsidiary
), together with the jurisdiction of organization or incorporation, as the case may be, of each Company Subsidiary, and the type and percentage of interest held directly or indirectly, by the Company in each
Company Subsidiary. Each Company Subsidiary is in compliance in all material respects with the terms of its constituent organizational or governing documents.
(c) Each Company Subsidiary is duly organized, validly existing and in good standing (to the extent applicable) under the Laws of the
jurisdiction of its incorporation or organization, as the case may be, and has the requisite organizational power and authority to conduct its business as now being conducted, except for such failures as would not have or reasonably be expected to
have a Company Material Adverse Effect. Each Company Subsidiary is duly qualified or licensed to do business and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not have or reasonably
be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(d) Neither the Company nor any Company
Subsidiary directly or indirectly owns any interest or investment (whether equity or debt) in any Person (other than (i) in the Company Subsidiaries and (ii) Company Investments).
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(e) The Company has made available to Parent (i) complete and correct copies of the Company
Governing Documents and (ii) complete and correct copies of the organizational documents or governing documents of each Company Subsidiary.
Section 3.2
Capitalization
.
(a) The authorized stock of the Company consists of (i) 450,000,000 shares of Company Common Stock and (ii) 50,000,000 shares of preferred
stock, par value $0.01 per share (the
Company Preferred Stock
), of which 6,900,000 shares are designated as 8.00% Series A Cumulative Redeemable Perpetual Preferred Stock (the
Company Series A Preferred Stock
).
As of February 22, 2016, (A) 31,853,025 shares of Company Common Stock were issued and outstanding, including 178,669 Company Restricted Shares, (B) 6,900,000 shares of Company Series A Preferred Stock were issued and outstanding and no other shares
of Company Preferred Stock were issued or outstanding, (C) 1,273,795 shares of Company Common Stock were reserved for issuance in connection with future grants of awards under any Company Equity Plan, and (D) 148,549 shares of Company Common Stock
were reserved for issuance with respect to outstanding Company Restricted Shares. All of the outstanding shares of the Companys stock are duly authorized, validly issued, fully paid and non-assessable, and have been issued in compliance with
all applicable securities Laws, the MGCL and the Company Governing Documents. There are no bonds, debentures, notes or other Indebtedness having general voting rights (or convertible into securities having such rights) (
Company Voting
Debt
) of the Company or any Company Subsidiary issued and outstanding. Except for the DRIP, the provisions of the Company Charter, the Company Restricted Shares and the Company Preferred Stock, there are no options, warrants, calls,
pre-emptive rights, subscriptions or other rights, agreements, arrangements or commitments of any kind, including any poison pill or similar stockholder rights plan, relating to the issued or unissued stock of the Company, obligating the
Company or any Company Subsidiary to issue, transfer or sell or cause to be issued, transferred or sold any shares of stock or Company Voting Debt of, or other equity interest in, the Company or any Company Subsidiary or securities convertible into
or exchangeable for such shares or equity interests, or obligating the Company or any Company Subsidiary to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment (collectively,
Company Equity Interests
). Except as set forth in the Company Governing Documents, there are no outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any Company
Common Shares or any stock of, or other Company Equity Interests in, the Company or any Company Subsidiary, or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in the Company or any Company
Subsidiary.
(b)
Section 3.2(b)
of the Company Disclosure Letter sets forth a list of all outstanding Company Restricted
Shares as of February 22, 2016, including the name of the recipient and the applicable vesting schedule.
(c) There are no voting
trusts or other agreements to which the Company or any Company Subsidiary is a party with respect to the voting of the Company Common Stock or any stock of, or other Company Equity Interest in, the Company or Company Subsidiary. Neither the Company
nor any Company Subsidiary has granted any preemptive rights, anti-dilutive rights or rights of first refusal or similar rights with respect to any of its stock or other Company Equity Interests.
(d) The Company or another Company Subsidiary owns, directly or indirectly through ownership of another wholly-owned Company Subsidiary, all
of the issued and outstanding shares of stock or other Company Equity Interests of each of the Company Subsidiaries, free and clear of any Liens (other than transfer and other restrictions under applicable federal and state securities Laws and other
than, in the case of Company Subsidiaries that are immaterial to the Company, immaterial Liens), and all of such shares of stock or other Company Equity Interests have been duly authorized and validly issued and are fully paid, nonassessable and
have been issued in compliance with all applicable securities Laws. There are no outstanding obligations to which the Company or any Company Subsidiary is a party (i) restricting the transfer of or (ii) limiting the exercise of voting rights
with respect to any Company Equity Interests in any Company Subsidiary.
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(e) Other than pursuant to the DRIP, neither the Company nor any Company Subsidiary is under any
obligation, contingent or otherwise, by reason of any Contract to register the offer and sale or resale of any of their securities under the Securities Act.
(f) All dividends or distributions on the Company Common Stock and any material dividends or distributions on any securities of any Company
Subsidiary which have been declared prior to the date hereof have been paid in full (except to the extent such dividends have been publicly announced and are not yet due and payable).
Section 3.3
Authorization; Validity of Agreement; Company Action
.
(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the Transactions, including the Mergers. The execution, delivery and performance by the Company of this Agreement, and the consummation by it of the Transactions, have been duly and validly authorized by the Company Board and no
other corporate action on the part of the Company, or vote, consent or approval of the Companys stockholders, pursuant to the MGCL or otherwise, is necessary to authorize the execution and delivery by the Company of this Agreement, and the
consummation by it of the Transactions, subject, in the case of the First Merger, to the receipt of the Company Stockholder Approval and the filing of the Articles of Merger with, and acceptance for record by, the SDAT.
(b) This Agreement has been duly and validly executed and delivered by the Company and, assuming due and valid authorization, execution and
delivery hereof by Parent and Merger Sub, is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that the enforcement hereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar Laws, now or hereafter in effect, relating to creditors rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at Law).
Section 3.4
Board Approvals
. On or prior to the date hereof, the Company Board at a duly held meeting has by unanimous vote (i) duly
and validly authorized the execution and delivery of this Agreement and declared advisable the Mergers and the other Transactions, (ii) directed that the First Merger and the other Transactions be submitted for consideration at the Stockholders
Meeting, and (iii) resolved to recommend that the Companys stockholders vote in favor of the approval of the First Merger and the other Transactions and to include such Company Board Recommendation in the Proxy Statement, subject to
Section 5.3
and
Section 5.4
.
Section 3.5
Consents and Approvals; No Violations
. None of the
execution, delivery or performance of this Agreement by the Company, the consummation by the Company of the First Merger or any other Transaction or compliance by the Company with any of the provisions of this Agreement will (a) violate, conflict
with or result in any breach of any provision of the Company Governing Documents or the comparable organizational or governing documents of any Company Subsidiary, (b) require any filing by the Company or any Company Subsidiary with, or the
obtaining of any permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, whether foreign, federal, state, local or supernational
(a
Governmental Entity
), other than any taxing authority (except for (i) compliance with any applicable requirements of the Exchange Act, (ii) any filings as may be required under the MGCL in connection with the Mergers, (iii)
such filings with the Securities and Exchange Commission (the
SEC
) as may be required to be made by the Company in connection with this Agreement and the Mergers, including (A) a proxy statement in preliminary and definitive form
relating to the Stockholders Meeting that will be sent to the stockholders of the Company in connection with the Stockholders Meeting (together with any amendments or supplements thereto or document incorporated by reference therein, the
Proxy Statement
) and (B) a registration statement on Form S-4 pursuant to which the offer and sale of shares of Parent Common Stock in the First Merger and Parent Series C Preferred Stock in the Second Merger will be registered
pursuant to the Securities Act and in which the Proxy Statement will be included (together with any amendments or supplements thereto, the
Form S-4
) and filings on Form 8-K or pursuant to Rule 14a-12 under the Exchange Act, or
(iv)
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such filings as may be required under the rules and regulations of the NYSE in connection with this Agreement and the Mergers), (c) except as set forth on
Section 3.5
of the Company
Disclosure Letter, accelerate the performance required by, result in any termination, cancellation or modification of, or loss of benefit under, violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or
give rise to any right, including, but not limited to, any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any Contract to which the Company or any of the Company Subsidiaries is a
party, (d) result in the creation of any Lien or other encumbrance (other than a Company Permitted Lien) upon any of the respective properties or assets of the Company, or (e) violate any order, writ, injunction, decree or Law applicable to the
Company or any of its properties or assets; except in each of clauses (c) or (d), as would not have or reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.6
Company SEC Documents and Company Financial Statements
.
(a) The Company has filed or furnished (as applicable) with the SEC on a timely basis all forms, reports, schedules, statements and other
documents (including exhibits and all other information incorporated therein) required by it to be filed or furnished (as applicable) since and including January 1, 2013 under the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the
Exchange Act
) or the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the
Securities Act
) (together with all certifications
required pursuant to the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act
)) (such documents and any other documents filed by the Company with the SEC, collectively, the
Company SEC Documents
). As of their
respective filing dates the Company SEC Documents (a) did not (or with respect to Company SEC Documents filed after the date hereof, will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading and (b) complied (or with respect to Company SEC Documents filed after the date hereof, will comply) in all
material respects with the applicable requirements of the Exchange Act or the Securities Act, as the case may be, the Sarbanes-Oxley Act and the applicable rules and regulations of the SEC thereunder. All of the consolidated audited financial
statements and unaudited interim financial statements of the Company included in the Company SEC Documents or incorporated therein by reference, including the related notes and schedules (collectively, the
Company Financial
Statements
), (i) complied or will comply, as the case may be, as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto; (ii) have been or will
be, as the case may be, prepared from, are in accordance with, and accurately reflect the books and records of the Company and the Company Subsidiaries in all material respects; (iii) have been or will be, as the case may be, prepared in accordance
with United States Generally Accepted Accounting Principles (
GAAP
) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of interim financial statements, for
normal and recurring year-end adjustments and as may be permitted by the SEC on Form 10-Q, Form 8-K or any successor or like form under the Exchange Act); and (iv) fairly present, in all material respects, the financial position and the results of
operations and cash flows of the Company and the consolidated Company Subsidiaries as of the times and for the periods referred to therein. The Company does not have any outstanding and unresolved comments from the SEC with respect to the
Company SEC Documents. To the knowledge of the Company, as of the date hereof, none of the Company SEC Documents is the subject of ongoing SEC review or outstanding SEC comments and there are no inquiries or investigations by the SEC or any internal
investigations pending or threatened, in each case regarding any accounting practices of the Company.
(b) The Company has made available
to Parent complete and correct copies of all material written correspondence between the SEC on one hand, and the Company, on the other hand, since January 1, 2013, other than as publicly filed as correspondence in the Electronic Data Gathering,
Analysis and Retrieval Database of the SEC (
EDGAR
).
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Section 3.7
Internal Controls; Sarbanes-Oxley Act
.
(a) Since January 1, 2013, the Company has designed and maintained a system of internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those
policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company and its consolidated Subsidiaries; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets that could have a material effect on the financial statements. The Companys management has
completed an assessment of the effectiveness of the Companys system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended December 31, 2015, and,
except as set forth in Company SEC Documents filed prior to the date of this Agreement, such assessment concluded that such controls were effective and the Companys independent registered accountant has issued (and not subsequently withdrawn
or qualified) an attestation report concluding that the Company maintained effective internal control over financial reporting as of December 31, 2015. Since January 1, 2013, the Company (i) has designed and maintains disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure and (ii) has not
had (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect the Companys ability to record,
process, summarize and report financial information or (B) any fraud, whether or not material, that involving management or other employees who have a significant role in the Companys internal controls over financial reporting.
(b) Neither the Company nor any of its Subsidiaries has entered into or is subject to (i) any off balance sheet arrangement (as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act) or (ii) any commitment to become party to any joint venture, off balance sheet partnership or any similar Contract or arrangement relating to any transaction or
relationship between or among the Company or any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, in each case where the
results, purpose or effect of such commitment or arrangement is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of its Subsidiaries in the Companys or such Subsidiaries published
financial statements or other Company SEC Documents.
Section 3.8
Absence of Certain Changes
.
(a) Except as contemplated by this Agreement, since January 1, 2015, (i) the Company and each Company Subsidiary has conducted, in all
material respects, its business in the ordinary course consistent with past practice and (ii) neither the Company nor any Company Subsidiary has taken any action that would require consent of Parent pursuant to clause (a), (b), (c), (i), (k), (l),
(o), (p)(ii), (q) or (r), or clause (t) with respect to any of the foregoing, of
Section 5.1
had such action occurred after the date of this Agreement and prior to the Closing.
(b) Since January 1, 2015, there has not been any Company Material Adverse Effect or any Events that have had or would reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
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Section 3.9
No Undisclosed Liabilities
. Except (a) as reflected or adequately
reserved against on the balance sheet of the Company dated September 30, 2015, (b) for liabilities and obligations incurred since September 30, 2015 in the ordinary course of business and in a manner consistent with past practice, subsequent to
September 30, 2015 and (c) for liabilities and obligations contemplated by or under this Agreement or in connection with the Transactions, neither the Company nor any Company Subsidiary has any liabilities or obligations, contingent or otherwise,
that would be required by GAAP to be reflected on, or disclosed in the notes to, the consolidated financial statements of the Company and its Subsidiaries, other than as have not had and would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
Section 3.10
Litigation
. There is (a) no material claim, action, suit,
arbitration, alternative dispute resolution action or any other judicial or administrative proceeding, in Law or equity (collectively, a
Legal Proceeding
), pending (in which service of process has been received by the Company)
against (or to the Companys knowledge, threatened against or naming as a party thereto), the Company, a Company Subsidiary, any of their respective properties or assets, or any executive officer or director of the Company (in their capacity as
such) and (b) no material investigation of a Governmental Entity pending (in which notice has been received by the Company) or, to the knowledge of the Company, threatened against the Company or any Company Subsidiary, any of their respective
properties or assets, or any executive officer or director of the Company (in their capacity as such). Neither the Company nor any Company Subsidiary is subject to any outstanding Order that is material to the Company or any Company Subsidiary.
Section 3.11
Company Employee Benefit Plans; ERISA
.
(a) Neither the Company nor any of its Subsidiaries (i) currently employs or has ever employed any individual and (ii) has, or has ever had,
any liabilities with respect to Benefit Plans, other than liabilities relating to the Company Equity Plan.
(b) The Company has provided
or made available to Parent the amounts that have been allocated to the Company for calendar years 2014 and 2015 with respect to service credit with respect to applicable Benefit Plans, commission plans or current bonus target amounts (or portion
thereof to be allocated to the Company), actual bonus and commission or incentive compensation for the individuals providing services to the Company (the
Company Service Providers
).
(c) No material liability, claim, action, audit, investigation, governmental proceeding or litigation is pending or, to the knowledge of the
Company, threatened with respect to any individual who is currently providing or has ever provided services to the Company.
(d) Neither
the execution of this Agreement nor the consummation of the Transactions will (individually or together with the occurrence of any other event): (i) accelerate the time of payment, vesting or funding or result in any payment of compensation or
benefits under, or increase the amount or value of any payment to any director of the Company or any Company Service Provider, (ii) result in payments or benefits which would not be deductible under Section 280G of the Code, or (iii) result in a
requirement to pay any tax gross up or similar make whole payment, whether paid directly or indirectly, to any director or Company Service Provider.
(e) Full payment has been made, or otherwise properly accrued on the books and records of the Company and the Company Subsidiaries, of all
amounts that the Company and the Company Subsidiaries are required to have paid under the terms of any arrangement with respect to Company Service Providers.
(f) There are no proceedings pending or, to the knowledge of the Company, threatened against the Company or any of the Company Subsidiaries in
any forum by or on behalf of any individual who currently provides or has ever provided services to the Company or any of the Company Subsidiaries alleging unpaid or overdue compensation due, breach of any express or implied employment contract,
violation of any law or
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regulation governing employment or the termination thereof, or any other discriminatory, wrongful or tortious conduct on the part of the Company or any of the Company Subsidiaries in connection
with the service relationship.
(g) Each individual who renders service to the Company or any Company Subsidiary who is classified by the
Company or such Company Subsidiary, as applicable, as having the status of an independent contractor or other nonemployee status for any purpose is properly so classified and treated in accordance with applicable Laws.
Section 3.12
Taxes
.
(a)
The Company and each Company Subsidiary has timely filed with the appropriate Governmental Entity all material Tax Returns required to be filed, taking into account any extensions of time within which to file such Tax Returns, and all such Tax
Returns were true, complete and correct in all material respects. The Company and each Company Subsidiary has duly paid (or there has been paid on their behalf), or made adequate provisions for, all material Taxes required to be paid by them.
(b) The Company (i) for all taxable years commencing with the Companys taxable year ended December 31, 2011 and through December 31,
2015 has been subject to taxation as a real estate investment trust within the meaning of Sections 856 through 860 of the Code (a
REIT
) and has satisfied all requirements to qualify as a REIT for such years; (ii) has operated
since January 1, 2016 until the date hereof in a manner consistent with the requirements for qualification and taxation as a REIT; (iii) intends to continue to operate in such a manner as to qualify as a REIT through the First Merger Effective Time
(determined as if the Companys taxable year ended at the First Merger Effective Time and disregarding the distribution requirements set forth in Section 857(a)(1) of the Code); and (iv) has not to its knowledge taken or omitted to take any
action that could reasonably be expected to result in a challenge by the IRS or any other Governmental Entity to its qualification as a REIT, and to the knowledge of the Company, no such challenge is pending or threatened.
(c) There are no current audits, examinations or other proceedings of a Governmental Entity pending with regard to any U.S. federal or other
material Taxes of the Company or the Company Subsidiaries, and neither the Company nor any Company Subsidiary has received a written notice or announcement of any such audits, examinations or proceedings.
(d) Neither the Company nor any Company Subsidiary directly or indirectly holds any asset the disposition of which would be subject to (or to
rules similar to) Section 1374 of the Code.
(e) The Company and the Company Subsidiaries have complied, in all material respects, with
all applicable Laws, rules and regulations relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 1471-1474 and 3402 of the Code or similar provisions under any state and foreign
Laws) and have duly and timely withheld and, in each case, have paid over to the appropriate Governmental Entities all material amounts required to be so withheld and paid over on or prior to the due date thereof under all applicable Laws.
(f) There are no Tax Liens upon any property or assets of the Company or any Company Subsidiary except for Company Permitted Liens.
(g) There are no Tax allocation or sharing agreements or similar arrangements with respect to or involving the Company or any Company
Subsidiary, and after the Closing Date neither the Company nor any Company Subsidiary shall be bound by any such Tax allocation agreements or similar arrangements or have any liability thereunder for amounts due in respect of periods prior to the
Closing Date, except as otherwise provided herein and except, in each case, for customary indemnification provisions contained in credit or other commercial agreements the primary purposes of which do not relate to Taxes.
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(h) Neither the Company nor any Company Subsidiary is or has been a party to any listed
transaction within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
(i) Neither the Company nor any Company Subsidiary
has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code.
(j) Neither the Company nor any Company Subsidiary has waived any statute of limitations in respect of any U.S. federal or other material
Taxes or agreed to any extension of time with respect to a U.S. federal or other material Tax assessment or deficiency.
(k) Neither
Parent nor any Parent Subsidiary will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) beginning after the Closing Date as a result of
any (A) change in method of accounting of the Company or any Company Subsidiary for a taxable period ending on or prior to the Closing Date, (B) installment sale by the Company or any Company Subsidiary made on or prior to the Closing Date or (C)
election by the Company or any Company Subsidiary under Section 108(i) of the Code made prior to the Closing Date.
(l)
Section
3.12(l)
of the Company Disclosure Letter sets forth a true and complete list of each Company Subsidiary and each other entity in which the Company directly, indirectly or constructively owns an equity interest of ten percent (10%) or
greater (by vote or value) and their respective classification for U.S. federal income tax purposes, jurisdiction of incorporation or organization, as the case may be, and the type of and percentage of interest held, directly or indirectly, by the
Company in each Company Subsidiary, including in the case of any entity classified as a corporation for U.S. federal income tax purposes, whether such entity has elected to be treated as a taxable REIT subsidiary within the meaning of
Section 856(l) of the Code (a
Taxable REIT Subsidiary
).
(m) Neither the Company nor any Company Subsidiary (i) has
been a member of an affiliated group filing a consolidated U.S. federal income Tax Return or (ii) has any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(n) Neither the Company nor any of the Company Subsidiaries has entered into any
closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law).
(o) Neither the Company nor any Company Subsidiary has requested, has received or is subject to any written ruling of a Governmental Entity or
has entered into any written agreement with a Governmental Entity with respect to any Taxes.
(p) Neither the Company nor any Company
Subsidiary has received a written claim by any Governmental Entity in a jurisdiction where the Company and the Company Subsidiaries do not file Tax Returns that they are or may be subject to income taxation by the jurisdiction.
(q) No deficiency for any U.S. federal or other material Tax has been asserted or assessed by a Governmental Entity in writing against the
Company or any Company Subsidiary that has not been satisfied by payment, settled or withdrawn.
(r) Since January 1, 2015, neither the
Company nor any of its Subsidiaries have rescinded or revoked any Tax election, settled or compromised any Tax liability or amended any Tax Return filed before the date hereof. No material Tax elections have been made following the filing of the
Companys 2014 U.S. federal income tax return.
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(s) Neither the Company nor any Company Subsidiary (i) owns any residual interests
(within the meaning of Section 860G(a)(2) of the Code) in a REMIC (within the meaning of Section 860D(a) of the Code) or (ii) has allocated excess inclusion income to their stockholders.
(t) To the knowledge of the Company, neither the Company nor any Company Subsidiary has engaged at any time in any prohibited
transactions within the meaning of Section 856(b)(6) of the Code.
(u) This
Section 3.12
and
Section 3.11
contain
the sole representations and warranties of the Company and the Company Subsidiaries with respect to Tax matters.
Section 3.13
Contracts
.
(a)
Section 3.13(a)
of the Company Disclosure Letter sets forth a list of each Contract, including all
amendments, supplements, exhibits and side letters to any such Contract, to which the Company or any Company Subsidiary is a party or by which any of its properties or assets are bound which, as of the date of this Agreement:
(i) is required to be filed as an exhibit to the Companys Annual Report on Form 10-K pursuant to Item 601(b)(2), (4), (9) or (10) of
Regulation S-K promulgated under the Securities Act or required to be disclosed under Item 404 of Regulation S-K under the Securities Act (provided, that the Company shall only be required to list in clause (i) of Section 3.13(a) those Contracts
that have not been filed with the SEC on or after January 1, 2015);
(ii) involves aggregate payments by, or other consideration or
expenditures from, the Company or any Company Subsidiary in excess of $500,000 over the remaining term of such Contract, and is not cancelable within sixty (60) days without material payment by or penalty to the Company or any Company Subsidiary;
(iii) contains any non-compete or exclusivity provisions with respect to any line of business or geographic area with respect to the
Company or any Company Subsidiary, or upon consummation of the Transactions, Parent or its Subsidiaries, or which restricts in any material respect the conduct of any line of business of the Company or any Company Subsidiary, or upon consummation of
the Transactions, Parent or its Subsidiaries;
(iv) establishes a partnership, joint venture or similar arrangement;
(v) relates to the borrowing of money or extension of credit, in each case having a principal amount of Indebtedness in excess of $1,000,000
other than accounts receivables and payables incurred or arising in the ordinary course of business consistent with past practice;
(vi)
requires the Company or any Company Subsidiary to dispose of or acquire assets or properties with a fair market value in excess of $1,000,000, or involves any pending or contemplated merger, consolidation or similar business combination;
(vii) is a Company Investment Contract;
(viii) requires any delivery of notice or prior consent in connection with the Transactions, where, if such notice or consent were not made
or obtained, would give rise to any right of termination, cancellation, acceleration or amendment of, or trigger any payments or the creation of a Lien or other encumbrance, or result in any violation of or breach of or constitute a default under
such Contract in connection with the consummation of the Mergers and the other Transactions;
(ix) is with a Governmental Entity;
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(x) relates to a Related Party Transaction; or
(xi) contains any obligation, contingent or otherwise, on the part of the Company or any of its Subsidiaries to indemnify any other Person.
(b) Each Contract of the type described above in
Section 3.13(a)
, whether or not set forth in
Section 3.13(a)
of the
Company Disclosure Letter, is referred to herein as a
Company Material Contract
. Except as, individually or in the aggregate, would not have or reasonably be expected to have a Company Material Adverse Effect, each Company
Material Contract is legal, valid, binding and enforceable in accordance with its terms on the Company and each Company Subsidiary that is a party thereto and, to the knowledge of the Company, each other party thereto, and is in full force and
effect, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors rights generally and by general principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at Law). Except as, individually or in the aggregate, would not have or reasonably be expected to have a Company Material Adverse Effect, the Company and each Company Subsidiary has performed all obligations required to be
performed by it under each Company Material Contract and, to the knowledge of the Company, each other party thereto has performed all obligations required to be performed by it under such Company Material Contract. None of the Company or any Company
Subsidiary, nor, to the knowledge of the Company, any other party thereto, is in material breach or violation of, or default under, any Company Material Contract, and no event has occurred that with notice or lapse of time or both would constitute a
violation, breach or default under any Company Material Contract, except where in each case such breach, violation or default, individually or in the aggregate, would not have or reasonably be expected to have a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary has received written or, to the knowledge of the Company, other notice of any violation or default under any Company Material Contract.
(c) The Company has delivered or made available to Parent or provided to Parent for review, prior to the execution of this Agreement, true and
complete copies of all of the Company Material Contracts.
Section 3.14
Investment Company Act
. Neither the Company nor any
Company Subsidiary is, or on the Closing Date will be, required to be registered as an investment company under the Investment Company Act.
Section 3.15
Intellectual Property
. Except as, individually or in the aggregate, would not have or reasonably be expected to have
a Company Material Adverse Effect, (i) the Company and the Company Subsidiaries own or are licensed or otherwise possess valid rights to use all Intellectual Property Rights necessary to conduct the business of the Company and the Company
Subsidiaries as it is currently conducted, (ii) the conduct of the business of the Company and the Company Subsidiaries as it is currently conducted does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any third
party, (iii) there are no pending or, to the knowledge of the Company, threatened claims with respect to any of the Intellectual Property rights owned by the Company or any Company Subsidiary, (iv) to the knowledge of the Company, no third party is
currently infringing or misappropriating Intellectual Property Rights owned by the Company or any Company Subsidiary, and (v) neither the Company or any Company Subsidiary has experienced any cybersecurity or other data breach or
misappropriation. The Company and the Company Subsidiaries are taking all actions that they reasonably believe are necessary to maintain and protect each material item of Intellectual Property Rights that they own.
Section 3.16
Compliance with Laws; Permits
.
(a) Each of the Company and the Company Subsidiaries has, since January 1, 2014, been in compliance, in all material respects, with all Laws
which affect the business, properties or assets of the Company. Since January 1, 2014, no notice, charge or assertion has been received by the Company or any Company Subsidiary or, to the Companys knowledge, threatened against the Company or
any Company Subsidiary alleging any material non-compliance with any Laws affecting the business, properties or assets of the
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Company. Notwithstanding anything to the contrary in this
Section 3.16(a)
, the provisions of this
Section 3.16(a)
shall not apply to matters discussed in
Section 3.11
and
Section 3.12
.
(b) The Company and the Company Subsidiaries are in possession of all authorizations, licenses, permits,
certificates, approvals and clearances of any Governmental Entity necessary for the Company and the Company Subsidiaries to carry on its business in the manner described in the Company SEC Documents filed on or after January 1, 2014 and prior to the
date hereof and as is being conducted as of the date of this Agreement (the
Company Permits
), and all such Company Permits are valid, and in full force and effect, except where the failure to possess and maintain such Company
Permits in full force and effect have not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. All applications required to have been filed for the renewal of the Company Permits have
been duly filed on a timely basis with the appropriate Governmental Entity, and all other filings required to have been made with respect to such Company Permits have been duly made on a timely basis with the appropriate Governmental Entity, except
in each case for failures to file which, individually or in the aggregate, would not have or reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary is in violation or breach of, or default
under, any Company Permit, nor has the Company or any Company Subsidiary received any claim or notice indicating that the Company or any Company Subsidiary is currently not in compliance with the terms of any Company Permits, except where the
failure to be in compliance with the terms of any Company Permits, individually or in the aggregate, would not have or reasonably be expected to have a Company Material Adverse Effect.
Section 3.17
Assets and Properties
.
(a) None of the Company or any Company Subsidiary own any equity interests in any real property.
(b) The Company and each of the Company Subsidiaries own or lease all tangible assets, if any, necessary for the conduct of their respective
businesses as presently conducted. Each such tangible asset is free from material defects, has been maintained in accordance with normal industry practice and is in good operating condition and repaid, other than where such defects or the failure to
have been so maintained or to be in such condition and repair would not, individually or in the aggregate, have or reasonably be expected to have a Company Material Adverse Effect.
Section 3.18
Investments
.
Section 3.18
of the Company Disclosure Letter sets forth an accurate and complete list of investments,
including any securities, derivative instruments, currency hedging arrangements, repurchase agreements, options, forwards, futures, swaps, or hybrid securities, and all Contracts relating thereto (collectively, the
Company
Investments
and such Contracts, the
Company Investment Contracts
) owned by the Company or any of the Company Subsidiaries as of the dates indicated therein, together with the cost basis, book or amortized value, as the
case may be, as of the date indicated thereon, and investment rating (if any) of each such Company Investment.
Section 3.19
Information in the Proxy Statement
. None of the information supplied or to be supplied in writing by or on behalf of the Company, any Company Subsidiary or the Company Manager for inclusion or incorporation by reference in (i) the Form
S-4 will, at the time such document is filed with the SEC, at any time such document is amended or supplemented or at the time such document is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Proxy Statement will, at the date it is first mailed to the stockholders of the Company, at the time of the Stockholders Meeting, at
the time the Form S-4 is declared effective by the SEC or at the First Merger Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading. All documents that the Company is responsible for filing with the SEC in connection with the Transactions, to the extent relating to the Company, any Company
Subsidiary or the Company Manager or other information supplied by or on behalf of the
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Company, any Company Subsidiary or the Company Manager for inclusion therein, will comply as to form, in all material respects, with the provisions of the Securities Act or Exchange Act, as
applicable, and the rules and regulations of the SEC thereunder and each such document required to be filed with any Governmental Entity (other than the SEC) will comply in all material respects with the provisions of any applicable Law as to the
information required to be contained therein. The representations and warranties contained in this
Section 3.19
will not apply to statements or omissions included in the Form S-4 or the Proxy Statement to the extent based upon
information supplied to the Company by or on behalf of Parent, Merger Sub or the Parent Manager.
Section 3.20
Opinion of Company
Financial Advisor
. The Company Board has received the opinion of Morgan Stanley & Co. LLC (the
Company Financial Advisor
), to the effect that, as of the date of such opinion and based on and subject to the limitations,
qualifications and assumptions set forth therein, the consideration to be received in the First Merger pursuant to this Agreement is fair, from a financial point of view, to holders of Company Common Stock (other than Parent, Merger Sub and their
respective affiliates). The Company shall make available to Parent, solely for informational purposes, a complete and current copy of such written opinion promptly after receipt thereof by the Company Board. Parent and Merger Sub
acknowledge that the opinion of the Company Financial Advisor is for the benefit of the Company Board and neither Parent nor Merger Sub shall be entitled to rely on such opinion for any purpose.
Section 3.21
Insurance
. The Company and the Company Subsidiaries have policies of insurance covering the Company, the Company
Subsidiaries and any of their respective directors, officers, agents, properties or assets, including policies of property, fire, products liability, directors and officers liability, and other casualty and liability insurance
(
Company Insurance Policies
), and in each case in such amounts and with respect to such risks and losses, which the Company believes are adequate for the operation of its business. All such insurance policies are in full effect,
no written notice of cancellation has been received by the Company or any Company Subsidiary under such policies, and there is no existing default or event which, with the giving of notice of lapse or time or both, has had or would reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect. All premiums payable under the Company Insurance Policies have been paid in all material respects, and the Company and the Company Subsidiaries have
otherwise complied in all material respects with the terms and conditions of the Company Insurance Policies. The Company will make available to Parent upon request copies of all material Company Insurance Policies.
Section 3.22
Related Party Transactions
. Except as set forth in the Company SEC Documents (and excluding this Agreement and the
Transactions), since January 1, 2013 there have been no transactions, agreements, arrangements or understandings between the Company or any Company Subsidiary, on the one hand, and the Company Manager or any officer, director or affiliate (including
any officer or director of any affiliate) of the Company, any Company Subsidiary or the Company Manager, on the other hand (each, a
Related Party Transaction
).
Section 3.23
Brokers; Expenses
. No broker, investment banker, financial advisor or other Person (other than the Company Financial
Advisor, whose fees and expenses shall be paid by the Company), is entitled to receive any brokers, finders, financial advisors or other similar fee or commission in connection with this Agreement, the Mergers or the other
Transactions based upon arrangements made by or on behalf of the Company.
Section 3.24
Takeover Statutes
. The Company Board has
taken all action necessary to render inapplicable to the First Merger and the other Transactions, the restrictions on business combinations contained in Subtitle 6 of Title 3 of the MGCL and Subtitle 7 of Title 3 of the MGCL. No other business
combination, control share acquisition, fair price, moratorium or other takeover or anti-takeover statute or similar federal or state Law (collectively,
Takeover Statutes
) are applicable
to this Agreement, the First Merger or the other Transactions.
Section 3.25
Vote Required
. The affirmative vote, at a duly called
and held meeting of stockholders, of the holders of at least a majority of the outstanding shares of Company Common Stock entitled to vote upon the First Merger (the
Company Stockholder Approval
) is the only vote of the holders of
any class or series of shares of
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stock of the Company necessary under the MGCL or the Company Governing Documents to approve the Mergers or the other Transactions.
Section 3.26
No Other Representations or Warranties
. Except for the representations and warranties set forth in this
Article
III
, neither the Company nor any other Person makes any express or implied representation or warranty with respect to the Company or with respect to any other information provided to Parent or Merger Sub in connection with the Transactions.
Section 3.27
Acknowledgement by the Company
. The Company acknowledges and agrees that it has conducted its own independent review
and analysis of, and, based thereon, has formed an independent judgment concerning, the assets, condition, operations and prospects of Parent, Merger Sub and their respective Subsidiaries. In entering into this Agreement, the Company acknowledges
that, other than as expressly set forth in this Agreement, the Parent Disclosure Letter or in any other document or certificate delivered by Parent or Merger Sub in connection herewith or incorporated by reference herein, none of Parent, Merger Sub,
any of their respective Subsidiaries nor any of their respective Affiliates, agents or representatives (the
Parent Parties
) makes or has made any representation or warranty, either express or implied, including, without
limitation, (i) as to the accuracy or completeness of any of the information provided or made available to the Company or its agents or representatives prior to the execution of this Agreement, or (ii) with respect to any projections,
forecasts, estimates, plans or budgets of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component thereof) or future financial condition (or any component thereof) of
Parent, Merger Sub or their respective Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
The following representations and warranties are given by Parent and Merger Sub jointly and severally and are qualified in their entirety by
reference to the disclosures (i) in the Parent SEC Documents filed or furnished to the SEC as applicable, on or after January 1, 2015, except for the representations and warranties set forth in
Section 4.3
,
Section 4.5
,
Section
4.8(b)
and
Section 4.15
, and prior to February 22, 2016 (excluding any risk factor disclosures contained in such documents under the heading Risk Factors and any disclosure of risks included in any forward-looking
statements disclaimer or other statements that are cautionary, predictive or forward-looking in nature) and (ii) set forth in the disclosure letter delivered by Parent to the Company immediately prior to the execution of this Agreement (the
Parent Disclosure Letter
). Each disclosure set forth in the Parent Disclosure Letter shall qualify or modify the Section to which it corresponds and any other Section to the extent the applicability of the disclosure to such other
Section is reasonably apparent on its face from the text of the disclosure made.
Section 4.1
Organization and Qualification
.
(a) Parent is a corporation duly organized, validly existing and in good standing under the Laws of Maryland and has the requisite corporate
power and authority to conduct its business as now being conducted. Parent is duly qualified or licensed to do business and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which the nature of
its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not have or
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Parent is in compliance with the terms of the Parent Governing Documents.
(b) Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has the
requisite corporate power and authority conduct its business as now being
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conducted. Merger Sub is duly qualified or licensed to do business, and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not have
or reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Merger Sub has delivered to or made available to the Company, prior to the execution of this Agreement, true and complete copies of any amendments
to the Merger Sub Governing Documents not filed as of the date of this Agreement with the SEC. Merger Sub is in compliance with the terms of the Merger Sub Governing Documents, except as has not had and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
(c)
Section 4.1(c)
of the Parent Disclosure Letter sets
forth a true and complete list of the Subsidiaries of Parent (each a
Parent Subsidiary
), together with the jurisdiction of organization or incorporation, as the case may be, of each Parent Subsidiary, and the type and percentage
of interest held directly or indirectly, by the Parent in each Parent Subsidiary. Each Parent Subsidiary is in compliance in all material respects with the terms of its constituent organizational or governing documents.
(d) Each Parent Subsidiary is duly organized, validly existing and in good standing (to the extent applicable) under the Laws of the
jurisdiction of its incorporation or organization, as the case may be, and has the requisite organizational power and authority to conduct its business as now being conducted, except for such failures as would not have or reasonably be expected to
have a Parent Material Adverse Effect. Each Parent Subsidiary is duly qualified or licensed to do business and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not have or reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(e) Neither Parent nor any Parent Subsidiary
directly or indirectly owns any interest or investment (whether equity or debt) in any Person (other than in the Parent Subsidiaries and investments in short-term securities).
(f) Parent has made available to the Company complete and correct copies of the Parent Governing Documents.
Section 4.2
Capitalization
.
(a) As of the date hereof, the authorized stock of Parent consists of (i) 450,000,000 shares of Parent Common Stock, (ii) 50,000,000 shares of
preferred stock, par value $0.01 per share (the
Parent Preferred Stock
), of which (x) 3,450,000 shares are designated as 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock (the
Parent Series A Preferred
Stock
), and (y) 8,000,000 shares are designated as 8.00% Series B Cumulative Redeemable Perpetual Preferred Stock (the
Parent Series B Preferred Stock
). As of February 22, 2016, (A) 67,385,255 shares of Parent
Common Stock were issued and outstanding, (B) 3,450,000 shares of Parent Series A Preferred Stock were issued and outstanding; (C) 8,000,000 shares of Parent Series B Preferred Stock were issued and outstanding and no other shares of Parent
Preferred Stock were issued or outstanding, (D) 14,247,763 shares of Parent Common Stock were reserved for issuance in connection with potential future conversions of the Parent Convertible Notes, (E) 3,109,535 shares of Parent Common Stock were
reserved for issuance in connection with future grants of awards under any Parent Equity Plan, and (F) 924,650 shares of Parent Common Stock were reserved for issuance with respect to outstanding grants made under any Parent Equity Plan (the
Parent Equity Awards
). All of the outstanding shares of Parent stock are duly authorized, validly issued, fully paid and non-assessable, and all shares of Parent Common Stock to be issued in connection with the First Merger and
shares of Parent Series C Preferred Stock to be issued in connection with the Second Merger, when so issued in accordance with the terms of this Agreement, will be duly authorized, validly issued,
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fully paid and non-assessable, and have been issued in compliance with all applicable securities Laws, the MGCL and the Parent Governing Documents. There are no bonds, debentures, notes or other
Indebtedness having general voting rights (or convertible into securities having such rights) (
Parent Voting Debt
) of Parent or any Parent Subsidiary issued and outstanding. Except for the Parent Equity Awards, there are no
options, warrants, calls, pre-emptive rights, subscriptions or other rights, agreements, arrangements or commitments of any kind, including any poison pill or similar stockholder rights plan, relating to the issued or unissued stock of
Parent, obligating Parent or any Parent Subsidiary to issue, transfer or sell or cause to be issued, transferred or sold any shares of stock or Parent Voting Debt of, or other equity interest in, Parent or any Parent Subsidiary or securities
convertible into or exchangeable for such shares or equity interests, or obligating Parent or any Parent Subsidiary to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment
(collectively,
Parent Equity Interests
). Except as set forth in the Parent Governing Documents, there are no outstanding contractual obligations of Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any
shares of Parent Common Stock or any stock of, or other Parent Equity Interests in, Parent or any Parent Subsidiary, or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in Parent or any Parent
Subsidiary.
(b) There are no voting trusts or other agreements to which Parent or any Parent Subsidiary is a party with respect to the
voting of the Parent Common Stock or any stock of, or other Parent Equity Interest in, Parent or any Parent Subsidiary. Neither Parent nor any Parent Subsidiary has granted any preemptive rights, anti-dilutive rights or rights of first refusal or
similar rights with respect to any of its stock or other Parent Equity Interests except as set forth in the governance documents of the Parent Subsidiaries.
(c) Parent owns beneficially and of record all of the outstanding stock of Merger Sub. Merger Sub was formed solely for the purpose of
engaging in the Transactions, has engaged in no other business activities and has conducted its operations only as contemplated hereby.
(d) Parent or another Parent Subsidiary owns, directly or indirectly through ownership of another wholly-owned Parent Subsidiary, all of the
issued and outstanding shares of stock or other Parent Equity Interests of each of the wholly-owned Parent Subsidiaries and its outstanding shares of stock or other Parent Equity Interests of each of the other Parent Subsidiaries, free and clear of
any Liens (other than transfer and other restrictions under the governance documents of the Parent Subsidiaries and/or applicable federal and state securities Laws and other than, in the case of Parent Subsidiaries that are immaterial to Parent,
immaterial Liens), and all of such shares of stock or other Parent Equity Interests have been duly authorized and validly issued and are fully paid, nonassessable, and have been issued in compliance with all applicable securities Laws. Except
as set forth in the governance documents of the Parent Subsidiaries, there are no outstanding obligations to which Parent or any Parent Subsidiary is a party (i) restricting the transfer of or (ii) limiting the exercise of voting rights with respect
to any Parent Equity Interests in any Parent Subsidiary.
(e) All dividends or distributions on the shares of Parent Common Stock and any
material dividends or other distributions on any securities of any Parent Subsidiary which have been authorized or declared prior to the date hereof have been paid in full (except to the extent such dividends have been publicly announced and are not
yet due and payable).
Section 4.3
Authorization; Validity of Agreement; Parent Action
. Each of Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Transactions, including the Mergers. The execution, delivery and performance by Parent and Merger Sub of this
Agreement, and the consummation by each of them of the Mergers and the other Transactions, have been duly and validly authorized by the Parent Board, the board of directors of Merger Sub and the sole stockholder of Merger Sub and no other corporate
action on the part of Parent or Merger Sub, or vote, consent or approval of Parents stockholders, pursuant to the MGCL or otherwise, is necessary to authorize the execution and delivery by Parent and Merger Sub of this Agreement, and the
consummation by each of them
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of the Mergers and the other Transactions, subject, in the case of the Mergers, to the filing of the Articles of Merger with, and acceptance for record by, the SDAT. This Agreement has been duly
and validly executed and delivered by Parent and Merger Sub and, assuming due and valid authorization, execution and delivery hereof by the Company, is a valid and binding obligation of Parent and Merger Sub enforceable against each of them in
accordance with its terms, except that the enforcement hereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at Law).
Section 4.4
Board
Approvals
. On or prior to the date hereof, (a) the Parent Board has at a duly held meeting, by unanimous vote, duly and validly authorized the execution and delivery of this Agreement and declared advisable the Mergers and the other
Transactions and (b) the board of directors of Merger Sub has at a duly held meeting, by unanimous vote, duly and validly authorized the execution and delivery of this Agreement and declared advisable the First Merger.
Section 4.5
Consents and Approvals; No Violations
. None of the execution, delivery or performance of this Agreement by Parent and
Merger Sub, the consummation by Parent and Merger Sub of the Mergers or any other Transaction or compliance by Parent and Merger Sub with any of the provisions of this Agreement will (a) violate, conflict with or result in any breach of any
provision of the Parent Governing Documents, the Merger Sub Governing Documents or the comparable organizational or governing documents of any Parent Subsidiary, (b) require any filing by Parent, Merger Sub or any Parent Subsidiary with, or the
obtaining of any permit, authorization, consent or approval of, any Governmental Entity (except for (i) compliance with any applicable requirements of the Exchange Act, including with respect to the registration of Stock Consideration, (ii) any
filings as may be required under the MGCL in connection with the Mergers and the other Transactions, (iii) such filings as may be required under the rules and regulations of the NYSE in connection with this Agreement and the Mergers, or (iv) such
filings as may be required in connection with state and local transfer Taxes), (c) accelerate the performance required by, result in any termination, cancellation or modification of, or loss of benefit under, violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any right, including, but not limited to, any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any
Contract to which Parent or any Parent Subsidiary is a party, (d) result in the creation of any Lien or other encumbrance (other than a Parent Permitted Lien) upon any of the respective properties or assets of Parent, or (e) violate any order, writ,
injunction, decree or Law applicable to Parent or any of its properties or assets; except in each of clauses (c) or (d), as would not have or reasonably be expected to have individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.6
Parent SEC Documents and Parent Financial Statements
.
(a) Parent has filed or furnished (as applicable) with the SEC on a timely basis all forms, reports, schedules, statements and other documents
(including exhibits and all other information incorporated therein) required by it to be filed or furnished (as applicable) since and including January 1, 2013 under the Exchange Act or the Securities Act (together with all certifications required
pursuant to the Sarbanes-Oxley Act) (such documents and any other documents filed by Parent with the SEC, collectively, the
Parent SEC Documents
). As of their respective filing dates the Parent SEC Documents (a) did not (or with
respect to Parent SEC Documents filed after the date hereof, will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading and (b) complied (or with respect to Parent SEC Documents filed after the date hereof, will comply) in all material respects with the applicable requirements of the Exchange Act or the
Securities Act, as the case may be, the Sarbanes-Oxley Act and the applicable rules and regulations of the SEC thereunder. All of the consolidated audited financial statements and unaudited interim financial statements of Parent included in the
Parent SEC Documents or incorporated therein by reference, including the related notes and schedules (collectively, the
Parent Financial Statements
), (i) complied or will comply, as the case may be, as to form in all material
respects with the applicable accounting requirements and
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the published rules and regulations of the SEC with respect thereto; (ii) have been or will be, as the case may be, prepared from, are in accordance with, and accurately reflect the books and
records of Parent and the Parent Subsidiaries in all material respects, (iii) have been or will be, as the case may be, prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of interim financial statements, for normal and recurring year-end adjustments and as may be permitted by the SEC on Form 10-Q, Form 8-K or any successor or like form under the Exchange Act); and (iv) fairly present, in
all material respects, the financial position and the results of operations and cash flows of Parent and the consolidated Parent Subsidiaries as of the times and for the periods referred to therein. No financial statements of any Person are
required by GAAP to be included in the consolidated financial statements of Parent. Parent does not have any outstanding and unresolved comments from the SEC with respect to the Parent SEC Documents. To the knowledge of Parent, as of the date
hereof, none of the Parent SEC Documents is the subject of ongoing SEC review or outstanding SEC comments and there are no inquiries or investigations by the SEC or any internal investigations pending or threatened, in each case regarding any
accounting practices of Parent.
(b) Parent has made available to the Company complete and correct copies of all written correspondence
between the SEC on one hand, and Parent, on the other hand, since January 1, 2013, other than as publicly filed as correspondence in EDGAR.
Section 4.7
Internal Controls; Sarbanes-Oxley Act
.
(a) Since January 1, 2013, Parent has designed and maintained a system of internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those
policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Parent and its consolidated Subsidiaries; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and directors of
Parent; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets that could have a material effect on the financial statements. Parents management has
completed an assessment of the effectiveness of Parents system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended December 31, 2015, and, except
as set forth in Parent SEC Documents filed prior to the date of this Agreement, such assessment concluded that such controls were effective and Parents independent registered accountant has issued (and not subsequently withdrawn or qualified)
an attestation report concluding that Parent maintained effective internal control over financial reporting as of December 31, 2015. Since January 1, 2013, Parent (i) has designed and maintains disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and is accumulated and communicated to Parents management as appropriate to allow timely decisions regarding required disclosure and (ii) has not had (A) any significant deficiencies and
material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect the Parents ability to record, process, summarize and report financial
information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Parents internal controls over financial reporting.
(b) Neither Parent nor any of its Subsidiaries has entered into or is subject to (i) any off balance sheet arrangement (as defined
in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act) or (ii) any commitment to become party to any joint venture, off balance sheet partnership or any similar Contract or arrangement relating to any transaction or
relationship between or among Parent or any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, in each case where the
results, purpose or effect of such commitment or
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arrangement is to avoid disclosure of any material transaction involving, or material liabilities of, Parent or any of its Subsidiaries in Parents or such Subsidiaries published
financial statements or other Parent SEC Documents.
Section 4.8
Absence of Certain Changes
.
(a) Except as contemplated by this Agreement, since January 1, 2015, Parent and each Parent Subsidiary has conducted, in all material
respects, its business in the ordinary course consistent with past practice.
(b) Since January 1, 2015, there has not been any Parent
Material Adverse Effect or any Events that have had or would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.9
No Undisclosed Liabilities
. Except (a) as reflected or adequately reserved against on the balance sheet of Parent,
dated September 30, 2015, (b) for liabilities and obligations incurred since September 30, 2015 in the ordinary course of business and in a manner consistent with past practice, subsequent to September 30, 2015, and (c) for liabilities and
obligations contemplated by or under this Agreement or in connection with the Transactions, neither Parent nor any Parent Subsidiary has incurred any liabilities or obligations, contingent or otherwise, that would be required by GAAP to be reflected
on, or disclosed in the notes to, the consolidated financial statements of Parent and its Subsidiaries, other than those liabilities that have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
Section 4.10
Litigation
. There is no Legal Proceeding pending (in which service of process has been received by
Parent) against (or to Parents knowledge, threatened against or naming as a party thereto), Parent, a Parent Subsidiary, any of their respective properties or assets, or any executive officer or director of Parent (in their capacity as such)
except as would not have or reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. There is no material investigation of a Governmental Entity pending (in which notice has been received by Parent) or, to
the knowledge of Parent, threatened against the Parent or any Parent Subsidiary, any of their respective properties or assets, or any executive officer or director of Parent (in their capacity as such), that, if adversely determined, would have or
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Neither Parent nor any Parent Subsidiary is subject to any outstanding Order which has had or would reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect.
Section 4.11
Parent Employee Benefit Plans; ERISA
.
(a) Neither Parent nor any Parent Subsidiaries (i) currently employs or has ever employed any individual and (ii) has, or has ever had, any
liabilities with respect to Benefit Plans, other than liabilities relating to the Parent Equity Plan.
(b) No material liability, claim,
action, audit, investigation, governmental proceeding or litigation is pending or, to the knowledge of Parent, threatened with respect to any individual who is currently providing or has ever provided services to Parent. Full payment has been made,
or otherwise properly accrued on the books and records of Parent and the Parent Subsidiaries, of all material amounts that Parent and the Parent Subsidiaries are required under the terms of any arrangement with respect to Parent Service Providers.
Section 4.12
Taxes
.
(a) Parent and each Parent Subsidiary has timely filed with the appropriate Governmental Entity all material Tax Returns required to be filed,
taking into account any extensions of time within which to file such Tax Returns, and all such Tax Returns were true, complete and correct in all material respects. Parent and each
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Parent Subsidiary has duly paid (or there has been paid on their behalf), or made adequate provisions for, all material Taxes required to be paid by them.
(b) Parent (i) for all taxable years commencing with Parents taxable year ended December 31, 2009 and through December 31, 2015 has
been subject to taxation as a REIT and has satisfied all requirements to qualify as a REIT for such years; (ii) has operated since January 1, 2016 until the date hereof in a manner consistent with the requirements for qualification and taxation as a
REIT; (iii) intends to continue to operate in such a manner as to qualify as a REIT; and (iv) has not to its knowledge taken or omitted to take any action that could reasonably be expected to result in a challenge by the IRS or any other
Governmental Entity to its qualification as a REIT, and to the knowledge of Parent, no such challenge is pending or threatened.
(c) There
are no current audits, examinations or other proceedings of a Governmental Entity pending with regard to any U.S. federal or other material Taxes of Parent or the Parent Subsidiaries, and neither Parent nor any Parent Subsidiary has received a
written notice or announcement of any such audits, examinations or proceedings.
(d) Merger Sub has been treated as a disregarded entity
for U.S. federal income tax purposes at all times since its formation.
(e) Neither Parent nor any Parent Subsidiary directly or
indirectly holds any asset the disposition of which would be subject to (or to rules similar to) Section 1374 of the Code.
(f) Parent and
the Parent Subsidiaries have complied, in all material respects, with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 1471-1474
and 3402 of the Code or similar provisions under any state and foreign Laws) and have duly and timely withheld and, in each case, have paid over to the appropriate Governmental Entities all material amounts required to be so withheld and paid over
on or prior to the due date thereof under all applicable Laws.
(g) There are no Tax Liens upon any property or assets of Parent or any
Parent Subsidiary except for Parent Permitted Liens.
(h) There are no Tax allocation or sharing agreements or similar arrangements with
respect to or involving Parent or any Parent Subsidiary, and after the Closing Date, neither Parent nor any Parent Subsidiary shall be bound by any such Tax allocation agreements or similar arrangements or have any liability thereunder for amounts
due in respect of periods prior to the Closing Date, except as otherwise provided herein and except, in each case, for customary indemnification provisions contained in credit or other commercial agreements the primary purposes of which do not
relate to Taxes.
(i) Neither Parent nor any Parent Subsidiary is or has been a party to any listed transaction within the
meaning of Treasury Regulations Section 1.6011-4(b)(2).
(j) Neither Parent nor any Parent Subsidiary has distributed stock of another
Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code.
(k) Neither Parent nor any Parent Subsidiary has waived any statute of limitations in respect of any U.S. federal or other material Taxes or
agreed to any extension of time with respect to a U.S. federal or other material Tax assessment or deficiency.
(l) Neither Parent nor any
Parent Subsidiary will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof)
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beginning after the Closing Date as a result of any (A) change in method of accounting of Parent or any Parent Subsidiary for a taxable period ending on or prior to the Closing Date, (B)
installment sale or open transaction disposition made by Parent or any Parent Subsidiary on or prior to the Closing Date, (C) prepaid amount received by Parent or any Parent Subsidiary on or prior to the Closing Date, or (D) election made of Parent
or any Parent Subsidiary prior to the Closing under Section 108(i) of the Code.
(m)
Section 4.12(m)
of the Parent Disclosure
Letter sets forth a true and complete list of each Parent Subsidiary and each other entity in which Parent directly, indirectly or constructively owns an equity interest of ten percent (10%) or greater (by vote or value) and their respective
classification for U.S. federal income tax purposes, jurisdiction of incorporation or organization, as the case may be, and the type of and percentage of interest held, directly or indirectly, by Parent in each Parent Subsidiary, including in the
case of any entity classified as a corporation for U.S. federal income tax purposes, whether such entity has made an election to be treated as a REIT or a Taxable REIT Subsidiary.
(n) Neither Parent nor any Parent Subsidiary (i) has been a member of an affiliated group filing a consolidated U.S. federal income Tax Return
or (ii) has any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.
(o) None of Parent, Merger Sub or any Parent Subsidiary has entered into any closing agreement as described in Section 7121 of the
Code (or any corresponding or similar provision of state, local or foreign income Tax Law).
(p) Neither Parent nor any Parent Subsidiary
has requested, has received or is subject to any written ruling of a Governmental Entity or has entered into any written agreement with a Governmental Entity with respect to any Taxes.
(q) Neither Parent nor any Parent Subsidiary have received a written claim by any Governmental Entity in a jurisdiction where Parent and the
Parent Subsidiaries do not file Tax Returns that they are or may be subject to income taxation by the jurisdiction.
(r) No deficiency for
any U.S. federal or other material Tax has been asserted or assessed by a Governmental Entity in writing against Parent or any Parent Subsidiary that has not been satisfied by payment, settled or withdrawn.
(s) Since January 1, 2015, neither Parent nor any of its Subsidiaries have rescinded or revoked any Tax election, settled or compromised any
Tax liability or amended any Tax Return filed before the date hereof. No material Tax elections have been made following the filing of the Companys 2014 U.S. federal income tax return.
(t) Neither Parent nor any Parent Subsidiary (i) owns any residual interests (within the meaning of Section 860G(a)(2) of the
Code) in a REMIC (within the meaning of Section 860D(a) of the Code) or (ii) has allocated excess inclusion income to their stockholders.
(u) To the knowledge of Parent, neither Parent nor any Parent Subsidiary has engaged at any time in any prohibited transactions
within the meaning of Section 856(b)(6) of the Code.
(v) This
Section 4.12
contains the sole representations and warranties of
Parent and the Parent Subsidiaries with respect to Tax matters.
Section 4.13
Investment Company Act
. Neither Parent nor any
Parent Subsidiary is, or on the Closing Date will be, required to be registered as an investment company under the Investment Company Act.
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Section 4.14
Compliance with Laws; Permits
.
(a) Each of Parent and the Parent Subsidiaries has, since January 1, 2014, been in compliance with all Laws which affect the business,
properties or assets of Parent, except for such non-compliance that would not have or reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Since January 1, 2014, no notice, charge or assertion has been
received by Parent or any Parent Subsidiary or, to Parents knowledge, threatened against Parent or any Parent Subsidiary alleging any non-compliance with any Laws affecting the business, properties or assets of Parent, except for any such
alleged non-compliance that has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Notwithstanding anything to the contrary in this
Section 4.14
, the provisions of this
Section 4.14
shall not apply to matters discussed in
Section 4.11
and
Section 4.12
.
(b) Parent and the Parent
Subsidiaries are in possession of all authorizations, licenses, permits, certificates, approvals and clearances of any Governmental Entity necessary for Parent and the Parent Subsidiaries to carry on its business in the manner described in the
Parent SEC Documents filed on or after January 1, 2014 and prior to the date hereof and as is being conducted as of the date of this Agreement (the
Parent Permits
), and all such Parent Permits are valid, and in full force and
effect, except where the failure to possess and maintain such Parent Permits in full force and effect have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. All applications
required to have been filed for the renewal of the Parent Permits have been duly filed on a timely basis with the appropriate Governmental Entity, and all other filings required to have been made with respect to such Parent Permits have been duly
made on a timely basis with the appropriate Governmental Entity, except in each case for failures to file which, individually or in the aggregate, would not have or reasonably be expected to have a Parent Material Adverse Effect. Neither Parent nor
any Parent Subsidiary is in violation or breach of, or default under, any Parent Permit, nor has Parent or any Parent Subsidiary received any claim or notice indicating that Parent or any Parent Subsidiary is currently not in compliance with the
terms of any Parent Permits, except where the failure to be in compliance with the terms of any Parent Permits, individually or in the aggregate, would not have or reasonably be expected to have a Parent Material Adverse Effect.
Section 4.15
Information in the Proxy Statement
. None of the information supplied or to be supplied in writing by or on behalf of
Parent, any Parent Subsidiary or the Parent Manager for inclusion or incorporation by reference in (i) the Form S-4 will, at the time such document is filed with the SEC, at any time such document is amended or supplemented or at the time such
document is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Proxy Statement will,
at the date it is first mailed to the stockholders of the Company, at the time of the Stockholders Meeting, at the time the Form S-4 is declared effective by the SEC or at the First Merger Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. All documents that Parent is responsible for filing with
the SEC in connection with the Transactions, to the extent relating to Parent, any Parent Subsidiary or the Parent Manager or other information supplied by or on behalf of Parent, any Parent Subsidiary or the Parent Manager for inclusion therein,
will comply as to form, in all material respects, with the provisions of the Securities Act or Exchange Act, as applicable, and the rules and regulations of the SEC thereunder and each such document required to be filed with any Governmental Entity
(other than the SEC) will comply in all material respects with the provisions of any applicable Law as to the information required to be contained therein. The representations and warranties contained in this
Section 4.16
will not apply
to statements or omissions included in the Form S-4 or the Proxy Statement to the extent based upon information supplied to Parent by or on behalf of the Company or the Company Manager.
Section 4.16
Opinion of Parent Financial Advisor
. The Parent Board Special Committee has received the opinion of Houlihan Lokey
Capital, Inc. (the
Parent Financial Advisor
) to the effect that, as of the date of such opinion and subject to the assumptions, limitations, qualifications and other matters set forth in such
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opinion, the consideration to be paid by Parent in the First Merger is fair from a financial point of view to Parent. The Company acknowledges that the opinion of the Parent Financial
Advisor is for the benefit of the Parent Board Special Committee and the Company shall not be entitled to rely on such opinion for any purpose.
Section 4.17
Brokers; Expenses
. No broker, investment banker, financial advisor or other Person (other than the Parent Financial
Advisors, whose fees and expenses shall be paid by Parent), is entitled to receive any brokers, finders, financial advisors or other similar fee or commission in connection with this Agreement or the Mergers based upon arrangements
made by or on behalf of Parent.
Section 4.18
Sufficiency of Funds
. Parent and Merger Sub have or, at Closing, shall have,
sufficient funds to consummate the Transactions and to satisfy their respective obligations under this Agreement.
Section 4.19
Ownership of Company Common Stock
. Except as set forth in
Section 4.19
of the Parent Disclosure Letter, neither Parent nor any Parent Subsidiary nor any of their respective affiliates or associates (as defined in Rule 12b-2 of the
Exchange Act) beneficially owns, directly or indirectly (other than investments made in the ordinary course of business in their investment portfolios that, in the aggregate, do not exceed 5% of the Company Common Stock), or has the right to acquire
(whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or the right to
vote pursuant to any agreement, arrangement or understanding, any shares of Company Common Stock or other securities convertible into, exchangeable for or exercisable for shares of Company Common Stock or any securities of any Company Subsidiary and
neither Parent nor any Parent Subsidiary has any rights to acquire any shares of Company Common Stock except pursuant to this Agreement. Neither Parent nor any of the Parent Subsidiaries is an affiliate or associate (as defined in Rule 12b-2 of the
Exchange Act) of the Company. Neither Parent nor any of the Parent Subsidiaries has at any time been an assignee or has otherwise succeeded to the beneficial ownership of any shares of Company Common Stock during the last two (2) years.
Section 4.20
Related Party Transactions
. Except as set forth in the Parent SEC Documents (and excluding this Agreement and the
transactions contemplated hereby), since January 1, 2013 there have been no transactions, agreements, arrangements or understandings between the Parent or any Parent Subsidiary, on the one hand, and the Parent Manager or any officer, director or
affiliate (including any officer or director of any affiliate) of the Parent, any Parent Subsidiary or the Parent Manager, on the other hand.
Section 4.21
Takeover Statutes
. The Parent Board has taken all action necessary to render inapplicable to the Mergers and the
other Transactions, the restrictions on business combinations contained in Subtitle 6 of Title 3 of the MGCL, Subtitle 7 of Title 3 of the MGCL and the limitations on transfer and ownership set forth in the Parents charter. No other Takeover
Statutes are applicable to this Agreement, the Mergers or the other Transactions.
Section 4.22
Vote Required
. No vote of the
holders of Parent Common Stock or Parent Preferred Stock is required to approve the Mergers or the other Transactions.
Section 4.23
No
Other Representations or Warranties
. Except for the representations and warranties set forth in this
Article IV
, neither Parent, Merger Sub nor any other Person makes any express or implied representation or warranty with respect to
Parent or Merger Sub or with respect to any other information provided to the Company in connection with the Transactions.
Section 4.24
Acknowledgement by Parent and Merger Sub
. Each of Parent and Merger Sub acknowledges and agrees that it has conducted its own independent review and analysis of, and, based thereon, has formed an independent judgment concerning, the
assets, condition, operations and prospects of the Company and its Subsidiaries. In entering into this Agreement, each of Parent and Merger Sub acknowledges that, other than as
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expressly set forth in this Agreement, the Company Disclosure Letter or in any other document or certificate delivered by the Company in connection herewith or incorporated by reference herein,
none of the Company, any Subsidiary of the Company, nor any of their respective Affiliates, agents or representatives (the
Company Parties
) makes or has made any representation or warranty, either express or implied, including,
without limitation, (i) as to the accuracy or completeness of any of the information provided or made available to Parent, Merger Sub or their respective agents or representatives prior to the execution of this Agreement or (ii) with
respect to any projections, forecasts, estimates, plans or budgets of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows (or any component thereof) or future financial condition (or
any component thereof) of the Company or its Subsidiaries.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF
BUSINESS PENDING THE FIRST MERGER
Section 5.1
Conduct of Business by the Company
Pending the Closing
. The Company agrees that between the date of
this Agreement and the First Merger Effective Time or the date, if any, on which this Agreement is terminated in accordance with
Article VIII
, except (a) as set forth in
Section 5.1
of the Company Disclosure Letter, (b) as expressly
required or permitted pursuant to this Agreement, (c) to the extent otherwise required by Law or (d) as consented to in writing by Parent (which consent shall not be unreasonably withheld, conditioned or delayed), the Company shall and shall cause
the Company Subsidiaries to (x) conduct its business in all material respects in the ordinary course of business and in a manner consistent with past practice, and (y) use its commercially reasonable efforts to (A) preserve intact in all material
respects its current business organization, goodwill, ongoing businesses and significant relationships with third parties, (B) provided it does not require additional compensation, keep available the services of its present officers, (C) maintain
all Company Insurance Policies and (D) maintain the qualification of the Company as a REIT. Without limiting the generality of the foregoing, the Company agrees that between the date of this Agreement and the First Merger Effective Time or the
date, if any, on which this Agreement is terminated in accordance with
Article VIII
, except (a) as set forth in
Section 5.1
of the Company Disclosure Letter, (b) as expressly required or permitted pursuant to this Agreement, (c) to the
extent otherwise required by Law or (d) as consented to in writing by Parent (which consent shall not be unreasonably withheld, conditioned or delayed) the Company shall not, and shall not permit any Company Subsidiary to:
(a) amend or propose to amend (A) the Company Charter or Company Bylaws, or (B) such equivalent organizational or governing documents of any
Company Subsidiary;
(b) issue, sell, pledge, dispose, encumber or grant any Company Equity Interests, except with respect to any issuance
of Company Common Stock upon the settlement of Company Restricted Shares which have vested in accordance with the vesting schedule set forth on
Section 3.2(b)
of the Company Disclosure Letter;
(c) split, combine, subdivide or reclassify any shares of stock of the Company or any Company Subsidiary or any other Company Equity Interests
or issue or authorize the issuance of any other securities in respect of, or in substitution for, outstanding shares of stock of the Company;
(d) declare, set aside or pay any dividend on or make any other distributions (whether in cash, stock, property or otherwise) with respect to
shares of stock of the Company or any Company Subsidiary or other equity securities or ownership interests in the Company or any Company Subsidiary, except for (A) the declaration and payment by the Company of regular quarterly dividends payable in
respect of the Company Preferred Stock in accordance with past practice, (B) the declaration and payment of dividends or other distributions to the Company by any directly or indirectly wholly owned Company Subsidiary, (C) the declaration, prior to
the Pricing Date, and payment by the Company of regular quarterly dividends payable in
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respect of the Company Common Stock in accordance with past practice, provided that any such dividend declared before the Pricing Date that is not paid prior to the Pricing Date shall be taken
into account in calculating Company Book Value and (D) any dividend to the extent declared and paid in accordance with
Section 6.15
;
(e) redeem, purchase or otherwise acquire, or offer to redeem, purchase or otherwise acquire, any Company Equity Interests, except (i) from
holders of Company Restricted Shares in amounts necessary to pay any applicable Taxes payable by such holders upon the lapse of restrictions on the Company Restricted Shares or (ii) as required by the Company Governing Documents;
(f) (i) acquire or agree to acquire (including by merging or consolidating with, by purchasing any assets or equity securities of, or by any
other manner) any corporation, partnership, limited liability company, other business organization or other Person, including any division or material amount of assets thereof, or (ii) acquire or agree to acquire any assets or properties other than
Company Investments in accordance with
Section 6.17
and
Section 6.18
;
(g) sell, pledge, lease, assign, transfer,
exclusively license, dispose of or encumber, any property or assets other than Company Investments in accordance with
Section 6.17
and
Section 6.18
;
(h) incur, create, assume, refinance, replace or prepay any Indebtedness for borrowed money or issue or amend the terms of any debt securities
(other than refinancing of Indebtedness in a manner contemplated by
Section 6.17
and
Section 6.18
) or assume, guarantee or endorse, or otherwise become responsible (whether directly, contingently or otherwise) for the Indebtedness of
any other Person (other than a wholly owned Company Subsidiary);
(i) other than ordinary course advances in connection with expense
reimbursement to Companys personnel (including to personnel of the Company Manager providing services to the Company), make any loans, advances or capital contributions to, or investments in, any other Person (including to any of its officers,
directors, affiliates, agents or consultants), make any change in its existing borrowing or lending arrangements for or on behalf of such Persons, or enter into any keep well or similar agreement to maintain the financial condition of
another entity, other than by the Company or a wholly owned Company Subsidiary to the Company or a wholly owned Company Subsidiary, in each case other than Company Investments in accordance with
Section 6.17
and
Section 6.18
;
(j) enter into, renew, modify, amend or terminate (or consent to the termination of the Companys or any Company Subsidiarys rights
under), or waive, release, compromise or assign any rights or claims under, any Company Material Contract (or any contract that, if existing as of the date of this Agreement, would be a Company Material Contract), other than (A) any termination or
renewal in accordance with the terms of any existing Company Material Contract that occurs automatically without any action by the Company or any Company Subsidiary, (B) subject to
Section 6.2(c)
, the entry into any modification or amendment
of, or waiver or consent under, any mortgage or related agreement to which the Company or any Company Subsidiary is a party as required or necessitated by this Agreement or the Transactions;
provided
, that any such modification, amendment,
waiver or consent does not increase the principal amount thereunder or otherwise materially adversely affect the Company, any Company Subsidiary or Parent or (C) subject to
Section 6.2(c)
, as may be contemplated by the arrangements
established by the Parties under
Section 6.17
and
Section 6.18,
or as reasonably necessary to comply with the express terms of this Agreement;
(k) make, change or revoke, any material Tax election, enter into any material closing agreement with a Tax authority, file any amended Tax
Return with respect to any material Tax or change any material method of accounting for Tax purposes or annual Tax accounting period, except in each case (A) if required by Law, (B) in the ordinary course of business or (C) if necessary (x) to
preserve the Companys qualification as a REIT under the Code or (y) to qualify or preserve the status of any Company Subsidiary as a disregarded entity or partnership for U.S. federal income tax purposes or as a qualified REIT
subsidiary within the meaning of Section 856(i)(2)
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of the Code (a
Qualified REIT Subsidiary
) or a Taxable REIT Subsidiary under the applicable provisions of Section 856 of the Code, as the case may be;
(l) take any action that could reasonably be expected to, or fail to take any action, the failure of which could reasonably be expected to,
cause the Company to fail to qualify as a REIT (determined as if the Companys taxable year ended at the First Merger Effective Time and disregarding the distribution requirements set forth in Section 857(a)(1) of the Code for such taxable
year);
(m) make, authorize or incur any capital expenditures or any obligations or liabilities in respect thereof in excess of $500,000
individually, or $1,000,000 in the aggregate;
(n) except (i) as required by the terms of any Benefit Plan or other Contract in effect on
the date hereof, (ii) in connection with retention or severance arrangements entered into in connection with the Transactions in accordance with the parameters set forth on
Section 5.1(n)
of the Company Disclosure Letter or (iii) in order to
effectuate the actions contemplated by this Agreement, (A) increase the salary or bonus opportunity of any directors of the Company or any other individual providing services Company, (B) grant any officer or director of the Company any increase in
severance or termination pay, (C) establish, adopt or enter into any collective bargaining agreement, (D) hire any officer (with a title of vice president or higher) of the Company or promote or appoint any Person to a position with a title of vice
president or higher of the Company, (E) enter into, adopt, amend or terminate any employment, bonus, severance or retirement contract or other compensation or Benefit Plan, (F) accelerate the vesting or payment of any award under any Company
Equity Plan or of any other compensation or benefits other than as set for on
Section 5.1(n)
of the Company Disclosure Letter, (G) grant any awards under any Company Equity Plan or any bonus, incentive, performance or other compensation plan
or arrangement, or (H) grant any bonuses to individuals providing services to the Company, other than pursuant to the terms of the bonus plans set forth in
Section 5.1(n)
of the Company Disclosure Letter;
(o) change an annual accounting period or change in any material respect any of the accounting methods used by it materially affecting its
assets, liabilities or business, except for such changes required by GAAP or applicable Laws;
(p) other than settlement of claims,
liabilities or obligations in connection with any stockholder litigation against the Company and/or its officers, directors, employees and Representatives relating to this Agreement, the Mergers and/or the other Transactions in accordance with
Section 6.9
, (i) settle or compromise any material claim or Legal Proceeding where the amount paid in settlement or compromise exceeds $500,000 individually or $1,000,000 in the aggregate or (ii) enter into any consent decree, injunction or
similar restraint or form of equitable relief that would reasonably be expected to restrict the operations of the business of the Company and its Subsidiaries (or of Parent and its Subsidiaries after the Second Merger Effective Time);
(q) take any action that could, or fail to take any action, the failure of which could reasonably be expect to, result in the Company or any
Company Subsidiary being required to be registered as an investment company under the Investment Company Act;
(r) adopt a plan of
complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company (other than the Mergers);
(s) amend or modify the compensation terms or any other obligations of the Company contained in the engagement letter with the financial
advisor referred to in
Section 3.23
that would increase the liabilities, including, without limitation, any indemnification obligation of the Company or any Company Subsidiary in a manner materially adverse to the Company, any Company
Subsidiary or Parent or engage other financial advisors in connection with the Mergers or the Transactions; or
(t) enter into any
Contract with respect to, or agree to take or make any commitment to take, or cause the Company Board to adopt any resolutions approving, any of the actions prohibited by this
Section 5.1
.
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Notwithstanding anything to the contrary set forth in this Agreement, nothing in this Agreement
shall prohibit the Company from taking any action, at any time or from time to time, that in the reasonable judgment of the Company, upon advice of counsel to the Company, is reasonably necessary for the Company to (i) maintain its qualification as
a REIT under the Code for any period or portion thereof ending on or prior to the First Merger Effective Time, (ii) avoid incurring U.S. federal, state or local income or excise Taxes under the Code or applicable state or local Law, including making
dividend or other distribution payments to stockholders of the Company in accordance with
Section 6.15
or (iii) avoid being required to register as an investment company under the Investment Company Act.
Section 5.2
Conduct of Business by Parent Pending the Closing
. Parent agrees that between the date of this Agreement and the First
Merger Effective Time or the date, if any, on which this Agreement is terminated in accordance with
Article VIII
, except (a) as set forth in
Section 5.2
of the Parent Disclosure Letter, (b) as expressly required or permitted
pursuant to this Agreement, (c) to the extent otherwise required by Law or (d) as consented to in writing by the Company (which consent shall not be unreasonably withheld, delayed or conditioned), Parent (x) shall and shall cause the Parent
Subsidiaries to, conduct its business in all material respects in the ordinary course of business and in a manner consistent with past practice and (y) shall use its commercially reasonable efforts to (A) preserve intact in all material respects its
current business organization, goodwill, ongoing businesses and significant relationships with third parties, and (B) maintain the qualification of Parent as a REIT. Without limiting the generality of the foregoing, Parent agrees that between
the date of this Agreement and the First Merger Effective Time or the date, if any, on which this Agreement is terminated in accordance with
Article VIII
, except (a) as set forth in
Section 5.2
of the Parent Disclosure Letter, (b) as
expressly required or permitted pursuant to this Agreement, (c) to the extent otherwise required by Law or (d) as consented to in writing by the Company (which consent shall not be unreasonably withheld, conditioned or delayed) Parent shall not, and
shall not permit any Parent Subsidiary to:
(a) amend or propose to amend the charter or bylaws of Parent in a manner adverse to the
Company;
(b) issue or grant any Parent Equity Interests at a price below the per share value of the Parents net assets as of the
date of such issuance or grant;
(c) split, combine, subdivide or reclassify any shares of stock of the Parent or any Parent Subsidiary or
any other Parent Equity Interests or issue or authorize the issuance of any other securities in respect of, or in substitution for, outstanding shares of stock of Parent;
(d) declare, set aside or pay any dividend on or make any other distributions (whether in cash, stock, property or otherwise) with respect to
shares of stock of Parent or any Parent Subsidiary or other equity securities or ownership interests in Parent or any Parent Subsidiary, except for (A) the declaration and payment by Parent of regular quarterly dividends payable in respect of the
Parent Preferred Stock in accordance with past practice, (B) the declaration and payment of dividends or other distributions to Parent by any directly or indirectly wholly owned Parent Subsidiary, (C) the declaration and payment by Parent of regular
quarterly dividends payable in respect of the Parent Common Stock in accordance with past practice; (D) the declaration and payment by Parent of a dividend in respect of the Parent Common Stock at or prior to Closing in an amount equal to a pro rata
portion of its regularly quarterly dividend, based on the number of days elapsed in the quarter in which the Closing Date occurs to but not including the third (3
rd
) Business Day after the date on
which the Company Stockholder Approval is obtained; and (E) any dividend which the Parent Board determines is or may be necessary to be authorized and declared to enable Parent to maintain its qualification as a REIT and avoid incurring U.S.
federal, state or local income or excise taxes under the Code or applicable state or local law, including payment of dividends under Code Sections 858 or 860, with respect to 2016;
(e) redeem, purchase or otherwise acquire, or offer to redeem, purchase or otherwise acquire, any Parent Equity Interests, except (i) in
accordance with Parents share repurchase plan as in effect as of the date hereof, (ii) from holders of Parent Equity Awards in amounts necessary for such holders to pay any applicable
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Taxes payable by such holders upon the lapse of restrictions on the Parent Equity Awards or (iii) as required by the Parent Governing Documents;
(f) make, change or revoke, any material Tax election, enter into any material closing agreement with a Tax authority, file any amended Tax
Return with respect to any material Tax or change any material method of accounting for Tax purposes or annual Tax accounting period, except in each case (A) if required by Law, (B) in the ordinary course of business or (C) if necessary (x) to
preserve Parents qualification as a REIT under the Code or (y) to qualify or preserve the status of any Parent Subsidiary as a disregarded entity or partnership for U.S. federal income tax purposes or as a Qualified REIT Subsidiary or a
Taxable REIT Subsidiary under the applicable provisions of Section 856 of the Code, as the case may be;
(g) take any action that could
reasonably be expected to, or fail to take any action, the failure of which could reasonably be expected to, cause Parent to fail to qualify as a REIT;
(h) change an annual accounting period or change in any material respect any of the accounting methods used by it materially affecting its
assets, liabilities or business, except for such changes required by GAAP or applicable Laws;
(i) take any action that could, or fail to
take any action, the failure of which could reasonably be expected to, result in Parent or any Parent Subsidiary being required to be registered as an investment company under the Investment Company Act;
(j) adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Parent (other
than the Mergers); or
(k) enter into any Contract with respect to, or agree to take or make any commitment to take, or cause Parent Board
to adopt any resolutions approving, any of the actions prohibited by this
Section 5.2
.
Notwithstanding anything to the contrary
set forth in this Agreement, nothing in this Agreement shall prohibit Parent from taking any action, at any time or from time to time, that in the reasonable judgment of Parent, upon advice of counsel to Parent, is reasonably necessary for Parent to
(i) maintain its qualification as a REIT under the Code for any period or portion thereof ending on or prior to the First Merger Effective Time, (ii) avoid incurring U.S. federal, state or local income or excise Taxes under the Code or applicable
state or local Law or (iii) avoid being required to register as an investment company under the Investment Company Act.
Section 5.3
Acquisition Proposals; Go-Shop Period
.
(a) Notwithstanding anything to the contrary contained in this Agreement, during the period
beginning on the date of this Agreement and continuing until 11:59 p.m. (Eastern time) on April 1, 2016 (the
Go-Shop Period
), the Company and its Subsidiaries and their respective Representatives shall have the right to: (i)
initiate, solicit, facilitate and encourage (publicly or otherwise) any inquiry or the making of any proposals or offers that constitute, or may reasonably be expected to lead to, any Acquisition Proposal, including by way of providing access to
non-public information to any Person and its Representatives, its affiliates and its prospective equity and debt financing sources, provided that prior to furnishing such information, the Company has entered into an Acceptable Confidentiality
Agreement with such Person, and
further
,
provided
, that the Company shall promptly make available to Parent any non-public information concerning the Company or its Subsidiaries that the Company provides to any Person given such access
if such information was not previously made available to Parent, and (ii) engage or enter into, continue or otherwise participate in any discussions or negotiations with any Persons or groups of Persons and their Representatives, their affiliates
and their prospective equity and debt financing sources with respect to any Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or any effort or
attempt to make any Acquisition Proposals.
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(b) Except as expressly permitted by this
Section 5.3
(including
Section 5.3(d)
)
and except as may relate to any Excluded Party (for so long as such Person remains an Excluded Party), the Company and its Subsidiaries and their respective officers and directors shall, and the Company shall instruct and use its commercially
reasonable efforts to cause, its and its Subsidiaries other Representatives (including by notifying them of the existence and terms of this
Section 5.3(b)
) to (i) at 12:01 a.m. on April 2, 2016 (the
No-Shop Period Start
Date
), immediately cease any solicitation activity with respect to an Acquisition Proposal or any discussions or negotiations with any Persons that may be ongoing with respect to an Acquisition Proposal and the Company shall request that
each Person (other than an Excluded Party for so long as such Person is an Excluded Party, and except as otherwise permitted pursuant to the terms of an Acceptable Confidentiality Agreement) promptly return to the Company or destroy any non-public
information previously furnished or made available to it or any of its Representatives by or on behalf of the Company or its Representatives, and immediately terminate access of any Person (other than an Excluded Party for so long as such Person is
an Excluded Party) to any electronic data room maintained by the Company with respect to the transaction contemplated by this Agreement and (ii) from the No-Shop Period Start Date until the earlier of the First Merger Effective Time and the
termination of this Agreement in accordance with Article VIII, not, directly or indirectly, (A) initiate, solicit, knowingly facilitate or knowingly encourage (publicly or otherwise) any inquiries regarding, or the making of any proposal or offer
that constitutes, or would reasonably be expected to lead to an Acquisition Proposal, (B) furnish any non-public information regarding the Company to any Person, or (C) engage in, enter into, continue or otherwise participate in any discussions or
negotiations regarding, or provide any information concerning the Company or its Subsidiaries or afford access to the Companys or its Subsidiaries books, records, management, employees or properties to any Person (other than discussions
in the ordinary course of business that are unrelated to an Acquisition Proposal).
(c) As promptly as reasonably practicable, and in any
event within three (3) Business Days following the expiration of the Go-Shop Period, the Company will provide Parent with a written list identifying each Excluded Party.
(d) Notwithstanding anything in this Agreement to the contrary, but subject to the last sentence of this
Section 5.3(d)
, at any time
following the No-Shop Period Start Date and prior to the time, but not after, the conditions set forth in
Section 7.1(a)
have been satisfied, if the Company receives an Acquisition Proposal from any Person or group of Persons which has not
resulted from a violation of this
Section 5.3
, subject to compliance with this
Section 5.3(d)
, (i) the Company and its Subsidiaries and their Representatives may contact such Person or group of Persons solely to clarify the terms and
conditions thereof, (ii) the Company and its Subsidiaries and their respective Representatives may provide non-public information and data concerning the Company and its Subsidiaries to such Person or group of Persons and their Representatives,
their affiliates and their prospective equity and debt financing sources provided that prior to furnishing such information, the Company has entered into an Acceptable Confidentiality Agreement with such Person;
provided
, that the Company
shall promptly (and in any event, within twenty-four (24) hours) make available to Parent any non-public information concerning the Company or its Subsidiaries that the Company made available to any Person given such access if such information was
not previously made available to Parent, and (iii) the Company and its Representatives may engage or participate in any discussions or negotiations with such Person or group of Persons if and only to the extent that, the Company Board, or any
committee thereof, has determined in good faith (after consultation with its outside legal counsel and a nationally recognized third party financial advisor) that such Acquisition Proposal either constitutes a Superior Proposal or would reasonably
be likely to result in a Superior Proposal. The Company shall give written notice to Parent before taking any of the actions described in clauses (ii) and (iii) of the preceding sentence. In no event may the Company or any of its Subsidiaries
or Representatives directly or indirectly reimburse or pay, or agree to reimburse or pay, the fees, costs or expenses of, or provide or agree to provide compensation to, any Person or Persons (or any of their Representatives or potential financing
sources) who make an Acquisition Proposal. Notwithstanding the occurrence of the No-Shop Period Start Date, the Company and its Subsidiaries and their respective Representatives may continue to engage in the activities described in
Section
5.3(a)
with any Excluded Party (for so long as such party remains an Excluded Party),
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including with respect to any amended Acquisition Proposal submitted by such Excluded Party, following the No-Shop Period Start Date, and the restrictions in
Section 5.3(b)
shall not apply
with respect thereto.
(e)
No Change in Recommendation or Alternative Acquisition Agreement
.
(i) Except as set forth in this
Section 5.3(e)
, or
Section 5.3(f)
or
8.3(a)
, the Company Board and each committee
thereof shall not:
(A) withhold, withdraw, qualify, amend or modify (or publicly propose or resolve to withhold, withdraw, qualify, amend
or modify), in any manner adverse to Parent, the Company Board Recommendation or approve, authorize, adopt or recommend or otherwise declare advisable, or propose publicly to approve, authorize, adopt or recommend or otherwise declare advisable, any
Acquisition Proposal or fail to include the Company Board Recommendation in the Proxy Statement when filed (each action set forth in this clause (A), a
Change of Recommendation
);
(B) take any action to make the provisions of any fair price, moratorium, control share acquisition,
business combination or other similar anti-takeover statute or regulation inapplicable to any transaction contemplated by an Acquisition Proposal;
(C) except as expressly permitted by
Section 8.3(a)
, authorize, adopt, approve, recommend or otherwise declare advisable, or propose
publicly to approve or recommend, or cause or permit the Company or any of its Subsidiaries to execute or enter into any letter of intent, agreement in principle, memorandum of understanding or definitive merger, acquisition, purchase or joint
venture agreement or other similar Contract (other than an Acceptable Confidentiality Agreement) in respect of or relating to any Acquisition Proposal.
(ii) Notwithstanding anything to the contrary set forth in this Agreement, if at any time after the date hereof but prior to the time the
Company Stockholder Approval is obtained, the Company Board or an authorized committee thereof has received an Acquisition Proposal (which did result from a violation of this
Section 5.3
) that the Company Board, or an authorized committee
thereof, determines in good faith (after consultation with outside legal counsel and a nationally recognized third party financial advisor) constitutes a Superior Proposal, the Company Board, and or such authorized committee thereof, prior to the
time the Company Stockholder Approval is obtained, may effect a Change of Recommendation and may also terminate this Agreement pursuant to
Section 8.3(a)
(a
Fiduciary Termination
);
provided
,
however
, that the
Company shall not effect a Change of Recommendation in connection with a Superior Proposal or effect a Fiduciary Termination pursuant to
Section 8.3(a)
with respect to a Superior Proposal unless: (w) the Company Board, or an authorized
committee thereof, determines in good faith (after consultation with its outside legal counsel) that the failure to take such action would be inconsistent with the directors duties under applicable Law; (x) the Company notifies Parent in
writing, at least five (5) Business Days in advance, that it intends to effect a Change of Recommendation in connection with a Superior Proposal or effect a Fiduciary Termination pursuant to
Section 8.3(a)
with respect to a Superior Proposal,
which notice shall specify all material terms and conditions of such Superior Proposal, including the identity of the Person who made such Superior Proposal, the type and amount of consideration that the Companys stockholders will receive and
all other terms and conditions which the Company Board considered in making the determination that such Acquisition Proposal constituted a Superior Proposal, and any other information and material required to be delivered under
Section 5.3(a)
or
5.3(d)
, as applicable, that has not yet been provided to Parent; (y) after providing such notice and prior to making such Change of Recommendation in connection with a Superior Proposal or effecting a Fiduciary Termination pursuant to
Section 8.3(a)
with respect to a Superior Proposal, if requested by Parent, the Company and its Representatives shall negotiate in good faith with Parent and Parents Representatives during such five (5) Business Day period to make such
revisions to the terms of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Proposal; and (z) the Company Board, or an authorized committee thereof, after taking into consideration any changes to this Agreement offered
in writing by Parent in a manner that would form a binding contract if accepted by the Company, continues to believe in its good faith business judgment (after consultation with its outside legal counsel and a nationally recognized third party
financial advisor) that the
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Acquisition Proposal continues to constitute a Superior Proposal and that, after consultation with outside legal counsel, the failure to effect a Change of Recommendation in connection with such
Superior Proposal or effect a Fiduciary Termination pursuant to
Section 8.3(a)
with respect to such Superior Proposal would be inconsistent with the directors duties under applicable Law. Any amendment to the financial or other material
terms of such Superior Proposal or an amendment to an Acquisition Proposal that the Company Board had determined no longer constitutes a Superior Proposal shall constitute a new Acquisition Proposal and shall require the Company to deliver a new
notice pursuant to clause (x) above, and the Company shall again be required to comply with the requirements of this
Section 5.3(e)(ii)
, except that the references to five (5) Business Days shall be deemed to be references to three (3)
Business Days. Except in accordance with the procedures set forth in this
Section 5.3(e)
, the Company shall have no right to terminate this Agreement pursuant to
Section 8.3(a)
.
(iii) Notwithstanding anything to the contrary set forth in this Agreement, at any time prior to the time the Company Stockholder Approval is
obtained, the Company Board, and any authorized committee thereof, may effect a Change of Recommendation in the absence of a Superior Proposal if an Intervening Event shall have occurred and be continuing;
provided
,
however
, that the
Company shall not be permitted to effect a Change of Recommendation in connection with an Intervening Event unless: (w) the Company Board, or an authorized committee thereof, determines in its good faith business judgment (after consultation with
its outside legal counsel) that, in light of such Intervening Event, the failure to take such action would be inconsistent with the directors duties under applicable Law; (x) the Company notifies Parent in writing, at least five (5) Business
Days in advance, which notice shall (1) state that an Intervening Event has occurred and that the Company Board, or such authorized committee thereof, has determined that in light of such Intervening Event, the failure to effect a Change of
Recommendation would be inconsistent with the directors duties under applicable Law and that the Company intends to take such action and (2) describe the Intervening Event in reasonable detail and advise Parent that it intends to take such
action and specify, in reasonable detail, the reasons for such action; (y) after providing such notice and prior to making such Change of Recommendation in connection with an Intervening Event, if requested by Parent, the Company shall negotiate in
good faith with Parent during such five (5) Business Day period, making such revisions to the terms and conditions of this Agreement so that the failure to make such Change of Recommendation would no longer be inconsistent with the directors
duties under applicable Law; and (z) the Company Board, or an authorized committee thereof, after taking into consideration any changes to this Agreement offered in writing by Parent in a manner that would form a binding contract if accepted by the
Company, continues to believe in its good faith business judgment (after consultation with its outside legal counsel) that the failure to effect a Change of Recommendation with respect to such Intervening Event would still be inconsistent with the
directors duties under applicable Law. For the avoidance of doubt, the provisions of this
Section 5.3(e)
shall also apply to any material change to the facts and circumstances relating to such Intervening Event and require a new notice,
except that the references to five (5) Business Days shall be deemed to be references to three (3) Business Days.
(f) Nothing contained
in this
Section 5.3
shall be deemed to prohibit the Company or the Company Board, or any committee thereof, from (i) complying with its disclosure obligations under United States federal or state law with regard to an Acquisition Proposal,
including taking and disclosing to its stockholders a position contemplated by Rule 14d9 and Rule 14e2(a) promulgated under the Exchange Act (or any similar communication to stockholders), or (ii) making any
stoplookandlisten communication to the stockholders of the Company pursuant to Rule 14d9(f) promulgated under the Exchange Act (or any similar communications to the stockholders of the Company);
provided
,
that any such disclosure or communication that constitutes or contains a Change of Recommendation shall be subject to the provisions of Section 5.3(e).
(g) From and after the No-Shop Period Start Date, the Company agrees that (i) it will promptly (and, in any event, within thirty-six (36)
hours) notify Parent orally and in writing if any Acquisition Proposal is received by it indicating, in connection with such notice, the identity of the Person making the Acquisition Proposal and the material terms and conditions thereof (including,
if applicable, copies of any written documentation or correspondence constituting the Acquisition Proposal, including proposed agreements) and (ii) in the event that any such Person modifies its Acquisition Proposal in any material respect, the
Company shall notify Parent
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within one (1) Business Day after receipt of such modified Acquisition Proposal of the fact that such Acquisition Proposal has been modified and the terms of such modification (including, if
applicable, copies of any written documentation or correspondence reflecting such modification);
provided
,
however
, that none of the requirements contemplated by the foregoing clauses (i) and (ii) shall apply (x) during the Go-Shop
Period or (y) to any Acquisition Proposal submitted by an Excluded Party. The Company agrees that it shall not, and shall cause its Subsidiaries not to, enter into any confidentiality agreement subsequent to the date hereof which prohibits the
Company from providing to Parent such material terms and conditions and other information contemplated by this
Section 5.3
, and represents, as of the date hereof, that none of the Company or its Subsidiaries is bound by a confidentiality
agreement which prohibits the Company from providing such information to Parent.
(h) The Company acknowledges and agrees that any actions
taken by or at the direction of a Representative of the Company or any of the Company Subsidiaries that, if taken by the Company, would constitute a breach or violation of this
Section 5.3
will be deemed to constitute a breach and
violation of this
Section 5.3
by the Company.
Section 5.4
Preparation of the Form S-4 and the Proxy Statement; Stockholders
Meetings
.
(a) As promptly as reasonably practicable following the date of this Agreement, (i) the Company shall prepare the Proxy
Statement in preliminary form, and (ii) Parent shall prepare and cause to be filed with the SEC, the Form S-4 with respect to the Parent Common Stock issuable in the First Merger and the Parent Series C Preferred Stock issuable in the Second Merger,
which will include the Proxy Statement and a prospectus of Parent;
provided
, however, that unless Parent and the Company otherwise agree in writing, in no event shall the Proxy Statement and the Form S-4 be filed prior to the No-Shop Period
Start Date. Each of the Company and Parent shall use its commercially reasonable efforts to (x) have the Proxy Statement cleared by the SEC and the Form S-4 declared effective under the Securities Act as promptly as practicable after such
filing, (y) ensure that the Proxy Statement and Form S-4 comply in all material respects with the applicable provisions of the Exchange Act or Securities Act and the rules and regulations thereunder, and (z) keep the Form S-4 effective for so long
as necessary to complete the First Merger. Each of the Company and Parent shall promptly furnish all information concerning itself, its affiliates, its respective Manager and the holders of its stock to the other and provide such other
assistance as may be reasonably requested in connection with the preparation, filing and distribution of the Form S-4 and Proxy Statement. Subject to
Section 5.3(e)
, the Form S-4 and Proxy Statement shall include all information
reasonably requested by such other Party to be included therein. Each of the Company and Parent shall promptly notify the other upon the receipt of any comments from the SEC or any request from the SEC for amendments or supplements to the Form
S-4 or Proxy Statement, and shall, as promptly as practicable after receipt thereof, provide the other with copies of all correspondence between it and its Representatives, on one hand, and the SEC, on the other hand, and all written comments with
respect to the Proxy Statement or the Form S-4 received from the SEC and advise the other Party of any oral comments with respect to the Proxy Statement or the Form S-4 received from the SEC. Each of the Company and Parent shall use its
commercially reasonable efforts to respond as promptly as practicable to any comments from the SEC with respect to the Proxy Statement, and Parent shall use its commercially reasonable efforts to respond as promptly as practicable to any comment
from the SEC with respect to the Form S-4. Notwithstanding the foregoing, prior to filing the Form S-4 (or any amendment or supplement thereto) or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any
comments of the SEC with respect thereto, each of the Company and Parent shall cooperate and provide the other a reasonable opportunity to review and comment on such document or response (including the proposed final version of such document or
response) and shall, subject to
Section 5.3(e)
, give due consideration to including in such document or response any comments reasonably proposed by the other. Each of Parent and the Company shall advise the other, promptly after it
receives notice thereof, of the time of effectiveness of the Form S-4, the issuance of any stop order relating thereto or the suspension of the qualification of the Parent Common Stock of Parent Series C Preferred Stock issuable in connection with
the Mergers for offering or sale in any jurisdiction, and each of Parent and the Company shall use its commercially reasonable efforts to have any such stop order or suspension lifted, reversed or otherwise terminated. Parent and
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the Company shall also take any other action required to be taken under the Securities Act, the Exchange Act, any applicable foreign or state securities or blue sky Laws and the rules
and regulations thereunder, the MGCL and the rules of the NYSE in connection with the filing and distribution of the Proxy Statement and the Form S-4, and the solicitation of proxies from Company stockholders thereunder.
(b) Each of Parent and the Company shall, upon request, furnish to the other all information concerning itself, its Subsidiaries, its Manager,
its directors, officers and (to the extent reasonably available to the applicable party) stockholders and such other matters as may be reasonably necessary or advisable in connection with any statement, filing, notice or application made by or on
behalf of Parent, the Company or any of their respective Subsidiaries to the NYSE or any Governmental Entity (including the Form S-4 and the Proxy Statement) in connection with the First Merger and the other Transactions. In addition, the Company
will use its commercially reasonable efforts to (i) provide interim financial statements of the Company and the Company Subsidiaries (including footnotes) that are required by the Securities Act to be included in the Form S-4 that have been reviewed
by the Companys independent registered public accounting firm, (ii) provide managements discussion and analysis of interim and annual consolidated financial statements, (iii) cause the Companys independent registered public
accounting firm to consent to the inclusion or incorporation by reference of the audit reports on the annual audited consolidated financial statements of the Company included in the Form S-4, and (iv) provide information concerning the Company
necessary to enable Parent and the Company to prepare required pro forma financial statements and related footnotes, in each case, to the extent reasonably necessary to permit Parent to prepare the Form S-4. Notwithstanding the foregoing and except
as required by applicable Law, neither party shall furnish any information that is the subject of any confidentiality agreement with any third party (provided that the withholding party shall use commercially reasonable efforts to obtain the
required consent of such third party with respect to furnishing such information) or subject to any attorney client privilege (provided that the withholding party shall use commercially reasonable efforts to permit the furnishing of such information
in a manner that does not result in loss or waiver of privilege).
(c) If, at any time prior to the receipt of the Company Stockholder
Approval, any information relating to the Company or Parent, or any of their respective affiliates, should be discovered by the Company or Parent which, in the reasonable judgment of the Company or Parent, should be set forth in an amendment of, or
a supplement to, any of the Form S-4 or the Proxy Statement, so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the Party which discovers such information shall promptly notify the other Parties, and the Company and Parent shall cooperate in the prompt filing with the SEC of any necessary amendment of,
or supplement to, the Proxy Statement or the Form S-4 and, to the extent required by Law, in disseminating the information contained in such amendment or supplement to stockholders of the Company and the stockholders of Parent. Nothing in this
Section 5.4(c)
shall limit the obligations of any Party under
Section 5.4(a)
. For purposes of this
Section 5.4
, any non-public information concerning or related to the Company, its affiliates or the Stockholders
Meeting will be deemed to have been provided by the Company, and any non-public information concerning or related to Parent or its affiliates will be deemed to have been provided by Parent.
(d) As promptly as reasonably practicable following the effectiveness of the Form S-4, the Company, acting through the Company Board, or an
authorized committee thereof, in accordance with applicable Law and its charter and bylaws, shall, in consultation with Parent, (i) establish a record date for and give notice of, a meeting of holders of Company Common Stock (the
Stockholders Meeting
) at which meeting the Company shall seek the Company Stockholder Approval, which record date shall be no later than ten (10) days after the later of (x) the date on which the Proxy Statement is cleared by the
SEC and (y) the date of which the Form S-4 is declared effective (or such later time as may be required by applicable Law), (ii) cause the Proxy Statement to be mailed to the record holders as of the record date established for the Stockholders
Meeting and (iii) within thirty (30) days of such record date, duly call, convene and hold the Stockholders Meeting;
provided
, that, the Company shall be permitted to postpone the Stockholders Meeting, or adjourn the Stockholders Meeting
beyond the time that the Stockholders Meeting would otherwise be held, only (A) with the prior written consent of Parent
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(which consent shall not be unreasonably withheld, conditioned or delayed) and (B) if there are insufficient shares of Company Common Stock represented (either in person or by proxy) in order to
approve the First Merger in accordance with the MGCL and this Agreement or to constitute a quorum necessary to conduct the business of the Stockholders Meeting, or (C) if required by applicable Law. In the event that the date of the
Stockholders Meeting as originally called is for any reason adjourned, postponed or otherwise delayed, the Company agrees that unless Parent shall have otherwise approved in writing (which consent shall not be unreasonably withheld, conditioned or
delayed), it shall use commercially reasonable efforts to implement such adjournment, postponement or other delay in such a way that the Company does not establish a new record date for the Stockholders Meeting, as so adjourned, postponed or delayed
except for such new record date as required by applicable Law. Subject to
Section 5.3
, the Company shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and do or cause to be done all things,
necessary, proper or advisable on its part to cause the Company Stockholder Approval to be received at the Stockholders Meeting or any adjournment or postponement thereof. Unless this Agreement has been terminated pursuant to
Section 8.3
, the
Companys obligation to call, give notice of, convene and hold the Stockholders Meeting in accordance with the foregoing sentence of this
Section 5.4(d)
shall apply notwithstanding the commencement, disclosure, announcement or submission
of any Acquisition Proposal to the Company, the Company Board, its Representatives or the Stockholders of the Company, or by any Change in Recommendation pursuant to
Section 5.3
, and, prior to the termination of this Agreement in accordance
with
Section 8.3
, the Company shall not submit to the vote of its stockholders any Acquisition Proposal other than the First Merger. Unless the Company Board shall have made a Change in Recommendation in accordance with
Section 5.3
,
the Proxy Statement shall include the Company Board Recommendation.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1
Access; Confidentiality; Notice of Certain Events
.
(a) From the date of this Agreement until the First Merger Effective Time or the earlier date, if any, on which this Agreement is terminated
in accordance with
Article VIII
, subject to applicable Laws relating to the exchange of information, each of the Company and Parent shall, and shall cause each of their respective Subsidiaries to, afford to the other Party and to the
Representatives of such other Party reasonable access during normal business hours and upon reasonable advance notice to all of their respective properties, offices, books, Contracts, personnel and records and, during such period, each of the
Company and Parent shall, and shall cause each of their respective Subsidiaries to, furnish reasonably promptly to the other Party all other information (financial or otherwise) concerning its business, properties and personnel as such other Party
may reasonably request. Notwithstanding the foregoing, neither the Company nor Parent shall be required by this
Section 6.1
to provide the other Party or the Representatives of such other Party with access to or to disclose information
(x) that is subject to the terms of a confidentiality agreement with a third party entered into prior to the date of this Agreement (
provided
,
however
, that the withholding Party shall use its commercially reasonable efforts to obtain
the required consent of such third party to such access or disclosure), (y) the disclosure of which would violate or contravene any Law or duty (
provided
,
however
, that the withholding Party shall use its commercially reasonable
efforts to make appropriate substitute arrangements to permit reasonable disclosure not in violation of any Law or duty) or (z) that is subject to any attorney-client, attorney work product or other legal privilege of such Party or its Subsidiaries
(
provided
,
however
, that the withholding Party shall use its commercially reasonable efforts to allow for such access or disclosure to the maximum extent that does not result in a loss of any such attorney-client, attorney work
product or other legal privilege). Each of the Company and Parent will use its commercially reasonable efforts to minimize any disruption to the businesses of the other Party that may result from the requests for access, data and information
hereunder.
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(b) Each of the Company and Parent will hold, and will cause its Representatives and affiliates
to hold, any nonpublic information, including any information exchanged pursuant to this
Section 6.1
, in confidence to the extent required by and in accordance with, and will otherwise comply with, the terms of the Confidentiality Agreement.
(c) No investigation by either Parent, Merger Sub or their Representatives, on the one hand, or by the Company or its Representatives, on
the other, shall affect the representations, warranties, covenants or agreements of the other, set forth in this Agreement.
(d) The
Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, (i) of any notice or other communication received by such Party from any Governmental Entity in connection with this Agreement, the Mergers or the other
Transactions, or from any Person alleging that the consent of such person is or may be required in connection with the Mergers or the other Transactions, if the subject matter of such communication or the failure of such Party to obtain such consent
could be material to the Company, the First Merger Surviving Entity or Parent, (ii) of any Legal Proceeding commenced or, to any Partys knowledge, threatened in writing against, such Party or any of its Subsidiaries or affiliates or otherwise
relating to, involving or affecting such Party or any of its Subsidiaries or affiliates, in each case in connection with, arising from or otherwise relating to the Mergers or any other Transaction, and (iii) if (A) any representation or warranty
made by such Party contained in this Agreement becomes untrue or inaccurate such that it would be reasonable to expect that the applicable closing conditions would be incapable of being satisfied by the Outside Date or (B) such Party fails to comply
with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement such that it would be reasonable to expect that the applicable closing conditions would be incapable of being
satisfied by the Outside Date;
provided
,
however
, that no such notification shall affect the representations, warranties, covenants or agreements of the Parties or the conditions to the obligations of the Parties under this Agreement.
Without limiting the foregoing, the Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, if, to the knowledge of such Party, the occurrence of any state of facts, change, development, event or condition
would cause, or would reasonably be expected to cause, any of the conditions to Closing set forth herein not to be satisfied or satisfaction to be materially delayed, as the case may be,
provided
,
however
, that the delivery of any
notice pursuant to this
Section 6.1(d)
shall not cure any breach of any representation or warranty requiring disclosure of such matter prior to the date of this Agreement or otherwise limit or affect the remedies available hereunder to any
Party. The failure to deliver any such notice shall not affect any of the conditions set forth in
Article VII
.
(e) Each of Parent
and Merger Sub acknowledges and agrees that it is not authorized to and shall not (and shall not permit any of its employees, agents, representatives or Affiliates to) contact any employees, customers, suppliers, distributors or other material
business relations of the Company prior to the Closing without the prior consent of the Company; provided, however that Parent and its employees, agents, representatives or Affiliates shall not be prohibited from contacting customers, suppliers,
distributors or other material business relations of Parent in the ordinary course of business and not related to the Company or the Transactions;
provided
,
further
, that Parent, Merger Sub and their respective Representatives shall be
permitted to contact the employees, customers, suppliers, distributors or other business relations of the Company to the extent contemplated by the arrangements established by the Parties under
Sections 6.16
and
6.17
, but only after
prior notice to the Company, and consultation with the Company regarding the most appropriate means to contact such persons so as to preserve the Companys relationships with such persons and not disrupt the business operations of either such
persons or the Company.
Section 6.2
Consents and Approvals
.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each of the Company and Parent shall and shall cause their
respective Subsidiaries, to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Party in doing, all things necessary, proper or advisable under
applicable Law or pursuant to any contract or agreement to
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consummate and make effective, as promptly as practicable, the Mergers and the other Transactions, including (i) the taking of all actions necessary to cause the conditions to Closing set forth
in
Article VII
to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities or other Persons necessary in connection with the consummation of the Mergers and the
other Transactions and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity or other Persons necessary in connection with the consummation of the Mergers and the other Transactions, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the Mergers or the other Transactions so as to enable the Closing to occur as soon as reasonably practicable, and (iv) the execution and delivery of any additional instruments
necessary to consummate the Mergers and the other Transactions and to fully carry out the purposes of this Agreement.
(b) Each of the
Parties will furnish to the other such necessary information and reasonable assistance as the other may request in connection with the preparation of any required governmental filings or submissions and will cooperate in responding to any inquiry
from a Governmental Entity, including promptly informing the other Party of such inquiry, consulting in advance before making any presentations or submissions to a Governmental Entity, and supplying each other with copies of all material
correspondence, filings or communications between either Party and any Governmental Entity with respect to this Agreement. The Parties or their Representatives shall have the right to review in advance, and each of the Parties will consult the
others on, any proposed written or oral communications to, any Governmental Entity in connection with the Mergers and the other Transactions (other than Tax Returns), except that confidential competitively sensitive business information may be
redacted from such exchanges,
provided
,
however
, that outside counsel to the receiving Party shall be permitted to review complete, unredacted materials. Neither the Company nor Parent shall, nor shall they permit their respective
Representatives to, participate independently in any meeting or engage in any substantive conversation with any Governmental Entity in respect of any filing, investigation or other inquiry in connection with the Mergers and the other Transactions
without giving the other Party prior notice of such meeting or conversation and, to the extent permitted by applicable Law and such Governmental Entity, giving the other Party the opportunity to attend or participate (whether by telephone or in
person) in any such meeting.
(c) Notwithstanding anything to the contrary in this Agreement, in connection with obtaining any approval or
consent from any Person (other than any Governmental Entity) with respect to the Mergers, the Company, the Company Subsidiaries and their respective Representatives shall not be obligated to, and shall not without the consent of Parent, pay or
commit to pay to such Person whose approval or consent is being solicited any cash or other consideration
,
make any accommodation or commitment or incur any liability or other obligation to such Person. The Parties shall cooperate with
respect to accommodations that may be requested or appropriate to obtain such consents.
Section 6.3
Publicity
. Concurrently
with the execution of this Agreement, the Parties have agreed on the form of a joint press release announcing the Mergers. From and after the date hereof, so long as this Agreement is in effect, neither the Company nor Parent, nor any of their
respective affiliates, shall issue or cause the publication of any press release or other announcement with respect to the Mergers or this Agreement without the prior consent of the other Party (which consent shall not be unreasonably withheld,
conditioned or delayed), unless (a) such Party determines, after consultation with outside counsel, that it is required by applicable Law or by any listing agreement with or the rules for listed companies of the NYSE to issue or cause the
publication of any press release or other announcement with respect to the Mergers or this Agreement, in which event such Party shall endeavor, on a basis reasonable under the circumstances, to provide a meaningful opportunity to the other Party to
review and comment upon such press release or other announcement and shall give due consideration to all reasonable additions, deletions or changes suggested thereto or (b) in the case of the Company, it deems it necessary or appropriate to issue or
cause the publication of any press release or other announcement with respect to the Mergers, this Agreement or the Transactions in connection with or following a Change of Recommendation;
provided
,
however
, each Party and their
respective controlled affiliates may make
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statements that are not inconsistent with previous press releases, public disclosures or public statements made by Parent and the Company in compliance with this
Section 6.3
.
Section 6.4
Directors
and Officers
Insurance and Indemnification
.
(a) Parent shall honor and fulfill in all respects the obligations of the Company to the fullest extent permissible under applicable Law,
under the Company Governing Documents in effect on the date hereof and under any indemnification or other similar agreements in effect on the date hereof (the
Indemnification Agreements
) to the individuals covered by such Company
Governing Documents or Indemnification Agreements (the
Covered Persons
) arising out of or relating to actions or omissions in their capacity as such occurring at or prior to the First Merger Effective Time, including in connection
with the approval of this Agreement and the Transactions.
(b) Without limiting the provisions of
Section 6.4(a)
, from the Closing
Date until the tenth (10
th
) anniversary of the Closing Date, Parent shall: (i) indemnify and hold harmless each Covered Person against and from any costs or expenses (including attorneys
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, to the extent such claim,
action, suit, proceeding or investigation arises out of or pertains to: (A) any action or omission or alleged action or omission in such Covered Persons capacity as such, or (B) this Agreement and any of the Transactions; and (ii) pay in
advance of the final disposition of any such claim, action, suit, proceeding or investigation the expenses (including attorneys fees) of any Covered Person upon receipt of an undertaking by or on behalf of such Covered Person to repay such
amount if it shall ultimately be determined that such Covered Person is not entitled to be indemnified. Notwithstanding anything to the contrary contained in this
Section 6.4
or elsewhere in this Agreement, Parent shall not settle or
compromise or consent to the entry of any judgment or otherwise seek termination with respect to any claim, action, suit, proceeding or investigation of a Covered Person for which indemnification may be sought under this
Section
6.4(b)
unless such settlement, compromise, consent or termination includes an unconditional release of such Covered Person from all liability arising out of such claim, action, suit, proceeding or investigation. Notwithstanding anything to
the contrary contained in this
Section 6.4
or elsewhere in this Agreement, no Covered Person shall settle or compromise or consent to the entry of any judgment or otherwise seek termination with respect to any claim, action, suit, proceeding
or investigation of a Covered Person for which indemnification may be sought under this
Section 6.4(b)
without the prior consent of Parent (which consent shall not be unreasonably withheld, delayed or conditioned).
(c) From the Closing Date until the tenth (10
th
) anniversary of the Closing Date, the
charter and bylaws of Parent or any of its successors or assigns shall contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of Covered Persons for periods prior to and including the First
Merger Effective Time than are currently set forth in the Company Governing Documents. The Indemnification Agreements with Covered Persons that survive the Mergers shall continue in full force and effect in accordance with their terms.
(d) The Company may, prior to Closing, purchase a directors and officers liability insurance tail or
runoff insurance program for a period of ten (10) years after the Closing Date with respect to wrongful acts and/or omissions committed or allegedly committed at or prior to the First Merger Effective Time (such coverage shall have an
aggregate coverage limit over the term of such policy in an amount not to exceed the annual aggregate coverage limit under the Companys existing directors and officers liability policy, and in all other respects shall be comparable
to such existing coverage);
provided
,
however
, that the annual cost of such program may not exceed 250% of the annual premiums paid as of the date of this Agreement by the Company for directors and officers liability
insurance (such 250% amount, the
Base Premium
);
provided
,
further
, if such insurance coverage cannot be obtained at all, or can only be obtained at an annual cost in excess of the Base Premium, the Company may
purchase the most advantageous policies of tail or run-off directors and officers insurance obtainable for an annual cost equal to the Base Premium. If the Company obtains such
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insurance policy prior to the First Merger Effective Time, Parent shall cause such policy to be maintained in full force and effect, for its full term, and shall honor its obligations thereunder.
(e) In the event Parent or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then and in each such case, proper provision shall be made so that such continuing
or surviving corporation or entity or transferee of such assets, as the case may be, shall assume all of the applicable obligations set forth in this
Section 6.4
.
(f) The Covered Persons (and their successors and heirs) are intended third party beneficiaries of this
Section 6.4
, and this
Section 6.4
shall not be amended in a manner that is adverse to the Covered Persons (including their successors and heirs) or terminated without the consent of the Covered Persons (including their successors and heirs) affected
thereby. The exculpation and indemnification provided for by this
Section 6.4
shall not be deemed to be exclusive of any other rights to which a Covered Person is entitled, whether pursuant to applicable Law, Contract or otherwise.
Section 6.5
Takeover Statutes
. The Parties shall use their respective reasonable best efforts (a) to take all action necessary so
that no Takeover Statute is or becomes applicable to the Mergers or any of the other Transactions and (b) if any such Takeover Statute is or becomes applicable to any of the foregoing, to take all action necessary so that the Mergers and the other
Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to eliminate or minimize the effect of such Takeover Statute on the Mergers and the other Transactions.
Section 6.6
Obligations of Merger Sub
. Parent shall take all action necessary to cause Merger Sub and the First Merger Surviving
Entity to perform their respective obligations under this Agreement and to consummate the Transactions, including the First Merger and the Second Merger, upon the terms and subject to the conditions set forth in this Agreement.
Section 6.7
Rule 16b-3
. Prior to the First Merger Effective Time, the Company shall be permitted to take such steps as may be
reasonably necessary or advisable hereto to cause dispositions of Company equity securities (including derivative securities) pursuant to the Mergers by each individual who is a director or officer of the Company to be exempt under Rule 16b-3
promulgated under the Exchange Act.
Section 6.8
Control of Operations
. Without in any way limiting any Partys rights or
obligations under this Agreement, the Parties understand and agree that (i) nothing contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct the Companys operations prior to the First Merger
Effective Time, and (ii) prior to the First Merger Effective Time, the Company shall exercise, consistent with and subject to the terms and conditions of this Agreement, complete control and supervision over its operations.
Section 6.9
Transaction Litigation
. In the event that any litigation related to this Agreement, the other transaction documents or any
of the contemplated Transactions is brought against the Company and/or its directors or officers, the Company shall promptly notify Parent of such litigation and shall keep Parent informed on a current basis with respect to the status thereof. The
Company shall give Parent the opportunity to participate, subject to a customary joint defense agreement, in, but not control, the defense and settlement of any such litigation against the Company and/or its directors or officers and no such
settlement shall be agreed to by the Company or any Company Subsidiary without the Parents prior written consent (such consent not be unreasonably withheld, conditioned or delayed).
Section 6.10
Delisting
. Each of the Parties agrees to cooperate with the other Parties in taking, or causing to be taken, all
actions necessary to delist the Company Common Stock and the Company Series A Preferred Stock from the NYSE and terminate their registration under the Exchange Act,
provided
, that such delisting and termination shall not be effective until
after the Closing Date.
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Section 6.11
Director and Officer Resignations
. The Company shall use commercially
reasonable efforts to cause to be delivered to Parent resignations executed by each director and officer of the Company and the Company Subsidiaries in office immediately prior to the Second Merger Effective Time.
Section 6.12
Certain Tax Matters
.
(a) All Parties shall treat (i) the First Merger as taxable purchase by Parent of the Company Common Stock and (ii) the Second Merger as a
liquidation of the First Merger Surviving Entity pursuant to Section 332 of the Code, in each case, for U.S. federal, state and local income tax purposes and no Party shall take any positions inconsistent therewith for U.S. federal, state or local
income tax purposes.
(b) After the First Merger Effective Time through the end of the taxable year that includes the First Merger
Effective Time, Parent shall not, and shall not permit any Parent Subsidiary to, (i) take any action that reasonably could be expected to, or (ii) fail to take any action, the failure of which could reasonably be expected to, cause the Company to
fail to qualify as a REIT for such taxable year.
Section 6.13
Tax Opinions and Tax Representation Letters
.
(a) Parent shall use its reasonable best efforts to (i) obtain the opinion of counsel referred to in
Section 7.3(c)
, and (ii) deliver
to Clifford Chance LLP, counsel to Parent (or other nationally recognized REIT counsel to Parent, if applicable) a tax representation letter, dated as of the Closing Date and signed by an officer of Parent, in customary form and substance and
approved by the Company, which approval shall not be unreasonably withheld, conditioned or delayed, containing representations of Parent as are reasonably determined by Clifford Chance LLP (or such other counsel) to be necessary or appropriate to
enable Clifford Chance LLP (or such other counsel) to render the opinion described in
Section 7.3(c)
.
(b) The Company shall use
its reasonable best efforts to (i) obtain the opinion of counsel referred to in
Section 7.2(d)
, and (ii) deliver to Clifford Chance LLP, counsel to the Company (or other nationally recognized REIT counsel to the Company, if applicable), a tax
representation letter, dated as of the Closing Date and signed by an officer of the Company, in customary form and substance and approved by Parent, which approval shall not be unreasonably withheld, conditioned or delayed, containing
representations of the Company as are reasonably determined by Clifford Chance LLP (or such other counsel) to be necessary or appropriate to enable Clifford Chance LLP (or such other counsel) to render the opinion described in
Section 7.2(d)
.
Section 6.14
Stock Exchange Listing
. Parent shall use its commercially reasonable efforts to cause the shares of Parent
Common Stock and Parent Series C Preferred Stock to be issued in the Mergers to be approved for listing on the NYSE, subject to official notice of issuance, prior to the First Merger Effective Time.
Section 6.15
Dividends
.
(a) From and after the Pricing Date until the earlier of the First Merger Effective Time and any termination of this Agreement in accordance
with
Article VIII
, the Company shall not make, declare or set aside any dividend or other distribution to its stockholders without the prior written consent of Parent;
provided
,
however
, that the written consent of Parent shall
not be required (but prior written notice shall be given) for the authorization and payment of dividends (i) expressly permitted by
Section 5.1
, or (ii) to enable the Company to maintain its qualification as a REIT and avoid incurring U.S.
federal, state or local income or excise taxes under the Code or applicable state or local law, including payment of dividends under Code Sections 858 or 860, as permitted in Article V (any such dividend, a
REIT Dividend
).
(b) The record date for any REIT Dividend payable with respect to the taxable year that includes the First Merger Effective Time shall be set
in accordance with Maryland law, the rules of the NYSE and any other applicable rules and regulations such that the payment date shall be within three (3) Business Days before the First Merger Effective Time.
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Section 6.16
Financing Cooperation
.
(a) Prior to the Closing, the Company shall use commercially reasonable efforts to cooperate, and shall cause the Company Subsidiaries to use
commercially reasonable efforts to cooperate, and shall use its commercially reasonable efforts to cause its and their Representatives, to provide, on a timely basis, all reasonable cooperation requested by Parent in connection with the
documentation and arrangement of any debt financing, including repurchase agreements (the
Debt Financing
), including (i) providing customary financial and other pertinent information regarding the Company and the Company
Subsidiaries, including the financial information required to be delivered in connection with the Debt Financing and such other information as may be reasonably requested by Parent in connection with the Debt Financing, (ii) assisting in the
preparation of customary documents and materials, including confidential information memoranda, lender and investor presentations and similar documents and materials in connection with the Debt Financing, (iii) participating in a reasonable number
of meetings, due diligence sessions and presentations, (iv) providing reasonable and customary assistance to Parent and its Financing Sources in (A) the preparation of all credit agreements (including review of schedules for completeness), currency
or interest hedging agreements or other agreements, and reasonably requested customary certificates, opinions or documents, including customary certificates with respect to solvency matters, in connection with the Debt Financing and (B) the
negotiation, preparation and delivery of amendments to or the termination of any of the Companys or the Company Subsidiaries existing credit agreements, currency or interest hedging agreements, or other agreements, including repurchase
agreements and related documentation in respect of the Companys or the Company Subsidiaries borrowings collateralized by residential mortgage backed securities, securitized mortgage loans, other mortgage and mortgage related assets or
other investment securities (including by negotiating amendments, waivers or supplements reasonably satisfactory to Parent with respect to any and all obligations of the Company and the Company Subsidiaries under such repurchase agreements and
related documentation which are intended by Parent to be terminated in connection with the consummation of the Transactions), in each case, on terms reasonably satisfactory to Parent and that are reasonably requested by Parent in connection with the
Debt Financing, (v) permitting any cash and marketable securities of the Company and the Company Subsidiaries to be made available to Parent and Merger Sub following the First Merger Effective Time, (vi) cooperating reasonably with the Financing
Sources due diligence, to the extent customary and reasonable and (vii) furnishing Parent and the Financing Sources promptly with all documentation and other information required by any Governmental Entity with respect to the financing under
applicable know your customer and anti-money laundering rules and regulations, including the PATRIOT Act;
provided
that (A) no obligation of the Company or any of the Company Subsidiaries under any such agreements, amendments.
authorizations, resolutions, consents shall be effective until the actual occurrence of the First Merger Effective Time (other than amendments to or the termination of any of the Companys or the Company Subsidiaries existing repurchase
agreements and related documentation in respect of the Companys or the Company Subsidiaries borrowings collateralized by residential mortgage backed securities, securitized mortgage loans, other mortgage and mortgage related assets or
other investment securities which shall be effective prior to the Closing) and (B) none of the Company or any of the Company Subsidiaries or their respective Representatives shall be required to pay any commitment or other similar fee or incur any
other cost or expense that is not promptly reimbursed by Parent in connection with the Debt Financing prior to the First Merger Effective Time and (C) no member of the Company Board shall be required to take any action with respect to the Debt
Financing and neither the Company nor any of the Company Subsidiaries shall be obligated to take any action that requires action or approval by the Company Board prior to the First Merger Effective Time. All non-public or other confidential
information provided by the Company or any of its Representatives pursuant to this
Section 6.16
shall be kept confidential in accordance with the Confidentiality Agreement, except that Parent shall be permitted to disclose such information to
potential Financing Sources subject to customary confidentiality undertakings by such potential Financing Sources.
(b) Parent shall (A)
promptly, upon request by the Company, reimburse the Company for all reasonable and documented out-of-pocket costs (including reasonable and documented attorneys fees) incurred by the Company or any of the Company Subsidiaries in connection
with the cooperation of the Company and the Company Subsidiaries contemplated by this
Section 6.16
and
Section 6.17
and (B) indemnify and hold harmless
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the Company, the Company Subsidiaries and their respective Representatives (collectively, the
Cooperation Indemnitees
) from and against any and all losses, damages, claims,
costs or expenses suffered or incurred by any of them in connection with third party claims arising out of the arrangement of the Debt Financing or any of the actions or steps referred to in
Section 6.17
, and any information used in
connection therewith, except with respect to any information provided in writing by the Company or any of the Company Subsidiaries or contained in the Company SEC Documents or to the extent suffered or incurred as a result of the gross negligence,
willful misconduct or bad faith of the Cooperation Indemnitees.
Section 6.17
Company Investment Activity
.
(a)
Schedule 6.17(a)
contains the Companys guidelines for hedging some or all of the risk associated with its liabilities
(
Hedging Guidelines
). The Company agrees to comply with the Hedging Guidelines, except (i) with Parents prior written consent (not to be unreasonably withheld or delayed), (ii) as may be reasonably necessary or appropriate
to maintain the Companys qualification as a REIT, (iii) to the extent reasonably necessary or appropriate to avoid becoming required to register as an investment company under the Investment Company Act or (iv) prior to the Pricing Date as the
Company reasonably believes may be commercially prudent under then current market conditions, after consultation with Parent. The Company shall promptly notify Parent in writing whenever, in reliance on any of clauses (i)-(iv) of the
immediately preceding sentence, it fails to comply with the Hedging Guidelines.
(b) In managing its liabilities prior to the Closing, the
Company shall take commercially reasonable steps to manage the maturity of, and execute new arrangements with respect to, the Companys existing portfolio of repurchase agreements, hedging arrangements and other fixed term liabilities, in each
case to the extent obtainable at commercially reasonable costs, such that the term or maturity of such liabilities ends on or before the reasonably anticipated Closing Date. From and after the Pricing Date, the Company shall take the actions
reasonably requested by Parent to adjust the maturity of or otherwise modify the terms of any such liability that extends beyond the anticipated Closing Date such that such liability ends on such earlier maturity date requested by Parent. From and
after the Pricing Date, the Company will consult with Parent in setting such maturities to more closely align with the anticipated Closing Date and will not extend such maturities beyond such anticipated Closing Date without the prior written
consent of Parent. The Company shall promptly notify Parent in writing in the event that it determines, notwithstanding its compliance with its obligation set forth in the first sentence of this clause (b), that it is or will likely be unable to
cause the term or maturity of the relevant liabilities to end on or before the reasonably anticipated Closing Date.
(c) Prior to the
Closing, the Company shall use commercially reasonable efforts to cooperate, and shall cause the Company Subsidiaries to use commercially reasonable efforts to cooperate, and shall use its commercially reasonable efforts to cause its and their
respective Representatives to provide, on a timely basis, all reasonable cooperation requested by Parent in connection with amending, terminating, rolling, novating and/or assigning or otherwise transferring to other counterparties any or all of the
Companys or the Company Subsidiaries (x) repurchase agreements (whether in effect on the date hereof or subsequently executed) and related documentation in respect of repurchase transactions in connection with residential mortgage backed
securities, securitized mortgage loans, other mortgage and mortgage related assets or other investment securities (such transactions,
repurchase borrowings
) and (y) other Company Investments and related Company Investment
Contracts (whether in effect on the date hereof or subsequently executed), in each case to avoid defaults under, early terminations of and refusals to extend the maturities of or roll such repurchase borrowings or Company Investments and related
Company Investment Contracts caused by the Transactions or to facilitate the termination of such repurchase borrowings or Company Investments and related Company Investment Contracts at or about the First Merger Effective Time.
Section 6.18
Company Investment Guidelines
. Except as set forth in
Section 6.17
, the Company shall not enter into, renew,
modify, amend or terminate any Company Investment Contract or acquire, sell, pledge, lease
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assign, transfer, exclusively license, dispose of or encumber any Company Investment, other than in accordance with the guidelines set forth on
Schedule 6.18
hereto.
Section 6.19
Certain Financial Reporting
.
(a) From and after the date hereof until the Pricing Date, the Company shall provide Parent with a monthly report showing (i) the calculation
of the Company Book Value as of the end of the prior month, together with reasonable supporting calculations for such value and reasonable documentation therefor and (ii) the pricing information with respect to each Company Investment as set forth
on Schedule 6.19(a).
(b) From and after the date hereof until the Closing Date, the Company shall provide Parent with a weekly report
specifying any acquisitions or dispositions of Company Investments, together with all documentation relating thereto reasonably requested by Parent, including any Company Investment Contract relating to any newly-acquired Company Investment.
Section 6.20
Ownership Limit
. Prior to the First Merger Effective Time, the Company Board shall take all action necessary to provide an
Excepted Holder Limit (as defined in the Company Charter) with respect to the Aggregate Stock Ownership Limit (as defined in the Company Charter) and the Common Stock Ownership Limit (as defined in the Company Charter) (collectively, the
Parent Ownership Limit Waiver
) that would permit Parent to acquire ownership of 100% of the Company Common Stock by virtue of the First Merger, effective immediately prior to, and subject to the consummation of, the First Merger,
subject, in each case, to Parent executing, and the continued accuracy of the representations and warranties set forth in the Waiver Representation Letter and the other requirements set forth in the Waiver Board Resolutions.
ARTICLE VII
CONDITIONS
TO CONSUMMATION OF THE FIRST MERGER
Section 7.1
Conditions to Each Party
s Obligations to Effect the First
Merger
. The respective obligations of the Company, on the one hand, and Parent and Merger Sub, on the other hand, to effect the First Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by Parent, Merger Sub or the Company, as the case may be, to the extent permitted by applicable Law:
(a)
Stockholder Approval
. The Company Stockholder Approval shall have been obtained and the First Merger and the other Transactions
shall also have been approved by the affirmative vote of at least a majority of the outstanding shares of Company Common Stock entitled to vote upon the First Merger that are beneficially owned by persons who are not affiliates of Apollo Global
Management, LLC (the
Company Unaffiliated Stockholder Approval
).
(b)
Registration Statement Effective
. The SEC
shall have declared the Form S-4 effective and no stop order suspending the effectiveness of the Form S-4 shall have been issued by the SEC and remain in effect and no proceeding to that effect shall have been commenced or threatened.
(c)
Statutes; Court Orders
. No court of competent jurisdiction or other Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law, Order, stipulation or other legal restraint (whether temporary, preliminary or permanent) (an
Injunction
), in any case, which is in effect and which prevents, prohibits or
makes illegal the consummation of the First Merger, the Second Merger or the other Transactions.
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Section 7.2
Conditions to Obligations of Parent and Merger Sub
. The obligations of
Parent and Merger Sub to effect the First Merger are also subject to the satisfaction on or prior to the Closing Date of each of the following conditions, any and all of which may be waived in whole or in part by Parent, to the extent permitted by
applicable Law:
(a)
Representations and Warranties
. (i) The representations and warranties set forth in
Section 3.3(a)
(Authorization; Validity of Agreement; Company Action),
Section 3.23
(Brokers; Expenses) and
Section 3.25
(Vote Required), shall be true and correct in all respects as of the date of this Agreement and as of the First Merger Effective
Time, as though made as of the First Merger Effective Time, (ii) the representations and warranties set forth in the second sentence of
Section 3.2(a)
(Capital Structure) shall be true and correct in all but de minimis respects as of the
specific date set forth in such sentence, and (iii) each of the other representations and warranties of the Company contained in this Agreement shall be true and correct as of the date of this Agreement and as of the First Merger Effective Time, as
though made as of the First Merger Effective Time, except (x) in each case, representations and warranties that are made as of a specific date shall be true and correct only on and as of such date, and (y) in the case of clause (iii) where the
failure of such representations or warranties to be true and correct (without giving effect to any materiality or Company Material Adverse Effect qualifications set forth therein) would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and Parent shall have received a certificate signed on behalf of the Company by a duly authorized executive officer of the Company to the foregoing effect.
(b)
Performance of Obligations of the Company
. The Company shall have performed or complied in all material respects with all
obligations required to be performed or complied with by it under this Agreement at or prior to the First Merger Effective Time; and Parent shall have received a certificate signed on behalf of the Company by a duly authorized executive officer of
the Company to such effect.
(c)
No Material Adverse Effect
. Since the date of this Agreement, no Events shall have occurred,
individually or in the aggregate, that constitute or would (with the passage of time) constitute a Company Material Adverse Effect; and Parent shall have received a certificate signed on behalf of the Company by a duly authorized executive officer
of the Company to such effect.
(d)
REIT Opinion
. Parent shall have received a written opinion of Clifford Chance LLP, or such
other nationally recognized REIT counsel as may be reasonably acceptable to Parent, dated as of the Closing Date, and approved by Parent, which approval shall not be unreasonably withheld, conditioned or delayed, to the effect that, commencing with
the Companys taxable year ended December 31, 2011, the Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code and its method of operation has enabled the Company to
meet, through the First Merger Effective Time (determined as if the Companys taxable year ended at the First Merger Effective Time and disregarding the distribution requirements set forth in Section 857(a)(1) of the Code for such taxable
year), the requirements for qualification and taxation as a REIT under the Code. Such opinion shall be in a form customary for transactions of this nature and shall be subject to customary exceptions, assumptions and qualifications and based on
customary representations contained in the tax representation letter described in
Section 6.13(b)(ii)
.
(e)
Good Standing
Certificates
. The Company shall have delivered to Parent a certificate in respect of the Company and each of its Subsidiaries, issued, in each case, by the appropriate Governmental Entity certifying that the Company or such Subsidiary, as
applicable, is in good standing in the jurisdiction of its organization or formation as of a date no more than five (5) Business Days prior to the Closing Date.
Section 7.3
Conditions to Obligations of the Company
. The obligations of the Company to effect the First Merger are also subject
to the satisfaction on or prior to the Closing Date of each of the following conditions, any and all of which may be waived in whole or in part by the Company, to the extent permitted by applicable Law:
(a)
Representations and Warranties
. (i) The representations and warranties set forth in
Section 4.3(a)
(Authorization, Validity
of Agreement; Parent Action)
Section 4.17
(Brokers; Expenses) and
Section 4.18
(Sufficiency of Funds), shall be true and correct in all respects as of the date of this Agreement and as of the First
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Merger Effective Time, as though made as of the First Merger Effective Time, (ii) the representations and warranties set forth in the second sentence of
Section 4.2(a)
(Capital Structure)
shall be true and correct in all but de minimis respects as of the specific date set forth in such sentence, and (iii) each of the other representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and
correct as of the date of this Agreement and as of the First Merger Effective Time, as though made as of the First Merger Effective Time, except (x) in each case, representations and warranties that are made as of a specific date shall be true and
correct only on and as of such date, and (y) in the case of clause (iii) where the failure of such representations or warranties to be true and correct (without giving effect to any materiality or Parent Material Adverse Effect
qualifications set forth therein) would not have or reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, and the Company shall have received a certificate signed on behalf of Parent by a duly authorized
officer of Parent to the foregoing effect.
(b)
Performance of Obligations of Parent and Merger Sub
. Each of Parent and Merger Sub
shall have performed or complied in all material respects with all obligations required to be performed or complied with by it under this Agreement at or prior to the First Merger Effective Time; and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by a duly authorized executive officer of Parent to such effect.
(c)
REIT
Opinion
. The Company shall have received a written opinion of Clifford Chance LLP, or such other nationally recognized REIT counsel as may be reasonably acceptable to the Company, dated as of the Closing Date, and approved by the Company,
which approval shall not be unreasonably withheld, conditioned or delayed, to the effect that, commencing with Parents taxable year ended December 31, 2009, Parent has been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its proposed method of operation will enable Parent to continue to meet the requirements for qualification and taxation as a REIT under the Code. Such opinion shall be in a form customary for
transactions of this nature and shall be subject to customary exceptions, assumptions and qualifications and based on customary representations contained in the tax representation letters described in
Sections 6.13(a)(ii)
and
6.13(b)(ii
).
(d)
No Material Adverse Effect
. Since the date of this Agreement, no Events shall have occurred, individually
or in the aggregate, that constitute or would (with the passage of time) constitute a Parent Material Adverse Effect; and the Company shall have received a certificate signed on behalf of Parent by a duly authorized executive officer of Parent to
such effect.
(e)
Listing / Classification
. The shares of Parent Common Stock and Parent Series C Preferred Stock to be issued in
the Mergers shall have been approved for listing on the NYSE, subject to official notice of issuance, and the articles supplementary classifying the Parent Series C Preferred Stock attached hereto as
Exhibit A
shall be filed with and accepted
for record by the SDAT.
(f)
Second Merger
. Other than the consummation of the First Merger, there are no conditions precedent to
the respective obligations of the Company and Parent to effect the Second Merger.
ARTICLE VIII
TERMINATION
Section 8.1
Termination by Mutual Consent
. This Agreement may be terminated and the Mergers may be abandoned at any time prior to the First Merger Effective Time, whether before or after the Company Stockholder Approval is obtained, by mutual written
consent of the Company and Parent.
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Section 8.2
Termination by Either Parent or the Company
. This Agreement may be
terminated and the Mergers may be abandoned at any time prior to the First Merger Effective Time by written notice of either Parent or the Company, if:
(a) the First Merger shall not have been consummated by 11:59 p.m. (Eastern time) on August 26, 2016, whether such date is before or after the
date the Company Stockholder Approval is obtained (such date, the
Initial Outside Date
);
provided
, however, that if on the Initial Outside Date the conditions set forth in
Section 7.1(c)
shall not have been satisfied
but all other conditions set forth in
Article VII
shall have been satisfied or waived or shall then be capable of being satisfied, then either Parent or the Company may, by written notice to the other Party prior to the Initial Outside Date,
elect to extend the Initial Outside Date to October 26, 2016 (the
Second Outside Date
). As used in this Agreement, the term
Outside Date
shall mean the Initial Outside Date, unless extended pursuant to the
foregoing sentence, in which case the term Outside Date shall mean the Second Outside Date. Notwithstanding the foregoing, the right to terminate this Agreement under this
Section 8.2(a)
shall not be available to any Party if the
failure of the Closing to occur by such date shall be due primarily to the failure of such Party to perform any of the covenants or agreements to be performed by it under this Agreement;
(b) the Stockholders Meeting (including any adjournments and postponements thereof) shall have been held and completed and the Company
Stockholder Approval or the Company Unaffiliated Stockholder Approval shall not have been obtained; or
(c) any Injunction permanently
restraining, enjoining or otherwise prohibiting consummation of the First Merger or the Second Merger shall become final and non-appealable (whether before or after the Company Stockholder Approval has been obtained);
provided
,
however
, that the Party seeking to terminate this Agreement pursuant to this
Section 8.2
shall have used commercially reasonable efforts to appeal, resolve or remove such Injunction.
Section 8.3
Termination by the Company
. This Agreement may be terminated and the Mergers may be abandoned by written notice of the
Company:
(a) at any time prior to the satisfaction of the conditions set forth in
Section 7.1(a)
if (A) the Company Board, or an
authorized committee thereof, determines or authorizes the Company, subject to complying with the terms of this Agreement (including
Section 5.3(e)
), to enter into definitive transaction documentation providing for a Superior Proposal
(
Alternative Acquisition Agreement
), (B) substantially concurrent with or immediately following the termination of this Agreement, the Company enters into such Alternative Acquisition Agreement with respect to such Superior
Proposal and (C) substantially concurrent with such termination the Company pays to Parent in immediately available funds any amounts required to be paid pursuant to
Section 8.5
;
(b) at any time prior to the First Merger Effective Time if there has been a breach of any covenant or agreement or there shall be any
inaccuracy in the representations and warranties set forth in this Agreement on the part of Parent or Merger Sub which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the failure of
the conditions set forth in
Section 7.3(a)
or
7.3(b)
and such breach cannot be or is not cured prior to the earlier of (i) thirty (30) days after written notice thereof is given by the Company to Parent and (ii) the Outside Date;
provided
,
however
, that the Company shall not have the right to terminate this Agreement pursuant to this
Section 8.3(b)
at any time when it is in breach of this Agreement and such breach would cause, or result in, the failure
of any of the conditions set forth in
Section 7.2(a)
or
7.2(b
) to be satisfied; or
(c) if (i) all of the conditions set
forth in
Sections 7.1
and
7.2
have been and continue to be satisfied or waived (other than those conditions that by their nature cannot be satisfied other than at Closing), (ii) the Company has confirmed by written notice to Parent
that it stands ready, willing and able to consummate the First Merger when required pursuant to
Section 1.2
and (iii) Parent and Merger Sub fail to consummate the Mergers and other Transactions within four (4) Business Days of the date the
Closing should have occurred pursuant to
Section 1.2
(it being understood that during such four (4) Business Day period, Parent shall not be entitled to terminate this Agreement).
A-53
Section 8.4
Termination by Parent
. This Agreement may be terminated and the Mergers
may be abandoned by written notice of Parent:
(a) at any time prior to the receipt of the Company Stockholder Approval if (i) a Change of
Recommendation shall have occurred or the Company shall have failed to include in the Proxy Statement mailed to each holder of Company Common Shares the Company Board Recommendation; (ii) the Company shall have failed to reaffirm the Company Board
Recommendation within ten (10) Business Days after both (x) an Acquisition Proposal shall have been made public and (y) receipt by the Company of a written request to do so from Parent; or (iii) there shall have been a material breach of the
provisions of
Section 5.3
or
5.4
which impairs, prevents or materially delays the consummation of the Transactions and, with respect to
Section 5.4
, such breaches cannot be or are not cured reasonably promptly after written
notice thereof; or
(b) at any time prior to the First Merger Effective Time if there has been a breach of any covenant or agreement or
there shall be any inaccuracy in the representations or warranties set forth in this Agreement on the part of the Company, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the
failure of the conditions set forth in
Section 7.2(a)
or
7.2(b)
, and such breach cannot be or is not cured prior to the earlier of (i) thirty (30) days after written notice thereof is given by Parent to the Company and (ii) the Outside
Date;
provided
,
however
, that Parent shall not have the right to terminate this Agreement pursuant to this
Section 8.4(b)
at any time when Parent or Merger Sub is in breach of this Agreement and such breach would cause, or
result in, the failure of any of the conditions set forth in
Section 7.3(a)
or
7.3(b)
to be satisfied.
Section 8.5
Effect of Termination
.
(a) In the event of termination of this Agreement and the abandonment of the Mergers pursuant to this
Article VIII
, this Agreement shall become void and of no effect with no liability to any Person on the part of any Party hereto (or of any of its Representatives or affiliates);
provided
,
however
, and notwithstanding anything in
the foregoing to the contrary, that (i) no such termination shall relieve the Company of any liability to pay the Termination Fee or Parent Expenses pursuant to this
Section 8.5
, (ii) subject to the limitations set forth in
Sections
8.5(e)
and
(f)
, no such termination shall relieve or release any of the Parties from any liability or damages for willful and intentional breach or fraud, (iii) no such termination shall relieve or release Parent or Merger Sub from any
liability or damages in the event that this Agreement is terminated (x) by the Company pursuant to
Section 8.3(c)
or (y) by Parent pursuant to
Section 8.2(a)
at any time the Company had the right to terminate this Agreement pursuant to
Section 8.3(c)
and (iv) the agreements of the parties contained in
Section 6.1(b)
, the provisions of this
Section 8.5
and
Article IX
shall survive the termination of this Agreement. For the avoidance of doubt, nothing in
this
Section 8.5(a)
shall limit or otherwise effect any Partys rights under
Section 9.14
, including any Partys rights to specific performance and other injunctive and equitable relief as provided for therein.
(b) In the event that:
(i) (x)
this Agreement is terminated by Parent or the Company pursuant to
Section 8.2(a)
or
Section 8.2(b)
, and (I) in the case of a termination pursuant to
Section 8.2(b)
, at or prior to the Stockholders Meeting a bona fide Acquisition
Proposal shall have been publicly disclosed or announced, and such Acquisition Proposal shall not have been publicly withdrawn prior to the Stockholders Meeting, and (II) in the case of a termination pursuant to
Section 8.2(a)
, prior to such
termination a bona fide Acquisition Proposal shall have been publicly disclosed or announced, and such Acquisition Proposal shall not have been publicly withdrawn, and
provided
that the Company Stockholder Approval shall not have been
obtained at the Stockholders Meeting (including any adjournment or postponement thereof), and (y) within twelve (12) months after the date of such termination of this Agreement the Company shall have consummated any Acquisition Proposal or entered
into a definitive agreement with respect to any Acquisition Proposal and such Acquisition Proposal is subsequently consummated (provided, that for purposes of this clause (y) the references to 20% in the definition of Acquisition
Proposal shall be deemed to be references to 50%);
A-54
(ii) this Agreement is terminated by Parent pursuant to
Section 8.4(a)
; or
(iii) this Agreement is terminated by the Company pursuant to
Section 8.3(a)
; then the Company shall:
(A) in the case of clause (i) above, promptly, but in no event later than three (3) Business Days, after the date on which the Company
consummates the Acquisition Proposal referred to in subclause (i)(y) above, pay Parent the Termination Fee by wire transfer of immediately available funds, less the amount of any Parent Expenses that shall have actually been paid as provided in
Section 8.5(c)
;
(B) in the case of clause (ii) above, promptly but in no event later than three (3) Business Days after the date
of such termination, pay Parent the Termination Fee by wire transfer of immediately available funds; and
(C) in the case of clause (iii)
above, immediately prior to or substantially concurrently with such termination, pay Parent the Termination Fee by wire transfer of immediately available funds (it being understood that in no event shall the Company be required to pay the
Termination Fee on more than one occasion).
(c) In the event that this Agreement is terminated by Parent or the Company pursuant to
Section 8.2(b)
and either (x) a bona fide Acquisition Proposal shall have been publicly disclosed or announced, and such Acquisition Proposal shall not have been publicly withdrawn prior to the Stockholders Meeting or (y) within twelve (12)
months after the date of such termination of this Agreement the Company Board (or authorized committee thereof) shall have adopted (or resolved or authorized the Company to pursue) a (i) plan of bankruptcy or reorganization or (ii) a plan of
liquidation or dissolution, then the Company shall pay to Parent or its designee(s), as the case may be (by wire transfer of immediately available funds), the reasonable and documented out-of-pocket fees and expenses incurred by Parent and Merger
Sub in connection with this Agreement and the transactions contemplated by this Agreement including the fees and expenses of counsel, accountants, investment bankers, Financing Sources, experts and consultants in an aggregate amount not to exceed
$6,000,000 (the
Parent Expenses
), which Parent Expenses shall be payable: (A) promptly but in no event later than three (3) Business Days after the date of any termination arising in the circumstances described in clause (x)
above, (B) substantially concurrently with the filing of a plan of bankruptcy or reorganization in the case of clause (y)(i) above and (C) substantially concurrently with the distribution of the proceeds of any such liquidation or dissolution to the
holders of Company Common Stock in the case of clause (y)(ii) above;
(d) Parent, Merger Sub and the Company acknowledge that the
agreements contained in this
Section 8.5
are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the parties would not enter into this Agreement. If the Company fails to pay the
Termination Fee and/or Parent Expenses when due in accordance with
Sections 8.5(b)
and
8.5(c)
, (i) the Company shall reimburse Parent for all of its costs and expenses incurred in connection with enforcement and collection of such
amounts and (ii) the Termination Fee and Parent Expenses due shall accrue interest at a rate equal to the lower of the Prime Rate and the maximum rate permitted by applicable Law.
(e) Notwithstanding anything to the contrary in this Agreement, except for (i) an order of specific performance as and only to the extent
expressly permitted by
Section 9.14
and (ii) any willful and material breach by the Company of this Agreement, the parties hereto expressly acknowledge and agree that:
(i) Parents receipt of the Termination Fee and the Parent Expenses from the Company pursuant to
Section 8.5(b)
and
Section
8.5(c)
(together with any reimbursements due or interest thereon in accordance with
Section 8.5(d)
), respectively, shall be the sole and exclusive remedy of Parent and Merger Sub and their respective affiliates against the Company, its
Subsidiaries and any of their respective former, current, or future general or limited partners, stockholders, directors, officers, employees, managers, members, affiliates or agents (the
Company Obligors
) for any loss suffered
with respect to this Agreement, the Transactions, the termination of this Agreement, the failure of the First Merger to be consummated or any breach of this Agreement by the Company.
A-55
(ii) In light of the difficulty of accurately determining actual damages with respect to the
foregoing, upon any termination of this Agreement, (A) the payment of the Termination Fee pursuant to
Section 8.5(b)
, which constitutes a reasonable estimate of the monetary damages that will be suffered by Parent and Merger Sub by reason of
breach or termination of this Agreement shall be in full and complete satisfaction of any and all monetary damages of Parent and Merger Sub arising out of or related to this Agreement, the transactions contemplated hereby and thereby (including, any
breach by the Company that is not a willful and material breach), the termination of this Agreement, the failure to consummate the transactions contemplated by this Agreement, and any claims or actions under applicable Law arising out of any such
breach, termination or failure against the Company Obligors and (B) after being paid such amounts in accordance with the terms of this Agreement (x) none of the Company Obligors shall have any further liability or obligation relating to or arising
out of this Agreement or the transactions contemplated by this Agreement or any claims or actions under applicable Law arising out of any such breach, termination or failure and (y) in no event will Parent or Merger Sub be entitled to seek to
recover or obtain against any of the Company Obligors any other damages, any recovery or judgment in excess of the Termination Fee, or any other remedy based on a claim in Law or in equity with respect thereto, including consequential, special,
indirect or punitive damages for, or with respect to, this Agreement or the transactions contemplated hereby and thereby (including, any breach by the Company), the termination of this Agreement, the failure to consummate the transactions
contemplated by this Agreement or any claims or actions under applicable Law arising out of any such breach, termination or failure.
(f)
If the Company is required to make a payment to Parent pursuant to this
Article VIII
, then notwithstanding anything to the contrary in this Agreement, unless Parent shall have received, and notified the Company in writing of its receipt and
directing that payment be made otherwise than into escrow as provided below, a tax opinion of counsel or a ruling from the IRS to the effect that Parents receipt of such payment will be treated as qualifying income with respect to Parent for
purposes of Section 856(c)(2) and 856(c)(3) of the Code or shall be excluded from income for such purposes (a
Positive Tax Opinion or Ruling
), the aggregate amount of the payment to be paid to Parent pursuant to this
Article
VIII
shall be placed into escrow as directed by Parent and the amounts payable to Parent shall be limited to the maximum amount (
Allowed Fee
) that can be paid without causing Parents receipt of its pro rata share of such
funds to cause Parent to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount did not constitute qualifying income for such purposes, as determined by independent accountants to
Parent. In the event that any payment to be made pursuant to this
Article VIII
exceeds the Allowed Fee, then such excess amount (the
Escrowed Fee
) shall be retained by the escrow agent in a separate interest-bearing,
segregated account for the account of the Company. Parent shall pay all costs associated with obtaining any tax opinion of counsel or ruling from the IRS described above. The Escrowed Fee shall be fully disbursed (and therefore any unpaid
portion of the payment pursuant to this
Article VIII
shall be paid to Parent) upon receipt of a Positive Tax Opinion or Ruling. To the extent not previously paid, upon any determination by independent accountants to Parent that any additional
amount of the Escrowed Fee may be disbursed to Parent without causing Parent to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount did not constitute qualifying income for such
purposes, the determination of such independent accountants shall be provided to the escrow agent and such additional amount shall be disbursed. At the end of the second calendar year beginning after the date on which the Escrowed Fee was
first deposited with the escrow agent (or earlier if directed by Parent), any remainder of the Escrowed Fee (together with interest thereon) then being held by the escrow agent shall be disbursed to the Company and, in the event that the payment
pursuant to this
Article VIII
has not by then been paid in full, such unpaid portion shall be deemed forgiven. Parent shall bear any and all expenses associated with the escrow of the Escrowed Fee. Parent is hereby granted the power of
attorney on behalf of the Company to execute, acknowledge, swear to and deliver all such documents required in connection with the foregoing escrow account, such power to be irrevocable and coupled with an interest.
A-56
ARTICLE IX
MISCELLANEOUS
Section 9.1
Amendment and Modification; Waiver
.
(a) Subject to applicable Law and
Section 6.4(f)
, this Agreement may be amended,
modified and supplemented, whether before or after receipt of the Company Stockholder Approval, if applicable, by written agreement of Parent and the Company;
provided
,
however
, that after the receipt of the Company Stockholder
Approval, no amendment shall be made which by Law or in accordance with the rules of the NYSE requires further approval by the stockholders of the Company without obtaining such further approval. Notwithstanding anything to the contrary
contained herein, this
Section 9.1(a)
, and
Section 9.9(b)
,
Section 9.11(a)
and
(c)
,
Section 9.12
,
Section 9.13
and
Section 9.15
(and any other provision of this Agreement to the extent a
modification, waiver or termination of such provision would adversely modify the substance of any of the foregoing provisions in any manner that is materially adverse to any Financing Source) may not be modified, waived or terminated in a
manner that is materially adverse in any respect to any Financing Source without the prior written consent of such Financing Source.
(b)
At any time and from time to time prior to the First Merger Effective Time, any Party or Parties may, subject to applicable Law and except as otherwise set forth herein, (i) extend the time for the performance of any of the obligations or other acts
of the other Party or Parties, as applicable, (ii) waive any inaccuracies in the representations and warranties made to such Party or Parties contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such Party or Parties contained herein. Any agreement on the part of a Party or Parties to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such
Party or Parties, as applicable. The failure of a Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. No single or partial exercise of any right, remedy, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. Any waiver shall be effective only in the specific instance and for the specific purpose for which given and shall not constitute a
waiver to any subsequent or other exercise of any right, remedy, power or privilege hereunder.
Section 9.2
Non-Survival of
Representations and Warranties
. None of the representations, warranties, covenants and agreements in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement, including any rights arising out of
any breach of such representations, warranties, covenants, and agreements, shall survive the First Merger Effective Time;
provided
, that this
Section 9.2
shall not limit any covenant or agreement of the Parties which by its terms
contemplates performance after the First Merger Effective Time, which shall each survive. The Confidentiality Agreement will survive termination of this Agreement in accordance with its terms.
Section 9.3
Expenses
. Except as otherwise expressly provided in this Agreement, all Expenses incurred in connection with this
Agreement and the Transactions shall be paid by the Party incurring such Expenses, whether or not the Transactions are consummated. Notwithstanding the foregoing or anything to the contrary contained herein, each of Parent and the Company shall pay
one-half (50%) (i) of the Expenses related to printing, filing and mailing the Proxy Statement and Form S-4 (and any amendments or supplements thereto) and (ii) of any documentary, sales, use, real property transfer, real property gains,
registration, value-added, transfer, stamp, recording and other similar Taxes, fees, and costs together with any interest thereon, penalties, fines, costs, fees, additions to tax or additional amounts with respect thereto incurred in connection with
this Agreement and the Transactions.
Section 9.4
Notices
. All notices, requests, claims, consents, demands and other
communications hereunder shall be in writing and shall be deemed given if delivered to the applicable Party (i) personally (notice deemed given upon receipt), (ii) telecopied (notice deemed given upon confirmation of receipt), (iii) sent by a
nationally recognized overnight courier service, such as Federal Express (notice deemed given upon receipt of proof of
A-57
delivery) or (iv) electronic mail (provided, that any such transmission by electronic mail shall be followed by a copy delivered in accordance with the foregoing clauses (i) or (iii)) (notice
deemed given on the date sent if sent during normal business hours of the recipient, and on the next Business Day, if sent after normal business hours of the recipient). All notices hereunder shall be delivered as set forth below, or pursuant to
such other instructions as may be designated in writing by the Party to receive such notice, and a copy of each notice shall also be sent via e-mail.
if to Parent or Merger Sub, to:
|
|
|
Apollo Commercial Real Estate Finance, Inc.
c/o Apollo Global Management, LLC
9 W. 57
th
Street, 43
rd
Floor
New York, NY 10019
Attention: Stuart A. Rothstein
Facsimile: (646)
219-3826
|
Email:
|
|
srothstein@apollolp.com
|
|
with copies to (which shall not constitute notice):
|
|
Apollo Commercial Real Estate Finance, Inc. Special Committee
|
Apollo Commercial Real Estate Finance, Inc.
|
c/o Apollo Global Management, LLC
9
West 57
th
Street, 43
rd
Floor
New York, New York
10019
Attention: Jeffrey M. Gault, Chairman of Apollo Commercial Real Estate Finance, Inc. Special Committee
|
Email:
|
|
jeff@gaultaia.com
|
|
|
and
|
|
|
|
Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, NY 10004
|
Attention: Steven Epstein, Esq.
|
Abigail Bomba, Esq.
|
Facsimile: 212-859-4000
|
Email:
|
|
steven.epstein@friedfrank.com
|
|
|
abigail.bomba@friedfrank.com
|
|
and
|
|
if to the Company, to:
|
|
Apollo Residential Mortgage, Inc.
c/o Apollo Global Management, LLC
9 W. 57
th
Street, 43
rd
Floor
New York, NY 10019
Attention: Michael A. Commaroto
|
Email:
|
|
mcommaroto@apollolp.com
|
|
with copies to (which shall not constitute notice):
|
|
Apollo Residential Mortgage, Inc. Special Committee
c/o 54 Madison Partners, LLC
520 Madison Avenue
New York, NY 10022
Attention: Thomas Christopoul, Chairman of
Apollo Residential Mortgage, Inc.
Special Committee
|
Email:
|
|
tchristopoul@54madison.com
|
A-58
|
|
|
and
|
|
Latham & Watkins LLP
885 Third
Avenue
New York, NY 10022
Attention: Raymond Lin, Esq.
Thomas Christopher, Esq.
Facsimile: (212) 751-4864
|
Email:
|
|
raymond.lin@lw.com
|
|
|
thomas.christopher@lw.com
|
|
and
|
|
Apollo Residential Mortgage, Inc.
c/o Apollo Global Management, LLC
9 W. 57
th
Street, 43
rd
Floor
New York, NY 10019
Attention: Jessica L. Lomm
Facsimile: (646)
607-0298
|
Email:
|
|
jlomm@apollolp.com
|
Section 9.5
Certain Definitions
. For the purposes of this Agreement, the term:
Acceptable Confidentiality Agreement
means any confidentiality agreement that contains provisions that are not materially
less favorable to the Company than those contained in the Confidentiality Agreement, provided, that such confidentiality agreement need not contain standstill provisions or prohibit the making or amendment of an Acquisition Proposal and further,
provided, that such confidentiality agreement does not prohibit disclosure to Parent of the identity of the counterparty and any terms proposed by such counterparty pursuant to
Section 5.3(a)
.
Acquisition Proposal
means any proposal or offer (other than an offer or proposal made or submitted by or on behalf of
Parent) with respect to any transaction or series of related transactions with a Person or group (as defined in the Exchange Act and the rules promulgated thereunder) concerning any (i) merger, consolidation, business combination, joint
venture or similar transaction, (ii) acquisition (whether by tender offer, share exchange or other manner), (iii) issuance or sale or other disposition of Company Equity Interests, (iv) sale, lease, license or other disposition directly or
indirectly of assets of the Company , or (v) any combination of any of the foregoing, in each case, which if consummated would result in any Person or group of Persons acquiring beneficial ownership (or the right to acquire beneficial ownership),
directly or indirectly, of equity securities of the Company or any of its respective Subsidiaries representing 20% or more of the issued and outstanding equity securities of the Company (by vote or value), or 20% or more of the consolidated total
assets (including, equity securities of its Subsidiaries), revenues or net income of the Company and its Subsidiaries, taken as a whole.
Adjustment Amount
means an amount in cash equal to the product of (x) the Company Book Value, multiplied by (y) a fraction,
the numerator of which is 0.03 and the denominator of which is 365, multiplied by (z) the number of days in the period beginning on and including the forty-fifth (45
th
) day following the Pricing
Date and ending on but excluding the last Business Day prior to the Closing Date, which may be zero (0).
Aggregate Cash
Consideration
means an amount in cash equal to (i) the Company Adjusted Book Value minus (ii) the Common Stock Consideration Value minus (iii) any REIT Dividend declared or paid by the Company after the Pricing Date.
Benefit Plan
means any employee benefit plan (within the meaning of Section 3(3) of ERISA) and any employment,
consulting, termination, severance, change in control, separation, retention, stock option, restricted
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stock, restricted stock unit, profits interest unit, equity, outperformance, stock purchase, deferred compensation, bonus, incentive compensation, fringe benefit, health, medical, dental, vision,
disability, accident, life insurance, welfare benefit, cafeteria, vacation, paid time off, perquisite, retirement, pension, profit sharing or savings or any other compensation or employee benefit plan, agreement, program, policy or other
arrangement, whether or not subject to ERISA, whether funded or unfunded, written or unwritten, for the benefit of any current or former director of the Company or Parent, as applicable, or any individual who currently provides or has provided
services to the Company or Parent, as applicable.
Business Day
means any day ending at 11:59 p.m. (New York
local time) other than a Saturday or Sunday or a day on which commercial banks in the City of New York are required or authorized by Law or executive order to close.
Code
means the Internal Revenue Code of 1986, as amended.
Common Stock Consideration Value
means an amount equal to (i) the Parent Common Stock Per Share Value multiplied by (ii)
the number of shares of Parent Common Stock comprising the Stock Consideration.
Company Adjusted Book Value
means the
Company Book Value multiplied by 0.8925.
Company Book Value
means the value of the Companys common book value as
of the Pricing Date, determined in accordance with the methodologies set forth on
Schedule C
.
Company Bylaws
means the bylaws of the Company, as amended and restated as of the date of this Agreement.
Company Charter
means the charter of the Company as amended, amended and restated and supplemented and in effect on the date hereof.
Company
Equity Plan
means the Companys 2011 Equity Incentive Plan.
Company Governing Documents
means
the Company Bylaws and the Company Charter.
Company Manager
means ARM Manager, LLC, a Delaware limited liability
company.
Company Material Adverse Effect
means any Event that, individually or in the aggregate, (A) prevents or
materially delays the consummation of the Transactions or (B) has a material adverse effect on the financial condition, business, assets, properties, or results of operations of the Company and the Company Subsidiaries, taken as a whole;
provided
,
however
, that, for purposes of this clause (B) no Event resulting or arising from the following shall be deemed to constitute a Company Material Adverse Effect or shall be taken into account when determining whether a Company
Material Adverse Effect has occurred or is reasonably likely to exist or occur: (i) any changes in general United States or global economic conditions or in the capital, financial, credit, mortgage or securities markets generally, including changes
in interest or exchange rates, in each case to the extent that the Company and its Subsidiaries are not disproportionately affected thereby as compared to other companies operating in the same industry in which the Company operates,
(ii) conditions (or changes therein) in the industry in which the Company operates, to the extent that the Company and its Subsidiaries are not disproportionately affected thereby as compared to other companies operating in the same industry in
which the Company operates, (iii) any changes in Law, GAAP or interpretation thereof or in legal, political and/or regulatory conditions, in each case to the extent that the Company and its Subsidiaries are not disproportionately affected thereby as
compared to other companies operating in the same industry in which the Company operates, (v) any actions expressly required by, or the failure to take any action expressly prohibited by, the terms of this Agreement or any actions taken at the
request or with the consent of Parent or Merger Sub, (vi) except to the extent comprising a breach of the representations and warranties in
Sections 3.5
and
3.6(a)
or as would result in a
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failure of the condition set forth in
Section 7.2(a)
, any Event attributable to the announcement or pendency of this Agreement and the Transactions (including the Mergers) or the identity
of Parent or the Parent Manager (or the identity of the Parent Managers direct or indirect parent entities), including any litigation arising therefrom (including any litigation arising from allegations of a breach of duty or violation of
applicable Law), (vii) any failure by the Company to meet any internal or published projections, estimates or expectations of the Companys revenue, earnings or other financial performance or results of operations for any period, or changes in
the market price or trading volume of the Company Common Stock, in and of itself (it being understood that any Events giving rise or contributing to such failure or change that are not otherwise excluded from the definition of a Company
Material Adverse Effect may be taken into account), (viii) Events arising out of changes in geopolitical conditions, acts of terrorism or sabotage, war (whether or not declared), the commencement, continuation or escalation of a war, acts of
armed hostility, natural disasters or other force majeure events, including any material worsening of such conditions threatened or existing as of the date of this Agreement.
Company Permitted Liens
means any (i) Liens relating to any Indebtedness incurred in the ordinary course of business
consistent with past practice, (ii) Liens that result from any statutory or other Liens for Taxes or assessments that are not delinquent or the validity of which is being contested in good faith by appropriate proceedings and for which there are
adequate reserves on the Company Financial Statements (if such reserves are required pursuant to GAAP), or that are otherwise not material, and (iii) any cashiers, landlords, workers, mechanics, carriers,
workmens, repairmens and materialmens Liens and other similar Liens imposed by Law and incurred in the ordinary course of business consistent with past practice that are not yet subject to penalty or the validity of which is being
contested in good faith by appropriate proceedings and for which there are adequate reserves on the Company Financial Statements (if such reserves are required pursuant to GAAP), or that are otherwise not material.
Confidentiality Agreement
means the Confidentiality Agreement, dated December 16, 2015, between Parent and the Company.
Contract
means any legally binding contract, agreement, license, lease, commitment, understanding or other obligation,
whether oral or written.
DRIP
means the Companys Direct Stock Purchase and Dividend Reinvestment Plan.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated and rulings
issued thereunder.
Event
means any change, effect, development, circumstance, condition, state of facts, event
or occurrence.
Excluded Party
means any Person, group of Persons or group that includes any Person or group of
Persons, from whom the Company has received during the Go-Shop Period a bona fide written Acquisition Proposal, (i) that remains pending as of, and shall not have been irrevocably withdrawn prior to, the expiration of the Go-Shop Period, (ii) that
the Company Board, or an authorized committee thereof, determines in good faith constitutes or would be reasonably expected to lead to a Superior Proposal and (iii) as of any date following the No-Shop Period Start Date, has not lapsed in accordance
with its terms or been withdrawn.
Expenses
means all reasonable out-of-pocket expenses (including all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to a Party and its affiliates) incurred by a Party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance
of this Agreement, the preparation, printing, filing and mailing of the Proxy Statement, and the Form S-4, the solicitation of stockholder approvals, any other filings with the SEC and all other matters related to the closing of the Mergers and the
other Transactions.
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Financing Sources
means the Persons that commit, or have committed, to provide
or otherwise enter into, or have entered into, agreements in connection with the Debt Financing in connection with the Transactions, and their officers, directors, managers, employees, controlling persons, advisors, attorneys and other
representatives.
Indebtedness
means with respect to any Person, (i) all indebtedness, notes payable, accrued interest
payable or other obligations for borrowed money, whether secured or unsecured, (ii) all obligations under conditional sale or other title retention agreements, or incurred as financing, in either case with respect to property acquired by such
Person, (iii) all obligations issued, undertaken or assumed as the deferred purchase price for any property or assets, (iv) all obligations under capital leases, (v) all obligations in respect of bankers acceptances or letters of credit, (vi) all
obligations under interest rate cap or protection, swap, forward, collar or similar transaction or currency hedging transactions, (vii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any stock or Company Equity
Interests or any warrants, rights or options to acquire such stock or Company Equity Interests, and (viii) any guarantee (other than customary non-recourse carve-out or badboy guarantees) of any of the foregoing, whether or not evidenced
by a note, mortgage, bond, indenture or similar instrument.
Intellectual Property Rights
means all rights in or to all
U.S. or foreign: (i) inventions (whether or not patentable), patents and patent applications and any other governmental grant for the protection of inventions or industrial designs, (ii) trademarks, service marks, trade dress, logos, brand names,
trade names and corporate names, whether registered or unregistered, and the goodwill associated therewith, together with any registrations and applications for registration thereof, (iii) copyrights, whether registered or unregistered, and any
registrations and applications for registration thereof, (iv) trade secrets and confidential information, including know-how, concepts, methods, processes, designs, schematics, drawings, formulae, technical data, specifications, research and
development information, technology, and business plans, (v) rights in databases and data collections (including knowledge databases, customer lists and customer databases), (vi) domain name registrations and (vii) all extensions, modifications,
renewals, reissues, reexaminations, substitutions, restorations and reversions of any of the foregoing.
Intervening
Event
means an Event that first occurs after the date hereof, it being understood that in no event shall the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto or consequence thereof constitute an
Intervening Event.
Investment Company Act
means the Investment Company Act of 1940, as amended, and the rules and
regulations of the SEC promulgated thereunder.
IRS
means the U.S. Internal Revenue Service.
knowledge
when used herein (A) with respect to Parent and Merger Sub means the actual knowledge, after reasonable
due inquiry, of the persons named in
Schedule A
and (B) when used with respect to the Company means the actual knowledge, after reasonable due inquiry, of the persons named in
Schedule B
.
Law
means any statute, code, rule, regulation, order, ordinance, judgment or decree or other pronouncement of any
Governmental Entity having the effect of law.
Lien
means any lien, pledge, hypothecation, mortgage, security interest,
encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
Manager
means each of the Company Manager and the Parent Manager.
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Merger Consideration Value
means an amount equal to (i) the Preferred Stock
Consideration Value plus (ii) the Common Stock Consideration Value plus (iii) the Aggregate Cash Consideration.
Merger Sub
Governing Documents
means (i) the charter of Merger Sub as in effect on the date hereof and (ii) the bylaws of Merger Sub as in effect on the date hereof.
NYSE
means the New York Stock Exchange.
Order
means an order, judgment, injunction, award, stipulation, decree, writ, ruling, subpoena, or verdict, entered,
issued, made or rendered by a Governmental Entity.
Parent Common Stock
means the common stock of Parent, par value
$0.01 per share.
Parent Common Stock Per Share Value
means $16.75;
provided
that such amount shall be adjusted
inversely to any adjustment that is made to the number of shares of Parent Common Stock comprising the Stock Consideration in accordance with the definition thereof.
Parent Convertible Notes
means Parents 5.5% Convertible Senior Notes due 2019 described in the First Supplemental
Indenture, dated March 17, 2014 to the Indenture, dated as of March 17, 2014 between Parent, as issuer, and Wells Fargo Bank, National Association, as trustee.
Parent Equity Plan
means Parents 2009 Equity Incentive Plan.
Parent
Governing Documents
means (i) the charter of Parent as amended and in effect on the date hereof
and (ii) the bylaws of Parent, as amended and restated as of the date of this Agreement.
Parent Manager
means ACREFI
Manager, LLC, a Delaware limited liability company.
Parent Material Adverse Effect
means any Event that, individually
or in the aggregate, (A) prevents or materially delays the consummation of the Transactions or (B) has a material adverse effect on the financial condition, business, assets, properties, or results of operations of Parent and the Parent
Subsidiaries, taken as a whole;
provided
,
however
, that, for purposes of this clause (B) no Events resulting or arising from the following shall be deemed to constitute a Parent Material Adverse Effect or shall be taken into account
when determining whether a Parent Material Adverse Effect has occurred or is reasonably likely to exist or occur: (i) any changes in general United States or global economic conditions or in the capital, financial, credit, mortgage or securities
markets generally, including changes in interest or exchange rates, in each case to the extent that Parent and its Subsidiaries are not disproportionately affected thereby as compared to other companies operating in the same industry in which Parent
operates, (ii) conditions (or changes therein) in the industry in which Parent operates, in each case to the extent that Parent and its Subsidiaries are not disproportionately affected thereby as compared to other companies operating in the
same industry in which Parent operates (iii) any changes in Law, GAAP or interpretation thereof or in legal, political and/or regulatory conditions, in each case to the extent that Parent and its Subsidiaries are not disproportionately affected
thereby as compared to other companies operating in the same industry in which Parent operates, (v) any actions expressly required by, or the failure to take any action expressly prohibited by, the terms of this Agreement or any actions taken at the
request or with the consent of Parent or Merger Sub, (vi) except to the extent comprising a breach of the representations and warranties in
Sections 4.5
and
4.6(a)
or as would result in a failure of the condition set forth in
Section 7.3(a)
, any Event attributable to the announcement or pendency of this Agreement and the Transactions (including the Mergers), including any litigation arising therefrom (including any litigation arising from allegations of a breach
of duty or violation of applicable Law), (vii) any failure by Parent to meet any internal or published projections, estimates or expectations of Parents revenue, earnings or other financial performance or results of operations for any period,
or changes in the market price or trading volume of the Parent Common Stock, in and of itself (it being understood that any Events giving rise or contributing to such failure or change that are not otherwise excluded
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from the definition of a Parent Material Adverse Effect may be taken into account), (viii) Events arising out of changes in geopolitical conditions, acts of terrorism or sabotage, war
(whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, natural disasters or other force majeure events, including any material worsening of such conditions threatened or existing as of the date of
this Agreement.
Parent Permitted Liens
means any (i) Liens relating to any Indebtedness incurred in the ordinary
course of business consistent with past practice, (ii) Liens that result from any statutory or other Liens for Taxes or assessments that are not delinquent or the validity of which is being contested in good faith by appropriate proceedings and for
which there are adequate reserves on the Parent Financial Statements (if such reserves are required pursuant to GAAP), or that are otherwise not material, and (iii) any cashiers, landlords, workers, mechanics, carriers,
workmens, repairmens and materialmens Liens and other similar Liens imposed by Law and incurred in the ordinary course of business consistent with past practice that are not yet subject to penalty or the validity of which is being
contested in good faith by appropriate proceedings and for which there are adequate reserves on the Parent Financial Statements (if such reserves are required pursuant to GAAP), or that are otherwise not material.
Parent Series C Preferred Stock
means the 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock, par value $0.01
per share, of Parent, having the relative powers, preferences, rights, qualifications, limitations and restrictions attaching to such series of preferred stock as specified in the articles supplementary to the charter of Parent, in substantially the
form attached hereto as
Exhibit A
.
Per Share Adjustment Amount
means an amount equal to (i) the Adjustment
Amount divided by (ii) the number of issued and outstanding shares of Company Common Stock as of the Pricing Date, on a fully diluted basis (calculated after giving effect to the vesting of all Company Restricted Shares as a result of the
Transactions).
Per Share Common Cash Merger Consideration
means an amount equal to (A) the Aggregate Cash
Consideration divided by (B) the number of shares of Company Common Stock issued and outstanding as of the Pricing Date, on a fully diluted basis (calculated after giving effect to the vesting of all Company Restricted Shares as a result of the
Transactions, including, for the avoidance of doubt, any Company Restricted Shares granted following the date hereof), rounded up to the nearest cent.
Per Share Common Stock Merger Consideration
means a number of shares of Parent Common Stock equal to (i) the Stock
Consideration divided by (ii) the number of issued and outstanding shares of Company Common Stock as of the Pricing Date, on a fully diluted basis (calculated after giving effect to the vesting of all Company Restricted Shares as a result of the
Transactions).
Person
or
person
means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Entity, person (including a person as defined in Section 13(d)(3) of the Exchange Act) or other entity or organization.
Preferred Stock Consideration Value
means an amount equal to (A) (x) twenty-five dollars ($25.00) multiplied by (y) the
number of shares of Company Series A Preferred Stock outstanding as of the Pricing Date plus (B) all accumulated but unpaid dividends accrued on such shares of Company Series A Preferred Stock as of the Business Day prior to Closing.
Pricing Date
means the date that is three (3) Business Days prior to the date on which the Proxy Statement and Form S-4 are
mailed to the record holders of the Company in accordance with
Section 5.4
.
Prime Rate
means the rate of
interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City.
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Representatives
means, when used with respect to Parent, Merger Sub or
the Company, the directors, officers, employees, consultants, financial advisors, accountants, legal counsel, investment bankers, and other agents, advisors and representatives (including employees or representatives of the respective Managers) of
Parent or the Company, as applicable, and its Subsidiaries.
Stock Consideration
means 13,400,000 validly issued, fully
paid and nonassessable shares of Parent Common Stock, adjusted appropriately and proportionately to fully reflect the effect of any Parent stock split, reverse stock split, combination, exchange of shares or other similar transaction at any time
during the period from the date hereof to the First Merger Effective Time.
Subsidiary
or
Subsidiaries
,
when used with respect to any Person, means any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated, that (x) is consolidated with such Person for
financial reporting purposes under GAAP, or (y) of which (i) at least a majority of the outstanding shares of stock of, or other equity interests, having by their terms ordinary voting power to elect the board of directors or others governing body
with respect to such corporation or other organization is, at the time of determination, directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii)
with respect to a partnership, such Person or any other Subsidiary of such Person is a general partner of such partnership or (iii) with respect to a limited liability company that does not have a board of directors or governing body, such Person or
any other Subsidiary of such Person that is a managing member of such limited liability company.
Superior Proposal
means a bona fide written Acquisition Proposal made by a third party (
provided
, that for purpose of this definition, the percentages in the definition of Acquisition Proposal shall be fifty percent (50%) rather than twenty percent (20%)) that
did not result from a breach of
Section 5.3
that the Company Board, or an authorized committee thereof, determines in its good faith business judgment (after consultation with its outside legal counsel and nationally recognized financial
advisor), after taking into account all the terms of the Acquisition Proposal (including, without limitation, the Person making such proposal, all legal, financial and regulatory aspects of such proposal, the anticipated time of completion of the
proposed transaction and the conditions for completion of such transaction), (A) is reasonably expected to be consummated in accordance with its terms, and (B) if consummated, would be more favorable from a financial point of view to the holders of
Company Common Stock than the Mergers and the Transactions contemplated hereby (taking into account any offer by Parent to amend the terms of this Agreement or the other documents contemplated hereby).
Tax
or
Taxes
means any and all taxes, levies, duties, tariffs, imposts and other similar charges and
fees (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity or domestic or foreign taxing authority, including, income, franchise, windfall or other
profits, gross receipts, premiums, property, sales, use, net worth, capital stock, payroll, employment, social security, workers compensation, unemployment compensation, excise, withholding, ad valorem, stamp, transfer, value-added, gains tax
and license, abandoned property, escheat, registration and documentation fees, severance, occupation, environmental, customs duties, disability, real property, personal property, registration, alternative or add-on minimum, or estimated tax,
including any interest, penalty, or addition thereto, whether disputed or not.
Tax Return
means any report, return,
certificate, claim for refund, election, estimated tax filing or declaration filed or required to be filed with any Governmental Entity or domestic or foreign taxing authority with respect to Taxes, including any schedule or attachment thereto, and
including any amendments thereof.
Termination Fee
means (x) an amount equal to $7,500,000.00, if the Termination Fee
becomes payable in connection with the termination of this Agreement (1) by the Company pursuant to
Section 8.3(a)
in connection with a Superior Proposal made by an Excluded Party or (2) by Parent pursuant to
Section 8.4(a)
in
connection with a Change of Recommendation on account of a Superior Proposal made by an Excluded Party, and (y) an amount equal to $12,000,000.00, in all other circumstances.
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Treasury Regulations
means the income tax regulations, including any temporary
or proposed regulations, promulgated under the Code, as such regulations may be amended from time to time.
Waiver Board
Resolutions
means resolutions of the Company Board granting the Parent Ownership Limit Waiver.
Waiver Representation
Letter
means a certificate containing representations and warranties of Parent with respect to its proposed acquisition and ownership of Common Stock provided by Parent to the Company in connection with the Parent Ownership Limit Waiver.
Section 9.6
Terms Defined Elsewhere
. The following terms are defined elsewhere in this Agreement, as indicated below:
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|
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Agreement
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Preamble
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Allowed Fee
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Section 8.5(f)
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Alternative Acquisition Agreement
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Section 8.3(a)
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Articles of Merger
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Section 1.3
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Base Premium
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Section 6.4(d)
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Book-Entry Common Shares
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Section 2.2(b)(i)
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Book-Entry Preferred Shares
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Section 2.2(b)(ii)
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Change of Recommendation
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Section 5.3(e)(i)(A)
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Closing
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Section 1.2
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Closing Date
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Section 1.2
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Common Certificates
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Section 2.2(b)(i)
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Company
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Preamble
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Company Board Recommendation
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Recitals
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Company Board
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Recitals
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Company Common Shares
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Section 2.1(a)(i)
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Company Common Stock
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Section 2.1(a)(i)
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Company Disclosure Letter
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Article III
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Company Equity Interests
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Section 3.2(a)
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Company Financial Advisor
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Section 3.20
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Company Financial Statements
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Section 3.6(a)
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Company Insurance Policies
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Section 3.21
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Company Investments
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Section 3.18
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Company Investment Contract
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Section 3.13(vi)
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Company Material Contract
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Section 3.13(b)
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Company Parties
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Section 4.24
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Company Permits
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Section 3.16(b)
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Company Preferred Stock
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Section 3.2(a)
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Company Restricted Shares
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Section 2.4(a)
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Company SEC Documents
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Section 3.6(a)
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Company Service Provider
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Section 3.11(d)
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Company Stockholder Approval
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Section 3.25
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Company Subsidiary
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Section 3.1(b)
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Company Unaffiliated Stockholder Approval
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Section 7.1(a)
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Company Voting Debt
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Section 3.2(a)
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Cooperation Indemnitees
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Section 6.16(b)
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Covered Persons
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Section 6.4(a)
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Debt Financing
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Section 6.16(d)
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EDGAR
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Section 3.6(b)
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Excess Shares
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Section 2.6
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Exchange Act
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Section 3.6(a)
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Exchange Agent
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Section 2.2(a)
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Exchange Fund
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Section 2.2(a)
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Exchanged Restricted Share
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Section 2.4(a)
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Fiduciary Termination
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Section 5.3(e)(ii)
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First Merger
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Recitals
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First Merger Articles of Merger
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Section 1.3
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First Merger Effective Time
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Section 1.3
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First Merger Surviving Entity
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Section 1.1(a)
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Form S-4
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Section 3.5
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Fractional Share Consideration
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Section 2.1(a)(i)
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GAAP
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Section 3.6(a)
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Go-Shop Period
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Section 5.3(a)
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Governmental Entity
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Section 3.5
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Hedging Guidelines
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Section 6.17(a)
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Indemnification Agreements
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Section 6.4(a)
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Initial Outside Date
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Section 8.2(a)
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Injunction
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Section 7.1(c)
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Legal Proceeding
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Section 3.10
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Maryland Court
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Section 9.11(b)
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Merger Consideration
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Section 2.1(a)(i)
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Merger Sub
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Preamble
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Mergers
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Recitals
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MGCL
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Recitals
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No-Shop Period Start Date
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Section 5.3(b)
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Nonparty Affiliates
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Section 9.15
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Outside Date
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Section 8.2(a)
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Parent
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Preamble
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Parent Board
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Recitals
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Parent Disclosure Letter
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Article IV
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Parent Equity Awards
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Section 4.2(a)
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Parent Equity Interests
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Section 4.2(a)
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Parent Financial Advisor
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Section 4.17
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Parent Financial Statements
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Section 4.6(a)
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Parent Permits
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Section 4.14(b)
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Parent Preferred Stock
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Section 4.2(a)
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Parent SEC Documents
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Section 4.6(a)
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Parent Series A Preferred Stock
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Section 4.2(a)
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Parent Series B Preferred Stock
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Section 4.2(a)
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Parent Service Provider
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Section 4.11(b)
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Parent Subsidiary
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Section 4.1(c)
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Parent Voting Debt
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Section 4.2(a)
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Parties
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Preamble
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Party
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Preamble
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Parent Parties
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Section 3.27
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Per Common Share Merger Consideration
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Section 2.1(a)(i)
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Per Preferred Share Merger Consideration
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Section 2.1(b)(ii)
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Positive Tax Opinion or Ruling
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Section 8.5(f)
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Preferred Certificates
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Section 2.2(b)(ii)
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Preferred Stock Merger Consideration
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Section 2.1(b)(ii)
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Proxy Statement
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Section 3.5
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Qualified REIT Subsidiary
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Section 5.1(k)
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REIT
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Section 3.12(b)
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REIT Dividend
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Section 6.15(a)
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Related Party Transaction
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Section 3.22
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repurchase borrowings
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Section 6.17(c)
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Sarbanes-Oxley Act
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Section 3.6(a)
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SDAT
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Section 1.3
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SEC
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Section 3.5
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Second Merger
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Recitals
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Second Merger Articles of Merger
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Section 1.3
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Second Merger Effective Time
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Section 1.3
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Second Merger Surviving Entity
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Section 1.1(b)
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Second Outside Date
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Section 8.2(a)
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Securities Act
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Section 3.6(a)
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Stockholders Meeting
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Section 5.4(c)
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Stock Award Exchange Ratio
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Section 2.4(b)
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Takeover Statutes
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Section 3.24
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Taxable REIT Subsidiary
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Section 3.12(l)
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Transactions
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Recitals
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Section 9.7
Interpretation
. When a reference is made in this Agreement to an Article, Section, Exhibit
or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. Whenever the words include, includes or including are used in this Agreement
they shall be deemed to be followed by the words without limitation, unless the context expressly provides otherwise. As used in this Agreement, the term affiliates shall have the meaning set forth in Rule 12b-2 of the
Exchange Act. The table of contents and headings set forth in this Agreement are for convenience of reference purposes only and shall not affect or be deemed to affect in any way the meaning or interpretation of this Agreement or any term or
provision hereof. The words hereof, herein and hereunder and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement, except
to the extent otherwise specified. References in this Agreement to any item, document or information having been delivered, made available or any variation thereof means an item or document has been delivered or made
available to the applicable recipient party by posting such item, document and information to, in the case of the Company, the Project Apple Target - DD data room on watchdox.com, or in the case of Parent, the Project Apple
Reverse Due Diligence data room on watchdox.com, at least three (3) Business Days prior to the execution of this Agreement and not removed after it was posted. Any pronoun shall include the corresponding masculine, feminine and
neuter forms, and the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. All terms defined in this Agreement have the defined meanings when used in any certificate or other document made
or delivered pursuant hereto, unless otherwise defined therein. When reference is made herein to a Person, such reference shall be deemed to include all direct and indirect Subsidiaries of such Person unless otherwise indicated or the context
otherwise requires. All references herein to the Subsidiaries of a Person shall be deemed to include all direct and indirect Subsidiaries of such Person unless otherwise indicated or the context otherwise requires. The Parties agree that they have
been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be
construed against the party drafting such agreement or document.
Section 9.8
Counterparts
. This Agreement may be executed manually
or by facsimile by the Parties, in any number of counterparts, each of which shall be considered one and the same agreement and shall become effective when a counterpart hereof shall have been signed by each of the Parties and delivered to the other
Parties (including by means of electronic delivery), it being understood that the Parties need not sign the same counterpart. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in portable
A-68
document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical
delivery of the paper document bearing the original signature.
Section 9.9
Entire Agreement; Third-Party Beneficiaries
.
(a) This Agreement (including the Company Disclosure Letter, the Parent Disclosure Letter and the other documents and instruments referred to
herein or delivered pursuant hereto) and the Confidentiality Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements (except that the Confidentiality
Agreement shall be amended so that until the termination of this Agreement in accordance with
Article VIII
hereof, Parent and Merger Sub shall be permitted to take the actions contemplated by this Agreement) and understandings, both
written and oral, among the Parties or any of them with respect to the subject matter hereof and thereof.
(b) Except as provided in
Section 6.4
, neither this Agreement (including the Company Disclosure Letter and the Parent Disclosure Letter and the other documents and instruments referred to herein) nor the Confidentiality Agreement are intended to confer upon any Person
other than the Parties and, only with respect to
Section 9.1(a)
, this
Section 9.9(b),
Section 9.11(a)
and
(c)
,
Section 9.12
,
Section 9.13
and
Section 9.15
, the Financing Sources, any rights or
remedies hereunder.
Section 9.10
Severability
. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by rule of Law or public policy in any jurisdiction, such term or other provision shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability and, unless the effect of such
invalidity or unenforceability would prevent the Parties from realizing the major portion of the economic benefits of the Transactions that they currently anticipate obtaining therefrom, shall not render invalid or unenforceable the remaining terms
and provisions of this Agreement or affect the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or incapable of
being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible and the relevant provision may be given effect to the fullest extent possible consistent with applicable Law.
Section 9.11
Governing Law; Jurisdiction
.
(a) This Agreement, and all claims or causes of actions (whether at Law, in equity, in contract or in tort) that may be based upon, arise out
of, or are related to, this Agreement or the negotiation, execution or performance of this Agreement, shall be governed by, and construed in accordance with, the Laws of the State of Maryland applicable to agreements entered into and performed
entirely therein by residents thereof, without giving effect to conflicts of laws principles (whether of the State of Maryland or any other jurisdiction that would cause the application of the Laws of any jurisdiction other than the State of
Maryland).
(b) All Legal Proceedings and proceedings arising out of or relating to this Agreement shall be heard and determined
exclusively in the Circuit Court for Baltimore City (Maryland) (the
Maryland Court
). Each of the Parties hereby irrevocably and unconditionally agrees to request and/or consent to the assignment of any such proceeding to the
Maryland Courts Business and Technology Case Management Program. Each of the Parties hereby irrevocably and unconditionally (a) consents and submits to the exclusive jurisdiction of the Maryland Court for the purpose of any Legal Proceeding
brought by any Party arising out of or relating to this Agreement or any ancillary agreement, (b) agrees not to commence any such action or proceeding except in the Maryland Court, (c) agrees that any claim with respect to any such action or
proceeding shall be heard and determined in the Maryland Court, (d) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to venue of any such action or proceeding in the Maryland Court,
and (e) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or
A-69
proceeding in the Maryland Court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive, subject to any rights of appeal, and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided by Law. Nothing in this Agreement shall, however, limit or affect the rights of any Party to pursue appeals from any judgments or orders of the Maryland Court as
provided by Law. Each Party irrevocably consents to service of process in the manner provided for notices in
Section 9.4
. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Law.
(c) Notwithstanding anything in preceding clause (b) to the contrary, and without limiting anything set forth in
Section 9.15
, each of the Parties agrees that it will not bring or support any suit, action or other proceeding (whether at law, in equity, in contract, in tort or otherwise) against any Financing Source in any way relating to this
Agreement or any of the transactions contemplated by this Agreement (including the Transactions and any related financing), or the performance thereof, in any forum other than any New York State court or federal court sitting in the County of New
York and the Borough of Manhattan (and appellate courts thereof). The parties hereto further agree that all of the provisions of
Section 9.12
relating to waiver of jury trial shall apply to any suit, action or other proceeding referenced in
this
Section 9.11(c)
.
Section 9.12
Waiver of Jury Trial
. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE MERGERS
AND OTHER TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 9.12
.
Section 9.13
Assignment
. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in whole or in part, by any of the Parties (whether by operation of Law or otherwise) without the prior written consent of the other Parties, except that (a) Merger Sub (and after the
Closing, the Second Merger Surviving Entity) may assign, in its sole discretion and without the consent of any other Party, any or all of its rights, interests and obligations hereunder to Parent or one or more controlled affiliates of Parent and
(b) Parent and Merger Sub may assign, in their sole discretion and without the consent of any other Party, any or all of their rights, interests and obligations hereunder to any of their Financing Sources from time to time as collateral security.
Any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentences, but without relieving any Party of any obligation hereunder, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and permitted assigns.
Section 9.14
Enforcement; Remedies
.
(a) Except as otherwise provided herein, any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by Law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy.
(b) The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
A-70
(c) The Parties right of specific enforcement is an integral part of the Transactions and
each Party hereby waives any objections to the grant of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement by any other Party (including any objection on the basis that there is an adequate remedy at Law
or that an award of specific performance is not an appropriate remedy for any reason at Law or equity), and each Party shall be entitled to an injunction or injunctions and to specifically enforce the terms and provisions of this Agreement to
prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such Party under this Agreement all in accordance with the terms of this
Section 9.14
. In the event any Party seeks
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, such Party shall not be required to provide any bond or other security in connection with such order or
injunction all in accordance with the terms of this
Section 9.14
.
Section 9.15
No Recourse
. Without limiting any other
provision in this Agreement (including the rights of the Financing Sources set forth in
Section 9.9(b)
), this Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this
Agreement, or the negotiation, execution or performance of this Agreement, may only be made against the Parties. No Person who is not a Party, including any current, former or future director, officer, employee, incorporator, member, partner,
manager, stockholder, affiliate or assignee of, and any financial advisor, Financing Source or lender to any Party, or any current, former or future director, officer, employee, incorporator, member, partner, manager, stockholder, affiliate or
assignee of the foregoing (collectively, the
Nonparty Affiliates
) shall have any liability for any obligations or liabilities of the parties hereto or for any claim (whether in tort, contract or otherwise), based on, in respect
of, or by reason of, this Agreement or the Transactions or in respect of any oral representations made or alleged to be made in connection herewith and, to the maximum extent permitted by Law (other than as set forth in this Agreement and the other
transaction documents), each Party hereby waives and releases all such liabilities, claims, causes of action and obligations against any such Nonparty Affiliates of another Party. In no event shall the Company or any of its affiliates, and the
Company agrees not to, and to cause its affiliates not to, (A) seek to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any Financing Source or (B) seek to enforce the
commitments against, make any claims for breach of the Debt Financing commitments against, or seek to recover monetary damages from, or otherwise sue, the Financing Sources for any reason, including in connection with the Debt Financing commitments
or the obligations of the Financing Sources thereunder. Nothing in this
Section 9.15
shall in any way limit or qualify the obligations and liabilities of the parties to the Debt Financing commitments to each other or in connection therewith.
(Remainder of Page Intentionally Left Blank)
A-71
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be signed by
their respective officers thereunto duly authorized as of the date first written above.
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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ARROW MERGER SUB, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President
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[Signature Page to Agreement and Plan of Merger]
A-72
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APOLLO RESIDENTIAL MORTGAGE, INC.
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By:
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/s/ Michael A. Commaroto
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Name:
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Michael A. Commaroto
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Title:
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President and Chief Executive Officer
|
[Signature Page to Agreement and Plan of Merger]
A-73
Annex B
Execution Version
ASSET
PURCHASE AND SALE AGREEMENT
by and among
ATHENE ANNUITY AND LIFE COMPANY,
ATHENE ANNUITY & LIFE ASSURANCE COMPANY,
and
APOLLO COMMERCIAL
REAL ESTATE FINANCE, INC.
Dated: February 26, 2016
Table of Contents
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Page
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ARTICLE I Definitions and Rules of Construction
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B-1
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1.1
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Definitions
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B-1
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1.2
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Rules of Construction
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B-5
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ARTICLE II Purchase and Sale
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B-6
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2.1
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Closing
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B-6
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2.2
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Sale and Purchase of the Assets
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B-6
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2.3
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Nonassignable Assets
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B-7
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2.4
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Excluded Assets and Excluded Liabilities
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B-8
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2.5
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Payments at the Closing
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B-8
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2.6
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Set-Off
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B-9
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2.7
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Allocation of the Purchase Price
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B-9
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ARTICLE III Representations and Warranties of Seller
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B-9
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3.1
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Organization and Power
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B-9
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3.2
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Authorization and Enforceability
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B-9
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3.3
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No Violation
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B-9
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3.4
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Authorizations and Consents
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B-10
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3.5
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Title to Assets; Assets in Book-Entry Form
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B-10
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3.6
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No Brokers
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B-10
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3.7
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Disclaimer
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B-10
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ARTICLE IV Representations and Warranties of Buyers
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B-10
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4.1
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Organization and Power
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B-10
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4.2
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Authorization and Enforceability
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B-11
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4.3
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No Violation
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B-11
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4.4
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Authorizations and Consents
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B-11
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4.5
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Financial Capacity
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B-11
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4.6
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No Brokers
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B-11
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4.7
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No Inducement or Reliance; Independent Assessment
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B-11
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ARTICLE V Covenants
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B-12
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5.1
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Conduct of Seller; Merger Agreement Rights; Cooperation; Repurchase Agreements
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B-12
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5.2
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Access to Information Prior to the Closing
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B-13
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5.3
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Consents and Approvals
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B-13
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5.4
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Public Announcements and Disclosure
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B-13
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5.5
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Exclusivity
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B-14
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5.6
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Post-Transfer Remittances
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B-14
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ARTICLE VI Conditions to Closing
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B-14
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6.1
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Conditions to All Parties Obligations
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B-14
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6.2
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Conditions to Sellers Obligations
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B-15
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6.3
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Conditions to Buyers Obligations
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B-15
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ARTICLE VII Deliveries by Seller at Closing
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B-16
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7.1
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Officers Certificate
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B-16
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7.2
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Receipt
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B-16
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7.3
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Further Instruments
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B-16
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ARTICLE VIII Deliveries by Buyer at Closing
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B-16
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8.1
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Officers Certificate
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B-16
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8.2
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Receipt
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B-16
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8.3
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Closing Consideration Amount
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B-16
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ARTICLE IX Survival
|
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B-16
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9.1
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Survival
|
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B-16
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B-i
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Page
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ARTICLE X Termination
|
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B-17
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10.1
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Termination
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B-17
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10.2
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Procedure and Effect of Termination
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B-17
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ARTICLE XI Miscellaneous
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B-18
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11.1
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Expenses
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B-18
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11.2
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Notices
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B-18
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11.3
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Governing Law
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B-20
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11.4
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Entire Agreement
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B-20
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11.5
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Severability
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B-20
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11.6
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Amendment
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B-20
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11.7
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Effect of Waiver or Consent
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B-21
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11.8
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Parties in Interest; Limitation on Rights of Others
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B-21
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11.9
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Assignability
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B-21
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11.10
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Jurisdiction; Court Proceedings; Waiver of Jury Trial
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B-21
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11.11
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No Other Duties
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B-21
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11.12
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Reliance on Counsel and Other Advisors
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B-22
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11.13
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Remedies
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B-22
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11.14
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Specific Performance
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B-22
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11.15
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Counterparts
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B-22
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11.16
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Further Assurance
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B-22
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EXHIBIT A:
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Unallocated Assets
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EXHIBIT A-1:
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Athene Iowa Asset Schedule
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EXHIBIT A-2:
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Athene Delaware Asset Schedule
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SCHEDULE 1:
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Pricing Methodology
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SCHEDULE 2.2:
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Sale and Purchase of Assets Prior to Closing
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SCHEDULE 3.3:
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No Violation
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SCHEDULE 3.4(a):
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Authorization and Consents
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SCHEDULE 3.4(b):
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Repurchase Agreements
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B-ii
ASSET PURCHASE AND SALE AGREEMENT
ASSET PURCHASE AND SALE
AGREEMENT, dated as of February 26, 2016, by and among Athene Annuity and Life Company, an Iowa stock life
insurance company (
Athene Iowa
), Athene Annuity & Life Assurance Company, a Delaware stock life insurance company (
Athene Delaware
and, together with Athene Iowa,
Buyers
and each, a
Buyer
), and Apollo Commercial Real Estate Finance, Inc., a Maryland corporation (
Seller
).
RECITALS
WHEREAS, Seller has entered into that certain Agreement and Plan of Merger, dated as of the date hereof (the
Merger
Agreement
), with Apollo Residential Mortgage, Inc., a Maryland corporation (
AMTG
), and Arrow Merger Sub, Inc., a Maryland corporation and wholly-owned subsidiary of Seller (
Merger Sub
), pursuant to
which AMTG will merge with Merger Sub (the
First Merger
), with AMTG surviving the First Merger as a subsidiary of Seller and, thereafter, AMTG will merge with and into Seller (the
Second Merger
and, together
with the First Merger, the
Mergers
) with Seller surviving the Second Merger;
WHEREAS, immediately following, and
subject to, the consummation of the First Merger, Seller will indirectly own 100% of the Assets;
WHEREAS, Buyers desire to purchase from
Seller or its applicable Subsidiaries, and Seller desires to sell, or to cause its applicable Subsidiaries to sell, to Buyers, the Assets upon the terms and subject to the conditions hereinafter set forth;
WHEREAS, on the date hereof, Athene USA Corporation, an Iowa corporation (
Athene USA
), and Seller are entering into that
certain stock purchase agreement, pursuant to which Athene USA agreed to purchase shares of Sellers common stock following the consummation of the Mergers, upon the terms and subject to the conditions set forth therein (the
Stock
Purchase Agreement
); and
WHEREAS, on the date hereof, Athene USA has delivered that certain debt commitment letter to Seller,
pursuant to which, upon the terms and subject to the conditions set forth therein, Seller may draw up to $200,000,000 (subject to potential reduction pursuant to the terms thereof) under a term facility (the
Loan Agreement
) which
would be provided pursuant to the debt commitment letter (the
Debt Financing
).
NOW THEREFORE, in consideration of the
premises and the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
Definitions and
Rules of Construction
1.1
Definitions
.
As used in this Agreement, the following terms shall have the meanings set forth below:
Affiliate
means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this definition, control of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of
directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise;
provided
that, for purposes of this Agreement, neither Seller nor any Subsidiary thereof shall
constitute an Affiliate of any Buyer, and no Buyers nor any Subsidiary thereof shall constitute an Affiliate of Seller.
B-1
Agreement
means this Asset Purchase and Sale Agreement, as it may be amended
from time to time.
AMTG
has the meaning set forth in the Recitals.
Ancillary Documents
means the documents being executed and delivered in connection with this Agreement and the Contemplated
Transactions, including the receipt for the Closing Consideration Amount (in each case as such documents may be supplemented, amended or modified from time to time).
Assets
means, collectively, the assets listed on
Exhibit A
, the Athene Iowa Assets and the Athene Delaware Assets.
Athene Delaware Assets
shall mean each of the assets set forth on
Exhibit
A-2
attached
hereto, including the gross amount (without deducting any related costs, including taxes, internal and external costs for any vendor or service provider and the costs of any repurchase or other financing of such asset) of any principal, interest or
other proceeds paid to Seller, AMTG or any of their respective Subsidiaries with respect to such asset or otherwise paid on or in respect of such asset from and after the Pricing Date through and including the Closing Date (or a later Post-Closing
Transfer Date, if applicable);
provided
,
however
, that
Exhibit
A-2
may be amended in accordance with Section 2.2(b) to (i) add any asset not currently set forth thereon that is purchased by AMTG, which
thereafter will constitute an Athene Delaware Asset, or (ii) remove any asset currently set forth thereon that is sold by AMTG, which thereafter will no longer constitute an Athene Delaware Asset.
Athene Delaware Consideration Amount
has the meaning set forth in Section 2.5(a).
Athene Iowa Assets
shall mean each of the assets set forth on
Exhibit
A-1
attached hereto,
including the gross amount (without deducting any related costs, including taxes, internal and external costs for any vendor or service provider and the costs of any repurchase or other financing of such asset) of any principal, interest or other
proceeds paid to Seller, AMTG or any of their respective Subsidiaries with respect to such asset or otherwise paid on or in respect of such asset from and after the Pricing Date through and including the Closing Date (or a later Post-Closing
Transfer Date, if applicable);
provided
,
however
, that
Exhibit
A-1
may be amended in accordance with Section 2.2(b) to (i) add any asset not currently set forth thereon that is purchased by AMTG, which
thereafter will constitute an Athene Iowa Asset, or (ii) remove any asset currently set forth thereon that is sold by AMTG, which thereafter will no longer constitute an Athene Iowa Asset.
Athene Iowa Consideration Amount
has the meaning set forth in Section 2.5(a).
Athene USA
has the meaning set forth in the Recitals.
Business Day
means any day other than a Saturday, Sunday or day on which banks are closed in New York, New York. If any
period expires on a day which is not a Business Day or any event or condition is required by the terms of this Agreement to occur or be fulfilled on a day which is not a Business Day, such period shall expire or such event or condition shall occur
or be fulfilled, as the case may be, on the next succeeding Business Day.
Buyer Material Adverse Effect
means, with
respect to a Buyer, any Event that would be reasonably likely to prevent or materially delay such Buyers ability to consummate the Contemplated Transactions.
Buyer Representative
means Athene USA.
Buyers
has the meaning set forth in the Preamble.
Closing
has the meaning set forth in Section 2.1.
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Closing Consideration Amount
has the meaning set forth in Section 2.5(a).
Closing Date
has the meaning set forth in Section 2.1.
Closing Date Calculation Notice
has the meaning set forth in Section 2.5(b).
Code
means the Internal Revenue Code of 1986, as amended from time to time, or corresponding provisions of subsequent
superseding federal revenue Laws.
Consents
has the meaning set forth in Section 3.4(a).
Contemplated Transactions
means the purchase and sale of the Assets as contemplated by this Agreement and the Ancillary
Documents.
Contract
means any legally binding contract, agreement, license, lease, commitment, understanding or other
obligation, whether oral or written.
Cross-Receipt
has the meaning set forth in Section 7.2.
Debt Financing
has the meaning set forth in the Recitals.
DTC
means the Depository Trust & Clearing Corporation.
Event
means any change, effect, development, circumstance, condition, state of facts, event or occurrence.
Excluded Assets
has the meaning set forth in Section 2.4.
First Merger
has the meaning set forth in the Recitals.
GAAP
means United States Generally Accepted Accounting Principles.
Governmental Entity
means any court, arbitral tribunal, administrative agency or commission or other governmental or other
regulatory authority or agency, whether foreign, federal, state, local or supernational.
Injunction
has the meaning
set forth in Section 6.1(a).
Joinder Agreement
means the letter agreement between Seller and Athene Holding, Ltd.
dated December 23, 2015.
Law
means any statute, code, rule, regulation, order, ordinance, judgment or decree or
other pronouncement of any Governmental Entity having the effect of law.
Lien
means any charge, claim, community
property interest, pledge, condition, equitable interest, lien (statutory or other), encumbrance, option, security interest, mortgage, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of
income or exercise of any other attribute of ownership.
Litigation
means any claim, action, suit, arbitration,
alternative dispute resolution action or any other judicial or administrative proceeding, in Law or equity.
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Loan Agreement
has the meaning set forth in the Recitals.
Mergers
has the meaning set forth in the Recitals.
Merger Agreement
has the meaning set forth in the Recitals.
Merger Sub
has the meaning set forth in the Recitals.
Nonassignable Asset
has the meaning set forth in Section 2.3(a).
Notice of Disagreement
has the meaning set forth in Section 2.6(a).
Order
means an order, judgment, injunction, award, stipulation, decree, writ, ruling, subpoena, or verdict, entered,
issued, made or rendered by a Governmental Entity.
Outside Purchase Date
has the meaning set forth in Section 2.3(b).
Person
or
person
means an individual, partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association, joint venture, Governmental Entity, person (including a person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) or other entity or organization.
Post-Closing Transfer Date
has the meaning set
forth in Section 2.3(b).
Pricing Date
has the meaning set forth in the Merger Agreement.
Proxy Statement
has the meaning set forth in the Merger Agreement.
Regulatory Approval
means (i) with respect to Athene Iowa, any Consent with respect to the Contemplated Transactions
required by the Iowa Insurance Division and (ii) with respect to Athene Delaware, any Consent with respect to the Contemplated Transactions required by the Delaware Department of Insurance.
Repurchase Agreements
means the repurchase agreements and related agreements in respect of borrowings (though documented as
sales and subsequent repurchases) collateralized by the Assets.
Required Consent
means each Consent set forth on
Schedule 3.4(a).
Resolution Notice
has the meaning set forth in the Section 2.6(a).
Second Merger
has the meaning set forth in the Recitals.
Seller
has the meaning set forth in the Preamble.
Seller Material Adverse Effect
means any Event that, individually or in the aggregate, (A) would be reasonably likely
to prevent or materially delay Sellers ability to consummate the Contemplated Transactions or (B) is materially adverse to the value of the Assets, taken as a whole;
provided
,
however
, that, for purposes of this clause (B)
no Event resulting or arising from the following shall be deemed to constitute a Seller Material Adverse Effect or shall be taken into account when determining whether a Seller Material Adverse Effect has occurred or is reasonably likely to exist or
occur: (i) any change in general United States or global economic conditions or in the capital, financial, credit, mortgage or securities markets generally, including changes in interest or exchange rates, (ii) any condition (or change therein)
in the industry in which Seller operates, (iii) any change in Law, GAAP or interpretation thereof or in legal, political and/or regulatory conditions, (iv) any action
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taken at the request of the Buyer Representative, (v) any Event attributable to the announcement or pendency of this Agreement and the Contemplated Transactions, including any litigation arising
therefrom, (vi) any failure by Seller or AMTG to meet any internal or published projections, estimates or expectations of Sellers or AMTGs revenue, earnings or other financial performance or results of operations for any period in and of
itself (it being understood that any Event giving rise or contributing to any such failure or change that is not otherwise excluded from the definition of a Seller Material Adverse Effect may be taken into account) or (vii) any Event
arising out of changes in geopolitical conditions, acts of terrorism or sabotage, war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, natural disasters or other force majeure events,
including any material worsening of such conditions threatened or existing as of the date of this Agreement;
provided
that notwithstanding the foregoing, with respect to clauses (i), (ii), (iii) and (vii) above, any such effect shall be taken
into account in determining whether a Seller Material Adverse Effect has occurred or is reasonably likely to exist or occur only to the extent that such effect disproportionately adversely affects Seller or the Assets as compared to other companies
in same industry in which the Seller operates or other assets similar to the Assets.
Stock Purchase Agreement
has the
meaning set forth in the Recitals.
Stockholders Meeting
has the meaning set forth in the Merger Agreement.
Subsidiary
or
Subsidiaries
,
when used with respect to any Person, means any corporation, limited
liability company, partnership or other organization, whether incorporated or unincorporated, that (x) is consolidated with such Person for financial reporting purposes under GAAP, or (y) of which (i) at least a majority of the outstanding
shares of capital stock of, or other equity interests, having by their terms ordinary voting power to elect the board of directors or others governing body with respect to such corporation or other organization is, at the time of determination,
directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries or (ii) with respect to a partnership, such Person or any other Subsidiary of such Person
is a general partner of such partnership.
Tax
or
Taxes
means any and all taxes, levies, duties,
tariffs, imposts and other similar charges and fees (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity or domestic or foreign taxing authority,
including, income, franchise, windfall or other profits, gross receipts, premiums, property, sales, use, net worth, capital stock, payroll, employment, social security, workers compensation, unemployment compensation, excise, withholding,
ad valorem, stamp, transfer, value-added, gains tax and license, abandoned property, escheat, registration and documentation fees, severance, occupation, environmental, customs duties, disability, real property, personal property, registration,
alternative or add-on minimum, or estimated tax, including any interest, penalty, or addition thereto, whether disputed or not.
Treasury Regulations
means the regulations promulgated under the Code, as amended from time to time (including any
successor regulations).
1.2
Rules of Construction
.
Unless the context otherwise requires:
(a) a capitalized term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) references in the singular or to him, her, it, itself, or other like references, and
references in the plural or the feminine or masculine reference, as the case may be, shall also, when the context so requires, be deemed to include the plural or singular, or the masculine or feminine reference, as the case may be;
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(d) references to Articles, Sections, Exhibits and Schedules shall refer to articles, sections,
exhibits and schedules of this Agreement, unless otherwise specified;
(e) references to any party to this Agreement or any other
agreement or document shall be deemed to refer to any Person that becomes (or became, if applicable in the case of an agreement or document other than this Agreement) a successor or permitted assign of such party, upon the occurrence thereof;
(f) references to any agreement or other document shall be to such agreement or other document (together with the schedules, exhibits and
other attachments thereto) as it may have been or may hereafter be amended, modified, supplemented, waived or restated from time to time in accordance with its terms and the terms hereof (if applicable thereto);
(g) the headings in this Agreement are for convenience and identification only and are not intended to describe, interpret, define or limit
the scope, extent or intent of this Agreement or any provision thereof;
(h) this Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party that drafted and caused this Agreement to be drafted;
(i) all monetary
figures shall be in U.S. dollars unless otherwise specified; and
(j) references to including in this Agreement shall
mean including, without limitation, whether or not so specified.
ARTICLE II
Purchase and Sale
2.1
Closing
.
The closing of the Contemplated Transactions (the
Closing
) will take place at the offices of Fried,
Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New York, NY 10004, immediately following the consummation of the First Merger in accordance with the terms of the Merger Agreement;
provided
, that the conditions set forth in
Article VI have been satisfied or waived in accordance with this Agreement (other than any such conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted hereunder, waiver of
such conditions at the Closing), or on such other date as the Buyer Representative and Seller may otherwise agree. The day on which the Closing actually occurs is referred to herein as the
Closing Date
.
2.2
Sale and Purchase of the Assets
.
(a) Subject to the terms and conditions set forth in this Agreement, at the Closing, (i) Seller shall, and shall cause its applicable
Subsidiaries to, sell, transfer, assign and deliver (or cause to be sold, transferred, assigned and delivered) to Athene Iowa, and Athene Iowa shall purchase and acquire, all of Sellers and its applicable Subsidiaries
right, title
and interest in and to the Athene Iowa Assets (other than any Nonassignable Assets), free and clear of all Liens and (ii) Seller shall, and shall cause its applicable Subsidiaries to, sell, transfer, assign and deliver (or cause to be sold,
transferred, assigned and delivered) to Athene Delaware, and Athene Delaware shall purchase and acquire, all of Sellers and its applicable Subsidiaries
right, title and interest in and to the Athene Delaware Assets (other than any
Nonassignable Assets), free and clear of all Liens.
(b)
Exhibit A
lists all of the Assets as of the date hereof. On a weekly
basis, from the date hereof until the date that is 10 days prior to the scheduled date of the Stockholders Meeting as set forth in the Proxy Statement, the Buyer Representative and Seller will update
Exhibits A
,
A-1
and
A-2
to
reflect (i) the purchase or
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sale of any Asset that complies with Schedule 2.2(b), (ii) the allocation of the Assets listed on
Exhibit A
between
Exhibit A-1
and
Exhibit A-2
as specified by the Buyer
Representative in its sole discretion and (iii) any change in the allocation of the Assets between
Exhibit A-1
and
Exhibit A-2
as the Buyer Representative may specify in its sole discretion;
provided
,
however
, that no
such allocation or change in allocation will be permitted if it would delay or impair the ability of the applicable Buyer to purchase the Assets on the Closing Date pursuant to the terms and conditions of this Agreement. If, as of the tenth (10
th
) day prior to the scheduled date of the Stockholders Meeting as set forth in the Proxy Statement, any Asset listed on
Exhibit A
has not been allocated by the Buyer Representative to
Exhibit A-1
or
Exhibit A-2
, then such Asset shall be deemed to be allocated to
Exhibit A-1
. Following the Closing Date, the Buyer Representative and Seller will update
Exhibits A-1
and
A-2
to reflect any
change in the allocation of the Nonassignable Assets between
Exhibits A-1
and
A-2
as the Buyer Representative may specify in its sole discretion;
provided
,
however
, that no such change in allocation will be permitted if
it would delay or impair the ability of the applicable Buyer to purchase the Nonassignable Assets on the applicable Post-Closing Transfer Date pursuant to the terms and conditions of this Agreement.
2.3
Nonassignable
Assets
.
(a) Notwithstanding anything in this Agreement to the contrary, but without limiting Section 5.1(c), this Agreement shall not obligate Seller
to sell, transfer or assign any Asset at the Closing if the attempted sale, transfer or assignment thereof would (i) constitute a breach of any obligation of Seller or any of its Subsidiaries under any Contract (including any Repurchase Agreement)
to which such Asset is subject, (ii) require Seller to pay a termination or transfer fee (however described) under any Contract, or (iii) require a Required Consent that has not been obtained as of the Closing Date (a
Nonassignable
Asset
).
(b) Without limiting Section 5.1(c), if, on any date after the Closing Date and through to the date that is fifteen
(15) Business Days after the Closing Date, or such later date as mutually agreed by the Buyer Representative and Seller (the
Outside Purchase Date
), (i) all Required Consents required to permit the sale, transfer or assignment of
a Nonassignable Asset to the applicable Buyer have been obtained, (ii) the assignment of such Nonassignable Asset to the applicable Buyer would not require Seller to pay a termination or transfer fee (however described) under a Repurchase Agreement
or other Contract (or such fee has, at the sole discretion of Seller or to the extent required to comply with Section 5.1(c), been paid) and (iii) the representations and warranties set forth in Section 3.5 with respect to such Nonassignable Asset
are true and correct as of such date and through and as of the date on which such Nonassignable Asset is transferred, conveyed and delivered to the applicable Buyer as though made at and as of such date (or Buyer Representative waives such
condition), then Seller shall deliver written notice to the Buyer Representative specifying each such Nonassignable Asset and a closing date at least two (2) Business Days and no more than five (5) Business Days after the date of such notice for the
sale, transfer or assignment of each such Nonassignable Asset to the applicable Buyer (a
Post-Closing Transfer Date
). On each Post-Closing Transfer Date, (i) Seller shall, and shall cause its applicable Subsidiaries to, sell,
transfer, assign and deliver (or cause to be sold, transferred, assigned and delivered) to each applicable Buyer all of Sellers and its applicable Subsidiaries right, title and interest in and to each Nonassignable Asset to which such
Post-Closing Transfer Date relates free and clear of all Liens, (ii) subject to Section 2.6, each applicable Buyer shall pay to Seller or its applicable Subsidiary (or its designee(s)) the purchase price with respect to each such Nonassignable Asset
calculated in accordance with
Schedule
1
, except to the extent such Nonassignable Asset was previously taken into account in the calculation of the Closing Consideration Amount, and (iii) each applicable Buyer and each of
Seller or any of its applicable Subsidiaries shall deliver counterpart signature pages to a Cross-Receipt in respect of such sales, executed by a duly authorized representative of each such Buyer and Seller or its applicable Subsidiary.
(c) If each Buyer stands ready, willing and able to effect the purchase of the Assets at all times during the period from and including the
Closing Date through and including the Outside Purchase Date, and Seller shall have failed to transfer to Buyers, at the Closing and all Post-Closing Transfer Dates, collectively, all of the Assets, then, from and after the Outside Purchase Date, it
shall not sell, transfer, assign or deliver to any other Person or otherwise dispose of any of the Nonassignable Assets without first providing Buyers with a right of
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first offer and right of first refusal with respect to such Nonassignable Asset;
provided
,
however
, that at such time as Seller shall have transferred to Buyers, in the aggregate on
and after the Closing Date, Assets with an aggregate market value of $1.0 billion, such right of first offer and right of first refusal shall expire with respect to all remaining Nonassignable Assets on the one-hundred eightieth (180
th
) day following the Outside Purchase Date. For the avoidance of doubt, Seller shall have no obligations under this Section 2.3(c) in the event (x) either Buyer shall have failed to purchase any
Asset when obligated pursuant to Section 2.2(a) or Section 2.3(b) or (y) Athene USA shall have failed to provide the Debt Financing when obligated pursuant to the terms and conditions of the Loan Agreement.
(d) Each Buyer that is purchasing Nonassignable Assets shall provide Seller with a completed and executed U.S. Internal Revenue Service
W-9.
2.4
Excluded Assets
and Excluded Liabilities
.
Notwithstanding anything to the contrary contained herein, (i) no assets other than those set forth on
Exhibit A
,
Exhibit
A-1
and
Exhibit
A-2
attached hereto (or as amended in accordance with Section 2.2(b)) shall be included in the purchase and sale hereunder, and all such other assets of Seller and its
Subsidiaries (the
Excluded Assets
) shall remain the property of Seller or its applicable Subsidiary, and (ii) in no event shall Seller or any Subsidiary of Seller delegate (or be deemed to delegate) to any Buyer, and in no event
shall any Buyer assume (or be deemed to assume), any liability or obligation of Seller, any Subsidiary of Seller or any other Person (whether relating to any period prior to, on or after the Closing) pursuant to this Agreement or any Ancillary
Document. For the avoidance of doubt, no Buyer shall have any obligation to pay any termination fee or other amount under any Repurchase Agreement or other Contract to which any Asset is subject or bound.
2.5
Payments at the Closing
.
(a) Each of the purchase price to be paid by Athene Iowa for the Athene Iowa Assets (the
Athene Iowa Consideration Amount
)
and the purchase price to be paid by Athene Delaware for the Athene Delaware Assets (the
Athene Delaware Consideration Amount
and, together with the Athene Iowa Consideration Amount, the
Closing Consideration
Amount
) shall be calculated based on the value of such Assets as of the Pricing Date in accordance with the methodology set forth on
Schedule
1
attached hereto. Seller shall, upon the reasonable written request of
the Buyer Representative and subject to the terms and conditions of the Merger Agreement, exercise Sellers right pursuant to Schedule C of the Merger Agreement to request that AMTG challenge the pricing methodologies used in determining the
Company Book Value pursuant to the Merger Agreement.
(b) Within five (5) Business Days following the Pricing Date Seller shall
prepare and deliver to the Buyer Representative its initial calculations of the Athene Iowa Consideration Amount and the Athene Delaware Consideration Amount. At least three (3) Business Days prior to the Closing Date, Seller shall deliver
to the Buyer Representative a written notice setting forth the calculation of the Athene Iowa Consideration Amount and the Athene Delaware Consideration Amount, in each case, less any amount thereof attributable to a Nonassignable Asset (the
Closing Date Calculation Notice
).
(c) At the Closing, (i) subject to Section 2.6, Athene Iowa shall pay to Seller in
consideration for all of the Athene Iowa Assets (other than any Nonassignable Asset) an amount in cash equal to the Athene Iowa Closing Consideration Amount less any amount thereof attributable to a Nonassignable Asset as set forth in the Closing
Date Calculation Notice, by wire transfer of immediately available funds to an account or accounts designated by Seller no fewer than three (3) Business Days prior to the Closing Date, (ii) subject to Section 2.6, Athene Delaware shall pay
to Seller in consideration for all of the Athene Delaware Assets (other than any Nonassignable Asset) an amount in cash equal to the Athene Delaware Closing Consideration Amount less any amount thereof attributable to a Nonassignable Asset as set
forth in the Closing Date Calculation Notice, by wire transfer of immediately available funds to an account or accounts designated by Seller no fewer than three (3) Business Days prior to the Closing Date, and (iii) Seller shall deliver
the Assets (other than any Nonassignable Asset), or cause such Assets to be delivered, to each applicable Buyer free and clear of all Liens.
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2.6
Set-Off
. To the extent that Athene USA sets off, pursuant to the second sentence
of Section 2.2(b)(ii) of the Loan Agreement, any portion of the amount payable by a Buyer pursuant to clause (ii) of the last sentence of Section 2.3(b), or pursuant to clause (i) or (ii) of Section 2.5(c), such portion so set off shall be deemed
for all purposes of this Agreement to have been paid in accordance with Section 2.3(b) or 2.5(c), as applicable.
2.7
Allocation of the
Purchase Price
. Seller and Buyers agree to allocate the purchase price among the Assets in a manner consistent with Schedule 1 for U.S. federal, state and local Tax purposes.
ARTICLE III
Representations
and Warranties of Seller
Seller hereby represents and warrants to each Buyer as of the date hereof and as of the Closing Date as
follows:
3.1
Organization and Power
.
Seller is a corporation duly incorporated, validly existing and in good standing under the Laws of its jurisdiction of
organization. Seller has full power and authority to execute, deliver and perform this Agreement and the Ancillary Documents to which it is a party and to consummate the Contemplated Transactions. Seller has all power and authority, and
possesses all governmental licenses and permits necessary to enable it to own or lease and to operate its properties and assets and carry on its business as currently conducted, except such power, authority, licenses and permits the absence of which
do not have a Seller Material Adverse Effect.
3.2
Authorization and Enforceability
.
The execution and delivery of this Agreement and the Ancillary Documents to which Seller is a party and the performance by Seller of the
Contemplated Transactions that are required to be performed by Seller have been duly authorized by Seller and no other corporate proceedings on the part of Seller (including, without limitation, any stockholder vote or approval) are necessary to
authorize the execution, delivery and performance of this Agreement and the Ancillary Documents to which Seller is a party or the consummation of the Contemplated Transactions. This Agreement and each of the Ancillary Documents to be executed and
delivered at the Closing by Seller will be, at the Closing, duly authorized, executed and delivered by Seller. Assuming the due authorization, execution and delivery of this Agreement by Buyers, this Agreement constitutes, and assuming the due
authorization, execution and delivery of each Ancillary Document to which Seller is a party by each other party thereto, such Ancillary Document will constitute, a valid and legally binding agreements of Seller enforceable against Seller in
accordance with their terms, subject to bankruptcy, insolvency, reorganization and other Laws of general applicability relating to or affecting creditors rights and to general equity principles.
3.3
No Violation
.
(a)
The execution and delivery by Seller of this Agreement and the Ancillary Documents to which Seller is a party, the consummation of the Contemplated Transactions that are required to be performed by Seller and the compliance with the terms of this
Agreement and the Ancillary Documents to which Seller is a party will not (i) conflict with or violate any provision of the certificate of incorporation or bylaws of Seller, (ii) assuming that all consents, approvals and authorizations
contemplated by Section 3.4 have been obtained and all filings described therein have been made, conflict with or violate in any material respect any Law applicable to Seller or by which its properties are bound or affected, or
(iii) result in the creation of, or require the creation of, any Lien upon any of the Assets.
(b) Except as set forth on
Schedule 3.3 attached hereto, none of the execution, delivery or performance of this Agreement by Seller, the consummation by Seller of the Contemplated Transactions or the compliance by Seller with any of the provisions of this Agreement will
accelerate the performance required by, result in any termination, cancellation or modification of, or loss of benefit under, violation or breach of, or constitute (with or
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without notice or lapse of time or both) a default (or give rise to any right, including, but not limited to, any right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any Contract to which Seller is a party or by which the Assets are bound.
(c) The Contemplated
Transactions are not subject to any bulk transfer or similar Law.
3.4
Authorizations and Consents
.
(a) Except as set forth on Schedule 3.4(a), no consents, licenses, approvals or authorizations of, or registrations, declarations or filings
with, any Governmental Entity or other Person (
Consents
) are required to be obtained or made by Seller or any of its Subsidiaries (including any Person that has become a Subsidiary of Seller pursuant to the Mergers) in connection
with the execution, delivery and performance of this Agreement or any Ancillary Documents to which Seller is, or is to be, a party or the consummation by Seller or its Subsidiaries (including any Person that has become a Subsidiary of Seller
pursuant to the Mergers) of the Contemplated Transactions.
(b) Schedule 3.4(b) sets forth a true and complete list of all the Repurchase
Agreements (and no other Contracts).
3.5
Title to Assets
; Assets in Book-Entry Form
.
Immediately after the Closing (or with respect to each Nonassignable Asset, immediately after the transfer of such Asset to the applicable
Buyer on the applicable Post-Closing Transfer Date), (i) the applicable Buyer will have good and valid title to all of the Assets transferred to such Buyer and (ii) such Assets will be free and clear of all Liens other than any Liens created by such
Buyer. All Assets are held in book-entry form by DTC.
3.6
No Brokers
.
Except for Houlihan Lokey Capital, Inc. (whose fees will be paid by Seller), no broker, investment banker, financial advisor or other Person
is entitled to receive any brokers, finders, financial advisors or other similar fee or commission in connection with this Agreement or the Contemplated Transactions based upon arrangements made by or on behalf of Seller.
3.7
Disclaimer
.
Notwithstanding anything to the contrary contained in this Agreement, neither Seller nor any of its Affiliates, representatives or advisors
has made, or shall be deemed to have made, to Buyers or any other Person any representation or warranty other than those expressly made by Seller in this Article III.
ARTICLE IV
Representations and Warranties of Buyers
Each Buyer hereby, severally and not jointly, represents and warrants to Seller as of the date hereof and as of the Closing Date as follows:
4.1
Organization and Power
.
Such Buyer is a stock life insurance company duly formed, validly existing and in good standing under the Laws of its jurisdiction of domicile
and has full power and authority to execute and deliver this Agreement and the Ancillary Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Contemplated Transactions.
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4.2
Authorization and Enforceability
.
The execution and delivery of this Agreement and the Ancillary Documents to which such Buyer is a party and the performance by such Buyer of
the Contemplated Transactions have been duly authorized by such Buyer and no other corporate proceedings on the part of such Buyer (including, without limitation, any stockholder vote or approval) are necessary to authorize the execution, delivery
and performance of this Agreement and the Ancillary Documents to which such Buyer is a party or the consummation of the Contemplated Transactions. This Agreement is, and each of the Ancillary Documents to be executed and delivered at the Closing by
such Buyer will be at the Closing, duly authorized, executed and delivered by such Buyer. Assuming the due authorization, execution and delivery of this Agreement by Seller and each other Buyer, this Agreement constitutes, and assuming the due
authorization, execution and delivery of each Ancillary Document to which such Buyer is a party by each other party thereto, such Ancillary Document will constitute, a valid and legally binding agreements of such Buyer enforceable against such
Buyer, in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other Laws of general applicability relating to or affecting creditors rights and to general equity principles.
4.3
No Violation
.
The
execution and delivery by such Buyer of this Agreement and the Ancillary Documents to which such Buyer is a party, the consummation of the Contemplated Transactions and the compliance with the terms of this Agreement and the Ancillary Documents to
which such Buyer is a party will not (a) conflict with or violate any provision of the certificate of incorporation, bylaws or similar organizational documents of such Buyer, or (b) assuming that all consents, approvals and authorizations
contemplated by Section 4.4 have been obtained and all filings described therein have been made, conflict with or violate in any material respect any Law applicable to such Buyer or by which its respective properties are bound or affected.
Neither such Buyer nor its Affiliates are subject to any Contract that would impair or delay such Buyers ability to consummate the Contemplated Transactions.
4.4
Authorizations and Consents
.
No Consents other than the Regulatory Approval applicable to such Buyer are required to be obtained or made by such Buyer in connection with
the execution, delivery, performance, validity and enforceability of this Agreement or any Ancillary Documents to which such Buyer is,
or is to be, a party
or the consummation by such Buyer of the Contemplated Transactions.
4.5
Financial Capacity
.
Such Buyer has and will have available on the Closing Date and each Post-Closing Transfer Date (if any), capital and liquidity in amounts that
are sufficient to pay the Closing Consideration Amount as required by and in accordance with this Agreement.
4.6
No Brokers
.
Except for Athene Asset Management, L.P. (whose fees will be paid by such Buyer), no broker, investment banker, financial advisor or other
Person is entitled to receive any brokers, finders, financial advisors or other similar fee or commission in connection with this Agreement or the Contemplated Transaction based upon arrangements made by or on behalf of such Buyer.
4.7
No Inducement or Reliance; Independent Assessment
.
(a) Such Buyer has not been induced by and has not relied upon any representations, warranties or statements, whether express or implied, made
by Seller (or its Affiliates, officers, directors, employees, agents or representatives) that are not expressly set forth in Article III hereof, whether or not any such representations, warranties or statements were made in writing or orally.
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(b) Such Buyer acknowledges that Seller (or its Affiliates, officers, directors, employees,
agents or representatives) does not make, will not make and has not made any representation or warranty, express or implied, as to the prospects of the Assets or their profitability for such Buyer, or with respect to any forecasts, projections or
business plans made available to such Buyer (or its Affiliates, officers, directors, employees, agents or representatives) in connection with such Buyers review of the Assets.
ARTICLE V
Covenants
5.1
Conduct of Seller
; Merger Agreement Rights; Cooperation; Repurchase Agreements
.
(a) During the period from the date hereof through the Closing Date or earlier termination of the Merger Agreement in accordance with its
terms, Seller shall use its reasonable best efforts to comply with and perform its obligations under the Merger Agreement, subject to and in accordance with the terms thereof.
(b) Seller shall not amend or waive, or consent to any amendment or waiver of, any provision of the Merger Agreement where such amendment,
waiver or consent (i) would have, or would reasonably be expected to have, an adverse effect on any of the Assets, (ii) would, or would reasonably be expected to, materially delay, or prevent, the Closing or (iii) would alter any term
in this Agreement, the Stock Purchase Agreement or the loan agreement governing the Debt Financing, that is defined by reference to the Merger Agreement, in each case, without the Buyer Representatives prior written consent, which consent
shall not be unreasonably withheld, conditioned or delayed.
(c) Without limiting the immediately following sentence, Seller shall use
reasonable best efforts to, and shall cause its Subsidiaries to use reasonable best efforts to, amend or terminate any Repurchase Agreement, or obtain counterparty waivers or consents with respect thereto, to the extent necessary to permit the sale,
transfer, assignment and delivery of all of its and its applicable Subsidiaries right, title and interest in and to the Assets free and clear of all Liens to each applicable Buyer at the Closing pursuant to Section 2.2(a) and/or on one or more
Post-Closing Transfer Dates pursuant to Section 2.3(b). Additionally, Seller shall cause all of its and its applicable Subsidiaries right, title and interest in and to the Nonassignable Assets (if any) to be sold, transferred, assigned and
delivered to each applicable Buyer free and clear of all Liens (including by, to the extent necessary, paying any and all termination and transfer fees (however described) under any Repurchase Agreement or other Contract to which such Nonassignable
Asset is subject) against payment for each such Nonassignable Asset in accordance with Section 2.3(b), such that (x) on or prior to the third (3
rd
) Business Day following the Closing Date, Seller
and its Subsidiaries shall have sold, transferred, assigned and delivered (or caused to be sold, transferred, assigned and delivered) to Buyers, on the Closing Date and any Post-Closing Transfer Dates, collectively, Assets with an aggregate market
value of at least $500 million, and (y) on or prior to the Outside Purchase Date, Seller and its Subsidiaries shall have sold, transferred, assigned and delivered (or caused to be sold, transferred, assigned and delivered) to Buyers, on the Closing
Date and any Post-Closing Transfer Dates, collectively, Assets with an aggregate market value of at least $1.0 billion.
(d) Seller shall
cooperate in good faith with Buyers and use its reasonable best efforts to ensure that AMTG materially complies with its obligations under Section 6.17(c) of the Merger Agreement.
(e) Seller shall promptly notify the Buyer Representative of any material communication, and provide the Buyer Representative with copies
thereof if such communication is in writing, received from AMTG, any of AMTGs Affiliates or Representatives or any Governmental Entity, relating to or affecting the status of the transactions contemplated by the Merger Agreement that have or
would reasonably be expected to have any adverse effect on the Assets, the timing of the Mergers or the matters that are the subject of the Contemplated Transactions. On the same day that Seller receives any broker quote or BofA Price Delta (as
defined in Schedule C of the Merger Agreement) from AMTG with respect to any Asset, Seller shall deliver the same to the Buyer Representative.
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(f) From the date hereof through and including the Closing Date (or with respect to any
Nonassignable Asset, the Post-Closing Transfer Date, if any, on which such Asset is transferred to the applicable Buyer), Seller shall provide the Buyer Representative with pricing information regarding the Assets on a monthly basis in the same form
such information is provided by AMTG to Seller under the Merger Agreement.
5.2
Access to Information Prior to the Closing
.
During the period from the date hereof through the Closing Date, Seller shall use reasonable best efforts to cause AMTG to give the Buyer
Representative and its authorized representatives reasonable access during regular business hours to all books and records (including Tax records) related to the Assets as such Buyer may reasonably request;
provided
, that such Buyer and its
representatives shall take such action as is deemed necessary in the reasonable judgment of Seller or AMTG, as the case may be, to schedule such access through a designated officer of Seller or AMTG, as the case may be, and in such a way as to avoid
disrupting in any material respect the normal operations of Seller or AMTG, as the case may be. Notwithstanding the foregoing, neither the Seller nor AMTG shall be required by this Section 5.2 to provide any Buyer or its representatives
with access to or to disclose information (x) that is subject to the terms of a confidentiality agreement with a third party entered into prior to the date of this Agreement (
provided
,
however
, that Seller shall use, and shall use
reasonable best efforts to cause AMTG to use, its reasonable best efforts to obtain the required consent of such third party to such access or disclosure), (y) the disclosure of which would violate or contravene any Law (
provided
,
however
, that Seller shall use, and shall use reasonable best efforts to cause AMTG to use, its reasonable best efforts to make appropriate substitute arrangements to permit reasonable disclosure not in violation of any Law) or (z) that
is subject to any attorney-client, attorney work product or other legal privilege of such party or its Subsidiaries (
provided
,
however
, that Seller shall use, and shall use reasonable best efforts to cause AMTG to use, its reasonable
best efforts to allow for such access or disclosure to the maximum extent that does not result in a loss of any such attorney-client, attorney work product or other legal privilege).
5.3
Consents and Approvals
.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each Buyer and Seller shall and shall cause their respective
Subsidiaries, to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable under applicable Law or
pursuant to any contract or agreement to consummate and make effective, as promptly as practicable, the Contemplated Transactions, including (i) the taking of all actions necessary to cause the conditions to Closing set forth in Article VI
to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities or other Persons necessary in connection with the consummation of the Contemplated Transactions and the
making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity or other Persons necessary in connection with the consummation of the Contemplated Transactions, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement
or the consummation of the Contemplated Transactions so as to enable the Closing to occur as soon as reasonably practicable, and (iv) the execution and delivery of any additional instruments necessary to consummate the Contemplated Transactions
and to fully carry out the purposes of this Agreement.
(b) Without limiting Section 5.3(a), each Buyer shall, and shall cause its
respective Subsidiaries to, use reasonable best efforts to obtain such Buyers applicable Regulatory Approval as promptly as practicable following the date hereof. Each Buyer shall keep Seller reasonably informed of any material communication
received by such Buyer from, or given by such Buyer to, the applicable Governmental Entity responsible for granting such Buyers applicable Regulatory Approval.
5.4
Public Announcements
and Disclosure
.
The initial press release regarding this Agreement and the Contemplated Transactions shall be made at such time and in such form as the Buyer
Representative and Seller agree;
provided
that in the event the parties
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cannot agree, either party shall be permitted to make any disclosure required by Law. From and after the date hereof, so long as this Agreement is in effect, neither Buyers nor Seller will
issue or make any subsequent press release, public statement or other disclosure to a third party with respect to this Agreement or the Contemplated Transactions without the prior consent of the other party (which consent shall not be unreasonably
withheld, conditioned or delayed), unless such party determines, after consultation with outside counsel, that it is required by applicable Law or by any listing agreement with or the listing rules of the New York Stock Exchange or other exchange to
issue or cause the publication of any press release or other announcement or disclosure with respect to the Mergers or this Agreement, in which event such party shall endeavor, on a basis reasonable under the circumstances, to provide a meaningful
opportunity to the other party to review and comment upon such press release or other announcement or disclosure and shall give due consideration to all reasonable additions, deletions or changes suggested thereto.
5.5
Exclusivity
.
Except
as contemplated by this Agreement and the Ancillary Documents, prior to the Closing or until the date that is twelve (12) months following the termination of this Agreement in accordance with its terms, Buyers will not, and will cause their
Affiliates, representatives and agents not to, directly or indirectly, solicit, continue inquiries, encourage, facilitate, initiate any contact, enter into discussions or negotiations, furnish any information with respect to or enter into any
agreement or other instruments (whether or not binding) with any Person other than Seller or its Affiliates concerning the submission of any proposal or offer to AMTG or any of its Affiliates (other than Seller) relating to any of the
following: (i) a liquidation, dissolution or recapitalization of, (ii) a merger or consolidation with or into, (iii) an acquisition or purchase of any assets of or any equity interest in, or (iv) any similar transaction or
business combination involving, in each case, AMTG or any of its Subsidiaries or any asset owned by AMTG or any of its Subsidiaries, as applicable. Buyers and each of their Affiliates shall, and shall cause their respective representatives and
agents to, discontinue immediately any negotiations or discussions with respect to any of the foregoing.
5.6
Post-Transfer
Remittances
.
From and after the date on which any Asset is sold to a Buyer pursuant to Section 2.2(a) or Section 2.3(b) of this
Agreement, to the extent that Seller or any of its Subsidiaries (including any Person that has become a Subsidiary of Seller pursuant to the Mergers) receives any payment of principal, interest or other proceeds with respect to such Asset, Seller
shall, or shall cause its applicable Subsidiary to, hold such amounts in trust for the account of such Buyer and pay such principal, interest or other proceeds to such Buyer as promptly as practicable.
ARTICLE VI
Conditions to
Closing
6.1
Conditions to All Parties
Obligations
.
The obligations of the parties to consummate the Contemplated Transactions are subject to the fulfillment prior to or at the Closing of each
of the following conditions (any or all of which may be waived by the parties to the extent permitted by applicable Law):
(a)
Statutes;
Court Orders
. No court of competent jurisdiction or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law, Order, stipulation or other legal restraint (whether temporary,
preliminary or permanent) (an
Injunction
), in any case, which is in effect and which prevents, prohibits or makes illegal the consummation of the Contemplated Transactions.
(b)
Consummation of the First Merger
. The First Merger shall have been fully consummated, and in full force and effect, in
accordance with the terms of the Merger Agreement.
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6.2
Conditions to Seller
s Obligations
.
The obligations of Seller to consummate the Contemplated Transactions are subject to the fulfillment at or prior to the Closing of each of the
following conditions (any or all of which may be waived in whole or in part by Seller to the extent permitted by applicable Law):
(a)
Representations and Warranties
. The representations and warranties of Buyers contained in Article IV hereof shall be true and correct (without regard to any materiality, Buyer Material Adverse Effect or other similar qualification
contained in or otherwise applicable to such representation or warranty) as of the date hereof and as of the Closing Date (except for representations and warranties which address matters only as of a specific date, which representations and
warranties shall be true and correct as of such specified date), except to the extent that the failure to be so true and correct, individually or in the aggregate, would not have a Buyer Material Adverse Effect.
(b)
Performance
. Each Buyer shall have performed and complied in all material respects with all agreements and covenants required
by this Agreement to be so performed or complied with by such Buyer at or prior to the Closing.
(c)
Stock Purchase Agreement and Debt
Financing
. Each of the Stock Purchase Agreement and the Debt Financing shall be in full force and effect and there shall have been no material default thereunder by Athene USA.
(d)
Deliveries
. Seller shall have received the deliveries contemplated by Article VIII.
6.3
Conditions to Buyers Obligations
.
The obligations of each Buyer to consummate the Contemplated Transactions are subject to the fulfillment at or prior to the Closing of each of
the following conditions (any or all of which may be waived in whole or in part by such Buyer to the extent permitted by applicable Law):
(a)
Representations and Warranties
. The representations and warranties of Seller contained in Article III hereof shall be true
and correct (without regard to any materiality, Seller Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty) as of the date hereof and as of the Closing Date (except for
representations and warranties which address matters only as of a specific date, which representations and warranties shall be true and correct as of such specified date), except to the extent that the failure to be so true and correct, individually
or in the aggregate, would not have a Seller Material Adverse Effect.
(b)
Performance
. Seller shall have performed and
complied in all material respects with all agreements and covenants required by this Agreement to be so performed or complied with by Seller at or prior to the Closing.
(c)
Regulatory Approval
. Each Buyer shall have obtained its applicable Regulatory Approval.
(d)
No Liens
. Each Asset scheduled to be sold and assigned by Seller at the Closing shall be free and clear of all Liens.
(e)
Deliveries
. The Buyer Representative shall have received the deliveries contemplated by Article VII.
(f)
Closing Date
. The Closing shall occur on the same date as the date of the First Merger.
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ARTICLE VII
Deliveries by Seller at Closing
On the Closing Date, Seller shall deliver or cause to be delivered to the Buyer Representative:
7.1
Officer
s Certificate
.
An officers certificate signed by a duly authorized executive officer of Seller to the effect set forth in Sections 6.3(a) and
6.3(b).
7.2
Receipt
.
A counterpart signature page to the cross-receipt, in a form mutually agreed among the parties (the
Cross-Receipt
),
executed by a duly authorized executive officer of Seller or its applicable Subsidiary confirming the receipt of the Closing Consideration Amount.
7.3
Further Instruments
.
Such documents of further assurance reasonably necessary and typical for transactions similar to the Contemplated Transactions in order to
complete the Contemplated Transactions. Without limitation to the foregoing, each of Seller and AMTG shall provide the Buyer Representative with an executed certification of non-foreign status in the form and manner set forth in Treasury
Regulations Section 1.1445-2(b)(2).
ARTICLE VIII
Deliveries by Buyer at Closing
On the Closing Date, Buyers shall deliver or cause to be delivered to Seller:
8.1
Officer
s Certificate
.
A certificate signed by a duly authorized executive officer of the Buyer Representative to the effect set forth in Sections 6.2(a) and
6.2(b).
8.2
Receipt
.
A counterpart signature page to the Cross-Receipt executed by a duly authorized representative of each applicable Buyer confirming the receipt
of such Buyers applicable Assets.
8.3
Closing Consideration Amount
. The Closing Consideration Amount, by wire transfer of
immediately available funds, to the account or accounts designated by Seller.
ARTICLE IX
Survival
9.1
Survival
.
All of the representations and warranties of the parties set forth in this Agreement shall terminate and expire as of
the Closing, and all liability and obligations of any nature with respect to such representations and warranties shall thereupon be extinguished;
provided
,
however
, that representations and warranties set forth in the first sentence of
Section 3.5 shall, with respect to a particular Asset (including any Nonassignable Asset), survive the Closing (and, if applicable, the Post-Closing Transfer Date applicable thereto) and the transfer of such Asset to the applicable Buyer until the
twelve month anniversary of the Closing (or, if applicable, the Post-Closing Transfer Date applicable to such Asset).
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ARTICLE X
Termination
10.1
Termination
.
This Agreement may be terminated and the Contemplated Transactions may be abandoned prior to the Closing Date:
(a) at any time, by mutual written agreement of Seller and the Buyer Representative; or
(b) at any time, by either Seller or the Buyer Representative (i) if any Injunction having any of the effects set forth in
Section 6.1(a) of this Agreement shall be in effect and have become final and nonappealable or (ii) at any time following the termination of the Merger Agreement in accordance with its terms; or
(c) by written notice from the Buyer Representative to Seller, if a breach of or failure to perform any representation, warranty, covenant or
agreement on the part of Seller set forth herein shall have occurred, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 6.3(a) or 6.3(b), and (ii) after receipt by Seller of
written notice from the Buyer Representative of such breach or failure to perform, cannot be cured prior to the Closing Date,
provided
, that no Buyer is then in breach with respect to any of its representations, warranties, covenants or other
agreements contained in this Agreement; or
(d) by written notice from Seller to the Buyer Representative, if a breach of or failure to
perform any representation, warranty, covenant or agreement on the part of any Buyer set forth herein shall have occurred, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 6.2(a) or
6.2(b), and (ii) after receipt by the Buyer Representative of written notice from Seller of such breach or failure to perform, cannot be cured prior to the Closing Date,
provided
, that Seller is not then in breach with respect to any of
its representations, warranties, covenants or other agreements contained in this Agreement; or
(e) by written notice from Seller to the
Buyer Representative, if (i) all of the conditions set forth in Sections 6.1 and 6.3 have been and continue to be satisfied or waived (other than those conditions that by their nature cannot be satisfied other than at Closing),
(ii) Seller has confirmed by written notice to the Buyer Representative that it stands ready, willing and able to consummate the Contemplated Transactions when required pursuant to Section 2.1 and (iii) any Buyer fails to consummate
the Contemplated Transactions within three (3) Business Days of the date the Closing should have occurred pursuant to Section 2.1 (it being understood that during such three (3) Business Day period, Seller shall not be entitled to
terminate this Agreement); or
(f) by written notice from the Buyer Representative to Seller, if (i) all of the conditions set forth
in Sections 6.1 and 6.2 have been and continue to be satisfied or waived (other than those conditions that by their nature cannot be satisfied other than at Closing), (ii) the Buyer Representative has confirmed by written notice to Seller
that each Buyer stands ready, willing and able to consummate the Contemplated Transactions when required pursuant to Section 2.1 and (iii) Seller fails to consummate the Contemplated Transactions within three (3) Business Days of the
date the Closing should have occurred pursuant to Section 2.1 (it being understood that during such three (3) Business Day period, the Buyer Representative shall not be entitled to terminate this Agreement); or
(g) by written notice from the Buyer Representative to Seller, if the Closing shall not have occurred by October 26, 2016.
10.2
Procedure and Effect of Termination
.
In the event of the termination of this Agreement and the abandonment of the Contemplated Transactions, written notice thereof shall be given
by a terminating party to the other parties, and this Agreement
B-17
shall terminate and the Contemplated Transactions shall be abandoned without further action by any of the parties. If this Agreement is terminated pursuant to Section 10.1:
(a) At Sellers request, each Buyer shall promptly cause to be returned to Seller or destroy all documents and information obtained in
connection with this Agreement and the Contemplated Transactions and all documents and information obtained in connection with such Buyers investigation of the Assets from Seller or its representatives, including any copies made by or supplied
to such Buyer or any of such Buyers agents of any such documents or information.
(b) No party hereto shall have any obligation or
liability to the other parties hereto, except that the parties hereto shall remain bound by the provisions of this Section 10.2 and Section 5.4, Section 5.5 and Article XI and by the provisions of the Joinder Agreement;
provided
, that nothing herein shall relieve a defaulting or breaching party from any liability or damages arising out of its breach of any covenant or agreement in this Agreement.
ARTICLE XI
Miscellaneous
11.1
Expenses
.
All fees and expenses incurred in connection with the Contemplated Transactions shall be paid by the party incurring
such expenses, whether or not the Contemplated Transactions are consummated.
11.2
Notices
.
All notices, requests, claims, consents, demands and other communications hereunder shall be in writing and shall be deemed given if delivered
to the applicable party (i) personally (notice deemed given upon receipt), (ii) telecopied (notice deemed given upon confirmation of receipt), (iii) sent by a nationally recognized overnight courier service, such as Federal Express
(notice deemed given upon receipt of proof of delivery) or (iv) electronic mail (
provided
, that any such transmission by electronic mail shall be followed by a copy delivered in accordance with the foregoing clauses (i) or (iii))
(notice deemed given on the date sent if sent during normal business hours of the recipient, and on the next Business Day, if sent after normal business hours of the recipient). All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party to receive such notice, and a copy of each notice shall also be sent via e-mail.
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If to Seller:
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Apollo Commercial Real Estate Finance, Inc.
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c/o Apollo Global Management, LLC
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9 W. 57th Street, 43rd Floor
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New York, NY 10019
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Attn: Stuart Rothstein
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Fax: (646) 219-3826
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Email: srothstein@apollolp.com
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With a copy (which shall not constitute notice) to:
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Fried, Frank, Harris, Shriver & Jacobson LLP
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One New York Plaza
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New York, NY 10004
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Attn: Steven Epstein, Esq.
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Abigail Bomba, Esq.
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Fax: (212) 859-4000
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Email: steven.epstein@friedfrank.com
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abigail.bomba@friedfrank.com
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B-18
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If to the Buyer Representative: Athene USA Corporation
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attention: James Belardi
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Facsimile: (310) 698-4492
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Email: jbelardi@athene.com
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With a copies (which shall not constitute notice) to:
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Athene USA Corporation
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attention: Legal Department
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Facsimile: (310) 698-4481
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Email: legal@athene.com
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Sidley Austin LLP
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One South Dearborn
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Chicago, IL 60603
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Attn: Perry J. Shwachman, Esq.
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Paul L. Choi,
Esq.
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Fax: (312) 853-7036
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Email: pshwachman@sidley.com
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pchoi@sidley.com
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If to Athene Iowa:
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Athene Annuity and Life Company
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attention: James Belardi
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Facsimile: 310-698-4492
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Email: jbelardi@athene.com
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With a copies (which shall not constitute notice) to:
|
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Athene Annuity and Life Company
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attention: Legal Department
|
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Facsimile: (310) 698-4481
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Email: legal@athene.com
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Sidley Austin LLP
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One South Dearborn
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Chicago, IL 60603
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Attn: Perry J. Shwachman, Esq.
|
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Paul L. Choi, Esq.
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Fax: (312) 853-7036
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Email: pshwachman@sidley.com
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pchoi@sidley.com
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B-19
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If to Athene Delaware:
|
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Athene Annuity & Life Assurance Company
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|
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c/o Athene Asset Management, L.P.
|
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attention: James Belardi
|
|
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Facsimile: 310-698-4492
|
|
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Email: jbelardi@athene.com
|
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With a copies (which shall not constitute notice) to:
|
|
|
|
|
Athene Annuity & Life Assurance Company
|
|
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c/o Athene Asset Management, L.P.
|
|
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2121 Rosecrans Ave., Suite 5300
|
|
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El Segundo, CA 90245
|
|
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Attention: Legal Department
|
|
|
Facsimile: (310) 698-4481
|
|
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Email: legal@athene.com
|
|
|
|
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Sidley Austin LLP
|
|
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One South Dearborn
|
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Chicago, IL 60603
|
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Attn:
|
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Perry J. Shwachman, Esq.
|
|
|
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Paul L. Choi, Esq.
|
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Fax: (312) 853-7036
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Email:
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pshwachman@sidley.com
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pchoi@sidley.com
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11.3
Governing Law
.
This Agreement shall in all respects be governed by, and construed in accordance with, the Laws (excluding conflict of laws rules and
principles) of the State of Delaware applicable to agreements made and to be performed entirely within such State, including all matters of construction, validity and performance.
11.4
Entire Agreement
.
This Agreement, together with the Exhibits hereto, the Ancillary Documents and the Joinder Agreement, constitute the entire agreement of the
parties relating to the subject matter hereof and supersede all prior contracts or agreements, whether oral or written.
11.5
Severability
.
Should any provision of this Agreement or the application thereof to any Person or circumstance be held invalid or
unenforceable to any extent: (a) such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition and shall be enforced to the greatest extent permitted by Law, (b) such
unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision as applied (i) to other Persons or circumstances or (ii) in any other jurisdiction, and (c) such unenforceability or
prohibition shall not affect or invalidate any other provision of this Agreement.
11.6
Amendment
.
Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented or modified orally, but only by an instrument in
writing signed by Buyers and Seller;
provided
, that the observance of any provision of this Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver.
B-20
11.7
Effect of Waiver or Consent
.
No waiver or consent, express or implied, by any party to or of any breach or default by any party in the performance by such party of its
obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such party of the same or any other obligations of such party hereunder. No single or partial exercise of
any right or power, or any abandonment or discontinuance of steps to enforce any right or power, shall preclude any other or further exercise thereof or the exercise of any other right or power. Failure on the part of a party to complain of any
act of any party or to declare any party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder until the applicable statute of limitation period has run.
11.8
Parties in Interest; Limitation on Rights of Others
.
The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives,
successors and assigns. Nothing in this Agreement, whether express or implied, shall be construed to give any Person (other than the parties hereto and their respective legal representatives, successors and assigns and as expressly provided
herein) any legal or equitable right, remedy or claim under or in respect of this Agreement or any covenants, conditions or provisions contained herein, as a third party beneficiary or otherwise;
provided
that Athene USA, in its capacity as
the Buyer Representative, shall constitute a third party beneficiary of this Agreement.
11.9
Assignability
.
This Agreement shall not be assigned by any party without the prior written consent of the other parties hereto, except that (x) each Buyer
shall be permitted to assign any of its rights or delegate any of its obligations under this Agreement, in each case in whole or in part, to one or more Persons without the consent of any other party (but in no event shall such assignment be
permitted if it would delay or impair the ability of such Buyer (or its assignee) to purchase the Assets on the Closing Date or the Nonassignable Assets on any Post-Closing Transfer Date, as applicable, pursuant to the terms and conditions of this
Agreement) and (y) Seller shall be permitted to assign any of its rights or delegate any of its obligations under this Agreement to one or more of its Subsidiaries with the consent of any other party,
provided
that no such assignment shall
relieve the assigning party of its obligations under this Agreement.
11.10
Jurisdiction; Court Proceedings; Waiver of Jury Trial
.
Any Litigation against any party to this Agreement arising out of or in any way relating to this Agreement shall be brought in any
federal or state court located in the State of Delaware in New Castle County and each of the parties hereby submits to the exclusive jurisdiction of such courts for the purpose of any such Litigation;
provided
, that a final judgment in any
such Litigation shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.
Each party irrevocably and unconditionally agrees not to assert (a)
any
objection which it may ever have to the laying of venue of any such Litigation in any federal or state court located in the State of Delaware in New Castle County,
(b)
any claim that any such Litigation brought in any such court
has been brought in an inconvenient forum and (c)
any claim that such court does not have jurisdiction with respect to such Litigation.
To the extent that service of process by mail is permitted by applicable Law,
each party irrevocably consents to the service of process in any such Litigation in such courts by the mailing of such process by registered or certified mail, postage prepaid, at its address for notices provided for herein.
Each party
irrevocably and unconditionally waives any right to a trial by jury and agrees that any of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties irrevocably
to waive its right to trial by jury in any Litigation.
11.11
No Other Duties
.
The only duties and obligations of the parties under this Agreement are as specifically set forth in this Agreement, and no other duties or
obligations shall be implied in fact, Law or equity, or under any principle of fiduciary obligation.
B-21
11.12
Reliance on Counsel and Other Advisors
.
Each party has consulted such legal, financial, technical or other expert as it deems necessary or desirable before entering into this
Agreement. Each party represents and warrants that it has read, knows, understands and agrees with the terms and conditions of this Agreement.
11.13
Remedies
.
All
remedies, either under this Agreement or by Law or otherwise afforded to the parties hereunder, shall be cumulative and not alternative, and any Person having any rights under any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of this Agreement and to exercise all other rights granted by Law, equity or otherwise.
11.14
Specific Performance
.
The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, the parties agree that, in addition to any other remedies, each party shall be entitled to enforce the terms of this Agreement by a decree of specific performance
without the necessity of proving the inadequacy of money damages as a remedy. Each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy.
11.15
Counterparts
.
This Agreement may be executed by facsimile signatures and in any number of counterparts with the same effect as if all signatory parties had
signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format
(.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature.
11.16
Further Assurance
.
If at any time after the Closing any further action is necessary or desirable to fully effect the Contemplated Transactions or any other of
the Ancillary Documents, each of the parties shall take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request.
(signature pages follow)
B-22
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and
delivered in its name and on its behalf, all as of the day and year first above written.
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ATHENE ANNUITY AND LIFE COMPANY
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By: Athene Asset Management, L.P., its investment advisor
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By: AAM GP Ltd., its General Partner
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By:
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/s/ James R. Belardi
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Name:
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James R. Belardi
|
Title:
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Chief Executive Officer
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ATHENE ANNUITY & LIFE ASSURANCE COMPANY
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By: Athene Asset Management, L.P., its investment advisor
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By: AAM GP Ltd., its General Partner
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By:
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/s/ James R. Belardi
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Name:
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James R. Belardi
|
Title:
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Chief Executive Officer
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[Signature Page to Asset Purchase and Sale Agreement]
B-23
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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[Signature Page to Asset Purchase and Sale Agreement]
B-24
Annex C
Execution Version
CONFIDENTIAL
ATHENE USA
CORPORATION
7700 Mills Civic Parkway
West Des Moines, IA 50266
February
26, 2016
Project Apple
Commitment Letter
Apollo Commercial Real
Estate Finance, Inc.
Arrow Merger Sub, Inc.
c/o Apollo
Global Management
9 W 57th Street
New York, NY 10019
Attn: Stuart A. Rothstein
Ladies and Gentlemen:
You have advised Athene USA Corporation, an Iowa corporation (
AUSA
,
us
or
we
), that you intend to (i)
acquire, directly or indirectly, all of the outstanding stock of Apollo Residential Mortgage, Inc., a Maryland corporation (the
Company
) in accordance with that certain Agreement and Plan of Merger dated as of February 26,
2016 (the
Acquisition Agreement
), by and among Arrow Merger Sub, Inc., a Maryland corporation (
AcquisitionCo
), Apollo Commercial Real Estate Finance, Inc. (
ARI
, and collectively with
AcquisitionCo, the
Borrowers
) and the Company, pursuant to which (a) AcquisitionCo will merge with and into the Company, with the Company as the surviving entity and (b) promptly thereafter, the Company will merge with
and into ARI, with ARI as the surviving entity (collectively, the
Acquisition
), (ii) sell the Athene-Acquired Assets (as defined in the Form Credit Agreement attached hereto as Exhibit A) pursuant to the Asset Purchase and
Sale Agreement, dated as of February 26, 2016, by and among Athene Annuity & Life Assurance Company, Athene Annuity and Life Company and ARI (the
Athene Purchase Agreement
) and (iii) enter into that certain Stock Purchase
Agreement, dated as of February 26, 2016, by and among AUSA and ARI (the
Stock Purchase Agreement
) (the transactions described in clauses (i), (ii) and (iii) above, collectively, the
Transactions
). For purposes
of this Commitment Letter and the Fee Letter (defined below),
Closing Date
shall mean the date of the consummation of the Acquisition, the satisfaction or waiver of the relevant conditions set forth on
Exhibit
B
and the funding of the Term Loan Facility (as defined below). Capitalized terms used but not otherwise defined herein are used with the meanings assigned to such terms in this letter or the Exhibits hereto (this
letter together with all Exhibits, including the annexes, collectively, this
Commitment Letter
).
In connection with the Transactions, AUSA (individually or collectively with one or more
of its affiliates, the
Lender
) hereby commits to provide the Borrowers a term loan in an aggregate principal amount of up to $200,000,000 less 100% of the Net Cash Proceeds (as defined in the Form Credit Agreement) received by
ARI
or any of its subsidiaries as a result of the disposition of any Athene-Acquired Asset on or prior to the Closing Date (the
Term Loan Facility
) (i) upon the terms set forth or referred to in this letter and the
Form Credit Agreement attached as
Exhibit
A
hereto (the
Form Credit Agreement
), as applicable and (ii) the initial funding of which is subject only to the conditions set forth on
Exhibit
B
hereto.
C-1
You hereby represent that, all factual information (taken as a whole) furnished by or on
behalf of any Loan Party in writing to the Lender for purposes of or in connection with the Loan Documents or otherwise filed with any Governmental Authority and publicly available for purpose of or in connection with the transactions contemplated
hereby or thereby (the
Information
), does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made (after giving effect to all supplements and updates thereto from time to time). You agree that if, at any time prior to the Closing Date, you become aware that any of the
representations in the preceding sentence would be incorrect in any material respect if the Information were being furnished and such representations were being made at such time, you will promptly supplement the Information so that such
representations remain true in all material respects under those circumstances (and such supplementation shall cure any breach of any such representation). Notwithstanding anything to the contrary contained in this Commitment Letter or the Fee
Letter, none of the making of any representation under this
Section 2
, the provision of any supplement thereto, nor the accuracy of any such representation or supplement shall constitute a condition precedent to the availability and initial
funding of the Term Loan Facility on the Closing Date.
As consideration for the commitments and agreements of the Lender, you agree to pay or
cause to be paid the fees described in the Fee Letter, dated as of the date hereof, by and among ARI, AcquisitionCo and AUSA (the
Fee Letter
) on the terms and subject to the conditions (including as to timing and amount) set forth
therein.
4.
|
Certain Funds Provision
.
|
Notwithstanding anything in this Commitment Letter, the Fee Letter, the Loan
Documents or any other letter agreement or other undertaking concerning the financing of the transactions contemplated hereby to the contrary:
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(a)
|
the only representations and warranties relating to the Borrowers, the Company and the Borrowers and the Companys respective subsidiaries and respective businesses, the accuracy of which shall be a condition to
the availability and initial funding of the Term Loan Facility on the Closing Date, shall be (i) such of the representations and warranties made by or with respect to the Company, its subsidiaries and their respective businesses in the
Acquisition Agreement as are material to the interests of the Lender, but only to the extent that you have the right to terminate your obligations under the Acquisition Agreement or to decline to consummate the Acquisition as a result of a breach of
such representations in the Acquisition Agreement (to such extent, the
Specified Acquisition Agreement Representations
) and (ii) the Specified Representations (as defined below),
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(b)
|
the terms of the Loan Documents and any closing deliverables shall be in a form reasonably satisfactory to the Lender; it being understood that, the Credit Agreement shall be substantially in the form of the Form Credit
Agreement, appropriately completed for the insertion of dates, administrative details and other items shown in blank, bullets or footnotes and all schedules thereto shall be reasonably acceptable to us, and
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(c)
|
there are no other conditions (implied or otherwise) to the commitments hereunder, including compliance with the terms of this Commitment Letter, the Fee Letter or the Loan Documents, except those expressly set forth on
Exhibit
B
hereto, and such conditions shall be subject in all respects to the provisions of this
Section 4
.
|
Upon the satisfaction (or waiver by the Lender) of the conditions set forth on
Exhibit B
hereto, the Lender will execute and deliver the Loan Documents
to which it is a party and the initial funding of the Term Loan Facility shall occur.
C-2
For purposes hereof,
Specified Representations
means the representations and warranties set
forth in the Loan Documents relating to: due organization and existence of the Loan Parties; organizational power and authority (as each relates to due authorization, execution, delivery and performance of the Loan Documents) of the Loan Parties;
due authorization, execution and delivery of the relevant Loan Documents by the Loan Parties, and enforceability as it relates to the entering into and performance of the relevant Loan Documents against the Loan Parties; solvency as of the Closing
Date (after giving effect to the Transactions) of the Loan Parties taken as a whole (in form and scope consistent with the solvency certificate to be delivered pursuant to
paragraph
1(b)
of
Exhibit
B
hereto); no conflicts of the Loan Documents with the charter documents of the Loan Parties; Federal Reserve margin regulations; the Investment Company Act; the PATRIOT Act, OFAC and the FCPA (as it relates to the
use of the proceeds of the Term Loan Facility); REIT status; and the creation, validity, perfection and priority of security interests (subject in all respects to security interests and liens permitted under the Loan Documents and to the foregoing
provisions of this paragraph). This
Section
4
, and the provisions contained herein, shall be referred to as the
Certain Funds Provision
.
5.
|
Indemnification; Expenses
.
|
You agree (a) to indemnify, defend and hold harmless the Lender, its
affiliates and controlling persons (and their permitted successors and assigns) and its and their directors, officers, employees, partners, agents and other representatives (each, an
indemnified person
) from and against any and
all liabilities, obligations, losses, penalties, claims, demands, suits, actions, judgments investigations, proceedings and damages, and all attorneys fees and disbursements (which attorneys fees, in the case of counsel to the
indemnified persons, shall be reasonable) and other fees, costs and expenses of any kind or nature whatsoever which may at any time be imposed upon, incurred by or asserted against such indemnified person in any way in connection with, as a result
of, related to or arising under or out of this Commitment Letter, the Fee Letter, the Term Loan Facility, and the use of the proceeds thereof or any claim, litigation, investigation or proceeding relating to any of the foregoing, including but not
limited to, any investigation, litigation or proceeding commenced by any stockholder, debt holder or other Person in connection with, as a result of, related to or arising under or out of the Acquisition or the Transactions (in such indemnified
persons role as the Lender or a director, officer, employee, partner, agent or other representative of the Lender, its affiliates or controlling persons) (a
Proceeding
), regardless of whether any indemnified person is a
party thereto or whether such Proceeding is brought by you, any of your affiliates or any third party, and to reimburse each indemnified person promptly following written demand therefor for any legal or other out-of-pocket expenses incurred in
connection with investigating or defending any Proceeding;
provided
, that the foregoing indemnity will not, as to any indemnified person, apply to liabilities, obligations, losses, penalties, claims, demands, suits, actions, judgments
investigations, proceedings and damages or related expenses to the extent they arise from the bad faith, willful misconduct or gross negligence of such indemnified person as determined by a final, non-appealable judgment of a court of competent
jurisdiction and (b) whether or not the Closing Date occurs, to reimburse the Lender for all (i) out-of-pocket costs or expenses paid or incurred by the Lender in connection with, as a result of, related to or arising under or out of the Term
Loan Facility and any related documentation (including this Commitment Letter, the Fee Letter and the Loan Documents), (ii) reasonable out-of-pocket fees, expenses and disbursements of outside counsel for the Lender in connection with, related
to or arising under or out of the Term Loan Facility and any related documentation (including this Commitment Letter, the Fee Letter and the Loan Documents), (iii) out-of-pocket costs and expenses of third-party claims or any other suit paid or
incurred by the Lender in enforcing or defending the this Commitment Letter, the Fee Letter or any of the Loan Documents or in connection with the transactions contemplated by this Commitment Letter or the Loan Documents or the Lenders
relationship with the Borrowers or any of their subsidiaries (including any investigation, litigation or proceeding commenced by any stockholder, debt holder or other Person in connection with, as a result of, related to or arising under or out of
the Acquisition or the Transactions (in its role as the Lender)) and (iv) the Lenders third-party out-of-pocket costs and expenses (including reasonable attorneys fees) incurred in connection with this Commitment Letter or the Loan
Documents.
No indemnified person shall be liable for any damages arising from the use by any person (other than such indemnified person) of Information
or other materials obtained through electronic, telecommunications or other
C-3
information transmission systems, except to the extent any such damages arise from the bad faith, gross negligence or willful misconduct of such indemnified person, in each case as determined by
a
final non-appealable judgment of a
court of competent jurisdiction. None of the indemnified persons, their affiliates or their directors, officers, employees, agents, or other representatives of any of the foregoing shall be
liable for any special, indirect, consequential or punitive damages in connection with this Commitment Letter, the Fee Letter or the Term Loan Facility (including the use or intended use of the proceeds of the Term Loan Facility) or the transactions
contemplated hereby or thereby.
You shall not be liable for any settlement of any Proceeding effected by any indemnified person without your consent
(which consent shall not be unreasonably withheld or delayed), but if any Proceeding is settled with your written consent, you agree to indemnify and hold harmless such indemnified person in the manner set forth above. You shall not, without
the prior written consent of the affected indemnified person (which consent shall not be unreasonably withheld or delayed), effect any settlement of any pending or threatened Proceeding against such indemnified person in respect of which indemnity
could have been sought hereunder by such indemnified person unless such settlement (a) includes an unconditional release of such indemnified person from all liability or claims that are the subject matter of such Proceeding and (b) does
not include any statement as to any admission of fault or culpability.
6.
|
Sharing of Information, Absence of Fiduciary Relationship
.
|
You acknowledge and agree that the Lender
has no obligation to use in connection with the transactions contemplated hereby, or to furnish to you, confidential information obtained from other companies or other persons. The Lender may have economic interests that conflict with your economic
interests and those of the Company. You acknowledge and agree that (a)(i) the arranging and other services described herein regarding the Term Loan Facility are arms-length commercial transactions between you and your affiliates, on the one
hand, and the Lender, on the other hand, that do not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of the Lender, (ii) the Lender has not provided any legal, accounting, regulatory or tax advice with respect
to any of the Transactions and you have consulted your own legal, accounting, regulatory and tax advisors to the extent you have deemed appropriate and (iii) you are capable of evaluating, and understand and accept, the terms, risks and conditions
of the transactions contemplated hereby; and (b) in connection with the transactions contemplated hereby, (i) the Lender has been, is, and will be acting solely as a principal and, except as otherwise expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for you or any of your affiliates and (ii) the Lender does not have any obligation to you or your affiliates except those obligations expressly set forth in this
Commitment Letter and any other agreement with you or any of your affiliates.
This Commitment Letter is entered into by the parties hereto on the understanding that
neither this Commitment Letter nor the Fee Letter nor any of their terms or substance shall be disclosed by you to any other person except (a) to your subsidiaries, to the Company and its subsidiaries, and to your and their respective
directors, officers, employees, affiliates, members, partners, stockholders, attorneys, accountants, independent auditors, agents and other advisors
and the Company and its subsidiaries, in each case on a confidential basis (
provided
,
that any disclosure of the Fee Letter or its contents, until the Closing Date, to the Company or its subsidiaries or their respective directors, officers, employees, affiliates, members, partners, stockholders, attorneys, accountants, independent
auditors, agents or other advisors shall be, until the Closing Date, (i) redacted in respect of the amounts, percentages and basis points of compensation set forth therein or (ii) used for customary accounting purposes, including accounting for
deferred financing costs), (b) in any legal, judicial or administrative proceeding or as otherwise required by applicable law, rule or regulation or as requested by a governmental regulatory or self-regulatory authority (in which case you
agree, to the extent permitted by law, rule or regulation, to inform us promptly in advance thereof), (c) in connection with the exercise of any remedy or enforcement of any right under this Commitment Letter and/or the Fee Letter, and
(d) this Commitment Letter,
C-4
including the existence and contents of this Commitment Letter (but not the Fee Letter or the contents thereof, other than the existence thereof and the contents thereof as part of projections,
pro forma information and a generic disclosure of aggregate sources and uses in marketing materials and other related disclosures), may be disclosed in any proxy statement, periodic report or similar public filing related to the Acquisition or in
connection with any public filing requirement. The foregoing restrictions shall cease to apply in respect of the existence and contents of this Commitment Letter (but not in respect of the Fee Letter and its contents) on the earlier of the
Closing Date and two year following the date of this Commitment Letter.
The Lender shall use all material, non-public information received by it in
connection with the Acquisition and the related transactions solely for the purpose of providing the services that are the subject of this Commitment Letter and the Loan Documents, and entering into the Athene Purchase Agreement and the Stock
Purchase Agreement and shall treat confidentially all such information and the terms and contents of this Commitment Letter, the Fee Letter and the Loan Documents and shall not publish, disclose or otherwise divulge such information;
provided
,
however
, that nothing herein shall prevent the Lender from disclosing any such information that it is permitted to disclose pursuant to
Section 16.7
of the Form Credit Agreement attached hereto as
Exhibit A. The provisions of this paragraph (other than with respect to the Fee Letter and its contents) shall automatically terminate on the date that is two years after the date hereof, unless earlier superseded by the relevant Loan
Documents.
This Commitment Letter shall not be assignable by any party hereto without the prior
written consent of each other party hereto (and any purported assignment without such consent shall be null and void), is intended to be solely for the benefit of the parties hereto and is not intended to and does not confer any benefits upon, or
create any rights in favor of, any person other than the parties hereto and, to the extent expressly set forth herein, the indemnified persons. This Commitment Letter may not be amended or waived except by an instrument in writing signed by you and
the Lender. This Commitment Letter may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this
Commitment Letter by facsimile or other electronic transmission (including .pdf, .tif or similar format) shall be effective as delivery of a manually executed counterpart hereof. This Commitment Letter and the Fee Letter are
the only agreements that have been entered into among us and you with respect to the Term Loan Facility and set forth the entire understanding of the parties with respect hereto and thereto, and supersede all prior agreements and understandings
related to the subject matter hereof.
This Commitment Letter, and any claim, controversy or dispute arising under or related to this Commitment Letter,
whether in tort, contract (at law or in equity) or otherwise, shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York;
provided
, that, notwithstanding the preceding sentence and the
governing law provisions of this Commitment Letter and the Fee Letter, it is understood and agreed that (a) the interpretation of the definition of Material Adverse Effect (and whether or not a Material Adverse Effect has occurred),
(b) the determination of the accuracy of any Specified Acquisition Agreement Representation and whether as a result of any inaccuracy thereof you or your applicable affiliate has the right to terminate your or their obligations under the
Acquisition Agreement or to decline to consummate the Acquisition
and (c) the determination of whether the Acquisition has been consummated in accordance with the terms of the Acquisition
Agreement and, in any case, claims or disputes arising out of any such interpretation or determination or any aspect thereof, in each case, shall be governed by, and construed and interpreted in accordance with, the laws of the State of Maryland,
regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
EACH OF THE PARTIES HERETO IRREVOCABLY
AGREES TO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THE ACQUISITION, THIS COMMITMENT LETTER, THE FEE LETTER OR THE PERFORMANCE BY US
OR ANY OF OUR AFFILIATES OF THE SERVICES CONTEMPLATED HEREBY.
C-5
Each of the parties hereto irrevocably and unconditionally (a) submits to the exclusive jurisdiction of any state
or federal court sitting in the Borough of Manhattan in the City of New York (or any appellate court therefrom) over any suit, action or proceeding arising out of or relating to this Commitment Letter or the Fee Letter, (b) agrees that all
claims in respect of any such suit, action or proceeding shall be heard and determined in such New York state or federal court and (c) agrees that a final, non-appealable judgment in any such suit, action or proceeding may be enforced in other
jurisdictions in any manner provided by law;
provided
, that with respect to any suit, action or proceeding arising out of or relating to the Acquisition Agreement or the transactions contemplated thereby and which do not involve claims
against us or any other Lender, this sentence shall not override any jurisdiction provision set forth in the Acquisition Agreement. You and we agree that service of any process, summons, notice or document by registered mail addressed to such
person shall be effective service of process against such person for any suit, action or proceeding brought in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any
such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Each party hereto agrees to service of process for purposes of the submission to
jurisdiction set forth above by the mailing of such process by registered or certified mail, postage prepaid, to its address specified on the first page of this Commitment Letter.
The Lender hereby notifies you that, pursuant to the requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law on
October 26, 2001) (the
PATRIOT
Act
), it is required to obtain, verify and record information that identifies each Loan Party, which information includes names, addresses, tax identification numbers and
other information that will allow each Lender to identify each Loan Party in accordance with the PATRIOT Act. This notice is given in accordance with the requirements of the PATRIOT Act and is effective for the Lender.
The Fee Letter and the indemnification and expenses, confidentiality, jurisdiction, governing law, sharing of information, no agency or fiduciary duty, waiver
of jury trial, service of process and venue provisions contained herein shall remain in full force and effect regardless of whether the Loan Documents are executed and delivered and notwithstanding the termination or expiration of this Commitment
Letter or the commitments hereunder;
provided
, that your obligations under this Commitment Letter (other than confidentiality of the Fee Letter and the contents thereof) shall automatically terminate and be of no further force and effect (and
be superseded by the Loan Documents) on the Closing Date and you shall automatically be released from all liability hereunder in connection therewith at such time. Subject to the preceding sentence, you may terminate this Commitment Letter upon
written notice to the Lender at any time.
If the foregoing correctly sets forth our agreement, please indicate your acceptance of our offer as set forth
in this Commitment Letter and the Fee Letter by returning to us executed counterparts of this Commitment Letter and of the Fee Letter and making payment of the fees due under the Fee Letter not later than 5:00 p.m., New York City time, on
February 26, 2016. Such offer will remain available for acceptance until such time, but will automatically expire at such time if we have not received such executed counterparts and payment of the fees in the manner contemplated by the Fee
Letter in accordance with the preceding sentence. In the event that the Closing Date does not occur on or before 11:59 p.m., New York City time, on the earliest of (a) the Initial Outside Date (as defined in the Acquisition Agreement) or
if extended in accordance with the terms of the Acquisition Agreement as in effect on the date hereof, the Second Outside Date (as defined in the Acquisition Agreement), (b) the date of the termination of the Acquisition Agreement by you or
with your written consent, in each case prior to the closing of the Acquisition, (c) the date of the closing of the Acquisition without the use of the Term Loan Facility, and (d) the date of the termination of the Athene Purchase Agreement by
you or with your written consent, then this Commitment Letter and the commitments hereunder shall automatically terminate unless we, in our discretion, agree to an extension;
provided
that the termination of any commitment pursuant to this
sentence shall not prejudice your rights and remedies in respect of any breach of this Commitment Letter that occurred prior to any such termination.
[The remainder of this page is intentionally left blank]
C-6
We are pleased to have been given the opportunity to assist you in connection with this important financing.
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Very truly yours,
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ATHENE USA CORPORATION
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By: ATHENE ASSET MANAGEMENT, L.P., its investment advisor
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By: AAM GP Ltd., its general partner
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By:
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/s/ James R. Belardi
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Name:
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James R. Belardi
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Title:
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Chief Executive Officer
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Signature Page to Commitment Letter
C-7
Accepted and agreed to as of
the date first above written:
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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ARROW MERGER SUB, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President
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Signature Page to Commitment Letter
C-8
EXHIBIT A
Form of Credit Agreement
[Attached]
C-9
LOAN AGREEMENT
by and among
APOLLO
COMMERCIAL REAL ESTATE FINANCE, INC.
and
ARROW MERGER SUB, INC.,
as the Borrowers,
and
ATHENE USA CORPORATION,
as the Lender
Dated as
of [
●
][
●
], 2016
C-10
TABLE OF CONTENTS
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Page
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1.
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DEFINITIONS AND CONSTRUCTION.
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C-16
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1.1
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Definitions
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C-16
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1.2
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Accounting Terms
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C-29
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1.3
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Construction
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C-29
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1.4
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Schedules and Exhibits
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C-29
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2.
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LOAN AND TERMS OF PAYMENT.
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C-30
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2.1
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Term Loan
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C-30
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2.2
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Prepayments
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C-30
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2.3
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Interest Rates: Rates, Payments, and Calculations
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C-31
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2.4
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Representations and Warranties of Lender
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C-31
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2.5
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Concerning Joint and Several Liability of the Borrowers
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C-31
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3.
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CONDITIONS; TERM OF AGREEMENT.
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C-32
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3.1
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Conditions Precedent to Effectiveness
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C-32
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3.2
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Term
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C-33
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3.3
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Effect of Termination
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C-33
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4.
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REPRESENTATIONS AND WARRANTIES.
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C-33
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4.1
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No Encumbrances
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C-33
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4.2
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[Reserved]
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C-34
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4.3
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State of Organization; Location of Chief Executive Office; Organizational Identification
Number
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C-34
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4.4
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Due Organization and Qualification; Power and Authority; Subsidiaries
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C-34
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4.5
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Due Authorization; No Conflict
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C-34
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4.6
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Litigation
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C-35
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4.7
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No Material Adverse Change
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C-35
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4.8
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Solvency
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C-35
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4.9
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Employee Benefits; ERISA Plan Assets
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C-35
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4.10
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Environmental Condition
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C-35
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4.11
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Brokerage Fees
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C-35
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4.12
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Intellectual Property
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C-36
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4.13
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[Reserved]
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C-36
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4.14
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Complete Disclosure
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C-36
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4.15
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[Reserved]
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C-36
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4.16
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PATRIOT Act; Anticorruption
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C-36
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C-11
TABLE OF CONTENTS
(continued)
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Page
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4.17
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Sanctions
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C-36
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4.18
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Investment Company
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C-37
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4.19
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Insurance
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C-37
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4.20
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Margin Stock
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C-37
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4.21
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Taxes
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C-37
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4.22
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Collateral Matters
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C-37
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4.23
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REIT Status
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C-37
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5.
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AFFIRMATIVE COVENANTS
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C-38
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5.1
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Financial Statements, Reports, Certificates
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C-38
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5.2
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Maintenance of Properties
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C-39
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5.3
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Taxes
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C-39
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5.4
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Insurance
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C-39
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5.5
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Compliance with Laws
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C-39
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5.6
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[Reserved]
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C-39
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5.7
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Existence
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C-39
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5.8
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Books and Records
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C-39
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5.9
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Environmental
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C-40
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5.10
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Obligations Relating to Athene Purchase Agreement
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C-40
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5.11
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Maintenance of REIT Status
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C-40
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5.12
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Certain Regulatory Matters
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C-41
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5.13
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Further Assurances
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C-41
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6.
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NEGATIVE COVENANTS
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C-41
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6.1
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Indebtedness
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C-41
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6.2
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Liens
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C-41
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6.3
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Disposal of Assets
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C-41
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6.4
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Restrictions on Fundamental Changes
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C-42
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6.5
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Change Name
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C-42
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6.6
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Change Nature of Business
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C-42
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6.7
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Employee Benefits; ERISA Plan Assets
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C-43
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6.8
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Amendment to Permitted Indebtedness; Restrictive Agreements
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C-43
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6.9
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Restricted Payments
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C-43
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C-12
TABLE OF CONTENTS
(continued)
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Page
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6.10
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Accounting Methods
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C-44
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6.11
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Investments
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C-44
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6.12
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Transactions with Affiliates
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C-44
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6.13
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Use of Proceeds
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C-44
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6.14
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Amendments or Waivers and Prepayments with respect to Certain Indebtedness
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C-44
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7.
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EVENTS OF DEFAULT
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C-44
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8.
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THE LENDERS RIGHTS AND REMEDIES
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C-46
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8.1
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Acceleration
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C-46
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8.2
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Other Remedies
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C-46
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8.3
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Remedies Cumulative
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C-46
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9.
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TAXES AND EXPENSES
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C-46
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10.
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WAIVERS; INDEMNIFICATION
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C-47
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10.1
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Demand; Protest; etc.
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C-47
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10.2
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Indemnification
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C-47
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10.3
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Expenses
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C-48
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10.4
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Waiver
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C-48
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11.
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NOTICES
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C-48
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12.
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CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
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C-49
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13.
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ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS
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C-50
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13.1
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Assignments and Participations
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C-50
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13.2
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Successors
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C-52
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14.
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AMENDMENTS; WAIVERS
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C-52
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14.1
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Amendments and Waivers
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C-52
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14.2
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No Waivers; Cumulative Remedies
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C-53
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15.
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THE LENDERS
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C-53
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15.1
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Lender in Individual Capacity
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C-53
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15.2
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Withholding Taxes; Increased Costs
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C-53
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15.3
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Restrictions on Actions by Lenders; Sharing of Payments
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C-55
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15.4
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Payments to the Lenders
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C-56
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15.5
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Several Obligations; No Liability
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C-56
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16.
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GENERAL PROVISIONS
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C-56
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16.1
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Effectiveness
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C-56
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C-13
TABLE OF CONTENTS
(continued)
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Page
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16.2
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Section Headings
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C-56
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16.3
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Interpretation
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C-56
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16.4
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Severability of Provisions
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C-56
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16.5
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Counterparts; Electronic Execution
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C-56
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16.6
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Revival and Reinstatement of Obligations
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C-56
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16.7
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Confidentiality
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C-57
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16.8
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Integration
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C-57
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16.9
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USA PATRIOT Act Notice
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C-57
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16.10
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Recourse Against Certain Parties
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C-57
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C-14
EXHIBITS AND SCHEDULES
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Exhibit A-1
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Form of Assignment and Acceptance
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Schedule 1.1
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Excluded Subsidiaries
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Schedule 4.3(a)
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States of Organization
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Schedule 4.3(b)
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Chief Executive Offices
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Schedule 4.3(c)
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Organizational Identification Numbers and Federal Employer Identification Numbers
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Schedule 4.4
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Capitalization of Borrowers Subsidiaries
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Schedule 4.6
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Litigation
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Schedule 4.21
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Taxes
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Schedule 6.1
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Permitted Indebtedness
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Schedule 6.2
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Permitted Liens
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Schedule 6.8
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Existing Restrictions
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Schedule 6.11
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Permitted Investments
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Schedule 6.12
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Transactions with Affiliates
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C-15
LOAN AGREEMENT
THIS LOAN AGREEMENT
(this
Agreement
), is entered into as of
[
●
][
●
]
, 2016, by and among ATHENE USA CORPORATION, an Iowa corporation (
AUSA
), ARROW MERGER SUB, INC., a Maryland corporation
(
AcquisitionCo
), and APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.,
a Maryland corporation (
ARI
, and together with AcquisitionCo, the
Borrowers
and each, a
Borrower
).
WHEREAS
, ARI intends to acquire, directly or indirectly, all of the outstanding
Stock of Apollo Residential Mortgage, Inc., a Maryland corporation (
AMTG
), in accordance with that certain Agreement and Plan of Merger dated as of February 26, 2016 (the
Acquisition Agreement
), by and among
AcquisitionCo, ARI and AMTG, pursuant to which (i) AcquisitionCo will merge with and into AMTG, with AMTG as the surviving company, and (ii) promptly thereafter, AMTG will merge with and into ARI, with ARI as the surviving company
(collectively, the
Acquisition
);
WHEREAS
, the Borrowers have requested that, simultaneously with the
consummation of the Acquisition, AUSA extend credit to the Borrowers in the form of a term loan in an aggregate principal amount of up to the Commitment (as defined below) to be used on the Closing Date (as defined below) to fund a portion of
the purchase price in connection with the Acquisition and Transaction Expenses (as defined below).
NOW, THEREFORE
, in
consideration of the premises and of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
|
DEFINITIONS AND CONSTRUCTION.
|
1.1
Definitions
.
As used in this
Agreement, the following terms shall have the following definitions:
Acquisition
has the meaning set forth in the
recitals hereto.
Acquisition Agreement
has the meaning set forth in the recitals hereto.
Acquisition Agreement Representations
means the representations made by or with respect to AMTG, its Subsidiaries and their
respective businesses in the Acquisition Agreement as are material to the interests of the Lenders, but only to the extent that ARI has the right to terminate its obligations under the Acquisition Agreement or to decline to consummate the
Acquisition as a result of a breach of such representations in the Acquisition Agreement
AcquisitionCo
has the meaning
set forth in the preamble hereto.
Affiliate
means, as applied to any Person, any other Person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control means the possession, directly or indirectly through one or more
intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise. Neither ARI nor any of its Subsidiaries shall be deemed to be an Affiliate of any Lender for
purposes of this Agreement.
Agreement
has the meaning set forth in the preamble hereto.
AMTG
has the meaning set forth in the recitals hereto.
Anticorruption Laws
has the meaning set forth in Section 4.16 hereto.
Applicable Interest Rate
means, for any day with respect to the Term Loan, a rate per annum equal to the Eurodollar Base
Rate plus 7.00%.
C-16
Applicable Laws
means all applicable laws, rules, regulations and orders of
any Governmental Authority, including without limitation, usury and Credit Protection Laws.
ARI
has the meaning set
forth in the preamble hereto.
Assignee
has the meaning set forth in
Section 13.1(a)
.
Assignment and Acceptance
means an Assignment and Acceptance Agreement substantially in the form of
Exhibit A-1
.
Athene-Acquired Assets
means the assets described on Schedule I
hereto.
1
Athene Purchase Agreement
means the Asset Purchase and
Sale Agreement, dated as of February 26, 2016, by and among Athene Annuity & Life Assurance Company, Athene Annuity and Life Company and ARI.
AUSA
has the meaning set forth in the preamble hereto.
Authorized Person
means, with respect to any Person, the chief executive officer, president, chief financial officer or
chief investment officer of such Person or the trustee of such Person, as applicable.
Bankruptcy Code
means title 11
of the United States Code.
Benefit Plan
means a defined benefit plan (as defined in Section 3(35) of
ERISA) for which a Borrower or any Subsidiary or ERISA Affiliate of a Borrower has been an employer (as defined in Section 3(5) of ERISA) within the past six years, but does not include any defined contribution plan qualified as a
401(k) Plan under the IRC.
Board of Directors
means the board of directors (or comparable managers or
managing members or management committee) of a Person or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers or managing members or management committee).
Borrowers
has the meaning set forth in the preamble hereto.
Business Day
means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close
in the state of New York or that is otherwise a day on which banks are closed for dealings in Dollar deposits in the London interbank market.
Buyer Representative
has the meaning assigned to such term in the Athene Purchase Agreement.
Capital Lease
means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
Capitalized Lease Obligation
means that portion of the obligations under a Capital Lease that is required to be
capitalized in accordance with GAAP.
Captive Insurance Subsidiary
means any Subsidiary of the Borrower that is
subject to regulation as an insurance company (or any Subsidiary thereof).
Cash Equivalents
means (a) marketable
direct obligations issued or unconditionally guaranteed by the United States or any agency thereof
and backed by the full faith and credit of the United States, in each case,
1
|
To contain a list of the final Assets (as defined in the Athene Purchase Agreement) to be acquired by Athene pursuant to the Athene Purchase Agreement as of the Closing Date.
|
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having maturities of not more than one (1)
year from the date of acquisition; (b) commercial paper maturing no more than
one (1) year after its creation and
having
the highest
rating
from either Standard & Poors or Moodys; (c) certificates of deposit of any United States depository institution or trust company incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by a federal and/or state banking authority of the United States, in each case, having capital and surplus in excess of $500,000,000, maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the
assets of which constitute Cash Equivalents of the kinds
described in clauses (a) through (c) of this definition.
Closing Date
means [●] [●], 2016.
2
Collateral
means (a) all Stock of the direct and indirect Subsidiaries of the Borrowers and each Guarantor, other than
Excluded Stock and (b) all other assets on which Liens are purported to be created pursuant to the Loan Documents.
Collateral
Agreement
means the (a) Guaranty and Pledge Agreement executed and delivered by the Borrowers and the Guarantors party thereto in favor of the Lenders and (b) and each other agreement or instrument pursuant to or in connection with which
any Loan Party or any other Person grants a Lien in any Collateral to secure the Obligations.
Commitment
means
$200,000,000 less 100% of the Net Cash Proceeds received by ARI or any of its Subsidiaries as a result of the Disposition (whether to AUSA, its Affiliates or any other Person) of any Athene-Acquired Asset on or prior to the Closing Date.
Credit Protection Laws
means all federal, state, provincial, foreign and local laws in respect of the business of extending
credit to borrowers, including without limitation, the Truth in Lending Act (and Regulation Z promulgated thereunder), Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Gramm-Leach-Bliley Financial Privacy
Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, Fair Housing Act, anti-discrimination and fair lending laws, laws relating to servicing procedures or maximum charges and rates of interest, and other similar laws, each to
the extent applicable, and all applicable regulations in respect of any of the foregoing.
Default
means an event,
condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.
Default
Rate
has the meaning set forth in
Section 2.3(b)
.
Disposition
has the meaning set forth in
Section
6.3
. The terms
Dispose
and
Disposed
shall have the correlative meanings.
Disregarded
Domestic Subsidiary
means any Domestic Subsidiary (a) substantially all of the assets of which consist directly (or indirectly through Subsidiaries that do not conduct material business activities or have material debt or obligations) of
Stock of one or more Foreign Subsidiaries or (b) that is treated as a disregarded entity for U.S. federal income tax purposes and holds the equity of one or more Foreign Subsidiaries.
Dollars
or
$
means the lawful currency of the United States of America.
Domestic Subsidiary
means any Subsidiary incorporated or organized under the laws of the United States, any state thereof
or the District of Columbia.
2
|
To be the date of the consummation of the Acquisition, the satisfaction of the conditions set forth in Section 3.1 and the funding of the Term Loan.
|
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Environmental Actions
means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving liability under or violations of Environmental Laws or
releases of Hazardous Materials at, on, from or onto (a) any assets, properties, Investments or businesses of the Borrowers, their Subsidiaries, or any of their predecessors in interest, (b) adjoining properties or businesses, or (c) any facilities
which received Hazardous Materials generated by the Borrowers, their Subsidiaries, or any of their predecessors in interest.
Environmental Law
means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation,
ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment, in each case, to the extent binding on either Borrower or any of its Subsidiaries, relating to the environment, protection of health, safety or natural resources, or Hazardous Materials,
including the Comprehensive Environmental Response Compensation and Liability Act, 42 USC § 9601
et seq
.; the Resource Conservation and Recovery Act, 42 USC § 6901
et seq
.; the Federal Water Pollution Control Act, 33 USC
§ 1251
et seq
.; the Toxic Substances Control Act, 15 USC § 2601
et seq
.; the Clean Air Act, 42 USC § 7401
et seq
.; the Safe Drinking Water Act, 42 USC § 3803
et seq
.; the Oil Pollution Act of 1990, 33
USC § 2701
et seq
.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC § 11001
et seq
.; the Hazardous Material Transportation Act, 49 USC § 1801
et seq
.; and the Occupational Safety and
Health Act, 29 USC §651
et seq
. (to the extent it regulates occupational exposure to Hazardous Materials); any state, provincial, foreign and local counterparts or equivalents.
Environmental Liabilities and Costs
means all liabilities, monetary obligations, losses, damages, punitive damages,
consequential damages, treble damages, fees, costs and expenses (including all fees, disbursements and expenses of counsel, experts, and consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest
required under Environmental Law or incurred as a result of any Environmental Action, or Remedial Action required, by any Governmental Authority or other Person.
Environmental Lien
means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.
ERISA
means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate
means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the
employees of the Borrowers or their Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of the Borrowers or their Subsidiaries under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which either Borrower or any of its Subsidiaries is a member under
IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with either Borrower or any of its Subsidiaries and whose employees are aggregated with
the employees of such Borrower or its Subsidiaries under IRC Section 414(o).
Eurodollar Base Rate
means (a) the
rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by AUSA to be the rate last quoted by
The Wall Street Journal
as the London Interbank Offered Rate (the
LIBO Rate
) for deposits in
Dollars with a term equivalent to one month on the Closing Date and as re-determined every 30 days thereafter (it being understood, that if the 30th day following the previously determined LIBO Rate is not a Business Day, then the rate quoted on the
immediately preceding Business Day shall be used for the following 30 days) or, if
The Wall Street Journal
ceases to quote such rate or if such rate is not otherwise available, then (b) the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by AUSA to be the rate last quoted by
The Wall Street Journal
as the yield for the 6-month United
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States Treasury Bills on the date which the LIBO Rate ceases to be quoted and as re-determined every 6 months following such date (it being understood, that if the date that is 6 months following
the date on which the LIBO Rate ceased to be quoted or so determined by reference to 6-month United States Treasury Bills is not a Business Day, then the rate quoted on the immediately preceding Business Day shall be used for the following 6
months);
provided
, that in no event shall the Eurodollar Base Rate be less than zero. To the extent that
The Wall Street Journal
ceases to be published, the rates referenced in clauses (a) and (b) shall be determined by reference
to a similar publication as selected by AUSA.
Event of Default
has the meaning set forth in
Section 7
.
Exchange Act
means the Securities Exchange Act of 1934.
Excluded Stock
means (a) the Stock of any Foreign Subsidiary or Disregarded Domestic Subsidiary of a Loan Party (or any
Subsidiary thereof), other than 65% of the issued and outstanding voting Stock and 100% of the issued and outstanding non-voting Stock of each first-tier Foreign Subsidiary or Disregarded Domestic Subsidiary of such Loan Party, as applicable, (b)
the Stock of any special purpose entity used for securitization facilities to the extent prohibited by any such securitization facility and (c) any Stock that is prohibited by law, regulation or contractual obligations from being pledged or that
would require a governmental (including regulatory) consent, approval, license or authorization to make such pledge.
Excluded
Subsidiary
means (a) any Domestic Subsidiary that is not a wholly-owned Subsidiary, (b) any Immaterial Subsidiary, (c) any Domestic Subsidiary that is prohibited by law, regulation or contractual obligations from providing a guaranty or
that would require a governmental (including regulatory) consent, approval, license or authorization to provide such guaranty, (d) any special purpose entities used for securitization facilities, (e) any Disregarded Domestic Subsidiary, (f) any
direct or indirect Domestic Subsidiary of a Foreign Subsidiary, (g) any Subsidiary for which the provision of a guaranty would result in material adverse tax consequences (as reasonably agreed in good faith by ARI and AUSA), (h) any Foreign
Subsidiary, (i) any Captive Insurance Subsidiary and (j) any other Domestic Subsidiary with respect to which, in the reasonable judgment of AUSA and ARI, the burden or cost of providing a guaranty or a Lien to secure such guaranty shall outweigh the
benefits to be afforded thereby. The Excluded Subsidiaries as of the Closing Date are set forth on
Schedule 1.1
.
FATCA
means Sections 1471 through 1474 of the IRC, as of the date of this Agreement (or any amended or successor version
that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the IRC.
FCPA
means the United States Foreign Corrupt Practices Act of 1977 and the regulations promulgated thereunder.
Fee Letter
means the letter, dated February
26, 2016, between ARI, AcquisitionCo and AUSA with respect to certain
fees to be paid from time to time to the Lenders.
Foreign Subsidiary
means any Subsidiary that is not a Domestic
Subsidiary
GAAP
means generally accepted accounting principles as in effect from time to time in the United States,
consistently applied.
Governing Documents
means, with respect to any Person, the certificate or articles of
incorporation or organization or formation, by-laws, or partnership agreement, limited liability company agreement or operating agreement, trust certificate, trust agreement or other constituent documents of such Person.
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Governmental Authority
means any federal, state, provincial, foreign, local,
or other political subdivision or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel
or body.
Guarantor
means each Subsidiary of the Borrowers, other than Excluded Subsidiaries.
Hazardous Materials
means (a) substances that are regulated, defined or listed in, or otherwise classified pursuant to, any
Environmental Laws as pollutants, contaminants, hazardous substances, hazardous materials, hazardous wastes, toxic substances, or any other formulation intended to define, list, or classify substances
by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity or toxicity, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced
waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing polychlorinated biphenyls.
Hedge Agreement
means any and all agreements or documents now existing or hereafter entered into by any Borrower or any of its Subsidiaries that provide for one or more interest rate, credit, commodity or equity swaps, caps, floors, collars, forward foreign
exchange transactions, currency swaps, cross currency rate swaps, currency options, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging such Borrowers or Subsidiarys exposure to
fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.
Immaterial Subsidiary
means, as of any date, any Subsidiary of the Borrowers having consolidated total assets in an amount
of less than 5.0% of consolidated total assets of ARI; provided that Immaterial Subsidiaries (taken as a whole) shall not comprise more than 20% of consolidated total assets of ARI.
Indebtedness
of a Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps or other financial products, (c) all obligations of such
Person as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations of
such Person to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all obligations of such Person owing under Hedge
Agreements, (g) all obligations with respect to a Permitted Asset Securitization not wholly owned by a Borrower or its Subsidiaries, directly or indirectly, whether or not recorded on the balance sheet of such Person, (h) obligations of such Person
under conditional sale or other title retention agreements relating to property purchased by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of a default are limited to repossession or
purchase price of property or services), (i) obligations under Synthetic Leases, (j) all obligations of such Person, contingent or otherwise, to purchase redeem, retire or otherwise acquire for value any Stock of such Person on or prior to the
date which is 91 days after the Maturity Date (other than as a result of a change of control, initial public offering, asset sale or similar event, so long as such redemption, retirement or acquisition is contingent upon the repayment in full of the
non-contingent Obligations), valued in the case of a redeemable preferred equity interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, and (k) any obligation guaranteeing or intended to
guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (j) above.
Indemnified Liabilities
has the meaning set forth in Section 10.2.
Indemnified Person
has the meaning set forth in
Section 10.2
.
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Insolvency Proceeding
means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other federal, state, provincial, foreign or other political subdivision, bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions,
marshalling of assets, extensions generally with creditors, or proceedings seeking reorganization, arrangement, liquidation, receivership, dissolution, or other similar relief.
Intellectual Property
has the meaning set forth in
Section 4.11
.
Investment
means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in
the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b)
bona fide
accounts arising in
the ordinary course of business consistent with past practice), purchases or other acquisitions of Indebtedness, Stock, or all or substantially all of the assets or line of business or division of such other Person all investments consisting of any
exchange traded or over the counter derivative transaction, including any Hedge Agreement, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.
IRC
means the Internal Revenue Code of 1986.
IRS
means the Internal Revenue Service.
Lender
means AUSA and any other Person made a party to this Agreement in accordance with the provisions of
Section
13.1
.
Lender Expenses
means all (a) out-of-pocket costs or expenses paid or incurred by a Lender in connection
with, as a result of, related to or arising under or out of the Loan Documents and any transactions related thereto, (b) reasonable out-of-pocket fees, expenses and disbursements of outside counsel for each Lender in connection with, related to
or arising under or out of the Loan Documents and any transactions related thereto, (c) costs and expenses of third-party claims or any other suit paid or incurred by a Lender in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or a Lenders relationship with the Borrowers or any of its Subsidiaries (including any investigation, litigation or proceeding commenced by any stockholder, debt holder or other Person in
connection with, as a result of, related to or arising under or out of the Acquisition or the Transactions), (d) each Lenders third-party out-of-pocket costs and expenses (including reasonable attorneys fees) incurred in connection with
the Loan Documents, and (e) each Lenders out-of-pocket costs and expenses (including reasonable attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing
(including reasonable attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a workout, a restructuring, or an Insolvency Proceeding concerning any Loan
Party or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought.
Lender-Related Person
means with respect to any Lender, such Lender, its Affiliates, and its and its Affiliates officers,
directors, employees, members, attorneys, and agents.
Lien
means any interest in an asset securing an obligation owed
to, or a claim by, any Person other than the owner of the asset, irrespective of whether (a) such interest is based on the common law, statute, or contract, (b) such interest is recorded or perfected, and (c) such interest is contingent upon the
occurrence of some future event or events or the existence of some future circumstance or circumstances. Without limiting the generality of the foregoing, the term Lien includes the lien or security interest arising from a Lien
Instrument, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting real property.
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Lien Instrument
means a mortgage, deed of trust, deed to secure debt or other
lien instrument covering real property.
Loan Documents
means this Agreement, Collateral Agreement, the Fee Letter, any
note or notes executed by any Borrower in connection with this Agreement and payable to a Lender, and any other agreement entered into, now or in the future, by any Loan Party and a Lender in connection with this Agreement.
Loan Party
means the Borrowers and the Guarantors.
Margin Stock
has the meaning set forth in
Section 4.20
.
Material Adverse Change
means (a) a material adverse change in the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Borrowers and their Subsidiaries, taken as a whole, (b) a material impairment of the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan
Documents to which they are parties or of a Lenders ability to enforce the Obligations or (c) a material impairment of the rights under, benefits of or remedies available to the Lenders under any Loan Document.
Maturity Date
means the earliest to occur of (a) the date that is 364 days after the Closing Date, (b) the date on which
all of the Athene-Acquired Assets have been sold by the Borrowers or their relevant Subsidiaries to Athene Annuity & Life Assurance Company, Athene Annuity and Life Company or their Affiliates, any designee of the Buyer Representative or any
other Person (irrespective of whether or not the Athene Purchase Agreement has been terminated) and (c) ARIs breach of the last sentence of Section 5.1(c) of the Athene Purchase Agreement and such breach is not outside of ARIs control
(it being understood and agreed that the termination of any financing of the type permitted under clauses (a), (b), (f), (g) and (i) of the definition of Permitted Indebtedness is within ARIs control).
Net Cash Proceeds
means the gross cash proceeds received on account of a Disposition of any Athene-Acquired Assets by ARI
or any of its Subsidiaries, net of the payment obligations under any financing with respect to such assets including any obligation to pay the repurchase price under any repurchase agreement and any like obligations arising under other similar types
of financing arrangements (including any repurchase agreement, global master repurchase agreement, master securities forward transaction agreement or other similar agreement used to finance the investment in such assets) but exclusive of any
prepayment, termination or similar fees paid to obtain the release of such assets from such financing arrangement, in excess of $2,500,000, in the aggregate for all such financing.
Note Receivable
means a promissory note evidencing a loan made or acquired by any Subsidiary of a Borrower.
Obligations
means all loans, the Term Loan, debts, principal, interest (including any interest that, but for the
commencement of an Insolvency Proceeding, would have accrued), premiums, liabilities (including all amounts charged to any Borrower pursuant hereto), obligations (including indemnification obligations), fees, charges, costs, Lender Expenses
(including any fees or expenses that, but for the commencement of an Insolvency Proceeding, would have accrued), payments, guaranties, covenants, and duties of any kind and description owing by any Borrower to a Lender pursuant to or evidenced by
the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender
Expenses that, in each case, any Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all extensions, modifications, renewals,
supplements, restatements or alterations thereof, both prior and subsequent to any Insolvency Proceeding.
OFAC
means
The Office of Foreign Assets Control of the U.S. Department of the Treasury.
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Originating Lender
has the meaning set forth in
Section 13.1(e)
.
Participant
has the meaning set forth in
Section 13.1(e)
.
PATRIOT
Act
has the meaning set forth in
Section 3.1(i)
.
Payment Date
has the meaning set forth in
Section 2.3(c)
.
Permitted Asset Securitization
means any securitization of or similar structured finance process aggregating pools of Notes
Receivable established, managed, serviced or seeded by any Borrower or any of its Subsidiaries, or other co-origination, co-investment, co-financing or similar programmatic funding arrangement, in each case in the ordinary course of business upon
fair and reasonable terms no less favorable to such Borrower or such Subsidiary, as applicable, than would be obtained in an arms-length transaction with a non-Affiliate.
Permitted Indebtedness
means the following:
(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
(b) Indebtedness set forth on
Schedule 6.1
,
(c) Permitted Purchase Money Indebtedness,
(d) Indebtedness of any Subsidiary of the Borrowers under any senior financing whether in the form of a revolving loan, a term loan, a
structured sale of pooled loans or otherwise, entered into from time to time after the Closing Date by a Subsidiary of a Borrower, in each case incurred to finance the acquisition of any Note Receivable;
provided
that (a) if secured,
such facility is secured exclusively by assets held only by or on behalf of such Subsidiary and, as applicable, the Stock of such Subsidiary, and (b) if guaranteed, such facility is supported solely by a guaranty by ARI which is unsecured, in
each case, as such agreement may be amended or modified from time to time in accordance with the terms hereof,
(e) endorsement of
instruments or other payment items for deposit,
(f) obligations of the Borrowers or any Subsidiary in respect of participations,
securitizations (including Permitted Asset Securitizations) and syndications of Notes Receivable, and contribution or sale of such assets, including, but not limited to, obligations to make whole or indemnify the purchaser thereof, in each case
whether characterized as a guarantee, an obligation to repurchase the securitized or syndicated asset or otherwise,
(g) obligations under
any Hedge Agreement that is obtained by any Subsidiary of a Borrower (but may be guaranteed by ARI on an unsecured basis) to provide protection against fluctuations in interest or currency exchange rates, and not for speculative purposes, in respect
of Permitted Investments and Notes Receivable of a Borrower or any of its Subsidiaries,
(h) the 5.50% Convertible Senior Notes of
ARI due 2019,
(i) Indebtedness of the Borrowers or any Subsidiary under any transaction or financing arrangement, including any
repurchase agreement, global master repurchase agreement, master securities forward transaction agreement, warehouse line or other similar agreement, used to finance the acquisition of or otherwise in connection with Investments described in clauses
(d) or (j) of the definition of Permitted Investments,
(j) unsecured intercompany Indebtedness among a Borrower and any of its
Subsidiaries,
(k) other unsecured Indebtedness of ARI so long as the net issuance proceeds of such Indebtedness are used to prepay the
Term Loans,
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(l) to the extent constituting Indebtedness, liabilities in respect of taxes, assessments or
governmental charges that are not yet delinquent or not material or that are the subject of Permitted Protests,
(m) unsecured guarantees
of ARI of Indebtedness permitted under clauses (f), (g) and (i) above, and
(n) Indebtedness refinancing, refunding or replacing any
Indebtedness permitted under clauses (b), (c), (d), (f), (h), (i) and (k) above so long as (i) the principal amount of such Indebtedness is not increased (except in respect of (A) costs and expenses in connection therewith and (B) an amount equal to
unpaid accrued interest and premiums (including tender premiums) thereon plus underwriting discounts, other reasonable and customary fees, commissions and expenses incurred in connection with such refinancing, refunding or replacing) from the
Indebtedness being refinanced, refunded or replaced, (ii) such refinancing, refunding or replacing is not secured by a Lien on any assets other than the assets (together with additions, attachments and accessions to such assets, and replacements and
proceeds thereof, in each case, in the ordinary course of business) securing the Indebtedness being refinanced, refunded or replaced, (iii) the obligors are the same as the obligors of the Indebtedness being refinanced, refunded or replaced, (iv)
such refinancing, refunding or replacing Indebtedness has at the time incurred a final maturity date equal to or later than the final maturity date of, and has a weighted average life to maturity equal to or greater than the weighted average life to
maturity of, the Indebtedness being refinanced, refunded or replaced and (v) such Indebtedness has covenants and default and remedy provisions that are not, taken as a whole, materially more favorable to the lenders or counterparties providing such
Indebtedness than those set forth in the Indebtedness being refinanced, refunded or replaced.
Permitted Investments
means:
(a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments for collection,
(c) advances made in connection with purchases of goods or services in the ordinary course of business,
(d) amounts evidenced by a Note Receivable made, acquired or created in the ordinary course of business,
(e) Investments received in settlement of amounts due to a Borrower or any of its Subsidiaries effected in the ordinary course of business or
owing to a Borrower or any of its Subsidiaries as a result of Insolvency Proceedings of an account debtor or other maker or guarantor of a Note Receivable or upon the foreclosure or enforcement of any Lien in favor of a Borrower or its Subsidiaries,
(f) Stock representing minority interests purchased or received pursuant to equity co-invest arrangements granted as part of a Notes
Receivable financing, by any Subsidiary of a Borrower in connection with the origination or purchase of any Note Receivable in the ordinary course of such Persons business,
(g) Investments in Hedge Agreements which qualify as Permitted Indebtedness,
(h) deposits made in the ordinary course of business to secure the performance of leases, licenses, service agreements, surety or appeal
bonds,
(i) in connection with any Permitted Asset Securitization, Investments in conduit, securitization and other asset financing
vehicles whose holdings, on the date such Investment is made, consist primarily of assets contributed or sold by a Borrower or any Subsidiary,
(j) Investments in mortgage backed or linked securities, mortgages, subordinate financings and real estate related securities and loans,
(k) Investments set forth on Schedule 6.11 and any modification, replacement, renewal or extension thereof that does not increase the amount
of such Investment,
C-25
(l) Investments in KBC Bank Deutschland AG and Bremer Kreditbank AG, whether held directly or
indirectly, and future Investments in connection therewith, and
(m) other Investments in an amount not exceeding $25,000,000 in the
aggregate at any time outstanding.
Permitted Liens
means:
(a) Liens held by any Lender pursuant to the Loan Documents,
(b) Liens for unpaid taxes that either (i) are not yet delinquent, (ii) are not material or (iii) are the subject of Permitted Protests,
(c) Liens set forth on
Schedule 6.2
,
(d) the interests of lessors under operating leases,
(e) Liens that secure Permitted Purchase Money Indebtedness, including the interests of lessors under Capital Leases to the extent that such
Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof,
(f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred
in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(g) Liens on amounts deposited in connection with obtaining workers compensation or other unemployment insurance,
(h) Liens on amounts deposited in connection with the making or entering into of bids, tenders, or leases (other than Capital Leases) in the
ordinary course of business and not in connection with the borrowing of money,
(i) Liens on amounts deposited as security for surety or
appeal bonds, license, or other contract in the ordinary course of business,
(j) Liens resulting from any judgment or award that is not
an Event of Default hereunder,
(k) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof,
(l) Liens securing the Indebtedness permitted pursuant to clauses (d),
(f), (g) and (i) of the definition of Permitted Indebtedness, and
(m) Liens against Notes Receivable which are the subject of
participation, syndication or securitization agreements.
Permitted Protest
means the right of any Borrower, or any of
its Subsidiaries to protest any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on its books and records in such amount as is required under GAAP, and (b) any such protest is instituted promptly and diligently prosecuted by such Borrower or such Borrowers relevant Subsidiary, as
applicable, in good faith.
Permitted Purchase Money Indebtedness
means, as of any date of determination, Purchase
Money Indebtedness in an aggregate amount outstanding at any one time not in excess of $25,000.
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Person
means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and any Governmental Authority.
Pledged Equity Interests
[has the meaning set forth in the Collateral Agreement.]
3
Pro Rata Share
means with respect to all matters relating to any
Lender with respect to the Term Loan, the percentage obtained by dividing (a) the outstanding principal balance of the Term Loan held by such Lender by (b) the aggregate outstanding principal balances of the Term Loan held by all Lenders.
Purchase Money Indebtedness
means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations),
incurred at the time of, or within two hundred and seventy (270) days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.
Real Property
means any estates or interests in real property (other than Liens) now owned or hereafter acquired by any
Borrower or any of its Subsidiaries and the improvements thereto.
Record
means information that is inscribed on a
tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
Register
has the meaning set forth in
Section 13.1(d)
.
REIT
means a domestic trust or corporation that qualifies as a
real estate investment trust under the provisions of Sections 856, et seq. of the IRC.
Release
means any release,
spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into or through the indoor or outdoor environment (including the abandonment or disposal
of any barrels, containers or other closed receptacles containing any Hazardous Materials).
Remedial Action
means all
actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a Release or threatened Release of Hazardous
Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform any
pre-remedial
studies, investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials authorized by Environmental Laws.
Required Lenders
means, at any time, Lenders whose aggregate Pro Rata Shares shall exceed 50%.
Restricted Payments
means, with respect to any Person, (a) any dividend or other distribution, in cash or other property,
direct or indirect, on account of any class of Stock of such Person, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any class of Stock of
such Person, now or hereafter outstanding, or (c) any payment made to retire, or obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Stock of such Person, now or hereafter outstanding.
Sanctioned Country
shall mean any other country or territory with which dealings are broadly restricted or prohibited by
any Sanctions Laws (as of the Closing Date, the territory of Crimea, Cuba, Iran, North Korea, Sudan, and Syria).
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To pick up all Stock pledged to Lenders.
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Sanctioned Person
means a person named on the list of Specially Designated
Nationals maintained by OFAC.
Sanctions Authority
means the respective governmental institutions and agencies of the
United States (including the U.S. Treasury Department, the U.S. Commerce Department and the U.S. State Department), the United Kingdom, the European Union, the United Nations Security Council, or any other governmental authority with jurisdiction
over Borrower or any Subsidiary of Borrower.
Sanctions Laws
means the economic or financial sanctions laws and/or
regulations, trade embargoes, prohibitions, restrictive measures, decisions, executive orders or notices from regulators implemented, adopted, imposed, administered, enacted and/or enforced by any Sanctions Authority.
SEC
means the United States Securities and Exchange Commission and any successor thereto.
Securities Act
shall mean the Securities Act of 1933.
Solvent
means, with respect to any Person on a particular date, that (a) the fair value of the property of such Person
is greater than the total amount of liabilities, including contingent, subordinated, unmatured and unliquidated liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person has not incurred, does not intend to incur, and does not believe that it will incur debts or liabilities (subordinated,
contingent or otherwise) beyond such Persons ability to pay such debts and liabilities as they become due (whether at maturity or otherwise), (d) such Person will not have unreasonably small capital with which to conduct its business
operations as contemplated to be conducted and (e) such Person is not insolvent as such term is defined under any applicable laws relating to fraudulent transfers and conveyances, or any bankruptcy, insolvency, or similar laws in
any jurisdiction where the Person is organized.
Specified Representations
means the representations and warranties set
forth in
Sections 4.4(a)(i)
,
4.4(b)(ii)
,
4.5(a)
,
4.5(b)(i)(B)
,
4.5(d)
,
4.8
,
4.16(a)(i)
,
4.16(b)
and
4.17
(in each case, solely in respect of use of proceeds of the Term Loans),
4.16(a)(ii)
,
4.18
,
4.20
,
4.22
and
4.23
.
Stock
means all shares, partnership
interests, options, warrants, membership interests, units of membership interests, beneficial interests in a trust, other interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).
Stock Purchase Agreement
means the Stock Purchase Agreement, dated as of February 26, 2016, by and between AUSA and ARI.
Subsidiary
of a Person means a corporation, partnership, limited liability company, trust or other entity in which
that Person directly or indirectly owns or controls the shares of Stock (a) having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers or trustees) of such corporation, partnership, limited
liability company, trust or other entity, or (b) in the case of a limited partnership, of the general partner of such partnership.
Synthetic Lease
means as to any Person (a) any lease (including leases that may be terminated by the lessee at any
time) of any property (i) that is accounted for as an operating lease under GAAP and (ii) in respect of which the lessee retains or obtains ownership of the property so leased for United States federal income tax purposes, other than any
such lease under which such Person is the lessor, or (b)(i) a synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property (including a sale and leaseback transaction), in each case under this
clause (b), creating obligations that do not appear on the balance sheet of
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such Person but which, upon the application of any bankruptcy, insolvency or similar laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting
treatment).
Taxes
has the meaning set forth in
Section 15.2(a)
.
Term Loan
has the meaning set forth in
Section 2.1
.
Transaction Expenses
means any fees or expenses incurred by the Borrowers in connection with the Acquisition and the other
Transactions.
Transactions
means, collectively, (a) the execution, delivery and performance by the Loan Parties of the
Loan Documents to which they are a party and the borrowing of Term Loans hereunder, (b) the transactions contemplated by the Acquisition Agreement, the Athene Purchase Agreement and the Stock Purchase Agreement and (c) the payment of Transaction
Expenses.
United States
means the United States of America.
Voidable Transfer
has the meaning set forth in
Section 16.6
.
1.2
Accounting Terms
.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP.
When used herein, the term financial statements shall include the notes and schedules thereto. Whenever the term Borrower or Borrowers is used in respect of a financial definition, it shall be understood to mean ARI and its
Subsidiaries on a consolidated basis unless the context clearly requires otherwise. For the avoidance of doubt, consolidation shall include any so called Off-Balance Sheet Subsidiary created in connection with a Permitted Asset
Securitization or otherwise.
1.3
Construction
.
Unless the context of this Agreement or any other Loan Document
clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms includes and including are not limiting, and the term or has, except where
otherwise indicated, the inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby, hereunder, and similar terms in this Agreement or any other Loan Document
refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document (including any Loan Document) shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein). Any reference in this Agreement or any other Loan Document to any law or regulation and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference
to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time. The words
asset
and
property
shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Any reference herein to the satisfaction or repayment in full of the Obligations shall mean
the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than contingent indemnification Obligations, at such time, that are not required to be repaid or cash collateralized pursuant to
the provisions of this Agreement. Any reference herein to any Person shall be construed to include such Persons successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.
1.4
Schedules and Exhibits
.
All of the schedules and exhibits attached to this Agreement shall be deemed incorporated
herein by reference.
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2.
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LOAN AND TERMS OF PAYMENT.
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2.1
Term Loan
.
(a) Subject to the terms and conditions of this Agreement, and relying upon the representations and warranties set forth
herein, each Lender hereby agrees to make a term loan to the Borrowers on the Closing Date in the aggregate principal amount of up to the Commitment (the
Term Loan
). No part of the Term Loan may, on the repayment thereof, be
redrawn or reborrowed by the Borrowers.
(b) The Term Loan shall be funded on the Closing Date upon request of the
Borrowers pursuant to a loan notice delivered to AUSA no later than 12:00 p.m. (New York time) three (3) Business Days prior to the requested date of the borrowing. Upon satisfaction of the applicable conditions set forth in
Section 3.1
,
each Lender shall make available to the Borrowers in immediately available funds in accordance with instructions provided to (and reasonably acceptable to) such Lender by the Borrowers such Lenders Pro Rata Share of the Term Loan. Each loan
notice shall be irrevocable, and shall specify the requested amount and date of the borrowing (which, for the avoidance of doubt, shall be a Business Day) and each Lenders Pro Rata Share thereof.
(c) The Lenders shall only be obligated to make the Term Loan available to the Borrowers on the Closing Date and the unused
Commitment not funded on the Closing Date shall automatically terminate on the Closing Date.
2.2
Prepayments
.
Except
as otherwise expressly provided herein, all payments by the Borrowers shall be made in immediately available funds, no later than 12:00 p.m. (New York City time) on the date specified herein. Any payment received by a Lender later than 12:00
p.m. (New York City time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.
(a)
Optional Prepayments.
The
Borrowers may prepay the Term Loan in cash, in whole or in part at any
time or from time to time (subject to
Section 2.2(c)
below) without premium or penalty;
provided
, that (i) the Borrowers shall provide each Lender with written notice of such prepayment not later than 10:00 a.m. (New York City time)
three (3) Business Days prior to any date of prepayment of the Term Loan; and (ii) any such prepayment of the Term Loan shall be in a principal amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof or, if less, the entire
principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the amount of each Lenders Pro Rata Share of such prepayment. Any such notice shall be irrevocable and the Borrowers
shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.
(b)
Mandatory Prepayments.
(i)
Incurrence of Indebtedness
. Upon the incurrence by ARI or any of its Subsidiaries of any Indebtedness (other
than, except with respect to clause (k) of the definition thereof, Permitted Indebtedness), the Borrowers shall immediately prepay the Term Loan in cash, in whole (or, if less in an amount equal to the aggregate principal amount of such
Indebtedness), together with any and all accrued but unpaid interest thereon and all costs, expenses and indemnities then due and owing.
(ii)
Athene-Acquired Assets
. Upon the Disposition of any Athene-Acquired Asset, the Borrowers shall immediately
prepay the Term Loan in an amount equal to 100% of the Net Cash Proceeds received by ARI or any of its Subsidiaries in connection with such Disposition. Without limiting the generality of
Section 15.3(a)
, the Lender and the Borrowers
agree that any Lender may, at its option, set off and apply against the Obligations, any and all amounts owing by such Lender or any of its Affiliates to any Borrower or any of its Affiliates as consideration for the purchase of any of the
Athene-Acquired Assets in an amount up to the Net Cash Proceeds of such Athene-Acquired Asset.
(c)
Application of
Payments.
All prepayments pursuant to
Section 2.2(a)
and
Section 2.2(b)
shall be accompanied by any and all accrued but unpaid interest and fees thereon and all costs, expenses and
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indemnities then due and owing and shall be shared by the Lenders in accordance with their Pro Rata Share. If the Term Loan is being prepaid in whole, the Borrowers shall also pay all other
non-contingent Obligations prior to or contemporaneously with such prepayment. Once repaid, no portion of the Term Loan may be reborrowed.
(d)
Repayment of Term Loan.
The
Borrowers unconditionally promise to pay in full on the Maturity Date
(or sooner upon acceleration of the Obligations or otherwise as provided for herein) the aggregate principal amount of Term Loan outstanding on such date, plus (i) any and all accrued but unpaid interest and fees thereon, (ii) all costs, expenses
and indemnities then due and owing, and (iii) other Obligations then due and owing under this Agreement or any other Loan Document.
2.3
Interest Rates:
Rates, Payments, and Calculations
.
(a)
Interest
Rates.
Except as provided in clause (b) below, the Term Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Applicable Interest Rate.
(b)
Default Rate.
If any amount hereunder is not paid when due (after giving effect to any applicable grace
periods), whether at stated maturity, by acceleration or otherwise, then such amount shall thereafter bear interest at an interest rate per annum equal to the Applicable Interest Rate plus 2% per annum, from the date of such non-payment until such
amount is paid in full (the
Default Rate
). Default Rate interest shall be payable in cash on the applicable Payment Date (unless sooner requested by a Lender by notice to Borrower, in which case Default Rate interest shall be
payable upon demand).
(c)
Payment.
Interest shall be due and payable, in arrears, in cash, commencing
on the first day of the first calendar quarter occurring after the Closing Date and the Maturity Date (each such date, a
Payment Date
) at any time that Obligations are outstanding.
(d)
Computation.
All interest chargeable under the Loan Documents shall be computed on the basis of a
360-day year for the actual number of days elapsed.
(e)
Intent to Limit Charges to Maximum Lawful
Rate.
In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Each of the Borrowers and the Lenders, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it;
provided
,
however
, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under Applicable Law, then,
ipso facto
, as of the date of this Agreement,
the Borrowers are and shall be liable only for the payment of such maximum as allowed by law, and payment received from the Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the
Obligations to the extent of such excess.
2.4
Representations and Warranties of Lender
. Each Lender hereby represents and
warrants to the Borrowers that on and as of the Closing Date (or the date it becomes a Lender hereunder) (i) it is a qualified purchaser (within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder) and a qualified institutional buyer (within the meaning of Rule 144A under the Securities Act).
2.5
Concerning Joint and Several Liability of the Borrowers
.
(a) Each of the Borrowers is accepting joint and
several liability with respect to the Obligations in consideration of the financial accommodation to be provided by the Lenders under this Agreement and the other Loan Documents, for the mutual benefit, directly and indirectly, of each of the
Borrowers and in consideration of the undertakings of each of the Borrowers to accept joint and several liability for the obligations of each of them, regardless of which Borrower actually receives the benefit of the Term Loan or the amount of such
Term Loan or the manner in which the Lenders account for such Term Loan on their
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books and records. Each Borrowers obligations with respect to the Term Loan made to it, and each Borrowers obligations arising as a result of the joint and several liability of such
Borrower hereunder shall be separate and distinct obligations, but all such obligations shall be primary obligations of each Borrower.
(b) Each Borrowers obligations arising as a result of the joint and several liability of such Borrower hereunder shall,
to the fullest extent permitted by law, be unconditional irrespective of (i) the validity or enforceability or subordination of such Obligations of the other Borrower, (ii) the absence of any attempt to collect such Obligations from the other
Borrower, any other guarantor, or any other security therefor, or the absence of any other action to enforce the same, (iii) the waiver, consent, extension, forbearance or granting of any indulgence by the Lenders with respect to such Obligations of
the other Borrower, or any part thereof, or any other agreement now or hereafter executed by the other Borrower and delivered to the Lenders, (iv) the failure by the Lenders to take any steps to perfect and maintain their security interest in, or to
preserve its rights to, any security or collateral for such Obligations of the other Borrower or (v) any other circumstances which might constitute a legal or equitable discharge or defense of a guarantor or of the other Borrower (other than the
occurrence of the Maturity Date). With respect to each Borrowers obligations arising as a result of the joint and several liability of such Borrower hereunder such Borrower waives, until the Maturity Date, any right to enforce any right of
subrogation or any remedy which any Lenders now has or may hereafter have against such Borrower, any endorser or any guarantor of all or any part of such Obligations, and any benefit of, and any right to participate in, any security or collateral
given to any Lender to secure payment of such Obligations or any other liability of the Borrowers to the Lenders.
(c) Upon
the occurrence and during the continuation of any Event of Default, the Lenders may proceed directly and at once, without notice, against any Borrower to collect and recover the full amount, or any portion of the Obligations, without first
proceeding against the other Borrower or any other Person, or against any security or collateral for such Obligations. Each Borrower consents and agrees that the Lenders shall be under no obligation to marshal any assets in favor of any Borrower or
against or in payment of any or all of such Obligations.
3.
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CONDITIONS; TERM OF AGREEMENT.
|
3.1
Conditions Precedent to Effectiveness
.
The effectiveness of this Agreement is subject to the satisfaction of each of the following conditions precedent:
(a) AUSA
shall have received counterparts of this Agreement duly executed by each Borrower;
(b) AUSA shall have received the
Collateral Agreement, executed by each Loan Party party thereto, in form and substance satisfactory to AUSA, and all other related instruments, documents, certificates and agreements executed or delivered pursuant thereto (including pledged
collateral, with undated irrevocable transfer powers executed in blank)
4
;
(c) AUSA shall have received (i) a certificate from an Authorized Person of each Loan Party (A) attesting to the resolutions of
such Persons Board of Directors authorizing the execution, delivery, and performance of this Agreement, the other Loan Documents, in each instance to the extent such Person shall be party thereto and (B) attesting to the incumbency and
signatures of the Authorized Persons of such Person authorized to execute the same and (ii) a solvency certificate from the chief financial officer of ARI reasonably satisfactory to AUSA;
(d) [
AUSA shall have received copies of the Governing Documents of each Loan Party and such other Persons as shall be
designated prior to the Closing Date by the Lenders, in each instance certified by an Authorized Person
]
5
;
4
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Notwithstanding anything else in this Agreement, ARI shall pledge 100% of the Stock of ACREFI Operating, LLC on the Closing Date.
|
5
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Subject to review of an satisfaction with, the Governing Documents of the Loan Parties.
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(e) AUSA shall have received, with respect to each Loan Party, a certificate of
good standing from the Secretary of State of the state of organization of such Loan Party certified within thirty (30) days of the Closing Date;
(f) AUSA shall have received an opinion of counsel to each Loan Party, as of the Closing Date, in form and substance reasonably
satisfactory to AUSA in its sole option;
(g) the Specified Representations and the Acquisition Agreement Representations
shall be true and correct in all material respects on the Closing Date;
(h) AUSA shall have received all amounts due and
payable under any Loan Document on or prior to the Closing Date, including all fees required to be paid under the Fee Letter and all Lender Expenses (including legal fees and expenses of respective counsel to the Lenders) for which invoices (in the
case of expenses) have been presented at least two (2) Business Days prior to the Closing Date (which amounts may be netted by AUSA from the proceeds of the Term Loan);
(i) the Lenders shall have received all documentation and other information requested by the Lenders under applicable
know your customer and anti-money laundering rules and regulations, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) Act of 2001 (the
PATRIOT
Act
), as reasonably requested in writing at least ten (10) Business Days prior to the Closing Date;
(j) AUSA shall have received the results of recent Uniform Commercial Code Lien, judgment and tax Lien searches in each
relevant jurisdiction with respect to each of the Loan Parties;
(k) the Loan Parties shall have completed (or,
substantially concurrently with the credit extension hereunder will complete) the Acquisition in accordance with the terms of the Acquisition Agreement, but without giving effect to any amendments, waivers or consents by the Borrowers that are
materially adverse to the interests of the Lenders without the prior written consent of the Lenders;
(l) Since January 1,
2015, no Company Material Adverse Effect (as defined in the Acquisition Agreement) shall have occurred that would excuse the Borrowers from their obligations to consummate the Acquisition under the Acquisition Agreement; and
(m) AUSA shall have received a copy of the Athene Purchase Agreement executed by the parties thereto and such agreement shall
not have been terminated on or prior to the Closing Date;
provided
,
however
, that if the Buyer Representative has terminated the Athene Purchase Agreement pursuant to Section 10.1(b)(i) of the Athene Purchase Agreement this condition
shall still be deemed to be satisfied.
3.2
Term
.
This Agreement shall continue in full force and effect for a term
commencing on the Closing Date until all amounts owing the Lenders hereunder and under any related documents have been paid in full.
3.3
Effect of Termination
.
On the Maturity Date, all Obligations immediately shall become due and payable without notice or demand. The occurrence of Maturity Date, however, shall not relieve or discharge the Borrowers or their
Subsidiaries of their duties, Obligations or covenants hereunder or under any other Loan Documents.
4.
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REPRESENTATIONS AND WARRANTIES.
|
In order to induce the Lenders to enter into this
Agreement, each Borrower makes the following representations and warranties to the Lenders, which shall be true, correct, and complete, in all material respects, as of the Closing Date, and such representations and warranties shall survive the
execution and delivery of this Agreement:
4.1
No Encumbrances
.
Each Borrower and its Subsidiaries have good and
indefeasible title to, or a valid leasehold interest in, its personal property assets and good and marketable title to, or a valid leasehold interest in, its Real Property, in each case, free and clear of Liens except for Permitted Liens.
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4.2
[Reserved]
.
4.3
State of Organization; Location of Chief Executive Office; Organizational Identification Number
.
(a) The names and jurisdictions of organization of each Borrower and its Subsidiaries are set forth on
Schedule 4.3(a)
.
(b) The chief executive office of each Loan Party is located at the address indicated on
Schedule 4.3(b)
.
(c) The organizational identification numbers and federal employer identification numbers, if any, of each Loan Party are
identified on
Schedule 4.3(c)
.
4.4
Due Organization and Qualification; Power and Authority; Subsidiaries
.
(a) Each Loan Party is (i) duly organized and validly existing and in good standing under the laws of the jurisdiction of its
organization and (ii) qualified to do business in any state where it is transacting its business (as may be necessary by the Applicable Laws of such state), except for clause (ii) where the failure to do so would not reasonably be expected to result
in a Material Adverse Change.
(b) Each Borrower and its Subsidiaries has all requisite power and authority to (i) own or
lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party.
(c) Set forth on
Schedule 4.4
is a complete and accurate list of each Borrowers direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and any certificates evidencing such shares, and (iii) the number and the percentage
of the outstanding shares of each such class owned directly or indirectly by Loan Parties. Except as set forth on
Schedule 4.4
, all of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and
non-assessable.
(d) Except as set forth on
Schedule 4.4
, there are no subscriptions, options, warrants, or calls
relating to any shares of capital Stock of any Subsidiary, whether direct or indirect, of any Borrower, including any right of conversion or exchange under any outstanding security or other instrument. No such Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any such capital Stock.
4.5
Due Authorization; No Conflict
.
(a) The execution, delivery, and performance by the Loan Parties of this Agreement and the other Loan Documents to which the
Loan Parties are a party have been duly authorized by all necessary action on the part of such Person.
(b) The execution,
delivery, and performance by the Loan Parties of this Agreement and the other Loan Documents do not and will not (i) violate (A) any provision of federal, state, provincial, foreign or local law or regulation applicable to any Loan Party, (B) the
Governing Documents of any such Person, or (C) any order, judgment, or decree of any court or other Governmental Authority binding on any such Person, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of any Borrower or any Subsidiary thereof, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of any Borrower or any
Subsidiary thereof, other than Permitted Liens, or (iv) require any approval of any Loan Partys interestholders or any approval or consent of any Person under any material contractual obligation of any such Person, other than consents or
approvals that have been obtained and that are still in force and effect.
(c) The execution, delivery, and performance by
each Loan Party of this Agreement and the other Loan Documents to which such Person is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other
Person, other than consents or approvals that have been obtained and that are still in force and effect.
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(d) This Agreement has been, and the other Loan Documents to which each Loan
Party is a party and all other documents contemplated hereby and thereby, when executed and delivered by such Person will have been duly, executed and delivered by such Person. This Agreement and the other Loan Documents to which each Loan Party is
a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Person will be the legally valid and binding obligations of such Person, enforceable against such Person in accordance with their respective terms,
except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors rights generally.
(e) After giving effect to the Term Loans hereunder, no Default or Event of Default will have occurred or be continuing.
4.6
Litigation
.
Other than those matters disclosed on
Schedule 4.6
, there are no actions, suits, or
proceedings pending and served or, to the best knowledge of the Loan Parties, threatened against any Borrower or its Subsidiaries that would reasonably be expected to result in a Material Adverse Change.
4.7
No Material Adverse Change
.
All financial statements relating to each Borrower and each Subsidiary that have been
delivered by such Borrower to the Lenders have been prepared in accordance with GAAP (subject, in the case of unaudited financial statements to year-end audit adjustments) and present fairly in all material respects, such Persons respective
financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to the Loan Parties since the date of the latest financial statements submitted to the Lenders
on or before the Closing Date.
4.8
Solvency
.
After giving effect to the Term Loan and the Transactions, the Loan
Parties, when taken as a whole on a consolidated basis, are Solvent.
4.9
Employee Benefits; ERISA Plan Assets
.
Except as would not be reasonably expected to result in a Material Adverse Change, (a) no Borrower, any Subsidiaries of such Borrower, or any of their ERISA Affiliates, maintains or contributes to any Benefit Plan and (b) no Borrower is
(i) an employee benefit plan within the meaning of Section 3(3) of ERISA subject to Title I of ERISA, (ii) a plan within the meaning of Section 4975 of the IRC to which Section 4975 of the IRC applies or
(iii) an entity deemed to hold plan assets within the meaning of 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA, of any such employee benefit plan or plan.
4.10
Environmental Condition
.
(a) None of the properties or assets of any Borrower or any of its Subsidiaries has
ever been used by any of the foregoing Persons or, to such Borrowers knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such use,
production, storage, handling, treatment, release or transport was in violation, in any material respect, of any applicable Environmental Law, (b) to each Borrowers knowledge, no properties or assets of such Borrower or any of its Subsidiaries
has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) no Borrower or any of its Subsidiaries has received notice that a Lien arising under any Environmental
Law has attached to any revenues or to any Real Property owned or operated by any of the foregoing Persons, and (d) no Borrower or any of its Subsidiaries has received a summons, citation, notice, or directive from the United States Environmental
Protection Agency, any other federal or state governmental agency or any Person concerning any action or omission by any of the foregoing Persons resulting in any violation of Environmental Law or alleging liability in connection with the releasing
or disposing of Hazardous Materials into the environment, in each case for (a) through (d) above that would reasonably be expected to result in a Material Adverse Change.
4.11
Brokerage Fees
.
None of the Loan Parties have utilized the services of any broker or finder in connection with the
Borrowers obtaining financing from the Lenders under this Agreement and no brokerage commission, finders fee or similar commission is payable by any of the Loan Parties or their Subsidiaries in
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connection herewith. Each Borrower agrees to indemnify the Lenders and hold them harmless from any claims for any such fees or commissions from any Persons.
4.12
Intellectual Property
.
Each Loan Party owns or has the valid right to use all of the trademarks, service marks,
trade names, copyrights, patents, trade secrets, know-how, confidential information, domain names, rights in databases, rights in software and any other intellectual property rights, and all registrations and applications therefor, throughout the
world (all of the foregoing, collectively,
Intellectual Property
) that are necessary for the operation of its respective business, substantially as currently conducted, except, in each case, where the failure to have any such
rights, either individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change. The conduct of the business of each Loan Party as currently conducted does not infringe upon, misappropriate or violate any
Intellectual Property of any other Person, and, to the knowledge of the Loan Parties, each Loan Partys Intellectual Property is not being infringed, misappropriated or violated by any other Person, except, in each case, for such infringements
and violations which, either individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Loan Parties,
threatened alleging that any Loan Party infringes, misappropriates or violates any Intellectual Property of any other Person, which, either individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change.
4.13
[Reserved]
.
4.14
Complete Disclosure
.
All factual information (taken as a whole) furnished by or on behalf of any of Loan Party in writing to any Lender (including all information contained in the Schedules hereto or in the other Loan Documents
or otherwise filed with any Governmental Authority and publicly available) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is true and accurate, in all material
respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the
circumstances under which such information was provided.
4.15
[Reserved]
.
4.16
PATRIOT
Act; Anticorruption
.
(a) To the extent applicable, each Borrower and its Subsidiaries is in compliance, in all material respects, with the (i)
Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto,
and (ii) the PATRIOT Act.
(b) No part of the proceeds of the loans made hereunder will be used, directly or
indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or
obtain any improper advantage, in violation of the FCPA or any other applicable anti-bribery or anticorruption law or regulation (collectively with the FCPA, the
Anticorruption Laws
). No Borrower or its Subsidiaries has violated
or is in violation of the Anticorruption Laws. No director or officer of a Borrower or its Subsidiaries is a director, officer, or employee of a Governmental Authority, public international organization (e.g., The World Bank), political party, or
state-owned or controlled enterprise or is a candidate for a political office. Each Borrower and its Subsidiaries have implemented and maintain policies, procedures, and internal controls reasonably designed to ensure compliance with applicable
Anticorruption Laws.
4.17
Sanctions
.
No Borrower or any of its Subsidiaries, and to the knowledge of the Loan
Parties, none of their respective Affiliates, are in violation of any Sanctions Laws in any material respect. No Borrower or any of its Subsidiaries, nor, to the knowledge of the Loan Parties, any of their Affiliates, (a) is a Sanctioned
Person, (b) has more than 10% of its assets invested in Sanctioned Persons or located in Sanctioned Countries, or
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(c) derives more than 10% of its revenues from investments in, or transactions with, Sanctioned Persons or Sanctioned Countries. No proceeds of the Term Loan hereunder will be used to
directly or, to the knowledge of any Borrower, indirectly fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Country, or in any other manner that would result in a violation
of Sanctions Laws by any Person.
4.18
Investment Company
.
No Loan Party is an investment company as
defined in, or is required to be registered under, the Investment Company Act of 1940, as amended.
4.19
Insurance
.
Each Borrower and its Subsidiaries will maintain insurance in such amounts and covering such risks and liabilities as are customary for companies of a similar size engaged in similar businesses in similar locations (it being understood that as
of the Closing Date the Borrowers and their Subsidiaries have no employees, physical operations or facilities and have insurance only to cover director & officer liabilities, which the Lenders acknowledge based on such facts, is sufficient
insurance coverage).
4.20
Margin Stock
.
Neither Loan Party is engaged, nor will it engage, principally or as one of
its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock as such terms are defined in Regulation U of the Federal Reserve Board as now and from
time to time hereafter in effect (such securities being referred to herein as
Margin Stock
). Neither Loan Party owns any Margin Stock, and none of the proceeds of the Term Loan will be used, directly or indirectly, for the purpose
of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause the Term Loan to be considered a
purpose credit within the meaning of Regulation T, U or X of the Federal Reserve Board.
4.21
Taxes
.
All material tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by any Borrower and its Subsidiaries have been filed with the appropriate
Governmental Authority (and all such returns, reports and statements accurately reflect in all material respects all liabilities of such Persons for the periods covered thereby) and all taxes required to have been paid by any Borrower and its
Subsidiaries have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding taxes or other amounts
that are (i) subject to a Permitted Protest or (ii) in the aggregate would not reasonably be expected to result in a Material Adverse Change. As of the Closing Date and except as set forth on
Schedule 4.21
, there is no action, suit,
proceeding, investigation, audit or claim now pending or threatened in writing by any Governmental Authority regarding any taxes relating to any such Person, which, either individually or in the aggregate, would reasonably be expected to cause a
Material Adverse Change.
4.22
Collateral Matters
. The Collateral Agreement, upon execution and delivery thereof by the
Loan Parties thereto, will create in favor of the Lenders, a valid and enforceable security interest in the Collateral, and when the Pledged Equity Interests constituting certified securities (as defined in the Uniform Commercial Code) are delivered
to the Lenders, together with instruments of transfer duly endorsed in blank, the security interest created under the Collateral Agreement will constitute under the Uniform Commercial Code (to the extent a Lien may be perfected thereunder) a fully
perfected security interest in all right, title and interest of the pledgors thereunder in such Pledged Equity Interests, prior and superior in right to any other Person, other than Permitted Liens arising by operation of law and having priority
over the Liens of the Lenders on the Pledged Equity Interests.
4.23
REIT Status
. Beginning with its taxable year ending
December 31, 2009, (a) ARI has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the IRC, (b) ARIs actual method of operation through the date hereof has enabled it to
meet, and its proposed method of operation will enable it to continue to meet, the requirements for qualification and taxation as a REIT under the IRC, and (c) ARI has not revoked its election to be taxed as a REIT and such election has not been
terminated. The shares of common stock of ARI are listed on the New York Stock Exchange.
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5.
|
AFFIRMATIVE COVENANTS.
|
Each Borrower covenants and agrees that, until payment in full,
in cash of the Obligations, each Borrower shall:
5.1
Financial Statements, Reports, Certificates
.
Deliver, or cause
to be delivered, to each Lender as soon as available,
(a) but in any event within forty-five (45) days after the end of
each quarter during each year, (i) an unaudited consolidated balance sheet, income statement and statement of cash flow of ARI and its Subsidiaries operations during such period and the year-to-date period ending thereon, in each case setting
forth in comparative form the figures for the corresponding periods in the prior year and (ii) a certificate certifying that the financial statements fairly present, in all material respects, the consolidated financial condition and results of
operations (and cash flows, to the extent provided) of ARI and its Subsidiaries as of the dates and for the periods specified in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes,
(b) but in any event within ninety (90) days after the end of ARIs fiscal year, commencing with the fiscal year ending
December 31, 2015, consolidated financial statements of ARI for each such fiscal year, audited (in the case of consolidated financial statements) by independent certified public accountants reasonably acceptable to each of the Lenders and certified,
without any qualifications (including any (A) going concern or like qualification or exception or (B) qualification or exception as to the scope of such audit), by such accountants to have been prepared in accordance with GAAP (such
audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants letter to management),
(c) if and when filed or distributed, as applicable, by ARI and its Subsidiaries,
(i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, and
(ii) any other filings made by ARI or its Subsidiaries with the SEC,
(d) promptly, but in any event within five (5) Business Days after any Borrower has knowledge of any event or condition that
constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that such Person proposes to take with respect thereto,
(e) promptly after the commencement thereof, but in any event within five (5) Business Days after the service of process with
respect thereto on any Borrower, or any of such Borrowers Subsidiaries, notice of all actions, suits, or proceedings brought by or against such Borrower, or any of such Borrowers Subsidiaries (i) with respect to any Loan Document or
the transactions contemplated thereby or (ii) which, if determined adversely to Borrower or such Subsidiary, would reasonably be expected to result in a Material Adverse Change,
(f) promptly upon the occurrence of any event which would reasonably be expected to have a Material Adverse Change, notice
thereof, and
(g) upon the request of any Lender, any other information reasonably requested relating to the financial
condition of the Borrowers or their Subsidiaries and the guarantees and the Collateral, including with respect to those required hereunder.
In addition, each Borrower agrees that no Subsidiary of such Borrower will have a fiscal year different from that of ARI;
provided
,
however
, that a Subsidiary acquired by ARI or its Subsidiaries may have a different fiscal year than ARI so long as the fiscal year of such Subsidiary is changed to that of ARI prior to December 31 of the calendar year of such
Subsidiarys acquisition. Each Borrower also agrees to cooperate with each Lender to allow such Lender to consult with its independent certified public accountants if such Lender reasonably requests the right to do so and that, in such
connection, its independent certified public accountants are authorized to communicate with each Lender and to release to each Lender whatever financial information concerning the
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Borrowers or their Subsidiaries that such Lender reasonably may request. Each Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by a Lender pursuant to or in accordance with this Agreement, and agrees that each Lender may contact directly any such accounting firm or service bureau in order to obtain such
information.
Information required to be delivered pursuant to this
Section 5.1
shall be deemed to have been delivered if such
information, or one or more annual or quarterly reports containing such information, shall be available on the website of the SEC at
http://www.sec.gov
or on the website of ARI. Information required to be delivered pursuant to this
Section 5.1
may also be delivered by electronic communications pursuant to procedures approved by AUSA.
5.2
Maintenance
of Properties
.
Maintain and preserve, and cause each Subsidiary thereof to maintain and preserve, all of its material properties which are necessary or useful in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.
5.3
Taxes
.
Cause all tax returns, reports and statements, including information
returns, required by any Governmental Authority to be filed by the Borrowers and their Subsidiaries to be filed, and all assessments and taxes, whether real, personal, or otherwise, known by the Loan Parties to be due or payable by, or imposed,
levied, or assessed against any Borrower, its Subsidiaries, or any of their respective assets to be paid in full, before delinquency or before the expiration of any extension period (or if not known by Loan Parties prior to such time or period, then
within thirty (30) days of the Loan Parties becoming aware of such tax or assessment), except (i) to the extent the failure to so file such returns or extensions or pay such assessments or taxes does not constitute a Material Adverse Change, or (ii)
to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest.
5.4
Insurance
.
Maintain, and cause each Subsidiary thereof to maintain, insurance covering such risks as ordinarily are insured against by other Persons engaged in the same or similar businesses (it being understood that as of the Closing Date the Borrowers
and their Subsidiaries have no employees, physical operations or facilities and have insurance only to cover director & officer liabilities, which the Lenders acknowledge based on such facts, is sufficient insurance coverage). All such
policies of insurance shall be maintained with financially sound and reputable carriers in such amounts as are adequate and customary for companies of the same or similar size engaged in the same or similar business and in the same or similar
location.
5.5
Compliance with Laws
.
Comply, and cause each Subsidiary thereof to comply, with the requirements of
all Applicable Laws, rules, regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not reasonably be expected to result in a
Material Adverse Change.
5.6
[Reserved]
.
5.7
Existence
.
At all times preserve and keep in full force and effect, and cause each Subsidiary to preserve and keep in
full force and effect, (a) its valid existence and good standing under the laws of its jurisdiction of organization and (b) all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except
in the case of the foregoing
clause (b)
, to the extent that failure to do so would not reasonably be expected to have a Material Adverse Change.
5.8
Books and Records
.
Maintain (a) proper books of record and account, in which full, true and correct entries in all
material respects in accordance with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of each Borrower and its Subsidiaries; and (b) such books of record and account in material
conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over each Borrower or its Subsidiaries. The Borrowers shall permit any representatives designated by the Lenders upon two (2) Business
Days advance notice, during normal business
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hours, and not more than once during any fiscal year of the Borrowers (unless an Event of Default exists) to visit and inspect the financial records and the property of the Borrowers and their
Subsidiaries and to make extracts from and copies of such financial records, and permit any representatives designated by the Lenders to discuss the affairs, finances, accounts and condition of the Borrowers and their Subsidiaries with the
management and advisors thereof (provided that an Authorized Person shall be given notice and an opportunity to participate during such discussion with advisors). Notwithstanding anything to the contrary in this
Section 5.8
, no Borrower
or any Subsidiary will be required to disclose or permit the inspection or discussion of, any document, information or other matter (i) in respect of which disclosure to any Lender (or their respective representatives) is prohibited by law
or any binding agreement not entered into in contemplation of avoiding such inspection and disclosure rights, (ii) that is subject to attorney client or similar privilege or constitutes attorney work product or (iii) in respect of which
the Borrowers or any Subsidiary owes confidentiality obligations to any third party not entered into in contemplation avoiding such inspection and disclosure;
provided
that in the event that the Borrowers or any Subsidiary does not provide
any information requested in connection with an examination or a discussion permitted under this
Section 5.8
in reliance on the preceding clause (ii) or (iii) due to confidentiality or waiver concerns, such Person shall provide notice to
the relevant Lender that such information is being withheld and shall use its commercially reasonable efforts to communicate the applicable information in a way that would not violate the applicable obligation or risk waiver of such privilege.
5.9
Environmental
.
(a) Keep any property of the Borrowers, their Subsidiaries and their businesses free of any
Environmental Liens (other than Permitted Liens) or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, and cause each Subsidiary thereof to comply, in
all material respects, with Environmental Laws and provide to each Lender documentation of such compliance which such Lender reasonably requests, (c) take any Remedial Action required to respond to any Release or presence of or exposure to
Hazardous Materials, (d) respond to any Environmental Action against a Borrower or any Subsidiary thereof and discharge any material obligations it may have to any Governmental Authority or third person thereunder, and (e) promptly, but in
any event within five (5) days after its receipt thereof, provide each Lender with written notice of any of the following: (i) notice that an Environmental Lien has been filed against any property of a Borrower or Subsidiary or relating to
their business, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against a Borrower or Subsidiary, and (iii) notice of an investigation, violation, citation, or administrative order
pursuant to Environmental Law, discovery of a Release or presence of or exposure to Hazardous Materials, or a requirement for Remedial Action, which in any case of (a) through (e) above, reasonably would be expected to result in a Material Adverse
Change.
5.10
Obligations Relating to Athene Purchase Agreement
. If (i) the Buyer Representative has terminated the
Athene Purchase Agreement pursuant to Section 10.1(b)(i) of the Athene Purchase Agreement or (ii) ARI is not able to consummate the sale of the Athene-Acquired Assets due to circumstances outside of ARIs control (including as a result of an
Injunction (as defined in the Athene Purchase Agreement) (it being understood and agreed that the termination of any financing of the type permitted under clauses (a), (b), (f), (g) and (i) of the definition of Permitted Indebtedness is within
ARIs control) which prevents, prohibits or makes illegal the consummation of the sale of the Athene-Acquired Assets, then, without limiting
Section 2.2(d)
in any respect, ARI shall use its commercially reasonable efforts (without any
obligation to sell assets, issue Indebtedness or equity or reduce dividends or operating expenses) to repay the Term Loan as soon as commercially reasonable (and, in any event, prior to the Maturity Date).
5.11
Maintenance of REIT Status
. ARI shall (a) maintain its status as a REIT, (b) not revoke its election to be taxed as a
REIT or cause or allow such election to be terminated, and (c) not engage in any prohibited transaction as defined for purposes of Section 857(b)(6) of the IRC that would reasonably be expected to have a Material Adverse Effect. ARI
shall continue to list its common stock for trading on a U.S. national or international securities exchange.
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5.12
Certain Regulatory Matters
.
(a) The Borrowers and their Subsidiaries shall not violate any applicable Anticorruption Law in any material respect and shall
implement and maintain policies, procedures, and internal controls reasonably designed to ensure compliance with applicable Anticorruption Laws. No part of the proceeds of the Term Loan will be used, directly or, to the knowledge of any
Borrower, indirectly, for any payments in violation of the Anticorruption Laws.
(b) The Borrowers and their Subsidiaries
shall not violate any applicable Sanctions Law in any material respect and shall implement and maintain policies, procedures, and internal controls reasonably designed to ensure compliance with applicable Sanctions Laws. No proceeds of the Term
Loan will be used to directly or, to the knowledge of any Borrower, indirectly fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Country, or in any other manner that would
result in a violation of Sanctions Laws by any Person.
5.13
Further Assurances
.
(a) The Borrowers and each other Loan Party will execute any and all further documents, financing statements, agreements and
instruments, and take all such further actions (including the filing and recording of financing statements), that may be required under any applicable law, or that the Lenders may reasonably request, to ensure that the Obligations of the
Borrowers and each other Loan Party under the Loan Documents are secured by a first priority perfected Lien in favor of the Lenders (subject, in the case of Pledged Equity Interests and the proceeds thereof, solely to Permitted Liens arising by
operation of law and which have priority over the Liens of the Lenders only as a result of operation of law, and in the case of other Collateral, Permitted Liens) on the Collateral.
(b) If any Subsidiary is formed or acquired after the Closing Date, the Stock of any Subsidiary no longer constitutes Excluded
Stock or any Subsidiary no longer constitutes an Excluded Subsidiary, the Borrowers will within 45 days after the end of the fiscal quarter in which such formation, acquisition or other event or circumstance shall occur (or such longer period as the
Lenders may agree to in writing), notify the Lenders thereof and cause such Subsidiary to join the Collateral Agreement and/or cause the Stock of such Subsidiary to be pledged to the Lenders.
Each Borrower covenants and agrees that, until payment in full in
cash of the Obligations, such Borrower shall not:
6.1
Indebtedness
.
Create, incur, assume or suffer to exist, or
permit any Subsidiary thereof to create, incur, assume or suffer to exist, any Indebtedness, except for Permitted Indebtedness.
6.2
Liens
.
Create, incur, assume or suffer to exist, or permit any Subsidiary thereof to create, incur, assume or suffer to exist, any Lien on or with respect to any of its assets of any kind, whether now owned or hereafter
acquired, or any income or profits therefrom, except for Permitted Liens.
6.3
Disposal of Assets
.
Sell, transfer,
lease or otherwise dispose of (collectively, a
Disposition
), or permit any Subsidiary thereof to Dispose of, any assets or properties of any Borrower or any of their Subsidiaries that, with respect to any transaction or series of
transactions, have an aggregate book value exceeding 10% of the consolidated assets of ARI and its Subsidiaries as of the end of the most recent fiscal year, except in connection with:
(a) the sale of the Athene-Acquired Assets to (i) Athene Annuity & Life Assurance Company, Athene Annuity and Life
Company or their Affiliates or any designee of the Buyer Representative or (ii) if Athene Annuity & Life Assurance Company or Athene Annuity and Life Company
shall be in default of their
purchase obligations under the Athene
Purchase Agreement or otherwise decline to purchase the Athene-Acquired Assets to any other Person,
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(b) the incurrence of Indebtedness permitted pursuant to clauses (d), (f), (g)
and (i) of the definition of Permitted Indebtedness,
(c) Dispositions of assets or properties of the Borrowers or their
Subsidiaries to the extent that such asset or property is Disposed of for fair market value and the proceeds of such Disposition are promptly applied to the purchase price of similar or replacement assets constituting Permitted Investments
(including cash and Cash Equivalents), and
(d) any transaction permitted by
Section 6.4
or
Section 6.9
.
Notwithstanding the foregoing, in no event shall any Loan Party Dispose of any Pledged Equity Interests other than in a transaction
permitted by Section 6.4 (except pursuant to clause (viii) thereof).
6.4
Restrictions on Fundamental Changes
.
Take,
or permit any Subsidiary to take, any of the following actions:
(a) Enter into any merger, consolidation or amalgamation.
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution).
(c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions,
all or substantially all of its assets.
(d) Amend or modify, or permit the amendment or modification of, its Governing
Documents in a manner adverse to the Lenders in any material respect.
Notwithstanding the foregoing, (i) AcquisitionCo shall be permitted to merge
with and into AMTG, with AMTG as the surviving entity (ii) AMTG shall be permitted to merge with and into ARI, with ARI as the surviving entity, (iii) any Subsidiary of a Borrower shall be permitted to merge, consolidate or amalgamate with and
into any Borrower (it being understood and agreed that in any such event the Borrower will be the surviving Person), (iv) any Subsidiary of a Borrower shall be permitted to merge, consolidate or amalgamate with and into another Subsidiary of a
Borrower (provided that no such merger, consolidation or amalgamation shall involve a Guarantor unless such Guarantor is the surviving Person), (v) any Subsidiary of a Borrower that does not own any assets can be liquidated, wound up or dissolved,
(vi) any Subsidiary of a Borrower may liquidate, wind up or dissolve if the Borrowers determine in good faith that such liquidation, winding up or dissolution is in the best interest of the Borrowers and is not materially disadvantageous to the
Lenders and, in the case of liquidation, winding up or dissolution of a Loan Party, its assets and properties are transferred only to a Loan Party, (vii) any Subsidiary of a Borrower may Dispose of its assets to a Borrower or another Subsidiary
of a Borrower (provided that Dispositions by a Loan Party shall be made only to another Loan Party), (viii) the Borrowers and their Subsidiaries may Dispose of all or substantially all of their assets in connection with the incurrence of
Indebtedness permitted pursuant to clauses (d), (f), (g) and (i) of the definition of Permitted Indebtedness, (ix) the Disposition of the assets that were held by AMTG and/or its Subsidiaries prior to the Acquisition (including pursuant to the
Athene Purchase Agreement, or otherwise) shall be permitted and be excluded from the calculation of all or substantially all assets of the Borrower or any of its Subsidiaries and (x) the Borrowers and their Subsidiaries shall be
permitted to restructure the ownership structure of, and/or create a new holding company (which shall be a direct or indirect Subsidiary of ARI) for, the Stock of ACREFI TRS II, Ltd., if reasonably deemed necessary by the Borrowers in connection
with tax planning and/or regulatory compliance.
6.5
Change Name
.
Change, or permit any other Loan Party to change,
its name, state of organization or organizational identity;
provided
,
however
, that any Loan Party may change its name upon at least ten (10) days prior written notice to each Lender of such change (or such shorter period as
agreed by the Lenders).
6.6
Change Nature of Business
.
Engage, or permit any Subsidiary thereof to engage, in any
material line of business other than the line of business engaged in as of the Closing Date and business lines reasonably related or ancillary thereto.
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6.7
Employee Benefits
; ERISA Plan Assets
. Except as would not be
reasonably expected to result in material liability to a Borrower, (a) establish, maintain or contribute to, or permit any of its ERISA Affiliates to establish, maintain or contribute to, any Benefit Plan and (b) permit any Borrower to become
(i) an employee benefit plan within the meaning of Section 3(3) of ERISA subject to Title I of ERISA, (ii) a plan within the meaning of Section 4975 of the Code to which Section 4975 of the IRC applies or
(iii) an entity deemed to hold plan assets within the meaning of 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA, of any such employee benefit plan or plan.
6.8
Amendment to Permitted Indebtedness; Restrictive Agreements
.
(a) Permit any Subsidiary thereof to incur any Permitted Indebtedness to the extent such Permitted Indebtedness contains, or
amend any Permitted Indebtedness existing as of the date hereof to implement (or otherwise permit any Subsidiary of a Borrower to enter into, incur or permit to exist any agreement or other arrangement that contains), restrictions on dividends,
distributions, redemptions, retirement, repurchase or similar payments on account of the Stock of any Subsidiary of ARI except restrictions on Subsidiaries of ARI pursuant to Permitted Indebtedness (i) that are, taken as a whole, in the good faith
judgment of the Borrowers, no more restrictive with respect to the Borrowers or any Subsidiary than those contained in this Agreement or (ii) constituting market terms for such financings as of the date thereof in the commercially reasonable
judgment of the Borrowers;
provided
, that such restrictions shall allow such payments to be made not less often than monthly using available cash (determined in customary manner for such financings) in the absence of any default thereunder.
(b) No Loan Party shall, nor shall a Loan Party permit any of its Subsidiaries to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of ARI to pay dividends or make any other distributions that could reasonably be expected to cause ARI to fail to maintain its status as
a REIT.
(c) Enter into, incur or permit to exist, or permit any Subsidiary thereof to enter into, incur or permit to
exist, any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Loan Party to create, incur or permit to exist any Lien upon the Collateral to secure the Obligations.
Notwithstanding the foregoing, (i) clauses (a) through (c) shall not apply to (A) restrictions and conditions imposed by law or by this Agreement or any other
Loan Document, (B) restrictions and conditions existing on the date hereof identified on
Schedule 6.8
and (C) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary or any assets of a Borrower or
any Subsidiary, in each case pending such sale; provided that such restrictions and conditions apply only to such Subsidiary or the assets that are to be sold and, in each case, such sale is permitted hereunder and (ii) clause (c) of the foregoing
shall not apply to (A) restrictions and conditions imposed by any agreement relating to secured Indebtedness permitted by clauses (c), (d), (f), (g), (i) and (j) of the definition of Permitted Indebtedness so long as such restriction applies solely
to the Subsidiary that is the obligor of such Permitted Indebtedness and (B) customary provisions in leases, licenses and other agreements restricting the assignment thereof.
6.9
Restricted Payments
. Directly or indirectly declare or make, or permit any of its Subsidiaries to declare or make, any
Restricted Payment or incur any obligation to do so;
provided
,
however
, that the Borrowers and their Subsidiaries may declare and make the following Restricted Payments so long as no Default or Event of Default would result therefrom:
(a) ARI may declare or make cash distributions to its stockholders during the period of four consecutive fiscal quarters
most recently ending in an aggregate amount not to exceed the amount required to be distributed for ARI to maintain its status as a REIT and avoid U.S. federal income and excise taxes;
(b) ARI may make cash distributions to its stockholders of capital gains resulting from gains from certain asset sales to the
extent necessary to avoid payment of taxes on such asset sales imposed under Sections 857(b)(3) and 4981 of the IRC;
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(c) a Subsidiary may make cash distributions to holders of equity interests
issued by such Subsidiary so long as, in the case of non-wholly owned Subsidiaries, such distributions are made ratably according to the holders respective holdings of the type of equity interest in respect of which such distributions are
being made;
(d) Subsidiaries may declare or make Restricted Payments to the Borrowers;
(e) ARI may declare and pay regularly scheduled cash dividends with respect to its Stock consistent with existing dividend
policies as disclosed in its report filed with the SEC on Form 10-K for the fiscal year ended December 31, 2014, or otherwise consistent with past practice.
Notwithstanding the foregoing, if a Default or Event of Default exists, ARI may declare or make cash distributions to its stockholders during
any fiscal year in an aggregate amount not to exceed the minimum amount necessary for ARI to maintain its status as a REIT.
6.10
Accounting Methods
.
Modify or change its fiscal year or its method of accounting.
6.11
Investments
.
Directly or indirectly, make or acquire, or permit any Subsidiary thereof to make or acquire, any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment, except for Permitted Investments;
provided
, that the Borrowers and their Subsidiaries may make Investments in the Borrowers and any direct and indirect Subsidiaries of the Borrowers.
6.12
Transactions with Affiliates
.
Directly or indirectly enter into or permit to exist, or permit any Subsidiary thereof
to directly or indirectly enter into or permit to exist, any transaction of any kind with any Affiliate of the Borrowers that is not a Subsidiary other than (a) transactions disclosed in
Schedule
6.12
or transactions of a
similar nature to those transactions with Affiliates described in ARIs annual, quarterly or periodic filings with the SEC prior to the Closing Date, (b) the Transactions or (c) transactions that are not materially less favorable to the
Borrowers or their Subsidiaries, as applicable, as determined by the Borrowers in good faith, than would be obtained in an arms length transaction with a non-Affiliate.
6.13
Use of Proceeds
.
Use the proceeds of the Term Loan for any purpose other than (a) to finance the Acquisition and (b)
to pay the Transaction Expenses.
6.14
Amendments or Waivers and Prepayments with respect to Certain Indebtedness
. No
Borrower shall, nor shall it permit any of its Subsidiaries to, (a) amend the provisions of any Indebtedness in a manner that is materially adverse to such Person or the Lenders or (b) make any payment or prepayment of principal of,
premium, if any, or interest on, or redeem, purchase, retire, defease (including in substance or legal defeasance), establish a sinking fund or similar payment with respect to, the 5.50% Convertible Senior Notes of ARI due 2019, other than the
payment of regularly scheduled, non-accelerated payments in respect of such Permitted Indebtedness in accordance with the terms of, and only to the extent required by, and subject to any subordination provisions contained in, the indenture, loan or
other agreement pursuant to which such Permitted Indebtedness was issued;
provided
that the Borrowers and their Subsidiaries may pay, prepay, redeem, purchase, retire, defease, establish a sinking fund or similar payment for such Permitted
Indebtedness with the proceeds of sales of Stock of, or contributions to the capital of, ARI or Permitted Indebtedness of the type described by clause (n) of the definition of Permitted Indebtedness.
Any one or more of the following events shall constitute an event of
default (each, an
Event of Default
) under this Agreement:
(a) If any Loan Party fails to pay when due
and payable, or when declared due and payable in accordance with the terms hereof, all or any portion of (i) the principal of the Term Loan when due in
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accordance with the terms hereof, or (ii) any interest on the Term Loan (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due any Lender, reimbursement of Lender Expenses, or other amounts constituting Obligations, within five (5) Business Days after any such interest or amount becomes due in accordance with the terms hereof or under any other Loan Document;
(b) If any Loan Party fails to (i) perform, keep, or observe any covenant or other provision contained in
Sections
5.1(d)
,
5.7
(as to existence only), or
Section 6
hereof or (ii) perform, keep, or observe any covenant or other provision contained in any Section of this Agreement (other than a Section that is expressly dealt with elsewhere in
Section 7(a)
or this clause (ii)), or the other Loan Documents, and such failure continues for a period of thirty (30) days after the date on which any Loan Party had knowledge of such failure;
(c) If any material portion of the assets of the Loan Parties and their Subsidiaries, taken as a whole, is attached, seized,
subjected to a writ or distress warrant, levied upon, comes into the possession of any third Person (except solely in connection with Permitted Indebtedness permitted pursuant to clauses (d), (f), (g) and (i) of the definition of Permitted
Indebtedness held by such third Person when no default, termination event or similar condition or event with respect to such Loan Party or Subsidiary has occurred that has resulted in the liquidation of, the acceleration of obligations under or
early termination of all obligations of such Loan Party or Subsidiary under the documentation governing such Permitted Indebtedness);
(d) If (i) an Insolvency Proceeding is commenced by any Borrower or any of such Borrowers Subsidiaries, or (ii) if any
Borrower or any of such Borrowers Subsidiaries shall be generally not paying its debts as such debts become due or shall admit in writing its inability to pay its debts generally;
(e) If an Insolvency Proceeding is commenced against any Borrower or any of such Borrowers Subsidiaries, and any of the
following events occur: (i) such Borrower or any of Borrowers Subsidiaries consents to the institution of such Insolvency Proceeding against it, (ii) the petition commencing the Insolvency Proceeding is not timely controverted, (iii) the
petition commencing the Insolvency Proceeding is not dismissed within sixty (60) calendar days of the date of the filing thereof, (iv) an interim trustee is appointed to take possession of all or any substantial portion of the properties or
assets of, or to operate all or any substantial portion of the business of, such Borrowers or any of such Borrowers Subsidiaries, or (v) an order for relief shall have been entered therein;
(f) [Reserved];
(g) [Reserved];
(h) If one or more judgments or other claims involving an aggregate amount greater than $7,500,000 against any Borrower or any
of such Borrowers Subsidiaries shall remain undischarged for a period of sixty (60) consecutive days during which execution shall not be effectively stayed, and any action shall be legally taken by a judgment creditor to attach or levy upon
any assets of any Borrower or any of such Borrowers Subsidiaries to enforce any such judgment and such action is not stayed within sixty (60) days;
(i) If there is a default, amortization, termination or similar event with respect to any agreement to which a Borrower or any
of its Subsidiaries is a party, the termination or acceleration of which is reasonably likely to either result in a Material Adverse Change or result in liability in an amount in excess of $7,500,000, and such default, amortization, termination or
similar event with respect to such other agreement (1) occurs at the final maturity of the obligations thereunder, or (2) results in an acceleration of the maturity of the Borrowers or any of its Subsidiaries obligations thereunder;
(j) [Reserved];
(k) Any representation or warranty made or deemed made to a Lender by or on behalf of any Loan Party in or pursuant to this
Agreement or any other Loan Document or any amendment or modification hereof or thereof, or any waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this
Agreement or any other Loan Document or any amendment or modification hereof or thereof, or any waiver hereunder or thereunder, shall prove to
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have been incorrect in any material respect (or, in the case of any such representation or warranty under this Agreement or any other Loan Document already qualified by materiality, such
representation or warranty shall prove to have been incorrect) when made or deemed made;
(l) If (i) the obligation of any
Loan Party under the guaranty provisions of the Collateral Agreement are terminated by operation of law and, not replaced by a guaranty from a Person with creditworthiness acceptable to each Lender or (ii) any Loan Party shall default in respect of
any covenant contained in the Collateral Agreement or there shall otherwise be a breach or default in respect of any obligation or agreement contained in the Collateral Agreement and such breach or default continues for thirty (30) days;
(m) any Lien purported to be created by the Collateral Agreement shall cease to be, or shall be asserted in writing by any Loan
Party not to be, a valid, perfected Lien having the priority contemplated thereby (except as otherwise expressly provided in this Agreement or the Collateral Agreement); or
(n) If any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by any Borrower, or any Subsidiaries of a Borrower, or a proceeding shall be commenced by any Borrower or any of its Subsidiaries, or by any Governmental Authority having jurisdiction over any Borrower or
its Subsidiaries seeking to establish the invalidity or unenforceability thereof, or any Borrower, or any of its Subsidiaries shall deny that any Borrower, or any of its Subsidiaries has any liability or obligation purported to be created under any
Loan Document.
8.
|
THE LENDERS
RIGHTS AND REMEDIES.
|
8.1
Acceleration
.
Upon the occurrence and during the continuation of an Event of Default, the Required Lenders may (by written notice to the Borrowers) declare the Obligations, whether evidenced by this Agreement or by any of the other Loan Documents, immediately
due and payable, whereupon the same shall become and be immediately due and payable and the Borrowers shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or further notice or other requirements of any
kind, all of which are hereby expressly waived by the Borrowers. The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in
clause (d)
or
clause (e)
of
Section 7
, without any
notice to Loan Parties or any other Person or any act by the Lenders, the Obligations then outstanding, together with all accrued and unpaid interest thereon and all fees and all other amounts due under this Agreement and the other Loan Documents
shall automatically and immediately become due and payable, without presentment, demand, protest, or notice of any kind, all of which are expressly waived by Loan Parties.
8.2
Other Remedies
. If any Event of Default has occurred and is continuing, and irrespective of whether the Obligations have
become or have been declared immediately due and payable under
Section 8.1
, each Lender may proceed to protect and enforce the rights of such Lender by an action at law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any other Loan Document, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.
8.3
Remedies Cumulative
.
The rights and remedies of the Lenders under this Agreement, the other Loan Documents, and
all other agreements shall be cumulative. The Lenders shall have all other rights and remedies not inconsistent herewith as provided by law or in equity. No exercise by the Lenders of one right or remedy shall be deemed an election, and no
waiver by the Lenders of any Event of Default shall be deemed a continuing waiver. No delay by the Lenders shall constitute a waiver, election, or acquiescence by it.
If Loan Parties fail to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to
C-46
make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, any Lender, with notice to each of the other Lenders and without
prior notice to Loan Parties, may do any or all of the following: (a) make payment of the same or any part thereof, or (b) in the case of the failure to comply with
Section 5.4
hereof, obtain and maintain insurance policies of the type
described in
Section 5.4
and take any action with respect to such policies as such Lender deems prudent. Any such amounts paid by a Lender shall constitute Lender Expenses and any such payments shall not constitute an agreement by the
Lenders to make similar payments in the future or a waiver by any Lender of any Event of Default under this Agreement. A Lender need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.
10.
|
WAIVERS; INDEMNIFICATION.
|
10.1
Demand; Protest; etc
.
Loan Parties
waive demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any
time held by the Lenders on which Loan Parties may in any way be liable.
10.2
Indemnification
.
Loan Parties shall
pay, indemnify, defend, and hold the Lender-Related Persons (each, an
Indemnified Person
) harmless (to the fullest extent permitted by law) from and against any and all liabilities, obligations, losses, penalties, claims, demands,
suits, actions, judgments, investigations, proceedings, and damages, and all attorneys fees and disbursements and other fees, costs and expenses of any kind or nature whatsoever which may at any time be imposed upon, incurred by or asserted
against such Indemnified Person in any way in connection therewith or in connection with the enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon,
or incurred by any of them (a) in connection with, as a result of, related to or arising under or out of the execution, delivery, enforcement, performance, or administration (including any restructuring or workout with respect hereto) of this
Agreement, any of the other Loan Documents, the use of the proceeds of the credit provided hereunder or the monitoring of Loan Parties compliance with the terms of the Loan Documents, (b) with respect to any actual or prospective claim,
investigation, litigation, or proceeding related to this Agreement, any other Loan Document, the use of the proceeds of the credit provided hereunder, the transactions contemplated hereby or thereby (in such Indemnified Persons role as a
Lender or a director, officer, employee, partner, agent or other representative of a Lender, its affiliates or controlling persons) or the monitoring of Loan Parties compliance with the terms of the Loan Documents (irrespective of whether any
Indemnified Person is a party thereto and regardless of whether such matter is initiated by a third party or by any Borrower or any of its Subsidiaries Affiliates or stockholders), or any act, omission, event, or circumstance in any manner related
thereto, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) or (c) with respect to any Environmental
Action, any actual or alleged presence or release of or exposure to Hazardous Materials, any Remedial Action, any Environmental Lien, or any Environmental Liabilities and Costs, in each case to the extent related in any way to any Loan Party or any
of their Subsidiaries, their properties or businesses, this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or the monitoring of Loan Parties compliance with the terms of the Loan Documents (all
the foregoing, collectively, the
Indemnified Liabilities
). This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified
Person with respect to an Indemnified Liability as to which any Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by the
Borrowers with respect thereto.
WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF
SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON
;
provided
,
however
, that no Borrower shall have any obligation to any Indemnified Person under this
Section
10.2
with respect to any Indemnified Liability
that a court of competent
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jurisdiction finally determines in a non-appealable judgment to have resulted from the bad faith, gross negligence or willful misconduct of such Indemnified Person. This Section 10.2 shall
not apply with respect to taxes, other than taxes that represent liabilities, obligations, losses, penalties, claims, etc. arising from a non-tax claim.
10.3
Expenses
.
(a) the Borrowers shall reimburse the Lenders for all Lender Expenses within thirty (30) day following demand therefore by a Lender.
(b) Borrower shall pay the Lenders such fees, in the amounts and on the dates, set forth in the Fee Letter.
(c) This provision shall survive the termination of this Agreement and the repayment of the Obligations.
10.4
Waiver
. To the extent permitted by applicable law, the Loan Parties shall not assert, and hereby waive, any claim
against any Indemnified Person on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan
Document or any agreement or instrument contemplated hereby or thereby, any Term Loan or the use of the proceeds thereof. In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect, consequential or
punitive damages (including without limitation lost profits) even if such Person has been advised of the possibility of such damages and regardless of the form of action.
Unless otherwise provided in this Agreement, all notices or demands by Loan
Parties or any Lender to any other relating to this Agreement or any other Loan Document shall be in writing and shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier,
electronic mail (at such email addresses as Loan Parties or any Lender, as applicable, may designate to each other in accordance herewith), or facsimile to Loan Parties or any Lender, as the case may be, at its address set forth below:
|
|
|
If to ARI:
|
|
Apollo Commercial Real Estate Finance, Inc.
|
|
|
c/o Apollo Global Management
|
|
|
9 W 57
th
Street
|
|
|
New York, NY 10019
|
|
|
Attn: Stuart A. Rothstein
Tel: (212)
822-0722
|
|
|
Fax: (646) 219-3826
|
|
|
Email:
srothstein@apollolp.com
|
|
|
If to AUSA:
|
|
Athene USA Corporation
|
|
|
c/o Athene Asset Management, L.P.
|
|
|
2121 Rosecrans Ave., Suite 5300
|
|
|
El Segundo, CA 90245
|
|
|
Attention: James Belardi
|
|
|
Telephone: 310-698-4481
|
|
|
Facsimile: 310-698-4492
|
|
|
Email:
jbelardi@athene.com
|
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|
|
|
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With a copy to:
|
|
|
Athene USA Corporation
|
|
|
c/o Athene Asset Management, L.P.
|
|
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2121 Rosecrans Ave., Suite 5300
|
|
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El Segundo, CA 90245
|
|
|
Attention: Legal Department
|
|
|
Telephone: 310-698-4481
|
|
|
Facsimile: 310-698-4492
|
|
|
Email:
legal@athene.com
|
If to any other Lender, to its address set forth in the applicable Assignment and Acceptance.
Any Loan Party or any Lender may change the address at which it is to receive notices hereunder, by notice in writing in the foregoing manner
given to each other party. All notices or demands sent in accordance with this
Section 11
shall be deemed received on the earlier of the date of actual receipt or three (3) Business Days after the deposit thereof in the mail (as
specified in the first paragraph of this Section above) and shall be as effective if sent by telefacsimile or other electronic transmission as notice or demand sent by any other method.
12.
|
CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
.
|
(a) THE VALIDITY OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES
HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) EACH OF THE PARTIES HERETO AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK, STATE OF NEW YORK,
PROVIDED
,
HOWEVER
, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT A LENDERS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE A LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH PROPERTY MAY BE FOUND. EACH LOAN PARTY AND EACH LENDER WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF
FORUM
NON
CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12(b)
.
(c) EACH LOAN PARTY AND EACH LENDER, TO THE FULL EXTENT NOW OR HEREAFTER PERMITTED BY APPLICABLE LAW, HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH OF THE LOAN PARTIES AND THE LENDERS REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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13.
|
ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS
.
|
13.1
Assignments and
Participations
.
(a) At any time or from time to time, any Lender may assign and delegate to one or more assignees
(each an
Assignee
) all, or any ratable part of all, of the Obligations and the other rights and obligations of such Lender, in a minimum amount of $5,000,000, with the prior written consent of ARI (such consent not to be
unreasonably withheld, conditioned or delayed);
provided
, that no consent of ARI shall be required for an assignment to an Affiliate of the Lender or solely among Lenders;
provided
,
however
, that the Borrowers and any other
Lender may continue to deal solely and directly with such assigning Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information
with respect to the Assignee, have been given to the Borrowers and each other Lender by such assigning Lender and the Assignee, and (ii) such assigning Lender and its Assignee have delivered to the Borrowers and each other Lender an Assignment and
Acceptance. No Loan Party or any Subsidiary of a Loan Party may at any time be an Assignee or otherwise have the rights and obligations of a Lender under the Loan Documents.
(b) From and after the date that the assigning Lender (with a copy to Loan Parties and each other Lender) has received an
executed Assignment and Acceptance, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Lender under the Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights (except with respect to
Section 10.2
hereof) and be released from any future obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning
Lenders rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall effect a novation between Loan Parties and the Assignee;
provided
,
however
, that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lenders obligations under
Section 16.7
of this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder
confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant
hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Loan Parties or the performance or observance by Loan Parties of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action under this Agreement, and (5) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as
a Lender.
(d) Immediately upon receipt by the Loan Parties and each Lender of the fully executed Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee. The Borrowers shall maintain a register for the recordation of the names and addresses of each Lender,
and the principal amounts of (and stated interest on) the Term Loans and other Obligations owing to such Lender pursuant to the terms hereof from time to time (the
Register
). The Borrowers and each Lender shall treat each Person
whose name is recorded in the Register
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pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and each Lender, at any reasonable time and
from time to time upon reasonable prior notice.
(e) Any Lender may at any time, sell to one or more commercial banks,
financial institutions, or other Persons (a
Participant
) participating interests in its Obligations and the other rights and interests of that Lender (the
Originating Lender
) hereunder and under the other Loan
Documents;
provided
,
however
, that (i) the Originating Lender shall remain a Lender for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations
and the other rights and interests of the Originating Lender hereunder shall not constitute a Lender hereunder or under the other Loan Documents and the Originating Lenders obligations under this Agreement shall remain unchanged,
(ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Loan Parties and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating
Lenders rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or substantially all of (1) the Collateral or
(2) the value of the guarantees of the Obligations, in each case, supporting the Obligations hereunder in which such Participant is participating (except to the extent expressly provided herein or in any of the Loan Documents), (D) postpone the
payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, (v) all amounts payable by Loan Parties
hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to
it as a Lender under this Agreement and (v) each Participant shall have agreed to be bound by the provisions of
Section 13.3
as if it were a Lender. The rights of any Participant only shall be derivative through the Originating Lender
with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to Loan Parties, the other Lenders or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves.
(f)
In connection with any such assignment or participation or proposed assignment or participation, a Lender may, subject to the provisions of
Section 16.7
, disclose all documents and information which it now or hereafter may have obtained in
connection with this facility and relating to Loan Parties and their respective Affiliates and businesses.
(g) Any Lender
may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section shall not apply to any such pledge or assignment of a security interest;
provided
that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto.
(h) Any Assignee or Participant on the date it becomes a
Lender or Participant hereunder shall certify in the applicable Assignment and Acceptance, participation agreement or other similar document that it is, or meets the criteria for being, both a qualified purchaser (within the meaning of
the Investment Company Act of 1940 and the rules and regulations thereunder) and a qualified institutional buyer (within the meaning of Rule 144A under the Securities Act). Any failure to include such a certification in an
Assignment and Acceptance, participation agreement or other applicable document with respect to the
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Assignees or Participants qualified purchaser and qualified institutional buyer status shall render such Assignment and Acceptance, participation agreement or other similar document
void ab initio and of no force or effect for any purpose.
(i) Each Lender that sells a participation shall, acting solely
for this purpose as a non-fiduciary agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other
Obligations (the
Participant Register
);
provided
that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to
a Participants interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of
credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person
whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
13.2
Successors
.
This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of
the parties;
provided
,
however
, that no Loan Party may assign this Agreement or any rights or duties hereunder without the Lenders prior written consent and any prohibited assignment shall be absolutely void
ab
initio
. No consent to assignment by the Lenders shall release the Loan Parties from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 13.1
hereof and, except as expressly required pursuant to
Section 13.1
hereof, no consent or approval by Loan Parties is required in connection with any such assignment.
14.1
Amendments and Waivers
.
No
amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Loan Party there from, shall be effective unless the same shall be in writing and signed by the Required Lenders
and the Borrowers and then any such waiver or consent shall be effective, but only in the specific instance and for the specific purpose for which given;
provided
,
however
, that no such waiver, amendment, or consent shall, unless in
writing and signed by all of the Lenders affected thereby and the Borrowers, do any of the following:
(a) postpone or
delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to the Lenders hereunder or under any other Loan Document,
(b) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or
other amounts payable to the Lenders hereunder or under any other Loan Document,
(c) change the Pro Rata Share that is
required to take any action hereunder,
(d) amend or modify this Section or any provision of the Agreement providing for
consent or other action by all Lenders,
(e) change the definition of Required Lenders or Pro Rata
Share,
(f) release any Borrower from any obligation for the payment of money to the Lenders or release all or
substantially all of the Collateral or the value of the guarantees of the Obligations; or
(g) amend any of the provisions
of
Section 15
.
The foregoing notwithstanding, (i) any amendment, modification, waiver, consent, termination, or release of, or with respect to,
any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lenders among themselves, and that does not affect the rights or obligations of the Borrowers, shall not
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require consent by or the agreement of the Borrowers and (ii) each Lender may agree with the Borrowers to any amendment, modification, waiver or consent with respect to any provision of this
Agreement or any other Loan Document that does not adversely affect the rights or obligations of any other Lender hereunder or any other Loan Document.
14.2
No Waivers; Cumulative Remedies
.
No failure by any Lender to exercise any right, remedy, or option under this
Agreement or any other Loan Document, or delay by any Lender in exercising the same, will operate as a waiver thereof. No waiver by any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by
any Lender on any occasion shall affect or diminish each Lenders rights thereafter to require strict performance by Loan Party of any provision of this Agreement. Each Lenders rights under this Agreement and the other Loan Documents will
be cumulative and not exclusive of any other right or remedy that any Lender may have.
15.1
Lender in Individual Capacity
.
Any Lender and
its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with
Loan Parties and any Borrowers Subsidiaries and other Affiliates and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other Lenders. The other Lenders
acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Loan Parties and any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Loan
Parties or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender
will use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to them.
15.2
Withholding Taxes; Increased Costs
.
(a) All payments made by or on account of any Obligation of any Borrower
hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes, and
in the event any deduction or withholding of Taxes is required, each Borrower shall comply with the requirements of this paragraph.
Taxes
shall mean, any taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any Governmental Authority with respect to such payments (but excluding any tax imposed by any Governmental Authority measured by or based on the net income or net profits of any Lender or as a result of a
present or former connection between a Lender and the Governmental Authority imposing such tax, any tax imposed under FATCA, and any tax imposed pursuant to a law in effect on the day such Lender becomes a party to this Agreement) and all interest,
penalties or similar liabilities with respect thereto. If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes and such additional amounts as may be necessary so that every payment of all amounts due under
this Agreement, any note, or Loan Document, including any amount paid pursuant to this
Section
15.2(a)
after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein. The
Borrowers will furnish to each Lender as promptly as reasonably practicable after the date the payment of any Tax is due pursuant to Applicable Law certified copies of tax receipts evidencing such payment by Loan Parties, as applicable.
Notwithstanding anything to the contrary herein or in any Loan Document, Borrower shall not be required to indemnify, pay additional amounts, gross-up or otherwise compensate any Lender, participant, or any other Person with an interest in the Loan
Documents as a result of any Tax imposed as a result of such Persons failure to provide any form or certification described in
Section
15.2(b)
such Person is legally able to provide.
(b) Each Lender (and any Person that becomes a Lender, participant or otherwise acquires an interest in any Loan Document after
the date hereof) that is entitled to an exemption from or reduction of withholding
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Tax with respect to payments made under any Loan Document shall deliver to Borrower or any other Loan Party at the time or times reasonably requested by Borrower or on the date such Person
becomes a Lender, participant or otherwise acquires an interest in any Loan Document, such properly completed and executed documentation reasonably requested by the Borrowers or any other Loan Party as will permit such payments to be made without
withholding or at a reduced rate of withholding to the extent permitted by law. Without limiting the generality of the foregoing, each Lender agrees with and in favor of the Loan Parties, to deliver to the Borrowers whichever of the following forms
the applicable Lender is legally entitled to provide and is applicable:
(i) if such Lender claims an exemption from United
States withholding tax pursuant to its portfolio interest exception, (A) a statement of such Lender, signed under penalty of perjury, that it is not a (I) a bank as described in Section 881(c)(3)(A) of the IRC, (II) a 10%
stockholder of either Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to either Borrower within the meaning of Section 864(d)(4) of the IRC, and (B) a properly completed and
executed IRS Form W-8BEN or W-8BEN-E, as appropriate, before receiving its first payment under this Agreement and at any other time reasonably requested by any Loan Party;
(ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly
completed and executed IRS Form W-8BEN or W-8BEN-E, as appropriate, before receiving its first payment under this Agreement and at any other time reasonably requested by any Loan Party;
(iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before receiving its first payment under this Agreement and at any other time reasonably requested by any Loan
Party; or;
(iv) such other form or forms, including IRS Form W-9, as may be required under the IRC or other laws of the
United States as a condition to exemption from, or reduction of, United States withholding or backup withholding tax before receiving its first payment under this Agreement and at any other time reasonably requested by any Loan Party.
Each Lender agrees promptly to notify the Loan Parties of any change in circumstances which would modify or render invalid any claimed
exemption or reduction and shall provide updated forms to the extent it is legally entitled to do so if previously provided forms expire or become inaccurate.
(c) If a Lender claims an exemption from withholding tax in a jurisdiction other than the United States, such Lender agrees
with and in favor of the Loan Parties, to deliver to Borrower any such form or forms, as may be required under the laws of such jurisdiction as a condition to exemption from, or reduction of, foreign withholding or backup withholding tax before
receiving its first payment under this Agreement and at any other time reasonably requested by any Loan Party.
Each Lender agrees promptly
to notify the Loan Parties of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
(d) If any Lender claims exemption from, or reduction of, withholding tax and such Lender sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of Loan Parties to such Lender, such Lender agrees to notify the Loan Parties of the percentage amount in which it is no longer the beneficial owner of Obligations of Loan
Parties to such Lender. To the extent of such percentage amount, the Loan Parties will treat such Lenders documentation provided pursuant to
Sections 15.2(b)
or
15.2(c)
as no longer valid. With respect to such percentage
amount, Lender may provide new documentation, pursuant to
Sections 15.2(b)
or
15.2(c)
, if applicable.
(e) If
any Lender is entitled to a reduction in the applicable withholding tax, Borrower may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the
forms or other documentation required by
Section 15.2(b)
or
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Section 15.2(c)
are not delivered to Borrower, then Borrower may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to
the applicable withholding tax.
(f) Each Lender shall deliver to Loan Parties at the time or times prescribed by law and
at such time or times reasonably requested by Loan Parties any documentation prescribed by applicable law under FATCA (including as prescribed by Section 1471(b)(3)(C)(i) of the IRC) and such additional documentation reasonably requested by Loan
Parties as may be necessary for Loan Parties to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such
payment. Solely for purposes of this
subsection (f)
, FATCA shall include any amendments made to FATCA after the date of this Agreement.
(g) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any taxes as to
which it has been indemnified pursuant to this Section 15.2 (including by the payment of additional amounts pursuant to Section 15.2(a)), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity
payments made under this Section with respect to the taxes giving rise to such refund), net of all out-of-pocket expenses (including taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will
the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-tax position than the indemnified party would have been
in if the tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such tax had never been paid. This paragraph
shall not be construed to require any indemnified party to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the indemnifying party or any other Person.
(h) If the introduction of or any change in, after the Closing Date, any applicable law increases a Lenders costs or
reduces its income for the Term Loans, or subjects a Lender to any tax, levy, impost, duty, fee, assessment or other similar charge (other than any Taxes or any tax excluded from the definition of Taxes or resulting from the failure to provide any
form or certification described in
Section
15.2(b)
such Person is legally able to provide) on such Lenders loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other
liabilities or capital attributable thereto, which increases the cost to such Lender of maintaining its Loans, then the Borrowers shall upon demand by such Lender promptly pay to such Lender the increase in cost or reduction in income or additional
expense;
provided
that all requests, rules, guidelines or directives issued or promulgated under, in connection with or pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act or Basel III shall be deemed to be a change in
applicable law, regardless of the date enacted, adopted or issued.
15.3
Restrictions on Actions by Lenders; Sharing of
Payments
.
(a) Each of the Lenders and the Borrowers agree that a Lender may, to the extent it is lawfully entitled
to do so, set off against the Obligations, any amounts owing by such Lender to any Borrower or any deposit accounts of any Borrower now or hereafter maintained with such Lender.
(b) If, at any time or times any Lender shall receive by payment, foreclosure, setoff, or otherwise, any payments with respect
to the Obligations, except for any such proceeds or payments received by such Lender from any Borrower pursuant to the terms of this Agreement, such Lender promptly shall purchase, without recourse or warranty, an undivided interest and
participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance
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with their Pro Rata Shares;
provided
,
however
, that to the extent that such excess payment received by the purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is
required to pay interest in connection with the recovery of the excess payment.
15.4
Payments to the Lenders
.
All
payments to be made by the Borrowers to the Lenders shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer instructions as each Lender may designate for itself by written notice to the
Borrowers. Concurrently with each such payment, the Borrowers shall identify whether such payment (or any portion thereof) represents principal, premium, fees, or interest of the Obligations.
15.5
Several Obligations; No Liability
.
Nothing contained herein shall confer upon any Lender any interest in, or subject
any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents
to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. No Lender shall have any liability for the acts of any other Lender. No Lender shall be
responsible to any Loan Party or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder nor to take any other action on its behalf hereunder or in connection with the financing
contemplated herein.
16.1
Effectiveness
.
This Agreement shall be
binding and deemed effective when executed by each of Loan Parties and each Lender whose signature is provided for on the signature pages hereof.
16.2
Section Headings
.
Headings and numbers have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each Section applies equally to this entire Agreement.
16.3
Interpretation
.
Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lenders or the Borrowers, whether under any rule of construction or otherwise. On the contrary, this Agreement
has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.
16.4
Severability of Provisions
.
Each provision of this Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of any specific provision. This agreement is for the benefit of the parties hereto and there shall be no third party beneficiaries.
16.5
Counterparts; Electronic Execution
.
This Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this
Agreement by telefacsimile, .pdf file or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this
Agreement by telefacsimile, .pdf file or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.
16.6
Revival and Reinstatement of Obligations
.
If the incurrence or payment of the Obligations by Loan Parties or the
transfer to a Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors rights, including provisions of the Bankruptcy Code
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relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a
Voidable Transfer
), and if a
Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that a Lender is required or elects
to repay or restore, and as to all costs, expenses, and attorneys fees of any Lender related thereto, the liability of Loan Parties automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never
been made.
16.7
Confidentiality
.
Lenders each individually (and not jointly or jointly and severally) agree that
material, non-public information regarding Loan Parties, their operations, assets, and existing and contemplated business plans shall be treated by the Lenders in a confidential manner, and shall not be disclosed by the Lenders to Persons who are
not parties to this Agreement or used for any purpose other than as contemplated by this Agreement, except: (a) to attorneys for and other advisors, accountants, auditors, and consultants to any Lender for use by them for a purpose as contemplated
by this Agreement, (b) to Subsidiaries and Affiliates of any Lender, provided that any such Subsidiary or Affiliate shall be advised of the confidential nature of such information and instructed to keep it confidential, (c) as may be required by
statute, decision, or judicial or administrative order, rule, or regulation or by subpoena or similar legal process, (d) as may be agreed to in advance by the Borrowers, or the Borrowers Subsidiaries, (e) as requested or required by any
Governmental Authority or any regulatory or self-regulatory authority or examiner (including the National Association of Insurance Commissioners or other similar organization), (f) as to any such information that is or becomes generally available to
the public (other than as a result of prohibited disclosure by a Lender), (g) in connection with any assignment, prospective assignment, sale, prospective sale, participation or prospective participations, or pledge or prospective pledge of any
Lenders interest under this Agreement, provided that any such assignee, prospective assignee, purchaser, prospective purchaser, participant, prospective participant, pledgee, or prospective pledgee shall have agreed in writing to receive such
information hereunder subject to the terms of this Section, (h) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of
such parties under this Agreement or the other Loan Documents, and (i) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document
or the enforcement of rights hereunder or thereunder to the extent reasonably necessary in connection with such enforcement. The provisions of this
Section 16.7
shall survive for 2 years after the payment in full of the Obligations.
Notwithstanding the foregoing, on or after the Closing Date, each Lender may, at its own expense, issue news releases and publish tombstone advertisements and other announcements relating to this transaction in newspapers, trade journals
and other appropriate media. Notwithstanding anything to the contrary in this Agreement, any Lender may disclose any information hereunder subject to the terms of this
Section 16.7
for the purposes of fulfilling its ordinary course regulatory
obligations not otherwise specifically related to the Acquisition or this Agreement, including to any banking or insurance regulatory agency, without providing prior notice to the Borrower.
16.8
Integration
.
This Agreement, together with the other Loan Documents, reflects the entire understanding of the
parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.
16.9
USA
PATRIOT
Act Notice
.
Each
Lender (for itself and not on behalf of any other
party) hereby notifies the Borrowers that, pursuant to the requirements of the PATRIOT Act, such Lender is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of such
Borrower and other information that will allow such Lender to identify such Borrower in accordance with the PATRIOT Act.
16.10
Recourse Against Certain Parties
.
No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of any Loan Party as contained in
this Agreement or any other agreement, instrument or document entered into by any Loan Party pursuant hereto or in connection herewith shall be had against any administrator or investment manager of such
C-57
Loan Party or any incorporator, member, partner, officer, employee, trustee, beneficial owner or director of such Loan Party or of any such administrator or investment manager, as such, by the
enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise,
it
being
expressly
agreed
and
understood
that the agreements of each Loan Party contained in this
Agreement and all of the other agreements, instruments and documents entered into by such Loan Party pursuant hereto or in connection herewith are, in each case, solely the respective corporate obligations of such Loan Party, and that no personal
liability whatsoever shall attach to or be incurred by any administrator or investment manager of such Loan Party or any incorporator, member, partner, officer, employee, trustee, beneficial owner or director of such Loan Party or of any such
administrator or investment manager, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of such Loan Party contained in this Agreement or in any other such instruments, documents or agreements, or which
are implied therefrom, and that any and all personal liability of each and every such administrator or investment manager of each Loan Party and each incorporator, member, partner, officer, employee, trustee, beneficial owner or director of such
Loan Party or of any such administrator or investment manager, or any of them, for breaches by any Loan Party of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution,
or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. The provisions of this
Section 16.10
shall survive the termination of this Agreement.
[
Signature pages to follow.
]
C-58
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed and
delivered as of the date first above written.
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BORROWERS
:
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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Name:
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Title:
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ARROW MERGER SUB, INC.
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By:
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Name:
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Title:
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[S
IGNATURE
P
AGE
TO
L
OAN
A
GREEMENT
]
C-59
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LENDER
:
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ATHENE USA CORPORATION
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BY:
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ATHENE ASSET MANAGEMENT, L.P., its investment manager
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By:
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Name:
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Title:
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[S
IGNATURE
P
AGE
TO
L
OAN
A
GREEMENT
]
C-60
Exhibit A-1
[
Form of Assignment and Acceptance
]
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This
ASSIGNMENT AND ACCEPTANCE AGREEMENT
(
Assignment Agreement
) is entered into as of
between
(
Assignor
) and (
Assignee
). Reference is made to the Loan Agreement, dated as of [●],
2016 (which, as the same has been and may from time to time be amended, modified, supplemented, renewed, extended or restated, is hereinafter called the
Loan Agreement
), by and among ATHENE USA CORPORATION, an Iowa corporation
(the
Lender
), ARROW MERGER SUB, INC., a Maryland corporation (
AcquisitionCo
) and APOLLO COMMERCIAL REAL ESTATE FINANCE, INC., a Maryland corporation (
ARI
and together with AcquisitionCo, the
Borrowers
, and each a,
Borrower
). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Loan Agreement.
1. In accordance with the terms and conditions of Section 13 of the Loan Agreement, the Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in and to the Assignors rights and obligations under the Loan Documents as of the date hereof with respect to the Obligations owing to the Assignor, all to the extent
specified on
Annex I
.
2. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear of any adverse claim and (ii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment Agreement and to consummate the
transactions contemplated hereby; (b) makes no representation or warranty and assumes no responsibility with respect to (i) any statements, representations or warranties made in or in connection with the Loan Documents or (ii) the
execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (c) makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of their respective obligations under the Loan Documents or any other instrument or document furnished pursuant thereto, and (d) represents and
warrants that the amount set forth as the Purchase Price on
Annex I
represents the amount owed by Borrower to Assignor with respect to Assignors share of the Term Loans assigned hereunder, as reflected on Assignors books and
records.
3. The Assignee (a) confirms that it has received copies of the Loan Agreement and the other Loan Documents, together with
copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (b) agrees that it will, independently
and without reliance upon Assignor, or any other Lender, based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Loan Documents; (c)
agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender; (d) attaches the forms prescribed in the Loan Agreement with respect to taxes,
including certifying as to the Assignees status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Loan Agreement or such other documents as are
necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty and (e) represents and warrants to Borrower that on and as of the date hereof it is a qualified purchaser (within the
meaning of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder) and a qualified institutional buyer (within the meaning of Rule 144A under the Securities Act).
4. Following the execution of this Assignment Agreement by the Assignor and Assignee, the Assignor will deliver this Assignment Agreement to
the other Lenders and the Loan Parties. The effective date of this Assignment (the
Settlement Date
) shall be the latest to occur of (a) the date of the execution and delivery hereof by the Assignor and the Assignee, and (b) the
date specified in
Annex I
.
5. Upon receipt by the other Lenders and the Loan Parties of this Assignment Agreement, as of the
Settlement Date (a) the Assignee shall be a party to the Loan Agreement and, to the extent of the interest assigned pursuant to this Assignment Agreement, have the rights and obligations of a Lender thereunder and under the other Loan Documents, and
(b) the Assignor shall, to the extent of the interest assigned pursuant to this Assignment Agreement, relinquish its rights and be released from its obligations under the Loan Agreement and the other Loan Documents,
provided
,
however
,
that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lenders obligations under Section 15 and Section 16.7 of the Loan Agreement.
6. On the Settlement Date, Assignee shall pay to Assignor the Purchase Price (as set forth in
Annex I
). From and after the
Settlement Date, Borrower shall make all payments that are due and payable to the holder of the interest assigned hereunder (including payments of principal, interest, fees and other amounts) to Assignor for amounts which have accrued up to but
excluding the Settlement Date and to Assignee for amounts which have accrued from and after the Settlement Date. On the Settlement Date, Assignor shall pay to Assignee an amount equal to the portion of any interest, fee, or any other charge
that was paid to Assignor prior to the Settlement Date on account of the interest assigned hereunder and that are due and payable to Assignee with respect thereto, to the extent that such interest, fee or other charge relates to the period of time
from and after the Settlement Date and has not been taken into account in determining the Purchase Price.
7. This Assignment Agreement
may be executed in counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Assignment
Agreement may be executed and delivered by facsimile or other electronic transmission all with the same force and effect as if the same were a fully executed and delivered original manual counterpart.
8. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF
, the parties hereto have caused this Assignment Agreement and Annex I
hereto to be executed by their respective officers thereunto duly authorized, as of the first date above written.
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[
NAME OF ASSIGNOR
]
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as Assignor
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By:
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Name:
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Title:
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[
NAME OF ASSIGNEE
]
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as Assignee
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By:
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Name:
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Title:
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CONSENTED:
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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Name:
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Title:
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E
XHIBIT
A-1
C-63
ANNEX FOR ASSIGNMENT AND ACCEPTANCE
ANNEX I
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1.
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Borrowers:
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2.
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Name and Date of Loan Agreement:
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The Loan Agreement, dated as of [●], 2016 (which, as the same has been and may from time to time be
amended, modified, supplemented, renewed, extended or restated, is hereinafter called the
Loan Agreement
), by and among ATHENE USA CORPORATION, an Iowa corporation (the Lender), ARROW MERGER SUB, INC., a
Maryland
corporation (
AcquisitionCo
) and APOLLO COMMERCIAL REAL ESTATE FINANCE, INC. (ARI and together with AcquisitionCo, the
Borrowers
, and each a,
Borrower
).
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3.
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Date of Assignment Agreement:
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4.
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Assigned Amount of Term Loan
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$
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5.
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Settlement Date:
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6.
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Notice and Payment Instructions, etc.
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[
ASSIGNOR
]
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[
ASSIGNEE
]
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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E
XHIBIT
A-1
C-64
Schedule 1.1
Excluded Subsidiaries
ARM II SPE, LLC
ARWL 2013-1 Trust
ARWL 2013-1 REO Trust
ARWL 2014-1 Trust
Apollo Residential Mortgage Securities, LLC
ACREFI II TRS, LTD.
ACREFI Insurance Services, LLC
C-65
Schedule 4.3(a)
States of Organization
C-66
Schedule 4.3(b)
Chief Executive Offices
C-67
Schedule 4.3(c)
Organizational Identification Numbers and
Federal Employer Identification Numbers
C-68
Schedule 4.4
Capitalization of Borrowers Subsidiaries
C-69
Schedule 4.6
Litigation
C-70
Schedule 4.21
Taxes
C-71
Schedule 6.1
Permitted Indebtedness
C-72
Schedule 6.2
Permitted Liens
C-73
Schedule 6.8
Existing Restrictions
C-74
Schedule 6.11
Permitted Investments
C-75
Schedule 6.12
Transactions with Affiliates
C-76
EXHIBIT B
Project Apple
Conditions
Precedent
The availability and initial funding of the Term Loan Facility shall be subject to the satisfaction (or waiver) of solely
the following conditions (subject to the Certain Funds Provision). Capitalized terms used but not otherwise defined herein have the meanings assigned to such terms in the Commitment Letter to which this
Exhibit
B
is
attached or on
Exhibit A
attached thereto.
1.
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Each Loan Party shall have executed and delivered the Loan Documents to which it is a party and the Lender shall have received all other related instruments, documents, certificates and agreements executed or delivered
pursuant thereto, including:
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(a)
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customary closing certificates, borrowing notices and legal opinions; and
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(b)
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a certificate of the chief financial officer (or other officer with reasonably equivalent responsibilities) of ARI in the form attached as
Annex I
hereto, certifying that ARI and the other Loan Parties, on a
consolidated basis, after giving effect to the Transactions, are solvent.
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2.
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The Specified Acquisition Agreement Representations shall be true and correct in all material respects to the extent required by the Certain Funds Provision and the Specified Representations shall be true and correct in
all material respects (except in the case of any Specified Representation which expressly relates to a given date or period, such representation and warranty shall be true and correct in all material respects as of the respective date or for the
respective period, as the case may be);
provided
, that to the extent that any of the Specified Representations are qualified by or subject to a material adverse effect, material adverse change or similar term or
qualification, the definition thereof shall be the definition of Material Adverse Effect (as defined below) for purposes of any such representations and warranties made or deemed made on, or as of, the Closing Date (or any date prior
thereto).
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3.
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The Loan Parties shall have completed (or, substantially concurrently with the credit extension hereunder will complete) the Acquisition in accordance with the terms of the Acquisition Agreement, but without giving
effect to any amendments, waivers, supplements or other modifications or consents by the Borrowers that are materially adverse to the interests of the Lender without the prior written consent of the Lender.
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4.
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Since January 1, 2015, no Company Material Adverse Effect shall have occurred that would excuse the Borrowers from their obligations to consummate the Acquisition under the Acquisition Agreement.
Company
Material Adverse Effect
shall have the meaning ascribed thereto in the Acquisition Agreement.
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5.
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The Lender shall have received a copy of the Athene Purchase Agreement executed by the Loan Parties party thereto and such agreement shall not have been terminated on or prior to the Closing Date; provided, however,
that if the Buyer Representative (as defined in the Athene Purchase Agreement) has terminated the Athene Purchase Agreement pursuant to Section 10.1(b)(i) of the Athene Purchase Agreement, this condition shall still be deemed to be satisfied.
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6.
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All documents and instruments necessary to grant the Lender a perfected security interest (subject to liens permitted under the relevant Loan Documents) in the collateral under the Term Loan Facility shall have been
delivered (including pledged collateral, with undated irrevocable transfer powers executed in blank).
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7.
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The Lender shall have received payment from the Borrowers of (i) all amounts due and payable under any Loan Document on or prior to the Closing Date, including all fees required to be paid under the Fee Letter and
(ii) all expenses required to be paid pursuant to the Commitment Letter (which amounts may be offset against the proceeds of the Term Loan Facility) for which (in the case of expenses) invoices have been presented at least two business days
prior to the Closing Date.
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Conditions
Exhibit B Page 1
C-77
8.
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The Lender shall have received all documentation and other information requested by the Lender under applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act,
as reasonably requested in writing at least ten business days prior to the Closing Date.
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Conditions
Exhibit B Page 2
C-78
Annex I to Exhibit B
Form of Solvency Certificate
[
●
][
●
], 2016
This Solvency Certificate is being executed and delivered pursuant to that certain Loan Agreement, dated as of [●] [●], 2016, by
and among Apollo Commercial Real Estate Finance, Inc. (
ARI
), Arrow Merger Sub, Inc. and Athene USA Corporation (the
Credit Agreement
; the terms defined therein being used herein as therein defined).
I,
, the Chief
Financial Officer of ARI, in such capacity and not in an individual capacity, hereby certify as follows:
1.
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I am generally familiar with the businesses and assets of ARI and its Subsidiaries, taken as a whole, and am duly authorized to execute this Solvency Certificate on behalf of ARI pursuant to the Credit Agreement; and
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2.
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As of the date hereof and after giving effect to the Transactions, that (a) the fair value of the property of ARI and the other Loan Parties is greater than the total amount of liabilities, including contingent,
subordinated, unmatured and unliquidated liabilities, of ARI and the other Loan Parties, taken as a whole on a consolidated basis, (b) the present fair salable value of the assets of ARI and the other Loan Parties is not less than the amount
that will be required to pay the probable liability of ARI and the other Loan Parties, taken as a whole on a consolidated basis, on their debts as they become absolute and matured, (c) ARI and the other Loan Parties, taken as a whole on a
consolidated basis, have not incurred, do not intend to incur, and do not believe that they will incur debts or liabilities (subordinated, contingent or otherwise) beyond their ability to pay such debts and liabilities as they become due (whether at
maturity or otherwise), (d) ARI and the other Loan Parties, taken as a whole on a consolidated basis, will not have unreasonably small capital with which to conduct their business operations as contemplated to be conducted and (e) ARI and
the other Loan Parties, taken as a whole on a consolidated basis, are not insolvent as such term is defined under any applicable laws relating to fraudulent transfers and conveyances, or any bankruptcy, insolvency, or similar laws in any
jurisdiction where they are organized. For the purposes hereof, the amount of any contingent or unliquidated liabilities at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability.
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[Remainder of page
intentionally left blank]
C-79
IN WITNESS WHEREOF, I have executed this Solvency Certificate on the date first written above.
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By:
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Name:
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[
●
]
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Title:
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Chief Financial Officer
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C-80
Annex D
EXECUTION VERSION
STOCK
PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of February 26, 2016 (this
Agreement
), by and between
Athene USA Corporation, an Iowa corporation (
Athene
), and Apollo Commercial Real Estate Finance, Inc., a Maryland corporation (
ARI
).
RECITALS
WHEREAS, ARI has
entered into that certain Agreement and Plan of Merger, dated as of the date hereof (the
Merger Agreement
), with Apollo Residential Mortgage, Inc., a Maryland corporation (
AMTG
), and Arrow Merger Sub, Inc., a
Maryland corporation and wholly-owned Subsidiary (as defined below) of ARI (
Merger Sub
), pursuant to which AMTG will merge with Merger Sub (the
First Merger
), with AMTG surviving the First Merger as a Subsidiary
of ARI and, immediately thereafter, AMTG will merge with and into ARI (the
Second Merger
and, together with the First Merger, the
Mergers
) with ARI surviving the Second Merger (the date on which the Mergers
occur being referred to herein as the
Merger Closing Date
);
WHEREAS, ARI has entered into that certain Asset Purchase
Agreement, dated as of the date hereof (the
Asset Purchase Agreement
), with one or more Subsidiaries of Athene, pursuant to which such one or more Subsidiaries will purchase from ARI or one or more of its Subsidiaries, and ARI and
its Subsidiaries will sell to such one or more Subsidiaries of Athene, certain assets, upon the terms and subject to the conditions therein;
WHEREAS, on the date hereof, Athene has delivered that certain debt commitment letter to ARI, pursuant to which, upon the terms and subject to
the conditions set forth therein, ARI may draw up to $200,000,000 (subject to potential reduction pursuant to the terms thereof) under a term facility (the
Loan Agreement
) which would be provided pursuant to the debt commitment
letter; and
WHEREAS, in connection with the execution of the Asset Purchase Agreement and the commitment letter, Athene and ARI desire to
enter into this Agreement to provide for the purchase of ARI Common Stock by Athene or one or more of its Subsidiaries, upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions and Rules of Construction
1.1
Definitions
.
As used in this Agreement, the following terms shall have the meanings set forth below:
10b5-1 Plan
means a purchase plan established for purposes of complying with Rule 10b5-1, substantially in the form attached
as
Exhibit A
hereto (subject to such changes as may be reasonably requested by the applicable Agent or, upon ARIs prior written consent (which is not to be unreasonably withheld, delayed or conditioned), Athene).
Affiliate
means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this definition, control of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary
D-1
voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; provided, however,
for purposes of this Agreement, neither ARI nor any Subsidiary thereof shall constitute an Affiliate of Athene and neither Athene nor any Subsidiary thereof shall constitute an Affiliate of ARI.
Agent
has the meaning set forth in Section 3.2.
Agreement
means this Stock Purchase Agreement, as it may be amended from time to time in accordance with
Section 5.5
.
AMTG
has the meaning set forth in the Preamble.
Ancillary Documents
means the agreements and other documents contemplated by this Agreement, including each
10b5-1
Plan.
ARI
has the meaning set forth in the Preamble.
ARI Common Stock
means the common stock of ARI, par value $0.01 per share.
Asset Purchase Agreement
has the meaning set forth in the Recitals.
Assets
has the meaning set forth in the Asset Purchase Agreement.
Athene
has the meaning set forth in the Preamble.
Business Day
means any day other than a Saturday, Sunday or day on which banks are closed in New York, New York. If any
period expires on a day which is not a Business Day or any event or condition is required by the terms of this Agreement to occur or be fulfilled on a day which is not a Business Day, such period shall expire or such event or condition shall occur
or be fulfilled, as the case may be, on the next succeeding Business Day.
Buyers
has the meaning set forth in the
Asset Purchase Agreement and, for purposes of this Agreement, shall include any assignee thereof.
Conditional Amount
means (i) from the Purchase Period Start Date through the third (3
rd
) Business Day after the Merger Closing Date, $5,000,000 and (ii) after the third
(3
rd
) Business Day following the Merger Closing Date, $0;
provided
that if the Minimum Purchase occurs on or prior to the third (3
rd
)
Business Day following the Merger Closing Date and Athene has delivered notice thereof to each Agent on the date that the Minimum Purchase occurs, then, from and after the date of the Minimum Purchase, the Conditional Amount shall be $20,000,000.
Consent
has the meaning set forth in Section 2.1(d)(i).
Contract
means any legally binding contract, agreement, license, lease, commitment, understanding or other obligation,
whether oral or written.
First Merger
has the meaning set forth in the Recitals.
First Open Trading Day
means the first Business Day occurring on or after the Proxy Mailing Date on which the directors and
executive officers of ARI are permitted to purchase and sell ARI Common Stock.
Governmental Entity
means any court,
arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, whether foreign, federal, state, local or supernational.
D-2
Law
means any statute, code, rule, regulation, order, ordinance, judgment or
decree or other pronouncement of any Governmental Entity having the effect of law.
Litigation
means any claim, action,
suit, arbitration, alternative dispute resolution action or other judicial or administrative proceeding, in Law or equity.
Loan
Agreement
has the meaning set forth in the Recitals.
Maximum Amount
means an amount equal to the lesser of
(i) $210,000,000 minus the amount outstanding under the Loan Agreement from time to time, and (ii) the Conditional Amount, excluding any amounts payable in respect of commissions.
Merger Agreement
has the meaning set forth in the Recitals.
Merger Closing Date
has the meaning set forth in the Recitals.
Mergers
has the meaning set forth in the Recitals.
Minimum Purchase
means the purchase by the Buyers of, or the Buyers failure to purchase when required by the Asset
Purchase Agreement, Assets having an aggregate market value of at least $500,000,000 pursuant to the Asset Purchase Agreement.
Person
or
person
means an individual, partnership, corporation, limited liability company, business
trust, joint stock company, trust, unincorporated association, joint venture, Governmental Entity, person (including a person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) or other entity or organization.
Principal Market
means the New York Stock
Exchange or, if the ARI Common Stock is not quoted on the New York Stock Exchange, the principal national securities exchange on which the ARI Common Stock is listed.
Proxy Mailing Date
means the date on which the Proxy Statement (as defined in the Merger Agreement) is first mailed to the
stockholders of AMTG.
Purchase Period
means the period commencing on the first day following the Purchase Period Start
Date and continuing through the end of the thirtieth (30th) Trading Day following the Purchase Period Start Date.
Purchase
Period Start Date
means the date of the latest to occur of (i) the Merger Closing Date, (ii) the date on which the conditions set forth in the Asset Purchase Agreement to the obligation of the Buyers to consummate the transactions
contemplated by the Asset Purchase Agreement have been satisfied, and (iii) the date on which the conditions set forth in the Loan Agreement to the obligation of Athene to extend the financing pursuant to the Loan Agreement have been satisfied.
Purchased Shares
means those shares of ARI Common Stock purchased by Athene (or its Subsidiaries) pursuant to a 10b5-1 Plan
adopted in accordance with this Agreement.
Rule 10b-18
means Rule 10b-18 as promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
Rule 10b5-1
means Rule 10b5-1 as promulgated
by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
Second Merger
has the meaning set forth in the Recitals.
D-3
Subsidiary
or
Subsidiaries
, when used with respect to any
Person, means any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated, that (x) is consolidated with such Person for financial reporting purposes under GAAP, or (y) of which (i) at least
a majority of the outstanding shares of capital stock of, or other equity interests, having by their terms ordinary voting power to elect the board of directors or others governing body with respect to such corporation or other organization is, at
the time of determination, directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries or (ii) with respect to a partnership, such Person or any other
Subsidiary of such Person is a general partner of such partnership.
Trading Day
means any day on which the Principal
Market is open for business and the ARI Common Stock trades regular way on the Principal Market.
1.2
Rules of Construction
.
Unless the context otherwise requires:
(a) a capitalized term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with United States generally accepted accounting
principles;
(c) references in the singular or to him, her, it, itself, or other like
references, and references in the plural or the feminine or masculine reference, as the case may be, shall also, when the context so requires, be deemed to include the plural or singular, or the masculine or feminine reference, as the case may be;
(d) references to Articles, Sections, Exhibits and Schedules shall refer to articles, sections, exhibits and schedules of this Agreement,
unless otherwise specified;
(e) a reference herein to any party to this Agreement or any other agreement or document shall be deemed to
refer to any Person that becomes (or became, if applicable) a successor or permitted assign of such party, upon the occurrence thereof;
(f) a reference herein to any agreement (including this Agreement) or other document shall be to such agreement or other document (together
with the schedules, exhibits and other attachments thereto) as it may have been or may hereafter be amended, modified, supplemented, waived or restated from time to time in accordance with its terms, the terms hereof (if applicable thereto) and the
terms of the Asset Purchase Agreement (if applicable thereto);
(g) the headings in this Agreement are for convenience and identification
only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof;
(h) this Agreement shall be construed without regard to any presumption or other rule requiring construction against the party that drafted
and caused this Agreement to be drafted;
(i) all monetary figures shall be in United States dollars unless otherwise specified; and
(j) references to including in this Agreement shall mean including, without limitation, whether or not so specified.
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ARTICLE II
Representations and Warranties
2.1
Representations and Warranties of Athene
. Athene hereby represents and warrants to ARI that:
(a)
Organization and Power
. Athene is a corporation duly incorporated, validly existing and in good standing under the Laws of its
jurisdiction of organization. Athene has full power and authority to execute, deliver and perform this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. Athene has
all power and authority, and possesses all governmental licenses and permits, necessary to enable it to own or lease and to operate its properties and assets and carry on its business as currently conducted, except such power, authority, licenses
and permits the absence of which do not and would not reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereby.
(b)
Authorization and Enforceability
. The execution and delivery of this Agreement and the Ancillary Documents to which Athene is
a party and the performance by Athene of the transactions contemplated hereby and thereby that are required to be performed by Athene have been duly authorized by Athene and no other corporate proceedings on the part of Athene are necessary to
authorize the execution, delivery and performance of this Agreement and the Ancillary Documents to which Athene is a party with respect to the consummation of the transactions contemplated hereby and thereby. This Agreement and each of the
Ancillary Documents to be executed and delivered by Athene have been duly authorized, executed and delivered by Athene. Assuming the due authorization, execution and delivery of this Agreement by ARI, this Agreement constitutes, and assuming the due
authorization, execution and delivery of each Ancillary Document to which Athene is a party by each other party thereto, such Ancillary Document constitutes, a valid and legally binding agreement of Athene enforceable against Athene in accordance
with its terms, subject to bankruptcy, insolvency, reorganization and other Laws of general applicability relating to or affecting creditors rights and to general equity principles.
(c)
No Violation
. The execution and delivery by Athene of this Agreement and the Ancillary Documents to which Athene is a party,
the consummation of the transactions contemplated hereby and thereby that are required to be performed by Athene and the compliance with the terms of this Agreement and the Ancillary Documents to which Athene is a party will not (a) conflict with or
violate any provision of the certificate of incorporation, bylaws or equivalent organizational documents of Athene, or (b) conflict with or violate in any material respect any Law applicable to Athene or by which its properties are bound or
affected. Neither Athene nor its Affiliates are subject to any Contract that would or would reasonably be expected to prevent or materially delay Athenes ability to purchase the Purchased Shares or otherwise consummate the transactions
contemplated hereby.
(d)
Authorizations and Consents
.
(i) No consents, licenses, approvals or authorizations of, or registrations, declarations or filings with, any Governmental Entity or other
Person (
Consents
) are required to be obtained or made by Athene in connection with the execution, delivery and performance of this Agreement or any Ancillary Documents to which Athene is, or is to be, a party or the consummation
by Athene of the transactions contemplated hereby or thereby, and except for those for which the failure to obtain such Consents would not and would not reasonably be expected to prevent or materially delay the consummation of the transactions
contemplated hereby.
(ii) None of the execution, delivery or performance of this Agreement by Athene, the consummation by Athene of the
transactions contemplated hereby or the compliance by Athene with any of the provisions of this Agreement will accelerate the performance required by, result in any termination, cancellation or modification of, or loss of benefit under, or violation
or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right, including, but not limited to, any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions
or provisions of any Contract to which Athene is a party.
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(e)
Sufficiency of Funds
. Athene has, and at all times during the Purchase Period,
will have access to sufficient funds to consummate the transactions contemplated hereby and to satisfy its obligations under this Agreement.
(f)
Disclaimer
. Notwithstanding anything to the contrary contained in this Agreement, neither Athene nor any of its Affiliates,
representatives or advisors has made, or shall be deemed to have made, to ARI or any other Person any representation or warranty other than those expressly made by Athene in this
Section 2.1
.
2.2
Representations and Warranties of ARI
. ARI hereby represents and warrants to Athene that:
(a)
Organization and Power
. ARI is a corporation duly incorporated, validly existing and in good standing under the Laws of its
jurisdiction of organization. ARI has full power and authority to execute, deliver and perform this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. ARI has
all power and authority, and possesses all governmental licenses and permits, necessary to enable it to own or lease and to operate its properties and assets and carry on its business as currently conducted, except such power, authority, licenses
and permits the absence of which do not and would not reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereby.
(b)
Authorization and Enforceability
. The execution and delivery of this Agreement and the Ancillary Documents to which ARI is a
party and the performance by ARI of the transactions contemplated hereby and thereby that are required to be performed by ARI have been duly authorized by ARI and no other corporate proceedings on the part of ARI are necessary to authorize the
execution, delivery and performance of this Agreement and the Ancillary Documents to which ARI is a party with respect to the consummation of the transactions contemplated hereby and thereby. This Agreement and each of the Ancillary Documents
to be executed and delivered by ARI have been duly authorized, executed and delivered by ARI. Assuming the due authorization, execution and delivery of this Agreement by Athene, this Agreement constitutes, and assuming the due authorization,
execution and delivery of each Ancillary Document to which ARI is a party by each other party thereto, such Ancillary Document constitutes, a valid and legally binding agreement of ARI enforceable against ARI in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other Laws of general applicability relating to or affecting creditors rights and to general equity principles.
(c)
Authorizations and Consents
.
(i) No Consents are required to be obtained or made by ARI in connection with the execution, delivery and performance of this Agreement or
any Ancillary Documents to which ARI is, or is to be, a party or the consummation by ARI of the transactions contemplated hereby or thereby, and except for those for which the failure to obtain such Consents would not and would not reasonably be
expected to prevent or materially delay the consummation of the transactions contemplated hereby.
(ii) None of the execution, delivery
or performance of this Agreement by ARI, the consummation by ARI of the transactions contemplated hereby or the compliance by ARI with any of the provisions of this Agreement will accelerate the performance required by, result in any termination,
cancellation or modification of, or loss of benefit under, or violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right, including, but not limited to, any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any Contract to which ARI is a party.
(d)
No Violation
. The execution and delivery by ARI of this Agreement and the Ancillary Documents to which ARI is a party, the consummation of the transactions contemplated hereby and thereby that are required to be performed by ARI and the
compliance with the terms of this Agreement and the Ancillary Documents to which ARI is a party will not (a) conflict with or violate any provision of the charter or bylaws of ARI, or (b) conflict with or violate in any material respect any Law
applicable to ARI or by which its properties are bound or affected.
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(e)
Other
. The representations and warranties set forth in Sections 4.6, 4.7, 4.8,
4.9, 4.12, 4.13, 4.14 and 4.15 of the Merger Agreement are true and correct.
(f)
Disclaimer
. Notwithstanding anything to the
contrary contained in this Agreement, neither ARI nor any of its Affiliates, representatives or advisors has made, or shall be deemed to have made, to Athene or any other Person any representation or warranty other than those expressly made by ARI
in this Section 2.2.
ARTICLE III
Commitment to Purchase ARI Common Stock
3.1
Purchase of ARI Common Stock
. Subject to the last sentence of this Section 3.1, Athene hereby agrees and irrevocably commits
to purchase (or cause one or more of its Subsidiaries to purchase) shares of ARI Common Stock during the Purchase Period if, at any time and from time to time during the Purchase Period, the quoted price of the ARI Common Stock on the New York Stock
Exchange (or, if the ARI Common Stock is not quoted on the New York Stock Exchange, the principal national securities exchange on which the ARI Common Stock is listed) is less than the Parent Common Stock Per Share Value (as defined in the Merger
Agreement);
provided
,
however
, in no event shall Athene or its Subsidiaries, or any Agent acting on behalf of Athene or its Subsidiaries, be required to purchase any shares of ARI Common Stock pursuant to this Agreement if at any time
the aggregate amount of ARI Common Stock purchased by Athene, its Subsidiaries and any Agent acting on behalf of Athene or any of its Subsidiaries under this Agreement is in excess of the Maximum Amount at such time;
provided
,
further
,
that in no event shall Athene or any of its Subsidiaries or any Agent acting on behalf of Athene or any of its Subsidiaries be required to purchase shares of ARI Common Stock to the extent any such purchase would cause Athene or such Subsidiary or
any Agent acting on behalf of Athene or any of its Subsidiaries to exceed the aggregate amount of ARI Common Stock that Athene is permitted to own pursuant to ARIs charter and bylaws as in effect from time to time. All such purchases of ARI
Common Stock shall be made in the open market at the then-current market price for shares of ARI Common Stock and shall be made only in accordance with the limitations and restrictions of Rule 10b-18 and any other restrictions imposed by either
applicable Law or the terms of a 10b5-1 Plan. In no event shall Athene be required to purchase any ARI Common Stock pursuant to this Agreement if (i) the Merger Closing Date has not occurred by the Second Outside Date (as defined in the Merger
Agreement), (ii) the conditions set forth in the Asset Purchase Agreement to the obligation of the Buyers (as defined in the Asset Purchase Agreement) to consummate the transactions contemplated by the Asset Purchase Agreement have not been
satisfied or waived, or (iii) the conditions set forth in the Loan Agreement to the obligation of Athene to extend the financing pursuant to the Loan Agreement have not been satisfied or waived.
3.2
Stock Purchase Plan
. In order to fulfill Athenes purchase obligations described in Section 3.1, Athene shall, on or as
promptly as practicable following the First Open Trading Day, adopt, enter into and not withdraw, terminate or take any action that would result in the termination of, a 10b5-1 Plan with one or more broker-dealers or other agents (any such
broker-dealer, an
Agent
), except to the extent any such withdrawal, termination or action is required to comply with or avoid a violation of Rule 10b5-1. Prior to the date of the First Open Trading Day, ARI shall advise Athene in
writing of the occurrence of the First Open Trading Day.
3.3
Certain Restrictions
. Athene hereby agrees that, subject to the
last sentence of this Section 3.3, for a period of 180 days following the purchase of any Purchased Share pursuant to this Agreement, it will not, and it will cause its Subsidiaries not to, directly or indirectly (alone or in concert with others)
(i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise transfer or dispose of such
Purchased Share or any securities convertible into or exchangeable or exercisable for such Purchased Share, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the
economic consequence of ownership of such Purchased Share, whether any such swap or transaction is to be settled by delivery of such Purchased Share or other securities, in cash or otherwise. The
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foregoing restrictions are expressly agreed to preclude Athene and its Subsidiaries from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or
result in a sale or disposition of the Purchased Shares even if such securities would be disposed of by someone other than Athene or an Affiliate thereof. Such prohibited hedging or other transactions would include without limitation any short
sale or any purchase, sale or grant of any right (including without limitation any put option or put equivalent position or call option or call equivalent position) with respect to any of the Purchased Shares or with respect to any security that
includes, relates to, or derives any significant part of its value from such Purchased Shares. This Section 3.3 shall not restrict any sale or other transfer of any Purchased Share to any of Athenes Subsidiaries or to the extent required
by any Governmental Entity.
ARTICLE IV
Additional Agreements
4.1
Consents and Approvals
. Athene shall use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or
advisable under applicable Law or pursuant to any Contract to consummate and make effective, as promptly as practicable, the transactions contemplated hereby, including (i) obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities necessary in connection with entering into this Agreement, any 10b5-1 Plan and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity necessary in connection with this Agreement, any 10b5-1 Plan and the consummation of the transactions
contemplated hereby and thereby, and (ii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated hereby and to fully carry out the purposes of this Agreement.
4.2
Limitations on Purchases of ARI Common Stock
. ARI shall not, and it shall cause each of its affiliated purchasers (as
defined in Rule 10b-18) not to, directly or indirectly, purchase, offer to purchase or place any bid or limit order for the purchase of any ARI Common Stock or any securities convertible or exchangeable into or exercisable for, or the value of
which is derived from, ARI Common Stock during the Purchase Period, except for any purchases made by Athene or a Subsidiary thereof pursuant to a 10b5-1 Plan contemplated hereby and otherwise pursuant to this Agreement.
4.3
Disclosure
. From and after the date hereof, so long as this Agreement is in effect, Athene will not issue any press release,
public statement or other disclosure to a third party with respect to this Agreement without the prior consent of ARI (which consent shall not be unreasonably withheld, conditioned or delayed), and ARI will not issue, or consent to the issuance by
AMTG or any other Person of, any press release, public statement or other disclosure to a third party, including the information supplied by or on behalf of ARI for inclusion or incorporation by reference in the Proxy Statement (as defined in the
Merger Agreement), with respect to the Asset Purchase Agreement, the Loan Agreement, this Agreement or Athene or any Subsidiary thereof without the prior written consent of Athene (which consent shall not be unreasonably withheld, conditioned or
delayed), unless such party determines, after consultation with outside counsel, that it is required by applicable Law or by any listing agreement with or the listing rules of the New York Stock Exchange or other exchange to issue or cause the
publication of any press release or other announcement or disclosure with respect to the Mergers, this Agreement, the Asset Purchase Agreement or the Loan Agreement in which event such party shall endeavor, on a basis reasonable under the
circumstances, to provide a meaningful opportunity to the other party to review and comment upon such press release or other announcement or disclosure (including the Proxy Statement) and shall accept all reasonable additions, deletions or changes
suggested thereto. For the avoidance of doubt and subject to the preceding sentence, ARI and Athene agree that ARI will disclose in the Proxy Statement Athenes intention to establish the 10b5-1 Plan for the acquisition of ARI Common Stock
as contemplated hereby.
4.4
Information to Agent
. To the extent requested by Athene, ARI shall, prior to 8:00 a.m., New York
City time on the first day of the Purchase Period, provide to Athene all information, other than publicly reported
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trading volumes, necessary for the Agent to calculate the maximum number of shares of ARI Common Stock that may be purchased as of the first day of the Purchase Period in accordance with the
volume condition set forth in Rule 10b-18.
4.5
Notices to Agent
.
(a) ARI shall notify each Agent in writing of the occurrence of the Purchase Period Start Date on, and in no event prior to, the Purchase
Period Start Date.
(b) On any day in which the amount outstanding under the Loan Agreement is reduced, Athene shall notify each Agent in
writing of such reduced outstanding amount; provided, that Athene shall not be required to deliver such notice if the amount outstanding under the Loan Agreement immediately prior to such reduction is less than or equal to $190,000,000.
(c) ARI shall notify each Agent in writing upon the occurrence of the Minimum Purchase on, and in no event prior to, the date on which the
Minimum Purchase occurs.
(d) ARI shall notify each Agent in writing upon the occurrence of the Merger Closing Date on, and in no event
prior to, the date on which the Merger Closing Date occurs.
ARTICLE V
Miscellaneous
5.1
Notices
.
All notices, requests, claims, consents, demands and other communications hereunder shall be in writing and shall be
deemed given if delivered to the applicable party (i) personally (notice deemed given upon receipt), (ii) telecopied (notice deemed given upon confirmation of receipt), (iii) sent by a nationally recognized overnight courier service, such as Federal
Express (notice deemed given upon receipt of proof of delivery) or (iv) electronic mail (provided, that any such transmission by electronic mail shall be followed by a copy delivered in accordance with the foregoing clauses (i) or (iii)) (notice
deemed given on the date sent if sent during normal business hours of the recipient, and on the next Business Day, if sent after normal business hours of the recipient). All notices hereunder shall be delivered as set forth below, or pursuant to
such other instructions as may be designated in writing by the party to receive such notice, and a copy of each notice shall also be sent via e-mail.
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If to ARI:
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Apollo Commercial Real Estate Finance, Inc.
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c/o Apollo Global Management, LLC
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9 W. 57
th
Street, 43
rd
Floor
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New York, NY 10019
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Attn: Stuart A. Rothstein
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Fax: (646) 219-3826
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Email: srothstein@apollolp.com
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With a copy (which shall not constitute notice) to:
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Fried, Frank, Harris, Shriver & Jacobson LLP
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One New York Plaza
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New York, NY 10004
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Attn: Steven Epstein, Esq.
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Abigail Bomba, Esq.
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Fax: (212) 859-4000
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Email: steven.epstein@friedfrank.com
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abigail.bomba@friedfrank.com
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If to Athene:
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Athene USA Corporation
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attn: James Belardi
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Fax: (310) 698-4481
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Email: jbelardi@athene.com
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With a copy (which shall not constitute notice) to:
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Athene USA Corporation
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c/o Athene Asset Management, L.P.
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2121 Rosecrans Ave., Suite 5300
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El Segundo, CA 90245
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Attn: Legal Department
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Fax: (310) 698-4481
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Email: legal@athene.com
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5.2
Governing Law
.
This Agreement shall in all respects be governed by, and construed in accordance with, the Laws (excluding conflict of laws rules and
principles) of the State of Delaware applicable to agreements made and to be performed entirely within such State, including all matters of construction, validity and performance.
5.3
Entire Agreement
.
This Agreement, together with the Ancillary Documents, constitute the entire agreement of the parties relating to the subject matter hereof
and supersede all prior contracts or agreements, whether oral or written.
5.4
Severability
.
Should any provision of this Agreement or the application thereof to any Person or circumstance be held invalid or unenforceable to any
extent: (a) such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition and shall be enforced to the greatest extent permitted by Law, (b) such unenforceability or prohibition in any
jurisdiction shall not invalidate or render unenforceable such provision as applied (i) to other Persons or circumstances, or (ii) in any other jurisdiction, and (c) such unenforceability or prohibition shall not affect or invalidate any other
provision of this Agreement.
5.5
Amendment
.
Except as set forth in Section 5.16, neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented or modified
orally, but only by an instrument in writing signed by Athene and ARI; provided, that the observance of any provision of this Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver.
D-10
5.6
Effect of Waiver or Consent
.
No waiver or consent, express or implied, by any party to or of any breach or default by any party in the performance by such party of its
obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such party of the same or any other obligations of such party hereunder. No single or partial exercise of
any right or power, or any abandonment or discontinuance of steps to enforce any right or power, shall preclude any other or further exercise thereof or the exercise of any other right or power. Failure on the part of a party to complain of any
act of any party or to declare any party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder until the applicable statute of limitation period has run.
5.7
Parties in Interest; Limitation on Rights of Others
.
The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives,
successors and assigns. Nothing in this Agreement, whether express or implied, shall be construed to give any Person (other than the parties hereto and their respective legal representatives, successors and assigns and as expressly provided
herein) any legal or equitable right, remedy or claim under or in respect of this Agreement or any covenants, conditions or provisions contained herein, as a third party beneficiary or otherwise.
5.8
Assignability
.
This
Agreement shall not be assigned by any party without the prior written consent of the other party hereto; provided, however, that Athene may assign this Agreement to any Subsidiary thereof without ARIs consent, it being understood that any
such assignment shall not release Athene from any of its obligations under this Agreement.
5.9
Jurisdiction; Court Proceedings; Waiver
of Jury Trial
.
Any Litigation against any party to this Agreement arising out of or in any way relating to this Agreement shall be
brought in any federal or state court located in the State of Delaware in New Castle County and each of the parties hereby submits to the exclusive jurisdiction of such courts for the purpose of any such Litigation;
provided
, that a final
judgment in any such Litigation shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.
Each party irrevocably and unconditionally agrees not to assert (a) any objection
which it may ever have to the laying of venue of any such Litigation in any federal or state court located in the State of Delaware in New Castle County, (b) any claim that any such Litigation brought in any such court has been brought in an
inconvenient forum and (c) any claim that such court does not have jurisdiction with respect to such Litigation.
To the extent that service of process by mail is permitted by applicable Law, each party irrevocably consents to the service of
process in any such Litigation in such courts by the mailing of such process by registered or certified mail, postage prepaid, at its address for notices provided for herein.
Each party irrevocably and unconditionally waives any right to a
trial by jury and agrees that any of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties irrevocably to waive its right to trial by jury in any Litigation.
5.10
No Other Duties
.
The only duties and obligations of the parties under this Agreement are as specifically set forth in this Agreement, and no other duties or
obligations shall be implied in fact, Law or equity, or under any principle of fiduciary obligation.
D-11
5.11
Reliance on Counsel and Other Advisors
.
Each party has consulted such legal, financial, technical or other expert as it deems necessary or desirable before entering into this
Agreement. Each party represents and warrants that it has read, knows, understands and agrees with the terms and conditions of this Agreement.
5.12
Remedies
.
All
remedies, either under this Agreement or by Law or otherwise afforded to the parties hereunder, shall be cumulative and not alternative, and any Person having any rights under any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of this Agreement and to exercise all other rights granted by Law, equity or otherwise.
5.13
Specific Performance
.
The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, the parties agree that, in addition to any other remedies, each party shall be entitled to enforce the terms of this Agreement by a decree of specific
performance. Each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy.
5.14
Counterparts
.
This Agreement may be executed by facsimile signatures and in any number of counterparts with the same effect as if
all signatory parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in
portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing
the original signature.
5.15
Further Assurance
.
If at any time after the date hereof any further action is necessary or desirable to fully effect the transactions contemplated hereby or any
other of the Ancillary Documents, each of the parties shall take such further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request.
5.16
Termination
.
This
Agreement shall terminate automatically without any act or deed of either party upon the Asset Purchase Agreement or the Merger Agreement being terminated in accordance with its terms;
provided
,
however
, that this Agreement shall not
terminate automatically upon the termination of the Asset Purchase Agreement by ARI pursuant to Section 10.1(d) or 10.1(e) of the Asset Purchase Agreement.
(signature pages follow)
D-12
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and
delivered in its name and on its behalf, all as of the day and year first above written.
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ATHENE USA CORPORATION
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By: Athene Asset Management, L.P., its investment advisor
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By: AAM GP Ltd., its General Partner
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By:
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/s/ James R. Belardi
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Name:
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James R. Belardi
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Title:
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Chief Executive Officer
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APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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D-14
EXHIBIT A
FORM OF
10b5-1 PURCHASE
PLAN AGREEMENT
[
], 2016
Purchaser:
This
letter agreement (this Letter Agreement) confirms the terms and conditions under which Athene USA Corporation (the Purchaser) hereby establishes a plan (the Plan) to purchase shares of common stock, par value
$0.01 (the Securities), of Apollo Commercial Real Estate Finance, Inc. (the Issuer), and under which [●] will act as its exclusive agent to execute the Plan.
1.
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Appointment of [●]
. The Purchaser hereby appoints [●] as its exclusive agent to purchase Securities pursuant to the Plan. It is the Purchasers intention that such purchases benefit from the safe
harbor provided by
Rule 10b-18
(Rule 10b-18)
and the affirmative defense provided by
Rule 10b5-1
(Rule 10b5-1)
each promulgated by the Securities and Exchange Commission (the SEC) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and that the Plan
and the transactions contemplated hereby comply with the requirements of paragraph (c)(1)(i)(B) of
Rule 10b5-1,
and the Purchaser acknowledges that the Purchaser may be an affiliated purchaser
of the Issuer, as such term is defined in
Rule 10b-18.
Accordingly, the Purchaser hereby agrees that the terms of this Letter Agreement and the Plan shall be interpreted to comply with the requirements of
such paragraph (c)(1)(i)(B) and that it shall not take, nor permit any person or entity under its control to take, any action that could jeopardize the availability of
Rule 10b-18
for purchases of
Securities under the Plan or result in such purchases not so complying with the requirements of such paragraph (c)(1)(i)(B). [●] agrees that it shall use good faith efforts to execute all purchases of Securities under this Letter
Agreement in accordance with the timing, price and volume restrictions contained in subparagraphs (2), (3) and (4) of paragraph (b) of Rule 10b -18, taking into account the rules and practices of the principal exchange on which the
Securities are traded (the Principal Market), it being understood that [●] shall not be responsible for delays between the execution and reporting of a trade in the Securities, any reporting errors of the Principal Market or third
party reporting systems or other circumstances beyond [●]s control.
|
|
(a)
|
[●] is authorized to commence purchasing Securities on the first day following the Purchase Period Start Date (as defined in Annex A) provided that the Issuer delivers written notice of the Purchase Period Start
Date to [●] on the Purchase Period Start Date (the Start Date), and this Letter Agreement and the Plan shall terminate upon the earliest of (the period from and including the Start Date to such termination, the Plan
Period):
|
|
(i)
|
the expiration of the Purchase Period (as defined in Annex A);
|
|
(ii)
|
the completion of all purchases contemplated by the Plan;
|
|
(iii)
|
subject to Section 11 below, the receipt by either party from the other of written notice of termination;
|
|
(iv)
|
the existence of any legal or regulatory restriction that would prohibit any purchase pursuant to the Plan;
|
|
(v)
|
the public announcement (as defined in Rule 165(f) under the Securities Act of 1933, as amended) of any merger, acquisition, or similar transaction relating to the Issuer (other than any merger, acquisition, or
similar transaction publicly announced prior to the Start Date) and any such transaction in which the Issuer is the acquiring party and the consideration consists solely of cash and there is no valuation period);
|
|
(vi)
|
the commencement of any voluntary or involuntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to the Issuer or the Purchaser under any
|
D-15
|
bankruptcy, insolvency or similar law or seeking the appointment of a trustee, receiver or other similar official with respect to the Issuer or the Purchaser, or the taking of any corporate
action by the Issuer or the Purchaser to authorize or commence any of the foregoing;
|
|
(vii)
|
the failure of the Purchaser to comply with Section 7 hereof;
|
|
(viii)
|
the failure of the Issuer to provide notice of the Purchase Period Start Date to [●] on the Purchase Period Start Date; and
|
|
(ix)
|
any delay of the Purchase Period Start Date caused by or within the sole control of the Purchaser or as a result of sole consent provided by the Purchaser or any amendment to any of the Merger Agreement, the Asset
Purchase Agreement or the Loan Agreement (each as defined in Annex A) in the Purchasers discretion or sole control or with the Purchasers sole consent causing a delay with respect to the Purchase Period Start Date or the Asset Purchase
(as defined in Annex A).
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|
(b)
|
If, as contemplated by paragraph (a)(iv) of this Section 2, at any time during the term of this Letter Agreement, any legal or regulatory restriction that is applicable to the Issuer, the Purchaser or the affiliates of
the Issuer or the Purchaser would prohibit any purchase pursuant to the Plan, the Purchaser shall give [●] notice of such restriction as soon as practicable (such notice, a Required Termination Notice). Such notice shall not
include any information about the nature of the restriction or its applicability to the relevant entity.
|
|
(c)
|
The Purchaser shall be solely responsible for any purchases made by [●] as the Purchasers agent prior to the termination of the Plan. In addition, if [●] receives notice of termination (including any
Required Termination Notice) or of any of the termination events listed above, [●] shall nevertheless be entitled to make, and the Purchaser shall be solely responsible for, a purchase hereunder pursuant to a bid made before such notice was
received by [●].
|
|
(d)
|
Sections 7 and 10 of this Letter Agreement shall survive any termination hereof.
|
3.
|
Purchases Outside Plan
. The Purchaser (a) agrees that it shall not and (b) represents and warrants that it has agreed with the Issuer that the Issuer shall not, and the Issuer shall cause each of its
affiliated purchasers (as defined in
Rule 10b-18)
not to, directly or indirectly (including in any similar purchase plan or any derivative transaction) purchase, offer to purchase or place any
bid or limit order for the purchase of any Securities or any securities convertible or exchangeable into or exercisable for, or the value of which is derived from, the Securities during the Plan Period except under the Plan pursuant to this Letter
Agreement. If the Purchaser becomes aware that the Issuer or any other affiliated purchaser of the Issuer has taken any such action during the Plan Period, the Purchaser shall so notify [●] as soon as practicable.
|
4.
|
Purchasing Procedures
.
|
|
(a)
|
On each Trading Day during the Plan Period on which no Market Disruption Event (as defined below) occurs, [●] shall use commercially reasonable efforts to purchase as agent for the Purchaser and for the account of
the Purchaser the lesser of (i) the maximum number of Securities that the Purchaser could purchase on such Trading Day in accordance with the volume condition set forth in
Rule 10b-18
and
(ii) the number of Securities, if any, that [●] is able, subject to market conditions and principles of best execution, to purchase as agent for the Purchaser and for the account of the Purchaser on such Trading Day using commercially
reasonable means in accordance with the Plan guidelines set forth in Annex A hereto. [●] may purchase Securities on the Principal Market, any national securities exchange, in the over-the-counter market, on an automated trading system or
otherwise. Any numbers of Securities to be purchased (and any corresponding purchase price limits or ranges) set forth in Annex A shall be adjusted automatically on a proportionate basis to take into account any stock split, reverse stock split
or stock dividend with respect to the Securities or any change in capitalization with respect to the Issuer or any similar event that occurs during the term of this Letter Agreement, as determined by [●] in good faith and a commercially
reasonable manner.
|
D-16
A Trading Day is any day that the Principal Market is open for business and the
Securities trade regular way on the Principal Market.
Market Disruption Event means that (i) there occurs any material
(as reasonably determined by [●]) suspension of or limitation on trading by the Principal Market, (ii) there occurs any event that materially (as reasonably determined by [●]) disrupts or impairs the ability of market participants
in general to effect transactions in or obtain market values for the Securities or futures or options contracts on the Securities or (iii) the Principal Market closes prior to its scheduled closing time for such Trading Day.
|
(b)
|
In the event that [●], in its discretion, determines that it is appropriate with regard to any legal, regulatory or self-regulatory requirements or related internal policies and procedures (whether or not such
requirements, policies or procedures are imposed by law or have been voluntarily adopted by [●]) for [●] to refrain from purchasing Securities or to purchase fewer than the number of Securities otherwise specified in the instructions
provided by the Purchaser on any day, then [●] may, in its sole discretion, elect that the number of Securities purchased shall be reduced for such day to an amount determined by [●] in its discretion.
|
|
(c)
|
Any Securities purchased pursuant to the Plan shall be purchased under ordinary principles of best execution at the then-prevailing market price. Subject to the terms of the Plan as set forth herein (including Annex A
hereto), [●] shall have full discretion with respect to the execution of all purchases, and the Purchaser acknowledges and agrees that the Purchaser does not have, and shall not attempt to exercise, any influence over how, when or whether
purchases of Securities are affected pursuant to the Plan. The Purchaser acknowledges and agrees that, in purchasing Securities pursuant to the Plan, [●] will be an independent contractor and will not be acting as the Purchasers trustee
or fiduciary or in any similar capacity.
|
5.
|
Payment for and Delivery of Purchased Securities
. Payment for Securities purchased, together with any applicable fees, shall be made by the Purchaser within one standard settlement cycle after the
purchase. Purchased Securities will be held or delivered in accordance with instructions to be furnished by the Purchaser. [●] shall provide to the Purchaser purchase information daily as well as other market data the Purchaser
reasonably requests.
|
6.
|
Compensation
. For the services provided in this Letter Agreement, the Purchaser agrees to pay to [●] a fee of [●] for the Securities purchased pursuant to the terms of this Letter Agreement.
|
7.
|
Representations, Warranties and Agreements
. The Purchaser represents and warrants to, and agrees with, [●] as follows:
|
|
(a)
|
This Letter Agreement and the transactions contemplated herein have been duly authorized by the Purchaser; this Letter Agreement is the valid and binding agreement of the Purchaser, enforceable against the Purchaser in
accordance with its terms; performance of the transactions contemplated herein will not violate any law, rule, regulation, order, judgment or decree applicable to the Purchaser or conflict with or result in a breach of or constitute a default under
any agreement or instrument to which the Purchaser is a party or by which it or any of its property is bound or its certificate of incorporation or by-laws; and no governmental, administrative or official consent, approval, authorization, notice or
filing is required for performance of the transactions contemplated herein.
|
|
(b)
|
As of the date of this Letter Agreement, the Purchaser is not aware of any material nonpublic information concerning the Securities or the business, operations or prospects of the Issuer.
|
|
(c)
|
The Purchaser is engaging [●] and entering into this Letter Agreement and the Plan in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws, including, without
limitation,
Rule 10b-5
under the Exchange Act. Until this Letter Agreement is terminated, the Purchaser agrees not to enter into or alter any corresponding or hedging transaction or position with
respect to the Securities.
|
D-17
|
(d)
|
The Purchaser is not entering into this Letter Agreement to create actual or apparent trading activity in the Securities (or any security convertible into or exchangeable for the Securities) or to raise or depress the
price of the Securities (or any security convertible into or exchangeable for the Securities) for the purpose of inducing others to buy or sell Securities, and will not engage in any other securities or derivative transaction to such ends.
|
|
(e)
|
During the term of this Letter Agreement, neither the Purchaser nor its officers or employees shall, directly or indirectly, disclose to any person at [●] effecting purchases under the Plan any material nonpublic
information regarding the Issuer or the Securities or any information regarding the Issuer or the Securities that could reasonably be expected to influence the execution of the Plan.
|
|
(f)
|
The Purchaser acknowledges that [●] is a financial institution and financial participant within the meaning of Sections 101(22) and 101(22A), respectively, of Title 11 of the United States
Code (the Bankruptcy Code). The parties hereto further agree and acknowledge that each transaction under this Letter Agreement is intended to be a securities contract as defined in Section 741(7) of the Bankruptcy Code and
each payment or delivery of cash, Securities or other property or assets hereunder is a settlement payment within the meaning of Section 741(8) of the Bankruptcy Code, and the parties hereto are to be entitled to the protections afforded
by, among other Sections, Sections 362(b)(6), 362(b)(27), 362(o), 546(e), 546(j), 555 and 561 of the Bankruptcy Code.
|
|
(g)
|
Prior to 8:00 a.m., New York City time on the Start Date, the Purchaser shall provide to [●] all information, other than publicly reported trading volumes, necessary for [●] to calculate the maximum number
of Securities that may be purchased as of the Start Date in accordance with the volume condition set forth in Rule 10b-18, and [●] shall be entitled to rely on such information so provided.
|
|
(h)
|
None of the Purchaser, the Issuer nor any of their respective affiliates or agents shall take any action that would cause Regulation M under the Exchange Act (Regulation M) to be applicable to any purchases
of Securities, or any security for which the Securities are a reference security (as defined in Regulation M), by the Purchaser, the Issuer or any other affiliated purchasers (as defined in Regulation M) of the Issuer during the Plan Period.
|
|
(i)
|
The Purchaser shall be solely responsible for compliance with all statutes, rules and regulations applicable to the Purchaser and the transactions contemplated hereby, including, without limitation, reporting and filing
requirements. The Purchaser acknowledges and agrees that it is not relying, and has not relied, upon [●] or any affiliate of [●] with respect to the legal, accounting, tax or other implications of the Plan and the transactions
contemplated thereby and that it has conducted its own analyses of the legal, accounting, tax and other implications hereof. [●] has made no representation and has no obligation with respect to whether the Plan or the transactions
contemplated thereunder qualify for the safe harbor provided by
Rule 10b-18
or the affirmative defense provided by Rule 10b5-1.
|
8.
|
Disclosure of Acquisition Program
. The Purchaser represents and warrants that the Issuer has publicly disclosed the Purchasers intention to establish the Plan for the acquisition of the Securities.
|
9.
|
Other Purchases by [●]
. Nothing herein shall preclude the purchase by [●] of Securities for [●]s own account, or the solicitation or execution of purchase or sale orders of Securities for
the account of [●]s clients.
|
10.
|
Indemnification
. The Purchaser shall indemnify [●] and its affiliates against any liabilities or
expenses (including reasonable out-of-pocket attorneys fees and disbursements), or actions in respect of any liabilities or expenses, arising from the services furnished pursuant to this Letter Agreement including, but not limited to,
liabilities and expenses arising by reason of any violation or alleged violation of any state or federal securities laws, except to the extent such liabilities or expenses result from the gross negligence or bad faith of [●] or its affiliates.
The Purchaser shall also promptly reimburse [●] and its affiliates for all expenditures (including attorneys fees and disbursements) made to investigate, prepare or defend any action or claim in respect of any such liability or expense,
regardless of whether any litigation is pending or threatened against [●] or its affiliates. In addition, neither [●] nor its affiliates shall be liable in respect of
|
D-18
|
any liabilities or expenses incurred by the Purchaser arising from or in connection with [●]s role or services under this Letter Agreement, except to the extent any such liabilities
or expenses result from the gross negligence or bad faith of [●] or its affiliates.
|
11.
|
Amendment, Modification, Waiver or Termination
. Any amendment, modification or waiver of this Letter Agreement or the Plan must be effected in accordance with the requirements for the amendment of a
plan as defined in paragraph (c) of
Rule 10b5-1. Without
limiting the generality of the foregoing, any amendment, modification, waiver or termination shall be made in good faith and not
as part of a plan or scheme to evade the prohibitions of Rule 10b-5 under the Exchange Act, and no such amendment or modification shall be made at any time at which the Purchaser is aware of any material nonpublic information concerning the
Issuer or the Securities, it being understood that the Purchaser may terminate the Plan at a time when it is aware of material nonpublic information. The Purchaser acknowledges and agrees that any action taken by it that results in the
termination of the Plan pursuant to Section 2 is subject to the principles set forth in this section.
|
12.
|
Notices
. Any written communication shall be sent to the address specified below: and shall become effective upon receipt:
|
[●]
[●]
[●]
Attention: [●]
Telephone: [●]
Facsimile: [●]
Email:
[●]
or at such other address as may from time to time be designated by notice to the Purchaser in writing; and
|
(b)
|
if to the Purchaser, to it at
|
Athene USA Corporation
c/o Athene Asset Management, L.P.
2121 Rosecrans Ave., Suite 5300
El Segundo, CA 90245
Attention:
James Belardi
Facsimile: 310-698-4492
Email: jbelardi@athene.com
With
a copy to:
Athene USA Corporation
c/o Athene Asset Management, L.P.
2121 Rosecrans Ave., Suite 5300
El Segundo, CA 90245
Attention:
James Belardi
Facsimile: 310-698-4492
Email: legal@athene.com
or at
such other address as may from time to time be designated by notice to [●] in writing.
13.
|
Assignment
. Neither party may assign its rights and obligations under this Letter Agreement to any other party;
provided
that [●] may assign its rights and obligations under this Letter
Agreement to any subsidiary of [●].
|
14.
|
Governing Law
. This Letter Agreement and any claim, controversy or dispute arising under or related
to this Letter Agreement shall be governed by and construed in accordance with the law of the State of New York.
|
D-19
|
The parties hereto irrevocably submit to the exclusive jurisdiction of the federal and state courts located in the Borough of Manhattan, in the City of New York in any suit or proceeding arising
out of or relating to this Letter Agreement or the transactions contemplated hereby. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS LETTER
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
|
D-20
If the foregoing correctly sets forth our agreement, please sign the form of acceptance below.
Agreed to and accepted as of:
|
|
|
|
|
ATHENE USA CORPORATION
|
|
|
By:
|
|
Athene Asset Management, L.P., its investment manager
|
|
|
By:
|
|
AAM GP Ltd., its General Partner
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
D-21
ANNEX A
Defined Terms
Asset
Purchase
means the purchase by the buyers under the Asset Purchase Agreement of, or the buyers failure to purchase when required by the Asset Purchase Agreement, assets having an aggregate market value of at least $500,000,000
pursuant to the Asset Purchase Agreement.
Asset Purchase Agreement
means the Asset Purchase and Sale Agreement, dated
as of February 26, 2016, by and among, Athene Annuity & Life Assurance Company, Athene Annuity and Life Company and the Issuer.
Business Day
means any day other than a Saturday, Sunday or day on which banks are closed in New York, New York.
Conditional Amount
means (i) from the Purchase Period Start Date through the third (3
rd
) Business Day after the Merger Closing Date, $5,000,000 and (ii) after the third (3
rd
) Business Day following the Merger Closing Date, $0;
provided
that if the Asset Purchase occurs on or prior to the third (3
rd
) Business Day following the Merger Closing Date and the Issuer has delivered notice thereof to [●] on the date
of the Asset Purchase, then, from and after the date of the Asset Purchase, the Conditional Amount shall be $20,000,000.
Loan
Agreement
means the Loan Agreement, dated as of [●], by and among the Issuer, Arrow Merger Sub, Inc. and the Purchaser.
Maximum Amount
means an amount equal to the lesser of (i) $210,000,000 minus the Outstanding Loan Amount and (ii) the
Conditional Amount, excluding any amounts payable in respect of commissions (including any fee described in Section 6).
Merger
Agreement
means that certain Agreement and Plan of Merger, dated as of February 26, 2016, by and among the Issuer, Apollo Residential Mortgage, Inc., and Arrow Merger Sub, Inc.
Merger Closing Date
means the closing date of the mergers contemplated by the Merger Agreement, as specified in a written
notice provided by the Issuer to [●] on the Merger Closing Date.
Outstanding Loan Amount
means the amount
outstanding under the Loan Agreement, which shall be $200,000,000 or, if such amount is reduced at any time, such lesser amount as specified in a written notice provided by the Purchaser to [●].
Purchase Period
means the period commencing on the first day following the Purchase Period Start Date and continuing
through the end of the thirtieth (30th) Trading Day following such day.
Purchase Period Start Date
means the date of
the latest to occur of (i) the Merger Closing Date, (ii) the date on which the conditions set forth in the Asset Purchase Agreement to the obligation of the buyers thereunder to consummate the transactions contemplated by the Asset Purchase
Agreement have been satisfied and (iii) the date on which the conditions set forth in the Loan Agreement to the obligation of the Purchaser to extend the financing pursuant to the Loan Agreement have been satisfied.
Plan Guidelines
Subject to the other restrictions
set forth in this Letter Agreement, including without limitation Section 4(a) and the proviso at the end of this paragraph, [●] shall purchase as many shares of the Securities as possible during the Purchase Period on the Principal Market;
provided
that (i) the purchase price for the Securities is less than $[●] per share and (ii) no Securities will be purchased at any time that the aggregate amount of Securities purchased pursuant to the Plan is in excess of the
Maximum Amount as of such time.
D-22
Annex E
February 26, 2016
ACREFI
Management, LLC
9 West 57
th
Street, 43
rd
Floor
New York, New York 10019
Attention: Jessica Lomm
ACREFI Operating, LLC
9 West 57
th
Street, 43
rd
Floor
New York, New York 10019
Attention: Stuart A. Rothstein
Dear Sirs:
Reference is hereby made to that certain Management Agreement, dated as of September 29, 2009 (as amended or modified from time to time, the
ARI Management Agreement
), by and among Apollo Commercial Real Estate Finance, Inc. (the
Company
), ACREFI Operating, LLC and ACREFI Manager, LLC (the
ACREFI Manager
) and that certain
Management Agreement, dated as of July 27, 2011 (as amended or modified from time to time, the
AMTG Management Agreement
), by and among Apollo Residential Mortgage, Inc. (
AMTG
), ARM Operating, LLC and ARM
Manager, LLC (the
ARM Manager
).
On or about the date hereof, the Company intends to enter into an Agreement and Plan
of Merger by and among the Company, Arrow Merger Sub, Inc., a wholly-owned subsidiary of the Company (
Merger Sub
), and AMTG (the
Merger Agreement
), pursuant to which (subject to the terms and conditions
thereof), (i) Merger Sub shall be merged with and into AMTG, with AMTG as the surviving entity in such merger, and (ii) promptly thereafter, AMTG shall be merged with and into the Company, with the Company as the surviving entity in such merger
(such mergers, the
Mergers
). Capitalized terms used but not defined herein have the meanings set forth in the ARI Management Agreement.
In connection with the Companys entry into the Merger Agreement, the Company has requested that the ACREFI Manager enter into this
letter agreement to set forth certain agreements and understandings between the Company and the ACREFI Manager. Intending to be legally bound hereby, the ACREFI Manager hereby acknowledges and irrevocably agrees as follows:
1. Upon the closing of the Mergers, the AMTG Management Agreement shall be assigned to the Company as a successor organization to AMTG in
accordance with Section 14(a) of the AMTG Management Agreement (the
Assignment
). Under the terms of the AMTG Management Agreement, following the Assignment, the Company will be bound by the AMTG Management Agreement.
2. The parties agree that with effect from the date on which the Mergers become effective, an amount calculated in accordance with Schedule A
hereto will be added to Stockholders Equity for purposes of calculating the Base Management Fee (as defined in the ARI Management Agreement) due to the ACREFI Manager under the ARI Management Agreement. The parties further agree that from and
after the consummation of the Mergers, on each occasion on which the Company (as successor in interest to AMTG) is required, pursuant to the terms of the AMTG Management Agreement, to pay to ARM Manager the Base Management Fee provided for in the
AMTG Management Agreement with respect to the calendar quarter then most recently ended, (to the extent actually paid or payable, the
ARM Base Management Fee Amount
), each such ARM Base
E-1
Management Fee Amount shall offset, and thereby reduce (but not below zero), the Companys obligation to pay the Base Management Fee provided for in the ARI Management Agreement with respect
to the same calendar quarter.
3. Until the closing of the Mergers or earlier termination of the Merger Agreement in accordance with its
terms, the ACREFI Manager shall perform (or cause to be performed) such services and activities, for or on behalf of the Company, and as reasonably requested by the Company or its representatives, as may be necessary or appropriate to enable the
Company to consummate the Mergers and the other transactions contemplated by the Merger Agreement in accordance with the terms thereof, including without limitation assisting the Company and its Subsidiaries and their respective representatives,
agents and advisors in performing and complying with the Companys obligations under the Merger Agreement.
4. In consideration of
the services provided and to be provided by the ACREFI Manager and its affiliates prior to and after the date of this letter agreement in respect of the Mergers and the other actions contemplated pursuant to the Merger Agreement, in addition to any
amounts otherwise payable under the ARI Management Agreement, the Company shall pay to the ACREFI Manager an amount equal to $150,000 per month on the first business day of each calendar month occurring after the date hereof and continuing until the
consummation of the Mergers; provided, however, that in no event shall the Company pay an aggregate amount to the ACREFI Manager pursuant to this letter agreement in excess of $500,000.
This letter agreement and the rights and obligations of the parties under this letter agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York without regard to conflicts of law principles to the contrary.
The
parties hereto agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by any of them of the provisions of this letter agreement and each hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
The terms of this letter agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective legal representatives, successors and permitted assigns. Nothing in this letter agreement, whether express or implied, shall be construed to give any Person (other than the parties hereto and
their respective successors and permitted assigns) any legal or equitable right, remedy or claim under or in respect of this letter agreement or any provisions contained herein, as a third party beneficiary or otherwise. No supplement,
modification, waiver or amendment of this letter agreement shall be binding with respect to any party hereto unless the same shall be in writing and duly executed by such party.
This letter agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party
whose signature appears thereon, and all of which shall together constitute one and the same instrument. This letter agreement shall become binding when one or more counterparts of this letter agreement, individually or take together, shall
bear the signatures of all of the parties reflected hereon as the signatories.
[Reminder of Page Intentionally Blank]
E-2
|
|
|
|
|
Sincerely,
|
|
APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
|
|
|
By:
|
|
/s/ Stuart A. Rothstein
|
|
|
Name:
|
|
Stuart A. Rothstein
|
|
|
Title:
|
|
President and Chief Executive Officer
|
|
ACREFI OPERATING, LLC
|
By:
|
|
Apollo Commercial Real Estate Finance, Inc.
|
|
|
its Sole and Managing Member
|
|
|
By:
|
|
/s/ Stuart A. Rothstein
|
|
|
Name:
|
|
Stuart A. Rothstein
|
|
|
Title:
|
|
President and Chief Executive Officer
|
[
Signature Page to Letter Agreement
]
E-3
|
|
|
|
|
AGREED AND ACCEPTED
|
AS OF THE DATE FIRST WRITTEN ABOVE:
|
|
ACREFI MANAGEMENT, LLC
|
|
|
By:
|
|
/s/ Jessica Lomm
|
|
|
Name:
|
|
Jessica Lomm
|
|
|
Title:
|
|
Vice President
|
[
Signature Page to Letter Agreement
]
E-4
Schedule A
The following amount shall be added to Stockholders Equity for purposes of calculating the Base Management Fee (as defined in the ARI Management
Agreement) due to the ACREFI Manager under the ARI Management Agreement upon closing of the Mergers:
Amount = $396,950,000
E-5
Annex F
February 26, 2016
ARM Manager, LLC
9 West 57
th
Street, 43
rd
Floor
New York, New York 10019
Attention: Jessica L. Lomm
ARM Operating, LLC
9 West 57
th
Street, 43
rd
Floor
New York, New York 10019
Attention: Michael A. Commaroto
Dear Sir and Madam:
Reference is hereby made to
that certain Management Agreement, dated as of July 21, 2011 (the
Management Agreement
), by and among Apollo Residential Mortgage, Inc. (the
Company
), ARM Operating, LLC and ARM Manager, LLC (the
Manager
).
On or about the date hereof, the Company intends to enter into an Agreement and Plan of Merger, by and among
Apollo Commercial Real Estate Finance, Inc. (
ARI
), Arrow Merger Sub, Inc., a wholly-owned subsidiary of ARI (
Merger Sub
), and the Company (the
Merger Agreement
), pursuant to which (subject to
the terms and conditions thereof), (i) Merger Sub shall be merged with and into the Company, with the Company as the surviving entity in such merger, and (ii) promptly thereafter, the Company shall be merged with and into ARI, with ARI as the
surviving entity in such merger (such mergers, the
Mergers
). Capitalized terms used but not defined herein have the meanings set forth in the Management Agreement.
In connection with the Companys entry into the Merger Agreement, the Company has requested that the Manager enter into this letter
agreement to set forth certain agreements and understandings between the Company and the Manager. Intending to be legally bound hereby, the Manager hereby acknowledges and irrevocably agrees as follows: (i) addition to its continuing service under
the Management Agreement, commencing on the date hereof and continuing until the closing of the Mergers or earlier termination of the Merger Agreement in accordance with its terms, Manager shall perform (or cause to be performed) such services and
activities, for or on behalf of the Company and as reasonably requested by the Company or its representatives, as may be necessary or appropriate to enable the Company to consummate the Mergers and the other transactions contemplated by the Merger
Agreement in accordance with the terms thereof, including without limitation assisting the Company and its Subsidiaries and their respective representatives, agents and advisors in performing and complying with the Companys obligations under
the Merger Agreement and (ii) with effect from the date on which the Mergers become effective, Stockholders Equity (as defined in the Management Agreement) will be adjusted in accordance with Schedule A hereto..
This letter agreement and the rights and obligations of the parties under this letter agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York without regard to conflicts of law principles to the contrary.
The
parties hereto agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by any of them of the provisions of this letter agreement and each hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
F-1
The terms of this letter agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective legal representatives, successors and permitted assigns. Nothing in this letter agreement, whether express or implied, shall be construed to give any Person (other than the parties hereto and their respective
successors and permitted assigns) any legal or equitable right, remedy or claim under or in respect of this letter agreement or any provisions contained herein, as a third party beneficiary or otherwise. No supplement, modification, waiver or
amendment of this letter agreement shall be binding with respect to any party hereto unless the same shall be in writing and duly executed by such party.
This letter agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party
whose signature appears thereon, and all of which shall constitute one and the same instrument. This letter agreement shall become binding when one or more counterparts of this letter agreement, individually or taken together, shall bear the
signature of all of the parties reflected hereon as the signatories.
[Reminder of Page Intentionally Blank]
F-2
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Sincerely,
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APOLLO RESIDENTIAL MORTGAGE, INC.
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By:
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/s/ MICHAEL A. COMMAROTO
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Name: MICHAEL A. COMMAROTO
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Title: PRESIDENT and CHIEF EXECUTIVE OFFICER
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[
Signature Page to Letter Agreement
]
F-3
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AGREED AND ACCEPTED
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AS OF THE DATE FIRST WRITTEN ABOVE:
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ARM MANAGER, LLC
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By:
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/s/ JESSICA LOMM
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Name: JESSICA LOMM
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Title: VICE PRESIDENT
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ARM OPERATING, LLC
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By:
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/s/ MICHAEL A. COMMAROTO
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Name: MICHAEL A. COMMAROTO
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Title: PRESIDENT and CHIEF EXECUTIVE OFFICER
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[
Signature Page to Letter Agreement
]
F-4
Schedule A
The following amount shall be deemed to be the amount of Stockholders Equity for purposes of calculating the Management Fee (as defined in the
Management Agreement) due to the Manager under the Management Agreement with effect from the date on which the Mergers become effective:
Amount = $0
F-5
Annex G
February 25, 2016
Special Committee
of the
Board of Directors
Apollo Residential Mortgage, Inc.
c/o Apollo Global Management, Inc.
9 West 57th Street
43rd Floor
New York, NY 10019
Members of the Special Committee of the Board:
We understand
that Apollo Residential Mortgage, Inc. (the Company), Apollo Commercial Real Estate Finance, Inc. (the Buyer) and Arrow Merger Sub, Inc., a wholly owned subsidiary of the Buyer (Acquisition Sub), propose to enter
into an Agreement and Plan of Merger, substantially in the form of the draft dated February 25, 2016 (the Merger Agreement), which provides, among other things, for the merger of Acquisition Sub with and into the Company, with the
Company as the surviving entity (the First Merger), followed promptly by a merger of the Company with and into the Buyer, with the Buyer as the surviving entity (the Second Merger and together with the First Merger, the
Mergers). Pursuant to the Mergers, each outstanding share of common stock, par value $0.01 per share (the Company Common Stock), of the Company, but excluding shares of Company Common Stock (a) held in treasury,
(b) held by the Buyer or Acquisition Sub, or (c) held by any subsidiary of the Buyer, Acquisition Sub or the Company (such shares, the Excluded Shares), will be converted into the right to receive: (i) 0.4183 shares of
common stock, par value $0.01 per share (the Buyer Common Stock), of the Buyer (assuming an aggregate issuance of 13.40 million shares of Buyer Common Stock and that 32.03 million shares of Company Common Stock are issued and
outstanding on a fully diluted basis (the Fully Diluted Company Shares) as of the date that is three business days prior to the mailing of the Proxy Statement (as defined in the Merger Agreement) to holders of shares of Company Common
Stock (the Pricing Date)) (the Per Share Common Stock Merger Consideration); (ii) an amount of cash equal to (A) 89.25% of the Companys book value per share of Company Common Stock as of the Pricing Date less
(B) the value of the Per Share Common Stock Merger Consideration (based on a value of $16.75 per share of Buyer Common Stock) less (C) the per share amount of any dividend that, under the terms of the Merger Agreement, is paid by the
Company to holders of shares of Company Common Stock between the Pricing Date and the consummation of the Mergers (the Per Share Common Cash Merger Consideration); and (iii) in the event the consummation of the Mergers does not
occur within forty-five (45) days of the Pricing Date, an amount of cash equal to (A) three percent (3%) of the Companys book value on an annualized basis accruing daily beginning on and including the 45th day following the
Pricing Date and ending on , but excluding, the last business day prior to the date of the consummation of the Mergers divided by (B) the Fully Diluted Company Shares (the Per Share Adjustment Amount and together with the Per Share
Common Stock Merger Consideration and the Per Share Common Cash Merger Consideration, the Per Common Share Merger Consideration). The terms and conditions of the Mergers are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Per Common Share Merger Consideration to be received by the holders of shares of the Company Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to the holders of shares of the Company Common Stock (other than holders of the Excluded Shares).
For purposes of the opinion set forth herein, we have:
1)
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Reviewed certain publicly available financial statements and other business and financial information of the Company and the Buyer, respectively;
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G-1
2)
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Reviewed certain internal financial statements and other financial and operating data, including information regarding the net equity book value, concerning the Company and the Buyer, respectively;
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3)
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Reviewed certain financial projections prepared by the managements of the Company and the Buyer, respectively;
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4)
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Discussed the past and current operations and financial condition and the prospects of the Company, including a range of estimates for outcomes and risks associated with a liquidation of the Company, with senior
executives of the Company;
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5)
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Discussed the past and current operations and financial condition and the prospects of the Buyer with senior executives of the Buyer, including the Buyers plans to liquidate some of the Companys assets and
reduce the Companys liabilities;
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6)
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Reviewed the reported prices and trading activity for the Company Common Stock and the Buyer Common Stock;
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7)
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Compared the financial performance of the Company and the Buyer and the prices and trading activity of the Company Common Stock and the Buyer Common Stock with that of certain other publicly-traded companies comparable
with the Company and the Buyer, respectively, and their securities;
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8)
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Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
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9)
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Participated in discussions and negotiations among representatives of the Company and the Buyer and their financial and legal advisors;
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10)
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Reviewed the Merger Agreement and certain related documents; and
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11)
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Performed such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate.
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We have assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or
otherwise made available to us by the Company and the Buyer, and formed a substantial basis for this opinion. With respect to the financial projections, we have assumed that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the Company and the Buyer of the future financial performance of the Company and the Buyer. In addition, we have assumed that the Mergers will be consummated in accordance with the
terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions. We have also assumed that the definitive Merger Agreement will not differ in any material respect from the draft furnished to us. Morgan
Stanley has assumed that in connection with the receipt of all the necessary governmental, regulatory and other approvals and consents required for the proposed Mergers, no delays, limitations, conditions or restrictions will be imposed that would
have a material adverse effect on the contemplated benefits expected to be derived in the proposed Mergers. We are not legal, tax or regulatory advisors. We are financial advisors only and have relied upon, without independent verification, the
assessment of the Buyer and the Company and their respective legal, tax, and regulatory advisors, if any, with respect to legal, tax and regulatory matters. We are not experts in the evaluation of allowance for loan losses, and we have neither made
an independent evaluation of the adequacy of the allowance for loan losses at the Company or the Buyer, nor have we examined any individual loan credit files of the Company or the Buyer (nor have we been requested to conduct such a review), and, as
a result, we have assumed that the aggregate allowance for loan losses of the Company and the Buyer is adequate. We express no opinion with respect to the fairness of the amount or nature of the compensation to any of the Companys officers,
directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of the Company Common Stock in the Mergers.
We have not made any independent valuation or appraisal of the assets or liabilities of the Company or the Buyer, nor have we been furnished with any such
valuations or appraisals. Our opinion is necessarily based on
G-2
financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof may affect this opinion
and the assumptions used in preparing it, and we do not assume any obligation to update, revise or reaffirm this opinion.
In arriving at our opinion, we
were not authorized to solicit, and did not solicit, interest from any party (other than the Buyer) with respect to an acquisition, business combination or other extraordinary transaction, involving the Company, nor did we negotiate with any party
(other than the Buyer) regarding a possible acquisition of the Company or certain of its constituent businesses.
We have acted as financial advisor to
the Special Committee of the Board of Directors of the Company in connection with the Mergers and will receive a fee for our services, a substantial portion of which is contingent upon the closing of the Mergers. In the two years prior to the date
hereof, we have provided financial advisory and financing services for Apollo Global Management, LLC, Athene Holding Ltd. and the Company and their respective affiliates and have received fees in connection with such services. Morgan Stanley may
also seek to provide such services to the Buyer and its affiliates in the future and expects to receive fees for the rendering of these services.
Please
note that Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Our securities business is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on
a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or
loans of the Buyer, the Company, Apollo Global Management, LLC, Athene Holding Ltd. and their respective affiliates, or any other company, or any currency or commodity, that may be involved in the Mergers, or any related derivative instrument.
This opinion has been approved by a committee of Morgan Stanley investment banking and other professionals in accordance with our customary practice. This
opinion is for the information of the Special Committee of the Board of Directors and the Board of Directors of the Company and may not be used for any other purpose or disclosed without our prior written consent, except that a copy of this opinion
may be included in its entirety in any filing the Company is required to make with the Securities and Exchange Commission in connection with the Mergers if such inclusion is required by applicable law. In addition, this opinion does not in any
manner address the prices at which the Buyer Common Stock will trade following consummation of the Mergers or at any time and Morgan Stanley expresses no opinion or recommendation as to how the stockholders of the Company should vote at the
stockholders meeting to be held in connection with the Mergers.
Based on and subject to the foregoing, we are of the opinion on the date hereof
that the Per Common Share Merger Consideration to be received by the holders of shares of the Company Common Stock pursuant to the Merger Agreement is fair from a financial point of view to the holders of shares of the Company Common Stock (other
than holders of the Excluded Shares).
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Very truly yours,
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MORGAN STANLEY & CO. LLC
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By:
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/s/ Christian Lown
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Christian Lown
Managing Director
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G-3
Annex H
OPINION OF HOULIHAN LOKEY CAPITAL, INC.
February 25, 2016
The Special
Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
c/o Apollo Global Management, LLC
9 West 57th Street, 43rd Floor
New York, New York 10019
Dear
Special Committee:
We understand that Apollo Commercial Real Estate Finance, Inc. (ARI), Arrow Merger Sub,
Inc., a wholly owned subsidiary of ARI (Merger Sub), and Apollo Residential Mortgage, Inc. (AMTG), propose to enter into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which, among other
things, Merger Sub will be merged with and into AMTG (the First Merger), with AMTG surviving the First Merger and as a result of which AMTG will become a wholly owned subsidiary of ARI, and each outstanding share of the common stock, par
value $0.01 per share, of AMTG (AMTG Common Stock) will be converted into the right to receive a pro rata portion of consideration consisting of cash and shares of the common stock, par value $0.01 per share, of ARI (ARI Common
Stock) equal to 89.25% of the common book value of AMTG determined in accordance with the methodologies and a pricing date contemplated by the Merger Agreement (such per share consideration, the Consideration), subject to certain
adjustments provided for in the Merger Agreement (as to which adjustments we express no opinion).
We have been advised
that, as contemplated by the Merger Agreement and the Asset Purchase and Sale Agreement (the Asset Purchase Agreement and, together with the Merger Agreement, the Agreements) proposed to be entered into among Athene Annuity
and Life Company (Athene Iowa), Athene Annuity & Life Assurance Company (together with Athene Iowa, Athene) and ARI, among other things, (i) promptly following the First Merger, AMTG will be merged with and into ARI (the
Second Merger and, together with the First Merger, the Mergers), with ARI as the surviving corporation, pursuant to which shares of 8.00% Series A cumulative redeemable perpetual preferred stock, par value $0.01 per share, of
AMTG (AMTG Preferred Stock) outstanding immediately prior to the effective time of the First Merger, which will remain outstanding as a result of the First Merger, will automatically convert in the Second Merger into one share of 8.00%
Series C cumulative redeemable perpetual preferred stock, par value $0.01 per share, of ARI (ARI Preferred Stock), (ii) concurrently with or promptly following the Mergers, certain assets held by AMTG, including certain principal,
interest or other proceeds with respect to such assets, will be sold to Athene (the Asset Sale Transaction) for cash consideration, (iii) following consummation of the Asset Sale Transaction, Athene will be required for a specified
period to purchase shares of ARI Common Stock in the open market at market prices in the event that the price of ARI Common Stock falls below $16.75 per share (the Stock Purchase Transactions) and (iv) in connection with the First
Merger, Athene will provide acquisition financing to ARI for a portion of the cash component of the Consideration payable by ARI in the First Merger (such financing, together with the Second Merger, the Asset Sale Transaction, the Stock Purchase
Transactions and the other transactions contemplated by the Agreements and related documents (other than the First Merger), the Related Transactions). The terms and conditions of the
First Merger and the Related Transactions are
more fully set forth in the Agreements and related documents.
The Special Committee (the Special Committee)
of the Board of Directors of ARI (the Board) has requested that Houlihan Lokey Capital, Inc. (Houlihan Lokey) provide an opinion (the Opinion) to the Special Committee as to whether, as of the date hereof, the
Consideration to be paid by ARI in the First Merger is fair to ARI from a financial point of view.
H-1
The Special Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
February 25, 2016
In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate
under the circumstances. Among other things, we have:
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1.
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reviewed a draft dated February 25, 2016 of the Merger Agreement and drafts of certain related documents;
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2.
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reviewed certain publicly available business and financial information relating to AMTG and ARI that we deemed
to be relevant;
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3.
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reviewed certain information relating to the assets and liabilities of AMTG (including prices at which such
assets were traded relative to carrying value) and the historical, current and future operations, financial condition and prospects of ARI made available to us by the external managers of AMTG and ARI, including estimates of the external manager
of ARI as to the net liquidation value of the assets of AMTG;
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4.
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spoken with certain members of the external managers of AMTG and ARI and certain of their respective
representatives and advisors regarding the respective businesses, operations, financial condition and prospects of AMTG and ARI and regarding the First Merger, the Related Transactions and related matters;
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5.
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compared the financial and operating performance of AMTG and ARI with that of other public companies that we
deemed to be relevant;
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6.
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reviewed the current and historical market prices and trading volume for AMTG Common Stock and ARI Common
Stock, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that we deemed to be relevant;
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7.
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reviewed certain potential pro forma financial effects of the First Merger and the Related Transactions on the
common book value per share of ARI utilizing financial projections and other estimates prepared by or discussed with the external manager of ARI relating to ARI for the fiscal years ending December 31, 2016 through December 31, 2018 and the
estimates relating to AMTG referred to above; and
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8.
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conducted such other financial studies, analyses and inquiries and considered such other information and
factors as we deemed appropriate.
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In reaching our conclusions hereunder, at the direction of the
Special Committee, we have evaluated AMTG and the Consideration after giving effect to the First Merger and the Related Transactions on a pro forma liquidation value basis given ARIs plan to liquidate substantially all of the assets of AMTG.
We have relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to us, discussed with or reviewed by us, or publicly available, and
do not assume any responsibility with respect to such data, material and other information. In addition, the external manager of ARI has advised us, and we have assumed, at the direction of the Special Committee, that the financial projections and
other estimates utilized in our analyses have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such external manager as to the net liquidation value of the assets of AMTG (including
the assets contemplated to be sold pursuant to the Asset Sale Transaction), the future financial results and condition of ARI and the other matters covered thereby. We express no opinion with respect to any such projections or estimates utilized in
our analyses or the assumptions on which they are based. We have relied upon and assumed, without independent verification, that there has been no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows
or prospects of AMTG or ARI since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to us that would be material to our analyses or this Opinion, and
H-2
The Special Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
February 25, 2016
that there is no information or any facts that would make any of the information reviewed by us incomplete or misleading. We further have
relied upon, without independent verification, the assessments of the external manager of ARI as to, among other things, (i) the Related Transactions, including with respect to the timing thereof and the assets, liabilities and financial and other
terms involved, (ii) the aggregate common book value of AMTG and the liquidation value of the assets of AMTG, including the timing of and the assets, liabilities and financial and other terms involved in any liquidation of such assets, and (iii) the
potential impact on AMTG and ARI of certain market, competitive and other trends in and prospects for, and governmental, regulatory and legislative matters relating to, the mortgage and real estate markets and related credit and financial markets,
including the potential impact of mortgage loan modification and refinancing programs or other regulatory or legislative matters applicable to AMTG or ARI. We have assumed that there will be no developments with respect to any such matters that
would have an adverse effect on AMTG, ARI, the First Merger or the Related Transactions or that would otherwise be material to our analyses or this Opinion.
We have relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties
to the Agreements and all other related documents and instruments are true and correct, (b) each party to the Agreements and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to
be performed by such party, (c) all conditions to the consummation of the First Merger and the Related Transactions will be satisfied without waiver thereof, and (d) the First Merger and the Related Transactions will be consummated in a timely
manner in accordance with the terms described in the Agreements and such other related documents and instruments, without any amendments or modifications thereto. We also have assumed, at the direction of the Special Committee, that the First Merger
and the Related Transactions will qualify, as applicable, for the intended tax treatment contemplated by the Merger Agreement. We further have relied upon and assumed, without independent verification, that (i) the First Merger and the Related
Transactions will be consummated in a manner that complies in all respects with all applicable foreign, federal and state statutes, rules and regulations and relevant documents and other requirements, (ii) all governmental, regulatory and other
consents and approvals necessary for the consummation of the First Merger and the Related Transactions will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that
would have an adverse effect on AMTG, ARI, the First Merger or the Related Transactions or that would otherwise be material to our analyses or this Opinion and (iii) AMTG and ARI each has operated in conformity with the requirements for
qualification as a real estate investment trust (REIT) for U.S. federal income tax purposes since its formation as a REIT and the First Merger and the Related Transactions will not adversely affect the status or operations of AMTG or
ARI. We have relied upon and assumed, without independent verification, at the direction of the Special Committee, that (A) any alternative transaction structure or adjustment to the Consideration (whether as a result of a delay in the consummation
of the First Merger or otherwise) will not be material to our analyses or this Opinion, (B) the value of the assets of AMTG to be sold in the Asset Sale Transaction will be based on the purchase price payable for such assets as set forth in the
Asset Purchase Agreement and substantially all of the remaining assets of AMTG will be liquidated following consummation of the First Merger and the Related Transactions such that AMTG will no longer be operated as a going-concern and (C) there are
appropriate reserves, indemnification arrangements or other provisions with respect to the liabilities of or relating to AMTG and no liabilities that are contemplated to be excluded as a result of the Related Transactions or otherwise will be
directly or indirectly assumed or incurred by ARI. In addition, we have relied upon and assumed, without independent verification, that the final Merger Agreement and related documents when executed will not differ in any material respect from the
drafts of the Merger Agreement and such related documents identified above.
Furthermore, in connection with this Opinion,
we have not been requested to make, and have not made, any physical inspection or independent appraisal of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance sheet or otherwise) of AMTG, ARI or any other entity
nor were we provided with any
H-3
The Special Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
February 25, 2016
such appraisal. We do not express any opinion regarding the liquidation value of ARI or any other entity. We have undertaken no independent
analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities to which AMTG, ARI or any other entity is or may be a party or is or may be subject, or of any governmental investigation
of any possible unasserted claims or other contingent liabilities to which AMTG, ARI or any other entity is or may be a party or is or may be subject.
We have not been requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit
any indications of interest from, third parties (other than AMTG and Athene) with respect to the First Merger or any Related Transactions, the securities, assets, businesses or operations of AMTG, ARI or any other party, or any alternatives to the
First Merger or any Related Transactions, or (b) advise the Special Committee or any other party with respect to alternatives to the First Merger or any Related Transactions. This Opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the date hereof. We have not undertaken, and are under no obligation, to update, revise, reaffirm or withdraw this Opinion, or otherwise comment on or consider events
occurring or coming to our attention after the date hereof. We are not expressing any opinion as to what the value of ARI Common Stock or ARI Preferred Stock actually will be when issued pursuant to the First Merger and the Related Transactions or
the price or range of prices at which ARI Common Stock, ARI Preferred Stock, AMTG Common Stock or AMTG Preferred Stock may be purchased or sold, or otherwise be transferable, at any time.
This Opinion is furnished for the use of the Special Committee (in its capacity as such) in connection with its evaluation of
the First Merger. This Opinion is not intended to be, and does not constitute, a recommendation to the Special Committee, the Board, any security holder or any other party as to how to act or vote with respect to any matter relating to the First
Merger, any Related Transactions or otherwise.
In the ordinary course of business, certain of our employees and
affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments
(including loans and other obligations) of, or investments in, AMTG, ARI or any other party that may be involved in the First Merger or any Related Transactions and their respective affiliates or any currency or commodity that may be involved in the
First Merger or any Related Transactions.
Houlihan Lokey and certain of its affiliates have
in the past provided
and are currently providing investment banking, financial advisory and/or other financial or consulting services to Apollo Global Management, LLC (Apollo), or one or more security holders, affiliates and/or portfolio companies of
investment funds affiliated or associated with Apollo (collectively, with Apollo, the Apollo Group), for which Houlihan Lokey and such affiliates have received, and may receive, compensation, including, among other things, (a) having
acted as financial advisor to PlayPower, Inc., then a member of the Apollo Group, in connection with its sale transaction, which transaction closed in June 2015, (b) having acted as financial advisor to a special committee of the board of directors
of Genco Shipping & Trading Limited (Genco), a member of the Apollo Group, in connection with Gencos merger transaction, which transaction closed in July 2015, (c) having acted as financial advisor to a special committee of the
board of directors of Athene Holding Ltd., a member of the Apollo Group, in 2014, and (d) having acted as financial advisor to Apollo Management International LLP, a member of the Apollo Group, as a financing party, in connection with its
review of a sale transaction involving Alpine-Energie Holding AG, which transaction closed in April 2014. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services
to ARI, members of the Apollo Group,
other participants in the First Merger and the Related Transactions or certain of their respective affiliates or security holders in the future, for which Houlihan Lokey and such affiliates may receive
compensation.
In addition, Houlihan Lokey and certain of its affiliates and certain of our and their respective employees may have
H-4
The Special Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
February 25, 2016
committed to invest in private equity or other investment funds managed or advised by the Apollo Group, other participants in the First Merger
and the Related Transactions or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with members of the Apollo Group, other participants in the First Merger and the Related
Transactions or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in
the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or
groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, ARI, members of the Apollo Group, other participants in the First Merger and the Related
Transactions or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and such affiliates have received and may receive compensation.
Houlihan Lokey has been engaged as financial advisor to the Special Committee in connection with, and has participated in the
negotiations leading to, the First Merger and will receive fees for such services, of which a portion was payable upon Houlihan Lokeys engagement by the Special Committee and the principal portion is contingent upon consummation of the First
Merger. In addition, we will receive a fee for rendering this Opinion, which is not contingent upon the successful completion of the First Merger or any Related Transactions. In addition, ARI has agreed to reimburse certain of our expenses and to
indemnify us and certain related parties for certain potential liabilities arising out of our engagement.
We have not
been requested to opine as to, and this Opinion does not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Special Committee, the Board, ARI, its security holders or any other party to
proceed with or effect the First Merger or any Related Transactions, (ii) any aspects relating to the operations of AMTG or ARI following consummation of, or the pro forma effects of, the First Merger or any Related Transactions, (iii) the fairness,
from a financial point of view or otherwise, of the consideration to be paid or received in any Related Transactions, including upon liquidation of any assets of AMTG, (iv) the terms of any arrangements, understandings, agreements or documents
related to, or the form, structure or any other portion, aspect or implication of, the First Merger (other than the Consideration to the extent expressly specified herein), the Related Transactions or otherwise, including, without limitation, any
terms, aspects or implications of any debt financing, hedging, derivatives, repurchase, assignment, cooperation or other agreements or arrangements to be entered into in connection with or contemplated by the First Merger, any Related Transactions
or otherwise, (v) the fairness of any portion or aspect of the First Merger or any Related Transactions to the holders of any class of securities, creditors or other constituencies of ARI or AMTG or to any other party, (vi) the relative merits of
the First Merger or any Related Transactions as compared to any alternative business strategies or transactions that might be available with respect to ARI, AMTG (including the assets thereof upon liquidation or otherwise) or any other party, (vii)
the fairness of any portion or aspect of the First Merger or any Related Transactions to any one class or group of security holders or other constituents vis-à-vis any other class or group of security holders or other constituents (including,
without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (viii) whether or not ARI, AMTG, their respective security holders or any other party is receiving or paying
reasonably equivalent value in the First Merger or any Related Transactions,
(ix) the solvency, creditworthiness or fair value of AMTG, ARI or any other participant in the First Merger or any Related Transactions, or any of their respective
assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (x) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to
or received by any officers, directors or employees of any party to the First Merger or any Related Transactions, any class of such persons or any other party, relative to the Consideration or otherwise, including any promote fee or other amount
payable to the external managers of AMTG and ARI.
H-5
The Special Committee of the Board of Directors
Apollo Commercial Real Estate Finance, Inc.
February 25, 2016
Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other
similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from appropriate professional sources. Furthermore, we have relied, with the consent of the Special Committee, on the assessments
by the Special Committee, the Board, the external managers of AMTG and ARI and their respective advisors as to all legal, regulatory, accounting, insurance and tax matters with respect to AMTG, ARI, the First Merger, any Related Transactions or
otherwise. The issuance of this Opinion was approved by a committee authorized to approve opinions of this nature.
Based
upon and subject to the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof, the Consideration to be paid by ARI in the First Merger is fair to ARI from a financial point of view.
Very truly yours,
HOULIHAN
LOKEY CAPITAL, INC.
H-6
Annex I
APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
ARTICLES SUPPLEMENTARY
8.00% SERIES C CUMULATIVE REDEEMABLE
PERPETUAL PREFERRED STOCK
Apollo
Commercial Real Estate Finance, Inc., a Maryland corporation (the
Corporation
), hereby certifies to the State Department of Assessments and Taxation of Maryland (the
SDAT
) that:
FIRST
: Under the authority vested in the Board of Directors of the Corporation (the
Board of Directors
) pursuant to Section 6.3
of Article VI of the charter of the Corporation (the
Charter
), the Board of Directors and a duly-authorized committee thereof (the
Pricing Committee
) have classified and designated 6,900,000 of the authorized
but unissued shares of preferred stock, $0.01 par value per share, of the Corporation as shares of a separate class of preferred stock, designated as 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock, with the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption set forth herein, which upon any restatement of the Charter, shall become a part of Article VI
of the Charter, with any necessary or appropriate changes to the enumeration of sections or subsections hereof. Capitalized terms used and not otherwise defined herein have the meanings set forth in the Charter.
8.00% Series C Cumulative Redeemable Perpetual Preferred Stock
1.
Designation and Number
. A class of preferred stock, designated as the 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock (the
Series
C
Preferred Stock
), is hereby established. The par value of the Series C Preferred Stock is $0.01 per share. The number of shares of Series C Preferred Stock shall be 6,900,000.
2.
Ranking
. The Series C Preferred Stock will, with respect to rights to receive dividends and to participate in distributions or payments upon
liquidation, dissolution or winding up of the Corporation, rank (a) senior to the common stock, $0.01 par value per share, of the Corporation (the
Common Stock
) and any other class or series of stock the Corporation may now
or hereafter authorize or issue, the terms of which provide that such stock ranks, as to the payment of dividends or amounts upon liquidation, dissolution or winding up of the Corporation, junior to the Series C Preferred Stock (
Junior
Stock
), (b) on a parity with the Corporations 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock, the Corporations 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock and any class
or series of stock the Corporation may authorize or issue in the future that, pursuant to the terms thereof, ranks on parity with the Series C Preferred Stock as to the payment of dividends and amounts upon liquidation, dissolution or winding up of
the Corporation (collectively,
Parity Stock
) and (c) junior to any class or series of stock the Corporation may authorize or issue in the future that, pursuant to the terms thereof, rank senior to the Series C Preferred Stock
as to the payment of dividends or amounts upon liquidation, dissolution or winding up of the Corporation (
Senior Stock
).
3.
Dividends
.
(a) Holders of the then outstanding shares of Series C Preferred Stock shall be entitled to receive, when, as and if
authorized by the Board of Directors and declared by the Corporation, out of funds legally available for payment of dividends, cumulative cash dividends at the rate of 8.00% per annum of the $25.00 Liquidation Preference (as defined below) per
share of Series C Preferred Stock (equivalent to $2.00 per annum per share).
(b) Dividends on each outstanding share of Series C
Preferred Stock shall be cumulative from and including [●], 2016 (the
Series
C
Initial
Dividend
Date
) and shall be payable (i) for the period from the Series C Initial Dividend
Date to, but not including, [●], 2016, on [●], 2016, and (ii) for each subsequent quarterly dividend period commencing on the last day of each of January, April, July and October and ending on, and including, the
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day before the first day of the next succeeding dividend period, quarterly in equal amounts in arrears on the last day of each April, July, October and January, commencing on [●], 2016
(each such day in clauses (i) and (ii) above being hereinafter called a
Series
C
Dividend Payment Date
) at the then applicable annual rate; provided, however, that if any Series C Dividend Payment Date
falls on any day other than a Business Day (as hereinafter defined), the dividend that would otherwise have been payable on such Series C Dividend Payment Date shall be paid on the immediately preceding Business Day with the same force and effect as
if paid on such Series C Dividend Payment Date. Each dividend is payable to holders of record as they appear on the stock records of the Corporation at the close of business on the record date, not exceeding 45 days preceding the applicable Series C
Dividend Payment Date, as shall be fixed by the Board of Directors. Notwithstanding any provision to the contrary contained herein, (i) the dividend payable on each share of Series C Preferred Stock outstanding on any Series C Dividend Record
Date shall be equal to the dividend paid with respect to each other share of Series C Preferred Stock that is outstanding on such Series C Dividend Record Date and (ii) dividends shall accumulate from the Series C Initial Dividend Date or the
most recent Series C Dividend Payment Date to which full cumulative dividends have been paid, whether or not in any such dividend period or periods there shall be funds legally available for the payment of such dividends, whether the Corporation has
earnings or whether such dividends are authorized. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series C Preferred Stock that may be in arrears. Holders of the Series C
Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on the Series C Preferred Stock. Dividends payable on the Series C Preferred Stock for
any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series C Preferred Stock for each full dividend period will be computed by dividing
the applicable annual dividend rate by four. After full cumulative distributions on the Series C Preferred Stock have been paid, the holders of Series C Preferred Stock will not be entitled to any further distributions with respect to that dividend
period.
(c) No dividends on the Series C Preferred Stock shall be authorized by the Board of Directors or declared, paid or set apart for
payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such authorization, declaration, payment or setting apart for payment or
provides that such authorization, declaration, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such authorization declaration, payment or setting apart for payment shall be restricted or
prohibited by law, except distributions required to preserve the Corporations qualification as a REIT.
(d) So long as any shares of
Series C Preferred Stock are outstanding, no dividends or other distributions, except as described in the immediately following sentence, shall be declared and paid or set apart for payment on any class or series of Parity Stock for any period
unless full cumulative dividends have been declared and paid or are contemporaneously declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series C Preferred Stock for all prior full dividend
periods. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon the Series C Preferred Stock and all dividends declared upon any other series or class or classes of Parity
Stock shall be declared and paid ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series C Preferred Stock and such Parity Stock.
(e) So long as any shares of Series C Preferred Stock are outstanding, no dividends or other distributions (other than dividends or
distributions paid solely in Junior Stock, or in options, warrants or rights to subscribe for or purchase Junior Stock, or distributions required to preserve the Corporations qualification as a REIT) shall be paid or set apart for payment or
made upon any Junior Stock, nor shall any Junior Stock be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of and in compliance with requirements of an
employee incentive or benefit plan of the Corporation or any subsidiary, a conversion into or exchange for Junior Stock or options, warrants or rights to subscribe for or purchase Junior Stock or pursuant to the terms of Article VII of the Charter
or Section 8 hereof), for any consideration (or any monies to be paid to or made available for a sinking fund for the redemption of any such
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shares) by the Corporation, directly or indirectly, unless in each case full cumulative dividends on all outstanding shares of Series C Preferred Stock shall have been paid or set apart for
payment for all past full dividend periods.
(f) Any dividend payment made on the Series C Preferred Stock shall first be credited against
the earliest accumulated but unpaid dividend due with respect to such shares which remains payable.
(g) In determining whether a
distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation) by dividend, redemption or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the
Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the Series C Preferred Stock whose preferential rights upon dissolution are superior to those receiving the
distribution.
(h) Except as provided herein, the Series C Preferred Stock shall not be entitled to participate in the earnings or assets
of the Corporation.
(i) As used herein, the term
Business Day
shall mean any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.
4.
Liquidation Preference
. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation shall be made to or set apart for the holders of shares of any class or series of Junior Stock ranking, as to amounts upon liquidation, dissolution or winding up of the Corporation, junior to
the Series C Preferred Stock (other than dividends or distributions paid solely in Junior Stock, or in options, warrants or rights to subscribe for or purchase Junior Stock), the holders of the Series C Preferred Stock shall be entitled to receive
$25.00 per share (the
Liquidation Preference
) plus an amount per share equal to all accumulated and unpaid dividends (whether or not earned or declared) thereon to, but not including, the date of final distribution to such holders
of Series C Preferred Stock; and such holders of the Series C Preferred Stock shall not be entitled to any further payment upon the liquidation, dissolution or winding up of the Corporation. If, upon any such liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the Series C Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on the
outstanding shares of Series C Preferred Stock and any class or series of Parity Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of Series C Preferred Stock and any such class or series of Parity Stock
ratably in accordance with the respective amounts that would be payable on such Series C Preferred Stock and any such class or series of Parity Stock if all amounts payable thereon were paid in full. For the purposes of this Section 4, none of
(i) a consolidation or merger of the Corporation with one or more entities, (ii) a statutory share exchange by the Corporation or (iii) a sale or transfer of all or substantially all of the Corporations assets shall be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation. After payment of the full amount of the liquidating distributions to which they are entitled pursuant to this Section 4, the holders of Series C
Preferred Stock will have no right or claim to any of the remaining assets of the Corporation.
5.
Optional Redemption
.
(a) Except as otherwise permitted by Article VII of the Charter and paragraph (b) and Section 8 below, the Series C Preferred Stock
shall not be redeemable by the Corporation prior to September 20, 2017. On and after September 20, 2017, the Corporation, at its option, upon giving notice as provided below, may redeem the Series C Preferred Stock, in whole, at any time, or in
part, from time to time, for cash at a redemption price of $25.00 per share, plus (subject to Section 5(c)(i), below) any accumulated and unpaid dividends on the Series C Preferred Stock (whether or not declared), to, but not including, the
redemption date (the
Regular Redemption Right
).
(b) Upon the occurrence of a Change of Control (as defined herein),
the Corporation will have the option, upon giving notice as provided below, to redeem the Series C Preferred Stock, in whole, at any time, or in part,
I-3
from time to time, within 120 days after the first date on which the Change of Control has occurred (the
Special Redemption Right
), for cash at a redemption price of $25.00 per
share, plus (subject to Section 5(c)(i), below) any accumulated and unpaid dividends on the Series C Preferred Stock (whether or not declared), to, but not including, the redemption date (the
Special Redemption Price
).
A
Change of Control
will be deemed to have occurred at such time after the [●], 2016 (the
Series
C
Original Issue Date
) when the following have occurred:
(i) the acquisition by any person, including any
syndicate or group deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
Exchange Act
), of beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Corporations capital stock entitling that person to exercise more than 50% of the total voting power of all shares of the
Corporations capital stock entitled to vote generally in elections of directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent condition); and
(ii) following the closing of any transaction
referred to in clause (i) above, neither the Corporation nor the acquiring or surviving entity, as applicable, has a class of common securities (or American Depositary Receipts representing such common securities) listed on the New York Stock
Exchange (the
NYSE
), the NYSE MKT (the
NYSE MKT
) or the NASDAQ Stock Market (
NASDAQ
), or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or
the NASDAQ.
(c) The following provisions set forth the general procedures applicable to redemptions pursuant to the Regular Redemption
Right and the Special Redemption Right:
(i) Upon any redemption date applicable to Series C Preferred Stock, the Corporation shall pay on
each share of Series C Preferred Stock to be redeemed any accumulated and unpaid dividends (whether or not declared), to, but not including, the redemption date, unless a redemption date falls after a record date fixed for payment of any
distribution on the Series C Preferred Stock and prior to the corresponding Series C Dividend Payment Date, in which case, each holder of shares of Series C Preferred Stock at the close of business on such record date shall be entitled to the
distribution payable on such shares of Series C Preferred Stock on the corresponding Series C Dividend Payment Date, notwithstanding the redemption of such Series C Preferred Stock prior to such Series C Dividend Payment Date. Except as provided
above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on any shares of Series C Preferred Stock called for redemption.
(ii) If full cumulative dividends on the Series C Preferred Stock have not been paid or declared and set apart for payment for all full prior
dividend periods, the Corporation may not purchase, redeem or otherwise acquire less than all of the outstanding shares of Series C Preferred Stock and any class or series of Parity Stock other than in exchange for Junior Stock or Parity Stock or in
exchange for options, warrants or rights to subscribe for or purchase any Junior Stock or Parity Stock; provided, however, that the foregoing shall not prevent the purchase or other acquisition by the Corporation of shares of its stock pursuant to
(A) a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series C Preferred Stock and all classes and series of Parity Stock or (B) Article VII of the Charter or Section 8, below.
(iii) On and after the date fixed for redemption, provided that the Corporation has made available at the office of the registrar and transfer
agent (or the bank or trust company selected pursuant to Section 5(c)(vi) below) for the Series C Preferred Stock a sufficient amount of cash to effect the redemption of shares of Series C Preferred Stock called for redemption, dividends will
cease to accrue on such shares of Series C Preferred Stock, such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Series C Preferred Stock shall cease except the right to receive the cash
payable upon such redemption, without interest from the date of such redemption.
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(iv) A notice of redemption (which may be contingent upon the occurrence of a future event) shall
be mailed, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the holders of record of the Series C Preferred Stock at their addresses as they appear on the Corporations stock transfer records. A
failure to give such notice or any defect in the notice or in its mailing shall not affect the validity of the proceedings for the redemption of any shares of Series C Preferred Stock except as to the holder to whom notice was defective or not
given. In addition to any information required by law or by the applicable rules of any exchange upon which the Series C Preferred Stock may be listed or admitted to trading, each notice shall state: (A) the redemption date; (B) the
redemption price; (C) the number of shares of Series C Preferred Stock to be redeemed and, if fewer than all the shares of Series C Preferred Stock held by such holder are to be redeemed, the number of such shares of Series C Preferred Stock to
be redeemed from such holder or the method for determining such number; (D) the place or places where the shares of Series C Preferred Stock are to be surrendered for payment of the redemption price therefor, together with the certificates, if
any, representing such shares and any other documents required in connection with the redemption; (E) whether the shares of Series C Preferred Stock are called for redemption pursuant to the Corporations Special Redemption Right and, if
called for redemption pursuant to the Corporations Special Redemption Right, a brief description of the transaction or transactions constituting such Change of Control; (F) if a Change of Control has occurred, that the holders of shares
of Series C Preferred Stock called for redemption will not be entitled to tender such shares of Series C Preferred Stock for conversion in connection with the Change of Control, and that each share of Series C Preferred Stock tendered for conversion
that is selected for redemption, prior to the Change of Control Conversion Date (as defined below), will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date; and (G) that dividends on the
shares of Series C Preferred Stock to be redeemed will cease to accrue on such redemption date except as otherwise provided herein.
(v)
If fewer than all the outstanding shares of the Series C Preferred Stock are to be redeemed, the shares to be redeemed shall be selected by lot or pro rata (as nearly as practicable without creating fractional shares) or by any other equitable
method the Corporation may choose (including by electing to redeem only those shares of Series C Preferred Stock tendered for conversion pursuant to a Change of Control Conversion Right (as defined below)).
(vi) At its election, the Corporation, prior to a redemption date, may irrevocably set aside and deposit the redemption price (including,
subject to Section 5(c)(i), all accumulated and unpaid dividends to, but not including, the redemption date) of the Series C Preferred Stock so called for redemption with a bank or trust company, in which case the redemption notice to holders
of the Series C Preferred Stock to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender
the certificates representing such shares, if any, at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including, subject to
Section 5(c)(i), all accumulated and unpaid dividends to the redemption date). Subject to applicable unclaimed property laws, any monies so deposited which remain unclaimed by the holders of the Series C Preferred Stock at the end of two years
after the redemption date may be returned by such bank or trust company to the Corporation.
6.
Voting Rights
. Except as otherwise set forth
herein, the Series C Preferred Stock shall not have any voting rights, and the consent or approval of the holders thereof shall not be required for the taking of any corporate action. In any matter in which the holders of Series C Preferred Stock
are entitled to vote, each holder of Series C Preferred Stock shall be entitled to cast one vote per share of Series C Preferred Stock held by such holder, except that, when voting together as a single class with the holders of other classes or
series of stock, each holder of Series C Preferred Stock shall be entitled to cast one vote for each $25.00 of liquidation preference (excluding amounts with respect to accumulated and unpaid dividends) of shares of Series C Preferred Stock held by
such holder.
(a) If and whenever six quarterly dividends (whether or not consecutive) payable on the Series C Preferred Stock are in
arrears, whether or not declared, the number of directors of the Corporation will be increased automatically by two (unless the number of directors of the Corporation has previously been so increased
I-5
pursuant to the terms of any class or series of Parity Stock upon which like voting rights have been conferred and are exercisable (any such other series, the
Voting Preferred
Stock
) and with which the holders of Series C Preferred Stock are entitled to vote together as a single class in the election of such directors) and the holders of Series C Preferred Stock, voting together as a single class with the
holders of any other class or series of Voting Preferred Stock with which the holders of Series C Preferred Stock are entitled to vote together as a single class in the election of Preferred Stock Directors, will have the right to elect two
additional directors of the Corporation (the
Preferred Stock Directors
) at any annual meeting of stockholders or properly called special meeting of the holders of the Series C Preferred Stock, until all such dividends and
dividends for the then current quarterly period on the Series C Preferred Stock have been paid or declared and set aside for payment. Whenever all such dividends on the shares of Series C Preferred Stock then outstanding have been paid in full or
declared and set apart for payment in full, and full dividends on the shares of Series C Preferred Stock then outstanding for the then-current quarterly dividend period have been paid in full or declared and set apart for payment in full, then the
right of the holders of the Series C Preferred Stock to elect the two Preferred Stock Directors will cease and, unless there remain outstanding shares of Voting Preferred Stock of any class or series for which the right to vote in the election of
Preferred Stock Directors remains exercisable, the terms of office of the Preferred Stock Directors will terminate automatically and the number of directors of the Corporation will be reduced accordingly and automatically; provided, however, that
the right of the holders of the Series C Preferred Stock to elect Preferred Stock Directors will again vest if and whenever dividends are in arrears for six new quarterly periods, as described above. If the rights of holders of shares of Series C
Preferred Stock to elect Preferred Stock Directors have terminated in accordance with this Section 6(a) after any record date for the determination of holders of shares of Series C Preferred Stock entitled to vote in any election of Preferred
Stock Directors but before the closing of the polls in such election, holders of shares of Series C Preferred Stock outstanding as of such record date shall not be entitled to vote in such election of Preferred Stock Directors. In no event shall the
holders of Series C Preferred Stock be entitled to nominate or elect an individual as a director, and no individual shall be qualified to be nominated for election or to serve as a director, if such individuals service as a director would
cause the Corporation to fail to satisfy a requirement relating to director independence of any national securities exchange on which any class or series of the Corporations stock is listed.
(b) Preferred Stock Directors shall be elected by a plurality of the votes cast in the election of such directors, and each Preferred Stock
Director will serve until the next annual meeting of the Corporations stockholders and until his or her successor is duly elected and qualifies, or until such Preferred Stock Directors term of office terminates earlier in accordance with
Section 6(a). A holder of Series C Preferred Stock will be entitled to cast one vote in the election of Preferred Stock Directors, for as many individuals as there are Preferred Stock Directors to be elected, for each share of Series C
Preferred Stock held by such holder (or, if voting together as a single class with the holders of Voting Preferred Stock, for each $25.00 of liquidation preference, excluding amounts with respect to accumulated and unpaid dividends, of shares of
Series C Preferred Stock held by such holder). Any Preferred Stock Director may be removed at any time by, and may be removed only by, the affirmative vote of the holders of a majority of the votes entitled to be cast in the election of Preferred
Stock Directors, generally. At any time that holders of Series C Preferred Stock are entitled to vote in the election of Preferred Stock Directors, holders of Series C Preferred Stock shall be entitled to vote in the election of a successor to fill
a vacancy on the Board of Directors that results from the removal of a Preferred Stock Director.
(c) At any time that holders of
outstanding shares of Series C Preferred Stock are entitled to elect Preferred Stock Directors pursuant to Section 6(a) and two Preferred Stock Directors are not then serving, upon the written request of the holders of record of at least 10% of
the aggregate outstanding shares of Series C Preferred Stock and Voting Preferred Stock of all classes and series with which the holders of Series C Preferred Stock are entitled to vote together as a single class with respect to the election of
Preferred Stock Directors, the secretary of the Corporation shall call a special meeting of stockholders of the Corporation for the purpose of electing Preferred Stock Directors, unless such request is received less than 90 days before the date
fixed for the next annual meeting of the Corporations stockholders, in which case, the Preferred Stock Directors may be elected at such annual meeting or, at the option of the Corporation, at a separate special meeting.
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(d) So long as any shares of Series C Preferred Stock are outstanding, the approval of two-thirds
of the votes entitled to be cast by the holders of outstanding shares of Series C Preferred Stock, voting together as a single class with the holders of all outstanding shares of Parity Stock of any class or series upon which like voting rights have
been conferred and with which holders of Series C Preferred Stock are entitled to vote together as a single class on such matters, is required (i) to amend, alter or repeal any provisions of the Charter (including these Articles Supplementary),
whether by merger, consolidation or otherwise, to affect materially and adversely the voting powers, rights or preferences of the Series C Preferred Stock unless, in connection with any such amendment, alteration or repeal, the Series C Preferred
Stock remains outstanding without the terms thereof being materially and adversely changed or is converted into or exchanged for equity securities of the surviving entity having preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms and conditions of redemption that are substantially similar to those of the Series C Preferred Stock (taking into account that the Corporation may not be the surviving
entity), or (ii) to authorize, create, or increase the authorized number of shares of any class or series of stock having rights senior to the Series C Preferred Stock with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up, provided that, if such amendment does not affect equally the rights, preferences, privileges or voting powers of one or more classes or series of Parity Stock with which holders of Series C Preferred Stock are entitled to
vote together as a single class, the consent of the holders of at least two-thirds of the outstanding shares of the Series C Preferred Stock shall be required. Notwithstanding anything contrary contained herein, the voting powers, rights or
preferences of the Series C Preferred Stock shall not be deemed to be materially and adversely affected by, and the holders of shares of Series C Preferred Stock shall not be entitled to vote with respect to, any (A) amendment to the Charter
increasing or decreasing the total number of authorized shares of stock of all classes and series, Common Stock, Preferred Stock without further designation as to class or series, Series C Preferred Stock or any other class or series of Parity Stock
or Junior Stock, (B) issuance of shares of Series C Preferred Stock or shares of any class or series of Parity Stock or Junior Stock or (C) classification or reclassification of authorized but unissued shares of Series C Preferred Stock or
any classification or reclassification of shares of any class or series of Parity Stock or Junior Stock.
(e) Holders of Series C
Preferred Stock shall not be entitled to vote if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series C Preferred Stock shall have been redeemed or called for
redemption upon proper notice and sufficient funds shall have been deposited in trust or made available at the office of the registrar and transfer agent for the Series C Preferred Stock to effect such redemption.
7.
Information Rights
. During any period in which the Corporation is not subject to Section 13 or 15(d) of the Exchange Act, and any shares of
Series C Preferred Stock are outstanding, the Corporation will use its best efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of Series C Preferred Stock, as their names and addresses appear in
the record books of the Corporation and without cost to such holders, copies of the annual reports on Form 10-K and quarterly reports on Form 10-Q that the Corporation would have been required to file with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Corporation were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports to any prospective holder of
Series C Preferred Stock. The Corporation will use its best efforts to mail (or otherwise provide) the information to the holders of Series C Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form
10-Q, as the case may be, in respect of such information would have been required to be filed with the Securities and Exchange Commission if the Corporation were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the
dates on which the Corporation would be required to file such periodic reports if the Corporation were a non-accelerated filer within the meaning of the Exchange Act.
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8.
Restrictions on Ownership and Transfer
.
(a)
Definitions
. For the purposes of this Section 8, all capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Charter. The following terms shall have the following meanings:
(i)
Series
C
Charitable
Beneficiary
shall mean one or more beneficiaries of the Series C Trust as determined pursuant to Section 8(c)(vi), provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each
such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
(ii)
Series
C
Excepted Holder
shall mean a Person for whom a Series C Excepted Holder Limit is created by the Board of Directors pursuant to Section 8(i).
(iii)
Series
C
Excepted Holder Limit
shall mean for each Series C Excepted Holder, the limit established by
the Board of Directors pursuant to Section 8(i), which limit may be expressed, in the discretion of the Board of Directors, as a percentage and/or number of shares of Series C Preferred Stock, provided that the affected Series C Excepted Holder
agrees to comply with the requirements established by the Board of Directors pursuant to Section 8(i) and subject to adjustment pursuant to Section 8(i).
(iv)
Series
C
Initial Date
shall mean the Series C Original Issue Date.
(v)
Series
C
Prohibited Owner
shall mean, any Person who, but for the provisions of Section 8(b), would
Beneficially Own or Constructively Own shares of Series C Preferred Stock, and if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Series C Prohibited Owner would have so owned.
(vi)
Series
C
Preferred Stock Ownership Limit
shall mean not more than 9.8% (in value or in number of shares,
whichever is more restrictive, and subject to adjustment from time to time by the Board of Directors in accordance with Section 8(i)(iv)) of the outstanding shares of Series C Preferred Stock of the Corporation, excluding any such outstanding
Series C Preferred Stock which is not treated as outstanding for U.S. federal income tax purposes. Notwithstanding the foregoing, for purposes of determining the percentage ownership of Series C Preferred Stock by any Person, shares of Series C
Preferred Stock that are treated as Beneficially Owned or Constructively Owned by such Person shall be deemed to be outstanding. The number and value of shares of outstanding Series C Preferred Stock of the Corporation shall be determined by the
Board of Directors in good faith, which determination shall be conclusive for all purposes hereof.
(vii)
Series
C
Trust
shall mean any trust provided for in Section 8(c) below.
(viii)
Series
C
Trustee
shall mean the Person unaffiliated with the Corporation and a Series C Prohibited Owner, that is appointed by the Corporation to serve as trustee of the Series C Trust.
(b)
Restriction on Ownership and Transfers
. In addition to the restrictions on ownership and transfer applicable to the Series C
Preferred Stock pursuant to Article VII of the Charter:
(i) During the period commencing on the Series C Initial Date and prior to the
Restriction Termination Date, but subject to Section 8(l), (1) no Person, other than a Series C Excepted Holder, shall Beneficially Own or Constructively Own shares of Series C Preferred Stock in excess of the Series C Preferred Stock
Ownership Limit and (2) no Series C Excepted Holder shall Beneficially Own or Constructively Own shares of Series C Preferred Stock in excess of the Series C Excepted Holder Limit for such Series C Excepted Holder.
(ii) If any Transfer of shares of Series C Preferred Stock occurs that, if effective, would result in any Person Beneficially Owning or
Constructively Owning shares of Series C Preferred Stock in violation of Section 8(b)(i), (A) then that number of shares of the Series C Preferred Stock, the Beneficial Ownership or Constructive Ownership of which otherwise would cause
such Person to violate such provisions (rounded up to
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the nearest whole share) shall be automatically transferred to a Series C Trust for the benefit of a Series C Charitable Beneficiary, as described in Section 8(c), effective as of the close
of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such shares; and (B) if the transfer to the Series C Trust described in clause (A) of this sentence would not be effective for
any reason to prevent the violation of Section 8(b)(i), then the Transfer of that number of shares of Series C Preferred Stock that otherwise would cause any Person to violate such provisions shall be void ab initio, and the intended transferee
shall acquire no rights in such shares of Series C Preferred Stock.
(c)
Transfers of Series
C
Preferred Stock to a
Series
C
Trust
.
(i) Upon any purported Transfer or other event described in Section 8(b)(ii) that would result in
a transfer of shares of Series C Preferred Stock to a Series C Trust, such shares of Series C Preferred Stock shall be deemed to have been transferred to the Series C Trustee in his capacity as trustee of a Series C Trust for the exclusive benefit
of one or more Series C Charitable Beneficiaries. Such transfer to the Series C Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to
the Series C Trust pursuant to Section 8(b)(ii). The Series C Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Series C Prohibited Owner. Each Series C Charitable Beneficiary shall be
designated by the Corporation as provided in Section 8(c)(vi).
(ii) Shares of Series C Preferred Stock held by the Series C Trustee
shall be issued and outstanding shares of Series C Preferred Stock of the Corporation. The Series C Prohibited Owner shall have no rights in the shares held by the Series C Trustee. The Series C Prohibited Owner shall not benefit economically from
ownership of any shares held in trust by the Series C Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the shares held in the Series C Trust.
(iii) The Series C Trustee shall have all voting rights and rights to dividends or other distributions with respect to shares of Series C
Preferred Stock held in the Series C Trust, which rights shall be exercised for the exclusive benefit of the Series C Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Corporation that the shares of Series
C Preferred Stock have been transferred to the Series C Trustee shall be paid by the recipient of such dividend or other distribution to the Series C Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when
due to the Series C Trustee. Any dividend or other distribution so paid to the Series C Trustee shall be held in trust for the Series C Charitable Beneficiary. The Series C Prohibited Owner shall have no voting rights with respect to shares held in
the Series C Trust and, subject to Maryland law, effective as of the date that the shares of Series C Preferred Stock have been transferred to the Series C Trust, the Series C Trustee shall have the authority (at the Series C Trustees sole and
absolute discretion) (A) to rescind as void any vote cast by a Series C Prohibited Owner prior to the discovery by the Corporation that the shares of Series C Preferred Stock have been transferred to the Series C Trustee and (B) to recast
such vote in accordance with the desires of the Series C Trustee acting for the benefit of the Series C Charitable Beneficiary; provided, however, that if the Corporation has already taken irreversible corporate action, then the Series C Trustee
shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Section 8, until the Corporation has received notification that shares of Series C Preferred Stock have been transferred into a Series C Trust,
the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting
votes of stockholders.
(iv) Within 20 days of receiving notice from the Corporation that shares of Series C Preferred Stock have been
transferred to the Series C Trust, the Series C Trustee of the Series C Trust shall sell the shares held in the Series C Trust to a person or persons, designated by the Series C Trustee, whose ownership of the shares will not violate the ownership
limitations set forth in Section 8(b)(i). Upon such sale, the interest of the Series C Charitable Beneficiary in the shares sold shall terminate and the Series C Trustee shall distribute the net proceeds of the sale to the Series C Prohibited
Owner and to the Series C Charitable Beneficiary as provided in this Section 8(c)(iv). The Series C Prohibited Owner shall receive the lesser of (A) the price paid by the Series C
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Prohibited Owner for the shares or, if the event causing the shares to be held in the Series C Trust did not involve a purchase of such Series C Preferred Shares at Market Price, the Market Price
of such shares on the day of the event causing the shares to be held in the Series C Trust and (B) the price per share received by the Series C Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of
the shares held in the Series C Trust. The Series C Trustee shall reduce the amount payable to the Series C Prohibited Owner by the amount of dividends and other distributions which have been paid to the Series C Prohibited Owner and are owed by the
Series C Prohibited Owner to the Series C Trustee pursuant to Section 8(c)(iii). Any net sales proceeds in excess of the amount payable to the Series C Prohibited Owner shall be immediately paid to the Series C Charitable Beneficiary. If, prior
to the discovery by the Corporation that shares of Series C Preferred Stock have been transferred to the Series C Trustee, such shares are sold by a Series C Prohibited Owner, then (A) such shares shall be deemed to have been sold on behalf of
the Series C Trust and (B) to the extent that the Series C Prohibited Owner received an amount for such shares that exceeds the amount that such Series C Prohibited Owner was entitled to receive pursuant to this Section 8(c)(iv), such
excess shall be paid to the Series C Trustee upon demand.
(v) Shares of Series C Preferred Stock transferred to the Series C Trustee
shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (A) the price per share paid in the transaction that resulted in such transfer to the Series C Trust (or, if the
event which resulted in the Transfer to the Series C Trust did not involve a purchase of such shares at Market Price, the Market Price of such shares at on the day of the event that resulted in the transfer of such Series C Preferred Stock to the
Series C Trust) and (B) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation may reduce the amount payable to the Series C Trustee by the amount of dividends and other distributions which have been
paid to the Series C Prohibited Owner and are owed by the Series C Prohibited Owner to the Series C Trustee pursuant to Section 8(c)(iii) and may pay the amount of such reduction to the Series C Trustee for the benefit of the Series C
Charitable Beneficiary. The Corporation shall have the right to accept such offer until the Series C Trustee has sold the shares held in the Series C Trust pursuant to Section 8(c)(iv). Upon such a sale to the Corporation, the interest of the
Series C Charitable Beneficiary in the shares sold shall terminate and the Series C Trustee shall distribute the net proceeds of the sale to the Series C Prohibited Owner.
(vi) By written notice to the Series C Trustee, the Corporation shall designate one or more nonprofit organizations to be the Series C
Charitable Beneficiary of the interest in the Series C Trust such that the shares of Series C Preferred Stock held in the Series C Trust would not violate the restrictions set forth in Section 8(b)(i) in the hands of such Series C Charitable
Beneficiary. Neither the failure of the Corporation to make such designation nor the failure of the Corporation to appoint the Series C Trustee before the automatic transfer provided for in Section 8(b)(ii) shall make such transfer ineffective,
provided that the Corporation thereafter makes such designation and appointment.
(d)
Remedies For Breach
. If the Board of
Directors or any duly authorized committee thereof, or other designees if permitted by the MGCL, shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 8(b)(i) or that a
Person intends or has attempted to acquire or may acquire Beneficial Ownership or Constructive Ownership of any shares of Series C Preferred Stock in violation of Section 8(b)(i) (whether or not such violation is intended), the Board of
Directors or such committee thereof, or other designees if permitted by the MGCL, shall take such action as it deems or they deem advisable, in its or their sole and absolute discretion, to refuse to give effect to or to prevent such Transfer or
other event, including, without limitation, causing the Corporation to redeem shares of Series C Preferred Stock, refusing to give effect to such Transfer or other event on the books of the Corporation or instituting proceedings to enjoin such
Transfer or other event; provided, however, that any Transfer or attempted Transfer or other event in violation of Section 8(b)(i) shall automatically result in the transfer to the Series C Trust described above, and, where applicable, such
Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non action) by the Board of Directors or committee thereof.
(e)
Notice of Restricted Transfer
. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Series C Preferred Stock that will or may violate
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Section 8(b)(i) or any Person who would have owned shares of Series C Preferred Stock that resulted in a transfer to the Series C Trust pursuant to the provisions of Section 8(b)(ii)
shall immediately give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such Transfer on the Corporations status as a REIT.
(f)
Owners Required To Provide Information
. From the Series C Initial Date until the Restriction Termination Date, each Person who is an owner of shares of Series C Preferred Stock and each Person (including the stockholder of record) who is
holding shares of Series C Preferred Stock for a Beneficial Owner or Constructive Owner shall, within 30 days after the end of each taxable year, provide to the Corporation a completed questionnaire containing the information regarding its ownership
of such shares, as set forth in the regulations (as in effect from time to time) of the U.S. Department of Treasury under the Code. In addition, each Person who is a Beneficial Owner or Constructive Owner of Series C Preferred Stock and each Person
(including the stockholder of record) who is holding shares of Series C Preferred Stock for a Beneficial Owner or Constructive Owner shall, on demand, provide to the Corporation in writing such information as the Corporation may request in order to
determine the effect, if any, of such stockholders actual and constructive ownership of Series C Preferred Stock on the Corporations qualification as a REIT, and to ensure compliance with the Series C Preferred Stock Ownership Limit or a
Series C Excepted Holder Limit.
(g)
Remedies Not Limited
. Subject to Section 5.7 of the Charter, nothing contained in this
Section 8 (but subject to Section 8(l)) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders in preserving the
Corporations status as a REIT.
(h)
Ambiguity
. In the case of an ambiguity in the application of any of the provisions of
this Section 8, including any definition contained in Section 8(a) or any defined term used in this Section 8 but defined in the Charter, the Board of Directors shall have the power to determine the application of the provisions of
this Section 8 with respect to any situation based on the facts known to it. In the event this Section 8 requires an action by the Board of Directors and the Charter fails to provide specific guidance with respect to such action, the Board
of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of this Section 8. Absent a decision to the contrary by the Board of Directors (which the Board of Directors may make
in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Section 8(b)) acquired Beneficial or Constructive Ownership of shares of Series C Preferred Stock in violation of Section 8(b)(i), such
remedies (as applicable) shall apply first to the shares of Series C Preferred Stock which, but for such remedies, would have been actually owned by such Person, and second to shares of Series C Preferred Stock which, but for such remedies, would
have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such shares of Series C Preferred Stock based upon the relative number of the shares of Series C Preferred
Stock held by each such Person.
(i)
Exceptions
.
(i) Subject to Section 7.2.1(a)(ii) of the Charter, the Board of Directors, in its sole and absolute discretion, may exempt
(prospectively or retroactively) a Person from the Series C Preferred Stock Ownership Limit and may establish or increase a Series C Excepted Holder Limit for such Person if: (A) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain that such Persons Beneficial Ownership or Constructive Ownership of such Shares will not violate Section 7.2.1(a)(ii) of the Charter; (B) such Person provides the
Board of Directors with information including, to the extent necessary, representations and undertakings satisfactory to the Board of Directors in its reasonable discretion that demonstrate that such Person does not and will not Constructively Own
an interest in a tenant of the Corporation (or a tenant of any entity directly or indirectly owned, in whole or in part, by the Corporation) that would cause the Corporation to Constructively Own more than a 9.9% interest (as set forth in
Section 856(d)(2)(B) of the Code) in such tenant (for this purpose, in the Board of Directors sole and absolute
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discretion, a tenant from whom the Corporation (or an entity directly or indirectly owned, in whole or in part, by the Corporation) derives (and is expected to continue to derive) a sufficiently
small amount of revenue such that, in the opinion of the Board of Directors, rent from such tenant would not adversely affect the Corporations ability to qualify as a REIT shall not be treated as a tenant of the Corporation); and (C) such
Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions contained in the Charter) may result in such shares of Series C Preferred Stock being
automatically transferred to a Series C Charitable Trust in accordance with this Section 8.
(ii) Prior to granting any exception
pursuant to Section 8(i)(i) above, the Board of Directors of the Corporation may (but is not obligated to) require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the
Board of Directors in its sole and absolute discretion, as it may deem necessary or advisable in order to determine or ensure the Corporations qualification as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of
Directors may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.
(iii) The Board
of Directors may only reduce a Series C Excepted Holder Ownership Limit for a Series C Excepted Holder: (A) with the written consent of such Series C Excepted Holder at any time, or (B) pursuant to the terms and conditions of the
agreements and undertakings entered into with such Series C Excepted Holder in connection with the establishment of the Series C Excepted Holder Limit for that Series C Excepted Holder. No Series C Excepted Holder Limit with respect to a Person
shall be reduced to a percentage that is less than the Series C Preferred Stock Ownership Limit.
(iv) The Board of Directors may from
time to time increase or decrease the Series C Preferred Stock Ownership Limit; provided, however, that: (A) any decreased Series C Preferred Stock Ownership Limit will not be effective for any Person whose percentage ownership of Series C
Preferred Stock is in excess of such decreased Series C Preferred Stock Ownership Limit at the time such limit is decreased, until such time as such Persons percentage of ownership of Series C Preferred Stock equals or falls below the
decreased Series C Preferred Stock Ownership Limit, but any further acquisition of Series C Preferred Stock in excess of such percentage ownership of Series C Preferred Stock will be in violation of the reduced Series C Preferred Stock Ownership
Limit; (B) the Series C Preferred Stock Ownership Limit may not be increased if, after giving effect to such increase, five or fewer Persons who are considered individuals pursuant to Section 542 of the Code as modified by
Section 856(h)(3) of the Code (taking into account all Series C Excepted Holders) could Beneficially Own or Constructively Own, in the aggregate, more than 49.9% in value of the shares of Capital Stock then outstanding; and (C) prior to
the modification of any of the ownership limitations, the Board of Directors may, in its sole and absolute discretion, require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Corporations status as a REIT.
(v) Subject to Section 7.2.1(a)(ii) of the Charter, an underwriter
which participates in a public offering or a private placement of Series C Preferred Stock (or securities convertible into or exchangeable for Series C Preferred Stock) may Beneficially Own or Constructively Own shares of Series C Preferred Stock
(or securities convertible into or exchangeable for Series C Preferred Stock) in excess of the Series C Preferred Stock Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement.
(j)
Legends
. Each certificate for Series C Preferred Stock, if certificated, or any written statement of information in lieu of a
certificate delivered to a holder of uncertificated shares of Series C Preferred Stock, shall bear an appropriate legend stating all restrictions on ownership and transfer of the Series C Preferred Stock. In lieu of such legend, each certificate or
written statement of information delivered in lieu of a certificate, if any, may state that the Corporation will furnish a full statement about certain restrictions on ownership and transfer of the shares to a stockholder on request and without
charge.
(k)
Severability
. If any provision of this Section 8 or any application of any such provision is determined to be
invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining
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provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.
(l)
NYSE
. Nothing in this Section 8 shall preclude the settlement of any transaction entered into through the facilities of the
NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Section 8 and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth in this Section 8.
9.
Conversion Upon a Change of Control
.
The Series C Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation, except as provided in this Section 9.
(a) Upon the occurrence of a Change of Control, each holder of Series C Preferred Stock will have the right, unless, prior to the applicable
Change of Control Conversion Date, the Corporation has provided written notice of redemption of such shares of Series C Preferred Stock, to convert some or all of the shares of Series C Preferred Stock held by such holder (the
Change of
Control Conversion Right
) on the relevant Change of Control Conversion Date into a number of shares of Common Stock per share of Series C Preferred Stock (the
Common Stock Conversion Consideration
) equal to the lesser of
(A) the quotient obtained by dividing (i) the sum of (x) $25.00, plus (y) an amount equal to any accumulated and unpaid dividends (whether or not declared) to, but not including, the Change of Control Conversion Date, except if
such Change of Control Conversion Date is after a record date fixed for a Series C Preferred Stock dividend and prior to the corresponding Series C Dividend Payment Date, in which case no amount for such accrued and unpaid dividend will be included
in such sum, by (ii) the Common Stock Price (as defined herein) (such quotient, the
Conversion Rate
), and (B) 2.36967 (the
Share Cap
), subject to the terms of this Section 9.
The Share Cap is subject to pro rata adjustments for any stock splits (including those effected pursuant to a Common Stock dividend),
subdivisions or combinations (in each case, a
Share Split
) with respect to Common Stock as follows: the adjusted Share Cap as the result of a Share Split shall be the number of shares of Common Stock that is equivalent to the
product of (i) the Share Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of shares of Common Stock outstanding after giving effect to such Share Split and the
denominator of which is the number of shares of Common Stock outstanding immediately prior to such Share Split.
For the avoidance of
doubt, subject to the immediately succeeding sentence, the aggregate number of shares of Common Stock (or equivalent Alternative Conversion Consideration (as defined herein), as applicable) issuable in connection with the exercise of the Change of
Control Conversion Right shall not exceed 16,350,723 shares of Common Stock (or equivalent Alternative Conversion Consideration, as applicable), subject to increase on a pro rata basis if the number of authorized shares of Series C Preferred Stock
increases after the Series C Original Issue Date (the
Exchange Cap
). The Exchange Cap is subject to pro rata adjustments for any Share Splits with respect to Common Stock as follows: the adjusted Exchange Cap as the result of a
Share Split will be the number of shares of Common Stock that is equivalent to the product of (i) the Exchange Cap in effect immediately prior to such Share Split multiplied by (ii) a fraction, the numerator of which is the number of
shares of Common Stock outstanding after giving effect to such Share Split and the denominator of which is the number of shares of Common Stock outstanding immediately prior to such Share Split.
In the case of a Change of Control as a result of which holders of Common Stock are entitled to receive consideration other than solely shares
of Common Stock, including cash, other securities or other property or assets (or any combination thereof), with respect to or in exchange for shares of Common Stock (the
Alternative Form Consideration
), a holder of Series C
Preferred Stock shall be entitled to receive upon conversion of such shares of Series C Preferred Stock the kind and amount of Alternative Form Consideration which such holder of Series C Preferred Stock would have owned or been entitled to receive
upon such Change of Control had such holder of Series C Preferred Stock held a number of shares of Common Stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control (the
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Alternative Conversion Consideration
, and the Common Stock Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control,
shall be referred to herein as the
Conversion Consideration
).
If the holders of Common Stock have the opportunity to
elect the form of consideration to be received in such Change of Control, the Conversion Consideration will be the kind and amount of consideration actually received by holders of a majority of the shares of Common Stock that participated in such
election (if electing between two types of consideration) or holders of a plurality of the shares of Common Stock that participated in such election (if electing between more than two types of consideration), as the case may be, and shall be subject
to any limitations to which all holders of Common Stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control. The
Common Stock
Price
shall be (i) if the consideration to be received in the Change of Control by holders of shares of Common Stock is solely cash, the amount of cash consideration per share of Common Stock, (ii) if the consideration to be received in the
Change of Control by holders of Common Stock is other than solely cash, the average of the closing prices per share of Common Stock on the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of
Control and (iii) if there is not a readily determinable closing price for the Common Stock or Alternative Form Consideration (as defined herein), the fair market value of Common Stock or such Alternative Form Consideration (as determined by
the Board of Directors or a committee thereof).
The
Change of Control Conversion Date
shall be a Business Day set
forth in the notice of Change of Control provided in accordance with paragraph 9(c) hereof that is no less than 20 days nor more than 35 days after the date on which the Corporation gives such notice pursuant to paragraph 9(c) hereof.
(b) No fractional shares of Common Stock shall be issued upon the conversion of shares of Series C Preferred Stock. In lieu of fractional
shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Stock Price.
(c) Within 15 days
following the occurrence of a Change of Control, the Corporation shall provide to holders of Series C Preferred Stock at their addresses as they appear on the Corporations stock transfer records notice of the occurrence of the Change of
Control that describes the resulting Change of Control Conversion Right. A failure to give such notice or any defect in the notice or in its mailing shall not affect the validity of the proceedings for the conversion of any shares of Series C
Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state the following: (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date
on which the holders of Series C Preferred Stock may exercise their Change of Control Conversion Right, which shall be the Change of Control Conversion Date; (iv) the method and period for calculating the Common Stock Price; (v) the Change
of Control Conversion Date, which will be a business day occurring within 20 to 35 days following the date of the notice; (vi) that if, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its
election to redeem all or any portion of the Series C Preferred Stock, the holder will not be able to convert any shares of Series C Preferred Stock called for redemption and such shares of Series C Preferred Stock shall be redeemed on the related
redemption date, even if they have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of
Series C Preferred Stock; (viii) the name and address of the paying agent and the conversion agent; (ix) the procedures that the holders of Series C Preferred Stock must follow to exercise the Change of Control Conversion Right and
(x) the last date on which holders of Series C Preferred Stock may withdraw shares surrendered for conversion and the procedures that such holders must follow to effect such a withdrawal.
(d) The Corporation shall issue a press release for publication through either Dow Jones & Company, Inc., Business Wire, PR Newswire,
Marketwire or Bloomberg Business News (or, if such organizations are not in existence at the time of issuance of such press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to
the public), or post notice on the Corporations website, in any event prior to the opening of business on the first Business Day following any date on which the Corporation provides notice pursuant to paragraph (c) above to the holders of
Series C Preferred Stock.
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(e) In order to exercise the Change of Control Conversion Right, a holder of Series C Preferred
Stock shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates (if any) representing the shares of Series C Preferred Stock to be converted, duly endorsed for transfer, together with
a written conversion notice completed, to the transfer agent for the Series C Preferred Stock. Such conversion notice shall state: (i) the relevant Change of Control Conversion Date; (ii) the number of shares of Series C Preferred Stock to
be converted; and (iii) that the shares of Series C Preferred Stock are to be converted pursuant to the applicable provisions of the Series C Preferred Stock. Notwithstanding the foregoing, if the shares of Series C Preferred Stock are held in
global form, such notice shall comply with applicable procedures of the Depository Trust Company (
DTC
).
(f) Holders of
Series C Preferred Stock may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Corporations transfer agent prior to the close of business on the
Business Day prior to the Change of Control Conversion Date. The notice of withdrawal must state: (i) the number of withdrawn shares of Series C Preferred Stock; (ii) if certificated shares of Series C Preferred Stock have been issued, the
certificate numbers of the withdrawn shares of Series C Preferred Stock; and (iii) the number of shares of Series C Preferred Stock, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the shares of Series C
Preferred Stock are held in global form, the notice of withdrawal shall comply with applicable DTC procedures.
(g) Shares of Series C
Preferred Stock as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the
Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem such shares of Series C Preferred Stock.
(h) The Corporation shall deliver the applicable Conversion Consideration no later than the third Business Day following the Change of
Control Conversion Date.
(i) In connection with the exercise of any Change of Control Conversion Right, the Corporation will comply with
all U.S. federal and state securities laws and stock exchange rules in connection with any conversion of Series C Preferred Stock into Common Stock. Notwithstanding anything to the contrary contained herein, no holder of Series C Preferred Stock
will be entitled to convert such Series C Preferred Stock for Common Stock to the extent that receipt of such Common Stock would cause such holder (or any other person) to violate Section 7.2.1(a) of the Charter.
(j) If the Change of Control Conversion Date is after a record date fixed for a Series C Preferred Stock dividend and prior to the
corresponding Series C Dividend Payment Date, the holders of Series C Preferred Stock at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding Series C Dividend Payment Date,
notwithstanding the conversion of such shares prior to such Series C Dividend Payment Date.
10.
Record Holders
. The Corporation and the transfer
agent for the Series C Preferred Stock may deem and treat the record holder of any Series C Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the transfer agent shall be affected by any notice to
the contrary.
11.
Acquisition by the Corporation of shares of Series
C
Preferred Stock
. Any shares of Series C Preferred Stock that
shall at any time have been redeemed, repurchased or otherwise reacquired shall, after such redemption, repurchase or other reacquisition have the status of authorized but unissued Preferred Stock, without further designation as to class or series
until such shares are once more designated as part of a particular series by the Board.
SECOND
: The shares of Series C Preferred Stock have been
classified and designated by the Board of Directors and a duly authorized committee thereof under the authority contained in Section 6.3 of Article VI of the Charter. These Articles Supplementary have been approved in the manner and by the vote
required by law.
I-15
THIRD
: These Articles Supplementary shall become effective at the time the SDAT accepts these Articles
Supplementary for record.
FOURTH
: The undersigned President and Chief Executive Officer of the Corporation acknowledges these Articles
Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned President and Chief Executive Officer of the Corporation acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.
IN
WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by the President and Chief Executive Officer and attested to by its Chief Financial Officer, Treasurer and Secretary on this
[●]th day of [●], 2016.
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APOLLO
COMMERCIAL REAL
ESTATE FINANCE
, INC.
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By:
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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ATTEST:
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By:
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Name:
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Title:
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Chief Financial Officer, Treasurer and Secretary
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I-16
Annex J
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 to the Agreement and Plan of Merger (this
Amendment No. 1
) dated as of June 30, 2016, by and
among Apollo Commercial Real Estate Finance, Inc., a Maryland corporation (
Parent
), Arrow Merger Sub, Inc., a Maryland corporation and a wholly-owned subsidiary of Parent (
Merger Sub
), and Apollo Residential
Mortgage, Inc., a Maryland corporation (the
Company
), amends the Agreement and Plan of Merger, dated as February 26, 2016 (the
Agreement
) by and among Parent, Merger Sub and the Company.
WHEREAS, the parties hereto are parties to the Agreement and desire to amend the Agreement in accordance with the requirements of
Section 9.1(a) of the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the respective covenants contained herein
and intending to be legally bound hereby, the parties agree as follows:
1.
Definitions; References
. Unless otherwise defined or
set forth herein, capitalized terms used herein without definition shall have the meanings ascribed to them in the Agreement. Each reference to hereof hereunder, herein, and hereby and each other
similar reference and each reference to this Agreement and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended by this Amendment No. 1.
2.
Amendment to Agreement
.
2.1. The reference to August 26, 2016 in Section 8.2(a) of the Agreement is hereby deleted and replaced with September
9, 2016.
3.
Approval
. Each party represents and warrants that this Amendment No. 1 has been duly and validly authorized
by all necessary action on the part of such party.
4.
Continued Effectiveness of Agreement
. Except as expressly modified and
superseded by this Amendment No. 1, all terms and provisions of the Agreement shall remain unchanged and in full force and effect without modification, and nothing herein shall operate as a waiver of any partys rights, powers or
privileges under the Agreement.
5.
Counterparts; Facsimile
. This Amendment No. 1 may be executed manually or by facsimile by
the parties hereto, in any number of counterparts, each of which shall be considered one and the same agreement and shall become effective when a counterpart hereof shall have been signed by each of the parties and delivered to the other parties
(including by means of electronic delivery), it being understood that the parties need not sign the same counterpart. Signatures to this Amendment No. 1 transmitted by facsimile transmission, by electronic mail in portable document
format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature.
6.
Governing Law
. This Amendment No. 1, and all claims or causes of actions (whether at Law, in equity, in contract or in
tort) that may be based upon, arise out of, or are related to, this Amendment No. 1 or the negotiation, execution or performance of this Amendment No. 1, shall be governed by, and construed in accordance with, the Laws of the State of
Maryland applicable to agreements entered into and performed entirely therein by residents thereof, without giving effect to conflicts of laws principles (whether of the State of Maryland or any other jurisdiction that would cause the application of
the Laws of any jurisdiction other than the State of Maryland). Any dispute or controversy arising out of this Amendment No. 1 shall be resolved in accordance with the applicable provisions of Article 9 of the Agreement.
[
Remainder of Page Intentionally Left Blank
]
J-1
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be signed by their
respective officers thereunto duly authorized, all as of the date first written above.
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APOLLO COMMERCIAL REAL ESTATE
FINANCE, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President and Chief Executive Officer
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ARROW MERGER SUB, INC.
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By:
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/s/ Stuart A. Rothstein
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Name:
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Stuart A. Rothstein
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Title:
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President
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[Signature Page to Amendment No. 1 to Agreement and Plan of Merger]
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APOLLO RESIDENTIAL MORTGAGE, INC.
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By:
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/s/ Michael A. Commaroto
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Name:
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Michael A. Commaroto
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Title:
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President and Chief Executive Officer
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[Signature Page to Amendment No. 1 to Agreement and Plan of Merger]
APOLLO
RESIDENTIAL MORTGAGE, INC.
SPECIAL MEETING OF STOCKHOLDERS
This proxy is solicited by the Board of Directors for use at the Special Meeting of Stockholders on August 24, 2016.
The shares of stock you hold in your account or in a dividend reinvestment account, if applicable, as of the
close of business on July 12, 2016 will be voted as you specify on the reverse side.
If this proxy is
executed but no choice is specified, the votes you are entitled to cast will be cast FOR Proposals 1, 2 and 3.
By signing this proxy, you appoint Michael A. Commaroto and Gregory W. Hunt, or either of them, with full power of substitution in each of them, to attend the Special Meeting of
Stockholders of Apollo Residential Mortgage, Inc. (the Company) to be held on August 24, 2016 at 9:00 a.m., Eastern Daylight time, at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022 (the
Meeting), and any postponement or adjournment thereof, to cast on your behalf all votes that you are entitled to cast at the Meeting and to otherwise represent you at the Meeting with all powers possessed by you if personally present at
the Meeting. By signing the proxy, you revoke all prior proxies with respect to the Meeting and acknowledge receipt of the Notice of Special Meeting and of the accompanying Proxy Statement, the terms of which are incorporated by reference herein.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE VOTES YOU ARE ENTITLED TO CAST WILL BE CAST AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE CAST FOR PROPOSALS 1, 2 AND 3 AND IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY t PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. t
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be held
August 24, 2016.
The Joint Proxy Statement/Prospectus is available at:
http://viewproxy.com/apolloresidentialmortgage/2016sm
The Board
of Directors Recommends a Vote FOR Proposals 1, 2 and 3. as Please in this mark example votes x
1.
Ratification to approve the First Merger and the other transactions contemplated by the 3. Approval, on an advisory, non-binding basis, of the compensation that may be paid or become merger agreement, as described in the joint proxy
statement/prospectus filed by the Company payable to Apollo Residential Mortgage, Inc.s named executive officers in connection with the
on Form S-4 on July [26], 2016. mergers, as described in the joint proxy statement/prospectus filed by the Company on Form
o FOR o AGAINST o ABSTAIN S-4 on July [26], 2016.
2. Ratification to adjourn the Meeting, if necessary or appropriate, to solicit additional proxies in favor o FOR o AGAINST o ABSTAIN of the proposal to approve the First
Merger and the other transactions contemplated by the merger agreement, as described in the joint proxy statement/prospectus filed by the Company on Form S-4 on July [26], 2016.
FOR o AGAINST o ABSTAIN I plan to attend the Special Meeting o
Please mark, date and sign exactly as your name appears on this proxy card and return in the enclosed envelope. If acting
as executor, administrator, trustee, guardian, etc., you should so indicate when signing. If the signer is a corporation, please sign the full corporate name, by a duly authorized officer. If shares are
held jointly, each stockholder named should sign.
Dated
Signature(s) of Stockholder(s)
Title
Please mark, date and sign and return promptly this proxy in the enclosed envelope.
For address changes and/or comments, please write them below
CONTROL NUMBER
t PLEASE DETACH ALONG PERFORATED
LINE AND MAIL IN THE ENVELOPE PROVIDED. t
CONTROL NUMBER
PROXY VOTING INSTRUCTIONS
Please have your 11 digit control number ready when voting by Internet or Telephone
INTERNET TELEPHONE MAIL
Vote Your Proxy on the
Internet: Vote Your Proxy by Phone: Vote Your Proxy by Mail:
Go to www.cesvote.com Call 1 (888) 693-8683
Have your proxy card available Use any touch-tone telephone to Mark, sign, and date your proxy when you access
the above vote your proxy. Have your proxy card, then detach it, and return website. Follow the prompts to card available when you call. it in the postage-paid envelope vote your shares. Follow the voting instructions to provided. vote your shares.