PRER14A 1 d346029dprer14a.htm PRER 14A PRER 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No. 1)

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to Rule 14a-12

FORTRESS INVESTMENT GROUP LLC

(Name of Registrant as Specified in Its Charter)

 

        

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

 

  (2)  

Aggregate number of securities to which transaction applies:

 

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4)  

Proposed maximum aggregate value of transaction:

 

 

  (5)  

Total fee paid:

 

 

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

DATED MAY 22, 2017

 

 

LOGO

Fortress Investment Group LLC

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

[                    ], 2017

Dear Fellow Shareholders:

On behalf of your Board of Directors, we are pleased to invite you to attend a Special Meeting of Shareholders (the “Special Meeting”) of Fortress Investment Group LLC (the “Company”). This Special Meeting will be held on [                    ], 2017 at [            ] local time, at [                ]. The Notice of the Special Meeting of Shareholders and Proxy Statement that follow describe the business to be conducted at the Special Meeting.

The Company, SB Foundation Holdings LP (“Parent”) and Foundation Acquisition LLC, a wholly owned subsidiary of Parent (“Merger Sub”), have entered into an Agreement and Plan of Merger, dated as of February 14, 2017 (as it may be amended from time to time, the “merger agreement”), providing for the merger (the “merger”) of Merger Sub with and into the Company. If the merger is completed, the Company will survive the merger and become a wholly owned subsidiary of Parent.

If the merger is completed, subject to the terms and conditions of the merger agreement, you will be entitled to receive $8.08 in cash, without interest, less any applicable withholding taxes, for each of the Company’s Class A shares that you hold immediately prior to the effective time of the merger, representing a premium of approximately 38.6% over the closing price of the Company’s Class A shares on February 13, 2017 (the last trading day before the date that the merger agreement was signed) and a premium of approximately 51.2% over the volume-weighted average price of the Company’s Class A shares for the three-month period ending on February 13, 2017. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including unvested restricted Class A shares and restricted stock units relating to Class A shares, as described in the attached Proxy Statement) in the merger will be approximately $1.91 billion. If the merger is completed, each Class B share of the Company will be cancelled and retired, for no consideration. However, holders of such shares will receive consideration of $8.08 in cash in respect of each corresponding FOG unit as described in the attached Proxy Statement, for an aggregate consideration payable to holders of such FOG units of approximately $1.37 billion, subject to reduction for certain excess distributions made to holders of FOG units as further described in the attached Proxy Statement.

At the Special Meeting, you will be asked:

 

  1. to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

In order to complete the transactions contemplated by the merger agreement, the holders of the Company’s Class A shares and Class B shares are required to approve the proposal to adopt the merger agreement. The merger proposal requires that a majority of the Class A shares and Class B shares (voting together as a single class) outstanding and entitled to vote on the proposal vote FOR the merger proposal in order for it to be approved. As discussed further in the attached Proxy Statement, as of [                    ], 2017 (the “Record Date”), approximately [          ]% of our Class A shares and Class B shares were held by Peter L. Briger, Jr., Wesley R. Edens, and Randal A. Nardone, the principals of the Company (the


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“Principals”). Therefore, in order for the merger proposal to be approved, holders of Class A shares representing approximately [        ]% of the combined voting power of the Company’s Class A shares and Class B shares in addition to the Class A shares and Class B shares held by the Principals must vote FOR the merger proposal (assuming that all such shares held by the Principals are voted in favor of the merger proposal). The postponement proposal (whether or not a quorum is present) and the advisory (non-binding) vote on compensation proposal require that a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting vote FOR such proposal in order for it to be approved. Because the vote on the proposal to adopt the merger agreement is based on the number of Class A shares and Class B shares outstanding, abstentions and “broker non-votes,” if any, will have the same effect as voting AGAINST the approval of such proposal.

Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote by Internet or telephone, or mark, sign, date and return your proxy card as promptly as possible, so that your shares are represented and voted at the Special Meeting. If you plan to attend the Special Meeting, please check the “Special Meeting” box on your proxy card and return your proxy card as promptly as possible so that we may send you an admission card.

PLEASE NOTE THAT YOU MUST FOLLOW THESE INSTRUCTIONS IN ORDER TO ATTEND AND BE ABLE TO VOTE AT THE SPECIAL MEETING: All shareholders of record may vote in person at the Special Meeting. In addition, you may also be represented by another person at the Special Meeting by executing a proper proxy designating that person as the proxy with power to vote your shares on your behalf.

If you are a beneficial owner of shares, you must take the following three steps in order to be able to attend and vote at the Special Meeting: (i) obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, (ii) contact the Company’s Investor Relations department to obtain an admission card and present this admission card to the inspector of elections and (iii) present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

After careful consideration of, and based upon, the unanimous recommendation of the Special Committee of the Board of Directors comprised solely of independent and disinterested directors, the Board of Directors unanimously (i) determined that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. The Board of Directors unanimously recommends that you vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

We encourage you to read the enclosed proxy statement and its appendices, including the merger agreement, carefully and in their entirety. You may also obtain more information about the Company from documents we file with the Securities and Exchange Commission from time to time.

If you have more questions about the merger or how to submit your proxy or need assistance voting your Class A shares or Class B shares, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (888) 750-5834 (toll-free). Banks and brokers may call (212) 750-5833 (collect).

On behalf of your Board of Directors, we thank you for your support and appreciate your consideration of this matter.

 

Sincerely,
LOGO            LOGO
Peter L. Briger, Jr. and Wesley R. Edens
Co-Chairmen of the Board


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Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.

The Proxy Statement (together with the form of proxy) is dated [                    ], 2017 and is first being mailed to shareholders of the Company on or about [                    ], 2017.


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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

DATED MAY 22, 2017

 

 

LOGO

Fortress Investment Group LLC

1345 Avenue of the Americas

New York, NY 10105

NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [                    ], 2017

To Our Shareholders:

Fortress Investment Group LLC (the “Company”) will hold a Special Meeting of Shareholders (the “Special Meeting”) on [                    ], 2017 at [                ] local time, at [                    ].

The matters to be considered and voted upon at the Special Meeting, which are described in detail in the accompanying materials, are:

 

  1. the proposal to adopt the Agreement and Plan of Merger, dated as of February 14, 2017 (as it may be amended from time to time, the “merger agreement”), by and among SB Foundation Holdings LP, a Cayman Islands exempted limited partnership (“Parent”), Foundation Acquisition LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”), and the Company, thereby approving the transactions contemplated by the merger agreement and the merger (the “merger”) of Merger Sub with and into the Company, after the completion of which the Company will survive the merger and become a wholly owned subsidiary of Parent;

 

  2. the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

You may vote at the Special Meeting, or at any adjournment thereof, if you were a shareholder of record at the close of business on [                    ], 2017 (the “Record Date”).

Your vote at the Special Meeting is very important. Whether or not you plan to attend the Special Meeting, please vote by Internet or telephone, or mark, sign, date and return your proxy card, so that your shares are represented at the Special Meeting.

A quorum of shareholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, a majority of the Company’s Class A shares and Class B shares, voting together as a single class, issued and outstanding as of the Record Date and entitled to vote at the Special Meeting must be present, either in person or by proxy, at the Special Meeting. In accordance with our Fourth Amended and Restated Limited Liability Company Agreement, as amended, the Special Meeting may be adjourned or postponed from time to time by the chairman of the meeting to another place or time, without regard to the presence of a quorum.

On each matter to be voted upon, holders of the Class A shares and Class B shares will vote together as a single class. Each holder of Class A shares or Class B shares is entitled to one vote per share. Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, the proposal to adopt the merger agreement. A majority of the Class A shares and Class B shares (voting together as a single class) outstanding and entitled to vote on the merger proposal must vote FOR the merger proposal in order for it to be approved. Because the vote on the merger proposal is based on the number of Class A shares and Class B shares outstanding, abstentions and “broker non-votes,” if any, will have the same effect as voting AGAINST the approval of such proposal.


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Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, each of the proposals to approve any postponements of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger. A majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting, whether or not a quorum is present, must vote FOR the proposal to approve any postponements of the Special Meeting, in order for it to be approved and a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting must vote FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger, in order for it to be approved. Abstentions and “broker non-votes,” if any, will have no effect on the outcome of either proposal.

As of the Record Date approximately [    ]% of all of the Company’s Class A shares and Class B shares entitled to vote (voting together as a single class) at the Special Meeting were held by Peter L. Briger, Jr., Wesley R. Edens and Randal A. Nardone. Therefore, in order for the merger proposal to be approved, holders of Class A shares representing approximately [    ]% of the combined voting power of the Company’s Class A shares and Class B shares in addition to the Class A shares and Class B shares held by Messrs. Briger, Edens and Nardone must vote FOR the merger proposal (assuming that all such shares held by Messrs. Briger, Edens and Nardone are voted in favor of the merger proposal). In connection with the merger agreement, on February 14, 2017, Parent entered into three separate Voting and Support Agreements (each, a “voting agreement”), pursuant to which each of Messrs. Briger, Edens and Nardone, and certain of their related entities and persons that own Class A shares and/or Class B shares, agreed, among other things, and subject to the terms set forth in the voting agreements, to vote shares of the Company that represent, as to all such agreements in the aggregate, 34.99% of the total voting power of the Company, in favor of the adoption of the merger agreement, each of the other actions contemplated by the merger agreement and the merger, and any other proposal in respect of which approval of the Company’s shareholders is requested in furtherance of the foregoing. See “Voting Agreements” beginning on page 115, for a description of these agreements.

Shareholders do not have dissenters’ rights with respect to any matter to be voted upon at the Special Meeting.

After careful consideration of, and based upon, the unanimous recommendation of the Special Committee of the Board of Directors of the Company (the “Board”) comprised solely of independent and disinterested directors, the Board unanimously (i) determined that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. The Board of Directors unanimously recommends that you vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

 

By Order of the Board of Directors,
LOGO
David N. Brooks
Vice President, General Counsel and Secretary

New York, New York

[                    ], 2017


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SUMMARY

     1  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     20  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     29  

THE SPECIAL MEETING

     30  

Date, Time and Place of the Special Meeting

     30  

Matters to Be Considered at the Special Meeting

     30  

Recommendations of the Board of Directors

     30  

Record Date

     30  

Voting Securities

     30  

Quorum and Votes Needed

     31  

Quorum

     31  

Votes Needed

     31  

Voting of Proxies

     32  

Revocability of Proxy

     33  

Persons Making the Solicitation

     33  

Attendance at the Special Meeting

     33  

Voting Results

     34  

Confidentiality of Voting

     34  

Questions and Additional Information

     34  

THE MERGER

     35  

Parties Involved in the Merger

     35  

Fortress Investment Group LLC

     35  

Softbank Group Corp.

     36  

SB Foundation Holdings LP

     36  

Foundation Acquisition LLC

     36  

Certain Effects of the Merger on the Company

     36  

Effect on the Company If the Merger Is Not Completed

     37  

Merger Consideration

     37  

Background of the Merger

     37  

Recommendation of Our Board of Directors and Reasons for the Merger

     47  

Recommendation of Our Board of Directors

     47  

Reasons for the Merger

     47  

Opinions of Financial Advisors

     55  

Opinion of Evercore Group L.L.C.

     55  

Opinion of Morgan Stanley & Co. LLC

     64  

Certain Financial Forecasts

     70  

Regulatory Approvals and Related Matters

     77  

Generally

     77  

HSR Act and U.S. Antitrust Matters

     78  

CFIUS

     78  

ITAR

     79  

Bank Regulatory Matters

     79  

Financial Conduct Authority

     79  

FINRA Notices and Filings

     80  

Bank of Italy and European Central Bank

     80  

Interests of the Directors and Executive Officers of the Company in the Merger

     80  

Treatment of Company RSUs

     81  

Treatment of Company Restricted Shares

     81  

Founders Agreement

     82  

Amended and Restated Employment Agreements with the Principals

     83  

 

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Second Amended and Restated Principal Compensation Plan

     84  

Employment Letter Agreements with Messrs. Bass and Brooks

     85  

TRA Waiver Agreement

     85  

Indemnification

     86  

Golden Parachute Compensation

     86  

Financing of the Merger

     86  

Limited Guarantee

     88  

No Dissenters’ Rights

     89  

U.S. Federal Income Tax Consequences of the Merger

     89  

U.S. Holders

     90  

Non-U.S. Holders

     91  

Information Reporting and Backup Withholding

     91  

THE MERGER AGREEMENT

     92  

VOTING AGREEMENTS

     115  

FOUNDERS AGREEMENT

     118  

PROPOSAL NUMBER ONE ADOPTION OF THE MERGER AGREEMENT

     125  

PROPOSAL NUMBER TWO POSTPONEMENT OF THE SPECIAL MEETING

     126  

PROPOSAL NUMBER THREE ADVISORY (NON-BINDING) VOTE ON COMPENSATION

     127  

MARKET PRICES AND DIVIDEND DATA

     128  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     129  

FUTURE SHAREHOLDER PROPOSALS

     131  

ADDITIONAL INFORMATION

     132  

MISCELLANEOUS

     134  

ANNEXES

 

ANNEX A — AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B — FOUNDERS AGREEMENT

     B-1  

ANNEX C — VOTING AND SUPPORT AGREEMENT (BRIGER)

     C-1  

ANNEX D — VOTING AND SUPPORT AGREEMENT (EDENS)

     D-1  

ANNEX E — VOTING AND SUPPORT AGREEMENT (NARDONE)

     E-1  

ANNEX F — OPINION OF EVERCORE GROUP L.L.C.

     F-1  

ANNEX G — OPINION OF MORGAN STANLEY & CO. LLC

     G-1  

 

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SUMMARY

This summary highlights selected information from this Proxy Statement related to the Special Meeting and the merger. This Proxy Statement may not contain all of the information that is important to you. To understand the merger more fully, and for a more complete description of the legal terms of the merger, you should carefully read this entire Proxy Statement, the appendices to this Proxy Statement, including the merger agreement, and the documents we incorporate by reference in this Proxy Statement. You may obtain the documents and information incorporated by reference in this Proxy Statement without charge by following the instructions under “Additional Information” beginning on page 132.

Frequently Used Terms

A number of terms frequently used in this Proxy Statement are set forth below and shall have the following meanings:

 

    “Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder;

 

    “AUM” means assets under management;

 

    “Board of Directors” and the “Board” mean the Board of Directors of the Company;

 

    “Class A shares” means Class A shares of the Company, no par value, which are listed and traded on the NYSE;

 

    “Class B shares” means Class B shares of the Company, no par value, which are not publicly traded;

 

    “Company” or “we,” “our,” “us” and similar words, means Fortress Investment Group LLC, a Delaware limited liability company;

 

    “equity commitment letter” means the Equity Commitment Letter, dated as of February 14, 2017, by and between Parent and Sponsor;

 

    “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;

 

    “FAB” means F.A.B. Partners LP, a Jersey limited partnership;

 

    “FINRA” means the Financial Industry Regulatory Authority;

 

    “FOG unit” means the aggregate of one limited partner interest in each of Fortress Operating Entity I LP, FOE II (New) LP and Principal Holdings I LP, the limited partnerships through which the Company conducts its business and holds its investments;

 

    “founders agreement” means the Founders Agreement, dated as of February 14, 2017, by and among Parent, the Company, FIG Corp., a Delaware corporation and a subsidiary of the Company, FIG Asset Co. LLC, a Delaware limited liability company and a subsidiary of the Company, and each of the Sellers, as it may be amended from time to time, which is attached to this Proxy Statement as Annex B;

 

    “founders closing” means the closing of the transactions contemplated by the founders agreement, which is expected to occur substantially concurrently with the closing of the transactions contemplated by the merger agreement;

 

    “Investment Company Act” means the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder;

 

    “limited guarantee” means the Limited Guarantee, dated as of February 14, 2017, delivered by Sponsor in favor of the Company and the Sellers;

 



 

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    “merger” means the merger, pursuant to the merger agreement, of Merger Sub with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent;

 

    “merger agreement” means the Agreement and Plan of Merger, dated as of February 14, 2017, by and among Parent, Merger Sub and the Company, as it may be amended from time to time, which is attached to this Proxy Statement as Annex A;

 

    “Merger Sub” means Foundation Acquisition LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent;

 

    “NYSE” means the New York Stock Exchange;

 

    “operating agreement” means the Company’s Fourth Amended and Restated Limited Liability Company Agreement, as amended;

 

    “operating group” means, collectively, Fortress Operating Entity I LP, FOE II (New) LP and Principal Holdings I LP, the limited partnerships through which the Company conducts its business and holds its investments;

 

    “Parent” means SB Foundation Holdings LP, a Cayman Islands exempted limited partnership;

 

    “PCP” means the Amended and Restated Fortress Investment Group LLC Principal Compensation Plan, as amended and restated;

 

    “Principal” means each of Peter L. Briger, Jr., Wesley R. Edens and Randal A. Nardone;

 

    “SEC” means the Securities and Exchange Commission;

 

    “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder;

 

    “Sellers” means each of the Principals and each of their related entities and persons that own FOG units;

 

    “Special Committee” means the Special Committee of the Board of Directors, formed as described in “The Merger — Background of the Merger” and comprised solely of independent and disinterested directors;

 

    “Special Meeting” means the Special Meeting of Shareholders of the Company that will be held on [    ], 2017 at [      ] local time, at [    ], to conduct the business described in the Notice of the Special Meeting of Shareholders and this Proxy Statement;

 

    “Sponsor” means Softbank Group Corp., a corporation incorporated under the laws of Japan;

 

    “TRA” means the existing Amended and Restated Tax Receivable Agreement, dated as of February 1, 2007, by and among the Principals, FIG Corp. and certain other parties, publicly filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1/A (File No. 333-138514) filed on February 2, 2007;

 

    “TRA waiver agreement” means the Waiver Agreement, dated as of February 14, 2017, by and among certain subsidiaries of the Company and the Principals, effective as of and subject to the occurrence of the founders closing; and

 

    “voting agreement” means each of (i) the Voting and Support Agreement entered into among Parent, Mr. Briger and certain of Mr. Briger’s related entities and persons that own Class A shares and/or Class B shares, (ii) the Voting and Support Agreement entered into among Parent, Mr. Edens and certain of Mr. Edens’ related entities and persons that own Class A shares and/or Class B shares and (iii) the Voting and Support Agreement entered into among Parent, Mr. Nardone and certain of Mr. Nardone’s related entities and persons that own Class A shares and/or Class B shares, each dated as of February 14, 2017.

 



 

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Parties Involved in the Merger (page 35)

Fortress Investment Group LLC (page 35)

The Company is a leading, highly diversified global investment management firm with approximately $69.6 billion in AUM as of December 31, 2016. The Company applies its deep experience and specialized expertise across a range of investment strategies — private equity, credit, liquid markets and traditional fixed income — on behalf of our over 1,700 institutional clients and private investors worldwide. We earn management fees based on the amount of capital we manage, incentive income based on the performance of our alternative investment funds, and investment income from our investments in our funds.

The Company was founded in 1998 as an asset-based investment management firm with a fundamental philosophy premised on alignment of interests with the investors in our funds. Our managed funds primarily employ absolute return strategies — we strive to have positive returns regardless of the performance of the markets. Investment performance is our cornerstone — as an investment manager, we earn more if our investors earn more. In keeping with our fundamental philosophy, the Company invests capital in each of its alternative investment businesses. As of December 31, 2016, the Company’s investments in and commitments to our funds were $1.1 billion, consisting of the net asset value of the Company’s investments in the Company’s funds of $0.9 billion, and unfunded commitments to private equity funds and credit PE funds of $0.2 billion.

As of December 31, 2016, we had 1,078 asset management employees, including approximately 271 investment professionals, at our headquarters in New York and our affiliate offices around the globe. Additionally, we had 1,765 employees at the senior living properties that we manage on behalf of New Senior Investment Group Inc. and third parties (whose compensation expense is reimbursed to us by the owners of the facilities).

We are guided by the following key objectives and values:

 

    introducing new investment products while remaining focused on, and continuing to grow, our existing lines of business;

 

    maintaining our disciplined investment process and intensive asset management; and

 

    adhering to the highest standards of professionalism and integrity.

For more information about the Company, please visit our website at www.fortress.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this Proxy Statement or any other report or document on file with or furnished to the SEC. See also “Additional Information” beginning on page 132.

Our Class A shares have been listed and are traded on the NYSE under the symbol “FIG.”

Softbank Group Corp. (page 36)

Softbank Group Corp., or Sponsor, was established in 1981 and is a Japanese kabushiki kaisha, or corporation. Sponsor is a holding company that is currently engaged in various businesses in the information industry, including mobile communications, broadband infrastructure, fixed-line telecommunications and Internet culture.

SoftBank’s ordinary shares are traded on the Tokyo Stock Exchange under the code “9984.” SoftBank (together with its consolidated subsidiaries) had over 63,500 employees as of the end of its fiscal year ended March 31, 2016.

 



 

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SB Foundation Holdings LP (page 36)

SB Foundation Holdings LP, or Parent, is a Cayman Islands exempted limited partnership that was formed on February 6, 2017 for the sole purpose of entering into the merger agreement and founders agreement, and certain ancillary agreements related thereto, and completing the transactions contemplated thereby. Sponsor is the managing member of the general partner of Parent, and Sponsor is the sole limited partner of Parent. Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the founders agreement.

Foundation Acquisition LLC (page 36)

Foundation Acquisition LLC, or Merger Sub, is a Delaware limited liability company that was formed on February 6, 2017 for the sole purpose of entering into the merger agreement and completing the transactions contemplated thereby. Merger Sub is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving company.

The Special Meeting (page 30)

Date, Time and Place of the Special Meeting (page 30)

The Company will hold the Special Meeting on [      ], 2017 at [      ] local time, at [    ].

Record Date (page 30)

The Board of Directors has fixed the close of business on [        ], 2017 as the record date (the “Record Date”) for determination of the holders of our Class A shares and Class B shares entitled to notice and to vote at the Special Meeting.

Voting Securities (page 30)

Holders of our Class A shares and Class B shares, as recorded in our share register at the close of business on the Record Date, may vote at the Special Meeting. As of the Record Date, there were [      ] Class A shares and [      ] Class B shares outstanding. On each matter to be voted upon, the Class A shares and Class B shares will vote together as a single class. Each holder of Class A shares or Class B shares is entitled to one vote per share.

Voting Agreements (page 115)

The Principals have each entered into separate voting agreements requiring them and certain of their related entities and persons party to the voting agreements to vote certain Class A shares and Class B shares held by them and certain related entities and persons in favor of the proposals set forth in this Proxy Statement, including the proposal to adopt the merger agreement. See “Voting Agreements” beginning on page 115 for a description of these agreements.

Matters to Be Considered at the Special Meeting (page 30)

The matters to be considered and voted upon at the Special Meeting are the proposals:

 

  1. to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 



 

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  3. to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Quorum and Votes Needed (page 31)

A quorum of shareholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, a majority of the Class A shares and Class B shares, voting together as a single class, issued and outstanding as of the Record Date, and entitled to vote, must be present, either in person or by proxy, at the Special Meeting.

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, any of the proposals presented at the Special Meeting. Votes cast FOR or AGAINST any of the proposals will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum and will be counted in the number of votes cast on the matter. Votes cast as ABSTAIN on any of the proposals will be treated as shares that are present and entitled to vote for the purposes of determining the presence of a quorum, but will not be counted in the number of votes cast on the matter.

In accordance with our operating agreement, the Special Meeting may be adjourned or postponed from time to time by the chairman of the meeting to another place or time, without regard to the presence of a quorum.

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, the proposal to adopt the merger agreement. A majority of the Class A shares and Class B shares (voting together as a single class) outstanding and entitled to vote on the merger proposal must vote FOR the proposal in order for it to be approved. As of the Record Date, approximately [    ]% of the Company’s Class A shares and Class B shares entitled to vote were held by the Principals. Therefore, in order for the merger proposal to be approved, holders of Class A shares representing approximately [    ]% of the combined voting power of the Company’s Class A shares and Class B shares in addition to the Class A shares and Class B shares held by the Principals must vote FOR the merger proposal (assuming that all such shares held by the Principals are voted in favor of the merger proposal). Because the vote on the proposal is based on the number of Class A shares and Class B shares outstanding, abstentions will have the same effect as voting AGAINST the approval of such proposal.

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, each of the proposals to approve any postponements of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger. A majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting, whether or not a quorum is present, must vote FOR the proposal to approve any postponements of the Special Meeting, in order for it to be approved, and a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting must vote FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger, in order for it to be approved. Abstentions will have no effect on the outcome of either proposal.

If a shareholder holds shares through a broker, bank or other nominee, generally the broker, bank or other nominee may vote the shares it holds in accordance with instructions received. If a shareholder does not give instructions to a broker, bank or other nominee, the proposals cannot be voted upon by such broker. “Broker non-votes,” if any, will have the same effect as voting AGAINST the proposal to approve the merger agreement and will have no effect on the outcome of the proposals to approve any postponements of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

 



 

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Voting of Proxies (page 32)

You may vote by any one of the following means:

 

    By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a broker, bank or other nominee, they will give you separate instructions for voting your shares.

 

    By Telephone or on the Internet: The telephone and Internet voting procedures established for shareholders of record are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that those instructions have been properly recorded.

You can vote by calling the toll-free telephone number on your proxy card, [            ]. Please have your proxy card in hand when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

The website for Internet voting is [            ]. Please have your proxy card in hand when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded.

Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close on [      ], 2017 at 11:59 PM Eastern Time.

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, we recommend that you follow the voting instructions in the materials you receive from those parties.

If you vote by telephone or on the Internet, you do not have to return your proxy card or voting instruction card.

 

    In Person or by Proxy: All shareholders of record may vote in person at the Special Meeting. You may also be represented by another person at the Special Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must take the following three steps in order to be able to attend and vote at the Special Meeting: (i) obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, (ii) contact our Investor Relations department to obtain an admission card and present the admission card to the inspector of elections and (iii) present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares in person at the Special Meeting if you deliver to our Secretary a written revocation of any proxy you previously submitted.

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (888) 750-5834 (toll-free). Banks and brokers may call (212) 750-5833 (collect).

Revocability of Proxy (page 33)

Any shareholder returning a proxy may revoke it at any time before the proxy is exercised by (i) timely delivery of a written notice to the Secretary of the Company at the address described under “The Special Meeting — Revocability of Proxy” beginning on page 33; (ii) timely delivery of a valid, later-dated proxy or a

 



 

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later-dated vote by telephone or on the Internet; or (iii) voting in person at the Special Meeting. The powers of the proxy holders will be suspended if you attend the Special Meeting in person and so request, although attendance at the Special Meeting will not by itself revoke a previously granted proxy. Any proxy not properly revoked will be voted as specified by the shareholder.

The Merger (page 35)

Certain Effects of the Merger on the Company (page 36)

Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving company. After the completion of the merger, the Company will become a wholly owned subsidiary of Parent. The Company will cooperate with Parent to de-list the Class A shares from the NYSE and de-register under the Exchange Act. If the merger is completed, you will not own any shares of the surviving company.

Effect on the Company if the Merger Is Not Completed (page 37)

If the merger agreement is not approved and adopted by the Company’s shareholders or if the merger is not completed for any other reason, the Company’s shareholders will not receive any payment for their Class A shares. Instead, the Company will remain a public company, our Class A shares will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC.

In addition, under specified circumstances, the Company may be required to pay Parent a termination fee upon the termination of the merger agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 113.

Merger Consideration (page 37)

If the merger is completed, each Class A share outstanding immediately prior to the effective time of the merger (other than such Class A shares held immediately prior to the effective time of the merger by (i) the Company as treasury stock, (ii) Parent or Merger Sub or (iii) any subsidiary of the Company) will be converted automatically into the right to receive the per-share merger consideration of $8.08 in cash, without interest, less any applicable withholding taxes, and will automatically be cancelled and retired and cease to exist. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion. If the merger is completed, each Class B share will be cancelled and retired, for no consideration (although holders of such shares will receive consideration of $8.08 in cash in respect of each corresponding FOG unit as described under “Founders Agreement” beginning on page 118, for an aggregate consideration payable to holders of such FOG units of approximately $1.37 billion, subject to reduction for certain excess distributions made to holders of FOG units as further described under “Founders Agreement” beginning on page 118).

Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs (each, as defined below)) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

Recommendation of Our Board of Directors and Reasons for the Merger (page 47)

After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the merger is advisable and fair to and in the best

 



 

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interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. The Board of Directors unanimously recommends that you vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Opinions of Financial Advisors (page 55)

Opinion of Evercore Group L.L.C., financial advisor to the Special Committee (page 55 and Annex F)

Pursuant to an engagement letter dated January 5, 2017, the Special Committee retained Evercore Group L.L.C. (“Evercore”) to act as its financial advisor in connection with evaluating strategic and financial alternatives, including the merger. As part of this engagement, the Special Committee requested that Evercore evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration. At a telephonic meeting of the Special Committee held on February 14, 2017, Evercore rendered its oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion, that, as of February 14, 2017, and based upon and subject to the factors, procedures, assumptions, qualifications, limitations and other matters set forth in its written opinion, the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration was fair, from a financial point of view, to such holders of Class A shares.

The full text of Evercore’s written opinion, dated February 14, 2017, which sets forth, among other things, the factors considered, procedures followed, assumptions made and qualifications and limitations on the scope of review undertaken by Evercore in rendering its opinion, is attached as Annex F to this Proxy Statement and is incorporated herein by reference. The Company urges you to read the opinion carefully and in its entirety. Evercore’s opinion was addressed to, and for the information and benefit of, the Special Committee in connection with its evaluation of the merger. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to the Company, nor did it address the underlying business decision of the Company to engage in the merger. Evercore’s opinion does not constitute a recommendation to the Special Committee, the Board or to any other persons in respect of the merger, including as to how any holder of Class A shares should vote or act in respect of the merger. The summary of Evercore’s opinion set forth in this Proxy Statement is qualified in its entirety by reference to the full text of such opinion.

For a more complete description, please see the section of this Proxy Statement entitled “The Merger — Opinions of Financial Advisors — Opinion of Evercore Group L.L.C.” beginning on page 55.

 



 

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Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Company (page 64 and Annex G)

The Board retained Morgan Stanley & Co. LLC (“Morgan Stanley”) to provide it with financial advisory services in connection with the merger. The Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, and its knowledge of the Company’s business and affairs. On February 12, 2017, Morgan Stanley rendered its oral opinion, which was subsequently confirmed orally and in writing on February 14, 2017, to the Board to the effect that, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be received by the holders of Class A shares pursuant to the merger agreement, was fair from a financial point of view to the holders of Class A shares (other than the Principals and their respective affiliates). For a more complete description, please see the section of this Proxy Statement titled “The Merger — Opinions of Financial Advisors — Opinion of Morgan Stanley & Co. LLC” beginning on page 64.

The full text of the written opinion of Morgan Stanley, dated February 14, 2017, is attached as Annex G to this Proxy Statement, and is incorporated by reference herein in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the opinion. You are encouraged to, and should, read Morgan Stanley’s opinion and the section summarizing Morgan Stanley’s opinion carefully and in their entirety. Morgan Stanley’s opinion was directed to the Board, in its capacity as such, and addresses only the fairness from a financial point of view of the merger consideration to be received by the holders of the Class A shares (other than the Principals and their respective affiliates) pursuant to the merger agreement, as of the date of the opinion, and does not address any other aspects or implications of the merger, including the transactions contemplated by the founders agreement or the treatment of the Company’s Class B shares, which will be cancelled and retired and cease to exist upon the consummation of the merger pursuant to the merger agreement. Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder of the Company as to how to vote at any shareholders’ meeting to be held in connection with the merger or whether to take any other action with respect to the merger.

Regulatory Approvals and Related Matters (page 77)

Under the merger agreement, the merger cannot be completed until, among other things:

 

    the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) has expired or been terminated;

 

    approvals have been granted by the antitrust authorities in each of the European Union, Canada and Japan;

 

    the “CFIUS clearance” has been obtained;

 

    the “ITAR pre-notification requirement” has been satisfied;

 

    receipt of the requisite “change in control” approvals from the Financial Conduct Authority arising from the transactions contemplated by the merger agreement pursuant to section 189(4) or (if applicable) section 189(6) of the Financial Services and Markets Act 2000;

 

    receipt of approval from FINRA pursuant to NASD Rule 1017 (relating to change of control);

 

    receipt of approval from the Bank of Italy under Article 15 of the Legislative Decree No. 58 of 24 February 1998, as subsequently amended and/or integrated (the “Italian Financial Act”) and Article 19 of the Legislative Decree No. 385 of 1 September 1993, as subsequently amended and/or integrated (the “Italian Banking Act”), as applicable;

 



 

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    receipt of approval from the European Central Bank under Articles 4 and 15 of the Council Regulation (EU) No. 1024/2013 of 15 October 2013; and

 

    the closing conditions regarding certain bank regulatory matters have been satisfied.

The Company and Parent filed their respective HSR Act notifications on April 21, 2017. On May 2, 2017, approval was granted by the antitrust authorities in Canada. For a description of these regulatory matters, see “The Merger — Regulatory Approvals and Related Matters” and “The Merger Agreement —Conditions to the Closing of the Merger” beginning on page 77 and page 109, respectively.

Interests of the Directors and Executive Officers of the Company in the Merger (page 80)

When considering the recommendation of the Board of Directors that you vote for the proposal to adopt the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board of Directors approve the merger agreement and the merger. The Board of Directors was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved and adopted by the Company’s shareholders. These interests include the following:

 

    the accelerated vesting and cash out of each restricted stock unit relating to Class A shares (each, a “Company RSU”) and each restricted Class A share (each, a “Company Restricted Share”) at the effective time of the merger;

 

    cash severance payments payable to each of the Principals upon certain terminations of employment;

 

    the Principals are entitled to certain payments under the TRA;

 

    continued indemnification and directors’ and officers’ liability insurance (see “The Merger Agreement — Additional Agreements — Indemnification of Officers and Directors” beginning on page 106 for a description of this continued liability insurance); and

 

    the arrangements between Parent and the Principals under each of the founders agreement, the employment agreements, the TRA waiver agreement and the PCP, as described below.

Treatment of Company RSUs (page 81)

Each Company RSU, whether vested but not yet delivered or unvested, that is outstanding immediately prior to the effective time of the merger will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company RSU to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

Certain Company RSUs are entitled to receive dividends. Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

 



 

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Treatment of Company Restricted Shares (page 81)

Each Company Restricted Share that is outstanding and unvested immediately prior to the effective time of the merger will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company Restricted Share to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

Company Restricted Shares are entitled to receive dividends. Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

Amended and Restated Employment Agreements with the Principals (page 83)

In connection with his execution of the founders agreement, each of the Principals entered into an Amended and Restated Employment, Non-Competition, and Non-Solicitation Agreement (each, an “employment agreement” and together, the “employment agreements”) with FIG LLC, an operating subsidiary of the Company (the “employer”). The employment agreements will become effective on and subject to the founders closing and will have an initial term of five years, which will automatically renew for additional one-year periods unless a notice of nonrenewal is delivered by either party at least 90 days prior to the expiration of the then-current term. During the term of his employment agreement, each Principal will serve as a principal of the employer, with duties consistent with those he presently has, and as a director and officer of the Company, employer, and their subsidiaries.

The employment agreements provide each Principal with an annual base salary, participation in the employer’s health and welfare benefits, and four weeks of paid time off, as well as certain other benefits. The employment agreements also contain indemnification rights and customary confidentiality, intellectual property, and non-disparagement covenants, and also incorporate the non-competition and non-solicitation covenants contained in the founders agreement.

Second Amended and Restated Principal Compensation Plan (page 84)

In connection with entering into the founders agreement, the Amended and Restated Fortress Investment Group LLC Principal Compensation Plan will be further amended and restated (as amended and restated, the “PCP”), effective as of and subject to the founders closing, to make certain clarifying and conforming changes. The PCP is intended to operate following the founders closing in a manner that is substantially identical to the manner in which it currently operates, with certain changes described in this Proxy Statement.

TRA Waiver Agreement (page 85)

Under the existing TRA, the Principals are entitled to receive certain payments from FIG Corp. equal to a percentage of the future tax benefits that FIG Corp. realizes as a result of certain transactions, including the Principals’ exchange of FOG units for Class A shares of the Company. In connection with entering into the merger agreement, on February 14, 2017, FIG Corp. entered into the TRA waiver agreement, pursuant to which the Principals waive their rights to receive any payments under the TRA arising out of the transactions

 



 

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contemplated by the founders agreement and other transactions occurring after February 14, 2017. Under the TRA waiver agreement, the Principals will also agree to amend certain key tax assumptions that affect the timing and amount of future payments to be received by the Principals with respect to transactions that occur prior to the founders closing. The waivers and amendments provided for in the TRA waiver agreement will generally have the effect of reducing and/or deferring the payments to which the Principals would otherwise have been entitled under the TRA.

Financing of the Merger (page 86)

We anticipate that the total amount of funds necessary to complete the merger and the transactions contemplated by the merger agreement will be approximately $3.4 billion, including the funds needed to:

 

    pay our shareholders the amounts due to them under the merger agreement;

 

    fund the purchase price payable under the founders agreement, as described under “Founders Agreement” beginning on page 118;

 

    pay other amounts that may become payable in connection with the transactions contemplated by the merger agreement; and

 

    pay all fees and expenses of the Company under the merger agreement and in connection with the transactions contemplated by the merger agreement, including the merger.

This total amount will be funded through equity financing under the equity commitment letter. Pursuant to the equity commitment letter, Sponsor has committed to purchase, directly or indirectly, equity securities of Parent for approximately $3.4 billion at or prior to the closing of the merger and the transactions contemplated by the merger agreement and the founders agreement.

We believe the amounts committed under the equity commitment letter will be sufficient to complete the transactions contemplated by the merger agreement, but we cannot assure you that the full amounts committed under the equity commitment letter will be available to complete the merger.

Additionally, pursuant to the merger agreement, we have agreed that as promptly as practicable, but in no event for a period longer than eight weeks from the date of the merger agreement (the “equity syndication period”), Parent and its affiliates may solicit, negotiate and enter into investment agreements with potential equity investors in Parent (the “equity syndication”). The merger agreement provides that no equity investor may be included in the equity syndication if its investment would reasonably be expected to result in, among other things, (i) additional conditionality to the closing, (ii) any delay of the closing (other than as a result of the permitted equity syndication period) or (iii) any adverse impact on the likelihood of receiving any consents or approvals in connection with the contemplated transactions. Notwithstanding the equity syndication, the equity commitment letter will remain in full force and effect, and the equity syndication will not in any way reduce or otherwise limit the aggregate commitment or liability of Sponsor under the equity commitment letter or any obligations or liability of Sponsor under the limited guarantee. Parent and Merger Sub have agreed to (i) reimburse the Company for any out-of-pocket costs incurred by the Company and its subsidiaries in connection with any equity syndication and (ii) indemnify the Company and its subsidiaries and affiliates from and against any liabilities, costs, expenses, judgments or penalties incurred by them in connection with any equity syndication. At the completion of the equity syndication period, Parent had not entered into any investment agreements with any potential equity investors. For more information about the equity syndication, see “The Merger Agreement — Additional Agreements — Equity Syndication” beginning on page 108.

 



 

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Limited Guarantee (page 88)

Pursuant to the limited guarantee, Sponsor absolutely, unconditionally and irrevocably guarantees to the Company and the Sellers the following:

 

    all payment obligations of Parent or Merger Sub under the merger agreement;

 

    all payment obligations of Parent, FIG Corp. and FIG Asset Co. LLC under the founders agreement;

 

    all liabilities and damages payable by Parent or Merger Sub under the merger agreement;

 

    all liabilities and damages payable by Parent under the founders agreement (the items described in these first four bullets collectively, the “liability payment events”); and

 

    the obligation of Sponsor as contemplated by the equity commitment letter to fund an amount equal to the total amount of funds necessary to complete the merger and the transactions contemplated by each of the merger agreement and the founders agreement in the event, and only in the event, that specific performance with respect to Parent’s obligation to consummate the transactions contemplated by the merger agreement or the founders agreement is awarded against Parent, in a judicial determination pursuant to the express terms of the merger agreement and the founders agreement (the “specific performance event”).

Sponsor’s obligations with respect to the liability payment events and the specific performance event are mutually exclusive and in no event will Sponsor be liable for obligations in respect of both the liability payment events and the specific performance event, subject to certain exceptions. Additionally, Sponsor’s aggregate liability under the limited guarantee is subject to a cap not to exceed an aggregate of approximately $3.4 billion with respect to any and all payments payable by Sponsor pursuant to the terms of the limited guarantee.

Pursuant to the limited guarantee, Sponsor is also required to comply with certain specified covenants and agreements under the merger agreement, including, among others, using best efforts to obtain all regulatory approvals required to consummate the merger and the other transactions contemplated by the merger agreement.

No Dissenters’ Rights (page 89)

The Company’s shareholders do not have dissenters’ rights in connection with the merger.

U.S. Federal Income Tax Consequences of the Merger (page 89)

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89) in exchange for such U.S. Holder’s Class A shares in the merger generally will result in the recognition of gain or loss in an amount equal to the difference, if any, between (i) the sum of the cash such U.S. Holder receives in the merger and such U.S. Holder’s share of the indebtedness, if any, of the Company and (ii) such U.S. Holder’s adjusted tax basis in the Class A shares surrendered in the merger (including basis attributable to such U.S. Holder’s share of the indebtedness, if any, of the Company). Shareholders (including Non-U.S. Holders (as defined under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89)) should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under the laws of any U.S. state or local or non-U.S. taxing jurisdiction. A more detailed description of the U.S. federal income tax consequences of the merger is provided under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89.

 



 

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The Merger Agreement (page 92)

No Solicitation (page 99)

The Company has agreed under the merger agreement that it will not, directly or indirectly, and will ensure that its subsidiaries and its and their respective officers, directors and financial advisors do not, and will use reasonable best efforts to ensure that all of its and its subsidiaries’ representatives (other than officers, directors and financial advisors) do not, directly or indirectly:

 

    solicit, initiate, induce or knowingly facilitate, encourage or assist the making, submission or announcement of any “acquisition proposal” or “acquisition inquiry” (each as described under “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 99) or the making of any proposal that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry;

 

    furnish or otherwise provide access to any non-public information regarding the Company or any of its subsidiaries to any person in connection with or in response to an acquisition proposal or acquisition inquiry; or

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry.

Notwithstanding the foregoing, prior to the adoption of the merger agreement by the Company’s shareholders, the Company may, through itself, its affiliates and representatives, furnish non-public information regarding the Company and its subsidiaries to, and may (and, at the direction of the Special Committee, will) enter into discussions or negotiations with, any person (and such person’s affiliates and representatives) in response to a bona fide, written acquisition proposal that was unsolicited after the date of the merger agreement and that is submitted to the Company by such person (and not withdrawn) if: (a) such acquisition proposal did not result from a breach of the non-solicitation provisions of the merger agreement; (b) the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of an independent financial advisor and outside legal counsel, that such acquisition proposal constitutes or would reasonably be expected to result in a “superior offer”; (c) the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of outside legal counsel, that the failure to take such action would be inconsistent with the Board’s or the Special Committee’s fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement; (d) prior to furnishing any such non-public information to, or entering into discussions or negotiations with, such person, the Company: (i) gives Parent written notice of the identity of such person and of the Company’s intention to furnish non-public information to, or enter into discussions or negotiations with, such Person and (ii) receives from such Person, and delivers to Parent a copy of, an executed confidentiality agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such person by or on behalf of the Company and its subsidiaries and other provisions that (A) are no less favorable than the provisions of the confidentiality agreement, dated December 7, 2016, between the Company and FAB, and (B) expressly provide that nothing therein will restrict the Company from complying with the non-solicitation, Company shareholder meeting and Board recommendation with respect to the merger provisions of the merger agreement; and (e) substantially concurrently with the furnishing of any non-public information to such person, the Company furnishes such non-public information to Parent.

For a further discussion of the limitations on solicitation of acquisition inquiries and acquisition proposals from third parties, see “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 99.

 



 

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Change of Recommendation (page 102)

Under the merger agreement, subject to certain exceptions, the Board may not withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Parent, its recommendation that holders of Company shares adopt the merger agreement, or take any action, or make any public statement, filing or release inconsistent with its recommendation to adopt the merger agreement, including recommending against the adoption of the merger agreement or approving, endorsing or recommending any “acquisition proposal” (as described under “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 99), except as provided in the merger agreement.

Prior to the Special Meeting, and notwithstanding the restrictions described under “The Merger Agreement —Additional Agreements — No Solicitation” beginning on page 99, the Board is permitted in certain circumstances and subject to the Company’s compliance with certain obligations (as summarized below) to (a) make a change in its recommendation to adopt the merger agreement and (b) terminate the merger agreement and enter into a definitive written agreement providing for a superior offer.

As described under “The Merger Agreement — Additional Agreements — Change of Recommendation” beginning on page 102, prior to the adoption of the merger agreement at the Special Meeting, the Board is permitted to (a) change its recommendation to adopt the merger agreement in the case of a superior offer or in the event of an intervening event and (b) in circumstances where a recommendation change would be permitted in respect of a superior offer, terminate the merger agreement and enter into a definitive written agreement providing for such superior offer if such superior offer did not result from a breach of the non-solicitation provisions of the merger agreement and the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of outside legal counsel, that the failure to take such action would be inconsistent with the Board’s or the Special Committee’s fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement. Additionally, the ability of the Board to take such actions is subject further to compliance with certain notice and other requirements as set forth in the merger agreement.

For a further discussion of the limitations on effecting a change in the Board’s recommendation to adopt the merger agreement and the Company’s rights to terminate the merger agreement in connection with a superior offer, see “The Merger Agreement — Additional Agreements — Change of Recommendation” beginning on page 102.

Under the terms of the merger agreement, the Company will be required to pay Parent a termination fee in the amount of $98,350,000 or $131,140,000 if the merger agreement has been terminated by Parent or the Company at any time after the Company Board Recommendation has been withdrawn or modified, depending on the circumstances of such withdrawal or modification. For more information, see “The Merger Agreement —Termination Fees” beginning on page 113.

Investment Advisory Arrangement Consents (page 105)

The Company agrees to use its reasonable best efforts to obtain consents to the assignment or deemed assignment of the investment advisory agreements between each of the Company’s clients (other than any registered fund) and the subsidiary of the Company that is an investment adviser of such client. With respect to clients that are registered funds, the Company agrees to use reasonable best efforts to obtain, in accordance with the Investment Company Act, due consideration and approval by the boards of directors or trustees, as applicable, and, in each case where shareholder approval is required, the shareholders of such registered funds of new investment advisory agreements with the subsidiary of the Company that is an investment adviser of such clients. In the event that any of the client consents described above is not obtained prior to the closing, the Company and its subsidiaries will reasonably cooperate with Parent with respect to commercially reasonable alternative arrangements for the applicable client.

 



 

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Employees and Employee Benefits (page 106)

The merger agreement provides for the following treatment with respect to those employees of the Company and its subsidiaries who continue to be so employed following the effective time of the merger (each, a “continuing employee”):

 

    following the closing of the merger and until December 31, 2018, each continuing employee will receive (a) the same base salary as was provided to the continuing employee immediately prior to the closing and (b) a total annual or periodic incentive compensation opportunity that is no less favorable than the total annual or periodic incentive compensation opportunity (including the value of any cash and the grant date value of any equity-based award opportunities) provided to the continuing employee immediately prior to the closing;

 

    following the closing of the merger and until December 31, 2018, all employee benefit plans covering continuing employees will be maintained in accordance with their terms as in effect immediately prior to the closing of the merger;

 

    if the employment of any continuing employee terminates during the period following the closing of the merger and until December 31, 2018, the continuing employee will receive severance payments and benefits at a level commensurate to those provided to similarly situated employees of the Company and its subsidiaries upon a similar termination of employment prior to the closing; and

 

    Parent will (a) provide credit to each continuing employee for their years of service with the Company and its subsidiaries (and their predecessors) for all purposes (including purposes of eligibility to participate, vesting, severance, paid time off and level of benefits, but excluding benefit accruals under defined benefit pension plans) under the benefit plans, programs, agreements and arrangements of Parent and its subsidiaries and affiliates that provide benefits to the continuing employees after the closing of the merger and (b) waive all pre-existing condition exclusions and limitations and actively-at-work requirements under any such plans for each of the continuing employees.

Conditions to the Closing of the Merger (page 109)

The Company, Parent and Merger Sub expect to complete the merger after all of the conditions to the merger in the merger agreement are satisfied or waived. These conditions to the closing of the merger include:

 

    receipt of the adoption of the merger agreement by the holders of a majority of the outstanding Class A shares and Class B shares (voting together as a single class);

 

    receipt of consents of certain clients of the Company and its subsidiaries representing at least 87.5% of the base aggregate management fees of the Company, calculated on an annualized basis, of such clients;

 

    since the date of the merger agreement, there will not have occurred any material adverse effect (as defined in the merger agreement) with respect to the Company and its subsidiaries, and no event will have occurred or circumstance will exist that, in combination with any other events or circumstances, would reasonably be expected to have such a material adverse effect;

 

    the applicable waiting period under the HSR Act will have expired or been terminated (and there will not be in effect any voluntary agreement between Parent or the Company and the Federal Trade Commission or the Department of Justice pursuant to which Parent or the Company has agreed not to complete the merger), the CFIUS clearance has been obtained and the ITAR pre-notification requirement has been satisfied;

 

   

no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger will have been issued by any court of competent jurisdiction or other

 



 

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governmental body and remain in effect, and there will not be any legal requirement enacted or deemed applicable to the merger that makes consummation of the merger illegal;

 

    the founders agreement will remain in full force and effect at the closing;

 

    the TRA waiver agreement will remain in full force and effect at the closing;

 

    receipt of the requisite “change in control” approvals from the Financial Conduct Authority arising from the transactions contemplated by the merger agreement pursuant to section 189(4) or (if applicable) section 189(6) of the Financial Services and Markets Act 2000;

 

    receipt of approval from FINRA pursuant to NASD Rule 1017 (relating to change of control);

 

    receipt of approval from the Bank of Italy under Article 15 of the Italian Financial Act and Article 19 of the Italian Banking Act, as applicable;

 

    receipt of approval from the European Central Bank under Articles 4 and 15 of the Council Regulation (EU) No. 1024/2013 of 15 October 2013;

 

    the closing conditions regarding bank regulatory matters have been satisfied;

 

    each of the representations and warranties of each of the Company, Parent and Merger Sub contained in the merger agreement will have been accurate in all respects as of the date of the merger agreement and as of the closing date as if made on and as of the closing date (other than any such representation and warranty made as of a specific earlier date, which will have been accurate in all respects as of such earlier date), subject to certain de minimis, materiality, material adverse effect thresholds and other exceptions, as the case may be; and

 

    all of the covenants and obligations in the merger agreement that each of the Company, Parent and Merger Sub is required to comply with or to perform at or prior to the closing will have been complied with and performed, subject to certain materiality and de minimis thresholds and monetary payment cure rights, as the case may be.

The founders agreement also contains conditions to the founders closing described in “The Founders Agreement” beginning on page 118. Sponsor’s commitment to fund under the equity commitment letter is subject to satisfaction of the conditions set forth in the merger agreement and the founders agreement.

Termination of the Merger Agreement (page 111)

In general, the merger agreement may be terminated in accordance with the specific termination rights enumerated therein at any time prior to the effective time of the merger, whether before or after approval of the proposal to adopt the merger agreement by the shareholders of the Company. Upon termination of the merger agreement, the founders agreement automatically terminates immediately. See “The Merger Agreement —Termination of the Merger Agreement — Termination” beginning on page 111 for more information about the circumstances in which either the Company or Parent could terminate the merger agreement.

Termination Fees (page 113)

Under the merger agreement, the Company may be required to pay Parent a termination fee in the amount of $98,350,000 or a termination fee in the amount of $131,140,000 if the merger agreement is terminated under specified circumstances. For information about when the Company must pay either one of these fees, see “The Merger Agreement — Termination Fees” beginning on page 113.

Specific Performance (page 114)

In the event of any breach or threatened breach by a party of any covenant or obligation contained in the merger agreement, the other party will be entitled to obtain, without proof of actual damages (and in addition to

 



 

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any other remedy to which such other party may be entitled at law or in equity): (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation; and (b) an injunction restraining such breach or threatened breach.

Under the limited guarantee, the Company may also bring an action to compel Sponsor to perform its obligation to make the equity investment in Parent contemplated by the equity commitment letter.

Fees and Expenses (page 114)

Except as otherwise specifically provided in the merger agreement, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring such fees and expenses, whether or not the merger is consummated. However, Parent and the Company agree to share equally all fees and expenses, other than attorneys’ fees, incurred in connection with the filing by the parties to the merger agreement of the premerger notification and report forms relating to the merger under the HSR Act and the filing of any notice or other document under any applicable foreign antitrust or competition law or regulation. The Company will pay all fees and expenses incurred by it in connection with the client consent solicitation contemplated by the merger agreement, including any costs associated with any proxy solicitation.

Voting Agreements (page 115)

In connection and concurrently with entering the merger agreement, on February 14, 2017, Parent entered into separate voting agreements with each of the Principals and certain of their related entities and persons that own Class A shares and/or Class B shares (referred to herein as the “Supporting Members”).

Pursuant to the voting agreements, each Supporting Member has agreed to vote a specified number of Class A shares and/or Class B shares owned by such Supporting Member, representing in the aggregate as to all Supporting Members under all voting agreements, 34.99% of the total voting power of the Company, at any meeting of the members of the Company (including the Special Meeting): (i) in favor of the merger and certain related matters, and (ii) against certain specified actions, including (a) any action or agreement that would result in a breach of any representation, warranty or covenant of the Company set forth in the merger agreement, (b) extraordinary corporate transactions other than the merger and (c) certain other specified actions.

See “Voting Agreements” beginning on page 115 for a description of these agreements.

Founders Agreement (page 118)

Concurrently with the entry into the merger agreement, Parent, the Company, FIG Corp., FIG Asset Co. LLC and the Principals and their related entities and persons that own FOG units entered into the founders agreement, pursuant to which FIG Corp. and FIG Asset Co. LLC agreed, on the terms and subject to the conditions set forth in the founders agreement, to purchase from the Principals and their related entities and persons that own FOG units 100% of the FOG units that are not already owned by the Company and its subsidiaries. The founders agreement provides that FIG Corp. and FIG Asset Co. LLC will acquire each such FOG unit in exchange for $8.08 in cash, for an aggregate consideration payable to holders of such FOG units of approximately $1.37 billion, subject to reduction for distributions made to the Principals and their related entities and persons that own FOG units with respect to their FOG units to the extent the aggregate amount of such distributions following February 14, 2017 is in excess of the amount required to yield the two $0.09 quarterly distributions permitted by the merger agreement. For more information concerning the payment of dividends and distributions with respect to FOG units, see “Market Prices and Dividend Data” beginning on page 128. The purchase price will be funded by Parent to FIG Corp. and FIG Asset Co. LLC pursuant to a series of loans,

 



 

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contributions and other intercompany transactions which will each occur immediately before or immediately after the effective time of the merger. The transactions contemplated by the founders agreement are conditioned on satisfaction or waiver of the conditions in the merger agreement and any transactions occurring under the founders agreement prior to the closing under the merger agreement will be unwound if the merger does not close.

At the founders closing, 50% of the after-tax proceeds (as calculated pursuant to certain tax rates and principles agreed upon by the parties) received by each of the Principals and the other Sellers as consideration for their respective FOG units will be placed into an escrow account established for each such Seller. The parties have agreed that for a period of time following the founders closing and subject to the terms and conditions set forth in the founders agreement, all such escrowed proceeds will be invested by the Principals and the other Sellers in (i) certain investment funds or other collective investment or managed accounts that are, in each case and subject to certain exceptions, sponsored or controlled by the Company or any of its subsidiaries or for which the Company or any of its subsidiaries acts as the principal investment adviser, investment manager, collateral manager, general partner, managing member, manager or in a similar capacity (“Company Vehicles”), equity securities of Sponsor, investment vehicles or funds managed by Sponsor or its affiliates and certain other permitted investments or (ii) in certain circumstances, held in cash or cash equivalents, in each case subject to certain exceptions (collectively, “Permitted Investments”).

The founders agreement also contains requirements on the part of each Principal and the other Sellers to maintain for a period of time an aggregate amount equal to or greater than 90% of the aggregate value of such Principal’s and his Seller Group’s investments in Company Vehicles as of the date of the founders agreement (subject to certain adjustments to the value of such investments through the date of the founders closing) (the “Reinvestment Amount”) invested in Permitted Investments and/or business opportunities in which Sponsor (or one or more controlled affiliates of Sponsor) co-invests alongside such Principal (collectively, “Seller Investments”).

Upon a Principal’s termination by the employer or a Principal’s resignation for “good reason” (as described below), or termination due to his death or disability, the escrowed proceeds will be released to such Principal and his Seller Group and such Principal and his Seller Group will no longer be required to maintain the Reinvestment Amount invested in Seller Investments. See “Founders Agreement — Covenants and Other Agreements” beginning on page 120 for a description of the terms of the founders agreement with respect to the release of the escrowed proceeds.

Among other things, the founders agreement also contains certain customary restrictive covenants with respect to non-competition, non-solicitation of employees and non-solicitation of investors during the period of the Principals’ employment with the Company and for the 24-month period immediately following termination of such employment for any reason. The restrictive covenants are generally consistent with the existing restrictions applicable to each Principal under his respective current employment agreement with FIG LLC, subject to certain exceptions. The founders agreement also provides that each Principal will have the right to sit on the board of directors of the Company following the closing for so long as such Principal is employed by the Company or any of its subsidiaries.

 



 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The Board of Directors is soliciting proxies to be voted at the Special Meeting. The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement, the other agreements described herein and the Special Meeting. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the “Summary” and the more detailed information contained elsewhere in this Proxy Statement, the appendices to this Proxy Statement and the documents incorporated by reference or referred to in this Proxy Statement, which you should read carefully and in their entirety.

 

Q: Why am I receiving these materials?

 

A: The Board is furnishing this Proxy Statement and form of proxy and voting instructions to the holders of Class A shares and Class B shares in connection with the solicitation of proxies to be voted at a Special Meeting of shareholders or at any adjournments or postponements of the Special Meeting.

 

Q: When and where is the Special Meeting?

 

A: The Special Meeting will be [            ], 2017 at [            ] local time, at [            ].

 

Q: Who is entitled to vote at the Special Meeting?

 

A: Only holders of record of our Class A shares and Class B shares as the close of business on [                ], 2017 are entitled to receive notice of, and to vote at, the Special Meeting. Each holder of our Class A shares and Class B shares is entitled to cast one vote on each matter properly brought before the Special Meeting for each Class A share and Class B share that such holder owned as of the Record Date.

 

Q: May I attend the Special Meeting and vote in person?

 

A: Yes. All shareholders as of the Record Date may vote in person at the Special Meeting. Seating will be limited. If you are a registered shareholder and plan to attend the Special Meeting in person, please check the “Special Meeting” box on the proxy card and promptly return your proxy card so that we may send you an admission card. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, contact our Investor Relations department to obtain an admission card and present this admission card to the inspector of elections and present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting. Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares by proxy. The powers of the proxy holders will be suspended with respect to your shares if you attend the Special Meeting in person and so request, although attendance at the Special Meeting will not by itself revoke a previously granted proxy. Any proxy not properly revoked will be voted as specified by the shareholder.

 

Q: What am I being asked to vote on at the Special Meeting?

 

A: At the Special Meeting, you will be asked:

 

  1. to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

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  3. to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

 

Q: What is the merger and what effects will it have on the Company?

 

A: The merger is the acquisition of the Company by Parent pursuant to the merger agreement. If the proposal to adopt the merger agreement is approved by the holders of Class A shares and Class B shares and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into the Company. Upon completion of the merger, Merger Sub will cease to exist, the Company will continue as the surviving company and the Company will become a wholly owned subsidiary of Parent. Following the merger, there will be no further market for our Class A shares, and the Company will de-list the Class A shares from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is completed, you will not own any shares of the surviving company.

 

Q: What will I receive if the merger is completed?

 

A: If the merger is completed, you will be entitled to receive the per-share merger consideration of $8.08 in cash, without interest, less any applicable withholding taxes, for each Class A share that you own. For example, if you own 100 Class A shares, you will receive $808 in cash in exchange for all such shares, less any applicable withholding taxes. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion. If the merger is completed, each Class B share will be cancelled and retired, for no consideration (although holders of such shares will receive consideration of $8.08 in cash in respect of each corresponding FOG unit as described under “Founders Agreement” beginning on page 118, for an aggregate consideration payable to holders of such FOG units of approximately $1.37 billion, subject to reduction for certain excess distributions made to holders of FOG units as further described under “Founders Agreement” beginning on page 118).

 

Q: How does the per-share merger consideration compare to the market price of the Class A shares prior to the public announcement of the merger agreement?

 

A: The per-share merger consideration of $8.08 per Class A share represents a premium of approximately 38.6% over the closing price of the Company’s Class A shares on February 13, 2017 (the last trading day before the date that the merger agreement was signed) and a premium of approximately 51.2% over the volume-weighted average price for the three-month period ended February 13, 2017.

 

Q: What do I need to do now?

 

A: We encourage you to read this Proxy Statement, the appendices to this Proxy Statement, including the merger agreement, and the documents we refer to in this Proxy Statement carefully and consider how the merger affects you. Whether or not you plan to attend the Special Meeting, please vote by Internet or telephone, or mark, sign, date and return your proxy card, so that your shares are represented at the meeting. If you plan to attend the meeting, please check the “Special Meeting” box on your proxy card so that we may send you an admission card. If you are a beneficial owner of shares, you must take the following steps to be able to attend and vote at the Special Meeting: obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, contact our Investor Relations department to obtain an admission card and present this admission card to the inspector of elections and present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

 

Q: Should I send in my Class A share certificates now?

 

A:

No. Promptly after the merger is completed, under the terms of the merger agreement, record holders of Class A shares immediately prior to the completion of the merger will receive a letter of transmittal with

 

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  instructions for use in surrendering Class A share certificates in exchange for the cash merger consideration. You should use and return the letter of transmittal to exchange your Class A share certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your share certificates now.

 

Q: What happens if I sell or otherwise transfer my Class A shares after the Record Date but before the Special Meeting?

 

A: The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the merger is expected to be completed. If you sell or transfer your Class A shares after the Record Date, but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies the Company in writing of such special arrangements, you will transfer the right to receive the per-share merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote these shares at the Special Meeting. Even if you sell or otherwise transfer your shares after the Record Date, we encourage you to complete, date, sign and return the enclosed proxy or vote via the Internet or telephone.

 

Q: How does the Board of Directors recommend that I vote?

 

A: After careful consideration of, and based upon, the unanimous recommendation of the Special Committee, the Board of Directors unanimously (i) determined that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. The Board of Directors unanimously recommends that you vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

For a discussion of the factors that the Board considered in determining to recommend the proposals, please see “The Merger — Recommendation of Our Board of Directors and Reasons for the Merger — Reasons for the Merger” beginning on page 47.

 

Q: Will the Company continue to pay a quarterly dividend?

 

A: Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

 

Q: What happens if the merger is not completed?

 

A:

If the merger agreement is not approved and adopted by the Company’s shareholders or if the merger is not completed for any other reason, the Company’s shareholders will not receive any payment for their Class A

 

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  shares. Instead, the Company will remain a public company, our Class A shares will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC.

In addition, under specified circumstances, the Company may be required to pay Parent a termination fee upon the termination of the merger agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 113.

 

Q: Do any of the Company’s directors or officers have interests in the merger that may differ from those of the Company’s shareholders generally?

 

A: Yes. In considering the recommendation of the Board of Directors that you vote for the proposal to adopt the merger agreement, you should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board of Directors approve the merger agreement and the merger. The Board of Directors was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be approved and adopted by the Company’s shareholders. For a description of the interests of our directors and executive officers in the merger, see “The Merger — Interests of the Directors and Executive Officers of the Company in the Merger” beginning on page 80.

 

Q: What vote is required to adopt the merger agreement?

 

A: The proposal to adopt the merger agreement and thereby approve the transactions contemplated by the merger agreement and the merger, requires that a majority of our Class A shares and Class B shares (voting together as a single class) outstanding and entitled to vote on the proposal vote FOR the proposal in order for it to be approved.

As of the Record Date approximately [     ]% of all of the Company’s Class A shares and Class B shares entitled to vote (voting together as a single class) at the Special Meeting were held by Peter L. Briger, Jr., Wesley R. Edens and Randal A. Nardone and certain of their respective related entities and persons. Therefore, in order for the merger proposal to be approved, holders of Class A shares representing approximately [      ]% of the combined voting power of the Company’s Class A shares and Class B shares in addition to the Class A shares and Class B shares held by the Principals must vote FOR the merger proposal (assuming that all such shares held by the Principals are voted in favor of the merger proposal). In connection with the merger agreement, on February 14, 2017, Parent entered into separate voting agreements, pursuant to which each of Peter L. Briger, Jr., Wesley R. Edens and Randal A. Nardone, and certain of their related entities and persons that own Class A shares and/or Class B shares, agreed, among other things, and subject to the terms set forth in the voting agreements, to vote shares of the Company that represent, as to all such agreements in the aggregate, 34.99% of the total voting power of the Company, in favor of the adoption of the merger agreement, each of the other actions contemplated by the merger agreement, including the merger, and any other proposal in respect of which approval of the Company’s shareholders is requested in furtherance of the foregoing. See “Voting Agreements” beginning on page 115, for a description of these agreements.

Because the vote on the merger proposal is based on the number of our Class A shares and Class B shares outstanding, abstentions, the failure to submit a proxy or not providing your bank, brokerage firm or other nominee with instructions, as applicable, will have the same effect as voting AGAINST the approval of the proposal. The proposal cannot be voted upon by your brokers, banks or other nominee if you do not instruct your brokers, banks or other nominee as to how to vote on such proposal.

As of the Record Date, there were approximately [      ] Class A shares and [      ] Class B shares issued and outstanding. Each holder of Class A shares and Class B shares is entitled to vote each Class A share and Class B share owned by such holder as of the Record Date.

 

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Q: What vote is required to approve the proposals to (i) approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting and (ii) approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger?

 

A: The proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting requires that a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting must vote FOR the proposal in order for it to be approved, whether or not a quorum is present.

The proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger requires that a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting must vote FOR the proposal in order for it to be approved.

Abstentions, the failure to submit a proxy, or not providing your bank, brokerage firm or other nominee with instructions, as applicable, will have no effect on the outcome of the adjournment proposal and (assuming a quorum is present) the advisory (non-binding) vote on certain compensation.

Neither proposal can be voted upon by your brokers, banks or other nominee if you do not instruct your brokers, banks or other nominee as to how to vote on the proposal.

 

Q: Why am I being asked to cast a non-binding, advisory vote regarding certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger?

 

A: SEC rules require the Company to seek a non-binding, advisory vote regarding certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

 

Q: What is the compensation that will or may become payable by the Company to its named executive officers in connection with the merger for purposes of this advisory vote?

 

A: Certain compensation that is tied to or based on the merger may become payable by the Company to its named executives in connection with the merger. For further detail, please see “Proposal Number Three: Advisory (Non-Binding) Vote on Compensation” beginning on page 127.

 

Q: What will happen if, at the Special Meeting, shareholders do not approve the compensation that will or may become payable by the Company to its named executive officers in connection with the merger?

 

A: Approval of the compensation that will or may become payable by the Company to its named executive officers in connection with the merger is not a condition to completion of the merger. The vote with respect to the compensation that will or may become payable by the Company to its named executive officers in connection with the merger is an advisory vote and will not be binding on the Company or Parent. If the merger is completed, the compensation that will or may become payable by the Company to its named executive officers in connection with the merger may be paid to the Company’s named executive officers even if shareholders fail to approve the payment of that compensation.

 

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Q: What is a quorum?

 

A: A quorum of shareholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, a majority of Class A shares and Class B shares, voting together as a single class, issued and outstanding as of the Record Date, and entitled to vote, must be present, either in person or by proxy, at the Special Meeting.

 

Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?

 

A: If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, to be the “shareholder of record.” In this case, this Proxy Statement and your proxy card have been sent directly to you by the Company. As a shareholder of record, you have the right to vote, grant your voting rights directly to the Company or to a third party or to vote in person at the Special Meeting.

If your shares are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the Class A shares held in “street name.” In that case, this Proxy Statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, to be the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting. However, because you are not the shareholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid proxy from your broker, bank or other nominee.

 

Q: How may I vote?

 

A: You may vote by any one of the following means:

 

    By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a bank, broker or other nominee, they will give you separate instructions for voting your shares.

 

    By Telephone or on the Internet: The telephone and Internet voting procedures established for shareholders of record are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that those instructions have been properly recorded.

You can vote by calling the toll-free telephone number on your proxy card, [            ]. Please have your proxy card in hand when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

The website for Internet voting is [            ]. Please have your proxy card in hand when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded.

Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close on [            ], 2017 at 11:59 PM Eastern Time.

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, we recommend that you follow the voting instructions in the materials you receive from those parties.

If you vote by telephone or on the Internet, you do not have to return your proxy card or voting instruction card.

 

   

In Person or by Proxy: All shareholders of record may vote in person at the Special Meeting. You may also be represented by another person at the Special Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must take the following three steps in order to be able to attend and vote at the Special Meeting: (i) obtain a legal proxy from your broker, bank or

 

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other holder of record and present this legal proxy to the inspector of elections along with your ballot, (ii) contact our Investor Relations department to obtain an admission card and present the admission card to the inspector of elections and (iii) present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares in person at the Special Meeting if you deliver to our Secretary a written revocation of any proxy you previously submitted.

 

Q: If I hold my shares as a beneficial owner will my broker vote my shares for me?

 

A: No, not without your direction. Your broker, bank or other nominee must generally vote your shares on any proposal if you instruct your broker, bank or other nominee on how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. Under applicable stock exchange rules, brokers, banks or other nominees can vote your shares on “discretionary” or routine proposals if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. None of the proposals to be presented to shareholders at the Special Meeting are considered to be “discretionary” or routine proposals. As a result, your shares will not be voted if you do not instruct your broker as to how to vote on the proposal. Therefore, it is important that you instruct your broker, bank or nominee on how you wish to vote your shares.

 

Q: May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote by proxy?

 

A: Yes. If you are a shareholder of record, you may change your vote or revoke your proxy at any time before the proxy is exercised by:

 

    Sending a written notice to the Secretary of the Company at the address provided in this proxy;

 

    Timely delivery of a valid, later-dated proxy or a later-dated vote by telephone or on the Internet; or

 

    Attending the Special Meeting, revoking your proxy by delivering notice of revocation to our Secretary, and voting in person.

The powers of the proxy holders will be suspended if you attend the Special Meeting in person and so request, although attendance at the Special Meeting will not by itself revoke a previously granted proxy.

 

Q: What is a proxy?

 

A: A proxy is your legal designation of another person, referred to as a “proxy,” to vote your Class A shares and Class B shares. The written document describing the matters to be considered and voted on at the Special Meeting is called a “Proxy Statement.” The document used to designate a proxy to vote your Class A shares and Class B shares is called a “proxy card.”

 

Q: If a shareholder gives a proxy, how are the shares voted?

 

A: Regardless of the method by which you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted FOR the proposal to adopt the

 

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merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger, FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting and FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

 

Q: Who will count the votes?

 

A: Broadridge Financial Solutions, Inc., our independent tabulating agent, will count the votes and act as the inspector of elections.

 

Q: Where can I find the voting results of the Special Meeting?

 

A: The Company intends to announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC within four business days of the Special Meeting. All reports that the Company files with the SEC are publicly available when filed. See “Additional Information” beginning on page 132.

 

Q: Will I be subject to U.S. federal income tax upon the exchange of the Class A shares for cash pursuant to the merger?

 

A: For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89) in exchange for such U.S. Holder’s Class A shares in the merger generally will result in the recognition of gain or loss in an amount equal to the difference, if any, between (i) the sum of the cash such U.S. Holder receives in the merger and such U.S. Holder’s share of the indebtedness, if any, of the Company and (ii) such U.S. Holder’s adjusted tax basis in the Class A shares surrendered in the merger (including basis attributable to such U.S. Holder’s share of the indebtedness, if any, of the Company). Shareholders (including Non-U.S. Holders (as defined under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89)) should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under the laws of any U.S. state or local or non-U.S. taxing jurisdiction. A more detailed description of the U.S. federal income tax consequences of the merger is provided under “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 89.

 

Q: What will the holders of the Company’s restricted stock units relating to Class A shares receive in the merger?

 

A: Each Company RSU, whether vested but not yet delivered or unvested, that is outstanding immediately prior to the effective time of the merger will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company RSU to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes.

If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

 

Q: What will the holders of restricted Class A shares receive in the merger?

 

A: Each Company Restricted Share that is outstanding and unvested immediately prior to the effective time of the merger will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company Restricted Share to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes.

If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

 

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Q: When do you expect the merger to be completed?

 

A: We are working toward completing the merger as quickly as possible and currently expect to complete the merger in the second half of 2017. However, the exact timing of the completion of the merger cannot be predicted because the merger is subject to conditions, including the adoption of the merger agreement by our shareholders and the receipt of regulatory approvals.

 

Q: Am I entitled to dissenters’ rights?

 

A: No, the Company’s shareholders do not have dissenters’ rights with respect to any matter to be voted upon at the Special Meeting. See “The Merger — No Dissenters’ Rights” beginning on page 89.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive.

 

Q: What is householding and how does it affect me?

 

A: The SEC permits companies to send a single set of proxy materials to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each shareholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of Class A shares held through brokerage firms. If your family has multiple accounts holding Class A shares, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this Proxy Statement. The broker will arrange for delivery of a separate copy of this Proxy Statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

Q: Who can help answer my questions?

 

A: If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (888) 750-5834 (toll-free). Banks and brokers may call (212) 750-5833 (collect).

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this Proxy Statement, and the documents to which we refer you in this Proxy Statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are generally identified by the use of words such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “would,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “pipeline,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve” or the negative version of those words or other comparable words. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs as of the date of this Proxy Statement regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Numerous factors could cause actual events to differ from these forward-looking statements, and any such differences could cause our actual results to differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this Proxy Statement, and the following factors:

 

    The inability to consummate the merger or the risk that the merger may not be consummated within the anticipated time period, or at all, due to the failure to obtain shareholder approval to adopt the merger agreement or failure to satisfy the other conditions to the completion of the merger;

 

    The risk that the merger agreement may be terminated including in circumstances requiring us to pay Parent a termination fee of either $98,350,000 or $131,140,000;

 

    The failure by Parent to obtain the equity financing contemplated in the equity commitment letter or the failure of such financing to be sufficient to consummate the merger and the other transactions contemplated by the merger agreement;

 

    Risks that the proposed merger disrupts our current plans and operations or affects our ability to retain or recruit key employees;

 

    The effect of the announcement or pendency of the merger on our business relationships, operating results and business generally;

 

    The amount of the costs, fees, expenses and charges related to the merger agreement or the merger;

 

    Risks related to diverting management’s or employees’ attention from ongoing business operations;

 

    The risk that our stock price may decline significantly if the merger is not completed;

 

    The tax consequences of the merger; and

 

    The nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the merger and instituted against us and others.

Consequently, all of the forward-looking statements we make in this Proxy Statement are qualified by the information contained or incorporated by reference herein, including, but not limited to, (a) the information contained under this heading and (b) the information contained under the headings “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-K and 10-Q (see “Additional Information” beginning on page 132). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Our shareholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.

 

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THE SPECIAL MEETING

Date, Time and Place of the Special Meeting

The Board of Directors is soliciting proxies to be voted at the Special Meeting to be held on [            ], 2017 at [          ] local time, at [          ], for the purposes set forth in the accompanying Notice of the Special Meeting of Shareholders, and at any adjournment or postponement of the Special Meeting.

The Notice of the Special Meeting of Shareholders, Proxy Statement, form of proxy and voting instructions are first being mailed on or about [            ], 2017.

Matters to Be Considered at the Special Meeting

The matters to be considered and voted upon at the Special Meeting, which are described in detail in the accompanying materials, are:

 

  1. the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Recommendations of the Board of Directors

After careful consideration of, and based upon, the unanimous recommendation of the Special Committee comprised solely of independent and disinterested directors, the Board of Directors unanimously recommends that shareholders vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Record Date

Our Board has fixed the close of business on [            ], 2017 as the Record Date for determination of the holders of our Class A shares and Class B shares entitled to notice and to vote at the Special Meeting. Only shareholders of record as of the close of business on the Record Date are entitled to vote at the Special Meeting.

Voting Securities

Holders of our Class A shares and Class B shares, as recorded in our share register at the close of business on the Record Date, may vote at the Special Meeting and any adjournment or postponement thereof. As of the Record Date, there were [        ] Class A shares and [        ] Class B shares outstanding.

 

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On each matter to be voted upon, the Class A shares and Class B shares will vote together as a single class. Each holder of Class A shares is entitled to one vote per share, and each holder of Class B shares is entitled to one vote per share. As of the Record Date, the Principals, together with certain of their related parties and entities, collectively owned [        ] Class A shares and [            ] Class B shares, and they are entitled to vote these shares. The Principals and certain of their related entities and persons that own Class A shares and/or Class B shares, have each entered into separate voting agreements pursuant to which they have agreed, among other things, and subject to the terms set forth in the voting agreements, to vote shares of the Company that represent, as to all such agreements in the aggregate, 34.99% of the total voting power of the Company, in favor of the adoption of the merger agreement, each of the other actions contemplated by the merger agreement and the merger, and any other proposal in respect of which approval of the Company’s shareholders is requested in furtherance of the foregoing. See “Voting Agreements” beginning on page 115 for a description of these agreements.

Quorum and Votes Needed

Quorum

A quorum of shareholders is necessary to hold the Special Meeting. For the purposes of the Special Meeting, to establish a quorum and transact business, a majority of Class A shares and Class B shares, voting together as a single class, issued and outstanding as of the Record Date, and entitled to vote, must be present, either in person or by proxy, at the Special Meeting.

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, any of the proposals presented at the Special Meeting. Votes cast FOR or AGAINST any of the proposals will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum and will be counted in the number of votes cast on the matter. Votes cast as ABSTAIN on any of the proposals will be treated as shares that are present and entitled to vote for the purposes of determining the presence of a quorum, but will not be counted in the number of votes cast on the matter.

In accordance with our operating agreement, the Special Meeting may be adjourned or postponed from time to time by the chairman of the meeting to another place or time, without regard to the presence of a quorum.

Votes Needed

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, the proposal to adopt the merger agreement. A majority of the Class A shares and Class B shares (voting together as a single class) outstanding and entitled to vote on the merger proposal must vote FOR the proposal in order for it to be approved. As of the Record Date, approximately [        ]% of the Company’s Class A shares and Class B shares entitled to vote were held by the Principals. Therefore, in order for the merger proposal to be approved, holders of Class A shares representing approximately [      ]% of the combined voting power of the Company’s Class A shares and Class B shares in addition to the Class A shares and Class B shares held by the Principals must vote FOR the merger proposal (assuming that all such shares held by the Principals are voted in favor of the merger proposal). Because the vote on the merger proposal is based on the number of Class A shares and Class B shares outstanding, abstentions will have the same effect as voting AGAINST the approval of such proposal.

Shareholders may vote FOR or AGAINST, or they may ABSTAIN from voting on, each of the proposals to approve any postponements of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger. A majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting, whether or not a quorum is present, must vote FOR the proposal to approve any postponements of the Special Meeting, in order for it to be approved and a majority of votes cast (with the Class A shares and Class B shares voting together as a single class) at the Special Meeting must vote FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger, in order for it to be approved. Abstentions will have no effect on the outcome of either proposal.

 

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If a shareholder holds shares through a broker, bank or other nominee, generally the broker may vote the shares it holds in accordance with instructions received. If a shareholder does not give instructions to a broker, the broker can vote the shares it holds with respect to “discretionary” or routine proposals under the rules of the NYSE. A broker cannot vote shares with respect to non-discretionary proposals for which a shareholder has not given instruction. None of the proposals to be presented to shareholders at the Special Meeting are considered to be “discretionary” or routine proposals. As a result, the proposals cannot be voted upon by your broker if you do not instruct your broker as to how to vote on the proposals. “Broker non-votes,” if any, will have the same effect as voting AGAINST the proposal to approve the merger agreement and will have no effect on the outcome of the proposals to approve any postponements of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Voting of Proxies

You may vote by any one of the following means:

 

    By Mail: To vote by mail, please sign, date and complete the proxy card and return it in the enclosed self-addressed envelope. No postage is necessary if the proxy card is mailed in the United States. If you hold your shares through a bank, broker or other nominee, they will give you separate instructions for voting your shares.

 

    By Telephone or on the Internet: The telephone and Internet voting procedures established for shareholders of record are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that those instructions have been properly recorded.

You can vote by calling the toll-free telephone number on your proxy card, [            ]. Please have your proxy card in hand when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

The website for Internet voting is [            ]. Please have your proxy card in hand when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded.

Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close on [            ], 2017 at 11:59 PM Eastern Time.

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, we recommend that you follow the voting instructions in the materials you receive from those parties.

If you vote by telephone or on the Internet, you do not have to return your proxy card or voting instruction card.

 

    In Person or by Proxy: All shareholders of record may vote in person at the Special Meeting. You may also be represented by another person at the Special Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must take the following three steps in order to be able to attend and vote at the Special Meeting: (i) obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, (ii) contact our Investor Relations department to obtain an admission card and present the admission card to the inspector of elections and (iii) present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares by proxy. If you are a record holder or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares in person at the Special Meeting if you deliver to our Secretary a written revocation of any proxy you previously submitted.

Shareholders who do not attend the Special Meeting in person may submit proxies by mail. These proxies, if received in time for voting, properly executed and not revoked, will be voted at the Special Meeting in

 

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accordance with the instructions contained therein. A broker cannot vote shares with respect to non-discretionary proposals for which a shareholder has not given instruction. None of the proposals to be presented to shareholders at the Special Meeting can be voted upon by your broker if you do not instruct your broker as to how to vote on the proposals.

If you properly sign and return your proxy card but do not indicate voting instructions with respect to any proposal, the shares represented by the proxy will be voted as follows:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Revocability of Proxy

Any shareholder returning a proxy may revoke it at any time before the proxy is exercised by (i) sending a written notice to the Secretary of the Company at the address below; (ii) timely delivery of a valid, later-dated proxy or a later-dated vote by telephone or on the Internet; or (iii) voting in person at the Special Meeting. The powers of the proxy holders will be suspended if you attend the Special Meeting in person and so request, although attendance at the Special Meeting will not by itself revoke a previously granted proxy. Any proxy not properly revoked will be voted as specified by the shareholder. If you properly sign and return your proxy card but do not indicate voting instructions with respect to any proposal, the shares represented by the proxy will be voted in accordance with the Board’s recommendations.

Fortress Investment Group LLC

1345 Avenue of the Americas

New York, NY 10105

Attention: David N. Brooks, Secretary

Persons Making the Solicitation

This Proxy Statement is sent on behalf of, and the proxies are being solicited by, the Board of Directors. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, to solicit proxies in connection with the Special Meeting at a cost of approximately $25,000 plus expenses. We will bear all costs of the solicitation of proxies. In addition to solicitations by mail, our directors, officers and regular employees, without additional remuneration, may solicit proxies by mail, telephone, telecopy, e-mail and personal interviews. We will request brokers, banks, custodians and other fiduciaries to forward proxy soliciting materials to the beneficial owners of our Class A shares and Class B shares that they hold of record. We will reimburse them for their reasonable out-of-pocket expenses incurred in connection with the distribution of the proxy materials.

Attendance at the Special Meeting

If you are a registered shareholder and plan to attend the Special Meeting in person, please check the “Special Meeting” box on the proxy card so that we may send you an admission card. If you are a beneficial owner of shares, you must take the following three steps in order to be able to attend and vote at the Special Meeting: (i) obtain a legal proxy from your broker, bank or other holder of record and present this legal proxy to the inspector of elections along with your ballot, (ii) contact our Investor Relations department to obtain an admission card and present the admission card to the inspector of elections and (iii) present an acceptable form of photo identification, such as a driver’s license or passport, at the Special Meeting.

 

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Voting Results

Broadridge Financial Solutions, Inc., our independent tabulating agent, will count the votes and act as the inspector of elections. We will publish the voting results in a Current Report on Form 8-K, which will be filed with the SEC within four business days of the Special Meeting.

Confidentiality of Voting

We keep all proxies, ballots and voting tabulations confidential as a matter of practice. We permit only our inspector of elections, Broadridge Financial Solutions, Inc., to examine these documents.

Questions and Additional Information

If you have questions about the merger or how to submit your proxy, or if you need additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, please contact Innisfree M&A Incorporated, which is assisting the Company with the solicitation of proxies, at (888) 750-5834 (toll-free). Banks and brokers may call (212) 750-5833 (collect).

 

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THE MERGER

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this Proxy Statement as Annex A and incorporated into this Proxy Statement by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

Parties Involved in the Merger

Fortress Investment Group LLC

1345 Avenue of the Americas

New York, NY 10105

(212) 798-6100

The Company is a leading, highly diversified global investment management firm with approximately $69.6 billion in AUM as of December 31, 2016. The Company applies its deep experience and specialized expertise across a range of investment strategies — private equity, credit, liquid markets and traditional fixed income — on behalf of our over 1,700 institutional clients and private investors worldwide. We earn management fees based on the amount of capital we manage, incentive income based on the performance of our alternative investment funds, and investment income from our investments in our funds.

The Company was founded in 1998 as an asset-based investment management firm with a fundamental philosophy premised on alignment of interests with the investors in our funds. Our managed funds primarily employ absolute return strategies — we strive to have positive returns regardless of the performance of the markets. Investment performance is our cornerstone — as an investment manager, we earn more if our investors earn more. In keeping with our fundamental philosophy, the Company invests capital in each of its alternative investment businesses. As of December 31, 2016, the Company’s investments in and commitments to our funds were $1.1 billion, consisting of the net asset value of the Company’s investments in the Company’s funds of $0.9 billion, and unfunded commitments to private equity funds and credit PE funds of $0.2 billion.

As of December 31, 2016, we had 1,078 asset management employees, including approximately 271 investment professionals, at our headquarters in New York and our affiliate offices around the globe. Additionally, we had 1,765 employees at the senior living properties that we manage on behalf of New Senior Investment Group Inc. and third parties (whose compensation expense is reimbursed to us by the owners of the facilities).

We are guided by the following key objectives and values:

 

    introducing new investment products while remaining focused on, and continuing to grow, our existing lines of business;

 

    maintaining our disciplined investment process and intensive asset management; and

 

    adhering to the highest standards of professionalism and integrity.

For more information about the Company, please visit our website at www.fortress.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this Proxy Statement or any other report or document on file with or furnished to the SEC. See also “Additional Information” beginning on page 132.

Our Class A shares have been listed and are traded on the NYSE under the symbol “FIG.”

 

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Softbank Group Corp.

1-9-1, Higashi-Shimbashi

Minato-ku, Tokyo 105-7303 Japan

+81-3-6889-2000

Softbank Group Corp., or Sponsor, was established in 1981 and is a Japanese kabushiki kaisha, or corporation. Sponsor is a holding company that is currently engaged in various businesses in the information industry, including mobile communications, broadband infrastructure, fixed-line telecommunications and Internet culture.

SoftBank’s ordinary shares are traded on the Tokyo Stock Exchange under the code “9984.” SoftBank (together with its consolidated subsidiaries) had over 63,500 employees as of the end of its fiscal year ended March 31, 2016.

SB Foundation Holdings LP

c/o SB Group US, Inc.

1 Circle Star Way

San Carlos, CA 94070

+81-3-6889-2000

SB Foundation Holdings LP, or Parent, is a Cayman Islands exempted limited partnership that was formed on February 6, 2017 for the sole purpose of entering into the merger agreement and founders agreement and completing the transactions contemplated thereby. Sponsor is the managing member of the general partner of Parent, and Sponsor is the sole limited partner of Parent. Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the founders agreement.

Foundation Acquisition LLC

c/o SB Group US, Inc.

1 Circle Star Way

San Carlos, CA 94070

+81-3-6889-2000

Foundation Acquisition LLC, or Merger Sub, is a Delaware limited liability company that was formed on February 6, 2017 for the sole purpose of entering into the merger agreement and founders agreement and completing the transactions contemplated thereby. Merger Sub is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the founders agreement. Upon completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving company.

Certain Effects of the Merger on the Company

Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into the Company. After the completion of the merger, the Company will become a wholly owned subsidiary of Parent. The Company will cooperate with Parent to de-list the Class A shares from the NYSE and de-register under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is completed, you will not own any shares of the surviving company.

The effective time of the merger will occur upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we and Parent may agree and specify in the certificate of merger).

 

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Effect on the Company If the Merger Is Not Completed

If the merger agreement is not approved and adopted by the Company’s shareholders or if the merger is not completed for any other reason, the Company’s shareholders will not receive any payment for their Class A shares. Instead, the Company will remain a public company, our Class A shares will continue to be listed and traded on the NYSE and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Accordingly, if the merger is not completed, there can be no assurance as to the effect of the risks and opportunities on the future value of your shares. If the merger is not completed, the Board will continue to evaluate and review the Company’s business operations, properties, dividend policy and capitalization, among other things, and make such changes as are deemed appropriate and continue to seek to enhance shareholder value. If the merger agreement is not approved and adopted by the Company’s shareholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered or that the Company’s business, prospects or results of operation will not be adversely impacted.

In addition, under specified circumstances, the Company may be required to pay Parent a termination fee, upon the termination of the merger agreement, as described under “The Merger Agreement — Termination Fees” beginning on page 113.

Merger Consideration

If the merger is completed, each Class A share issued and outstanding immediately prior to the effective time of the merger (other than such shares held immediately prior to the effective time of the merger by (i) the Company as treasury stock, (ii) Parent or Merger Sub or (iii) any subsidiary of the Company) will be converted automatically into the right to receive the per-share merger consideration of $8.08 in cash, without interest, less any applicable withholding taxes, and will automatically be cancelled and retired and cease to exist. Thereafter, each certificate formerly representing any of the Class A shares will represent only the right to receive the per-share merger consideration. If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

If the merger is completed, each Class B share will be cancelled and retired, for no consideration (although holders of such shares will receive consideration of $8.08 in cash in respect of each corresponding FOG units as described under “Founders Agreement” beginning on page 118, for an aggregate consideration payable to holders of such FOG units of approximately $1.37 billion, subject to reduction for certain excess distributions made to holders of FOG units as further described under “Founders Agreement” beginning on page 118).

After the merger is completed, under the terms of the merger agreement, you will have the right to receive the per-share merger consideration for each Class A share that you hold upon compliance with the exchange procedures set forth in the merger agreement, but you will no longer have any rights as a shareholder of the Company.

Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

Background of the Merger

As part of the Company’s ongoing strategic planning process, the Board regularly reviews and assesses the Company’s long-term strategic goals and opportunities, industry trends, competitive environment, and short- and

 

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long-term performance in light of the Company’s strategic plan, with the goal of maximizing shareholder value. In connection with these activities, the Board met from time to time in the ordinary course of business to consider and evaluate potential strategic alternatives, including business combinations, acquisitions, dispositions, stock buybacks, special dividends, internal restructurings, spin-offs and other transactions. The Board also discussed the Company’s share price and shareholder returns, both on an absolute basis and relative to the Company’s peers, and potential risks that the Company faced in executing its strategic plan, including challenging global economic conditions, potentially unfavorable investment environments in certain of the Company’s business areas, tightening credit spreads and other factors.

In connection with the Company’s ongoing assessment of strategic alternatives, Company management periodically met with investment banks covering the alternative asset management industry, including Morgan Stanley. In addition, from time to time the Company received unsolicited general inquiries regarding whether the Company would be interested in pursuing a strategic transaction, although it was determined that none of these inquiries was sufficiently serious so as to be potentially actionable. The Board also continued to evaluate alternatives and implemented actions to enhance shareholder value, including the issuance of dividends and engaging in other methods of returning cash to the Company’s shareholders. From time to time in late 2015 and early 2016, the Company worked with Morgan Stanley as financial advisor to review and assess various strategic alternatives, including a potential sale of the Company and, in March 2016, the Company completed a modified “Dutch auction” equity self-tender offer.

In May 2016, Company management held discussions, in which representatives of Morgan Stanley participated, regarding strategic alternatives, including a potential sale of the Company. After careful consideration, Company management directed Morgan Stanley to begin discussing and preparing for the Board’s consideration a strategic process whereby the Company’s financial advisor and Company management would contact potential acquirers on a confidential basis to assess their interest in an acquisition of the Company. Company management also considered the possible disruption and risk to the Company’s business that could result from the public disclosure of an exploratory sale process, including the resulting distraction of the attention of Company management and employees and potential that competitors would try to exploit any uncertainty created for the Company’s investment professionals, and concluded that proceeding with an exploratory sale process on a non-public basis was the optimal approach in light of these risks.

In June 2016, Company management and representatives of Morgan Stanley prepared a list of potential acquirers. After consideration of these potential acquirers, the Board directed Company management and Morgan Stanley to approach a targeted group of these potential acquirers who were believed to be most likely to have the strongest interest in and the financial capacity to complete a potential acquisition of the Company. Company management and representatives of Morgan Stanley initiated contact with 11 potential acquirers. Included in these 11 potential acquirers was Party A, a financial services branch of a Fortune Global 500 company.

Exploratory discussions with potential acquirers regarding potential indications of interest took place during the summer of 2016, and the Board received periodic updates as to these discussions. The Company did not provide any material non-public information as part of these discussions, no confidentiality agreements were entered into with any of the potential acquirers at this time and none of the discussions in this timeframe included any specific proposals for a transaction. After a series of exploratory conversations with Party A, on September 15, 2016, the Company received a term sheet from Party A proposing to purchase the Company for $6.50 per share in cash. The term sheet also provided that the Principals would have to agree to receive one-third of their share of the proposed consideration up-front, one-third in the form of interests in new joint investments between the Company and Party A and the remaining third after the later of five years or certain performance metrics with respect to the Company having been met. Party A’s term sheet also contemplated that the Principals would continue to run and operate the business pursuant to new employment contracts.

Discussions with Party A regarding a potential transaction continued over the next few months. On October 4, 2016, Party A delivered a revised term sheet, which provided for the acquisition of 66.7% of the

 

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shares owned by the Principals and 100% of all other shares (with certain “put / call” arrangements covering the balance of the shares held by the Principals whereby a Principal’s shares could be put by the Principal or called by Party A upon the Principal’s retirement at the same purchase price as the acquisition if the appraised value of the Company then exceeds a certain pre-tax investment internal rate of return calculated with respect to the purchase price). The revised proposal did not include a price per share but instead noted that the price would be determined through negotiation with the Board, subject to agreement by the Principals. The revised proposal also included escrow arrangements with respect to a portion of the Principals’ consideration.

On October 29, 2016, Party A delivered a further revised term sheet, including a proposed acquisition price of $6.75 per share in cash, and providing for the acquisition of 60% of the shares owned by the Principals and 100% of all other shares (with certain “put / call” arrangements covering the balance of the shares held by the Principals whereby a Principal’s shares could be put by the Principal or called by Party A upon the Principal’s retirement based on a pricing formula taking into account the amount by which the average fund management distributable earnings for the five-year period following closing was above or below a specified threshold). The further revised proposal also included escrow arrangements with respect to a portion of the Principals’ consideration.

At a meeting of the Board on November 2, 2016, the Board discussed the latest Party A term sheet and received additional updates as to discussions to date with Party A. The Board determined to continue discussions with Party A and other potential acquirers.

During late-November to early-December 2016, the Company and/or Morgan Stanley were contacted by FAB and Sponsor (participating as joint bidders) and Parties B and C, global alternative asset managers, regarding a potential acquisition of the Company. Discussions with each of FAB, Sponsor and Party B continued in the weeks that followed. Preliminary discussions also were held with Party C but were discontinued shortly thereafter when Party C declined to enter into a confidentiality agreement with the Company.

On November 28, 2016, November 29, 2016 and December 7, 2016, the Company entered into confidentiality agreements with each of Party A, Party B, and FAB, respectively, and on December 8, 2016 entered into a joinder to the FAB confidentiality agreement with Sponsor. Following execution of the applicable confidentiality agreement or joinder, the Company provided to each potential acquirer certain due diligence information regarding the Company, including certain projected financial information, and conducted meetings with each potential acquirer. None of the confidentiality agreements included a standstill.

In early December 2016, Morgan Stanley received an inquiry from Party D regarding a potential transaction. Following discussions, on December 18, 2016, Party D indicated that it was not interested in making a proposal at a significant premium to the Company’s market price.

Company management met with representatives of FAB and Sponsor management at Sponsor’s headquarters on December 19, 2016 to further discuss a potential transaction. On December 20, 2016, the Company received a written proposal from FAB for the purchase of the Company by an affiliate of FAB for $7.25 to $7.75 per share in cash, with 100% of the purchase price to be funded by Sponsor. The December 20, 2016 proposal included a requirement that the Company enter into an exclusivity agreement. The proposal assumed that no dividends would be paid between signing and closing. The proposal also provided for the purchase of the Principals’ economic interests in the Company (with 62.5% of the consideration for the purchase of such interests proposed to be placed into escrow and invested in Company investment vehicles for up to five years) and that, following the closing of the proposed transaction, the Principals would continue to operate and manage the Company. The proposal also stated that the transaction would be subject to the approval of a fully empowered independent committee of the Board (who would be authorized to evaluate, assess and negotiate the terms of any such potential transaction, including the power to decline to pursue or approve any such transaction). During this time, the Company, through its financial advisors, also continued discussions with each of Party A and Party B.

 

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On December 21, 2016 and confirmed by email on December 23, 2016, the Company received from Party B a proposal to acquire the Company’s investment management business (excluding its stake in Graticule Asset Management Asia) that indicated an implied per share total consideration of $8.00. The proposal contemplated a spin-off of certain Company assets and the acquisition by Party B of such investment management business for $1.6 billion (comprised 75% of publicly listed stock of Party B and 25% of cash).

At a meeting of the Board on December 24, 2016, the Board discussed the status of discussions with, and proposals received from, each of FAB, Sponsor, and Parties A and B and the terms of such proposals. The Board then considered and discussed that the proposals received from Sponsor and FAB, as well as from Party A, each contemplated some level of participation by the Principals. The Board then discussed the merits of forming a special committee, consisting of independent and disinterested directors, that would be responsible for overseeing the Company’s exploration of strategic alternatives. At this meeting, after extensive discussion, including after receiving advice from the Company’s legal advisor, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), the Board resolved to establish the Special Committee, consisting of David B. Barry, Michael G. Rantz and George W. Wellde, Jr., each of whom the Board determined (i) was not an officer or employee of the Company, (ii) was not a director, officer or employee of any affiliate of the Company, (iii) held no ownership interest in the Company other than common or preferred shares and (iv) met the independence and other standards required of audit committee members established by the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder and by the rules of the NYSE, and whom the Special Committee determined to be independent of each of FAB, Sponsor, Parties A and B and the Principals, with Mr. Wellde to serve as Chairman of the Special Committee. The Board also delegated exclusively to the Special Committee all the power and authority of the Board to consider and evaluate strategic transactions and all matters pertaining thereto on behalf of the Company. Specifically, the Special Committee was granted authority to (i) establish a process for consideration of any such transaction, (ii) consider and evaluate the terms, conditions and advisability of any such transaction, (iii) enter into discussions and conduct negotiations with respect to any agreement relating to any such transaction, (iv) recommend to the Board the approval or rejection of a strategic transaction if the Special Committee determined that such a recommendation was appropriate, (v) approve a strategic transaction as a Special Approval (as defined under the operating agreement) if the Special Committee determined to recommend the approval of such strategic transaction to the Board and/or (vi) elect not to pursue a strategic transaction. The Board further empowered the Special Committee to engage independent legal, financial and other advisors at the Company’s expense, and resolved not to recommend any transaction to the Company’s shareholders unless such transaction had previously been recommended by the Special Committee.

The Special Committee considered and interviewed several potential independent legal and financial advisors. On December 28, 2016, the Special Committee engaged Davis Polk & Wardwell LLP (“Davis Polk”) as its legal advisor, based on its qualifications, experience and reputation and following disclosure to the Special Committee of Davis Polk’s relationships with the Company, the Principals and the prospective buyers engaged with the Company and their respective affiliates, and on January 5, 2017, the Special Committee engaged Evercore as its financial advisor, based on its qualifications, experience and reputation and following disclosure to the Special Committee of Evercore’s relationships with the Company, the Principals and the prospective buyers engaged with the Company and their respective affiliates, which are disclosed in the section of this proxy statement entitled “— Opinions of Financial Advisors — Opinion of Evercore Group L.L.C.” beginning on page 55.

On December 30, 2016, representatives of Davis Polk and representatives of Weil, Gotshal & Manges LLP, counsel to Parent (“Weil”), had a telephone conversation during which Davis Polk and Weil agreed that it was appropriate for FAB and Sponsor to proceed with their due diligence review of the Company, but that neither FAB nor Sponsor should have any discussions regarding Sponsor’s offer or potential post-closing employment or other arrangements with Company management or the Principals until authorized by the Special Committee.

During the week of January 2, 2017, Company management and its legal and financial advisors participated in due diligence sessions with representatives of FAB and Sponsor. Company management met with representatives of FAB and Sponsor management on January 8, 2017 to continue due diligence discussions.

 

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From the Special Committee’s formation to February 14, 2017 (the date of the signing of the merger agreement), the Special Committee held 20 meetings. All of the members of the Special Committee attended each of the meetings (except for one meeting which one member of the Special Committee did not attend and was updated as to the topics discussed shortly afterwards), and representatives from Evercore and Davis Polk attended each of the Special Committee meetings after they were retained. At these meetings, the Special Committee and its advisors analyzed and reviewed the outreach and discussions regarding potential strategic transactions that had occurred prior to the formation of the Special Committee, reviewed and discussed the terms of the specific proposals for potential strategic transactions that had been received by the Company and the status of continuing negotiations with respect to each of these proposals, conducted a review of the Company and its strategic alternatives and reviewed and discussed the financial forecasts and projections of the Company prepared by Company management and the Company’s financial condition and operating results. In addition, Davis Polk reviewed and discussed with the members of the Special Committee their fiduciary duties to the Company and its shareholders under Delaware law and the operating agreement.

In furtherance of the discussions between the representatives of Davis Polk and Weil held on December 30, 2016, at a meeting on January 9, 2017, the Special Committee considered and adopted a framework prepared by Davis Polk governing the Company’s consideration and negotiation of a sale transaction, which guidelines placed limits on any discussions between the Principals and potential acquirers and required, among other things, that the material terms of any arrangements between Parent and the Principals (including the founders agreement, employment agreements, TRA waiver agreement and the PCP) would not be negotiated until substantially all material terms of the merger agreement (including price) had been agreed. Following this meeting, the Special Committee communicated this framework to the Principals and Company management and directed them to follow these guidelines.

Following the formation of the Special Committee, discussions continued with FAB and Sponsor, and each of Parties A and B, in each case, under the direction of the Special Committee and in accordance with the previously adopted framework. As part of these discussions, FAB and Sponsor relayed their request that, in order to continue discussions in respect of a potential transaction, the Company enter into an exclusivity agreement with FAB and Sponsor.

On January 9 and 11, 2017, the Special Committee discussed the various transaction proposals that had been received by the Company and the potential risks and benefits of agreeing to the request from Sponsor and FAB for a period of exclusive negotiations. Following these discussions, the Special Committee instructed management, and management instructed Morgan Stanley, to solicit improved offers from Parties A and B prior to determining whether to enter into exclusivity with Sponsor and FAB. On January 12 and 13, 2017, at the direction of Company management, representatives of Morgan Stanley requested best and final offers from each of Parties A and B prior to the close of business on January 16, 2017.

At a Special Committee meeting on January 13, 2017, the informational portions of which were joined by Doug Jacobs, an independent director on the Board who was not a member of the Special Committee, the Special Committee further discussed with its legal and financial advisors the request by Sponsor and FAB for exclusivity in light of the Company’s financial performance and strategic alternatives, and the risks and benefits of granting exclusivity, and considered potential limited time periods for an exclusivity period should the Special Committee ultimately agree to one. Evercore also provided to the Special Committee a financial analysis of Sponsor and FAB’s then-current offer. Following that discussion, the Special Committee determined that, should neither Party A nor Party B submit an improved offer for the acquisition of the Company prior to the close of business on January 16, 2017, the Company should enter into an appropriate exclusivity agreement with FAB and Sponsor for a limited period of time, not to exceed three weeks. The Special Committee also instructed Evercore to inform J.P. Morgan Securities LLC (“JPM”), financial advisor to Sponsor and FAB, that while the Special Committee was willing to consider granting Sponsor and FAB a limited period of exclusivity to facilitate the negotiation process, any transaction would need to be at a price meaningfully higher than $7.75 per share, the top end of Sponsor and FAB’s proposed price range, in order to be potentially attractive to the Special Committee.

 

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Neither of Parties A or B submitted improved offers for the acquisition of the Company prior to the close of business on January 16, 2017. Following negotiations among the respective financial and legal advisors to the Company, the Special Committee and Sponsor and FAB, later on January 16, 2017, the Company agreed to enter into exclusive negotiations with Sponsor and FAB pursuant to an exclusivity agreement (the “Exclusivity Agreement”) providing for an exclusivity period lasting until 5:00 p.m. Eastern Time on January 31, 2017.

Also on January 16, 17 and 18, 2017, Company management and its legal and financial advisors, in addition to the legal and financial advisors for the Special Committee, participated in due diligence sessions with representatives of FAB, Sponsor and Weil and JPM. FAB, Sponsor and their respective legal and financial advisors continued their due diligence review through the signing of the definitive merger agreement on February 14, 2017.

At meetings on January 18 and 20, 2017, the Special Committee discussed with its financial and legal advisors potential negotiating strategies and proposals for price and other key transaction terms. Following discussion, the Special Committee provided instruction and guidance to its advisors regarding the anticipated negotiations, including instructing Evercore to coordinate a negotiation strategy with Morgan Stanley and to strongly encourage FAB and Sponsor (through JPM) to agree to a purchase price of $8.40 per share plus the right for the Board to declare and pay up to two regular quarterly dividends of $0.09 per share each to be paid between signing and closing, and to inform JPM that the Special Committee expected any transaction to be subject to a “majority of the minority” shareholder vote.

On January 20, 2017, Weil delivered to Skadden and Davis Polk an initial draft of a proposed merger agreement. Also on January 20, 2017, Weil delivered to Skadden and Davis Polk an initial draft form of voting agreement proposed to be entered into between Parent and the Sellers, requiring the Sellers to vote in favor of the merger and against any alternative acquisition transaction during the term of the voting agreement. Between January 20, 2017 and February 14, 2017, Weil, Skadden and Davis Polk negotiated the terms of the merger agreement, including deal protections, representations and warranties, covenants and closing conditions.

Later on January 20, 2017, at the instruction of Company management as directed by the Special Committee, representatives of Evercore and Morgan Stanley made a counterproposal on price to FAB and Sponsor (through JPM), which counterproposal reflected a per share purchase price of $8.40 (and up to two regular quarterly dividends of $0.09 per share each to be paid between signing and closing).

At a meeting on January 22, 2017, the Special Committee and its advisors discussed certain key issues raised by the draft merger agreement delivered to Skadden and Davis Polk on January 20, 2017, and the Special Committee provided instruction and guidance to its advisors regarding key transaction terms.

Later on January 22, 2017, following discussions among representatives of the Company, the Special Committee, the Principals and their respective legal and financial advisors, Skadden delivered an issues list to Weil setting forth the principal issues raised by the draft agreement. Later that day, legal advisors to the Company and the Special Committee discussed the issues list.

On January 25, 2017, Skadden delivered to Weil a mark-up of the draft merger agreement incorporating input from the Company, the Special Committee, the Principals, and their legal and financial advisors.

On January 26, 2017, legal advisors to the Company, the Special Committee and Parent convened a call to discuss the draft merger agreement.

Later on January 26, 2017, representatives of Morgan Stanley, Evercore and JPM discussed the purchase price and other transaction matters. Following such discussions, representatives of JPM relayed that FAB and Sponsor were willing to agree to a purchase price of $7.60 per share (and up to two regular quarterly dividends of up to $0.09 per share each to be paid between signing and closing).

 

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At a meeting on January 27, 2017, the Special Committee discussed FAB and Sponsor’s latest price proposal and provided instructions and guidance to its advisors regarding negotiating strategy on price and key terms.

On January 28, 2017, Weil delivered a revised draft of the merger agreement to Skadden.

Over the weekend and into the following week, representatives of the Company, the Special Committee and the Principals continued to discuss certain financial terms of the transaction, including with respect to purchase price and certain deal protections.

On January 30, 2017, Skadden delivered a mark-up of the draft merger agreement to Weil, incorporating input from the Company, the Special Committee, the Principals and their respective legal and financial advisors.

On January 31, 2017, representatives of the Company and Parent and their respective legal advisors and the Special Committee’s legal advisors met in New York. Representatives of Evercore also joined telephonically for a portion of the meeting. At the meeting, the parties engaged in negotiations of the key terms of the draft merger agreement, including, among other things, the per share cash purchase price, the extent of dividends permitted to be paid between signing and closing, the required shareholder vote, the client consent closing condition, efforts to obtain regulatory approvals and termination fees. Specifically, representatives of the Company and the Company’s and the Special Committee’s financial advisors proposed a purchase price of $8.25 per share (and up to two regular quarterly dividends of $0.09 per share each to be paid between signing and closing) and a “majority of the minority” condition, and representatives of Parent countered with a purchase price of $7.90 per share (and up to two regularly quarterly dividends of $0.09 per share each to be paid between signing and closing) and no “majority of the minority” condition. During the course of the day, the parties made further proposals and counterproposals on the various open issues, and the Special Committee actively monitored the discussions and provided guidance regarding the open issues and negotiating strategy, including by convening a meeting by telephone to receive briefings from, and provide feedback and guidance to, its legal and financial advisors. Also during the course of the day, representatives of the Company communicated periodically with the Principals regarding the status of the negotiations. At the conclusion of these discussions, the parties had agreed in principle, subject to the resolution of other open issues, to, among other things, (i) a per share merger consideration of $8.08 per share; (ii) the Company’s right to pay up to two quarterly dividends prior to closing of up to $0.09 each; (iii) a condition requiring the receipt of consents of certain clients representing 87.5% of base aggregate management fees of such clients; (iv) the requirement that Parent take any and all actions necessary to obtain applicable regulatory approvals (including divestitures or similar actions), subject to completion of Parent’s confirmatory regulatory due diligence; (v) a superior proposal termination fee of 3% of equity value and an intervening event termination fee of 4% of equity value; and (vi) no “majority of the minority” condition. The parties further agreed in principle to an extension of exclusivity through February 8, 2017 to attempt in good faith to resolve the remaining open issues and reach a definitive agreement. Following the meeting, and with the approval of the Special Committee, the parties instructed their legal advisors to circulate drafts of the founders agreement, employment agreements, TRA waiver agreement and the PCP.

Later on January 31, 2017, Weil delivered to the legal advisors for the Company and the Special Committee drafts of Sponsor’s equity commitment letter and limited guarantee.

On February 1, 2017, the Company, with the approval of the Special Committee, agreed to amend the Exclusivity Agreement to extend exclusivity through 5:00 p.m. Eastern Time on February 8, 2017 to allow the parties additional time to finalize the terms of the proposed transaction. Also on February 1, 2017, Weil delivered a revised draft of the merger agreement and initial drafts of the founders agreement and TRA waiver agreement to legal advisors to the Company, the Special Committee and the Principals.

On February 2, 2017, representatives of the Company and Parent, their respective legal advisors, Davis Polk and Paul, Weiss, Rifkind, Wharton & Garrison LLP, legal advisors to the Principals (“Paul Weiss”), met in New

 

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York to discuss the terms of the founders agreement. Also on February 2, 2017, Paul Weiss delivered to Weil a revised draft of the form voting agreements. Between February 2, 2017 and February 14, 2017, Weil, Paul Weiss and Davis Polk negotiated the terms of the voting agreement.

In parallel with these meetings, the parties continued to exchange due diligence information.

On February 3, 2017, Skadden delivered a mark-up of the draft merger agreement to Weil, which incorporated comments from the Company, the Special Committee, the Principals and their respective legal and financial advisors, as well as an initial draft of the Company’s disclosure schedule to the merger agreement. Also on February 3, 2017, Skadden delivered a mark-up of the equity commitment letter and guarantee to Weil, and Paul Weiss delivered a mark-up of the founders agreement to Weil, each of which incorporated comments from the Company, the Special Committee, the Principals and their respective legal advisors. The Special Committee convened a meeting on February 3, 2017 to discuss the status of, and negotiating strategy with respect to, the various drafts of documents that had been reviewed and circulated in recent days.

On February 4, 2017, the Company finalized and executed an engagement letter with Morgan Stanley, following disclosure to the Company of Morgan Stanley’s relationships with the Company and the prospective buyers and their respective affiliates, which are summarized in the section of this Proxy Statement entitled “— Opinions of Financial Advisors — Opinion of Morgan Stanley & Co. LLC” beginning on page 64, to memorialize Morgan Stanley’s engagement in connection with the Merger. Also on February 4, 2017, Paul Weiss delivered to Weil an initial draft of the PCP and a revised draft of the TRA waiver agreement.

On February 5, 2017, Weil delivered a further revised draft of the merger agreement to Skadden and Davis Polk, and the parties continued to discuss and negotiate certain open items in the draft, including as to required regulatory clearances and approvals. Also on February 5, 2017, counsel to the Company, the Special Committee and the Principals delivered to Weil a further revised draft of the limited guarantee and an initial draft of the Principals’ amended and restated employment agreements, and Weil delivered to the legal advisors to the Company, the Special Committee and the Principals a revised draft of the form voting agreements.

At a meeting on February 6, 2017, the Special Committee discussed with its financial and legal advisors the status of the ongoing negotiation and potential resolution of key open items and provided direction and guidance to its advisors on negotiating strategy and proposals. Also on February 6, 2017, Weil sent to Paul Weiss a list of issues relating to the most recent draft of the TRA waiver agreement. On February 7, 2017, Paul Weiss delivered to Weil a revised draft of the form voting agreements, which reflected comments by Paul Weiss and by Davis Polk.

On February 8, 2017, Weil delivered a revised draft of the founders agreement to the legal advisors to the Company, the Special Committee and the Principals and a revised draft of the PCP to the legal advisors to the Principals and the Special Committee. Later in the day on February 8, 2017, representatives of Parent and the Principals and their respective legal advisors met in New York to discuss the open issues in the revised draft of the founders agreement sent by Weil earlier that day. Also on February 8, 2017, Parent requested that the Company amend the Exclusivity Agreement to provide for exclusivity through 5:00 p.m. Eastern Time on February 12, 2017.

At a meeting on February 9, 2017, the Special Committee discussed with its advisors the status of the various transaction documents and considered Parent’s request for the extension of the exclusivity arrangement. The Special Committee ultimately authorized the extension to February 12, 2017 to allow the parties additional time to finalize the terms of the transaction in light of the substantial progress already made and the likelihood of reaching a definitive agreement, and thereafter, the Company entered into an amendment to the exclusivity agreement memorializing the same. At the meeting, the Special Committee also provided to its advisors direction and guidance on the terms of and remaining open issues in the transaction documents.

 

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On February 9, 2017, representatives of Parent and the Principals and their respective legal advisors convened a call to discuss the issues list relating to the draft TRA waiver agreement previously delivered by Weil, and thereafter met in New York to discuss the remaining open issues in the draft employment agreements and the draft PCP. Davis Polk participated in the call and meeting by phone. Later on February 9, 2017, Skadden delivered a further revised draft of the merger agreement to Weil, which incorporated input from the Company, the Special Committee, the Principals and their respective legal and financial advisors, and the parties continued to negotiate the remaining open items in the draft. Also on February 9, 2017, the parties further discussed the proposed terms of the equity commitment letter and the limited guarantee, and the legal advisors to the Special Committee delivered to the legal advisors to the Company, the Principals and Parent comments on the draft TRA waiver agreement. Later that day, Weil delivered to Paul Weiss and Davis Polk a revised draft of the TRA waiver agreement, and to Paul Weiss and Davis Polk a revised draft of the employment agreements.

Over the next several days, the parties’ legal advisors, including the Special Committee’s and the Principals’ legal advisors, also exchanged several further revised drafts of the founders agreement, voting agreements, TRA waiver agreement and related documentation, and on February 10, 2017, representatives of Parent, Sponsor and their legal advisors and legal advisors to the Principals and the Special Committee met in New York to continue to negotiate the open issues in the founders agreement and the related transaction documents.

At a meeting on February 11, 2017, the Special Committee reviewed with its financial and legal advisors the key terms of the transaction documents and the status of the negotiations on the remaining open points. During this meeting, Evercore also presented an updated financial analysis with respect to the Sponsor’s and Parent’s most recent offer, which analysis had been updated to reflect information recently provided by the Company in its draft 2016 financial statements (and which analysis previously had been prepared based on estimates). During the course of the meeting, the Special Committee’s legal advisor reviewed and discussed with the Special Committee the fiduciary duties of the members of the Special Committee under Delaware law and the operating agreement. Also on February 11, 2017, Morgan Stanley delivered a written disclosure letter to the Company, memorializing Morgan Stanley’s earlier oral disclosure, setting forth Morgan Stanley’s relationships with the Company and the prospective buyers and their respective affiliates, which are summarized in the section of this Proxy Statement entitled “— Opinions of Financial Advisors — Opinion of Morgan Stanley & Co. LLC” beginning on page 64.

On the morning of February 12, 2017, the Principals and representatives of the Company met with representatives of Sponsor. Prior to the meeting, Company management discussed its proposed agenda with Sponsor and counsel to the Special Committee. Counsel to the Special Committee instructed management that, if the scope of discussions expanded to include any items that may impact the value available to the Company’s unaffiliated shareholders by virtue of the merger, then any discussion of those topics would require the participation of the Special Committee and its advisors. During the meeting with Sponsor, the parties discussed certain key management issues, including with respect to governance of the Company following the closing, terms of the escrow arrangements regarding a portion of the Principals’ consideration and issues surrounding the proposed equity syndication.

Also on February 12, 2017, the Special Committee held a meeting with its legal and financial advisors in attendance and received an update regarding the terms of the transaction documentation.

Later on February 12, 2017, the Board held a meeting with its legal and financial advisors. The legal and financial advisors of the Special Committee and the legal advisors of the Principals were also in attendance. At the meeting, Company management provided an update on the transaction, including inviting Davis Polk to provide an update regarding the meeting of the Special Committee held earlier that day. Representatives of Skadden presented to the Board as to the Board’s fiduciary duties under Delaware law and the operating agreement in connection with the potential transaction and the key terms of the latest draft merger agreement and related documentation based on materials circulated to the Board in advance of the meeting. Also at the meeting, Morgan Stanley presented certain financial analyses to the Board based on materials circulated to the Board in

 

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advance of the meeting and rendered to the Board its oral opinion, which was subsequently confirmed orally on February 14, 2017 and by delivery of a written opinion, dated February 14, 2017. As open points remained in certain draft documents, the Board directed Company management and the Company’s legal and financial advisors to keep the Board apprised of the ongoing status of negotiations.

Later on February 12, 2017, Skadden provided a mark-up of the draft equity commitment letter and limited guarantee to Weil, which incorporated input from the Company, the Special Committee, the Principals and their respective legal and financial advisors. Over the next two days, representatives of Parent, Sponsor, the Company, the Special Committee, the Principals and their respective legal and financial advisors continued to negotiate, exchange drafts of, and finalize, the merger agreement, disclosure schedule, equity commitment letter, limited guarantee, voting agreements, founders agreement, employment agreements, TRA waiver agreement and PCP.

On February 13, 2017, representatives of Parent, Sponsor, the Company, their legal and financial advisors and legal advisors to the Principals and the Special Committee met in New York, with the goal of resolving all remaining open issues across all transaction documents. Later on February 13, 2017, Paul Weiss and Weil convened a call with Davis Polk participating to discuss and resolve the remaining open issues in the draft form of voting agreements. During the course of the day and through February 14, 2017, the parties continued to exchange and discuss revised drafts of the transaction documents and finalized all open items and prepared definitive drafts of all transaction documents.

On February 14, 2017, the Special Committee convened a meeting with its legal and financial advisors in attendance and received a presentation from Davis Polk with respect to the resolution of open items in the definitive documentation of the potential transaction and a presentation from Evercore containing an updated financial analysis of the potential transaction. The Special Committee’s advisors also answered questions with respect to the proposed transaction. Following the Special Committee advisors’ presentations, Evercore rendered its oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion, that, as of February 14, 2017, and based upon and subject to the factors, procedures, assumptions, qualifications, limitations and other matters set forth in its written opinion, the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration was fair, from a financial point of view, to such holders of Class A shares. The financial analysis and written opinion is described below in “— Opinion of Evercore Group L.L.C.” beginning on page 55. The Special Committee then unanimously determined that the merger and the other contemplated transactions (including the arrangements with respect to the Principals, as described in “— Interests of the Directors and Executive Officers of the Company in the Merger” beginning on page 80)) were advisable and fair and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates), which approval constituted a Special Approval for purposes of the Company’s operating agreement, and recommended that the Board adopt resolutions recommending the approval of the merger agreement by Company shareholders.

Following the conclusion of the Special Committee meeting, a full meeting of the Board was convened, and the legal advisors to the Special Committee, attending at the invitation of the Chairman of the Special Committee, reported that the Special Committee had unanimously approved by means of Special Approval, and recommended in favor of, the merger and the other contemplated transactions. Morgan Stanley confirmed to the Board its oral opinion rendered on February 12, 2017, which was subsequently confirmed by delivery of a written opinion, dated February 14, 2017, to the effect that, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be received by the holders of the Class A shares pursuant to the merger agreement was fair from a financial point of view to the holders of the Class A shares (other than the Principals and their respective affiliates). The financial analysis and written opinion is described below in “— Opinion of Morgan Stanley & Co. LLC” beginning on page 64. The Board then unanimously (i) determined that the merger agreement and the transactions contemplated thereby and the merger are advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and

 

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approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. In connection therewith, the Board also approved an amendment to the operating agreement providing for the Delaware Court of Chancery as the exclusive forum for certain legal proceedings.

Following the conclusion of the Board meeting, Morgan Stanley received a call from representatives of Party B. Party B’s representatives, citing news reports speculating about a potential sale of the Company, proposed an acquisition of the Company for $8.00 per share, which consideration would consist solely of Party B’s publicly listed stock. On that call, Morgan Stanley informed the representatives of Party B that the Company was in the process of signing and announcing an all-cash transaction at a higher price. The representatives of Party B did not indicate that they might be able to improve their proposed price or request that the Company delay making its announcement.

Following the meeting on February 14, 2017, the parties executed the merger agreement and the various related agreements and issued a joint press release announcing the transaction.

Recommendation of Our Board of Directors and Reasons for the Merger

Recommendation of Our Board of Directors

After careful consideration of, and based upon, the unanimous recommendation of the Special Committee comprised solely of independent and disinterested directors, the Board of Directors unanimously (i) determined that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement and the approval of the merger be submitted to the Company’s shareholders. The Board of Directors unanimously recommends that you vote:

 

  1. FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger;

 

  2. FOR the proposal to approve any postponements of the Special Meeting for the purpose of soliciting additional proxies if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy at the Special Meeting to constitute a quorum at the Special Meeting; and

 

  3. FOR the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable by the Company to its named executive officers in connection with the merger.

Reasons for the Merger

On February 14, 2017, the Special Committee unanimously approved the merger agreement and the transactions contemplated by the merger agreement as a Special Approval for purposes of the Company’s operating agreement, and unanimously recommended that the full Board approve the merger agreement and the transactions contemplated by the merger agreement. Later the same day, the full Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby and the merger, are advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby and the merger; (iii) resolved to recommend that the Company’s shareholders vote in favor of the adoption of the merger agreement; and (iv) directed that the adoption of the merger agreement be submitted to the Company’s shareholders.

 

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In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Board and Special Committee consulted with the Company’s senior management (including the Principals), and the Company’s outside legal and financial advisors and, in the case of the Special Committee, the Special Committee’s outside legal and financial advisors.

Reasons of the Special Committee

In granting the Special Approval and recommending that the full Board approve the merger agreement and the transactions contemplated by the merger agreement and that the full Board adopt resolutions recommending that the Company’s shareholders vote in favor of the proposal to adopt the merger agreement, the Special Committee considered a number of potentially positive factors, including the following (not necessarily in order of relative importance):

 

    The belief, after a thorough review of, and based on the Special Committee’s knowledge of, the Company’s long-term strategic goals and opportunities, industry trends, competitive environment and short- and long-term performance in light of the Company’s strategic plan, including the potential impact of those factors on the trading price of the Company’s Class A shares (which cannot be precisely quantified numerically), and discussions with the Company’s senior management and the Company’s outside legal and financial advisors and the Special Committee’s legal and financial advisors, that the value offered to the Company’s shareholders pursuant to the merger agreement is more favorable to the Company’s shareholders (other than the Principals and their respective affiliates) than the potential value that might reasonably be expected to result from remaining an independent public company.

 

    The fact that the Special Committee, with the assistance of its outside financial and legal advisors, conducted its own independent review of the Company’s strategic alternatives, including opportunities to capture and/or build shareholder value by pursuing various strategies other than a sale of the Company, and that after such review, the Special Committee determined to explore a sale of the Company transaction.

 

    The fact that for an extended period prior to Morgan Stanley’s outreach to potential acquirers in the summer of 2016, the Company had pursued a variety of strategies designed to maximize shareholder value, including restructuring transactions and share repurchases, and that such strategies and transactions had not resulted in significant improvements in the trading price of the Company’s Class A shares, including relative to its peers.

 

    The fact that (a) the Company’s senior management and Morgan Stanley, under the supervision and oversight of the Board, sought offers to acquire the Company from a broad group of 11 potential acquirers, engaged in discussion with five potential acquirers that contacted the Company, and received formal communications of interest from four parties and (b) the Company entered into confidentiality agreements with three parties that received information related to the Company, as well as the Board’s knowledge as to other possible candidates, including industry participants, business partners and financial buyers, for a potential transaction to acquire the Company.

 

    The fact that the Special Committee, with the assistance of its outside financial and legal advisors, reviewed the 11 potential acquirers identified to the Board by Morgan Stanley and senior management as well as the four potential acquirers who approached the Company subsequent to Morgan Stanley’s outreach, considered whether there were other market participants who would be reasonably expected to be interested in and capable of consummating a strategic transaction involving the Company and determined that there were no such additional potential acquirers who would be reasonably expected to be interested in and capable of consummating a strategic transaction involving the Company.

 

    The fact that prior to entering into exclusive negotiations with Parent in January 2017, Company management, at the direction of the Special Committee, caused Morgan Stanley to reach out and solicit improved offers from Party A and Party B and that, at such time, neither of such parties submitted an improved offer or indicated an intention to do so.

 

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    The fact that the Special Committee and the Company’s senior management, in coordination with the Company’s and the Special Committee’s outside legal and financial advisors, implemented a robust transaction process, including consistently and vigorously negotiating with Parent with respect to price and other terms and conditions of the merger agreement, resulting in significant increases to the value of Parent’s all-cash proposal and ultimately the receipt by the Company of an all-cash proposal from Parent (with fully committed financing, and without being subject to a financing condition) at a higher value than the proposals that Parent and any other party had previously put forward.

 

    That in order to achieve the highest price reasonably attainable for the Company’s shareholders, the Special Committee and the Principals made concessions on certain key issues that they believed to be of fundamental importance to Parent and Sponsor, including the threshold on client consents and the deletion of a “majority of the minority” shareholder approval condition, in exchange for significantly increased cash consideration.

 

    The Special Committee’s belief that Parent’s proposal, which the Special Committee evaluated with the assistance of their respective legal and financial advisors, was more favorable to the Company’s shareholders (other than the Principals and their respective affiliates), taking into account the potential risks, rewards and uncertainties associated therewith, than the other opportunities and alternatives reasonably available to the Company.

 

    The risks and uncertainties associated with executing on the Company’s business strategy and achieving the Company’s related financial projections and opportunities, including as described in the “risk factors” and “forward looking statements” sections of the Company’s disclosures filed with the SEC, and the Special Committee’s views, with the advice and assistance of its financial and legal advisors, regarding the achievability of the financial performance reflected in the various cases in the Forecasts in light of such risks and uncertainties and the Company’s historical performance.

 

    That the Special Committee reviewed and discussed with Company management and the Special Committee’s outside legal and financial advisors a draft of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 prior to making its determination regarding the merger.

 

    The historic and recent trading ranges of the Company’s Class A shares and the potential trading range of the Class A shares absent announcement of the merger agreement, and the possibility that absent such announcement it could take a considerable period of time before the trading price of the Class A shares would trade at a level in excess of the per-share merger consideration of $8.08 on a present-value basis, if ever.

 

    The financial analyses of Evercore, financial advisor to the Special Committee in connection with the merger, and the oral opinion of Evercore delivered to the Special Committee on February 14, 2017, confirmed by a written opinion dated as of February 14, 2017 and delivered to the Special Committee, to the effect that, as of that date and based on and subject to the factors, procedures, assumptions, qualifications, limitations and other matters described in the opinion, the per-share merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration was fair, from a financial point of view, to such holders of the Class A shares. The financial analysis and written opinion is described below in “— Opinion of Evercore Group L.L.C.” beginning on page 55.

 

    The relationship of the $8.08 per-share merger consideration to the trading price of the Company’s Class A shares, including that the per-share merger consideration constituted a premium of:

 

    approximately 34% over the highest share price of the Class A shares during the 52-week period ended February 13, 2017 (the trading day immediately preceding the date that the merger agreement was signed);

 

    approximately 51% over the volume weighted average share price of the Class A shares during the three month period ended February 13, 2017;

 

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    approximately 45% over the volume weighted average share price of the Class A shares during the one month period ended February 13, 2017; and

 

    approximately 39% over the closing share price on February 13, 2017.

 

    Based on the Special Committee’s review of the Company’s strategic alternatives, the sale process overseen by the Board and the Special Committee and undertaken by Company management and Morgan Stanley and the negotiations conducted, and taking into account the advice of the Special Committee’s financial and legal advisors, the Special Committee’s belief that $8.08 per-share merger consideration, along with the Company’s ability to pay up to two regular dividends of $0.09 per dividend-paying share during the period between signing and closing, was the best price reasonably attainable for the Company’s shareholders (other than the Principals and their respective affiliates).

 

    The Special Committee’s rights under the merger agreement, under certain circumstances, to engage in discussions with, and provide information to, third parties (including counterparties to confidentiality agreements with the Company, given that existing confidentiality agreements did not contain standstill provisions) submitting unsolicited acquisition proposals after the date of the merger agreement.

 

    The Company’s and the Special Committee’s rights under the merger agreement, under certain circumstances, to terminate the merger agreement in order to enter into an alternative acquisition agreement that the Board (acting upon the Special Committee’s recommendation) or Special Committee determines to be a superior proposal, subject to certain conditions, provided that the Company concurrently pays a $98,350,000 termination fee, or approximately 3.0% of the aggregate equity value of the transaction, to Parent under circumstances as described in “The Merger Agreement— Termination Fees” beginning on page 113, which termination fee the Special Committee determined, with the advice of its financial and legal advisors, to be reasonable in light of, among other things, the benefits of the merger to the Company’s shareholders, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not be preclusive or unreasonably restrictive of other offers.

 

    The Special Committee’s rights under the merger agreement, under certain circumstances, to withdraw or modify its recommendation that the full Board approve the merger agreement and the transactions contemplated thereby and that the full Board adopt resolutions recommending that the Company’s shareholders approve and adopt the merger agreement, subject to the Company’s obligation, under certain circumstances following Parent’s termination of the merger agreement for such withdrawal or modification, to pay a $98,350,000 termination fee, or a $131,140,000 termination fee, depending on the circumstances of such withdrawal or modification, which termination fees the Special Committee determined, with the advice of its financial and legal advisors, to be reasonable in light of, among other things, the benefits of the merger to the Company’s shareholders and the typical size of such fees in similar transactions.

 

    The fact that the merger consideration consists solely of cash, providing Company shareholders (other than the Principals and certain holders of Company RSUs) with certainty of value and liquidity upon consummation of the merger.

 

    The fact that Sponsor, which is an affiliate of Parent with adequate capital resources to pay the merger consideration, delivered an equity commitment letter to Parent (under which the Company is an express third-party beneficiary) for the funding of 100% of the merger consideration and the purchase price under the founders agreement, and related fees, and a limited guarantee to the Company, guaranteeing the obligations of Parent and Merger Sub under the merger agreement and the founders agreement.

 

    The other terms of the merger agreement, including:

 

    the fact that the Company would not be required to reimburse Parent’s expenses or otherwise pay any fees to Parent solely as a result of the failure by the Company’s shareholders to adopt the merger agreement;

 

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    the conditions to the closing and the likelihood of consummation, including the Board’s and the Special Committee’s determination, with the advice of their respective outside financial and legal advisors, that while the closing is subject to certain antitrust approvals and certain other regulatory approvals, there were not likely to be significant antitrust or other regulatory impediments to the closing, as well as the obligations of Parent, Merger Sub and Sponsor to use best efforts and otherwise take any and all actions necessary to obtain applicable regulatory approvals (including divestitures or similar actions);

 

    The assessment by the Special Committee that based on a review with management, the Company’s counsel and the Special Committee’s outside financial and legal advisors of the various categories of Company clients and the portion of management fees represented by such clients, the closing condition in the merger agreement associated with procuring consents from certain Company clients representing 87.5% of base aggregate management fees (as defined in the merger agreement) of such clients does not impose unreasonable conditionality on the merger;

 

    the fact that under specified circumstances, the merger agreement, the equity commitment letter and the limited guarantee provide for the Company to obtain specific performance against Parent, Merger Sub and Sponsor, as applicable, including to consummate the transactions contemplated by such agreements; and

 

    the fact that the end date of December 31, 2017 under the merger agreement is expected to allow for sufficient time to consummate the merger.

 

    The Special Committee’s analyses, with the assistance of its outside financial and legal advisors, of the impact of the concessions made by the Principals under the TRA, as requested by Parent, on Parent’s willingness to acquire the Company and the value that Parent was willing to offer to Company shareholders.

 

    The Special Committee’s analyses, with the assistance of its outside financial and legal advisors, of the voting agreements in connection with the transaction, including the fact that (i) given the risks to the business associated with failing to close an announced transaction, the voting agreements promoted closing certainty for Company shareholders, (ii) the voting agreements were required by Parent in order to enter into the merger agreement and supported the offer of its highest price, and (iii) the voting agreements would terminate upon termination of the merger agreement, including if the Company terminated the merger agreement to accept a superior proposal.

 

    The belief of the Special Committee, with the advice and assistance of its financial and legal advisors, that the merger agreement was the product of arm’s-length negotiations, that the price to be paid by Parent is the highest price per share that Parent was willing to pay, that the terms and conditions of the merger agreement were the most favorable to the Company and its shareholders (other than the Principals and their respective affiliates) to which Parent was willing to agree, and that continued efforts to obtain a higher price from Parent, or soliciting additional interest from third parties, would be unlikely to lead to a higher price from Parent or a more favorable transaction with a third party, and could lead to the loss of Parent’s proposed transaction.

 

    The belief that the Principals’ participation in the transaction will reduce the risk of attrition of key employees and/or loss of investors during the pre-closing period, which could reduce the risk to the Company if the merger agreement is terminated.

 

    The fact that the Special Committee was aware that it had no obligation to recommend any transaction and that the Special Committee had the authority to reject any proposals made by Parent or other potential buyers.

 

   

The fact that the Special Committee, with the assistance of its financial and legal advisors, imposed on the parties guidelines for negotiation of the merger agreement and the other transaction documents designed to address and mitigate the actual and potential differing interests of the Principals and

 

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management in the transactions and ensure that the merger consideration represented the best price reasonably attainable for Company shareholders (other than the Principals and their respective affiliates), including by requiring that the deal price and other key terms affecting the Company’s shareholders (other than the Principals and their respective affiliates) be agreed prior to negotiation of the deal terms that were specifically of interest to the Principals.

 

    The fact that the Special Committee’s approval of the merger agreement constituted a Special Approval for purposes of the operating agreement.

 

    The fact that the Special Committee was unanimous in its determination to recommend the merger agreement for approval by the Board.

The Special Committee also considered and balanced against the potentially positive factors a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including the following (not necessarily in order of relative importance):

 

    That subsequent to completion of the merger, the Company’s shareholders would forgo the opportunity to realize the potential long-term value of the successful execution of the Company’s current strategy as an independent public company by participating in any future earnings or growth or in any future appreciation in value of the Class A shares as represented in the Forecasts or otherwise.

 

    That certain of Evercore’s financial analyses, including in particular the discounted cash flow analysis, indicated potential implied values for the Company’s Class A shares that were greater than $8.08 per share in circumstances in which the Company achieved the “High Case” or “Base Case” Forecasts.

 

    That the Principals and certain of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, those of the Company’s public shareholders. The Special Committee was aware of and extensively discussed and considered these interests; for more information about such interests, see below under the heading “— Interests of the Directors and Executive Officers of the Company in the Merger.”

 

    That the transaction is not subject to a “majority of the minority” shareholder approval requirement, and that the Class A shares and/or Class B shares held by the Principals and certain of their related entities and persons are included for the purposes of determining whether a majority of the outstanding Company shares have been voted in favor of adopting and approving the merger agreement, and that the Principals and certain of their related entities and persons hold Company shares representing [    ]% of the total voting power of the Company as of the Record Date and have signed separate voting agreements that represent, as to all such agreements in the aggregate, 34.99% of the total voting power of the Company.

 

    That the merger would be a transaction in which gain or loss is recognized by the Company’s shareholders for U.S. federal income tax purposes.

 

    That appraisal rights would not be available for Company shareholders.

 

    The fact that, under specified circumstances, the Company may be required to pay fees in the event the merger agreement is terminated and the effect this could have on the Company, including:

 

    the possibility that the $98,350,000 termination fee payable by the Company to Parent upon the termination of the merger agreement in order to allow the Company to enter into an agreement with respect to a superior proposal could discourage other potential acquirers from making a competing proposal, although the Board and Special Committee believe that the termination fee is reasonable in amount and will not unduly deter, preclude or restrict any other party that might be interested in acquiring the Company; and

 

    if the merger is not consummated, the Company will generally be required to pay its own expenses associated with the merger agreement and the transactions contemplated thereby.

 

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    The potential risk that the conditions to closing may not be satisfied, including as a result of, among other things, the potential challenges associated with obtaining the consent of certain advisory clients representing at least 87.5% of base aggregate management fees (as defined in the merger agreement) of such clients.

 

    The amount of time that may be required to consummate the merger, including the fact that the completion of the merger depends on factors outside of the Company’s or Parent’s control and the risk that the pendency of the merger for an extended period of time could have an adverse effect on the Company.

 

    The significant costs involved in connection with entering into the merger agreement and completing the merger and the substantial time and effort of management required to consummate the merger, which could disrupt the Company’s business operations.

 

    That the announcement and pendency of the merger, or the failure to complete the merger, may cause substantial harm to the Company’s relationships with its employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel) and investors in funds or other vehicles managed or advised by affiliates of the Company.

 

    The restrictions in the merger agreement on the Company’s ability to actively solicit competing bids to acquire it and to entertain other acquisition proposals unless certain conditions are satisfied.

 

    The restrictions on the Company’s conduct of business prior to completion of the merger, which could delay or prevent the Company from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the merger.

 

    That, while the Company expects the merger to be consummated if the proposal to adopt the merger agreement is approved by the Company’s shareholders, there can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied.

 

    The fact that under the terms of the merger agreement, the Company has agreed to provide Parent up to an eight-week period to syndicate the equity of Parent, subject to certain conditions and limitations set forth in the merger agreement.

 

    That the market price of the Class A shares could be affected by many factors, including: (i) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting the Company; (ii) the possibility that, as a result of the termination of the merger agreement, possible acquirers may consider the Company to be an unattractive acquisition candidate; and (iii) the possible sale of the Class A shares by short-term investors following an announcement that the merger agreement was terminated.

 

    That other potential counterparties to strategic transactions offered stock consideration, which would allow Company shareholders to share in the synergies of such a transaction and capture a future change of control premium.

 

    The fact that the Company has incurred and will continue to incur significant transaction costs and expenses in connection with the proposed transaction, regardless of whether the merger is consummated.

Reasons of the Board

In reaching its determinations, the full Board considered the analyses and conclusions of the Special Committee, including the factors described above, and the unanimous recommendation of the Special Committee that the full Board approve the merger agreement and the transactions contemplated by the merger agreement. In addition to the factors described above, the full Board also considered the following (not necessarily in order of relative importance):

 

   

The fact that the merger agreement was unanimously approved by an active and engaged Special Committee, which is composed of directors who are independent from Parent, Sponsor and their

 

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respective affiliates, are independent of the Company and its subsidiaries and the Principals and their respective affiliates, and are not interested in the transaction, and that the Special Committee held 20 meetings between its date of formation and the announcement of the contemplated transactions and received advice from Evercore, the Special Committee’s independent financial advisor, and Davis Polk, the Special Committee’s independent legal advisor, in evaluating, negotiating and recommending the terms of the merger agreement.

 

    The oral opinion of Morgan Stanley delivered to the Board on February 12, 2017, subsequently confirmed orally on February 14, 2017 and by a written opinion dated as of February 14, 2017 and delivered to the Board, to the effect that, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the merger consideration to be received by the holders of Class A shares pursuant to the merger agreement was fair from a financial point of view to the holders of the Class A shares (other than the Principals and their respective affiliates). The written opinion is described below in “— Opinion of Morgan Stanley & Co. LLC” beginning on page 64.

 

    The briefings and information provided to the various members of the Board throughout the transaction process, including the limited participation of Mr. Jacobs in informational portions of certain meetings of the Special Committee.

 

    The Board’s belief, based on the Board’s knowledge of the Company’s long-term strategic goals and opportunities, industry trends, competitive environment and short- and long-term performance in light of the Company’s strategic plan, including the potential impact of those factors on the trading price of the Company’s Class A shares (which cannot be precisely quantified numerically), and discussions with the Company’s senior management and the Company’s outside legal and financial advisors, that the value offered to the Company’s shareholders pursuant to the merger agreement is more favorable to the Company’s shareholders than the potential value that might reasonably be expected to result from remaining an independent public company.

 

    The Board’s belief that the price to be paid by Parent is the highest price per share that Parent was willing to pay, that the terms and conditions of the merger agreement were the most favorable to the Company and its shareholders (other than the Principals and their respective affiliates) to which Parent was willing to agree, and that continued efforts to obtain a higher price from Parent, or soliciting additional interest from third parties, would be unlikely to lead to a higher price from Parent or a more favorable transaction with a third party, and could lead to the loss of Parent’s proposed transaction.

After taking into account the factors set forth above, as well as others, the Board and the Special Committee concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger to the Company’s shareholders (other than the Principals and their respective affiliates).

The foregoing discussion of factors considered by the Board and Special Committee is not intended to be exhaustive, but summarizes the material factors considered by the Board and Special Committee. In light of the variety of factors considered in connection with their evaluation of the merger agreement and the merger, the Board and Special Committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Board and Special Committee applied his own personal business judgment to the process and may have given different weight to different factors. The Board and Special Committee did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support their ultimate determinations. The Board and Special Committee based their recommendations on the totality of the information presented, including thorough discussions with, and questioning of, the Company’s senior management and the Board’s and Special Committee’s respective financial advisors and outside legal counsel. It should be noted that this explanation of the reasoning of the Board and Special

 

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Committee and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 29.

Opinions of Financial Advisors

Opinion of Evercore Group L.L.C.

Pursuant to an engagement letter dated January 5, 2017, the Special Committee retained Evercore to act as its financial advisor in connection with evaluating strategic and financial alternatives, including the merger. As part of this engagement, the Special Committee requested that Evercore evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration. At a telephonic meeting of the Special Committee held on February 14, 2017, Evercore rendered its oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion, that, as of February 14, 2017, and based upon and subject to the factors, procedures, assumptions, qualifications, limitations and other matters set forth in its written opinion, the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration was fair, from a financial point of view, to such holders of Class A shares.

The full text of Evercore’s written opinion, dated February 14, 2017, which sets forth, among other things, the factors considered, procedures followed, assumptions made and qualifications and limitations on the scope of review undertaken by Evercore in rendering its opinion, is attached as Annex F to this Proxy Statement and is incorporated herein by reference. The Company urges you to read the opinion carefully and in its entirety. Evercore’s opinion was addressed to, and for the information and benefit of, the Special Committee in connection with its evaluation of the merger. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to the Company, nor did it address the underlying business decision of the Company to engage in the merger. Evercore’s opinion does not constitute a recommendation to the Special Committee, the Board or to any other persons in respect of the merger, including as to how any holder of Class A shares should vote or act in respect of the merger. The summary of Evercore’s opinion set forth in this Proxy Statement is qualified in its entirety by reference to the full text of such opinion.

In connection with rendering its opinion, Evercore has, among other things:

 

    reviewed certain publicly available business and financial information relating to the Company that Evercore deemed to be relevant, including publicly available research analysts’ estimates;

 

    reviewed certain non-public historical financial statements and other non-public historical financial and operating data relating to the Company prepared and furnished to Evercore by management of the Company;

 

    reviewed the Forecasts (for more information on the Forecasts, see “— Certain Financial Forecasts” beginning on page 70) and certain non-public operating data relating to the Company prepared and furnished to Evercore by management of the Company;

 

    discussed the past and current operations, Forecasts and current financial condition of the Company with management of the Company (including management’s views on the risks and uncertainties of achieving the Forecasts);

 

    reviewed the reported prices and the historical trading activity of the Class A shares;

 

    compared the financial performance of the Company and its stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant;

 

    compared the financial performance of the Company and the valuation multiples relating to the merger with those of certain other transactions that Evercore deemed relevant;

 

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    reviewed a draft of the merger agreement, dated February 13, 2017, which Evercore assumed was in substantially final form and from which Evercore assumed the final form would not vary in any respect material to Evercore’s analysis; and

 

    performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore assumes no liability therefor. With respect to the Forecasts, Evercore assumed that they were reasonably prepared on bases reflecting the best currently available estimates and good-faith judgments of management of the Company as to the future financial performance of the Company under the business assumptions reflected therein. Evercore expressed no view as to any projected financial data relating to the Company or the assumptions on which they are based. Evercore also relied, at the direction of the Special Committee, without independent verification, upon the assessment of management of the Company as to the value of certain investment and operating assets.

For purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger would be satisfied without material waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the merger or materially reduce the benefits to the holders of the Class A shares of the merger.

Evercore did not make nor assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such appraisals, nor did it evaluate the solvency or fair value of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based upon information made available to it as of the date of its opinion and financial, economic, market and other conditions as they existed and as could be evaluated on the date of its opinion. It should be understood that subsequent developments may have affected or may affect Evercore’s opinion and that Evercore does not have any obligation to update, revise or reaffirm its opinion.

In arriving at its opinion, Evercore was not authorized to solicit, and Evercore did not solicit, interest from any party with respect to the acquisition of the Company or a business combination or other extraordinary transaction involving the Company.

Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness to the holders of the Class A shares (other than the Principals and their respective affiliates), from a financial point of view, of the merger consideration. Evercore did not express any view on, and its opinion did not address, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other securities, creditors or other constituencies of the Company, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore assumed that any modification to the structure of the transaction will not vary in any respect material to its analysis. Evercore’s opinion did not address the relative merits of the merger as compared to other business or financial strategies that might be available to the Company, nor did it address the underlying business decision of the Company to engage in the merger. Evercore did not express any opinion as to the price at which shares of the Company’s stock would trade at any time. Evercore is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of assessments by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.

 

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Except as described above, the Special Committee imposed no other instruction or limitation on Evercore with respect to the investigations made or the procedures followed by Evercore in rendering its opinion. Evercore’s opinion was only one of many factors considered by the Special Committee in its evaluation of the merger and should not be viewed as determinative of the views of the Special Committee with respect to the merger or the merger consideration.

Summary of Financial Analyses

The following is a summary of the material financial analyses reviewed by Evercore with the Special Committee on February 14, 2017 in connection with rendering Evercore’s opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before February 13, 2017 (the last trading date prior to the rendering of Evercore’s opinion) and is not necessarily indicative of current market conditions.

The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to understand fully the financial analyses performed by Evercore. The tables alone do not constitute a complete description of the financial analyses performed by Evercore. Considering the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Evercore’s financial analyses.

Discounted Cash Flow Analysis

Evercore performed a discounted cash flow analysis of the Company to calculate the estimated present value as of December 31, 2016 of the unlevered, after-tax free cash flows that the Company was projected to generate from January 1, 2017 through December 31, 2020, based upon the Forecasts, each of which assumed different levels of compound annual growth rate and average margin, which were designated the “Low Case,” the “Base Case” and the “High Case,” as well as a “Weighted Average.” The Weighted Average was based on Company management’s beliefs regarding the achievability of the Forecasts, as described below under “— Certain Financial Forecasts,” with a 60%, 30% and 10% probability weighting assigned to the Low Case, the Base Case and the High Case, respectively. Per Company management, $15 million of incremental pre-tax stock-based compensation expense in years 2017 through 2020, not reflected in the Forecasts, was deducted from each of the Low Case, the Base Case, the High Case and the Weighted Average, which were then used by Evercore to calculate the unlevered, after-tax free cash flows. Evercore also calculated a terminal value for the Company by applying a range of perpetuity growth rates, based on its professional judgment given the nature of the Company and its business and the industry in which it operates, from 1.0% to 3.0%, to the projected unlevered, after-tax free cash flows of the Company in the terminal year. The cash flows and the terminal value were then discounted to present value using a discount rate of 12.0% to 15.5%, based on the Company’s weighted average cost of capital calculated using the capital asset pricing model, to derive a range of implied enterprise values for the Company. A range of implied equity values for the Company was then calculated by increasing the range of implied enterprise values by the amount of the Company’s net cash (calculated as cash and cash equivalents less debt obligations incurred as of December 31, 2016).

Using this analysis, Evercore derived the following range of implied equity values per Class A share for the Company:

 

     Implied Equity Value
Range Per Share
 

Weighted Average

     $  7.05 – $10.26  

Low Case

     $  5.64 – $  8.09  

Base Case

     $  8.51 – $12.46  

High Case

     $11.12 – $16.64  

 

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Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

Evercore also performed a discounted cash flow analysis based upon each of the Low Case, the Base Case, the High Case and the Weighted Average with a terminal value for the Company calculated by applying an exit multiple of 7.0x to 9.0x, selected based on Evercore’s experience and professional judgment, to the Company’s 2020 after-tax distributable earnings (including, per Company management, a deduction of $15 million of incremental pre-tax stock-based compensation expense not reflected in Company management’s projections). The cash flows and the terminal value were then discounted to present value using a discount rate of 12.0% to 15.5%, based on the Company’s weighted average cost of capital calculated using the capital asset pricing model, to derive a range of implied enterprise values for the Company. A range of implied equity values for the Company was then calculated by increasing the range of implied enterprise values by the amount of the Company’s net cash (calculated as cash and cash equivalents less debt obligations incurred as of December 31, 2016).

Using this analysis, Evercore derived the following range of implied equity values per Class A share for the Company:

 

     Implied Equity Value
Range Per Share
 

Weighted Average

     $  6.78 – $  8.49  

Low Case

     $  5.42 – $  6.73  

Base Case

     $  8.19 – $10.29  

High Case

     $10.68 – $13.62  

Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

Sum of the Parts Analysis

Evercore conducted a sum of the parts valuation analysis to calculate the equity value of the Company based on the results of the 2016 calendar year and each of the Low Case, the Base Case, the High Case and the Weighted Average for the 2017 calendar year. In performing its analysis, Evercore applied a valuation multiple to three components of the Company’s earnings — (i) net management fees, (ii) net incentive income and (iii) earnings from Graticule, which Evercore refers to as “GAMA earnings” — as well as taxes payable on earnings from the three components.

The net management fees component included management fees, operating expenses and all incremental stock-based compensation (including, per Company management, a deduction of $15 million of incremental pre-tax stock-based compensation expense in 2016 and 2017 not reflected in the Forecasts). Based on its experience and professional judgment, Evercore assumed a valuation multiple range of 13.0x to 15.0x for 2016 and 12.0x to 14.0x for 2017.

The net incentive income component included incentive income and expenses from profit sharing and the principal compensation plan. Based on its experience and professional judgment, Evercore assumed a valuation multiple range of 3.0x to 6.0x for each of 2016 and 2017.

For the GAMA earnings component and taxes payable on all three components, Evercore assumed a multiple range of 6.1x to 8.8x for 2016 and 6.1x to 8.7x for 2017, based on the weighted average multiples of the Company’s net management fees and net incentive income components.

To calculate total equity value, Evercore then added the Company’s net balance sheet assets (calculated as cash and cash equivalents plus investments less debt obligations payable) to the foregoing ranges. Cash and cash equivalents and debt obligations payable were valued at 100% of book value; based on its experience and professional judgment, Evercore valued investments in a range from 80% to 120% of book value.

 

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Using this analysis, Evercore derived the following range of implied equity values per Class A share for the Company:

 

     2016A      2017E  

Weighted Average

     $6.00 – $8.50          $6.29 – $  8.92    

Low Case

     $6.00 – $8.50          $6.05 – $  8.43    

Base Case

     $6.00 – $8.50          $6.61 – $  9.53    

High Case

     $6.00 – $8.50          $6.79 – $10.02    

Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

Trading Multiple Analysis

In performing a trading multiple analysis of the Company, Evercore reviewed publicly available financial and market information for the Company and the selected public companies listed in the table below, which we refer to as the “Trading Group,” which Evercore deemed most relevant to consider in relation to the Company, based on its professional judgment and experience, because they include alternative asset managers with operations that, for purposes of this analysis, Evercore considered similar to the operations of the Company. However, Evercore noted that none of the companies in the Trading Group is identical to the Company because of inherent differences in the businesses, operations, performance, financial conditions and prospects of each company.

Evercore reviewed, among other things, the per share closing price of each company in the Trading Group on February 13, 2017 as a multiple of the after-tax distributable earnings per share (which we refer to as the “Share Price/After-Tax DE per Share” multiple) estimated for calendar years 2016, 2017 and 2018 for each company in the Trading Group. The financial data of the Trading Group used by Evercore for this analysis were based on publicly available research analysts’ estimates.

The Share Price/After-Tax DE per Share multiples for each company in the Trading Group are set forth in the table below.

 

Trading Group Company

   Share Price/After-Tax
DE per Share: 2016E
   Share Price/After-Tax
DE per Share: 2017E
   Share Price/After-Tax
DE per Share: 2018E

The Blackstone Group L.P.

       17.1x        11.1x        10.6x

KKR & Co. L.P.

       9.5x        10.2x        9.2x

Apollo Global Management, LLC

       15.0x        14.3x        11.4x

Oaktree Capital Group, LLC

       15.7x        14.9x        11.1x

The Carlyle Group LP

       8.7x        8.0x        6.9x

Ares Management, L.P.

       22.0x        19.5x        16.7x

Och-Ziff Capital Management Group LLC

       NM        7.6x        6.4x

Mean

       14.7x        12.2x        10.3x

Median

       15.3x        11.1x        10.6x

Mean (excluding Ares)

       13.2x        11.0x        9.3x

Median (excluding Ares)

       15.0x        10.6x        9.9x

Based on its review of the Trading Group and its experience and professional judgment, Evercore derived a valuation range of Share Price/After-Tax DE per Share multiples of 8.0x to 10.0x which Evercore applied to the Company’s after-tax distributable earnings (including, per Company management, a deduction of $15 million of incremental pre-tax stock-based compensation expense not reflected in the Forecasts) for calendar year 2016 and a valuation range of Share Price/After-Tax DE per Share multiples of 7.0x to 9.0x which Evercore applied to the Company’s estimated after-tax distributable earnings (including, per Company management, a deduction of $15 million of incremental pre-tax stock-based compensation expense not reflected in the Forecasts) for calendar years 2017 and 2018.

 

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Using this analysis, Evercore derived the following range of implied equity values per Class A share for the Company:

 

     Share Price/After-Tax
DE per Share: 2016A
     Share Price/After-Tax
DE per Share: 2017E
     Share Price/After-Tax
DE per Share: 2018E
 

Weighted Average

   $ 5.14 – $6.42        $7.08 – $  9.10        $6.03 – $  7.75  

Low Case

   $ 5.14 – $6.42        $5.65 – $  7.26        $5.15 – $  6.63  

Base Case

   $ 5.14 – $6.42        $9.07 – $11.66        $6.91 – $  8.89  

High Case

   $ 5.14 – $6.42        $9.70 – $12.47        $8.65 – $11.13  

Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

Precedent Transaction Multiples Analysis

Evercore reviewed, to the extent publicly available, financial information relating to several transactions involving alternative asset managers. Evercore selected these transactions because they represented transactions of which Evercore was aware that were announced over the last five years which Evercore considered, in its professional judgment and experience, relevant to the merger.

Because the reasons for and the circumstances surrounding each of the transactions analyzed by Evercore were different, and because of the inherent differences in the businesses, operations, performance, financial conditions and prospects of the companies involved, no selected company or selected transaction utilized in Evercore’s analysis is directly comparable to the Company or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which the Company and the merger were compared.

Evercore reviewed, among other things, the enterprise value of each transaction as a multiple of the target company’s earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” (in each case, to the extent publicly available and calculated for the twelve month period ending prior to the date of announcement of the transaction, which we refer to as “LTM EBITDA”). The financial data used by Evercore for the selected transactions was based on publicly available information, which in some cases was incomplete and required Evercore to make certain assumptions it deemed appropriate in connection with its analysis. The Enterprise Values reflected include the total gross potential consideration of any earn-out or contingent consideration that may be paid over time.

 

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The enterprise value to LTM EBITDA multiples for each of the transactions used by Evercore for purposes of its analysis are set forth in the table below.

 

Announcement Date

 

Acquiror

 

Target

  % Acquired     Purchase
Price (in $
millions)
    Implied Value
(100% Basis,

in $ millions)
    Enterprise
Value/LTM
EBITDA
 

June 14, 2016

  Old Mutual Asset Management   Landmark Partners     60%     $ 465     $ 775          (1) 

July 23, 2015

  Ares Management, L.P.   Kayne Anderson Capital Advisors, L.P.     100%     $ 2,550     $ 2,550       12.9x (2) 

December 17, 2014

  Man Group Plc   Silvermine Capital Management     100%     $ 70     $ 70    

September 17, 2014

  HF2 Financial Management   ZAIS Group     73%     $ 175     $ 240       5.7x (3) 

June 19, 2014

  Man Group Plc   Numeric Investors     100%     $ 494     $ 494       3.1x (4) 

June 9, 2014

  Oaktree   Highstar     100%     $ 97     $ 97    

October 18, 2013

  KKR   Avoca Capital     100%     $ 140     $ 140    

September 25, 2013

  Carlyle Group   Metropolitan Real Estate Equity Management     100%     $ 63     $ 63    

December 20, 2012

  Carlyle Group   NGP Energy Capital Mgmt.     55%     $ 675     $ 1,226    

Mean

              7.2x  

Median

              5.7x  

 

(1) Guidance of 8.0x-10.0x EBITDA provided by Old Mutual Asset Management; time period of purchase price multiple not specified.
(2) Per Ares Management’s public filings, multiple based on 2014 results, which included $179 million of fee related earnings (89% of total) and $22 million of net performance related income (11% of total). This transaction was not ultimately consummated. For reference, the Company’s 2016 results include approximately 35% fee related earnings and approximately 65% net performance related income.
(3) Per HF2 Financial Management’s public filings, LTM EBITDA of ZAIS Group as of June 30, 2014.
(4) Per Man Group Plc’s public filings, the transaction included an additional earn-out payment of $275 million if certain performance targets are achieved. If the earn-out is to be paid in full, Numeric’s profitability would need to increase approximately 3.4x from its level at the time of announcement. To calculate the transaction multiple, Evercore multiplied run-rate EBITDA of $47 million by 3.4x. Excluding the earn-out payment, the purchase price multiple on run-rate EBITDA is 4.7x.

Based on its review of the foregoing and its experience and professional judgment, Evercore derived a valuation range of enterprise value to LTM EBITDA multiples of 6.0x to 10.0x, which Evercore applied to the Company’s EBITDA for calendar year 2016 (including, per Company management, a deduction of $15 million of incremental pre-tax stock-based compensation expense not reflected in the Forecasts). Using this analysis, Evercore derived a range of implied equity values per Class A share for the Company of $6.01 to $9.66. Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

 

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Premiums Paid Analysis

Evercore reviewed the premiums paid for (i) acquisitions of U.S. public targets over the last five years with transaction values between $2.0 billion and $4.0 billion and where the consideration paid was 100% cash, of which there were 54, and (ii) acquisitions of U.S. public targets over the last five years with transaction values between $2.0 billion and $4.0 billion, regardless of the form of consideration, of which there were 89. Using information from Securities Data Corp., premiums paid were calculated as the percentage by which the per share consideration paid in each such acquisition exceeded the closing price per share of the target companies one day, one week and four weeks prior to transaction announcements. The results of this analysis are provided in the table below:

 

     Premium of Offer to Historical Share Prices  
     1 Day Prior     1 Week Prior     4 Weeks Prior  

100% Cash Consideration (54)

 

Low

     0.4     0.3     (0.8 %) 

25th Percentile

     22.6     20.2     24.1

Median

     33.1     34.5     36.1

Mean

     39.2     40.7     45.1

75th Percentile

     44.3     46.6     47.2

High

     238.9     255.1     347.1

All Transactions (89)

 

Low

     (17.6 %)      (12.0 %)      (16.3 %) 

25th Percentile

     16.8     17.0     19.9

Median

     28.6     30.0     32.1

Mean

     34.5     35.8     39.7

75th Percentile

     42.4     41.4     46.6

High

     238.9     255.1     347.1

Based on the above analysis and Evercore’s professional judgment and experience, Evercore then applied a range of premiums derived from the selected transactions of 25% to 35% to the closing price per Class A share on February 13, 2017. Using this analysis, Evercore derived a range of implied equity values per Class A share of $7.29 to $7.87. Evercore compared the results of this analysis to the merger consideration of $8.08 per Class A share.

Historical Trading Range Analysis

Evercore also reviewed, for reference and informational purposes only and not as part of its financial analysis in connection with rendering its advice, the public trading prices for the Class A shares for the 52 weeks ended on February 13, 2017. Evercore noted that during this time period the closing trading price of the Class A shares ranged from a low of $4.19 to a high of $5.92, as compared to the merger consideration of $8.08 per Class A share.

Present Value of Research Analyst Price Targets

Evercore also reviewed, for reference and informational purposes only and not as part of its financial analysis in connection with rendering its advice, research analyst estimates of potential future value for the Class A shares, or “price targets,” based on publicly available equity research published with respect to the Company as of February 13, 2017. Evercore assumed a 12.5% cost of equity, calculated using the capital asset pricing model, for the highest analyst price target estimate of $8.00 per share and a 16.5% cost of equity, calculated using the capital asset pricing model, for the lowest analyst price target estimate of $5.00 per share. Evercore noted a range of the present value of research analyst price targets of $4.29 to $7.11 per Class A share, as compared to the merger consideration of $8.08 per Class A share.

 

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General

In connection with the review of the merger by the Special Committee, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have considered various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should therefore not be taken to be Evercore’s view of the value of the Company. No company used in the above analyses as a comparison is directly comparable to the Company, and no transaction used is directly comparable to the merger. Further, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company or its advisors.

Evercore prepared these analyses solely for the purpose of providing an opinion to the Special Committee as to the fairness of the merger consideration, from a financial point of view, to the holders of the Class A shares (other than the Principals and their respective affiliates) entitled to receive such merger consideration. These analyses do not purport to be appraisals of the Company or to necessarily reflect the prices at which the Company or its securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates. The issuance of the fairness opinion was approved by an opinion committee of Evercore.

Under the terms of Evercore’s engagement, Evercore provided the Special Committee with financial advisory services and delivered a fairness opinion in connection with the merger. Pursuant to the terms of its engagement letter, the Company has agreed to pay Evercore fees for its services in connection with its engagement, including a monthly retainer fee of $250,000 (not to exceed four months), an opinion fee of $2,000,000, a success fee in the event the merger is consummated of $5,000,000 (against which the retainer fees and opinion fee are creditable) and, at the Special Committee’s sole and absolute discretion, a discretionary fee in an amount not to exceed $2,000,000 based upon, among other things, the resources expended by Evercore in the course of the assignment, the Special Committee’s satisfaction with the services rendered and the benefit to the Company of the successful conclusion of the assignment. Evercore earned (i) the first monthly retainer fee upon execution of its engagement letter on January 5, 2017, (ii) the second monthly retainer fee on February 1, 2017, (iii) the third monthly retainer fee on March 1, 2017, (iv) the fourth monthly retainer fee on April 1, 2017 and (v) the opinion fee of $2,000,000 upon delivery of its fairness opinion to the Special Committee on February 14, 2017. In addition, the Company has agreed to reimburse Evercore for its reasonable and documented out-of-pocket expenses (including reasonable and documented out-of-pocket legal fees, expenses and disbursements) incurred in connection with its engagement and to indemnify Evercore and any of its members, partners, officers, directors, advisors, representatives, employees, agents, affiliates or controlling persons, if any, against certain liabilities and expenses arising out of its engagement and any related transaction.

During the three-year period prior to the date of Evercore’s opinion, Evercore and its affiliates provided certain financial advisory services to the Company and its affiliates and received approximately $7,600,000 (including $2,500,000 earned to date on this engagement) as compensation for such services. During the three-

 

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year period prior to the date of Evercore’s opinion, no material relationship existed between Evercore and its affiliates and SoftBank Group Corp. pursuant to which compensation was received by Evercore or its affiliates as a result of such relationship, although Evercore did receive approximately $8,535,622 as compensation for financial advisory services provided to affiliates of SoftBank Group Corp. During the three-year period prior to the date hereof, no material relationship existed between Evercore and its affiliates and FAB and its affiliates pursuant to which compensation was received by Evercore or its affiliates as a result of such relationship. Evercore or its affiliates may provide financial or other services to the Company, SoftBank Group Corp., FAB or their respective affiliates in the future and in connection with any such services Evercore and its affiliates may receive compensation.

In the ordinary course of business, Evercore and its affiliates may actively trade the securities, or related derivative securities, or financial instruments of the Company, SoftBank Group Corp. or their respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.

The Special Committee engaged Evercore to act as its financial advisor based on its qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.

Opinion of Morgan Stanley & Co. LLC

The Board retained Morgan Stanley to provide it with financial advisory services in connection with the merger. The Board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, and its knowledge of the Company’s business and affairs. On February 12, 2017, Morgan Stanley rendered its oral opinion, which was subsequently confirmed orally and in writing on February 14, 2017, to the Board to the effect that, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be received by the holders of Class A shares pursuant to the merger agreement, was fair from a financial point of view to the holders of Class A shares (other than the Principals and their respective affiliates).

The full text of the written opinion of Morgan Stanley, dated February 14, 2017, is attached as Annex G to this Proxy Statement, and is incorporated by reference herein in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this proxy statement is qualified in its entirety by reference to the full text of the opinion. You are encouraged to, and should, read Morgan Stanley’s opinion and the section summarizing Morgan Stanley’s opinion carefully and in their entirety. Morgan Stanley’s opinion was directed to the Board, in its capacity as such, and addresses only the fairness from a financial point of view of the merger consideration to be received by the holders of the Class A shares (other than the Principals and their respective affiliates) pursuant to the merger agreement, as of the date of the opinion, and does not address any other aspects or implications of the merger, including the transactions contemplated by the founders agreement or the treatment of the Company’s Class B shares, which will be cancelled and retired and cease to exist upon the consummation of the merger pursuant to the merger agreement. Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder of the Company as to how to vote at any shareholders’ meeting to be held in connection with the merger or whether to take any other action with respect to the merger.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

    reviewed certain publicly available financial statements and other business and financial information of the Company;

 

    reviewed certain internal financial statements and other financial and operating data concerning the Company;

 

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    reviewed the Forecasts (for more information on the Forecasts, see “— Certain Financial Forecasts” beginning on page 70);

 

    discussed the past and current operations and financial condition and the prospects of the Company with executive officers of the Company;

 

    reviewed the reported prices and trading activity for the Class A shares;

 

    compared the financial performance of the Company and the prices and trading activity of the Class A shares with that of certain other publicly-traded companies comparable to the Company and their securities;

 

    reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

    participated in certain discussions and negotiations among representatives of the Company and Sponsor and their financial and legal advisors;

 

    reviewed the merger agreement, the equity commitment letter, the guarantee and certain related documents; and

 

    performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley 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 it by the Company, and which formed a substantial basis for its opinion. With respect to the Forecasts, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company. In addition, Morgan Stanley assumed that the merger 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, including, among other things, that the definitive merger agreement did not differ in any material respect from the draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the merger, 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 merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax or regulatory or advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the merger consideration to be received by the holders of Class A shares (other than the Principals and their respective affiliates) in the merger.

Morgan Stanley did not express any opinion with respect to the transactions contemplated by the founders agreement or the treatment of the Class B shares, which will be cancelled and retired and cease to exist upon the consummation of the merger pursuant to the merger agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s written opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of February 14, 2017. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material financial analyses performed by Morgan Stanley in connection with the preparation of its opinion to the Board. The following summary is not a complete description

 

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of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 10, 2017 (the last trading day immediately preceding the February 12, 2017 presentation by Morgan Stanley to the Board), and is not necessarily indicative of current market conditions. For the purposes of analysis, each of the per share values outlined below is rounded to the nearest $0.01. Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

In performing the financial analysis summarized below and arriving at its opinion, Morgan Stanley used and relied upon the Forecasts, which were prepared by the Company’s management to provide to potential buyers in connection the potential sale of the Company, and certain financial projections based on Wall Street research reports and referred to in this Proxy Statement as the “Street Case.” The Forecasts included three sets of financial projections based on different assumptions: 6% AUM CAGR & 36% average margin (the “Low Case”); 10% AUM CAGR & 40% average margin (the “Base Case”); and 14% AUM CAGR & 41% average margin (the “High Case”). Management informed Morgan Stanley that management believed that it would be most appropriate to apply a majority probability weighting to the Low Case. For more information on the Forecasts, please see the section of this Proxy Statement entitled “— Certain Financial Forecasts.”

Historical Trading Range and Research Targets Analysis

Morgan Stanley reviewed the historical trading range of the Class A shares for the 52-week period ending February 10, 2017 and noted that, during such period, the maximum closing price per Class A share was $6.03 and the minimum trading price per Class A share was $3.92. Morgan Stanley also reviewed share price targets for the Class A shares prepared and published by equity research analysts, which reflect each analyst’s estimate of the future public market trading price of the Class A shares and were not discounted to present value.

Morgan Stanley discounted such share price targets to present value (as of February 10, 2017) by applying an illustrative one-year discount period at a discount rate of 13.1%, based upon an analysis of the Company’s cost of equity. Morgan Stanley estimated the Company’s cost of equity based on Morgan Stanley’s professional judgment and expertise and taking into consideration, among other things, the capital asset pricing model, adjustments to account for the Company’s relatively large balance sheet investments and net cash relative to comparable publicly traded companies, as well as the Company’s percentage of earnings from management fee income and incentive fee income relative to comparable publicly traded companies, with inputs that Morgan Stanley deemed were relevant based on publicly available data. Morgan Stanley noted a range of share price targets for the Class A shares as of February 10, 2017 discounted as described above of $4.42 to $7.08 per Class A share. The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the Class A shares and these estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions.

Premiums Paid Analysis

Using publicly available information, Morgan Stanley reviewed transactions and announced bids for control of U.S. public targets with an aggregate transaction value of at least $1.0 billion announced from January 1, 2007 to and including December 31, 2016. Morgan Stanley calculated the premiums paid in these transactions over the applicable stock price of the acquired company (i.e., the amount by which the price that the purchaser paid for the shares of the target exceeded the market price of such shares) four weeks prior to the earliest of the deal

 

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announcement, announcement of a competing bid and market rumors. The average premium paid in these transactions during this period ranged from a low of 29% in 2007 to a high of 48% in 2009 and was 45% in 2016, and the average for the entire period was 38.8%.

Based on the results of this analysis, the premiums paid in precedent transactions as outlined below, and its professional judgment, Morgan Stanley applied a premium range of 30% to 50% to (i) the closing price per Class A share of $5.92 on February 10, 2017, which resulted in an implied per Class A share value range of $7.70 to $8.88; (ii) the 30-day volume weighted average price (“VWAP”) per Class A share of $5.55 as of February 10, 2017, which resulted in an implied per Class A share value range of $7.21 to $8.32; and (iii) the 90-day VWAP per Class A share of $5.33 as of February 10, 2017, which resulted in an implied per Class A share value range of $6.93 to $8.00 (each as compared to the Company’s 30-day VWAP Class A Share price of $5.55, the Company’s closing Class A share price of $5.92 on February 10, 2017 and Sponsor’s final proposed price per Class A share of $8.08). Morgan Stanley noted that the proposed price per Class A share of $8.08 represented a 36% premium to the Company’s closing price on February 10, 2017, a 46% premium to the 30-day VWAP and a 52% premium to the 90-day VWAP.

Sum-of-the-Parts Multiples Based Analysis

Morgan Stanley performed a multiples based analysis of the Company on a sum-of-the-parts basis. The multiples based analysis separated the Company’s estimated earnings for the calendar year 2017, on a stand-alone basis and adjusted for certain one-time items, into two distinct earning streams composed of Management Fee Earnings and Incentive Fee Earnings. The value of the Management Fee Earnings range was calculated by applying a multiple of 13.0x to 16.0x, the value of the Incentive Fee Earnings range was calculated by applying a multiple of 4.0x to 7.0x, reflecting the higher risk nature of incentive income, and a 10% to 20% haircut was applied to balance sheet investments given their illiquid nature, each of which was chosen based on Morgan Stanley’s professional judgment and expertise. Included in the balance sheet value is cash and cash equivalents, net of outstanding debt, of $0.53 per share, in accordance with the Company’s financial statements. The following table represents the results of this analysis:

 

     Street Case      Low Case      Base Case      High Case  

Implied Management Fee Value Per Share

   $ 3.49 – $4.30      $ 3.01 – $3.70      $ 2.93 – $3.60      $ 2.77 – $3.41  

Implied Incentive Income Value Per Share

   $ 1.56 – $2.73      $ 1.33 – $2.33      $ 1.85 – $3.24      $ 2.25 – $3.93  

Balance Sheet Value Per Share

   $ 2.20 – $2.41      $ 2.20 – $2.41      $ 2.20 – $2.41      $ 2.20 – $2.41  

Per Share Equity Value

   $ 7.25 – $9.44      $ 6.54 – $8.44      $ 6.98 – $9.25      $ 7.22 – $9.76  

As reflected in the above table, the analysis resulted in an implied per Class A Share equity value range of $7.25 to $9.44 in the Street Case, $6.54 to $8.44 in the Low Case, $6.98 to $9.25 in the Base Case and $7.22 to $9.76 in the High Case (each, as compared to the Company’s 30-day VWAP Class A share price of $5.55, the Company’s closing Class A share price of $5.92 on February 10, 2017 and Sponsor’s final proposed price per Class A Share of $8.08).

Sum-of-the Parts Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis of the Company on a sum-of-the-parts basis. Morgan Stanley’s discounted cash flow analysis separated the Company’s estimated earnings for the calendar year 2017 to 2020, on a stand-alone basis, into two distinct earning streams composed of Management Fee Earnings and Incentive Fee Earnings. For its discounted cash flow calculations, Morgan Stanley applied discount rates ranging from 11.3% to 13.3% (based on the Company’s weighted average cost of capital), a terminal multiple on Management Fee Earnings ranging from 13.0x to 16.0x, a terminal multiple on Incentive Fee Earnings ranging from 4.0x to 7.0x and a 10% to 20% haircut to balance sheet investments, each of which was chosen based on Morgan Stanley’s professional judgment and expertise. Included in the balance sheet value is

 

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cash and cash equivalents, net of outstanding debt, of $0.53 per share, in accordance with the Company’s financial statements. The following tables represent the results of this analysis:

 

     Low Case      Base Case      High Case  

Implied Management Fee Value Per Share

   $ 3.16 – $3.91        $  4.87 – $  6.11        $  6.54 – $  8.27  

Implied Incentive Income Value Per Share

   $ 2.17 – $3.04        $  3.33 – $  4.69        $  4.60 – $  6.55  

Balance Sheet Value Per Share

   $ 2.20 – $2.41        $  2.20 – $  2.41        $  2.20 – $  2.41  

Per Share Equity Value

   $ 7.53 – $9.36        $10.40 – $13.22        $13.34 – $17.23  

As reflected in the above tables, the analysis resulted in an implied per Class A Share equity value range of $7.53 to $9.36 in the Low Case, $10.40 to $13.22 in the Base Case and $13.34 to $17.23 in the High Case (each, as compared to the Company’s 30-day VWAP Class A share price of $5.55, the Company’s closing Class A share price of $5.92 on February 10, 2017 and Sponsor’s final proposed price per Class A share of $8.08).

Precedent Transactions

Morgan Stanley performed a multiple based sum-of-the-parts precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and purchase price multiples of selected transactions. Morgan Stanley compared publicly available statistics for 17 asset manager transactions that were announced since June 11, 2009 consisting of (i) one alternative asset manager transaction and (ii) 16 traditional asset manager transactions. Morgan Stanley noted that there is very limited publicly available data on precedent transactions in the alternative asset management space. Consequently, Morgan Stanley also analyzed data for traditional asset management transactions, although such data is not directly or fully comparable. The following is a list of the transactions reviewed:

 

Precedent Transactions

Date Announced

  

Buyer Name

  

Target Name

Alternative Asset Managers

5/17/2010

  

Man Group

  

GLG Partners

Traditional Asset Managers

12/16/2016

  

Virtus Investment Partners

  

RidgeWorth Holdings

12/12/2016

  

Amundi

  

Pioneer Investments

10/3/2016

  

Henderson Group

  

Janus Capital

8/19/2016

  

F.A.B. Partners

  

CIFC

10/8/2015

  

Reverence and TA Associates

  

Russell Investments

6/19/2014

  

Man Group

  

Numeric Holdings

4/14/2014

  

TIAA-CREF

  

Nuveen Investments

3/26/2014

  

Standard Life Investments

  

Ignis Asset Management

1/28/2014

  

Bank of Montreal

  

F&C Asset Management

11/18/2013

  

Aberdeen Asset Management

  

Scottish Widows Investment Partnership

5/30/2013

  

Warburg Pincus, General Atlantic

  

Santander Asset Management

2/21/2013

  

Crestview Partners

  

Victory Capital Management

2/19/2013

  

ORIX

  

Robeco

12/6/2012

  

TD Bank Group

  

Epoch Holding Corporation

10/18/2010

  

Royal Bank of Canada

  

BlueBay Asset Management PLC

6/11/2009

  

BlackRock

  

Barclays Global Investors

Utilizing publicly available information, including publicly available estimates of EBITDA prepared by equity research analysts, Morgan Stanley calculated the implied ratio of the deal value to EBITDA for each of the transactions listed above. Morgan Stanley separated the Company’s EBITDA for the calendar year 2017, on a stand-alone basis and adjusted for certain one-time items, into two distinct EBITDA streams composed of Management Fee EBITDA and Incentive Fee EBITDA. Based on the results of the precedent transactions

 

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analysis above and using its professional judgment, Morgan Stanley performed a multiples-based sum-of-the-parts analysis, and applied a multiple range of 8.0x to 12.0x to the Company’s 2017 Management Fee EBITDA, a multiple range of 3.0x to 5.0x to the Company’s 2017 Incentive Fee EBITDA and a 10% to 20% haircut on balance sheet investments. Included in the balance sheet value is cash and cash equivalents, net of outstanding debt, of $0.53 per share, in accordance with the Company’s financial statements. The analysis resulted in an implied per Class A share equity value range of $6.85 to $9.65 in the Street Case, $6.20 to $8.64 in the Low Case, $6.86 to $9.74 in the Base Case and $7.23 to $10.36 in the High Case (each, as compared to the Company’s 30-day VWAP Class A share price of $5.55, the Company’s closing Class A share price of $5.92 on February 10, 2017 and Sponsor’s final proposed price per Class A Share of $8.08).

No company or transaction utilized in the precedent transactions analysis is identical to the Company or the merger. In evaluating the precedent transactions, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond the Company’s control. These include, among other things, the impact of competition on the Company’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company and the industry, and in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared. The fact that points in the range of implied present value per share of the Company derived from the valuation of precedent transactions were less than or greater than the consideration is not necessarily dispositive in connection with Morgan Stanley’s analysis of the consideration for the merger, but is one of many factors Morgan Stanley considered.

General

In connection with the review of the merger by the Board, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond the Company’s control. These include, among other things, the impact of competition on the Company’s business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company and the industry, and in the financial markets in general. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, to the holders of Class A shares (other than the Principals and their respective affiliates) of the merger consideration to be received by the holders of Class A shares pursuant to the merger agreement, and in connection with the delivery of its oral opinion, and its subsequent written opinion, to the Board. These analyses do not purport to be appraisals or to reflect the prices at which the Class A shares might actually trade.

The merger consideration was determined through arm’s-length negotiations between the Company, Parent and Sponsor and was approved by the Board. Morgan Stanley provided advice to the Company during these negotiations but did not, however, recommend any specific merger consideration to the Company, or that any specific merger consideration constituted the only appropriate consideration for the merger.

 

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Morgan Stanley’s opinion and its presentation to the Board was one of many factors taken into consideration by the Board in deciding to approve the merger agreement and the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the recommendation of the Board with respect to the consideration to be received by shareholders pursuant to the merger agreement or of whether the Board would have been willing to agree to a different form or amount of consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any shareholder of the Company as to how to vote at the Special Meeting to be held in connection with the merger or whether to take any other action with respect to the merger.

The Board retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading and prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley and its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions and 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 Company, Sponsor and their respective affiliates, or any other company, or any currency or commodity, that may be involved in the merger, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided the Board with financial advisory services and a fairness opinion, described in this section and attached as Annex G to this Proxy Statement, in connection with the merger, and the Company has agreed to pay Morgan Stanley for its services (i) an opinion fee of $5 million, which became payable upon delivery of the written opinion described above, and which fee will be offset, to the extent previously paid, against the transaction fee, and (ii) a transaction fee of $22 million, which is contingent upon the closing of the merger. The Company has also agreed to reimburse Morgan Stanley for its expenses, including fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the U.S. federal securities laws, relating to or arising out of Morgan Stanley’s engagement.

In the two years prior to the date of its opinion, Morgan Stanley and its affiliates have received aggregate fees of between $12 million and $13 million in connection with financial advisory and financing services provided to the Company and the majority owned affiliates and portfolio companies of the Company. In the two years prior to the date of its opinion, Morgan Stanley and its affiliates have received aggregate fees of between $12 million and $13 million in connection with financial advisory and financing services provided to Sponsor and its subsidiaries. In addition, Mitsubishi UFJ Morgan Stanley Securities (which we refer to as “MUMSS”), a Japanese joint venture with Mitsubishi UFJ, which is not controlled by Morgan Stanley, has provided in the two years prior to the date of its opinion financial advisory and financing services for Sponsor or its affiliates for which Morgan Stanley believes MUMSS received fees in connection with such services. Morgan Stanley and/or MUMSS may also seek to provide such services to Sponsor and the Company and their respective affiliates in the future and would expect to receive fees for the rendering of these services.

Certain Financial Forecasts

The Company does not, as a matter of general practice, develop or publicly disclose long-term forecasts or internal projections of its future financial performance, revenues, earnings, financial condition or other results due to, among other reasons, the nature of the Company’s business, the uncertainty of the underlying

 

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assumptions and estimates, including the difficulty of predicting economic and market conditions. However, in connection with the Company’s evaluation of a possible strategic transaction, three sets of financial forecasts and projections prepared by management (the “Forecasts”) were made available to the Special Committee and the Board and their respective independent financial advisors in performing their financial analyses summarized under “— Opinions of Financial Advisors” beginning on page 55. Each of the Forecasts made certain assumptions resulting in different levels of compound annual growth rate (“CAGR”) and average margin, which were designated the “Low Case,” the “Base Case” and the “High Case.” The Forecasts were also made available to Parent and its financial advisor, and certain projected financial information was made available to Parties A and B, during the due diligence process.

In connection with Evercore’s engagement by the Special Committee, representatives of Evercore had numerous conversations with management and representatives of Morgan Stanley regarding the Forecasts, including in particular regarding management’s perspectives on the Company’s ability to achieve the assumptions underlying the various cases in the Forecasts. In the course of such conversations, management informed Evercore and Morgan Stanley that management believed that it would be most appropriate to apply a majority probability weighting to the Low Case. Evercore subsequently requested that management provide Evercore with a specific probability weighting for each case of the projections, and subject to the caveat that management believed that the nature of the Company’s business made projecting the Company’s future financial performance an inherently speculative exercise, management informed Evercore that its best estimate would be to assign a 60%, 30% and 10% probability weighting, respectively, to each of the Low Case, Base Case and High Case (which information was also communicated to Morgan Stanley).

Because the Forecasts were made available to the Special Committee, the Board and Morgan Stanley and Evercore, and, other than with respect to Company management’s views on the Company’s ability to achieve the assumptions underlying the various cases in the Forecasts, Parent and its financial advisor, they are being included in this Proxy Statement. However, the inclusion of this information should not be regarded as an indication that the Company, the Special Committee, the Board, Morgan Stanley, Evercore or any other recipient of this information considered, or now considers, the Forecasts to be material information of the Company or predictive of actual future results nor should it be construed as financial guidance. No person has made or makes any representation or warranty to any shareholder regarding the information included in the Forecasts.

The Company did not prepare the Forecasts with a view to public disclosure or compliance with the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, the Forecasts were not prepared with a view to compliance with generally accepted accounting principles as applied in the United States (“GAAP”), and neither Ernst & Young LLP, our independent registered public accounting firm, nor any other independent accountant, has examined, reviewed, compiled or otherwise applied procedures to the Forecasts and, accordingly, assumes no responsibility for, and expresses no opinion on, them. The Forecasts included in this Proxy Statement have been prepared by, and are the responsibility of, our management. Our internal financial forecasts (upon which the Forecasts were based in part) are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments. Since the projections cover multiple years, such information by its nature becomes less reliable with each successive year. The Forecasts may differ from publicized analyst estimates and forecasts and do not take into account any events or circumstances after the date they were prepared, including the announcement of the merger.

Although a summary of the Forecasts is presented with numerical specificity, they reflect numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the Forecasts were prepared, taking into account the relevant information available to management at the time. However, this information is not fact and is not necessarily indicative of actual future results. Important factors that may affect actual results and cause the Forecasts not to be achieved include the

 

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accuracy of certain accounting assumptions and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy, liquidity, the sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund or redemption amounts, and changes in actual or projected cash flows, industry performance, performance of the Company’s funds, the net asset value of assets in certain of the Company’s funds, the raising of private equity and other capital, investment income, growth rate, net management margins, general business, economic, market, political, competitive and financial factors, changes in tax or other laws and other matters, all of which are difficult to predict and many of which are beyond the Company’s control. In addition, the Forecasts do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the merger. Accordingly, there can be no assurance that the assumptions made in preparing the Forecasts, or that any of the Forecasts, will be realized whether or not the merger is consummated, and actual results may be materially better or worse than those contained in the Forecasts.

The Forecasts should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in our public filings with the SEC.

It is expected that there will be differences between actual and projected results, and actual results may be materially greater or lesser than those contained in the Forecasts due to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Cautionary Statement Regarding Forward-Looking Statements” in this Proxy Statement and under the headings “Risk Factors” and the information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-K and 10-Q (see “Additional Information” beginning on page 132).

All projections, including the Forecasts, are forward-looking statements. These and other forward-looking statements in this Proxy Statement or otherwise issued by the Company are expressly qualified in their entirety by the risks and uncertainties detailed under the heading “Cautionary Statement on Forward-Looking Statements” in this Proxy Statement and in our filings with the SEC, including the risk factors included in the Company’s most recent Annual Report on Form 10-K, other documents of the Company on file with the SEC, and all factors and matters described or incorporated by reference in this Proxy Statement.

The inclusion of the Forecasts in this Proxy Statement should not be regarded as an indication that any of the Company, Parent, Merger Sub, Sponsor or their respective affiliates, advisors or other representatives considered or consider the Forecasts to be necessarily predictive of actual future events, and the Forecasts should not be relied upon as such. None of the Company, Parent, Merger Sub, Sponsor or any of their respective affiliates, advisors or other representatives has made or makes any representation to any person regarding the ultimate performance of the Company compared to the information contained in the Forecasts, and, except as required by applicable federal securities laws, the Company does not intend, and the Company expressly disclaims any responsibility, to update or otherwise revise or reconcile the Forecasts to reflect circumstances existing after the date the Forecasts were generated or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any or all of the assumptions underlying the Forecasts are shown to be in error.

The following tables show projected information, under different sets of assumptions, relating to the Company’s management fee-earning assets under management (“AUM”), which refers to the management fee paying assets we manage or co-manage, including, as applicable, capital we have the right to call from our investors pursuant to their capital commitments to various funds. In addition, AUM includes management fee paying assets managed by autonomous businesses in which we retain a minority interest. Our AUM equals the sum of: (i) the capital commitments or invested capital (or net asset value, “NAV,” if lower) of our private equity funds, private permanent capital vehicle through May 2015 and credit private equity funds, depending on which measure management fees are being calculated upon at a given point in time, which in connection with certain private equity funds includes the mark-to-market value of certain public securities held within the funds; (ii) the

 

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contributed capital or book equity (as defined) of our publicly traded permanent capital vehicles; (iii) the NAV of our hedge funds, including the Value Recovery Funds which pay fees based on realizations; (iv) the NAV or fair value of our managed accounts, to the extent management fees are charged; and (v) AUM of the funds related to Graticule Asset Management Asia (“Graticule”) and co-managed funds. For each of the foregoing, the amounts exclude assets under management for which we charge either no or nominal fees, generally related to our investments in our funds as well as investments in our funds by our principals, directors and employees. Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of AUM is not based on any definition of assets under management contained in the operating agreement or in any of the management agreements of the private investment funds, permanent capital vehicles and related managed accounts that we manage or co-manage. Finally, our calculation of AUM differs from the manner in which our affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways. Significantly, Regulatory Assets Under Management, unlike Management Fee Paying Assets Under Management, is not reduced by liabilities or indebtedness associated with assets under management and it includes assets under management and uncalled capital for which the Company receives no compensation.

The Forecasts include several financial and operating measures, including revenues and expenses, distributable earnings or pre-tax distributable earnings (“DE” or “Pre-Tax DE”) and fund management distributable earnings (“Fund Management DE”). DE or Pre-Tax DE refers to the supplemental operating measure used by Company management to assess the net performance of its business on a pre-tax basis. Fund Management DE is a supplemental measure of DE excluding the results of our fund investments and interest expense related to our debt and is used in computing our operating margin. DE, Pre-Tax DE and Fund Management DE are not measures of cash generated by operations which is available for distribution. Rather, they are supplemental measures of operating performance used by management in analyzing its segments and overall results.

Certain of the measures included in the Forecasts are considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies.

 

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Summary Financial Projections

($ in millions unless otherwise stated)

Low Case (6% Assets Under Management CAGR and 36% Average Margin)

 

     Fiscal year ending December 31,  
     2016A(1)     2017E(1)     2018E     2019E     2020E  

Fee-Paying AUM ($Bn)(2)

     69.7       76.5       80.8       84.6       88.2  

Management Fees

     551       541       539       526       503  

Incentive Income

     441       397       567       642       456  

Segment Revenues

     992       938       1,106       1,168       959  

Operating Expenses

     (438     (415     (365     (354     (355

Profit Sharing and PCP(3)

     (224     (223     (339     (394     (259

Total Expenses

     (662     (638     (705     (748     (614

Earnings from Graticule(4)

     15       15       7       6       5  

Fund Management DE

     345       315       409       427       349  

Net Investment Income

     17       116       25       21       22  

Pre-Tax DE

     362       431       434       448       371  

After-Tax DE(2)(5)

     272       339       309       324       279  

Additional Metrics used by Evercore(7)

          

Pre-Tax DE

       431       434       448       371  

Pre-Tax DE (net of incremental SBC)(8)

       416       419       433       356  

After-Tax DE (net of incremental SBC)(5)

       327       299       313       268  

Interest Expense

       6       2       3       4  

EBIT

       422       421       436       361  

Taxes

       (90     (121     (121     (90

EBIAT

       332       300       316       271  

Depreciation and Amortization(9)

       10       12       12       10  

CapEx(9)

       (10     (12     (12     (10

Unlevered Free Cash Flow(9)

       332       300       316       271  

Additional Metrics used by Morgan Stanley(11)

          

Fund Management DE

       315       409       427       349  

Pre-Tax Management Fee Related Earnings(12)

       129       178       175       149  

Pre-Tax Incentive Income(12)

       186       231       252       201  

After-Tax DE(5)

       339       309       324       279  

After-Tax Management Fee Related Earnings(6)

       94       127       127       112  

After-Tax Incentive Income(6)

       135       165       182       151  

 

(1) 2016A and 2017E values based on February 4, 2017 budget summary package prepared by Company management. The projected financial information provided to Parties A and B did not include such budget summary information, but instead included preliminary estimates for 2016 and 2017 that did not differ materially.
(2) The 2016A values for Fee-Paying AUM and After-Tax DE included in the Forecasts were subsequently revised by the Company in de minimis respects to account for rounding prior to inclusion in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(3) PCP from 2017E through 2020E includes equity component.
(4) Represents earnings from Graticule, an affiliated manager in which the Company has a 27% ownership share.
(5) Earnings taxed at 21% for 2017E, 29% for 2018E, 28% for 2019E and 25% for 2020E.
(6) Based on projections provided by management, Morgan Stanley calculated an effective tax rate for management fee related earnings and incentive income, which resulted in management fee related earnings and incentive income taxed at 23% for 2017E, 29% for 2018E, 28% for 2019E and 25% for 2020E. The effective tax rate for 2017E contains certain one-time items and, on an adjusted basis excluding such one-time items, the effective rate for 2017E was 27%.

 

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(7) Evercore calculated the values under this sub-heading based on Company management’s projections and guidance.
(8) Deducts incremental $15 million of stock-based compensation (“SBC”) expense.
(9) Depreciation and Amortization assumed to equal CapEx; 2017E CapEx determined per Company CapEx budget, 2018E through 2020E CapEx projected as a percentage of segment revenue.
(10) Assumes no change projected to net working capital.
(11) Morgan Stanley calculated the values under this sub-heading based on Company management’s projections.
(12) Graticule DE allocated to management fees and incentive income based on Company management’s projections.

Base Case (10% Assets Under Management CAGR and 40% Average Margin)

 

     Fiscal year ending December 31,  
     2016A(1)     2017E(1)     2018E     2019E     2020E  

Fee-Paying AUM ($Bn)(2)

     69.7       77.3       86.7       93.8       103.0  

Management Fees

     551       557       582       618       649  

Incentive Income

     441       567       829       1,008       769  

Segment Revenues

     992       1,123       1,412       1,627       1,418  

Operating Expenses

     (438     (429     (374     (378     (390

Profit Sharing and PCP(3)

     (224     (309     (497     (613     (445

Total Expenses

     (662     (738     (871     (991     (836

Earnings from Graticule(4)

     15       15       20       21       22  

Fund Management DE

     345       401       561       657       605  

Net Investment Income

     17       273       32       23       28  

Pre-Tax DE

     362       674       593       681       633  

After-Tax DE(5)

     272       538       411       470       444  

Additional Metrics used by Evercore(7)

          

Pre-Tax DE

       674       593       681       633  

Pre-Tax DE (net of incremental SBC)(8)

       659       578       666       618  

After-Tax DE (net of incremental SBC)(5)

       526       401       460       433  

Interest Expense

       6       2       3       4  

EBIT

       665       580       669       622  

Taxes

       (134     (178     (207     (186

EBIAT

       530       402       462       436  

Depreciation and Amortization(9)

       10       13       14       13  

CapEx(9)

       (10     (13     (14     (13

Unlevered Free Cash Flow(10)

       530       402       462       436  

Additional Metrics used by Morgan Stanley(11)

          

Fund Management DE

       401       561       657       605  

Pre-Tax Management Fee Related Earnings(12)

       131       214       246       264  

Pre-Tax Incentive Income(12)

       270       347       411       340  

After-Tax DE(5)

       538       411       470       444  

After-Tax Management Fee Related Earnings(6)

       91       148       170       185  

After-Tax Incentive Income(6)

       188       239       284       238  

 

(1) 2016A and 2017E values based on February 4, 2017 budget summary package prepared by Company management. The projected financial information provided to Parties A and B did not include such budget summary information, but instead included preliminary estimates for 2016 and 2017 that did not differ materially.
(2)

The 2016A values for Fee-Paying AUM and After-Tax DE included in the Forecasts were subsequently revised by the Company in de minimis respects to account for rounding prior to inclusion in the Company’s

 

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  Annual Report on Form 10-K for the year ended December 31, 2016. The 2017E value for Fee-Paying AUM was subsequently revised by the Company in de minimis respects and provided to Morgan Stanley, but not included in Morgan Stanley’s analysis.
(3) PCP from 2017E through 2020E includes equity component. The projected financial information provided to Parties A and B did not include such budget summary information, but instead included earlier 2016 and 2017 estimates.
(4) Represents earnings from Graticule, affiliated manager in which the Company has a 27% ownership share.
(5) Earnings taxed at 20% for 2017E, 31% for 2018E, 31% for 2019E and 30% for 2020E.
(6) Based on projections provided by management, Morgan Stanley calculated an effective tax rate for management fee related earnings and incentive income, which resulted in management fee related earnings and incentive income taxed at 25% for 2017E, 31% for 2018E, 31% for 2019E and 30% for 2020E. The effective tax rate for 2017E contains certain one-time items and, on an adjusted basis excluding such one-time items, the effective rate for 2017E was 30%.
(7) Evercore calculated the values under this sub-heading based on Company management’s projections and guidance.
(8) Deducts incremental $15 million of SBC expense.
(9) Depreciation and Amortization assumed to equal CapEx; 2017E CapEx determined per Company CapEx budget, 2018E through 2020E CapEx projected as a percentage of segment revenue.
(10) Assumes no change projected to net working capital.
(11) Morgan Stanley calculated the values under this sub-heading based on Company management’s projections.
(12) Graticule DE allocated to management fees and incentive income based on Company management’s projections.

High Case (14% Assets Under Management CAGR and 41% Average Margin)

 

     Fiscal year ending December 31,  
     2016A(1)     2017E(1)     2018E     2019E     2020E  

Fee-Paying AUM ($Bn)(2)

     69.7       79.3       92.5       103.9       119.8  

Management Fees

     551       560       623       708       799  

Incentive Income

     441       744       1,126       1,388       1,129  

Segment Revenues

     992       1,304       1,750       2,096       1,928  

Operating Expenses

     (438     (437     (390     (405     (429

Profit Sharing and PCP(3)

     (224     (423     (674     (841     (660

Total Expenses

     (662     (859     (1,064     (1,245     (1,089

Earnings from Graticule(4)

     15       15       35       39       44  

Fund Management DE

     345       460       721       890       883  

Net Investment Income

     17       273       32       23       28  

Pre-Tax DE

     362       734       753       913       912  

After-Tax DE(5)(6)

     272       574       512       616       619  

Additional Metrics used by Evercore(7)

          

Pre-Tax DE

       734       753       913       912  

Pre-Tax DE (net of incremental SBC)(8)

       719       738       898       897  

After-Tax DE (net of incremental SBC)(5)

       562       502       606       609  

Interest Expense

       6       2       3       4  

EBIT

       725       740       902       901  

Taxes

       (158     (237     (294     (289

EBIAT

       567       503       608       612  

Depreciation and Amortization(9)

       10       13       16       15  

CapEx(9)

       (10     (13     (16     (15

Unlevered Free Cash Flow(10)

       567       503       608       612  

 

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     Fiscal year ending December 31,  
     2016A(1)      2017E(1)      2018E      2019E      2020E  

Additional Metrics used by Morgan Stanley(11)

              

Fund Management DE

        460        721        890        883  

Pre-Tax Management Fee Related Earnings(12)

        126        241        312        380  

Pre-Tax Incentive Income(12)

        333        480        578        503  

After-Tax DE(5)

        574        512        616        619  

After-Tax Management Fee Related Earnings(6)

        87        163        211        258  

After-Tax Incentive Income(6)

        228        326        390        341  

 

(1) 2016A and 2017E values based on February 4, 2017 budget summary package prepared by Company management. The projected financial information provided to Parties A and B did not include such budget summary information, but instead included preliminary estimates for 2016 and 2017 that did not differ materially.
(2) The 2016A values for Fee-Paying AUM and After-Tax DE included in the Forecasts were subsequently revised by the Company in de minimis respects to account for rounding prior to inclusion in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(3) PCP from 2017E through 2020E includes equity component.
(4) Represents earnings from Graticule, an affiliated manager in which the Company has a 27% ownership share.
(5) Earnings taxed at 22% for 2017E, 32% for 2018E, 33% for 2019E and 32% for 2020E.
(6) Based on projections provided by management Morgan Stanley calculated an effective tax rate for management fee related earnings and incentive income, which resulted in management fee related earnings and incentive income taxed at 26% for 2017E, 32% for 2018E, 33% for 2019E and 32% for 2020E. The effective tax rate for 2017E contains certain one-time items and, on an adjusted basis excluding such one-time items, the effective rate for 2017E was 32%.
(7) Evercore calculated the values under this sub-heading based on Company management’s projections and guidance.
(8) Deducts incremental $15 million of SBC expense.
(9) Depreciation and Amortization assumed to equal CapEx; 2017E CapEx determined per Company CapEx budget, 2018E through 2020E CapEx projected as a percentage of segment revenue.
(10) Assumes no change projected to net working capital.
(11) Morgan Stanley calculated the values under this sub-heading based on Company management’s projections.
(12) Graticule DE allocated to management fees and incentive income based on Company management’s projections.

Regulatory Approvals and Related Matters

Generally

The Company, Parent, Merger Sub and Sponsor have agreed to use their best efforts to comply with all regulatory notification requirements and obtain all regulatory approvals required to consummate the merger and the other transactions contemplated by the merger agreement. Furthermore, Parent has agreed (at its sole cost and expense) to use its best efforts to avoid, resist, resolve or, if necessary, defend, any legal proceeding or other action instituted by a governmental or regulatory authority challenging the validity or legality of or otherwise seeking to restrain the consummation of the merger or any of the other transactions contemplated by the merger agreement. At its sole cost and expense, Parent must also, to the extent necessary to resolve or eliminate any concerns on the part of any governmental authority: (i) resist fully, vigorously and in good faith (including by the institution or defense of legal proceedings) any order of a governmental authority that could restrain, prevent or delay the merger and the other transactions contemplated by the merger agreement; (ii) propose and enter into good faith negotiations regarding the sale, divestiture, license or holding separate of assets, operations, businesses, divisions or customers; and (iii) promptly take and diligently pursue all other actions necessary to avoid or eliminate each and every impediment to the consummation of the merger that may be asserted by any governmental body or any other person.

 

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The notifications and approvals required to consummate the merger and the other transactions contemplated by the merger agreement include the expiration or termination of the applicable waiting period under the HSR Act and certain foreign competition authorities, the CFIUS clearance, the ITAR pre-notification requirement and approval from the UK Financial Conduct Authority, the Financial Industry Regulatory Authority, the Bank of Italy and the European Central Bank (each as further described below). Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger.

HSR Act and U.S. Antitrust Matters

Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission, the merger cannot be completed until the Company and Parent each file a notification and report form with the Federal Trade Commission and the Antitrust Division of the Department of Justice and the applicable waiting period thereunder has expired or been terminated. The Company and Parent filed their respective HSR Act notifications on April 21, 2017.

At any time before or after consummation of the merger, notwithstanding the expiration or termination of the applicable waiting period under the HSR Act, the Antitrust Division of the Department of Justice or the Federal Trade Commission could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the expiration or termination of the applicable waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

Global Antitrust Matters

In addition to antitrust approval in the U.S., the merger is also subject to approvals from the competition authorities in the European Union, Canada and Japan. Approval in Canada was obtained on May 2, 2017, and the parties have filed notices with the Japanese Fair Trade Commission on April 25, 2017 and the European Commission on May 19, 2017.

If during its respective investigation the Japanese Fair Trade Commission or the European Commission finds that the merger raises competition concerns, such authority may decide to impose remedies, such as divestitures of assets or other changes in the parties’ operations. If the relevant antitrust authority finds that any remedies offered by the parties during the authority’s initial “Phase I” investigation do not eliminate the competition concerns identified, the authority may decide to open an in-depth “Phase II” investigation, which could add several months to the review process.

CFIUS

Under the terms of the merger agreement, the merger cannot be completed until the Company and Parent obtain the CFIUS clearance under Section 721 of Title VII of the Defense Production Act of 1950, as amended (the “DPA”). For purposes of the merger agreement, “CFIUS clearance” means that any of the following have occurred: (a) the 30 day review period under the DPA commencing on the date that the parties’ joint voluntary notice is accepted by CFIUS has expired and the parties have received written notice from CFIUS that such review has been concluded and that either the transactions contemplated by the merger agreement do not constitute a “covered transaction” under the DPA or there are no unresolved national security concerns; (b) an investigation has commenced after such 30 day review period and CFIUS has determined to conclude all

 

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deliberative action under the DPA without sending a report to the President of the United States, and the parties have received written notice from CFIUS that either the transactions contemplated by the merger agreement do not constitute a “covered transaction” under the DPA or there are no unresolved national security concerns, and all action under the DPA is concluded with respect to the transactions contemplated by the merger agreement; or (c) CFIUS has sent a report to the President of the United States requesting the President’s decision and either (i) the period under the DPA during which the President may announce his decision to take action to suspend, prohibit or place any limitations on the transactions contemplated by the merger agreement has expired without any such action being threatened, announced or taken or (ii) the President has announced a decision not to take any action to suspend, prohibit or place any limitations on the transactions contemplated by the merger agreement.

Each of the Company, Parent and Merger Sub have agreed to use their best efforts to obtain the CFIUS clearance. Such best efforts include working cooperatively to file a joint voluntary notice with the Committee on Foreign Investment in the United States (“CFIUS”). Upon the acceptance of such a notice, CFIUS will initiate a 30 calendar day review period, at the end of which, if it determines that there are no unresolved national security concerns, it will conclude all action under the DPA. If CFIUS determines that additional review is required, it will commence a 45 calendar day investigation no later than the end of the initial 30 day review period. If at the end of the investigation CFIUS has no unresolved national security concerns it will conclude all action under the DPA. At the conclusion of such investigation, if CFIUS has unresolved national security concerns, it will send a report to the President of the United States, who may act to suspend or prohibit the transaction. At any time during the course of CFIUS review or investigation, CFIUS may request that the parties take actions to mitigate any national security concerns it has identified. Where CFIUS has completed all action with respect to the transaction or the President of the United States has announced a decision not to exercise his authority under the DPA with respect to the transaction, then the parties will have the benefit of a “safe harbor” against further action by the President or CFIUS with respect to the transaction.

ITAR

Each of the Company, Parent and Merger Sub agree to use their best efforts and cooperate with each other so that the Company can submit a notice (the “ITAR pre-notification requirement”) to the U.S. Department of State Directorate of Defense Trade Controls at least 60 days in advance of the closing date, as provided for in 22 C.F.R. § 122.4(b) and DDTC’s 60-Day Notice Guidance.

Bank Regulatory Matters

For certain bank regulatory purposes, the Company is deemed to own interests in two U.S. banks: Opus Bank and AloStar Bank of Commerce. The parties have agreed that none of the Company, its subsidiaries, Parent, Sponsor, or any of their respective affiliates, will take any action that would reasonably be expected to cause the Company, its subsidiaries, Parent, Sponsor, or any of their respective affiliates, to (a) become a “bank holding company” as defined in the Bank Holding Company Act of 1956 (the “BHC Act”) or (b) be deemed to control, as defined in the BHC Act, Opus Bank or AloStar Bank of Commerce. The parties have also agreed, to the extent required by law or regulation and subject to the terms of the merger agreement, to make certain filings, notices, and applications and “passivity commitments” with federal and state banking regulators, and to obtain prior non-objection of the Federal Deposit Insurance Corporation under the Change in Bank Control Act, in connection with the indirect ownership interests in Opus Bank and AloStar Bank of Commerce.

Financial Conduct Authority

Section 178 of the U.K. Financial Services and Markets Act 2000 (the “FSMA”) requires Parent (or any other potential controllers in Parent’s group, to the extent required) to give notice to the Financial Conduct Authority (the “FCA”) of their intention to acquire control of Fortress Investment Group (UK) Ltd or Drawbridge (UK) LLP (the “Fortress FCA-authorized entities”), wholly owned subsidiaries of the Company that are registered with the FCA. Section 191F(2) of the FSMA requires Parent and any other relevant person to

 

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obtain the FCA’s approval of the acquisition of control before the transaction is closed. Section 191D of the FSMA obliges any person with an existing threshold interest in the Fortress FCA-authorized entities to give the FCA prior notice if as a result of the transaction their holding would move below certain thresholds. Any failure to give the FCA required notice under section 178 FSMA and any acquisition of control by a proposed controller during the FCA assessment period without FCA prior approval are both criminal offenses under the FSMA. In addition, any failure by an existing controller to give prior notice of an intended reduction in their holding below specific thresholds is also a criminal offense. Finally, a failure by the Fortress FCA-authorized entities to make the relevant notification to the FCA under the FCA’s rules could result in FCA action being taken against the Fortress FCA-authorized entities.

Completion of the merger is subject to the receipt of FCA approval.

FINRA Notices and Filings

The Company also must file applications and notices to FINRA in connection with the indirect change in control, as a result of the merger, of the Company’s SEC registered broker-dealer subsidiary.

Bank of Italy and European Central Bank

Under Article 15 of the Italian Financial Act and Article 19 of the Italian Banking Act, as applicable, the consummation of the transactions contemplated by the merger agreement with respect to Torre SGR and Italfondario, each of which is an Italian regulated entity and portfolio company of the Company funds, requires the approval of the Bank of Italy, following the relevant separate filings. In addition, the consummation of the transactions contemplated by the merger agreement with respect to doBank, an Italian bank being also a portfolio company of the Company funds, requires the approval of the European Central Bank — following the submission of the relevant filings to the Bank of Italy (which assist the European Central Bank in the authorization procedure) — under Articles 4 and 15 of the Council Regulation (EU) No. 1024/2013 of 15 October 2013.

Interests of the Directors and Executive Officers of the Company in the Merger

When considering the recommendation of the Board of Directors that you vote for the proposal to adopt the merger agreement, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder. The Special Committee was aware of these interests and considered them, among other matters, in evaluating and overseeing the negotiation of the merger agreement, and in recommending that the Board of Directors approve the merger agreement and the merger. The Board of Directors was also aware of these interests in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the Company’s shareholders.

For purposes of this Proxy Statement, our “named executive officers” consist of (i) Peter L. Briger, Jr., our Principal, (ii) Wesley R. Edens, our Principal, (iii) Randal A. Nardone, our Principal and Chief Executive Officer, (iv) Daniel N. Bass, our Chief Financial Officer, and (v) David N. Brooks, our Vice President, General Counsel and Secretary.

The compensation that will or may become payable to our named executive officers in connection with the merger is subject to a non-binding, advisory vote of the Company’s shareholders, as described below under “Proposal Number Three: Advisory (Non-Binding) Vote on Compensation” beginning on page 127.

Additionally, the merger agreement provides for continued indemnification and directors’ and officers’ liability insurance for the directors and officers of the Company and its subsidiaries. For a description of this continued liability insurance, see “The Merger Agreement — Additional Agreements — Indemnification of Officers and Directors” beginning on page 106.

 

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Treatment of Company RSUs

The merger agreement provides that each Company RSU, whether vested but not yet delivered or unvested, that is outstanding immediately prior to the effective time of the merger, including each Company RSU held by our named executive officers, will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company RSU to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes.

If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

Certain Company RSUs are entitled to receive dividends. Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

The following table summarizes the outstanding unvested Company RSUs held by the named executive officers as of May 19, 2017 and the consideration that each of them may become entitled to receive in respect of those Company RSUs, assuming (i) continued employment or service as an executive officer or director, as applicable, through the closing of the merger, (ii) per-share merger consideration of $8.08 and (iii) solely for the purposes of this table, the closing of the merger occurred on May 19, 2017. No Company RSUs are currently held by our non-employee directors. In the case of Messrs. Bass and Brooks, the number of RSUs in the following table does not include vested but undelivered RSUs.

 

Named Executive Officers

   Restricted Stock
Units (#)
     Total
Payment ($)
 

Peter L. Briger, Jr.

     670,967      $ 5,421,413  

Wesley R. Edens

     173,421      $ 1,401,242  

Randal A. Nardone

     115,614      $ 934,161  

Daniel N. Bass

     398,080      $ 3,216,486  

David N. Brooks

     327,230      $ 2,644,018  

In addition, under the merger agreement, the Company will use reasonable best efforts to require certain senior employees of the Company, including Messrs. Bass and Brooks, to reinvest 50% of the after-tax proceeds that they receive in respect of the cancellation of Company RSUs in certain specified investment alternatives. The invested amounts will generally be subject to vesting on the same date on which the related Company RSUs would have become vested, subject to earlier vesting upon a termination other than for cause (as determined by the Company in accordance with past practice) or as a result of the senior employee’s death or disability.

Treatment of Company Restricted Shares

Each Company Restricted Share that is outstanding and unvested immediately prior to the effective time of the merger will be cancelled and converted as of the effective time of the merger into the right of the holder of the Company Restricted Share to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes.

If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

Michael G. Rantz, a member of the Board of Directors, currently holds 20,380 Company Restricted Shares, which represent a portion of the restricted shares granted to him when he joined the Board of Directors. The total

 

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value of those Company Restricted Shares is $164,670.40, based on the per-share merger consideration of $8.08. None of our other named executive officers or directors currently holds any unvested Company Restricted Shares.

Company Restricted Shares are entitled to receive dividends. Under the terms of the merger agreement, during the period prior to the closing date, the Company is permitted to declare and pay up to two regular quarterly dividends in an amount not to exceed $0.09 per dividend-paying share (which includes the Company Restricted Shares and certain Company RSUs) per quarter. For more information concerning the payment of dividends, see “Market Prices and Dividend Data” beginning on page 128. The Board declared one such regular quarterly dividend on March 1, 2017 of $0.09 per dividend-paying share which was paid on March 21, 2017 to holders of record as of March 15, 2017. The Board declared a second such regular quarterly dividend on May 9, 2017 of $0.09 per dividend-paying share which will be paid on May 26, 2017 to holders of record as of May 22, 2017.

Founders Agreement

Concurrently with the entry into the merger agreement, Parent, the Company, FIG Corp., FIG Asset Co. LLC and the Principals and their related entities and persons that own FOG units entered into the founders agreement, pursuant to which FIG Corp. and FIG Asset Co. LLC agreed, on the terms and subject to the conditions set forth in the founders agreement, to purchase from the Principals and their related entities and persons that own FOG units 100% of the FOG units that are not already owned by the Company and its subsidiaries. The founders agreement provides that FIG Corp. and FIG Asset Co. LLC will acquire each such FOG unit in exchange for $8.08 in cash, for an aggregate consideration payable to holders of such FOG units of $1.37 billion, subject to reduction for distributions made to the Principals and their related entities and persons that own FOG units with respect to their FOG units to the extent the aggregate amount of such distributions following February 14, 2017 is in excess of the amount required to yield the two $0.09 quarterly distributions permitted by the merger agreement. For more information concerning the payment of dividends and distributions with respect to FOG units, see “Market Prices and Dividend Data” beginning on page 128. The purchase price will be funded by Parent to FIG Corp. and FIG Asset Co. LLC pursuant to a series of loans, contributions and other intercompany transactions, which will each occur immediately before or immediately after the effective time of the merger. The transactions contemplated by the founders agreement are conditioned on satisfaction or waiver of the conditions in the merger agreement and any transactions occurring under the founders agreement prior to the closing under the merger agreement will be unwound if the merger does not close.

At the founders closing, 50% of the after-tax proceeds (as calculated pursuant to certain tax rates and principles agreed upon by the parties) received by each of the Principals and the other Sellers as consideration for their respective FOG units will be placed into an escrow account established for each such Seller. The parties have agreed that for a period of time following the founders closing and subject to the terms and conditions set forth in the founders agreement, all such escrowed proceeds will be invested by the Principals and the other Sellers in Permitted Investments.

The founders agreement also contains requirements on the part of each Principal and the other Sellers to maintain for a period of time the Reinvestment Amount invested in Seller Investments. The economic and other terms that apply to an investment by a Principal and the other Sellers in a Company Vehicle immediately prior to the date of the founders agreement will generally continue to apply to the investments of the escrowed proceeds and Reinvestment Amount in Company Vehicles (other than FEP as specifically provided pursuant to the founders agreement) for the duration of such investments and whether or not such Principal remains employed by the Company and/or its subsidiaries, including that such investments by a Seller (other than FEP as specifically provided pursuant to the founders agreement) will not be subject to any management fees or similar asset-based fees or charges, promote, incentive allocation, carried interest, or similar performance-based charges; provided, each Principal and the other Sellers will pay customary management fees or similar asset-based fees or charges, as reasonably determined by the Board, with respect to any amounts invested in any Company Vehicle that is not an Existing Foundation Fund (as defined in the founders agreement) (and other than FEP as specifically provided pursuant to the founders agreement) the majority of whose invested capital is beneficially owned by any combination of the Sellers, seller investment entities, employees of the business, and their respective related parties.

 

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Upon a Principal’s termination by the employer or a Principal’s resignation for “good reason” (as described below), or termination due to his death or disability, the escrowed proceeds will be released to such Principal and his Seller Group and such Principal and his Seller Group will no longer be required to maintain the Reinvestment Amount invested in Seller Investments.

Among other things, the founders agreement also contains certain customary restrictive covenants with respect to non-competition, non-solicitation of employees and non-solicitation of investors during the period of the Principals’ employment with the Company and for the 24-month period immediately following termination of such employment for any reason. The restrictive covenants are generally consistent with the existing restrictions applicable to each Principal under his respective current employment agreement with FIG LLC subject to certain exceptions.

The founders agreement also provides that each Principal will have the right to sit on the board of directors of the Company following the closing for so long as such Principal is employed by the Company or any of its subsidiaries.

As used herein, “good reason” means, with respect to any Principal, among other things, in each case without such Principal’s written consent and subject to certain exceptions, (i) a reduction of the Principal’s base salary, incentive compensation opportunities or certain ancillary benefits (including family office overhead expense); (ii) a relocation of the Principal’s principal place of employment to a different metropolitan area; (iii) a material diminution in the Principal’s title, authority, duties, or responsibilities; (iv) a failure to appoint the Principal to a board of directors (or similar governing body), if any, of any subsidiary of the Company or on any of the respective committees thereof, if requested; (v) a breach by the Company of any payment obligation to the Principal under the TRA or any other material breach by the Company of any term of the TRA; (vi) a failure to permit the Principal to receive certain tax distribution payments under the founders agreement; (vii) an amendment, modification or termination of the PCP in any way adverse to the Principal; (viii) certain changes in control of the Company; or (ix) a diminution in or interference with the Principal’s supervision and authority over his applicable business segment (subject to certain Board oversight and certain specified matters reserved for Board approval), which includes a material disagreement by the Board with respect to material compensation proposals by the Principals if such compensation proposal is consistent with past practice.

For a more detailed description of the founders agreement, please see “Founders Agreement” beginning on page 118.

Amended and Restated Employment Agreements with the Principals

In connection with his execution of the founders agreement, each of the Principals entered into an Amended and Restated Employment, Non-Competition, and Non-Solicitation Agreement with FIG LLC, an operating subsidiary of the Company. The employment agreements will become effective on and subject to the founders closing and will have an initial term of five years, which will automatically renew for additional one-year periods unless a notice of nonrenewal is delivered by either party at least 90 days prior to the expiration of the then-current term. During the term of his employment agreement, each Principal will serve as a principal of the employer, with duties consistent with those he presently has, and as a director and officer of the Company, the employer, and their subsidiaries.

The employment agreements provide each Principal with an annual base salary of $200,000, participation in the employer’s health and welfare benefits offered to employees at the Principals’ level, and four weeks of paid time off. The employment agreements also provide that the Principals shall continue to be provided with the following benefits and entitlements on a basis consistent with such benefits and entitlements as of immediately prior to the founders closing: expense reimbursements; the right to make investments, on a fee- and promote-free basis, in Company Vehicles (as defined in the founders agreement), except as otherwise provided in the founders agreement; the right to use the services of the employer’s employees whose primary responsibility is to provide services to each Principal’s family office (with each Principal reimbursing the Company for all out-of-pocket personnel costs and expenses of such employees in accordance with the founders agreement); and

 

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indemnification rights. Other than with respect to the addition of “good reason” resignation provisions (as described above), these economic arrangements under the employment agreements are consistent in all material respects with the arrangements currently in place with the Principals.

Upon a Principal’s termination by the employer without “cause” (as described below) or a Principal’s resignation for “good reason” (as described above), such Principal will be entitled to receive, upon execution and non-revocation of a release of claims, a lump-sum severance benefit equal to three times the Principal’s then-current base salary. Prior to amendment and restatement in connection with the transactions, the Principals’ employment agreements did not contain “good reason” resignation provisions. As used herein, “cause” means, with respect to any Principal, (i) the willful engaging by such Principal in illegal or fraudulent conduct or gross misconduct which, in each case, is materially and demonstrably injurious (A) to the Company or certain of its subsidiaries, (B) to the reputation of such Principal, the Company or certain of its subsidiaries, or (C) to the Company’s material funds or businesses; (ii) a conviction of a felony or guilty or nolo contendere plea by such Principal with respect thereto; or (iii) a material breach by such Principal of the non-competition or non-solicitation covenants contained in the founders agreement or of his employment agreement (subject to certain rights to cure any such breach, if curable).

The employment agreements contain customary confidentiality, intellectual property, and non-disparagement covenants, and also incorporate the non-competition and non-solicitation covenants contained in the founders agreement.

The foregoing summary of the employment agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the employment agreements, filed as Exhibits 10.2, 10.3 and 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2017 and incorporated herein by reference.

Second Amended and Restated Principal Compensation Plan

In connection with entering into the founders agreement, the PCP will be further amended and restated, effective as of and subject to the founders closing, to make certain clarifying and conforming changes. The PCP is intended to operate following the founders closing in a manner that is substantially identical to the manner in which it currently operates, with certain changes noted below:

Under the PCP, the Principals will continue to receive annual payments based on their respective success in raising and investing new and existing funds and the performance of the Company funds during a given fiscal year and, for the credit hedge fund business, on the performance of the existing AUM of the Company’s flagship hedge funds during a given year (“performance payments”).

Performance payments will be payable as cash distributions in respect of nominal equity interests that the Principals will continue to hold after the founders closing in Fortress Operating Entity I LP, FOE II (NEW) LP and Principal Holdings I LP, the limited partnerships through which the Company conducts its business. (Prior to this amendment, performance payments consisted of a mix of cash and equity-based compensation, with the equity component becoming larger as performance, and the size of the payments, increased.) Performance payments will be calculated using existing formulas. Specifically, the PCP calls for payments of, for the private equity business: (1) 20% of the fund management distributable earnings above a threshold for permanent capital vehicles existing at January 1, 2012, as well as (2) 20% of the fund management distributable earnings of new AUM in new businesses (formed after January 1, 2012); and for the credit business: (1) 20% of the incentive income earned from existing flagship hedge fund AUM at January 1, 2012, as well as (2) 20% of fund management distributable earnings for new flagship hedge fund AUM and 20% of the fund management distributable earnings of new AUM in new businesses (formed after January 1, 2012).

Upon a Principal’s termination without “cause” or resignation for “good reason” (each as described above), or termination due to his death or disability, such Principal will be entitled to the payment to which he otherwise would have been entitled with respect to hedge funds and permanent capital vehicles under the PCP for the full

 

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year in which he was terminated, subject to execution of a satisfactory release of claims. (Prior to its amendment and restatement, the PCP did not contain a “good reason” resignation concept.) In addition, following any termination, a Principal will be entitled to receive and retain his vested portion of any net promote granted in respect of incentive fees on private equity funds and permanent capital vehicles.

The PCP also clarifies that each Principal will be a participant in (and receive an award under) the PCP during each fiscal year, as long as the Principal is employed on the first day of such fiscal year. The PCP no longer requires a Principal to reinvest 50% of the after-tax portion of cash proceeds received under the PCP in the Company’s investment funds, because the Principals are subject to new escrow and reinvestment requirements in the founders agreement.

The foregoing summary of the PCP does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the PCP, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2017 and incorporated herein by reference.

Employment Letter Agreements with Messrs. Bass and Brooks

We entered into employment letter agreements with Messrs. Bass and Brooks, which are dated January 25, 2007 and February 13, 2007, respectively. No changes were made to these agreements in connection with the merger agreement or the merger.

These agreements provide that, in the event that either Mr. Bass or Mr. Brooks is terminated without “cause,” he will be entitled to be paid certain amounts in respect of his profits interests in the Company’s funds in the calendar year in which he was terminated. The amount that would be due upon such a termination is dependent on the performance of the underlying Company funds. In addition, Messrs. Bass and Brooks would each potentially be entitled to accelerated vesting of certain profits interests in Company funds upon a termination of his respective employment without “cause,” although such acceleration would not involve the payment of any cash amounts at the time of termination.

Messrs. Bass and Brooks are not entitled to any other payments or benefits from the Company upon a termination of their employment occurring after the closing of the merger. “Cause” is defined for purposes of these provisions as the commission by Mr. Bass or Mr.  Brooks of an act of fraud or dishonesty, or the failure to perform their duties, in each case, in the course of their employment.

TRA Waiver Agreement

Under the existing TRA between the Principals, FIG Corp. and certain other parties, the Principals are entitled to receive certain payments from FIG Corp. equal to a percentage of the future tax benefits that FIG Corp. realizes as a result of certain transactions, including the Principals’ exchange of FOG units for Class A shares of the Company. In connection with entering into the merger agreement, on February 14, 2017, FIG Corp. entered into the TRA waiver agreement with certain other subsidiaries of the Company and the Principals, effective as of and subject to the occurrence of the founders closing, pursuant to which the Principals waive their rights to receive any payments under the TRA arising out of the transactions contemplated by the founders agreement and other transactions occurring after February 14, 2017. Under the TRA waiver agreement, the Principals have also agreed to amend certain key tax assumptions that affect the timing and amount of future payments to be received by the Principals with respect to transactions that occur prior to the founders closing (“Pre-Transaction Exchanges”). Subject to those amendments, future payments under the TRA attributable to Pre-Transaction Exchanges will generally continue to be contingent on FIG Corp. having sufficient future operating income to utilize the applicable tax benefits. In addition, under the TRA waiver agreement, the aggregate amount of a Principal’s future payments under the TRA will be capped at such Principal’s pro rata share of the liability for such payments recorded on the Company’s audited consolidated financial statements for the year ending December 31, 2016. The waivers and amendments provided for in the TRA waiver agreement will generally have the effect of reducing and/or deferring the payments to which the Principals would otherwise have been entitled under the TRA.

 

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The foregoing summary of the TRA waiver agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the TRA waiver agreement, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2017 and incorporated herein by reference.

Indemnification

In the merger agreement, Parent has agreed that all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger existing in favor of the current or former directors, officers or employees of the Company and its subsidiaries as provided in the organizational documents of the Company and its subsidiaries and/or any indemnification or similar agreement with the Company or any of its subsidiaries shall continue in full force and effect after the closing of the merger. Parent has further agreed that all such rights to indemnification shall be mandatory rather than permissive. After the merger, subject to certain limitations relating to the maximum amount that the Company shall be required to spend on such insurance, the Company has also agreed to cause to be maintained the current policies of director and officer indemnification insurance or to purchase a director and officer insurance tail policy.

Golden Parachute Compensation

In accordance with Item 402(t) of Regulation S-K of the Securities Act, the table below sets forth the compensation that is based on or otherwise relates to the merger that will or may become payable to each of our named executive officers in connection with the merger, as described further in this “Interests of the Directors and Executive Officers of the Company in the Merger” section. The following table does not include any amounts that are payable to the named executive officer irrespective of the closing of the merger.

The amounts in this table assume that (i) each named executive officer continues in employment through the closing of the merger, (ii) the per-share merger consideration is $8.08 and (iii) solely for the illustrative purposes of this table, the closing of the merger occurred on May 19, 2017.

The amounts in the table are estimates based on certain assumptions that are described in the preceding paragraph and in the footnotes that accompany the table. Accordingly, the ultimate values to be received by a named executive officer in connection with the merger may materially differ from the amounts set forth below.

Golden Parachute Compensation

 

Name

   Equity ($)(1)      Total ($)  

Peter L. Briger, Jr.

   $ 5,421,413      $ 5,421,413  

Wesley R. Edens

   $ 1,401,242      $ 1,401,242  

Randal A. Nardone

   $ 934,161      $ 934,161  

Daniel N. Bass

   $ 3,216,486      $ 3,216,486  

David N. Brooks

   $ 2,644,018      $ 2,644,018  

 

(1) Represents the value of all outstanding unvested Company RSUs held by the named executive officer as of May 19, 2017, each of which will become vested solely as a result of the merger (a “single-trigger” arrangement), based on the per-share merger consideration of $8.08. In the case of Messrs. Bass and Brooks, the number does not include vested but undelivered RSUs.

Financing of the Merger

We anticipate that the total amount of funds necessary to complete the merger and the transactions contemplated by the merger agreement will be approximately $3.4 billion, including the funds needed to:

 

    pay our shareholders the amounts due to them under the merger agreement;

 

    fund the purchase price payable under the founders agreement, as described under “Founders Agreement” beginning on page 118;

 

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    pay other amounts that may become payable in connection with the transactions contemplated by the merger agreement; and

 

    pay all fees and expenses of the Company under the merger agreement and in connection with the transactions contemplated by the merger agreement, including the merger.

This total amount will be funded through equity financing under the equity commitment letter. Pursuant to the equity commitment letter, Sponsor has committed to purchase, directly or indirectly, equity securities of Parent for approximately $3.4 billion at or prior to the closing of the merger and the transactions contemplated by the merger agreement and the founders agreement.

We believe the amounts committed under the equity commitment letter will be sufficient to complete the transactions contemplated by the merger agreement, but we cannot assure you that the full amounts committed under the equity commitment letter will be available to complete the merger.

Under the equity commitment letter, Sponsor’s obligation to fund the equity commitment is subject to the following conditions:

 

    the execution and delivery of the merger agreement by the Company;

 

    the satisfaction or waiver of all conditions precedent to the closing of the merger set forth in the merger agreement other than conditions that, by their nature, are to be satisfied at the closing or are validly waived by Parent at the closing (see “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 109 for a description of these conditions);

 

    the execution and delivery of the founders agreement by the Company, FIG Corp. and FIG Asset Co. LLC and Sellers; and

 

    the satisfaction or waiver of all conditions precedent to the closing of the transaction under the founders agreement set forth in the founders agreement other than conditions that, by their nature, are to be satisfied at the closing of the transactions contemplated by the founders agreement or are validly waived by Parent at the closing of the transactions contemplated by the founders agreement (see “Founders Agreement” beginning on page 118 for a description of these conditions).

The Company and the Principals (in respect of the obligations under the founders agreement) are express third-party beneficiaries of the equity commitment letter and the Company has the right to seek specific performance of Parent’s obligation to cause Sponsor to fund its equity financing commitment, solely in the event that the Company is awarded specific performance compelling Parent to consummate the merger in accordance with the terms of the merger agreement as described under “The Merger Agreement — Specific Performance” beginning on page 114.

The obligation of Sponsor to fund its equity commitment will terminate automatically and immediately upon the earliest to occur of, among other things:

 

    the completion of the transactions contemplated by each of the merger agreement and the founders agreement;

 

    the valid termination of each of the merger agreement and the founders agreement in accordance with the respective terms thereof;

 

    the assertion by the Company or any of its affiliates, directly or indirectly, of any claim against Sponsor or any of its affiliates, other than a claim by the Company: (a) permitted by the limited guarantee; (b) against Parent, Merger Sub, FIG Corp. or FIG Asset Co. LLC, to the extent permitted by the merger agreement or the founders agreement; or (c) exercising its third-party beneficiary rights pursuant to the equity commitment letter; and

 

    the funding of the equity commitment by Sponsor contemplated by the equity commitment letter.

In addition, the equity commitment letter contains customary provisions for documents of this type restricting the Company and its affiliates from bringing claims against Sponsor or any of its affiliates other than claims under the equity commitment letter and limited guarantee.

 

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Additionally, pursuant to the merger agreement, we have agreed that as promptly as practicable, but in no event for a period longer than eight weeks from the date of the merger agreement (the “equity syndication period”), Parent and its affiliates may solicit, negotiate and enter into investment agreements with potential equity investors in Parent (the “equity syndication”). The merger agreement provides that no equity investor may be included in the equity syndication if its investment would reasonably be expected to result in, among other things, (i) additional conditionality to the closing, (ii) any delay of the closing (other than as a result of the permitted equity syndication period) or (iii) any adverse impact on the likelihood of receiving any consents or approvals in connection with the contemplated transactions. Notwithstanding the equity syndication, the equity commitment letter will remain in full force and effect, and the equity syndication will not in any way reduce or otherwise limit the aggregate commitment or liability of Sponsor under the equity commitment letter or any obligations or liability of Sponsor under the limited guarantee. Parent and Merger Sub have agreed to (i) reimburse the Company for any out-of-pocket costs incurred by the Company and its subsidiaries in connection with any equity syndication and (ii) indemnify the Company and its subsidiaries and affiliates from and against any liabilities, costs, expenses, judgments or penalties incurred by them in connection with any equity syndication. At the completion of the equity syndication period, Parent had not entered into any investment agreements with any potential equity investors. For more information about the equity syndication, see “The Merger Agreement — Additional Agreements — Equity Syndication” beginning on page 108.

Limited Guarantee

Pursuant to the limited guarantee, Sponsor absolutely, unconditionally and irrevocably guarantees to the Company and the Sellers the following:

 

    all payment obligations of Parent or Merger Sub under the merger agreement;

 

    all payment obligations of Parent, FIG Corp. and FIG Asset Co. LLC under the founders agreement;

 

    all liabilities and damages payable by Parent or Merger Sub under the merger agreement; and

 

    all liabilities and damages payable by Parent under the founders agreement (the items described in these first four bullets collectively, the “liability payment events”); or

 

    the obligation of Sponsor as contemplated by the equity commitment letter to fund an amount equal to the total amount of funds necessary to complete the merger and the transactions contemplated by each of the merger agreement and the founders agreement in the event, and only in the event, that specific performance with respect to Parent’s obligation to consummate the transactions contemplated by the merger agreement or the founders agreement is awarded against Parent, in a judicial determination pursuant to the express terms of the merger agreement and the founders agreement (the “specific performance event”).

Sponsor’s obligations with respect to the liability payment events and the specific performance event are mutually exclusive and in no event will Sponsor be liable for obligations in respect of both the liability payment events and the specific performance event, subject to certain exceptions. Additionally, Sponsor’s aggregate liability under the limited guarantee is subject to a cap not to exceed an aggregate of approximately $3.4 billion with respect to any and all payments payable by Sponsor pursuant to the terms of the limited guarantee.

Pursuant to the limited guarantee, Sponsor is also required to comply with certain specified covenants and agreements under the merger agreement, including, among others, using best efforts to obtain all regulatory approvals required to consummate the merger and the other transactions contemplated by the merger agreement.

The obligations of Sponsor under the limited guarantee will terminate automatically and immediately upon the earliest to occur of, among other things:

 

    the completion of the transactions contemplated by each of the merger agreement and the founders agreement;

 

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    six months following the earlier termination of the merger agreement and the “end date” (see “The Merger Agreement — Termination of the Merger Agreement — Termination” beginning on page 111 for a description of the end date), except in the event a claim for payment is asserted in writing against Sponsor prior to such termination of the limited guarantee;

 

    the performance of Sponsor of its obligations under the limited guarantee, subject to certain exceptions and qualifications set forth therein; or

 

    any time when the Company or the Sellers assert in writing in any litigation or other proceeding (a) that certain provisions of the limited guarantee, such as those limiting Sponsor’s aggregate liability, are illegal, invalid or unenforceable, (b) that Sponsor is liable in excess of the cap or (c) any theory of liability whatsoever against Sponsor or its affiliates other than a claim against Sponsor for payment under the limited guarantee or the equity commitment letter or against Parent or Merger Sub pursuant to the merger agreement and the founders agreement.

In addition, the limited guarantee contains customary provisions for a document of this type restricting the recourse of the Company and its affiliates against Sponsor or any of its affiliates except under the limited guarantee and the equity commitment letter.

No Dissenters’ Rights

Pursuant to the operating agreement and under applicable law, the Company’s shareholders do not have dissenters’ rights in connection with the merger.

U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of the U.S. federal income tax consequences of the merger that are generally applicable to certain holders of Class A shares who receive cash in exchange for their Class A shares pursuant to the merger. This discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to as the “Code,” Treasury Regulations promulgated under the Code, court decisions, administrative rulings, published positions of the Internal Revenue Service, which we refer to as the “IRS”, and other applicable authorities, all as in effect on the date of this Proxy Statement and all of which are subject to change or differing interpretations, possibly with retroactive effect.

This discussion is limited to holders who hold their Class A shares as capital assets within the meaning of the Code (generally, property held for investment purposes). For purposes of this discussion, a “holder” means either a U.S. Holder or a Non-U.S. Holder (each as defined below) or both, as the context may require. This summary further assumes that the Company is and will remain a partnership for U.S. federal income tax purposes through the effective time of the merger.

This discussion is for general information only and does not address all of the tax consequences that may be relevant to a particular holder of our Class A shares in view of such holder’s particular circumstances and is not directed to holders that are subject to special treatment under the U.S. federal income tax laws, such as financial institutions; tax-exempt organizations; partnerships, S corporations or other entities treated as pass-through entities for U.S. federal income tax purposes; insurance companies; retirement plans and other tax-deferred accounts; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of tax accounting for their securities; regulated investment companies; real estate investment trusts; personal holding companies; certain expatriates or former long-term residents of the United States; holders subject to the alternative minimum tax; holders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reducing transaction; holders that received their shares in a compensatory transaction; holders who own an equity interest, actually or constructively, in Parent or Merger Sub or the surviving company following the merger; U.S. Holders whose “functional currency” is not the U.S. dollar; holders that are “controlled foreign corporations,” “passive foreign investment companies,” or corporations that accumulate earnings to avoid U.S. federal income tax; or, except as otherwise set forth below, Non-U.S. Holders.

 

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In addition this discussion does not describe any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation, nor does it address any aspects of the tax on “net investment income” imposed under Section 1411 of the Code.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of Class A shares, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. Such partnerships and their partners should consult their tax advisors regarding the consequences of the merger.

No statutory, administrative or judicial authority directly addresses the treatment of certain aspects of the Class A shares or the merger for U.S. federal income tax purposes. 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. Moreover, no advance rulings have been or will be sought from the IRS regarding any matter discussed in this prospectus. Accordingly, holders of our Class A shares are urged to consult their own tax advisors to determine the U.S. federal income tax consequences to them of disposing of Class A shares in the merger, as well as the effects of state, local and non-U.S. tax laws.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Class A shares that is for U.S. federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust (a) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in section 7701(a)(30) of the Code or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person. For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of Class A shares that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE TO ANY HOLDER. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY U.S. STATE OR LOCAL OR NON-U.S. TAXING JURISDICTION.

U.S. Holders

The receipt of cash by a U.S. Holder in exchange for Class A shares pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. Holder generally will recognize gain or loss as a result of the merger in an amount equal to the difference, if any, between (i) the sum of the amount of cash received by the U.S. Holder in the merger and the U.S. Holder’s share of the indebtedness, if any, of the Company and (ii) the U.S. Holder’s adjusted tax basis in its Class A shares (including basis attributable to the U.S. Holder’s share of the indebtedness, if any, of the Company). A U.S. Holder’s adjusted tax basis will be adjusted to reflect the U.S. Holder’s allocable share of the taxable income or loss of the Company, as well as cash distributions received from the Company, through the effective time of the merger. A U.S. Holder should consult his or her tax advisor with respect to the calculation of the U.S. Holder’s adjusted tax basis in its Class A shares.

Except as provided below, any gain or loss recognized by a U.S. Holder generally will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder’s holding period in such shares is longer than one year at the time of the completion of the merger. Long-term capital gains of non-corporate U.S. Holders generally are subject to U.S. federal income tax at preferential rates. There are a number of limitations on the deductibility of capital losses. Holders who purchased Class A shares in different blocks at different times are urged to consult their tax advisors regarding the application of certain “split holding period” rules to them and the treatment of any gain or loss as long-term or short-term capital gain or loss.

 

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Notwithstanding the foregoing, a portion of a U.S. Holder’s amount realized, whether or not representing gain, will be treated as ordinary income to the extent attributable to such U.S. Holder’s allocable share of certain “inventory” items and “unrealized receivables” of the Company as set forth in section 751 of the Code. Similarly, to the extent we own, directly or indirectly, interests in certain “passive foreign investment companies” at the time of the closing of the merger and have not made certain elections, a portion of the gain recognized by a U.S. Holder pursuant to the merger may be treated as ordinary income earned ratably over the shorter of the period during which the holder held its Class A shares or the period during which we held our shares in such entity and, for gain allocated to prior years, (i) the tax rate will be the highest in effect for that taxable year and (ii) the tax will be payable generally without regard to offsets from deductions, losses and expenses, and (iii) the U.S. Holder will also be subject to an interest charge for any deferred tax. U.S. Holders are urged to consult their tax advisors regarding these and other special rules that could affect the character of gain or loss recognized in, or other tax consequences of, the merger.

Non-U.S. Holders

Any gain realized by a Non-U.S. Holder pursuant to the merger will generally not be subject to U.S. federal income tax unless:

 

    The gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. Holders, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable tax treaty); or

 

    The Company is or was engaged in the conduct of a trade or business in the United States, in which case Non-U.S. Holders would likewise be so treated (even if not otherwise so treated as a result of their own activities), and a portion of any gain recognized by such Non-U.S. Holders could be treated as effectively connected with such U.S. trade or business and taxed in the manner described in the preceding bullet; or

 

    Such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the merger, and certain other specified conditions are met, in which case such gain (which may be offset by certain U.S.-source capital losses) will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable tax treaty).

While it is expected that our method of operation will not result in a determination that we are engaged in a U.S. trade or business, there can be no assurance that the IRS will not successfully assert that we are engaged in a U.S. trade or business.

Non-U.S. Holders are urged to consult their tax advisors with regard to the U.S. federal income tax consequences to them of disposing of Class A shares in the merger, as well as the effects of state, local and non-U.S. tax laws.

Information Reporting and Backup Withholding

Information reporting and backup withholding may apply to the proceeds received by a holder pursuant to the merger. Backup withholding will generally not apply to a holder that (1) furnishes a correct taxpayer identification number and certifies that such holder is not subject to backup withholding on a properly completed IRS Form W-9 (or successor form), (2) provides a certification that such holder is not a U.S. person on an applicable and properly completed IRS Form W-8BEN or W-8BEN-E (or successor form), or (3) otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against the holder’s U.S. federal income tax liability, and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

 

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THE MERGER AGREEMENT

The following summary describes certain material provisions of the merger agreement. This summary is not complete and is qualified in its entirety by reference to the merger agreement, which is attached to this Proxy Statement as Annex A and incorporated into this Proxy Statement by reference. We encourage you to read the merger agreement carefully in its entirety, because this summary may not contain all the information about the merger agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this Proxy Statement.

The representations, warranties, covenants and agreements described below and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement except as expressly stated therein and have been qualified by (a) matters specifically disclosed in the Company’s filings with the SEC on or after December 31, 2014 and prior to the date of the merger agreement, (b) confidential disclosures made to Parent and Merger Sub in the disclosure schedule delivered in connection with the merger agreement and (c) certain materiality qualifications contained in the merger agreement, which may differ from what may be viewed as material by investors. In addition, the representations and warranties were included in the merger agreement for the purpose of allocating contractual risk between the Company, Parent and Merger Sub, rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. You should not rely on the representations, warranties, covenants or agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement. The merger agreement is described below, and attached to this Proxy Statement as Annex A, only to provide you with information regarding its terms and conditions and not to provide any other factual information regarding the Company or our business. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding the Company and our business. Please see “Additional Information” beginning on page 132.

Effects of the Merger; Certificate of Formation; Limited Liability Company Agreement; Directors and Officers

The merger agreement provides that, subject to the terms and conditions of the merger agreement, and in accordance with the Limited Liability Company Act of the State of Delaware, at the effective time of the merger, Merger Sub will be merged with and into the Company, and the separate existence of Merger Sub will cease. The Company will continue as the surviving company (the “surviving company”) in the merger as a wholly owned subsidiary of Parent.

At the effective time of the merger, the certificate of formation of the Company as in effect immediately prior to the merger will be the certificate of formation of the surviving company, and the operating agreement, as in effect immediately prior to the merger, will be the limited liability company agreement of the surviving company.

At the effective time of the merger, the directors of Merger Sub immediately prior to the effective time of the merger will be the directors of the surviving company and the officers of the Company immediately prior to the effective time of the merger will be the officers of the surviving company, in each case, until their respective successors are duly elected and qualified or until their death, resignation or removal in accordance with the Limited Liability Company Act of the State of Delaware and the limited liability company agreement of the surviving company.

 

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Closing and Effective Time of the Merger

Unless another date is agreed to by Parent and the Company, the consummation of the merger and the transactions contemplated by the merger agreement will take place on the third business day after the satisfaction or waiver of the conditions to closing (described below under “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 109) (other than the conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of each of such conditions). The date on which the closing actually takes place is referred to as the “closing date.” Concurrently with or as soon as practicable following the closing, a certificate of merger will be filed with the Secretary of State of the State of Delaware. The merger will become effective at the time of the filing of the certificate of merger or at a later time as may be specified by the Company and Parent in the certificate of merger.

Merger Consideration; Conversion of Shares

At the effective time of the merger, (a) each Class A share outstanding (including each Company Restricted Share, but other than each Class A share held immediately prior to the effective time of the merger by (i) the Company as treasury stock, (ii) Parent or Merger Sub or (iii) any subsidiary of the Company) immediately prior to the effective time of the merger will be converted into the right to receive $8.08 in cash, without interest; (b) each Class B share outstanding immediately prior to the effective time of the merger, subject to the consummation of the transactions contemplated by the founders agreement (as described above under “Founders Agreement” beginning on page 118), will be automatically canceled and retired and will cease to exist, for no consideration (although holders of such shares will receive consideration of $8.08 in cash in respect of each corresponding FOG unit as described above under “Founders Agreement” beginning on page 118); and (c) each limited liability company interest of Merger Sub outstanding immediately prior to the effective time of the merger will be converted into one limited liability company interest of the surviving company.

At the effective time of the merger, all Class A shares (including all Company Restricted Shares) and Class B shares outstanding immediately prior to the effective time of the merger will be automatically canceled and retired and will cease to exist, and all holders of certificates representing Class A shares or Class B shares that were outstanding immediately prior to the effective time of the merger will cease to have any rights as shareholders or members of the Company.

At the effective time of the merger, each Company RSU, whether vested but not yet delivered or unvested, that is outstanding immediately prior to the effective time of the merger will be canceled and converted as of the effective time of the merger into the right of the holder of the Company RSU to receive a cash payment equal to the per-share merger consideration of $8.08, without interest, less any applicable withholding taxes.

If the merger is completed, the aggregate consideration payable to holders of Class A shares (including Company Restricted Shares and Company RSUs) in the merger will be approximately $1.91 billion.

Payment Procedures

Prior to the closing, Parent will select a reputable bank or trust company reasonably acceptable to the Company to act as paying agent (the “Paying Agent”) in the merger. At or prior to the effective time of the merger, Parent will cause to be deposited with the Paying Agent cash sufficient to make payments of the cash consideration payable pursuant to the merger agreement.

Promptly after the effective time of the merger, and in any event within two business days after the Company’s transfer agent delivers all of the information reasonably necessary to enable the Paying Agent to effect the mailings described below, the Paying Agent will mail to the shareholders who were record holders of Class A shares immediately prior to the effective time of the merger:

 

    a letter of transmittal in customary form; and

 

    instructions for use in effecting the surrender of Class A share certificates or transfer of uncertificated shares in exchange for merger consideration.

 

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Upon surrender of a Class A share certificate to the Paying Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Paying Agent, or, with respect to uncertificated shares, receipt of an “agent’s message” by the Paying Agent (or such other evidence, if any, of the transfer of uncertificated shares as the Paying Agent may reasonably request): (a) the holder of such Class A share certificate or uncertificated shares will be entitled to receive in exchange therefor the cash consideration that such holder has the right to receive pursuant to the provisions of the merger agreement, in full satisfaction of all rights pertaining to the Class A shares formerly represented by such Class A share certificate or uncertificated shares; and (b) the Class A share certificate or uncertificated shares so surrendered will be canceled.

Any portion of the cash deposited with the Paying Agent that remains undistributed to former holders of Class A shares as of the date that is one year after the date on which the merger becomes effective will be delivered to Parent upon demand, and any former holders of Class A shares who have not previously surrendered their Class A share certificates or uncertificated shares in accordance with the exchange procedures thereafter may look only to Parent for satisfaction of their claims for merger consideration.

None of Parent, Merger Sub, the surviving company or the Paying Agent will be liable to any holder or former holder of Class A shares, Class B shares, Company RSUs or Company Restricted Shares or to any other person with respect to any merger consideration delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar legal requirement.

Withholding Rights

Each of the Paying Agent, Parent, Merger Sub and the surviving company will be entitled to deduct and withhold any applicable taxes from any consideration payable or otherwise deliverable pursuant to the merger agreement. Any sum that is deducted or withheld will be deemed as having been paid to the person to whom such amounts would otherwise have been paid.

Representations and Warranties

The merger agreement contains representations and warranties of the Company, Parent and Merger Sub. None of the representations and warranties contained in the merger agreement will survive the effective time of the merger.

The Company

Certain of the representations and warranties in the merger agreement made by the Company are qualified as to “knowledge,” “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect” means any effect, change, development, claim, event or circumstance that, considered individually or together with all other effects, changes, developments, claims, events and circumstances, has had or would reasonably be expected to have or result in a material adverse effect on: (a) the business, financial condition, operations or financial performance of the Company and its subsidiaries, taken as a whole; or (b) the ability of the Company to consummate the merger.

However, in the case of (a) above, an effect, change, development, claim, event or circumstance occurring after the date of the merger agreement will not be deemed to be a material adverse effect if such effect, change, development, claim, event or circumstance arises out of, results from or relates to:

 

    the execution, announcement, pendency or consummation of the merger or the other transactions contemplated by the merger agreement (including any litigation or loss of or adverse change in the relationship of the Company and its subsidiaries with their respective funds, members, employees, clients or partners);

 

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    general economic or political conditions, to the extent that such conditions do not disproportionately affect the Company and its subsidiaries, taken as a whole, as compared to other companies participating in the same industry as the Company;

 

    general conditions in the industry in which the Company and its subsidiaries operate to the extent that such conditions do not disproportionately affect the Company and its subsidiaries, taken as a whole, as compared to other companies participating in the same industry as the Company;

 

    any changes in the financial, credit, banking, securities or commodities markets in the United States or any other country or region of the world;

 

    any changes (after the date of the merger agreement) in Generally Accepted Accounting Principles or applicable legal requirements (or interpretations thereof);

 

    any failure, in and of itself, by the Company to meet internal or analysts’ estimates or projections;

 

    any acts by the Company or any of its subsidiaries following the request of Parent and to which Parent consents or any omissions of the Company or any of its subsidiaries required by the terms of the merger agreement;

 

    any termination of client accounts of the Company or its subsidiaries or reduction in AUM in respect of any fund or other client of the Company or its subsidiaries;

 

    any change, in and of itself, in the market price or trading volume of the Class A shares; or

 

    the occurrence of any epidemic, hurricane, earthquake, or other natural disaster to the extent such conditions do not disproportionately affect the Company and its subsidiaries, taken as a whole, compared to other companies participating in the same industry as the Company.

In the merger agreement, the Company has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement and in the disclosure schedule delivered in connection with the merger agreement. These representations and warranties relate to, among other things:

 

    due organization, valid existence and good standing;

 

    the absence of conflicts with laws, organizational documents or agreements;

 

    required consents and regulatory filings in connection with the merger agreement and the transactions contemplated thereby;

 

    the authority to enter into and perform the merger agreement and the enforceability of the merger agreement;

 

    capitalization of the Company;

 

    ownership of the Company’s subsidiaries;

 

    the Company’s SEC filings and financial statements;

 

    disclosure controls and procedures and internal controls over financial reporting;

 

    the absence of a material adverse effect;

 

    the absence of certain actions that, if taken in the period from the date of the merger agreement through the effective time of the merger, would have required Parent’s written consent under the merger agreement;

 

    title to assets;

 

    real property matters;

 

    intellectual property matters;

 

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    material contracts;

 

    the Company’s funds, managed accounts, subadvisory relationships, clients and AUM;

 

    the absence of certain specified undisclosed liabilities;

 

    governmental authorizations;

 

    compliance with laws;

 

    tax matters;

 

    employee benefit plans;

 

    labor matters;

 

    insurance matters;

 

    transactions with affiliates of the Company;

 

    the absence of litigation;

 

    the inapplicability of anti-takeover statutes;

 

    the absence of dissenters’ rights and the vote required for the Company’s shareholders to adopt the merger agreement;

 

    the absence of any undisclosed brokers’ fees;

 

    opinions of financial advisors to the Board of Directors and the Special Committee;

 

    environmental matters;

 

    the accuracy of the information supplied by or on behalf of the Company for inclusion in this Proxy Statement; and

 

    matters related to bank holding company status.

Parent and Merger Sub

Certain of the representations and warranties in the merger agreement made by Parent and Merger Sub are qualified as to “knowledge” and “materiality.” In the merger agreement, Parent and Merger Sub have made customary representations and warranties to the Company that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. These representations and warranties relate to, among other things:

 

    due organization, valid existence and good standing;

 

    the authority to enter into and perform the merger agreement and enforceability of the agreement;

 

    the absence of any required member or shareholder vote of Parent to authorize the merger;

 

    the absence of conflicts with laws, organizational documents or agreements;

 

    required consents and regulatory filings in connection with the merger agreement and the transactions contemplated thereby;

 

    matters with respect to Parent’s equity financing and sufficiency of funds;

 

    the absence of any undisclosed brokers’ fees;

 

    the accuracy of the information supplied by or on behalf of Parent for inclusion in this Proxy Statement;

 

    the absence of litigation;

 

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    capitalization; and

 

    matters related to bank holding company status.

Conduct of Business Pending the Merger

The merger agreement provides that, during the period between the date of the merger agreement and the effective time of the merger, except: (a) as set forth in the Company’s confidential disclosure schedule; (b) as required or expressly permitted by the merger agreement; (c) as required by applicable legal requirement; or (d) with the prior written consent of Parent (which will not be unreasonably withheld, conditioned or delayed): (i) the Company will ensure that it and each of its subsidiaries conducts its business and operations in the ordinary course of business and (ii) the Company will use reasonable efforts to ensure that it and each of its subsidiaries preserves intact its current business organization and maintains its relations and goodwill with all suppliers, customers, strategic partners, landlords, creditors, licensors, licensees, employees and other persons having business relationships with the Company and its subsidiaries. The merger agreement also provides that, during the period between the date of the merger agreement and the effective time of the merger, except: (a) as set forth in the Company’s confidential disclosure schedule; (b) as required by applicable legal requirement; or (c) with the prior written consent of Parent (which in the case of certain actions described below, may not be unreasonably withheld, conditioned or delayed) the Company will not, and the Company will cause each of its subsidiaries not to, in each case, subject to certain additional exceptions and materiality thresholds as specified in the merger agreement:

 

    amend its or any of its subsidiaries’ organizational or governing documents;

 

    declare, set aside or pay any dividend or make any other distribution (whether in cash, shares or otherwise) in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except for (a) a maximum of two regular quarterly dividends declared and paid prior to the merger on Company shares of capital stock in an amount not to exceed $0.09 per quarter per share and that are payable no earlier than March 21, 2017 (with respect to the quarterly period ended December 31, 2016) and May 19, 2017 (with respect to the quarterly period ended March 31, 2017), (b) dividends or other distributions made by any of the Company’s wholly owned subsidiaries to the Company or any other wholly owned subsidiary of the Company, and (c) acquisitions of securities of the Company or its subsidiaries in connection with (i) the withholding of equity securities to satisfy tax obligations with respect to the vesting or settlement of awards under the Company’s equity plans and (ii) forfeitures of awards under the Company’s equity plans;

 

    sell, issue, grant or authorize the sale, issuance or grant by the Company or any of its subsidiaries of: (a) any capital stock or other security, (b) any option, restricted share unit, deferred share unit, restricted share award or other equity-based compensation award (whether payable in cash, shares or otherwise), call, warrant or right to acquire any capital share or other security or (c) any instrument convertible into or exchangeable for any capital share or other security;

 

    enter into any contract with respect to the voting of any Class A shares or Class B shares;

 

    split, divide, subdivide, combine, consolidate or reclassify any of its capital stock or issue or authorize the issuance of any securities in lieu of or in substitution for shares of its capital stock;

 

    except as required or expressly permitted by the merger agreement, amend or waive any of its rights under, or accelerate the vesting under, any provision of any of the Company’s stock option or equity compensation plans or any provision of any contract evidencing any outstanding stock option, any outstanding restricted share unit or any restricted share purchase agreement, or otherwise modify any of the terms of any outstanding equity-based compensation award, warrant or other security or any related contract;

 

    adopt, approve or implement any “poison pill” or similar rights plan or related agreement;

 

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    acquire any person or any division thereof, except for acquisitions not in excess of $5 million in the aggregate;

 

    make any capital expenditure in excess of $1 million in the aggregate, except for expenditures contemplated by the Company’s capital budget;

 

    enter into or become bound by, or permit any of the assets owned or used by it to become bound by, any material contract or amend in any material respect or terminate, or waive any material right or remedy under, any material contract, except in the ordinary course of business or with respect to any investment advisory agreement or related side letter;

 

    lease or license any right or other asset from any other person or sell or otherwise dispose of, or lease or license, any right or other asset to any third party, except, in each case, for assets with a fair market value not in excess of $2 million in the aggregate or with respect to investment assets in the ordinary course of business;

 

    other than (a) drawings under the Company’s revolving line of credit (i) to provide capital for seed investments into new funds or bridge financing for fund investment activities, (ii) up to an aggregate amount of $80 million for the purposes set forth in the Company’s confidential disclosure schedule or (iii) up to an aggregate amount of $25 million for general purposes, (b) the incurrence of other indebtedness up to an aggregate amount of $10 million or (c) in connection with the refinancing of any indebtedness existing as of the date of the merger agreement or permitted to be incurred under the merger agreement, incur any indebtedness for borrowed money, issue or sell any debt securities or rights to acquire any debt securities, guarantee any such indebtedness or any debt securities of another person or enter into any “keep well” or other agreement to maintain any financial statement condition of another person;

 

    make any loans to any person, except for any loan (a) to any employee of the Company or any of its subsidiaries in accordance with applicable legal requirements up to an aggregate amount (for all employees taken together) of $2 million, (b) that constitutes the extension of credit to any customer or client of the Company or any of its subsidiaries so long as such extension of credit is made in the ordinary course of business or (c) that is in connection with an investment in funds of the Company in the ordinary course of business;

 

    pledge any of the assets of the Company or any of its subsidiaries or otherwise permit any assets of the Company or any of its subsidiaries to become subject to any encumbrance (other than encumbrances specifically permitted by the merger agreement, or imposed by securities laws), except for pledges of assets in the ordinary course of business, or not exceeding $5 million in the aggregate;

 

    except (a) as expressly permitted by the merger agreement or founders agreement, (b) as required by any existing Company benefit plan or applicable legal requirements or (c) in the ordinary course of business, (i) increase or grant any increase in the compensation, bonus, fringe or other benefits of, or pay, grant or promise any bonus to, any current or former employee, director or independent contractor who has an annual expected compensation in excess of $500,000, (ii) grant or pay any severance or change in control pay or benefits to, or otherwise increase the severance or change in control pay or benefits of, any current or former employee, director or independent contractor, (iii) enter into, materially amend or terminate any employee benefit plan, policy, program, agreement, trust or arrangement, (iv) take any action to accelerate the vesting or payment of, or otherwise fund or secure the payment of, any compensation or benefits under any benefit plan or (v) hire or terminate (other than for cause) any key employee;

 

    make, change or revoke any material tax election, except in the ordinary course of business;

 

    settle or compromise any material tax claim or liability;

 

    change any material aspect of its method of accounting for tax purposes;

 

    file any amended material tax return;

 

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    prepare any tax return in a manner that is inconsistent with past practice;

 

    surrender any claim for a refund of a material amount of taxes;

 

    consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment;

 

    settle, compromise or release any legal proceeding to which the Company or any subsidiary is a party or is threatened to be made a party, except (a) as permitted by the merger agreement or the Company’s confidential disclosure schedule, (b) for claims and litigation with respect to which an insurer has the right to control the decision to settle and (c) with respect to (i) non-material disputes that may arise from time to time in the ordinary course of business and (ii) settlements, compromises or releases that involve the payment of monetary damages (excluding monetary damages that are fully covered by the Company’s insurance policies) in an amount not in excess of $2 million individually, or $5 million in the aggregate, by the Company or any of its subsidiaries, in each case, that involve only the payment of monetary damages;

 

    enter into any material transaction with any of its affiliates (other than the Company and any of its subsidiaries), except pursuant to written arrangements in effect on the date of the merger agreement, and except as otherwise specifically permitted under the merger agreement;

 

    enter into any material new business line outside of the investment management or investment advisory business;

 

    determine, declare, communicate or pay any bonus with respect to the fiscal year ended December 31, 2016 or otherwise in excess of the aggregate amount set forth in the Company’s confidential disclosure schedule, except as otherwise required by any of the Company’s benefit plans or by applicable legal requirements;

 

    adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of the Company or any of its subsidiaries;

 

    permit any amendment or modification of the terms of, or waiver under, any investment advisory agreement between any client and the Company or any of its subsidiaries or any governing document, shareholders’ agreement, prospectus or offering document related to any pooled investment vehicle controlled by the Company or any of its subsidiaries (or, in the case of a pooled investment vehicle not controlled by the Company or any of its subsidiaries, any of the foregoing documents to which the Company or any of its subsidiaries is a party), in each case, in connection with obtaining any consent solicited pursuant to the terms of the merger agreement; and

 

    agree or commit to take any of the actions described above.

Additional Agreements

No Solicitation

Except as permitted by the terms of the merger agreement described below, the Company will, and will ensure that its subsidiaries and all of its and its subsidiaries’ representatives, immediately cease and cause to be terminated any existing solicitation, encouragement, discussions or negotiations with any person relating to any “acquisition proposal” or “acquisition inquiry” (each as described below).

The Company will not, directly or indirectly, and will ensure that its subsidiaries and its and their respective officers, directors and financial advisors do not, and will use reasonable best efforts to ensure that all of its and its subsidiaries’ representatives (other than officers, directors and financial advisors) do not, directly or indirectly:

 

   

solicit, initiate, induce or knowingly facilitate, encourage or assist (it being understood and agreed that answering unsolicited phone calls shall not be deemed to “knowingly facilitate, encourage or assist” for

 

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purposes of, or otherwise constitute a violation of, this restriction) the making, submission or announcement of any acquisition proposal or acquisition inquiry or the making of any proposal that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry;

 

    furnish or otherwise provide access to any non-public information regarding the Company or any of its subsidiaries to any person in connection with or in response to an acquisition proposal or acquisition inquiry; or

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry.

However, at any time prior to the adoption of the merger agreement by the Company’s shareholders, the Company may, through itself, its affiliates and representatives, furnish non-public information regarding the Company and its subsidiaries to, and may (and, at the direction of the Special Committee, will) enter into discussions or negotiations with, any person (and such person’s affiliates and representatives) in response to a bona fide, written acquisition proposal that was unsolicited after the date of the merger agreement and that is submitted to the Company by such person (and not withdrawn) if: (a) such acquisition proposal did not result from a breach of the non-solicitation provisions of the merger agreement; (b) the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of an independent financial advisor and outside legal counsel, that such acquisition proposal constitutes or would reasonably be expected to result in a “superior offer” (as described below); (c) the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of outside legal counsel, that the failure to take such action would be inconsistent with the Board’s or the Special Committee’s fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement; (d) prior to furnishing any such non-public information to, or entering into discussions or negotiations with, such person, the Company: (i) gives Parent written notice of the identity of such person and of the Company’s intention to furnish non-public information to, or enter into discussions or negotiations with, such person and (ii) receives from such person, and delivers to Parent a copy of, an executed confidentiality agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such person by or on behalf of the Company and its subsidiaries and other provisions that (A) are no less favorable than the provisions of the confidentiality agreement, dated December 7, 2016, between the Company and FAB, and (B) expressly providing that nothing therein will restrict the Company from complying with the non-solicitation, Company shareholder meeting and Board recommendation provisions of the merger agreement; and (e) substantially concurrently with the furnishing of any non-public information to such person, the Company furnishes such non-public information to Parent.

The merger agreement provides that if the Company or any of its subsidiaries, or any of their respective representatives, receives an acquisition proposal or acquisition inquiry at any time during the period between the date of the merger agreement and the effective time of the merger, then the Company will promptly (and in no event later than 24 hours after receipt of such acquisition proposal or acquisition inquiry): (a) advise Parent in writing of such acquisition proposal or acquisition inquiry (including the identity of the person making or submitting such acquisition proposal or acquisition inquiry and the material terms and conditions thereof); and (b) provide Parent with copies of all material documents and communications received by the Company or any of its subsidiaries, or any of their respective representatives, setting forth the terms and conditions of, or otherwise relating to, such acquisition proposal or acquisition inquiry. The Company will keep Parent reasonably and promptly informed with respect to the status of any such acquisition proposal or acquisition inquiry and any modification or proposed modification thereto, and will promptly (and in no event later than 24 hours after transmittal or receipt of any material correspondence or communication) provide Parent with a copy of any material correspondence or communication between or otherwise involving: (i) the Company or any of its subsidiaries, or any of their respective representatives and (ii) the person that made or submitted such acquisition proposal or acquisition inquiry.

 

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The Company has also agreed that it: (a) will not, and will ensure that its subsidiaries will not, release or permit the release of any person from, or amend, waive or permit the amendment or waiver of any provision of, any “standstill” or similar agreement or provision to which the Company or any of its subsidiaries is or becomes a party or under which the Company or any of its subsidiaries has or acquires any rights and (b) will use its reasonable best efforts to enforce or cause to be enforced each such agreement or provision at the request of Parent. However, the Company may (and, at the direction of the Special Committee, will) release a person from, or amend or waive any provision of, any “standstill” agreement or provision if (i) the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of outside legal counsel, that the failure to release such person from such agreement or provision or amend such agreement or waive such provision would be inconsistent with the Board’s or the Special Committee’s fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement and (ii) the Company provides Parent with written notice of the Company’s intent to take such action at least two business days before taking such action.

For purposes of the merger agreement:

 

    “acquisition inquiry” means an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Parent or any of its subsidiaries) that would reasonably be expected to lead to an acquisition proposal;

 

    “acquisition proposal” means any offer or proposal (other than an offer or proposal made or submitted by Parent or any of its subsidiaries) contemplating or otherwise relating to any “acquisition transaction” (as described below);

 

    “superior offer” means a bona fide, written offer by a third party that was unsolicited after the date of the merger agreement to purchase at least 50.1% of the Class A shares and Class B shares and that: (a) did not result from a breach of the non-solicitation provisions of the merger agreement or of any voting agreement and (b) is on terms and conditions that the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after consultation with an independent financial advisor of nationally recognized reputation and after having taken into account all relevant factors that the Board or the Special Committee, as applicable, deems to be appropriate (including the likelihood and timing of consummation of the purchase transaction contemplated by such offer), to be more favorable from a financial point of view to the Company’s shareholders than the merger; and

 

    “acquisition transaction” means any transaction or series of transactions (other than the transactions contemplated by the merger agreement) involving: (a) any merger, consolidation, amalgamation, share exchange, business combination, joint venture, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction (i) in which the Company is a constituent or participating corporation, (ii) in which a person or “group” (as defined in the Exchange Act and the rules thereunder) of persons directly or indirectly acquires beneficial or record ownership of securities representing 15% or more of the outstanding securities of any class (or instruments convertible into or exercisable or exchangeable for 15% or more of any such class) of the Company or (iii) in which the Company issues securities representing 15% or more of the outstanding securities of the Company (or instruments convertible into or exercisable or exchangeable for 15% or more of any such securities) or (b) any sale, lease, exchange, transfer, license, sublicense, acquisition or disposition, or liquidation or dissolution of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues, consolidated net income or consolidated assets of the Company and its subsidiaries, taken as a whole (including equity securities of the Company’s subsidiaries); provided, however, no disposition of a portfolio company or other asset by a Company fund or permanent capital vehicle in the ordinary course of business shall constitute an “acquisition transaction.”

 

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Change of Recommendation

As described under “The Merger — Recommendation of Our Board of Directors and Reasons for the Merger” beginning on page 47, the Board of Directors (i) (acting upon the unanimous recommendation of the Special Committee that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates)) has unanimously determined that the merger is advisable and fair to and in the best interests of the Company and its shareholders (other than the Principals and their respective affiliates); (ii) (acting upon the unanimous recommendation of the Special Committee to take such action) has unanimously approved and adopted the merger agreement and approved the transactions contemplated thereby and the merger; and (iii) unanimously recommends shareholders vote FOR the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement and the merger (the determination by the Board of Directors and the Special Committee referred to in clauses (i) through (iii), the “Company Board Recommendation”).

The Company has agreed that neither the Board nor any committee thereof (including the Special Committee) will: (a) except as described below, withdraw or modify in a manner adverse to Parent or Merger Sub, or permit the withdrawal or modification in a manner adverse to Parent or Merger Sub of, the Company Board Recommendation; (b) recommend the approval, acceptance or adoption of, or approve, accept or adopt, any acquisition proposal; (c) approve or recommend, or cause or permit the Company or any of its subsidiaries to enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar document constituting, or that contemplates, is intended or would reasonably be expected to result directly or indirectly in, an acquisition transaction; or (d) resolve, agree in writing or publicly propose to, or permit the Company or any of its subsidiaries, or any of their respective representatives, to agree or publicly propose to, take any of the foregoing actions.

At any time prior to the adoption of the merger agreement by the Company’s shareholders, and notwithstanding the non-solicitation provisions of the merger agreement, the Board (acting upon the recommendation of the Special Committee) may (and if so directed by the Special Committee, will) in certain circumstances and subject to the Company’s compliance with certain obligations (as summarized below), (a) withdraw or modify the Company Board Recommendation and/or (b) terminate the merger agreement and enter into an agreement with respect to a superior offer (an “alternative acquisition agreement”) (as described under “The Merger Agreement — Termination of the Merger Agreement” beginning on page 111).

If (a) a bona fide, written acquisition proposal that was unsolicited after the date of the merger agreement is made to the Company and is not withdrawn and such acquisition proposal did not result from a breach of the non-solicitation provisions of the merger agreement or (b) there arises after the date of the merger agreement an “intervening event” (as described below) that leads the Board (acting upon the recommendation of the Special Committee) and/or the Special Committee to consider withdrawing or modifying the Company Board Recommendation, then, in each case, the Board is permitted to withdraw or modify the Company Board Recommendation and, in the case of clause (a) only, terminate the merger agreement and enter into an alternative acquisition agreement if, in each case, the Board has complied with the following procedure and obligations:

 

   

the Company provides Parent with a written notice (a) with respect to an acquisition proposal, at least 24 hours (or such shorter notice period provided to the members of the Special Committee and/or the Board) prior to any meeting of the Special Committee and/or the Board at which the Special Committee and/or the Board will consider and determine whether such acquisition proposal is a superior offer, with a written notice specifying the date and time of such meeting, the reasons for holding such meeting, the material terms and conditions of, and any draft contract relating to, the acquisition proposal that is the basis of the potential action by the Special Committee and the Board and the identity of the person making such acquisition proposal or (b) with respect to an intervening event, at least 48 hours (or such shorter notice period provided to the members of the Special Committee and/or the Board, but in no event less than 24 hours) prior to any meeting of the Special

 

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Committee and/or the Board that the Special Committee and/or the Board will consider and determine whether such intervening event requires the Special Committee and/or the Board to withdraw or modify the Company Board Recommendation, with a written notice specifying the date and time of such meeting, the reasons for holding such meeting and a reasonably detailed description of such intervening event;

 

    solely with respect to an acquisition proposal, the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of an independent financial advisor and the advice of outside legal counsel, that such acquisition proposal constitutes a superior offer;

 

    the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of outside legal counsel and an independent financial advisor, that, in light of such superior offer or intervening event, as applicable, the failure to withdraw or modify the Company Board Recommendation would be inconsistent with the Board’s or the Special Committee’s, fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement;

 

    no less than three business days prior to withdrawing or modifying the Company Board Recommendation or, solely with respect to an acquisition proposal, terminating the merger agreement in the event the Board or the Special Committee authorizes the Company to enter into an alternative acquisition agreement, the Board (at the direction of the Special Committee) or the Special Committee delivers to Parent a written notice: (a) with respect to an acquisition proposal: (i) stating that the Company has received a superior offer that did not result from or arise out of a breach of the non-solicitation provisions of the merger agreement; (ii) stating the Board’s or the Special Committee’s, as applicable, intentions as a result of such superior offer and describing any intended modification of the Company Board Recommendation; (iii) specifying the material terms and conditions of such superior offer, including the identity of the person making such superior offer; and (iv) attaching copies of the most current and complete draft of any agreement relating to such superior offer and all other material documents and communications relating to such superior offer; or (b) with respect to an intervening event: (i) stating that an intervening event has arisen; (ii) stating that it intends to withdraw or modify the Company Board Recommendation in light of such intervening event; and (iii) containing a reasonably detailed description of such intervening event;

 

    throughout the period between the delivery of such written notice and any withdrawal or modification of the Company Board Recommendation, the Company (and the Special Committee) engages (to the extent requested by Parent) in good faith negotiations with Parent to amend the merger agreement in such a manner that (a) with respect to an acquisition proposal, no withdrawal or modification of the Company Board Recommendation would be legally required as a result of such superior offer or (b) with respect to an intervening event, the failure to withdraw or modify the Company Board Recommendation would not be inconsistent with the Board’s or the Special Committee’s fiduciary obligations under applicable Delaware law or the applicable provisions of the operating agreement in light of such intervening event; and

 

    at the time of withdrawing or modifying the Company Board Recommendation, the Board (acting upon the recommendation of the Special Committee) or the Special Committee determines in good faith, after having taken into account the advice of an independent financial advisor and the advice of outside legal counsel, that the failure to withdraw or modify the Company Board Recommendation would be inconsistent with the fiduciary obligations of the Board or the Special Committee under applicable Delaware law or the applicable provisions of the operating agreement in light of such superior offer (after taking into account any changes to the terms of the merger agreement proposed by Parent as a result of the required negotiations described immediately above or otherwise).

If during the notice period described above in connection with an acquisition proposal there is any change in the form or amount of the consideration payable in connection with a superior offer, or there is any other material

 

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change to any of the terms of a superior offer, such superior offer will be deemed to be a new superior offer and the Special Committee will be required to deliver to Parent a new written notice setting forth the information described above with respect to such revised superior offer and to give Parent a new advance notice period (however, in such circumstance, such notice period will be no less than two business days). The Company has agreed to keep confidential, and not to disclose to the public or to any person (other than the representatives of the Company who have been engaged in connection with the transactions contemplated by the merger agreement), any and all information regarding any negotiations that take place pursuant to provisions described above (including the existence and terms of any proposal made by or on behalf of Parent or the Company during such negotiations). However, any amendment to the merger agreement resulting from such negotiations and any summary thereof required to be disclosed pursuant to applicable legal requirements will not be subject to the foregoing confidentiality obligation but will be subject to review and approval by Parent in accordance with certain disclosure requirements described in the merger agreement. The Company will ensure that any withdrawal or modification of the Company Board Recommendation that is not accompanied by a termination of the merger agreement: (a) does not change or otherwise affect the approval of the merger agreement or the voting agreements by the Board or any other approval of the Board and (b) does not have the effect of causing any corporate takeover statute or other similar statute of the State of Delaware or any other state to be applicable to the merger agreement, any voting agreement, the merger or any of the other transactions contemplated by the merger agreement.

The Company’s obligation to call, give notice of and hold the Special Meeting (as described below under “The Merger Agreement — Additional Agreements — Special Meeting” beginning on page 105) will not be limited or otherwise affected by the making, commencement, disclosure, announcement or submission of any superior offer or other acquisition proposal, by any intervening event or by any withdrawal or modification of the Company Board Recommendation except in the case of the termination of the merger agreement to accept a superior proposal after complying with the above-described procedure. In addition, the Company agrees that: (a) unless the merger agreement is terminated in accordance with the termination provisions of the merger agreement (as described under “The Merger Agreement — Termination of the Merger Agreement” beginning on page 111), the Company will not submit any acquisition proposal to a vote of the Company’s shareholders (other than the merger); and (b) the Company will not, without Parent’s prior written consent and except as described below under “The Merger Agreement — Additional Agreements — Special Meeting” beginning on page 105, adjourn, postpone or cancel (or propose to adjourn, postpone or cancel) the Special Meeting.

Nothing in the merger agreement prohibits the Company or the Board (in each case, acting at the direction of the Special Committee) or the Special Committee, directly or indirectly through its representatives, from: (a) taking and disclosing to the Company’s shareholders a position with respect to a tender or exchange offer by a third party pursuant to Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act (or any similar communication to the Company’s shareholders) or disclosing information to the extent such disclosure is required by the NYSE or (b) if required by applicable legal requirement, issuing a press release disclosing that the Company has received a bona fide, written acquisition proposal that the Special Committee or the Board has determined would reasonably be expected to result in a superior offer (so long as such acquisition proposal did not result from a breach of the non-solicitation provisions of the merger agreement (as described under “The Merger Agreement — Additional Agreements — No Solicitation” beginning on page 99) and the Company provides Parent a copy of such press release at least 24 hours prior to its release). However, any such disclosure (other than a “stop, look and listen” communication or other similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act, or an express rejection of the acquisition proposal or a reaffirmation of the Company Board Recommendation) will be deemed to be a withdrawal or modification of the Company Board Recommendation if the Board fails to expressly and publicly reaffirm the Company Board Recommendation in such disclosure or similar communication.

Under the terms of the merger agreement, the Company will be required to pay Parent a termination fee in the amount of $98,350,000 or $131,140,000 if the merger agreement has been terminated by Parent or the Company at any time after the Company Board Recommendation has been withdrawn or modified, depending on

 

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the circumstances of such withdrawal or modification. For more information, see “The Merger Agreement — Termination Fees” beginning on page 113.

For purposes of the merger agreement, “intervening event” means a material fact, event, change, development or set of circumstances affecting the Company and its subsidiaries that does not relate to any acquisition proposal and that was not known to the Board and/or the Special Committee or reasonably foreseeable (or if known or reasonably foreseeable, the consequences or the probability or magnitude of such consequences were not known or reasonably foreseeable) by the Board and/or or the Special Committee as of the date of the merger agreement.

Special Meeting

The Company has agreed to: (a) subject to applicable legal requirements, establish the earliest reasonably practicable Record Date for the Special Meeting for the purpose of obtaining the adoption of the merger agreement and not change such record date without the consent of Parent (not to be unreasonably withheld, conditioned or delayed); (b) establish the earliest reasonably practicable date for the Special Meeting; and (c) mail to the holders of Class A shares and Class B shares as of the Record Date this Proxy Statement.

The Company may postpone the Special Meeting in compliance with Delaware legal requirements (a) if there are holders of an insufficient number of Class A shares and Class B shares present or represented by proxy to constitute a quorum (in which case the Company will, and will instruct its proxy solicitor to use reasonable best efforts to, solicit as promptly as practicable the presence, in person or by proxy of a quorum), but only until there are a sufficient number of Class A shares and Class B shares present or represented to obtain such a quorum, and in no event more than ten days after the date originally scheduled for the Special Meeting or (b) for one or more successive postponements where the Board (acting upon the recommendation of the Special Committee) or the Special Committee has determined in good faith after consultation with outside counsel that the failure to take such action would be inconsistent with its fiduciary duties to the holders of Class A shares and Class B shares under Delaware law, the applicable provisions of the operating agreement or applicable securities laws, and then only for so long as the Board (acting upon the recommendation of the Special Committee) or the Special Committee has determined in good faith after consultation with outside counsel, that such action is reasonably necessary to give the holders of Class A shares and Class B shares the required time to evaluate any applicable information or disclosure. In the event that the Company so postpones the Special Meeting, the Company will use its reasonable best efforts to reconvene and hold the Special Meeting as promptly as reasonably practicable.

Investment Advisory Arrangement Consents

The Company has agreed to use reasonable best efforts to obtain the consent of each investment advisory client (other than any registered fund) to the assignment or deemed assignment of its investment advisory agreement (and, if applicable, fund governing documents) as a result of the merger, to the extent required by applicable law or by the applicable investment advisory agreement (or fund governing documents) and in accordance with the Company’s confidential disclosure schedule. In no event will such reasonable best efforts include any requirement to offer or grant any accommodation or alteration of terms (financial or otherwise) or to pay any fee to obtain the required consents. Parent has agreed to cooperate with the Company in connection with the Company’s efforts to obtain such consents. The Company has agreed to use reasonable best efforts to obtain, as promptly as practicable following the date of the merger agreement, the approval by the governing board and shareholders of each Company-advised registered fund of a new investment advisory agreement, with the subsidiary of the Company that is an investment adviser of such client, to take effect at the closing of the merger, including by preparing and filing proxy materials with the SEC. In the event that any of the client consents described above is not obtained prior to the closing, the Company and its subsidiaries will reasonably cooperate with Parent with respect to commercially reasonable alternative arrangements for the applicable client.

 

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Indemnification of Officers and Directors

Parent will cause all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger existing in favor of the current or former directors, officers or employees of the Company and any of its subsidiaries as provided in their respective certificates of formation, operating agreements or bylaws (or comparable organizational documents) and/or any indemnification agreement or other similar agreements of the Company and any of its subsidiaries, in each case as in effect on the date of the merger agreement, to continue in full force and effect in accordance with their terms.

For a period of six years from and after the effective time of the merger agreement, the surviving company will either cause to be maintained in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by or for the benefit of the Company and its subsidiaries or provide substitute policies for the Company and its subsidiaries and their respective current and former directors, officers and employees who are, as of the date of the merger agreement, covered by the directors’ and officers’ and fiduciary liability insurance policies maintained by or for the benefit of the Company and its subsidiaries, in either case, of not less than the existing coverage and having other terms not less favorable to the insured persons than the directors’ and officers’ liability insurance and fiduciary liability insurance coverage currently maintained by or for the benefit of Company and its subsidiaries with respect to claims arising from facts or events that occurred on or before the effective time of the merger, except that in no event will the surviving company be required to pay with respect to such insurance policies in respect of any one policy year more than 300% of the aggregate annual premium most recently paid by the Company and its subsidiaries prior to the date of the merger agreement (the “maximum amount”), and if the surviving company is unable to obtain the insurance required by the merger agreement, it will obtain as much comparable insurance as possible for each year within such six-year period for an annual premium equal to the maximum amount. In lieu of such insurance, prior to the effective time of the merger, the Company and its subsidiaries may, at their option and expense (following reasonable consultation with Parent), purchase prepaid “tail” insurance for the Company and its subsidiaries and their current and former directors, officers and employees who are covered by the policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by or for the benefit of the Company and its subsidiaries as of the date of the merger agreement for a period of six years from the effective time of the merger, such tail insurance to provide coverage in an amount not less than the existing coverage and to have other terms not less favorable to the insured persons than the directors’ and officers’ liability insurance and fiduciary liability insurance policies currently maintained by or for the benefit of the Company and its subsidiaries, with respect to claims arising from facts or events that occurred on or before the effective time of the merger, provided that in no event will the annualized cost of any such tail insurance exceed the maximum amount. The surviving company will maintain such policies in full force and effect, and continue to honor the obligations thereunder.

Employees and Employee Benefits

The merger agreement provides for the following treatment with respect to those employees of the Company and its subsidiaries who continue to be so employed following the effective time of the merger (each, a “continuing employee”):

 

    for a period commencing on the closing date of the merger and ending on December 31, 2018, each continuing employee will receive (a) the same base salary as was provided to the continuing employee immediately prior to the closing and (b) a total annual or periodic incentive compensation opportunity that is no less favorable than the total annual or periodic incentive compensation opportunity (including the value of any cash opportunities and the grant date value of any equity-based award opportunities) provided to the continuing employee immediately prior to the closing;

 

    for a period commencing on the closing date of the merger and ending on December 31, 2018, all employee benefit plans covering continuing employees will be maintained in accordance with their terms as in effect immediately prior to the closing of the merger;

 

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    if the employment of any continuing employee terminates during the period commencing on the closing date of the merger and ending on December 31, 2018, the continuing employee will receive severance payments and benefits at a level commensurate to those provided to similarly situated employees of the Company and its subsidiaries upon a similar termination of employment prior to the closing; and

 

    Parent will (a) provide credit to each continuing employee for his or her years of service with the Company and its subsidiaries (and their predecessors) for all purposes (including purposes of eligibility to participate, vesting, severance, paid time off and level of benefits, but excluding benefit accruals under defined benefit pension plans) under the benefit plans, programs, agreements and arrangements of Parent and its subsidiaries and affiliates that provide benefits to the continuing employees after the closing of the merger and (b) waive all pre-existing condition exclusions and limitations and actively-at-work requirements under any such plans for each of the continuing employees.

Litigation

The Company agrees to promptly notify Parent in writing, and give Parent the opportunity to reasonably participate in the defense and settlement, of any shareholder claim or litigation against or otherwise involving the Company and/or any of its directors or officers relating to the merger agreement and the transactions contemplated by the merger agreement, including the merger. Except for certain matters set forth on the Company’s confidential disclosure schedule, the Company further agrees not to compromise or settle, in full or in part, any such claim or litigation without Parent’s prior written consent.

Pre-Closing Steps

Prior to the effective time of the merger, Parent, Merger Sub and the Company will use reasonable best efforts to cause certain pre-closing reorganization transactions to be completed at the times and in the manner described in the confidential schedule to the merger agreement.

Equity Financing

Parent and Merger Sub acknowledge that they will be fully responsible for obtaining the equity financing (see “The Merger — Financing of the Merger” beginning on page 86) and each will take all actions, and do all things, necessary, proper or advisable to obtain the equity financing, including (a) maintaining in effect the equity commitment letter, (b) using reasonable best efforts to ensure the accuracy of all representations and warranties of Parent or Merger Sub, if any, set forth in the equity commitment letter, (c) complying with all covenants and agreements of Parent or Merger Sub set forth in the equity commitment letter, (d) satisfying on a timely basis all conditions applicable to Parent or Merger Sub set forth in the equity commitment letter and (e) consummating the equity financing contemplated by the equity commitment letter (subject to the conditions set forth therein) at or prior to the closing.

Neither Parent nor Merger Sub may amend, alter, or waive, or agree to amend, alter or waive, any term of the equity commitment letter without the prior written consent of the Company (acting at the recommendation of the Special Committee). Each of Parent and Merger Sub agrees to notify the Company promptly, and in any event within one business day, if at any time prior to the closing date of the merger (a) the equity commitment letter expires or is terminated for any reason (or if any person attempts or purports to terminate the equity commitment letter, whether or not such attempted or purported termination is valid) or (b) Sponsor refuses to provide the full equity financing on the terms set forth in the equity commitment letter.

Additionally, Parent and Merger Sub expressly acknowledge and agree that the availability of the equity financing is not a condition to the obligations of Parent and Merger Sub to consummate the merger.

 

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Equity Syndication

The parties have agreed that, as promptly as practicable, but in no event for a period longer than eight weeks from the date of the merger agreement (the “equity syndication period”), Parent and its affiliates may solicit, negotiate and enter into investment agreements with potential equity investors in Parent (the “equity syndication”).

However, no equity investor may be included in any such equity syndication if any of the following would reasonably be expected to result:

 

    the expansion of, or imposition of new or additional, conditionality to the closing, or diminution of the likelihood of the closing occurring;

 

    any delay of the closing (other than as a result of the equity syndication period);

 

    any adverse impact on the likelihood of receiving any consents or approvals in connection with the transactions contemplated by the merger agreement;

 

    any adverse impact on the ability of the Company or any other party to the founders agreement, the TRA waiver agreement and the voting agreements to enforce its rights against the other parties to the merger agreement or such other agreements or the ability of Parent or Merger Sub to timely consummate the transactions contemplated by the merger agreement;

 

    any assignment or deemed assignment of an investment advisory arrangement with any client (other than as a result of (a) the change in control of the Company and its subsidiaries as contemplated as of the date of the merger agreement without giving effect to any proposed equity syndication or (b) any proposed equity syndication in respect of which Parent provided notice to the Company by the 15th day after the date of the merger agreement); or

 

    any director, officer or employee of the Company or any of its subsidiaries being exposed to any potential personal liability (other than for “misconduct,” as such term is applied under the laws of the United States) for violating the legal requirements of any jurisdiction.

If any of the foregoing cease to be satisfied with respect to any potential investor in the equity syndication following the end of the equity syndication period, Parent and its affiliates shall cause such investor to be excluded from the equity syndication.

Notwithstanding the entry into or consummation of any equity syndication, the equity commitment letter will remain in full force and effect, and no equity syndication will in any way reduce or otherwise limit the aggregate commitment or liability of Sponsor under the equity commitment letter or any obligations or liability of Sponsor under the limited guarantee.

Parent and Merger Sub will, on a joint and several basis, (a) reimburse the Company for any out-of-pocket costs incurred by the Company and its subsidiaries in connection with any equity syndication and (b) indemnify, defend and hold harmless the Company and its subsidiaries, and their respective affiliates and representatives, from and against any and all liabilities, claims, costs, expenses, judgments and penalties suffered or incurred by any of them in connection with any equity syndication and any information utilized in connection therewith.

No later than two business days following the end of the equity syndication period, Parent will deliver to the Company a true, correct and complete schedule setting forth the record and beneficial ownership interests of Parent following the completion of the equity syndication and, subject to Parent’s compliance in all respects with the provisions in the merger agreement related to the equity syndication, such schedule will be deemed to qualify the representation and warranty of Parent in the merger agreement that all limited partnership interests in Parent are beneficially and directly owned by Sponsor and its affiliates. At the completion of the equity syndication period, Parent had not entered into any investment agreements with any potential equity investors.

 

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Conditions to the Closing of the Merger

Parent and Merger Sub

The obligations of Parent and Merger Sub to effect the merger are subject to the satisfaction, at or prior to the closing, of each of the following conditions:

 

    each of the representations and warranties of the Company contained in the merger agreement will have been accurate in all respects as of the date of the merger agreement and as of the closing date as if made on and as of the closing date (other than any such representation and warranty made as of a specific earlier date, which will have been accurate in all respects as of such earlier date), subject to certain de minimis, materiality and material adverse effect thresholds;

 

    all of the covenants and obligations in the merger agreement that the Company is required to comply with or to perform at or prior to the closing will have been complied with and performed in all respects, subject to certain materiality and de minimis thresholds and monetary payment cure rights;

 

    receipt of the adoption of the merger agreement by the holders of a majority of the outstanding Class A shares and Class B shares (voting together as a single class);

 

    investment advisory clients representing at least 87.5% of the aggregate management fees (calculated on an annualized basis and based upon assets under management as of December 31, 2016) of a set of specified Company-advised investment advisory clients will have consented to a new investment advisory agreement to take effect at the closing of the merger or to the “assignment” of the investment advisory agreement of each such client as required as a result of the merger;

 

    since the date of the merger agreement, there will not have occurred any material adverse effect, and no event will have occurred or circumstance will exist that, in combination with any other events or circumstances, would reasonably be expected to have a material adverse effect;

 

    receipt of a certificate executed by the chief executive officer and chief financial officer of the Company confirming that the conditions set forth in the five preceding bullets have been duly satisfied;

 

    the applicable waiting period under the HSR Act will have expired or been terminated (and there will not be in effect any voluntary agreement between Parent or the Company and the Federal Trade Commission or the Department of Justice pursuant to which Parent or the Company will have agreed not to complete the merger), the CFIUS clearance will have been obtained and the ITAR pre-notification requirement will have been satisfied;

 

    no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger will have been issued by any court of competent jurisdiction or other governmental body and remain in effect, and there will not be any legal requirement enacted or deemed applicable to the merger that makes consummation of the merger illegal;

 

    the founders agreement will remain in full force and effect at the closing;

 

    the TRA waiver agreement will remain in full force and effect at the closing;

 

    receipt of the requisite “change in control” approvals from the Financial Conduct Authority arising from the transactions contemplated by the merger agreement pursuant to section 189(4) or (if applicable) section 189(6) of the Financial Services and Markets Act 2000;

 

    receipt of approval from FINRA pursuant to NASD Rule 1017 (relating to change of control);

 

    receipt of approval from the Bank of Italy under Article 15 of the Italian Financial Act and Article 19 of the Italian Banking Act, as applicable;

 

    receipt of approval from the European Central Bank under Articles 4 and 15 of the Council Regulation (EU) No. 1024/2013 of 15 October 2013;

 

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    none of the Company, its subsidiaries, Parent or Sponsor, or their respective affiliates will have been, or be, required by a governmental body, as a result of the transactions contemplated by the merger agreement, or otherwise, to become a “bank holding company” or be deemed by any governmental body to control, as defined in the BHC Act, Opus Bank or AloStar Bank of Commerce or any other “bank” as defined in the BHC Act;

 

    to the extent required in connection with ownership interests in Opus Bank or AloStar Bank of Commerce, each of the Company, its subsidiaries, Parent and Sponsor, and each of their respective affiliates, will have delivered to the Federal Reserve System “passivity commitments” and have obtained prior non-objection of the Federal Deposit Insurance Corporation, as described under “The Merger — Regulatory Approvals and Related Matters — Bank Regulatory Matters” beginning on page 79; and

 

    each of the Company, Parent and Sponsor, and each of their respective affiliates, will, if requested by a governmental body pursuant to any legal requirement, have executed and delivered to the applicable regulator in the states of Alabama and California the filings or notices described under “The Merger —Regulatory Approvals and Related Matters — Bank Regulatory Matters” beginning on page 79 with such states and, with respect to such filings or notices, such regulator shall not have informed the Company, its subsidiaries, Parent or the Sponsor, or any of their respective affiliates, as the case may be, in writing that such regulator objects to the completion of the transactions contemplated by the merger agreement.

The conditions set forth in the three preceding bullets are collectively referred to as the “closing conditions regarding bank regulatory matters.”

The Company

The obligations of the Company to effect the merger are subject to the satisfaction, at or prior to the closing, of each of the following conditions:

 

    each of the representations and warranties of Parent and Merger Sub contained in the merger agreement (other than those with respect to the equity syndication) will have been accurate in all respects as of the date of the merger agreement and as of the closing date as if made on and as of the closing date (other than any such representation and warranty made as of a specific earlier date, which will have been accurate in all respects as of such earlier date), subject to certain materiality and material adverse effect thresholds;

 

    each of the representations and warranties of Parent and Merger Sub with respect to the equity syndication will have been accurate in all respects as of the date of the merger agreement, as of the completion of the equity syndication and as of the closing date (in each case, taking into account certain changes otherwise permitted by the merger agreement) as if made on and as of such dates;

 

    all of the covenants and obligations in the merger agreement that Parent and Merger Sub are required to comply with or to perform at or prior to the closing will have been complied with and performed in all material respects;

 

    receipt of a certificate executed by an officer of Parent confirming that the conditions set forth in the three preceding bullets have been duly satisfied;

 

    receipt of the adoption of the merger agreement by the holders of a majority of the outstanding Class A shares and Class B shares (voting together as a single class);

 

    the applicable waiting period under the HSR Act has expired or been terminated (and there is not in effect any voluntary agreement between Parent or the Company and the Federal Trade Commission or the Department of Justice pursuant to which Parent or the Company has agreed not to complete the merger), the CFIUS clearance has been obtained, the ITAR pre-notification requirement has been

 

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satisfied and the other governmental authorizations or consents set forth on the Company’s confidential disclosure schedule required to be obtained to complete the merger have been obtained;

 

    no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger will have been issued by any court of competent jurisdiction or other governmental body and remain in effect, and there will not be any legal requirement enacted or deemed applicable to the merger that makes consummation of the merger illegal;

 

    receipt of the requisite “change in control” approvals from the Financial Conduct Authority arising from the transactions contemplated by the merger agreement pursuant to section 189(4) or (if applicable) section 189(6) of the Financial Services and Markets Act 2000;

 

    receipt of approval from FINRA pursuant to NASD Rule 1017 (relating to change of control);

 

    receipt of approval from the Bank of Italy under Article 15 of the Italian Financial Act and Article 19 of the Italian Banking Act, as applicable; and

 

    receipt of approval from the European Central Bank under Articles 4 and 15 of the Council Regulation (EU) No. 1024/2013 of 15 October 2013.

The founders agreement also contains conditions to the founders closing described in “The Founders Agreement” beginning on page 118. Sponsor’s commitment to fund under the equity commitment letter is subject to satisfaction of the conditions set forth in the merger agreement and the founders agreement.

Termination of the Merger Agreement

Termination

In general, the merger agreement may be terminated prior to the effective time of the merger, whether before or after the Company shareholder approval is obtained, in the following ways:

 

    by mutual written consent of Parent and the Company;

 

    by Parent or the Company if:

 

    the merger has not been consummated by December 31, 2017 (the “end date”), provided that a party will not be permitted to terminate the merger agreement pursuant to this provision if the failure to consummate the merger by the end date is primarily the result of a material breach on the part of such party of any covenant or obligation in the merger agreement required to be performed by such party at or prior to the effective time of the merger;

 

    a court of competent jurisdiction or other governmental body has issued a final and nonappealable order having the effect of permanently restraining, enjoining or otherwise prohibiting the merger, so long as the party seeking to so terminate has complied with its obligations described under “The Merger — Regulatory Approvals and Related Matters” beginning on page 77;

 

    the Special Meeting (including any adjournments and postponements thereof) was held and completed and the Company’s shareholders undertook a final vote on a proposal to adopt the merger agreement and the merger agreement was not so adopted by the Company’s shareholders, provided that a party will not be permitted to terminate the merger agreement pursuant to this provision if the failure to have the merger agreement adopted by the Company’s shareholders is primarily the result of a material breach on the part of such party of any covenant or obligation in the merger agreement required to be performed by such party at or prior to the effective time of the merger and the Company will not be permitted to terminate the merger agreement pursuant to this provision if the failure to have the agreement adopted by the Company’s shareholders is primarily the result of a breach of the voting agreements by the Principals; or

 

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    the President of the United States decides to suspend or prohibit the transactions contemplated by the merger agreement in connection with the CFIUS clearance, so long as the party seeking to so terminate has complied with its obligations to obtain the CFIUS clearance described under “The Merger — Regulatory Approvals and Related Matters — CFIUS” beginning on page 78;

 

    by Parent if:

 

    a “triggering event” (as described below) has occurred at any time prior to the receipt of the Company shareholder approval; or

 

    any of the Compa