497 1 f4972018_sierraincome.htm PROSPECTUS SUPPLEMENT

Filed Pursuant to Rule 497

Registration No. 333-228216

 

 

December 21, 2018

 

MERGERS PROPOSED—YOUR VOTE IS VERY IMPORTANT 

 

Dear Stockholder:

 

I am writing to you on behalf of the board of directors (the “Sierra Board”) of Sierra Income Corporation (“Sierra) to ask for your vote to approve a series of transactions that will result in Sierra becoming a publicly traded, internally managed business development company (“BDC”) with a wholly owned registered investment adviser subsidiary. These transactions are referred to collectively as the “Mergers” (as defined below). In addition to Sierra, the other parties to the Mergers include Medley Capital Corporation (“MCC”), a publicly traded BDC, and Medley Management Inc. (“MDLY”), a publicly traded asset management firm. MDLY is the parent company of both MCC’s and Sierra’s investment adviser, and the same portfolio management team and officers are responsible for both MCC’s and Sierra’s operations. 

 

Subject to the terms and conditions of the various agreements related to the Mergers that are described in the accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”), the Mergers will effectuate the following:

 

MCC would, on the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra (the “MCC Merger Agreement”), merge with and into Sierra, with Sierra continuing as the surviving company in the merger (the “MCC Merger”). Under the MCC Merger, each share of common stock, par value $0.001 per share, of MCC (“MCC Common Stock”) issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC Common Stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive 0.8050 shares of common stock, par value $0.001 per share, of Sierra (“Sierra Common Stock”). In addition, MCC’s stockholders (the “MCC Stockholders”) are expected to continue to receive regular MCC dividends prior to closing.

 

MCC Merger Consideration (per share of MCC Common Stock)   Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $5.68 
Total  $5.68 

 

 

 

 

MDLY would, on the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of August 9, 2018, by and among MDLY, Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), and Sierra (the “MDLY Merger Agreement”), merge with and into Merger Sub, with Merger Sub continuing as the surviving company in the merger (the “MDLY Merger” and together with the MCC Merger, the “Mergers”). In the MDLY Merger, each share of class A common stock, par value $0.01 per share, of MDLY (“MDLY Class A Common Stock”), issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A Common Stock held by MDLY, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive (i) 0.3836 shares of Sierra Common Stock; plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY’s stockholders (the “MDLY Stockholders”) will have the right to receive certain dividends and/or other payments.

 

MDLY Merger Consideration (per share of MDLY Class A Common Stock)  Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $2.71 
Cash from Sierra  $3.44 
Cash from Sierra; First Dividend Shortfall Amount  $0.35 
Cash from Sierra; Second Dividend Shortfall Amount  $0.30 
Total  $6.80 

 

The Mergers would occur simultaneously, with Sierra and Merger Sub continuing as the surviving companies (collectively, the “Combined Company”).   

  

 

 

 

Your vote is extremely important. At a special meeting (the “Sierra Special Meeting”) of the stockholders of Sierra (“Sierra Stockholders”), Sierra Stockholders will be asked to vote on: (i) the approval of the MCC Merger; (ii) the approval of the MDLY Merger; (iii) the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current net asset value (“NAV”) per share, if applicable; (iv) the adoption of the Sierra Income Corporation 2018 Omnibus Incentive Plan (the “Sierra Incentive Plan”); (v) the adoption of amendments to Sierra’s charter; (vi) the approval of an investment advisory agreement by and between the Combined Company and its wholly owned registered investment adviser; and (vii) the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals. In order to complete the Mergers, Sierra Stockholders are required to vote on these proposals.

 

Sierra urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the Sierra Special Meeting. Instructions are shown on the proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder. If you have any questions about the Mergers or need assistance voting your shares, please call Alliance Advisors LLC, which is assisting Sierra with the solicitation of proxies, toll-free at (833) 814-9451.

 

The Sierra Board established a special committee comprised solely of its independent directors (the “Sierra Special Committee”), which was assisted by an independent financial advisor, for the purpose of assessing the merits of the proposals to be presented at the Sierra Special Meeting. Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that the Sierra Stockholders vote:

 

  “FOR” the approval of the MCC Merger; 

 

  “FOR” the approval of the MDLY Merger; 

 

  “FOR” the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable; 

 

  “FOR” the adoption of the Sierra Incentive Plan;

 

  “FOR” the adoption of each amendment to Sierra’s charter included in the Joint Proxy Statement/Prospectus;

 

  “FOR” the approval of an investment advisory agreement by and between the Combined Company and its wholly owned registered investment adviser; and

 

  “FOR” the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

The accompanying Joint Proxy Statement/Prospectus describes the Sierra Special Meeting, the MCC special meeting, and the MDLY special meeting, as well as the Mergers, the MCC Merger Agreement, the MDLY Merger Agreement, the other documents related to the Mergers and related transactions and other related matters that Sierra believes a Sierra Stockholder ought to consider before voting on the proposals described herein and should be retained for future reference. Please carefully read this entire document. You also can obtain information about Sierra, MCC and MDLY from documents that each has filed with the SEC. See “Where You Can Find More Information” for instructions on how to obtain such information.

 

  Sincerely,
   
 

Seth Taube

Chairman of the Board of Directors and
Chief Executive Officer

 

 

 

 

The SEC has not approved or disapproved the Sierra Common Stock to be issued under the Joint Proxy Statement/Prospectus or determined if the Joint Proxy Statement/Prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The date of the Joint Proxy Statement/Prospectus is December 21, 2018 and it is first being mailed or otherwise delivered to Sierra Stockholders on or about December 21, 2018.

 

Sierra Income Corporation

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

In addition, if you have questions about the Mergers or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Alliance Advisors LLC, Sierra’s proxy solicitor, at the address and telephone number listed below. You will not be charged for any of these documents that you request.

 

Alliance Advisors LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

(833) 814-9451

 

 

 

 

 

 

Sierra Income Corporation

280 Park Ave, 6th Floor East

New York, NY 10017

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 8, 2019

 

To the Stockholders of Sierra Income Corporation:

 

Notice is hereby given that Sierra Income Corporation, a Maryland corporation (“Sierra”), will hold a Special Meeting of the stockholders of Sierra (the “Sierra Special Meeting”), on February 8, 2019 at 1:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036 for the following purposes:

 

1.To consider and vote upon a proposal to approve the merger of Medley Capital Corporation (“MCC”) with and into Sierra, with Sierra as the surviving company in such merger (the “MCC Merger”), pursuant to an Agreement and Plan of Merger, dated as of August 9, 2018, by and between Sierra and MCC (the “MCC Merger Agreement”);

 

2.To consider and vote upon a proposal to approve the merger of Medley Management Inc. (“MDLY”) with and into Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), with Merger Sub as the surviving company in such merger (the “MDLY Merger”), pursuant to an Agreement and Plan of Merger, dated as of August 9, 2018, by and among MDLY, Sierra and Merger Sub (the “MDLY Merger Agreement”);

 

3.To consider and vote upon a proposal to approve the issuance of the shares of Sierra common stock (“Sierra Common Stock”) to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable;

 

4.To consider and vote upon a proposal to adopt the Sierra Income Corporation 2018 Omnibus Incentive Plan (the “Sierra Incentive Plan”); 

 

5.To consider and vote upon proposals to adopt amendments to Sierra’s charter set forth in the accompanying Joint Proxy Statement/Prospectus (the “Sierra Charter Amendments”);

 

6.To consider and vote upon a proposal to approve an investment advisory agreement by and between the Combined Company and its wholly owned registered investment adviser; and

 

7.To consider and vote upon a proposal to approve the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

Only the holders of record of shares of Sierra Common Stock at the close of business on December 21, 2018 will be entitled to receive notice of and vote at the Sierra Special Meeting.

 

It is important that all Sierra stockholders participate in the affairs of Sierra, regardless of the number of shares owned. Accordingly, Sierra urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the Sierra Special Meeting. Instructions are shown on the proxy card.

 

You have the option to revoke the proxy at any time prior to the meeting or to vote your shares in person if you attend the Sierra Special Meeting and are the record owner of the shares.

 

Based upon the recommendation of a special committee of the Sierra board of directors (the “Sierra Board”), the Sierra Board has unanimously approved the MCC Merger Agreement and the MDLY Merger Agreement, including the transactions contemplated thereunder, declared the MCC Merger and the MDLY Merger, upon the terms and subject to the conditions and limitations set forth in the MCC Merger Agreement and the MDLY Merger Agreement, to be advisable, and unanimously recommends that Sierra Stockholders vote “FOR” the approval of the MCC Merger, “FOR” the approval of the MDLY Merger, “FOR” the issuance of the shares of Sierra Common Stock to be issued pursuant each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current net asset value per share, if applicable, “FOR” the adoption of the Sierra Incentive Plan, “FOR” the adoption of the Sierra Charter Amendments, “FOR” the approval of an investment advisory agreement by and between the Combined Company and its wholly owned registered investment adviser, and “FOR” the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

  By Order of the Board of Directors,
     
  Richard T. Allorto, Jr.
  Secretary

 

New York, New York

December 21, 2018

 

 

 

 

YOUR VOTE IS IMPORTANT!

 

SIERRA URGES YOU TO PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS SOON AS POSSIBLE EVEN IF YOU PLAN TO ATTEND THE SIERRA SPECIAL MEETING. INSTRUCTIONS ARE SHOWN ON THE PROXY CARD. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

 

The accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”) provides a description of the MCC Merger Agreement, including the transactions contemplated thereby, the MDLY Merger Agreement, including the transactions contemplated thereby, and the matters to be considered at the Sierra Special Meeting. Sierra urges you to read the Joint Proxy Statement/Prospectus and its appendices carefully and in their entirety. If you have any questions concerning the MCC Merger Agreement, including the transactions contemplated thereby, the MDLY Merger Agreement, including the transactions contemplated thereby, or the matters to be considered at the Sierra Special Meeting or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need help voting your shares, please contact Sierra’s proxy solicitor:

 

Alliance Advisors LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

(833) 814-9451

 

 

 

 

 

Dear Stockholder:

 

I am writing to you on behalf of the board of directors (the “MCC Board”) of Medley Capital Corporation (“MCC”) to ask for your vote to approve the adoption of an Agreement and Plan of Merger, dated as of August 9, 2018 (the “MCC Merger Agreement”), by and between MCC and Sierra Income Corporation (“Sierra”), pursuant to which MCC would merge with and into Sierra, with Sierra continuing as the surviving company in the merger (the “MCC Merger”). MCC is an affiliate of Sierra, as the investment managers of both Sierra and MCC are controlled (directly or indirectly) by Medley Management Inc. (“MDLY”), a publicly traded asset management firm. In addition, the closing of the MCC Merger is contingent upon MDLY merging with and into Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), with Merger Sub as the surviving company in the merger (the “MDLY Merger”). We refer to the MDLY Merger and the MCC Merger collectively as, the “Mergers” (as defined below), and Sierra and Merger Sub, as the surviving companies in the Mergers, as the “Combined Company” (as defined below).

  

Subject to the terms and conditions of the various agreements related to the Mergers that are described in the accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”), the Mergers will effectuate the following:

 

In the MCC Merger, each share of common stock, par value $0.001 per share, of MCC (“MCC Common Stock”) issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC Common Stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive 0.8050 shares of common stock, par value $0.001 per share, of Sierra (“Sierra Common Stock”). In addition, MCC’s stockholders (“MCC Stockholders”) are expected to continue to receive regular MCC dividends prior to closing of the MCC Merger, consistent with the current MCC dividend policy.

 

MCC Merger Consideration (per share of MCC Common Stock)   Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $5.68 
Total  $5.68 

 

MDLY would, on the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of August 9, 2018, by and among MDLY, Merger Sub, and Sierra (the “MDLY Merger Agreement”), merge with and into Merger Sub, with Merger Sub continuing as the surviving company in the merger (the “MDLY Merger” and together with the MCC Merger, the “Mergers”). In the MDLY Merger, each share of class A common stock, par value $0.01 per share, of MDLY (“MDLY Class A Common Stock”), issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A Common Stock held by MDLY, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive (i) 0.3836 shares of Sierra Common Stock; plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY’s stockholders (the “MDLY Stockholders”) will have the right to receive certain dividends and/or other payments.

 

MDLY Merger Consideration (per share of MDLY Class A Common Stock)  Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $2.71 
Cash from Sierra  $3.44 
Cash from Sierra; First Dividend Shortfall Amount  $0.35 
Cash from Sierra; Second Dividend Shortfall Amount  $0.30 
Total  $6.80 

 

The Mergers would occur simultaneously, with Sierra and Merger Sub continuing as the surviving companies (collectively, the “Combined Company”).   

 

 

 

 

Your vote is extremely important. At a special meeting of MCC (the “MCC Special Meeting”), MCC Stockholders will be asked to vote on: (i) the approval of the adoption of the MCC Merger Agreement; and (ii) the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement. In order to complete the MCC Merger, MCC Stockholders are required to vote on the proposal to approve the adoption of the MCC Merger Agreement.

 

MCC urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the MCC Special Meeting. Instructions are shown on the proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder. If you have any questions about the MCC Merger or need assistance voting your shares, please call Alliance Advisors LLC, which is assisting MCC with the solicitation of proxies, toll-free at (833) 814-9451.

 

The MCC Board established a special committee comprised solely of its independent directors (the “MCC Special Committee”), which was assisted by an independent financial advisor and independent legal counsel, for the purpose of assessing the merits of the proposals to be presented at the MCC Special Meeting. Based upon the recommendation of the MCC Special Committee, the MCC Board unanimously recommends that the MCC Stockholders vote:

 

  “FOR” the approval of the adoption of the MCC Merger Agreement; and

 

  “FOR” the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

The accompanying Joint Proxy Statement/Prospectus describes the MCC Special Meeting, the Sierra special meeting, and the MDLY special meeting, as well as the Mergers, the MCC Merger Agreement, the MDLY Merger Agreement, the other documents related to the Mergers and related transactions and other related matters that MCC believes a MCC Stockholder ought to consider before voting on the proposals described herein and should be retained for future reference. Please carefully read this entire document. You also can obtain information about MCC, Sierra, and MDLY from documents that each has filed with the SEC. See “Where You Can Find More Information” for instructions on how to obtain such information.

 

  Sincerely,
   
 

Brook Taube

Chairman of the Board of Directors and
Chief Executive Officer

 

The SEC has not approved or disapproved the Sierra Common Stock to be issued under the Joint Proxy Statement/Prospectus or determined if the Joint Proxy Statement/Prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The date of the Joint Proxy Statement/Prospectus is December 21, 2018 and it is first being mailed or otherwise delivered to MCC Stockholders on or about December 21, 2018.

 

Medley Capital Corporation

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

In addition, if you have questions about the Mergers or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Alliance Advisors LLC, MCC’s proxy solicitor, at the address and telephone number listed below. You will not be charged for any of these documents that you request.

 

Alliance Advisors LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

(833) 814-9451

 

 

 

 

 

Medley Capital Corporation

280 Park Ave, 6th Floor East

New York, NY 10017

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 8, 2019

 

To the Stockholders of Medley Capital Corporation:

 

Notice is hereby given that Medley Capital Corporation, a Delaware corporation, (“MCC”), will hold a Special Meeting of the stockholders of MCC (the “MCC Special Meeting”), on February 8, 2019 at 9:00 A.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036 for the following purposes:

 

1.To consider and vote upon a proposal to approve the adoption of the Agreement and Plan of Merger (the “MCC Merger Agreement”), dated as of August 9, 2018, by and between MCC and Sierra Income Corporation (“Sierra”), pursuant to which MCC will merge with and into Sierra, with Sierra continuing as the surviving company in the merger.

 

2.To consider and vote upon a proposal to approve the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

Only the holders of record of shares of MCC common stock at the close of business on December 21, 2018 will be entitled to receive notice of and vote at the MCC Special Meeting.

 

It is important that all MCC stockholders participate in the affairs of MCC, regardless of the number of shares owned. Accordingly, MCC urges you to promptly fill out, sign, date and mail the enclosed WHITE proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the MCC Special Meeting. Instructions are shown on the proxy card.

 

You have the option to revoke the proxy at any time prior to the meeting or to vote your shares in person if you attend the MCC Special Meeting and are the record owner of the shares.

 

Based upon the recommendation of a special committee of the MCC board of directors (the “MCC Board”), the MCC Board has unanimously, (i) determined that the MCC Merger Agreement and the transactions contemplated thereby, including, without limitation, the MCC Merger, are advisable and fair to, and in the best interests of, MCC and the MCC Stockholders, (ii) approved and declared advisable the MCC Merger Agreement and the transactions contemplated thereby, including, without limitation the MCC Merger, (iii) resolved to submit the MCC Merger Agreement to the MCC Stockholders for its adoption, and (iv) recommended that the MCC Stockholders approve the adoption of the MCC Merger Agreement, and unanimously recommends that MCC Stockholders vote “FOR” the approval of the adoption of the MCC Merger Agreement, and “FOR” the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

  By Order of the Board of Directors,
   
  Richard T. Allorto, Jr.
  Secretary

 

New York, New York

December 21, 2018

 

 

 

 

YOUR VOTE IS IMPORTANT!

 

MCC URGES YOU TO PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS SOON AS POSSIBLE EVEN IF YOU PLAN TO ATTEND THE MCC SPECIAL MEETING. INSTRUCTIONS ARE SHOWN ON THE PROXY CARD. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

 

The accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”) provides a description of the MCC Merger Agreement, including the transactions contemplated thereby, and the matters to be considered at the MCC Special Meeting. MCC urges you to read the Joint Proxy Statement/Prospectus and its appendices carefully and in their entirety. If you have any questions concerning the MCC Merger Agreement, including the transactions contemplated thereby, or the matters to be considered at the MCC Special Meeting or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need help voting your shares, please contact MCC’s proxy solicitor:

 

Alliance Advisors LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

(833) 814-9451

  

 

 

 

 

Dear Stockholder:

 

I am writing to you on behalf of the board of directors (the “MDLY Board”) of Medley Management Inc. (“MDLY”) to ask for your vote to approve the adoption of an Agreement and Plan of Merger, dated as of August 9, 2018 (the “MDLY Merger Agreement”), by and among MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY will merge with and into Merger Sub, with Merger Sub continuing as the surviving company in such merger (the “MDLY Merger”). The approval of the adoption of the MDLY Merger Agreement by MDLY stockholders (the “MDLY Stockholders”) is assured. The MDLY Merger is directly related to and contingent upon the merger of Medley Capital Corporation (“MCC”) with and into Sierra, with Sierra as the surviving company in such merger (the “MCC Merger”). The MCC Merger is subject to the terms and conditions set forth in the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra (the “MCC Merger Agreement”). We refer to the MDLY Merger and the MCC Merger, collectively, as the “Mergers,” and Sierra and Merger Sub, as the surviving companies in the Mergers, as the “Combined Company” (as defined below).

 

Subject to the terms and conditions of the various agreements related to the Mergers that are described in the accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”), the Mergers will effectuate the following:

 

  In the MDLY Merger, each share of Class A Common Stock, par value $0.01 per share, of MDLY (“MDLY Class A Common Stock”) issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A Common Stock held by MDLY, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive (i) 0.3836 shares of common stock, par value $0.001 per share, of Sierra (“Sierra Common Stock”); plus (ii) cash in an amount equal to $3.44 per share. In addition, the MDLY Stockholders will have the right to receive certain dividends and/or other payments, as described herein. Each share of Class B Common Stock, par value $0.01 per share, of MDLY, issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares, will be canceled without consideration therefor.

 

MDLY Merger Consideration (per share of MDLY Class A Common Stock)  Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $2.71 
Cash from Sierra  $3.44 
Cash from Sierra; First Dividend Shortfall Amount  $0.35 
Cash from Sierra; Second Dividend Shortfall Amount  $0.30 
Total  $6.80 

 

  In the MCC Merger, each share of common stock, par value $0.001 per share, of MCC (“MCC Common Stock”) issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC Common Stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be converted into the right to receive 0.8050 shares of Sierra Common Stock. In addition, MCC’s stockholders (the “MCC Stockholders”) are expected to continue to receive regular MCC dividends prior to closing, consistent with the current MCC dividend policy.

 

MCC Merger Consideration (per share of MCC Common Stock)   Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s net asset value per share of $7.06 as of September 30, 2018)  $5.68 
Total  $5.68 

 

The Mergers would occur simultaneously, with Sierra and Merger Sub continuing as the surviving companies (collectively, the “Combined Company”).

 

 

 

 

Your vote is extremely important. At a special meeting of MDLY Stockholders (the “MDLY Special Meeting”), MDLY Stockholders will be asked to vote on: (i) the approval of the adoption of the MDLY Merger Agreement; and (ii) the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement. In order to complete the Mergers, MDLY Stockholders are required to vote on the proposal to approve the adoption of the MDLY Merger Agreement.

 

MDLY urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the MDLY Special Meeting. Instructions are shown on the proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder. If you have any questions about the Mergers or need assistance voting your shares, please call Innisfree M&A Incorporated, which is assisting MDLY with the solicitation of proxies, toll-free at (888) 750-5834.

 

The MDLY Board established a special committee comprised solely of its independent directors (the “MDLY Special Committee”), which was assisted by an independent financial advisor and independent legal counsel, for the purpose of assessing the merits of the proposals to be presented at the MDLY Special Meeting. Based upon the recommendation of the MDLY Special Committee, the MDLY Board unanimously recommends that the MDLY Stockholders vote:

 

  “FOR” the approval of the adoption of the MDLY Merger Agreement; and

 

  “FOR” the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

The accompanying Joint Proxy Statement/Prospectus describes the MDLY Special Meeting, the Sierra special meeting, and the MCC special meeting, as well as the Mergers, the MCC Merger Agreement, the MDLY Merger Agreement, the other documents related to the Mergers and related transactions and other related matters that MDLY believes a MDLY Stockholder ought to consider before voting on the proposals described herein and should be retained for future reference. Please carefully read this entire document. You also can obtain information about MDLY, Sierra, and MCC from documents that each has filed with the SEC. See “Where You Can Find More Information” for instructions on how to obtain such information.

 

  Sincerely,
   
 

Brook Taube

Co-Chairman of the Board of Directors and
Co-Chief Executive Officer

 

The SEC has not approved or disapproved the Sierra Common Stock to be issued under the Joint Proxy Statement/Prospectus or determined if it is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The date of the Joint Proxy Statement/Prospectus is December 21, 2018 and it is first being mailed or otherwise delivered to MDLY Stockholders on or about December 21, 2018.

 

Medley Management Inc.

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

In addition, if you have questions about the Mergers or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Innisfree M&A Incorporated, MDLY’s proxy solicitor, at the address and telephone number listed below. You will not be charged for any of these documents that you request.

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York

(888) 750-5834

 

 

 

 

 

 

Medley Management Inc.

280 Park Ave, 6th Floor East

New York, NY 10017

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

TO BE HELD ON FEBRUARY 8, 2019

 

To the Stockholders of Medley Management Inc.:

 

Notice is hereby given that Medley Management Inc., a Delaware corporation (“MDLY”), will hold a Special Meeting of the Stockholders of MDLY(the “MDLY Special Meeting”), on February 8, 2019 at 3:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036 for the following purposes:

 

1.To consider and vote upon a proposal to approve the adoption of the Agreement and Plan of Merger, dated as of August 9, 2018 (the “MDLY Merger Agreement), by and among MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY will merge with and into Merger Sub, with Merger Sub as the surviving company in the merger.

 

2.To consider and vote upon a proposal to approve the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

Only the holders of record of shares of MDLY Common Stock at the close of business on December 21, 2018 will be entitled to receive notice of and vote at the MDLY Special Meeting.

 

It is important that all MDLY stockholders participate in the affairs of MDLY, regardless of the number of shares owned. Accordingly, MDLY urges you to promptly fill out, sign, date and mail the enclosed proxy card or authorize your proxy by telephone or through the Internet as soon as possible even if you plan to attend the MDLY Special Meeting. Instructions are shown on the proxy card.

 

You have the option to revoke the proxy at any time prior to the meeting or to vote your shares in person if you attend the MDLY Special Meeting and are the record owner of the shares.

 

Based upon the recommendation of a special committee of the MDLY board of directors (the “MDLY Board”), the MDLY Board has unanimously, (i) determined that the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation, the MDLY Merger, are advisable and fair to, and in the best interests of, MDLY and the MDLY Stockholders, (ii) approved and declared advisable the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation the MDLY Merger, (iii) resolved to submit the MDLY Merger Agreement to the MDLY Stockholders for its adoption, and (iv) recommended that the MDLY Stockholders approve the adoption of the MDLY Merger Agreement, and unanimously recommends that MDLY Stockholders vote “FOR” the approval of the adoption of the MDLY Merger Agreement, and “FOR” the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

  By Order of the Board of Directors,
   
  John D. Fredericks
  Secretary

 

New York, New York

December 21, 2018

 

 

 

 

YOUR VOTE IS IMPORTANT!

 

MDLY URGES YOU TO PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS SOON AS POSSIBLE EVEN IF YOU PLAN TO ATTEND THE MDLY SPECIAL MEETING. INSTRUCTIONS ARE SHOWN ON THE PROXY CARD. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such record holder.

 

The accompanying joint proxy statement/prospectus (the “Joint Proxy Statement/Prospectus”) provides a description of the MDLY Merger Agreement, including the transactions contemplated thereby, and the matters to be considered at the MDLY Special Meeting. MDLY urges you to read the Joint Proxy Statement/Prospectus and its appendices carefully and in their entirety. If you have any questions concerning the MDLY Merger Agreement, including the transactions contemplated thereby, or the matters to be considered at the MDLY Special Meeting or the Joint Proxy Statement/Prospectus, would like additional copies of the Joint Proxy Statement/Prospectus or need help voting your shares, please contact MDLY’s proxy solicitor:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York

(888) 750-5834

  

 

 

 

TABLE OF CONTENTS

 

    Page
TABLE OF CONTENTS   i
ABOUT THIS DOCUMENT   1
QUESTIONS & ANSWERS ABOUT THE SIERRA SPECIAL MEETING, THE MCC SPECIAL MEETING, THE MDLY SPECIAL MEETING, THE MERGERS, AND RELATED MATTERS   6
SUMMARY   20
COMPARATIVE FEES AND EXPENSES   51
SPECIAL FACTORS   56
General Description of the Mergers   56
Background of the Mergers   57
Reasons for the Mergers   84
Recommendation of the Sierra Board and the Sierra Special Committee   93
Recommendation of the MCC Board and the MCC Special Committee   93
Recommendation of the MDLY Board   93
Opinion of Financial Advisor to the Sierra Special Committee   94
Opinion of Financial Advisor to the MCC Special Committee   104
Opinion of Financial Advisor to the MDLY Special Committee   112
Opinion of Financial Advisor to the MDLY Board   124
Financing of the Mergers   132
Unaudited Prospective Financial Information   132
Management of the Combined Company   137
Listing of Sierra Common Stock and Delisting of MCC Common Stock and MDLY Class A Common Stock   137
RISK FACTORS   138
Risks Relating to the Mergers   138
Risks Relating to the Combined Company if the Mergers are Successfully Consummated   146
Risks Relating to Sierra   151
Risks Relating to MCC   183
Risks Relating to MDLY   210
SELECTED FINANCIAL AND OTHER DATA OF SIERRA   241
SELECTED FINANCIAL AND OTHER DATA OF MCC   243
SELECTED FINANCIAL AND OTHER DATA OF MDLY   245
UNAUDITED SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA   247
UNAUDITED PRO FORMA CONSOLIDATED PER SHARE DATA   248
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   249
THE SIERRA SPECIAL MEETING   251
THE MCC SPECIAL MEETING   258
THE MDLY SPECIAL MEETING   262
DESCRIPTION OF THE MCC MERGER AGREEMENT   267
Explanatory Note Regarding the MCC Merger Agreement   267
The MCC Merger   267
Merger Consideration   268
Sierra Charter and Bylaws   268
Officers and Directors of the Surviving Company   268
Closing of the MCC Merger   269
Delivery of MCC Merger Consideration   269
Representations and Warranties   271
Covenants Relating to the Conduct of the Business   272
Additional Covenants   276
Transaction Expenses   282
Conditions to the MCC Merger   283
Termination of the MCC Merger Agreement   285
Termination Fees   286
Effect of Termination   286
Remedies; Specific Performance   287
Amendment and Waiver   287
Governing Law; Jurisdiction   287

 

i

 

TABLE OF CONTENTS

(continued)

 

    Page
DESCRIPTION OF THE MDLY MERGER AGREEMENT   288
Explanatory Note Regarding the MDLY Merger Agreement   288
The MDLY Merger   288
Merger Consideration   289
Appraisal Rights   290
Sierra Charter and Bylaws   291
Officers and Directors of the Surviving Company   291
Closing of the MDLY Merger   291
Delivery of MDLY Merger Consideration   292
Representations and Warranties   294
Covenants Relating to the Conduct of the Business   296
Additional Covenants   299
Transaction Expenses   307
Conditions to the MDLY Merger   307
Termination of the MDLY Merger Agreement   309
Termination Fees   310
Effect of Termination   311
Remedies; Specific Performance   312
Amendment and Waiver   312
Governing Law; Jurisdiction   313
Other Agreements   313
ACCOUNTING TREATMENT   314
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES   315
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   330
CAPITALIZATION   360
SIERRA PROPOSAL # 1: APPROVAL OF THE MCC MERGER   361
SIERRA PROPOSAL #2: APPROVAL OF THE MDLY MERGER   362
SIERRA PROPOSAL #3: ISSUANCE OF THE SHARES OF SIERRA COMMON STOCK TO BE ISSUED PURSUANT TO EACH OF THE MCC MERGER AGREEMENT AND THE MDLY MERGER AGREEMENT AT A PRICE BELOW ITS THEN CURRENT NAV PER SHARE, IF APPLICABLE   363
SIERRA PROPOSAL #4: THE ADOPTION OF THE SIERRA INCENTIVE PLAN   364
SIERRA PROPOSAL #5: ADOPTION OF SIERRA CHARTER AMENDMENTS   371
SIERRA PROPOSAL #6: APPROVAL OF THE COMBINED COMPANY INVESTMENT ADVISORY AGREEMENT   383
SIERRA PROPOSAL #7: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE   389
MCC PROPOSAL #1: APPROVAL OF THE ADOPTION OF THE MCC MERGER AGREEMENT   390
MCC PROPOSAL #2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE   391
MDLY PROPOSAL #1: APPROVAL OF THE ADOPTION OF THE MDLY MERGER AGREEMENT   392
MDLY PROPOSAL #2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE   393
MARKET PRICE, DIVIDEND AND DISTRIBUTION INFORMATION   394
BUSINESS OF SIERRA   400
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SIERRA   425
SENIOR SECURITIES OF SIERRA   451
PORTFOLIO COMPANIES OF SIERRA   453
MANAGEMENT OF SIERRA   472
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF SIERRA   480
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SIERRA COMMON STOCK   484
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS OF SIERRA   485

 

ii

 

TABLE OF CONTENTS

 (continued)

 

    Page
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON SIERRA ACCOUNTING AND FINANCIAL DISCLOSURE   486
BUSINESS OF MCC   487
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MCC   516
SENIOR SECURITIES OF MCC   535
PORTFOLIO COMPANIES OF MCC   537
MANAGEMENT OF MCC   550
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF MCC   558
CONTROL PERSONS AND PRINCIPAL HOLDERS OF MCC COMMON STOCK   559
MCC COMMON STOCK PERFORMANCE GRAPH   561
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS OF MCC   562
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON MCC ACCOUNTING AND FINANCIAL DISCLOSURE   563
BUSINESS OF MDLY   564
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MDLY   577
MANAGEMENT OF MDLY   608
EXECUTIVE COMPENSATION OF MDLY   618
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF MDLY   624
CONTROL PERSONS AND PRINCIPAL HOLDERS OF MDLY   629
MDLY CLASS A COMMON STOCK PERFORMANCE GRAPH   631
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK OF MDLY   632
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON MDLY ACCOUNTING AND FINANCIAL DISCLOSURE   634
DESCRIPTION OF SIERRA’S CAPITAL STOCK   635
DESCRIPTION OF MCC’S CAPITAL STOCK   645
DESCRIPTION OF MDLY’S CAPITAL STOCK   647
SIERRA DISTRIBUTION REINVESTMENT PLAN   653
MCC DIVIDEND REINVESTMENT PLAN   654
COMPARISON OF STOCKHOLDER RIGHTS   655
REGULATORY APPROVALS REQUIRED FOR THE MERGERS   677
Request for SEC Exemptive Relief   677
Request for SBA Approval   677
The HSR Act   677
INFORMATION ABOUT THE COMBINED COMPANY   678
Operational Plans of the Combined Company   678
Management   678
Investment Advisory Agreement   685
Arrangements with Management   692
REGULATION OF THE COMBINED COMPANY   704
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT AND REGISTRAR OF SIERRA   709
CUSTODIAN AND TRANSFER AGENT OF MCC   709
TRANSFER AGENT AND REGISTRAR OF MDLY   709
BROKERAGE ALLOCATION AND OTHER PRACTICES   709
LEGAL MATTERS   710
EXPERTS   710
APPRAISAL RIGHTS OF MDLY STOCKHOLDERS   711
OTHER MATTERS   716
STOCKHOLDER NOMINATIONS AND PROPOSALS FOR THE 2019 ANNUAL MEETING   717
STOCKHOLDERS SHARING AN ADDRESS   720
WHERE YOU CAN FIND MORE INFORMATION   721
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   F-1

 

iii

 

Appendix A — Agreement and Plan of Merger, dated as of August 9, 2018, by and between Medley Capital Corporation and Sierra Income Corporation   A-1
Appendix B — Agreement and Plan of Merger, dated as of August 9, 2018, by and among Medley Management Inc., Sierra Income Corporation and Sierra Management, Inc.   B-1
Appendix C — Opinion of Broadhaven Capital Partners   C-1
Appendix D — Opinion of Sandler O’Neill & Partners, L.P.   D-1
Appendix E — Opinion of Barclays Capital Inc.   E-1
Appendix F — Opinion of Goldman Sachs & Co. LLC   F-1
Appendix G — Sierra Income Corporation 2018 Omnibus Incentive Plan   G-1
Appendix H — Third Articles of Amendment and Restatement of Sierra Income Corporation   H-1
Appendix I — Articles of Amendment to the Third Articles of Amendment and Restatement of Sierra Income Corporation   I-1
Appendix J — Amended and Restated Bylaws of Sierra Income Corporation   J-1
Appendix K — Combined Company Investment Advisory Agreement   K-1
Appendix L — Section 262 of the DGCL   L-1
Appendix M — Code of Business Conduct and Ethics of Sierra Income Corporation   M-1

 

iv

 

ABOUT THIS DOCUMENT

 

This document, which forms part of a registration statement on Form N-14 filed with the SEC by Sierra (File No. 333-228216), constitutes a prospectus of Sierra under Section 5 of the Securities Act. with respect to the shares Sierra Common Stock to be issued to the MCC Stockholders and the MDLY Stockholders in connection with the Mergers.

 

This document also constitutes a joint proxy statement of Sierra, MCC, and MDLY under Section 14(a) of the Exchange Act. It also constitutes a notice of meeting with respect to the Sierra Special Meeting, the MCC Special Meeting and the MDLY Special Meeting.

 

At the Sierra Special Meeting, Sierra Stockholders will be asked to vote on (1) the approval of the MCC Merger; (2) the approval of the MDLY Merger; (3) the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable; (4) the adoption of the Sierra Incentive Plan; (5) the adoption of the Sierra Charter Amendments; (6) the approval of the Combined Company Investment Advisory Agreement; and (7) the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

At the MCC Special Meeting, MCC Stockholders will be asked to vote on (1) the approval of the adoption of the MCC Merger Agreement and (2) the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

At the MDLY Special Meeting, MDLY Stockholders will be asked to vote on (1) the approval of the adoption of the MDLY Merger Agreement and (2) the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement. Information about each of the Sierra Special Meeting, MCC Special Meeting, MDLY Special Meeting, and the Mergers is contained in this document.

 

You should rely only on the information contained in this document. No one has been authorized to provide you with information that is different from that contained in this document. This document is dated December 21, 2018. You should not assume that the information contained in this document is accurate as of any date other than that date. Neither the mailing of this document to Sierra Stockholders, MCC Stockholders, or MDLY Stockholders nor the issuance by Sierra of the Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement will create any implication to the contrary.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

Except where the context otherwise indicates, information contained in this document regarding Sierra has been provided by Sierra, information contained in this document regarding MCC has been provided by MCC, and information contained in this document regarding MDLY has been provided by MDLY.

 

When used in this document, unless otherwise indicated in this document or the context otherwise requires:

 

“Advisers Act” refers to the Investment Advisers Act of 1940, as amended;

 

“BDC” refers to a business development company;

 

“Code” refers to the Internal Revenue Code of 1986, as amended;

 

“Combined Company” refers to Sierra, including Merger Sub, its wholly owned subsidiary, following the successful consummation of the Mergers;

 

“Combined Company Board” refers to the board of directors of the Combined Company;

 

“Combined Company Common Stock” refers to common stock, par value $0.001 per share, of Sierra, which will be listed on the NYSE and is expected to be listed on the TASE, with such listings expected to be effective as of the closing date of the Mergers;

 

 1

 

“Combined Company Investment Advisory Agreement” refers to the investment advisory agreement by and between the Combined Company and its wholly owned registered investment adviser, MCC Advisors, to be entered into upon the closing of the Mergers;

 

“Companies” refers, collectively, to Sierra, MCC, and MDLY;

 

“DGCL” refers to the Delaware Generate Corporation Law;

 

“Dividend Equivalent Right” refers to the dividend equivalent right in an amount equal to the First Special Dividend (as such term is defined in “Description of the MDLY Merger Agreement — Merger Consideration”) to be distributed to each holder of outstanding MDLY RSUs in accordance with the terms of the MDLY Incentive Plan and the related MDLY RSU award agreements;

 

“DOJ” refers to the Antitrust Division of the U.S. Department of Justice; 

 

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

“Exchange Agreement” refers to that certain Exchange Agreement, dated as of September 23, 2014, among MDLY, Medley LLC and the Medley LLC Unitholders;

 

“Excluded MCC Shares” refers to shares of MCC Common Stock owned by MCC, Sierra, or any wholly owned subsidiary of MCC or Sierra;

 

“Excluded MDLY Shares” refers to shares of MDLY Class A Common Stock held by MDLY, Sierra or their respective wholly owned subsidiaries;

 

“FTC” refers to the U.S. Federal Trade Commission; 

 

“HSR Act” refers to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, amended;

 

“Investment Company Act” refers to the Investment Company Act of 1940, as amended;

 

“IRS” refers to the U.S. Internal Revenue Service;

 

“Joint Proxy Statement/Prospectus” refers, collectively, to the respective proxy statements of Sierra, MCC and MDLY and the related prospectus of Sierra with respect to the Mergers and the shares of Sierra Common Stock to be issued in connection with the Mergers, all of which form part of the Registration Statement on Form N-14 (File No. 333- 228216) filed by Sierra with the SEC.

 

“Management” refers to the senior professionals of Medley Advisors, consisting of Brook Taube, Seth Taube, Jeff Tonkel, Richard T. Allorto, Jr., John D. Fredericks, Samuel Anderson, and Christopher Taube;

 

“MCC” refers to Medley Capital Corporation, a publicly traded BDC;

 

“MCC Administration Agreement” refers to that certain Administration Agreement, dated as of November 3, 2014, by and between MCC and MCC Advisors;

 

“MCC Advisors” refers to MCC Advisors LLC, MCC’s investment adviser;

 

“MCC Board” refers to the board of directors of MCC;

 

“MCC Bylaws” refers to the Bylaws of MCC;

 

“MCC Certificate” refers to the Certificate of Incorporation of MCC;

 

 2

 

“MCC Common Stock” refers to common stock, par value $0.001 per share of MCC;

 

“MCC Investment Management Agreement” refers to that certain Amended and Restated Investment Management Agreement by and between MCC and MCC Advisors, dated January 19, 2014;

 

“MCC Merger” refers to the merger of MCC with and into Sierra, with Sierra continuing as the surviving company in such merger, as contemplated by the MCC Merger Agreement;

 

“MCC Merger Agreement” refers to that certain Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra;

 

“MCC Merger Closing” refers to the closing of the MCC Merger;

 

“MCC Merger Closing Date” refers to the date on which the MCC Merger Closing occurs;

 

“MCC Merger Effective Time” refers to the time at which the MCC Merger becomes effective, which shall be set forth in the certificate of merger to be filed with the Secretary of State of the State of Delaware and articles of merger are filed with the State Department of Assessments and Taxation for the State of Maryland;

 

“MCC Record Date” refers to the record date for determination of the MCC Stockholders of record entitled to vote at the MCC Special Meeting, which is the close of business on December 21, 2018;

 

“MCC Special Committee” refers to the special committee of the MCC Board, compromised solely of independent directors of MCC: Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, and Mark Lerdal;

 

“MCC Special Meeting” refers to the special meeting of MCC Stockholders to which the Joint Proxy Statement/Prospectus relates;

 

“MCC Stockholders” refers to the holders of MCC Common Stock;

  

“MDLY” refers to Medley Management Inc., a publicly traded asset management firm, which is controlled by Medley Group LLC, an entity wholly owned by Management;

 

“MDLY Incentive Plan” refers to the Medley Management Inc. 2014 Omnibus Incentive Plan;

 

“MDLY Board” refers to the board of directors of MDLY;

 

“MDLY Bylaws” refers to the Amended and Restated Bylaws of MDLY;

 

“MDLY Certificate” refers to the Amended and Restated Certificate of Incorporation of MDLY;

 

“MDLY Class A Common Stock” refers to Class A Common Stock, par value $0.01 per share, of MDLY;

 

“MDLY Class B Common Stock” refers to Class B Common Stock, par value $0.01 per share, of MDLY;

 

“MDLY Common Stock” refers, collectively, to MDLY Class A Common Stock and MDLY Class B Common Stock;

 

“MDLY Merger” refers to the merger of MDLY with and into Merger Sub, with Merger Sub continuing as the surviving company, as contemplated by the MDLY Merger Agreement;

 

“MDLY Merger Agreement” refers to that certain Agreement and Plan of Merger, dated as of August 9, 2018, by and among MDLY, Sierra, and Merger Sub;

 

“MDLY Merger Closing” refers to the closing of the MDLY Merger;

 

 3

 

“MDLY Merger Closing Date” refers to the date on which the MDLY Merger Closing occurs;

 

“MDLY Merger Effective Time” refers to the time at which the MDLY Merger becomes effective, which shall be set forth in the certificate of merger to be filed with the Secretary of State of the State of Delaware;

 

“MDLY Record Date” refers to the record date for determination of the MDLY Stockholders of record entitled to vote at the MDLY Special Meeting, which is the close of business on December 21, 2018;

 

“MDLY RSUs” refers to the outstanding restricted stock units of MDLY not previously forfeited under the MDLY Incentive Plan;

 

“MDLY Special Committee” refers to the special committee of the MDLY Board, comprised solely of independent directors of MDLY: James E. Eaton, Jeffrey T. Leeds, and Guy Rounsaville, Jr.;

 

“MDLY Special Meeting” refers to special meeting of MDLY Stockholders to which the Joint Proxy Statement/Prospectus relates;

 

“MDLY Stockholders” refers to the holders of MDLY Common Stock;

 

“Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, and associated investment funds and their respective affiliates;

 

“Medley Advisors” refers to Medley LLC and its subsidiaries;

 

“Medley Affiliates” refers to SIC Advisors, Merger Sub, Medley LLC, Medley Group LLC, Seth Taube, and Brook Taube;

 

“Medley LLC” refers to Medley LLC, excluding its subsidiaries;

 

“Medley LLC Restricted Units” refers to the restricted Medley LLC Unit outstanding and not previously forfeited;

 

“Medley LLC Units” refers to the limited liability company units of Medley LLC;

 

“Medley LLC Unitholders” refers to the holders of Medley LLC Units;

 

“Merger Sub” refers to Sierra Management, Inc., a wholly owned subsidiary of Sierra;

 

“Merger Sub Bylaws” refers to the Bylaws of Merger Sub;

 

“Merger Sub Certificate” refers to the Certificate of Incorporation of Merger Sub;

 

“Merger Sub Common stock” refers to common stock, par value $0.001 per share, of Merger Sub;

 

“Mergers” refers, collectively, to the MCC Merger and the MDLY Merger;

 

“MGCL” refers to the Maryland General Corporation Law;

 

“NAV” refers to net asset value;

 

“NYSE” refers to the New York Stock Exchange;

 

“RIC” refers to a regulated investment company;

 

“Sarbanes-Oxley Act” refers to the Sarbanes-Oxley Act of 2002, as amended;

 

“SBA” refers to the Small Business Administration;

 

 4

 

“SBIC Subsidiary” refers to Medley SBIC, LP;

 

“SEC” refers to the U.S. Securities and Exchange Commission;

 

“Securities Act” refers to the Securities Act of 1933, as amended;

 

“SIC Advisors” refers to SIC Advisors LLC, Sierra’s investment adviser;

 

“Sierra” refers to Sierra Income Corporation, a non-traded BDC;

 

“Sierra Administration Agreement” refers to the Administration Agreement by and between Sierra and Medley Capital LLC, dated as of April 5, 2012;

 

“Sierra Board” refers to the board of directors of Sierra;

 

“Sierra Bylaws” refers to Bylaws of Sierra;

 

“Sierra Charter” refers to the Second Articles of Amendment and Restatement of Sierra;

 

“Sierra Charter Amendments” refers, collectively, to the Third Articles of Amendment and Restatement of Sierra and the Articles of Amendment to the Third Articles of Amendment and Restatement of Sierra;

 

“Sierra Common Stock” refers to common stock, par value $0.001 per share, of Sierra;

 

“Sierra Incentive Plan” refers to the Sierra Income Corporation 2018 Equity Omnibus Plan;

 

“Sierra Investment Advisory Agreement” refers to the Investment Advisory Agreement by and between Sierra and SIC Advisors, dated April 5, 2012;

 

“Sierra Record Date” refers to the record date for determination of the Sierra Stockholders of record entitled to vote at the Sierra Special Meeting, which is the close of business on December 21, 2018;

 

“Sierra Special Committee” refers to the special committee of the Sierra Board, compromised solely of independent directors of Sierra: Oliver T. Kane, Valerie Lancaster-Beal, and Stephen R. Byers;

 

“Sierra Special Meeting” refers to the special meeting of Sierra Stockholders to which the Joint Proxy Statement/Prospectus relates;

 

“Sierra Stockholders” refers to the holders of Sierra Common Stock;

 

“Special Dividends” refers to, collectively, the First Special Dividend (as such term is defined in “Description of the MDLY Merger Agreement — Merger Consideration”), the Second Special Dividend (as such term is defined in “Description of the MDLY Merger Agreement — Merger Consideration”) and the Dividend Equivalent Rights;

 

“TASE” refers to the Tel Aviv Stock Exchange; and

 

“Tax Receivable Agreement” refers to that certain Tax Receivable Agreement, dated as of September 23, 2014, among MDLY and the Medley LLC Unitholders (other than MDLY).

 

 5

 

QUESTIONS & ANSWERS ABOUT THE SIERRA SPECIAL MEETING, THE MCC SPECIAL

MEETING, THE MDLY SPECIAL MEETING, THE MERGERS, AND RELATED MATTERS

 

The following are some questions that you may have regarding the Sierra Special Meeting, the MCC Special Meeting, the MDLY Special Meeting, the Mergers and the proposals being considered at those meetings, along with brief answers to those questions. The questions and answers below highlight only selected information from this Joint Proxy Statement/Prospectus. They do not contain all of the information that may be important to you. You should carefully read this entire Joint Proxy Statement/Prospectus to fully understand the MCC Merger Agreement, the MDLY Merger Agreement, the Mergers, the Sierra Incentive Plan, the proposed Sierra Charter Amendments, the Combined Company Investment Advisory Agreement, and related matters, and the voting procedures for the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting.

 

Q: Why am I receiving this Joint Proxy Statement/Prospectus?

 

A:            The Mergers are dependent upon the satisfaction of certain conditions, including but not limited to, the approval of the Mergers by the Sierra Stockholders, the approval of the MCC Merger by the MCC Stockholders, and the approval of the MDLY Merger by the MDLY Stockholders. Sierra, MCC and MDLY are sending this Joint Proxy Statement/Prospectus to their respective stockholders to help them decide how to vote their shares of Sierra Common Stock, MCC Common Stock, and MDLY Common Stock at the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting, respectively.

 

Q: What will happen in the Mergers?

 

A:            Pursuant to the MCC Merger Agreement, MCC will, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into Sierra, with Sierra as the surviving company in the MCC Merger. Pursuant to the MDLY Merger Agreement, MDLY will, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. Prior to the MDLY Merger, all outstanding Medley LLC Units (other than those held by MDLY) will be converted into MDLY Class A Common Stock such that, in the MDLY Merger, Sierra will acquire 100% of the outstanding equity of MDLY and Merger Sub will continue its existence as a wholly owned subsidiary of Sierra. As a result of the Mergers, the investment portfolios of Sierra and MCC will be combined and the investment management function relating to the operation of the Combined Company will be internalized. See “— What will the Combined Company look like following the completion of the Mergers” (page 15 of this Joint Proxy Statement/Prospectus).

 

Q: What will the MCC Stockholders and the MDLY Stockholders receive in the Mergers?

 

A:            MCC: In the MCC Merger, each share of MCC Common Stock issued and outstanding immediately prior to the MCC Merger Effective Time (other than the Excluded MCC Shares) will be converted into the right to receive 0.8050 shares of Sierra Common Stock (collectively, the “MCC Merger Shares” and, such ratio, the “MCC Exchange Ratio”). The MCC Merger Shares and such cash payable in lieu of fractional shares of Sierra Common Stock is referred to collectively as the “MCC Merger Consideration.”

 

MCC Merger Consideration (per share of MCC Common Stock)   Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s NAV per share of $7.06 as of September 30, 2018)  $5.68 
Total  $​ ​5.68 

 

MDLY: In the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than “dissenting shares” (as discussed below and under “Description of the MDLY Merger Agreement — Appraisal Rights”) and Excluded MDLY Shares) will be converted into the right to receive (i) 0.3836 shares of Sierra Common Stock (collectively, the “MDLY Merger Shares” and, such ratio, the “MDLY Exchange Ratio”); plus (ii) cash in an amount equal to $3.44 per share (the “MDLY Merger Cash Consideration”); plus (iii) the right to receive certain dividends and/or other payments.

 

MDLY Merger Consideration (per share of MDLY Class A Common Stock)  Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s NAV per share of $7.06 as of September 30, 2018)  $2.71 
Cash from Sierra  $3.44 
Cash from Sierra; First Dividend Shortfall Amount  $0.35 
Cash from Sierra; Second Dividend Shortfall Amount  $0.30 
Total  $6.80 

 

 6

 

Q:How will MCC Stockholders and the MDLY Stockholders receive the MCC Merger Consideration and the MDLY Merger Consideration, respectively?

 

A:            Following the Mergers, if you are a MCC Stockholder or MDLY Stockholder at the MCC Merger Effective Time or the MDLY Merger Effective Time, respectively, you will receive a letter of transmittal and instructions on how to obtain your portion of the MCC Merger Consideration or the MDLY Merger Consideration, as applicable. You will receive your respective portion of the MCC Merger Consideration or the MDLY Merger Consideration after the exchange agent for the Mergers receives your properly completed letter of transmittal and/or such other documents that may be required by such exchange agent.

 

Q:What happens if the market price of MCC Common Stock or MDLY Class A Common Stock changes before the closing of the Mergers?

 

A:            No change will be made to the MCC Exchange Ratio or MDLY Exchange Ratio, as applicable, if the market prices of MCC Common Stock or MDLY Class A Common Stock change before the Mergers. Because the exchange ratios are fixed, the value of the consideration to be received by MCC Stockholders and MDLY Stockholders in the Mergers will depend on the market price of Sierra Common Stock immediately following the closing of the Mergers.

 

Q: Is the exchange ratio subject to any other adjustment?

 

A:            MCC: If, between the date of the MCC Merger Agreement and the MCC Merger Effective Time, the outstanding shares of Sierra Common Stock are increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reclassification, stock dividend, stock split, reverse stock split, or other similar change (excluding sales of Sierra Common Stock, sales of Sierra equity-linked securities, and issuance of Sierra Common Stock pursuant to Sierra’s distribution reinvestment plan (the “Sierra Distribution Reinvestment Plan”) or otherwise in lieu of a portion of any cash dividend declared by Sierra), an appropriate and proportionate adjustment will be made to the MCC Exchange Ratio.

 

MDLY: If, between the date of the MDLY Merger Agreement and the MDLY Merger Effective Time, the outstanding shares of Sierra Common Stock are increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reclassification, stock dividend, stock split, reverse stock split, or other similar change (excluding sales of Sierra Common Stock, sales of Sierra equity-linked securities, and issuance of Sierra Common Stock pursuant to the Sierra Distribution Reinvestment Plan or otherwise in lieu of a portion of any cash dividend declared by Sierra), an appropriate and proportionate adjustment will be made to the MDLY Exchange Ratio.

 

Q: Will the Sierra Common Stock be listed on a national securities exchange following the Mergers?

 

A:            Yes. If the Mergers are successfully consummated, Sierra Common Stock will be listed on the NYSE under the symbol “SRA” and is expected to be listed on the TASE, with such listings expected to be effective as of the closing date of the Mergers. The Combined Company does not currently intend to continue to conduct the quarterly tender offers conducted by Sierra prior to the Mergers, and the Combined Company Common Stock may trade at a discount to NAV.

 

 7

 

Q: When and where are the stockholder meetings?

 

A:Sierra: The Sierra Special Meeting will take place on February 8, 2019 at 1:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

MCC: The MCC Special Meeting will take place on February 8, 2019 at 9:00 A.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

MDLY: The MDLY Special Meeting will take place on February 8, 2019 at 3:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

Q:What is happening at the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting?

 

A:           Sierra: Sierra Stockholders are being asked to consider and vote on the following matters at the Sierra Special Meeting: 

 

a proposal to approve the MCC Merger;
   
a proposal to approve the MDLY Merger;

 

a proposal to approve the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable;

 

a proposal to adopt the Sierra Incentive Plan ;

 

proposals to adopt the Sierra Charter Amendments;

 

a proposal to approve the Combined Company Investment Advisory Agreement; and

 

a proposal to approve the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals. 

 

MCC: MCC Stockholders are being asked to consider and vote on the following matters at the MCC Special Meeting:

 

a proposal to approve the adoption of the MCC Merger Agreement; and

 

a proposal to approve the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

MDLY: MDLY Stockholders are being asked to consider and vote on the following matters at the MDLY Special Meeting:

 

a proposal to approve the adoption of the MDLY Merger Agreement; and

 

a proposal to approve the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

 8

 

Q: How do I vote?

 

A:          Sierra: If you are a holder of record of shares of Sierra Common Stock as of the close of business on the Sierra Record Date, you may vote on the applicable proposals by:

 

attending the Sierra Special Meeting in person as specified on the enclosed proxy card;

 

accessing the Internet website specified on the enclosed proxy card;

 

calling the toll-free number specified on the enclosed proxy card; or

 

signing and returning the enclosed proxy card in the postage-paid envelope provided.

 

All shares of Sierra Common Stock represented by properly executed proxies received in time for the Sierra Special Meeting will be voted in the manner specified by the Sierra Stockholders giving those proxies. Unless your shares are held in a brokerage account, if you sign, date and send the enclosed proxy card and do not indicate how you want to vote on a proposal, your proxy will be voted for each of the Sierra proposals.

 

If you hold shares of Sierra Common Stock in the name of a broker, bank or nominee, please follow the voting instructions provided by your broker, bank or nominee to ensure that your shares are represented at the Sierra Special Meeting.

 

MCC: If you are a holder of record of shares of MCC Common Stock as of the close of business on the MCC Record Date, you may vote on the applicable proposals by:

 

attending the MCC Special Meeting in person as specified on the enclosed proxy card;
  
accessing the Internet website specified on the enclosed proxy card;
  
calling the toll-free number specified on the enclosed proxy card; or
  
signing and returning the enclosed WHITE proxy card in the postage-paid envelope provided.

 

All shares of MCC Common Stock represented by properly executed proxies received in time for the MCC Special Meeting will be voted in the manner specified by the MCC Stockholders giving those proxies. Unless your shares are held in a brokerage account, if you sign, date and send the enclosed proxy card and do not indicate how you want to vote on a proposal, your proxy will be voted for each of the MCC proposals.

 

If you hold shares MCC Common Stock in the name of a broker, bank or nominee, please follow the voting instructions provided by your broker, bank or nominee to ensure that your shares are represented at the MCC Special Meeting.

 

MDLY: If you are a holder of record of shares of MDLY Common Stock as of the close of business on the MDLY Record Date, you may vote on the applicable proposals by:

 

attending the MDLY Special Meeting in person as specified on the enclosed proxy card;

 

accessing the Internet website specified on the enclosed proxy card;

 

calling the toll-free number specified on the enclosed proxy card; or

 

signing and returning the enclosed proxy card in the postage-paid envelope provided.

 

 9

 

All shares of MDLY Common Stock represented by properly executed proxies received in time for the MDLY Special Meeting will be voted in the manner specified by the MDLY Stockholders giving those proxies. Unless your shares are held in a brokerage account, if you sign, date and send the enclosed proxy card and do not indicate how you want to vote on a proposal, your proxy will be voted for each of the MDLY proposals.

 

If you hold shares of MDLY Common Stock in the name of a broker, bank or nominee, please follow the voting instructions provided by your broker, bank or nominee to ensure that your shares are represented at the MDLY Special Meeting.

 

Q: What constitutes a quorum at the stockholder meetings?

 

A:           Sierra: The presence, in person or by proxy, of the holders of one-third of issued and outstanding shares of Sierra Common Stock as of the Sierra Record Date will constitute a quorum for the purposes of the Sierra Special Meeting.

 

MCC: The presence, in person or by proxy, of the holders of a majority of issued and outstanding shares of MCC Common Stock as of the MCC Record Date will constitute a quorum for the purposes of the MCC Special Meeting.

 

MDLY: The presence, in person or by proxy, of the holders of a majority in voting power of MDLY Common Stock issued and outstanding as of the MDLY Record Date will constitute a quorum for the purposes of the MDLY Special Meeting.

 

Q: How do the boards of directors of Sierra, MCC and MDLY recommend that I vote?

 

A:           Sierra: Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends Sierra Stockholders vote “FOR” each of the Sierra proposals.

 

MCC: Based upon the recommendation of the MCC Special Committee, the MCC Board unanimously recommends MCC Stockholders vote “FOR” the approval of the adoption of the MCC Merger Agreement and “FOR” the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

MDLY: Based upon the recommendation of the MDLY Special Committee, the MDLY Board unanimously recommends MDLY Stockholders vote “FOR” the approval of the adoption of the MDLY Merger Agreement and “FOR” the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

 10

 

Q:What Sierra Stockholder vote is required to approve the Sierra proposals?

 

A:           With regard to Sierra Proposal #1 (approval of MCC Merger), and Sierra Proposal #2 (approval of MDLY Merger) the holders of a majority of the outstanding shares of Sierra Common Stock as of the Sierra Record Date must affirmatively vote “FOR” in order for it to be approved. Because the vote on each proposal is based on the total number of shares of Sierra Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

With regard to Sierra Proposal #3 (issuance of Sierra Common Stock pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement), under the Investment Company Act, Sierra is not permitted to issue shares of Sierra Common Stock at a price below the then current NAV per share unless such issuance is approved by a majority of the holders of (1) the outstanding shares of Sierra Common Stock and (2) the outstanding shares of Sierra Common Stock held by persons who are not affiliated persons of Sierra. The vote of holders of a “majority,” as defined in the Investment Company Act, means the vote of the holders of the lesser of (1) 67% or more of the outstanding shares of Sierra Common Stock present or represented by proxy at the Sierra Special Meeting if the holders of more than 50% of the shares of Sierra Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Sierra Common Stock. In order to issue shares at a price below NAV pursuant to this approval, the Sierra Board would need to make certain determinations as required under the Investment Company Act. Abstentions and “broker non-votes” will have the effect of a vote “AGAINST” the proposal. See “The Special Meeting of Sierra—Vote Required” (page 253 of this Joint Proxy Statement/Prospectus) for more information on Sierra Proposal #3.

 

With regard to Sierra Proposal #4 (adoption of the Sierra Incentive Plan), the majority of the votes cast by the holders of Sierra Common Stock as of the Sierra Record Date present or represented by proxy at the Sierra Special Meeting must affirmatively vote “FOR” Sierra Proposal #4 in order for it to be approved (meaning the number of shares voted “FOR” a proposal must exceed the number of shares voted “AGAINST” such proposal). Abstentions have the same effect as votes cast against the proposal, while “broker non-votes” will not be included in determining the number of votes cast and, as a result, do not affect the outcome.

 

With regard to Sierra Proposal #5 (adoption of the Sierra Charter Amendments), the requisite Sierra Stockholder approval is dependent on the particular Sierra Charter Amendment being considered, as described below.

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of each of Charter Amendment Proposals #5(A)(i) through (A)(xi) in order for it to be approved. Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” each of Charter Amendment Proposals #5(A)(i) through (A)(xi).

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(B). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(B).

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(C). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(C).

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(D). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(D).

 

The holders of shares of Sierra Common Stock entitled to cast at least two-thirds of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(E). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(E).

 

 11

 

With regard to Sierra Proposal #6 (approval of the Combined Company Investment Advisory Agreement), a majority of the holders of (1) the outstanding shares of Sierra Common Stock as of the Sierra Record Date and (2) the outstanding shares of Sierra Common Stock as of the Sierra Record Date held by persons who are not affiliated persons of Sierra, each must affirmatively vote “FOR” the proposal in order for it to be approved. The vote of holders of a “majority,” as defined in the Investment Company Act, means the vote of the holders of the lesser of (1) 67% or more of the outstanding shares of Sierra Common Stock present or represented by proxy at the Sierra Special Meeting if the holders of more than 50% of the shares of Sierra Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Sierra Common Stock. Because the vote on the proposal is based on the total number of shares outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

Q:What MCC Stockholder vote is required to approve MCC Proposal #1 (approval of the adoption of the MCC Merger Agreement)?

 

A:            A majority of the outstanding shares of MCC Common Stock as of the MCC Record Date must affirmatively vote “FOR” MCC Proposal #1 in order for it to be approved. Because the vote on the proposal is based on the total number of shares of MCC Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

Q:What MDLY Stockholder vote is required to approve MDLY Proposal #1 (approval of the adoption of the MDLY Merger Agreement)?

 

A:            The holders of a majority of the voting power of the outstanding shares of MDLY Common Stock as of the MDLY Record Date must affirmatively vote “FOR” MDLY Proposal #1 in order for it to be approved. Because the vote on the proposal is based on the total number of shares of MDLY Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal. As a result of the voting control of Medley Group LLC of 97.7%, the approval of the adoption of the MDLY Merger Agreement by MDLY Stockholders is assured.

 

Q:How were the actual and potential conflicts of interests addressed in consideration of the approval of the Mergers?

 

A:            Various safeguards were implemented to protect against actual and potential conflicts of interests in light of the fact that the Mergers required agreement among Management and three affiliated, separate and distinct public entities, one of which, MDLY, is controlled by Management through majority equity ownership and two of which, Sierra and MCC, are managed by subsidiaries of MDLY. In order to mitigate such conflicts, each of the Sierra Board, the MCC Board, and the MDLY Board formed a special committee, comprised solely of independent directors of each respective board. Each of the Sierra Special Committee, MCC Special Committee and MDLY Special Committee exercised the authority, granted by each respective board, to hire advisors that it deemed appropriate, including in each case its own independent legal counsel and independent financial advisor. For a more detailed discussion of the processes undertaken to mitigate Management’s conflicts of interests and role in the Mergers, see “Special Factors—Background of the Mergers—Management’s Conflicts of Interests and Role in the Mergers” (page 60 of this Joint Proxy Statement/Prospectus). For a more detailed description of the process undertaken by each of the Sierra Special Committee, the MCC Special Committee, and the MDLY Special Committee, see “Special Factors — Background of the Mergers — Sierra” (page 61 of this Joint Proxy Statement/Prospectus), “Special Factors — Background of the Mergers — MCC”, (page 71 of this Joint Proxy Statement/Prospectus), and “Special Factors — Background of the Mergers — MDLY” (page 74 of this Joint Proxy Statement/Prospectus).

 

 12

 

Q:Did the Sierra Special Committee, the MCC Special Committee, the MDLY Special Committee, and the MDLY Board receive opinions from financial advisors regarding the merger consideration?

 

A:           Sierra: Yes. For more information, see “Special Factors — Opinion of Financial Advisor to the Sierra Special Committee” (page 94 of this Joint Proxy Statement/Prospectus).

 

MCC: Yes. For more information, see “Special Factors — Opinion of Financial Advisor to the MCC Special Committee” (page 104 of this Joint Proxy Statement/Prospectus).

 

MDLY: Yes. For more information, see “Special Factors — Opinion of Financial Advisor to the MDLY Special Committee” (page 112 of this Joint Proxy Statement/Prospectus), and “Special Factors — Opinion of Financial Advisor to the MDLY Board” (page 124 of this Joint Proxy Statement/Prospectus).

 

Q:Who is responsible for paying the expenses relating to completing the Mergers, including the preparation of this Joint Proxy Statement/Prospectus and the solicitation of proxies?

 

A:            In general, Sierra, MCC, and MDLY will each be responsible for its own fees and expenses incurred in connection with the MCC Merger Agreement and the MDLY Merger Agreement and the transactions contemplated thereby, including the completion of the MCC Merger and the MDLY Merger, as the case may be, irrespective of whether the Mergers are completed. However, the costs and expenses of preparing, filing, printing and mailing this Registration Statement on Form N-14 and related Joint Proxy Statement/Prospectus, all other filing fees and amounts paid to the SEC in connection with the Mergers, and the fees of any filings under the HSR Act, will be borne equally by Sierra, MCC, and MDLY. See “Description of the MCC Merger Agreement — Transaction Expenses” (page 282 of this Joint Proxy Statement/Prospectus) and “Description of the MDLY Merger Agreement — Transaction Expenses” (page 307 of this Joint Proxy Statement/Prospectus).

 

Q: Will I receive dividends after the effective time of the MCC Merger and the MDLY Merger?

 

A:            To the extent Sierra, as the Combined Company, declares and pays dividends on the Sierra Common Stock, all holders of Sierra Common Stock (including former holders of MCC Common Stock and MDLY Class A Common Stock) as of the relevant record dates will be entitled to receive such dividends. However, no dividends or other distributions declared with respect to Sierra Common Stock to stockholders of record on or after the MCC Merger Effective Time or MDLY Merger Effective Time will be paid to the holder of any unsurrendered certificate of MCC Common Stock or MDLY Class A Common Stock, as applicable, unless and until the holder thereof has surrendered such certificate in accordance with the terms of the relevant merger agreement. Subject to the effect of applicable abandoned property, escheat or similar laws, following surrender of any such certificate, the record holder of such certificate will be entitled to receive, without interest, (i) the amount of dividends or other distributions with a record date after the effective time theretofore payable with respect to the whole shares of Sierra Common Stock represented by such certificate and not paid to the relevant stockholder prior to the date of surrender, and/or (ii) at the appropriate payment date, the amount of dividends or other distributions payable with respect to whole shares of Sierra Common Stock represented by such certificate with a record date after the effective time (but before such surrender date) and with a payment date subsequent to the surrender date. For a history of the dividends and distributions paid by Sierra, MCC, and MDLY, see “Market Price, Dividend and Distribution Information” (page 394 of this Joint Proxy Statement/Prospectus).

 

Q: Are there any conditions to the MCC Merger Closing that must be satisfied for the MCC Merger to be completed?

 

A:            Yes. In addition to the approvals of the Sierra Stockholders and MCC Stockholders described herein, there are a number of conditions that must be satisfied or waived for the MCC Merger to be consummated, including but not limited to: (a) obtaining an exemptive order from the SEC in connection with the Mergers, (b) approval of the SBA for the debentures issued by the SBIC Subsidiary to remain outstanding, (c) expiration or termination of any applicable waiting period (and any extension thereof) under the HSR Act, (d) receipt of certain third party consents and approvals relating to joint venture arrangements of Sierra and MCC and certain consents relating to private funds and managed accounts of MDLY, and (e) confirmation from the SEC that Merger Sub will, following the MDLY Merger be treated as a portfolio investment and will not be consolidated on the Combined Company’s financial statements. See “Description of the MCC Merger Agreement—Conditions to the MCC Merger” (page 283 of this Joint Proxy Statement/Prospectus).

 

 13

 

Q: Are there any conditions to the MDLY Merger Closing that must be satisfied for the MDLY Merger to be completed?

 

A:           Yes. In addition to the approvals of the Sierra Stockholders and MDLY Stockholders described herein, there are a number of conditions that must be satisfied or waived for the MDLY Merger to be consummated, including but not limited to: (a) obtaining an exemptive order from the SEC in connection with the Mergers, (b) on (and not sooner than) the MDLY Merger Closing Date, conversion of all issued and outstanding Medley LLC Units (including Medley LLC Restricted Units that have vested) other than Medley LLC Units held by MDLY, into MDLY Class A Common Stock in accordance with the Exchange Agreement, (c) execution, delivery and effectiveness of the Tax Receivable Termination Agreement, (d) MDLY obtaining written consents relating to the continuation, following the MDLY Merger Effective Time, of the advisory relationship with private funds and managed accounts representing 65% of MDLY’s total revenues from private funds and managed accounts for the 12-month period ended as of June 30, 2018, (e) confirmation from the SEC in a manner reasonably acceptable to the parties that the equity of Merger Sub will, following the MDLY Merger, be treated as a portfolio investment of the Combined Company and reflected in the Combined Company’s consolidated financial statements at fair value for accounting purposes, and that Merger Sub’s financial results will not be consolidated into the Combined Company’s financial statements, and (f) entry by specified executives into employment agreements, effective at the MDLY Merger Effective Time, on terms set forth in the MDLY Merger Agreement. See “Description of the MDLY Merger Agreement — Conditions to the MDLY Merger” (page 307 of this Joint Proxy Statement/Prospectus).

 

Q:How will the Combined Company be managed following the completion of the Mergers?

 

A:           On November 6, 2018, the Sierra Board took the necessary actions to appoint individuals to serve as directors and executive officers of the Combined Company. Effective as of the closing of the Mergers, the following actions will occur with respect to the Combined Company Board: (1) Seth Taube will resign from his positions as a director and Chief Executive Officer of Sierra, (2) Brook Taube will be appointed as Chief Executive Officer and Chief Investment Officer of the Combined Company and Chairman of the Combined Company Board, and (3) Karin Hirtler-Garvey and John E. Mack, each of whom are currently independent directors of MCC, will become independent directors of the Combined Company. The current independent directors of Sierra, Oliver T. Kane, Valerie Lancaster-Beal, and Stephen R. Byers, will continue as directors of the Combined Company Board.

 

Effective as of the closing of the Mergers, the following persons will serve as the Combined Company’s executive officers or key employees in the following capacities:

 

  Name   Position(s) Held
  Brook Taube   Chief Executive Officer, Chief Investment Officer and Chairman of the Combined Company Board
  Seth Taube   Vice Chairman, Senior Executive Vice President, and Senior Managing Director
  Jeff Tonkel   President
  Richard T. Allorto, Jr.   Chief Financial Officer, Treasurer, Senior Executive Vice President, and Senior Managing Director
  John D. Fredericks   General Counsel, Chief Compliance Officer, Secretary, Senior Executive Vice President, and Senior Managing Director
  Samuel Anderson   Head of Capital Markets & Risk Management, Senior Executive Vice President, and Senior Managing Director
  Christopher Taube   Head of Institutional Fundraising, Senior Executive Vice President, and Senior Managing Director

 

For more information regarding the management of the Combined Company, see “Information about the Combined Company — Management” (page 678 of this Joint Proxy Statement/Prospectus).

 

 14

 

Q: How do Sierra’s investment objective and strategies differ from MCC’s investment objective and strategies?

 

A:            The following table presents a comparison of Sierra’s and MCC’s investment objective and strategies:

 

    Sierra   MCC
Investment Objective   To generate current income, and to a lesser extent, long-term capital appreciation by primarily lending to and investing in the debt of privately-owned U.S. middle-market companies   To generate current income and capital appreciation by lending to privately-owned middle market companies, primarily through directly originated transactions

Investment Focus

 

 

First lien senior secured debt, second lien secured debt and, to a lesser extent, subordinated debt

 

 

Senior secured first lien loans and senior secured second lien loans

Investment Range

 

 

Investment sizes will vary as Sierra’s capital base changes and will ultimately be at the discretion of SIC Advisors subject to oversight by the Sierra Board

 

 

Between $10 million and $50 million

Target Borrower

 

 

U.S. companies operating in a broad range of industries with annual revenue between $50 million and $1 billion

 

 

U.S. companies operating in a variety of industries with enterprise or asset values between $25 million and $250 million

Equity and Equity-Related Investments

 

 

May make equity investments in companies that Sierra believes will generate appropriate risk adjusted returns, although Sierra does not expect such investments to be a substantial portion of its portfolio

 

 

In connection with some of MCC’s investments, MCC receives warrants or other equity participation features

 

Following the completion of the Mergers, the Combined Company’s investment objective and principal investment strategies will be the same as Sierra’s current investment objective and principal investment strategies, as described above. In connection with the Mergers, neither Sierra nor MCC expects to sell any investments in order for such investments to comply with the Combined Company’s investment objective and principal investment strategies.

 

SIC Advisors currently serves as the registered investment adviser of Sierra, MCC Advisors currently serves as the registered investment adviser of MCC, and, following the consummation of the Mergers, MCC Advisors will serve as the wholly owned registered investment adviser of the Combined Company.

  

Q: What will the Combined Company look like following the completion of the Mergers?

 

A:            Upon the completion of the Mergers, the investment management function relating to the operation of the Combined Company will be internalized and Merger Sub, as the surviving company in the MDLY Merger, will be a wholly owned subsidiary and wholly owned portfolio company of the Combined Company.

 

Simplified Structure before the Completion of the Mergers 

 

 

 

 15

 

Simplified Structure Following the Completion of the Mergers

 

 

 

The following table presents the mix of investments for Sierra and MCC as of September 30, 2018 and pro forma for the Combined Company as of September 30, 2018:

 

   Actual Sierra   Actual MCC   Pro Forma Combined Company 
Senior Secured First Lien Term Loans   50.8%   60.3%   54.5%
Senior Secured Second Lien Term Loans   18.7    7.5    14.2 
Senior Secured First Lien Notes   4.4    2.9    3.8 
Subordinated Notes   8.0        4.8 
Unsecured Debt       0.5    0.2 
Sierra Senior Loan Strategy JV I LLC / MCC Senior Loan Strategy JV I LLC   9.0    11.9    10.2 
Equity/Warrants   9.1    16.9    12.3 
Total   100.0%   100.0%   100.0%

 

For information about Sierra’s and MCC’s total assets, total liabilities and NAV per share as of September 30, 2018 and the pro forma Combined Company’s total assets, total liabilities and NAV per share as of September 30, 2018, see “Unaudited Pro Forma Condensed Consolidated Financial Statements” (page 330 of this Joint Proxy Statement/Prospectus).

 

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Q: What is expected to happen to annual expenses following the completion of the Mergers?

 

A:           As is shown in more detail in “Comparative Fees and Expenses,” the Companies expect that the estimated pro forma combined expenses, as a percentage of NAV, will be lower than MCC’s historical expenses and higher than Sierra’s historical expenses. Specifically, the estimated total annual expenses, as a percentage of NAV, is projected to be 8.52%, 17.68%, and 10.59% of a stockholder’s investment in Sierra, MCC, and the pro forma Combined Company, respectively. The expense comparisons do not take into account the operating expenses of Merger Sub, which are not consolidated into the Combined Company’s financial statements (but which are indirectly borne by the Combined Company’s stockholders). Following the completion of the Mergers, the Companies expect that the Combined Company will achieve certain cost savings and synergies when the investment portfolios of Sierra and MCC are integrated and the businesses and administrative operations of Sierra, MCC, and MDLY are integrated. Such cost savings and synergies include the benefit of reduced expenses due to the elimination of duplicative expenses of approximately $3.5 million consisting of professional fees associated with audit, tax, valuation and legal services, transfer agent fees, board of director fees, director and officer insurance, administrator expenses, and other public company expenses, which are reflected in the pro forma Combined Company expenses set forth in the “Comparative Fees and Expenses” table.

 

Q:What percentage of the Combined Company Common Stock will Sierra Stockholders, MCC Stockholders, and MDLY Stockholders own following the consummation of the Mergers?

 

A:           If the Mergers are completed, based on the number of shares of Sierra Common Stock issued and outstanding as of September 30, 2018, Sierra Stockholders will own approximately 60.5% of the outstanding Combined Company Common Stock, MCC Stockholders will own approximately 31.2% of the outstanding Combined Company Common Stock, and MDLY Stockholders will own approximately 8.3% of the outstanding Combined Company Common Stock.

 

Q:Are the Sierra Stockholders, the MCC Stockholders, and the MDLY Stockholders able to exercise dissenters’ rights or appraisal rights?

 

A:           Sierra: Sierra Stockholders will not have the right to exercise dissenters’ rights of appraisal in connection with either the MCC Merger or the MDLY Merger.

 

MCC: MCC Stockholders will not have the right to exercise dissenters’ rights of appraisal in connection with the MCC Merger.

 

MDLY: MDLY Stockholders are entitled to appraisal rights under Section 262 of the DGCL in connection with the MDLY Merger, provided they follow the procedures and satisfy the conditions set forth in Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached as Appendix L to this Joint Proxy Statement/Prospectus. Failure to strictly comply with Section 262 will result in the loss of appraisal rights. A proxy or vote against the MDLY Merger proposal will not be deemed an appraisal demand. Due to the complexity of the provisions of Section 262 of the DGCL, any MDLY Stockholder considering exercising its appraisal rights under Section 262 of the DGCL is urged to consult his, her or its own legal advisor. See “Description of the MDLY Merger Agreement — Appraisal Rights” (page 290 of this Joint Proxy Statement/Prospectus) and “Appraisal Rights of MDLY Stockholders” (page 711 of this Joint Proxy Statement/Prospectus).

 

Q: When do Sierra, MCC, and MDLY expect to complete the Mergers?

 

A:           While there can be no assurance as to the exact timing, or that the Mergers will be completed at all, Sierra, MCC, and MDLY anticipate that the MCC Merger and the MDLY Merger will close in the first quarter of 2019. Sierra, MCC, and MDLY currently expect to complete the Mergers promptly following receipt of the required approvals at the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting and satisfaction of the other closing conditions set forth in the MCC Merger Agreement and the MDLY Merger Agreement, and as described above and in this Joint Proxy Statement/Prospectus.

 

Q: Is the MCC Merger expected to be taxable to stockholders?

 

A:           For U.S. federal income tax purposes, the parties intend for and expect the MCC Merger to be treated as a tax-free reorganization. As a result, MCC Stockholders generally should not recognize gain or loss as result of the MCC Merger except to the extent that they receive cash in lieu of fractional shares of Sierra Common Stock. Holders of MCC Common Stock should consult their own tax advisors concerning the tax consequences of the MCC Merger to them in light of their own unique circumstances.

 

 17

 

Q: Is the MDLY Merger expected to be taxable to stockholders?

 

A:           For U.S. federal income tax purposes, the parties intend for and expect the MDLY Merger to be treated as a tax-free reorganization. Holders of MDLY Class A Common Stock should consult their own tax advisors concerning the tax consequences of the MDLY Merger to them in light of their own unique circumstances.

 

Q: What happens if the Mergers are not completed?

 

A:           If the Mergers are not completed for any reason, including failure to receive the necessary stockholder approvals at the Sierra Special Meeting, the MCC Special Meeting or the MDLY Special Meeting, the MCC Stockholders and MDLY Stockholders will not receive any payment for their respective shares in connection with the Mergers. Instead, each of Sierra, MCC and MDLY will remain a separate public company. In addition, if the Mergers are not completed, the ongoing businesses of Sierra, MCC, and MDLY may be adversely affected due to negative reactions from the financial markets and from their respective customers if the anticipated benefits of the Mergers are not able to be realized. See “Risk Factors — Risks Relating to the Mergers — There can be no assurances when or if the Mergers will be completed” (page 138 of this Joint Proxy Statement/Prospectus), and “Risk Factors — Risks Relating to the Mergers — If the Mergers do not close, neither Sierra, MCC, nor MDLY will benefit from the expenses incurred in its pursuit” (page 142 of this Joint Proxy Statement/Prospectus).

 

Under the MCC Merger Agreement, Sierra and MCC may be obligated, under certain circumstances, to pay the other party a termination fee of $6,000,000 in cash (the “MCC Merger Termination Fee”). See “Description of the MCC Merger Agreement — Termination Fees” (page 286 of this Joint Proxy Statement/Prospectus) for a discussion of the circumstances that could result in the payment of a termination fee under the MCC Merger Agreement. Under the MDLY Merger Agreement, Sierra and MDLY may be obligated, under certain circumstances, to pay the other party a termination fee of $5,350,000 in cash (the “MDLY Merger Termination Fee”). See “Description of the MDLY Merger Agreement — Termination Fees” (page 310 of this Joint Proxy Statement/Prospectus) for a discussion of the circumstances that could result in the payment of a termination fee under the MDLY Merger Agreement.

 

Q: What do I need to do now?

 

A:           Sierra, MCC, and MDLY urge you to read carefully this entire Joint Proxy Statement/Prospectus, including its appendices, and vote your shares. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.

 

Q:If I am a Sierra Stockholder, MCC Stockholder or a MDLY Stockholder, what happens if I sell my shares before the Sierra Special Meeting, the MCC Special Meeting or the MDLY Special Meeting, respectively?

 

A:           The record date of the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting is earlier than the date the Mergers are expected to be completed. If you transfer your shares of Sierra Common Stock, MCC Common Stock, or MDLY Common Stock after the record date but before the closing of the Mergers, you will retain your right to vote at the applicable special meeting, but a MCC Stockholder or a MDLY Stockholder will have transferred the right to receive the MCC Merger Consideration or the MDLY Merger Consideration, as the case may be, payable for each share of MCC Common Stock or MDLY Common Stock, as the case may be. In order to receive the MCC Merger Consideration or MDLY Merger Consideration, as the case may be, you must hold your shares of MCC Common Stock or MDLY Common Stock through completion of the Mergers.

 

 18

 

Q: If I want to change my vote, what can I do?

 

A:           You may change your vote at any time before the Sierra Special Meeting, the MCC Special Meeting and the MDLY Special Meeting, as applicable, takes place. To do so, you may either complete and submit a new proxy card or send a written notice stating that you would like to revoke your proxy. You may also change your vote by calling the proxy solicitor or via the Internet pursuant to the instructions shown on the proxy card and simply authorizing a new proxy to vote your shares. The last recorded vote will be the vote that is counted. In addition, if you are a record holder or a beneficial holder who obtains legal proxy, you may elect to attend your special meeting, and vote in person, as described above.

 

Q:If I am a MCC Stockholder or a MDLY Stockholder and my shares are represented by stock certificates, should I send them in now?

 

A:           No. MCC Stockholders or MDLY Stockholders should not send in their stock certificates at this time. If the Mergers are completed, Sierra’s exchange agent will send former MCC Stockholders and MDLY Stockholders a letter of transmittal explaining what they must do to exchange their shares of MCC Common Stock or MDLY Class A Common Stock, as applicable, for the MCC Merger Consideration or MDLY Merger Consideration payable to them.

 

Q: Whom can I contact with any additional questions?

 

A:Sierra and MCC:

 

Alliance Advisors LLC.

200 Broadacres Drive, 3rd Floor

Bloomfield, NJ 07003

(833) 814-9451

 

MDLY:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York 10022

(888) 750-5834

 

Q: Where can I find more information about Sierra, MCC, and MDLY?

 

A:           You can find more information about Sierra, MCC, and MDLY in the documents described under “Where You Can Find More Information” (page 721 of this Joint Proxy Statement/Prospectus).

 

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SUMMARY

 

This summary highlights some of the information contained elsewhere in this Joint Proxy Statement/Prospectus. It is not complete and may not contain all of the information that you may want to consider. Sierra, MCC and MDLY urge you to read carefully this Joint Proxy Statement/Prospectus, its appendices and the documents referred to herein, including “Risk Factors” beginning on page 138 of this Joint Proxy Statement/Prospectus, for a more complete understanding of the Mergers and the various proposals you are being asked to consider at your stockholder meeting. See “Where You Can Find More Information” on page 721 of this Joint Proxy Statement/Prospectus. Each item in this summary includes a page reference directing you to a more complete description of that item.

 

Sierra and MCC Propose a Merger of MCC with and into Sierra and Sierra and MDLY Propose a Merger of MDLY with and into Merger Sub (see page 56 of this Joint Proxy Statement/Prospectus)

 

Subject to the terms and conditions of the MCC Merger Agreement and the MDLY Merger Agreement, the Mergers will result in the formation of an internally managed BDC, which will in turn wholly own a registered investment adviser. In the MCC Merger, MCC would, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into Sierra, with Sierra continuing as the surviving company in the MCC Merger. In the MCC Merger, shares of MCC Common Stock will be converted into the right to receive 0.8050 shares of Sierra Common Stock. In the MDLY Merger, MDLY would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub continuing as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than Dissenting Shares and Excluded Shares) will be converted into the right to receive (A) 0.3836 shares of Sierra Common Stock; plus (B) cash in an amount equal to $3.44 per share. In addition, the holders of MDLY Class A Common Stock issued and outstanding on the applicable record dates will have the right to receive $0.35 per share of the First Special Dividend (or other payments) and $0.30 per share of the Second Special Dividend (or other payments), to the extent and as described more fully below, as well as regularly scheduled dividends through closing of the MDLY Merger. Each share of MDLY Class B Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than Dissenting Shares) will be canceled without consideration therefor.

 

Simplified Structure before the Completion of the Mergers

 

 

 20

 

Simplified Structure Following the Completion of the Mergers

 

 

If the Mergers are completed, based on the number of shares of Sierra Common Stock issued and outstanding as of September 30, 2018, Sierra Stockholders will own approximately 60.5% of the outstanding Combined Company Common Stock, MCC Stockholders will own approximately 31.2% of the outstanding Combined Company Common Stock, and MDLY Stockholders will own approximately 8.3% of the outstanding Combined Company Common Stock.

 

The MCC Merger Agreement and the MDLY Merger Agreement are attached as Appendix A and Appendix B to this Joint Proxy Statement/Prospectus, respectively, and are each incorporated by reference herein in its entirety. Sierra, MCC, and MDLY encourage their respective stockholders to read each of the MCC Merger Agreement and the MDLY Merger Agreement carefully and in its entirety, as it is the principal legal document governing the MCC Merger and the MDLY Merger, respectively.

 

The Parties to the Mergers

 

Sierra Income Corporation

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

Sierra is a non-diversified closed-end management investment company incorporated in Maryland that has elected to be regulated as a BDC under the Investment Company Act. Sierra is externally managed by SIC Advisors, which is a registered investment adviser with the SEC under the Advisers Act, and a majority owned subsidiary of MDLY.

 

Medley Capital Corporation

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

MCC is a non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a BDC under the Investment Company Act. MCC is externally managed by MCC Advisors, which is a registered investment adviser with the SEC under the Advisers Act, and a majority owned subsidiary of MDLY.

 

 21

  

The following table presents a comparison of Sierra’s and MCC’s investment objectives and strategies:

 

    Sierra   MCC
Investment Objective   To generate current income, and to a lesser extent, long-term capital appreciation by primarily lending to and investing in the debt of privately-owned U.S. middle-market companies   To generate current income and capital appreciation by lending to privately-owned middle market companies, primarily through directly originated transactions

Investment Focus

 

 

First lien senior secured debt, second lien secured debt and, to a lesser extent, subordinated debt

 

 

Senior secured first lien loans and senior secured second lien loans

Investment Range

 

 

Investment sizes will vary as Sierra’s capital base changes and will ultimately be at the discretion of SIC Advisors subject to oversight by the Sierra Board

 

 

Between $10 million and $50 million

Target Borrower

 

 

U.S. companies operating in a broad range of industries with annual revenue between $50 million and $1 billion

 

 

U.S. companies operating in a variety of industries with enterprise or asset values between $25 million and $250 million

Equity and Equity-Related Investments

 

 

May make equity investments in companies that Sierra believes will generate appropriate risk adjusted returns, although Sierra does not expect such investments to be a substantial portion of its portfolio

 

 

In connection with some of MCC’s investments, MCC receives warrants or other equity participation features

  

Following the completion of the Mergers, the Combined Company’s investment objective and principal investment strategies will be the same as Sierra’s current investment objective and principal investment strategies, as described above. In connection with the Mergers, neither Sierra nor MCC expects to sell any investments in order for such investment to comply with the Combined Company’s investment objective and principal investment strategies.

 

SIC Advisors currently serves as the registered investment adviser of Sierra, MCC Advisors currently serves as the registered investment adviser of MCC, and, following the consummation of the Mergers, MCC Advisors will serve as the wholly owned registered investment adviser of the Combined Company.

 

The following table presents a comparison of Sierra’s and MCC’s historical total return based on NAV:

 

   Sierra  MCC
   Nine months ended September 30,  Fiscal Year Ended December 31,  Fiscal Year Ended December 31,  Fiscal Year Ended
September 30,
   2018  2017  2016  2018  2017  2016
Total return based on NAV(1)  (1.73%)  1.53%  9.87%  (21.29%)  (0.68%)  0.42%

  

(1)Total return based on NAV are historical and assume the reinvestment of all dividends and distributions at prices obtained under each company’s dividend reinvestment plan, respectively, and no sales charge.

 

The following table presents a comparison of Sierra’s, MCC’s and the Combined Company’s operational plans:

 

   Sierra  MCC  Combined Company
Periodic repurchase offers  Yes  No    No
Exchange listed shares  No 

Yes, MCC Common Stock is listed on NYSE and TASE

 

Yes, Sierra Common Stock is expected to be listed on the NYSE and TASE if the Mergers are successfully completed

Base Management fee  Annual rate of 1.75% of Sierra’s gross assets (which includes any borrowings for investment purposes)  Annual rate of 1.75% of MCC’s gross assets (which includes any borrowings for investment purposes) of up to $1 billion and annual rate of 1.50% of MCC’s gross assets (which includes any borrowings for investment purposes) above $1 billion  Same as Sierra’s current base management fee
Incentive fee on income  20% of the amount of Sierra’s pre-incentive fee net investment income for any quarter in which Sierra’s pre-incentive fee net investment income exceeds 2.1875% of its net assets at the end of the immediately preceding quarter  17.5% of the amount of its pre-incentive fee net investment income for any quarter in which MCC’s pre-incentive fee net investment income, subject to a quarterly hurdle rate equal to 1.5% multiplied by MCC’s net asset value, and subject to a trailing twelve quarter look-back designed to ensure incentive fees are not paid if MCC has a cumulative loss over such period  Same as Sierra’s current incentive fee on income
Incentive fee on capital gains  20% of Sierra’s capital gains, if any, less the aggregate amount of any previously paid incentive fee on capital gains 

17.5% of the amount of MCC’s pre-incentive fee net investment income for any quarter in which MCC’s pre-incentive fee net investment income, subject to a hurdle rate equal to 1.5% multiplied by MCC’s net asset value, and subject to a trailing twelve quarter look-back designed to ensure incentive fees are not paid if MCC has a cumulative loss over such period

  Same as Sierra’s current incentive fee on capital gains

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Medley Management Inc.

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

   

MDLY, a Delaware corporation, is a publicly traded asset management firm, which is controlled by Medley Group LLC, an entity wholly owned by Management. MDLY manages three permanent capital vehicles, two of which are Sierra and MCC, and a credit interval fund, as well as long-dated private funds and SMAs, with a primary focus on senior secured credit. 

 

Sierra Management, Inc.

280 Park Avenue, 6th Floor

New York, New York 10017

(212) 759-0777

 

Merger Sub is a Delaware corporation and a newly formed wholly owned subsidiary of Sierra. Merger Sub was formed in connection with and for the sole purpose of the MDLY Merger, pursuant to which MDLY will merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger.

 

For more information about the material terms of the Mergers and the principal terms of the MCC Merger Agreement and the MDLY Merger Agreement, see “Special Factors,” “Description of the MCC Merger Agreement,” and “Description of the MDLY Merger Agreement.”

 

In the MCC Merger, MCC Stockholders will have the right to receive 0.8050 shares of Sierra Common Stock (see page 268 of this Joint Proxy Statement/Prospectus)

 

In the MCC Merger, each share of MCC Common Stock issued and outstanding immediately prior to the MCC Merger Effective Time (other than the Excluded MCC Shares) will be converted into the right to receive 0.8050 shares of Sierra Common Stock. The MCC Merger Shares and such cash payable in lieu of fractional shares of Sierra Common Stock is referred to collectively as the “MCC Merger Consideration.” See “Description of the MCC Merger Agreement — Merger Consideration.”

 

MCC Merger Consideration (per share of MCC Common Stock)   Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s NAV per share of $7.06 as of September 30, 2018)  $5.68 
Total  $​ ​5.68 

 

In the MDLY Merger, holders of MDLY Class A Common Stock will receive 0.3836 shares of Sierra Common Stock for each share of MDLY Class A Common Stock, $3.44 per share and $0.65 per share of Special Dividends (or other payments), to the extent and as described more fully below, as well as regularly scheduled dividends through closing of the MDLY Merger (see page 289 of this Joint Proxy Statement/Prospectus)

 

In the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than “dissenting shares” (as discussed under “Description of the MDLY Merger Agreement — Appraisal Rights”) and Excluded MDLY Shares) will be converted into the right to receive (i) 0.3836 shares of Sierra Common Stock; plus (ii) cash in an amount equal to $3.44 per share (the “MDLY Merger Cash Consideration”); plus (iii) the right to receive certain dividends and/or other payments. See “Description of the MDLY Merger Agreement — Merger Consideration.”

  

MDLY Merger Consideration (per share of MDLY Class A Common Stock)  Amount 
Sierra Common Stock (dollar equivalent based on the pro forma Combined Company’s NAV per share of $7.06 as of September 30, 2018)  $2.71 
Cash from Sierra  $3.44 
Cash from Sierra; First Dividend Shortfall Amount  $0.35 
Cash from Sierra; Second Dividend Shortfall Amount  $0.30 
Total  $6.80 

 

The Sierra Special Meeting (see page 251 of this Joint Proxy Statement/Prospectus)

 

The Sierra Special Meeting will take place on February 8, 2019 at 1:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

At the Sierra Special Meeting, Sierra Stockholders will be asked to consider and vote on the following proposals:

 

1)a proposal to approve the MCC Merger;

 

2)a proposal to approve the MDLY Merger;

 

3)a proposal to approve the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable;

 

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4)a proposal to adopt the Sierra Incentive Plan;

 

5)a proposal to adopt the Sierra Charter Amendments;

 

6)a proposal to approve the Combined Company Investment Advisory Agreement; and

 

7)a proposal to approve the adjournment of the Sierra Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

For more information, see “The Sierra Special Meeting.”

 

The MCC Special Meeting (see page 258 of this Joint Proxy Statement/Prospectus)

 

The MCC Special Meeting will take place on February 8, 2019 at 9:00 A.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

At the MCC Special Meeting, MCC Stockholders will be asked to consider and vote on the following proposals:

 

1)a proposal to approve the adoption of the MCC Merger Agreement; and

 

2)a proposal to approve the adjournment of the MCC Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

For more information, see “The MCC Special Meeting.”

 

The MDLY Special Meeting (see page 262 of this Joint Proxy Statement/Prospectus)

 

The MDLY Special Meeting will take place on February 8, 2019 at 3:00 P.M., Eastern Time, at the offices of Eversheds Sutherland (US) LLP located at 1114 Avenue of the Americas, 40th Floor, New York, New York 10036.

 

At the MDLY Special Meeting, MDLY Stockholders will be asked to consider and vote on the following proposals:

 

1)a proposal to approve the adoption of the MDLY Merger Agreement; and

 

2)a proposal to approve the adjournment of the MDLY Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

For more information, see “The MDLY Special Meeting.”

 

Distributions (see page 394 of this Joint Proxy Statement/Prospectus)

 

In connection with the Mergers, on November 6, 2018, the Sierra Board approved a distribution guidance framework that set forth a target distribution rate for the Combined Company. In that regard, the Sierra Board determined that for each of the twelve months following the consummation of the Mergers, and subject to legally available funds, the Combined Company expects to pay monthly cash distributions to the holders of the Combined Company Common Stock equal to 5.500 cents per share, which will consist of a regular base distribution per share of 4.500 cents and a supplementary distribution per share of 1.000 cents and which is an increase from the monthly distribution of 5.334 cents per share currently paid by Sierra. Thereafter, the distribution will be determined subject to the Combined Company’s distribution policy and such distributions could decrease after the twelve month period.

 

In connection with the Mergers, Sierra intends to amend the Sierra Distribution Reinvestment Plan (the “Amended Sierra DRIP”) to, among other things, modify the terms pursuant to which shares are issued under the Sierra Distribution Reinvestment Plan.

 

Annual Expenses Expected Following the Completion of the Mergers (see page 51 of this Joint Proxy Statement/Prospectus)

 

As is shown in more detail in “Comparative Fees and Expenses,” the Companies expect that the Combined Company’s estimated pro forma combined expenses, as a percentage of NAV, will be lower than MCC’s historical expenses and higher than Sierra’s historical expenses. Specifically, the estimated total annual expenses, as a percentage of NAV, is projected to be 8.52%, 17.68%, and 10.59% of a stockholder’s investment in Sierra, MCC, and the pro forma Combined Company, respectively. The expense comparisons do not take into account the operating expenses of Merger Sub, which are not consolidated into the Combined Company’s financial statements (but which are indirectly borne by the Combined Company’s stockholders). Following the completion of the Mergers, the Companies expect that the Combined Company will achieve certain cost savings and synergies when the investment portfolios of Sierra and MCC are integrated and the businesses and administrative operations of Sierra, MCC, and MDLY are integrated. Such cost savings and synergies include the benefit of reduced expenses due to the elimination of duplicative expenses of $3.5 million consisting of professional fees associated with audit, tax, valuation and legal services, transfer agent fees, board of director fees, director and officer insurance, administrator expenses, and other public company expenses, which are reflected in the pro forma Combined Company expenses set forth in the “Comparative Fees and Expenses” table.

 

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Sierra and MCC intend for the MCC Merger to Qualify as a Tax-Free Reorganization (see page 315 of this Joint Proxy Statement/Prospectus)

 

Sierra and MCC intend for the MCC Merger to qualify as a tax-free reorganization for U.S. federal income tax purposes. The completion of the MCC Merger is conditioned upon the receipt of an opinion (the “MCC Merger Tax Opinion”) from Eversheds Sutherland (US) LLP or other acceptable counsel, dated the MCC Merger Closing Date, substantially to the effect that the MCC Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

 

For more information concerning the U.S. federal tax consequences of the MCC Merger, see “Material U.S. Federal Income Tax Consequences — Tax Consequences of the Mergers.” Holders of MCC Common Stock should consult their own tax advisors to determine the U.S. federal, state, local, and foreign tax consequences of the MCC Merger in light of their own unique circumstances.

 

Sierra and MDLY intend for the MDLY Merger to Qualify as a Tax-Free Reorganization (see page 315 of this Joint Proxy Statement/Prospectus)

 

Sierra and MDLY intend for the MDLY Merger to qualify as a tax-free reorganization for U.S. federal income tax purposes. The completion of the MDLY Merger is conditioned upon the receipt of an opinion (the “MDLY Merger Tax Opinion”) from Eversheds Sutherland (US) LLP or other acceptable counsel, dated the MDLY Merger Closing Date, substantially to the effect that the MDLY Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

 

For more information concerning the U.S. federal tax consequences of the MDLY Merger, see “Material U.S. Federal Income Tax Consequences — Tax Consequences of the Mergers.” Holders of MDLY Class A Common Stock should consult their own tax advisors to determine the U.S. federal, state, local, and foreign tax consequences of the MDLY Merger in light of their own unique circumstances. 

 

The MCC Merger will be Treated as an Asset Acquisition (see page 314 of this Joint Proxy Statement/Prospectus)

 

The MCC Merger will be accounted for in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, which requires the determination of whether the transaction should be accounted for as a business combination or as an asset acquisition. The MCC Merger will be treated as an asset acquisition. See “Accounting Treatment — The MCC Merger.”

 

The MDLY Merger will be Accounted for as a Business Combination and Sierra will Reflect its Interest in Merger Sub as an Investment at Fair Value (see page 314 of this Joint Proxy Statement/Prospectus)

 

Sierra will account for its acquisition of its interest in MDLY as an investment at fair value on its statement of assets and liabilities, in accordance with ASC 946-320, “Financial Services – Investment Companies – Investments – Debt and Equity Securities.” Sierra will apply the guidance in ASC 946-810, “Financial Services – Investment Companies – Application of Consolidation Guidance” in determining whether to consolidate an investee that is not an investment company. Consistent with the guidance in ASC 946-810, the Combined Company will not consolidate Merger Sub following the Mergers based on the fact that Merger Sub will not be an investment company and the initial determination that Merger Sub will not be providing substantially all of its services to the Combined Company following the Mergers.

 

Reasons for the Mergers

 

As set forth below, each of the Sierra Special Committee, the MCC Special Committee and the MDLY Special Committee conducted a thorough analysis of a variety of factors that formed the basis of each committee’s decision to recommend that their respective board of directors approve the MCC Merger Agreement and the MDLY Merger Agreement, and the transactions contemplated thereby, as applicable. For a more detailed discussion of the processes undertaken to mitigate Management’s conflicts of interests and role in the Mergers, see “Special Factors—Background of the Mergers—Management’s Conflicts of Interests and Role in the Mergers.” For a more detailed description of the process undertaken by each of the Sierra Special Committee, the MCC Special Committee, and the MDLY Special Committee, see “Special Factors — Background of the Mergers — Sierra,” “Special Factors — Background of the Mergers — MCC”, and “Special Factors — Background of the Mergers — MDLY.”

 

Sierras Reasons for the Mergers (see page 84 of this Joint Proxy Statement/Prospectus)

 

The Sierra Special Committee unanimously determined that the MCC Merger Agreement, the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation, the MCC Merger and the MDLY Merger, are advisable and fair to, and in the best interests of, Sierra and the Sierra Stockholders.

 

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In recommending that the Sierra Board approve the MCC Merger Agreement, the MDLY Merger Agreement and the transactions contemplated thereby, including the MCC Merger and the MDLY Merger, the Sierra Special Committee considered the terms of the MCC Merger Agreement, the MDLY Merger Agreement and the other transactions and agreements relating thereto. As part of its evaluation, the Sierra Special Committee considered the financial terms, risks/challenges, timing and uncertainties of alternatives available to Sierra, as well as financial information prepared by Management. The Sierra Special Committee consulted with outside financial and legal advisors and Management, and took into account a number of reasons, including, among others:

 

the Mergers will increase the assets under management of the Combined Company, offering the potential for greater diversification and scale;

 

the Mergers are expected to be accretive to Sierra’s NII, return on equity, and NAV;

 

the Mergers offer the potential for achieving cost savings, operational efficiencies and synergies;

 

the public listing of the Combined Company will provide liquidity for the Sierra Stockholders, and the market for the Combined Company’s shares is likely to be superior to what would be expected if Sierra merely listed its shares;

 

the Mergers will result in the internalization of management of the Combined Company, providing for greater control by the Board of the Combined Company and closer alignment of interests of Management and the Combined Company’s stockholders;

 

the fact that the Sierra Special Committee actively negotiated the terms of the Mergers and the final terms were materially different from the terms initially presented as a potential framework around which a transaction could be consummated;

 

the renegotiation of the Tax Receivable Agreement is expected to provide benefits to the Combined Company because the Combined Company will no longer be contractually obligated to share substantially all of the tax savings associated with its tax basis step-up with Medley LLC Unitholders;

 

the financial analyses and presentations prepared by Broadhaven Capital Partners (“Broadhaven”) and its oral opinion delivered to the Sierra Special Committee on August 9, 2018, which was subsequently confirmed in writing by delivery of Broadhaven’s written opinion dated August 9, 2018, to the effect that, as of that date and based upon and subject to various assumptions, limitations and qualifications described in its opinion, the total consideration to be paid and issued by Sierra pursuant to the MCC Merger Agreement and the MDLY Merger Agreement, considered as a whole and not in separate parts, was fair to Sierra from a financial point of view;

 

the compensation to be paid to members of Management has been reviewed by the Special Committee’s compensation consultant, which has advised that the proposed compensation is reasonable and competitive with peer companies;

 

based on the MDLY Merger Consideration to be received by Management in connection with the Mergers (as described herein), the net effect of such merger consideration will be that Management will roll over approximately 100% of their after tax proceeds in connection with the Mergers into shares of Combined Company Common Stock, which shares will be subject to a 12-month lock-up period, which will more closely align the interests of Management and the Combined Company’s stockholders;

 

the investment objectives and principal investment strategies of Sierra and MCC are similar;

 

the Mergers are expected to be tax-free to Sierra Stockholders; and

 

the consummation of the Mergers is subject to significant conditions, including the requirement that the Mergers be approved by Sierra Stockholders.

 

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In view of the variety of factors and the amount of information considered, as well as the complexity of that information, the Sierra Special Committee did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decisions. In addition, individual members of the Sierra Special Committee may have given different weight to different factors. The above factors are not listed in any particular order of priority. In the judgment of the Sierra Special Committee, the potential risks associated with the MCC Merger Agreement, the MDLY Merger Agreement and the transactions contemplated thereby, including the MCC Merger and the MDLY Merger, were favorably offset by the potential benefits of the MCC Merger Agreement, the MDLY Merger Agreement and the transactions contemplated thereby, including the MCC Merger and the MDLY Merger. This explanation of the Sierra Special Committee’s reasoning, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section entitled “Special Note Regarding Forward-Looking Statements.”

 

See “Special Factors — Reasons for the Mergers — Sierra’s Reasons for the Mergers.”

 

Position of Sierra as to the Fairness of the Mergers (see page 85 of this Joint Proxy Statement/Prospectus)

 

The Sierra Board believes that the MDLY Merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement was filed with the SEC) is fair to the unaffiliated MDLY Stockholders on the basis of the factors described below.

 

Procedural fairness. The Sierra Board took into account the procedures implemented to provide for procedural fairness, including:

 

the appointment of a special committee of the MDLY Board and the authority of the MDLY Special Committee to negotiate and reject or recommend approval of the MDLY Merger and the terms of the MDLY Merger Agreement;

 

the independence of the members of the MDLY Special Committee and the fact that its members are outside, non-employee directors of the MDLY Board and are not affiliated with Sierra or with the members of the Sierra Special Committee or the Sierra Board;

 

the belief that the members of the MDLY Special Committee do not have any interests in the MDLY Merger different from, or in addition to, those of the unaffiliated MDLY Stockholders, other than the members’ receipt of board and special committee compensation in connection with their evaluation of the MDLY Merger and continued indemnification and liability insurance for such directors following the completion of the MDLY Merger for certain claims and liabilities arising from their actions taken prior to the effective time of the MDLY Merger;

 

the fact that neither the MDLY Special Committee nor the MDLY Board had any obligation to approve the MDLY Merger;

 

the MDLY Special Committee’s engagement of, and reliance on, their own independent, experienced, third-party advisors, including financial and legal advisors;

 

the understanding that the MDLY Special Committee has received or will receive an opinion from its financial advisor as to the fairness, from a financial point of view, of the consideration to be offered to the non-management holders of the shares of MDLY Class A Common Stock (the “MDLY Public Stockholders”) for their MDLY Class A Common Stock, as of the date of the opinion and based upon and subject to the qualifications, limitations and assumptions stated therein, understanding that the Sierra Board is not entitled to rely upon that opinion;

 

that the MDLY Board, based on the recommendation of the MDLY Special Committee, approved the MDLY Merger and concluded that the MDLY Merger is in the best interests of all MDLY Stockholders, including the unaffiliated MDLY Stockholders; and

 

the fact that Sierra did not influence or participate in MDLY’s deliberative process.

 

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Substantive fairness. The Sierra Board considered factors relating to the substantive fairness of the MDLY Merger to MDLY Stockholders, including:

 

the fact that the MDLY Merger Consideration and the other terms and conditions of the MDLY Merger were the result of extensive arms’ length negotiations among the Sierra Special Committee, the MDLY Special Committee, and their respective independent legal and financial advisors;

 

the fact that the terms and conditions of the MDLY Merger Agreement provide certain protections for MDLY and MDLY Stockholders, specifically the inclusion of (i) provisions that allow the MDLY Board (at the direction of the MDLY Special Committee), subject to certain procedural requirements, in response to other acquisitions proposals, to make an adverse change to its recommendation to MDLY Stockholders and terminate the transaction if the MDLY Board believes it has received an offer that is, or could lead to an offer that is, superior to Sierra’s offer; (ii) provisions that provide the MDLY Board the right in certain circumstances to terminate the MDLY Merger Agreement if failure to terminate would be inconsistent with the fiduciary duties of the MDLY Board, subject to the payment of a market termination fee; and (iii) provisions that allow MDLY to compel specific enforcement of the MDLY Merger Agreement; and

 

the availability of appraisal rights under the DGCL to MDLY Stockholders who follow the procedures and satisfy the conditions set forth in Section 262 of the DGCL.

 

Value fairness. The Sierra Board also considered factors relating to the value of the MDLY Merger Consideration to be received by MDLY Stockholders, including:

 

the nature of the MDLY Merger Consideration, which includes the right to receive (i) 0.3836 shares of Sierra Common Stock plus (ii) cash in an amount equal to $3.44 per share plus certain cash dividends and other payments, as more fully described on page 289 (with the cash consideration providing an opportunity to immediately realize value for a portion of their investment and the stock consideration providing for the potential for participating in any future earnings and growth of the Combined Company);

 

the opinion of its financial advisor which conducted a series of financial analyses to determine a valuation of MDLY Class A Common Stock. Such analyses included a precedent transaction multiples analysis, resulting in a range of values of $2.66 to $11.07 per share, a public market premium analysis, resulting in a range of values of $4.14 to $6.95 per share, and a discounted cash flow analysis, resulting in a range of values of $6.58 to $15.57 per share;

 

that after giving effect to the special dividends to be paid to the unaffiliated MDLY Stockholders pursuant to the MDLY Merger Agreement, the aggregate cash consideration to be received by such stockholders in the MDLY Merger for their shares of MDLY Class A Common Stock will be greater than the aggregate cash consideration to be received by the affiliated MDLY Stockholders for their shares but that they will receive the same stock consideration per share;

 

the Sierra Board’s view of MDLY’s future performance and prospects if MDLY remained a stand-alone company would be adversely affected by its lack of scale as compared to competing alternative asset managers; and

 

the continued costs and risks to, and potential liabilities of, MDLY related to ongoing compliance as an SEC reporting company.

 

Negative Factors. In addition to the positive factors above, the Sierra Board also considered certain potentially negative factors, including, but not limited to:

 

the fact that the exchange ratio for shares of MDLY Class A Common Stock into shares of Sierra Common Stock is fixed, and that the unaffiliated MDLY Stockholders may be adversely affected by declines in the value of Sierra’s Common Stock after the execution of the MDLY Merger Agreement;

 

the risk that the MDLY Merger may not be completed and the resulting adverse effect of an announcement of the termination of the MDLY Merger Agreement on the market price for MDLY Class A Common Stock;

 

the substantial costs to be incurred by MDLY in connection with the MDLY Merger, whether or not the MDLY Merger is completed; and

 

the fact that there is no requirement that a majority of the unaffiliated MDLY Stockholders approve the MDLY Merger and that as a class they hold only 2.25% of the outstanding voting stock of MDLY.

 

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For more information regarding Sierra’s position as to the fairness of the Mergers for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act, see “Special Factors — Reasons for the Mergers — Position of Sierra as to the Fairness of the Mergers.”

 

MCCs Reasons for the MCC Merger (see page 87 of this Joint Proxy Statement/Prospectus)

 

The MCC Special Committee unanimously determined that the MCC Merger Agreement and the transactions contemplated thereby, including, without limitation, the MCC Merger, are advisable and fair to, and in the best interests of, MCC and the MCC Stockholders.

 

In recommending that the MCC Board approve the MCC Merger Agreement and the transactions contemplated thereby, including the MCC Merger, the MCC Special Committee considered the terms of the MCC Merger Agreement and the other transactions and agreements relating hereto. As part of its evaluation, the MCC Special Committee considered the financial terms, risks/challenges, timing and uncertainties of alternatives available to MCC, as well as financial information prepared by Management. At the time of the MCC Special Committee’s approval of the transaction, there was no other significant alternative transaction considered by the MCC Special Committee. The MCC Special Committee consulted with outside financial and legal advisors and Management, and took into account a number of reasons, including, among others:

 

Financial Considerations

 

the value of the MCC Merger Consideration to be received by the MCC Stockholders in the MCC Merger;

 

the fact that, since the MCC Merger Consideration will be paid in shares of Sierra Common Stock, the MCC Stockholders would have the opportunity to participate in any future earnings and growth of the Combined Company and future appreciation in the value of such shares following the Mergers should they determine to retain the shares of Sierra Common Stock payable in the MCC Merger;

 

the fact that the total implied value of the MCC Merger Consideration to be received by the unaffiliated MCC Stockholders in the MCC Merger is expected to result in an estimated 18.52% accretion of NII per share of MCC Common Stock for MCC Stockholders assuming flat MDLY earnings and an estimated 29.8% accretion assuming projected MDLY earnings;

 

the fact that the MCC Special Committee successfully negotiated an increase to the exchange ratio of Sierra Common Stock that MCC Stockholders are entitled to receive;

 

the belief of the MCC Special Committee that its negotiations had resulted in the highest price per share for the unaffiliated MCC Stockholders that MDLY and Sierra would support; and

 

the financial presentation of Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) to the MCC Special Committee, dated August 9, 2018, and the opinion of Sandler O’Neill to the MCC Special Committee, dated August 9, 2018, to the effect that, as of that date and based upon and subject to various assumptions, matters considered and limitations described in its opinion, the MCC Merger Consideration was fair, from a financial point of view, to holders of MCC Common Stock (other than Sierra, MDLY and their respective affiliates), which opinion is described in the section entitled “Opinion of Financial Advisor to the MCC Special Committee.”

 

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Strategic and Business Considerations

 

The fact that the MDLY Special Committee, comprising independent, non-employee directors of the MDLY Board, and with the assistance of independent, experienced, third party financial and legal advisors, had the authority to negotiate and reject or recommend approval of the MDLY Merger Agreement and the transactions contemplated thereby, including the MDLY Merger;

 

the fact that the MCC Special Committee had the authority to not recommend that the MCC Board approve the MCC Merger Agreement and the MCC Board would have been precluded from approving the MCC Merger Agreement under those circumstances;

 

the Combined Company would have greater scale for investment and financing flexibility (potential improvement in credit rating could result in lower funding costs and improved access to capital over time);

 

the Combined Company would have a more diversified balance sheet;

 

the Combined Company would have less relative exposure to non-accruing loans;

 

the internalization better aligns the incentives of Management with the MCC Stockholders as well as provides greater transparency into Management’s structure;

 

the Combined Company would have potential earnings enhancement over time through ownership of an asset management subsidiary;

 

the Combined Company would be expected to have a significantly greater market capitalization and thus increased potential liquidity for MCC Stockholders;

 

the Combined Company would be expected to be the 7th largest publicly traded BDC compared to MCC, which currently is the 23rd largest BDC;

 

BDCs with internal management structures have tended to trade at less of a discount than externally managed BDCs;

 

the transaction should simplify the current structure of cross-ownership and management of MCC and Sierra; and

 

the terms and conditions of the MCC Merger Agreement, as discussed in the section entitled “The Description of the MCC Merger Agreement,” which the MCC Special Committee after consulting with its legal advisors considered to be reasonable.

 

In the course of reaching the determinations and decisions and making the recommendation described above, the MCC Special Committee considered the risks and challenges relating to the Mergers, including the following material items:

 

the fact that the MCC Merger Consideration to be received by the MCC Stockholders will consist of Sierra Common Stock based on a fixed exchange ratio and that the value of the MCC Merger Consideration may decline either before or after the MCC Special Meeting and there will be no adjustment to the exchange ratio, thereby exposing the MCC Stockholders to the risks of an equity investment in Sierra Common Stock;

 

the Combined Company has not traded before and there is no way to determine with certainty the price at which it will trade, both initially and in the long term;

 

though the combined portfolio may be more diversified and have a lower percentage of non-accruing loans, the Combined Company would still have the same management team as before;

 

internalizing the investment management causes some complexities in the structure;

 

uncertainties about MDLY’s ability to grow business (and earnings) as a captive asset manager;

 

there would be a dilution in MCC Stockholder’s influence (MCC Stockholders would own approximately 28% of the Combined Company);

 

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MCC Stockholders would experience an approximate 8.4% dilution in NAV per share (after projected expenses associated with the transaction);

 

the fact that the MCC Merger Agreement precludes MCC from actively soliciting competing proposals and MCC may not terminate the MCC Merger Agreement to accept a competing proposal from a third party unless the MCC Board (or the MCC Special Committee) has determined in good faith (after consultation with its outside financial advisor and legal counsel) that the competing proposal constitutes a superior proposal and after providing notice, as applicable, and entering into good faith negotiations with Sierra, in which case MCC would be required to pay the termination fee;

 

the fact that not all of the conditions to the closing of the MCC Merger, including the required stockholder approvals, are within the parties’ control;

 

the substantial costs to be incurred by MCC in connection with the MCC Merger Agreement and the other transactions contemplated thereby, regardless of whether the MCC Merger is consummated;

 

the risk that the announcement and pendency of the MCC Merger could result in the disruption of MCC’s business, including the possible diversion of management attention and potential adverse effects on MCC’s business relationships; and

 

the challenges inherent in the combination of three businesses, including the risk that integration of the three companies may take more time or be more costly than anticipated, and the risk that cost savings, synergies and other benefits expected to be obtained may not be fully or timely realized.

 

In view of the variety of factors and the amount of information considered, as well as the complexity of that information, the MCC Special Committee did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decisions. In addition, individual members of the MCC Special Committee may have given different weight to different factors. The above factors are not listed in any particular order of priority. In the judgment of the MCC Special Committee, the potential risks associated with the MCC Merger Agreement and the transactions contemplated thereby, including the MCC Merger, were favorably offset by the potential benefits of the MCC Merger Agreement and the transactions contemplated thereby, including the MCC Merger. This explanation of the MCC Special Committee’s reasoning, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section entitled “Special Note Regarding Forward-Looking Statements.”

 

See “Special Factors — Reasons for the Mergers — MCC’s Reasons for the Mergers.”

 

The Medley Affiliates’ Reasons for the MDLY Merger (see page 89 of this Joint Proxy Statement/Prospectus)

 

The Medley Affiliates unanimously determined that the MDLY Merger Agreement and the transactions contemplated thereby, are advisable and fair to, and in the best interests of, the MDLY Stockholders. As part of its evaluation, the Medley Affiliates considered the financial terms, risks/challenges, timing and uncertainties of alternatives available to MDLY, as well as financial information prepared by Management. In that regard, the Medley Affiliates took into account a number of reasons, including, among others:

 

the Mergers are expected to be accretive to the Combined Company’s net investment income (“NII”), return on equity, and NAV over time;
   
the Mergers are expected to increase diversification and scale for the Combined Company;
   
the Mergers offer the potential for achieving cost savings, operational efficiencies and synergies;
   
the public listing of the Combined Company is expected to provide greater liquidity for all constituent stockholders; and
   
the Mergers will simplify the overall corporate structure and more closely align the interests of Management and all constituent stockholders, providing the potential for an increase in valuation comparable to internally managed BDC peers.

 

See “Special Factors — Reasons for the Mergers — The Medley Affiliates’ Reasons for the MDLY Merger.”

 

MDLYs Reasons for the MDLY Merger (see page 90 of this Joint Proxy Statement/Prospectus)

 

The MDLY Special Committee unanimously determined, and recommended the MDLY Board determine, that the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation, the MDLY Merger, are advisable and fair to, and in the best interests of, MDLY and the unaffiliated MDLY Stockholders.

 

 

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The MDLY Board and the Medley Affiliates determined that the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation, the MDLY Merger are advisable and fair to, and in the best interests of, MDLY and the unaffiliated MDLY Stockholders. The Medley Affiliates were able to reach their fairness determination as to the MDLY unaffiliated security holders in light of the fact that, among other things, all of the MDLY unaffiliated security holders and certain non-management affiliates of MDLY will receive the same dollar amount per share for their MDLY Class A Common Stock. The MDLY Board was able to reach its fairness determination as to the MDLY unaffiliated security holders in light of the fact that, among other things, all of the MDLY unaffiliated security holders and certain non-management affiliates of MDLY will receive the same dollar amount per share for their MDLY Class A Common Stock.  Accordingly, the MDLY Board was able to reach its fairness determination as to unaffiliated security holders by adopting the determinations of the MDLY Special Committee.

 

In making its recommendation to the MDLY Board, the MDLY Special Committee expressly relied upon, among other things, the Barclays fairness opinion, subject to the qualifications, limitations and assumptions stated therein, together with the analyses and conclusions of Barclays in issuing its fairness opinion, including the comparable company, comparable transaction and discounted cash flow analyses (based on the MDLY Projections (as defined below)) contained therein, and the other factors considered and reviewed for informational purposes (including, without limitation, the historical share price analysis, transaction premium analysis and current analyst price targets analysis), as further described in “Special Factors—Opinion of Financial Advisor of the MDLY Special Committee.” 

 

Each of the factors set forth above were important to MDLY and the Medley Affiliates in determining the fairness of the transaction to the unaffiliated security holders. With respect to whether the consideration offered to unaffiliated security holders constitutes fair value, MDLY believes that the factors that are described above constitute an analysis of whether the consideration offered to unaffiliated security holders constitutes fair value in relation to current market prices, historical market prices and going concern value. Moreover, while net book value was considered as a data point, MDLY did not consider its net book value on a stand-alone basis in considering the fairness of the transaction due to the fact that MDLY’s business is based on fee income rather than asset value. MDLY did not consider liquidation value as liquidating the company was not considered.

 

In recommending that the MDLY Board approve the MDLY Merger Agreement and the transactions contemplated thereby, including the MDLY Merger, the MDLY Special Committee considered the terms of the MDLY Merger Agreement and the other transactions and agreements relating thereto. As part of its evaluation, the MDLY Special Committee considered the financial terms, risks/challenges, timing and uncertainties of alternatives available to MDLY, as well as financial information prepared by Management. The MDLY Special Committee consulted with outside financial and legal advisors and Management, and took into account a number of reasons, including, among others:

 

Financial Considerations

 

The aggregate value and composition of the MDLY Merger Consideration (together with the First Special Dividend and the Second Special Dividend, as applicable) to be received by the MDLY Stockholders in the MDLY Merger, including the fact that upon completion of the MDLY Merger, the unaffiliated MDLY Stockholders would receive $4.09 per share, including $0.65 payable in the form of special cash dividends, and Management would receive $3.79 per share, including $0.35 payable in the form of a special cash dividend, plus both the unaffiliated MDLY Stockholders and Management would receive 0.3836 shares of Sierra Common Stock per share of MDLY Class A Common Stock.

 

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The fact that a significant portion of the MDLY Merger Consideration (together with the First Special Dividend and the Second Special Dividend, as applicable) to be received by the unaffiliated MDLY Stockholders in the MDLY Merger will be paid in cash, giving the unaffiliated MDLY Stockholders an opportunity to immediately realize value for a portion of their investment and providing certainty of value with respect to the cash portion of the MDLY Merger Consideration to be paid to the unaffiliated MDLY Stockholders.

 

The fact that, since the stock portion of the MDLY Merger Consideration will be paid in shares of Sierra Common Stock, the MDLY Stockholders would have the opportunity to participate in any future earnings and growth of the Combined Company and future appreciation in the value of such shares following the Mergers should they determine to retain the shares of Sierra Common Stock payable in the MDLY Merger.

 

The fact that the total implied value of the MDLY Merger Consideration (together with the First Special Dividend and the Second Special Dividend, as applicable) to be received by the unaffiliated MDLY Stockholders in the MDLY Merger represented a premium to market of approximately 100%, assuming a NAV multiple of 1.00x for Sierra, based on the closing share price of $3.45 for Class A Common Stock of MDLY on August 8, 2018 (the last trading day prior to announcement of the MDLY Merger).

 

The fairness presentation by Barclays Capital Inc. (“Barclays”) and its oral opinion delivered to the MDLY Special Committee on August 9, 2018 (which was subsequently confirmed in writing by delivery of Barclays’ written opinion dated August 9, 2018), that, as of such date, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, from a financial point of view, the Consideration (as defined below) to be offered to the non-management holders of MDLY Class A Common Stock in the proposed MDLY Merger is fair to such stockholders, including, without limitation, the comparable company analysis, comparable transaction analysis and discounted cash flow analysis performed by Barclays. In addition, Barclays considered and reviewed with the MDLY Special Committee other factors for informational purposes, including, among other things, the historical share price analysis, transaction premium analysis and current analyst price targets analysis, as further described in “Special Factors—Opinion of Financial Advisor of the MDLY Special Committee—Summary of Material Financial Analyses” and “Special Factors—Opinion of Financial Advisor of the MDLY Special Committee—Other Factors”.

 

The fact that the MDLY Special Committee identified additional sources of value for the unaffiliated MDLY Stockholders, including that the Medley LLC Unitholders agreed to forfeit all of the benefits to which they otherwise would be entitled under the Tax Receivable Agreement in order to increase the amount of consideration available to the unaffiliated MDLY Stockholders.

 

The fact that the MDLY Special Committee successfully negotiated a pre-closing special cash dividend of $0.30 to be paid only to the holders of MDLY Class A Common Stock prior to the exchange of the LLC Units.

 

The belief of the MDLY Special Committee that its negotiations had resulted in the highest price per share for the unaffiliated MDLY Stockholders compared to Management and that MCC and Sierra would support.

 

Thorough Review of Strategic Alternatives

 

The fact that MDLY had carefully considered and evaluated, with the assistance of Management and legal and financial advisors, various potential strategic alternatives, including the robust and extensive sales processes to date run by MDLY for approximately 12 months.

 

The belief of the MDLY Special Committee, which belief was formed after consultation with Management and legal and financial advisors, that continuing discussions with the parties who expressed interest since May 2018, or soliciting interest from additional third parties would be unlikely to lead to a better offer and could lead to the loss of the offer in connection with the proposed MDLY Merger.

 

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The fact that the parties that submitted expressions of interest regarding a potential acquisition of MDLY since May 2018 were valuing MDLY, on a per share basis, at less than the value of the MDLY Merger Consideration (together with the First Special Dividend and the Second Special Dividend).

 

The belief of the MDLY Special Committee, which belief was formed after consultation with Management and legal and financial advisors, that the process conducted by MDLY has resulted in the highest price reasonably available to the unaffiliated MDLY Stockholders, including any standalone options.

 

Strategic and Business Considerations

 

The fact that the MDLY Special Committee had the authority to not recommend that the MDLY Board approve the MDLY Merger Agreement and the MDLY Board would have been precluded from approving the MDLY Merger Agreement under those circumstances.

 

The benefits to the Combined Company that could result from the Mergers, including (i) the Combined Company will have over $5 billion of assets under management, including $2 billion of internally managed assets, and (ii) the Combined Company is expected to be the second largest internally managed BDC and the seventh largest publicly traded BDC.

 

The fact that that the Sierra Investment Advisory Agreement and the MCC Investment Management Agreement are renewed annually, renewal effectively requires, and termination of the agreements are effectively subject only to, the approval of the independent directors of Sierra and MCC, and their terms provide a certain degree of leverage to Sierra and MCC given their relative importance to MDLY.

 

The fact that MDLY Stockholders will have an ability to participate in the future growth of the Combined Company, including any future upside in the stock price and potential synergies expected to result from the Mergers.

 

The likelihood of obtaining regulatory approvals, including an exemptive order from the SEC granting relief to Sierra, MCC and MDLY under the Investment Company Act to the extent necessary to consummate the Mergers and to thereafter operate as an internally managed BDC.

 

Terms of the Merger Agreement

 

The terms of the MDLY Merger Agreement were the result of extensive arm’s length negotiations among Management, the MDLY Special Committee and the Sierra Special Committee.

 

The fact that the MDLY Merger Agreement permits the MDLY Board (at the direction of the MDLY Special Committee) to change its recommendation that the MDLY Stockholders vote in favor of the adoption of the MDLY Merger Agreement in response to certain acquisition proposals, if the MDLY Board (at the direction of the MDLY Special Committee) determines that failure to change its recommendation could reasonably be expected to be inconsistent with its fiduciary duties, subject to certain procedural requirements set forth in the MDLY Merger Agreement.

 

The fact that the MDLY Board could terminate the MDLY Merger Agreement to accept a “superior proposal” from a third party, subject to certain procedural requirements set forth in the MDLY Merger Agreement.

 

The payment of a reasonable termination fee equal to $5,350,000 by MDLY or Sierra in certain instances following termination of the MDLY Merger Agreement.

 

The fact that appraisal rights would be available to MDLY Stockholders who comply with all of the required procedures under the DGCL, which allows such holders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery.

 

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The MDLY Special Committee also considered certain potentially negative factors in its deliberations concerning the MDLY Merger, including, but not limited to, the following:

 

The fact that a significant portion of the MDLY Merger Consideration to be paid to MDLY Stockholders will be paid in cash and, with respect to that portion of the consideration, the MDLY Stockholders will not participate in the future growth of the Combined Company.

 

The fact that the stock portion of the MDLY Merger Consideration to be received by the MDLY Stockholders will consist of Sierra Common Stock based on a fixed exchange ratio and that the value of the stock portion of the MDLY Merger Consideration may decline either before or after the MDLY Special Meeting and there will be no adjustment to the exchange ratio, thereby exposing the MDLY Stockholders to the risks of an equity investment.

 

The uncertainty as to the price at which the Sierra Common Stock will trade as of the consummation of the MDLY Merger.

 

The fact that consummation of the MDLY Merger is not conditioned on the approval of a majority of the unaffiliated MDLY Stockholders.

 

The fact that, while members of Management will own approximately 6.2% of the shares of the Combined Company Common Stock, the unaffiliated MDLY Stockholders would hold only approximately 1.4% of the shares of the Combined Company Common Stock.

 

The fact that the MDLY Merger Agreement precludes MDLY from actively soliciting competing proposals and MDLY may not terminate the MDLY Merger Agreement to accept a competing proposal from a third party unless the MDLY Board (or the MDLY Special Committee) has determined in good faith (after consultation with its outside financial advisor and legal counsel) that the competing proposal constitutes a superior proposal and after providing notice, as applicable, and entering into good faith negotiations with Sierra, in which case MDLY would be required to pay the termination fee.

 

The fact that not all of the conditions to the closing of the MDLY Merger, including the required stockholder approvals, are within the parties’ control.

 

The fact that the MDLY Merger Agreement contains certain restrictions on the ability of MDLY to conduct its business in the period between signing and closing, so that Sierra’s consent is required in respect of certain corporate actions, the entry into certain contracts, the acquisition or disposition of material assets, certain compensation actions, and other matters.

 

The substantial costs to be incurred by MDLY in connection with the MDLY Merger Agreement and the other transactions contemplated thereby, regardless of whether the MDLY Merger is consummated.

 

The risk that the announcement and pendency of the MDLY Merger could result in the disruption of MDLY’s business, including the possible diversion of management and employee attention, potential employee attrition and potential adverse effects on MDLY’s business relationships.

 

The challenges inherent in the combination of three businesses, including the risk that integration of the three companies may take more time or be more costly than anticipated, and the risk that cost savings, synergies and other benefits expected to be obtained may not be fully or timely realized.

 

The MDLY Special Committee considered the factors taken into account by Barclays in issuing its fairness opinion.  In determining the MDLY Merger is advisable and fair to, and in the best interests of, MDLY and the unaffiliated MDLY Stockholders, the MDLY Special Committee expressly adopts the analysis and conclusions of Barclays in issuing its fairness opinion as part of its considerations in making such determination. See “Special Factors—Opinion of Financial Advisor of the MDLY Special Committee—Summary of Material Financial Analyses” and “Special Factors—Opinion of Financial Advisor of the MDLY Special Committee—Other Factors” for a summary of the factors used by Barclays in issuing its fairness opinion. 

 

In view of the variety of factors and the amount of information considered, as well as the complexity of that information, the MDLY Special Committee did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decisions. In addition, individual members of the MDLY Special Committee may have given different weight to different factors. The above factors are not listed in any particular order of priority. In the judgment of the MDLY Special Committee, the potential risks associated with the MDLY Merger Agreement and the transactions contemplated thereby, including the MDLY Merger, were favorably offset by the potential benefits of the MDLY Merger Agreement and the transactions contemplated thereby, including the MDLY Merger. This explanation of the MDLY Special Committee’s reasoning, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section entitled “Special Note Regarding Forward-Looking Statements.”

 

See “Special Factors — Reasons for the Mergers — MDLY’s Reasons for the Mergers.”

 

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Risk Factors

 

Risks Relating to the Mergers (see page 138 of this Joint Proxy Statement/Prospectus)

 

The Mergers are subject to the following risks. Sierra Stockholders, MCC Stockholders, and MDLY Stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at their respective stockholder meeting. See “Risk Factors — Risks Relating to the Mergers.”

 

There can be no assurances when or if the Mergers will be completed.

 

Because the NAV of Sierra may change, MCC Stockholders and MDLY Stockholders cannot be sure of the value of the stock portion of the consideration they will receive until the MCC Merger Effective Time and the MDLY Merger Effective, respectively.

 

The value of the stock portion of the merger consideration that MCC Stockholders and MDLY Stockholders will receive, and of the Sierra Common Stock that Sierra Stockholders will continue to own, upon the completion of the Mergers may be affected, either positively or negatively, by the trading performance of Sierra Common Stock following the Mergers.

 

The inability of Sierra, MCC and/or MDLY to obtain certain third-party consents and approvals could delay or prevent the completion of the Mergers.

 

Even if the Mergers are completed, the inability of Sierra, MCC and/or MDLY to obtain certain third-party consents and approvals could adversely impact the Combined Company and Merger Sub.

 

The Mergers may trigger certain “change of control” provisions and other restrictions in agreements of Sierra, MCC, MDLY or their affiliates and the failure to obtain any required consents or waivers could adversely impact the Combined Company.

 

The opinions obtained by the Sierra Special Committee, the MCC Special Committee, the MDLY Special Committee, and the MDLY Board from each of their respective financial advisors will not reflect changes in circumstances after the dates of the opinions between signing of the MCC Merger Agreement and the MCC Merger Effective Time and between signing of the MDLY Merger Agreement and the MDLY Merger Effective Time.

 

The MCC Merger Consideration and the MDLY Merger Consideration were the product of extensive negotiations among the parties and therefore may include business considerations beyond share price, NAV or other financial or valuation metrics relating to Sierra, MCC, and MDLY.

 

Sierra, MCC, and MDLY may be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the completion of the Mergers.

 

If the Mergers do not close, neither Sierra, MCC, or MDLY will benefit from the expenses incurred in its pursuit.

 

Failure to complete the Mergers could negatively impact Sierra’s, MCC’s, and MDLY’s business, financial results, and ability to pay dividends and distributions, if any or at its current level, to Sierra Stockholders, MCC Stockholders, and MDLY Stockholders, and, in the case of MCC and MDLY, negatively impact stock prices.

 

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Termination of the MCC Merger Agreement or the MDLY Merger Agreement or failure to otherwise complete the Mergers could negatively impact Sierra, MCC, and MDLY.

 

Under certain circumstances, Sierra, MCC or MDLY may be obligated to pay a termination fee upon termination of the MCC Merger Agreement or the MDLY Merger Agreement.

 

The MCC Merger Agreement limits each of MCC’s and Sierra’s ability to actively pursue alternatives to the MCC Merger and to accept a superior proposal.

 

The MDLY Merger Agreement limits each of MDLY’s and Sierra’s ability to actively pursue alternatives to the MDLY Merger and to accept a superior proposal.

 

In certain circumstances, Sierra, MCC, and MDLY may waive one or more conditions to the Mergers, or amend the MCC Merger Agreement or MDLY Merger Agreement, without resoliciting stockholder approval.

 

Certain persons related to the Companies have interests in the Mergers that differ from the interests of their respective stockholders.

 

The Companies will be subject to business uncertainties and contractual restrictions while the Mergers are pending.

 

The shares of Sierra Common Stock to be received by MCC Stockholders and MDLY Stockholders as a result of the Mergers will have different rights associated with them than shares of MCC Common Stock and MDLY Common Stock currently held by them.

 

The Mergers are conditioned on Sierra, MCC, MDLY and certain of its affiliates receiving exemptive relief from the SEC.

 

The MCC Merger is conditioned on MCC obtaining certain approvals from the SBA for the debentures issued by the SBIC Subsidiary.

 

MDLY Stockholders could be subject to significant U.S. federal income tax liabilities if the MDLY Merger fails to qualify as tax-free reorganizations for U.S. federal income tax purposes.

 

MCC Stockholders could be subject to significant U.S. federal income tax liabilities if the MCC Merger fails to qualify as tax-free reorganizations for U.S. federal income tax purposes.

 

Risks Relating to the Combined Company if the Mergers are Successfully Consummated (see page 146 of this Joint Proxy Statement/Prospectus)

 

If the Mergers are successfully consummated, Sierra Common Stock will be listed on the NYSE under the symbol “SRA” and is expected to be listed on the TASE, with such listings expected to be effective as of the closing date of the Mergers. Upon completion of the Mergers, the investment portfolios of MCC and Sierra would be combined, Merger Sub, as a successor to MDLY, would be a wholly owned subsidiary of the Combined Company, and the Combined Company would be internally managed by its wholly owned investment adviser subsidiary. Set forth below are the principal risks relating to the Combined Company following the successful completion of the Mergers. Sierra Stockholders, MCC Stockholders and MDLY Stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at their respective stockholder meeting. See “Risk Factors—Risks Relating to the Combined Company if the Mergers are Successfully Consummated.”

 

The Combined Company may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings and synergies, or it may take longer than anticipated to achieve such benefits.

 

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If Sierra internalizes its management functions, the Combined Company may not be able to retain or replace key personnel.

 

As an internally managed BDC, the Combined Company will be subject to certain restrictions that may adversely affect its business.

 

There has been no public market for Sierra Common Stock, and the Companies cannot assure you that the market price of Sierra Common Stock will not decline following the closing of the Mergers.

 

Shares of the Sierra Common Stock may trade at a discount from NAV.

 

The Combined Company’s cash distributions are not guaranteed and may fluctuate.

 

Sierra Stockholders, MCC Stockholders, and MDLY Stockholders will experience a reduction in percentage ownership and voting power in the Combined Company as a result of the Mergers as compared to their current respective percentage ownership and voting power in Sierra, MCC, and MDLY.

 

The market price of the Sierra Common Stock after the completion of the Mergers may be affected by factors different from those affecting Sierra Common Stock, MCC Common Stock or MDLY Common Stock currently.

 

The unaudited pro forma financial information of the Combined Company is presented for illustrative purposes only and may not be indicative of the results of operations or financial condition of the Combined Company following the Mergers.

 

The accounting treatment applied to Sierra’s acquisition of MDLY will have a material impact on the Combined Company’s ability to comply with applicable asset coverage requirements under the Investment Company Act, and in turn on the Combined Company’s ability to incur additional leverage.

 

Notwithstanding the fact that the Combined Company’s portfolio of investments will be more diversified than Sierra’s and MCC’s existing investment portfolios on a standalone basis, because the Combined Company’s investment strategy will be focused primarily on privately held companies, such diversification may not materially reduce the risks associated with the Combined Company’s investments.

 

The Combined Company will be subject to corporate-level U.S. federal income tax if it is unable to qualify for the tax treatment applicable to RICs under Subchapter M of the Code or to satisfy RIC distribution requirements.

 

Sierra Stockholders, MCC Stockholders, and MDLY Stockholders should carefully consider the risks under “Risk Factors,” which sets forth the principal risks relating to: (i) the Mergers, (ii) the Combined Company following the successful completion of the Mergers, (iii) Sierra, (iv) MCC, and (v) MDLY. Please review all these risks, including the risks associated with the businesses of each of the Companies because these risks will also affect the Combined Company following consummation of the Mergers. If any of the events described in such section occurs, Sierra’s, MCC’s, MDLY’s, or, following the completion of the Mergers, the Combined Company’s business, financial condition or results of operations could be materially adversely affected.

 

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The Sierra Special Committee Received an Opinion from its Financial Advisor in connection with the Mergers (see page 94 of this Joint Proxy Statement/Prospectus)

 

Broadhaven was retained by the Sierra Special Committee to act as its financial advisor and provide an opinion in connection with the Mergers. The Sierra Special Committee selected Broadhaven to act as its financial advisor based on Broadhaven’s qualifications, experience and reputation and its knowledge of the relevant industry and the business in which Sierra operates. On August 9, 2018, Broadhaven rendered its oral opinion, which was subsequently confirmed in writing by delivery of the opinion, to the Sierra Special Committee to the effect that, as of that date and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Broadhaven as set forth in its opinion, the total consideration to be paid and issued by Sierra pursuant to the MCC Merger Agreement and MDLY Merger Agreement in the aggregate, considered as a whole and not in separate parts, was fair to Sierra from a financial point of view.

 

For more information see the section entitled “Special Factors — Opinion of Financial Advisor to the Sierra Special Committee.”

 

The MCC Special Committee Received an Opinion from its Financial Advisor in connection with the MCC Merger (see page 104 of this Joint Proxy Statement/Prospectus)

 

The MCC Special Committee retained Sandler O’Neill to act as financial advisor to the MCC Special Committee in connection with the MCC Special Committee’s consideration of a proposed business combination. The MCC Special Committee selected Sandler O’Neill as its financial advisor because Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial services companies. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial services companies and their securities in connection with mergers and acquisitions and other corporate transactions. Sandler O’Neill acted as financial advisor to the MCC Special Committee in connection with the proposed MCC Merger and participated in certain of the negotiations leading to the execution of the MCC Merger Agreement. At the August 9, 2018 telephonic meeting of the MCC Special Committee, at which the MCC Special Committee considered the MCC Merger Agreement and the MCC Merger, Sandler O’Neill delivered to the MCC Special Committee its oral opinion, which was subsequently confirmed in writing on August 9, 2018, to the effect that, as of such date, the MCC Merger Consideration was fair to the holders of MCC Common Stock (other than Sierra, MDLY and their respective affiliates) from a financial point of view.

 

For more information see the section entitled “Special Factors — Opinion of Financial Advisor to the MCC Special Committee.”

 

The MDLY Special Committee Received an Opinion from its Financial Advisor in connection with the MDLY Merger (see page 112 of this Joint Proxy Statement/Prospectus)

 

The MDLY Special Committee engaged Barclays to act as its independent financial advisor for the purpose of providing financial advisory services to the MDLY Special Committee with respect to certain potential transactions or series or combination of related transactions outside of the ordinary course of business of MDLY, including the MDLY Merger, pursuant to an engagement letter dated July 13, 2018. On August 9, 2018, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the MDLY Special Committee that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Consideration (as defined below) to be offered to the MDLY Public Stockholders for their MDLY Class A Common Stock in the proposed MDLY Merger is fair, from a financial point of view, to such MDLY Public Stockholders.

 

The full text of Barclays’ written opinion, which is attached to this proxy statement as Annex E, sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully and in its entirety. Barclays’ opinion was provided for the information of the MDLY Special Committee in connection with its evaluation from a financial point of view of the Consideration to be offered to the MDLY Public Stockholders for their MDLY Class A Common Stock in the proposed MDLY Merger and did not address any other aspects or implications of the proposed MDLY Merger, the proposed MCC Merger or any other transaction. Barclays was not requested to opine as to, and its opinion does not in any manner address, the underlying business decision to proceed with or effect the proposed MDLY Merger, the likelihood of consummation of the proposed MDLY Merger, the proposed MCC Merger or any other transaction or the relative merits of the proposed MDLY Merger as compared to any other transaction or business strategy in which MDLY might engage. In addition, Barclays expressed no view as to, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed MDLY Merger, the proposed MCC Merger or any other transaction, or any class of such persons, relative to the consideration to be offered to the MDLY Public Stockholders for their MDLY Class A Common Stock in the proposed MDLY Merger or otherwise. The summary of Barclays’ opinion provided in this proxy statement is qualified in its entirety by reference to the full opinion. Barclays’ opinion is not intended to be and does not constitute a recommendation to any MDLY Public Stockholder or any other person as to how such MDLY Public Stockholder or other person should vote or act with respect to the proposed MDLY Merger, the proposed MCC Merger, any other transaction or any other matter.

 

For more information see the section entitled “Special Factors — Opinion of Financial Advisor to the MDLY Special Committee.”

 

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The MDLY Board Received an Opinion from its Financial Advisor in connection with the MDLY Merger (see page 124 of this Joint Proxy Statement/Prospectus)

 

On August 9, 2018, at a meeting of the MDLY Board, Goldman Sachs & Co. LLC (“Goldman Sachs”) rendered its oral opinion, subsequently confirmed in writing that, as of August 9, 2018 and based upon and subject to the factors and assumptions set forth therein, the aggregate of the MDLY Merger Consideration, the First Special Dividend and the Second Special Dividend, which is referred to as the “Consideration”, to be paid to the holders of MDLY Class A Common Stock (other than Sierra, MCC and any of their respective affiliates, the Medley LLC Unitholders, the holders of Medley LLC Restricted Units and the holders of MDLY RSUs) pursuant to the MDLY Merger Agreement, was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated August 9, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix F. Goldman Sachs provided advisory services and its opinion for the information and assistance of the MDLY Board in connection with its consideration of the MDLY Merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of the shares of MDLY Class A Common Stock should vote with respect to the MDLY Merger or any other matter. Pursuant to an engagement letter between MDLY and Goldman Sachs, MDLY has agreed to pay Goldman Sachs a transaction fee based on the aggregate consideration paid in the MDLY Merger. Based on information available as of the date of the announcement of the MDLY Merger, the transaction fee, all of which is contingent upon consummation of the MDLY Merger, is estimated to be approximately $2.7 million.

 

For more information see the section entitled “Special Factors — Opinion of Financial Advisor to the MDLY Board.”

 

Based upon the Recommendation of the Sierra Special Committee, the Sierra Board Unanimously Recommends that Sierra Stockholders Vote “FOR” each of the Sierra proposals (see page 252 of this Joint Proxy Statement/Prospectus)

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board has unanimously approved the MCC Merger Agreement, including the transactions contemplated thereunder, declared the MCC Merger to be advisable upon the terms and subject to the conditions and limitations set forth in the MCC Merger Agreement, and unanimously recommends that Sierra Stockholders vote “FOR” the approval of the MCC Merger.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board has unanimously approved the MDLY Merger Agreement, including the transactions contemplated thereunder, declared the MDLY Merger to be advisable upon the terms and subject to the conditions and limitations set forth in the MDLY Merger Agreement, and unanimously recommends that Sierra Stockholders vote “FOR” the approval of the MDLY Merger.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that Sierra Stockholders vote “FOR” the approval of the issuance of the shares of Sierra Common Stock to be issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a price below its then current NAV per share, if applicable.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that Sierra Stockholders vote “FOR” the adoption of the Sierra Incentive Plan.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that Sierra Stockholders vote “FOR” the Sierra Charter Amendments.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that Sierra Stockholders vote “FOR” the Combined Company Investment Advisory Agreement.

 

Based upon the recommendation of the Sierra Special Committee, the Sierra Board unanimously recommends that Sierra Stockholders vote “FOR” the adjournment of the Sierra Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the Sierra Special Meeting to approve the foregoing proposals.

 

For more information, see “Special Factors,” “Description of the MCC Merger Agreement,” “Description of the MDLY Merger Agreement,” “The Sierra Special Meeting,” “Sierra Proposal #1: Approval of the MCC Merger,” “Sierra Proposal #2: Approval of the MDLY Merger,” “Sierra Proposal #3: Issuance of the Shares of Sierra Common Stock to be Issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a Price Below its Then Current NAV per Share, if applicable,” “Sierra Proposal #4: Adoption of the Sierra Incentive Plan,” “Sierra Proposal #5: Adoption of the Sierra Charter Amendments,” “Sierra Proposal #6: Approval of the Combined Company Investment Advisory Agreement,” and “Sierra Proposal #7: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

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Based upon the Recommendation of the MCC Special Committee, the MCC Board Unanimously Recommends that MCC Stockholders Vote “FOR” each of the MCC proposals (see page 258 of this Joint Proxy Statement/Prospectus)

 

Based upon the recommendation of the MCC Special Committee, the MCC Board has unanimously approved the MCC Merger Agreement, including the transactions contemplated thereunder, including the MCC Merger, upon the terms and subject to the conditions and limitations set forth in the MCC Merger Agreement, and unanimously recommends that MCC Stockholders “FOR” the approval of the adoption of the MCC Merger Agreement.

 

Based upon the recommendation of the MCC Special Committee, the MCC Board unanimously recommends that MCC Stockholders vote “FOR” the adjournment of the MCC Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the MCC Special Meeting to approve the adoption of the MCC Merger Agreement.

 

For more information, see “Special Factors,” “Description of the MCC Merger Agreement,” “The MCC Special Meeting,” “MCC Proposal #1: Approval of the Adoption of the MCC Merger Agreement,” and “MCC Proposal #2: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

Based upon the Recommendation of the MDLY Special Committee, the MDLY Board Unanimously Recommends that MDLY Stockholders Vote “FOR” each of the MDLY proposals (see page 262 of this Joint Proxy Statement/Prospectus)

 

Based upon the recommendation of the MDLY Special Committee, the MDLY Board has unanimously approved and declared advisable the MDLY Merger Agreement and the transactions contemplated thereby, including, without limitation, the MDLY Merger, and unanimously recommends that MDLY Stockholders vote “FOR” the approval of the adoption of the MDLY Merger Agreement.

 

Based upon the recommendation of the MDLY Special Committee, the MDLY Board unanimously recommends that MDLY Stockholders vote “FOR” the adjournment of the MDLY Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the MDLY Special Meeting to approve the adoption of the MDLY Merger Agreement.

 

For more information, see “Special Factors,” “Description of the MDLY Merger Agreement,” “The MDLY Special Meeting,” “MDLY Proposal #1: Approval of the adoption of the MDLY Merger Agreement,” and “MDLY Proposal #2: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

Management’s Conflicts of Interests and Role in the Mergers (see page 60 of this Joint Proxy Statement/Prospectus)

 

Various safeguards were implemented to protect against actual and potential conflicts of interests in light of the fact that the Mergers required agreement among Management and three affiliated, separate and distinct public entities, one of which, MDLY, is controlled by Management through majority equity ownership and two of which, Sierra and MCC, are managed by subsidiaries of MDLY. In order to mitigate such conflicts, each of the Sierra Board, the MCC Board, and the MDLY Board formed a special committee, comprised solely of independent directors of each respective board. Each of the Sierra Special Committee, the MCC Special Committee and the MDLY Special Committee exercised the authority, granted by each respective board, to hire advisors that it deemed appropriate, including in each case its own independent legal counsel and independent financial advisor.

 

Sierra Stockholders do not have Dissenter’s Right (see page 257 of this Joint Proxy Statement/Prospectus)

 

Sierra Stockholders do not have the right to exercise dissenters’ rights with respect to any matter to be voted upon at the Sierra Special Meeting.

 

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MCC Stockholders do not have Dissenter’s Right (see page 261 of this Joint Proxy Statement/Prospectus)

 

MCC Stockholders do not have the right to exercise dissenters’ rights with respect to any matter to be voted upon at the MCC Special Meeting.

 

MDLY Stockholders are Entitled to Appraisal Rights (see page 290 of this Joint Proxy Statement/Prospectus)

 

MDLY Stockholders are entitled to appraisal rights under Section 262 of the DGCL in connection with the MDLY Merger, provided they follow the procedures and satisfy the conditions set forth in Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached as Appendix L to this Joint Proxy Statement/Prospectus. Failure to strictly comply with Section 262 of the DGCL will result in the loss of appraisal rights. A proxy or vote against the MDLY Merger proposal will not be deemed an appraisal demand. Due to the complexity of the provisions of Section 262 of the DGCL, any MDLY Stockholder considering exercising its appraisal rights under Section 262 of the DGCL is urged to consult his, her or its own legal advisor. See “Description of the MDLY Merger Agreement — Appraisal Rights” and “Appraisal Rights of MDLY Stockholders.”

 

Votes Required to Approve Each of the Sierra Proposals (see page 253 of this Joint Proxy Statement/Prospectus)

 

With regard to Sierra Proposal #1 (approval of MCC Merger) and Sierra Proposal #2 (approval of MDLY Merger), the holders of a majority of the outstanding shares of Sierra Common Stock as of the Sierra Record Date must affirmatively vote “FOR” in order for it to be approved. Because the vote on each proposal is based on the total number of shares of Sierra Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

With regard to Sierra Proposal #3 (issuance of Sierra Common Stock pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement), under the Investment Company Act, Sierra is not permitted to issue shares of Sierra Common Stock at a price below the then current NAV per share unless such issuance is approved by a majority of the holders of (1) the outstanding shares of Sierra Common Stock and (2) the outstanding shares of Sierra Common Stock held by persons who are not affiliated persons of Sierra. The vote of holders of a “majority,” as defined in the Investment Company Act, means the vote of the holders of the lesser of (1) 67% or more of the outstanding shares of Sierra Common Stock present or represented by proxy at the Sierra Special Meeting if the holders of more than 50% of the shares of Sierra Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Sierra Common Stock. In order to issue shares at a price below NAV pursuant to this approval, the Sierra Board would need to make certain determinations as required under the Investment Company Act. Abstentions and “broker non-votes” will have the effect of a vote “AGAINST” the proposal. See “The Special Meeting of Sierra—Vote Required” for more information on Sierra Proposal #3.

 

With regard to Sierra Proposal #4 (adoption of the Sierra Incentive Plan), the majority of the votes cast by the holders of Sierra Common Stock as of the Sierra Record Date present or represented by proxy at the Sierra Special Meeting must affirmatively vote “FOR” Sierra Proposal #4 in order for it to be approved (meaning the number of shares voted “FOR” a proposal must exceed the number of shares voted “AGAINST” such proposal). Abstentions have the same effect as votes cast against the proposal, while “broker non-votes” will not be included in determining the number of votes cast and, as a result, do not affect the outcome.

 

With regard to Sierra Proposal #5 (adoption of the Sierra Charter Amendments), the requisite Sierra Stockholder approval is dependent on the particular Sierra Charter Amendment being considered, as described below.

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of each of Charter Amendment Proposals #5(A)(i) through (A)(xi) in order for it to be approved. Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” each of Charter Amendment Proposals #5(A)(i) through (A)(xi).

 

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The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(B). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(B).

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(C). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(C).

 

The holders of shares of Sierra Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(D). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(D).

 

The holders of shares of Sierra Common Stock entitled to cast at least two-thirds of all the votes entitled to be cast as of the Sierra Record Date must affirmatively vote “FOR” the approval of Charter Amendment Proposal #5(E). Abstentions and “broker non-votes” will not count as affirmative votes cast and will therefore have the same effect as votes “AGAINST” Charter Amendment Proposal #5(E).

 

With regard to Sierra Proposal #6 (approval of the Combined Company Investment Advisory Agreement), a majority of the holders of (1) the outstanding shares of Sierra Common Stock as of the Sierra Record Date and (2) the outstanding shares of Sierra Common Stock as of the Sierra Record Date held by persons who are not affiliated persons of Sierra, each must affirmatively vote “FOR” the proposal in order for it to be approved. The vote of holders of a “majority,” as defined in the Investment Company Act, means the vote of the holders of the lesser of (1) 67% or more of the outstanding shares of Sierra Common Stock present or represented by proxy at the Sierra Special Meeting if the holders of more than 50% of the shares of Sierra Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of Sierra Common Stock. Because the vote on the proposal is based on the total number of shares outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

With regard to Sierra Proposal #7 (possible adjournment to solicit additional proxies, if necessary or appropriate), a majority of the votes cast by the holders of Sierra Common Stock as of the Sierra Record Date present or represented by proxy at the Sierra Special Meeting must affirmatively vote “FOR” the proposal in order for it to be approved (meaning the number of shares voted “FOR” the proposal must exceed the number of shares voted “AGAINST” the proposal). Abstentions and “broker non-votes” are not considered votes cast on the adjournment proposal, and will have no effect on the vote for the proposal.

 

See “The Sierra Special Meeting — Vote Required,” “Sierra Proposal #1: Approval of the MCC Merger,” “Sierra Proposal #2: Approval of the MDLY Merger,” “Sierra Proposal #3: Issuance of the Shares of Sierra Common Stock to be Issued pursuant to each of the MCC Merger Agreement and the MDLY Merger Agreement at a Price Below its Then Current NAV per Share, if applicable,” “Sierra Proposal #4: Adoption of the Sierra Incentive Plan,” “Sierra Proposal #5: Adoption of the Sierra Charter Amendments,” “Sierra Proposal #6: Approval of the Combined Company Investment Advisory Agreement,” and “Sierra Proposal #7: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

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Votes Required to Approve Each of the MCC Proposals (see page 259 of this Joint Proxy Statement/Prospectus)

 

A majority of the outstanding shares of MCC Common Stock as of the MCC Record Date must affirmatively vote “FOR” MCC Proposal #1 (approval of the adoption of the MCC Merger Agreement) in order for it to be approved. Because the vote on the proposal is based on the total number of shares of MCC Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

A majority of the votes cast by the holders of MCC Common Stock as of the MCC Record Date present or represented by proxy at the MCC Special Meeting must affirmatively vote “FOR” MCC Proposal #2 (possible adjournment to solicit additional proxies, if necessary or appropriate) in order for it to be approved (meaning the number of shares voted “FOR” a proposal must exceed the number of shares voted “AGAINST” such proposal). Abstentions and “broker non-votes” are not considered votes cast on the adjournment proposal, and will have no effect on the vote for the proposal.

 

See “The MCC Special Meeting — Vote Required,” “MCC Proposal #1: Approval of the Adoption of the MCC Merger Agreement,” and “MCC Proposal #2: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

Votes Required to Approve Each of the MDLY Proposals (see page 263 of this Joint Proxy Statement/Prospectus)

 

The holders of a majority of the voting power of the outstanding shares of MDLY Common Stock as of the MDLY Record Date must affirmatively vote “FOR” MDLY Proposal #1 (approval of the adoption of the MDLY Merger Agreement) in order for it to be approved. Because the vote on the proposal is based on the total number of shares of MDLY Common Stock outstanding, abstentions and “broker non-votes” will have the same effect as voting “AGAINST” the approval of the proposal.

 

A majority of the votes cast by the holders of shares of MDLY Common Stock as of the MDLY Record Date present in person or by proxy at the MDLY Special Meeting must vote “FOR” MDLY Proposal #2 (possible adjournment to solicit additional proxies, if necessary or appropriate) in order for it to be approved (meaning the number of shares voted “FOR” a proposal must exceed the number of shares voted “AGAINST” such proposal). Abstentions and “broker non-votes” are not considered votes cast on the adjournment proposal, and will have no effect on the vote for the proposal.

 

See “The MDLY Special Meeting — Vote Required,” “MDLY Proposal #1: Approval of the adoption of the MDLY Merger Agreement,” and “MDLY Proposal #2: Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate.”

 

Completion of the Mergers

 

While there can be no assurance as to the exact timing, or that the Mergers will be completed at all, Sierra, MCC, and MDLY anticipate that the MCC Merger and the MDLY Merger will close in the first quarter of 2019. Sierra, MCC, and MDLY currently expect to complete the Mergers promptly following receipt of the required approvals at the Sierra Special Meeting, the MCC Special Meeting, and the MDLY Special Meeting and satisfaction of the other closing conditions set forth in the MCC Merger Agreement and the MDLY Merger Agreement, and as described below and in this Joint Proxy Statement/Prospectus.

 

Conditions That Must Be Satisfied or Waived for the MCC Merger to be Completed (see page 283 of this Joint Proxy Statement/Prospectus)

 

MCC and Sierra will not be obligated to complete the MCC Merger unless a number of conditions are satisfied or waived, including but not limited to:

 

the receipt of MCC Stockholder approval;

 

the receipt of Sierra Stockholder approval;

 

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the Form N-14 Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form N-14 Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC;

 

the exemptive relief from the SEC shall have been granted and be in full force and effect as of the MCC Merger Closing Date;

 

MCC shall have obtained from the SBA such approvals as may be necessary for the debentures issued by the SBIC Subsidiary to remain outstanding in accordance with their terms following the MCC Merger Effective Time;

 

any applicable waiting period (and any extension thereof) applicable to the MCC Merger under the HSR Act shall have expired or been terminated;

 

each of the conditions to the MDLY Merger Closing shall have been satisfied or appropriately waived, and the MDLY Merger shall be consummated simultaneously with the MCC Merger;

 

in connection with the MDLY Merger Agreement, MDLY shall have obtained written consents to the continuation, following the MDLY Merger Effective Time (as defined below), of the advisory relationship with private funds and managed accounts representing 65% of MDLY’s total revenues from private funds and managed accounts for the 12-month period ended as of June 30, 2018; and

 

the equity of Merger Sub, as the surviving company in the MDLY Merger, being treated as a portfolio investment of Sierra and reflected in Sierra’s consolidated financial statements at fair value for accounting purposes, and that such surviving company’s financial results will not be consolidated into the financial statements of Sierra.

 

For information about all the conditions that must be satisfied or waived for the MCC Merger to be completed, see “Description of the MCC Merger Agreement — Conditions to the MCC Merger.”

 

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Termination of the MCC Merger Agreement (see page 285 of this Joint Proxy Statement/Prospectus)

 

The MCC Merger Agreement generally may be terminated, whether before or after the receipt of the MCC Stockholder approval or the Sierra Stockholder approval under certain circumstances.

 

MCC Termination Fee (see page 286 of this Joint Proxy Statement/Prospectus)

 

Under the MCC Merger Agreement, Sierra and MCC may be obligated, under certain circumstances, to pay the other party a termination fee of $6,000,000 in cash. See “Description of the MCC Merger Agreement — Termination Fees” for a discussion of the circumstances that could result in the payment of a termination fee under the MCC Merger Agreement.

 

Conditions That Must Be Satisfied or Waived for the MDLY Merger to be Completed (see page 307 of this Joint Proxy Statement/Prospectus)

 

MDLY and Sierra will not be obligated to complete the MDLY Merger unless a number of conditions are satisfied or waived, including but not limited to:

 

the receipt of MDLY Stockholder approval;

 

the receipt of Sierra Stockholder approval;

 

the Form N-14 Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form N-14 Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC;

 

the exemptive relief from the SEC shall have been granted and be in full force and effect as of the MDLY Merger Closing Date;

 

the Tax Receivable Termination Agreement, to be effective as of the MDLY Merger Effective Time, shall have been executed and delivered by all necessary parties;

 

each of the conditions to the MCC Merger Closing shall have been satisfied or appropriately waived, and the MCC Merger shall be consummated simultaneously with the MDLY Merger;

 

MDLY shall have obtained written consents to the continuation, following the MDLY Merger Effective Time, of the advisory relationship with private funds and managed accounts representing 65% of MDLY’s total revenues from private funds and managed accounts for the 12-month period ended as of June 30, 2018; and

 

the equity of Merger Sub, as the surviving company in the MDLY Merger, being treated as a portfolio investment of Sierra and reflected in Sierra’s consolidated financial statements at fair value for accounting purposes, and that Merger Sub’s financial results will not be consolidated into the financial statements of Sierra.

 

For more information about all the conditions that must be satisfied or waived for the MDLY Merger to be completed, see “Description of the MDLY Merger Agreement — Conditions to the MDLY Merger.”

 

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Termination of the MDLY Merger Agreement (see page 309 of this Joint Proxy Statement/Prospectus)

 

The MDLY Merger Agreement generally may be terminated, whether before or after the receipt of the MDLY Stockholder approval or the Sierra Stockholder approval under certain circumstances.

 

MDLY Termination Fee (see page 310 of this Joint Proxy Statement/Prospectus)

 

Under the MDLY Merger Agreement, Sierra and MDLY may be obligated, under certain circumstances, to pay the other party a termination fee of $5,350,000 in cash. See “Description of the MDLY Merger Agreement — Termination Fees” for a discussion of the circumstances that could result in the payment of a termination fee under the MDLY Merger Agreement.

 

Third Party Consents Required for the Mergers (see pages 294-295 and 307 of this Joint Proxy Statement/Prospectus)

 

Pursuant to the MCC Merger Agreement, each of Sierra’s and MCC’s obligations to complete the MCC Merger is conditioned upon, among other things, and in addition to certain regulatory approvals (as described below in “Regulatory Approvals Required for the Mergers”), the prior receipt by Sierra or MCC, as applicable, of third party consents and approvals relating to the joint venture arrangements of Sierra and MCC. In addition, each of Sierra’s and MCC’s obligations to complete the MCC Merger is cross-conditioned upon MDLY, pursuant to the MDLY Merger Agreement, having received written consents to the continuation, following the MDLY Merger Effective Time, of the advisory relationship with private funds and managed accounts representing 65% of MDLY’s total revenues from private funds and managed accounts for the 12-month period ended June 30, 2018. In addition to the foregoing mutual conditions for closing, Sierra and MCC must obtain all consents and approvals, and take all necessary steps, in order to keep their respective indebtedness outstanding (or, in the case of MCC’s credit facility, to combine it with Sierra’s existing credit facility) following the MCC Merger Effective Time. Although Sierra and MCC expect that all such approvals and consents will be obtained and remain in effect and all conditions related to such consents will be satisfied, if they are not, the closing of the Mergers could be significantly delayed or the Mergers may not occur at all.

 

Pursuant to the MDLY Merger Agreement, each of Sierra’s and MDLY’s obligations to complete the MDLY Merger is conditioned upon, among other things, and in addition to the regulatory approvals (as described below in “Regulatory Approvals Required for the Mergers”), prior receipt by MDLY of written consents to the continuation, following the MDLY Merger Effective Time, of the advisory relationship with private funds and managed accounts representing 65% of MDLY’s total revenues from private funds and managed accounts for the 12-month period ended June 30, 2018. In addition to the foregoing mutual conditions for closing, Sierra and MDLY must obtain all consents and approvals, and take all necessary steps, in order to keep their respective indebtedness outstanding following the MDLY Merger Effective Time. Although Sierra and MDLY expect that all such approvals and consents will be obtained and remain in effect and all conditions related to such consents will be satisfied, if they are not, the closing of the Mergers could be significantly delayed or the Mergers may not occur at all.

 

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Listing of Sierra Common Stock and Delisting of MCC Common Stock and MDLY Class A Common Stock (see page 137 of this Joint Proxy Statement/Prospectus)

 

Sierra Common Stock is currently not listed on a securities exchange. In connection with the Mergers, Sierra Common Stock will be listed on the NYSE under the symbol “SRA” and is expected to be listed on the TASE, with such listings expected to be effective as of the closing date of the Mergers. Upon completion of the Mergers, (1) MCC Common Stock will be delisted from the NYSE and the TASE and thereafter MCC will be deregistered under the Exchange Act and (2) MDLY Class A Common Stock will be delisted from the NYSE and thereafter MDLY will be deregistered under the Exchange Act.

 

Immediately following the Closing of the Mergers, the Combined Company Expects to Effectuate a Reverse Stock Split and a Share Repurchase Program (see page 678 of this Joint Proxy Statement/Prospectus)

 

Immediately following the closing of the Mergers, the Combined Company expects to effectuate a one-for-three reverse split stock split. As a result, the total number of shares of Combined Company Common Stock outstanding will be reduced and the price per share will simultaneously increase. In light of the fact that the reverse stock split will not be effectuated until after the closing of the Mergers, the financial information contained in this Joint Proxy Statement/Prospectus does not reflect the reverse stock split.

 

In connection with the Mergers, on November 6, 2018, the Sierra Board approved a share repurchase program pursuant to which the Combined Company could purchase up to an aggregate amount of $100.0 million of the Combined Company Common Stock between the period of the effective date of the Mergers and the one-year anniversary of such date. This share repurchase program may be limited or terminated at any time without prior notice. Even if the Mergers are consummated, there can be no assurance that the Combined Company will conduct any repurchases of the Combined Company Common Stock.

 

The Combined Company and its Management Following Completion of the Mergers (see page 679 of this Joint Proxy Statement/Prospectus)

 

On November 6, 2018, the Sierra Board took the necessary actions to appoint individuals to serve as directors and executive officers of the Combined Company. Effective as of the closing of the Mergers, the following actions will occur with respect to the Combined Company Board: (1) Seth Taube will resign from his positions as a director and Chief Executive Officer of Sierra, (2) Brook Taube will be appointed as Chief Executive Officer and Chief Investment Officer of the Combined Company and Chairman of the Combined Company Board, and (3) Karin Hirtler-Garvey and John E. Mack, each of whom are currently independent directors of MCC, will become independent directors of the Combined Company. The current independent directors of Sierra, Oliver T. Kane, Valerie Lancaster-Beal, and Stephen R. Byers, will continue as directors of the Combined Company Board.

 

Effective as of the closing of the Mergers, the following persons will serve as the Combined Company’s executive officers or key employees in the following capacities:

 

  Name   Position(s) Held
  Brook Taube   Chief Executive Officer, Chief Investment Officer, and Chairman of the Combined Company Board
  Seth Taube   Vice Chairman, Senior Executive Vice President, and Senior Managing Director
  Jeff Tonkel   President
  Richard T. Allorto, Jr.   Chief Financial Officer, Treasurer, Senior Executive Vice President, and Senior Managing Director
  John D. Fredericks   General Counsel, Chief Compliance Officer, Secretary, Senior Executive Vice President, and Senior Managing Director
  Samuel Anderson   Head of Capital Markets & Risk Management, Senior Executive Vice President, and Senior Managing Director
  Christopher Taube   Head of Institutional Fundraising, Senior Executive Vice President, and Senior Managing Director

 

For more information regarding the management of the Combined Company, see “Information about the Combined Company — Management.”

 

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Arrangements with Management (see page 692 of this Joint Proxy Statement/Prospectus)

 

Medley Capital LLC, a wholly owned subsidiary of the Combined Company that employs the Combined Company’s employees, has entered into employment agreements with each Management employee, effective as of the MDLY Merger Closing Date (the “Effective Date”). The employment agreements provide for an initial term of 24 months (30 months in the case of the Chief Executive Officer) following the Effective Date, unless terminated earlier by one of the parties, and will be renewed automatically for successive periods of one year, unless either party gives written notice to the contrary at least 120 calendar days prior to the end of the initial term or any renewal term (the “Term”).

 

Each employment agreement sets forth a base salary, which is subject to change at the discretion of the Combined Company Board or compensation committee of the Combined Company Board (the “Combined Company Compensation Committee”). Under the employment agreements, each Management employee is eligible to receive each year a short-term incentive paid in cash and a long-term incentive in the form of an equity award, each paid after the end of the year (the “Annual Bonus”). Each employment agreement provides that the Combined Company Board or the compensation committee will establish a target Annual Bonus for each year of no less than a specified percentage of each Management employee’s base salary and will establish performance and other objectives for the year for such Annual Bonus, in consultation with Management. The long-term equity incentive will be made in the form of a restricted stock unit (“RSU”) award, vesting in three installments. The cash and equity award portions of the annual bonuses paid under the employment agreements will be subject to recoupment by the Combined Company under certain circumstances.

 

Under the employment agreements, each Management employee would be entitled to certain benefits and payments (including, under certain circumstances, accrued but unpaid obligations, bonus amounts, salary continuation, acceleration of RSUs and/or partial COBRA-premium coverage) in exchange for a general release of claims in the event of the Management employee’s death, disability, termination of employment by Medley Capital LLC without “Cause,” termination by the Management employee with “Good Reason” or termination of the Management employee due to the Combined Company providing notice that it is not renewing the employment agreement at the end of the Term, unless the Combined Company has offered to renew the employment agreement on terms that are at least comparable in the aggregate to “Market Level Compensation.”

 

The employment agreements impose restrictive covenants that prohibit a Management employee from competing with any member of Medley Capital LLC, the Combined Company and each of their respective subsidiaries and affiliates (the “Company Group”), or interfering with the customers or employees of any member of the Company Group while employed and for 12 months thereafter, and prohibit the Management employees from disparaging or disclosing the confidential information of any member of the Company Group indefinitely, among other restrictions.

 

Each employment agreement also provides for a lock-up period of one-year beginning on the MDLY Merger Closing Date, during which the Management employee will not be permitted to transfer any shares of the Combined Company Common Stock the Management employee acquired pursuant to the MDLY Merger Agreement, unless under certain specified circumstances. Certain employment agreements provide that in the event of a termination by Medley Capital LLC without Cause or by the Management employee with Good Reason, the lock-up period shall end as of the termination date.

 

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The Rights of MCC Stockholders and MDLY Stockholders Following the Mergers Will Be Different (see page 655 of this Joint Proxy Statement/Prospectus)

 

The rights of MCC Stockholders are currently governed by the DGCL, the MCC Certificate, and the MCC Bylaws, and the rights of MDLY Stockholders are currently governed by the DGCL, the MDLY Certificate, and the MDLY Bylaws. As a result of the Mergers, MCC Stockholders and MDLY Stockholders who receive shares of Sierra Common Stock will become stockholders of the Combined Company. The rights of the Combined Company’s stockholders will be governed by the MGCL, the Sierra Charter (including the Sierra Charter Amendments subject to the approval of Sierra Stockholders), and the amendment and restatement of the Sierra Bylaws. Further, Sierra Stockholders are being asked to consider and approve proposals to adopt the Sierra Charter Amendments (as discussed in greater detail in “Sierra Proposal #5: Adoption of Sierra Charter Amendments”). The rights of MCC Stockholders and MDLY Stockholders and the rights of Sierra Stockholders differ in certain respects.

 

Regulatory Approvals Required for the Mergers

 

Request for SEC Exemptive Relief (see page 677 of this Joint Proxy Statement/Prospectus)

 

The Mergers are conditioned on Sierra, MCC, MDLY, and certain of their affiliates receiving exemptive relief from the SEC from: (i) Sections 17(d) and 57(a)(1), (2), and (4) of the Investment Company Act and Rule 17d-1 thereunder because the Mergers would involve a joint arrangement among two affiliated BDCs and their investment advisers and (ii) Sections 12(d)(3) and 60 of the Investment Company Act because, in connection with the MDLY Merger, MDLY, a registered investment adviser, will be become a wholly owned subsidiary of the Combined Company. In addition, Sierra and certain of its affiliates are requesting exemptive relief from the SEC from (i) Sections 23(a), 23(b), 23(c), and 63 and pursuant to Section 61(a)(3)(B) and Sections 57(a)(4) and 57(i) of the Investment Company Act and Rule 17d-1 thereunder that would permit the Combined Company to grant stock options, restricted stock, and restricted stock units in exchange for and in recognition of services by its directors, executive officers and employees and (ii) Sections 18(a) and 61(a) of the Investment Company Act that would permit the Combined Company to exclude the debt of the SBIC Subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage ratio that the Combined Company is required to maintain under the Investment Company Act. There can be no assurance if or when the Companies will receive the exemptive relief. As of the date of this Joint Proxy Statement/Prospectus, no exemptive relief had been received.

 

Request for SBA Approval (see page 677 of this Joint Proxy Statement/Prospectus)

 

The MCC Merger is conditioned on MCC obtaining from the SBA such approvals as may be necessary for the debentures issued by the SBIC Subsidiary to remain outstanding in accordance with their terms following the MCC Merger Effective Time. The SBIC Subsidiary is seeking SBA approval related to the Mergers; however, there can be no assurance that MCC will receive the requisite SBA approval or the exact timing of such approval.

 

The HSR Act (see page 677 of this Joint Proxy Statement/Prospectus)

 

The HSR Act provides that parties must not consummate certain mergers, acquisitions or transfers of assets until they submitted an HSR notification to the FTC and the DOJ and provided an opportunity for those agencies to determine that the transaction will not have an adverse effect on competition actionable under the antitrust laws. Each of Sierra, MCC, and MDLY have agreed to file an HSR notification with the FTC and the DOJ, if and to the extent required, relating to the MCC Merger Agreement and the MDLY Merger Agreement, as applicable, and the transactions contemplated thereby as required by the HSR Act, and to take all other actions reasonably necessary to cause the expiration or termination of any applicable waiting period under the HSR Act applicable to the MCC Merger and the MDLY Merger as soon as practicable. At any time before consummation of the Mergers, the FTC or the DOJ, could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin consummation of the Mergers. Individual states or private parties also may bring actions under the antitrust laws in certain circumstances. There can be no assurance that a challenge to the Mergers on antitrust grounds will not be made or, if a challenge is made, that it will not be successful.

 

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COMPARATIVE FEES AND EXPENSES

 

The following tables are intended to assist you in understanding and comparing the costs and expenses that an investor in Sierra Common Stock and MCC Common Stock bears directly or indirectly. In addition, the following tables reflect, based on the assumptions set forth below, the pro forma costs and expenses that an investor in the Combined Company Common Stock following the completion of the Mergers may bear directly or indirectly. Except where the context suggests otherwise, whenever this Joint Proxy Statement/Prospectus contains a reference to fees or expenses paid or to be paid by Sierra or MCC, the respective stockholders will indirectly bear such fees or expenses as investors in Sierra or MCC prior to the Mergers, as applicable, and the Combined Company following the consummation of the Mergers.

 

Sierra will reflect its interest in Merger Sub as an investment at fair value on its statement of assets and liabilities, in accordance with ASC 946-320, “Financial Services — Investment Companies — Investments — Debt and Equity Securities.” Accordingly, Sierra will not consolidate Merger Sub in its financial statements. Therefore, the costs and expenses of Merger Sub are not presented separately or otherwise included in the tables below.

 

           Pro Forma Combined 
   Sierra   MCC   Company 
Stockholder transaction expenses (as a percentage of offering price)            
Sales load paid (1)            
Offering expenses (1)            
Distribution reinvestment plan fees (2)            
Total stockholder transaction expenses            
                
Annual expenses (as a percentage of net assets attributable to common stock): (3)               
Base management fees (4)   2.72%   4.17%   3.13%
Incentive fees (5)   0.06%   %   %
Interest payments on borrowed funds (6)   3.07%   8.62%   4.51%
Acquired fund fees and expenses (7)   1.40%   2.15   1.66
Other expenses (8)   1.27%   2.74%   1.29%
Total annual expenses (estimated)   8.52%   17.68%    10.59%

 

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See the section entitled “Unaudited Pro Forma Condensed Consolidated Financial Statements” and the accompanying notes to such financial statements included elsewhere in this Joint Proxy Statement/Prospectus for more information about the effect of the Mergers on Sierra’s financial position and results of operations based upon Sierra’s or MCC’s respective historical financial positions and results of operations.

 

(1)Effective as of July 31, 2018, the Sierra Board terminated the offering of shares of Sierra Common Stock. Purchases of shares of MCC Common Stock on the secondary market are not subject to sales charges; in the event that the shares are sold to or through underwriters, a corresponding prospectus supplement would disclose the applicable sales load.

 

This table does not include any sales load that Sierra Stockholders or MCC Stockholders may have paid in connection with their purchases of Sierra Common Stock or MCC Common Stock.

 

(2)The expenses of the Sierra Distribution Reinvestment Plan and the MCC Dividend Reinvestment Plan are included in “Other Expenses.”

 

(3)“Net assets attributable to common stock” equals net assets as of September 30, 2018. For the pro forma columns above, the net assets of Sierra on a pro forma basis as of September 30, 2018 were used. See “Unaudited Pro Forma Condensed Consolidated Financial Statements” for more information.

 

(4)“Base management fees” assumes the fee remains consistent with the fees incurred for the quarter ended September 30, 2018 as a percentage of Sierra’s net assets for the period. Sierra’s base management fee is calculated at an annual rate of 1.75% of Sierra’s gross assets (which includes any borrowings for investment purposes), at the end of each completed calendar quarter and is payable quarterly in arrears. See “Business of Sierra — Investment Advisory Agreement and Fees.”

 

“Base management fees” assumes the fee remains consistent with the fees incurred for the quarter ended September 30, 2018 as a percentage of MCC’s net assets for the period. MCC’s base management fee is calculated at an annual rate of 1.75% of MCC’s gross assets (which includes any borrowings for investment purposes) of up to $1 billion, and 1.50% based on its gross assets (which includes any borrowings for investment purposes) above $1 billion. The base management fee is calculated based on the average of the beginning and ending gross assets of each completed fiscal quarter and is payable quarterly in arrears. See “Business of MCC — MCC Advisors — Investment Management Agreement.”

 

Following the completion of the Mergers, the Combined Company will pay MCC Advisors, which will be a wholly owned subsidiary of the Combined Company following the Mergers, a base management fee that will equal the base management fee currently paid under the Sierra Investment Advisory Agreement as set forth above. The base management fees reflected in the pro forma columns have been estimated by multiplying the pro forma total assets as of September 30, 2018 by 1.75%. The 3.13% base management fee percentage reflected on the table above is higher than 1.75% because it is calculated as a percentage of the pro forma net assets as of September 30, 2018 rather than as a percentage of the pro forma total assets. See “Information about the Combined Company – Investment Advisory Agreement.”

 

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(5)“Incentive fees” for Sierra represent the annualized incentive fees based on actual incentive fees incurred during the nine months ended September 30, 2018. The incentive fees, if any, are divided into two parts:

 

i.a subordinated incentive fee on income, which, at a maximum, for any quarter in which Sierra’s pre-incentive fee net investment income exceeds 2.1875% of its net assets at the end of the immediately preceding quarter, will equal 20% of the amount of its pre-incentive fee net investment income; and

 

ii.an incentive fee on capital gains that will equal 20% of Sierra’s capital gains, if any, less the aggregate amount of any previously paid incentive fee on capital gains; and the incentive fees are based on Sierra’s performance and will not be paid unless Sierra achieves certain goals. Sierra will record an expense accrual relating to the capital gains incentive fee payable by it to its investment adviser (but not paid) when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to its investment adviser if Sierra were to sell its investment portfolio at such time. The amount in the table assumes that no incentive fees on capital gains will be paid for the following 12-month period which is based on the actual realized capital gains (losses) for the nine months ended September 30, 2018 and the unrealized appreciation (depreciation) of Sierra’s investments as of such date and assumes that all such unrealized appreciation (depreciation) is converted to realized capital gains (losses) on such date. See “Business of Sierra — Investment Advisory Agreement and Fees” for more information concerning the incentive fees.

 

“Incentive fees” for MCC represent the annualized incentive fees based on the actual incentive fees incurred during the nine months ended September 30, 2018. The incentive fee consists of two parts:

 

i.The first component of the incentive fee is payable quarterly in arrears and is based on MCC’s pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC’s investment adviser is entitled to receive the incentive fee on net investment income from MCC if MCC’s ordinary income (as defined below) exceeds a quarterly “hurdle rate” of 1.50%. The hurdle amount is calculated after making appropriate adjustments to MCC’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by MCC of MCC Common Stock (including issuances pursuant to the MCC Dividend Reinvestment Plan), any repurchase by MCC of MCC Common Stock, and any dividends paid by MCC, each as may have occurred during the relevant quarter.

 

Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to MCC’s aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). MCC refers to such period as the “Trailing Twelve Quarters.”

 

The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.50% multiplied by the MCC’s NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to MCC’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by MCC of MCC Common Stock (including issuances pursuant to the MCC Dividend Reinvestment Plan), any repurchase by MCC of MCC Common Stock, and any dividends paid by MCC, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC’s investment adviser on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the base management fee but excluding any incentive fee on pre-incentive fee net investment income or on MCC’s capital gains. For a more detailed discussion of the calculation of this fee, see “Business of MCC — MCC Advisors — Investment Management Agreement.”

 

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ii.The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the MCC Investment Management Agreement as of the termination date) and equals 20.0% of MCC’s cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to MCC’s investment adviser.

 

Under GAAP, MCC calculates the second component of the incentive fee as if MCC had realized all assets at their fair values as of the reporting date. Accordingly, MCC accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.

 

Following the completion of the Mergers, the Combined Company will pay MCC Advisors, which will be a wholly owned subsidiary of the Combined Company following the Mergers, an incentive fee on income and an incentive fee on capital gains that will equal the incentive fee on income and the incentive fee on capital gains currently paid under the Sierra Investment Advisory Agreement as set forth above. The pro forma Combined Company’s income based fees and capital gains incentive fees have been calculated in a manner consistent with the Combined Company Investment Advisory Agreement based on the pro-forma results for the nine months ended September 30, 2018. See “Information about the Combined Company – Investment Advisory Agreement.”

 

(6)“Interest payments on borrowed funds” for each of Sierra and MCC represents the annualized interest and financing expenses based on actual interest and financing expenses incurred during the nine months ended September 30, 2018. The pro forma Combined Company information includes additional interest expense assuming $50.0 million of leverage necessary to finance the Mergers. As of September 30, 2018, Sierra’s and MCC’s total borrowings outstanding, net of deferred financing costs, were approximately $366.1 million and $409.8 million, respectively.

 

Sierra and MCC are only permitted to employ leverage to the extent of their respective asset coverage, as defined in the Investment Company Act, equal to at least 200% after giving effect to such leverage. The amount of leverage that Sierra and MCC employs at any time depends on the assessment of the market and other factors at the time of any proposed borrowing.

 

(7)

“Acquired fund fees and expenses” are the indirect costs of investing in other investment companies. Such costs are based on the expense ratios of Sierra Loan Strategy JV I LLC, a joint venture and investment held by Sierra, and MCC Senior Loan Strategy JV I LLC, a joint venture and investment held by MCC.

 

(8)“Other expenses” for each of Sierra and MCC includes professional fees, administrator expenses and all other general and administrative expenses. Such expenses are annualized based on actual expenses incurred during the nine months ended September 30, 2018, adjusted to exclude expenses incurred during the nine months ended September 30, 2018 related to the Mergers. On a pro forma basis, “Other expenses” were determined by taking the sum of the annualized expenses of Sierra and MCC and adjusting such amount for duplicative expenses of approximately $3.5 million consisting of professional fees associated with audit, tax, valuation and legal services, transfer agent fees, board of director fees, director and officer insurance, administrator expenses and other public company related expenses.

 

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Examples

 

The following examples demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in Sierra Common Stock, MCC Common Stock, or, following the completion of the Mergers, the Combined Company Common Stock. In calculating the following expense amounts, each of Sierra and MCC has assumed that it would have no additional leverage, that none of its assets are cash or cash equivalents and that its annual operating expenses would remain at the levels set forth in the tables above. Transaction expenses related to the Mergers are not included in the following example.

 

    1 year     3 years     5 years     10 years  
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return in (none of which is subject to the incentive fee on capital gains)(1):                        
Sierra   $ 95     $ 271     $ 433     $ 777  
MCC   $ 186     $ 485     $ 708     $ 1,050  
Pro forma Combined Company   $ 116     $ 325     $ 508     $ 869  
                                 
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return in (all of which is subject to the incentive fee on capital gains)(2):                              
Sierra   $ 95     $ 271     $ 433     $ 777  
MCC   $ 186     $ 485     $ 708     $ 1,050  
Pro forma Combined Company   $ 116     $ 325     $ 508     $ 869  

 

 

(1) The above examples for Sierra, MCC and, following the completion of the Mergers, the Combined Company assumes the 5% annual return is subject to the incentive fee on investment income only. The examples also assume that Sierra, MCC and, following the completion of the Mergers, the Combined Company, will not realize any capital gains computed net of all realized capital losses and no unrealized capital depreciation.
   
(2) The above examples assume that Sierra, MCC and, following the completion of the Mergers, the Combined Company has no investment income and no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and not otherwise deferrable under the terms of the Combined Company Investment Advisory Agreement and therefore is subject to the incentive fee on capital gains only.

 

The incentive fee on investment income is the same percentage as the incentive fee on capital gains; as such, the expenses disclosed in the two tables above are the same. For a comparison of the base management fee, incentive fee on investment income, and incentive fee on capital gains of Sierra, MCC and, following the completion of the Mergers, the Combined Company, see page 22 of this Joint Proxy Statement/Prospectus.

The foregoing tables are intended to assist you in understanding the various costs and expenses that an investor in Sierra or MCC, or, following the completion of the Mergers, the Combined Company Common Stock will bear directly or indirectly. While the examples assume, as required by the SEC, a 5% annual return, performance will vary and may result in a return greater or less than 5%. If Sierra were to achieve sufficient returns on its investments, including through the realization of capital gains, to trigger income based fees or incentive fees on capital gains of a material amount, its expenses, and returns to its investors, would be higher. 

The foregoing examples and the expenses in the Comparative Fees and Expenses table above should not be considered a representation of Sierra’s or MCC’s, or, following the completion of the Mergers, the Combined Company’s future expenses as actual expenses (including the cost of debt, if any, and other expenses) that it may incur in the future and such actual expenses may be greater or less than those shown.

 

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SPECIAL FACTORS

  

The discussion in this Joint Proxy Statement/Prospectus, which includes the material terms of the Mergers and the principal terms of the MCC Merger Agreement and the MDLY Merger Agreement, is subject to, and is qualified in its entirety by reference to, the MCC Merger Agreement and the MDLY Merger Agreement, a copy of which is attached as Appendix A and Appendix B to this Joint Proxy Statement/Prospectus, respectively, and is incorporated herein by reference in its entirety.

 

General Description of the Mergers

 

Subject to the terms and conditions of the MCC Merger Agreement and the MDLY Merger Agreement, the Mergers will result in the formation of an internally managed BDC, which will in turn wholly own a registered investment adviser. In the MCC Merger, MCC would, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into Sierra, with Sierra continuing as the surviving company in the MCC Merger. In the MCC Merger, shares of MCC Common Stock will be converted into the right to receive 0.8050 shares of Sierra Common Stock. In the MDLY Merger, MDLY would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub continuing as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than Dissenting Shares and Excluded Shares) will be converted into the right to receive (A) 0.3836 shares of Sierra Common Stock; plus (B) cash in an amount equal to $3.44 per share. In addition, the holders of MDLY Class A Common Stock issued and outstanding on the applicable record dates will have the right to receive $0.35 per share of the First Special Dividend (or other payments) and $0.30 per share of the Second Special Dividend (or other payments), to the extent and as described more fully below, as well as regularly scheduled dividends through closing of the MDLY Merger. Each share of MDLY Class B Common Stock issued and outstanding immediately prior to the MDLY Merger Effective Time (other than Dissenting Shares) will be canceled without consideration therefor.

 

Simplified Structure Before the Completion of the Mergers

 

 

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Simplified Structure Following the Completion of the Mergers

 

 

Background of the Mergers

 

Since Medley Advisors’ inception in 2006, Management operated Medley Advisors’ asset management business with a focus on direct origination, careful structuring and active monitoring of loan portfolios. Medley Advisors’ investment vehicles have generally focused on private middle market companies in the United States that have revenues between $50 million and $1 billion. MCC completed its initial public offering in January 2011. MCC was the first publicly traded permanent capital vehicle to which Medley Advisors provided asset management services. In April of 2012, Medley Advisors launched Sierra, its first public non-traded permanent capital vehicle.

 

Medley Advisors believed at the outset that to make Sierra, MCC the private funds and SMAs advised by Medley Advisors (the “Advisory Clients”) more competitive in the middle-market lending space they should pool their resources in order to have the benefits of scale and greater access to capital that borrowers demanded. In that regard, in November 2013 Medley Advisors and the Advisory Clients obtained an order from the SEC that expanded Medley Advisors’ ability to engage in co-investment transactions among the BDCs and other funds managed by Medley Advisors. Since that time, competition for private debt investment opportunities in the lower middle market has significantly intensified and Medley Advisors believes that the need for scale in the asset management business has become even more important.

 

In May 2017, MDLY embarked on a process to consider a range of strategic transactions to help Medley Advisors achieve a level of scale that it believed would make it more competitive in the asset management business. On May 25, 2017, at the invitation of Management as representatives of MDLY, representatives of Goldman Sachs & Co. LLC (“Goldman Sachs”) met with Management to discuss possible strategic partnerships for MDLY based on public information. MDLY retained the services of UBS and Credit Suisse for the purpose of conducting a limited outreach to potential parties that might have been interested in proposing a strategic transaction with MDLY and Medley Advisors. As a result of the outreach, 19 parties expressed interest in pursuing an acquisition of MDLY and Medley Advisors. Following some preliminary discussions, seven of the 19 parties executed confidentiality agreements with MDLY and received certain information about MDLY’s and Medley Advisors’ business. In July 2017, two of the interested parties submitted non-binding bids to acquire MDLY and Medley Advisors. One of the interested parties proposed an acquisition of MDLY and Medley Advisors for cash, and the other proposed a combination in exchange for consideration of cash and stock of the combined entity. However, neither bid progressed beyond the initial indication of interest.

 

With respect to each of the initial indications of interest referred to above, because each of the proposals submitted included various conditions and carve-outs, and different forms of consideration, some of which was contingent, and in light of the fact that none were binding, it would be both impracticable and speculative to assign a particular value to any such proposal.

 

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Following the conclusion of the process described above, in the fall of 2017, MDLY concluded that a strategic transaction would be more likely to succeed with a refined search focused on potential partners that shared certain qualities. In that regard, in October 2017 MDLY retained the services of Goldman Sachs and Broadhaven to reach out to a select group of potential partners that met the following criteria: (1) asset management firms that could serve as consolidators and recognize meaningful value creation through the addition of Medley Advisors and the Advisory Clients; (2) partners that could offer MDLY and Medley Advisors the potential to combine businesses and/or create a new business line in the context of a strategic transaction; or (3) private equity firms for which Medley Advisors would be an alternative asset management platform with the ability to add additional businesses and products over time to broaden the platform and capitalize on strong alternative industry growth trends.

 

Based upon the foregoing guidelines, at the direction of MDLY, representatives of Goldman Sachs and Broadhaven started the process by inviting 38 potential strategic partners or buyers of Medley Advisors’ asset management business to participate in the preliminary round of a two-round sale process. Of the 38 invitees, 24 of them executed confidentiality agreements and received information on Medley Advisors and the Advisory Clients. Seven of these 24 were provided access to Management and engaged in discussions with Management on Medley Advisors’ operations. Six of the potential buyers then participated in the second round of the sale process, which included substantive meetings with Management and the undertaking of a thorough diligence review of Medley Advisors and its Advisory Clients.

 

In order to protect the information of MDLY and its affiliates, and to ensure the integrity of the strategic review process, all potential bidders entered into confidentiality agreements with MDLY in connection with its exploration of strategic alternatives, under which potential bidders agreed, among other things, to keep the information they received confidential and to abide by customary “standstill” provisions relating to MDLY, its subsidiaries, Sierra and MCC. Under those standstill provisions, potential bidders agreed, except as requested or consented to by MDLY, not to take certain actions regarding strategic transactions or management or control of MDLY, its subsidiaries, Sierra or MCC and, subject to an exception to permit confidential requests for waivers following the public announcement of an acquisition transaction, not to request waivers of those standstill provisions, in each case during the relevant standstill period. Because the standstill period applicable to a counterparty is a function of the date on which the relevant confidentiality agreement was entered into, as of the date of this Joint Proxy Statement/Prospectus, the standstill provisions in 23 of the 31 confidentiality agreements have expired, and an additional 2 will expire prior to the scheduled date of the Special Meetings. In addition, even where standstill provisions remain in effect, all counterparties subject to such standstill provisions are permitted to confidentially seek a waiver of the standstill provisions in order to privately submit a competing proposal with respect to MDLY, its subsidiaries, Sierra and/or MCC.

 

During the period from November 2017 through the first week of December 2017, representatives of Goldman Sachs and Broadhaven received indications of interest from eight potential partners. Of the eight indications of interest, six were strategic buyers looking to grow their existing asset management business and two were private equity funds. Following extensive discussions with each of the eight potential partners, MDLY selected the three most viable indications of interest (the “Viable Expressions of Interest”), and requested such interested parties to submit a mark-up of the draft merger agreement that was provided by MDLY no later than January 5, 2018 and to submit a final bid by January 10, 2018.

 

On January 3, 2018, Goldman Sachs provided relationship disclosure to MDLY that indicated, among other things, that during the prior two-year period the Investment Banking Division of Goldman Sachs did not perform any financial advisory and/or underwriting services for the three interested parties, MCC, Sierra, or any of their respective affiliates for which Goldman Sachs recognized compensation.

 

In accordance with MDLY’s proposal instructions, on January 10, 2018, one of the three interested parties (“Party X”) submitted a non-binding bid letter (the “Initial Party X Proposal”) and comments on the proposed merger agreement. However, the Initial Party X Proposal indicated Party X’s preference for an asset purchase transaction rather than a merger.  The Initial Party X Proposal included a non-binding proposal to purchase substantially all the assets of MDLY’s business for an equity value per share representing a premium over the trading price of MDLY Class A Common Stock as of the date of the Initial Party X Proposal.  The transaction was subject to a number of customary conditions, and would include a cash payment by Party X (some or all of which would be borrowed from third party lenders), cash and certain other assets on MDLY’s balance sheet, and a note to be issued to holders of Medley LLC Units, which note would be subject to offset for indemnification.  Based on the terms of the Initial Party X Proposal, MDLY and its advisors began negotiating terms with Party X.  From January 12, 2018 through January 24, 2018, MDLY and Party X engaged in further negotiations, which resulted in the exchange of numerous proposals and counter-proposals.

 

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Based upon these discussions, on January 26, 2018, Management held meetings with the MCC Board and the Sierra Board to provide them with an update on the potential transaction with Party X.  Each of the MCC Board and Sierra Board established the MCC Special Committee and the Sierra Special Committee, respectively, and authorized the committees to evaluate the merits of a potential sale of substantially all of Medley Advisors’ assets to Party X, which, in turn, would have constituted the assignment of Sierra’s and MCC’s respective advisory contracts with Medley Advisors.  On February 7, 2018, the MDLY Board established the MDLY Special Committee and authorized it to, among other things, evaluate the merits of the potential sale of MDLY to Party X.

 

On February 9, 2018, Party X updated the Initial Party X Proposal (the “Second Party X Proposal”) to slightly increase the proposed purchase price and to clarify other terms, including the identity of the purchaser, the assets and liabilities to be acquired and other related matters. Also on February 9, 2018, MDLY and Party X entered into an exclusivity agreement regarding the proposed transaction described above through March 15, 2018.

 

Negotiations regarding the economic terms of the transaction and the related approval of a new investment advisor to Sierra as a result of the contemplated assignment of Sierra’s and MCC’s respective advisory contracts with Medley Advisors continued over the following weeks.  From February 22, 2018 through March 5, 2018, counsel to the parties exchanged drafts of transaction documents and negotiations continued.  On March 15, 2018, Party X submitted a revised proposal (the “Third Party X Proposal”) that reduced the purchase price significantly and made other material changes to the Second Party X Proposal.  Based on the changed economic terms, as well as the other terms of the Third Party X Proposal, MDLY determined that the Third Party X Proposal was not in the best interests of MDLY or Medley Advisors.  On that basis, MDLY terminated discussions with Party X.

 

In April 2018, MDLY reengaged in discussions with two of the other bidders that had previously submitted indications of interest. In each case, those discussions did not lead to a further proposal or other indication of interest to MDLY. Also in April 2018, Party X reinitiated contact with MDLY and, on April 19, 2018, updated the Third Party X Proposal (the “Fourth Party X Proposal”) and subsequently provided an updated draft of an asset purchase agreement that reflected the Fourth Party X Proposal. Although the Fourth Party X Proposal reflected a slight increase in the cash portion of the purchase price to be paid and agreement on several other outstanding points, the Fourth Party X Proposal also included a number of changes that materially changed the transaction, including a decrease in the amount of the note to be delivered by Party X; a discount on the amount to be paid for the working capital delivered by MDLY to Party X; a downward purchase price adjustment tied to failure to obtain consents of certain advisory clients; and a downward purchase price adjustment tied to the performance of certain assets.  In addition, the Fourth Party X Proposal reflected a shell purchaser with no parent or affiliate guaranteeing the obligations of the buyer and a closing condition tied to Party X’s ability to obtaining the needed financing, with MDLY’s sole recourse being the right to receive a reverse termination fee from Party X in the event Party X could not obtain financing.  Between April 23, 2018 and May 2, 2018, MDLY and Party X engaged in negotiations regarding the Fourth Party X Proposal, exchanged drafts of transaction documentation, and participated in a series of due diligence meetings.  However, prior to reaching final agreement on transaction terms and holding meetings with the MCC Special Committee and Sierra Special Committee to provide a transaction update and to introduce Party X to the MCC and Sierra independent directors, Party X informed MDLY that it was withdrawing the Fourth Party X Proposal and that it did not intend to continue to pursue a potential transaction. With respect to all of the Party X proposals, because each of the proposals submitted included various conditions and carve-outs, and different forms of consideration, some of which was contingent, and in light of the fact that none were binding, it would be both impracticable and speculative to assign a particular value to any such proposal.

 

Shortly after MDLY and Party X terminated their discussions, a limited number of parties made inquiries to MDLY regarding a possible transaction. Specifically, four parties entered into confidentiality agreements, but only one of the four followed up with a preliminary indication of interest. In addition, two parties that did not sign confidentiality agreements made unsolicited inquiries to MDLY, and one of the two submitted an unsolicited indication of interest. Management assessed each of the foregoing inquiries and advised the MDLY Board that, based upon the rudimentary nature of the submissions that were actually presented to MDLY, the fact that any financial terms included in such submissions did not provide compelling value to MDLY and its stockholders, and the fact that the other inquiries did not materialize into further discussions, they did not believe that any of the parties had presented a viable indication of interest that was worth pursuing. The MDLY Board agreed with Management’s assessment.

 

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As a result of the foregoing process, and in light of the fact that a considerable amount of time and effort had been devoted to exploring a possible transaction with a third party, the MDLY Board determined that, at that time, a strategic transaction with a third party was unlikely to produce the desired result of achieving a higher degree of scale and creating a broader asset management platform that would benefit MDLY, its stockholders, Medley Advisors, and the Advisory Clients. After consulting further with representatives of Goldman Sachs and Broadhaven, Management, in its capacity as fiduciaries to each of Sierra, MCC, MDLY and their respective stockholders, in an effort to maximize value at Sierra, MCC and MDLY, turned its focus to the potential merger of Sierra and MCC, which would be cross-conditioned on Sierra’s acquisition of MDLY. Each of the Sierra Board and MDLY Board held meetings on June 18, 2018, and the MCC Board held a meeting on June 19, 2018, to discuss the potential three-way combination of Sierra, MCC and MDLY (the “Proposed Business Combination”). At each such meeting, Management proposed an initial framework to serve as the starting point with respect to the Proposed Business Combination for each of the Sierra Special Committee, MCC Special Committee and the MDLY Special Committee. In addition, at each such board meeting, it was determined that the scope and authority of the previously formed MCC Special Committee, Sierra Special Committee and MDLY Special Committee would be expanded for the express purpose of considering the Proposed Business Combination.

 

The structure of the Proposed Business Combination entailed two contemporaneous transactions that would be cross-conditioned upon each other; MCC would merge with and into Sierra, and Sierra would acquire MDLY through a merger of MDLY with and into a wholly owned subsidiary of Sierra. The proposed MCC Merger would take the form of a stock-for-stock merger in which MCC Stockholders would receive Sierra Common Stock in exchange for their existing shares of MCC Common Stock, and the proposed MDLY Merger would include both cash and stock consideration payable to the MDLY Stockholders. The initial framework of the financial terms relating to the Proposed Business Combination included a proposed exchange ratio for the proposed MCC Merger of 0.76 shares of Sierra Common Stock for each share of MCC Common Stock, and in the proposed MDLY Merger, Sierra would acquire MDLY for $3.75 in cash consideration and 0.41 shares of Sierra Common Stock for each share of MDLY Class A Common Stock. The proposed cash consideration in regard to the proposed MDLY Merger was, among other things, intended to address the tax liability that would be incurred by the holders of Medley LLC Units as a result of the closing of the MDLY Merger. It was noted that under the Tax Receivable Agreement the value of certain future tax benefits was allocated 85% to the holders of Medley LLC Units and 15% to the MDLY Public Stockholders and that following the Proposed Business Combination the Combined Company would receive the benefit that previously was allocated to the MDLY Public Stockholders. The foregoing initial framework was the starting point around which the MCC Special Committee, Sierra Special Committee and MDLY Special Committee, along with their financial and legal advisors, began their negotiations. In order to ensure that all parties had the necessary materials to perform their analyses and diligence on the Proposed Business Combination, Management established an electronic data room that all parties could readily access.

 

Management’s Conflicts of Interests and Role in the Mergers  

 

Various measures were implemented to address actual and potential conflicts of interests in light of the fact that each of the Mergers is cross conditioned on the simultaneous closing of the other, resulting in a required agreement among three affiliated, yet separate and distinct public entities, as well as the Medley LLC Unitholders (each of whom is a member of Management). These actual or potential conflicts of interests include the fact that: Medley Advisors has fiduciary duties to each of Sierra, MCC, MDLY and their respective stockholders; certain members of Management control Medley Advisors, are executive officers of Sierra, MCC and MDLY, and control Medley Group LLC, which in turn controls MDLY; certain members of Management have, individual interests in the Medley LLC Units and shares of MCC Common Stock, voting power over approximately 14% of the outstanding shares of MCC Common Stock held by Medley Seed Funding I LLC, contractual rights under the Tax Receivable Agreement, and individual interests relating to the terms of their respective individual future employment with the Combined Company. Specifically, Brook Taube and Seth Taube each currently hold controlling voting interests in Medley Advisors, and, if the Mergers are consummated, will serve as the Chairman of the Combined Company Board and Chief Executive Officer and Chief Investment Officer of the Combined Company in the case of Brook Taube, and the Vice Chairman, Senior Executive Vice President and Senior Managing Director of the Combined Company in the case of Seth Taube. Other members of Management, who currently serve as executive officers and/or senior personnel of Medley Advisors, Sierra, MCC and MDLY, will also serve as executive officers of the Combined Company if the Mergers are consummated.

 

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In order to mitigate these and other conflicts (as described herein), the boards of directors of each of Sierra, MCC and MDLY expanded the authority of the previously formed special committees, each of which was comprised solely of independent and disinterested directors, to, among other things, negotiate and evaluate the Proposed Business Combination. Each of the Sierra Special Committee, MCC Special Committee and MDLY Special Committee had the authority to, among other things: (i) evaluate and review the terms and conditions of the Proposed Business Combination or any alternative thereto; (ii) communicate and negotiate (or direct the communication or negotiation) with respect to the terms and conditions of the Proposed Business Combination or any alternative thereto; (iii) determine whether the Proposed Business Combination or any alternative thereto is advisable and is fair to, and in the best interests of the applicable company and its stockholders; (iv) recommend to their respective board of directors the rejection or approval and effectuation of the Proposed Business Combination or any alternative thereto; (v) consider, evaluate, review and monitor all proceedings and activities of the applicable company related to the Proposed Business Combination or any alternative thereto; (vi) consider, evaluate and recommend to their respective board of directors the approval and adoption of the forms, terms and provisions of any agreements relating to the Proposed Business Combination or any alternative thereto; (vii) consider, evaluate, and recommend to their respective board of directors the authorization of the execution and delivery of any such agreements relating to the Proposed Business Combination or any alternative thereto; and (viii) hire any advisors that they deemed appropriate, including their own independent legal counsel and independent financial advisor. 

 

This broad authority enabled each of the respective boards to consult with and rely on the advice of experts who, like the independent directors themselves, were determined to be independent of the other parties to the transaction and could provide advice and guidance solely for the purpose of serving the best interests of the respective stockholders of each entity. In addition, each of the Sierra Board, MCC Board and MDLY Board conditioned its ability to recommend the Proposed Business Combination, or any alternative thereto, to their respective stockholders or otherwise approve or authorize such transaction, on the prior favorable recommendation of such transaction by its special committee.

 

Throughout the process of negotiating the terms of the Mergers, Management generally served in the following capacities.  Management proposed an initial framework around which the Sierra Special Committee, MCC Special Committee and MDLY Special Committee could begin discussions and facilitated negotiations among the parties. Management participated in meetings with each special committee and its advisors. Each special committee held meetings at which both its advisors and Management were present and meetings at which only the special committee’s advisors were present. Members of Management represented their individual interests as holders of the Medley LLC Units and shares of MCC (as described more fully in this Joint Proxy Statement/Prospectus) in negotiating the resulting benefits they would receive from any consideration paid to MCC and MDLY by Sierra. Members of Management also represented their individual interests in negotiating their employment contracts with the Combined Company.  In this regard, Management negotiated their employment contracts and related compensation from the Combined Company with the Sierra Special Committee, as Sierra will be the surviving entity. Management retained separate legal counsel to negotiate their employment contracts with the Sierra Special Committee’s independent legal counsel and the Sierra Special Committee retained an independent compensation consultant to provide advice concerning executive compensation in connection with the transaction.

 

Set forth below is a summary of the process undertaken by each of the Sierra Special Committee, MCC Special Committee and MDLY Special Committee, and an analysis of the various factors that formed the basis of each committee’s decision to recommend the approval of the Mergers to their respective board of directors. Any description of Management’s actions in each such section should be understood in the context of the foregoing depiction of Management’s role throughout the process of considering the Proposed Business Combination.

 

Sierra

 

At a special meeting on June 18, 2018, the Sierra Board considered the Proposed Business Combination, the rationale for the Proposed Business Combination, and the initial terms of a potential framework around which the Proposed Business Combination could be effected. Pursuant to the initial framework, MCC would merge with and into Sierra, and Sierra would acquire MDLY through a merger of MDLY with and into a wholly-owned subsidiary of Sierra. The proposed MCC Merger would take the form of a stock-for-stock merger in which MCC Stockholders would receive Sierra Common Stock in exchange for their existing shares of MCC Common Stock using a proposed exchange ratio of 0.76 shares of Sierra Common Stock for each share of MCC Common Stock. The proposed MDLY Merger would include both cash and stock consideration in which MDLY Stockholders would receive $3.75 in cash consideration and 0.41 shares of Sierra Common Stock for each share of MDLY Class A Common Stock. The proposed cash consideration in regard to the proposed MDLY Merger was, among other things, intended to address the tax liability that would be incurred by the holders of Medley LLC Units as a result of the closing of the MDLY Merger. It was noted that under the Tax Receivable Agreement the value of certain future tax benefits was allocated 85% to the holders of Medley LLC Units and 15% to the MDLY Public Stockholders and that following the Proposed Business Combination the Combined Company would receive the benefit that previously was allocated to the MDLY Public Stockholders. The Sierra Board also discussed with Management next steps and a tentative timeline for evaluating and voting on the Proposed Business Combination.

 

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Following the Sierra Board meeting on June 18, 2018, the Sierra Special Committee met with representatives of Broadhaven to discuss the possibility of the Sierra Special Committee engaging Broadhaven to act as an independent financial advisor to the Sierra Special Committee. The Sierra Special Committee reviewed materials that had been provided by Broadhaven in advance of the meeting. The materials included (1) an overview of Broadhaven, (2) a description of the fiduciary process to be undertaken by the Sierra Special Committee, (3) a description of the benefits and issues to consider with respect to various strategic alternatives, (4) a description of selected prior transactions in which Broadhaven had served as an advisor, and (5) financial advisor fee precedents for comparable types of transactions. Broadhaven, among other things, presented its qualifications, discussed the manner in which it would analyze the framework for the Proposed Business Combination, and discussed work it and members of the proposed engagement team had performed for MDLY in the past. Broadhaven representatives also discussed with the Sierra Special Committee that Broadhaven previously had been engaged by MDLY on October 11, 2017 to advise MDLY in connection with a potential strategic transaction and that the engagement had been terminated on June 15, 2018. The Broadhaven representatives noted that Broadhaven had received no fees from MDLY in connection with that engagement and that Broadhaven had waived the “tail” provisions arising from that engagement.

 

On June 22, 2018, the Sierra Special Committee held a telephonic meeting with representatives of Sullivan & Worcester LLP (“S&W”), counsel retained by the Sierra Special Committee. During that meeting the Sierra Special Committee discussed whether to engage Broadhaven as its independent financial advisor and, if selected, the terms of the engagement. The Sierra Special Committee also discussed the possible composition of the Combined Company Board following the closing of the Proposed Business Combination. In addition, the Sierra Special Committee discussed the formal continuation of the Sierra Special Committee and the compensation to be paid to the Chair and members of the Sierra Special Committee. Finally, the Sierra Special Committee discussed next steps in terms of engaging Broadhaven and formalizing the Committee’s role in evaluating the Proposed Business Combination.

 

On July 2, 2018, the Sierra Special Committee met in person with representatives of S&W. In response to inquiries from the Sierra Special Committee, the S&W representatives reviewed with the Sierra Special Committee S&W’s evaluation of the prior engagement of Broadhaven by MDLY. The S&W representatives noted the following: (1) Broadhaven had terminated the prior engagement with MDLY and had waived the “tail” provisions arising from that engagement, and (2) Broadhaven had received no fees in connection with the prior engagement with MDLY. Following discussion with the S&W representatives, the Sierra Special Committee determined that Broadhaven’s prior engagement by MDLY would not adversely affect Broadhaven’s ability to render independent advice to the Sierra Special Committee concerning the proposed Mergers and engaged Broadhaven to serve as the Committee’s independent financial advisor. At the meeting, the Sierra Special Committee also confirmed the continued engagement of S&W as independent legal counsel to the Sierra Special Committee in connection with the Proposed Business Combination. Following the decision to retain Broadhaven, Representatives of Broadhaven joined the meeting. S&W representatives discussed the Sierra Special Committee members’ duties and responsibilities in evaluating the Proposed Business Combination, while Broadhaven representatives presented a preliminary work plan and timeline and identified certain aspects of the Proposed Business Combination that Broadhaven intended to closely examine.

 

Immediately following the meeting among the Sierra Special Committee and representatives of Broadhaven and S&W, the Sierra Board held an in-person meeting. During that meeting, and after discussion, the Sierra Board, among other things: (1) ratified the establishment of the Sierra Special Committee and all actions taken by the Sierra Special Committee to date, (2) authorized the Sierra Special Committee to evaluate and review the terms of the Proposed Business Combination, (3) authorized the Sierra Special Committee to make a recommendation to the Sierra Board regarding the Proposed Business Combination, (4) authorized the Sierra Special Committee to make a recommendation to the Sierra Board regarding any agreements relating to the Proposed Business Combination, (5) approved the compensation of the Chair and members of the Special Committee and the reimbursement of any out-of-pocket expenses, and (6) authorized the Sierra Special Committee to select and retain consultants and agents, including independent financial and legal advisors, to assist the Sierra Special Committee in evaluating the Proposed Business Combination.

 

Following the meeting of the Sierra Board, the Sierra Special Committee reconvened. The members of the Sierra Special Committee were joined by representatives of Broadhaven, Management, Eversheds Sutherland (US) LLP (“Eversheds Sutherland”), which acted as regular outside counsel for Sierra, MCC and MDLY on common issues, and S&W. Representatives of Eversheds Sutherland discussed their communications to date with SEC staff concerning the Proposed Business Combination. Eversheds Sutherland explained that the SEC would need to issue an exemptive order in connection with the Proposed Business Combination. In addition, Eversheds Sutherland discussed the need for exemptive relief from the SEC to allow the Combined Company to own shares of a registered investment adviser in excess of the limits set forth in rules adopted under the Investment Company Act. Representatives of Eversheds Sutherland also discussed certain tax consequences of the proposed MDLY Merger, including tax implications under the Tax Receivable Agreement.

 

The Sierra Special Committee then discussed with Management a proposal to have Merger Sub enter into employment agreements with five members of Management that would become effective upon the closing of the Proposed Business Combination. Management said it would provide the Sierra Special Committee with the proposed executive compensation packages for each of the five members of Merger Sub’s management with a form of employment agreement to follow.

 

The Sierra Special Committee next discussed the Proposed Business Combination with Broadhaven, S&W and Management, in its capacity as a facilitator of discussions between the Sierra Special Committee, MCC Special Committee and MDLY Special Committee. Management discussed, among other things: (1) MDLY’s current advisory business and projected growth of that business in the coming years, (2) MCC’s non-accrual assets, and (3) the status of the SBIC Subsidiary. Management responded to questions from the Sierra Special Committee, Broadhaven and S&W.

 

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Following their presentation, the representatives of Management and Eversheds Sutherland were excused from the meeting and the Sierra Special Committee met with representatives of Broadhaven and S&W. The Sierra Special Committee, Broadhaven and S&W discussed, among other things: (1) the timing and scope of the due diligence that would be conducted, (2) the legal and regulatory aspects of the Proposed Business Combination, (3) the role of each of Broadhaven and S&W and the work to be conducted by each of them, (4) the role of the Sierra Special Committee in the analysis and in any negotiation of the Proposed Business Combination, and (5) the timing and scope of future meetings of the Sierra Special Committee. Representatives of S&W reported on the status of their due diligence review of materials posted to the electronic data room.

 

On July 15, 2018, the Sierra Special Committee held a telephonic meeting with representatives of Broadhaven and S&W. During that meeting representatives of Broadhaven reviewed in detail a report on their analysis of the Proposed Business Combination, which had been provided to the Sierra Special Committee in advance of the meeting. Broadhaven representatives began by reporting that they had substantially completed their financial due diligence, which included, among other things, evaluation of (1) the overall structure of the Proposed Business Combination, (2) the financial ou