| Merger Agreement | Note 8 – Merger Agreement Merger Consideration Pursuant to the Merger Agreement, at the time of closing (the “Effective Time”), each issued and outstanding share of FGL common stock, par value $0.01 per share (the “FGL Common Stock”), immediately prior to the Effective Time (other than any shares of FGL Common Stock owned by FGL as treasury stock or by any FGL subsidiary or owned by the Company, Parent, Merger Sub or any other subsidiary of the Company, which will be cancelled and no payment will be made with respect thereto), and At the Effective Time, each (i) option to purchase shares of FGL Common Stock, (ii) restricted share of FGL Common Stock and (iii) performance-based restricted stock unit relating to shares of FGL Common Stock, in each case, whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the product of (1) the number of shares subject to the award (for restricted stock units, determined at the target performance level), multiplied by (2) the Merger Consideration (less the exercise price per share in the case of stock options). Each stock option and restricted stock unit relating to shares of Fidelity & Guaranty Life Holdings, Inc., a subsidiary of FGL (“FGLH”), whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the product of (A) the number of shares of FGLH stock subject to the award, multiplied by (B) $176.32 (less the exercise price in the case of such stock options), and each dividend equivalent held in respect of a share of FGLH stock (a “DER”), whether vested or unvested, will become fully vested and automatically converted into the right to receive a cash payment equal to the amount accrued with respect to such DER. During the three and six months ended June 30, 2017, the Company incurred approximately $14.2 million in expenses related to the merger with FGL. Representations, Warranties and Covenants The Merger Agreement contains customary representations, warranties and covenants by the Company, Parent, Merger Sub and FGL. Conditions to Closing Consummation of the FGL Business Combination is subject to satisfaction or waiver of customary closing conditions, including, among others, approval by the Company’s shareholders of the Merger Agreement and the issuance of the Company’s ordinary shares in connection with the FGL Business Combination, approval by FGL’s stockholders and delivery at least twenty (20) days prior to the Closing of an information statement to be filed with (and cleared by) the SEC. Following the execution of the Merger Agreement, FS Holdco II Ltd. (“FS Holdco”), a wholly owned subsidiary of HRG Group, Inc. (“HRG”) and FGL’s majority stockholder, executed and delivered to FGL and the Company an irrevocable written consent approving and adopting the Merger Agreement and the transactions contemplated thereby. As a result, the holders of a majority of the outstanding shares of FGL Common Stock have adopted and approved the Merger Agreement. Termination The Merger Agreement contains customary termination rights, including, among others, (i) by mutual written consent of the Company and FGL, (ii) by the Company or FGL if the FGL Business Combination is prohibited by law, (iii) by the Company or FGL if the Company does not obtain approval of its shareholders and (iv) by the Company or FGL if the FGL Business Combination is not consummated prior to January 24, 2018, subject to extension under certain circumstances. Upon termination of the Merger Agreement under specified circumstances, FGL may be required to pay a termination fee to the Company in an aggregate amount of $50,000,000. In addition, Blackstone Tactical Opportunities Fund II L.P. (“BTO Fund”), certain affiliated funds of GSO Capital Partners LP (“GSO”) and Fidelity National Financial, Inc. (“FNF”) have executed limited guaranties in favor of FGL to guarantee, in the event of the termination of the Merger Agreement as a result of the Company’s, Parent’s or Merger Sub’s intentional and material breach or fraud, the payment of a portion of any damages determined in a final judgment by a court or governmental authority or pursuant to a settlement by written agreement of the parties to the Merger Agreement, up to a specified portion of the total transaction value. Equity Commitment Letters In connection with the Merger Agreement, the Company obtained the following equity commitment letters for the purpose of funding the FGL Business Combination consideration and related transactions and paying the costs and expenses incurred in connection therewith (the “Equity Commitment Letters”): BTO Fund Equity Commitment Letter Pursuant to equity commitment letters (the “BTO Fund Equity Commitment Letters”) from BTO Fund, dated as of May 24, 2017, BTO Fund has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price of $225 million (the “BTO Fund Commitment”). BTO Fund is an investment fund under common control with CFS Holdings (Cayman) L.P. (“CFS”), a shareholder of the Company and a party to the forward purchase agreements. The obligation of BTO Fund to fund the BTO Fund Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing, (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against BTO Fund in connection with the Merger Agreement or the Share Purchase Agreement (as defined below), as applicable, or any of the transactions contemplated by the BTO Fund Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions. FNF Equity Commitment Letters Pursuant to equity commitment letters (the “FNF Equity Commitment Letters”) from FNF, dated as of May 24, 2017, FNF has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to (x) $235 million plus (y) up to an aggregate of $195 million to offset any redemptions of the Company’s ordinary shares The obligation of FNF to fund the FNF Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against FNF in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated by the FNF Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions. GSO Equity Commitment Letters Pursuant to equity commitment letters (the “GSO Equity Commitment Letters”) from GSO, dated as of May 24, 2017, GSO has committed, on the terms and subject to the conditions set forth therein, to purchase, or cause the purchase of, preferred shares of the Company for an aggregate cash purchase price equal to (x) $275 million plus (y) up to an aggregate of $465 million to offset any redemptions of the Company’s ordinary shares in connection with the shareholder vote to approve the FGL Business Combination on or after the date of the GSO Equity Commitment Letters and prior to the Closing (the “GSO Commitment”). The obligation of GSO to fund the GSO Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against GSO in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated by the GSO Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions. Forward Purchase Backstop Equity Commitment Letters Pursuant to equity commitment letters (the “Forward Purchase Backstop Equity Commitment Letters”) from BTO Fund and FNF, dated as of May 24, 2017, (i) BTO Fund has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to one-third (1/3) of the aggregate amount, if any, not funded by one or more purchasers under the forward purchase agreements at or prior to the closing pursuant to the forward purchase agreements (the “FPA Shortfall”), up to an aggregate amount of $100 million, and (ii) FNF has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an aggregate cash purchase price equal to two-thirds (2/3) of the FPA Shortfall, up to an aggregate amount of $200 million (the “Forward Purchase Backstop Commitments”). In exchange for providing the Forward Purchase Backstop Commitments, promptly following the closing, the Company will pay to BTO Fund or its designated affiliate the amount of $1.5 million and to FNF the amount of $3.0 million, with such amounts payable whether or not any portion of the Forward Purchase Backstop Commitment is ultimately required to be funded. BTO Fund and FNF have agreed to forego receiving such fees in light of the additional commitments of the Anchor Investors to purchase 20,000,000 ordinary shares in connection with the rights of first offer set forth in the forward purchase agreements. The obligation of the parties to the Forward Purchase Backstop Equity Commitment Letters (the “Forward Purchase Backstop Parties”) to fund the Forward Purchase Backstop Commitments will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding), (b) the termination of the Merger Agreement in accordance with its terms and (c) FGL or any of its affiliates or representatives asserting any claim against any Forward Purchase Backstop Party in connection with the Merger Agreement or Share Purchase Agreement, as applicable, or any of the transactions contemplated by the Forward Purchase Backstop Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions. The Equity Commitment Letters include an aggregate of $57 million in commitments that relate to the Company’s purchase of the Acquired Companies (as defined below) pursuant to the Share Purchase Agreement , of which $23 million would be used to offset a portion of net redemptions, if any, by public shareholders of the Company in connection with the shareholder vote to approve the FGL Business Combination and $9 million would be used to fund any FPS Shortfall. Investor Agreement As an inducement for each of BTO Fund, GSO and FNF (collectively, the “Investor Agreement Parties”) to enter into certain limited guarantees in connection with the FGL Business Combination, the Company entered into an amended and restated investor agreement, dated as of June 6, 2017 and effective as of May 24, 2017, with the Investor Agreement Parties (the “Investor Agreement”), pursuant to which the Company agreed that, without the Investor Agreement Parties’ prior written consent, the Company would not amend, modify, grant any waiver under or seek to terminate any of the transaction agreements relating to the FGL Business Combination, or take any action concerning settlements, stipulations or judgments relating to government authorities or make any regulatory filings contemplated by the Merger Agreement, subject in each case to certain exceptions and qualifications. Pursuant to the Investor Agreement, the terms of the equity to be issued pursuant to the Equity Commitment Letters will be as follows:
· With respect to the BTO Fund Commitment under the BTO Fund Equity Commitment Letters, BTO Fund will purchase ordinary shares. BTO Fund will receive one ordinary share in exchange for each $10.00 funded pursuant to its equity commitment letters.
· With respect to the FNF Commitment described in the FNF Equity Commitment Letters, FNF will purchase (i) $135 million of newly issued ordinary shares for $10.00 per share and (ii) $100 million, plus additional amounts, if any, pursuant to FNF’s commitment to offset redemptions of public shares in connection with the FGL Business Combination, of preferred shares and warrants of the Company on the same terms as set forth in the GSO Side Letter (as defined below).
· With respect to the GSO Commitment under the GSO Equity Commitment Letters, GSO will purchase preferred shares and be issued warrants of the Company on the terms set forth in the GSO Side Letter (as defined below).
· In the event that public shareholders redeem their public shares in connection with the FGL Business Combination, a certain portion of the GSO Commitment and the FNF Commitment, as described in their respective equity commitment letters, shall be allocated pro rata
· With respect to the Forward Purchase Backstop Equity Commitment Letters, each of FNF and BTO Fund will purchase ordinary shares and one-third (1/3) of one detachable warrant (with such warrants having the same terms as the forward purchase warrants). BTO Fund will receive one ordinary share and one-third (1/3) of a warrant in exchange for each $10.00 funded pursuant to the Forward Purchase Backstop Equity Commitment Letters. In addition, FNF and BTO Fund will together purchase ordinary shares equal to the number of ordinary shares that the purchasers under the forward purchase agreements who fail to fund, if any, would have acquired pursuant to the forward purchase agreements in connection with the FGL Business Combination (including pursuant to the conversion of founder shares into ordinary shares). FNF will purchase two-thirds (2/3) of such ordinary shares, if any, and BTO will purchase one-third (1/3) of such ordinary shares, if any. The Investor Agreement further provides that the Investor Agreement Parties will receive registration rights on customary terms with respect to the ordinary shares, preferred shares and warrants (and the ordinary shares underlying such warrants) issued pursuant to the Equity Commitment Letters. GSO Side Letter On May 24, 2017, the Company entered into a side letter agreement with GSO (the “GSO Side Letter”), which provides that the preferred shares to be issued to GSO and FNF under the GSO Side Letter and the Investor Agreement, respectively, will have a 30-year maturity, a dividend rate of 7.5% per annum, payable quarterly in cash or additional preferred shares of the Company, at the Company’s option, and will not be convertible into ordinary shares of the Company. In the event that any material indebtedness of the Company or any of its subsidiaries is accelerated, the dividend rate on all preferred shares will increase incrementally by 2.0%. From the tenth anniversary of the funding date, upon GSO’s request, the Company is required (subject to customary black-out provisions) to re-market the preferred equity on customary terms. The Company must offer the re-marketed equity with (i) a dividend rate up to 10-year treasury rate plus up to 8%; and (ii) up to 7 years of non-call protection. To the extent market conditions make such re-marketing impracticable, the Company may temporarily delay such re-marketing provided that the preferred equity is re-marketed within six months of the date of GSO’ initial request. If the proceeds from any sales resulting from such marketing are less than the outstanding balance of the applicable preferred shares (including dividends paid in kind and unpaid accrued dividends), the Company will issue common equity to the holders of the preferred shares with an aggregate value (calculated at a 8% discount to the 30-day VWAP) equal to such difference. In the event that preferred equity is issued pursuant to GSO’s and FNF’s backstop commitments, and only if such backstop commitments are funded, pursuant to their respective Equity Commitment Letters, the GSO Side Letter and the Investor Agreement, then the dividend rate on all preferred shares will increase incrementally and ratably up to maximum of 12.0% on the following dates: first, on the funding date of the purchase of such preferred equity; second, on the six month anniversary of such funding date; and third, on the twelve month anniversary of such funding date. The preferred shares will be callable at any time by the Company, subject to specified multiples on invested capital. The terms of the preferred equity are expected to include customary covenants for senior preferred equity, including limitations on debt incurrence, equity issuances and payments of dividends. The preferred equity will rank senior in priority to all other existing and future equity securities of the Company with respect to distribution rights and liquidation preference. In addition, holders of preferred equity are expected to have board observation and customary registration rights with respect to such shares. Pursuant to the GSO Side Letter, for the period from the date of the GSO Side Letter until the earlier of (a) the mutual agreement by the parties thereto not to execute definitive documentation relating to the GSO Commitment, (b) the date of Closing (the “Closing Date”), and (c) the first anniversary of the GSO Side Letter, the Company agreed (i) not to, directly or indirectly solicit, participate in any negotiations or discussion with or provide or afford access to information to any third party with respect to, or otherwise effect, facilitate, encourage or accept any offers for the purchase or provision of the preferred equity to be issued to GSO pursuant to the GSO Commitment Letters (the “GSO Preferred Equity”) or any alternative equity or debt financing arrangements, in each case, to be put in place in connection with the FGL Business Combination in replacement of the GSO Preferred Equity or any portion thereof (other than pursuant to the Equity Commitment Letters, forward purchase agreements or the debt commitment letter), and (ii) if the FGL Business Combination is not consummated and the Company pursues an alternative transaction with FGL within the period ending on the first anniversary of the GSO Side Letter, and another financing source or institution proposes to provide financing in connection with such alternative transaction, the Company will provide GSO a reasonable opportunity to provide such financing in lieu of any other financing source or institution on equivalent terms. GSO Fee Letter As consideration for the GSO Commitment (including the backstop commitment) and the agreements of GSO under the GSO Commitment Letters, limited guaranty and the GSO Side Letter, the Company also entered into a fee letter agreement with GSO, dated May 24, 2017 (the “GSO Fee Letter”), pursuant to which the Company has agreed to pay to GSO the following fees at Closing:
· the original issue discount of $5.5 million in respect of the preferred shares issued to GSO (the “GSO OID”);
· a commitment fee of $6.975 million (the “GSO Commitment Fee”);
· penny warrants convertible, in the aggregate, for 3.3% of the Company’s ordinary shares (on a fully diluted basis) (the “GSO Investment Warrants”); and
· if, and to the extent, any amount of the preferred equity under GSO’s backstop commitment is funded (the “GSO Backstop Equity”), then (x) a funding fee of 0.5% of the amount of the GSO Backstop Equity that is funded (together with the GSO OID and the GSO Commitment Fee, the “GSO Closing Payments”), and (y) penny warrants attached to the GSO Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the GSO Backstop Equity that is funded, and (2) 3.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the GSO Investment Warrants, the “GSO Warrants”). The GSO Closing Payments will be paid as a reduction of the purchase price payable by GSO for the preferred equity under the GSO Commitment Letters. The Company has also agreed to pay or reimburse GSO for fees and expenses of counsel in connection with GSO’s anticipated purchase of the preferred equity. FNF Fee Letter As consideration for the FNF Commitment (including the backstop commitment) and the agreements of FNF under the FNF Commitment Letters and limited guaranty, the Company also entered into a fee letter agreement with FNF (the “FNF Fee Letter”), dated May 24, 2017, pursuant to which the Company has agreed to pay to FNF the following fees at Closing:
· the original issue discount of $2.0 million in respect of the preferred shares issued to FNF (the “FNF OID”)
· a commitment fee of $2.925 million (the “FNF Commitment Fee”);
· penny warrants convertible, in the aggregate, for 1.2% of the Company’s ordinary shares (on a fully diluted basis) (the “FNF Investment Warrants”); and
· if, and to the extent, any amount of the preferred equity under FNF’s backstop commitment is funded (the “FNF Backstop Equity”), (x) a funding fee of 0.5% of the amount of the FNF Backstop Equity that is funded (together with the FNF OID and the FNF Commitment Fee, the “FNF Closing Payments”), and (y) penny warrants attached to the FNF Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the FNF Backstop Equity that is funded, and (2) 1.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the FNF Investment Warrants, the “FNF Warrants”). The FNF Closing Payments will be paid as a reduction of the purchase price payable by FNF for the preferred equity under the FNF Equity Commitment Letters. The Company has also agreed to pay or reimburse FNF for fees and expenses of counsel in connection with FNF’s anticipated purchase of the preferred equity. Debt Commitment Letter On May 24, 2017, Parent, an indirect wholly owned subsidiary of the Company, entered into a commitment letter with Royal Bank of Canada (“RBC”) and RBC Capital Markets, LLC (the “Debt Commitment Letter”), pursuant to which RBC committed to make available to Parent and a co-borrower to be determined by Parent and BTO Fund (collectively with its affiliates and Parent, the “Debt Sponsors”) in accordance with the terms of the Debt Commitment Letter, on the Closing Date, to the extent the specified borrowers do not receive $425 million of gross proceeds from the issuance of senior unsecured notes on the Closing Date, $425 million of senior unsecured increasing rate loans (“Bridge Loans”) for the purpose of, among other things, repaying and terminating the existing indebtedness of FGLH, a wholly owned subsidiary of FGL, under its revolving credit facility and senior unsecured notes indenture. To the extent that the Debt Sponsors or Parent elect to not repay and terminate such existing indebtedness of FGLH on or prior to the Closing Date, then the commitments of RBC in respect of the Bridge Loans will be reduced in accordance with the terms of the Debt Commitment Letter. The Bridge Loans will accrue interest at a rate of LIBOR plus 5.25% for the first three months following the Closing Date. Thereafter, the interest rate will increase by 0.50% every three months up to an amount agreed between Parent and RBC. The Bridge Loans will mature on the first anniversary of the Closing Date (the “Maturity Date”). On the Maturity Date, any Bridge Loan that has not been previously repaid in full will be automatically converted into a senior unsecured term loan that is due on the date that is eight years after the Closing Date. On May 31, 2017, Parent, RBC, RBC Capital Markets, LLC, Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated entered into an amended and restated Debt Commitment Letter, pursuant to which Bank of America became an Initial Lender (as defined in the Debt Commitment Letter) and has agreed to provide 50% of the Bridge Loans. Amendments to Forward Purchase Agreements On May 24, 2017, the Company entered into amendments (the “FPA Amendments”) to the forward purchase agreements to which it and BilCar, LLC, CC Capital Management, LLC and CFS (the “Amendment Parties”) are parties, pursuant to which the Amendment Parties agreed, among other things, to add FGL as a third party beneficiary of such forward purchase agreements, to prohibit assignments and amendments of such forward purchase agreements without FGL’s consent and to entitle FGL to specific performance of such forward purchase agreements. Furthermore, the FPA Amendment to the forward purchase agreement with CFS provides that CFS shall not be excused from its obligation to purchase the Forward Purchase Securities (as defined in the forward purchase agreements) in connection with the FGL Business Combination without the consent of FGL. FSRD Share Purchase Agreement On May 24, 2017, the Company and Parent entered into a share purchase agreement (the “Share Purchase Agreement”) with Front Street Re (Delaware) Ltd. (“FSRD”), a Delaware corporation and a wholly owned indirect subsidiary of HRG, pursuant to which, subject to the terms and conditions set forth therein, Parent has agreed to purchase from FSRD all of the issued and outstanding shares of (i) Front Street Re (Cayman) Ltd., an exempted company incorporated in the Cayman Islands with limited liability and (ii) Front Street Re Ltd., an exempted company incorporated in Bermuda with limited liability (collectively, the “Acquired Companies”). The purchase price will be $65 million, subject to customary adjustments for transaction expenses. The definitive documentation contains customary representations, warranties and indemnification obligations. HRG has further agreed to reduce the purchase price, and to indemnify Parent, for dividends and other value transfers by the Acquired Companies to HRG and its affiliates from December 31, 2016 through the Closing. The Closing of the transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, as well as the consummation of the FGL Business Combination. As noted above, in connection therewith, the Company entered into equity commitment letters with BTO Fund, GSO and FNF and a forward purchase agreement backstop letter agreement with BTO Fund and FNF for an aggregate amount of $57 million, $23 million of which would be used to offset a portion of net redemptions, if any, by public shareholders of the Company in connection with the shareholder vote to approve the FGL Business Combination and $9 million of which would be used to fund any FPA Shortfall. In addition, on May 24, 2017, the Company, HRG, FS Holdco and Parent agreed that FS Holdco may, at its option, cause Parent and FS Holdco to make a joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, with respect to the FGL Business Combination and the deemed stock purchases of FGL’s subsidiaries. Such an election is only applicable to HRG and could have the effect of reducing the amount of taxable gain taken into account by HRG in connection with the FGL Business Combination. In the event FS Holdco elects to make such an election, it will be required to pay Parent $30 million, plus the amount, if any, by which FGL’s and its subsidiaries’ incremental current tax costs that are attributable to such election exceed $6 million, and Parent will be required to pay FS Holdco the amount, if any, by which FGL’s and its subsidiaries’ incremental current tax savings that are attributable to such election exceed $6 million. ROFO Offering On June 21, 2017, the Company entered into equity purchase agreements (the “Purchase Agreements”) with certain accredited investors (the “Equity Purchasers”) in connection with the rights of first offer under the forward purchase agreements. Pursuant to the Purchase Agreements, the Equity Purchasers agreed to purchase, on the terms and subject to the conditions specified therein, an aggregate of 20,000,000 Class A ordinary shares of the Company for a purchase price of $10.00 per share, immediately prior to the closing of the FGL Business Combination. At the Company’s option, such shares may be purchased from the Company in a private placement and/or from the Company’s shareholders who have validly requested for their shares to be redeemed in connection with the FGL Business Combination. Certain of the Equity Purchasers, including Keith W. Abell, Richard N. Massey and James A. Quella, each of whom is an independent director of the Company, are also party to the forward purchase agreements. In connection with the Purchase Agreements, the Company has agreed to pay advisory fees of an aggregate of $8.0 million to certain financial advisors at the Closing. |
