Medley Capital Corporation (NYSE: MCC), a publicly traded business development company, and one of its significant investors, FrontFour Capital Group LLC, have agreed to certain settlement terms in connection with the recent Delaware Court of Chancery decision relating to the proposed merger with affiliates Sierra Income Corporation and Medley Management Inc. (NYSE: MDLY).
As previously reported, Sierra, a non-traded BDC, plans to merge with Medley Capital and then acquire Medley Management, with Sierra being the surviving company that would be structured as a publicly-traded BDC. Medley Capital and Sierra are both controlled by Medley Management.
FrontFour Capital filed a stockholder class action lawsuit accusing Medley Capital and its board of breaching their fiduciary duties to shareholders in connection with the proposed merger. The lawsuit sought to block the merger vote and enjoin enforcement of certain provisions of the merger plan.
As previously reported, the Chancery court ruled that Medley Capital’s directors breached their fiduciary duties in entering into the proposed merger and halted the vote until investors were provided with corrective disclosures on the deal.
The settlement terms would amend the proposed merger agreements to include a “go shop” process to solicit superior transactions to the merger.
Additionally, if the merger is consummated, a settlement fund will be created, consisting of $17 million of cash and $30 million of Sierra common stock, and distributed to eligible members of a class of MCC stockholders.
FrontFour cofounder David Lorber and Lowell Robinson, the former CFO and COO of online advertising network MIVA Inc., were appointed to Medley Capital’s board and independent special committee, with Lorber being appointed as the chair of the special committee, effective immediately.
The appointments fill the two vacancies created by the resignations of John Mack and Mark Lerdal and bring the company back into compliance with the New York Stock Exchange.
“We are pleased to have come to an understanding that is expected to provide MCC stockholders with considerably more value in connection with the proposed mergers, if consummated, and new, independent voices in the boardroom to help steer the ‘go shop’ process to solicit superior transactions,” said Lorber.
Sierra must agree to the proposed amendments, and the term sheet could be terminated if the amendments are not entered into by May 15, 2019.
In related news, the three companies have postponed their respective special meetings of stockholders relating to the proposed merger and anticipate the meetings will be held no later than the third quarter of 2019. The companies will announce the new date, time and record date at a later time.