Item
1.01. Entry into a Material Definitive Agreement.
Agreement
and Plan of Merger
On
September 21, 2021, Sierra Income Corporation, a Maryland corporation (“Sierra”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”) by and among Barings BDC, Inc., a Maryland corporation (“BBDC”), Mercury Acquisition
Sub, Inc., a Maryland corporation and a direct wholly owned subsidiary of BBDC (“Acquisition Sub”), Sierra and Barings LLC,
a Delaware limited liability company and investment adviser to BBDC (“Barings”). The Merger Agreement provides that, on the
terms and subject to the conditions set forth in the Merger Agreement, Acquisition Sub will merge with and into Sierra, with Sierra continuing
as the surviving company and as a wholly owned subsidiary of BBDC (the “First Merger”) and, immediately thereafter, Sierra
will merge with and into BBDC, with BBDC continuing as the surviving company (the “Second Merger” and, together with the
First Merger, the “Mergers”). The boards of directors of both BBDC and Sierra, including all of the respective independent
directors, have approved the Merger Agreement and the transactions contemplated therein. The parties to the Merger Agreement intend the
Mergers to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended.
In
the First Merger, each share of Sierra common stock issued and outstanding immediately prior to the effective time of the First Merger
(excluding any shares cancelled pursuant to the Merger Agreement) will be converted into the right to receive (i) $0.9783641 per share
in cash, without interest, from Barings (such amount of cash, the “Cash Consideration”) and (ii) 0.44973 (such ratio, as
may be adjusted pursuant to the Merger Agreement, the “Exchange Ratio”) of a validly issued, fully paid and non-assessable
share of BBDC common stock, par value $0.001 per share (the “Share Consideration” and, together with the Cash Consideration,
the “Merger Consideration”).
The
Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of
each of Sierra’s and BBDC’s businesses during the period prior to the closing of the Mergers. Sierra and BBDC have agreed
to convene and hold stockholder meetings for the purpose of obtaining the approvals required of Sierra’s and BBDC’s stockholders,
respectively, and the boards of directors of Sierra and BBDC have agreed to recommend that their respective stockholders approve the
applicable proposals (as described below).
The
Merger Agreement provides that Sierra shall not, and shall cause its subsidiaries and instruct its representatives not to, directly or
indirectly, solicit proposals relating to alternative transactions, or, subject to certain exceptions, initiate or participate in discussions
or negotiations regarding, or provide information with respect to, any proposal for an alternative transaction. However, the Sierra board
of directors may, subject to certain conditions, change its recommendation to the Sierra stockholders or, on payment of a termination
fee of $11.0 million to BBDC and the reimbursement of up to $2.0 million in expenses incurred by BBDC and Barings, terminate the Merger
Agreement and enter into an Alternative Acquisition Agreement (as defined in the Merger Agreement) for a Superior Proposal (as defined
in the Merger Agreement) if it determines in good faith, after consultation with its outside legal counsel, that failure to do so would
be inconsistent with the directors’ duties under applicable law.
Consummation
of the First Merger, which is currently anticipated to occur during the first quarter of fiscal year 2022, is subject to certain customary
closing conditions, including (1) approval of the First Merger by the holders of at least a majority of the outstanding shares of Sierra
common stock entitled to vote thereon, (2) approval of the issuance of BBDC common stock to be issued in the First Merger by a majority
of the votes cast by the BBDC stockholders on the matter at the BBDC stockholders meeting, (3) approval of the issuance of BBDC’s
common stock in connection with the First Merger at a price below the then-current net asset value per share of BBDC common stock, if
applicable, by the vote specified in Section 63(2)(A) of the Investment Company Act of 1940, as amended, (4) the absence of certain legal
impediments to the consummation of the First Merger, (5) effectiveness of the registration statement for the BBDC common stock to be
issued as consideration in the First Merger, (6) approval for listing on the New York Stock Exchange of the BBDC common stock to be issued
as consideration in the First Merger, (7) subject to certain materiality standards, the accuracy of the representations and warranties
and compliance with the covenants of each party to the Merger Agreement, and (8) required regulatory approvals (including expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or early termination thereof).
Barings,
as party to the Merger Agreement, agreed to vote all shares of BBDC common stock over which it has voting power (other than in its fiduciary
capacity) in favor of the proposals to be submitted by BBDC to its stockholders for approval relating to the Mergers.
In
addition, Sierra and BBDC will take steps necessary to provide for the repayment at closing of Sierra’s existing loan agreement.
The Merger Agreement also contains certain termination rights in favor of BBDC and Sierra, including if the First Merger is not completed
on or before March 31, 2022 or if the requisite approvals of Sierra stockholders or BBDC stockholders are not obtained.
Further,
BBDC will enter into an amendment and restatement of its investment advisory agreement with Barings, effective as of the closing of the
Mergers, to raise the annualized hurdle rate thereunder from 8.0% to 8.25%. Following the closing of the Mergers, BBDC will also enter
into a credit support agreement with Barings, for the benefit of the combined company, to protect against net cumulative unrealized and
realized losses of up to $100.0 million on the acquired Sierra investment portfolio over the next ten years. The terms of the credit
support agreement and the form of the second amended and restated investment advisory agreement are included as Exhibit B and Exhibit
C, respectively, to the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated by reference
herein.
The
description above is only a summary of the material provisions of the Merger Agreement and is qualified in its entirety by reference
to a copy of the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated by reference herein.
The
representations and warranties and covenants set forth in the Merger Agreement have been made only for purposes of such agreement and
were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties,
including qualification by confidential disclosures made for purposes of allocating contractual risk between the parties to the Merger
Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting
parties that differ from those applicable to investors. Accordingly, the Merger Agreement is included with this filing only to provide
investors with information regarding the terms of the Merger Agreement, and not to provide investors with any factual information regarding
the parties to the Merger Agreement or their respective businesses.