424B3
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-239920

 

PORTMAN RIDGE FINANCE CORPORATION

650 Madison Avenue, 23rd Floor

New York, NY 10022

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

September 1, 2020

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “PTMN Special Meeting”) of Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), to be held virtually on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/PTMN2020SM.

The notice of special meeting and the joint proxy statement/prospectus accompanying this letter provide an outline of the business to be conducted at the PTMN Special Meeting. At the PTMN Special Meeting, you will be asked to:

 

  (i)

approve the issuance of shares of PTMN common stock, $0.01 par value per share (“PTMN Common Stock”), to be issued pursuant to the Agreement and Plan of Merger, dated as of June 24, 2020 (as may be amended from time to time, the “Merger Agreement”), by and among PTMN, Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Merger Sub”), Garrison Capital Inc., a Delaware corporation (“GARS”), and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (“Sierra Crest”) (such proposal, the “Merger Stock Issuance Proposal”); and

 

  (ii)

approve the adjournment of the PTMN Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the PTMN Special Meeting to approve the Merger Stock Issuance Proposal (such proposal, the “PTMN Adjournment Proposal” and together with the Merger Stock Issuance Proposal, the “PTMN Proposals”).

PTMN and GARS are proposing a combination of both companies by a merger and related transactions pursuant to the Merger Agreement in which Merger Sub would merge with and into GARS (the “Merger”), with GARS continuing as the surviving company and as a wholly owned subsidiary of PTMN. Immediately after the effectiveness of the Merger, GARS, as the surviving company, will merge with and into PTMN (together with the Merger, the “Mergers”), with PTMN continuing as the surviving company.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of GARS (“GARS Common Stock”) issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares (as defined below)) will be converted into the right to receive (i) an amount in cash equal to (A) $19,100,000 (the “Aggregate Cash Consideration”) divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (as defined below) (excluding any Cancelled Shares) (such amount in cash, the “Cash Consideration”), and (ii) a number of shares of PTMN Common Stock equal to the Exchange Ratio (as defined below), plus any cash in lieu of fractional shares (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). For purposes of the Merger Agreement, (i) “Cancelled Shares” means all treasury shares and all shares of GARS Common Stock issued and outstanding immediately prior to the Effective Time that are owned by PTMN, GARS or any wholly-owned subsidiary thereof (other than shares of GARS Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties), and (ii) “Determination Date” means the date that is two days prior to the closing date of the Mergers (such closing date, the “Closing Date”).

Furthermore, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000 (the “Additional Cash Consideration”).

Under the Merger Agreement, on the Determination Date, each of GARS and PTMN will deliver to the other a calculation of its estimated net asset value as of 5:00 p.m. New York City time on the day prior to the Closing Date (such calculation with respect to GARS, the “Closing GARS Net Asset Value,” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case, as approved by the board of directors of GARS (the “GARS Board”) or the board of directors of PTMN (the “PTMN Board”), as applicable, calculated in good faith and using a pre-agreed set of assumptions, methodologies and adjustments. GARS and PTMN will update and redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, and as reapproved by the GARS Board or PTMN Board, as applicable, in the event of a material change to such calculation between the Determination Date and the Closing Date or if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate (a) the “GARS Per Share NAV,” which will be equal to (i) (A) the Closing GARS Net Asset Value minus (B) the Aggregate Cash Consideration, divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (b) the “PTMN Per Share NAV,” which will be equal to (i) the Closing PTMN Net Asset Value divided by (ii) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. The “Exchange Ratio” will be equal to the quotient of the GARS Per Share NAV divided by the PTMN Per Share NAV.

The market value of the Merger Consideration will fluctuate with changes in the market price of PTMN Common Stock. PTMN urges you to obtain current market quotations of PTMN Common Stock. PTMN Common Stock trades on The Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “PTMN.” The following table shows the closing sale prices of PTMN Common Stock, as reported on Nasdaq on June 23, 2020, the last trading day before the execution of the Merger Agreement, and on August 31, 2020, the last trading day before printing this document.

 

     PTMN
Common Stock
 

Closing Sales Price at June 23, 2020

   $ 1.25  

Closing Sales Price at August 31, 2020

   $ 1.17  


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Your vote is extremely important. At the PTMN Special Meeting, you will be asked to vote on the Merger Stock Issuance Proposal. The approval of the Merger Stock Issuance Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat. You also may be asked to vote to approve the PTMN Adjournment Proposal. The approval of the PTMN Adjournment Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank, trustee or nominee holding its shares of PTMN Common Stock how to vote such shares on its behalf) will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the PTMN Proposals.

After careful consideration, the PTMN Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, and unanimously recommends that PTMN Stockholders vote “FOR” the Merger Stock Issuance Proposal and, if necessary or appropriate, “FOR” the PTMN Adjournment Proposal. You can vote for the PTMN Proposals by following the instructions on the enclosed proxy card and voting by Internet or telephone or by signing, dating and returning the proxy card in the postage-paid envelope provided.

It is important that your shares be represented at the PTMN Special Meeting. You have the right to receive notice of, and to vote at, the PTMN Special Meeting if you were a stockholder of record of the PTMN Common Stock at the close of business on August 27, 2020. Each PTMN Stockholder is invited to attend the PTMN Special Meeting virtually. You or your proxyholder will be able to attend the PTMN Special Meeting online, vote and submit questions by visiting www.virtualshareholdermeeting.com/PTMN2020SM and using a control number assigned by Broadridge Financial Solutions Inc. To receive access to the virtual PTMN Special Meeting, you will need to follow the instructions provided in the Notice of Special Meeting of Stockholders and the joint proxy statement/prospectus that follow. Please follow the instructions on the enclosed proxy card and authorize a proxy via the Internet, by telephone or by mail to vote your shares. PTMN encourages you to vote via the Internet as it saves PTMN significant time and processing costs. If you are the beneficial owner of your shares, you will need to follow the instructions provided by your broker, bank, trustee or nominee regarding how to instruct your broker, bank, trustee or nominee to vote your shares at the PTMN Special Meeting. Voting by proxy does not deprive you of your right to participate in the virtual PTMN Special Meeting.

This joint proxy statement/prospectus describes the PTMN Special Meeting, the Mergers, and the documents related to the Mergers (including the Merger Agreement) that PTMN Stockholders should review before voting on the Merger Stock Issuance Proposal and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 23 and as otherwise incorporated by reference herein, for a discussion of the risks relating to the Mergers, PTMN and GARS. PTMN files annual, quarterly and current reports, proxy statements and other information about itself with the SEC. PTMN maintains a website at www.PortmanRidge.com and makes all of its annual, quarterly and current reports, proxy statements and other publicly filed information available on or through its website. Information contained on PTMN’s website is not incorporated by reference into this joint proxy statement/prospectus, and you should not consider information contained on PTMN’s website to be part of this joint proxy statement/prospectus. You may also obtain such information, free of charge, and make stockholder inquiries by calling PTMN collect at (212) 891-2880 or by writing to PTMN at 650 Madison Avenue, 23rd Floor, New York, New York 10022, Attention: Secretary. The SEC also maintains a website at http://www.sec.gov that contains such information.

Sincerely yours,

/s/ Ted Goldthorpe

Ted Goldthorpe

President and Chief Executive Officer of Portman Ridge

Finance Corporation

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of PTMN Common Stock to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Important Notice Regarding the Availability of Proxy Materials for the PTMN Special Meeting to Be Held on October 19, 2020.

 

 

 

Portman Ridge Finance Corporation

650 Madison Avenue, 23rd Floor

New York, NY 10022

(212) 891-2880

 

Garrison Capital Inc.

1270 Avenue of the Americas, Suite 804

New York, New York 10020

(212) 372-9508


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PORTMAN RIDGE FINANCE CORPORATION

650 Madison Avenue, 23rd Floor

New York, NY 10022

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 19, 2020

 

 

NOTICE OF VIRTUAL 2020 SPECIAL MEETING OF STOCKHOLDERS

Online Meeting Only—No Physical Meeting Location

www.virtualshareholdermeeting.com/PTMN2020SM

October 19, 2020, at 10:00 a.m., Eastern Time

 

 

Notice is hereby given to the holders of shares of common stock (“PTMN Stockholders”) of Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), that:

A Special Meeting of Stockholders of PTMN will be held virtually, solely by the means of remote communication, on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/PTMN2020SM, for the following purposes:

 

  (i)

To approve the issuance of shares of PTMN common stock, $0.01 par value per share (“PTMN Common Stock”), to be issued pursuant to the Agreement and Plan of Merger, dated as of June 24, 2020 (as may be amended from time to time, the “Merger Agreement”), by and among PTMN, Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Merger Sub”), Garrison Capital Inc., a Delaware corporation (“GARS”), and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (such proposal, the “Merger Stock Issuance Proposal”); and

 

  (ii)

To approve the adjournment of the PTMN Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the PTMN Special Meeting to approve the Merger Stock Issuance Proposal (such proposal, the “PTMN Adjournment Proposal” and together with the Merger Stock Issuance Proposal, the “PTMN Proposals”).

PTMN and GARS are proposing a combination of both companies by a merger and related transactions pursuant to the Merger Agreement in which Merger Sub would merge with and into GARS (the “Merger”), with GARS continuing as the surviving company and as a wholly owned subsidiary of PTMN. Immediately after the effectiveness of the Merger, GARS, as the surviving company, will merge with and into PTMN (together with the Merger, the “Mergers”), with PTMN continuing as the surviving company.

THE BOARD OF DIRECTORS OF PTMN (THE “PTMN BOARD”) UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGERS AND MERGER STOCK ISSUANCE PROPOSAL, AND UNANIMOUSLY RECOMMENDS THAT PTMN STOCKHOLDERS VOTE “FOR” THE MERGER STOCK ISSUANCE PROPOSAL AND, IF NECESSARY OR APPROPRIATE, “FOR” THE PTMN ADJOURNMENT PROPOSAL.

Enclosed is a copy of the joint proxy statement/prospectus and proxy card. You have the right to receive notice of, and to vote at, the PTMN Special Meeting if you were a stockholder of record of the PTMN Common Stock at the close of business on August 27, 2020 (the “PTMN Record Date”). A list of these stockholders will be open for examination by any PTMN Stockholder for any purpose germane to the PTMN Special Meeting for a period of 10 days prior to the PTMN Special Meeting at PTMN’s principal executive office at 650 Madison Avenue, 23rd Floor, New York, New York 10022, and electronically during the PTMN Special Meeting at www.virtualshareholdermeeting.com/PTMN2020SM.


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Each PTMN Stockholder is invited to attend the PTMN Special Meeting virtually. You or your proxyholder will be able to attend the Special Meeting online, vote and submit questions by visiting www.virtualshareholdermeeting.com/PTMN2020SM and using a control number assigned by Broadridge Financial Solutions Inc., which is included on the proxy card that you received.

If you are a beneficial owner of shares that are held in “street name,” that is they are registered in the name of your broker, bank, trustee or other nominee, you should have received a notice containing voting instructions from your nominee rather than from us. You should follow the voting instructions in the notice to ensure that your vote is counted. Many brokers and banks participate in a program that offers a means to grant proxies to vote shares via the Internet or by telephone. If your shares are held in an account with a broker or bank participating in this program, you may grant a proxy to vote those shares via the Internet or telephonically by using the website or telephone number shown on the instruction form provided to you by your nominee.

In order to vote at the PTMN Special Meeting, you must either be a stockholder of record of the PTMN Common Stock as of the PTMN Record Date, or you must be a beneficial holder as of the PTMN Record Date and obtain a legal proxy from your broker, bank, trustee, or other nominee. PTMN Stockholders of record will have the opportunity to vote electronically at the PTMN Special Meeting after they have checked into the PTMN Special Meeting as described above and in the joint proxy statement/prospectus. If you are a beneficial holder, you must request a legal proxy from your nominee in sufficient time so that it can be obtained, completed and submitted by you to PTMN no later than 11:59 p.m., Eastern Time, on October 18, 2020.

The meeting webcast will begin promptly at 10:00 a.m., Eastern Time, on October 19, 2020. We encourage you to access the meeting prior to the start time. Because the PTMN Special Meeting will be a completely virtual meeting, there will be no physical location for PTMN Stockholders to attend.

Whether or not you plan to participate in the PTMN Special Meeting, PTMN encourages you to vote your shares by following the instructions provided on the enclosed proxy card and voting by Internet or telephone or by signing, dating and returning the proxy card in the postage-paid envelope provided.

Your vote is extremely important to PTMN. In the event there are insufficient votes for a quorum or to approve the Merger Stock Issuance Proposal at the time of the PTMN Special Meeting, the PTMN Special Meeting may be adjourned in order to permit further solicitation of proxies by PTMN.

The Mergers and the Merger Agreement are each described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.

 

By Order of the Board of Directors,

/s/ Ted Gilpin

Ted Gilpin

Secretary of Portman Ridge Finance Corporation

New York, New York

September 1, 2020

To ensure proper representation at the PTMN Special Meeting, please follow the instructions on the enclosed proxy card to authorize a proxy to vote your shares via the Internet or telephone, or by signing, dating and returning the proxy card. Even if you vote your shares prior to the PTMN Special Meeting, you still may participate in the virtual PTMN Special Meeting.


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GARRISON CAPITAL INC.

1270 Avenue of the Americas, Suite 804

New York, New York 10020

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

September 1, 2020

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “GARS Special Meeting”) of Garrison Capital Inc., a Delaware corporation (“GARS”), to be held virtually on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/GARS2020SM.

The notice of special meeting and the joint proxy statement/prospectus accompanying this letter provide an outline of the business to be conducted at the GARS Special Meeting. At the GARS Special Meeting, you will be asked to:

 

(i)

adopt the Agreement and Plan of Merger, dated as of June 24, 2020 (as may be amended from time to time, the “Merger Agreement”), by and among Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Merger Sub”), GARS, and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (“Sierra Crest”), and approve the transactions contemplated thereby, including the Mergers (as defined below) (such proposal collectively, the “Merger Proposal”); and

 

(ii)

approve the adjournment of the GARS Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the GARS Special Meeting to approve the Merger Proposal (such proposal, the “GARS Adjournment Proposal” and together with the Merger Proposal, the “GARS Proposals”).

GARS and PTMN are proposing a combination of both companies by a merger and related transactions pursuant to the Merger Agreement in which Merger Sub would merge with and into GARS, with GARS continuing as the surviving company (the “Merger”). Immediately following the Merger, GARS, as the surviving company, will merge with and into PTMN, with PTMN continuing as the surviving company (together with the Merger, the “Mergers”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of GARS (“GARS Common Stock”) issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares (as defined below)) will be converted into the right to receive (i) an amount in cash equal to (A) $19,100,000 (the “Aggregate Cash Consideration”) divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (as defined below) (excluding any Cancelled Shares) (such amount in cash, the “Cash Consideration”), and (ii) a number of shares of PTMN common stock, $0.01 par value per share (“PTMN Common Stock”), equal to the Exchange Ratio (as defined below), plus any cash in lieu of fractional shares (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). For purposes of the Merger Agreement, (i) “Cancelled Shares” means all treasury shares and all shares of GARS Common Stock issued and outstanding immediately prior to the Effective Time that are owned by PTMN, GARS or any wholly-owned subsidiary thereof (other than shares of GARS Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties), and (ii) “Determination Date” means the date that is two days prior to the closing date of the Mergers (such closing date, the “Closing Date”).

Furthermore, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000 (the “Additional Cash Consideration”).

Under the Merger Agreement, on the Determination Date, each of GARS and PTMN will deliver to the other a calculation of its estimated net asset value as of 5:00 p.m. New York City time on the day prior to the Closing Date (such calculation with respect to GARS, the “Closing GARS Net Asset Value,” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case, as approved by the board of directors of GARS (the “GARS Board”) or the board of directors of PTMN (the “PTMN Board”), as applicable, calculated in good faith and using a pre-agreed set of assumptions, methodologies and adjustments. GARS and PTMN will update and redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, and as reapproved by the GARS Board or PTMN Board, as applicable, in the event of a material change to such calculation between the Determination Date and the Closing Date or if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate (a) the “GARS Per Share NAV,” which will be equal to (i) (A) the Closing GARS Net Asset Value minus (B) the Aggregate Cash Consideration, divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (b) the “PTMN Per Share NAV,” which will be equal to (i) the Closing PTMN Net Asset Value divided by (ii) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. The “Exchange Ratio” will be equal to the quotient of the GARS Per Share NAV divided by the PTMN Per Share NAV.

The market value of the Merger Consideration will fluctuate with changes in the market price of PTMN Common Stock. The GARS Board urges you to obtain current market quotations of PTMN Common Stock. PTMN Common Stock trades on The Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “PTMN.” The following table shows the closing sale prices of PTMN Common Stock, as reported on Nasdaq on June 23, 2020, the last trading day before the execution of the Merger Agreement, and on August 31, 2020, the last trading day before printing this document.

 

     PTMN
Common Stock
 

Closing Sales Price at June 23, 2020

   $ 1.25  

Closing Sales Price at August 31, 2020

   $ 1.17  


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Your vote is extremely important. At the GARS Special Meeting, you will be asked to vote on the Merger Proposal. The approval of the Merger Proposal requires the affirmative vote by the holders of at least a majority of the outstanding shares of GARS Common Stock entitled to vote at the GARS Special Meeting. You also may be asked to vote to approve the GARS Adjournment Proposal. The approval of the GARS Adjournment Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of GARS Common Stock present at the GARS Special Meeting, virtually or represented by proxy, and entitled to vote thereat.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank, trustee or nominee holding its shares of GARS Common Stock how to vote such shares on its behalf) will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the GARS Adjournment Proposal.

After careful consideration, on the recommendation of a special committee (the “GARS Special Committee”) of the GARS Board, the GARS Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that GARS Stockholders vote “FOR” the Merger Proposal and, if necessary or appropriate, “FOR” the GARS Adjournment Proposal. You can vote for the GARS Proposals by following the instructions on the enclosed proxy card and voting by Internet or telephone or by signing, dating and returning the proxy card in the postage-paid envelope provided.

It is important that your shares be represented at the GARS Special Meeting. You have the right to receive notice of, and to vote at, the GARS Special Meeting if you were a stockholder of record of GARS Common Stock at the close of business on August 27, 2020. Each GARS Stockholder is invited to attend the GARS Special Meeting virtually. You or your proxyholder will be able to attend the GARS Special Meeting online, vote and submit questions by visiting www.virtualshareholdermeeting.com/GARS2020SM and using a control number assigned by Broadridge Financial Solutions Inc. To receive access to the virtual GARS Special Meeting, you will need to follow the instructions provided in the Notice of Special Meeting of Stockholders and the joint proxy statement/prospectus that follow. Please follow the instructions on the enclosed proxy card and authorize a proxy via the Internet, by telephone or by mail to vote your shares. GARS encourages you to vote via the Internet as it saves GARS significant time and processing costs. If you are the beneficial owner of your shares, you will need to follow the instructions provided by your broker, bank, trustee or nominee regarding how to instruct your broker, bank, trustee or nominee to vote your shares at the GARS Special Meeting. Voting by proxy does not deprive you of your right to participate in the virtual GARS Special Meeting.

This joint proxy statement/prospectus describes the GARS Special Meeting, the Mergers, and the documents related to the Mergers (including the Merger Agreement) that GARS Stockholders should review before voting on the Merger Proposal and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 23 and as otherwise incorporated by reference herein, for a discussion of the risks relating to the Mergers, PTMN and GARS. GARS files annual, quarterly and current reports, proxy statements and other information about itself with the SEC. GARS maintains a website at www.garrisoncapitalbdc.com and makes all of its annual, quarterly and current reports, proxy statements and other publicly filed information available on or through its website. Information contained on GARS’ website is not incorporated by reference into this joint proxy statement/prospectus, and you should not consider information contained on GARS’ website to be part of this joint proxy statement/prospectus. You may also obtain such information, free of charge, and make stockholder inquiries by contacting GARS at 1270 Avenue of the Americas, Suite 804, New York, NY 10020, Attention: Secretary, by calling collect at (212) 372-9508 or by sending an e-mail to contact@garrisoninv.com. The SEC also maintains a website at http://www.sec.gov that contains such information.

Sincerely yours,

/s/ Joseph Tansey

Joseph Tansey

Chief Executive Officer of Garrison Capital Inc.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of PTMN Common Stock to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Important Notice Regarding the Availability of Proxy Materials for the GARS Special Meeting to Be Held on October 19, 2020.

 

Garrison Capital Inc.

1270 Avenue of the Americas, Suite 804

New York, New York 10020

(212) 372-9508

  

Portman Ridge Finance Corporation

650 Madison Avenue, 23rd Floor

New York, NY 10022

(212) 891-2880


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GARRISON CAPITAL INC.

1270 Avenue of the Americas, Suite 804

New York, New York 10020

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 19, 2020

 

 

NOTICE OF VIRTUAL 2020 SPECIAL MEETING OF STOCKHOLDERS

Online Meeting Only—No Physical Meeting Location

www.virtualshareholdermeeting.com/GARS2020SM

October 19, 2020, at 10:00 a.m., Eastern Time

 

 

Notice is hereby given to the holders of shares of common stock (“GARS Stockholders”) of Garrison Capital Inc., a Delaware corporation (“GARS”), that:

A Special Meeting of Stockholders of GARS will be held virtually, solely by the means of remote communication, on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/GARS2020SM, for the following purposes:

 

  (i)

adopt the Agreement and Plan of Merger, dated as of June 24, 2020 (as may be amended from time to time, the “Merger Agreement”), by and among Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Merger Sub”), GARS, and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN, and approve the transactions contemplated thereby, including the Mergers (as defined below) (such proposal collectively, the “Merger Proposal”); and

 

  (ii)

approve the adjournment of the GARS Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the GARS Special Meeting to approve the Merger Proposal (such proposal, the “GARS Adjournment Proposal” and together with the Merger Proposal, the “GARS Proposals”).

GARS and PTMN are proposing a combination of both companies by a merger and related transactions pursuant to the Merger Agreement in which Merger Sub would merge with and into GARS, with GARS continuing as the surviving company (the “Merger”). Immediately following the Merger, GARS, as the surviving company, will merge with and into PTMN, with PTMN continuing as the surviving company (together with the Merger, the “Mergers”).

ON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF GARS (THE “GARS BOARD”), THE GARS BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGERS, AND UNANIMOUSLY RECOMMENDS THAT GARS STOCKHOLDERS VOTE “FOR” THE MERGER PROPOSAL AND, IF NECESSARY OR APPROPRIATE, “FOR” THE GARS ADJOURNMENT PROPOSAL.

Enclosed is a copy of the joint proxy statement/prospectus and proxy card. You have the right to receive notice of, and to vote at, the GARS Special Meeting if you were a stockholder of record of the GARS Common Stock at the close of business on August 27, 2020 (the “GARS Record Date”). A list of these stockholders will be open for examination by any GARS Stockholder for any purpose germane to the GARS Special Meeting for a period of 10 days prior to the GARS Special Meeting at GARS’ principal executive office at 1270 Avenue of the Americas, Suite 804, New York, NY 10020 and electronically during the GARS Special Meeting at www.virtualshareholdermeeting.com/GARS2020SM.


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Each GARS Stockholder is invited to attend the GARS Special Meeting virtually. You or your proxyholder will be able to attend the GARS Special Meeting online, vote and submit questions by visiting www.virtualshareholdermeeting.com/GARS2020SM and using a control number assigned by Broadridge Financial Solutions Inc., which is included on the proxy card that you received.

If you are a beneficial owner of shares that are held in “street name,” that is they are registered in the name of your broker, bank, trustee or other nominee, you should have received a notice containing voting instructions from your nominee rather than from GARS. You should follow the voting instructions in the notice to ensure that your vote is counted. Many brokers and banks participate in a program that offers a means to grant proxies to vote shares via the Internet or by telephone. If your shares are held in an account with a broker or bank participating in this program, you may grant a proxy to vote those shares via the Internet or telephonically by using the website or telephone number shown on the instruction form provided to you by your nominee.

In order to vote at the GARS Special Meeting, you must either be a stockholder of record of the GARS Common Stock as of the GARS Record Date, or you must be a beneficial holder as of the GARS Record Date and obtain a legal proxy from your broker, bank, trustee, or other nominee. GARS Stockholders of record will have the opportunity to vote electronically at the GARS Special Meeting after they have checked into the GARS Special Meeting as described above and in the joint proxy statement/prospectus. If you are a beneficial holder, you must request a legal proxy from your nominee in sufficient time so that it can be obtained, completed and submitted by you to GARS no later than 11:59 p.m., Eastern Time, on October 18, 2020.

The meeting webcast will begin promptly at 10:00 a.m., Eastern Time, on October 19, 2020. We encourage you to access the meeting prior to the start time. Because the GARS Special Meeting will be a completely virtual meeting, there will be no physical location for GARS Stockholders to attend.

Whether or not you plan to participate in the GARS Special Meeting, GARS encourages you to vote your shares by following the instructions provided on the enclosed proxy card and voting by Internet or telephone or by signing, dating and returning the proxy card in the postage-paid envelope provided.

Your vote is extremely important to GARS. In the event there are insufficient votes for a quorum or to approve the Merger Proposal at the time of the GARS Special Meeting, the GARS Special Meeting may be adjourned in order to permit further solicitation of proxies by GARS.

The Mergers and the Merger Agreement are each described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.

 

By Order of the Board of Directors,

/s/ Daniel Hahn

Daniel Hahn

Secretary of Garrison Capital Inc.

New York, New York

September 1, 2020

To ensure proper representation at the GARS Special Meeting, please follow the instructions on the enclosed proxy card to authorize a proxy to vote your shares via the Internet or telephone, or by signing, dating and returning the proxy card. Even if you vote your shares prior to the GARS Special Meeting, you still may participate in the virtual GARS Special Meeting.


Table of Contents

TABLE OF CONTENTS

 

     Page  

ABOUT THIS DOCUMENT

     iii  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGERS

     1  

SUMMARY OF THE MERGERS

     12  

RISK FACTORS

     23  

COMPARATIVE FEES AND EXPENSES

     29  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     33  

THE PTMN SPECIAL MEETING

     35  

THE GARS SPECIAL MEETING

     38  

CAPITALIZATION

     41  

THE MERGERS

     42  

DESCRIPTION OF THE MERGER AGREEMENT

     73  

ACCOUNTING TREATMENT OF THE MERGERS

     96  

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS

     97  

PTMN PROPOSAL 1: THE MERGER STOCK ISSUANCE PROPOSAL

     113  

PTMN PROPOSAL 2: THE PTMN ADJOURNMENT PROPOSAL

     114  

GARS PROPOSAL 1: THE MERGER PROPOSAL

     115  

GARS PROPOSAL 2: THE GARS ADJOURNMENT PROPOSAL

     116  

MARKET PRICE, DIVIDEND AND DISTRIBUTION INFORMATION

     117  

BUSINESS OF PTMN

     118  

DETERMINATION OF NET ASSET VALUE OF PTMN

     119  

REGULATION OF PTMN

     119  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PTMN

     119  

SENIOR SECURITIES OF PTMN

     120  

PORTFOLIO COMPANIES OF PTMN

     121  

MANAGEMENT OF PTMN

     135  

PORTFOLIO MANAGEMENT OF PTMN

     135  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF PTMN

     138  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS OF PTMN

     139  

BUSINESS OF GARS

     141  

DETERMINATION OF NET ASSET VALUE OF GARS

     141  

REGULATION OF GARS

     144  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GARS

     148  

SENIOR SECURITIES OF GARS

     149  

PORTFOLIO COMPANIES OF GARS

     150  

MANAGEMENT OF GARS

     162  

PORTFOLIO MANAGEMENT OF GARS

     163  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF GARS

     164  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS OF GARS

     167  

DESCRIPTION OF CAPITAL STOCK OF PTMN

     169  

DESCRIPTION OF CAPITAL STOCK OF GARS

     176  

PTMN DIVIDEND REINVESTMENT PLAN

     179  

GARS DIVIDEND REINVESTMENT PLAN

     179  

COMPARISON OF PTMN AND GARS STOCKHOLDER RIGHTS

     180  

CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR OF PTMN AND GARS

     189  

BROKERAGE ALLOCATION AND OTHER PRACTICES

     189  

LEGAL MATTERS

     189  

 

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     Page  

EXPERTS

     189  

APPRAISAL RIGHTS OF GARS STOCKHOLDERS

     190  

OTHER MATTERS

     194  

STOCKHOLDERS SHARING AN ADDRESS

     195  

WHERE YOU CAN FIND MORE INFORMATION

     196  

INCORPORATION BY REFERENCE FOR PTMN

     197  

INCORPORATION BY REFERENCE FOR GARS

     198  

ANNEX A—MERGER AGREEMENT

     AA-1  

ANNEX B—OPINION OF THE FINANCIAL ADVISOR TO THE GARS SPECIAL COMMITTEE

     AB-1  

ANNEX C—SECTION 262 OF THE DGCL

     AC-1  

 

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ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form N-14 filed with the U.S. Securities and Exchange Commission (the “SEC”) by PTMN (File No. 333-239920), constitutes a prospectus of Portman Ridge Finance Corporation, a Delaware corporation (“PTMN”), under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of PTMN common stock, $0.01 par value per share (“PTMN Common Stock”), to be issued to the holders (“GARS Stockholders”) of shares of common stock, par value $0.001 per share (“GARS Common Stock”), of Garrison Capital Inc., a Delaware corporation (“GARS”), pursuant to the Agreement and Plan of Merger, dated as of June 24, 2020 (as may be amended from time to time, the “Merger Agreement”), by and among PTMN, Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN (“Merger Sub”), GARS, and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN (“Sierra Crest”).

In May 2020, the SEC adopted certain new disclosure rules applicable to transactions such as the Mergers under SEC release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses (the “Final Rule”), which among other things, adds a new rule Regulation S-X Rule 6-11 that eliminates the requirement to provide pro forma financial information for fund acquisitions if certain supplemental information is disclosed, as described under Regulation S-X Rule 6-11(d) (“S-X Rule 6-11(d)”). Furthermore, the Final Rule amends Form N-14 to make the disclosure requirements consistent with S-X Rule 6-11(d). The Final Rule is effective January 1, 2021, but it permits voluntary early compliance provided that a registrant adopts the Final Rule and applies the Final Rule in its entirety from the date of early compliance. PTMN has elected to early adopt the provisions of the Final Rule. Under the Final Rule, PTMN has determined that it has met the supplemental disclosure requirements consistent with S-X Rule 6-11(d) as it has (i) included a pro forma fee table, showing (a) the pre-transaction fee structures of PTMN and GARS and (b) the post-transaction fee structure of the combined entity, (ii) determined that the Mergers would not result in a material change in GARS’ investment portfolio due to investment restrictions and (iii) determined that there are no material differences in accounting policies between PTMN and GARS.

This document also constitutes a joint proxy statement of PTMN and GARS under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to: (1) the Special Meeting of Stockholders of PTMN (the “PTMN Special Meeting”), at which holders of shares of PTMN Common Stock (“PTMN Stockholders”) will be asked to vote upon the Merger Stock Issuance Proposal (as defined below) and, if necessary or appropriate, the PTMN Adjournment Proposal (as defined below); and (2) the Special Meeting of Stockholders of GARS (the “GARS Special Meeting”), at which GARS Stockholders will be asked to vote upon the Merger Proposal (as defined below) and, if necessary or appropriate, the GARS Adjournment Proposal (as defined below).

You should rely only on the information contained in this joint proxy statement/prospectus, including in determining how to vote the shares of PTMN Common Stock or GARS Common Stock, as applicable. No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated September 1, 2020. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Neither any mailing of this joint proxy statement/prospectus to PTMN Stockholders or GARS Stockholders nor the issuance of PTMN Common Stock in connection with the Mergers will create any implication to the contrary.

This joint proxy statement/prospectus 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 joint proxy statement/prospectus regarding PTMN has been provided by PTMN and information contained in this joint proxy statement/prospectus regarding GARS has been provided by GARS.

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGERS

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 document to fully understand the Merger Agreement and the transactions contemplated thereby (including the Mergers) and the voting procedures for the PTMN Special Meeting and the GARS Special Meeting (collectively, the “Special Meetings”).

Questions and Answers about the Special Meetings

 

Q:

Why am I receiving these materials?

 

A:

PTMN is furnishing these materials to PTMN Stockholders in connection with the solicitation of proxies by the board of directors of PTMN (the “PTMN Board”) for use at the PTMN Special Meeting to be held virtually at 10:00 a.m., Eastern Time, on October 19, 2020 at the following website: www.virtualshareholdermeeting.com/PTMN2020SM, and any adjournments or postponements thereof.

GARS is furnishing these materials to GARS Stockholders in connection with the solicitation of proxies by the board of directors of GARS (the “GARS Board”) for use at the GARS Special Meeting to be held virtually at 10:00 a.m., Eastern Time, on October 19, 2020 at the following website: www.virtualshareholdermeeting.com/GARS2020SM, and any adjournments or postponements thereof.

This joint proxy statement/prospectus and the accompanying materials are being made available on or about September 2, 2020 to stockholders of record of PTMN, are being sent to stockholders of record of GARS on or about September 4, 2020, and are available at www.proxyvote.com.

 

Q:

What items will be considered and voted on at the PTMN Special Meeting?

 

A:

At the PTMN Special Meeting, PTMN Stockholders will be asked to approve: (i) the issuance of the shares of PTMN Common Stock pursuant to the Merger Agreement (such proposal, the “Merger Stock Issuance Proposal”); and (ii) the adjournment of the PTMN Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the PTMN Special Meeting to approve the Merger Stock Issuance Proposal (such proposal, the “PTMN Adjournment Proposal” and together with the Merger Stock Issuance Proposal, the “PTMN Proposals”). No other matters will be acted upon at the PTMN Special Meeting without further notice.

 

Q:

What items will be considered and voted on at the GARS Special Meeting?

 

A:

At the GARS Special Meeting, GARS Stockholders will be asked to approve: (i) the Merger Agreement and the transactions contemplated thereby, including the Mergers (such proposal collectively, the “Merger Proposal”); and (ii) the adjournment of the GARS Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the GARS Special Meeting to approve the Merger Proposal (such proposal, the “GARS Adjournment Proposal” and together with the Merger Proposal, the “GARS Proposals”). No other matters will be acted upon at the GARS Special Meeting without further notice.

 

Q:

How does the PTMN Board recommend voting on the PTMN Proposals at the PTMN Special Meeting?

 

A:

The PTMN Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, and unanimously recommends that PTMN Stockholders vote “FOR” the Merger Stock Issuance Proposal and, if necessary or appropriate, “FOR” the PTMN Adjournment Proposal (the “PTMN Board Recommendation”).

 

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Q:

How does the GARS Board recommend voting on the GARS Proposals at the GARS Special Meeting?

 

A:

The GARS Board, acting on the recommendation of a special committee (the “GARS Special Committee”) of the GARS Board consisting solely of directors (the “GARS Independent Directors”) who are not “interested persons” of GARS, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that GARS Stockholders vote “FOR” the Merger Proposal and, if necessary or appropriate, “FOR” the GARS Adjournment Proposal.

 

Q:

If I am a PTMN Stockholder, what is the “Record Date” and what does it mean?

 

A:

The record date for the PTMN Special Meeting is August 27, 2020 (the “PTMN Record Date”). The PTMN Record Date was established by the PTMN Board, and only holders of record of shares of PTMN Common Stock at the close of business on the PTMN Record Date are entitled to receive notice of the PTMN Special Meeting and vote at the PTMN Special Meeting. As of the PTMN Record Date, there were 44,495,221 shares of PTMN Common Stock outstanding.

 

Q:

If I am a GARS Stockholder, what is the “Record Date” and what does it mean?

 

A:

The record date for the GARS Special Meeting is August 27, 2020 (the “GARS Record Date”). The GARS Record Date was established by the GARS Board, and only holders of record of shares of GARS Common Stock at the close of business on the GARS Record Date are entitled to receive notice of the GARS Special Meeting and vote at the GARS Special Meeting. As of the GARS Record Date, there were 16,049,352 shares of GARS Common Stock outstanding.

 

Q:

If I am a PTMN Stockholder, how many votes do I have?

 

A:

Each share of PTMN Common Stock held by a holder of record as of the PTMN Record Date has one vote on each matter to be considered at the PTMN Special Meeting.

 

Q:

If I am a GARS Stockholder, how many votes do I have?

 

A:

Each share of GARS Common Stock held by a holder of record as of the GARS Record Date has one vote on each matter to be considered at the GARS Special Meeting.

 

Q:

If I am a PTMN Stockholder, how do I vote?

 

A:

The PTMN Special Meeting will be hosted live via Internet audio webcast. Any PTMN Stockholder can attend the PTMN Special Meeting live online at www.virtualshareholdermeeting.com/PTMN2020SM. If you were a PTMN Stockholder as of the PTMN Record Date, or you hold a valid proxy for the PTMN Special Meeting, you can vote at the PTMN Special Meeting. A summary of the information you need to attend the PTMN Special Meeting online is provided below:

 

   

Instructions on how to attend and participate via the Internet, including how to demonstrate proof of share ownership, are posted at www.virtualshareholdermeeting.com/PTMN2020SM;

 

   

Assistance with questions regarding how to attend and participate via the Internet will be provided at www.virtualshareholdermeeting.com/PTMN2020SM on the day of the PTMN Special Meeting;

 

   

The webcast will start at 10:00 a.m., Eastern Time, on October 19, 2020;

 

   

PTMN Stockholders may vote and submit questions while attending the PTMN Special Meeting via the Internet; and

 

   

PTMN Stockholders will need a control number to enter the PTMN Special Meeting.

 

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A PTMN Stockholder can also follow the instructions on the enclosed proxy card and authorize a proxy via the Internet, telephone or mail to vote in accordance with the instructions provided below. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link. If you are the beneficial owner of your shares, you will need to follow the instructions provided by your broker, bank, trustee or nominee regarding how to instruct your broker, bank, trustee or nominee to vote your shares at the PTMN Special Meeting.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: (800) 690-6903 to reach a toll-free, automated touchtone voting line, or (833) 934-2732 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

   

By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 11:59 p.m., Eastern Time, on October 18, 2020.

Important notice regarding the availability of proxy materials for the PTMN Special Meeting. PTMN’s joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

 

Q:

If I am a GARS Stockholder, how do I vote?

 

A:

The GARS Special Meeting will be hosted live via Internet audio webcast. Any GARS Stockholder can attend the GARS Special Meeting live online at www.virtualshareholdermeeting.com/GARS2020SM. If you were a GARS Stockholder as of the GARS Record Date, or you hold a valid proxy for the GARS Special Meeting, you can vote at the GARS Special Meeting. A summary of the information you need to attend the GARS Special Meeting online is provided below:

 

   

Instructions on how to attend and participate via the Internet, including how to demonstrate proof of share ownership, are posted at www.virtualshareholdermeeting.com/GARS2020SM;

 

   

Assistance with questions regarding how to attend and participate via the Internet will be provided at www.virtualshareholdermeeting.com/GARS2020SM on the day of the GARS Special Meeting;

 

   

The webcast will start at 10:00 a.m., Eastern Time, on October 19, 2020;

 

   

GARS Stockholders may vote and submit questions while attending the GARS Special Meeting via the Internet; and

 

   

GARS Stockholders will need a control number to enter the GARS Special Meeting.

A GARS Stockholder can also follow the instructions on the enclosed proxy card and authorize a proxy via the Internet, telephone or mail to vote in accordance with the instructions provided below. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link. If you are the beneficial owner of your shares, you will need to follow the instructions provided by your broker, bank, trustee or nominee regarding how to instruct your broker, bank, trustee or nominee to vote your shares at the GARS Special Meeting.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: (800) 690-6903 to reach a toll-free, automated touchtone voting line, or (833) 550-0993 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

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By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 11:59 p.m., Eastern Time, on October 18, 2020.

Important notice regarding the availability of proxy materials for the GARS Special Meeting. GARS’ joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

 

Q:

What if a PTMN Stockholder does not specify a choice for a matter when authorizing a proxy?

 

A:

All properly executed proxies representing shares of PTMN Common Stock at the PTMN Special Meeting will be voted in accordance with the directions given. If the enclosed proxy card is signed and returned without any directions given, the shares of PTMN Common Stock will be voted “FOR” the PTMN Proposals.

 

Q:

What if a GARS Stockholder does not specify a choice for a matter when authorizing a proxy?

 

A:

All properly executed proxies representing shares of GARS Common Stock at the GARS Special Meeting will be voted in accordance with the directions given. If the enclosed proxy card is signed and returned without any directions given, the shares of GARS Common Stock will be voted “FOR” the GARS Proposals.

 

Q:

If I am a PTMN Stockholder, how can I change my vote or revoke a proxy?

 

A:

You may revoke your proxy and change your vote by giving notice at any time before your proxy is exercised. A revocation may be effected by submitting new voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received before the PTMN Special Meeting, by attending the PTMN Special Meeting and voting virtually or by a notice, provided in writing and signed by you, delivered to PTMN’s Secretary on any business day before the date of the PTMN Special Meeting.

 

Q:

If I am a GARS Stockholder, how can I change my vote or revoke a proxy?

 

A:

You may revoke your proxy and change your vote by giving notice at any time before your proxy is exercised. A revocation may be effected by submitting new voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received before the GARS Special Meeting, by attending the GARS Special Meeting and voting virtually or by a notice, provided in writing and signed by you, delivered to GARS’ Secretary on any business day before the date of the GARS Special Meeting.

 

Q:

If my shares of PTMN Common Stock or GARS Common Stock, as applicable, are held in a broker-controlled account or in “street name,” will my broker vote my shares for me?

 

A:

No. You should follow the instructions provided by your broker on your voting instruction form. It is important to note that your broker will vote your shares only if you provide instructions on how you would like your shares to be voted at the applicable special meeting.

 

Q:

What constitutes a “quorum” for the PTMN Special Meeting?

 

A:

The presence at the PTMN Special Meeting, virtually or represented by proxy, of the holders of a majority of the shares of PTMN Common Stock, issued and outstanding and entitled to vote at the PTMN Special Meeting, will constitute a quorum. Shares held by a broker, bank, trustee or nominee for which the broker,

 

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  bank, trustee or nominee has not received voting instructions from the record holder as to how to vote such shares and does not have discretionary authority to vote the shares on non-routine proposals (which are considered “broker non-votes” with respect to such proposals) will not be treated as shares present for quorum purposes.

 

Q:

What constitutes a “quorum” for the GARS Special Meeting?

 

A:

The presence at the GARS Special Meeting, virtually or represented by proxy, of the holders of a majority of the shares of GARS Common Stock, issued and outstanding and entitled to vote at the GARS Special Meeting, will constitute a quorum. Shares held by a broker, bank, trustee or nominee for which the broker, bank, trustee or nominee has not received voting instructions from the record holder as to how to vote such shares and does not have discretionary authority to vote the shares on non-routine proposals (which are considered “broker non-votes” with respect to such proposals) will not be treated as shares present for quorum purposes.

 

Q:

What vote is required to approve each of the proposals being considered at the PTMN Special Meeting?

 

A:

The affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve each of the PTMN Proposals.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank, trustee or nominee holding its shares of PTMN Common Stock how to vote such shares on its behalf) will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the PTMN Proposals.

 

Q:

What vote is required to approve each of the proposals being considered at the GARS Special Meeting?

 

A:

The affirmative vote of the holders of a majority of the outstanding shares of GARS Common Stock entitled to vote at the GARS Special Meeting is required to approve the Merger Proposal. The affirmative vote of the holders of at least a majority of the votes cast by holders of the shares of GARS Common Stock present at the GARS Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the GARS Adjournment Proposal.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank, trustee or nominee holding its shares of GARS Common Stock how to vote such shares on its behalf) will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the GARS Adjournment Proposal.

 

Q:

What will happen if the Merger Stock Issuance Proposal being considered at the PTMN Special Meeting and/or the Merger Proposal being considered at the GARS Special Meeting is not approved by the required vote?

 

A:

If the Mergers do not close because PTMN Stockholders do not approve the Merger Stock Issuance Proposal, GARS Stockholders do not approve the Merger Proposal or any of the other conditions to closing of the Mergers (the “Closing”) is not satisfied or, if legally permissible, waived, PTMN and GARS will continue to operate independently under the management of their respective investment advisers, and PTMN’s and GARS’ respective directors and officers will continue to serve in such roles until their respective successors are duly elected and qualify or their resignation. In addition, neither PTMN nor GARS will benefit from the expenses incurred in their pursuit of the Mergers and, under certain circumstances,

 

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  PTMN or GARS will be required to pay all of the other party’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000. See “Description of the Merger Agreement—Termination Fee; Expense Reimbursement—Reimbursement of PTMN Expenses” and Reimbursement of GARS Expenses.”

 

Q:

How will the final voting results be announced?

 

A:

Preliminary voting results may be announced at each special meeting. Final voting results will be published by PTMN and GARS in a current report on Form 8-K within four business days after the date of the PTMN Special Meeting and the GARS Special Meeting, respectively.

 

Q:

Are the proxy materials available electronically?

 

A:

PTMN and GARS have made the registration statement (of which this joint proxy statement/prospectus forms a part), the applicable Notice of Special Meeting of Stockholders and the applicable proxy card available to stockholders of PTMN and GARS on the Internet. Stockholders may (i) access and review the proxy materials of PTMN and GARS, as applicable, (ii) authorize their proxies, as described in “The PTMN Special Meeting—Voting of Proxies” and “The GARS Special Meeting—Voting of Proxies” and/or (iii) elect to receive future proxy materials by electronic delivery via the Internet address provided below.

The registration statement (of which this joint proxy statement/prospectus forms a part), Notice of Special Meeting of Stockholders and the proxy card are available at www.proxyvote.com.

Pursuant to the rules adopted by the SEC, PTMN furnishes proxy materials by email to those stockholders who have elected to receive their proxy materials electronically. While PTMN encourages stockholders to take advantage of electronic delivery of proxy materials, which helps to reduce the environmental impact of stockholder meetings and the cost associated with the physical printing and mailing of materials, stockholders who have elected to receive proxy materials electronically by email, as well as beneficial owners of shares of PTMN Common Stock held by a broker or custodian, may request a printed set of proxy materials.

 

Q:    Will

my vote make a difference?

 

A:

Yes. Your vote is needed to ensure that the proposals can be acted upon. Your vote is very important. Your immediate response will help avoid potential delays and may save significant additional expenses associated with soliciting stockholder votes.

 

Q:

Whom can I contact with any additional questions?

 

A:

If you are a PTMN Stockholder, you can contact PTMN by calling PTMN collect at (212) 891-2880, by sending an e-mail to PTMN at info@portmanridge.com, or by writing to PTMN at 650 Madison Avenue, 23rd Floor, New York, New York 10022, Attention: Secretary.

If you are a GARS Stockholder, you can contact GARS by calling GARS collect at (212) 372-9508, by sending an email to GARS at contact@garrisoninv.com, or by writing to GARS at 1270 Avenue of the Americas, Suite 804, New York, New York 10020, Attention: Secretary, or by visiting GARS’ website at www.garrisoncapitalbdc.com.

 

Q:

Where can I find more information about PTMN and GARS?

 

A:

You can find more information about PTMN and GARS in the documents described under the section entitled “Where You Can Find More Information.

 

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Q:

What do I need to do now?

 

A:

PTMN and GARS urge you to carefully read this entire document, including its annexes. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.

Questions and Answers about the Mergers

 

Q:

What will happen in the Mergers?

 

A:

As of the Effective Time (as defined below), the separate corporate existence of Merger Sub will cease. GARS will be the surviving company of the Merger and will continue its existence as a corporation under the laws of the State of Delaware until the Second Merger. Immediately after the Effective Time, GARS, as the surviving company in the Merger, will merge with and into PTMN, with PTMN as the surviving entity in the second merger (the “Second Merger” and together with the Merger, the “Mergers”).

 

Q:

What will GARS Stockholders receive in the Mergers?

 

A:

Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares (as defined below)) will be converted into the right to receive (i) an amount in cash equal to (A) $19,100,000 (the “Aggregate Cash Consideration”) divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (as defined below) (excluding any Cancelled Shares) (such amount in cash, the “Cash Consideration”), and (ii) a number of shares of PTMN Common Stock equal to the Exchange Ratio, plus any cash in lieu of fractional shares (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). Furthermore, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000 (the “Additional Cash Consideration”). For purposes of the Merger Agreement, (i) “Cancelled Shares” means all treasury shares and all shares of GARS Common Stock issued and outstanding immediately prior to the Effective Time that are owned by PTMN, GARS or any wholly-owned subsidiary thereof (other than shares of GARS Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties), and (ii) “Determination Date” means the date that is two days prior to the closing date of the Mergers (such closing date, the “Closing Date”).

 

Q:

How will the Exchange Ratio be determined?

 

A:

Under the Merger Agreement, on the Determination Date, each of PTMN and GARS will deliver to the other a calculation of its estimated net asset value (“NAV”) as of 5:00 p.m. New York City time on the day prior to the Closing Date (such calculation with respect to GARS, the “Closing GARS Net Asset Value,” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case, as approved by the GARS Board or PTMN Board, as applicable, calculated in good faith and using a pre-agreed set of assumptions, methodologies and adjustments. GARS and PTMN will update and redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, and as reapproved by the GARS Board or PTMN Board, as applicable, in the event of a material change to such calculation between the Determination Date and the Closing Date or if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate (a) the “GARS Per Share NAV,” which will be equal to (i) (A) the Closing GARS Net Asset Value minus (B) the Aggregate Cash Consideration, divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (b) the “PTMN Per Share NAV,” which will be equal to (i) the Closing PTMN Net Asset Value divided by (ii) the number of shares of PTMN Common Stock issued and outstanding as of the

 

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  Determination Date. The “Exchange Ratio” will be equal to the quotient of the GARS Per Share NAV divided by the PTMN Per Share NAV.

 

Q:

Who is responsible for paying the expenses relating to completing the Mergers?

 

A:

In general, all fees and expenses incurred in connection with the Mergers will be paid by the party incurring such fees and expenses, whether or not the Mergers or any of the transactions contemplated in the Merger Agreement are consummated. However, (i) GARS will be required to pay PTMN’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000, if the Merger Proposal is not approved by GARS Stockholders at the GARS Special Meeting (provided that PTMN has not already been paid the termination fee described elsewhere herein) and (ii) PTMN will be required to pay GARS’ expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000, if the Merger Stock Issuance Proposal is not approved by PTMN Stockholders at the PTMN Special Meeting. Neither party will be required to reimburse the other party’s expenses if PTMN Stockholders do not approve the Merger Stock Issuance Proposal and GARS Stockholders do not approve the Merger Proposal. It is expected that PTMN will incur approximately $1.8 million, or $0.04 per share, and GARS will incur approximately $2.2 million, or $0.14 per share, of fees and expenses in connection with completing the Mergers.

 

Q:

Will I receive distributions after the Mergers?

 

A:

Each GARS Stockholder will become a stockholder of PTMN and will receive any future distributions paid to PTMN Stockholders with respect to shares of PTMN Common Stock received in the Mergers.

PTMN intends to continue to make distributions on a quarterly basis to PTMN Stockholders out of assets legally available for distribution. All distributions will be paid at the discretion of the PTMN Board and will depend on PTMN’s earnings, financial condition, maintenance of its status as a “regulated investment company” (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), compliance with applicable business development company (“BDC”) regulations and such other factors as the PTMN Board may deem relevant from time to time. PTMN cannot guarantee that it will pay distributions to stockholders in the future. For a history of the dividends and distributions paid by PTMN since January 1, 2018, see “Market Price, Dividend and Distribution Information—PTMN.” For a history of the dividends and distributions paid by GARS since January 1, 2018, see “Market Price, Dividend and Distribution Information—GARS.

PTMN has adopted a dividend reinvestment plan that provides for reinvestment of PTMN’s distributions on behalf of PTMN’s stockholders, unless a stockholder elects to receive cash as provided below. As a result, if the PTMN Board authorizes, and PTMN declares, a cash distribution, then PTMN Stockholders who have not “opted out” of PTMN’s dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of PTMN Common Stock, rather than receiving the cash. See “PTMN Dividend Reinvestment Plan” for additional information regarding PTMN’s dividend reinvestment plan.

 

Q:

Are the Mergers subject to any third-party consents?

 

A:

Under the Merger Agreement, GARS and PTMN have agreed to cooperate with each other and use their reasonable best efforts to take, or cause to be taken, all actions to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by the Merger Agreement, including the Mergers, in the most expeditious manner practicable. In particular, the parties will seek to obtain certain consents related to the on-balance sheet collateralized loan obligation (“CLO”) completed by GARS in October 2018. See “Description of the Merger Agreement—Additional Covenants—CLO Matters.” There can be no assurance that any permits, consents, approvals, confirmations or authorizations will be obtained or that such permits, consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to

 

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  have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following the Mergers.

 

Q:

How does PTMN’s investment objective, strategy and risks differ from GARS’?

 

A:

PTMN’s investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle-market companies. PTMN defines the middle-market as comprising companies with earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $10 million to $50 million and/or total debt of $25 million to $150 million. PTMN primarily invests in first and second lien term loans which, because of their priority in a company’s capital structure, it expects will have lower default rates and higher rates of recovery of principal if there is a default and which it expects will create a stable stream of interest income. The investments in PTMN’s debt securities portfolio are all or predominantly below investment grade (i.e., “junk bonds”), and have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

GARS’ investment objective is to generate both current income and capital appreciation by assembling a broad portfolio of loans and debt securities of U.S. based companies. The companies to which GARS typically extends credit are moderately leveraged and have been rated below investment grade by national rating agencies. For companies that have not been rated, GARS believes they would typically receive a rating below investment grade. In addition, GARS’ investments typically range in maturity from one to seven years. However, GARS may make investments in securities with any maturity or duration. GARS invests opportunistically in loans and debt securities that it believes have attractive risk adjusted returns.

PTMN generally invests in middle-market companies through first lien securities and seeks to generate higher asset yields through an illiquidity premium. Although GARS has a similar investment strategy for a portion of its assets, a significant portion of GARS’ assets are syndicated securities of significantly larger sized companies with greater liquidity than PTMN’s target investments. Finally, PTMN historically has had a portion of its assets in debt and subordinated securities issued by CLO funds (“CLO Funds”), which are not part of GARS’ investment strategy.

PTMN and GARS have substantially similar risks as each focuses on making investments in privately-held middle-market companies.

 

Q:

How will the combined company be managed following the Mergers?

 

A:

The directors of PTMN immediately prior to the Mergers will remain the directors of PTMN and will hold office until their respective successors are duly elected and qualify, or their earlier death, resignation or removal. The PTMN Board has agreed, subject to complying with its nominating committee procedures, to take all actions required to cause up to two current GARS Independent Directors, as mutually agreed between GARS and PTMN, to be appointed to the PTMN Board at the Effective Time. The PTMN Board has not yet determined which GARS Independent Director(s) will be appointed. The officers of PTMN immediately prior to the Mergers will remain the officers of PTMN and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal. Following the Mergers, PTMN will continue to be managed by Sierra Crest, and there are not expected to be any material changes in PTMN’s investment objective or strategy. Over time, it is anticipated that PTMN will transition the investments acquired through the Mergers into investments in smaller middle-market companies, consistent with PTMN’s current investment strategy.

 

Q:

Are PTMN Stockholders able to exercise appraisal rights in connection with the Mergers?

 

A:

No. PTMN Stockholders will not be entitled to exercise appraisal rights with respect to any matter to be voted upon at the PTMN Special Meeting.

 

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Q:

Are GARS Stockholders able to exercise appraisal rights in connection with the Mergers?

 

A:

Yes. GARS Stockholders will be entitled to exercise appraisal rights with respect to the Merger in accordance with Section 262 of the Delaware General Corporation Law (the “DGCL”). For more information, see “Appraisal Rights of GARS Stockholders” and “Description of the Merger Agreement—Appraisal Rights.

 

Q:

When do the parties 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, PTMN and GARS are working to complete the Mergers in the fourth quarter of 2020. It is currently expected that the Mergers will be completed promptly following receipt of the PTMN Stockholder Approval (as defined below) at the PTMN Special Meeting and the GARS Stockholder Approval (as defined below) at the GARS Special Meeting, along with the satisfaction or (to the extent legally permissible) waiver of the other closing conditions set forth in the Merger Agreement.

 

Q:

Are the Mergers expected to be taxable to GARS Stockholders?

 

A:

It is a condition to the obligation of GARS to consummate the Mergers that GARS has received a written opinion from Proskauer Rose LLP (“Proskauer”), outside legal counsel to GARS, or another nationally recognized tax counsel reasonably satisfactory to PTMN (which may include outside counsel to PTMN), and it is a condition to the obligation of PTMN to consummate the Mergers that PTMN has received a written opinion from Simpson Thacher & Bartlett LLP (“Simpson Thacher”), or another nationally recognized tax counsel reasonably satisfactory to GARS (which may include outside counsel to GARS), in each case dated as of the Closing Date and to the effect that the Mergers, taken together, will qualify as a “reorganization,” within the meaning of Section 368(a) of the Code. If the Mergers qualify as a reorganization for U.S. federal income tax purposes, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Mergers”) of GARS Common Stock who receive a combination of shares of PTMN Common Stock and cash, other than cash in lieu of a fractional share of PTMN Common Stock, in exchange for their GARS Common Stock, will recognize gain (but not loss) in an amount equal to the lesser of (x) the amount by which the sum of the fair market value of the shares of PTMN Common Stock and cash (other than cash received in lieu of a fractional share of PTMN Common Stock) received by such holder in exchange for its shares of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration) exceeds such holder’s adjusted basis in its shares of GARS Common Stock, and (y) the amount of cash (other than cash received instead of fractional shares of PTMN Common Stock) received by such holder in exchange for its shares of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration). Generally, any gain recognized upon the exchange will be capital gain, and any such capital gain will be long-term capital gain if the holding period for such shares of GARS Common Stock is more than one year. Depending on certain facts specific to you, gain could instead be characterized as ordinary dividend income.

With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder is treated as additional merger consideration. It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for such holder’s GARS Common Stock.

GARS Stockholders should consult with their own tax advisors to determine the tax consequences of the Mergers to them.

 

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Q:

What happens if the Mergers are not consummated?

 

A:

If the Mergers are not approved by the requisite vote of GARS Stockholders, or the issuance of shares of PTMN Common Stock in connection with the Mergers is not approved by the requisite vote of PTMN Stockholders, or if the Mergers are not completed for any other reason, GARS Stockholders will not receive any payment for their shares of GARS Common Stock in connection with the Mergers. Instead, GARS will remain an independent company. In addition, under circumstances specified in the Merger Agreement, GARS may be required to pay PTMN a termination fee of approximately $2.375 million or reimburse PTMN for its out-of-pocket expenses incurred in connection with the transactions, subject to a maximum reimbursement amount of $550,000. See “Description of the Merger Agreement—Termination of the Merger Agreement” and “Description of the Merger Agreement—Termination Fee; Expense Reimbursement—Reimbursement of PTMN Expenses.”

 

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SUMMARY OF THE MERGERS

This summary highlights selected information contained elsewhere in this joint proxy statement/prospectus and may not contain all of the information that is important to you. You should read this entire joint proxy statement/prospectus carefully, including “Risk Factors” and other information incorporated by reference for a more complete understanding of the Mergers. In particular, you should read the annexes attached to this joint proxy statement/prospectus, including the Merger Agreement, which is attached as Annex A hereto, as it is the legal document that governs the Mergers. The discussion in this joint proxy statement/prospectus, which includes the material terms of the Mergers and the principal terms of the Merger Agreement, is subject to, and is qualified in its entirety by reference to, the Merger Agreement. See “Where You Can Find More Information,” “Incorporation by Reference for PTMN” and “Incorporation by Reference for GARS.” For a discussion of the risk factors you should carefully consider, see the section entitled “Risk Factors” beginning on page 23 for risks related to the Mergers and “Risk Factors” in Part I, Item 1A of both PTMN’s and GARS’ Annual Reports on Form 10-K for the fiscal year ended December 31, 2019, in Item 1A, Part II of PTMN’s Quarterly Reports on Form 10-Q for the quarters ended March  31, 2020 and June 30, 2020, and GARS’ Quarterly Reports on Form  10-Q for the quarters ended March 31, 2020 and June 30, 2020 for general risks related to PTMN and GARS.

The Parties to the Mergers

Portman Ridge Finance Corporation

650 Madison Avenue, 23rd Floor

New York, New York 10022

(212) 891-2880

PTMN was formed in August 2006 under the former name, Kohlberg Capital Corporation, and completed an initial public offering in December 2006. Until March 31, 2019, PTMN operated as an internally managed BDC. On April 1, 2019, PTMN converted to an external management structure and changed its name to Portman Ridge Finance Corporation. See “—The Externalization” below. PTMN is an externally managed, non-diversified closed-end investment company that is regulated as a BDC under the 1940 Act.

PTMN originates, structures, and invests in secured term loans, bonds or notes and mezzanine debt primarily in privately-held middle market companies but may also invest in other investments such as loans to publicly-traded companies, high-yield bonds, and distressed debt securities (collectively the “Debt Securities Portfolio”). PTMN also invests in joint ventures and debt and subordinated securities issued by CLO Funds (“CLO Fund Securities”). In addition, from time to time PTMN may invest in the equity securities of privately held middle market companies and may also receive warrants or options to purchase common stock in connection with its debt investments.

PTMN’s investments in CLO Fund Securities are primarily managed by its formerly wholly-owned asset management subsidiaries Trimaran Advisors and Trimaran Advisors Management. From time-to-time PTMN has also made investments in CLO Fund Securities managed by other asset managers. PTMN’s CLO Funds typically invest in broadly syndicated loans, high-yield bonds and other credit instruments. PTMN’s investments in CLO Fund Securities are anticipated to provide PTMN with recurring cash distributions.

PTMN’s Debt Securities Portfolio investment objective is to generate current income and, to a lesser extent, capital appreciation from the investments in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle market companies. PTMN defines the middle market as comprising companies with EBITDA of $10 million to $50 million and/or total debt of $25 million to $150 million. PTMN primarily invests in first and second lien term loans which, because of their priority in a company’s capital structure, PTMN expects will have lower default rates and higher rates of recovery of principal if there is a



 

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default and which PTMN expects will create a stable stream of interest income. PTMN also primarily invests in loans to smaller private companies, publicly-traded companies, high-yield bonds, joint ventures, managed funds, partnerships, and distressed debt securities. The investments in PTMN’s Debt Securities Portfolio are all or predominantly below investment grade, and have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

PTMN has elected to be treated for U.S. federal income tax purposes as a RIC under the Code and intends to operate in a manner to maintain its RIC status.

The Externalization

On April 1, 2019 (the “Externalization Closing”), PTMN became externally managed by Sierra Crest, an affiliate of BC Partners LLP (“BC Partners”) and LibreMax Capital LLC (“LibreMax”), pursuant to a stock purchase and transaction agreement (the “Externalization Agreement”) between PTMN and BC Partners Advisors L.P. (“BCP”), an affiliate of BC Partners. In connection with the Externalization, PTMN Stockholders approved the investment advisory agreement (the “PTMN Investment Advisory Agreement”) between PTMN and Sierra Crest.

Pursuant to the Externalization Agreement, Sierra Crest became PTMN’s investment adviser in exchange for a cash payment from BCP, or its affiliate, of $25 million, or $0.669672 per share of PTMN Common stock, directly to PTMN’s stockholders. In addition, Sierra Crest, BCP and LibreMax (or their affiliates) committed to use up to $10 million of the incentive fee actually paid to Sierra Crest prior to the second anniversary of the Externalization Closing to buy newly issued shares of PTMN Common Stock at the most recently determined NAV per share of PTMN Common Stock at the time of such purchase. Thus, BCP’s and Sierra Crest’s total financial commitment to the transactions contemplated by the Externalization Agreement was $35.0 million.

On December 12, 2018, PTMN and BCP entered into a letter agreement (the “Asset Purchase Letter Agreement”) pursuant to which PTMN and BCP each agreed to use commercially reasonable efforts to effect the sale by BCP (or its affiliates or advisory clients of its affiliates), in one or more transactions, of certain assets held by BCP (or its affiliates or advisory clients thereof) that, taken together, have an aggregate principal amount of approximately $75 million, less $25 million (representing the aggregate amount of capital contributions made by PTMN to the BCP Great Lakes Fund). In the second quarter of 2019 BCP’s obligations under the Asset Purchase Letter Agreement were satisfied.

On the date of the Externalization Closing, PTMN changed its name from KCAP Financial, Inc. (“KCAP”) to Portman Ridge Finance Corporation and on April 2, 2019, began trading on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “PTMN.”

In connection with the Externalization Closing, all of PTMN’s then-current directors resigned from their positions on the PTMN Board, with the exceptions of Dean Kehler and Christopher Lacovara. Prior to their resignations, the PTMN Board approved an increase in the size of the PTMN Board from seven members to eight members and appointed the following new individuals to serve on the PTMN Board: Graeme Dell; Alexander Duka; Ted Goldthorpe; George Grunebaum; David Moffitt; and Robert Warshauer. Additionally, in connection with the Externalization Closing, all of PTMN’s then-current officers resigned from their positions with the exceptions of Edward Gilpin and Daniel Gilligan. Effective as of the Externalization Closing, Ted Goldthorpe was appointed as President and Chief Executive Officer and Patrick Schafer was appointed as Chief Investment Officer of PTMN. In May 2019, Mr. Gilligan resigned as Chief Compliance officer and Andrew Devine was appointed Chief Compliance Officer.



 

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Garrison Capital Inc.

1270 Avenue of the Americas, Suite 804

New York, New York 10020

(212) 372-9508

GARS is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for tax purposes, GARS elected to be treated as a RIC under the Code in 2012 and thereafter has qualified, and in the future intends to qualify, for such treatment annually. The GARS Common Stock is currently listed on Nasdaq under the symbol “GARS.”

GARS’ investment objective is to generate current income and capital appreciation by assembling a broad portfolio of loans and debt securities of U.S. based companies. The companies to which GARS typically extends credit are moderately leveraged and have been rated below investment grade by national rating agencies. For companies that have not been rated, GARS believes that they would typically receive a rating below investment grade. In addition, GARS’ investments typically range in maturity from one to seven years. However, GARS may make investments in securities with any maturity or duration.

GARS invests opportunistically in loans and debt securities that it believes has attractive risk adjusted returns. GARS also, to a lesser extent, may make select minority equity investments (usually in conjunction with a concurrent debt investment) in non-investment grade companies.

Citadel Acquisition Sub Inc.

650 Madison Avenue, 23rd Floor

New York, New York 10022

(212) 891-2880

Merger Sub is a Delaware corporation and a newly formed wholly-owned direct consolidated subsidiary of PTMN. Merger Sub was formed in connection with and for the sole purpose of the Mergers and has no prior operating history.

Sierra Crest Investment Management LLC

650 Madison Avenue, 23rd Floor

New York, New York 10022

(212) 891-2880

Sierra Crest is a Delaware limited liability company, located at 650 Madison Avenue, 23rd Floor, New York, NY 10022, registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended. Sierra Crest is an affiliate of BCP and LibreMax. BC Partners Holdings Limited is the ultimate control person of Sierra Crest. BC Partners is a leading buyout firm with a 30-year history investing across Europe and North America which had assets under management of approximately $21 billion as of June 30, 2020. The assets under management for BC Partners are based on actively managed commitments of its managed funds and relevant vehicles formed for the purpose of co-investing alongside such funds. BC Partners operates a private equity investment platform, BC Partners Private Equity (“BCP PE”), and a credit investment platform, BCP Credit, as fully integrated businesses. The investment activity of PTMN falls primarily within the BCP Credit platform. Integration with the broader BC Partners platform allows BCP Credit to leverage a team of over 60 investment professionals across its private equity platform including a seven-member operations team. The BCP Credit Investment team (the “Investment Team”) is led by Ted Goldthorpe who sits on both the BCP Credit and BCP PE investment committees. An affiliate of Sierra Crest currently manages a private BDC, BC Partners Lending Corporation, and two private funds in the BCP Credit platform.



 

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Structure of the Mergers

Pursuant to the terms of the Merger Agreement, at the Effective Time, Merger Sub will be merged with and into GARS. GARS will be the surviving company and will continue its existence as a corporation under the laws of the State of Delaware. As of the Effective Time, the separate corporate existence of Merger Sub will cease. Immediately after the effectiveness of the Merger, GARS will merge with and into PTMN, with PTMN as the surviving entity in the Second Merger.

Based on the number of shares of PTMN Common Stock issued and outstanding and the NAV of each of PTMN and GARS as of June 30, 2020, it is expected that, following consummation of the Merger, current PTMN Stockholders will own approximately 60% of the outstanding PTMN Common Stock and former GARS Stockholders will own approximately 40% of the outstanding PTMN Common Stock.

Merger Consideration

Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares) will be converted into the right to receive (i) an amount in cash equal to (A) $19,100,000 divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (ii) a number of shares of PTMN Common Stock equal to the Exchange Ratio, plus any cash in lieu of fractional shares.

Under the Merger Agreement, on the Determination Date, each of GARS and PTMN will deliver to the other a calculation of its estimated NAV as of 5:00 p.m. New York City time on the day prior to the Closing Date of the Mergers (such calculation with respect to GARS, the “Closing GARS Net Asset Value,” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case, as approved by the GARS Board or PTMN Board, as applicable, calculated in good faith and using a pre-agreed set of assumptions, methodologies and adjustments. GARS and PTMN will update and redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, and as reapproved by the GARS Board or PTMN Board, as applicable, in the event of a material change to such calculation between the Determination Date and the Closing Date or if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate (a) the “GARS Per Share NAV,” which will be equal to (i) (A) the Closing GARS Net Asset Value minus (B) the Aggregate Cash Consideration, divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (b) the “PTMN Per Share NAV,” which will be equal to (i) the Closing PTMN Net Asset Value divided by (ii) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. The “Exchange Ratio” will be equal to the quotient of the GARS Per Share NAV divided by the PTMN Per Share NAV.

Additional Cash Consideration

In connection with the transactions contemplated by the Merger Agreement, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000.

Market Price of Securities

Shares of PTMN Common Stock trade on Nasdaq under the symbol “PTMN.” Shares of GARS Common Stock trade on Nasdaq under the symbol “GARS.”



 

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The following table presents the closing sales prices as of the last trading day before the execution of the Merger Agreement and the last trading day before the date of this joint proxy statement/prospectus, and the most recently determined NAV per share of each of PTMN Common Stock and GARS Common Stock.

 

     PTMN
Common Stock
     GARS
Common Stock
 

NAV per Share at June 30, 2020

   $ 2.71      $ 6.27  

Closing Sales Price at June 23, 2020

   $ 1.25      $ 2.78  

Closing Sales Price at August 31, 2020

   $ 1.17      $ 3.48  

Risks Relating to the Proposed Mergers

The Mergers and the other transactions contemplated by the Merger Agreement are subject to, among others, the following risks. PTMN Stockholders and GARS Stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at the Special Meetings.

 

   

Because the market price of PTMN Common Stock and the NAV per share of PTMN and GARS will fluctuate, GARS Stockholders cannot be sure of the market value or exact composition of the Merger Consideration they will receive until the Closing Date.

 

   

Sales of shares of PTMN Common Stock after the completion of the Mergers may cause the market price of PTMN Common Stock to decline.

 

   

GARS Stockholders and PTMN Stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers.

 

   

PTMN may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings, or it may take longer than anticipated to realize such benefits.

 

   

The announcement and pendency of the proposed Mergers could adversely affect GARS’ business, financial results and operations.

 

   

If the Mergers do not close, neither PTMN nor GARS will benefit from the expenses incurred in their pursuit of the Mergers and, under certain circumstances, PTMN or GARS will be required to pay all of the other party’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000.

 

   

The termination of the Merger Agreement could negatively impact GARS and PTMN.

 

   

Under certain circumstances, GARS is obligated to pay a termination fee upon termination of the Merger Agreement.

 

   

The Mergers are subject to closing conditions, including stockholder approvals, that, if not satisfied or waived, will result in the Mergers not being completed, which may result in material adverse consequences to GARS’ and PTMN’s business and operations.

 

   

PTMN and GARS will be subject to operational uncertainties and contractual restrictions while the Mergers are pending, including restrictions on pursuing alternatives to the Mergers.

 

   

The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire GARS prior to the completion of the proposed Mergers.

 

   

The opinion delivered to the GARS Special Committee and the GARS Board from the financial advisor to the GARS Special Committee prior to signing the Merger Agreement will not reflect changes in circumstances since the date of such opinion.



 

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If the Mergers are not completed or GARS is not otherwise acquired, GARS may consider other strategic alternatives, which are subject to risks and uncertainties.

 

   

Subject to applicable law, each party may waive one or more conditions to the Mergers without resoliciting approval from its respective stockholders.

 

   

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

 

   

The market price of PTMN Common Stock after the Mergers may be affected by factors different from those affecting PTMN Common Stock currently.

 

   

The U.S. federal income tax treatment of the Additional Cash Consideration is not entirely clear, and the position taken that the Additional Cash Consideration is part of the total cash consideration received by GARS Stockholders pursuant to the Mergers might be challenged by the Internal Revenue Service.

 

   

If PTMN sells investments acquired as a result of the Mergers, it may result in capital gains and increase the incentive fees payable to Sierra Crest.

See the section captioned “Risk Factors—Risks Relating to the Mergers” below for a more detailed discussion of these factors.

Tax Consequences of the Mergers

It is a condition to the obligation of GARS to consummate the Mergers that GARS has received a written opinion from Proskauer, outside legal counsel to GARS, or another nationally recognized tax counsel reasonably satisfactory to PTMN (which may include outside counsel to PTMN), and it is a condition to the obligation of PTMN to consummate the Mergers that PTMN has received a written opinion from Simpson Thacher, or another nationally recognized tax counsel reasonably satisfactory to GARS (which may include outside counsel to GARS), in each case dated as of the Closing Date and to the effect that the Mergers, taken together, will qualify as a “reorganization,” within the meaning of Section 368(a) of the Code. If the Mergers qualify as a reorganization for U.S. federal income tax purposes, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Mergers”) of GARS Common Stock who receive a combination of shares of PTMN Common Stock and cash, other than cash in lieu of a fractional share of PTMN Common Stock, in exchange for their GARS Common Stock, will recognize gain (but not loss) in an amount equal to the lesser of (x) the amount by which the sum of the fair market value of the shares of PTMN Common Stock and cash (other than cash received in lieu of a fractional share of PTMN Common Stock) received by such holder in exchange for its shares of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration) exceeds such holder’s adjusted basis in its shares of GARS Common Stock, and (y) the amount of cash (other than cash received instead of fractional shares of PTMN Common Stock) received by such holder in exchange for its shares of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration). Generally, any gain recognized upon the exchange will be capital gain, and any such capital gain will be long-term capital gain if the holding period for such shares of GARS Common Stock is more than one year. Depending on certain facts specific to you, gain could instead be characterized as ordinary dividend income.

With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder is treated as additional Merger Consideration. It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for such holder’s GARS Common Stock.



 

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Special Meeting of PTMN Stockholders

PTMN plans to hold the PTMN Special Meeting virtually on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/PTMN2020SM. At the PTMN Special Meeting, holders of PTMN Common Stock will be asked to approve the Merger Stock Issuance Proposal and, if necessary or appropriate, the PTMN Adjournment Proposal.

A PTMN Stockholder can vote at the PTMN Special Meeting if such stockholder owned shares of PTMN Common Stock at the close of business on the PTMN Record Date. As of that date, there were 44,495,221 shares of PTMN Common Stock outstanding and entitled to vote. 2,151,071 of such total outstanding shares, or 4.8%, were owned beneficially or of record by directors and executive officers of PTMN.

Special Meeting of GARS Stockholders

GARS plans to hold the GARS Special Meeting on October 19, 2020, at 10:00 a.m., Eastern Time, at the following website: www.virtualshareholdermeeting.com/GARS2020SM. At the GARS Special Meeting, holders of GARS Common Stock will be asked to approve the Merger Proposal and, if necessary or appropriate, the GARS Adjournment Proposal.

A GARS Stockholder can vote at the GARS Special Meeting if such stockholder owned shares of GARS Common Stock at the close of business on the GARS Record Date. As of that date, there were 16,049,352 shares of GARS Common Stock outstanding and entitled to vote. 367,022 of such total outstanding shares, or approximately 2.3%, were owned beneficially or of record by directors and executive officers of GARS.

PTMN Board Recommendation

The PTMN Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, and unanimously recommends that PTMN Stockholders vote “FOR” the Merger Stock Issuance Proposal and, if necessary or appropriate, “FOR” the PTMN Adjournment Proposal.

GARS Board Recommendation

The GARS Board, acting on the recommendation of the GARS Special Committee, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that GARS Stockholders vote “FOR” the Merger Proposal and, if necessary or appropriate, “FOR” the GARS Adjournment Proposal.

Vote Required—PTMN

Each share of PTMN Common Stock held by a holder of record as of the PTMN Record Date has one vote on each matter to be considered at the PTMN Special Meeting.

The Merger Stock Issuance Proposal

The approval of the Merger Stock Issuance Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat (“PTMN Stockholder Approval”). Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the Merger Stock Issuance Proposal.



 

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The PTMN Adjournment Proposal

The approval of the PTMN Adjournment Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the PTMN Adjournment Proposal.

Vote Required—GARS

Each share of GARS Common Stock held by a holder of record as of the GARS Record Date has one vote on each matter to be considered at the GARS Special Meeting.

The Merger Proposal

The approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of GARS Common Stock entitled to vote at the GARS Special Meeting (“GARS Stockholder Approval”). Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal.

The GARS Adjournment Proposal

The approval of the GARS Adjournment Proposal requires the affirmative vote of the holders of at least a majority of the votes cast by holders of the shares of GARS Common Stock present at the GARS Special Meeting, virtually or represented by proxy, and entitled to vote thereat. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the GARS Adjournment Proposal.

Completion of the Mergers

As more fully described in this joint proxy statement/prospectus and in the Merger Agreement, the completion of the Mergers depends on a number of conditions being satisfied or, where legally permissible, waived. For information on the conditions that must be satisfied or waived for the Mergers to occur, see “Description of the Merger Agreement—Conditions to Closing the Mergers.” While there can be no assurances as to the exact timing, or that the Mergers will be completed at all, PTMN and GARS are working to complete the Mergers in the fourth quarter of 2020. It is currently expected that the Mergers will be completed promptly following receipt of the stockholder approvals at the PTMN Special Meeting and the GARS Special Meeting and satisfaction (or to the extent legally permitted, waiver) of the other closing conditions set forth in the Merger Agreement.

Termination of the Mergers and Termination Fee

The Merger Agreement contains certain termination rights for PTMN and GARS, each of which is discussed below in “Description of the Mergers—Termination of the Merger Agreement.” The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, GARS may be required to pay PTMN a termination fee of approximately $2.375 million. See “Description of the Merger Agreement—Termination of the Merger Agreement” for a discussion of the circumstances that could result in the payment of the termination fee.



 

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Reasons for the Mergers

PTMN

PTMN’s Board consulted with PTMN’s management and Sierra Crest, as well as its legal and other advisors, and considered numerous factors and, as a result, the PTMN Board, including the directors of the PTMN Board who are not “interested persons” of PTMN within the meaning of Section 2(a)(19) of the 1940 Act (the “PTMN Independent Directors”), determined that the Mergers are in PTMN’s best interests and the best interests of PTMN Stockholders, and that PTMN Stockholders will not suffer any economic dilution relative to PTMN’s NAV as a result of the Mergers other than dilution resulting from transaction expenses.

Certain material factors considered by the PTMN Board, including the PTMN Independent Directors, that favored the conclusion of the PTMN Board that the Mergers are in PTMN’s best interests and the best interests of PTMN Stockholders included, among others:

 

   

the investment strategies and risks of PTMN and GARS;

 

   

the continuity of Sierra Crest and its management team;

 

   

the benefits of spreading public company costs across a larger asset base;

 

   

the impact on PTMN’s earnings yield, quality of earnings and distributions;

 

   

that there would be no economic dilution to PTMN Stockholders relative to PTMN’s NAV other than dilution resulting from transaction expenses;

 

   

the combined company’s increased market capitalization and commensurate increased trading volume; and

 

   

the combined company’s quality of holdings, enhanced portfolio diversification and potential to increase portfolio yield over time.

The foregoing list does not include all the factors that the PTMN Board considered in approving the proposed Mergers and the Merger Agreement and recommending that PTMN Stockholders approve the issuance of shares of PTMN Common Stock necessary to effectuate the Mergers. For a further discussion of the material factors considered by the PTMN Board, see “The Mergers—Reasons for the Mergers—PTMN.

GARS

After an extensive review of a variety of strategic alternatives, the GARS Board, upon the recommendation of the GARS Special Committee, determined that entering into the Merger Agreement and consummating the transactions contemplated thereby, including the Mergers, is in the best interests of GARS and GARS Stockholders. Certain material factors considered by the GARS Board and the GARS Special Committee in evaluating the Mergers include, among others:

 

   

the financial terms of the Merger Agreement, including that:

 

   

GARS Stockholders will receive the Cash Consideration (in an amount equal to approximately $1.19 per share of GARS Common Stock), the Share Consideration and the Additional Cash Consideration (in an amount equal to approximately $0.31 per share of GARS Common Stock);

 

   

as of the date of signing, the transaction values GARS Common Stock at $3.97 per share, which represents 62% of GARS’ March 31, 2020 NAV per share (as adjusted for expected transaction expenses) and a 43% premium to the closing price of GARS Common Stock on June 23, 2020 (which was the last trading day before entering into the Merger Agreement); and



 

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the Cash Consideration and the Additional Cash Consideration, which collectively account for approximately $1.50 per share of GARS Common Stock, provide immediate liquidity and certainty of value to GARS Stockholders;

 

   

the thorough review of strategic alternatives undertaken by the GARS Board and the GARS Special Committee;

 

   

certain considerations relating to the opportunity for the combined company to provide strategic and business opportunities for its stockholders and to generate additional stockholder value, including that:

 

   

GARS Stockholders will continue as stockholders in the combined company and, based on the outstanding shares and relative NAV of GARS Common Stock and PTMN Common Stock outstanding as of March 31, 2020, current GARS Stockholders would own approximately 42% of the combined company immediately following completion of the Merger;

 

   

the combined company will be externally managed by Sierra Crest and is expected to have total investments of approximately $638.5 million and NAV of approximately $207.0 million (each based on March 31, 2020 balance sheets, not adjusted for transaction expenses);

 

   

following the Merger, GARS Stockholders are expected to benefit from (1) access to the full range of resources of Sierra Crest; (2) investment opportunities originated through the BCP Credit platform; and (3) the utilization of BC Partners’ broader resources, including relationships and institutional knowledge from over 30 years of private market investing;

 

   

the combined company’s investment portfolio following the Merger will provide additional scale and portfolio diversification, which will position the combined company, among other things, to (1) capitalize on favorable market conditions; (2) originate larger transactions with increased final hold positions; and (3) enhance access to lower cost of capital from banks and capital market participants;

 

   

GARS Stockholders of the combined company will have an ability to participate in the future growth of PTMN, including potential upside if PTMN’s Common Stock trades higher in the future; and

 

   

the Merger is expected to deliver operational synergies for the combined company as a result of the larger scale and elimination of redundant GARS expenses following the Merger;

 

   

the terms of the Merger Agreement, including that the terms of the Merger Agreement are unlikely to deter third parties from making unsolicited Acquisition Proposals (as defined below); and

 

   

the risks and potential negative factors relating to the Merger Agreement.

The GARS Special Committee and the GARS Board also considered the opinion of the financial advisor to the GARS Special Committee in connection with their respective consideration of the financial terms of the Mergers. See “—Opinion of the Financial Advisor to the GARS Special Committee” below. For a further discussion of the factors considered by the GARS Special Committee and the GARS Board, see “The Mergers—Reasons for the Mergers—GARS.

Opinion of the Financial Advisor to the GARS Special Committee

In connection with the Mergers, Keefe, Bruyette & Woods, Inc. (“KBW”) delivered a written opinion, dated June 24, 2020, as discussed in more detail in the section entitled “The Mergers—Opinion of the Financial Advisor to the GARS Special Committee,” to the GARS Special Committee and the GARS Board as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of GARS Common Stock of the per share consideration (including the additional consideration from Sierra Crest) to be received by such holders in the Merger. The full text of the opinion, which describes the procedures followed, assumptions made,



 

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matters considered and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached as Annex B to this joint proxy statement/prospectus. The opinion was for the information of, and was directed to, the GARS Special Committee and, as requested by the GARS Special Committee, the GARS Board in connection with their respective consideration of the financial terms of the Mergers. The opinion addressed only the fairness, from a financial point of view, of the per share consideration in the Merger to the holders of GARS Common Stock. It did not address the underlying business decision of GARS to engage in the Mergers or enter into the Merger Agreement or constitute a recommendation to the GARS Special Committee or the GARS Board in connection with the Mergers, and it does not constitute a recommendation to any GARS Stockholder or any stockholder of any other entity as to how to vote in connection with the Mergers or any other matter.

For more information, see the section entitled “The Mergers—Opinion of the Financial Advisor to the GARS Special Committee.

PTMN Stockholders Do Not Have Appraisal Rights

PTMN Stockholders will not be entitled to exercise appraisal rights in connection with the Merger Stock Issuance Proposal.

GARS Stockholders Have Appraisal Rights

GARS Stockholders will be entitled to exercise appraisal rights with respect to the Merger in accordance with Section 262 of the DGCL. For more information, see “Appraisal Rights of GARS Stockholders” and “Description of the Merger Agreement—Appraisal Rights.



 

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RISK FACTORS

In addition to the other information included in this document, stockholders should carefully consider the risks described below in determining whether to approve (i) in the case of PTMN Stockholders, the Merger Stock Issuance Proposal and (ii) in the case of GARS Stockholders, the Merger Proposal. The information in “Risk Factors” in Part I, Item 1A of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Item 1A, Part II of PTMN’s Quarterly Reports on Form 10-Q for the quarters ended March  31, 2020 and June 30, 2020 are incorporated herein by reference for general risks related to PTMN. The information in “Risk Factors” in Part I, Item 1A of GARS’ Annual Report on Form 10-K for the fiscal year ended December  31, 2019 and in Item 1A, Part II of GARS’ Quarterly Reports on Form 10-Q  for the quarters ended March  31, 2020 and June 30, 2020 are incorporated herein by reference for general risks related to GARS. The risks, as set out below and incorporated by reference herein are not the only risks PTMN and GARS and, following the Mergers, the combined company, face. Additional risks and uncertainties not currently known to PTMN or GARS or that they currently deem to be immaterial also may materially adversely affect their or, following the Mergers, the combined company’s, business, financial condition or operating results. If any of the following events occur, PTMN or GARS or, following the Mergers, the combined company’s, business, financial condition or results of operations could be materially adversely affected. See also “Incorporation by Reference for PTMN,” Incorporation by Reference for GARS” and “Where You Can Find More Information” in this joint proxy statement/prospectus.

RISKS RELATING TO THE MERGERS

Because the market price of PTMN Common Stock and the NAV per share of PTMN and GARS will fluctuate, GARS Stockholders cannot be sure of the market value or exact composition of the Merger Consideration they will receive until the Closing Date.

The market value of the Merger Consideration may vary from the closing price of PTMN Common Stock and GARS Common Stock, respectively, on the date the Mergers were announced, on the date that this joint proxy statement/prospectus was made available to stockholders, on the date of the PTMN Special Meeting or the date of the GARS Special Meeting and on the date the Mergers are completed. Any change in the market price of PTMN Common Stock prior to completion of the Mergers will affect the market value of the aggregate Merger Consideration that GARS Stockholders will receive upon completion of the Mergers. Additionally, the Exchange Ratio will fluctuate as the respective NAVs of PTMN and GARS change prior to the Closing Date.

Accordingly, at the time of the GARS Special Meeting, GARS Stockholders will not know or be able to calculate the overall composition or market value of the Merger Consideration they would receive upon completion of the Mergers. Neither PTMN nor GARS is permitted to terminate the Merger Agreement or resolicit the vote of their respective stockholders solely because of changes in the market price of shares of PTMN Common Stock. There will be no adjustment to the Merger Consideration for changes in the market price of shares of PTMN Common Stock.

Changes in the market price of PTMN Common Stock may result from a variety of factors, including, among other things:

 

   

changes in the business, operations or prospects of PTMN;

 

   

the financial condition of current or prospective portfolio companies of PTMN;

 

   

interest rates or general market or economic conditions;

 

   

market assessments of the likelihood that the Mergers will be completed and the timing of completion of the Mergers;

 

   

market perception of the future profitability of the combined company;

 

   

the duration and effects of the COVID-19 pandemic on PTMN’s and GARS’ portfolio companies; and

 

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the duration and effects of the COVID-19 pandemic on equity trading prices generally, and specifically on the trading price of PTMN Common Stock and the common stock of the surviving company following the Mergers.

See “Special Note Regarding Forward-Looking Statements” for other factors that could cause the market price of PTMN Common Stock to change.

These factors are generally beyond the control of PTMN. The range of high and low closing sales prices of PTMN Common Stock as reported on Nasdaq for the six months ended June 30, 2020, was a low of $0.75 to a high of $2.36. However, historical trading prices are not necessarily indicative of future performance. You should obtain current market quotations for shares of PTMN Common Stock prior to the Special Meetings.

Sales of shares of PTMN Common Stock after the completion of the Mergers may cause the market price of PTMN Common Stock to decline.

Based on the number of outstanding shares of GARS Common Stock as of June 30, 2020, the NAV per share of PTMN Common Stock and the NAV per share of GARS Common Stock on such date, PTMN would issue approximately 29.1 million shares of PTMN Common Stock pursuant to the Merger Agreement (after accounting for anticipated expenses of both parties related to the transaction). Former GARS Stockholders may decide not to hold the shares of PTMN Common Stock that they receive pursuant to the Merger Agreement. Certain GARS Stockholders may be required to sell the shares of PTMN Common Stock that they receive pursuant to the Merger Agreement. In addition, PTMN Stockholders may decide not to hold their shares of PTMN Common Stock after completion of the Mergers. In each case, such sales of PTMN Common Stock could have the effect of depressing the market price for PTMN Common Stock and may take place promptly following the completion of the Mergers.

GARS Stockholders and PTMN Stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers.

GARS Stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective percentage ownership interests in GARS prior to the Mergers. Consequently, GARS Stockholders should expect to exercise less influence over the management and policies of the combined company following the Mergers than they currently exercise over the management and policies of GARS. PTMN Stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective ownership interests in PTMN prior to the Mergers. Consequently, PTMN Stockholders should expect to exercise less influence over the management and policies of the combined company following the Mergers than they currently exercise over the management and policies of PTMN.

If the Mergers are consummated, based on the number of shares of PTMN Common Stock issued and outstanding on the Closing Date, the NAV per share of PTMN Common Stock and the NAV per share of GARS Common Stock, each as of June 30, 2020, it is expected that current PTMN Stockholders will own approximately 60% of the outstanding PTMN Common Stock and former GARS Stockholders will own approximately 40% of the outstanding PTMN Common Stock. In addition, both prior to and after completion of the Mergers, subject to certain restrictions in the Merger Agreement and PTMN Stockholder Approval, PTMN may issue additional shares of PTMN Common Stock (including, subject to certain restrictions under the 1940 Act, at prices below PTMN Common Stock’s then current NAV per share), all of which would further reduce the percentage ownership of the combined company held by former GARS Stockholders and current PTMN Stockholders. In addition, the issuance or sale by PTMN of shares of PTMN Common Stock at a discount to NAV poses a risk of economic dilution to stockholders.

 

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PTMN may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings, or it may take longer than anticipated to realize such benefits.

The realization of certain benefits anticipated as a result of the Mergers will depend in part on the integration of GARS’ investment portfolio with PTMN’s and the integration of GARS’ business with PTMN’s. There can be no assurance that GARS’ investment portfolio or business can be operated profitably or integrated successfully into PTMN’s operations in a timely fashion or at all. The dedication of management resources to such integration may divert attention from the day-to-day business of the combined company and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including incurring unexpected costs or delays in connection with such integration and failure of GARS’ investment portfolio to perform as expected, could have a material adverse effect on the financial results of the combined company.

PTMN also expects to achieve certain cost savings from the Mergers when the two companies have fully integrated their portfolios. It is possible that the estimates of the potential cost savings could ultimately be incorrect. The cost savings estimates also assume PTMN will be able to combine the operations of PTMN and GARS in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if PTMN is not able to successfully combine GARS’ investment portfolio or business with the operations of PTMN, the anticipated cost savings may not be fully realized, or realized at all, or may take longer to realize than expected.

The announcement and pendency of the proposed Mergers could adversely affect GARS’ business, financial results and operations.

The announcement and pendency of the proposed Mergers could cause disruptions in and create uncertainty surrounding GARS’ business, including affecting its relationships with its existing and future borrowers, which could have a significant negative impact on its future revenues and results of operations, regardless of whether the Mergers are completed. In particular, Garrison Investment Group LP (“Garrison Investment Group”), which has entered into a staffing agreement (the “GARS Staffing Agreement”) with Garrison Capital Advisers LLC (“Garrison Capital Advisers”) under which Garrison Investment Group makes available to Garrison Capital Advisers experienced investment professionals and access to the senior investment personnel and other resources of Garrison Investment Group and its affiliates, could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed transaction, and existing borrowers may elect to refinance their loans from GARS and its affiliates with other lenders. In addition, GARS has diverted, and will continue to divert, significant management resources towards the completion of the Mergers, which could have a significant negative impact on its future revenues and results of operations.

GARS is also subject to restrictions on the conduct of its business prior to the completion of the Mergers as provided in the Merger Agreement, generally requiring GARS to conduct its business only in the ordinary course and subject to specific limitations, including, among other things, certain restrictions on its ability to make certain investments and acquisitions, sell, transfer or dispose of its assets, amend its organizational documents and enter into or modify certain material contracts. These restrictions could prevent GARS from pursuing otherwise attractive business opportunities, industry developments and future opportunities and may otherwise have a significant negative impact on its future investment income and results of operations.

If the Mergers do not close, neither PTMN nor GARS will benefit from the expenses incurred in their pursuit of the Mergers and, under certain circumstances, PTMN or GARS will be required to pay all of the other party’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000.

The Mergers may not be completed. If the Mergers are not completed, GARS and PTMN will have incurred substantial expenses for which no ultimate benefit will have been received. Both companies have incurred

 

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out-of-pocket expenses in connection with the Mergers for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Mergers are not completed. In addition, under certain circumstances, PTMN or GARS will be required to pay all of the other party’s expenses incurred in connection with the Mergers, subject to a maximum reimbursement payment of $550,000.

The termination of the Merger Agreement could negatively impact GARS and PTMN.

If the Merger Agreement is terminated, there may be various consequences, including:

 

   

GARS’ and PTMN’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Mergers, without realizing any of the anticipated benefits of completing the Mergers;

 

   

the market prices of GARS Common Stock and PTMN Common Stock might decline to the extent that the market price prior to termination reflects a market assumption that the Mergers will be completed;

 

   

GARS may not be able to find a party willing to pay an equivalent or more attractive price than the price PTMN agreed to pay in the Mergers; and

 

   

the payment of any termination fee or reimbursement of expenses, if required under the circumstances, could adversely affect the financial condition and liquidity of GARS.

Under certain circumstances, GARS is obligated to pay a termination fee upon termination of the Merger Agreement.

The Mergers may not be completed. The Merger Agreement provides for the payment, subject to applicable law, by GARS of a termination fee under certain circumstances. See “Description of the Merger Agreement—Termination of the Merger Agreement” for a discussion of the circumstances that could result in the payment of a termination fee.

The Mergers are subject to closing conditions, including stockholder approvals, that, if not satisfied or waived, will result in the Mergers not being completed, which may result in material adverse consequences to GARS’ and PTMN’s business and operations.

The Mergers are subject to closing conditions, including certain approvals of PTMN’s and GARS’ respective stockholders that, if not satisfied, will prevent the Mergers from being completed. The closing condition that PTMN Stockholders approve the issuance of shares of PTMN Common Stock to be issued in connection with the Mergers may not be waived and must be satisfied for the Mergers to be completed. PTMN currently expects that all directors and executive officers of PTMN will vote their shares of PTMN Common Stock in favor of the proposals presented at the PTMN Special Meeting. If PTMN Stockholders do not approve the issuance of shares of PTMN Common Stock in connection with the Mergers and the Merger Agreement and the Mergers are not completed, the resulting failure of the Mergers could have a material adverse impact on PTMN’s business and operations. The closing condition that GARS Stockholders approve the Mergers and the Merger Agreement may not be waived and must be satisfied for the Mergers to be completed. If GARS Stockholders do not approve the Mergers and the Merger Agreement and the Mergers are not completed, the resulting failure to complete the Mergers could have a material adverse impact on GARS’ business and operations.

PTMN and GARS will be subject to operational uncertainties and contractual restrictions while the Mergers are pending, including restrictions on pursuing alternatives to the Mergers.

Uncertainty about the effect of the Mergers may have an adverse effect on PTMN and GARS and, consequently, on the combined company following completion of the Mergers. These uncertainties may impair

 

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Sierra Crest’s and Garrison Capital Advisers’ abilities to motivate key personnel until the Mergers are consummated and could cause those who deal with PTMN and GARS to seek to change their existing business relationships with PTMN and GARS, respectively. In addition, the Merger Agreement restricts PTMN and GARS from taking actions that they might otherwise consider to be in their best interests. These restrictions may prevent PTMN and GARS from pursuing certain business opportunities that may arise prior to the completion of the Mergers, including restrictions on them pursuing alternatives to the Mergers. Please see the section entitled “Description of the Merger Agreement—Interim Operations of PTMN” and “Description of the Merger Agreement—Interim Operations of GARS” for a description of the restrictive covenants to which PTMN and GARS are subject.

The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire GARS prior to the completion of the proposed Mergers.

The Merger Agreement prohibits GARS from soliciting alternatives to the Mergers and imposes limitations on GARS’ ability to respond to and negotiate unsolicited proposals received from third parties. The Merger Agreement contains customary non-solicitation and other provisions that, subject to limited exceptions, limit GARS’ ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of GARS. GARS can consider and participate in discussions and negotiations with respect to an alternative proposal only in very limited circumstances so long as certain notice and other procedural requirements are satisfied. In addition, subject to certain procedural requirements (including the ability of PTMN to revise its offer) and the payment of an approximately $2.375 million termination fee, GARS may terminate the Merger Agreement and enter into an agreement with a third party that makes a superior proposal. These provisions may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of GARS from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in connection with the Mergers.

The opinion delivered to the GARS Special Committee and the GARS Board from the financial advisor to the GARS Special Committee prior to signing the Merger Agreement will not reflect changes in circumstances since the date of such opinion.

The opinion of the financial advisor to the GARS Special Committee was delivered to the GARS Special Committee and the GARS Board on, and was dated, June 24, 2020. Changes in the operations and prospects of GARS or PTMN, general market and economic conditions and other factors that may be beyond the control of GARS or PTMN may significantly alter the value of GARS or the price of shares of PTMN Common Stock by the time the Mergers are completed. The opinion does not speak as of the time the Mergers will be completed or as of any date other than the date of such opinion. For a description of the opinion that the GARS Special Committee and the GARS Board received from the financial advisor to the GARS Special Committee, see “The Mergers—Opinion of the Financial Advisor to the GARS Special Committee.”

If the Mergers are not completed or GARS is not otherwise acquired, GARS may consider other strategic alternatives, which are subject to risks and uncertainties.

If the Mergers are not completed, the GARS Special Committee and the GARS Board may review and consider various alternatives available to GARS, including, among others, continuing as a standalone public company with no material changes to its business or seeking an alternate transaction. These strategic or other alternatives available to GARS may involve various additional risks to its business, including, among others, distraction of its management team and associated expenses as described above in connection with the proposed Mergers, and risks and uncertainties related to its ability to complete any such alternatives and other variables which may adversely affect its operations.

 

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Subject to applicable law, each party may waive one or more conditions to the Mergers without resoliciting approval from its respective stockholders.

Certain conditions to PTMN’s and GARS’ obligations to complete the Mergers may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of PTMN and GARS. In the event that any such waiver does not require resolicitation of stockholders, the parties to the Merger Agreement will have the discretion to complete the Merger without seeking further stockholder approval. Accordingly, the terms and conditions as set forth in the Merger Agreement and described herein, including certain protections to PTMN and GARS, may be waived. The conditions requiring approval of PTMN Stockholders and GARS Stockholders, however, cannot be waived.

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

The rights associated with GARS Common Stock are different from the rights associated with PTMN Common Stock. See “Comparison of PTMN and GARS Stockholder Rights.

The market price of PTMN Common Stock after the Mergers may be affected by factors different from those affecting PTMN Common Stock currently.

The businesses of PTMN and GARS differ in some respects and, accordingly, the results of operations of the combined company and the market price of PTMN Common Stock after the Mergers may be affected by factors different from those currently affecting the independent results of operations of each of PTMN and GARS. These factors include:

 

   

a larger stockholder base;

 

   

a different portfolio composition; and

 

   

a different capital structure.

Accordingly, the historical trading prices and financial results of PTMN may not be indicative of these matters for the combined company following the Mergers.

The U.S. federal income tax treatment of the Additional Cash Consideration is not entirely clear, and the position taken that the Additional Cash Consideration is part of the total cash consideration received by GARS Stockholders pursuant to the Mergers might be challenged by the Internal Revenue Service.

With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Mergers”) is treated as additional Merger Consideration. It is possible, however, that the Internal Revenue Service would assert a contrary position that the Additional Cash Consideration be treated as taxable ordinary income and not as cash received in exchange for such holder’s GARS Common Stock.

If PTMN sells investments acquired as a result of the Mergers, it may result in capital gains and increase the incentive fees payable to Sierra Crest.

Investments that PTMN acquires as a result of the Mergers will be booked at a discount under ASC 805-50, Business Combinations–Related Issues. To the extent PTMN sells one of these acquired investments at a price that is higher than its then-amortized cost, such sale would result in realized capital gain that would be factored in to the amount of the incentive fee on capital gains, if any, that is paid by PTMN to Sierra Crest. If PTMN sells a significant portion of the investments acquired as a result of the Mergers, it may materially increase the incentive fee on capital gains paid to Sierra Crest. The effect on the incentive fee on capital gains would be greater for acquired investments sold closer to the Closing Date.

 

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COMPARATIVE FEES AND EXPENSES

Comparative Fees and Expenses Relating to the Mergers

The following tables are intended to assist you in understanding the costs and expenses that an investor in the common stock of PTMN or GARS bears directly or indirectly, and, based on the assumptions set forth below, the pro forma costs and expenses estimated to be incurred by the combined company in the first year following the Mergers. PTMN and GARS caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this document contains a reference to fees or expenses paid or to be paid by “you,” “PTMN” or “GARS,” stockholders will indirectly bear such fees or expenses as investors in PTMN or GARS, as applicable. The table below is based on information as of June 30, 2020 (except as noted below).

 

     Actual     Pro
Forma
 
Stockholder transaction expenses    PTMN
(acquiring
fund)
    GARS
(target
fund)
       

Sales load (as a percentage of offering price)

     None (1)      None (1)      None (1) 

Offering expenses (as a percentage of offering price)

     None (1)      None (1)      None (1) 

Dividend reinvestment plan expenses

     None (2)      None (2)      None (1) 

Total stockholder transaction expenses (as a percentage of offering price)

     None       None       None  

 

     Actual     Pro
Forma
 
Estimated annual expenses (as a percentage of net assets attributable to common stock):(3)    PTMN
(acquiring
fund)
    GARS
(target
fund)
       

Base management fees(4)

     3.3     4.9     3.4

Incentive fees(5)

     0.0     0.0     2.9

Interest payments on borrowed funds(6)

     7.9     9.5     5.7 %(9) 

Other expenses(7)

     4.9     6.5     2.7

Acquired fund fees and expenses

     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

 

Total annual expenses(8)

     16.1     20.9     14.8
  

 

 

   

 

 

   

 

 

 
*

Represents an amount less than 0.1%.

(1)

Purchases of shares of common stock of PTMN or GARS on the secondary market are not subject to sales charges, but may be subject to brokerage commissions or other charges. The table does not include any sales load (underwriting discount or commission) that stockholders may have paid in connection with their purchase of shares of PTMN Common Stock or GARS Common Stock in a prior underwritten offering or otherwise.

(2)

The estimated expenses associated with the respective distribution reinvestment plans are included in “Other expenses.”

(3)

“Consolidated net assets attributable to common stock” equals net assets at June 30, 2020. For the pro forma columns, the combined net assets of PTMN and GARS on a pro forma basis as of June 30, 2020 were used.

(4)

For PTMN, the base management fee is 1.50% of PTMN’s average gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters; provided, however, that the base management fee is 1.00% of PTMN’s average gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, that exceed the product of (i) 200% and (ii) the value of PTMN’s NAV at the end of the most recently completed calendar quarter.

GARS’ base management fee is calculated at an annual rate of 1.50% of the average value of GARS’ gross assets, excluding cash or cash equivalents, but including assets purchased with borrowed amounts, at the end of each of the two most recently completed calendar quarters; provided, however, that the base management fee is calculated at an annual rate of 1.00% of the average value of GARS’ gross assets,

 

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excluding cash or cash equivalents, but including assets purchased with borrowed amounts, that exceeds the product of (i) 200% and (ii) GARS’ average net assets at the end of each of the two most recently completed calendar quarters. The management fee referenced in the table above is based on actual amounts incurred during the six months ended June 30, 2020, annualized for a full year.

 

(5)

PTMN’s incentive fee consists of two parts: (1) a portion based on PTMN’s pre-incentive fee net investment income (the “Income-Based Fee”) and (2) a portion based on the net capital gains received on PTMN’s portfolio of securities on a cumulative basis for each calendar year, net of all realized capital losses and all unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains Incentive Fee (the “Capital Gains Fee”). The Income-Based Fee is 17.50% of pre-incentive fee net investment income with a 7.00% hurdle rate. The Capital Gains Fee is 17.50%. Pursuant to an incentive fee letter agreement, Sierra Crest permanently waived incentive fees earned without recourse against or reimbursement by PTMN, to the extent necessary in order to achieve aggregate net investment income of PTMN for a one-year period to be at least equal to $0.40 per share, subject to certain adjustments. Pursuant to such agreement, for the six months ended June 30, 2020, approximately $557,000 in incentive fees were waived by Sierra Crest. As of July 1, 2020, all fee waivers from Sierra Crest expired.

GARS’ incentive fee also consists of two components and a cap and deferral mechanism. The first component of the incentive fee, which is income-based, equals 20.00% of the amount, if any, such pre-incentive fee net investment income exceeds a 7.00% annualized hurdle rate, subject to a 50% “catch-up” provision, measured at the end of each calendar quarter. The second component of the incentive fee, which is capital gain-based, equals 20% of GARS’ cumulative aggregate realized capital gains from April 1, 2013 through the end of each calendar year (or termination of GARS Investment Advisory Agreement), computed net of GARS’ aggregate cumulative realized and unrealized capital losses through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees. The cap and deferral mechanism in GARS’ incentive fee calculation limits the payment of incentive fees to Garrison Capital Advisers for any fiscal quarter if, after such payment, the cumulative incentive fees paid to Garrison Capital Advisers for the period that includes such fiscal quarter and the 11 full preceding fiscal quarters, would exceed 20.0% of the sum of (1) GARS’ aggregate pre-incentive fee net investment income during such period and (2) GARS’ cumulative net realized and unrealized capital gains during such period. See “Business—General—Incentive Fee” in Part I, Item I of GARS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for additional detail regarding the calculation of GARS’ incentive fee. The incentive fee referenced in the table above is based on actual amounts incurred during the six months ended June 30, 2020, annualized for a full year.

 

(6)

The figure in the table for PTMN is derived by annualizing the actual first six months of 2020 borrowing costs of PTMN under all of its financing facilities, including amortized costs and expenses.

The figure in the table for GARS is derived by annualizing the actual borrowing costs of GARS’ CLO for the six months ended June 30, 2020.

 

(7)

In the case of PTMN, other expenses include insurance, accounting, legal and auditing fees and state franchise taxes, as well as the reimbursement of the compensation of administrative personnel and fees payable to PTMN’s directors who do not also serve in an executive officer capacity for PTMN or Sierra Crest. The percentage presented in the table reflects actual amounts incurred during the six months ended June 30, 2020 on an annualized basis.

In the case of GARS, other expenses include insurance, accounting, legal and auditing fees and state franchise taxes, as well as the reimbursement of the compensation of administrative personnel and fees payable to the GARS Independent Directors. The percentage presented in the table reflects actual amounts incurred during the six months ended June 30, 2020 with recurring expenses incurred during such period annualized for a full year.

In the case of Pro Forma line item, other expenses reflect anticipated decreases in duplicative costs such as professional fees for legal, audit and tax fees, directors’ fees, and other redundant administrative and operating expenses.

 

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(8)

“Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. PTMN and GARS borrow money to leverage and increase total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period), rather than the total assets, including assets that have been funded with borrowed monies. The percentage presented in the table reflects actual amounts incurred during the six months ended June 30, 2020 on an annualized basis.

 

(9)

This is based on the assumption that approximately $164.5 million of borrowings outstanding as of June 30, 2020 will be repaid and the costs of borrowings under each respective borrowing facility after the Mergers will remain the same as those costs prior to the Mergers. PTMN expects over time that as a result of additional investment purchases, and in turn, additional borrowings on the financing facilities after the Mergers, the combined company’s interest payments on borrowed funds may be more than the principal amounts reflected in the section entitled “Capitalization” below and, accordingly, that estimated total expenses may be different than as reflected in the table above. However, the actual amount of leverage employed at any given time cannot be predicted.

Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in PTMN, GARS or the combined company’s common stock following the Mergers on a pro forma basis. In calculating the following expense amounts, each of PTMN and GARS has assumed that it would have no additional leverage and that its annual operating expenses would remain at the levels set forth in the tables above. Calculations for the pro forma combined company following the Mergers assume that the Mergers closed on June 30, 2020 and that the leverage and operating expenses of PTMN and GARS remain at the levels set forth in the tables above. Transaction expenses related to the Mergers are not included in the following examples.

 

     1
year
     3
years
     5
years
     10
years
 

You would pay the following expenses on a $1,000 investment:

           

PTMN, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 161      $ 431      $ 644      $ 1,003  

GARS, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 192      $ 490      $ 700      $ 996  

PTMN, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 170      $ 450      $ 668      $ 1,021  

GARS, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 192      $ 490      $ 700      $ 996  

Pro forma combined company following the Mergers

           

You would pay the following expenses on a $1,000 investment:

           

Assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 119      $ 332      $ 517      $ 880  

Assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 127      $ 354      $ 546      $ 911  

The foregoing tables are to assist you in understanding the various costs and expenses that an investor in PTMN, GARS or, following the Mergers, the combined company’s common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, performance of PTMN, GARS and the combined company will vary and may result in a return greater or less than 5%. The incentive fee under each of the PTMN Investment Advisory Agreement and the investment advisory agreement between GARS and Garrison Capital Advisers (the “GARS Investment Advisory Agreement”), which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above in

 

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the example where there is no return from net realized capital gains, and thus are not included in those examples. Under each of the PTMN Investment Advisory Agreement and the GARS Investment Advisory Agreement, no incentive fee would be payable if PTMN, GARS or the combined company, as applicable, has a 5% annual return with no capital gains, however, there would be incentive fees payable in the examples where the entire return is derived from realized capital gains. If sufficient returns are achieved on investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, expenses, and returns to investors, would be higher. The example assumes that all dividends and other distributions are reinvested at NAV. Under certain circumstances, reinvestment of dividends and other distributions under the relevant dividend reinvestment plan may occur at a price per share that differs from NAV. See “PTMN Dividend Reinvestment Plan” and “GARS Dividend Reinvestment Plan” for additional information regarding PTMN’s and GARS’ dividend reinvestment plan, respectively.

The example and the expenses in the table above should not be considered a representation of PTMN’s, GARS’, or, following the Mergers, the combined company’s, future expenses, and actual expenses may be greater or less than those shown.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, including the documents incorporated by reference herein, contains statements that constitute forward-looking statements, which relate to PTMN, GARS or, following the Mergers, the combined company, regarding future events or the future performance or future financial condition of PTMN, GARS or, following the Mergers, the combined company. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about PTMN, GARS or, following the Mergers, the combined company, their industry and their respective beliefs and assumptions. The forward-looking statements contained in this joint proxy statement/prospectus involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including:

 

   

the ability of the parties to consummate the Mergers on the expected timeline, or at all;

 

   

the failure of PTMN Stockholders to approve the Merger Stock Issuance Proposal;

 

   

the failure of GARS Stockholders to approve the Merger Proposal;

 

   

the ability to realize the anticipated benefits of the Mergers;

 

   

the effects of disruption on the business of PTMN and GARS from the Mergers;

 

   

the effect that the announcement or consummation of the Mergers may have on the trading price of PTMN Common Stock;

 

   

the effect that the announcement or consummation of the Mergers may have on the trading price of GARS Common Stock;

 

   

the combined company’s plans, expectations, objectives and intentions, as a result of the Mergers;

 

   

any potential termination of the Merger Agreement or action of GARS Stockholders with respect to any proposed transaction;

 

   

changes in PTMN’s and/or GARS’ NAV;

 

   

PTMN’s and GARS’ future operating results;

 

   

PTMN’s and GARS’ business prospects and the prospects of their respective portfolio companies;

 

   

the effect of investments that PTMN and GARS expect to make and the competition for those investments;

 

   

PTMN’s and GARS’ contractual arrangements and relationships with third parties;

 

   

actual and potential conflicts of interest with PTMN and GARS, and their respective affiliates;

 

   

the dependence of PTMN’s and GARS’ future success on the general economy and its effect on the industries in which they invest;

 

   

the ability of PTMN’s and GARS’ portfolio companies to achieve their objectives;

 

   

the use of borrowed money to finance a portion of PTMN’s and GARS’ investments;

 

   

the adequacy of financing sources and working capital;

 

   

the timing of cash flows, if any, from the operations of PTMN’s and GARS’ portfolio companies;

 

   

general economic and political trends and other external factors;

 

   

changes in interest rates, including the decommissioning of London Interbank Offered Rate (“LIBOR”);

 

   

the ability of Sierra Crest and Garrison Capital Advisers to locate suitable investments for PTMN and GARS and to monitor and administer their respective investments;

 

   

the ability of Sierra Crest and Garrison Capital Advisers or their affiliates to attract and retain highly talented professionals;

 

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PTMN’s and GARS’ ability to qualify and maintain their respective qualifications as a RIC and as a BDC;

 

   

general price and volume fluctuations in the stock markets;

 

   

the effect of changes to tax legislation and PTMN’s and GARS’ respective tax position;

 

   

the duration and effects of the COVID-19 pandemic on PTMN’s and GARS’ portfolio companies; and

 

   

an economic downturn, including as a result of the impact of the COVID-19 pandemic, that could have a material adverse effect on PTMN’s and GARS’ portfolio companies’ results of operations and financial condition, which could lead to a loss on some or all of PTMN’s and GARS’ investments in such portfolio companies and have a material adverse effect on PTMN’s and GARS’ results of operations and financial condition.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar words. The forward-looking statements contained in this joint proxy statement/prospectus involve risks and uncertainties. Actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in both PTMN’s and GARS’ Annual Reports on Form 10-K for the fiscal year ended December 31, 2019, PTMN’s Quarterly Reports on Form 10-Q for the quarters ended March  31, 2020 and June 30, 2020 and GARS’ Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, as such factors may be updated from time to time in their periodic filings with the SEC, and elsewhere contained or incorporated by reference in this joint proxy statement/prospectus.

The forward-looking statements included in this joint proxy statement/prospectus and documents incorporated by reference into this joint proxy statement/prospectus have been based on information available to PTMN and/or GARS on the applicable date of the relevant document. Actual results could differ materially from those anticipated in PTMN’s and GARS’ forward-looking statements and future results could differ materially from historical performance. You are advised to consult any additional disclosures that PTMN or GARS may make directly to you or through reports that they have filed or in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. This joint proxy statement/prospectus and documents incorporated by reference into this joint proxy statement/prospectus contains or may contain statistics and other data that have been obtained from or compiled from information made available by third-party service providers. Neither PTMN nor GARS has independently verified such statistics or data.

You should understand that, under Sections 27A(b)(2)(B) of the Securities Act, and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this joint proxy statement/prospectus, any prospectus supplement or in periodic reports PTMN or GARS file under the Exchange Act.

 

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THE PTMN SPECIAL MEETING

Date, Time and Place of the PTMN Special Meeting

The PTMN Special Meeting will be held virtually at 10:00 a.m., Eastern Time, on October 19, 2020 at the following website: www.virtualshareholdermeeting.com/PTMN2020SM. This joint proxy statement/prospectus will be sent to PTMN Stockholders of record as of August 27, 2020 on or about September 4, 2020.

Purpose of the PTMN Special Meeting

At the PTMN Special Meeting, PTMN Stockholders will be asked to approve the Merger Stock Issuance Proposal and, if necessary or appropriate, the PTMN Adjournment Proposal.

The PTMN Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, and unanimously recommends that PTMN Stockholders vote “FOR” the Merger Stock Issuance Proposal and, if necessary or appropriate, “FOR” the PTMN Adjournment Proposal.

Record Date

PTMN Stockholders may vote their shares at the PTMN Special Meeting only if they were a stockholder of record at the close of business on August 27, 2020. There were 44,495,221 shares of PTMN Common Stock outstanding on the PTMN Record Date. Each share of PTMN Common Stock is entitled to one vote.

Quorum

A quorum must be present at the PTMN Special Meeting for any business to be conducted. The presence at the PTMN Special Meeting, virtually or represented by proxy, of the holders of a majority of the shares of PTMN Common Stock issued and outstanding and entitled to vote at the PTMN Special Meeting will constitute a quorum. Broker non-votes will not be treated as shares present for quorum purposes.

Broker Non-Votes

Broker non-votes are described as votes cast by a broker, bank, trustee or nominee on behalf of a beneficial holder who does not provide explicit voting instructions as to how to vote such beneficial holder’s shares to such broker, bank, trustee or nominee and who does not attend the meeting. The Merger Stock Issuance Proposal is a non-routine matter for PTMN. As a result, if a PTMN Stockholder holds shares in “street name” through a broker, bank, trustee or nominee, the broker, bank, trustee or nominee will not be permitted to exercise voting discretion with respect to the PTMN Proposals. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the PTMN Proposals.

Vote Required

Each share of PTMN Common Stock held by a holder of record as of the PTMN Record Date has one vote on each matter to be considered at the PTMN Special Meeting.

The Merger Stock Issuance Proposal

The affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the Merger Stock Issuance Proposal.

 

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Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the Merger Stock Issuance Proposal.

The PTMN Adjournment Proposal

The affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the PTMN Adjournment Proposal.

Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the PTMN Adjournment Proposal.

Voting of Proxies

PTMN encourages PTMN Stockholders to vote their shares by proxy, which means that PTMN Stockholders authorize someone else to vote their shares. Shares represented by duly executed proxies will be voted in accordance with PTMN Stockholders’ instructions. If PTMN Stockholders execute a proxy without specifying their voting instructions, such PTMN Stockholders’ shares will be voted in accordance with the PTMN Board’s recommendation. If any other business is brought before the PTMN Special Meeting, PTMN Stockholders’ shares will be voted at the PTMN Board’s discretion unless PTMN Stockholders specifically state otherwise on their proxy.

A PTMN Stockholder may authorize a proxy by telephone or through the Internet using the toll-free telephone numbers or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: (800) 690-6903 to reach a toll-free, automated touchtone voting line, or (833) 934-2732 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

   

By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 11:59 p.m., Eastern Time, on October 18, 2020.

Important notice regarding the availability of proxy materials for the PTMN Special Meeting. PTMN’s proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

Revocability of Proxies

Any proxy authorized pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. A revocation may be effected by submitting new voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received before the PTMN Special Meeting, by attending the PTMN Special Meeting and voting virtually or by a notice, provided in writing and signed by the PTMN Stockholder, delivered to PTMN’s Secretary on any business day before the date of the PTMN Special Meeting.

 

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Solicitation of Proxies

PTMN and GARS will bear their own costs of preparing, printing and mailing this joint proxy statement/prospectus and the applicable accompanying Notice of Special Meeting of Stockholders and proxy card. PTMN intends to use the services of Broadridge Financial Solutions Inc. (“Broadridge”) to aid in the distribution and collection of proxy votes. PTMN expects to pay market rates of approximately $29,000 plus out-of-pocket expenses for such services. No additional compensation will be paid to directors, officers or regular employees for such services.

Appraisal Rights

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

 

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THE GARS SPECIAL MEETING

Date, Time and Place of the GARS Special Meeting

The GARS Special Meeting will be held virtually at 10:00 a.m., Eastern Time, on October 19, 2020 at the following website: www.virtualshareholdermeeting.com/GARS2020SM. This joint proxy statement/prospectus will be sent to GARS Stockholders of record as of August 27, 2020 on or about September 4, 2020.

Purpose of the GARS Special Meeting

At the GARS Special Meeting, GARS Stockholders will be asked to approve the Merger Proposal and, if necessary or appropriate, the GARS Adjournment Proposal.

The GARS Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that GARS Stockholders vote “FOR” the Merger Proposal and, if necessary or appropriate, “FOR” the GARS Adjournment Proposal.

Record Date

GARS Stockholders may vote their shares at the GARS Special Meeting only if they were a stockholder of record at the close of business on August 27, 2020. There were 16,049,352 shares of GARS Common Stock outstanding on the GARS Record Date. Each share of GARS Common Stock is entitled to one vote.

Quorum

A quorum must be present at the GARS Special Meeting for any business to be conducted. The presence at the GARS Special Meeting, virtually or represented by proxy, of the holders of a majority of the shares of GARS Common Stock issued and outstanding and entitled to vote at the GARS Special Meeting will constitute a quorum. Broker non-votes will not be treated as shares present for quorum purposes.

Broker Non-Votes

Broker non-votes are described as votes cast by a broker, bank, trustee or nominee on behalf of a beneficial holder who does not provide explicit voting instructions as to how to vote such beneficial holder’s shares to such broker, bank, trustee or nominee and who does not attend the meeting. The Merger Proposal is a non-routine matter for GARS. As a result, if a GARS Stockholder holds shares in “street name” through a broker, bank, trustee or nominee, the broker, bank, trustee or nominee will not be permitted to exercise voting discretion with respect to the Merger Proposal. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the GARS Adjournment Proposal.

Vote Required

Each share of GARS Common Stock held by a holder of record as of the GARS Record Date has one vote on each matter to be considered at the GARS Special Meeting.

The Merger Proposal

The affirmative vote of the holders of a majority of the outstanding shares of GARS Common Stock entitled to vote at the GARS Special Meeting is required to approve the Merger Proposal.

Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal.

 

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The GARS Adjournment Proposal

The affirmative vote of the holders of at least a majority of votes cast by holders of the shares of GARS Common Stock present at the GARS Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the GARS Adjournment Proposal.

Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of the GARS Adjournment Proposal.

Voting of Proxies

GARS encourages GARS Stockholders to vote by proxy, which means that GARS Stockholders authorize someone else to vote their shares. Shares represented by duly executed proxies will be voted in accordance with GARS Stockholders’ instructions. If GARS Stockholders execute a proxy without specifying their voting instructions, such GARS Stockholders’ shares will be voted in accordance with the GARS Board’s recommendation. If any other business is brought before the GARS Special Meeting, GARS Stockholders’ shares will be voted at the GARS Board’s discretion unless GARS Stockholders specifically state otherwise on their proxy.

A GARS Stockholder may vote by proxy in accordance with the instructions provided below. A GARS Stockholder may also authorize a proxy by telephone or through the Internet using the toll-free telephone numbers or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: (800) 690-6903 to reach a toll-free, automated touchtone voting line, or (833) 550-0993 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

   

By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 11:59 p.m., Eastern Time, on October 18, 2020.

Important notice regarding the availability of proxy materials for the GARS Special Meeting. GARS’ proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

Revocability of Proxies

Any proxy authorized pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. A revocation may be effected by submitting new voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received before the GARS Special Meeting, by attending the GARS Special Meeting and voting virtually or by a notice, provided in writing and signed by the GARS Stockholder, delivered to GARS’ Secretary on any business day before the date of the GARS Special Meeting.

Solicitation of Proxies

PTMN and GARS will bear their own costs of preparing, printing and mailing this joint proxy statement/prospectus and the applicable accompanying Notice of Special Meeting of Stockholders and proxy card. GARS

 

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intends to use the services of Broadridge to aid in the distribution and collection of proxy votes. GARS expects to pay market rates of approximately $30,000 for such services. No additional compensation will be paid to directors, officers or regular employees for such services.

Appraisal Rights

GARS Stockholders will be entitled to exercise appraisal rights with respect to the Merger in accordance with Section 262 of the DGCL. For more information, see “Appraisal Rights of GARS Stockholders” and “Description of the Merger Agreement—Appraisal Rights.

 

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CAPITALIZATION

The following table sets forth (1) PTMN’s and GARS’ actual capitalization as of June 30, 2020 and (2) PTMN’s capitalization as adjusted to reflect the effects of the Mergers. You should read this table together with PTMN’s and GARS’ condensed consolidated financial data incorporated by reference herein.

 

     As of June 30, 2020  
     (unaudited, dollar amounts in thousands, except share and per share
data)
 
     Actual      Actual      Pro forma
Adjustments
    Pro Forma  
     Portman
Ridge
Finance
Corporation
     Garrison
Capital Inc.
    Portman
Ridge
Finance
Corporation
 

Cash, cash equivalents and restricted cash

   $ 13,880      $ 16,486      $ (28,366 )(1)    $ 2,000  

Debt less unamortized debt issuance costs

     175,047        268,750        (164,500 )(2)      279,297  

Net Assets

     120,714        100,627        (24,613 )(3)      196,727  

Total Capitalization

   $ 309,641      $ 385,863      $ (217,480   $ 478,024  

Number of common shares outstanding

     44,495,221        16,049,352        13,036,140       73,580,713  

NAV per common share

   $ 2.71      $ 6.27        $ 2.67 (4) 

 

(1)

Pro Forma adjustments reflect the impact of the $19.1 million special payment to GARS Stockholders, combined transaction expenses of approximately $4.0 million, debt repayments, net of asset sales, of approximately $4.1 million and the net settlement prior to closing of miscellaneous net liabilities as of June 30, 2020 of approximately $1.2 million.

(2)

Assumes asset sales of approximately $142 million at fair value, the proceeds of which, as well as accumulated cash of the combined entity, will be used to redeem approximately $161 million of secured notes issued by the CLO completed by GARS in October 2018, and repayment of borrowings of approximately $4 million on PTMN’s revolving credit facility. PTMN has yet to identify any specific assets for disposal.

(3)

Includes cash payment to stockholders of approximately $19 million, transaction expenses of PTMN of approximately $1.8 million; transaction expenses of GARS of approximately $2.2 million and write-off of GARS deferred financing costs of approximately $1.5 million.

(4)

The $0.04 Pro Forma NAV per common share decrease is a result of estimated PTMN transaction expenses.

 

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THE MERGERS

The discussion in this joint proxy statement/prospectus, which includes the material terms of the Mergers and the principal terms of the Merger Agreement, is subject to, and is qualified in its entirety by reference to, the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus.

General Description of the Mergers

Pursuant to the terms of the Merger Agreement, at the Effective Time, Merger Sub will be merged with and into GARS. GARS will be the surviving company and will continue its existence as a corporation under the laws of the State of Delaware and a direct, wholly owned subsidiary of PTMN. As of the Effective Time, the separate corporate existence of Merger Sub will cease. Immediately after the effectiveness of the Merger, GARS will merge with and into PTMN, with PTMN as the surviving entity in the Second Merger. Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares) will be converted into and exchanged for the right to receive (i) an amount in cash equal to (A) the Aggregate Cash Consideration divided by (B) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and (ii) a number of shares of PTMN Common Stock equal to the Exchange Ratio, plus any cash in lieu of fractional shares. Furthermore, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders the Additional Cash Consideration.

Based on the number of shares of PTMN Common Stock issued and outstanding and the NAVs of PTMN and GARS as of June 30, 2020, it is expected that current PTMN Stockholders will own approximately 60% of the outstanding PTMN Common Stock and former GARS Stockholders will own approximately 40% of the outstanding PTMN Common Stock.

Background of the Mergers

Since GARS’ initial public offering in 2013, competition for private debt investment opportunities in the middle market has significantly intensified. One of the primary drivers of increased competition has been large inflows of capital from global investors seeking yield due to interest rates that have remained at or near historic lows. These inflows of capital have led to the formation of new BDCs, debt funds and other similar pooled investment vehicles with substantial amounts of capital to deploy, significant financial, technological and marketing resources, and a broader range of risk tolerances in the middle market lending space than GARS and Garrison Capital Advisers. In addition, structural innovations within the private and syndicated debt markets have afforded borrowers greater financing alternatives, thereby creating pricing pressure on all debt product categories. This combination of large inflows of capital, new competitive entrants, and expanded debt product offerings has created an imbalance between supply and demand and resulted in interest rate spread tightening and lower weighted-average yields associated with the investment portfolios of most BDC industry participants, including the investment portfolio of GARS.

In addition, like many publicly traded BDCs with smaller market capitalizations, shares of GARS Common Stock have consistently traded at a discount to NAV per share, which has limited GARS’ ability to raise additional equity capital and grow its portfolio. GARS suffered significant credit losses which led to further depression of the trading price for GARS Common Stock and further decreased its market capitalization. In addition, the relative size of the credit platform of Garrison Capital Advisers and its affiliates limited GARS’ ability to participate in certain origination opportunities where the borrower required more capital than GARS and its affiliates could provide. In light of the challenges being presented by persistent low interest rates, new competition, a broader range of available financing products, and GARS’ size constraints due to its comparatively small balance sheet, shortly after the fiscal quarter ended September 30, 2019, the GARS Board

 

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concluded that in order to maximize stockholder value over the longer term, GARS likely would be best served by finding a suitable strategic partner having the scale, scope, range of financing products and risk profile to navigate the increasingly sophisticated direct lending market.

At a meeting of the GARS Board held on October 30, 2019, at which management and representatives of each of KBW, Proskauer, and Eversheds Sutherland (US) LLP, outside legal counsel to the GARS Independent Directors (“Eversheds Sutherland”), also participated, the GARS Board interviewed KBW as a potential financial advisor. There was discussion regarding potential strategic options that might be available to GARS, including a merger with a public or private BDC, retention of a new investment adviser, a full liquidation or maintenance of the status quo, as well as the relevant considerations and illustrative timelines for such alternatives. KBW reviewed with the GARS Board KBW’s experience and qualifications and provided preliminary perspectives regarding GARS’ potential exploration of strategic alternatives. KBW also informed the GARS Board that it had relationships and familiarity with various potential strategic partners and disclosed, among other things, that it had acted as financial advisor to the acquired companies in two recent acquisitions by PTMN. The GARS Board considered the various advantages and disadvantages of engaging an investment banking firm to act as GARS’ financial advisor, the various strategic alternatives discussed with KBW and the experience of KBW’s team in the BDC and direct lending sectors as well as with mergers and acquisitions generally. On October 30, 2019, the GARS Board approved GARS’ engagement of KBW as its financial advisor to assist the GARS Board in connection with GARS’ exploration of strategic alternatives.

On November 12, 2019, GARS publicly announced that the GARS Board had decided to explore a variety of strategic alternatives that may be available to GARS and had retained KBW as its financial advisor and investment banker to assist GARS with this process.

Immediately after the November 12, 2019 announcement, at the direction of the GARS Board, KBW commenced an initial outreach to parties potentially interested in exploring a strategic transaction with GARS. Prior to being provided with confidential information regarding GARS, each potentially interested party was required to enter into a non-disclosure agreement (“NDA”) with GARS. Each NDA included customary restrictions on the use of GARS’ confidential information, along with customary “standstill” (and related “don’t ask/don’t waive”) provisions, which were designed to protect the strategic transaction review process and increase the likelihood that each participant would put forth its best offer through the bid solicitation process and not through other avenues. However, immediately prior to entering into the Merger Agreement, GARS notified each party to an NDA that it had waived the pertinent provisions of all outstanding NDAs such that no third party is prohibited from submitting an Acquisition Proposal to GARS, and, under the Merger Agreement, GARS has retained the right to waive any provision of any confidentiality or “standstill” agreement to the extent necessary to permit a third party to submit an Acquisition Proposal to GARS, in each case on a confidential basis and in a manner that is not reasonably expected to require GARS to make public disclosure regarding such proposal (but subject at all times to GARS’ disclosure obligations under applicable law).

During November 2019, GARS’ senior management discussed with members of the GARS Board providing retention arrangements for certain employees of Garrison Investment Group who provided services to GARS, as the increased compensation costs would be reimbursable by GARS pursuant to the administration agreement, dated as of October 9, 2012 (the “GARS Administration Agreement”), by and between GARS and Garrison Capital Administrator LLC (“Garrison Capital Administrator”). The GARS Independent Directors approved the allocation of the additional compensation expense to GARS during the final week of November 2019, and letter agreements were entered into with the relevant employees of Garrison Investment Group in early December 2019.

On December 20, 2019, GARS uploaded a first round process letter to the electronic data room. The first round process letter informed parties participating in the GARS Board’s strategic transaction review process of the bid information that would be required in their respective indications of interest and that such first round proposals were due on January 22, 2020.

 

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On January 30, 2020, the GARS Board convened a special telephonic meeting, at which management and representatives of each of KBW, Proskauer and Eversheds Sutherland also participated, to discuss in detail the indications of interest that had been received on behalf of GARS. Eversheds Sutherland reviewed with the GARS Board the standard of conduct governing the acts of directors, applicable fiduciary duties and the standards of judicial review with regard to a strategic transaction review process. Eversheds Sutherland also discussed the potential benefits and issues of each type of strategic transaction being presented and provided an illustrative timeline for each transaction type and its component processes. KBW informed the GARS Board that to date, it had held specific discussions with 78 parties, including PTMN, regarding GARS’ strategic review process. From those discussions, 53 parties had executed an NDA and 14 parties had submitted written initial indications of interest, subject to ongoing due diligence at varying stages of completion. KBW reviewed with the GARS Board each initial indication of interest, including, among other things, the transaction type, structure and consideration. General views surrounding the proposals were discussed, with general consensus that Party A, Party B and Party C proceed and that certain other parties be asked to modify their initial proposals. The GARS Board authorized the GARS Independent Directors to finalize the list of parties to be invited to submit second round indications of interest.

On January 31, 2020, the GARS Independent Directors held a telephone conference with representatives of KBW and Eversheds Sutherland. KBW discussed with the GARS Independent Directors each initial indication of interest, including, among other things, the transaction type, structure and consideration. The GARS Independent Directors considered whether such indications of interest addressed the GARS Board’s objectives in the strategic exploration process. After discussion, pursuant to the GARS Board’s authorization, the GARS Independent Directors determined to invite Party A, Party B and Party C to proceed to the second round of the process and, in such second round, complete due diligence and submit second round indications of interest. In addition, the GARS Independent Directors directed KBW to contact four additional parties, including PTMN and Party D, and request that they modify their initial indications of interest in order to augment their chances of advancing to the second round. The other parties that submitted indications of interest, including Party E, proposed acquisition prices, merger premiums and/or levels of capital support, as applicable, less than those submitted by PTMN and the six other parties, or otherwise had characteristics that led the GARS Independent Directors, after evaluating such indications of interest with the assistance of KBW and members of GARS’ senior management, to conclude that such indications of interest did not satisfy the objectives of the strategic review process.

On February 3, 2020, the GARS Independent Directors held a telephone conference with representatives of Eversheds Sutherland. The GARS Independent Directors reported that, as they had directed, KBW had contacted four parties, including PTMN and Party D, and requested that they modify their initial indications of interest. Eversheds Sutherland then discussed with the GARS Independent Directors the due diligence process.

On February 14, 2020, the GARS Independent Directors held a telephone conference with representatives of KBW and Eversheds Sutherland. KBW provided the GARS Independent Directors with an update on the performance of due diligence of GARS by Party A, Party B and Party C, each of which had already advanced to the second round of the process. In addition, KBW reviewed with the GARS Independent Directors the revised initial indications of interest submitted by PTMN and Party D, each of which was requested to modify its initial indication of interest. KBW indicated that the other parties that were requested to modify their initial indications of interest had declined to do so. KBW then reviewed a revised indication of interest which had been submitted by Party E upon learning of its elimination from the strategic review process. Party E’s revised indication of interest regarding a potential business combination was a substantial improvement from its prior indication, and the GARS Independent Directors considered that the revised indication appeared to be competitive with other proposals being advanced to the second round. After discussion, the GARS Independent Directors determined to recommend inviting PTMN and Party E to join Party A, Party B and Party C in the second round of the process, complete due diligence and submit second round indications of interest.

On February 14, 2020, the GARS Board held a telephonic meeting, in which representatives of KBW, Proskauer and Eversheds Sutherland also participated, immediately following the meeting of the GARS

 

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Independent Directors. KBW discussed with the GARS Board the revised proposals that were received from PTMN and Party D, as well as from Party E, and also discussed the two parties that were requested to (but did not) modify their initial indications of interest. The members of the GARS Board noted that Party D’s proposal, which contemplated entry into a new investment advisory agreement and a merger with a wholly-owned affiliate of Party D with $100 million in assets, did not sufficiently address the GARS Board’s concern regarding post-transaction scale of the company. After discussing the benefits and issues of each of PTMN’s and Party E’s proposals, including discussions regarding potential complexity of the proposed transactions, the expected value of the consideration to be received by GARS Stockholders and the reputation and resources of their respective investment advisers, the GARS Board agreed with the recommendation of the GARS Independent Directors to invite PTMN and Party E to advance to the second round of the process and to eliminate Party D from the process. The GARS Board then discussed the reverse due diligence process with respect to the five advancing parties. The meeting concluded with a discussion of the timing of the strategic review process, including delivery of an auction draft of the transaction document and the expected timing of second round indications of interest.

On February 26, 2020, GARS uploaded a second round process letter to the electronic data room. The second round process letter informed the five advancing parties (Party A, Party B, Party C, Party E and PTMN) of the bid information that would be required in their respective second round indications of interest and that such second round proposals were due on March 18, 2020.

On March 4, 2020, the GARS Board held a meeting at which management and representatives of each of KBW and Proskauer also participated. KBW provided the GARS Board with an update on the strategic review process. KBW summarized the meetings with GARS management that had been completed by PTMN, Party B and Party E and indicated that meetings with Party A and Party C were scheduled for the near future. KBW then informed the GARS Board that Party D, which was previously removed from the strategic review process by the GARS Board, had expressed interest in submitting a revised proposal contemplating a reverse merger. The GARS Board instructed KBW to request that Party D submit an updated proposal in writing and provide Party D with the second round process letter. The GARS Board then discussed the various proposals and counterparties that had advanced to the second round of the process.

On March 5, 2020, in connection with the regularly scheduled quarterly meeting of the PTMN Board, PTMN management provided the PTMN Board with an update regarding potential acquisition targets, and discussed the process to date regarding GARS.

On March 9, 2020, the GARS Independent Directors held a telephone conference with representatives of Eversheds Sutherland. In connection with the second round process, Mr. Morea provided an update on the on-site due diligence sessions that GARS’ senior management had held with PTMN, Party C and Party D. Mr. Morea noted that Party A was scheduled to perform on-site due diligence later in the week. He further noted that discussions were ongoing with Party B and Party E. Mr. Morea then discussed Party D, which had previously submitted an initial indication of interest and a revised indication of interest relating to a management contract transaction that was deemed insufficient and not selected to advance to the second round. Mr. Morea stated that Party D had since contacted KBW regarding the possibility of submitting an indication of interest relating to a potential reverse merger. Mr. Morea noted that the GARS Board was informed of this party’s renewed interest at its quarterly board meeting held on March 4, 2020 and that the GARS Board instructed KBW to request that Party D submit an indication of interest relating to a potential reverse merger. Mr. Morea further noted that such indication of interest from Party D had not yet been received.

The outbreak of COVID-19 resulted in extreme volatility and uncertainty across nearly every financial market, sector and industry worldwide in the month of March 2020. In the United States, the response of federal, state and local authorities to the COVID-19 pandemic was unprecedented, with widespread “stay at home” orders effectively shutting down much of the U.S. economy, an interest rate cut by the Federal Reserve and stimulus packages of over $2 trillion. As a result, the deadline for submitting second round indications of interest was extended from March 18, 2020 to March 25, 2020 and the impact of the widespread disruption, extraordinary

 

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uncertainty and unusual volatility arising from the COVID-19 pandemic on valuations of debt investments was reflected in the second round indications of interest submitted by the bidders.

On March 10, 2020, the auction draft of the merger agreement was uploaded to the electronic data room.

On March 12, 2020, Party E informed KBW that it was withdrawing its then-current proposal given the market changes resulting from the COVID-19 pandemic.

On March 25, 2020, Party A, Party B, Party C and PTMN submitted second round indications of interest.

On March 30, 2020, the GARS Board held a telephonic meeting at which management and representatives of each of KBW, Proskauer and Eversheds Sutherland also participated. KBW discussed the merger proposals submitted by Party A and PTMN, each of which consisted of a NAV-for-NAV merger with a cash payment to GARS Stockholders. KBW reviewed Party A’s adjustment to GARS’ NAV as of December 31, 2019 and noted for the GARS Board to consider that Party A’s proposal was subject to further valuation adjustments. KBW noted for the GARS Board to consider that the PTMN proposal contemplated that all valuation adjustments would be addressed in ongoing due diligence prior to the signing of definitive documentation. Proskauer then discussed the mark-ups of the auction draft of the merger agreement by PTMN and Party A, and management discussed the relative portfolio, leverage and platform resources of PTMN and Party A. KBW then reviewed the terms of the reverse merger proposal submitted by Party C, including the proposed consideration and possibility of increasing the size of the post-transaction entity. The GARS Board discussed with KBW the execution risk resulting from certain consents that would be required in connection with the proposed transaction with Party C. Management noted that the proposal did not address certain issues related to Party C’s existing portfolio and that reverse due diligence of Party C would require significant resources. KBW then discussed Party B, which on March 25, 2020 had modified its proposal for a merger into a proposal to enter into an investment advisory agreement with GARS, explaining the result of market conditions caused by the COVID-19 pandemic as the reason for such change. Management and the GARS Board then discussed with KBW the likelihood of a future merger, the proposed management fees and execution risk under Party B’s modified proposal. The GARS Board then discussed the viability of each remaining proposal and the benefits of keeping multiple parties engaged in the process. The GARS Board instructed KBW to inform each of Party A and PTMN of GARS’ desire to conduct two weeks of additional reverse due diligence on such potential counterparty in light of current market volatility. The GARS Board also instructed KBW to communicate to each of Party B and Party C that GARS was conducting further due diligence on certain other opportunities but that, pending the results of that due diligence and market developments, the GARS Board may seek to re-engage with them.

On April 17, 2020, the GARS Independent Directors held a telephone conference with representatives of KBW and Eversheds Sutherland. Brian Chase, a member of the GARS Board and the then Chief Operating Officer, Chief Compliance Officer and Secretary of GARS, was invited to participate in a portion of the telephone conference and provided an update regarding the status of reverse due diligence performed by GARS with respect to PTMN and Party A. KBW then provided an update regarding Party B, which had advanced to the second round based on its initial indication of interest relating to a potential business combination, noting that Party B had submitted a revised indication of interest relating to a management contract transaction. In addition, KBW informed the GARS Board that Party E, which had previously withdrawn its revised indication of interest regarding a business combination transaction, had since engaged in discussions with KBW regarding a potential management contract transaction. KBW further indicated that a potential new bidder, Party F, had expressed interest in a potential management contract transaction. KBW, Mr. Chase and the GARS Independent Directors discussed the respective platforms of Party E and Party F. KBW also provided an update regarding Party D, noting that it continued to prepare a revised indication of interest for a business combination transaction. After discussion, including of general considerations with respect to a potential management contract transaction, the GARS Independent Directors agreed that Party E and Party F should be permitted to submit indications of interest regarding a potential management contract transaction during the pendency of reverse due diligence by GARS.

 

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On April 20, 2020, the GARS Board held a telephonic meeting at which representatives of management and each of KBW, Proskauer and Eversheds Sutherland also participated. KBW reviewed the terms of Party A’s binding indication of interest, dated April 19, 2020, relating to a business combination transaction (the “Party A April Proposal”), which included stock consideration at a fixed exchange ratio based on GARS’ adjusted NAV as of December 31, 2019 and cash consideration of $5.0 million (or approximately $0.31 per share of GARS Common Stock). The GARS Board considered that the Party A April Proposal included an expiration date. KBW observed that the Party A April Proposal was substantially similar to Party A’s March 25, 2020 proposal, but included a larger discount to GARS’ NAV as of December 31, 2019 than the previous proposal and included an expectation that GARS engage, at its own expense, a mutually agreed third-party valuation firm to conduct a full portfolio valuation. The timing of this valuation exercise during an exclusivity period raised some level of execution risk. KBW then reviewed the terms of a merger proposal submitted by Party D on April 20, 2020 (the “Party D April Proposal”). The Party D April Proposal was for 70% to 85% of GARS’ NAV prior to the closing of the transaction, through which GARS Stockholders would receive shares of Party D common stock valued at the greater of (a) the volume weighted average share price of Party D common stock for a to-be-agreed-upon time period or (b) Party D’s NAV per share prior to closing of the merger. KBW discussed potential liquidity considerations related to the Party D April Proposal. KBW provided an update on recent discussions with other potential counterparties, including PTMN, and indicated that no additional discussions with representatives of Party E and Party F regarding their respective proposals to enter into a management contract with GARS had occurred since the meeting of the GARS Independent Directors on April 17, 2020. Discussion then ensued regarding the various proposals and potential next steps with each potential counterparty, including views of the directors as to the relative need and desire of each potential counterparty to consummate their respective proposed transaction. Following the discussion, the GARS Board instructed KBW to keep Party A and PTMN engaged, to provide Party D with the auction draft of the merger agreement (which had not yet been provided to Party D for review) and request from Party D additional detail regarding its proposal and to ask Party E and Party F if and when each expected to be able to provide a revised proposal.

During the April 20, 2020 meeting of the GARS Board, based on the nature of certain of the indications of interest received, including the possibility that the existing investment adviser and/or its personnel would continue to provide, and receive compensation for, certain potential transition services to be provided by Garrison Capital Advisers following a strategic transaction, the GARS Board established the GARS Special Committee, which was comprised solely of the GARS Independent Directors, for the purpose of analyzing and evaluating the strategic alternatives. The GARS Special Committee was authorized to, among other things: (1) review, evaluate, consider and monitor negotiations related to the terms and conditions of any strategic alternative and any agreements or arrangements proposed to be entered into by GARS in connection with or relating to any strategic alternative, including to determine whether any strategic alternative is fair to and in the best interests of all of GARS Stockholders; (2) review, evaluate, consider and negotiate on behalf of GARS the terms and conditions of any agreements or arrangements proposed to be entered into by GARS or the surviving entity following the transaction or any of their respective affiliates, on the one hand, and with or for the benefit of Garrison Investment Group or any of its respective affiliates, on the other hand, in connection with or relating to any strategic alternative; (3) recommend to the GARS Board what action, if any, should be taken by the GARS Board with respect to any strategic alternative and any such agreements or arrangements proposed to be entered into in connection with or relating to any strategic alternative; and (4) take such other actions as the GARS Special Committee may deem to be necessary or appropriate for the GARS Special Committee to discharge its duties. In addition, the GARS Special Committee was authorized to recommend or not to recommend to the GARS Board any such strategic alternative, and to determine whether or not it is in the best interests of GARS and its stockholders that GARS proceed with any strategic alternative.

On April 23, 2020, BC Partners Credit submitted a letter to the GARS Board to address certain issues that had been raised with PTMN regarding its proposed business combination.

On April 24, 2020, the GARS Special Committee held a telephone conference with representatives of KBW and Eversheds Sutherland. KBW provided an update on its communications with the bidders since the prior

 

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GARS Board meeting. KBW discussed the Party A April Proposal. The GARS Special Committee considered that the Party A April Proposal included an expiration date and was set to expire that day. The GARS Special Committee further considered that the Party A April Proposal would require GARS to enter into a 30-day exclusivity period with Party A and was subject to completion of definitive documentation and confirmatory accounting, valuation and legal due diligence. In addition, the GARS Special Committee considered the requirement under the Party A April Proposal for GARS to engage a third-party valuation firm at GARS’ sole expense to conduct a full portfolio valuation during the proposed exclusivity period. The GARS Special Committee then discussed with KBW the need for Party A to complete additional due diligence regarding GARS and for GARS to complete additional reverse due diligence on Party A. Next, KBW discussed PTMN’s indication of interest, dated March 25, 2020, relating to a business combination transaction (the “PTMN March Proposal”), which included a “NAV for NAV” exchange, whereby the exchange ratio would be determined at closing such that shares issued by PTMN to GARS Stockholders would result in an ownership split of the combined company based on each of PTMN’s and GARS’ respective NAV, plus cash consideration of $15.0 million (or approximately $0.93 per share of GARS Common Stock). The GARS Special Committee discussed with KBW PTMN’s recently completed strategic transactions as an indication of PTMN’s efforts to develop scale. KBW then discussed the Party D April Proposal. KBW informed the GARS Special Committee that Party D was continuing to review the GARS portfolio for a potential business combination and had a due diligence call scheduled for later that day with GARS’ management team. KBW further indicated that it appeared that Party D was not then in a position to provide a revised proposal, but greater visibility into its proposal was expected as due diligence proceeded. The GARS Special Committee then discussed with KBW the complexity of the Party D April Proposal, and the additional time necessary for completion of such potential business combination. KBW then provided an update on Party B’s previously discussed indication of interest relating to a management contract transaction. In addition, KBW indicated that each of Party E and Party F had received access to the electronic data room and was in the process of preparing an indication of interest regarding a management contract transaction. More visibility from Party E and Party F was expected during the following week. The GARS Special Committee discussed with KBW Party A’s imposed deadline of April 24, 2020 for acceptance of the Party A April Proposal. Mr. Morea noted that he previously informed Party A’s investment banker that the GARS Special Committee was considering several alternatives and could not be certain that a determination would be made by Party A’s requested date of April 24, 2020. After discussion regarding the potential strategic alternatives, the GARS Special Committee determined that, because of the changing nature of the proposals, and the need to receive more complete information, it was not yet in a position to select an alternative. The GARS Special Committee instructed KBW to inform Party A that the GARS Special Committee had not yet completed its review process.

On May 1, 2020, the GARS Special Committee held a telephone conference with representatives of KBW and Eversheds Sutherland. KBW indicated that it had been in contact with all of the bidders since the prior GARS Special Committee meeting. KBW indicated that Party D, Party E and Party F had recently requested and received GARS’ preliminary valuations as of March 31, 2020 and each was expected to use such information to submit revised or initial indications of interest, as applicable, in the near term. KBW reviewed the terms of the Party D April Proposal, as previously discussed with the GARS Special Committee, and noted that Party D expected to provide visibility shortly as to where Party D expected to come out in the broad range of 70% to 85% of GARS’ NAV, as included in the Party D April Proposal. The GARS Special Committee and KBW discussed Party D’s decision to wait to engage in reverse due diligence until after it submitted a revised indication of interest to the GARS Special Committee. In addition, the GARS Special Committee and KBW discussed the complexity of Party D’s structure, the lack of clarity of deal terms given Party D’s decision to not submit a mark-up of the auction draft of the merger agreement, and the additional time necessary for completion of a transaction with Party D. Next, KBW discussed its recent communications with Party A. Although the Party A April Proposal had expired on April 24, 2020, Party A asked to be informed if the GARS Special Committee had further interest in a business combination transaction with Party A. KBW then provided an update regarding recent communications with PTMN, Party B, Party E and Party F.

 

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On May 5, 2020, the GARS Board held a telephonic meeting at which representatives of management and each of KBW, Proskauer and Eversheds Sutherland also participated. KBW provided the GARS Board with an update on the strategic review process. KBW indicated that Party D had not yet provided a mark-up of the auction draft of the merger agreement and that KBW expected to receive a revised proposal from Party D by May 8, 2020. The GARS Board discussed Party D’s liquidity position and potential rationale for pursuing a transaction with GARS. KBW then summarized discussions with representatives of Party A and indicated that a revised indication of interest was received from Party A on May 4, 2020 (the “Party A May Proposal”), which proposed a reduced exchange ratio and an additional $45 million adjustment to GARS’ NAV as of March 31, 2020. The GARS Board and KBW discussed the decline in the exchange ratio and the increased adjustment to GARS’ NAV in each proposal provided by Party A. The Party A May Proposal would expire on May 7, 2020. The GARS Board discussed the adjustment to GARS’ NAV proposed by Party A and the appropriate strategy for negotiating with Party A going forward. The GARS Board instructed KBW to request from Party A’s financial advisor an explanation of, and to express displeasure regarding, the proposed additional adjustment to GARS’ NAV as of March 31, 2020. KBW then summarized discussions with representatives of PTMN, indicating that PTMN continued to propose a merger on a NAV-for-NAV basis as set forth in the PTMN March Proposal and that the implied value of the PTMN March Proposal was comparable to the Party A May Proposal but that PTMN proposed cash consideration of $0.93 per share compared to the $0.31 per share proposed by Party A. KBW then summarized discussions with representatives of Party F, which continued to evaluate a management contract proposal. KBW then summarized recent discussions with representatives of Party B, noting that Party B welcomed any feedback on its most recent proposal as the strategic review process developed. KBW then indicated that in discussion with representatives of Party C, Party C had indicated its willingness to re-engage in the process if requested by the GARS Board. Finally, KBW indicated that representatives of Party E had communicated that the firm’s investment committee had decided to terminate Party E’s participation in GARS’ strategic review process.

On May 6, 2020, in connection with the regularly scheduled quarterly meeting of the PTMN Board, PTMN management provided the PTMN Board with an update regarding potential acquisition targets, including recent developments regarding PTMN’s proposal to merge with GARS.

On May 7, 2020, the Party A May Proposal expired by its terms, and there were no further discussions with representatives of Party A.

On May 12, 2020, the GARS Special Committee held a telephone conference with representatives of KBW and Eversheds Sutherland. KBW provided an update on discussions with the bidders since the prior GARS Special Committee meeting. KBW then discussed with the GARS Special Committee the revised indication of interest received from Party D on May 11, 2020 (the “Party D May Proposal”). The Party D May Proposal included an offer price of $4.50 to $4.75, in the form of 100% Party D common stock and included a proposed structure through which the investment assets acquired through the acquisition would be held in an off balance sheet special purpose vehicle structured as a joint venture with a third party, which would allow for the outstanding debt under the GARS collateralized loan obligation to be excluded from Party D’s debt balances for purposes of calculating Party D’s asset coverage under the 1940 Act. Eversheds Sutherland and KBW discussed the use and structure of joint ventures in the BDC industry and how the proposed joint venture in a merger transaction differed from the use and structure generally utilized. KBW relayed that Party D indicated that it had certain third parties in mind for the joint venture, but had not yet approached any of them. KBW also relayed that Party D viewed the need to secure a third party for the proposed joint venture as a structural contingency of the Party D May Proposal. The GARS Special Committee considered the fact that Party D, unlike PTMN, had not yet submitted a mark-up of the auction draft of the merger agreement, so certain terms of the Party D May Proposal and hurdles to execution of definitive documentation remained unclear. KBW relayed that Party D did not intend to submit a mark-up of the auction draft of the merger agreement until after GARS and Party D had entered into an exclusivity agreement. KBW next discussed with the GARS Special Committee the revised indication of interest received from PTMN on May 10, 2020 (the “PTMN May 10th Proposal”). The PTMN

 

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May 10th Proposal increased the aggregate cash consideration from $15 million to $22.5 million, including $5.0 million from Sierra Crest. The GARS Special Committee noted that PTMN had previously submitted a mark-up of the auction draft of the merger agreement and discussed the lower execution risk for a potential business combination with PTMN, as compared to a potential business combination with Party D. The GARS Special Committee, with the assistance of KBW, compared the advantages and disadvantages of the Party D May Proposal and the PTMN May 10th Proposal. In addition, the GARS Special Committee discussed that PTMN had completed a significantly greater amount of due diligence than Party D. Regarding Party D’s potential to obtain a third party partner for the proposed joint venture, the GARS Special Committee discussed with KBW the risk that Party D’s ability to locate a third party partner may present challenges which could increase if the financial markets worsen. Due to the complexity of Party D’s structure and the fact that Party D had not yet submitted a mark-up of the auction draft of the merger agreement, had only begun due diligence on GARS, and did not have a firm joint venture partner, the GARS Special Committee believed that the Party D May Proposal presented greater-than-average execution risk. At this meeting, KBW also informed the GARS Special Committee that Party B remained interested in a potential management contract transaction, that Party E had decided not to submit an indication of interest regarding a potential management contract transaction and that Party F had not provided any feedback to KBW. The GARS Special Committee and KBW then discussed responding to PTMN to request an increase in the cash consideration from $1.40 to $1.50 per share of GARS Common Stock in order to create more value for GARS Stockholders. The GARS Special Committee and KBW also discussed that GARS’ management was preparing an analysis of the relative value of liquidating GARS’ portfolio. After discussion, the GARS Special Committee determined that (i) KBW would reach out to PTMN to request that PTMN increase the cash consideration in the PTMN May 10th Proposal, (ii) Mr. Morea would engage in a discussion with Party D, on behalf of the GARS Special Committee, and (iii) GARS’ management would provide KBW with a liquidation analysis.

Later on May 12, 2020, PTMN submitted a further revised indication of interest (the “PTMN May 12th Proposal”). In comparison to the PTMN May 10th Proposal, the PTMN May 12th Proposal increased the aggregate cash consideration from $22.5 million to $24.1 million (or approximately $1.50 per share of GARS Common Stock), including $5.0 million from Sierra Crest.

On May 15, 2020, the GARS Board held a telephonic meeting at which representatives of management and each of KBW, Proskauer and Eversheds Sutherland also participated. KBW reviewed historical specialty finance market transaction premiums and noted that the premium in both the Party D May Proposal and the PTMN May 12th Proposal were above the 75th percentile relative to the surveyed transaction premiums. KBW compared the Party D May Proposal, which offered 100% Party D common stock consideration, and the PTMN May 12th Proposal, which included cash consideration. The GARS Board discussed with KBW how, given the fixed range for the exchange ratio in the Party D May Proposal, GARS Stockholders would not benefit if the market price of GARS Common Stock improved prior to closing, while PTMN’s NAV-for-NAV structure would enable GARS Stockholders to benefit from any such increase. In addition, based on current NAVs, GARS Stockholders would own approximately 42% of the combined company following the proposed transaction with PTMN and a significantly smaller percentage of the combined company following the proposed transaction with Party D. The GARS Board then discussed with KBW the relative execution risk presented by each proposal, noting that (1) unlike PTMN, Party D’s representatives had not provided a mark-up of the auction draft of the merger agreement or substantially completed the required due diligence processes and (2) Party D’s proposal required a commitment from a third-party investor that had not yet been obtained. After robust discussion, the GARS Special Committee recommended that the GARS Board approve entry into an exclusivity agreement with PTMN subject to satisfactory review by Proskauer and Eversheds Sutherland of certain due diligence materials and the GARS Board approved entry into an exclusivity agreement with PTMN subject to satisfactory review by Proskauer and Eversheds Sutherland of such due diligence materials and authorized the officers of GARS to negotiate such an agreement.

Subsequent to the May 15, 2020 GARS Board meeting, a liquidation analysis was performed by GARS’ management, which indicated that, based on management’s assumptions (including with respect to the impact of

 

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widespread disruption, extraordinary uncertainty and unusual volatility arising from the COVID-19 pandemic), a merger transaction with PTMN would likely deliver greater value to GARS Stockholders than a liquidation of GARS’ portfolio, which management estimated would result in GARS Stockholders receiving between $2.66 and $5.14 per share of GARS Common Stock, and likely in the bottom half of such range.

On May 17, 2020, the GARS Board approved compensation for the GARS Special Committee, which is comprised solely of the GARS Independent Directors. Effective May 17, 2020, each member of the GARS Special Committee receives a one-time retainer of $20,000 paid in connection with the formation of the GARS Special Committee and a retainer of $10,000 per month, but not to exceed $50,000 in the aggregate, until and including the closing of a strategic alternative or disbanding of the GARS Special Committee (the “GARS Special Committee Fee”).

On May 19, 2020, GARS entered into an exclusivity agreement (the “Exclusivity Agreement”) with PTMN granting PTMN the exclusive right to negotiate a transaction with GARS for a 30-day period. Also on May 19, 2020, Proskauer provided KBW with a reverse legal due diligence request list to be provided to PTMN.

On May 27, 2020, Eversheds Sutherland, on behalf of the GARS Special Committee, provided comments on the draft Merger Agreement to Simpson Thacher, counsel to PTMN. Between May 29, 2020 and June 18, 2020, Eversheds Sutherland and Simpson Thacher exchanged revised drafts of the Merger Agreement and held various telephone calls to discuss comments to the Merger Agreement. In connection with negotiating the Merger Agreement on behalf of the GARS Special Committee, Eversheds Sutherland held various telephone calls with Proskauer. Proskauer also held various telephone calls with Simpson Thacher regarding the due diligence and reverse due diligence processes as well as certain related matters.

On June 3, 2020, the GARS Board held a telephonic meeting at which representatives of management and each of KBW, Proskauer and Eversheds Sutherland also participated. KBW provided the GARS Board with an update on how recent movements in GARS Common Stock and PTMN Common Stock affected the implied value of the transaction with PTMN, noting that the implied value had decreased since the PTMN May 12th Proposal as a result of the increase in the market price of GARS Common Stock relative to PTMN Common Stock. However, the GARS Board considered and confirmed that the NAV-for-NAV structure of the proposed transaction enabled GARS Stockholders to benefit from increases in the market price of PTMN Common Stock prior to closing and that, if PTMN Common Stock traded back to its February 21, 2020 market price prior to closing, the implied value of the transaction to GARS Stockholders would be $6.00 per share of GARS Common Stock. Eversheds Sutherland and Proskauer provided an update on the draft Merger Agreement and related matters. Eversheds Sutherland noted that they had discussed the draft Merger Agreement with Simpson Thacher and that a revised draft was expected by June 6, 2020. Proskauer provided an update on reverse due diligence, which remained ongoing.

On June 4, 2020, Simpson Thacher provided Eversheds Sutherland with a revised draft of the Merger Agreement. On June 11, 2020, Eversheds Sutherland provided Simpson Thacher with a revised draft of the Merger Agreement.

On June 12, 2020, the GARS Board held a telephonic meeting at which representatives of management and each of KBW, Proskauer and Eversheds Sutherland also participated. KBW provided an update on recent trends in the market prices of publicly traded BDCs, including GARS and PTMN. Proskauer and Eversheds Sutherland provided an update on legal reverse due diligence, noting that it was ongoing and certain materials remained outstanding. Eversheds Sutherland provided the GARS Board with a summary of significant points on the draft Merger Agreement that remained open to negotiation, including the positions included in the most recent draft Merger Agreement provided by Simpson Thacher and Eversheds Sutherland’s recommendations for each point. The GARS Board and Eversheds Sutherland engaged in robust discussion regarding the open points, including those related to certain activities during the period between signing of the Merger Agreement and closing of the Merger. Eversheds Sutherland then advised that the exclusivity period expired on June 17, 2020 and advised that the Exclusivity Agreement be amended to extend the period for an additional week.

 

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On June 16, 2020, a conference call was held among the GARS Special Committee, Eversheds Sutherland, Proskauer and KBW to discuss remaining open points on the draft Merger Agreement.

On June 17, 2020, the Exclusivity Agreement was amended to extend the exclusivity period to June 24, 2020. Later on June 17, 2020, Simpson Thacher sent Eversheds Sutherland a revised draft of the Merger Agreement.

On June 18, 2020, the GARS Board held a telephonic meeting to provide an update on the negotiation of the draft Merger Agreement. Representatives of management, Proskauer and Eversheds Sutherland also participated. Eversheds Sutherland provided an overview of the remaining points subject to negotiation. A discussion ensued among the GARS Board, Eversheds Sutherland and Proskauer about the draft Merger Agreement, the proposed resolution of the open points and the agreement reached with PTMN on certain of the items. The GARS Board and Eversheds Sutherland also discussed how the Merger Agreement would apply to certain activities of GARS prior to closing.

Between June 19, 2020 and June 23, 2020, Eversheds Sutherland and Simpson Thacher exchanged revised drafts of the Merger Agreement and held various telephone calls to discuss comments to the Merger Agreement. Proskauer held various telephone calls and had other correspondence with Simpson Thacher relating certain aspects of the Merger Agreement.

On June 23, 2020, the PTMN Board held a special meeting via video conference to consider the proposed transaction with GARS. Representatives from Sierra Crest participated in the meeting, along with Simpson Thacher, counsel to PTMN and Sierra Crest, and Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), counsel to the PTMN Independent Directors. The PTMN Board reviewed and discussed information that had been provided in advance of the meeting regarding the proposed Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, GARS, and the anticipated benefits of the transaction. A description of the PTMN Board’s considerations of the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, is included in the section entitled “—Reasons for the Mergers—PTMN” below. At the conclusion of the meeting the PTMN Board, including the PTMN Independent Directors, unanimously determined that the Mergers are in the best interests of PTMN and in the best interests of PTMN’s Stockholders, adopted the Merger Agreement and approved the proposed Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal.

On June 24, 2020, Simpson Thacher sent Eversheds Sutherland a revised draft of the Merger Agreement.

Later on June 24, 2020, the GARS Special Committee and the GARS Board held a telephone conference, with representatives of Garrison Capital Advisers, Proskauer, Eversheds Sutherland and KBW also participating in such conference call. At the meeting, Eversheds Sutherland reviewed with the GARS Special Committee the duties of each director under Delaware law that were applicable in considering the proposed Merger. Proskauer discussed a summary of the regulatory, compliance, tax, finance, corporate and other due diligence reviews of PTMN. Eversheds Sutherland also discussed with the GARS Special Committee the revised draft of the Merger Agreement and other documents that had been circulated prior to the meeting and their material provisions, with a particular focus on certainty of closing and the GARS Board’s ability to change its recommendation and/or accept a superior proposal if such action is in the best interests of GARS Stockholders. KBW then reviewed the financial aspects of the proposed Merger and rendered an opinion to the GARS Special Committee and, as requested by the GARS Special Committee, the GARS Board, which opinion was initially rendered verbally and subsequently confirmed by delivery of a written opinion, dated June 24, 2020, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the per share consideration (including the additional consideration from Sierra Crest) to be received by the holders of GARS Common Stock in the Merger was fair, from a financial point of view, to such holders, as more fully described in the section entitled “—Opinion of the Financial Advisor to the GARS Special Committee” below. Following a discussion of the foregoing matters by the GARS Special Committee, the GARS Special Committee unanimously (1) determined,

 

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and recommended that the GARS Board determine, that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Mergers, are advisable and fair to and in the best interests of GARS and GARS Stockholders, and (2) recommended that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Mergers, be approved by the GARS Board and thereafter executed and submitted to GARS Stockholders for consideration at a special meeting.

Based in part upon the unanimous recommendations of the GARS Special Committee, the GARS Board, including the GARS Independent Directors, unanimously (1) determined that the Merger Agreement and the transactions contemplated thereby, including the Mergers, are advisable and fair to and in the best interests of GARS and GARS Stockholders, and (2) approved, declared advisable and adopted the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Mergers. The GARS Board then unanimously directed that such matters be submitted to GARS Stockholders for approval and recommended that GARS Stockholders vote to approve the same.

On June 24, 2020, following approval of the Merger Agreement by the GARS Board, PTMN, GARS, Merger Sub and Sierra Crest executed and delivered the Merger Agreement. PTMN and GARS issued a press release announcing the execution of the Merger Agreement on June 24, 2020.

Reasons for the Mergers

PTMN

At various video conference and in-person PTMN Board meetings, Sierra Crest discussed the potential transaction between PTMN and GARS and recommended to the PTMN Board the approval of the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal. In connection with these discussions, Sierra Crest provided information regarding the proposed Merger Agreement and the transactions contemplated thereby, GARS, and the anticipated effects of the merger on PTMN and PTMN Stockholders, both immediately after the Mergers and over the longer-term assuming that some portion of the anticipated investment, market and financial synergies of the merger are realized. Over the course of its review of the materials and information provided and its consideration of the Mergers, the PTMN Board consulted with Sierra Crest and PTMN’s legal advisors. In addition, the PTMN Independent Directors were advised by Skadden regarding the nature and adequacy of the information provided, including the terms of the Merger Agreement and their fiduciary duties under state and federal law in approving the Merger Agreement and the transactions contemplated thereby. The PTMN Board considered numerous factors, including the ones described below, in connection with its consideration and approval of the Merger Agreement and the transactions contemplated thereby. On June 23, 2020, the PTMN Board, including the PTMN Independent Directors after meeting in executive session with Skadden and Simpson Thacher, unanimously determined that the Mergers are in the best interests of PTMN and in the best interests of PTMN’s Stockholders, and that PTMN Stockholders will not suffer any economic dilution relative to PTMN’s NAV as a result of the Mergers other than dilution resulting from transaction expenses.

The PTMN Board, including the PTMN Independent Directors, weighed various benefits and risks in considering the Merger Agreement and the transactions contemplated thereby, including with respect to the immediate effects of the Mergers on PTMN and PTMN Stockholders, with respect to the potential benefits that could be experienced by the combined company after the Mergers and with respect to potential risks and negative factors that could cause the Mergers not to close or their anticipated benefits not to be realized. Some of the material factors considered by the PTMN Board that assisted it in concluding that Mergers are in the best interests of PTMN and PTMN Stockholders included, among others:

Investment Strategies and Risks. The PTMN Board reviewed both PTMN’s and GARS’ investment program and noted that they have substantially similar investment objectives, strategies and risks and that each focuses on making investments in privately-held middle-market companies. The PTMN Board took into consideration that, after the Mergers, PTMN Stockholders would be invested in an investment vehicle that pursued the same

 

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objective as PTMN, but with a more diversified portfolio, and that their investment experience would likely be comparable in the combined entity.

Investment Adviser. The PTMN Board considered that the combined company would have the same investment adviser and management team that have already been considered and approved by the PTMN Board and the PTMN Independent Directors. The PTMN Board believed that, because there would be no change in the investment adviser, the combined entity and PTMN Stockholders would receive the same quality of services from Sierra Crest as they are currently receiving and would continue to benefit from the experience and expertise of its current portfolio management and credit teams. In this regard, the PTMN Board viewed favorably the overall investment and operational performance of Sierra Crest since taking over the management of PTMN and OHA Investment Corporation, as well as Sierra Crest’s demonstrated competence in evaluating and effectively arranging for the Mergers for the benefit of stockholders.

Benefits of Spreading Public Company Costs Across a Larger Asset Base. The PTMN Board considered that, as a result of the Mergers, the ratio of PTMN’s fixed costs (e.g., printing and mailing of periodic reports and proxy statements, legal expenses, insurance, audit fees and other expenses) to assets is expected to be lower than PTMN’s current expense ratio. The PTMN Board noted that, if the Mergers are consummated, the fixed costs and expenses would be spread across a larger asset base and duplicative fixed costs would be eliminated. As a result, although certain one-time costs would be borne by PTMN Stockholders in connection with the Mergers, the total annual expenses borne by PTMN Stockholders on a pro forma basis are expected to be reduced by approximately 1.3%, resulting from an anticipated reduction in general and administrative expenses as a percentage of total assets of approximately 1.6%. The PTMN Board and the PTMN Independent Directors found that the expected decrease in the total annual expense ratio of the combined entity would benefit PTMN and PTMN Stockholders if the Merger Agreement and the transactions contemplated thereby were approved.

Earnings Yield, Quality of Earnings and Distributions. Based on pro forma information reviewed by the PTMN Board, the PTMN Board considered that, if expected Merger synergies were not realized, the Mergers would be expected to slightly reduce PTMN’s net investment income yield in the near term, but in any event are expected to increase the quality of PTMN’s earnings by reducing exposure to non-income producing equity securities and to payment-in-kind securities, which would likely improve the resiliency of the earnings profile of the combined company. The PTMN Board considered that, after the initial year following the completion of the Mergers, the combined company’s earnings yield, net investment income per share and dividend coverage are anticipated to improve and, combined with anticipated lower expenses, could create the potential for increased distributions to stockholders.

No Dilution. The PTMN Board considered that the Mergers will be executed on a NAV-for-NAV basis (determined shortly before the Closing Date on the basis of methodologies that were considered by the PTMN Board) and therefore PTMN Stockholders will not suffer any economic dilution relative to PTMN’s NAV as a result of the Mergers other than dilution resulting from transaction expenses. The PTMN Board also considered the diligence conducted by Sierra Crest with regards to the GARS investment portfolio and the values assigned to the assets in the portfolio.

Increased Market Capitalization and Commensurate Increased Trading Volume. As the Mergers contemplate an equity offering that will significantly increase PTMN’s market capitalization, the PTMN Board considered that there is the potential for greater trading interest for PTMN Common Stock, which may result in tighter bid-ask spreads and increased trading volume. The PTMN Board noted that PTMN’s increased profile could result in additional market coverage of PTMN by financial analysts and, potentially, an increased focus by current and potential investors on PTMN, including institutional investors. In addition, the PTMN Board considered the discount at which the PTMN Common Stock trades as compared to its NAV and considered that the increased profile and coverage could potentially result in a narrowing of that discount.

Quality of Holdings, Enhanced Portfolio Diversification and Potential to Increase Portfolio Yield. The PTMN Board reviewed the expected portfolio composition of the combined company, including the quality of

 

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GARS’ holdings, noting that the Mergers are expected to decrease PTMN’s CLO equity exposure, which would decrease its risk and yield, and also are expected to increase PTMN’s first lien exposure, which would decrease its risk and yield. The PTMN Board noted that Sierra Crest expects to be able to transition GARS assets effectively after the Mergers and that PTMN and GARS had minimal portfolio overlap. The PTMN Board considered that the combined company could provide benefits to PTMN Stockholders in the form of greater diversification and reduced concentration of investments. The PTMN Board also considered Sierra Crest’s diligence of the GARS portfolio and the values assigned to its assets.

Terms of the Merger Agreement. The PTMN Board considered the terms and conditions of the Merger Agreement and the course of negotiations thereof, as described in further detail below:

 

   

The Merger Agreement imposes customary restrictions on GARS’ ability to operate outside the ordinary course of business during the Interim Period (as defined below), including regarding GARS’ ability to issue equity securities, incur indebtedness, acquire and dispose of assets and pay dividends. In particular, the Merger Agreement does not expressly permit GARS to take actions outside the ordinary course of business on account of COVID-19 pandemic.

 

   

The Merger Agreement contains customary “non-solicitation covenants” (as defined below). In particular, the Merger Agreement:

 

   

requires GARS to cease existing solicitations of and negotiations with third parties (other than PTMN) regarding Acquisition Proposals and to request the prompt return or destruction of all confidential information previously furnished to any such persons in connection therewith;

 

   

prohibits GARS from initiating, soliciting or knowingly and intentionally encouraging any inquiries with respect to, or the making of, any Acquisition Proposal;

 

   

imposes customary limitations on GARS’ ability to respond to, and negotiate with respect to, certain unsolicited Acquisition Proposals from third parties made prior to the time that GARS Stockholders approve the Merger Proposal; and

 

   

entitles PTMN to customary “matching rights” prior to GARS (i) terminating the Merger Agreement in order to simultaneously enter into a binding definitive agreement providing for the consummation of a Superior Proposal (as defined below) or (ii) effecting a Change in Recommendation (as defined below) in response to a Superior Proposal.

 

   

Except with respect to an SP Action or IE Action (each as defined below), (i) GARS must not withhold or withdraw, or modify or qualify in a manner adverse to PTMN, the GARS Board Recommendation (as defined below) and (ii) GARS must include the GARS Board Recommendation in this joint proxy statement/prospectus. Even if GARS effects a Change in Recommendation (whether or not validly), unless and until the Merger Agreement is validly terminated, GARS must nonetheless submit the Merger Agreement to GARS Stockholders for the purpose of voting on the adoption of the Merger Agreement and the approval of the Mergers, although GARS need not advocate that GARS Stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Mergers.

 

   

The Merger Agreement provides that GARS will be required to pay a customary termination fee to PTMN in certain circumstances if the transactions contemplated by the Merger Agreement are not consummated.

 

   

The Merger Agreement requires GARS to use its reasonable best efforts to ensure that the CLO Conditions (as defined below) are promptly satisfied.

Other Considerations. The PTMN Board considered that the Mergers are not expected to affect the ability of PTMN to comply with its regulatory obligations, including its ability to maintain appropriate leverage and continue to operate in compliance with the asset coverage requirements set forth in the 1940 Act and to pay dividends required of RICs. The PTMN Board also considered benefits that could result from the Mergers, such as an increase in scale of PTMN and an increase in “non-qualifying asset” capacity for higher yielding opportunities.

 

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Risks. In the course of its deliberations, the PTMN Board also considered a variety of risks and other potentially negative factors, including (which are not in any relative order of importance): (1) that it would be possible that the Mergers may not be completed or may be delayed; (2) certain restrictions may be imposed on the conduct of PTMN’s business prior to completion of the Mergers, requiring PTMN to conduct its business only in the ordinary course of business in all material respects, subject to specific limitations, which could delay or prevent PTMN from taking advantage of business opportunities that may arise pending completion of the Mergers; (3) under most circumstances, PTMN will be responsible for the expenses incurred by PTMN in connection with the Mergers and the completion of the transactions contemplated by the Merger Agreement, whether or not the Mergers are consummated, including the costs and expenses of any filing and other fees payable by PTMN to the SEC in connection with the Mergers; and (4) it is possible that the attention of management may be diverted during the period prior to completion of the Mergers, which may adversely affect PTMN’s business.

When considering the information described above, including all of the anticipated effects of the Mergers on PTMN and PTMN Stockholders and the related pro forma information, the PTMN Board noted that information based on projections and assumptions may be incorrect, is subject to change, and may fluctuate over time. The PTMN Board acknowledged that the pro forma information and the projections and assumptions on which the potential expenses, earnings, yield, dividend and trading price information are based depend on many factors and variables, including, among other things, asset mix, the performance of individual investments, changing cost of service providers, portfolio turnover level, leverage, the cost of leverage, changes in interest rates and general market conditions. The PTMN Board noted that there is no assurance that any of the potential benefits to PTMN or PTMN Stockholders as a result of the Mergers will be realized, including any anticipated synergies, and that the combined entity could experience detrimental effects that had not been anticipated.

This discussion of the information and factors that the PTMN Board considered in making its decision is not intended to be exhaustive, but includes the material factors considered by the PTMN Board. Because of the wide variety of factors considered in connection with its evaluation of the Mergers and Merger Agreement and the complexity of those matters, PTMN’s Board did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to these factors. In addition, the individual members of the PTMN Board may have given different weights to different factors.

The PTMN Board, including the PTMN Independent Directors, considered all of these factors and others as a whole and, on balance, determined the Mergers to be in the best interests of PTMN and PTMN Stockholders and unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal.

GARS

As previously disclosed, the GARS Board reviewed a variety of strategic alternatives that the GARS Board believed would enhance value for GARS Stockholders.

In evaluating the merger proposal from PTMN, the GARS Board, including the GARS Independent Directors, consulted with and received the advice of GARS’ management and certain outside advisors. In reaching its decision, the GARS Board and the GARS Special Committee considered a number of factors, including the following factors, and, as a result, determined that entering into the Merger Agreement and consummating the transactions contemplated thereby, including the Mergers, is in the best interests of GARS and GARS Stockholders.

The following discussion of the information and factors considered by the GARS Board and the GARS Special Committee is not intended to be exhaustive. However, it includes all of the material factors considered by them in evaluating the Merger. In view of the complexity and the large number of the factors considered, the GARS Board and the GARS Special Committee did not find it practicable to, and did not attempt to, quantify or assign any relative or specific weight to the various factors. Rather, they based their recommendation or approval, as applicable, on the totality of the information presented to and considered by them, including the duration, robustness and outcome of the competitive process of seeking strategic alternatives for GARS, and

 

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concluded that, overall, the positive factors of the Merger to GARS Stockholders outweigh the risks and potential negative factors related to the Merger.

Any calculations related to the Merger Consideration discussed below are based on the March 31, 2020 NAV and number of outstanding shares of GARS Common Stock and PTMN Common Stock as of that date, unless otherwise indicated. The actual Merger Consideration may be different, and will depend on the NAV and outstanding shares of GARS Common Stock and PTMN Common Stock at or around the Closing Date, as determined pursuant to the Merger Agreement.

Financial Terms of the Merger Agreement with PTMN. The GARS Board and the GARS Special Committee considered the financial terms of the Merger Agreement, including that:

 

   

GARS Stockholders will receive from PTMN and Sierra Crest value per share (based on the NAV per share of PTMN Common Stock and the aggregate value of cash consideration) of approximately 105% of GARS’ NAV per share, calculated based on GARS’ March 31, 2020 NAV.

 

   

GARS Stockholders will receive the following merger consideration:

 

   

the Aggregate Cash Consideration in an amount equal to $19.1 million in cash (approximately $1.19 per share of GARS Common Stock) from PTMN;

 

   

the Share Consideration consisting of shares of PTMN Common Stock equal, in the aggregate, to the product of the Exchange Ratio multiplied by the number of issued and outstanding shares of GARS Common Stock immediately prior to the Merger (plus cash in lieu of fractional shares). For these purposes, the “Exchange Ratio” is equal to (a) the NAV per-share of GARS at the closing of the Merger (adjusted to reflect the per-share impact of the $19.1 million cash consideration), divided by (b) the NAV per-share of PTMN at the closing of the Merger. Based on the number of issued and outstanding shares of GARS Common Stock as of March 31, 2020, and the NAV per share of PTMN Common Stock and the NAV per share of GARS Common Stock on such date, the foregoing formula would have resulted in the issuance of approximately 32.1 million shares of PTMN Common Stock after accounting for anticipated expenses of both parties related to the transaction; and

 

   

the Additional Cash Consideration from Sierra Crest, the external investment adviser to PTMN, in an amount equal to $5 million in cash in the aggregate (approximately $0.31 per share of GARS Common Stock);

 

   

based on respective March 31, 2020 NAV for GARS ($105.7 million, or $6.59 per share of GARS Common Stock) and PTMN ($120.4 million, or $2.69 per share of PTMN Common Stock), adjusted for expected transaction expenses, and the closing price of PTMN Common Stock on June 23, 2020 of $1.25, the transaction (including the Additional Cash Consideration from Sierra Crest of $0.31 per share of GARS Common Stock) values GARS Common Stock at approximately $3.97 per share, which represents 62% of GARS’ March 31, 2020 NAV per share (adjusted for expected transaction expenses) and a 43% premium to the closing price of GARS Common Stock on June 23, 2020 (which was the last trading day before entering into the Merger Agreement); and

 

   

the Cash Consideration and the Additional Cash Consideration, which collectively account for approximately $1.50 per share of GARS Common Stock, provide immediate liquidity and certainty of value to GARS Stockholders.

Thorough Review of Strategic Alternatives. The GARS Board and GARS Special Committee considered the results of the extensive review of strategic alternatives, as discussed below:

 

   

GARS publicly announced that it was actively evaluating strategic alternatives, and an extensive process seeking strategic alternatives was undertaken by GARS, with KBW’s assistance;

 

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GARS and/or KBW, on behalf of GARS, contacted 78 potential strategic partners, 53 of whom executed confidentiality agreements, and 14 of whom submitted initial indications of interest;

 

   

the GARS Board and the GARS Special Committee reviewed a range of options, including the sale of all or a part of GARS, a merger with another party, a full liquidation of GARS and continuing to operate GARS on a standalone basis, including with a new investment adviser;

 

   

the beliefs of the GARS Board and the GARS Special Committee, formed based on a review of the results of the strategic review process, which were evaluated with the assistance of GARS’ management and advisors, that the Merger is more favorable to GARS Stockholders than other opportunities and alternatives reasonably available to GARS, taking into account the potential risks, rewards and uncertainties associated with each alternative, including, among other opportunities and alternatives, the following: (1) pursuing business combinations with entities other than PTMN; (2) pursuing a full liquidation of GARS; and (3) continuing to operate GARS on a standalone basis, including with a new investment adviser;

 

   

the beliefs of the GARS Board and the GARS Special Committee, formed after consultation with GARS’ management and advisors, that prolonging the discussions with PTMN or continuing to solicit interest from additional third parties would be unlikely to lead to a better offer and could have resulted in the loss of PTMN’s offer; and

 

   

PTMN’s obligation to complete the Merger is not conditioned upon receipt of financing, and each of PTMN and Sierra Crest has represented that it will have sufficient cash or sources of cash to enable it to pay the respective amounts due at the Closing.

Strategic and Business Considerations. The GARS Board and the GARS Special Committee considered the various opportunities for the combined company to provide strategic and business opportunities for its stockholders and to generate additional stockholder value, including:

 

   

GARS Stockholders will continue as stockholders in PTMN, and, based on the outstanding shares and relative NAV of GARS Common Stock and PTMN Common Stock outstanding as of March 31, 2020, current GARS Stockholders would own approximately 42% of the combined company immediately following completion of the Merger;

 

   

the combined company will be externally managed by Sierra Crest and is expected to have total investments of approximately $638.5 million and NAV of approximately $207.0 million (each based on March 31, 2020 balance sheets, not adjusted for transaction expenses);

 

   

following the Merger, GARS Stockholders are expected to benefit from (1) access to the full range of resources of Sierra Crest; (2) investment opportunities originated through the BCP Credit platform; and (3) the utilization of BC Partners’ broader resources, including relationships and institutional knowledge from over 30 years of private market investing;

 

   

the combined company’s investment portfolio following the Merger will provide additional scale and portfolio diversification, which will position the combined company, among other things, to (1) capitalize on favorable market conditions; (2) originate larger transactions with increased final hold positions; and (3) enhance access to lower cost of capital from banks and capital market participants;

 

   

GARS Stockholders of the combined company will have an ability to participate in the future growth of PTMN, including potential upside if PTMN’s Common Stock trades higher in the future;

 

   

the Merger is expected to deliver operational synergies for the combined company as a result of the larger scale and elimination of redundant GARS expenses following the Merger;

 

   

GARS Stockholders are expected to realize immediate net investment income per share accretion following the Closing;

 

   

the combined historical performance of GARS and PTMN and expected ability to make future dividend payments to stockholders are expected to benefit GARS Stockholders;

 

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shares of PTMN Common Stock received in exchange for shares of GARS Common Stock may be more liquid than GARS Common Stock, given the increased size and diversification of the equity base of the combined company;

 

   

Sierra Crest (or BCP) previously agreed to contribute all incentive fees actually paid to Sierra Crest through March 31, 2021 under the PTMN Investment Advisory Agreement to purchase newly issued shares of PTMN Common Stock at NAV (subject to an aggregate purchase cap of $10 million);

 

   

PTMN has implemented a share buyback program for up to $10 million, which could support the trading price of the combined company;

 

   

based on a review of PTMN, the belief that PTMN and BC Partners have shown the ability to execute this type of merger transaction; and

 

   

GARS’ knowledge of PTMN’s business, operations, financial condition, earnings and prospects, taking into account the results of GARS’ business and legal due diligence review of PTMN’s operations, its portfolio companies and other corporate and financial matters conducted by GARS and the fact that no significant issues were uncovered as a result of such review.

Opinion of the Financial Advisor to the GARS Special Committee. The opinion, dated June 24, 2020, of KBW to the GARS Special Committee and, as requested by the GARS Special Committee, the GARS Board, as to the fairness, from a financial point of view and as of the date of such opinion, to the holders of GARS Common Stock of the per share consideration (including the additional consideration from Sierra Crest) to be received by such holders in the Merger, as more fully described below under “The Mergers—Opinion of the Financial Advisor to the GARS Special Committee.”

Terms of the Merger Agreement. The GARS Board and GARS Special Committee considered the terms and conditions of the Merger Agreement and the course of negotiations thereof, including:

 

   

the terms of the Merger Agreement are unlikely to unduly deter third parties from making unsolicited Acquisition Proposals (as defined below) because:

 

   

the Merger Agreement does not preclude GARS from responding to, and negotiating with respect to, certain unsolicited Acquisition Proposals from third parties made prior to the time that GARS Stockholders approve the Merger Proposal if any such third party makes an unsolicited Acquisition Proposal that the GARS Board determines in good faith, after consultation with its outside counsel and financial advisors, constitutes or could reasonably be expected to result in a Superior Proposal and that the failure of the GARS Board to respond to such Superior Proposal would reasonably be expected to be inconsistent with the fiduciary duties of the GARS Board under the DGCL;

 

   

if, prior to the time that GARS Stockholders approve the Merger Proposal, the GARS Board determines in good faith, after consultation with its outside counsel and financial advisors, that an unsolicited Acquisition Proposal is bona fide and constitutes a Superior Proposal, then, after complying with PTMN’s customary “matching rights,” the GARS Board can terminate the Merger Agreement in order to simultaneously enter into a binding definitive agreement providing for the consummation of such Superior Proposal if the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties under the DGCL, provided that, concurrently with such termination, GARS will pay PTMN a termination fee of approximately $2.375 million, minus any amounts that GARS previously paid to PTMN in the form of expense reimbursement;

 

   

under the Merger Agreement, GARS may waive any provision of any confidentiality or “standstill” agreement to the extent necessary to permit any person to submit an Acquisition Proposal on a confidential basis to GARS in a manner that is not reasonably expected to require public disclosure by GARS (but in no event will GARS be prohibited from making any such public disclosure to the extent required by applicable law); and

 

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prior to entering into the Merger Agreement, GARS notified each counterparty that it had waived the standstill provisions under each outstanding confidentiality agreement entered into in connection with the review of strategic alternatives to the extent necessary to allow each counterparty to submit an Acquisition Proposal on a confidential basis to GARS in a manner that is not reasonably expected to require public disclosure by GARS (but in no event will GARS be prohibited from making any such public disclosure to the extent required by applicable law).

 

   

the negotiation of the Merger Agreement, including the amount of consideration payable thereunder, was conducted through extensive arm’s-length negotiations under the oversight of the GARS Special Committee, which is composed solely of the GARS Independent Directors;

 

   

the Merger Agreement includes customary terms, including customary non-solicitation, “fiduciary out,” closing and termination provisions; and

 

   

the Merger Agreement imposes a continuing obligation on PTMN to provide customary indemnification to and maintain customary “D&O” liability insurance coverage for officers and directors of GARS.

Risks and Potential Negative Factors. The GARS Board and the GARS Special Committee considered the risks and potential negative factors relating to the Merger Agreement, including:

 

   

changes in the NAV of GARS and PTMN before the completion of the Merger may affect the amount and composition of the Merger Consideration to be received by GARS Stockholders, and changes in the market price of PTMN Common Stock may affect the market value of the Merger Consideration to be received by GARS Stockholders;

 

   

the prohibition in the Merger Agreement on GARS’ ability to solicit acquisition proposals from third parties and the restrictions in the Merger Agreement on GARS’ ability to respond to and negotiate unsolicited Acquisition Proposals from third parties; the requirement that GARS pay PTMN an approximately $2.375 million termination fee if the Merger Agreement is terminated under certain circumstances; and the risk that such restrictions and termination fee may discourage third parties that might otherwise have an interest in a business combination with, or acquisition of, GARS from making unsolicited Acquisition Proposals;

 

   

there can be no assurance that the combined company will succeed or otherwise achieve its projected financial results;

 

   

the possibility that the consummation of the Merger may be delayed or not occur at all, and the possible significant adverse impact that such event would have on GARS and its business;

 

   

the restrictions on the conduct of GARS’ business during the period between execution of the Merger Agreement and the Closing Date, which may delay or prevent GARS from taking advantage of business opportunities that may arise during such time which, absent the Merger Agreement, GARS might otherwise have pursued;

 

   

the risk that GARS Stockholders may vote down the Merger Proposal at the GARS Special Meeting; and

 

   

the risk that PTMN Stockholders may vote down the Merger Stock Issuance Proposal at the PTMN Special Meeting.

Interests of Certain Persons Related to GARS in the Mergers

Certain of GARS’ directors and officers who are affiliated with Garrison Capital Advisers have interests in the Merger that are different from, or in addition to, the interests of the GARS Stockholders in general. When the members of the GARS Special Committee evaluated the Merger and negotiated the Merger Agreement, they were aware of and took into account the potentially differing interests of certain of GARS’ directors and officers

 

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described below. The GARS Board also was aware of and took into account these differing interests when it decided to accept the GARS Special Committee’s recommendation that it approve the Merger and the Merger Agreement and declare the Merger and the Merger Agreement advisable.

Transition Services Agreement

As disclosed above, Sierra Crest and Garrison Capital Advisers have engaged in discussions regarding a transition services agreement pursuant to which Garrison Capital Advisers would provide certain consulting services to Sierra Crest relating to GARS’ existing investment portfolio subsequent to the Closing. As of the date hereof negotiations are still ongoing, but Sierra Crest and Garrison Capital Advisers have discussed terms pursuant to which Garrison Capital Advisers would receive, in exchange for its transition services, a quarterly fee of $187,500 for approximately four years, or $3.0 million of aggregate payments, following the Closing.

The PTMN Board Recommendation

The PTMN Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers and the Merger Stock Issuance Proposal, and unanimously recommends that PTMN Stockholders vote “FOR” the Merger Stock Issuance Proposal and, if necessary or appropriate, “FOR” the PTMN Adjournment Proposal.

The GARS Board Recommendation

The GARS Board, acting on the recommendation of the GARS Special Committee, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that GARS Stockholders vote “FOR” the Merger Proposal and, if necessary or appropriate, “FOR” the GARS Adjournment Proposal.

Opinion of the Financial Advisor to the GARS Special Committee

KBW was engaged by GARS to render financial advisory and investment banking services to GARS (including the GARS Board) until the GARS Special Committee was formed, and thereafter to render such services solely to the GARS Special Committee. Such services would, at the request of the GARS Special Committee, include the delivery of an opinion to the GARS Special Committee and, if requested by the GARS Special Committee, the GARS Board, as to the fairness, from a financial point of view, to the holders of GARS Common Stock of the per share consideration in the proposed Merger. GARS selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in BDC merger transactions. As part of its investment banking business, KBW is regularly engaged in the valuation of BDC securities in connection with mergers and acquisitions.

As part of its engagement, representatives of KBW attended the joint meeting of the GARS Special Committee and the GARS Board held on June 24, 2020 at which the GARS Special Committee and the GARS Board evaluated the proposed transaction. At this meeting, KBW reviewed the financial aspects of the proposed Mergers and rendered an opinion to the GARS Special Committee and the GARS Board to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the per share consideration (including the additional consideration from Sierra Crest) to be received by the holders of GARS Common Stock in the proposed Merger was fair, from a financial point of view, to such holders. The GARS Special Committee recommended that the GARS Board approve the Merger Agreement at this meeting, and following such recommendation the GARS Board did so.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Annex B to this joint proxy statement/prospectus, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

 

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KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the GARS Special Committee and, as requested by the GARS Special Committee, the GARS Board in connection with their respective consideration of the financial terms of the transaction. The opinion addressed only the fairness, from a financial point of view, of the per share consideration in the Merger to the holders of GARS Common Stock. It did not address the underlying business decision of GARS to engage in the transaction or enter into the Merger Agreement or constitute a recommendation to the GARS Special Committee or the GARS Board in connection with the transaction, and it does not constitute a recommendation to any GARS Stockholder or any stockholder of any other entity as to how to vote in connection with the transaction or any other matter, nor does it constitute a recommendation regarding whether or not any such stockholder should enter into a voting, stockholders’, or affiliates’ agreement with respect to the transaction or exercise any dissenters’ or appraisal rights that may be available to such stockholder.

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

At the direction of GARS and without independent verification, KBW relied upon and assumed for purposes of its analyses and opinion, that the GARS Per Share NAV would be $6.45 and the PTMN Per Share NAV would be $2.67 and that, as a result thereof, the exchange ratio in the Mergers would be 1.972x.

In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of GARS and PTMN and bearing upon the transaction, including, among other things:

 

   

a draft of the Merger Agreement, dated June 20, 2020 (the most recent draft then made available to KBW);

 

   

the audited financial statements and Annual Report on Form 10-K for the three fiscal years ended December 31, 2019 of GARS;

 

   

the unaudited quarterly financial statements and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 of GARS;

 

   

the audited financial statements and Annual Report on Form 10-K for the three fiscal years ended December 31, 2019 of PTMN;

 

   

the unaudited quarterly financial statements and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 of PTMN;

 

   

certain other interim reports and other communications of GARS and PTMN provided to their respective stockholders; and

 

   

other financial information concerning the businesses and operations of GARS and PTMN that was furnished to KBW by GARS and PTMN or which KBW was otherwise directed to use for purposes of its analyses.

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

 

   

the historical and current financial position and results of operations of GARS and PTMN;

 

   

the assets and liabilities of GARS and PTMN;

 

   

the nature and terms of certain other merger transactions and business combinations in the BDC industry;

 

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a comparison of certain financial and stock market information for GARS and PTMN with similar information for certain other companies the securities of which are publicly traded;

 

   

financial and operating forecasts and projections of GARS that were prepared by, and provided to KBW and discussed with KBW by, GARS management and that were used and relied upon by KBW at the direction of such management and with the consent of the GARS Special Committee; and

 

   

publicly available consensus “street estimates” of PTMN, as well as assumed long-term PTMN growth rates provided to KBW by Sierra Crest management, all of which information was discussed with KBW by Sierra Crest management and used and relied upon by KBW based on such discussions, at the direction of GARS management and with the consent of the GARS Special Committee.

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the BDC industry generally. KBW also participated in discussions that were held with the respective managements of GARS, Garrison Capital Advisers, PTMN and Sierra Crest regarding the respective past and current business operations, regulatory relations, financial condition and future prospects of GARS and PTMN and such other matters as KBW deemed relevant to its inquiry. In addition, KBW considered the results of the efforts undertaken by GARS, with KBW’s assistance, to solicit indications of interest from third parties regarding a potential transaction with GARS.

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information that was provided to it or that was publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of GARS as to the reasonableness and achievability of the financial and operating forecasts and projections of GARS referred to above (and the assumptions and bases therefor), and KBW assumed that such forecasts and projections were reasonably prepared and represented the best currently available estimates and judgments of such management and that such forecasts and projections would be realized in the amounts and in the time periods estimated by such management. KBW further relied, with the consent of GARS and the GARS Special Committee, upon PTMN management as to the reasonableness and achievability of the publicly available consensus “street estimates” of PTMN and the assumed long-term PTMN growth rates, all as referred to above (and the assumptions and bases for all such information), and KBW assumed that all such information was reasonably prepared and represented, or in the case of PTMN consensus “street estimates” referred to above that such estimates represented reasonable estimates generally consistent with, the best currently available estimates and judgments of PTMN management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

The portion of the foregoing financial information of GARS and PTMN that was provided to KBW was not prepared with the expectation of public disclosure. All of the foregoing financial information, including the publicly available consensus “street estimates” of PTMN, is based on numerous variables and assumptions that are inherently uncertain (including factors related to general economic and competitive conditions and, in particular, assumptions regarding the ongoing COVID-19 pandemic) and, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of GARS and PTMN, and with the consent of the GARS Special Committee, that all such information provided a reasonable basis upon which KBW could form its opinion, and KBW expressed no view as to any such information or the assumptions or bases therefor. Among other things, such information assumed that the ongoing COVID-19 pandemic could have a significant adverse impact on GARS and PTMN. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either GARS or PTMN since the date of the last financial statements of

 

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each such entity that were made available to KBW. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of GARS or PTMN, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of GARS or PTMN under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Such estimates are inherently subject to uncertainty and should not be taken as KBW’s view of the actual value of any companies or assets.

KBW assumed, in all respects material to its analyses:

 

   

the transaction and any related transactions would be completed substantially in accordance with the terms set forth in the Merger Agreement (the final terms of which KBW assumed would not differ in any respect material to its analyses from the draft reviewed by KBW and referred to above), with no adjustments to the Merger Consideration and no other consideration or payments in respect of GARS Common Stock;

 

   

the representations and warranties of each party in the Merger Agreement and in all related documents and instruments referred to in the Merger Agreement were true and correct;

 

   

each party to the Merger Agreement and all related documents would perform all of the covenants and agreements required to be performed by such party under such documents;

 

   

there were no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the transaction or any related transaction and all conditions to the completion of the transaction and any related transaction would be satisfied without any waivers or modifications to the Merger Agreement or any of the related documents; and

 

   

in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the transaction and any related transaction, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of GARS, PTMN or the pro forma entity, or the transaction.

KBW assumed that the transaction would be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of GARS that GARS relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to GARS, PTMN, the transaction and any related transaction, and the Merger Agreement. KBW did not provide advice with respect to any such matters.

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, to the holders of GARS Common Stock of the per share consideration to be received by such holders in the Merger. KBW expressed no view or opinion as to any other terms or aspects of the transaction or any term or aspect of any related transaction, including without limitation, the form or structure of the transaction (including the form of the per share consideration or the allocation thereof between cash and stock) or any such related transaction, any consequences of the transaction or any such related transaction to GARS, GARS Stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, shareholder, escrow or other agreements, arrangements or understandings contemplated or entered into in connection with the transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of the opinion and the information made available to KBW through the date of the opinion. There has been widespread disruption, extraordinary uncertainty and unusual volatility arising from the effects of the COVID-19 pandemic, including the effect of evolving governmental interventions and non-interventions. Developments subsequent to the date of KBW’s opinion may have affected, and may

 

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affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW expressed no view or opinion as to any changes to the GARS Per Share NAV or the PTMN Per Share NAV after the date of KBW’s opinion from the respective amounts thereof that KBW was directed to assume for purposes of its analyses and its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

 

   

the underlying business decision of GARS to engage in the transaction or enter into the Merger Agreement;

 

   

the relative merits of the transaction as compared to any strategic alternatives that are, have been or may be available to or contemplated by GARS, the GARS Special Committee or the GARS Board;

 

   

the fairness of the amount or nature of any compensation to any of GARS’ officers, directors or employees, or any class of such persons, relative to the compensation to the holders of GARS Common Stock;

 

   

the effect of the transaction or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of GARS (other than the holders of GARS Common Stock, solely with respect to the per share consideration (as described in KBW’s opinion) and not relative to the consideration to be received by holders of any other class of securities) or holders of any class of securities of PTMN or any other party to any transaction contemplated by the Merger Agreement;

 

   

whether PTMN had sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate PTMN cash consideration to the holders of GARS Common Stock at the closing of the Merger;

 

   

whether Sierra Crest had sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate Additional Cash Consideration to the GARS Stockholders at the closing of the Mergers;

 

   

the actual value of PTMN Common Stock to be issued in the Merger;

 

   

the prices, trading range or volume at which PTMN Common Stock or GARS Common Stock would trade following the public announcement of the transaction or the prices, trading range or volume at which PTMN Common Stock would trade following the consummation of the transaction;

 

   

any advice or opinions provided by any other advisor to any of the parties to the transaction or any other transaction contemplated by the Merger Agreement; or

 

   

any legal, regulatory, accounting, tax or similar matters relating to GARS, PTMN, their respective stockholders, or relating to or arising out of or as a consequence of the transaction or any related transaction, including whether or not the transaction would qualify as a tax-free reorganization for U.S. federal income tax purposes.

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, GARS and PTMN. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the GARS Special Committee in making its determination to recommend, and the GARS Board in making its determination to approve, the Merger Agreement and the transaction. Consequently, the analyses described below should not be viewed as determinative of the decision of the GARS Special Committee and the GARS Board with respect to the fairness of the per share consideration in the proposed Merger. The type and amount of consideration payable in the Merger were determined through

 

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negotiation between GARS and PTMN and the decision of GARS to enter into the Merger Agreement was solely that of the GARS Board, acting upon the recommendation of the GARS Special Committee.

The following is a summary of the material financial analyses presented by KBW to the GARS Special Committee and the GARS Board in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the GARS Special Committee and the GARS Board, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

Implied Transaction Value for the Transaction. KBW calculated an implied transaction value for the proposed transaction of $63.6 million in the aggregate, or $3.96 per share of GARS Common Stock, based on aggregate cash consideration of $19.1 million from PTMN and $5.0 million from Sierra Crest and the implied value of the stock consideration of using an assumed exchange ratio of 1.972x and the closing price of PTMN Common Stock on June 23, 2020. This implied transaction value for the proposed transaction was used to calculate implied transaction multiples and those multiples were compared to the ranges of multiples found in the financial analyses described below.

Selected Companies Analysis. Using publicly available information, KBW compared the market performance of GARS and PTMN to 14 selected publicly-traded externally managed BDCs with market capitalizations less than $200 million.

The selected companies were as follows:

 

BlackRock Capital Investment Corporation    THL Credit, Inc.
Horizon Technology Finance Corporation    OFS Capital Corporation
Saratoga Investment Corp.    Investcorp Credit Management BDC, Inc.
Stellus Capital Investment Corporation    Medley Capital Corporation
Monroe Capital Corporation    Capitala Finance Corp.
Oxford Square Capital Corp.    Great Elm Capital Corp.
MVC Capital, Inc.    Harvest Capital Credit Corporation

To perform this analysis, KBW used market price information as of June 23, 2020 and reported NAV per share data as of the end of the most recent completed quarterly period available (which in the case of GARS was March 31, 2020). KBW also used latest 12 months (“LTM”) net investment income per share (“NII”) for GARS, PTMN and the selected companies and calendar years 2020 and 2021 earnings per share estimates (“EPS”) taken from consensus “street estimates” of GARS, PTMN and the selected companies.

 

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KBW’s analysis showed the following concerning the market performance of GARS, PTMN and the selected companies (excluding the impact of the LTM NII multiple for one of the selected companies, the calendar year 2020 EPS multiples for 11 of the selected companies and the calendar year 2021 EPS multiples for three of the selected companies, which multiples were considered to be not meaningful (“NM”)):

 

     GARS    PTMN    Selected Companies
     Minimum    25th
Percentile
   Median    Average    75th
Percentile
   Maximum

Price / NAV per share

   0.42x    0.46x    0.32x    0.46x    0.58x    0.61x    0.70x    0.97x

Price / LTM NII

   3.8x    6.1x    2.2x    3.8x    5.0x    5.5x    6.2x    11.4x

Price / 2020 EPS

   NM    NM    3.0x    5.1x    7.2x    10.5x    14.2x    21.2x

Price / 2021 EPS

   5.2    8.0x    4.5x    5.7x    6.8x    8.0x    8.2x    19.4x

KBW’s analysis also showed the following concerning the market performance of GARS, PTMN and the six selected companies with market capitalizations less than $100 million (excluding the impact of the LTM NII multiple and the calendar year 2021 EPS multiple for one of the selected companies, which multiples were considered to be not meaningful):

 

     GARS    PTMN    Selected Companies – Market Capitalization Less than $100M
     Minimum    25th
Percentile
   Median    Average    75th
Percentile
   Maximum

Price / NAV per share

   0.42x    0.46x    0.32x    0.41x    0.44x    0.50x    0.49x    0.86x

Price / LTM NII

   3.8x    6.1x    2.2x    3.6x    4.1x    4.2x    5.0x    6.2x

Price / 2020 EPS

   NM    NM    NM    NM    NM    NM    NM    NM

Price / 2021 EPS

   5.2x    8.0x    4.5x    6.4x    6.8x    8.9x    7.4x    19.4x

KBW then applied a range of price-to-NAV per share multiples of 0.5x to 0.7x derived from the 25th and 75th percentile multiples of the selected companies to the March 31, 2020 NAV per share of GARS and a range of price-to-LTM NII multiples of 3.8x to 6.2x derived from the 25th and 75th percentile multiples of the selected companies to the NII per share of GARS for the 12-month period ended March 31, 2020. This analysis indicated the following ranges of the implied value per share of GARS Common Stock, as compared to the implied transaction value for the proposed transaction of $3.96 per outstanding share of GARS Common Stock:

 

    

Implied Value Per Share Ranges

of GARS Common Stock

Based on NAV per share of GARS as of March 31, 2020

   $3.01 to $4.60

Based on LTM NII per share of GARS for the 12-month period ended March 31, 2020

   $2.82 to $4.57

No company used as a comparison in the above selected companies analysis is identical to GARS or PTMN. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Selected Transactions Analysis—BDCs. KBW reviewed publicly available information related to 15 selected acquisitions of BDCs announced since April 2009, referred to as the selected BDC transactions.

 

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The selected BDC transactions were as follows:

 

Acquirer

  

Acquired Company

Crescent Capital BDC, Inc.    Alcentra Capital Corporation
Portman Ridge Finance Corporation    OHA Investment Corporation
East Asset Management, LLC    Rand Capital Corporation
Golub Capital BDC, Inc.    Golub Capital Investment Corporation
FS Investment Corporation    Corporate Capital Trust, Inc.
Benefit Street Partners L.L.C.; Barings LLC    Triangle Capital Corporation
TCG BDC, Inc.    NF Investment Corp.
CĪON Investment Corporation    Credit Suisse Park View BDC, Inc.
MAST Capital Management, LLC; Great Elm Capital Group, Inc.    Full Circle Capital Corporation
Ares Capital Corporation    American Capital, Ltd.
PennantPark Floating Rate Capital Ltd.    MCG Capital Corporation
Saratoga Investment Corp.    GSC Investment Corp.
Ares Capital Corporation    Allied Capital Corporation
Prospect Capital Corporation    Patriot Capital Funding, Inc.
Highland Credit Strategies Fund    Highland Distressed Opportunities, Inc.

For each selected BDC transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company (including contributions by external managers) and using financial data based on the acquired company’s then latest publicly available financial statements prior to the announcement of the respective transaction (adjusted to reflect announced pre-closing adjustments):

 

   

Price to NAV per share of the acquired company; and

 

   

Price to LTM NII per share of the acquired company

KBW also reviewed the price per common share paid for the acquired company for the 12 selected BDC transactions involving publicly traded acquired companies as a premium/(discount) to the closing price of the acquired company one day and 30 days prior to the announcement of the acquisition (expressed as percentages and referred to as the one day market premium and the 30 day market premium). The resulting transaction multiples and premiums for the selected BDC transactions were compared with the corresponding transaction multiples and premiums of the proposed transaction based on the implied transaction value for the proposed transaction of $3.96 per share of GARS Common Stock and using historical financial information for GARS as of and for the 12-month period ended March 31, 2020 and the closing prices of GARS Common Stock on June 23, 2020 and May 11, 2020.

KBW’s analysis showed the following concerning the proposed transaction and the selected transactions (excluding the impact of the price-to-LTM NII per share of three of the selected transactions, which multiples were considered to be not meaningful because they were either negative or greater than 35.0x):

 

     Transaction   Selected BDC Transactions
    Minimum   25th
Percentile
  Median   Average   75th
Percentile
  Maximum

Price / NAV Per Share

   60.1%   40.0%   57.9%   86.3%   80.2%   100.0%   107.8%

Price / LTM NII Per Share

   5.4x   2.4x   5.2x   9.0x   8.4x   10.7x   13.5x

One-Day Premium

   42.3%   (39.9%)   0.2%   26.1%   35.8%   36.6%   222.0%

30-Day Premium

   136.9%   (22.3%)   (6.5%)   23.9%   33.0%   33.3%   162.7%

KBW applied a range of price-to-NAV per share multiples of 0.6x to 1.0x derived from the 25th and 75th percentile multiples of the selected BDC transactions to the March 31, 2020 NAV per share of GARS. KBW also

 

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applied a range of price-to-LTM NII multiples of 5.2x to 10.7x derived from the 25th and 75th percentile multiples of the selected BDC transactions to the NII per share of GARS for the 12-month period ended March 31, 2020. This analysis indicated the following ranges of the implied value per share of GARS Common Stock, as compared to the implied transaction value for the proposed transaction of $3.96 per outstanding share of GARS Common Stock:

 

    

Implied Value Per Share Ranges

of GARS Common Stock

Based on March 31, 2020 NAV per share of GARS

   $3.81 to $6.59

Based on LTM NII per share of GARS for the last 12 months ending March 31, 2020

   $3.78 to $7.88

In addition, solely for illustrative purposes, KBW applied a range of one day market premiums of 0.2% to 36.6% derived from the 25th and 75th percentile one day market premiums of the selected BDC transactions to the closing price of GARS Common Stock on June 23, 2020 and a range of 30 day market premiums of (6.5%) to 33.3% derived from the 25th and 75th percentile 30 day market premiums of the selected BDC transactions to the closing price of GARS Common Stock on May 11, 2020, which indicated the following illustrative ranges of the implied value per share of GARS Common Stock:

 

    

Illustrative Implied Value Per Share Ranges

of GARS Common Stock

Based on One Day Market Premium to Closing Price of GARS Common Stock on June 23, 2020

   $2.78 to $3.80

Based on 30 Day Market Premium/Discount to Closing Price of GARS Common Stock on May 11, 2020

   $3.60 to $3.71

No company or transaction used as a comparison in the above selected transaction analysis is identical to GARS or the proposed transaction. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Dividend Discount Analysis of GARS. KBW performed a dividend discount analysis of GARS on a standalone basis to estimate ranges for the implied equity value of GARS. In this analysis, KBW used financial and operating forecasts and projections of GARS that were provided by GARS management. KBW assumed discount rates ranging from 20.0% to 25.0%. Ranges of values were derived by adding (i) the present value of the estimated future dividends of GARS over the period from the assumed closing date of the proposed transaction through December 31, 2023 and (ii) the present value of GARS’ implied terminal value at the end of such period. KBW derived implied terminal values using two methodologies, one based on December 31, 2023 estimated NAV per share multiples and the other based on fiscal year 2023 estimated dividend yields. Using implied terminal values for GARS calculated by applying a terminal multiple range of 0.4x to 1.0x to GARS’ estimated NAV per share as of December 31, 2023, this analysis resulted in a range of implied values per share of GARS Common Stock of approximately $2.71 to $5.19 per share, as compared to the implied transaction value for the proposed transaction of $3.96 per outstanding share of GARS Common Stock. Using implied terminal values for GARS calculated by applying a terminal dividend yield range of 17.0% to 9.0% to GARS’ estimated fiscal year 2023 dividends, this analysis resulted in a range of implied values per share of GARS Common Stock of approximately $3.13 to $5.19 per share, as compared to the implied transaction value for the proposed transaction of $3.96 per outstanding share of GARS Common Stock.

The dividend discount analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including NAV per share and dividend growth rates, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of GARS.

 

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Dividend Discount Analysis of PTMN. KBW performed a dividend discount analysis of PTMN on a standalone basis to estimate ranges for the implied equity value of PTMN. In this analysis, KBW used publicly available consensus “street estimates” of PTMN and assumed long-term growth rates for PTMN provided by Sierra Crest management. KBW assumed discount rates ranging from 20.0% to 20.5%. Ranges of values were derived by adding (i) the present value of the estimated future dividends of PTMN over the period from the assumed closing date of the transaction through December 31, 2023 and (ii) the present value of PTMN’s implied terminal value at the end of such period. KBW derived implied terminal values using two methodologies, one based on December 31, 2023 estimated NAV per share multiples and the other based on fiscal year 2023 estimated dividend yields. Using implied terminal values for PTMN calculated by applying a terminal multiple range of 0.4x to 1.0x to PTMN’s estimated NAV per share as of December 31, 2023, this analysis resulted in a range of implied values per share of PTMN Common Stock of approximately $0.92 to $1.86 per share. Using implied terminal values for PTMN calculated by applying a terminal dividend yield range of 17.0% to 9.0% to PTMN’s estimated fiscal year 2023 dividends, this analysis resulted in a range of implied values per share of PTMN Common Stock of approximately $0.93 to $1.54 per share.

The dividend discount analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including NAV per share and dividend growth rates, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of PTMN or the pro forma combined company.

Liquidation Analysis of GARS. KBW utilized a liquidation analysis of GARS that was provided by GARS management to estimate ranges for the implied equity value of GARS. The liquidation analysis was based on projections of net proceeds that could be generated in a hypothetical liquidation of GARS that were prepared by GARS management. KBW assumed discount rates ranging from 20.0% to 25.0% to derive present values of the projected net proceeds, which resulted in a range of implied values per share of GARS Common Stock of approximately $2.66 to $5.14 per share, as compared to the implied transaction value for the proposed transaction of $3.96 per outstanding share of GARS Common Stock.

The results of a liquidation analysis are highly dependent on the assumptions that must be made, including projected net proceeds from asset sales and discount rates. The analysis did not purport to be indicative of the actual values or expected values in a liquidation of GARS.

 

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Relative Contribution Analysis. KBW analyzed the relative standalone contribution of PTMN and GARS to various pro forma balance sheet and income statement items and the combined market capitalization of the combined entity. This analysis did not include purchase accounting adjustments. To perform this analysis, KBW used historical financial information for PTMN and GARS as of and for the 12-month period ended March 31, 2020 and the closing prices of PTMN Common Stock and GARS Common Stock on June 23, 2020. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of PTMN Stockholders and GARS Stockholders in the combined company based on an assumed 1.972x exchange ratio in the proposed Merger and also hypothetically assuming 100% stock consideration in the proposed Merger for illustrative purposes:

 

     PTMN
as a % of
Total
    GARS
as a % of
Total
 

Ownership

    

At Assumed 1.972x Exchange Ratio

     59     41

Assuming 100% stock consideration

     52     48

Balance Sheet as of March 31, 2020

    

Total Assets

     41     59

Investments

     43     57

Total Debt

     31     69

Net Assets

     53     47

Income Statement for the 12-month period ended March 31, 2020

    

LTM NII

     41     59

Market Capitalization

    

Pre-Deal Market Capitalization

     56     44

Miscellaneous. KBW acted as financial advisor to GARS (including the GARS Board) until such time as the GARS Special Committee was formed, and after such time, solely to the GARS Special Committee in connection with the proposed transaction and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is regularly engaged in the valuation of BDC securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. In the ordinary course of KBW and its affiliates’ broker-dealer businesses (and further to an existing sales and trading relationship between a KBW broker-dealer affiliate and PTMN), KBW and its affiliates may from time to time purchase securities from, and sell securities to, GARS, PTMN and Sierra Crest. In addition, as market makers in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of GARS or PTMN for its and their own accounts and for the accounts of its and their respective customers and clients. KBW employees may also from time to time maintain individual positions in PTMN. As GARS was previously informed by KBW, such positions currently include an individual position in shares of PTMN Common Stock held by a senior member of the KBW advisory team providing services to GARS in connection with the proposed transaction.

Pursuant to the KBW engagement agreement, GARS agreed to pay KBW a cash fee equal to the greater of (i) $1,000,000 or (ii) 1.25% of the aggregate consideration in the proposed transaction, $250,000 of which became payable to KBW with the rendering of KBW’s opinion and the balance of which is contingent upon the consummation of the transaction. GARS also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with the present engagement, during the two years preceding the date of KBW’s opinion, KBW did not provide investment banking or financial advisory services to GARS. During the two years preceding the date of KBW’s opinion, KBW provided investment banking and financial advisory services to PTMN (formerly named KCAP Financial, Inc. prior to April 1, 2019) and received compensation for such services. KBW acted as (i) financing advisor in KCAP’s March 2018 credit facility, (ii) financial advisor to KCAP in connection with its December

 

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2018 sale of certain of its asset management subsidiaries, and (iii) financial advisor to PTMN in connection with its April 2019 externalization of advisor transaction. During the two years preceding the date of KBW’s opinion, KBW did not provide investment banking and financial advisory services to Sierra Crest. KBW may in the future provide investment banking and financial advisory services to GARS, PTMN or Sierra Crest and receive compensation for such services.

Regulatory Approvals Required for the Mergers

The obligations of PTMN and GARS to complete the Mergers are subject to the satisfaction or, where permissible, waiver of certain conditions, including the condition that the PTMN Common Stock to be issued as part of the Merger Consideration has been approved for listing by Nasdaq and that the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part) has become effective under the Securities Act. PTMN and GARS have agreed to cooperate with each other and use their reasonable best efforts to obtain all actions, non-actions, clearances, waivers, consents, approvals, authorizations, licenses, permits or orders from any governmental or regulatory authority necessary to consummate the Mergers.

There can be no assurance that such regulatory approvals will be obtained, that such approvals will be received on a timely basis or that such approvals will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Mergers.

Third-Party Consents Related to the Mergers

PTMN and GARS have agreed to cooperate with each other and use their reasonable best efforts to take, or cause to be taken, all actions to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by the Merger Agreement, including the Mergers. In particular, the parties will seek to obtain certain consents related to the on-balance sheet CLO completed by GARS in October 2018. See “Description of the Merger Agreement—Additional Covenants—CLO Matters.” There can be no assurance that any permits, consents, approvals, confirmations or authorizations will be obtained or that such permits, consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following the Mergers.

 

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DESCRIPTION OF THE MERGER AGREEMENT

The following summary, which includes certain of the material terms of the Merger Agreement, is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. PTMN and GARS encourage you to read the Merger Agreement carefully and in its entirety.

Structure of the Mergers

Pursuant to the terms of the Merger Agreement, at the Effective Time, Merger Sub will be merged with and into GARS, whereupon the separate existence of Merger Sub will cease, and GARS will continue as the surviving company in the Merger and a wholly owned subsidiary of PTMN (the “Surviving Company”). Immediately after the Effective Time, the Surviving Company will be merged with and into PTMN, whereupon the separate existence of the Surviving Company will cease, and PTMN will continue as the surviving company in the Second Merger.

Closing; Completion of the Proposed Mergers

PTMN and GARS will cause the Closing to take place at 10:00 a.m. Eastern Time at the offices of Proskauer, on a date to be specified by PTMN and GARS, which will be no later than two business days (or such shorter period of time as remains before 11:59 p.m., New York time, on March 24, 2021 (the “Outside Date”)) after the satisfaction or waiver of all of the conditions set forth in the Merger Agreement, unless another time, date or place is agreed to in writing by PTMN and GARS. PTMN, Merger Sub and GARS will cause a certificate of merger (the “Certificate of First Merger”) to be filed on the Closing Date (or on such other date as PTMN and GARS may agree in writing) with the Secretary of State of the State of Delaware as provided in the DGCL and will make all other filings or recordings required by the DGCL in connection with the Merger. The Merger will become effective at the time at which the Certificate of First Merger is duly filed with the Secretary of State of the State of Delaware or at such later time as is agreed upon in writing by PTMN and GARS and specified in the Certificate of First Merger (the “Effective Time”). PTMN and the Surviving Company will cause a certificate of merger (“Certificate of Second Merger”) to be filed on the Closing Date (or on such other date as PTMN and GARS may agree in writing) with the Secretary of State of the State of Delaware as provided in the DGCL and will make all other filings or recordings required by the DGCL in connection with the Second Merger. The Second Merger will become effective at the time at which the Certificate of Second Merger is duly filed with the Secretary of State of the State of Delaware or at such later time as is agreed upon in writing by PTMN and GARS and specified in the Certificate of Second Merger.

PTMN and GARS expect to complete the Mergers during the fourth quarter of 2020.

Merger Consideration

If the Merger is consummated, subject to the terms and conditions of the Merger Agreement, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares) will be automatically converted into and exchanged for the right to receive (a) an amount in cash equal to (i) $19,100,000 divided by (ii) the number of shares of GARS Common Stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares) and (b) a number of shares of PTMN Common Stock equal to the Exchange Ratio, plus any cash in lieu of fractional shares.

Under the Merger Agreement, on the Determination Date, each of GARS and PTMN will deliver to the other a calculation of its estimated NAV as of 5:00 p.m. New York City time on the day prior to the Closing Date, in each case, as approved by the GARS Board or PTMN Board, as applicable, calculated in good faith and using a pre-agreed set of assumptions, methodologies and adjustments. GARS and PTMN will update and

 

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redeliver the Closing GARS Net Asset Value or the Closing PTMN Net Asset Value, respectively, and as reapproved by the GARS Board or PTMN Board, as applicable, in the event of a material change to such calculation between the Determination Date and the Closing Date or if needed to ensure that the calculation is determined within two days (excluding Sundays and holidays) prior to the Effective Time. Based on such calculations, the parties will calculate the GARS Per Share NAV and the PTMN Per Share NAV and the corresponding Exchange Ratio, which will be the quotient of the GARS Per Share NAV divided by the PTMN Per Share NAV.

If, between the Determination Date and the Effective Time, the outstanding number of shares of PTMN Common Stock or shares of GARS Common Stock have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an appropriate and proportionate adjustment will be made to the Merger Consideration and Additional Cash Consideration payable per share of GARS Common Stock, in each case if necessary and without duplication, to reflect such change.

No fractional shares of PTMN Common Stock will be issued upon the conversion of GARS Common Stock into PTMN Common Stock, and such fractional share interests will not entitle the owner thereof to any PTMN Common Stock or to vote or to any other rights of a holder of PTMN Common Stock. In lieu of any such fractional shares, each holder of GARS Common Stock who would otherwise be entitled to such fractional shares will instead be entitled to an amount of cash based on a formula set forth in the Merger Agreement.

Additional Cash Consideration

In connection with the transactions contemplated by the Merger Agreement, as additional consideration to the holders of shares of GARS Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares), Sierra Crest will pay or cause to be paid to such holders an aggregate amount in cash equal to $5,000,000.

Conversion of Shares; Exchange of Certificates; Book-Entry Shares

At the Effective Time, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares (as defined below) and any Cancelled Shares) will be automatically converted into and exchanged for the right to receive the Merger Consideration, in all cases without interest. Each such share of GARS Common Stock will no longer be outstanding and will be automatically cancelled and cease to exist, and the holders of any such shares of GARS Common Stock will thereafter cease to have any rights with respect thereto, except (other than in the case of Dissenting Shares or Cancelled Shares) the right to receive the Merger Consideration, to be paid in consideration therefor upon surrender or cancellation (as applicable) of such certificate that immediately prior to the Effective Time represented outstanding shares of GARS Common Stock (“Certificate”) or share of GARS Common Stock held in book-entry form (“Book-Entry Share”), as well as any dividends to which GARS Stockholders become entitled in accordance with the terms of the Merger Agreement. In addition, for the avoidance of doubt, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding any Cancelled Shares) will also represent the right to receive a pro rata share of the Additional Cash Consideration.

At and after the Effective Time, there will be no transfers on the stock transfer books of GARS of shares of GARS Common Stock that that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates or Book-Entry Shares are presented to PTMN or the Exchange Agent (as defined below) for any reason, they will be cancelled and exchanged for the Merger Consideration in accordance with the terms of the Merger Agreement, except as otherwise provided by law.

Letter of Transmittal; Lost Certificates

As soon as reasonably practicable after the Effective Time and in any event not later than the second business day following the Effective Time, PTMN will cause a nationally recognized financial institution

 

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designated by PTMN prior to the Effective Time and reasonably acceptable to GARS (the “Exchange Agent”) to mail to each holder of record of a Certificate or Certificates that were converted into the right to receive the Merger Consideration (i) a letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration as well as any dividends or distributions to be paid in accordance to the terms of the Merger Agreement. As soon as reasonably practicable after the Effective Time and in any event no later than the second business day following the Effective Time, PTMN will cause the Exchange Agent to issue and send to each holder of Book-Entry Shares that were converted into the right to receive the Merger Consideration the Merger Consideration that such holder is entitled to receive in respect of such Book-Entry Shares, without such holder being required to deliver a Certificate or an executed letter of transmittal to the Exchange Agent, and such Book-Entry Shares will forthwith be cancelled.

Upon proper surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with a letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate will be entitled to receive in exchange therefor the Merger Consideration in respect of the shares of GARS Common Stock formerly represented by such Certificate and such Certificate so surrendered will forthwith be cancelled. Until surrendered or cancelled (as applicable), each Certificate and Book-Entry Share will be deemed at any time after the Effective Time to represent (other than in the case of Cancelled Shares) only the right to receive the Merger Consideration, without interest, into which the shares of GARS Common Stock theretofore represented by such Certificate or Book-Entry Share, as applicable, have been converted. No interest will be paid or accrued on any of the cash payable to the holders of Certificates or Book-Entry Shares.

If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact (in a form reasonably satisfactory to PTMN and the Exchange Agent) by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent, the posting of a bond as indemnity with respect to such Certificate, the Exchange Agent will deliver the Merger Consideration to which such person is entitled in respect of such Certificate.

Appraisal Rights

Shares of GARS Common Stock outstanding immediately prior to the Effective Time and held by a holder who is entitled to demand and has properly demanded appraisal for such GARS Common Stock in accordance with, and who complies in all respects with, Section 262 of the DGCL (such shares, the “Dissenting Shares”) will not be converted into the right to receive the Merger Consideration, and will instead represent the right to receive payment of the consideration due to such Dissenting Shares in accordance with and to the extent provided by Section 262 of the DGCL. If any such holder fails to perfect or otherwise waives, withdraws or loses his right to appraisal under Section 262 of the DGCL or other applicable law, then the right of such holder to be paid the fair value of such Dissenting Shares will cease and such Dissenting Shares will be deemed to have been converted, as of the Effective Time, into and will be exchangeable solely for the right to receive the Merger Consideration, without interest and subject to any withholding of taxes required by applicable law. GARS will give PTMN prompt notice of any demands received by GARS for appraisal of GARS Common Stock or any threats thereof, any actual or attempted withdrawals of such demands and any other demands, notices or instruments received by GARS relating to rights to be paid the fair value of Dissenting Shares, and PTMN will have the right to participate in and to control all negotiations and proceedings with respect to such demands. Prior to the Effective Time, GARS will not, except with the prior written consent of PTMN, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demands, or approve any withdrawal of any such demands, or agree to do any of the foregoing. See “Appraisal Rights of GARS Stockholders” for more information.

 

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Withholding Taxes

Each of PTMN, Merger Sub and the Exchange Agent will be entitled to deduct and withhold from any cash in lieu of fractional shares of PTMN Common Stock, cash dividends or distributions payable or any other cash amounts otherwise payable pursuant to the Merger Agreement to any holder of shares of GARS Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. Amounts so withheld and paid over to the appropriate taxing authority will be treated for all purposes of the Merger Agreement as having been paid to the person in respect of which such deduction or withholding was made.

Representations and Warranties

The Merger Agreement contains representations and warranties made by GARS to PTMN and PTMN to GARS, subject to specified exceptions and qualifications, relating to, among other things:

 

   

corporate organization and qualification;

 

   

power and authority to execute, deliver and perform obligations under the Merger Agreement;

 

   

consents and approvals, and no violations of provisions of organizational documents, laws or contracts;

 

   

capitalization and subsidiaries;

 

   

regulatory matters and SEC reports;

 

   

absence of certain changes, including a material adverse effect;

 

   

financial statements and internal controls;

 

   

absence of undisclosed liabilities;

 

   

compliance with laws;

 

   

material contracts;

 

   

intellectual property matters;

 

   

insurance matters;

 

   

absence of certain litigation, investigations or other proceedings;

 

   

employee matters;

 

   

tax matters;

 

   

investment assets;

 

   

this joint proxy statement and the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part);

 

   

board vote, stockholder approval and takeover statutes;

 

   

real property matters;

 

   

brokers’ and finders’ fees;

 

   

opinion of financial advisor (in the case of GARS);

 

   

sufficiency of funds to fund the Merger Consideration (in the case of PTMN);

 

   

share ownership of the other and (in the case of PTMN’s share ownership of GARS) the inapplicability of “interested stockholder” laws under the DGCL;

 

   

investment adviser and administrator relationships (in the case of PTMN);

 

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solvency (in the case of PTMN);

 

   

Merger Sub’s operations (in the case of PTMN); and

 

   

investigation and reliance.

The Merger Agreement contains representations and warranties made by Sierra Crest to GARS, subject to specified exceptions and qualifications, relating to, among other things:

 

   

organization and qualification;

 

   

power and authority to execute, deliver and perform obligations under the Merger Agreement;

 

   

consents and approvals, and no violations of provisions of organizational documents, laws or contracts;

 

   

compliance with laws; and

 

   

sufficiency of funds to fund the Additional Cash Consideration; and

 

   

investment adviser and administrator relationships.

These representations and warranties were made as of a specific period of time, may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement and may have been included in the Merger Agreement for the purpose of allocating contractual risk between the parties rather than to establish matters as facts. The Merger Agreement is described herein, and attached as Annex A to this document, to provide you with information regarding its terms and conditions. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this document.

“Material adverse effect” with respect to PTMN or GARS, as applicable, means any change, fact, circumstance, event, occurrence or effect that (A) would have, or would reasonably be expected to have, a material adverse effect on the business, condition (financial or otherwise), properties, liabilities, assets or results of operations of such party and its subsidiaries, taken as a whole, or (B) would, or would reasonably be expected to, materially impair, materially delay or prevent such party (and, in the case of PTMN, Merger Sub or Sierra Crest) from timely performing its obligations under the Merger Agreement or consummating the transactions contemplated by the Merger Agreement. However, for purposes of the foregoing clause (A) only, no change, fact, circumstance, event, occurrence or effect resulting from any of the following will be deemed by itself or by themselves, either alone or in combination, to constitute or contribute to a material adverse effect:

 

   

(i) changes after the date of the Merger Agreement generally affecting any or all of the industries or markets in which such party and its subsidiaries and portfolio companies operate;

 

   

(ii) changes after the date of the Merger Agreement in general political, economic or business conditions, including the commencement or escalation of a war, armed hostilities or other material international or national calamity or acts of terrorism or earthquakes, hurricanes, other natural disasters or acts of God, COVID-19 or any other pandemic (including the impact on economies generally and the results of any actions taken by governmental entities in response thereto);

 

   

(iii) changes after the date of the Merger Agreement in general securities or financial market conditions, including changes in interest rates or currency exchange rates;

 

   

(iv) changes after the date of the Merger Agreement in any laws, rules, regulations, GAAP or other accounting standards, or authoritative interpretations thereof;

 

   

(v) the negotiation, execution or performance of the Merger Agreement, the entry into or announcement of the Merger Agreement or the pendency or consummation of the transactions contemplated thereby, or any changes or actions resulting from any of the foregoing, including the identity of such party or any of its affiliates as an acquisition target or acquirer, as applicable;

 

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(vi) any action taken by such party or any of its subsidiaries (or, in the case of PTMN, Sierra Crest) that is required by law or the Merger Agreement or taken at the written consent or written request of the other party (or, in the case of GARS, Merger Sub);

 

   

(vii) the initiation after the date of the Merger Agreement of any litigation relating to the Merger Agreement or the transactions contemplated thereby;

 

   

(viii) any failure by such party or its subsidiaries or portfolio companies to meet analysts’ or internal earnings estimates or financial projections or forecasts or any change in the price or trading volume of such party’s common stock (it being understood that the facts and circumstances giving rise to such failure that are not otherwise excluded from the definition of “material adverse effect” will be taken into account in determining whether there has been a material adverse effect); or

 

   

(ix) such party’s breach of its obligation to provide consent as and when required in response to the other party’s request for consent to take an action in violation of the interim operating covenants set forth in the Merger Agreement;

provided, that the changes, facts, circumstances, events, occurrences and effects in clauses (i) through (iv) above will be taken into account in determining whether there has been a material adverse effect to the extent (but only to the extent) that such party and its subsidiaries, taken as a whole, are disproportionately adversely affected as compared with other participants in the industries in which such party and its subsidiaries operate.

Interim Operations of GARS

Under the Merger Agreement, GARS has agreed that, during the period from the date of the Merger Agreement and through the Effective Time or the earlier termination of the Merger Agreement (the “Interim Period”), except (i) as may be required by law, (ii) with the prior written consent of PTMN, which consent will not be unreasonably withheld, delayed or conditioned, (iii) as expressly contemplated or permitted by the Merger Agreement, or (iv) as set forth in its disclosure letter to the Merger Agreement, GARS will, and will cause each of its subsidiaries to, carry on its business in the ordinary course of business and use reasonable best efforts to (1) preserve intact its business organization, (2) maintain in effect all material licenses and permits required to carry on its business, (3) maintain in effect any exemptive orders or exemptive relief which it has received from the SEC and which are currently in effect and (4) preserve its material business relationships.

Without limiting the generality of the foregoing, during the Interim Period, except (i) as may be required by law, (ii) with the prior written consent of PTMN, which consent will not be unreasonably withheld, delayed or conditioned, (iii) as expressly required, contemplated or permitted by the Merger Agreement or (iv) as set forth in its disclosure letter to the Merger Agreement, GARS will not, and will not permit any of its subsidiaries to:

 

   

issue, deliver, sell, dispose of, grant, pledge or otherwise encumber or subject to any lien, or authorize or propose the issuance, sale, disposition, pledge or other encumbrance of, (A) any shares of capital stock of any class or any other ownership interest of GARS or any of its subsidiaries, (B) any securities or rights convertible into, exchangeable for, exercisable for, or evidencing the right to subscribe for any shares of capital stock or any other ownership interest of GARS or any of its subsidiaries, including any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any shares of capital stock or any other ownership interest of GARS or any of its subsidiaries or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of capital stock or any other ownership interest of GARS or any of its subsidiaries on a deferred basis or (C) any other securities of GARS or any of its subsidiaries in respect of, in lieu of, or in substitution for, GARS Common Stock outstanding on the date of the Merger Agreement;

 

   

adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of GARS or any of its subsidiaries, other than the Mergers;

 

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redeem, purchase or otherwise acquire, or propose to redeem, repurchase or otherwise acquire, or otherwise amend the terms of, any outstanding GARS Common Stock or subsidiary equity interests of non-wholly owned subsidiaries;

 

   

amend, enter into or terminate any GARS material contract other than in the ordinary course of business;

 

   

make any material change in any of the accounting methods used by GARS unless required by GAAP or applicable law;

 

   

(A) make or change any material tax election other than in the ordinary course of business, (B) change any material method of tax accounting other than in the ordinary course of business or (C) agree to any extension or waiver of the statute of limitations with respect to a material amount of tax;

 

   

except as contemplated by the Merger Agreement, amend the certificate of incorporation (the “GARS Certificate of Incorporation”) or second amended and restated bylaws of GARS (the “GARS Bylaws”) or similar governing documents of any of its subsidiaries;

 

   

(A) redeem, repurchase, prepay or defease any indebtedness for borrowed money at an amount above the par value thereof, (B) incur or otherwise acquire any indebtedness for borrowed money or (C) guarantee, forgive or otherwise become liable for any indebtedness for borrowed money;

 

   

enter into a new line of business outside of GARS’ investment objective as described in its SEC reports (provided, that the foregoing will not apply in any way to any portfolio company);

 

   

directly or indirectly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to cause GARS to fail to qualify, or not be subject to tax, as a RIC; or

 

   

enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

Please also see “—Additional Covenants—GARS-Specific Restrictions on Acquisitions, Dispositions and Dividends During the Interim Period” and “—Additional Covenants—CLO Matters” below.

Interim Operations of PTMN

Similarly, PTMN has agreed that, during the Interim Period, except (i) as may be required by law, (ii) with the prior written consent of GARS, which consent will not be unreasonably withheld, delayed or conditioned, (iii) as expressly contemplated or permitted by the Merger Agreement or (iv) as set forth in its disclosure letter to the Merger Agreement, PTMN will, and will cause each of its subsidiaries to, carry on its business in the ordinary course of business and use reasonable best efforts to (1) preserve intact its business organization, (2) maintain in effect all material licenses and permits required to carry on its business, (3) maintain in effect any exemptive orders or exemptive relief which it has received from the SEC and which are currently in effect and (4) preserve its material business relationships.

Without limiting the generality of the foregoing, during the Interim Period, except (i) as may be required by law, (ii) with the prior written consent of GARS, which consent will not be unreasonably withheld, delayed or conditioned, (iii) as expressly required, contemplated or permitted by the Merger Agreement or (iv) as set forth in its disclosure letter to the Merger Agreement, PTMN will not, and will not permit any of its subsidiaries to:

 

   

except (A) as provided in PTMN’s dividend reinvestment plan and (B) for issuances of shares of PTMN Common Stock at a price per share at or above PTMN’s then current NAV per share of PTMN Common Stock in one or more underwritten offerings for cash, issue, deliver, sell, dispose of, grant, pledge or otherwise encumber or subject to any lien, or authorize or propose the issuance, sale, disposition, pledge or other encumbrance of (1) any shares of capital stock of any class or any other ownership interest of PTMN or any of its subsidiaries, (2) any securities or rights convertible into, exchangeable for, exercisable for, or evidencing the right to subscribe for any shares of capital stock or

 

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any other ownership interest of PTMN or any of its subsidiaries, including any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any shares of capital stock or any other ownership interest of PTMN or any of its subsidiaries or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of capital stock or any other ownership interest of PTMN or any of its subsidiaries on a deferred basis or (3) any other securities of PTMN or any of its subsidiaries in respect of, in lieu of, or in substitution for, PTMN Common Stock outstanding on the date of the Merger Agreement;

 

   

adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of PTMN or any of its subsidiaries, other than the Mergers;

 

   

redeem, purchase or otherwise acquire, or propose to redeem, repurchase or otherwise acquire, or otherwise amend the terms of, any outstanding PTMN Common Stock or subsidiary equity interests of non-wholly owned subsidiaries;

 

   

split, combine, subdivide or reclassify any PTMN Common Stock or declare, set aside for payment, authorize, make or pay any dividend (whether in cash, stock or property, or any combination thereof) in respect of any PTMN Common Stock or any subsidiary equity interests, or otherwise make any payments to stockholders in their capacity as such, other than (A) dividends and distributions by a wholly-owned subsidiary of PTMN or regular quarterly dividends and distributions payable by PTMN, in each case (1) consistent with past practice and (2) not to exceed $0.08 per share per quarter, and in compliance with the terms of the Merger Agreement, and (B) a Tax Dividend;

 

   

other than in the ordinary course of business, directly or indirectly sell, lease, license or otherwise subject to any lien or otherwise dispose of, in whole or in part, any of its properties, assets or rights or any interest therein, in each case that are material to PTMN and its subsidiaries, taken as a whole, to any person other than a wholly owned subsidiary;

 

   

make any material change in any of the accounting methods used by PTMN unless required by GAAP or applicable law;

 

   

(A) make or change any material tax election other than in the ordinary course of business, (B) change any material method of tax accounting other than in the ordinary course of business or (C) agree to any extension or waiver of the statute of limitations with respect to a material amount of tax;

 

   

except as contemplated by the Merger Agreement, amend the certificate of incorporation of PTMN, as amended (the “PTMN Certificate of Incorporation”), or the second amended and restated bylaws of PTMN, as amended (the “PTMN Bylaws”), or Merger Sub;

 

   

other than in the ordinary course of business, directly or indirectly (A) acquire (including by merger, consolidation or acquisition of stock or assets) any corporation, partnership, limited liability company, other business organization or any division or amount of assets thereof, in each case that are material to PTMN and its subsidiaries, taken as a whole, or (B) make any investment in, either by purchase of stock or securities, contributions to capital, property transfers or purchase of any property or assets of, any other person, in each case that are material to PTMN and its subsidiaries, taken as a whole (in the case of each of clauses (A) and (B), other than wholly owned subsidiaries);

 

   

enter into a new line of business outside of PTMN’s investment objective as described in the PTMN SEC reports (provided, that the foregoing will not apply in any way to any portfolio company);

 

   

directly or indirectly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to cause PTMN to fail to qualify, or not be subject to tax, as a RIC;

 

   

amend the PTMN Investment Advisory Agreement (except for decreases to any fees paid to Sierra Crest under such agreement); or

 

   

enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

 

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“Tax Dividend” means a dividend or dividends, with respect to any applicable tax year, which is deductible pursuant to the dividends paid deduction under Section 562 of the Code, and will have the effect of distributing to GARS Stockholders or PTMN Stockholders (as applicable) all of GARS’ or PTMN’s (respectively) previously undistributed (i) “investment company taxable income” within the meaning of Section 852(b) of the Code (determined without regard to Section 852(b)(2)(D) of the Code), (ii) any prior year shortfall as determined under Section 4982(b)(2) of the Code, (iii) amounts constituting the excess of (A) the amount specified in Section 852(a)(1)(B)(i) of the Code over (B) the amount specified in Section 852(a)(1)(B)(ii) of the Code, and (iv) net capital gain (within the meaning of Section 1222(11) of the Code), if any, in each case recognized either in the applicable tax year or any prior tax year.

Additional Covenants

GARS and PTMN have agreed to additional covenants, including the following matters:

Access to Information

Upon reasonable notice and subject to certain conditions, each of GARS and PTMN will (and will cause each of its subsidiaries to) afford representatives of the other party reasonable access, in a manner not disruptive to the operations of its and its subsidiaries’ business, during normal business hours and upon reasonable notice throughout the Interim Period, to its and its subsidiaries’ properties, books and records and, during such period, will (and will cause each of its subsidiaries to) furnish promptly to such representatives all information concerning its and its subsidiaries’ business as may reasonably be requested.

Tax Matters

The parties to the Merger Agreement intend that the Mergers together will be treated as a “reorganization” within the meaning of Section 368(a) of the Code and intend for the Merger Agreement to constitute a “plan of reorganization” within the meaning of the Code, and neither party will permit any of its respective subsidiaries, to take any action or fail to take any action that could reasonably be expected to prevent or impede the Mergers from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

Acquisition Proposals

Under the Merger Agreement, GARS agreed to, and to cause its subsidiaries to, and to cause each of its and their respective representatives to, from and after the date of the Merger Agreement (a) immediately cease any solicitations of, or discussions or negotiations with, any person (other than PTMN, Merger Sub or any of their respective representatives) previously conducted with respect to any Acquisition Proposal and immediately terminate all physical and electronic data room access previously granted to any such person in connection therewith, (b) request the prompt return or destruction of all confidential information previously furnished to any person with respect to any Acquisition Proposal and (c) not terminate, waive, amend, release or modify any provision of any confidentiality or “standstill” agreement to which it or any of its affiliates or representatives is a party with respect to any Acquisition Proposal; provided, however, that GARS may (i) waive any provision of any confidentiality or “standstill” agreement to the extent, and only to the extent, necessary to permit any Person to submit an Acquisition Proposal on a confidential basis to GARS in a manner that is not reasonably expected to require public disclosure by GARS (but GARS is not prohibited from making any such public disclosure to the extent required by applicable law), and (ii) respond to inquiries or Acquisition Proposals from third parties, described below, solely to inform such persons of the provisions of the Merger Agreement regarding Acquisition Proposals (the “non-solicitation covenants”) or to request clarification of any ambiguous terms of such Acquisition Proposal.

GARS will not, and will cause its subsidiaries not to, and will cause GARS’ and its subsidiaries’ respective officers, directors and other representatives not to, directly or indirectly, (i) initiate, solicit or knowingly and

 

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intentionally encourage any inquiries with respect to, or the making of, any Acquisition Proposal or (ii) except as expressly permitted by the non-solicitation covenants, (A) continue or engage in negotiations or discussions with or provide any information or data to any person relating to an Acquisition Proposal, (B) facilitate, approve, endorse or recommend, or propose publicly to facilitate, approve, endorse or recommend, any Acquisition Proposal, (C) execute or enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement or other agreement relating to any Acquisition Proposal (other than a confidentiality agreement contemplated by the non-solicitation covenants) or (D) resolve, agree or publicly propose to do any of the foregoing.

Notwithstanding anything to the contrary in the Merger Agreement, at any time prior to obtaining the GARS Stockholder Approval, in the event that GARS receives a written Acquisition Proposal that the GARS Board determines in good faith is bona fide and that was unsolicited and did not otherwise result from a breach of the terms of the non-solicitation covenants, GARS, the GARS Board and the GARS Special Committee may participate in discussions or negotiations with, or furnish any information to, any person making such Acquisition Proposal and its representatives or potential sources of financing if the GARS Board determines in good faith, after consultation with its outside counsel and its financial advisor, that (i) such person has submitted to GARS an Acquisition Proposal that either constitutes a Superior Proposal or could reasonably be expected to result in a Superior Proposal and (ii) the failure to take such actions would reasonably be expected to be inconsistent with its fiduciary duties under the DGCL; provided, that prior to providing any such information, GARS has entered into a confidentiality agreement with such person with provisions that are no less favorable in all material respects to GARS than the provisions of the confidentiality agreement (the “Confidentiality Agreement”), dated as of November 21, 2019, between GARS and BCP (including any “standstill” agreements contained therein). GARS will not be restricted as a result of the foregoing from complying with its disclosure obligations under applicable law with regard to any Acquisition Proposal or making any disclosure to GARS Stockholders, if, after consultation with its outside legal counsel, GARS determines that such disclosure would be required under applicable law; provided, that any such disclosure (other than any “stop-look-and-listen” communication or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act or a factually accurate public statement by GARS that describes GARS’ receipt of an Acquisition Proposal and the operation of the Merger Agreement with respect thereto) will be deemed to be a Change in Recommendation unless the GARS Board expressly reaffirms the GARS Board Recommendation in such disclosure or within three business days after the making of such disclosure.

GARS will promptly (and in any event within 48 hours) notify PTMN in writing of the receipt by GARS, any of its subsidiaries or any of its or their respective representatives of any Acquisition Proposal, which notice will include a description of the material terms of and identity of the person making such Acquisition Proposal and a copy of any written proposal, offer, draft agreement, term sheet or other agreement provided by such person. GARS will keep PTMN reasonably informed on a timely basis of the status and material terms and conditions of any such Acquisition Proposal and of any material amendments or proposed material amendments thereto, including furnishing copies of any written inquiries, correspondence and draft documentation, and will promptly (and in any event within 36 hours) notify PTMN in writing of any determination by the GARS Board to begin providing information or to engage in discussions or negotiations concerning any Acquisition Proposal.

Except as described below, neither the GARS Board nor any committee thereof will (i) withhold or withdraw, or modify or qualify in a manner adverse to PTMN, or propose publicly to withhold or withdraw, or modify or qualify in a manner adverse to PTMN, the recommendation of the GARS Board that the GARS Stockholders adopt the Merger Agreement and approve the Mergers (the “GARS Board Recommendation”), (ii) fail to include the GARS Board Recommendation in this joint proxy statement/prospectus, (iii) approve, determine to be advisable or recommend, or propose publicly to approve, determine to be advisable or recommend, any Acquisition Proposal or (iv) resolve, agree or publicly propose to take any such actions (each such action in (i), (ii), (iii) and (iv) above being referred to as a “Change in Recommendation”), and neither the GARS Board nor any committee thereof will approve or recommend, and GARS will not (and will cause its subsidiaries not to) execute or enter into, any letter of intent, memorandum of understanding, agreement in

 

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principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract, in each case constituting or with respect to, any Acquisition Proposal (each, an “Alternative Acquisition Agreement”), in each case other than a confidentiality agreement contemplated by the non-solicitation covenants.

Subject to the provisions described in the paragraph immediately below, if GARS receives an Acquisition Proposal after the date of the Merger Agreement that was unsolicited and did not otherwise result from a breach of the non-solicitation covenants, and the GARS Board has determined in good faith, after consultation with its outside counsel and its financial advisor, that (i) the Acquisition Proposal is bona fide and constitutes a Superior Proposal and (ii) the failure to take an SP Action would reasonably be expected to be inconsistent with its fiduciary duties under the DGCL, then at any time prior to receipt of the GARS Stockholder Approval, the GARS Board may (A) approve, endorse or recommend such Superior Proposal and cause GARS to enter into a binding definitive agreement providing for the consummation of such Superior Proposal concurrently with the termination of the Merger Agreement in accordance with the terms of the Merger Agreement or (B) effect a Change in Recommendation solely in response to such Superior Proposal (the actions in the foregoing clauses (A) and (B) being “SP Actions”).

Notwithstanding anything to the contrary contained in the Merger Agreement, including the provisions described in the paragraph immediately above, GARS may not take any SP Action unless (i) it notifies PTMN in writing of its intention to take such SP Action at least three business days prior to taking such SP Action (which notice will not, by itself, constitute a Change in Recommendation), specifying the underlying facts and the reasons for taking such SP Action and the terms of the Superior Proposal giving rise to such SP Action and identifying the person making such Superior Proposal, and contemporaneously furnishes a copy of the final negotiated definitive agreement providing for such Superior Proposal and all other relevant transaction documents (provided, that any amendment to the financial terms or any other material terms of such Superior Proposal will require a new written notice by GARS and a new three business day period), (ii) after providing such notice, it has negotiated, and has caused its representatives to negotiate, in each case solely at the request of PTMN, with PTMN and its representatives in good faith during such three business day period to make such adjustments to the terms and conditions of the Merger Agreement as would obviate the need for GARS to take such SP Action and (iii) following the end of such three business day period, the GARS Board determines in good faith, after consultation with its outside counsel and financial advisors, taking into account any changes to the Merger Agreement proposed in writing by PTMN, that such Superior Proposal continues to be a Superior Proposal.

Subject to the provisions described in the paragraph immediately below, at any time prior to receipt of GARS Stockholder Approval, the GARS Board may effect a Change in Recommendation solely in response to an Intervening Event (as defined below) (such action being an “IE Action”) if the GARS Board has determined in good faith, after consultation with its outside counsel and its financial advisor, that the failure to take such IE Action would reasonably be expected to be inconsistent with its fiduciary duties under the DGCL.

Notwithstanding anything to the contrary contained in the Merger Agreement, including the provisions described in the paragraph immediately above, GARS may not take any IE Action unless (i) it provides PTMN reasonably detailed written information describing the applicable Intervening Event as soon as reasonably practicable after the GARS Board or any committee thereof has determined that an Intervening Event has occurred, (ii) it keeps PTMN reasonably informed of significant developments with respect to such Intervening Event, (iii) it notifies PTMN in writing of its intention to take such IE Action at least three business days prior to taking such IE Action (which notice will not, by itself, constitute a Change in Recommendation), specifying the underlying facts and the reasons for taking such IE Action, (iv) after providing such notice, it has negotiated, and has caused its representatives to negotiate, in each case solely at the request of PTMN, with PTMN and its representatives in good faith during such three business day period to make such adjustments to the terms and conditions of the Merger Agreement as would obviate the need for GARS to take such IE Action and (v) following the end of such three business day period, the GARS Board determines in good faith, after

 

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consultation with its outside counsel and financial advisors, taking into account any changes to the Merger Agreement proposed in writing by PTMN, that the failure to take such IE Action would reasonably be expected to be inconsistent with its fiduciary duties under the DGCL.

“Acquisition Proposal” means any inquiry, offer or proposal made by any person or group of persons other than PTMN, Merger Sub or any affiliate thereof relating to, in one transaction or a series of related transactions, (i) any direct or indirect acquisition or purchase of securities of GARS (or any of its subsidiaries or any resulting parent company of GARS) representing 20% or more of the outstanding shares of any class of capital stock, or other equity or voting interests, of GARS (or any such subsidiary or resulting parent company of GARS), (ii) any tender offer, self-tender, exchange offer, merger, reorganization, consolidation, share exchange, liquidation, dissolution, joint venture or other business combination that if consummated would result in any person or group of persons beneficially owning 20% or more of the outstanding shares of any class of capital stock, or other equity or voting interests, of GARS (or any such subsidiary or resulting parent company of GARS), or (iii) any direct or indirect acquisition or purchase of assets or businesses (including any mortgage, pledge or similar disposition thereof) that constitute 20% or more of the total assets (based on fair market value) of GARS and its subsidiaries, taken as a whole, as of the date of such inquiry, offer or proposal, or that generated 20% or more of the net revenue or net income of GARS and its subsidiaries, taken as a whole, for the 12-month period ending on the last day of GARS’ then most recently completed fiscal quarter.

“Superior Proposal” means any bona fide, unsolicited, written and binding Acquisition Proposal that is fully financed or has fully committed financing, received after the date of the Merger Agreement, that the GARS Board determines in good faith, after consultation with its outside legal and financial advisors, taking into account all legal, financial, regulatory and other aspects of, and the identity of, the person or group of persons making the Acquisition Proposal, to be reasonably likely to be consummated in accordance with its terms on a timely basis and to be more favorable to GARS and GARS Stockholders from a financial point of view than the transactions contemplated thereby (including any adjustment to the terms and conditions proposed by PTMN in response to such proposal as described above or otherwise); provided that for purposes of this definition references to 20% in the definition of “Acquisition Proposal” will be deemed to be references to 50%.

“Intervening Event” means any event, change or development first occurring or arising after the date of the Merger Agreement that (i) is material to GARS and its consolidated subsidiaries, taken as whole, (ii) was not known to, and was not reasonably foreseeable by, all of the members of the GARS Board at or prior to the date of the Merger Agreement, and (iii) becomes known to the GARS Board after the date of the Merger Agreement and prior to receipt of the GARS Stockholder Approval; provided, however, that none of the following events, changes or developments will constitute or form part of an Intervening Event: (a) the receipt, existence, or terms of any Acquisition Proposal or Superior Proposal or any matter relating thereto or consequence thereof; (b) any action taken by GARS or any of its subsidiaries that is required by law or the Merger Agreement; and (c) the matters described in clauses (i) through (viii) of the definition of “material adverse effect” with respect to PTMN above, except in each case to the extent such matters may be taken into account in determining whether a material adverse effect with respect to PTMN has occurred.

Directors’ and Officers’ Indemnification and Insurance

From and after the Effective Time, PTMN will indemnify and hold harmless each current and former director or officer of GARS or any of its subsidiaries and each person who served at GARS’ request as a director, officer, member, trustee or fiduciary of another corporation, limited liability company, partnership, joint venture, trust, pension or other employee benefit plan or enterprise (each, together with such person’s heirs, executors or administrators, an “Indemnified Party”) against any costs or expenses (including reasonable attorney’s fees), judgments, fines, losses, claims, damages or liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with actions or omissions in their capacities as such occurring at or prior to the Effective Time (including the transactions contemplated by the Merger Agreement) to

 

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the full extent permitted by Section 145 of the DGCL and to the fullest extent required by any contract made available to PTMN prior to the date of the Merger Agreement, and, with respect to natural persons who are Indemnified Parties, PTMN will promptly advance expenses as incurred to the fullest extent required by the organizational documents of the GARS and its subsidiaries as in effect on the date of the Merger Agreement or any contract made available to PTMN prior to the date of the Merger Agreement; provided, however, that the Indemnified Party to whom expenses are advanced will undertake to repay such advanced expenses to the PTMN, if it is ultimately determined by a final non-appealable judgment of a court of competent jurisdiction that such Indemnified Party is not entitled to indemnification pursuant to the Merger Agreement.

GARS will purchase prior to the Effective Time a six-year prepaid “tail” policy on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by GARS and the GARS’ subsidiaries for the Indemnified Parties and other individuals otherwise covered by such insurance policies prior to the Effective Time with respect to matters occurring at or prior to the Effective Time (including the transactions contemplated by the Merger Agreement); provided, that in no event will GARS pay a total premium for such tail policy in excess of 300% of the last annual premium paid by GARS prior to the date of the Merger Agreement for its existing directors’ and officers’ liability insurance and fiduciary liability insurance (the “Maximum Premium”), it being understood that if such terms and conditions cannot be obtained or can be obtained only by paying a total premium in excess of the Maximum Premium, GARS will only be required to obtain as much similar insurance as may be obtained for such Maximum Premium. From and after the Effective Time, PTMN will cause such policy to be maintained in full force and effect, for its full term, and honor all obligations thereunder, and no other party will have any further obligation to purchase or pay for insurance under the Merger Agreement.

Publicity

Neither GARS nor PTMN (nor any of their respective controlled affiliates) will issue any press release or make any other public announcement with respect to the Merger Agreement or the transactions contemplated thereby without the prior written consent of the other party (which consent will not be unreasonably withheld, conditioned or delayed), except as may be required by applicable law or by any listing agreement with a national securities exchange, in which case the party proposing to issue such press release or make such public announcement will use its reasonable best efforts to consult in good faith with the other party before making any such public announcement; provided that each of GARS and PTMN will no longer be required to obtain the prior agreement of or consult with the other in connection with any such press release or public announcement if the GARS Board has effected a valid Change in Recommendation.

Proxy Statement/Prospectus

Each of PTMN and GARS will use its reasonable best efforts to have the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part) declared effective under the Securities Act, and cleared of all comments from the SEC, as promptly as practicable after the filing (including by responding to comments from the SEC).

Special Meetings

GARS Special Meeting

GARS will, in accordance with applicable law and the GARS Certificate of Incorporation and the GARS Bylaws, duly call, give notice of, convene and hold the GARS Special Meeting as soon as practicable following the effectiveness of the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part) (and in no event later than the 45th day thereafter), solely for the purpose of considering the adoption of the Merger Agreement and the approval of the Mergers (and any such matter contemplated by the Merger Agreement as required by the SEC or any other governmental entity to be voted upon separately). GARS

 

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will use its reasonable best efforts to obtain the GARS Stockholder Approval at the GARS Special Meeting, including by soliciting proxies from GARS Stockholders in favor of the GARS Stockholder Approval. GARS may postpone or adjourn the GARS Special Meeting solely (i) with the written consent of PTMN, (ii) for the absence of a quorum, (iii) to solicit additional proxies to obtain the GARS Stockholder Approval or (iv) to allow reasonable additional time for the filing and dissemination of any supplemental or amended disclosure if, in the good faith judgment of the GARS Board (after consultation with outside legal counsel), the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties under applicable law; provided, that GARS may not postpone or adjourn the GARS Special Meeting more than a total of 15 days pursuant to clauses (ii) and (iii), taken together. Notwithstanding the foregoing, GARS will, at the written request of PTMN, adjourn the GARS Special Meeting to a date specified by PTMN for the absence of a quorum or if GARS has not received proxies representing a sufficient number of shares of GARS Common Stock to obtain the GARS Stockholder Approval; provided, that no such adjournment pursuant to this sentence will be required to be for a period exceeding 10 days. GARS will permit PTMN and its representatives to attend the GARS Special Meeting.

In the event that the GARS Board or any committee thereof makes a Change in Recommendation (whether or not validly effected), unless and until the Merger Agreement is terminated in accordance with its terms, GARS will nonetheless submit the Merger Agreement to GARS Stockholders for the purpose of voting on the adoption of the Merger Agreement and the approval of the Mergers, including by (A) calling the GARS Special Meeting, (B) delivering notice of the GARS Special Meeting to GARS Stockholders, (C) preparing, printing and mailing this joint proxy statement/prospectus, (D) soliciting proxies for voting on the adoption of the Merger Agreement and the approval of the Mergers, and (E) voting such proxies in accordance with the instructions of the GARS Stockholders thereon; provided, that following a validly effected Change in Recommendation, GARS need not advocate that GARS Stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Mergers.

PTMN Special Meeting

PTMN will, in accordance with applicable law and the PTMN Certificate of Incorporation and the PTMN Bylaws, duly call, give notice of, convene and hold the PTMN Special Meeting as soon as practicable following the effectiveness of the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part) (and in no event later than the 45th day thereafter), solely for the purpose of considering the approval of the issuance of PTMN Common Stock in connection with the Mergers (and any such matter contemplated by the Merger Agreement as required by the SEC or any other governmental entity to be voted upon separately). PTMN will use its reasonable best efforts to obtain the PTMN Stockholder Approval of the Merger Stock Issuance Proposal at the PTMN Special Meeting, including by soliciting proxies from PTMN Stockholders in favor of the PTMN Stockholder Approval. PTMN may postpone or adjourn the PTMN Special Meeting solely (i) with the written consent of GARS, (ii) for the absence of a quorum, (iii) to solicit additional proxies to obtain the PTMN Stockholder Approval or (iv) to allow reasonable additional time for the filing and dissemination of any supplemental or amended disclosure if, in the good faith judgment of the PTMN Board (after consultation with outside legal counsel), the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties under applicable law; provided, that PTMN may not postpone or adjourn the PTMN Special Meeting more than a total of 15 days pursuant to clauses (ii) and (iii), taken together. Notwithstanding the foregoing, PTMN will, at the written request of GARS, adjourn the PTMN Special Meeting to a date specified by GARS for the absence of a quorum or if PTMN has not received proxies representing a sufficient number of shares of PTMN Common Stock to obtain the PTMN Stockholder Approval; provided, that no such adjournment pursuant to this sentence will be required to be for a period exceeding 10 days. PTMN will permit GARS and its representatives to attend the PTMN Special Meeting.

Reasonable Best Efforts

Each of GARS and PTMN will, and will cause each of its subsidiaries to, use its reasonable best efforts to promptly (i) take, or cause to be taken, all actions to do, or to cause to be done, and to assist and cooperate with

 

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the other parties in doing all things necessary, proper or advisable under applicable law or otherwise to consummate and make effective the transactions contemplated by the Merger Agreement; (ii) obtain from any governmental entities any actions, non-actions, clearances, waivers, consents, approvals, authorizations, licenses, permits or orders required to be obtained by GARS, PTMN or any of their respective subsidiaries in connection with the authorization, execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby; (iii) make all necessary registrations and filings, and thereafter make any other required submissions, with respect to the Merger Agreement and the Mergers required under (A) any applicable federal or state securities laws, (B) any applicable competition, antitrust or investment laws and (C) any other applicable law; provided, however, that GARS and PTMN will cooperate with each other in connection with the making of all such filings, including providing copies of all such filings and attachments to outside counsel for the non-filing party; (iv) furnish all information required for any application or other filing to be made pursuant to any applicable law in connection with the transactions contemplated by the Merger Agreement; (v) keep the other party reasonably informed of any material communication received by such party from, or given by such party to, any governmental entity and of any material communication received or given in connection with any proceeding by a private party, in each case relating to the transactions contemplated by the Merger Agreement; (vi) permit the other parties to review any material communication delivered to, and consult with the other party in advance of any meeting or conference with, any governmental entity relating to the transactions contemplated by the Merger Agreement or in connection with any proceeding by a private party relating thereto, and give the other party the opportunity to attend and participate in such meetings and conferences (to the extent permitted by such governmental entity); (vii) avoid the entry of, or have vacated or terminated, any decree, order, or judgment that would restrain, prevent or delay the Closing, including defending any lawsuits or other legal proceedings, whether judicial or administrative, challenging the Merger Agreement or the consummation of the transactions contemplated thereby; and (viii) execute and deliver any additional instruments necessary to consummate the transactions contemplated by the Merger Agreement. No parties to the Merger Agreement will consent to any voluntary delay of the Closing at the behest of any governmental entity without the consent of the other parties to the Merger Agreement, which consent will not be unreasonably withheld.

Without limiting the above, PTMN will take, or to cause to be taken, any and all steps and make any and all undertakings necessary to avoid or eliminate each and every impediment under any antitrust, merger control, competition or investment law that may be asserted by any governmental entity with respect to the Mergers so as to enable the Closing to occur as soon as reasonably possible (and in any event, no later than the Outside Date), including proposing, negotiating, committing to, and effecting by consent decree, hold separate order or otherwise, the sale, divestiture, licensing or disposition of such assets or businesses of PTMN (or its subsidiaries) or otherwise taking or committing to take actions that limit PTMN’s or its subsidiaries’ freedom of action with respect to, or their ability to retain, any of the businesses, product lines or assets of PTMN (or its subsidiaries), in each case, as may be required in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding, which would otherwise have the effect of preventing or delaying the Closing.

Takeover Statutes

If any “fair price,” “moratorium,” “business combination,” “control share acquisition,” “interested person,” “interested stockholder” or other form of anti-takeover statute or regulation will become applicable to the Merger Agreement or the transactions contemplated thereby, each of GARS and PTMN will grant such approvals and take such actions as are reasonably necessary and within its control so that the Merger Agreement and the transactions contemplated thereby may be consummated as promptly as practicable on the terms contemplated therein and otherwise act to eliminate or minimize the effects of such statute or regulation on the Merger Agreement and the transactions contemplated thereby.

 

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Listing of PTMN Common Stock

PTMN will use its reasonable best efforts to cause shares of PTMN Common Stock to be issued in the Merger to be approved for listing on Nasdaq, subject to official notice of issuance, as promptly as practicable, and in any event prior to the Effective Time.

Rule 16b-3

Prior to the Effective Time, GARS and PTMN will each take such steps as may be necessary or advisable to cause dispositions of GARS equity securities and acquisitions of shares of PTMN Common Stock pursuant to the transactions contemplated by the Merger Agreement by each individual who is a director or officer of GARS to be exempt under Rule 16b-3 promulgated under the Exchange Act.

Dividends

Each of PTMN and GARS will coordinate with each other in designating the record and payment dates for any dividends or distributions to its respective stockholders, including a Tax Dividend, declared in accordance with the Merger Agreement in any calendar quarter in which the Closing Date might reasonably be expected to occur.

Merger Sub

PTMN will take all actions necessary to (a) cause Merger Sub to perform promptly its obligations under the Merger Agreement, (b) cause Merger Sub to consummate the Merger on the terms and conditions set forth in the Merger Agreement and (c) ensure that, prior to the Effective Time, Merger Sub will not conduct any business, make any investments or incur or guarantee any indebtedness, other than as expressly contemplated by the Merger Agreement.

No Control of Operations

Nothing contained in the Merger Agreement will give PTMN or Merger Sub, directly or indirectly, the right to control or direct GARS’ operations prior to the Effective Time. Prior to the Effective Time, GARS will exercise, consistent with the terms and conditions of the Merger Agreement, complete control and supervision over its operations. Nothing contained in the Merger Agreement will give GARS, directly or indirectly, the right to control or direct PTMN’s or Merger Sub’s operations prior to the Effective Time. Prior to the Effective Time, each of PTMN and Merger Sub will exercise, consistent with the terms and conditions of the Merger Agreement, complete control and supervision over its operations.

PTMN Board

PTMN will, subject to complying with its nominating committee procedures, take all actions that are required to cause up to two current GARS Independent Directors, as mutually agreed between GARS and PTMN, to be appointed as directors of PTMN effective as of the Effective Time.

Stockholder Litigation

Each of PTMN and GARS will reasonably cooperate and consult with one another in connection with the defense and settlement of any action, claim, suit, arbitration, examination, litigation, governmental investigation or other proceeding, whether civil, criminal or administrative, by or before a governmental entity (each an “Action”) by GARS Stockholders or PTMN Stockholders against any of them or any of their respective directors, officers or affiliates with respect to the Merger Agreement or the transactions contemplated thereby. Each of PTMN and GARS will provide the other party with prompt written notice of any such Action brought by its

 

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stockholders, will keep the other party reasonably informed of any material developments in connection therewith, and will not settle any such Action without the prior written consent of the other party (such consent not to be unreasonably delayed, conditioned or withheld).

Notification of Certain Matters

Subject to applicable law, GARS will give prompt written notice to PTMN, and PTMN will give prompt written notice to GARS, of (a) any notice or other communication received by such party from any governmental entity in connection with the Merger Agreement, the Mergers or the transactions contemplated thereby, or from any person alleging that the consent of such person is or may be required in connection with the Mergers or the transactions contemplated by the Merger Agreement, if the subject matter of such communication or the failure of such party to obtain such consent could be material to the parties or the transactions contemplated by the Merger Agreement, and (b) any claims, investigations or Actions commenced or, to such party’s knowledge, threatened against, relating to or involving or otherwise affecting such party or any of its subsidiaries which relate to the Merger Agreement, the Mergers or the transactions contemplated thereby. Subject to applicable law, GARS will use reasonable best efforts to give prompt written notice to PTMN, and PTMN will use reasonable best efforts to give prompt written notice to GARS, of any fact, circumstance or development of which GARS or PTMN (as applicable) becomes aware that will or is reasonably likely to result in any of the conditions to Closing set forth in the Merger Agreement becoming incapable of being satisfied by the Outside Date.

GARS-Specific Restrictions on Acquisitions, Dispositions and Dividends During the Interim Period

During the Interim Period, GARS will not, and will not permit any of its subsidiaries to, directly or indirectly (1) acquire (including by merger, consolidation or acquisition of stock or assets) any corporation, partnership, limited liability company, other business organization or any division or amount of assets thereof or (2) make any equity, debt or other investment in, either by purchase of stock or securities, contributions to capital, property transfers or purchase of any property or assets of, any other person (in the case of each of clauses (1) and (2), other than wholly owned subsidiaries) (the foregoing, “Acquisitions”). Notwithstanding the foregoing, the GARS and its subsidiaries may make the following Acquisitions:

(i) Acquisitions of new Level 3 assets issued by existing portfolio companies with a value, individually or in the aggregate, equal to less than 5% of GARS’ NAV as of March 31, 2020;

(ii) Acquisitions of Level 2 assets with four or more quotes on Bloomberg from different market makers or rated BB- or higher, in each case at a purchase price not to exceed par value and not lower than 92% of par value;

(iii) Acquisitions of U.S. treasury securities or similar cash-equivalent assets; and

(iv) Acquisitions of on-balance sheet CLOs, in each case at a purchase price not to exceed par value.

For purposes of the Merger Agreement, the terms “Level 1” and “Level 2” are as defined in Financial Accounting Standards Board Accounting Standards Codification Topic 820, ‘Fair Value Measurements and Disclosures’ (“ASC Topic 820”).

During the Interim Period, GARS will not, and will not permit any of its subsidiaries to, directly or indirectly sell, lease, license or otherwise subject to any lien or otherwise dispose of, in whole or in part, any of its properties, assets or rights or any interest therein to any person other than a wholly owned subsidiary (the foregoing, “Dispositions”). Notwithstanding the foregoing, GARS and its subsidiaries may make Dispositions so long as the sale price for the asset being disposed of is not less than the greater of (i) the value ascribed to such asset in the GARS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and (ii) the value ascribed to such asset in GARS’ Quarterly Report on Form 10-Q for the most recently completed quarter (if not the quarter ended March 31, 2020).

 

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During the Interim Period, GARS will not, and will not permit any of its subsidiaries to, split, combine, subdivide or reclassify any GARS Common Stock, or declare, set aside for payment, authorize, make or pay any dividend (whether in cash, stock or property, or any combination thereof) in respect of any GARS Common Stock or any subsidiary equity interests, or otherwise make any payments to stockholders in their capacity as such, other than (A) dividends and distributions by a wholly owned subsidiary of GARS, (B) a Tax Dividend and (C) as described in the next sentence. In compliance with “—Dividends” above, GARS may pay a quarterly cash dividend equal to 95% of its estimated net investment income for such quarter. Prior to declaring any such dividend, GARS will provide PTMN with its good faith calculation of estimated net investment income for such quarter, and PTMN will have a reasonable opportunity to review and comment thereon.

Should GARS wish to take any action in deviation of the restrictions described above, GARS may request PTMN’s prior written consent to do so (such consent will not be unreasonably withheld, conditioned or delayed).

CLO Matters

During the Interim Period, GARS will, and will cause each of its affiliates to, use reasonable best efforts to promptly take, or cause to be taken, all action to do, or cause to be done, all things necessary, proper or advisable to obtain such consents, provide such notices and take certain other actions related to the CLO transaction (collectively, the “CLO Conditions”). GARS will, and will cause each of its affiliates to, involve PTMN, its affiliates and its and their respective representatives in connection with satisfying the CLO Conditions, including by (i) keeping them reasonably informed of key developments and (ii) providing them with advance copies of all drafts of, and a reasonable opportunity to review, comment on and approve, all material documents and communications. PTMN will, and will cause its affiliates and representatives to, reasonably cooperate with GARS and its affiliates in connection with satisfying the CLO Conditions.

The CLO conditions were included in the Merger Agreement because, if the applicable consents are not obtained and the applicable notices are not given in accordance with the requirements of the documents governing the CLO, there would be an event of default under the documents governing the CLO and the lenders would have an ability to accelerate the outstanding amounts under the CLO.

Conditions to Closing the Mergers

Conditions to Each Party’s Obligation to Effect the Mergers

The obligations of GARS, on the one hand, and PTMN and Merger Sub, on the other hand, to consummate the Mergers are subject to the satisfaction (or waiver by GARS, PTMN and Merger Sub, if permissible under applicable law) of the following conditions:

 

   

the GARS Stockholder Approval and the PTMN Stockholder Approval have been obtained;

 

   

no governmental entity having jurisdiction over GARS, PTMN or Merger Sub has issued an order, decree or ruling or taken any other action, in each case then in effect, enjoining or otherwise prohibiting the consummation of the Mergers;

 

   

the PTMN Common Stock to be issued in connection with the Merger has been approved for listing on Nasdaq, subject to official notice of issuance; and

 

   

the registration statement on Form N-14 (of which this joint proxy statement/prospectus forms a part) has become effective under the Securities Act and is not the subject of any stop order or Action seeking a stop order.

 

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Conditions to the Obligations of PTMN and Merger Sub

The obligations of PTMN and Merger Sub to consummate the Mergers are subject to the satisfaction (or waiver by PTMN and Merger Sub) of certain additional conditions, including the following:

 

   

the representations and warranties of GARS are true and accurate in all respects (subject to the materiality thresholds set forth in the Merger Agreement) both when made and as of the Closing Date as if made at and as of such date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which representations and warranties need only be so true and accurate as of such date or with respect to such period) (the “GARS Rep Conditions”);

 

   

GARS has performed in all material respects its obligations under the Merger Agreement required to be performed by it at or prior to the Closing (the “GARS Covenant Conditions”);

 

   

since the date of the Merger Agreement, there has not occurred and there is not continuing any material adverse effect with respect to GARS;

 

   

PTMN has received a certificate signed by an executive officer of GARS, dated as of the Closing Date, to the effect that each of the foregoing conditions has been satisfied;

 

   

the GARS Administration Agreement and the GARS Investment Advisory Agreement have been terminated;

 

   

PTMN has received the written opinion of Simpson Thacher, or another nationally recognized tax counsel reasonably satisfactory to GARS (which may include outside counsel to GARS), dated as of the Closing Date, to the effect that the Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code;

 

   

GARS has provided evidence satisfactory to PTMN that each of the CLO Conditions has been satisfied or deemed satisfied pursuant to the Merger Agreement; and

 

   

GARS has provided evidence satisfactory to PTMN that each of GARS and its subsidiaries has filed or caused to be filed all tax returns required to be filed by it with respect to the taxable year ending December 31, 2019.

Conditions to the Obligations of GARS

The obligations of GARS to consummate the Mergers are subject to the satisfaction (or waiver by GARS) of certain additional conditions, including the following:

 

   

the representations and warranties of PTMN, Merger Sub and Sierra Crest are true and accurate in all respects (subject to the materiality thresholds set forth in the Merger Agreement) both when made and as of the Closing Date as if made at and as of such date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which representations and warranties need only be true and accurate as of such date or with respect to such period) (the “PTMN Rep Conditions”);

 

   

each of PTMN, Merger Sub and Sierra Crest has performed in all material respects all of the respective obligations under the Merger Agreement required to be performed by PTMN, Merger Sub or Sierra Crest, as the case may be, at or prior to the Closing (the “PTMN Covenant Conditions”);

 

   

since the date of the Merger Agreement, there has not occurred and there is not continuing any material adverse effect with respect to PTMN;

 

   

GARS has received a certificate signed by an executive officer of PTMN, dated as of the Closing Date, to the effect that each of the foregoing conditions has been satisfied; and

 

   

GARS has received the written opinion of Proskauer, or another nationally recognized tax counsel reasonably satisfactory to PTMN (which may include outside counsel to PTMN), dated as of the Closing

 

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Date, to the effect that the Mergers, taken together, will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Frustration of Closing Conditions

None of GARS, PTMN or Merger Sub may rely on the failure of any condition to Closing set forth in the Merger Agreement, as the case may be, to be satisfied if such failure was caused by such party’s failure to act in good faith or use its reasonable best efforts to consummate the Mergers and the other transactions contemplated by the Merger Agreement, as required by and subject to the terms of the Merger Agreement.

Termination of the Merger Agreement

Right to Terminate

The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after obtaining the PTMN Stockholder Approval or before or (except as described below) after obtaining the GARS Stockholder Approval:

 

   

(a) by mutual written consent of GARS and PTMN;

 

   

(b) by either GARS or PTMN, if:

 

   

(i) the Merger has not occurred on or prior to the Outside Date; provided, however, that the right to so terminate the Merger Agreement will not be available to any party whose failure to perform or comply with the covenants and agreements of such party set forth in the Merger Agreement has been the proximate cause of the failure of the Merger to occur on or prior to such date;

 

   

(ii) any governmental entity having jurisdiction over GARS, PTMN or the Merger Sub has issued an order, decree or ruling or taken any other action, in each case permanently enjoining or otherwise permanently prohibiting any of the transactions contemplated by the Merger Agreement and such order, decree, ruling or other action has become final and nonappealable; provided, however, that the party seeking to so terminate the Merger Agreement has used its reasonable best efforts to contest, appeal and remove such order, decree, ruling or other action in accordance with the terms of the Merger Agreement;

 

   

(iii) the GARS Stockholder Approval has not been obtained at the GARS Special Meeting duly convened therefor or at any adjournment or postponement thereof at which a vote on the GARS Stockholder Approval was taken; provided, however, that no party may so terminate the Merger Agreement if such party has breached in any material respect any of its obligations under the Merger Agreement, in each case in a manner that caused the failure to obtain the GARS Stockholder Approval at the GARS Special Meeting or at any adjournment or postponement thereof; or

 

   

(iv) the PTMN Stockholder Approval has not been obtained at the PTMN Special Meeting duly convened therefor or at any adjournment or postponement thereof at which a vote on the PTMN Stockholder Approval was taken; provided, however, that no party may so terminate the Merger Agreement if such party has breached in any material respect any of its obligations under the Merger Agreement, in each case in a manner that caused the failure to obtain the PTMN Stockholder Approval at the PTMN Special Meeting or at any adjournment or postponement thereof.

 

   

(c) by GARS, if:

 

   

(i) PTMN or Merger Sub breaches any of its representations, warranties, covenants or other agreements under the Merger Agreement, which breach would result in the failure of any of the PTMN Rep Conditions or PTMN Covenant Conditions and such breach cannot be or has not been cured within twenty days after the giving of written notice to PTMN (or, if less than twenty days remain prior to the Outside Date, prior to the Outside Date); provided, that GARS may not so terminate the Merger

 

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Agreement if GARS is then in breach of any of its representations, warranties, covenants or agreements so as to cause any of the GARS Rep Conditions or GARS Covenant Conditions not to be satisfied were the Closing then to occur; or

 

   

(ii) prior to obtaining the GARS Stockholder Approval, and subject to the terms and conditions of the non-solicitation covenants, in order to simultaneously enter into a binding definitive agreement providing for the consummation of a Superior Proposal; provided, that GARS may not so terminate the Merger Agreement (A) if it has breached any of the non-solicitation covenants in any material respect and (B) unless GARS simultaneously pays PTMN the termination fee as described in “—Termination Fee; Expense Reimbursement” below);

 

   

(d) by PTMN, if:

 

   

(i) GARS breaches any of its representations, warranties and covenants or other agreements under the Merger Agreement, which breach would result in the failure of any of the GARS Rep Conditions or GARS Covenant Conditions and such breach cannot be or has not been cured within twenty days after the giving of written notice to PTMN (or, if less than twenty days remain prior to the Outside Date, prior to the Outside Date); provided that PTMN may not so terminate the Merger Agreement if PTMN, Merger Sub or Sierra Crest is then in breach of any of their respective representations, warranties, covenants or agreements so as to cause any of the PTMN Rep Conditions or PTMN Covenant Conditions not to be satisfied were the Closing then to occur; or

 

   

(ii) prior to the receipt of the GARS Stockholder Approval, (A) the GARS Board or any committee thereof has effected (whether or not validly) a Change in Recommendation, (B) GARS fails to publicly reaffirm the GARS Board Recommendation within five business days after receipt of a written request therefor by PTMN, (C) GARS materially breaches the non-solicitation covenants and such breach remains uncured for five business days following written notice thereof by PTMN to GARS, (D) GARS fails to recommend against any Acquisition Proposal that is a tender offer or exchange offer subject to Regulation 14D under the Exchange Act within ten business days after the commencement thereof or (E) GARS or the GARS Board or any committee thereof publicly announces an intention to effect any of the foregoing; provided, that PTMN may not so terminate the Merger Agreement at any time following a vote being taken on the GARS Stockholder Approval at the GARS Special Meeting duly convened therefor or at any adjournment or postponement thereof.

Termination Fee; Expense Reimbursement

GARS Fee

The Merger Agreement provides for the payment by GARS to PTMN of a termination fee (the “GARS Fee”) of approximately $2.375 million in cash (such amount to be reduced by the amount of any PTMN Expenses (as defined below) previously paid by GARS to PTMN) if the Merger Agreement is terminated by:

 

   

either PTMN or GARS, pursuant to paragraph (b)(iii) under “—Right to Terminate” above, (A) there has been publicly disclosed for the first time after the date of the Merger Agreement and prior to the time of the GARS Special Meeting an Acquisition Proposal which is not withdrawn prior to the time of the GARS Special Meeting and (B) within twelve months after such termination, GARS enters into an Alternative Acquisition Agreement with respect to any Acquisition Proposal (but, for purposes of this clause (B) only, substituting 50% for all references to 20% in the definition of Acquisition Proposal) that is later consummated (regardless of whether or not such consummation happens prior to or following the end of such twelve month period);

 

   

GARS, pursuant to paragraph (c)(ii) under “—Right to Terminate” above; or

 

   

PTMN, pursuant to paragraph (d)(ii) under “—Right to Terminate” above.

 

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Reimbursement of PTMN Expenses

If the Merger Agreement is terminated by PTMN or GARS in accordance with paragraph (b)(iii) under “—Right to Terminate” above, under circumstances in which the GARS Fee is not then payable to PTMN, then GARS will reimburse PTMN and its affiliates for all of their out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to PTMN and Merger Sub and their affiliates) incurred by or on behalf of PTMN or Merger Sub in connection with or related to the authorization, preparation, investigation, negotiation, execution and performance of the Merger Agreement and the transactions contemplated thereby, up to a maximum reimbursement payment of $550,000 (the “PTMN Expenses”).

Reimbursement of GARS Expenses

If the Merger Agreement is terminated by PTMN or GARS in accordance with paragraph (b)(iv) under “—Right to Terminate” above, then PTMN will reimburse GARS and its affiliates for all of their out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to GARS and its affiliates) incurred by or on behalf of GARS in connection with or related to the authorization, preparation, investigation, negotiation, execution and performance of the Merger Agreement and the transactions contemplated thereby, up to a maximum reimbursement payment of $550,000.

Effect of Termination

Following a valid termination, the Merger Agreement will become void and have no further force or effect, and the transactions contemplated by the Merger Agreement will be abandoned without further action by the parties; provided, that (i) certain provisions of the Merger Agreement will survive such termination, (ii) the Confidentiality Agreement will survive such termination in accordance with its terms and (iii) PTMN, Merger Sub and GARS will remain liable to each other for any damages incurred arising out of Fraud (as defined below) or any Knowing and Intentional Breach (as defined below) of the Merger Agreement.

“Fraud” means, with respect to a person, an intentional and willful misrepresentation by such person of a representation or warranty set forth in the Merger Agreement, or in any certificate delivered under the Merger Agreement by such person, which misrepresentation constitutes actual common law fraud (and not just constructive fraud or negligent misrepresentation) with the specific intent to induce another party to rely upon such representation or warranty.

“Knowing and Intentional Breach” means any breach of the Merger Agreement where the action or non-action constituting or giving rise to such breach was intentionally undertaken by the party taking such action, with actual knowledge that such action or non-action would or would reasonably be expected to constitute or give rise to a breach of the Merger Agreement.

Amendment and Modification of the Merger Agreement

Subject to applicable law, the Merger Agreement may be amended, modified and supplemented in any and all respects, whether before or after any vote of the respective stockholders of GARS or PTMN contemplated thereby, by written agreement of the parties thereto, by action taken by their respective boards of directors (or individuals holding similar positions), at any time prior to the Effective Time with respect to any of the terms contained therein; provided, however, that after the approval of the Merger Agreement by (i) GARS Stockholders, no such amendment, modification or supplement will reduce or change the Merger Consideration or adversely affect the rights of GARS Stockholders under the Merger Agreement without the approval of such stockholders and (ii) PTMN Stockholders, no such amendment, modification or supplement will increase or change the Merger Consideration or adversely affect the rights of PTMN Stockholders under the Merger Agreement without the approval of such stockholders.

 

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Waiver

Except as otherwise provided in the Merger Agreement, any (i) failure of any of the parties to comply with any obligation, covenant, agreement or condition therein or (ii) inaccuracies in the representations and warranties contained in the Merger Agreement, in each case, may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party expressly granting such waiver, but any such waiver or failure to insist upon strict compliance with any obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Expenses

All costs and expenses incurred in connection with the Mergers, the Merger Agreement and the consummation of the transactions contemplated thereby will be paid by the party incurring such costs and expenses, whether or not the Mergers or any of the transactions contemplated thereby is consummated.

Governing Law; Jurisdiction

The Merger Agreement is governed and construed in accordance with the laws of the State of Delaware applicable to contracts made and performed entirely therein.

Each of GARS, PTMN, Merger Sub and Sierra Crest has (a) submitted to the exclusive personal jurisdiction of the Delaware Court of Chancery, and any state appellate court therefrom within the State of Delaware (unless the Delaware Court of Chancery will decline to accept jurisdiction over a particular matter, in which case, in any Delaware state or federal court within the State of Delaware) (each, a “Chosen Court”) for any dispute arising out of the Merger Agreement or any of the transactions contemplated by the Merger Agreement, (b) agreed that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) irrevocably waived, to the fullest extent permitted by law, any objection that it may have to the laying of the venue of any Action in any such Chosen Court or that any such Action brought in any such Chosen Court has been brought in an inconvenient forum, (d) agreed that it will not bring any Action relating to the Merger Agreement or any of the transactions contemplated by the Merger Agreement in any court other than a Chosen Court and (e) agreed that each of the other parties will have the right to bring any Action or proceeding for enforcement of a judgment entered by Chosen Court in any other court or jurisdiction.

 

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ACCOUNTING TREATMENT OF THE MERGERS

PTMN management has performed an analysis and determined that the Mergers are asset acquisitions and that PTMN is the accounting survivor. Therefore, the Mergers will be accounted for under the asset acquisition method of accounting by PTMN in accordance with ASC 805-50, Business Combinations—Related Issues. Under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. Per ASC 805-50-30-1, assets are recognized based on their cost to the acquiring entity, which generally includes transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets carrying amounts on the acquiring entity’s records. ASC 805-50-30-2 goes on to say asset acquisitions in which the consideration given is cash are measured by the amount of cash paid. However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the cost to the acquiring entity or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measured.

The cost of the group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair values of net identifiable assets acquired other than “non-qualifying” assets (for example cash) and does not give rise to goodwill.

The final allocation of the purchase price will be determined after the Mergers are completed and after completion of a final analysis to determine the estimated relative fair values of GARS’ assets and liabilities. Increases or decreases in the estimated fair values of the net assets, commitments, and other items of GARS as compared to the information shown in this joint proxy statement/prospectus may occur. Accordingly, the final adjustments may be materially different from the pro forma adjustments presented in this joint proxy statement/prospectus.

 

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS

For purposes of this discussion, a “U.S. stockholder” or “U.S. holder” is a beneficial owner of GARS Common Stock who for U.S. federal income tax purposes is:

 

   

a citizen or individual resident of the United States;

 

   

a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any State or the District of Columbia;

 

   

a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (2) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person; or

 

   

an estate that is subject to U.S. federal income tax on its income regardless of its source.

For purposes of this discussion, a “non-U.S. stockholder” or “non-U.S. holder” means a beneficial owner of GARS Common Stock that is neither a U.S. stockholder nor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes).

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds GARS Common Stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding GARS Common Stock, you should consult your tax advisor.

This discussion addresses only those GARS Stockholders that hold their GARS Common Stock as a capital asset within the meaning of Section 1221 of the Code, and does not address all the U.S. federal income tax consequences that may be relevant to particular GARS Stockholders in light of their individual circumstances or to GARS Stockholders that are subject to special rules, such as:

 

   

financial institutions;

 

   

pass-through entities and investors in such entities;

 

   

insurance companies;

 

   

tax-exempt organizations;

 

   

controlled foreign corporations and passive foreign investment companies;

 

   

real estate investment trusts;

 

   

RICs;

 

   

mutual funds;

 

   

pension plans and trusts;

 

   

dealers in securities;

 

   

traders in securities that elect to use a mark to market method of accounting;

 

   

persons who exercise dissenters’ rights;

 

   

persons that hold GARS Common Stock as part of a straddle, hedge, constructive sale or conversion transaction;

 

   

United States expatriates or former citizens or residents of the United States,

 

   

U.S. stockholders whose functional currency is not the U.S. dollar,

 

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a person required to accelerate the recognition of any item of gross income with respect to GARS Common Stock as a result of such income being recognized on an applicable financial statement;

 

   

persons who are not U.S. stockholders (except as otherwise disclosed below under “—Non-U.S. Stockholders”); and

 

   

persons who acquired their shares of GARS Common Stock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified retirement plan, individual retirement accounts or other tax-deferred accounts.

In addition, the discussion does not address any alternative minimum tax, gift or estate tax, or any state, local or foreign tax consequences of the Mergers, nor does it address any tax consequences arising under Medicare tax on net investment income.

The following discussion is based on the Code, its legislative history, existing and proposed regulations thereunder and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion.

Qualification of the Mergers as a Reorganization under Section 368(a) of the Code

PTMN and GARS intend for the Mergers, taken together, to qualify as a reorganization within the meaning of Section 368(a) of the Code. It is a condition to the obligation of GARS to consummate the Mergers that GARS has received a written opinion from Proskauer, outside legal counsel to GARS, or another nationally recognized tax counsel reasonably satisfactory to PTMN (which may include outside counsel to PTMN), and it is a condition to the obligation of PTMN to consummate the Mergers that PTMN has received a written opinion from Simpson Thacher, or another nationally recognized tax counsel reasonably satisfactory to GARS (which may include outside counsel to GARS), in each case dated as of the Closing Date and to the effect that the Mergers, taken together, will qualify as a “reorganization,” within the meaning of Section 368(a) of the Code. These opinions will be based on facts and representations contained in representation letters provided by PTMN and GARS and on customary factual assumptions, including that the fair market value of the PTMN Common Stock received by GARS Stockholders in the Mergers will equal or exceed 40% of the aggregate consideration in the Mergers.

Accordingly, each GARS Stockholder should consult its tax advisor with respect to the particular tax consequence of the Mergers to such holder.

The remainder of this disclosure assumes that the Mergers qualify as a “reorganization” under Section 368(a) of the Code.

Tax Consequences if the Mergers Qualify as a Reorganization

If the Mergers, taken together, are treated as a reorganization within the meaning of Section 368(a) of the Code, the tax consequences for GARS Stockholders who receive shares of PTMN Common Stock and cash in exchange for shares of GARS Common Stock pursuant to the Mergers are as follows:

 

   

gain (but not loss) will be recognized in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the shares of PTMN Common Stock (including any fractional share deemed received) and cash (other than cash received in lieu of a fractional share of PTMN Common Stock) received by a holder of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration) exceeds such holder’s tax basis in its GARS Common Stock, and (2) the amount of cash received by such holder of GARS Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration, but excluding any cash received instead of fractional interests in shares of PTMN Common Stock, as discussed in the section entitled “—Cash Received in Lieu of a Fractional Share of PTMN Common Stock” below);

 

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the aggregate basis of the shares of PTMN Common Stock received in the Mergers will be the same as the aggregate basis of the GARS Common Stock for which it is exchanged, decreased by the amount of cash received in the Mergers (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration, but excluding any cash received instead of fractional interests in shares of PTMN Common Stock), decreased by any basis attributable to fractional interests in shares of PTMN Common Stock for which cash is received, and increased by the amount of any gain recognized on the exchange (regardless of whether such gain is classified as capital gain, or as ordinary dividend income, as discussed below, but excluding any gain or loss recognized with respect to fractional interests in shares of PTMN Common Stock for which cash is received); and

 

   

the holding period of shares of PTMN Common Stock received in exchange for shares of GARS Common Stock will include the holding period of the GARS Common Stock for which it is exchanged.

If the GARS Stockholders acquired different blocks of GARS Common Stock at different times or at different prices, any gain will be determined separately with respect to each block of GARS Common Stock and such holders’ basis and holding period in their shares of PTMN Common Stock will be determined by reference to each block of GARS Common Stock.

Gain that the GARS Stockholders recognize in connection with the Mergers generally will constitute capital gain and will constitute long-term capital gain if such holders have held (or are treated as having held) their GARS Common Stock for more than one year as of the date of the Mergers. Long-term capital gain of non-corporate GARS Stockholders is generally taxed at preferential rates. All or part of the gain that a particular U.S. holder of GARS Common Stock recognizes could be treated as dividend income rather than capital gain if (i) such U.S. stockholder is a significant shareholder of PTMN or (ii) such U.S. stockholder’s percentage ownership, taking into account constructive ownership rules, in PTMN after the Mergers is not meaningfully reduced from what its percentage ownership would have been if it had received solely shares of PTMN Common Stock rather than a combination of cash and shares of PTMN Common Stock in the Mergers. This could happen, for example, because of ownership of additional shares of PTMN Common Stock by such holder, ownership of shares of PTMN Common Stock by a person related to such holder or a share repurchase by PTMN from other PTMN Stockholders. The Internal Revenue Service has indicated in rulings that any reduction in the interest of a minority shareholder that owns a small number of shares in a publicly and widely held corporation and that exercises no control over corporate affairs would result in capital gain as opposed to dividend treatment. Because the possibility of dividend treatment depends primarily upon each holder’s particular circumstances, including the application of the constructive ownership rules, the GARS Stockholders should consult their tax advisors regarding the application of the foregoing rules to their particular circumstances.

The tax treatment of the receipt of the Additional Cash Consideration is unclear because there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror. If the Additional Cash Consideration is treated as additional Merger Consideration received in exchange for GARS Common Stock, such payment would be treated as part of the total consideration received in exchange for the GARS Common Stock and treated in the manner described above. It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for a U.S. stockholder’s GARS Common Stock.

Although the matter is not free from doubt, PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by U.S. stockholders is treated as additional Merger Consideration, and, assuming such position is respected, any gain recognized by a U.S. stockholder on the receipt of the Additional Cash Consideration should be capital gain or loss. No assurances can be given, however, that the IRS will not assert, or that a court would not sustain, a contrary position.

 

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Limitations on Utilization of Loss Carryforwards and Unrealized Losses

In general, it is expected that limitations under the Code will apply to loss carryforwards and unrealized losses of GARS as GARS Stockholders before the Mergers are expected to hold less than 50% of the outstanding shares of PTMN immediately following the Mergers.

In this regard, the Mergers are expected to result in potential limitations on the ability of PTMN to use GARS’ loss carryforwards and potentially to use unrealized capital losses inherent in the tax basis of the assets acquired, once realized, and on the ability of GARS’ taxable subsidiaries to use their net operating loss carryforwards. These potential limitations generally would be imposed on an annual basis. Losses in excess of the limitation may be carried forward indefinitely for capital loss carryforwards and post-2017 net operating loss carryforwards while pre-2018 net operating loss carryforwards are subject to a 20-year expiration from the year incurred. The limitations generally would equal the product of the fair market value of GARS’ (or GARS’ taxable subsidiaries, as the case may be) equity immediately prior to the Mergers and the “long-term tax-exempt rate,” as published quarterly by the IRS, in effect at such time. No assurance can be given as to what long-term tax-exempt rate will be in effect at the time of the Mergers.

PTMN will be prohibited from using its capital loss carryforwards, if any, and unrealized losses (once realized) against the unrealized gains in GARS’ portfolio at the time of the Mergers, if any, to the extent such gains are realized within five years following the Mergers, if GARS has a net unrealized built in gain at the time of the Mergers. The ability of PTMN to absorb its losses in the future depends upon a variety of factors that cannot be known in advance. Even if PTMN is able to utilize its capital loss carryforwards or unrealized losses, the tax benefit resulting from those losses will be shared by both PTMN Stockholders and GARS Stockholders following the Mergers. Therefore, a PTMN Stockholder or GARS Stockholder may pay more taxes, or pay taxes sooner, than such stockholder otherwise would have paid if the Mergers did not occur.

PTMN will also be prohibited from using GARS’ capital loss carryforwards, if any, and unrealized losses (once realized) against the unrealized gains in PTMN’s portfolio at the time of the Mergers, if any, to the extent such gains are realized within five years following the Mergers, if PTMN has a net unrealized built in gain at the time of the Mergers.

The ability of PTMN to use GARS’ losses in the future depends upon a variety of factors that cannot be known in advance. Even if PTMN is able to utilize capital loss carryforwards or unrealized losses of GARS, the tax benefit resulting from those losses will be shared by both GARS Stockholders and PTMN Stockholders following the Mergers. Therefore, a GARS Stockholder may pay more taxes, or pay taxes sooner, than such stockholder otherwise would have paid if the Mergers did not occur.

Further, in addition to the other limitations on the use of losses, under Section 381 of the Code, for the tax year of the Mergers, only that percentage of PTMN’s capital gain net income for such tax year (excluding capital loss carryforwards), if any, equal to the percentage of its tax year that remains following the Mergers can be reduced by GARS’ capital loss carryforwards (as otherwise limited under Sections 382, 383 and 384 of the Code, as described above).

Cash Received in Lieu of a Fractional Share of PTMN Common Stock

A holder of GARS Common Stock who receives cash in lieu of a fractional share of PTMN Common Stock will generally be treated as having received the fractional share pursuant to the Mergers and then as having sold that fractional share of PTMN Common Stock for cash. As a result, a holder of GARS Common Stock will generally recognize gain or loss equal to the difference between the amount of cash received and the basis in his or her fractional share interest as set forth above. Except as described above, this gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the Mergers, the holding period for such shares is greater than one year. The deductibility of capital losses is subject to limitations.

 

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Backup Withholding and Information Reporting

Payments of cash to a holder of GARS Common Stock may, under certain circumstances, be subject to information reporting and backup withholding, unless the holder provides proof of an applicable exemption satisfactory to PTMN and the exchange agent or furnishes its taxpayer identification number, and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the holder’s U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service.

If the Mergers, taken together, qualify as a reorganization, a holder of GARS Common Stock who receives PTMN stock as a result of the Mergers will be required to retain records pertaining to the Mergers. Each holder of GARS Common Stock who is required to file a U.S. federal income tax return and who is a “significant holder” that receives PTMN stock in the Mergers will be required to file a statement with such U.S. federal income tax return in accordance with U.S. Treasury Regulations Section 1.368-3 setting forth such holder’s basis in, and the fair market value of, the GARS Common Stock that is exchanged for PTMN Common Stock by such significant holder (in each case, determined immediately prior to the exchange) in the GARS Common Stock that is exchanged for PTMN Common Stock by such significant holder. A “significant holder” is a holder of GARS Common Stock who, immediately before the Mergers, owned at least 5% of the outstanding stock of GARS or securities of GARS with a basis for federal income taxes of at least $1.0 million.

Non-U.S. Stockholders

Gain recognized by a non-U.S. stockholder upon the exchange of GARS Common Stock pursuant to the Mergers generally should not be subject to U.S. federal income tax unless:

 

   

the gain is effectively connected with a U.S. trade or business of such non-U.S. stockholder (and, if required by an applicable income tax treaty, the non-U.S. stockholder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. stockholder generally should be subject to tax on such gain in the same manner as a U.S. stockholder and, if the non-U.S. stockholder is a foreign corporation, such corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty);

 

   

the non-U.S. stockholder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the Mergers and certain other requirements are met, in which case the non-U.S. stockholder generally should be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. stockholder, if any, provided the non-U.S. stockholder has timely filed U.S. federal income tax returns with respect to such losses; or

 

   

GARS is or has been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of (i) the five-year period ending on the date of the Mergers and (ii) the non-U.S. stockholder’s holding period in the GARS common stock, and the non-U.S. stockholder owned (directly, indirectly or constructively) more than 5% of GARS’ outstanding common stock at any time during the applicable period. Although there can be no assurances in this regard, GARS does not believe that it is or was during the last five years a “United States real property holding corporation” for U.S. federal income tax purposes.

If the receipt of the Aggregate Cash Consideration has the effect of a distribution of a dividend for U.S. federal income tax purposes, then such cash payment may be subject to 30% withholding unless (i) the non-U.S. stockholder is eligible for a reduced tax treaty rate with respect to dividend income or (ii) amounts paid to the non-U.S. stockholder in the Mergers are effectively connected with a U.S. trade or business, in which case no such withholding will be required and such amounts will be taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In general, a non-U.S. stockholder must furnish an IRS Form W-8BEN or IRS Form W-8ECI in order to prove its eligibility for any of the foregoing exemptions or reduced rates.

 

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GARS and PTMN generally intend to treat Additional Cash Consideration as additional Merger Consideration, but, as discussed above under “Tax Consequences if the Mergers Qualify as a Reorganization”, the tax treatment of the receipt of the Additional Cash Consideration is unclear because there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror. If the Additional Cash Consideration is treated as additional Merger Consideration received in exchange for GARS Common Stock, such payment would be treated as part of the total consideration received in exchange for the GARS Common Stock and treated in the manner described above.

It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for a non-U.S. stockholder’s GARS Common Stock. In such a case, the Additional Cash Consideration would generally be subject to withholding of U.S. federal income tax at a rate of 30% if it is treated as payment from a U.S. source that is fixed or determinable, annual or periodic income. While it is possible that the Additional Cash Consideration would not be treated as U.S. source income for non-U.S. stockholders not present in the United States, the proper characterization of such payment is subject to significant uncertainty. Furthermore, because the Additional Cash Consideration is not being made by or for the benefit of PTMN, PTMN is not a paying or withholding agent with respect to the Additional Cash Consideration and will not be responsible for determining whether any amounts should be withheld with respect to the Additional Cash Consideration. PTMN cannot be certain whether or not an applicable paying agent or other applicable withholding agent would take the position that it is required to withhold U.S. federal income tax at a 30% rate (or, if applicable, a reduced rate under a tax treaty) with respect to the payment of Additional Cash Consideration made to a non-U.S. stockholder. If withholding results in an overpayment of taxes, a refund or credit may be obtainable, provided that the required information is timely furnished to the IRS. Non-U.S. stockholders are urged to consult their own tax advisors regarding the application of U.S. federal income tax withholding to the Additional Cash Consideration.

A non-U.S. stockholder will be subject to information reporting and, in certain circumstances, backup withholding with respect to the Merger Consideration received by such holder pursuant to the Mergers, unless such non-U.S. stockholder certifies under penalties of perjury that it is a non-U.S. stockholder (and the payor does not have actual knowledge or reason to know that the holder is a United States person as defined under the Code) or such non-U.S. stockholder otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. stockholder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions (or “FFIs”) unless such FFIs either: (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered into an intergovernmental agreement (as “IGA”) with the United States to collect and share such information and are in compliance with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S. source interest and dividends. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, FATCA also imposes a 30% withholding on payments to foreign entities that are not FFIs unless such foreign entities certify that they do not have a greater than 10% U.S. owner or provide the withholding agent with identifying information on each greater than 10% U.S. owner. Non-U.S. stockholders should consult their tax advisors regarding the potential application of FATCA withholding on amounts received by such holders in connection with the Mergers.

 

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Distribution of Income and Gains

GARS’ tax year is expected to end as a result of the Mergers. GARS generally will be required to declare to GARS Stockholders of record one or more distributions of all of its previously undistributed net investment income and net realized capital gain (if any), in order to maintain GARS’ treatment as a RIC during its tax year ending with the date of the Mergers and to eliminate any U.S. federal income tax on its taxable income in respect of such tax year.

Moreover, if PTMN has net investment income or net realized capital gain, but has not distributed such income or gain prior to the Mergers and you acquire shares of PTMN Common Stock in the Mergers, a portion of your subsequent distributions from PTMN may, in effect, be a taxable return of part of your investment. Similarly, if you acquire PTMN Common Stock in the Mergers when PTMN holds appreciated securities, you may receive a taxable return of part of your investment if and when PTMN sells the appreciated securities and distributes the realized gain.

The preceding discussion is intended only as a summary of material U.S. federal income tax consequences of the Mergers and does not address tax consequences that may vary with, or are contingent on, individual circumstances. Moreover, it does not address any non-income tax or any foreign, state or local tax consequences of the Mergers. Thus, you are strongly encouraged to consult your tax advisor as to the specific tax consequences resulting from the Mergers, including tax return reporting requirements, the applicability and effect of United States federal, state, local and other tax laws and the effect of any proposed changes in the tax laws.

U.S. Federal Income Taxation of an Investment in PTMN Common Stock

The following discussion is a general summary of certain U.S. federal income tax considerations applicable to PTMN and to an investment in PTMN Common Stock. This summary does not purport to be a complete description of the income tax considerations applicable to PTMN or its investors on such an investment. For example, the following discussion does not describe tax consequences that PTMN assumes to be generally known by investors or certain considerations that may be relevant to certain types of stockholders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, financial institutions, pass-through entities and investors in such entities, insurance companies, real estate investment trusts, RICs, mutual funds, dealers in securities, pension plans and trusts, financial institutions, U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar, United States expatriates or former citizens or residents of the United States, persons who mark-to-market PTMN Common Stock, persons required to accelerate the recognition of any item of gross income with respect to PTMN Common Stock as a result of such income being recognized on an applicable financial statement, and persons who hold PTMN Common Stock as part of a “straddle,” “hedge” or “conversion” transaction. Unless otherwise noted, the following discussion applies only to U.S. stockholders (as defined below) that hold shares of PTMN Common Stock as capital assets within the meaning of the Code. The following discussion is based upon the Code, U.S. Treasury Regulations, and administrative and judicial interpretations, each as of the date hereof and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. PTMN has not sought and will not seek any ruling from the Internal Revenue Service (or the “IRS”), regarding PTMN Common Stock issued in the Mergers. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax or the Medicare tax on net investment income. It does not discuss the special treatment under U.S. federal income tax laws that could result if PTMN invests in tax-exempt securities or certain other investment assets.

For purposes of this discussion, a “U.S. stockholder” or “U.S. holder” means a beneficial owner of shares of PTMN Common Stock that is for U.S. federal income tax purposes:

 

   

a citizen or individual resident of the United States;

 

   

a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

For purposes of this discussion, a “non-U.S. stockholder” means a beneficial owner of shares of PTMN Common Stock that is neither a U.S. stockholder nor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes).

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of PTMN Common Stock, the tax treatment of a partner or member of the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner in a partnership holding shares of PTMN Common Stock should consult his, her or its tax advisors with respect to the purchase, ownership and disposition of shares of PTMN Common Stock.

Tax matters are very complicated and the tax consequences to an investor of an investment in PTMN Common Stock will depend on the facts of his, her or its particular situation. PTMN encourages investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Election to be Taxed as a RIC

PTMN has elected to be treated as a RIC under Subchapter M of the Code. As a RIC, PTMN generally will not have to pay corporate-level U.S. federal income taxes on any income that PTMN distributes to PTMN Stockholders from its taxable earnings and profits. To qualify as a RIC, PTMN must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, PTMN must distribute to PTMN Stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally its net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss (the “Annual Distribution Requirement”). Even if PTMN qualifies as a RIC, PTMN generally will be subject to corporate-level U.S. federal income tax on its undistributed taxable income and could be subject to U.S. federal excise, state, local and foreign taxes.

Taxation as a RIC

Provided that PTMN qualifies as a RIC and satisfies the Annual Distribution Requirement, PTMN will not be subject to U.S. federal income tax on the portion of its investment company taxable income and net capital gain (which generally is defined as net long-term capital gain in excess of net short-term capital loss) that it timely distributes to stockholders. PTMN will be subject to U.S. federal income tax at regular corporate rates on any income or capital gain not distributed (or deemed distributed) to PTMN Stockholders.

PTMN will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income of RICs unless it distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of its capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years and on which PTMN paid no U.S. federal income tax. PTMN will generally review the benefits of avoiding excise tax against the costs of paying such tax.

In order to be treated as a RIC for U.S. federal income tax purposes, PTMN must, among other things:

 

   

elect to be treated as a RIC;

 

   

meet the Annual Distribution Requirement;

 

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qualify to be treated as a BDC or be registered as a management investment company under the 1940 Act at all times during each taxable year;

 

   

derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to its business of investing in such stock, securities or currencies (including but not limited to gain from options, futures and forward contracts) and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code) (the “90% Income Test”); and

 

   

diversify its holdings so that at the end of each quarter of the taxable year:

 

   

at least 50% of the value of its assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of its assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”); and

 

   

no more than 25% of the value of its assets is invested in the securities, other than U.S. Government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by PTMN and that are engaged in the same or similar or related trades or businesses or (iii) of one or more “qualified publicly traded partnerships” (the “Diversification Tests”).

To the extent that PTMN invests in entities treated as partnerships for U.S. federal income tax purposes (other than a “qualified publicly traded partnership”), PTMN generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that is derived from a partnership (other than a “qualified publicly traded partnership”) will be treated as qualifying income for purposes of the 90% Income Test only to the extent that such income is attributable to items of income of the partnership which would be qualifying income if realized by PTMN directly. In addition, PTMN generally must take into account its proportionate share of the assets held by partnerships (other than a “qualified publicly traded partnership”) in which PTMN is a partner for purposes of the Diversification Tests.

In determining whether or not a RIC is in compliance with the Diversification Tests, the 90% Income Test and the Annual Distribution Requirement, a RIC may take into consideration certain cure provisions contained in the Code.

In order to meet the 90% Income Test, PTMN may establish one or more special purpose corporations to hold assets from which PTMN does not anticipate earning dividend, interest or other qualifying income under the 90% Income Test. Any investments held through such a special purpose corporation would generally be subject to U.S. federal income and other taxes, and therefore PTMN can expect to achieve a reduced after-tax yield on such investments.

PTMN may be required to recognize taxable income in circumstances in which PTMN does not receive a corresponding payment in cash. For example, if PTMN hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), PTMN must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by PTMN in the same taxable year. PTMN may also have to include in income other amounts that PTMN has not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. PTMN anticipates that a portion of PTMN’s income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash.

 

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Because any original issue discount or other amounts accrued will be included in PTMN’s investment company taxable income for the year of the accrual, PTMN may be required to make a distribution to PTMN Stockholders in order to satisfy the Annual Distribution Requirement, even though PTMN will not have received any corresponding cash amount. As a result, PTMN may have difficulty meeting the Annual Distribution Requirement necessary to obtain and maintain RIC tax treatment under the Code. PTMN may have to sell some of its investments at times and/or at prices PTMN would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If PTMN is not able to obtain cash from other sources, PTMN may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.

Furthermore, a portfolio company in which PTMN invests may face financial difficulty that requires PTMN to work-out, modify or otherwise restructure its investment in the portfolio company. Any such restructuring may result in unusable capital losses and future non-cash income. Any restructuring may also result in PTMN’s recognition of a substantial amount of non-qualifying income for purposes of the 90% Income Test, such as cancellation of indebtedness income in connection with the work-out of a leveraged investment (which, while not free from doubt, may be treated as non-qualifying income) or the receipt of other non-qualifying income.

Gain or loss realized by PTMN from warrants acquired by PTMN as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long PTMN held a particular warrant.

PTMN’s investment in non-U.S. securities may be subject to non-U.S. income, withholding and other taxes. In that case, PTMN’s yield on those securities would be decreased. Stockholders will generally not be entitled to claim a credit or deduction with respect to non-U.S. taxes paid by PTMN.

PTMN anticipates that the CLO vehicles in which it invests generally will constitute “passive foreign investment companies” (“PFICs”). Because PTMN acquires investments in PFICs (including equity tranche investments in CLO vehicles that are PFICs), PTMN may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such investments even if such income is distributed as a taxable dividend by PTMN to PTMN Stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require PTMN to recognize its share of the PFIC’s income for each year regardless of whether PTMN receives any distributions from such PFIC. PTMN must nonetheless distribute such income to maintain its status as a RIC.

If PTMN holds more than 10% of the shares in a foreign corporation that is treated as a controlled foreign corporation (“CFC”) (including equity tranche investments in a CLO vehicle treated as a CFC), PTMN may be treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to PTMN’s pro rata share of the corporation’s income for the tax year (including both ordinary earnings and capital gains). If PTMN is required to include such deemed distributions from a CFC in its income, PTMN will be required to distribute such income to maintain its RIC status regardless of whether or not the CFC makes an actual distribution during such year.

If PTMN is required to include amounts in income prior to receiving distributions representing such income, PTMN may have to sell some of its investments at times and/or at prices PTMN would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If PTMN is not able to obtain cash from other sources, PTMN may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.

In addition, as discussed above, to qualify as a RIC, PTMN must, among other thing, satisfy the 90% Income Test. Although the Code generally provides that the income inclusions from a PFIC for which PTMN has made a qualifying fund election (such a PFIC, a “QEF”) or a CFC will be “good income” for purposes of this 90% Income Test to the extent that the QEF or the CFC distributes such income to PTMN in the same taxable

 

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year in which the income is included in PTMN’s income, the Code does not specifically provide whether these income inclusions would be “good income” for this 90% Income Test if PTMN does not receive distributions from the QEF or CFC during such taxable year. The IRS has issued a series of private rulings in which it has concluded that all income inclusions from a QEF or a CFC included in a RIC’s gross income would constitute “good income” for purposes of the 90% Income Test. Such rulings are not binding on the IRS except with respect to the taxpayers to whom such rulings were issued. The IRS and U.S. Treasury Department have issued regulations that provide that the income inclusions from a QEF or a CFC will be good income for purposes of the 90% Income Test if PTMN receives a cash distribution from such entity in the same year attributable to the included income or the included income is derived with respect to PTMN’s business of investing in stocks and securities. Accordingly, under current law, PTMN believes that the income inclusions from a CLO that is a QEF or a CFC would be “good income” for purposes of the 90% Income Test whether or not such income is distributed by the QEF or CFC during the taxable year.

Under Section 988 of the Code, gain or loss attributable to fluctuations in exchange rates between the time PTMN accrues income, expenses, or other liabilities denominated in a foreign currency and the time PTMN actually collects such income or pays such expenses or liabilities are generally treated as ordinary income or loss. Similarly, gain or loss on foreign currency forward contracts and the disposition of debt denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.

Although PTMN does not presently expect to do so, PTMN is authorized to borrow funds and to sell assets in order to satisfy its distribution requirements. However, under the 1940 Act, PTMN is not permitted to make distributions to PTMN Stockholders while its debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Business—Regulation—Qualifying Assets” in Part I, Item 1 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the section entitled “Senior Securities of PTMN.” Moreover, PTMN’s ability to dispose of assets to meet its distribution requirements may be limited by (1) the illiquid nature of PTMN’s portfolio and/or (2) other requirements relating to PTMN’s status as a RIC, including the Diversification Tests. If PTMN disposes of assets in order to meet the Annual Distribution Requirement or to avoid the excise tax, PTMN may make such dispositions at times that, from an investment standpoint, are not advantageous.

If PTMN fails to satisfy the Annual Distribution Requirement or otherwise fails to qualify as a RIC in any taxable year, PTMN will be subject to tax in that year on all of its taxable income, regardless of whether PTMN makes any distributions to PTMN Stockholders. In that case, all of such income will be subject to corporate-level U.S. federal income tax, reducing the amount available to be distributed to PTMN Stockholders. See “—Failure To Obtain RIC Tax Treatment” below.

As a RIC, PTMN is not allowed to carry forward or carry back a net operating loss for purposes of computing its investment company taxable income in other taxable years. U.S. federal income tax law generally permits a RIC to carry forward (i) the excess of its net short-term capital loss over its net long-term capital gain for a given year as a short-term capital loss arising on the first day of the following year and (ii) the excess of its net long-term capital loss over its net short-term capital gain for a given year as a long-term capital loss arising on the first day of the following year. However, future transactions PTMN engages in may cause its ability to use any capital loss carryforwards, and unrealized losses once realized, to be limited under Section 382 of the Code. Certain of PTMN’s investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause PTMN to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions, and (vii) produce income that will not be qualifying income for purposes of the 90% Income Test. PTMN will monitor its transactions and may make certain tax elections in order to mitigate the effect of these provisions.

 

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As described above, to the extent that PTMN invests in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes, the effect of such investments for purposes of the 90% Income Test and the Diversification Tests will depend on whether or not the partnership is a “qualified publicly traded partnership” (as defined in the Code). If the partnership is a “qualified publicly traded partnership,” the net income derived from such investments will be qualifying income for purposes of the 90% Income Test and will be “securities” for purposes of the Diversification Tests. If the partnership, however, is not treated as a “qualified publicly traded partnership,” the consequences of an investment in the partnership will depend upon the amount and type of income of the partnership allocable to PTMN and its proportionate share of the underlying assets of the partnership. The income derived from such investments may not be qualifying income for purposes of the 90% Income Test and, therefore, could adversely affect PTMN’s qualification as a RIC. PTMN intends to monitor its investments in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes to prevent PTMN’s disqualification as a RIC.

PTMN may invest in preferred securities or other securities the U.S. federal income tax treatment of which may not be clear or may be subject to recharacterization by the IRS. To the extent the tax treatment of such securities or the income from such securities differs from the expected tax treatment, it could affect the timing or character of income recognized, requiring PTMN to purchase or sell securities, or otherwise change its portfolio, in order to comply with the tax rules applicable to RICs under the Code.

Taxation of U.S. Stockholders

Whether an investment in shares of PTMN Common Stock is appropriate for a U.S. stockholder will depend upon that person’s particular circumstances. An investment in shares of PTMN Common Stock by a U.S. stockholder may have adverse tax consequences. The following summary generally describes certain U.S. federal income tax consequences of an investment in shares of PTMN Common Stock by taxable U.S. stockholders and not by U.S. stockholders that are generally exempt from U.S. federal income taxation. U.S. stockholders should consult their own tax advisors before making an investment in PTMN Common Stock.

Distributions by PTMN generally are taxable to U.S. stockholders as ordinary income or capital gain. Distributions of PTMN’s “investment company taxable income” (which is, generally, PTMN’s ordinary income excluding net capital gain) will be taxable as ordinary income to U.S. stockholders to the extent of PTMN’s current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by PTMN to noncorporate U.S. stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions generally will be eligible for taxation at rates applicable to “qualifying dividends” (currently at a maximum tax rate of 20%) provided that PTMN properly reports such distributions as “qualified dividend income” and certain holding period and other requirements are satisfied. In this regard, it is not anticipated that a significant portion of distributions paid by PTMN will be attributable to qualifying dividends; therefore, PTMN’s distributions generally will not qualify for the preferential rates applicable to qualified dividend income. Distributions of PTMN’s net capital gain (which is generally PTMN’s net long-term capital gain in excess of net short-term capital loss) properly reported by PTMN as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gain (currently at a maximum rate of 20% in the case of individuals, trusts or estates), regardless of the U.S. stockholder’s holding period for his, her or its PTMN Common Stock and regardless of whether paid in cash or reinvested in additional PTMN Common Stock. Distributions in excess of PTMN’s current and accumulated earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s PTMN Common Stock and, after the adjusted basis is reduced to zero, will constitute capital gain to such U.S. stockholder.

U.S. stockholders who receive distributions in the form of stock generally are subject to the same federal income tax consequences as are stockholders who elect to receive their distributions in cash. The U.S. stockholder will have an adjusted tax basis in the additional shares of PTMN Common Stock purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account.

 

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Although PTMN currently intends to distribute any long-term capital gain at least annually, PTMN may in the future decide to retain some or all of its long-term capital gain, but designate the retained amount as a “deemed distribution.” In that case, among other consequences, PTMN will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its proportionate share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by PTMN. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder’s tax basis for his, her or its common stock. Since PTMN expects to pay tax on any retained capital gain at the regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on net capital gain, the amount of tax that individual U.S. stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other U.S. federal income tax obligations or may be refunded to the extent it exceeds such U.S. stockholder’s liability for U.S. federal income tax. A U.S. stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes PTMN paid. In order to utilize the deemed distribution approach, PTMN must provide written notice to PTMN Stockholders prior to the expiration of 60 days after the close of the relevant taxable year. PTMN cannot treat any of its investment company taxable income as a “deemed distribution.”

For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, PTMN may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If PTMN makes such an election, a U.S. stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by PTMN in October, November or December of any calendar year, payable to U.S. stockholders of record on a specified date in any such month and actually paid during January of the following year, will be treated as if it had been received by PTMN’s U.S. stockholders on December 31 of the year in which the dividend was declared.

PTMN may have the ability to declare a large portion of a distribution in shares of PTMN Common Stock to satisfy the Annual Distribution Requirement. If a portion of such distribution is paid in cash (which portion may generally be as low as 20% or, for distributions declared on or before December 31, 2020, 10%, based on certain public and private rulings issued by the IRS) and certain requirements are met, the entire distribution to the extent of PTMN’s current and accumulated earnings and profits will be treated as a dividend for U.S. federal income tax purposes. As a result, U.S. stockholders will be taxed on the distribution as if the entire distribution was a cash distribution, even though most of the distribution was paid in shares of PTMN Common Stock.

If an investor purchases shares of PTMN Common Stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of his, her or its investment.

A U.S. stockholder generally will recognize taxable gain or loss if the U.S. stockholder sells or otherwise disposes of his, her or its shares of PTMN Common Stock. The amount of gain or loss will be measured by the difference between such U.S. stockholder’s adjusted tax basis in the PTMN Common Stock sold and the amount of the proceeds received in exchange. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the U.S. stockholder has held his, her or its shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of PTMN Common Stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of PTMN Common Stock may be disallowed if other substantially identical shares are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. The ability to otherwise deduct capital loss may be subject to other limitations under the Code.

 

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In general, U.S. stockholders taxed at individual rates currently are subject to a maximum U.S. federal income tax rate of 20% on their recognized net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in PTMN Common Stock. Such rate is lower than the maximum rate on ordinary income currently payable by such U.S. stockholders. In addition, individuals with modified adjusted gross incomes in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses). Corporate U.S. stockholders currently are subject to U.S. federal income tax on net capital gain at the 21% rate also applied to ordinary income.

Noncorporate U.S. stockholders with net capital loss for a year (capital loss in excess of capital gain) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital loss of a noncorporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital loss for a year, but may carry back such losses for three years or carry forward such losses for five years.

PTMN (or the applicable withholding agent) will send to each of its U.S. stockholders, as promptly as possible after the end of each calendar year, a notice reporting the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the U.S. federal income tax status of each year’s distributions generally will be reported to the IRS (including the amount of dividends, if any, eligible for the 20% maximum rate). Dividends paid by PTMN generally will not be eligible for the dividends-received deduction or the preferential tax rate applicable to qualifying dividends. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation.

PTMN (or the applicable withholding agent) may be required to withhold U.S. federal income tax, or backup withholding, from all distributions to any noncorporate U.S. stockholder (1) who fails to furnish PTMN with a correct taxpayer identification number or a certificate that such U.S. stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies PTMN that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number is his or her social security number. Backup withholding tax is not an additional tax, and any amount withheld may be refunded or credited against the U.S. stockholder’s U.S. federal income tax liability, provided that proper information is timely provided to the IRS.

Under U.S. Treasury Regulations, if a U.S. stockholder recognizes a loss with respect to shares of PTMN Common Stock of $2 million or more for a noncorporate U.S. stockholder or $10 million or more for a corporate U.S. stockholder in any single taxable year (or a greater loss over a combination of years), the U.S. stockholder must file with the IRS a disclosure statement on Internal Revenue Service Form 8886 (or successor form). Direct stockholders of portfolio securities in many cases are excepted from this reporting requirement, but under current guidance, stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Significant monetary penalties apply to a failure to comply with this reporting requirement. States may also have a similar reporting requirement. Stockholders should consult their own tax advisors to determine the applicability of these regulations in light of their individual circumstances.

Taxation of Non-U.S. Stockholders

Whether an investment in the shares is appropriate for a non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in the shares by a non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisers before investing in PTMN Common

 

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Stock. Distributions of PTMN’s “investment company taxable income” to non-U.S. stockholders that are not “effectively connected” with a U.S. trade or business carried on by the non-U.S. stockholder, will generally be subject to withholding of U.S. federal income tax at a rate of 30% (or lower rate provided by an applicable treaty) to the extent of PTMN’s current and accumulated earnings and profits, unless an applicable exception applies. However, PTMN generally is not required to withhold any amounts with respect to distributions of (i) U.S.-source interest income that would not have been subject to withholding of U.S. federal income tax if they had been earned directly by a non-U.S. stockholder, and (ii) net short-term capital gains in excess of net long-term capital losses that would not have been subject to withholding of U.S. federal income tax if they had been earned directly by a non-U.S. stockholder, in each case only to the extent that such distributions are properly reported by PTMN as “interest-related dividends” or “short-term capital gain dividends,” as the case may be, and certain other requirements are met. No certainty can be provided that any of PTMN’s distributions will be reported as eligible for this exception.

Actual or deemed distributions of PTMN’s net capital gain to a non-U.S. stockholder, and gains realized by a non-U.S. stockholder upon the sale of PTMN Common Stock, that are not effectively connected with a U.S. trade or business carried on by the non-U.S. stockholder, will generally not be subject to U.S. federal withholding tax and generally will not be subject to U.S. federal income tax unless the non-U.S. stockholder is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. However, withholding of U.S. federal income tax at a rate of 30% on capital gain of nonresident alien individuals who are physically present in the United States for more than the 182 day period only applies in exceptional cases because any individual present in the United States for more than 182 days during the taxable year is generally treated as a U.S. resident for U.S. income tax purposes; in that case, he or she would be subject to U.S. income tax on his or her worldwide income at the graduated rates applicable to U.S. citizens, rather than the 30% U.S. federal withholding tax.

If PTMN distributes its net capital gain in the form of deemed rather than actual distributions (which PTMN may do in the future), a non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the non-U.S. stockholder’s allocable share of the tax PTMN pays on the capital gain deemed to have been distributed. In order to obtain the refund, the non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. Accordingly, investment in PTMN Common Stock may not be appropriate for a non-U.S. stockholder.

Distributions of PTMN’s “investment company taxable income” and net capital gain (including deemed distributions) to non-U.S. stockholders, and gains realized by non-U.S. stockholders upon the sale of PTMN Common Stock that are “effectively connected” with a U.S. trade or business carried on by the non-U.S. stockholder (or if an income tax treaty applies, attributable to a “permanent establishment” in the United States), will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens, residents and domestic corporations. Corporate non-U.S. stockholders may also be subject to an additional branch profits tax at a rate of 30% imposed by the Code (or lower rate provided by an applicable treaty). In the case of a noncorporate non-U.S. stockholder, PTMN may be required to withhold U.S. federal income tax from distributions that are otherwise exempt from withholding tax (or taxable at a reduced rate) unless the non-U.S. stockholder certifies his or her foreign status under penalties of perjury or otherwise establishes an exemption.

PTMN may have the ability to declare a large portion of a distribution in shares of PTMN Common Stock to satisfy the Annual Distribution Requirement. If a portion of such dividend is paid in cash (which portion may be as low as 20% under certain public and private rulings issued by the IRS) and certain requirements are met, the entire distribution to the extent of PTMN’s current and accumulated earnings and profits will be treated as a dividend for U.S. federal income tax purposes. As a result, non-U.S. stockholders will be taxed on the distribution as if the entire distribution was cash distribution, even though most of the distribution was paid in shares of PTMN Common Stock.

 

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The tax consequences to a non-U.S. stockholder entitled to claim the benefits of an applicable tax treaty may differ from those described herein. Non-U.S. stockholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in PTMN Common Stock.

A non-U.S. stockholder who is a nonresident alien individual or foreign corporation may be subject to information reporting and withholding of U.S. federal income tax on dividends unless the non-U.S. stockholder provides PTMN or the dividend paying agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. stockholder or otherwise establishes an exemption from withholding.

Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions (“FFIs”) unless such FFIs either (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered into an intergovernmental agreement (“IGA”) with the United States to collect and share such information and are in compliance with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the withholding tax include U.S.-source interest and dividends. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding on payments to foreign entities that are not FFIs unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a non-U.S. stockholder and the status of the intermediaries through which they hold their shares, non-U.S. stockholders could be subject to this 30% withholding tax with respect to distributions on their shares. Under certain circumstances, a non-U.S. stockholder might be eligible for refunds or credits of such taxes.

Non-U.S. persons should consult their own tax advisors with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.

Failure To Obtain RIC Tax Treatment

If PTMN were unable to obtain tax treatment as a RIC, PTMN would be subject to tax on all of its taxable income at regular corporate rates. PTMN would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable to PTMN Stockholders as dividend income to the extent of PTMN’s current and accumulated earnings and profits (in the case of noncorporate U.S. stockholders, at a maximum rate applicable to qualified dividend income of 20%, provided certain holding period and other requirements are met). Subject to certain limitations under the Code, corporate stockholders would be eligible for the dividends-received deduction.

Distributions in excess of PTMN’s current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.

If PTMN fails to meet the RIC requirements for more than two consecutive years and then seeks to re-qualify as a RIC, PTMN would be required to recognize gain to the extent of any unrealized appreciation in its assets unless PTMN made a special election to pay corporate-level U.S. federal income tax on any such unrealized appreciation during the succeeding five-year period.

 

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PTMN PROPOSAL 1: THE MERGER STOCK ISSUANCE PROPOSAL

PTMN is asking PTMN Stockholders to approve the issuance of the shares of PTMN Common Stock to be issued pursuant to the Merger Agreement. Upon completion of the Mergers, and subject to the terms and conditions of the Merger Agreement, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares) will be converted into the right to receive, in accordance with the Merger Agreement, the Merger Consideration as described in the section entitled “Description of the Merger Agreement—Merger Consideration.”

Under Nasdaq rules, a company is required to obtain stockholder approval prior to the issuance of shares of common stock in connection with the acquisition of the stock or assets of another company if, among others, the number of shares of common stock to be issued is, or will be upon issuance, equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the shares of common stock. Based on the number of shares of PTMN Common Stock issued and outstanding as of the close of business on August 31, 2020, the last practicable date before the date of this joint proxy statement/prospectus, it is estimated that PTMN will issue approximately 29.1 million shares of PTMN Common Stock to GARS Stockholders in the aggregate upon completion of the Mergers. The aggregate number of shares of PTMN Common Stock that PTMN will issue in the Mergers will exceed 20% of the shares of PTMN Common Stock outstanding before such issuance, and, for this reason, PTMN is seeking the approval of its stockholders for the issuance of shares of PTMN Common Stock pursuant to the Merger Agreement.

The issuance of shares of PTMN Common Stock to GARS Stockholders is necessary to complete the Mergers and the approval of the Merger Stock Issuance Proposal is required for completion of the Mergers. In the event the Merger Stock Issuance Proposal is approved by PTMN Stockholders, but the Merger Agreement is terminated (without the Mergers being completed) prior to the issuance of shares of PTMN Common Stock pursuant to the Merger Agreement, PTMN will not issue any shares of PTMN Common Stock as a result of the approval of the Merger Stock Issuance Proposal.

THE PTMN BOARD UNANIMOUSLY RECOMMENDS THAT PTMN STOCKHOLDERS VOTE “FOR” THE MERGER STOCK ISSUANCE PROPOSAL.

PTMN Stockholders may vote “FOR” or “AGAINST,” or they may “ABSTAIN” from voting on, the Merger Stock Issuance Proposal. The affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the Merger Stock Issuance Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of this proposal. Proxies received will be voted “FOR” the approval of the Merger Stock Issuance Proposal unless PTMN Stockholders designate otherwise.

Appraisal Rights

Under the DGCL, PTMN Stockholders will not be entitled to rights of appraisal with respect to the Merger Stock Issuance Proposal. Accordingly, to the extent that a PTMN Stockholder objects to the Merger Stock Issuance Proposal, such PTMN Stockholder will not have the right to have a court judicially determine (and the PTMN Stockholder will not receive) the fair value for its shares of PTMN Common Stock under the provisions of the DGCL governing appraisal rights.

 

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PTMN PROPOSAL 2: THE PTMN ADJOURNMENT PROPOSAL

PTMN is asking PTMN Stockholders to approve the adjournment of the PTMN Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the PTMN Special Meeting to approve the Merger Stock Issuance Proposal.

THE PTMN BOARD UNANIMOUSLY RECOMMENDS THAT, IF NECESSARY OR APPROPRIATE, PTMN STOCKHOLDERS VOTE “FOR” THE PTMN ADJOURNMENT PROPOSAL.

PTMN Stockholders may vote “FOR” or “AGAINST,” or they may “ABSTAIN” from voting on, the PTMN Adjournment Proposal. The affirmative vote of the holders of at least a majority of votes cast by holders of shares of PTMN Common Stock present at the PTMN Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the PTMN Adjournment Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of this proposal. Proxies received will be voted “FOR” the approval of the PTMN Adjournment Proposal unless PTMN Stockholders designate otherwise.

 

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GARS PROPOSAL 1: THE MERGER PROPOSAL

GARS is asking GARS Stockholders to approve the Merger Proposal pursuant to which Merger Sub would merge with and into GARS. GARS will then merge with and into PTMN. Upon completion of the Mergers, and subject to the terms and conditions of the Merger Agreement, each share of GARS Common Stock issued and outstanding immediately prior to the Effective Time (excluding Cancelled Shares) will be converted into the right to receive, in accordance with the Merger Agreement, the Merger Consideration as described in the section titled “Description of the Merger Agreement—Merger Consideration.

Approval of the Merger Proposal is required for the completion of the Mergers. In the event the Merger Proposal is approved by GARS Stockholders, but the Merger Agreement is terminated prior to the closing of the Mergers, the Mergers will not be completed.

ON THE RECOMMENDATION OF THE GARS SPECIAL COMMITTEE, THE GARS BOARD UNANIMOUSLY RECOMMENDS THAT GARS STOCKHOLDERS VOTE “FOR” THE MERGER PROPOSAL.

GARS Stockholders may vote “FOR” or “AGAINST,” or they may “ABSTAIN” from voting on, the Merger Proposal. The affirmative vote of the holders of a majority of the outstanding shares of GARS Common Stock entitled to vote at the GARS Special Meeting is required to approve the Merger Proposal. Abstentions and broker non-votes will have the effect of a vote “against” this proposal. Proxies received will be voted “FOR” the approval of the Merger Proposal unless GARS Stockholders designate otherwise.

Appraisal Rights

GARS Stockholders will be entitled to exercise appraisal rights with respect to the Merger in accordance with Section 262 of the DGCL. For more information, see “Appraisal Rights of GARS Stockholders” and “Description of the Merger Agreement—Appraisal Rights.

 

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GARS PROPOSAL 2: THE GARS ADJOURNMENT PROPOSAL

GARS is asking GARS Stockholders to approve the adjournment of the GARS Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are insufficient votes at the time of the GARS Special Meeting to approve the Merger Proposal.

ON THE RECOMMENDATION OF THE GARS SPECIAL COMMITTEE, THE GARS BOARD UNANIMOUSLY RECOMMENDS THAT, IF NECESSARY OR APPROPRIATE, GARS STOCKHOLDERS VOTE “FOR” THE GARS ADJOURNMENT PROPOSAL.

GARS Stockholders may vote “FOR” or “AGAINST,” or they may “ABSTAIN” from voting on, the GARS Adjournment Proposal. The affirmative vote of the holders of at least a majority of votes cast by holders of the shares of GARS Common Stock present at the GARS Special Meeting, virtually or represented by proxy, and entitled to vote thereat is required to approve the GARS Adjournment Proposal. Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on the voting outcome of this proposal. Proxies received will be voted “FOR” the approval of the GARS Adjournment Proposal unless GARS Stockholders designate otherwise.

 

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MARKET PRICE, DIVIDEND AND DISTRIBUTION INFORMATION

PTMN

Price Range of Common Stock

PTMN Common Stock began trading on December 11, 2006 and is currently traded on Nasdaq under the symbol “PTMN.” The following table sets forth: (i) the NAV per share of PTMN Common Stock as of the applicable period end, (ii) the range of high and low closing sales prices of PTMN Common Stock as reported on Nasdaq during the applicable period, (iii) the closing high and low sales prices as a premium (discount) to NAV during the appropriate period, and (iv) the dividends and distributions per share of PTMN Common Stock declared during the applicable period.

 

     NAV
per
share(1)
    Closing Sales Price     Premium/
(Discount) of
High Sales
Price to
NAV(2)
    Premium/
(Discount) of
Low Sales
Price to
NAV(2)
    Dividends
and
Distributions
Declared
 

Period

      High              Low      

Fiscal Year Ending December 31, 2020

             

Third quarter (through August 27, 2020)

            $ 1.30      $ 1.05                       $ 0.06  

Second quarter

   $ 2.71       1.44        0.84       (46.9 )%      (69.0 )%    $ 0.00  

First quarter

     2.69       2.36        0.75       (12.3 )%      (72.1 )%      0.12  

Fiscal Year Ended December 31, 2019

             

Fourth quarter

   $ 3.40     $ 2.26      $ 2.03       (33.5 )%      (40.3 )%    $ 0.06  

Third quarter

     3.55       2.47        2.15       (30.4 )%      (39.4 )%      0.06  

Second quarter

     3.73       3.75        2.25       0.5     (39.7 )%      0.10  

First quarter

     3.85       3.68        3.32       (4.4 )%      (13.8 )%      0.10  

Fiscal Year Ended December 31, 2018

             

Fourth quarter

   $ 4.23     $ 3.47      $ 2.93       (18.0 )%      (30.7 )%    $ 0.10  

Third quarter

     4.66       3.39        3.13       (27.3 )%      (32.8 )%      0.10  

Second quarter

     4.72       3.28        3.09       (30.5 )%      (34.5 )%      0.10  

First quarter

     4.85       3.57        2.96       (26.4 )%      (39.0 )%      0.10  

 

(1)

NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low closing sales prices. The NAVs shown are based on outstanding shares at the end of each period.

(2)

Calculated as of the respective high or low closing sales price divided by the quarter-end NAV.

*

NAV has not yet been finally determined for any day after June 30, 2020.

The last reported price for PTMN Common Stock as of August 27, 2020 was $1.18 per share. As of August 27, 2020, PTMN had 51 stockholders of record. This does not include the number of stockholders that hold shares through banks or broker-dealers.

PTMN cannot predict the price at which its common stock will trade. Shares of closed-end investment companies frequently trade at a discount to their NAV and PTMN’s stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that PTMN’s NAV per share may decline. PTMN cannot predict whether shares of its common stock will trade above, at or below its NAV. The risk of loss associated with this characteristic of closed-end investment companies may be greater for investors expecting to sell shares of common stock soon after the purchase of such shares of common stock. In addition, if PTMN Common Stock trades below its NAV, it will generally not be able to issue additional shares of its common stock at its market price without first obtaining the approval of PTMN Stockholders and the PTMN Independent Directors.

 

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Pursuant to PTMN’s dividend reinvestment plan, PTMN will reinvest all cash dividends or distributions declared by the PTMN Board on behalf of stockholders who do not elect to receive their distributions in cash. As a result, if the PTMN Board declares a distribution, then stockholders who have not elected to “opt out” of PTMN’s dividend reinvestment plan will have their distributions automatically reinvested in additional shares of PTMN Common Stock. See “Business—Dividend Reinvestment Plan” in Part I, Item 1 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which is incorporated by reference in this joint proxy statement/prospectus for additional information regarding PTMN’s dividend reinvestment plan.

GARS

GARS Common Stock began trading on March 27, 2013 and is currently traded on Nasdaq under the symbol “GARS.” The following table sets forth: (i) the NAV per share of GARS Common Stock as of the applicable period end, (ii) the high and low closing sales prices of GARS Common Stock as reported on Nasdaq during the applicable period, (iii) the closing high and low sales prices as a premium (discount) to NAV during the appropriate period and (iv) the distributions per share of GARS Common Stock declared during the applicable period.

 

     NAV
per
share(1)
    Closing Sales Price     Premium/
(Discount) of
High Sales
Price to
NAV(2)
    Premium/
(Discount) of
Low Sales
Price to
NAV(2)
    Distributions
Declared(3)
 

Period

      High              Low      

Fiscal Year Ended December 31, 2020

             

Third quarter (through August 27, 2020)

            $ 3.65      $ 3.24                       $ 0.05 (4) 

Second quarter

   $ 6.27       3.74        1.33       (40.4 )%      (78.8 )%      0.15  

First quarter

     6.59       6.32        1.12       (4.1 )%      (83.0 )%      0.15  

Fiscal Year Ended December 31, 2019

             

Fourth quarter

   $ 8.51     $ 6.90      $ 5.46       (18.9 )%      (35.8 )%    $ 0.15  

Third quarter

     9.04       7.18        6.89       (20.6 )%      (23.8 )%      0.23  

Second quarter

     10.30       7.28        6.76       (29.3 )%      (34.4 )%      0.23  

First quarter

     10.44       7.59        6.53       (27.3 )%      (37.5 )%      0.23  

Fiscal Year Ended December 31, 2018

             

Fourth quarter

   $ 10.52     $ 8.40      $ 6.19       (20.2 )%      (41.2 )%    $ 0.23  

Third quarter

     11.25       8.80        8.11       (21.8 )%      (27.9 )%      0.28  

Second quarter

     11.44       8.93        8.07       (21.9 )%      (29.5 )%      0.28  

First quarter

     11.54       8.45        7.84       (26.8 )%      (32.1 )%      0.28  

 

(1)

NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low closing sales prices. The NAVs shown are based on outstanding shares at the end of each period.

(2)

Calculated as of the respective high or low closing sales price divided by the quarter-end NAV.

(3)

Represents the distribution declared in the specified quarter.

(4)

Payable on September 25, 2020 to stockholders of record of GARS Common Stock as of September 11, 2020.

*

NAV has not yet been finally determined for any day after June 30, 2020.

The last reported price for GARS Common Stock on August 27, 2020 was $3.46 per share. As of August 27, 2020, GARS had 10 stockholders of record. This does not include the number of stockholders that hold shares through banks or broker-dealers.

BUSINESS OF PTMN

The information in “Business” in Part I, Item 1 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 is incorporated herein by reference.

 

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DETERMINATION OF NET ASSET VALUE OF PTMN

The information in “Business—Determination of Net Asset Value” in Part I, Item 1 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 is incorporated herein by reference.

REGULATION OF PTMN

The information in “Business—Regulation” in Part I, Item 1 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 is incorporated herein by reference.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PTMN

The information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of PTMN’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Part 1, Item 2 of PTMN’s Quarterly Reports on Form  10-Q for the quarters ended March 31, 2020  and June 30, 2020 are incorporated herein by reference.

 

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SENIOR SECURITIES OF PTMN

Information about PTMN’s senior securities is shown as of the dates indicated in the below table. This information about PTMN’s senior securities should be read in conjunction with PTMN’s audited and unaudited consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of PTMN” as incorporated by reference herein. Each of KPMG LLP’s report on the senior securities table as of December 31, 2019 and Ernst & Young LLP’s report on the senior securities table as of December 31, 2018, 2017, 2016 and 2015 is attached as an exhibit to the registration statement of which this joint proxy statement/prospectus is a part.

 

Class and Year

   Total Amount
Outstanding
Exclusive of
Treasury
Securities(1)
    Asset Coverage per
Unit(2)
    Involuntary
Liquidating
Preference per
Unit(3)
    Average Market
Value per Unit(4)
 
     (dollars in thousands)  

Senior securities payable

        

Fiscal 2010

   $ 86,747     $ 3,155       —         N/A  

Fiscal 2011

     60,000       4,009       —         N/A  

Fiscal 2012

     101,400       3,050       —         N/A  

Fiscal 2013

     192,592       2,264       —         N/A  

Fiscal 2014

     223,885       2,140       —         N/A  

Fiscal 2015

     208,049       2,025       —         N/A  

Fiscal 2016

     180,881       2,048       —         N/A