Atlantica Sustainable Infrastructure plc(AY) - 2024 Q2 - Quarterly Report

Transaction Agreement Preamble and Recitals This section outlines the agreement for California Buyer Limited to acquire Atlantica Sustainable Infrastructure plc for $22.00 per share via a Scheme of Arrangement - California Buyer Limited ('Bidco') agrees to acquire the entire issued share capital of Atlantica Sustainable Infrastructure plc ('the Company')[7][8] Acquisition Terms Overview | Term | Details | | :--- | :--- | | Acquisition Price | $22.00 per share in cash | | Transaction Structure | Scheme of Arrangement under UK law | | Regulatory Note | The UK Takeover Code does not apply to this transaction | | Board Approvals | The Company Board unanimously recommends the transaction; the Bidco Board has approved it | | Support | The deal is backed by a limited guaranty and voting support agreements from Algonquin Power & Utilities Corp. (AQN) and Company directors | Article I: The Transaction The Transaction At the Effective Time, Bidco will acquire all Scheme Shares with full title guarantee, free from liens, and including all associated rights - Upon the Scheme of Arrangement becoming effective, Bidco will acquire all Scheme Shares with full title guarantee and free from all liens, including all attached rights like voting and dividends[10] Closing The transaction closing will occur promptly after all conditions are met, subject to a 90-day minimum and potential regulatory delays - The closing is scheduled to happen within two business days after all conditions are satisfied or waived[11] - A minimum 90-day period from the agreement date is required before closing can occur, unless Bidco consents otherwise[11] - Closing may be postponed past November 27, 2024, if specific consents and approvals are not secured[11] Delivery of Court Order On the Closing Date, the Company must deliver the Court Order sanctioning the Scheme to the Registrar of Companies, making it effective - The Company must deliver the Court Order to the Registrar of Companies on the Closing Date, at which point the Scheme of Arrangement becomes effective[12] Article II: Transfer of Scheme Shares Transfer of Scheme Shares At the Effective Time, Scheme Shares transfer to Bidco for the Per Share Consideration, with payments dispatched within 14 days - At the Effective Time, shareholders will lose rights to their shares except for the right to receive the Per Share Consideration[13] - Bidco will appoint a Paying Agent and fund the 'Company Payment Fund' to pay shareholders, with payments made within 14 days of the Effective Time[15] Company Employee Incentives This section details the cash conversion of employee equity awards, including vesting of Share Options and RSUs, and payment of the Strategic Review Bonus - Outstanding Company Share Options will vest and be canceled for a cash payment equal to the difference between the $22.00 Per Share Consideration and the option's exercise price, with no payment for out-of-the-money options[19] - Outstanding Company RSUs will vest and be canceled for a cash payment equal to the Per Share Consideration plus a Dividend Equivalent Amount[21] - The completion of the transaction will trigger the payment of the Strategic Review Bonus to eligible recipients[24] Withholding Rights All parties are entitled to deduct and withhold required taxes from all payments, including Per Share Consideration and employee incentives - The agreement permits the withholding of applicable taxes from all consideration payments, including those for shares, options, and RSUs[25] Company and Bidco Actions Prior to and at the Closing This section outlines the process for transitioning the Company's board of directors, with Bidco designating resignations and replacements - Bidco will designate which directors of the Company and its subsidiaries are to resign at closing and who will be appointed as replacements[27] - The Company is required to procure the resignations and appointments as requested by Bidco, effective at the closing[27][28] Article III: Implementation of the Scheme of Arrangement Responsibilities of the Company The Company must use reasonable best efforts to implement the Scheme of Arrangement, including preparing documentation, seeking court sanction, and securing shareholder approvals - The Company must prepare and deliver a draft of the Scheme Circular to Bidco within 15 business days of the agreement date[29] - The Company is required to convene and hold the Scheme Meeting and the Company General Meeting (GM) to obtain shareholder approvals[32] - Following shareholder approval, the Company must take all necessary steps to seek the sanction of the Court for the Scheme of Arrangement[33] Responsibilities of Bidco Bidco must take all reasonably necessary steps to implement the Scheme of Arrangement, including undertaking to the Court and cooperating with the Company on documentation - Bidco must undertake to the Court to be bound by the terms of the Scheme of Arrangement[36] - Bidco is required to cooperate and provide information reasonably requested by the Company for the preparation of the Scheme and Court documentation[36] Mutual Provisions This section establishes mutual obligations for both parties regarding Scheme amendments for efficiency or compliance, and requires notification and correction of material misstatements - The parties must negotiate in good faith to amend the Scheme if needed for efficiency or compliance, as long as it doesn't change the Per Share Consideration or materially delay the transaction[37] - If material misstatements are found in Scheme documents, the parties must promptly notify each other, and the Company must file amendments with the Court and disseminate them to shareholders if required[38] Article IV: Representations and Warranties of the Company Capitalization This section provides a snapshot of the Company's capital structure as of May 24, 2024, detailing outstanding shares, options, and RSUs Company Capitalization as of May 24, 2024 | Security Type | Amount (Units) | | :--- | :--- | | Company Shares Issued & Outstanding | 116,159,054 | | Company Shares in Treasury | 0 | | Shares Subject to Company Share Options | 237,136.27 (Avg. exercise price $34.32) | | Outstanding Company RSUs | 924,400.24 | - No new shares or equity awards were issued between the Capitalization Date (May 24, 2024) and the agreement date, other than from existing award settlements[54] Filings, Financials, and Liabilities The Company represents its SEC filings are compliant and accurate, financial statements adhere to IFRS, and no material undisclosed liabilities exist - All Company SEC Documents filed since January 1, 2022, comply with applicable laws and contain no material misstatements or omissions[60] - The financial statements included in SEC filings were prepared in accordance with IFRS and fairly present the Company's financial position[62] - The Company represents it has no material liabilities other than those disclosed, incurred in the ordinary course of business, or related to this transaction[68] Company Material Contracts This section defines 'Company Material Contract' and affirms that disclosed contracts are valid, binding, and not in default - Defines 'Company Material Contract' to include agreements restricting competition, involving indebtedness over $30 million, or requiring payments over $50 million[95][97] - The Company represents that all Material Contracts are valid, in full force, and that neither party is in material breach[99] Opinion of the Company's Financial Advisor The Company's Board received a fairness opinion from Citigroup Global Markets Inc. stating the $22.00 per share cash consideration is financially fair - The Company Board received a fairness opinion from Citigroup Global Markets Inc. concluding that the Per Share Consideration is financially fair to shareholders[127] Article V: Representations and Warranties of Bidco Financing Bidco represents it has secured sufficient and binding financing commitments from equity and debt sources, affirming financing is not a closing condition - Bidco has delivered executed Equity and Debt Commitment Letters to the Company[136][138] - The total committed financing is sufficient to cover all required payments at closing, including the shareholder consideration and transaction expenses[142] - The receipt of financing by Bidco is not a condition to its obligation to consummate the transaction[144] Operations of Bidco Bidco represents it is a special purpose vehicle formed solely for this transaction, with no other business activities or liabilities prior to closing - Bidco was formed solely for this transaction and has not engaged in any other business activities[147] Article VI: Covenants of the Company Conduct of the Company The Company agrees to conduct business in the ordinary course, with restrictions on significant actions without Bidco's consent, while permitted to pay regular dividends - The Company must operate in the ordinary course of business until closing[155] - Key restrictions include limitations on acquisitions (>$20 million individually), new project investments (>$20 million equity), and incurring new debt (>$35 million recourse)[157][162] - The Company is permitted to continue paying its regular quarterly dividend of $0.445 per share, provided record and payment dates are consistent with past practice and occur before closing[155] No Solicitation by the Company This section prohibits the Company from soliciting alternative acquisition proposals but allows engagement with unsolicited 'Superior Proposals' under a 'fiduciary out' clause, subject to Bidco's matching rights - The Company is prohibited from soliciting or knowingly encouraging alternative acquisition proposals ('Acquisition Proposal')[167] - The Company Board may engage with an unsolicited offer if it determines it constitutes or could lead to a 'Superior Proposal' and that failing to do so would breach its fiduciary duties[169] - Before changing its recommendation or terminating for a Superior Proposal, the Company must provide Bidco with a five-business-day 'matching rights' period[171] Payoff Letters The Company must obtain payoff letters and lien release documentation for existing indebtedness to be repaid at closing, delivering drafts to Bidco five business days prior - The Company must obtain payoff letters for specified existing debt facilities to ensure they can be fully paid off and terminated at closing[180] Article VII: Covenants of the Company and Bidco Efforts, Filings, Consents and Approvals Both parties must use reasonable best efforts to obtain all necessary regulatory approvals promptly, including HSR and CFIUS filings, with limitations on required divestitures - Both parties must use reasonable best efforts to obtain all necessary regulatory approvals to close the transaction[186] - Filings under the HSR Act and other necessary regulatory laws are to be made within 30 days of the agreement, including a CFIUS notice[188] - Bidco is not required to agree to any 'Remedy Action' (e.g., divestiture) that would have a material adverse effect on the Company's US business or a Company Material Adverse Effect on its non-US business[191] Employee Matters For one year post-closing, Bidco commits to providing affected employees with substantially comparable compensation and benefits, including service credit recognition - For a one-year 'Benefits Continuation Period' post-closing, Bidco will provide affected employees with compensation and benefits no less favorable than their pre-closing arrangements[193] - This commitment covers base salary, annual cash bonus opportunity, long-term incentive opportunity, severance, and other benefits in aggregate[193] Director and Officer Liability Bidco agrees to honor existing indemnification rights for directors and officers for six years post-closing, and the Company must purchase a six-year D&O 'tail policy' with a premium cap - For six years post-closing, Bidco will maintain the existing indemnification, exculpation, and expense advancement provisions for the Company's directors and officers[199] - The Company will purchase a six-year 'tail' D&O insurance policy with a premium cap of 300% of the current annual premium[201] Financing Bidco covenants to use commercially reasonable efforts to obtain committed financing, including securing alternative debt financing if initial funding becomes unavailable - Bidco must use commercially reasonable efforts to obtain the Equity and Debt Financing on the terms set forth in the Financing Documents[212] - If the committed financing becomes unavailable, Bidco must use commercially reasonable efforts to secure 'Alternative Debt Financing'[216] Cooperation With Debt Financing The Company agrees to provide commercially reasonable cooperation for Bidco's debt financing, including financial information and management access, subject to limitations protecting its operations - The Company must use commercially reasonable efforts to cooperate with Bidco's arrangement of the Debt Financing[219] - Cooperation includes providing required financial information, participating in lender meetings, and assisting with due diligence and documentation[219][221] - Bidco must reimburse the Company for reasonable out-of-pocket costs incurred in this cooperation and indemnify it for related losses if the deal does not close[228] Article VIII: Conditions to the Transaction Mutual Conditions This section lists mutual closing conditions, including shareholder and court approvals, absence of legal prohibitions, and all necessary regulatory clearances - Mutual closing conditions include obtaining Company Shareholder Approvals and the sanction of the Scheme by the Court[235][237] - A further mutual condition is that no court or governmental authority has issued an order or law that prohibits the transaction[237] - All required regulatory clearances, including HSR Act waiting period expiration, must be obtained[237] Bidco's Conditions Bidco's closing conditions include the Company's material covenant performance, accurate representations and warranties, and absence of a Company Material Adverse Effect - The Company's representations and warranties must be true and correct as of the closing date (subject to specified materiality standards)[238] - The Company must have performed its covenants in all material respects[238] - There must not have been a continuing Company Material Adverse Effect since the date of the agreement[238] Company's Conditions The Company's closing conditions require Bidco's material covenant performance and accurate representations and warranties, subject to a 'Bidco Material Adverse Effect' standard - Bidco's representations and warranties must be true and correct as of the closing date (subject to specified materiality standards)[239] - Bidco must have performed its covenants in all material respects[239] Article IX: Termination Termination Rights This section outlines termination circumstances, including mutual consent, reaching the End Date, lack of approvals, board recommendation changes, or Bidco's failure to close - The agreement can be terminated by either party if the transaction is not consummated by the End Date of April 27, 2025[242] - Bidco may terminate if the Company Board makes a 'Company Adverse Recommendation Change'[242] - The Company may terminate if Bidco fails to close within five business days after all conditions have been satisfied and the Company has confirmed it is ready to close[244] Termination Fees and Expense Reimbursement This section details the financial consequences of termination, including a $26 million Company termination fee, a $116 million Bidco reverse termination fee, and up to $12.5 million in expense reimbursement Termination Fees and Expense Reimbursement Overview | Fee Type | Payer | Recipient | Amount (USD) | Trigger Examples | | :--- | :--- | :--- | :--- | :--- | | Company Termination Fee | Company | Bidco | $26,000,000 | Company terminates for a Superior Proposal; Board changes recommendation | | Reverse Termination Fee | Bidco | Company | $116,000,000 | Bidco fails to close when required; breach by Bidco | | Expense Reimbursement | Company | Bidco | Up to $12,500,000 | Termination due to failed shareholder vote or Company breach | - The termination fees are defined as liquidated damages, not penalties, and are generally the sole and exclusive monetary remedy for termination[251][252][253] Article X: Miscellaneous Governing Law and Jurisdiction The agreement is governed by Delaware law, while the Scheme of Arrangement and directors' duties are governed by English law, with respective jurisdictions for legal actions - The Transaction Agreement is governed by Delaware law[268] - The Scheme of Arrangement and the duties of the Company's directors are governed by the laws of England and Wales[268] - Legal disputes are to be handled in Delaware courts, except for the Scheme itself, which falls under the jurisdiction of the English courts[270] Specific Performance The parties are entitled to seek specific performance for breach, though the Company's right to force Bidco to close is conditional on financing availability and closing conditions - The parties are entitled to seek specific performance as a remedy for breach of the agreement[276] - The Company's right to force Bidco to close is subject to specific conditions, including the availability of the debt financing and the satisfaction of all closing conditions[276] Financing Sources This section provides legal protection to Debt Financing Sources, limiting liability to the Company and requiring legal actions against them to be brought in New York courts under New York law - The Debt Financing Sources are shielded from liability to the Company and its affiliates in connection with the transaction agreement[284] - Any legal action against the Debt Financing Sources must be brought in New York courts and will be governed by New York law[283] - The Debt Financing Sources are express third-party beneficiaries of this section, and it cannot be amended in a way that is adverse to them without their consent[284] Annexes Annex B: Form of AQN Support Agreement This annex contains the form of the voting and transaction support agreement with Algonquin Power & Utilities Corp. (AQN), which irrevocably agrees to vote its 48,962,925 shares in favor of the transaction and is restricted from selling shares or soliciting competing proposals - Algonquin Power & Utilities Corp. (AQN) has agreed to vote its 48,962,925 shares in favor of the transaction[375][379][420] - AQN is prohibited from transferring its shares (with limited exceptions) and from entering into any arrangements inconsistent with its support for the transaction[378] - The support agreement terminates automatically if the main Transaction Agreement is terminated, subject to certain conditions related to a superior proposal[390] Annex C: Form of Director Support Agreement This annex provides the form of the voting and transaction support agreement for the Company's directors who are also shareholders, committing them to vote their shares in favor of the transaction without limiting their fiduciary duties - Company directors who are shareholders must sign this agreement, committing to vote their shares in favor of the transaction[421][425] - The agreement applies only to the directors in their capacity as shareholders and does not restrict their actions or fiduciary duties as directors[442] Annex D: Form of Scheme of Arrangement This annex presents the legal form of the Scheme of Arrangement, detailing the transfer of Scheme Shares to Bidco for $22.00 per share and the legal framework under the UK Companies Act 2006 - This is the legal document under Part 26 of the UK Companies Act 2006 that will effect the transfer of shares from shareholders to Bidco[460][461] - At the Effective Time, all Scheme Shares will be transferred to Bidco, and shareholders will receive $22.00 in cash per share[471][476] - The Scheme becomes legally effective when a copy of the sanctioning Court Order is delivered to the UK's Registrar of Companies[487] Annex E: Form of Company Shareholder Resolution This annex provides the special resolution for shareholders to approve amendments to the Company's articles of association, facilitating the Scheme of Arrangement and binding all shares to its terms - This special resolution authorizes the Company's directors to implement the Scheme of Arrangement[491] - It amends the Company's articles of association to ensure that any shares issued after the record date are also subject to the Scheme and will be transferred to Bidco for the same consideration[491][493][494]