ANNEX D
– Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 2016
SUMMARY
This summary highlights selected information
from this information statement and may not contain all of the
information that is important to you. To understand the merger (the
“Merger”) contemplated by the Agreement and Plan of
Merger (the “Merger Agreement”), dated as of March 16,
2017, by and among the Company, Oldcastle Architectural, Inc., a
Delaware corporation (“Parent”), and Oldcastle Ascent
Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Parent (“Merger Sub”) fully, and for a
more complete description of the legal terms of the Merger, you
should carefully read this entire information statement, the
annexes attached to this information statement and the documents
referred to or incorporated by reference in this information
statement. We have included page references in parentheses to
direct you to the appropriate place in this information statement
for a more complete description of the topics presented in this
summary. Unless we otherwise indicate or unless the context
requires otherwise: all references to the terms
“Company,” “AERT,” “we,”
“our” and “us” refer to Advanced
Environmental Recycling Technologies, Inc.; all references to the
“Board” refer to the Company’s board of
directors;all references to “H.I.G.” refer to H.I.G.
AERT, LLC; all references to “Common Stock” refer to
the Company’s Class A common stock, par value $0.01 per
share; all references to “Preferred Stock” refer to the
Company’s Series E Convertible Preferred Stock, par value
$0.01 per share; and all references to the “Merger
Consideration” refer to the right to receive $0.135936 in
cash per share of Common Stock and $2,603.483278
in cash per share of Preferred
Stock, as applicable, without interest and subject to any required
withholding taxes, contemplated to be received by the holders of
our Common Stock and Preferred Stock pursuant to the Merger
Agreement. All references to defined terms not defined herein or in
the notice to which this information statement is attached shall
have the meanings ascribed to them in the Merger Agreement attached
as Annex A to this information statement.
The
Parties to the Merger
(page
14)
Advanced Environmental Recycling Technologies, Inc.
Advanced
Environmental Recycling Technologies, Inc. is a Delaware
corporation. Founded in 1988, AERT develops and commercializes
technologies to recycle waste polyethylene plastics and develops,
manufactures, and markets value-added, green building products. The
majority of its products are composite building materials that are
a superior replacement for traditional wood or plastic products for
exterior applications in building and remodeling homes and for
certain other industrial or commercial building purposes.
AERT’s products are sold and distributed by leading companies
such as Lowe’s Companies, Inc., BlueLinx Corp. and CanWel
Building Materials Ltd., its Canadian distributor for Lowe’s
Canada. AERT’s shares are traded on the OTCQB Tier of the OTC
Markets Group, Inc. under the symbol “AERT”.
AERT’s principal executive offices are located at 914 N.
Jefferson Street, Springdale, Arkansas 72764, and its telephone
number is (479) 756-7400.
Oldcastle Architectural, Inc.
Parent
is the leading supplier of innovative and sustainable masonry and
hardscape products for North America’s building and
landscaping markets. Parent is the innovator behind many of the
industry’s well-known brands including Belgard Hardscapes,
Echelon masonry products, Sakrete bagged dry-mixes and Anchor Wall
Systems retaining wall solutions, among others. With over 172
operating locations and 5,300 employees, Parent operates across 33
states and 5 Canadian provinces. Parent is a U.S. subsidiary of CRH
plc, a leading global diversified building materials group,
employing approximately 87,000 people at 3,800 operating locations
in 31 countries worldwide. Parent’s principal executive
offices are located at 900 Ashwood Parkway, Suite 600, Atlanta,
Georgia 30338, and its telephone number is (800)
899-8455.
Oldcastle Ascent Merger Sub, Inc.
Merger
Sub is a Delaware corporation formed by Parent solely for the
purpose of completing the Merger with the Company. Merger Sub is a
wholly-owned subsidiary of Parent and has not engaged in any
business to date, except for activities incidental to its
incorporation and activities undertaken in connection with the
Merger and the other transactions contemplated by the Merger
Agreement. Merger Sub’s principal executive offices are
located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338,
and its telephone number is (800) 899-8455.
On
March 16, 2017, the Company entered into the Merger Agreement with
Parent and Merger Sub. Upon the terms and subject to the conditions
provided in the Merger Agreement, and in accordance with Delaware
law, at the effective time of the Merger, Merger Sub will merge
with and into the Company, with the Company continuing as the
surviving corporation. As a result of the Merger, the Company will
cease to be an independent company traded on the OTCQB and will
become a wholly-owned subsidiary of Parent. As the Merger
Consideration will be paid in cash, you will receive no equity
interest in Parent, and after the effective time of the Merger you
will have no equity interest in the Company.
The
Merger Consideration
(page
43)
At the
effective time of the Merger, each issued and outstanding share of
Common Stock will be converted into the right to receive $0.135936
in cash, less any required withholding taxes, and each issued and
outstanding share of Preferred Stock will be converted into the
right to receive $2,603.483278 in cash, less any required
withholding taxes, in each case other than any shares of Common
Stock and Preferred Stock owned by the Company (which will
automatically be canceled with no consideration paid therefor) and
those shares of Common Stock with respect to which stockholders
have properly exercised appraisal rights and have not effectively
withdrawn or lost their appraisal rights. As a result of the
Merger, upon surrender of your Common Stock or Preferred Stock, as
applicable, you will receive a total amount equal to the product
obtained by multiplying the relevant per share Merger Consideration
by the number of shares of Common Stock or Preferred Stock, as
applicable, that you own at the effective time of the Merger, less
any amounts required by law to be withheld.
Reasons
for the Merger
(page
22)
After
careful consideration of various factors, the Board, after
consultation with its financial advisor and its legal advisor,
determined that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to, advisable,
and in the best interests of the Company and its stockholders,
approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, and recommended that the
Company’s stockholders adopt the Merger Agreement. For a
discussion of the material factors considered by the Board in
reaching its conclusion, see the section entitled
“
The Merger – Reasons
for the Merger”
.
Opinion
of William Blair, the Company’s Financial Advisor
(page
28)
William
Blair & Company, L.L.C. (“William Blair”) was
retained to act as financial advisor to the Board in connection
with the possible sale of the Company. As part of its engagement,
the Board requested that William Blair render an opinion to the
Board as to whether the Merger Consideration to be received by the
holders of Common Stock
(other than
holders of dissenting shares)
was fair to such stockholders,
from a financial point of view. On March 16, 2017, William Blair
delivered its oral opinion to the Board and subsequently confirmed
in writing that, as of March 16, 2017 and based upon and subject to
the assumptions, qualifications and limitations stated therein, the
Merger Consideration to be received by the holders of Common Stock
(other than holders of dissenting
shares)
was fair to such stockholders, from a financial
point of view.
The full text of William
Blair’s written opinion, dated
March 16, 2017
, is attached as Annex B to
this information statement and incorporated herein by reference.
You are urged to read the entire opinion carefully and in its
entirety to learn about the assumptions made, procedures followed,
matters considered and limits on the scope of the review undertaken
by William Blair in rendering its opinion. The analysis performed
by William Blair should be viewed in its entirety; none of the
methods of analysis should be viewed in isolation. William
Blair’s fairness opinion was directed to the Board for its
benefit and use in evaluating the fairness of the Merger
Consideration to be received pursuant to the Merger Agreement and
relates only to the fairness, as of the date of William
Blair’s fairness opinion and from a financial point of view,
of the Merger Consideration to be received by the
holders of Common Stock
(other than holders
of dissenting shares) in the Merger pursuant to the Merger
Agreement. William Blair’s fairness opinion does not address
any other aspects of the Merger or any related transaction, and
does not constitute a recommendation to any of the
holders of Common Stock
with respect to the
Merger Agreement or the Merger. William Blair did not address the
merits of the underlying decision by the Company to engage in the
Merger.
For further
information, see the section entitled “
The Merger — Opinion of William Blair,
the Company’s Financial Advisor
” and Annex
B.
Stockholder Action by Written Consent
(page
15)
Under
Section 251 of the General Corporation Law of the State of
Delaware (the “DGCL”), and the applicable provisions of
the Company’s certificate of incorporation and bylaws, each
as amended to date, the adoption of the Merger Agreement by
AERT’s stockholders may be approved without a meeting by
written consent of (i) the stockholders holding a majority of the
votes represented by the outstanding shares of Common Stock and
Preferred Stock, voting together as a single class, and (ii)
stockholders holding a majority of the outstanding shares of
Preferred Stock, voting separately as a class.
On March 17, 2017, H.I.G., holder
of 15,289,890 shares of Common Stock and 20,524.149 shares of
Preferred Stock (which shares represent all of the outstanding
shares of Preferred Stock and are convertible into 393,084,089
shares of Common Stock), which represented approximately 85% of the
voting power of the issued and outstanding shares of the
Company’s stock entitled to vote on the adoption of the
Merger Agreement, delivered a written consent (in the form attached
to the Merger Agreement as Exhibit A) (the “Written
Consent”) adopting the Merger Agreement subject to a right to
withdraw the Written Consent only if the Board takes certain
actions prior to April 15, 2017, including (i) withholding,
withdrawing or rescinding (or modifying or qualifying in a manner
adverse to Parent or Merger Sub), its recommendation of the Merger,
(ii) adopting, approving or recommending, or publicly proposing to
adopt, approve or recommend, any Acquisition Proposal (as defined
in the section entitled “
The
Merger Agreement – No Solicitation by the
Company
” beginning on page 48) involving the Company
(other than with respect to Parent and Merger Sub), and (iii)
making any public statement inconsistent with its recommendation of
the Merger. As a result, no further action by any stockholder of
the Company is required under applicable law or the Merger
Agreement (or otherwise) to adopt the Merger Agreement or approve
the Merger, and the Company has not solicited and will not be
soliciting your authorization and adoption of the Merger Agreement
and does not intend to call a meeting of stockholders for purposes
of voting on the adoption of the Merger Agreement.
When
actions are taken by written consent of less than all of the
stockholders entitled to vote on a matter, Section 228(e) of
the DGCL requires that notice of the action be provided to those
stockholders who did not consent.
This information statement and the notice
attached hereto shall constitute notice to you of action by written
consent as required by Section 228(e) of the
DGCL.
Interests of the Company’s Directors and
Executive Officers in the Merger
(page
35)
You
should be aware that some of the Company’s directors and
executive officers have interests in the Merger that are different
from, or in addition to, the interests of the Company’s
stockholders generally. Interests of officers and directors that
may be different from or in addition to the interests of the
Company’s stockholders include, among others, potential bonus
payments to executive officers in connection with the closing of
the Merger, bonus and severance benefits and other payments to
executive officers pursuant to employment agreements entered into
with Parent which are effective on, and contingent upon, the
consummation of the Merger, and rights to ongoing indemnification
and insurance coverage.
In
addition, certain members of the Board are affiliated with H.I.G.
Accordingly, such members of the Board may have an indirect
interest in the portion of the Merger Consideration to be paid to
H.I.G. as holder of Preferred Stock and Common Stock, and may also
have an indirect interest in transaction fees of $2.34 million to
be paid to an affiliate of H.I.G, at the closing of the
Merger.
The
Board was aware of these different or additional interests and
considered such interests along with other matters in approving the
Merger Agreement and the transactions contemplated thereby,
including the Merger. These interests are discussed in more detail
in the section entitled “
The
Merger — Interests of the Company’s Directors and
Executive Officers in the Merger
”.
The
Merger Agreement
(page
42)
Conditions to Completion of the Merger
(page 55)
As more
fully described in this information statement and the Merger
Agreement, the completion of the Merger is subject to the
satisfaction or waiver of a number of conditions, including the
absence of any law or order that is in effect and restrains,
enjoins or otherwise prohibits the Merger, the accuracy of the
representations and warranties of the parties and compliance by the
parties with their respective obligations under the Merger
Agreement. If these conditions are not satisfied or waived, the
Merger will not be completed.
In
addition, pursuant to federal securities laws and the Merger
Agreement, the Merger may not be completed until 20 days
after the date of mailing of this information statement to AERT
stockholders. Therefore, notwithstanding the execution and delivery
of the Written Consent (which was obtained shortly after the
signing of the Merger Agreement), the Merger will not occur until
that time has elapsed. We expect the Merger to be completed during
the second quarter of 2017. However, there can be no assurance that
the Merger will be completed at that time, or at all.
No Solicitation
by the Company (page 48)
The
Company has agreed that it will not, nor will it authorize any of
its representatives to, directly or indirectly:
●
solicit, initiate
or knowingly encourage or knowingly facilitate the making,
submission or announcement of an Acquisition Proposal (as defined
in the section entitled “
The
Merger Agreement – No Solicitation by the
Company
”);
●
enter into,
continue or otherwise participate in any discussions or any
negotiations regarding, or furnish to any party any non-public
information with or for the purpose of knowingly encouraging or
knowingly facilitating an Acquisition Proposal; or
●
enter into any
letter of intent, acquisition agreement or similar agreement with
respect to any Acquisition Proposal or with respect to any proposal
or offer that would reasonably be expected to lead to an
Acquisition Proposal.
The
Company has agreed, and has agreed to cause each of its directors
and officers to, and to direct its other representatives to,
immediately cease and cause to be terminated all discussions or
negotiations with any person previously conducted with respect to
any Acquisition Proposal and to require such persons to return or
destroy, and to cease producing access to, any non-public
information of or relating to the Company promptly after closing.
The Company is permitted to grant waivers of any
“standstill” provision to the limited extent that such
provision would otherwise prohibit the counterparty thereto from
making a confidential Acquisition Proposal directly to the Board in
accordance with the terms of the Merger Agreement, in which case
the Company has agreed to similarly waive or terminate any
“standstill” provision applicable to Parent contained
in the confidentiality agreement between the Company and Parent.
All but one of the confidentiality and nondisclosure agreements
entered into by the Company in connection with discussions or
negotiations with respect to a potential proposal to acquire the
Company included customary “standstill” provisions, the
terms of which “standstill” provisions terminated on
March 17, 2017 upon announcement of the Company’s entry into
the Merger Agreement.
Notwithstanding the
restrictions described above, if at any time prior to April 15,
2017, the Company receives an unsolicited bona fide written
Acquisition Proposal that does not result from a breach of the
non-solicitation covenant within the Merger Agreement and the Board
determines in good faith, after consultation with its independent
financial advisors and outside legal counsel, that such Acquisition
Proposal constitutes or would reasonably be expected to lead to a
superior proposal and that the failure to take such action would be
inconsistent with its fiduciary duties under applicable law, then
the Company may furnish information to, and participate in
discussions and negotiations with, the party making such
Acquisition Proposal (and waive such party’s noncompliance
with the provisions of any “standstill” agreement
solely to permit such discussions and negotiations).
Termination of the Merger Agreement
(page 57)
The
Merger Agreement may be terminated at any time prior to the
consummation of the Merger by the mutual written consent of Parent
and the Company.
In
addition, the Merger Agreement may be terminated by either Parent
or the Company if:
●
the Merger has not
been consummated on or prior to the close of banking business, New
York time, on May 31, 2017 (the “Outside Date”),
provided, that a party is not permitted to terminate the Merger
Agreement pursuant to this right if the failure to consummate the
Merger is attributable to a failure of such party (and in the case
of Parent, including the failure of Merger Sub) to perform in any
material respect its obligations under the Merger
Agreement;
●
any governmental
body of competent jurisdiction has issued a final and nonappealable
order or taken any action, or there exists any law, in each case,
making illegal, permanently enjoining, restraining or otherwise
prohibiting the Merger or any of the other transactions
contemplated by the Merger, provided, that a party is not permitted
to terminate the Merger Agreement pursuant to this right if the
issuance of such order or the taking of such action is attributable
to a failure of such party (and in the case of Parent, including
the failure of Merger Sub) to perform in any material respect its
obligations under the Merger Agreement; or
●
on or prior to the
Outside Date, the Written Consent has not been obtained and the
requisite Company stockholder approval has not been obtained at the
Company stockholders meeting duly convened therefor or at any
adjournment or postponement thereof, at which a final vote on the
approval of the Merger Agreement was taken.
The
Merger Agreement also may be terminated by Parent if:
●
the Board has made
an adverse recommendation change (as defined in “
The Merger Agreement – Adverse
Recommendation Change
” beginning on page
50);
●
(i) there has
been a breach of any covenant or agreement on the part of the
Company set forth in the Merger Agreement, or (ii) any
representation or warranty of the Company set forth in the Merger
Agreement was inaccurate when made or, if not made as of a specific
date, has become inaccurate, which, in either case of clauses (i)
or (ii), results in the conditions to closing related to the
Company’s representations and warranties not being satisfied,
and in the case of both clauses (i) and (ii), such breach
or inaccuracy is not curable by the Outside Date, or, if curable,
is not cured by the Outside Date; or
●
either (i) the
Written Consent was not obtained and delivered to Parent within the
required period of time, or (ii) the requisite Company stockholder
approval was not obtained at the Company stockholders meeting duly
convened therefor or at any adjournment or postponement thereof, at
which a final vote on the approval of the Merger Agreement was
taken.
The
Merger Agreement also may be terminated by the Company
if:
●
(i) there has
been a breach of any covenant or agreement on the part of Parent or
Merger Sub set forth in the Merger Agreement; or (ii) any
representation or warranty of Parent or Merger Sub set forth in the
Merger Agreement was inaccurate when made or has become inaccurate,
which, in either case of clauses (i) or (ii), results in the
conditions to closing related to Parent’s or Merger
Sub’s representations and warranties not being satisfied, and
in the case of both clauses (i) and (ii), such breach or
inaccuracy is not curable by the Outside Date, or, if curable, is
not cured by the Outside Date; or
●
the Board effected
an adverse recommendation change with respect to a superior
proposal (as defined in “
The
Merger Agreement – Other Offers; Superior
Proposal
” beginning on page 49) or an intervening
event (as defined in “
The
Merger Agreement – Adverse Recommendation Change
” beginning on page 50) (other than an intervening event that
would reasonably be expected to have a material adverse effect on
the Parent and its subsidiaries, taken as a whole) in accordance
with, and in compliance with the requirements of, the Merger
Agreement and concurrently with the termination of the Merger
Agreement, the Company (i) entered into an agreement related to the
applicable superior proposal, if such adverse recommendation change
relates to a superior proposal, and (ii) paid the termination fee
as required under the Merger Agreement.
Termination Fees
(page 58)
If the
Merger Agreement is terminated by Parent after the Board makes an
adverse recommendation change or by the Company after the Board
makes an adverse recommendation change (unless the adverse
recommendation change relates to an intervening event that would
reasonably be expected to have a material adverse effect on the
Parent and its subsidiaries, taken as a whole), the Company has
agreed to pay to Parent a termination fee of $4.68
million.
In the
event that the Merger Agreement is terminated by the Company (i) as
a result of the Merger not being consummated by the Outside Date or
(ii) as a result of a breach of any covenant or agreement on the
part of Parent or Merger Sub set forth in the Merger Agreement or
the inaccuracy of any representations or warranties of Parent or
Merger Sub set forth in the Merger Agreement, and in the case of
clause (i), both (A) the conditions to the obligations of all
parties and the conditions to the obligations of Parent and Merger
Sub are satisfied or capable of being satisfied or are waived
(other than those conditions that by their nature are to be
satisfied by actions taken at closing, each of which is capable of
being satisfied at closing), and (B) either Parent or Merger Sub
fails to satisfy its obligations to effect closing by the date the
closing is required to have occurred pursuant to the Merger
Agreement, then Parent has agreed pay to the Company a reverse
termination fee of $7.02 million.
The
Merger Agreement does not contain any financing-related closing
condition and Parent has represented that it will have sufficient
funds at the closing to fund the payment of the Merger
Consideration and any other payments required in connection with
consummation of the Merger.
Material U.S. Federal Income Tax Consequences of
the Merger
(page
39)
If you
are a U.S. holder (as defined under “
The Merger — Material U.S. Federal
Income Tax Consequences of the Merger
”), the receipt
of cash in exchange for shares of Common Stock or Preferred Stock
pursuant to the Merger will generally be a taxable transaction for
U.S. federal income tax purposes, and may also be a taxable
transaction under applicable state, local or foreign income or
other tax laws. You should consult your own tax advisor regarding
the particular tax consequences to you of the exchange of shares of
Common Stock or Preferred Stock for cash pursuant to the Merger in
light of your particular circumstances (including the application
and effect of any state, local or foreign income and other tax
laws).
Regulatory Approvals
(page
41)
Under the
Merger Agreement, both the Company and Parent have agreed to use
reasonable efforts to obtain all required governmental approvals
and avoid any action or proceeding by a governmental entity to the
extent necessary, proper or advisable to consummate the Merger.
Except for the expiration of 20 days from the
dissemination of this information statement to the Company’s
stockholders and the filing of a certificate of merger with the
Delaware Secretary of State at or before the effective date of the
Merger, we are unaware of any material federal, state or foreign
regulatory requirements or approvals required for the execution of
the Merger Agreement or completion of the Merger or the other
transactions contemplated by the Merger Agreement.
Appraisal Rights
(page
62)
If the
Merger is consummated, holders of our Common Stock may elect, in
lieu of accepting the Merger Consideration, to pursue appraisal
rights under Section 262 of the DGCL and to receive the judicially
determined “fair value” of their shares, which could be
more or less than, or the same as, the Merger Consideration, but
only if they comply with the procedures required by Section 262 of
the DGCL. In order to perfect these rights, you must make a written
demand for appraisal by no later than May 1, 2017,
which is the date that is 20 days following the mailing of this
information statement, and otherwise comply with the procedures set
forth in Section 262 of the DGCL for exercising appraisal rights.
For a summary of these procedures, see the section entitled
“
Appraisal
Rights
” beginning on page 62. A copy of Section 262 of
the DGCL is also included as Annex C to this information statement.
Failure to follow the procedures set forth in Section 262 of the
DGCL will result in the loss of appraisal rights.
Delisting and Deregistration of Common
Stock
(page
41)
If the
Merger is completed, the Common Stock, which is currently listed on
the OTCQB Tier of the OTC Markets Group, Inc. under the symbol
“AERT,” will cease to be quoted on the OTCQB. In
addition, if the Merger is completed, the Common Stock will be
deregistered under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and we will no longer file
periodic reports with the U.S. Securities and Exchange Commission
(the “SEC”) on account of our Common
Stock.
Market
Price of the Company’s Common Stock
(page
60)
The
closing price of our Common Stock on the OTCQB on March 16, 2017,
the last trading day prior to our public announcement that we had
entered into the Merger Agreement, was $0.1021 per share. On
April 7, 2017, the most recent practicable trading
date prior to the date of this information statement, the closing
price of our Common Stock on the OTCQB was $0.134 per
share.
Procedures for Receiving Merger
Consideration
(page
43)
Shortly
after the effective time of the Merger, a paying agent will mail a
letter of transmittal and instructions to stockholders of the
Company who hold shares of Company stock represented by stock
certificates. The letter of transmittal and instructions will tell
you how to surrender your stock certificates in exchange for the
Merger Consideration. Holders of uncertificated shares of Company
stock (i.e., holders whose shares are held in book-entry form) will
automatically receive the Merger Consideration, without interest
and subject to reduction for any required withholding taxes, as
promptly as practicable after the effective time of the Merger
without any further action required on the part of those
holders.
QUESTIONS AND ANSWERS ABOUT THE
MERGER
The following questions and answers are intended to address briefly
some commonly asked questions regarding the Merger Agreement and
the Merger. These questions and answers may not address all
questions that may be important to you as an AERT stockholder.
Please refer to the additional information contained elsewhere in
this information statement, the annexes to this information
statement and the documents referred to in this information
statement, each of which you should read carefully.
Q
.
Why
am I receiving this information statement?
A.
The Company and
Parent have agreed to the acquisition of the Company by Parent upon
the terms and conditions of the Merger Agreement described in this
information statement, and the Preferred Stockholder has adopted
the Merger Agreement and approved the Merger. Applicable provisions
of Delaware law and applicable securities regulations require us to
provide you with information regarding the Merger, even though your
vote or consent is neither required nor requested to adopt the
Merger Agreement or complete the Merger. This information statement
also constitutes notice to you of the availability of appraisal
rights under Section 262 of the DGCL, a copy of which is attached
to this information statement as Annex C.
Q
.
What
is the proposed transaction?
A.
The proposed
transaction is the acquisition of the Company by Parent. The
proposed transaction will be accomplished through a merger of
Merger Sub, a wholly-owned subsidiary of Parent, with and into the
Company, with the Company as the surviving corporation. As a result
of the Merger, the Company will become a wholly-owned subsidiary of
Parent and its Common Stock will cease to be quoted on the
OTCQB.
Q.
Why
did the Board approve the Merger and the Merger
Agreement?
A.
After careful
consideration and evaluation of the Merger, the Board determined
that the Merger Agreement and the transactions contemplated
thereby, including the Merger, are fair to, advisable, and in the
best interests of, the Company and its stockholders, approved the
Merger Agreement and the transactions contemplated thereby,
including the Merger, and recommended that the Company’s
stockholders adopt the Merger Agreement. To review the
Board’s reasons for recommending and approving the Merger and
the Merger Agreement, see the section entitled “
The Merger - Reasons for the
Merger”
beginning on page 22.
Q.
Is
the approval of stockholders necessary to adopt the Merger
Agreement? Why am I not being asked to vote on the Merger
Agreement?
A.
The Merger requires
the adoption of the Merger Agreement by (i) the holders of a
majority of the votes represented by the outstanding shares of
Common Stock and Preferred Stock, voting together as a single
class, and (ii) the holders of a majority of the outstanding shares
of Preferred Stock, voting separately as a class. The requisite
stockholder approval was obtained on March 17, 2017, the date on
which H.I.G., holder of all of the issued and outstanding shares of
Preferred Stock, and holder of approximately 85% of the voting
power of the issued and outstanding shares of the Company’s
stock on that date, delivered to the Company a written consent
adopting and approving the Merger Agreement and the Merger.
Therefore, your vote is not required and is not being sought. We
are not asking you for a proxy and you are requested not to send us
a proxy.
Q.
If
the Merger is completed, what will I receive for my shares of
Common Stock and my shares of Preferred Stock?
A.
In the Merger, each
issued and outstanding share of Common Stock will be converted into
the right to receive $0.135936
in cash, less any required
withholding taxes, and each issued and outstanding share of
Preferred Stock will be converted into the right to receive
$2,603.483278
in cash,
less any required withholding taxes, which we refer to as the
“Merger Consideration.” As a result of the Merger, upon
the surrender of your shares of Common Stock or Preferred Stock, as
applicable, you will receive a total amount equal to the product
obtained by multiplying the Merger Consideration applicable to such
shares of Common Stock or Preferred Stock, respectively, by the
number of shares of Common Stock or Preferred Stock, as applicable,
that you own, rounded up to the nearest cent. This
does not apply to any shares of Common Stock or Preferred Stock
owned by the Company (which will automatically be canceled with no
consideration paid therefor) and those shares of Common Stock with
respect to which stockholders properly exercised appraisal rights
and have not effectively withdrawn or lost their appraisal rights.
You will not own shares in the surviving corporation.
Q
.
Will
the Merger Consideration I receive in the Merger increase if
AERT’s results of operations improve or if the price of
AERT’s Common Stock increases above the current Merger
Consideration to be paid in respect of Common Stock?
A.
No. The Merger
Consideration in respect of Common Stock is fixed at
$0.135936
in cash per
share of Common Stock, without interest and subject to any required
withholding taxes. The Merger Agreement does not contain any
provision that would adjust the Merger Consideration (in either
direction) based on fluctuations in the price of the Common Stock
or based on the results of operations of the Company prior to the
consummation of the Merger.
Q.
Is
the Merger subject to fulfillment of certain
conditions?
A.
Yes. Before
completion of the Merger, the Company, Parent and Merger Sub must
fulfill or waive several closing conditions. If these conditions
are not satisfied or waived, the Merger will not be completed. See
the section entitled “
The
Merger Agreement - Conditions to Completion of the
Merger
” beginning on page 55.
Q
.
Am
I entitled to appraisal rights instead of receiving the Merger
Consideration for my shares?
A.
Yes. Under the
DGCL, stockholders who did not provide a consent to the adoption of
the Merger Agreement (i.e., stockholders other than H.I.G.) are
entitled to appraisal rights in connection with the Merger with
respect to their shares, so long as they precisely follow specific
procedures to exercise their rights under Delaware law. See the
section entitled “
Appraisal
Rights
” beginning on page 62.
Q.
What
happens if a third party makes an offer to acquire the Company
before the Merger is completed?
A.
If a third party
makes an unsolicited bona fide written acquisition proposal to the
Company prior to April 15, 2017, the Company may, prior to such
date, negotiate and discuss the proposal with the third party under
certain circumstances specified in the Merger Agreement. If the
Board determines in good faith that such acquisition proposal
constitutes a superior proposal and the Company notifies Parent and
complies with certain additional requirements of the Merger
Agreement, including, if requested by Parent, negotiating with
Parent during a period of four business days so that Parent has the
opportunity to submit a matching or topping proposal, and Parent
does not submit a matching or topping proposal during such four
business day period, then the Company may terminate the Merger
Agreement until April 15, 2017 to accept the superior proposal,
subject to certain notice requirements and other conditions and the
requirement that the Company pay Parent the termination fee prior
to or concurrently with such termination. See the section entitled
“
The Merger Agreement
— Termination of the Merger Agreement
” beginning
on page 57. As of the date of this information statement, the
Company has not received any such acquisition
proposal.
Q
.
When
is the Merger expected to be completed?
A.
As of the date of
this information statement, we expect to complete the Merger during
the second quarter of 2017. We are working to complete the Merger
as quickly as possible. However, completion of the Merger is
subject to the satisfaction or waiver of the conditions to the
completion of the Merger, which are described in this information
statement, including that the Merger may not be completed
until 20 days after the date of mailing of this
information statement to AERT stockholders. It is possible that
factors outside the control of the Company or Parent could delay
the completion of the Merger, or prevent it from being completed at
all.
Q.
What
happens if the Merger is not completed?
A.
If the Merger is
not completed for any reason, the Company’s stockholders will
not receive any payment for their shares of Common Stock or
Preferred Stock in connection with the Merger. Instead, shares of
our Common Stock will continue to be registered under the Exchange
Act, as well as listed and traded on the OTCQB. In the event that
either the Company or Parent terminates the Merger Agreement, then,
in certain circumstances, the Company will pay Parent a termination
fee of $4.68 million or Parent will pay the Company a reverse
termination fee of $7.02 million. See the section entitled
“
The Merger Agreement
— Effect of Termination; Termination Fee; Reverse Termination
Fee
” beginning on page 58.
Q.
What
happens if I sell or otherwise transfer my shares before completion
of the Merger?
A.
If you sell or
otherwise transfer your shares of Company stock, you will have
transferred to the person that acquires your shares of Company
stock the right to receive the Merger Consideration to be received
in the Merger. To receive the Merger Consideration, you must hold
your shares through completion of the Merger.
Q.
Should
I surrender my shares of Company stock now?
A.
No. After the
Merger is completed, you will be sent detailed instructions for
exchanging your shares of stock for the Merger Consideration.
Holders of uncertificated shares of Common Stock (i.e., holders
whose shares are held in book-entry form) will automatically
receive the Merger Consideration, without interest and subject to
reduction for any required withholding taxes, as promptly as
practicable after the effective time of the Merger without any
further action required on the part of those holders.
Q.
Will
I owe taxes as a result of the Merger?
A.
The Merger will be
a taxable transaction for U.S. holders of our Common Stock or
Preferred Stock. As a result, assuming you are a U.S. holder,
any gain you recognize as a result of the Merger will be subject to
United States federal income tax and also may be taxed under
applicable state, local or other tax laws. In general, you will
recognize gain or loss equal to the difference between (1) the
applicable Merger Consideration and (2) the adjusted tax basis
of the shares of Common Stock or Preferred Stock you surrender in
the Merger. See the section entitled “
The Merger – Material U.S. Federal
Income Tax Consequences of the Merger
” beginning on
page 39 for a more detailed explanation of the tax consequences of
the Merger. You should consult your tax advisor on how specific tax
consequences of the Merger apply to you.
Q.
Where
can I find more information about the Company?
A.
We file periodic
reports and other information with the SEC. The Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2016 is attached as Annex D to this information statement. You may
read and copy this information at the SEC’s public reference
facilities. Please call the SEC at 1-800-SEC-0330 for
information about these facilities. This information is also
available on the internet site maintained by the SEC at
www.sec.gov. For a more detailed description of the information
available, please refer to the section entitled “
Where You Can Find More
Information
” on page 65.
Q.
Who
can help answer my questions?
A.
If you have
questions about the Merger after reading this information
statement, please contact our Investor Relations Department by mail
at 914 N. Jefferson Street, Springdale, Arkansas, 72764, Attention:
Investor Relations, or by telephone at
(479) 203-5084.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
This
information statement, and the documents to which we refer you in
this information statement, contain certain “forward-looking
statements” under Section 27A of the Securities Act of 1933
and Section 21E of the Exchange Act. Forward-looking statements
include information concerning possible or assumed future results
of operations of the Company, the expected completion and timing of
the Merger and other information relating to the Merger, and
include, without limitation, information in this information
statement under the headings “Summary” and “The
Merger.” Generally these forward-looking statements can be
identified by the use of forward-looking terminology such as
“estimates,” “expects,”
“anticipates,” “projects,”
“plans,” “intends,” “believes,”
“forecasts,” “continues” or future or
conditional verbs, such as “will,”
“should,” “could” or “may,” and
variations on these words and similar expressions. Forward-looking
statements are based on current expectations. However, actual
results may differ materially from expectations due to the risks,
uncertainties and other factors that affect the Company’s
business. These factors include, among others:
●
the possibility
that the closing conditions to the Merger may not be satisfied or
waived;
●
the timing and
ability to complete the Merger;
●
the occurrence of
any event that could give rise to termination of the Merger
Agreement;
●
the outcome of
legal and regulatory proceedings that may be instituted following
the announcement of our entering into the Merger
Agreement;
●
risks inherent in
the achievement of cost synergies and the timing
thereof;
●
risks that the
Merger disrupts current plans and operations including potential
impairments to our ability to retain and motivate key personnel and
maintain relationships with customers, suppliers and other third
parties;
●
limitations placed
on the Company’s ability to operate its business under the
Merger Agreement;
●
the diversion of
management's attention from ongoing business operations and
opportunities as a result of the Merger;
●
the amounts of
costs, fees, and expenses relating to the Merger;
●
market, political
or other forces affecting the pricing and availability of plastics
and other raw materials;
●
accidents or other
unscheduled shutdowns affecting us, our suppliers' or our
customers' plants, machinery, or equipment;
●
competition from
products and services offered by other enterprises;
●
our ability to
refinance short-term indebtedness;
●
state and federal
environmental, economic, safety and other policies and regulations,
any changes therein, and any legal or regulatory delays or other
factors beyond our control;
●
execution of
planned capital projects;
●
weather conditions
affecting our operations or the areas in which our products are
marketed;
●
adverse rulings,
judgments, or settlements in litigation or other legal
matters;
●
difficult global
economic and capital markets conditions; and
●
other risks
detailed in our filings with the SEC, including, but not limited
to, those described in the “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2016 attached hereto as Annex D.
We
believe that the assumptions on which our forward-looking
statements are based are reasonable. However, we cannot assure you
that the actual results or developments we anticipate will be
realized or, if realized, that they will have the expected effects
on our business or operations. All subsequent written and oral
forward-looking statements concerning the Merger or other matters
addressed in this information statement and attributable to us or
any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in
this section. Forward-looking statements speak only as of the date
of this information statement or the date of any document
incorporated by reference in this document. Except as required by
applicable law or regulation, we undertake no obligation to
publicly update or revise any forward-looking statements contained
herein, whether as a result of new information, future events or
otherwise.
THE
PARTIES TO THE MERGER
The
Company
Advanced
Environmental Recycling Technologies, Inc.
Advanced
Environmental Recycling Technologies, Inc. is a Delaware
corporation. Founded in 1988, AERT develops and commercializes
technologies to recycle waste polyethylene plastics and develops,
manufactures, and markets value-added, green building products. The
majority of its products are composite building materials that are
a superior replacement for traditional wood or plastic products for
exterior applications in building and remodeling homes and for
certain other industrial or commercial building purposes, and are
primarily used in renovation and remodeling by consumers,
homebuilders, and contractors as an exterior environmentally
responsible building alternative for decking, railing, and trim
products. The Company’s products are sold and distributed by
leading companies such as Lowe’s Companies, Inc., BlueLinx
Corp. and CanWel Building Materials Ltd., its Canadian distributor
for Lowe’s Canada. AERT’s shares are traded on the
OTCQB Tier of the OTC Markets Group, Inc. under the symbol
“AERT.”
AERT’s
principal executive offices are located at 914 N. Jefferson Street,
Springdale, Arkansas 72764, and its telephone number is (479)
756-7400.
For
more information about AERT, please visit our website at
www.aert.com
. The
information provided on our website is not part of this information
statement, and therefore is not incorporated by reference. Detailed
descriptions about our business and financial results are contained
in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016, which is attached to this information statement
as Annex D.
Parent
Oldcastle
Architectural, Inc.
Parent
is the leading supplier of innovative and sustainable masonry and
hardscape products for North America’s building and
landscaping markets. Parent is the innovator behind many of the
industry’s well-known brands including Belgard Hardscapes,
Echelon masonry products, Sakrete bagged dry-mixes and Anchor Wall
Systems retaining wall solutions, among others. With over 172
operating locations and 5,300 employees, Parent operates across 33
states and 5 Canadian provinces. Parent is a U.S. subsidiary of CRH
plc, a leading global diversified building materials group,
employing approximately 87,000 people at 3,800 operating locations
in 31 countries worldwide.
Parent’s
principal executive offices are located at 900 Ashwood Parkway,
Suite 600, Atlanta, Georgia 30338, and its telephone number is
(800) 899-8455.
Merger Sub
Oldcastle
Ascent Merger Sub, Inc.
Merger
Sub is a Delaware corporation and a wholly-owned subsidiary of
Parent that was formed solely for the purpose of entering into the
Merger Agreement and consummating the transactions contemplated by
the Merger Agreement. Merger Sub has not carried on any activities
on or prior to the date of this information statement except for
activities incidental to its formation and activities in connection
with Parent’s acquisition of the Company. Upon completion of
the Merger, Merger Sub will merge with and into the Company and
will cease to exist. Merger Sub’s principal executive offices
are located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia
30338, and its telephone number is (800) 899-8455.
The description of the Merger in this section and elsewhere in this
information statement is qualified in its entirety by reference to
the complete text of the Merger Agreement, a copy of which is
attached as Annex A
and is incorporated by reference
into this information statement. This summary does not purport to
be complete and may not contain all of the information about the
Merger that is important to you. You are encouraged to read the
Merger Agreement carefully and in its entirety.
Certain
Effects of the Merger
Pursuant to the
terms of the Merger Agreement, Merger Sub will be merged with and
into the Company, with the Company surviving the Merger. Upon the
terms and subject to the conditions of the Merger Agreement, at the
effective time of the Merger, each issued and outstanding share of
Common Stock will be converted into the right to receive $0.135936
in cash, less any required withholding taxes, and each issued and
outstanding share of Preferred Stock will be converted into the
right to receive $2,603.483278 in cash, less any required
withholding taxes, in each case other than any shares of Common
Stock or Preferred Stock owned by the Company (which will
automatically be canceled with no consideration paid therefor) and
those shares of Common Stock with respect to which stockholders
properly exercised appraisal rights and have not effectively
withdrawn or lost their appraisal rights. H.I.G. owns all of the
outstanding shares of Preferred Stock and is entitled to all of the
Merger Consideration to be paid in respect of the Preferred
Stock.
Required Approval of the Merger; Written
Consent
Under
Section 251 of the DGCL and the applicable provisions of the
Company’s certificate of incorporation and bylaws, each as
amended to date, the adoption of the Merger Agreement by
AERT’s stockholders required the affirmative vote or written
consent of (i) holders of a majority of the votes represented by
the outstanding shares of Common Stock and Preferred Stock, voting
together as a single class, and (ii) holders of a majority of the
outstanding shares of Preferred Stock, voting separately as a
class.
The Board
approved the Merger Agreement on March 16, 2017. On March 17, 2017,
H.I.G., holder of 15,289,890 shares of Common Stock and 20,524.149
shares of Preferred Stock (which shares represent all of the
outstanding shares of Preferred Stock and are convertible into
393,084,089 shares of Common Stock), which represented
approximately 85% of the voting power of the issued and outstanding
shares of the Company’s stock entitled to vote on the
adoption of the Merger Agreement, delivered a written consent (the
“Written Consent”) adopting the Merger Agreement and
approving the Merger, subject to a right to withdraw such consent
only if the Board takes certain actions prior to April 15, 2017,
including (i) withholding, withdrawing or rescinding (or modifying
or qualifying in a manner adverse to Parent or Merger Sub), its
recommendation of the Merger, (ii) adopting, approving or
recommending, or publicly proposing to adopt, approve or recommend,
any Acquisition Proposal involving the Company (other than with
respect to Parent and Merger Sub), and (iii) making any public
statement inconsistent with its recommendation of the Merger. As a
result, no further action by any stockholder of the Company is
required under applicable law or the Merger Agreement (or
otherwise) to adopt the Merger Agreement or approve the Merger, and
the Company has not solicited and will not be soliciting your
authorization and adoption of the Merger Agreement and does not
intend to call a meeting of stockholders for purposes of voting on
the adoption of the Merger Agreement.
Pursuant to federal
securities laws and the Merger Agreement, the Merger may not be
completed until 20 days after the date of mailing of this
information statement to AERT stockholders. Therefore,
notwithstanding the execution and delivery of the Written Consent
(which was obtained shortly after the signing of the Merger
Agreement), the Merger will not occur until that time has elapsed.
We expect the Merger to be completed during the second quarter of
2017. However, there can be no assurance that the Merger will be
completed at that time, or at all.
As part
of the Company’s ongoing strategic planning, the Board and
members of Company management periodically review and assess the
Company’s operations and financial performance and industry
conditions that may impact the Company’s long-term strategic
goals and plans. Company management also regularly discusses with
the Board the strategic direction of the Company and ways to
maximize shareholder value, including through business
combinations, acquisitions and strategic partnerships, and
returning capital to stockholders through dividends.
On June
22, 2016, the Board held a meeting at which the directors
affiliated with H.I.G. updated other members of the Board that
H.I.G. was considering liquidating its investment. The Board
discussed the exploration of strategic alternatives to maximize
value for all stockholders and to achieve liquidity for H.I.G.,
including a sale of the Company and continuing to operate the
Company as an independent public company while taking steps aimed
at increasing trading volume of the stock, including recapitalizing
the balance sheet to potentially return capital to stockholders in
the form of a dividend, and pursuing an acquisition strategy to
more quickly grow the Company.
On June
30, 2016, the Board and Company management met with representatives
of William Blair & Company, L.L.C. (“William
Blair”). A representative of William Blair made a
presentation regarding a potential sale of the Company. The parties
also discussed the possibility of the Company continuing to operate
as an independent public company.
In a
series of discussions during the first week of July 2016, members
of the Board considered the pros and cons of exploring strategic
alternatives, focusing on the alternatives of a sale of the Company
and continuing to operate the Company as an independent public
company. The Board discussed the potential benefits to the
Company’s stockholders of a sale of the Company, including
receiving immediate liquidity and a premium over the current price
of the Common Stock. They also considered the possible disruption
to the Company’s business that could result from the public
announcement of an exploratory process and the resulting
distraction of the attention of Company management and employees.
The Board considered the Company’s business trajectory,
customer concentration and execution risks of new Company products,
and the potential benefit of having a partner to assist in their
development. The Board also reviewed and discussed materials and
information presented to it by Company management, William Blair,
and three other investment banks interviewed by the Board,
including information regarding comparable public companies,
comparable transactions, market forecasts and financing market
conditions. At the conclusion of these discussions, the Board
determined that it was in the best interests of the Company and its
stockholders to explore a sale of the Company.
In a
series of discussions during the week of July 11, 2016, members of
the Board discussed with representatives of Paul Hastings LLP
(“Paul Hastings”) the directors’ fiduciary duties
under Delaware law in connection with the exploration of strategic
alternatives as well as the legal implications of a potential sale
of the Company.
During
the period from July 4, 2016 to July 20, 2016, the Board also
discussed the merits of retaining qualified investment banking and
legal advisors. The Board evaluated whether to retain William Blair
and Paul Hastings. In connection with its evaluation, the Board
considered the fact that William Blair provided investment banking
services for affiliates of H.I.G. and that Paul Hastings
represented H.I.G. and certain of its affiliates in connection with
their transactions with the Company and represents affiliates of
H.I.G. in connection with matters unrelated to the Company. The
Board determined that these preexisting relationships did not
present conflicts of interest that would preclude those advisors
from representing the Company’s best interests. On July 20,
2016, the Board resolved to engage William Blair as its financial
advisor and Paul Hastings as its legal advisor in connection with
its consideration of a potential sale of the Company. The Company
and William Blair executed an engagement letter on July 20, 2016.
The Board retained William Blair as its financial advisor after
considering and interviewing other advisors because of, among other
things, William Blair’s familiarity with the building
products industry, its public company experience and its experience
advising companies in similar circumstances. The Board retained
Paul Hastings as its legal advisor because of, among other things,
its familiarity with the Company through its representation of
H.I.G. and its affiliates and its experience advising companies in
similar circumstances.
With
respect to all Board meetings and discussions in June and July
2016, as well as all subsequent Board meetings and discussions
related to the Company sale process, where fewer than all members
of the Board participated, the directors who did not participate
were promptly apprised, by either other directors or Company
management, of the matters discussed.
In late
July and early August 2016, the Company and the Board, with the
assistance of William Blair, prepared to commence a process to
solicit interest from potential buyers and Company management
prepared a preliminary confidential presentation describing the
Company’s business and included historical financial
information. Working with William Blair, the Board and Company
management identified a broad group of potential strategic and
financial buyers that they believed might be both interested in
acquiring the Company and would have the requisite financial
resources to do so.
On
August 18, 2016, at the direction of the Board, William Blair began
contacting potential buyers. Over the next six weeks, William Blair
contacted 307 potential buyers, of which 88 were strategic parties
and 219 were financial sponsors. Of those 307 potential buyers, 96
parties, including 21 strategic parties and 75 financial sponsors,
entered into nondisclosure agreements with the Company and received
the preliminary confidential presentation. All but one of these
nondisclosure agreements included customary standstill provisions,
the terms of which standstills terminated upon announcement of the
Company’s entry into the Merger Agreement.
In late
September 2016, Company management, with the assistance of William
Blair, prepared a confidential information presentation to be
provided to potential buyers during introductory meetings
describing the Company’s business and historical financial
information, as well as certain financial projections for 2016 to
2021 prepared by Company management.
During
the period from September 26, 2016 through October 14, 2016,
representatives of Company management and William Blair held
introductory meetings, some of which included tours of the
Company’s facilities, with seven potential buyers (including
Parent) which were viewed as good strategic fits and as having the
financial resources to complete an acquisition of the
Company.
From
October 6, 2016 through October 18, 2016, at the direction of the
Board, William Blair distributed process letters to 90 potentially
interested parties requesting that written indications of interest
be submitted by October 25, 2016. During this period of time,
William Blair had numerous conversations with these parties. Nine
bidders, consisting of eight strategic bidders and one financial
sponsor, submitted non-binding initial indications of interest
ranging from $76 million to $147 million as follows: Bidder A
proposed between $117 million and $147 million; Bidder B proposed
$125 million; Bidder C proposed $120 million; Bidder D proposed
$113 million; Bidder E proposed between $105 million and $115
million; Bidder F proposed between $95 million and $102 million;
Bidder G proposed $76 million; and Parent proposed between $92
million and $110 million. All of the non-binding indications of
interest stated that the values represented enterprise values for
the Company on a cash-free, debt-free basis. Most also assumed a
normalized level of working capital.
On
October 27, 2016, members of the Board and Company management met
with representatives of William Blair. Prior to the meeting, a
presentation prepared by William Blair summarizing the marketing
process, the potential buyers’ progress on due diligence, and
a summary of the indications of interest was distributed to the
Board and certain members of Company management. During the
meeting, a representative of William Blair reviewed the
presentation with members of the Board and Company management.
Bidder H had not yet submitted its indication of interest, and
William Blair discussed it as a potential strategic buyer whose
indication of interest was still outstanding. The Board considered
the proposed transaction values, the financial strength of the
potential buyers in relation to their ability to consummate a
transaction, and the opportunities and challenges the Company would
face if it chose not to continue with the exploratory process and
remained as an independent company. Following these discussions,
the Board directed Company management to continue working with
William Blair to explore a potential sale of the Company, including
allowing six of the remaining potential buyers who had submitted
indication of interest to conduct additional diligence of the
Company. The Board determined not to invite Bidder F or
Bidder G to move
forward to the next phase of the process based on the transaction
values set forth in their indications of interest relative to those
of other bidders, and with respect to Bidder F, its lack of
adequate financial resources. In order to obtain the highest price
reasonably available for the Company, the Board determined that the
other six bidders should be invited to participate in the next
phase of the process which would include management presentations,
additional facility visits and access to more extensive information
about the Company to be made available via an electronic data
room.
During
the period from late October through late December, members of the
Board participated in weekly status calls during which William
Blair provided the Board with updates regarding the sale
process.
On
October 28, 2017, Bidder H submitted its initial indication of
interest of between $100 million and $120 million, which
represented an enterprise value for the Company on a cash-free,
debt-free basis and assumed a normalized level of working capital.
William Blair notified members of the Board of the indication of
interest, and Bidder H was invited to participate in the next phase
of the process alongside the other six remaining
bidders.
After
being told that it was not being invited to participate in the next
phase of the process, Bidder G submitted, on November 3, 2016, a
revised indication of interest of approximately $135 million, which
represented an enterprise value for the Company on a cash-free,
debt-free basis and assumed a normalized level of working capital.
William Blair notified members of the Board of the revised
indication of interest, and Bidder G was invited to remain in the
process.
During
the period from November 8, 2016 through November 29, 2016, Company
management met with the eight remaining bidders (including Parent)
to present an overview of the Company’s operations, financial
performance and industry and strategy, discuss projected future
performance of the Company and respond to questions from the
bidders.
On
November 16, 2016, the eight remaining bidders were provided access
to the electronic data room, which included the draft merger
agreement and detailed information about the Company’s
business and operations for the potential buyers to use in their
due diligence review.
On
November 22, 2016, Bidder E withdrew from the process.
On
November 23, 2016, at the direction of the Board, William Blair
distributed process letters to the seven remaining potential buyers
requesting that non-binding proposals be submitted by December 20,
2016.
On
December 1, 2016, Bidder H withdrew from the process.
Throughout the
first half of December 2016, the remaining six bidders continued
their diligence review of the Company.
On
December 19, 2016, a draft of the confidential disclosure schedules
to the merger agreement was made available in the electronic data
room.
On
December 19, 2016, Bidder D withdrew from the process.
On
December 20 and 21, 2016, respectively, non-binding proposals were
submitted by Bidder G and Parent together with each party’s
proposed changes to the draft merger agreement indicating the
potential buyer’s proposed terms. On December 21, 2016,
Bidder B informed William Blair that it was expecting to submit a
proposal on December 22, 2016. Bidder A and Bidder C did not submit
final proposals on December 20, 2016 and were removed from the
process.
Bidder
G proposed to acquire the Company at an enterprise value of $160
million. Based on the assumptions in Bidder G’s proposal,
including a deduction for Company debt of approximately $38.3
million, Bidder G’s proposed per share price for Common Stock
equated to $0.2556. Parent proposed to acquire the Company at an
enterprise value of $117 million. Based on the assumptions in
Parent’s proposal, including deductions for Company debt of
approximately $38.9 million and transaction expenses of $5 million,
Parent’s proposed per share price for Common Stock equated to
$0.15. Both proposals required the Company’s aggregate debt
outstanding at the closing and transaction expenses to be paid out
of the total consideration, and provided that the remaining
consideration was to be distributed to the Company’s
stockholders in accordance with the Company’s certificate of
incorporation. Bidder G’s proposal required the execution of
new agreements between certain members of Company management and
the Company as a condition to the consummation of the Merger, and
was subject to product durability testing, intellectual property
diligence and changes to the Company’s agreement with
Lowe’s. Parent’s proposal indicated that it intended to
enter into new agreements with certain members of Company
management team.
On
December 21, 2016, the Board met with William Blair to discuss the
key terms of both proposals. Prior to the meeting, a presentation
prepared by William Blair summarizing the marketing process, the
potential buyers’ progress on due diligence, and a summary of
the proposals that had been received was distributed to the Board
and Company management. The Board considered this information and
instructed William Blair and Paul Hastings to continue discussions
with Parent and Bidder G, focusing efforts primarily on Bidder G
due to Bidder G’s higher valuation.
On
December 23, 2016, Bidder B submitted a proposal to acquire the
Company for total consideration of $127 million, consisting of $40
million in cash at closing, assumption of $37.3 million of debt and
approximately $50 million contingent upon the achievement of
certain financial performance benchmarks over the five-year period
after closing. William Blair notified the Board of the proposal.
The Board considered the terms of Bidder B’s proposal and
directed William Blair to request that Bidder B submit an upfront
cash proposal, and if Bidder B did not elect to submit a revised
proposal, to notify Bidder B that it was not being selected to
advance in the process due to the contingent nature of a
significant portion of the total consideration in its proposal as
compared to the upfront cash proposals submitted by other
bidders.
In late
December 2016 and early January 2017, members of the Board and
Company management met with Paul Hastings to discuss Parent’s
and Bidder G’s proposed revisions to the draft merger
agreement and provided feedback on the issues raised by each
revised draft.
On
January 4, 2017, Bidder B communicated to William Blair that it
declined to revise its proposal and was removed from the
process.
On
January 4, 2017, Paul Hastings circulated to Bidder G’s
counsel a revised draft of the proposed merger
agreement.
On
January 5, 2017, Paul Hastings sent a list summarizing the key
issues arising out of Parent’s proposed revisions to the
draft merger agreement to Kilpatrick Townsend & Stockton LLP,
counsel to Parent (“Kilpatrick”), for
discussion.
On
January 9, 2017, representatives of Paul Hastings discussed with
representatives of Kilpatrick the issues identified in
Parent’s proposed revisions to the merger agreement which
included, among others, Parent’s proposed requirement that
H.I.G. deliver a stockholder written consent approving the proposed
merger in lieu of the Company holding a stockholder meeting, the
Company’s ability to consider other acquisition proposals in
accordance with its fiduciary duties, an increase in the
termination fee payable by the Company to Parent in the event that,
among other situations, the Company terminated the merger agreement
to enter into an alternative transaction from approximately 2.5% of
total consideration, or $2.9 million, to approximately 3% of total
consideration, or $3.5 million, and available remedies to the
Company if Parent improperly terminated the agreement.
On
January 10, 2017, Paul Hastings and counsel for Bidder G engaged in
further discussions regarding the merger agreement.
On
January 19, 2017, Bidder G’s counsel circulated a revised
draft of the merger agreement to Paul Hastings.
On
January 20, 2017, representatives of Paul Hastings and Bidder
G’s counsel discussed Bidder G’s revised draft of the
merger agreement, including among others: Bidder G’s addition
of numerous conditions to closing (including provisions that
allowed Bidder G not to close the merger if (i) certain diligence
was not completed to Bidder G’s sole and absolute discretion
related to (a) the Company’s intellectual property with
respect to upcoming products and (b) the Company’s products,
(ii) certain contracts were not renegotiated satisfactorily, (iii)
certain of the Company’s directors and officers had not
entered into agreements containing noncompetition and
non-solicitation provisions in favor of the Company, and (iv)
Bidder G’s board of directors had not approved the merger)
and the ability for the Company to consider other acquisition
proposals in accordance with its fiduciary duties. During the
discussion, Bidder G’s counsel indicated that Bidder G would
likely not be in a position to complete its due diligence for
several weeks.
On
January 23, 2017, members of the Board and Company management
discussed with Paul Hastings the remaining issues in Bidder
G’s proposed merger agreement as well as Bidder G’s
proposed timing. Also on January 23, 2017, representatives of Paul
Hastings and Bidder G’s counsel discussed Bidder G’s
revised draft of the merger agreement in an effort to resolve the
open points.
On
January 26, 2017, Bidder G withdrew from the process.
On
January 30, 2017, Paul Hastings circulated a revised draft of the
merger agreement with Parent to Kilpatrick.
On
February 6, 2017, the Board and Company management met with William
Blair. Prior to the meeting, a presentation prepared by William
Blair providing an update on the process and a summary of the
bidders who had participated in the process and withdrawn was
circulated to the Board and Company management. During the meeting,
a representative of William Blair reviewed the presentation with
the Board and Company management, and discussed Bidder G’s
withdrawal from the process and the status of Parent’s
proposal.
On
February 8, 2017, certain members of Parent’s management
visited certain of the Company’s properties and conducted
on-site due diligence, including meetings with Company
management.
On
February 9, 2017, representatives of Paul Hastings and Kilpatrick
discussed the revised draft of the merger agreement.
On
February 10, 2017, William Blair communicated to Stifel,
Parent’s financial advisor, that Parent could be granted
exclusivity in negotiations with the Company in exchange for an
increase in the enterprise value from $117 million to $125 million.
Parent declined to increase the enterprise value and was not
granted exclusivity.
On
February 14, 2017, Bidder A requested an update about the process
from William Blair and was provided with a business update
regarding the Company’s performance. Bidder A was not
responsive to subsequent communications.
On
February 17, 2017, Kilpatrick circulated a revised version of the
merger agreement to Paul Hastings, which included, among other
proposed changes, an increase in the termination fee payable to
Parent in the event that, among other situations, the Company
terminated the merger agreement to enter into an alternative
transaction from approximately 3% of total consideration, or $3.5
million, to approximately 4% of total consideration, or $4.7
million. From February 17, 2017 through February 20, 2017, members
of the Board and Company management discussed with Paul Hastings
the remaining issues in the proposed merger agreement. In addition,
in the revised draft, Parent continued to include a requirement
that H.I.G. deliver a stockholder written consent approving the
proposed merger in lieu of the Company holding a stockholder
meeting, but proposed to allow H.I.G. the right to revoke the
written consent if the Board, under certain circumstances, were to
change its recommendation or pursue a superior proposal within 30
days after the signing of the merger agreement.
On
February 21, 2017, the board of directors of CRH plc (of which
Parent is a subsidiary) met to discuss the proposed merger of
Parent with the Company. The board of directors of CRH plc, in
accordance with its internal policies regarding acquisitions,
authorized Parent’s management and representatives to
continue to negotiate the terms of the merger agreement with the
Company and its representatives.
On
February 22, 2017, Paul Hastings circulated a revised draft of the
merger agreement to Kilpatrick, which among other things, rejected
the increased termination fee.
On
February 22, 2017, Stifel communicated to William Blair that Parent
would require that certain members of Company management enter into
new employment agreements with Parent concurrently with the
execution of the merger agreement, which agreements would become
effective upon closing of the merger. Stifel also requested that
Parent be given exclusivity, and continued to periodically ask for
exclusivity through March 3, 2017, but Parent was not granted
exclusivity for any period of time.
On
February 23, 2017, members of Parent management met with members of
Company management to discuss the terms of the new management
employment agreements with Parent.
On
February 24, 2017, William Blair contacted Bidder G and indicated
that there was an opportunity to acquire the Company for an
enterprise value lower than the $160 million in its
proposal.
On
February 26, 2017, Kilpatrick circulated a list of open issues in
the revised draft of the merger agreement for discussion. On the
same date, members of the Board and representatives of Paul
Hastings discussed the issues outlined on the list provided by
Kilpatrick.
On
February 28, 2017, Kilpatrick communicated to Paul Hastings that
Parent would require Tim Morrison (Chief Executive Officer), Brian
Hanna (Chief Financial Officer), Randall Gottlieb (President) and
Brent Gwatney (Senior Vice President of Sales) to execute
employment agreements with Parent simultaneously with the execution
of the merger agreement.
Between
February 26, 2017 and March 3, 2017, representatives of Paul
Hastings and Kilpatrick had multiple conversations regarding the
outstanding issues in the merger agreement.
On
March 3, 2017, Kilpatrick circulated a revised draft of the merger
agreement to Paul Hastings, which among other things again proposed
to increase the termination fee to approximately 4% of total
consideration, or $4.7 million. Over the next several days,
representatives of Paul Hastings conferred with members of the
Board and Company management regarding the revised draft of the
merger agreement.
Also on
March 3, 2017, Kilpatrick sent to management’s counsel draft
employment agreements between Parent and each of Messrs. Morrison,
Hanna, Gwatney and Gottlieb, Gary Hobbs (Senior Engineer R&D),
Mary Jones (Controller), Rich Shields (Vice President Operations)
and Stormy Luttrell (Director of Purchasing and Logistics). Under
the terms of the revised draft of the merger agreement, execution
of these agreements was not a condition to the consummation of the
merger. Instead, Kilpatrick indicated that Parent intended to enter
into these agreements simultaneously with executing the merger
agreement, with such agreements to become effective upon the
closing of the merger.
On
March 7, 2017, representatives of Paul Hastings and Kilpatrick
discussed the revised draft of the merger agreement. On March 7,
2017, representatives of Paul Hastings and members of the Board
conferred regarding the remaining issues in the Merger
Agreement.
On
March 8, 2017, Paul Hastings circulated a revised version of the
Merger Agreement to Kilpatrick, which among other things accepted
the increased termination fee of approximately 4% of total
consideration, or $4.7 million.
On
March 8, 2017, Bidder G communicated to William Blair that it was
not interested in pursuing a transaction to acquire the Company,
even at a lower value than it had originally proposed.
From
March 11, 2017 through March 15, 2017, representatives from Paul
Hastings and Kilpatrick negotiated the remaining open points in the
merger agreement, including confirming the final per share merger
consideration of $0.135936 per share of Common Stock and
$2,603.483278 per share of Preferred Stock.
On
March 15, 2017, Paul Hastings provided a draft of the Merger
Agreement and the related documents to the Board. The Board called
for a meeting on March 16, 2017.
On
March 16, 2017, the Board approved by unanimous written consent the
amendment of the Company’s Certificate of Designations,
Preferences and Rights of the Series E Convertible Preferred Stock
(the “Charter Amendment”), and H.I.G., as the sole
stockholder of Preferred Stock, approved the amendment by written
consent. The amendment fixed the “Conversion Rate” for
the Preferred Stock in the event of a Fundamental Transaction (as
defined in the certificate of incorporation) occurring prior to
August 1, 2017 at 19,152.27. The amendment had the effect of
limiting the amount of dividends accruing on the Preferred Stock in
the event of such a Fundamental Transaction. The limit was
determined based on the amount of dividends that would accrue
between the potential signing date of the proposed merger agreement
(March 16, 2017) and the shortest period between signing and
consummation of the Merger possible under the terms of the proposed
merger agreement (30 days). If the Merger is consummated after such
date, H.I.G. will not realize the benefit of dividends that would
have otherwise accrued but for the adoption of the Amendment.
Parent requested that H.I.G. adopt the Charter Amendment in order
to facilitate the Merger. On March 16, 2017, representatives of
Kilpatrick finalized negotiations with counsel to management of the
Company regarding employment agreements that would become effective
upon consummation of the Merger.
On
March 16, 2017, the Board held a meeting via teleconference. Also
in attendance were members of Company management and
representatives of Paul Hastings and William Blair. A
representative of Paul Hastings made a presentation to the Board
that included a discussion of the Board’s fiduciary duties
under Delaware law. The Board discussed that certain members of the
Board had potential conflicts of interest, including the fact that
the two management directors would be entitled to receive
transaction bonuses in connection with the consummation of the
Merger and that they had received unsolicited offers of employment
from Parent and had negotiated employment agreements with Parent to
become effective upon closing. Paul Hastings’ representative
reviewed with the Board the legal terms of the merger agreement
submitted by Parent. Representatives of William Blair reviewed and
discussed with the Board financial information and analyses with
respect to the proposals from Parent. Then, at the request of the
Board, William Blair rendered to the Board an oral opinion,
confirmed by delivery of a written opinion dated March 16, 2017 to
the effect that, as of that date and based on and subject to the
assumptions, procedures, factors, qualifications and limitations
set forth in William Blair’s written opinion, the
consideration to be received by the holders of Common Stock (other
than the excluded persons) in the Merger pursuant to the terms of
the Merger Agreement was fair, from a financial point of view, to
such stockholders, as described in the section entitled
“
The Merger — Opinion
of William Blair, the Company’s Financial
Advisor
”. A discussion ensued following the
presentations by William Blair and Paul Hastings, and at the
conclusion of such discussions, the Board determined that pursuing
the proposed merger with Parent represented the greatest likelihood
of maximizing shareholder value. The Board unanimously approved the
Merger Agreement and the transactions contemplated thereby,
including the Merger, and recommended that the stockholders of the
Company approve and adopt the Merger Agreement and the transactions
contemplated thereby and that the Merger and the Merger Agreement
be submitted to the stockholders of the Company for
approval.
On March 16, 2017,
the board of directors of Parent approved the Merger and the Merger
Agreement, including all transactions contemplated
thereby.
On
March 16, 2017, the Company and Parent executed the Merger
Agreement, and on March 17, 2017, H.I.G., the holder of
approximately 85% of the voting power of the outstanding stock of
the Company, delivered the Written Consent.
Before
market open on March 17, 2017, the Company issued a press release
announcing the transaction.
In the
course of the Board making the determination described above in the
section entitled “
The
Merger—Background of the Merge
r,” the Board
consulted with other members of Company management, as well as the
Company’s legal and financial advisors, and considered the
following potentially positive factors, which are not intended to
be exhaustive and are not presented in any relative order of
importance:
●
the belief by the
Board that the Merger Consideration of $0.135936 per share reflects
the highest value per share of Company Common Stock reasonably
attainable in light of the sale process conducted by the Board, as
more fully described above in the section entitled
“
The Merger—Background
of the Merge
r”;
●
the fact that the
Board sought offers to purchase the Company from a broad group of
potential bidders, including strategic parties and financial
sponsors, 96 of whom entered into nondisclosure agreements and
received information relating to the Company;
●
the belief of the
Board that it has obtained the highest price per share for the
Common Stock that Parent is willing to pay as a result of extensive
negotiations with, and provision of due diligence materials and
information to, Parent;
●
the fact that after
the extensive discussions described above in the section entitled
“
The Merger—Background
of the Merge
r,” no alternative proposals were received
by the Company offering consideration competitive with the form and
amount of consideration proposed by Parent, and the fact that the
Board considered other strategic alternatives and partnerships
reasonably available to the Company (including the prospect of
continuing to operate as an independent company and the possibility
of growing its business through acquisitions and
organically);
●
the fact that the
Merger Consideration of $0.135936 per share of Common Stock to be
received by the stockholders of the Company in the Merger
represents a significant premium over the market price at which
shares of Common Stock traded prior to the announcement of the
execution of the Merger Agreement, including the fact that the
Merger Consideration of $0.135936 per share represented a premium
of approximately:
o
33.1% over the
closing price of shares of Common Stock on March 16, 2017, the last
trading day before the announcement of the execution of the Merger
Agreement;
o
29.9% over the
30-day average closing price of shares of Common Stock for the 30
days ended March 16, 2017, the last trading day before the
announcement of the execution of the Merger Agreement;
o
4.6% over the
highest price of shares of Common Stock of $0.130000 for the
52-week period ended March 16, 2017, the last trading day before
the announcement of the execution of the Merger Agreement;
and
o
117.5% over the
lowest price of shares of Common Stock of $0.062500 for the 52-week
period ended March 16, 2017, the last trading day before the
announcement of the execution of the Merger
Agreement;
●
the fact that the
Merger Consideration is all cash, which provides liquidity and
certainty of value to the stockholders of the Company immediately
upon the closing of the Merger in comparison to the risks and
uncertainty that would be inherent in continuing to operate as an
independent company and executing the Company’s business
plan;
●
the Company’s
current and historical financial condition, results of operations,
competitive position, strategic options and prospects, as well as
the financial plan and prospects if the Company were to remain an
independent public company and the potential impact of those
factors on the trading price of Common Stock (which cannot be
quantified numerically);
●
the prospective
risks to the Company if it were to remain as an independent public
company, including:
o
the risks and
uncertainties with respect to achieving the Company’s growth
plans in light of the current and foreseeable market
conditions;
o
the risks and
uncertainties with respect to attaining Company management’s
internal financial projections and that the Company’s actual
financial results in future periods could differ materially from
Company management’s forecasted results in both the near and
long term; and
o
the “Risk
Factors” set forth in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2016;
●
the oral opinion of
William Blair, which was confirmed by delivery of a written
opinion, dated March 16, 2017, and based upon and subject to the
assumptions, limitations, qualifications and conditions described
in William Blair’s written opinion, that the Merger
Consideration of $0.135936 in cash per share to be received in the
Merger by holders of Common Stock was fair, from a financial point
of view, to such holders (other than holders of dissenting shares),
and the financial analyses related thereto prepared by William
Blair and described below in the section entitled
“
The Merger—Opinion of
William Blair, the Company’s Financial
Advisor
”;
●
the support of
H.I.G. which controlled approximately 85% of the aggregate voting
power of the Company as of March 16, 2017 and will be receiving the
same form and amount of Merger Consideration for their shares of
Preferred Stock as if they converted all of their shares to shares
of Common Stock without any payment of a control premium, as
evidenced by its execution and delivery of the Written Consent
adopting and approving the Merger Agreement and the
Merger;
●
the fact that
H.I.G. could eventually decide to divest its holdings in the
Company, and the possibility that such sale could relate only to
its own stake, in lieu of a sale transaction in which all
stockholders would be entitled to participate, and the
Board’s belief that such a sale alone by H.I.G. could
potentially adversely impact the economic interests of our minority
stockholders;
●
the terms of the
Merger Agreement and the related agreements,
including:
o
Parent’s
obligation to complete the Merger is not subject to any financing
condition;
o
the provisions of
the Merger Agreement provide the Company with sufficient operating
flexibility to conduct its business in the ordinary course of
business consistent with past practice between the signing of the
Merger Agreement and the closing of the Merger;
o
the inclusion of
provisions that allowed the Board, under certain circumstances, to
consider and respond to unsolicited bona fide written Acquisition
Proposals or furnish information to and engage in discussions or
negotiations with the person making such Acquisition Proposals,
subject to certain notice and other requirements, and until April
15, 2017 to terminate the Merger Agreement in order to accept a
superior proposal, subject to certain notice requirements and other
conditions and the requirement that the Company pay the termination
fee as more fully described in the section entitled
“
The Merger Agreement
— Termination of the Merger Agreement
” beginning
on page 57;
o
our ability to
terminate the Merger Agreement in order to accept a financially
superior proposal, subject to paying the termination fee, which the
Board determined was reasonable in light of, among other things,
the benefits of the Merger to the stockholders of the Company, the
typical size of such fees in similar transactions and the
likelihood that a fee of such size would not preclude or
unreasonably restrict the emergence of alternative transaction
proposals as more fully described in “
The Merger Agreement — Effect of
Termination; Termination Fee; Reverse Termination Fee
”
beginning on page 58; and
o
our ability to
collect the reverse termination fee, if Parent does not consummate
the Merger under certain circumstances, as more fully described in
“
The Merger Agreement
— Effect of Termination; Termination Fee; Reverse Termination
Fee
” beginning on page 58;
●
the fact that the
Merger Agreement contains customary terms and was the product of
arm’s-length negotiations;
●
the belief that
several factors increased the likelihood that the Merger would be
completed, including:
o
the experience,
reputation and financial resources of Parent;
o
the fact that the
consent of H.I.G., which had been involved with the negotiation
process, was sufficient to adopt the Merger Agreement without the
need for a meeting of stockholders;
o
the fact that the
Board did not expect there to be significant antitrust or other
regulatory impediments to the closing of the Merger;
and
o
the limited
conditions to closing and the fact that the satisfaction of those
conditions was, in the view of the Board, likely attainable by May
31, 2017; and
●
the availability of
appraisal rights to the holders of Common Stock who properly
exercise their statutory rights under Section 262 of the DGCL (see
the section entitled “
Appraisal Rights
” beginning on
page 62 and Annex C).
The
Board also considered and balanced against the potentially positive
factors a number of potentially negative factors concerning the
Merger, including the following factors which are not intended to
be exhaustive and are not presented in any relative order of
importance:
●
the fact that
following the completion of the Merger, the Company will no longer
exist as an independent public company and that the Company’s
existing stockholders will not be able to participate in any future
earnings or growth of the Company, or in any future appreciation in
value of shares of Common Stock;
●
the fact that the
Merger Consideration consists of cash and will therefore be taxable
to the stockholders of the Company for U.S. federal income tax
purposes;
●
the restrictions on
the Company’s ability to solicit or engage in discussions or
negotiations with a third party regarding an Acquisition Proposal
and the requirement that the Company pay Parent the termination fee
if the Board accepts a superior proposal;
●
the possible
effects on the Company of the pendency or consummation of the
transactions contemplated by the Merger Agreement, including the
possibility of disruption to the Company’s business,
distraction of Company management’s attention from day-to-day
operations of the business, the Company’s ability to attract
and retain key employees during the pendency of the Merger, and any
suit, action or proceeding in respect of the Merger Agreement or
the transactions contemplated by the Merger Agreement;
●
the fact that,
while the Merger is expected to be completed, there are no
assurances that all conditions to the parties’ obligations to
complete the Merger will be satisfied or waived, and as a result,
it is possible that the Merger may not be completed, as described
under the section entitled“
The Merger Agreement — Conditions to
Completion the Merger
” beginning on page
55;
●
the fact that the
Company has incurred and will incur substantial expenses related to
the transactions contemplated by the Merger Agreement, regardless
of whether the Merger is consummated;
●
the fact that the
Merger Agreement prohibits the Company from taking a number of
actions relating to the conduct of its business prior to the
closing without the prior written consent of Parent, which may
delay or prevent the Company from undertaking business
opportunities that may arise during the pendency of the Merger,
whether or not the Merger is completed; and
●
certain execution
risks relating to the consummation of the Merger, including the
occurrence of any event, change or other circumstances that could
give rise to the termination of the Merger Agreement, and the
failure to satisfy conditions to completion of the Merger,
including receipt of regulatory approvals and any adverse
litigation or regulatory developments.
During
its consideration of the transaction with Parent, the Board was
also aware of and considered that the Company’s directors and
executive officers may have interests in the Merger that differ
from, or are in addition to, their interests as stockholders of the
Company generally, as described below under the section entitled
“
The Merger —
Interests of the Company’s Directors and Executive Officers
in the Merger
” beginning on page 35.
The
Board concluded that the potentially negative factors associated
with the Merger were outweighed by the potential benefits that it
expected stockholders of the Company would receive as a result of
the Merger, including the belief of the Board that the Merger would
maximize the immediate value of the Common Stock and eliminate the
risks and uncertainties affecting the future prospects of the
Company if it were to continue as an independent public company.
The foregoing discussion of the factors considered by the Board is
not intended to be exhaustive, but summarizes the material
information and factors considered by the Board in its
consideration of the Merger. The Board reached the decision to
approve the Merger Agreement and the transactions contemplated
thereby, including the Merger, and recommend that the
Company’s stockholders adopt the Merger Agreement, in light
of the factors described above and other factors the Board felt
were appropriate. In view of the variety of factors and the quality
and amount of information considered, the Board did not find it
practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its
determination and individual members of the Board may have given
different weights to different factors. The Board conducted an
overall analysis of the factors described above, including thorough
discussions with, and questioning of, Company management, William
Blair and Paul Hastings, as financial and legal advisor,
respectively, and considered the factors overall to be favorable
to, and to support, its determination. The explanation of the
Board’s reasoning and certain information presented in this
section is forward-looking in nature and should be read in light of
the factors set forth in the section entitled “
Cautionary Statement Concerning
Forward-Looking Statements
” beginning on page
12.
Certain
Company Forecasts
The
Company does not as a matter of general practice develop or
publicly disclose forecasts or internal projections of its future
performance, revenues, earnings, financial condition or other
results due to, among other reasons, the uncertainty of the
underlying assumptions and estimates. However, certain financial
projections were prepared by Company management and made available
to the Board in connection with the Board’s consideration of
a sale of the Company, to William Blair in connection with its
rendering of a fairness opinion and to Parent in connection with
its due diligence review of the Company.
In
September 2016, Company management prepared projections of certain
financial information of the Company for 2016 through 2021. The
financial projections were made available to the Board and William
Blair and included in the confidential information presentation
provided to potential buyers in September and October 2016. Prior
to the presentations to potential buyers by Company management in
November 2016, Company management made certain adjustments to the
original financial projections which reflected higher sales of
products which had not yet been introduced to the market and these
adjusted financial projections were included in the management
presentations. Based on feedback from potential buyers that they
had discounted the adjusted financial projections prepared by
Company management in November 2016, in particular with respect to
sales of new products, Company management no longer considered the
adjusted financial projections to be reliable and viewed the
financial projections prepared in September 2016 to be the most
reliable financial projections reasonably available for the Company
as of March 16, 2017 (disregarding the financial projections for
the year ended December 31, 2016 which had since been superseded by
actual results for such period) (the “Forecasts”).
Accordingly, the Board instructed William Blair to utilize the
Forecasts in connection with the preparation of its fairness
opinion described below under the heading “
—Opinion of William Blair, the
Company’s Financial Advisor
.”
While
presented with numerical specificity, the Forecasts necessarily
were based on numerous variables and assumptions, including, but
not limited to, those relating to industry performance, general
business, economic, regulatory, market and financial conditions and
other future events, as well as matters specific to the
Company’s business, all of which are difficult to predict and
many of which are beyond the Company’s control. As a result,
there can be no assurance that the projected results will be
realized or that actual results will not be significantly higher or
lower than projected. Since the Forecasts cover multiple years,
such information by its nature becomes less reliable with each
successive year. As such, the Forecasts constitute forward-looking
information and are subject to a number of risks and uncertainties,
including but not limited to risks and uncertainties relating to
the Company’s business, industry performance, general
business and economic conditions and other factors described in the
section entitled “
Cautionary
Statement Concerning Forward-Looking Statements
”
beginning on page 12, as well as the other risks described in the
Company’s Form 10-K for the year ended December 31, 2016
attached hereto as Annex D.
The
Forecasts were prepared solely for internal use and not with a view
toward public disclosure or toward complying with U.S. generally
accepted accounting principles (“GAAP”), the published
guidelines of the SEC regarding projections or the guidelines
established by the American Institute of Certified Public
Accountants for preparation and presentation of prospective
financial information. Neither the Company’s independent
registered public accounting firm, nor any other independent
accountants, have compiled, examined or performed any procedures
with respect to the Forecasts, nor have they expressed any opinion
or any other form of assurance on such information or its
achievability, and they assume no responsibility for, and disclaim
any association with, the Forecasts. Furthermore, the Forecasts do
not take into account any circumstances or events occurring after
the date they were prepared. Nonetheless, a summary of the
Forecasts prepared by Company management
is provided in this information
statement only because these Forecasts were made available to
Parent and also to the Board and William Blair. The Forecasts are
not fact and should not be relied upon as being necessarily
indicative of future results, and readers of this information
statement are cautioned not to place undue reliance on this
information and to review the Company’s Form 10-K for the
year ended December 31, 2016 attached hereto as Annex D and its
most recent SEC filings for a description of the Company’s
reported financial results.
The
following table presents a summary of the Forecasts, as described
above:
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
$
94.7
|
$
104.8
|
$
114.3
|
$
119.4
|
$
123.6
|
|
COGS
|
69.0
|
74.2
|
79.1
|
81.1
|
82.8
|
|
Gross
Profit
|
25.7
|
30.5
|
35.3
|
38.3
|
40.8
|
|
SG&A
Expenses
|
13.6
|
14.6
|
15.5
|
16.1
|
16.6
|
|
Other Operating
Income (Expenses)
|
-
|
-
|
-
|
-
|
-
|
|
EBIT
(1)
|
12.1
|
16.0
|
19.7
|
22.2
|
24.2
|
|
Interest Income
(Expenses)
(2)
|
(2.9
)
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Other Income
(Expenses)
(2)
|
-
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Net Income Before
Taxes
(2)
|
$
9.2
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Income
Taxes
(2)
|
2.7
|
N/A
|
N/A
|
N/A
|
N/A
|
|
Net
Income
(2)
|
$
6.5
(3)
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
|
|
|
|
|
|
EBITDA
(4)
|
$
16.9
|
$
21.3
|
$
25.6
|
$
28.3
|
$
30.4
|
|
|
|
|
|
|
|
|
CapEx
|
$
3.3
|
$
3.6
|
$
2.2
|
$
2.5
|
$
1.1
|
(1)
EBIT was calculated
as net income before interest income (expenses) and income taxes.
EBIT is a non-GAAP financial measure and may be different from EBIT
used by other companies.
(2)
Company management
did not prepare projections of interest income (expenses), other
income (expenses), net income before taxes, income taxes or net
income for 2018 through 2021.
(3)
Excludes tax
affected expense on Preferred Stock.
(4)
EBITDA was
calculated as net income before interest income (expenses), income
taxes, depreciation and amortization. EBITDA is a non-GAAP
financial measure and may be different from EBITDA used by other
companies.
At the
direction of the Board, William Blair calculated the change in net
working capital for each period based on the Forecasts for use in
William Blair’s analyses, which calculations were approved by
Company management. The change in net working capital for the years
ending December 31, 2017 through 2021 used by William Blair in its
analyses were $2.3 million, $1.9 million, $1.8 million, $0.9
million and $0.8 million, respectively.
No
representation is made by the Company, William Blair or their
respective affiliates, officers, directors or other
representatives, or any other person to any stockholder of the
Company or any other person regarding the ultimate performance of
the Company compared to the information included in the Forecasts.
The inclusion of information regarding the Forecasts in this
information statement should not be regarded as an indication that
the Forecasts will be an accurate prediction of future events, and
it should not be relied on as such. Except to the extent required
by federal securities laws, neither the Company nor any of its
affiliates, financial advisors or representatives intends to, and
each of them disclaims any obligation to, update, revise or correct
the Forecasts to reflect circumstances existing after the date when
made or to reflect the occurrence of future events, even in the
event that any or all of the assumptions underlying the Forecasts
are shown to be in error or no longer appropriate.
The
Forecasts contain non-GAAP financial measures. Company management
believes such measures are helpful in understanding forecasts of
the Company’s future results. These non-GAAP financial
measures constitute forward-looking information, and the Company
believes that a quantitative reconciliation of such forward-looking
information to the most comparable financial measure calculated and
presented in accordance with GAAP cannot be made available without
unreasonable efforts. Non-GAAP financial measures should not be
considered in isolation from, or as a substitute for, financial
information presented in accordance with GAAP. You are encouraged
to review all of the Company’s financial statements and
publicly-filed reports in their entirety and to not rely on any
single financial measure.
Opinion
of William Blair, the Company’s Financial
Advisor
William
Blair was retained to act as financial advisor to the Board in
connection with the possible sale of the Company. As part of its
engagement, the Board requested that William Blair render an
opinion to the Board as to whether the Merger Consideration to be
received by the holders of Common Stock
(other than holders of dissenting shares)
was fair to such stockholders, from a financial point of view. On
March 16, 2017, William Blair delivered its oral opinion to the
Board and subsequently confirmed in writing that, as of March 16,
2017 and based upon and subject to the assumptions, qualifications
and limitations stated therein, the Merger Consideration to be
received by the holders of Common Stock
(other than holders of dissenting shares)
was fair to such stockholders, from a financial point of
view.
The full text of William
Blair’s written opinion, dated
March 16, 2017
, is attached as Annex B to
this information statement and incorporated herein by reference.
You are urged to read the entire opinion carefully and in its
entirety to learn about the assumptions made, procedures followed,
matters considered and limits on the scope of the review undertaken
by William Blair in rendering its opinion. The analysis performed
by William Blair should be viewed in its entirety; none of the
methods of analysis should be viewed in isolation. William
Blair’s fairness opinion was directed to the Board for its
benefit and use in evaluating the fairness of the Merger
Consideration to be received pursuant to the Merger Agreement and
relates only to the fairness, as of the date of William
Blair’s fairness opinion and from a financial point of view,
of the Merger Consideration to be received by the
holders of Common Stock
(other than holders
of dissenting shares) in the Merger pursuant to the Merger
Agreement. William Blair’s fairness opinion does not address
any other aspects of the Merger or any related transaction, and
does not constitute a recommendation to any of the
holders of Common Stock
with respect to the
Merger Agreement or the Merger. William Blair did not address the
merits of the underlying decision by the Company to engage in the
Merger. The following summary of William Blair’s fairness
opinion is qualified in its entirety by reference to the full text
of William Blair’s fairness opinion attached as Annex B to
this information statement and incorporated herein by
reference.
In
connection with William Blair
’
s fairness opinion, William Blair
examined or discussed, among other things:
|
|
●
|
|
a draft
of the Merger Agreement dated March 15, 2017;
|
|
|
●
|
|
audited
historical financial statements of the Company for the two fiscal
years ended December 31, 2014 and 2015;
|
|
|
●
|
|
unaudited financial
statements of the Company for the year ended December 31,
2016;
|
|
|
●
|
|
a draft
dated March 10, 2017 of the Company’s Annual Report on Form
10-K for the year ended December 31, 2016;
|
|
|
●
|
|
certain
internal business, operating and historical financial information
of the Company prepared by Company management;
|
|
|
●
|
|
the
Forecasts prepared by Company management and sensitivity analysis
relating to the Forecasts prepared by William Blair at the
direction of and approved by the Board relating thereto (the
“Sensitivities”);
|
|
|
●
|
|
certain
information regarding publicly available financial terms of certain
other business combinations William Blair deemed
relevant;
|
|
|
●
|
|
the
financial position and operating results of the Company compared
with those of certain other publicly traded companies William Blair
deemed relevant;
|
|
|
●
|
|
the
current and historical market prices and trading volumes of the
shares of Common Stock; and
|
|
|
●
|
|
certain
other publicly available information on the Company.
|
William
Blair also held discussions with members of the senior management
of the Company to discuss the foregoing, considered other matters
that it deemed relevant to its inquiry and took into account such
accepted financial and investment banking procedures and
considerations as it deemed relevant. In connection with its
engagement, William Blair was requested to approach, and held
discussions with, third parties to solicit indications of interest
for a possible acquisition of the Company.
In
rendering its opinion, William Blair assumed and relied, without
independent verification, upon the accuracy and completeness of all
the information examined by or otherwise reviewed or discussed with
William Blair for purposes of William Blair
’
s fairness opinion including,
without limitation, the Forecasts prepared and provided by the
senior management of the Company, and William Blair assumed no
responsibility or liability therefor. William Blair did not make or
obtain an independent valuation or appraisal of the assets,
liabilities or solvency of the Company. William Blair was advised
by the senior management of the Company that the Forecasts examined
by William Blair were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior
management of the Company, and at the direction of the Board,
William Blair also applied the Sensitivities to the Forecasts. In
that regard, William Blair assumed, with the consent of the Board,
that (i) the Forecasts will be achieved in the amounts and at the
times contemplated thereby, taking into account the application of
the Sensitivities, and (ii) all material assets and liabilities
(contingent or otherwise) of the Company are as set forth in the
Company
’
s financial
statements or other information made available to William Blair.
William Blair expressed no opinion with respect to the Forecasts,
the Sensitivities or the estimates and judgments on which they were
based, or the assumptions in or results of the sensitivity
analysis. Refer to the section above entitled “
—Certain Company Forecasts
”
for more information about the Forecasts. William Blair did not
consider and expressed no opinion as to the amount or nature of the
compensation to any of the Company
’
s officers, directors or employees
(or any class of such persons) relative to the Merger Consideration
payable to the holders of Common Stock. In addition, William Blair
expressed no opinion as to any terms or other aspects of the Merger
(other than the Merger Consideration to the extent specified
herein) including, without limitation, the form or structure of the
Merger, or the tax or accounting consequences thereof. William
Blair
’
s fairness opinion
was based upon economic, market, financial and other conditions
existing on, and other information disclosed to William Blair as
of, the date of the fairness opinion. Although subsequent
developments may affect its opinion, William Blair does not have
any obligation to update, revise or reaffirm William
Blair
’
s fairness opinion.
William Blair assumed in rendering its opinion that the Merger
would be consummated on the terms described in the Merger
Agreement, without any waiver of any material terms or conditions
by the Company.
William
Blair
’
s investment
banking services and its opinion were provided for the use and
benefit of the Board in connection with its consideration of the
Merger contemplated by the Merger Agreement. William
Blair
’
s opinion was
limited to the fairness, from a financial point of view, to the
holders of Common Stock
(other than
holders of dissenting shares)
of the Merger Consideration in
connection with the Merger, and William Blair did not address the
merits of the underlying decision by the Company to engage in the
Merger and William Blair
’
s fairness opinion does not
constitute a recommendation to any holder of Common Stock with
respect to the Merger.
The following is a summary of the material financial analyses
performed and material factors considered by William Blair to
arrive at its opinion. William Blair performed certain procedures,
including each of the financial analyses described below, and
reviewed with the Board the assumptions upon which such analyses
were based, as well as other factors. Although the summary does not
purport to describe all of the analyses performed or factors
considered by William Blair in this regard, it does set forth those
considered by William Blair to be material in arriving at William
Blair’s fairness opinion. The financial analyses summarized
below include information presented in tabular format. In order to
fully understand the financial analyses performed by William Blair,
the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the
financial analyses performed by William Blair. Considering the data
set forth in the tables below without considering 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 financial analyses performed
by William Blair. The order of the summaries of the analyses
described below does not represent the relative importance or
weight given to those analyses by William Blair.
Selected Public Company Analysis
William
Blair reviewed and compared certain financial information relating
to the Company to corresponding financial information, ratios and
public market multiples for eighteen publicly traded companies
within the building materials sector that William Blair deemed
relevant. The companies selected by William Blair were; (i)
American Woodmark, (ii) Armstrong, (iii) Fortune Brands, (iv)
Gibraltar Industries, (v) Griffon Corporation, (vi) Lennox
International, (vii) MASCO, (viii) Owens Corning, (ix) Quanex, (x)
Saint-Gobain, (xi) USG, (xii) Acuity Brands, (xiii) Apogee, (xiv)
James Hardie, (xv) PGT, (xvi) Simpson Manufacturing Company, (xvii)
Trex, and (xviii) Ply Gem.
Among
the information William Blair considered were net revenue, adjusted
earnings before interest, taxes, depreciation and amortization
(
“
EBITDA
”
) and net income. In calculating
adjusted EBITDA, William Blair adjusted for certain non-recurring,
non-operating and non-cash items, as applicable. William Blair
considered the enterprise value as a multiple of net revenue and
adjusted EBITDA for each company for the last 12-month
(
“
LTM
”
) period for which results were
publicly available. William Blair also considered the equity value
as a multiple of calendar year 2017 estimated (
“
CY 2017E
”
) net income for each company for
which estimates were publicly available (seventeen of the eighteen
companies in the selected public company analysis). The operating
results and the corresponding derived multiples for the selected
public companies were based on each company
’
s most recent publicly available
financial information and closing stock prices as of March 13,
2017. William Blair then used the implied enterprise value and the
equity value based on the terms of the Merger to derive implied
valuation multiples for the Company based on net revenue and
adjusted EBITDA for the LTM period and the estimated net income for
CY 2017E which was included in the Forecasts. EBITDA of the Company
was adjusted for, among other things, business interruption, gain
on sale of assets and other non-recurring items. William Blair then
compared the multiples implied for the Company based on the terms
of the Merger to the range of trading multiples for the selected
public companies. Although William Blair compared the trading
multiples of the selected public companies to those implied for the
Company, none of the selected public companies is directly
comparable to the Company. Accordingly, any analysis of the
selected public companies involves considerations and judgments
concerning the differences in financial and operating
characteristics and other factors that would affect the analysis of
trading multiples of the selected public companies. Information
regarding the multiples derived from William Blair
’
s selected public company analysis
is set forth in the following tables:
|
|
|
|
Selected Public Companies
|
|
|
|
Implied Transaction Multiple
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/LTM Revenue
|
1.07
x
|
1.28
x
|
0.81
x
|
1.95
x
|
1.68
x
|
4.39
x
|
|
Enterprise
Value/LTM Adjusted EBITDA
|
6.3
x
|
7.5
x
|
7.9
x
|
11.1
x
|
10.1
x
|
17.1
x
|
|
Equity
Value/CY2017E Net Income
|
8.2
x
|
10.0
x
|
15.8
x
|
20.3
x
|
19.0
x
|
31.1
x
|
(1) Based on the Company’s revenue and adjusted EBITDA, as
applicable, for the year ended December 31, 2016.
William
Blair noted for the Board that the implied multiple for the Merger
was within the range of revenue multiples for the selected public
companies. Also, William Blair noted for the Board that the implied
multiples for the Merger were below the range of adjusted EBITDA
and net income multiples for the selected public companies. In
addition, William Blair noted for the Board that the companies
selected by William Blair had much larger market capitalizations
than the Company and, to the knowledge of William Blair, did not
have a similar level of customer concentration as the
Company.
Selected Precedent Transactions Analysis
William
Blair performed an analysis of selected precedent transactions
consisting of 11 transactions closed since 2010 within the building
materials sector that involved the acquisition of companies William
Blair deemed relevant. William Blair
’
s analysis was based on publicly
available information regarding such transactions. William Blair
did not take into account any announced or consummated transaction
for which relevant financial information was not publicly disclosed
and available. The selected transactions were not intended to be
representative of the entire range of possible transactions in the
respective industries. The transactions that were examined were
(target/
buyer
(date
closed)):
(i)
Icopal /
Standard
Industries
(January 2016);
(ii)
Anthony Forest
Products /
Canfor
Corporation
(September 2015);
(
iii
)
Woodcraft
Industries /
Quanex Building
Products
(August 2015);
(iv)
Norcraft /
Fortune
Brands
(March 2015);
(v)
IVC Group /
Mohawk Industries,
Inc.
(January 2015);
(vi)
Simonton Companies
/
Ply Gem Industries
(August 2014);
(
vii
)
Pactiv Building
Products /
Kingspan
(August
2014);
(
viii
)
CPG International /
Ares Management
(August
2013);
(ix)
WoodCrafters Home
Products /
Fortune Brands
(April 2013);
(x)
Crane Plastics
Siding /
Royal
Mouldings
(February 2011); and
(xi)
Associated
Materials /
Hellman & Friedman
(September 2010).
William
Blair reviewed the consideration paid in the selected transactions
in terms of the enterprise value of the target as a multiple of its
revenue and adjusted EBITDA for the LTM period prior to the
announcement of the respective transaction. William Blair compared
the resulting range of transaction multiples of revenue and
adjusted EBITDA for the selected transactions to the implied
transaction multiples of LTM net revenue and adjusted EBITDA for
the Company based on the terms of the Merger. The following table
presents the results of this analysis:
|
|
Implied Transaction Multiple
|
|
|
|
|
|
Enterprise
Value/LTM Revenue
|
1.28
x
|
0.43
x
|
1.26
x
|
1.15
x
|
3.05
x
|
|
Enterprise
Value/LTM Adjusted EBITDA
|
7.5
x
|
5.6
x
|
8.7
x
|
8.0
x
|
12.9
x
|
William
Blair noted for the Board that the implied revenue and adjusted
EBITDA multiples for the Merger were within the range of revenue
and adjusted EBITDA multiples for the selected precedent
transactions.
Although William
Blair analyzed the multiples implied by the selected transactions
and compared them to the implied transaction multiples of the
Company, none of these transactions or associated companies is
identical to the Company or the Merger as contemplated by the
Merger Agreement. Accordingly,any analysis of the selected
transactions necessarily involved complex considerations and
judgments concerning the differences in financial and operating
characteristics, parties involved and terms of their transactions
and other factors that would necessarily affect the implied value
of the Company versus the values of the companies in the selected
transactions.
Discounted Cash Flow Analysis
Based
solely on the Forecasts (as modified by the Sensitivities),
information and assumptions provided by Company management, William
Blair performed a discounted cash flow analysis of the
Company’s projected free cash flows for the fiscal years
ending December 31, 2017 through December 31, 2021. At the
direction of the Board, William Blair
calculated
,
based on the Forecasts
,
free cash flow for each period as adjusted earnings before interest
and taxes (“EBIT”) less taxes, less capital
expenditures and plus or less change in working capital, as
applicable, which calculations were approved by Company management.
Using discounted cash flow methodology, William Blair calculated
the present values of the projected free cash flows for the
Company. In this analysis, William Blair estimated a terminal value
by utilizing a range of fiscal year 2021 EBITDA exit multiples of
7.0x to 9.0x and assumed discount rates ranging from 17.0% to
21.0%. The terminal multiples range was derived from the relevant
multiple ranges of the selected precedent transaction analysis. The
discount rate range was derived based upon a weighted average cost
of capital using the capital asset pricing model.
William
Blair aggregated the present value of the free cash flows over the
applicable forecast period with the present value of the range of
terminal values to arrive at an implied enterprise value range.
William Blair derived a range of implied equity value per share by
deducting the Company’s net debt as of December 31, 2016 and
transaction bonuses from the resulting enterprise value range and
dividing such amount by the Company’s total diluted shares
outstanding per a draft schedule of the Merger Consideration as of
March 15, 2017. At the direction of the Board, due to a large
percentage of the Company’s growth being attributable to new
products and the feedback received from potential purchasers
indicating that they discounted certain financial projections
prepared by Company management, William Blair applied the
Sensitivities to the Forecasts. The Sensitivities applied average
revenue growth rates for the years 2017 through 2021 ranging from
4.0% to 8.0%, rather than assumptions used in the Forecasts of
projected revenue growth of 7.7% for the years 2017 through 2021.
The Sensitivities also applied average EBITDA margins for the years
2017 through 2021 ranging from 18.0% to 22.0%, rather than the LTM
adjusted EBITDA margin of 17.0% and average EBITDA margin of 21.8%
from estimated calendar years 2017 through 2021 used in the
Forecasts. This analysis resulted in a range of implied equity
values of $0.157273 to $0.253292 per share of Common Stock based
solely on the Forecasts and a range of $0.113171 to $0.183121 per
share of Common Stock based on the Forecasts as modified by the
Sensitivities, as compared to the Merger Consideration of $0.135936
per share of Common Stock.
Leveraged Buyout Analysis
Based on the Forecasts (as modified by the
Sensitivities),
William Blair performed a leveraged buyout
analysis and projected illustrative implied purchase prices at
which a leveraged buyout of the Company could occur for a potential
investor. In this analysis, William Blair estimated a terminal
value by utilizing a range of fiscal year 2021 EBITDA multiples of
7.0x to 9.0x and assumed internal rate of returns ranging from
22.5% to 27.5%. The terminal multiples range was derived from the
relevant multiple ranges of the selected publicly traded companies
analysis and the selected precedent transactions analysis. The
internal rate of return was derived by William Blair utilizing its
professional judgment and experience.
At the direction of
the Board, due to a large percentage of the Company’s growth
being attributable to new products and the feedback received from
potential purchasers indicating that they discounted certain
financial projections prepared by Company management, William Blair
applied the Sensitivities to the Forecasts in the same manner as in
the discounted cash flow analysis described above. This analysis
resulted in a range of implied purchase prices of $0.117117 to
$0.185371 per share of Common Stock based solely on the Forecasts
and a range of $0.082053 to $0.134079 per share of Common Stock
based on the Forecasts as modified by the Sensitivities, as
compared to the Merger Consideration of $0.135936 per share of
Common Stock.
M&A Premiums Paid Analysis
William
Blair reviewed data from 187 public U.S. target transactions
occurring after January 1, 2012 in which 100% of the target’s
equity was acquired at an equity value between $25 million and $100
million, excluding transactions involving closed-end funds or
REITs. Specifically, William Blair analyzed the acquisition price
per share as a premium to the closing stock price one day, one
week, one month, 90 days, 180 days, 270 days and 365 days prior to
the announcement of each transaction. William Blair compared the
range of resulting per share stock price premiums for the reviewed
transactions to the premium implied by the Merger Consideration
pursuant to the Merger Agreement based on the closing stock price
of the Common Stock one day, one week, one month, 90 days, 180
days, 270 days and 365 days prior to March 13, 2017, four days
prior to the public announcement of the Merger. Information
regarding the premiums from William Blair
’
s analysis of selected transactions
is set forth in the following table:
Premiums Paid Relative to March 13, 2017
|
|
AERT
Common
Stock Price
|
|
Premium at $0.135936/ Per Share
|
|
|
Premiums Paid Data Percentile
|
|
|
Period
|
|
|
|
10th
|
|
|
20th
|
|
|
30th
|
|
|
40th
|
|
|
50th
|
|
|
60th
|
|
|
70th
|
|
|
80th
|
|
|
90th
|
|
|
One Day Prior
|
|
$0.12
|
|
|
13.3%
|
|
|
|
8.1%
|
|
|
|
15.0%
|
|
|
|
23.2%
|
|
|
|
31.5%
|
|
|
|
43.9%
|
|
|
|
56.1%
|
|
|
|
66.7%
|
|
|
|
78.3%
|
|
|
|
103.6%
|
|
|
One Week Prior
|
|
$0.10
|
|
|
34.6%
|
|
|
|
8.5%
|
|
|
|
17.1%
|
|
|
|
24.5%
|
|
|
|
31.7%
|
|
|
|
43.2%
|
|
|
|
57.2%
|
|
|
|
66.7%
|
|
|
|
80.3%
|
|
|
|
103.6%
|
|
|
One Month Prior
|
|
$0.10
|
|
|
35.4%
|
|
|
|
4.1%
|
|
|
|
18.6%
|
|
|
|
28.0%
|
|
|
|
33.7%
|
|
|
|
43.3%
|
|
|
|
55.4%
|
|
|
|
69.4%
|
|
|
|
81.7%
|
|
|
|
103.7%
|
|
|
90-Days Prior
|
|
$0.08
|
|
|
67.8%
|
|
|
|
1.5%
|
|
|
|
17.7%
|
|
|
|
28.0%
|
|
|
|
37.3%
|
|
|
|
48.1%
|
|
|
|
57.9%
|
|
|
|
74.8%
|
|
|
|
84.6%
|
|
|
|
135.4%
|
|
|
180-Days Prior
|
|
$0.07
|
|
|
87.5%
|
|
|
|
4.4%
|
|
|
|
19.9%
|
|
|
|
28.7%
|
|
|
|
36.5%
|
|
|
|
47.7%
|
|
|
|
58.6%
|
|
|
|
76.1%
|
|
|
|
90.3%
|
|
|
|
147.3%
|
|
|
270-Days Prior
|
|
$0.07
|
|
|
94.2%
|
|
|
|
0.2%
|
|
|
|
18.7%
|
|
|
|
29.7%
|
|
|
|
40.9%
|
|
|
|
50.7%
|
|
|
|
66.3%
|
|
|
|
83.9%
|
|
|
|
98.1%
|
|
|
|
143.9%
|
|
|
365-Days Prior
|
|
$0.07
|
|
|
93.9%
|
|
|
|
(2.3%)
|
|
|
|
15.0%
|
|
|
|
29.9%
|
|
|
|
41.8%
|
|
|
|
56.2%
|
|
|
|
67.7%
|
|
|
|
80.7%
|
|
|
|
101.9%
|
|
|
|
159.7%
|
|
William
Blair noted for the Board that (i) the premium of the per share
Merger Consideration to the Company’s closing stock price one
day prior to March 13, 2017 was above the 10th percentile and below
the 20th percentile of the analyzed precedent public transactions;
(ii) the premium of the per share Merger Consideration to the
Company’s closing price stock one week and one month prior to
March 13, 2017 was above the 40th percentile and below the 50th
percentile of the analyzed precedent public transactions; (iii) the
premium of the per share Merger Consideration to the
Company’s closing stock price 90 days prior to March 13, 2017
was above the 60th percentile and below the 70th percentile of the
analyzed precedent public transactions; and (iv) the premium of the
per share Merger Consideration to the Company’s closing stock
price 180 days, 270 days and 365 days prior to March 13, 2017 was
above the 70th percentile and below the 80th percentile of the
analyzed precedent public transactions.
General
This
summary is not a complete description of the analysis performed by
William Blair, but contains the material elements of the analysis.
The preparation of an opinion regarding fairness is a complex
process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and, therefore, such
an opinion is not readily susceptible to partial analysis or
summary description. The preparation of an opinion regarding
fairness does not involve a mathematical evaluation or weighing of
the results of the individual analyses performed, but requires
William Blair to exercise its professional judgment, based on its
experience and expertise, in considering a wide variety of analyses
taken as a whole. Each of the analyses conducted by William Blair
was carried out in order to provide a different perspective on the
financial terms of the Merger and add to the total mix of
information available. The analyses were prepared solely for the
purpose of William Blair providing its opinion and do not purport
to be appraisals or necessarily reflect the prices at which
securities actually may be sold. William Blair did not form a
conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion about the
fairness of the Merger Consideration to be received by the holders
of Common Stock. Rather, in rendering its oral opinion on
March 16, 2017 (subsequently confirmed in writing) to the
Board, as of that date and based upon and subject to the
assumptions, qualifications and limitations stated in its written
opinion, as to whether the Merger Consideration to be received by
the holders of Common Stock (other than holders of dissenting
shares) was fair to such stockholders, from a financial point of
view, William Blair considered the results of the analyses in light
of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. William Blair
’
s fairness opinion considered each
valuation method equally and did not place any particular reliance
on a specific analysis. Accordingly, notwithstanding the separate
factors summarized above, William Blair believes that its analyses
must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all
analyses and factors, may create an incomplete view of the
evaluation process underlying its opinion. No company or
transaction used in the above analyses as a comparison is directly
comparable to the Company or the Merger. In performing its
analyses, William Blair made numerous assumptions with respect to
industry performance, business and economic conditions and other
matters. The analyses performed by William Blair are not
necessarily indicative of future actual values and future results,
which may be significantly more or less favorable than suggested by
such analyses.
William
Blair has been engaged in the investment banking business since
1935. William Blair continually undertakes the valuation of
investment securities in connection with public offerings, private
placements, business combinations, estate and gift tax valuations
and similar transactions.
Fees
Pursuant to an
engagement letter dated July 20, 2016, a retainer fee of
$35,000 was paid to William Blair upon execution of the engagement
letter and a fee of $450,000 became payable to William Blair upon
delivery of William Blair
’
s fairness opinion. A fee equal to
$1,586,000 will become payable to William Blair upon the
consummation of the Merger. No portion of the fees payable to
William Blair was contingent on the conclusions reached by William
Blair in William Blair
’
s
fairness opinion. In addition, the Company agreed to reimburse
William Blair for certain of its out-of-pocket expenses (including
fees and expenses of its counsel and any other independent experts
retained by William Blair) reasonably incurred by it in connection
with its services and to indemnify William Blair against certain
potential liabilities arising out of its engagement, including
certain liabilities under the U.S. federal securities
laws.
In the
past two years, William Blair has not provided any investment
banking or other services to the Company, Parent or Merger Sub.
William Blair may provide investment banking and other services to
or with respect to the Company or Parent or their respective
affiliates in the future, for which it may receive compensation.
William Blair and its affiliates and employees, and funds or other
entities they manage or in which they invest or have other economic
interests or with which they co-invest, may at any time purchase,
sell, hold or vote long or short positions and investments in
securities, derivatives, loans, commodities, currencies, credit
default swaps and other financial instruments of the Company, any
of their respective affiliates and third parties or any currency or
commodity that may be involved in the transaction contemplated by
the Merger Agreement.
The
Merger Agreement does not contain any financing-related closing
condition and Parent has represented that it will have sufficient
funds at the closing to fund the payment of the Merger
Consideration and any other payments required in connection with
consummation of the Merger.
Interests of the Company’s Directors and
Executive Officers in the Merger
You
should be aware that the Company’s executive officers and
directors have interests in the Merger that may be different from,
or in addition to, the interests of the stockholders of the Company
generally. The Board was aware of and considered these interests,
among other matters, in evaluating and negotiating the Merger
Agreement and the Merger, and in recommending to the stockholders
of the Company that the Merger Agreement be adopted. These
interests are described in more detail below, and certain of them
are quantified within the narrative disclosure and the table
below.
Quantification of Outstanding Equity
The
table below sets forth the amounts that each director and executive
officer would be eligible to receive (without subtraction of
applicable withholding taxes) in connection with the Merger with
regard to shares of Common Stock held by such director or executive
officer. There are no outstanding options or other equity award
relating to our Common Stock or Preferred Stock.
|
Name
|
Shares of Common Stock
(#)
|
Value of Common Stock
($)
|
|
Named Executive Officers
|
|
|
|
Timothy D.
Morrison
|
700,000
|
$
95,155.20
|
|
Randall D.
Gottlieb
|
-
|
-
|
|
J.R. Brian
Hanna
|
500,000
|
$
67,968.00
|
|
Other Executive Officers
|
|
|
|
Brent D.
Gwatney
|
60,000
|
$
8,156.16
|
|
Alford E.
Drinkwater
|
100,000
|
$
13,593.60
|
|
Non-Employee Directors
|
|
|
|
Todd
Ofenloch
|
-
|
-
|
|
Michael R.
Phillips
|
-
|
-
|
|
Bobby J.
Sheth
|
-
|
-
|
|
Vernon J.
Richardson
|
10,000
|
$
1,359.36
|
Transaction Bonus Plan
In
connection with the consummation of the Merger, certain of our
executive officers will receive transaction bonuses pursuant to the
terms of the Advanced Environmental Recycling Technologies, Inc.
Key Employee Incentive Plan for Transaction Bonuses, as amended and
restated on March 16, 2017 (the “Transaction Bonus
Plan”). Pursuant to the terms of the Transaction Bonus Plan,
certain members of the Company's management are entitled to cash
bonuses upon the consummation of the Merger, half payable within
ten business days after the consummation of the Merger subject to
their continued employment on such payment date, and half payable
within the ten-day period beginning 60 days following the
consummation of the Merger, subject to either (i) their continued
employment on such 60th day following the consummation of the
Merger or (ii) termination of their employment by the Company (or
Parent) without “cause” (as defined in the Transaction
Bonus Plan) after the consummation of the Merger.
The
Transaction Bonus Plan provides that if the executive officers
violate certain restrictive covenants in their employment
agreements with Parent, as applicable, a portion of their bonus is
subject to forfeiture. The portion of the bonus that is subject to
forfeiture by a participant is calculated as follows: (i) the
entire bonus if the violation occurs prior to the 60th day
following the Merger; (ii) two-thirds of the bonus if the violation
occurs on or after the 60th day following the Merger and before the
termination of the participant’s employment with the Company;
and (iii) two-thirds of the bonus, multiplied by a fraction, the
numerator of which is the number of full or partial months
remaining in the participant’s covenant not to compete at the
time of the violation and the denominator of which is the total
number of months post-termination of employment in the
participant’s covenant not to compete, if the violation
occurs after the 60th day following the Merger and after the
participant’s termination of employment with the
Company.
The
table below sets forth the amounts that each executive officer of
the Company is eligible to receive (without subtraction of
applicable withholding taxes) pursuant to the Transaction Bonus
Plan in connection with the Merger
.
|
Name
|
Title
|
Cash Bonus Amount
|
|
Timothy
D. Morrison
|
Chief
Executive Officer
|
$1,852,977
|
|
Randall
D. Gottlieb
|
President
|
$1,125,022
|
|
J.R.
Brian Hanna
|
Chief
Financial Officer
|
$1,125,022
|
|
Brent
D. Gwatney
|
Senior
Vice President of Sales
|
$992,666
|
Golden Parachute Compensation in Connection with the
Merger
The
following table shows the aggregate dollar value of the various
elements of compensation that each of our named executive officers
could receive from the Company and Parent in connection with the
Merger, as required by Item 402(t) of Regulation S-K. The
underlying calculations assume the consummation of the Merger will
occur on May 1, 2017. The named executive officers are expected to
continue to provide services after the consummation of the Merger;
nevertheless, the underlying calculations further assume that the
severance obligations payable to each named executive officer
pursuant to his respective employment agreement with Parent are
triggered immediately after the consummation of the Merger. The
Company’s named executive officers for purpose of the table
below are Timothy D. Morrison (Chief Executive Officer), Randall D.
Gottlieb (President) and J.R. Brian Hanna (Chief Financial
Officer).
|
Name
|
|
|
|
Perquisites/
Benefits ($)
|
|
|
|
|
Timothy D.
Morrison
|
$
2,138,977
|
-
|
-
|
-
|
-
|
-
|
$
2,138,977
|
|
Randall D.
Gottlieb
|
$
1,415,022
|
-
|
-
|
-
|
-
|
-
|
$
1,415,022
|
|
J.R. Brian
Hanna
|
$
1,498,772
|
-
|
-
|
-
|
-
|
-
|
$
1,498,772
|
|
|
|
|
|
|
|
|
|
(1)
Includes the
aggregate dollar value of cash severance payable to each of the
named executive officers pursuant to his respective employment
agreement with Parent, effective as of the closing of the Merger
(described in the section entitled “
—Severance
” below),
estimated increases in base salary (described in note 3 below), and
transaction bonuses payable to each pursuant to the Transaction
Bonus Plan (described in the section entitled
“—Transaction Bonus
Plan
” above).
(2)
For Mr. Morrison
and Mr. Gottlieb, the cash severance consists of a lump sum cash
payment equal to twelve months of the executive’s base salary
($273,000 for Mr. Morrison; $260,000 for Mr. Gottlieb). For Mr.
Hanna, the cash severance consists of (i) a lump sum cash payment
equal to twelve months of the executive’s base salary
($241,500), and (ii) a lump sum cash severance payment of his
retention bonus (see the section entitled “
—
Severance
” below). Mr. Morrison and Mr. Hanna also are entitled to
lesser severance upon an involuntary termination under existing
employment agreements with the Company, but those agreements will
be superseded at the closing by the new employment agreements with
Parent. As described in the section entitled “
—Severance
” below, the
severance portion of this amount is payable only upon a termination
of the executive’s employment without “cause” or
due to the executive’s resignation for “good
reason”. The retention bonus portion of Mr. Hanna’s
amount is also payable only if the executive’s employment is
terminated without “cause”.
(3)
The following are
the named executive officers’ estimated increases in base
salary: $13,000 (calculated as $273,000 minus $260,000) for Mr.
Morrison; $30,000 (calculated as $260,000 minus $230,000) for Mr.
Gottlieb; and $11,500 (calculated as $241,500 minus $230,000) for
Mr. Hanna. These figures represent the difference between the base
salary pursuant to the individual’s respective employment
agreement with Parent, as compared to current base salary levels
pursuant to the individual’s respective employment agreement
with the Company.
(4)
The amounts listed
represent the aggregate dollar value of all golden parachute
compensation to be provided to each named executive
officer.
Executive Officer Employment Agreements with Parent
In
order to promote the retention of key Company employees during the
period following the consummation of the Merger, contemporaneously
with the execution of the Merger Agreement, Parent entered into
employment agreements with certain executive officers and other
members of Company management to be effective on, and contingent
upon, the consummation of the Merger. For purposes of this
“
Executive Officer
Employment Agreements with Parent
” section only,
references to the “Company” shall mean to Parent and
the Company, collectively.
Compensation Terms
The
following table sets forth the employment term, annual salary and
maximum annual bonus arrangements for the AERT executive officers
who entered into employment agreements with Parent.
|
Name
|
Term
|
Annual
Salary
|
Maximum
Annual Performance Bonus
|
|
Timothy
D. Morrison
|
Closing
through March 15, 2019
|
$273,000
|
80% of
annual salary
|
|
Randall
D. Gottlieb
|
Closing
through March 15, 2020
|
$260,000
|
80% of
annual salary
|
|
J.R.
Brian Hanna
|
Closing
through March 15, 2018
|
$241,500
|
70% of
annual salary
|
|
Brent
D. Gwatney
|
Closing
through March 15, 2020
|
$180,000
|
35% of
annual salary
|
In
addition to the salary and bonus levels above, the employment
agreements for the executive officers provide for the following
additional compensation and benefits:
●
Each of Mr.
Morrison, Mr. Hanna and Mr. Gottlieb will be recommended to
participate in Parent’s Deferred Compensation Plan, subject
to their meeting eligibility requirements to be eligible to defer
compensation into the plan.
●
Certain of the
executive officers will be eligible for one-time cumulative
performance bonuses of up to $1.5 million in the aggregate if the
Company meets certain cumulative EBITDA milestones. The EBITDA
milestone for these executive officers to be eligible for a maximum
one-time cumulative performance bonus is either (i) $82.8 million
in cumulative EBITDA for the fiscal years 2017, 2018 and 2019, or
(ii) $48.6 million in cumulative EBITDA for fiscal years 2017 and
2018, as applicable.
●
Mr. Gottlieb will
be recommended to participate in the CRH plc Performance Shares
Plan at a level of approximately 40% of his annual base salary in
2018. Mr. Gottlieb will be eligible to be considered for annual
share awards at the discretion of Parent, subject to vesting
restrictions, performance criteria, and the other terms of the
plan.
●
Each of Mr. Hanna
and Mr. Gwatney is entitled to a retention bonus if he is employed
in good standing by the Company on March 15, 2018 for Mr. Hanna and
March 15, 2020 for Mr. Gwatney, subject to certain
restrictions.
Severance
Each of
the executive officers is also entitled to a lump sum severance
payment equal to twelve months of the executive’s base salary
if his employment is terminated by Parent without
“cause” or by the executive for certain reasons
constituting “good reason” under the executive’s
employment agreement.
“Cause”
includes (i) the employee’s material and willful breach of,
failure, or refusal to perform and discharge, the employee’s
reasonable duties, responsibilities, or other obligations under the
employment agreement or any other agreement between the employee
and the Company, or under the Company policy which has been
provided to the employee, (ii) the employee’s commission of
any act that constitutes fraud, embezzlement or other serious
misconduct in the performance of his or her duties and
responsibilities thereunder, (iii) the employee’s material
breach of fiduciary duty to the Company, (iv) the employee’s
disparagement of the Company that causes or is likely to cause a
material adverse damage to Company’s goodwill, reputation, or
business relationships, (v) the employee being formally charged
with a felony or any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud; provided that in the case of items (i), (ii),
(iii) and (iv) above, the Company shall not find that
“cause” exists until the Company first provides the
employee with a written notice of any alleged facts or
circumstances that the Company deems to create “cause,”
and, if in the Company’s reasonable opinion such cause can be
cured, provides the employee with a thirty day period to effect a
reasonable cure.
“Good
reason” includes (i) the Company materially reducing the
officer’s base salary, (ii) the Company changing the place of
work to a location that is more than 75 miles from Springdale,
Arkansas, (iii) a material diminution in duties or
responsibilities, or (iv) a material breach of the employment
agreement by the Company; provided that the employee must deliver
notice to the Company of his or her resignation for “good
reason” within 60 days of such event, and the Company has the
right to cure such occurrence during the 30 days after receipt of
such notice.
For
each of Mr. Hanna and Mr. Gwatney, if his employment is terminated
by the Company without “cause,” in addition to such
severance payment, he will also be entitled to their retention
bonus.
In the
event the executive officer materially breaches the restrictive
covenants in his employment agreement, the officer must repay to
the Company any portion of the severance payment in excess of
$1,000 previously paid to such officer.
Restrictive Covenants
Each of
the employment agreements contains a non-competition provision
pursuant to which each executive officer agrees to not compete with
the Company in the United States, Canada or Mexico during
employment and for a period of eighteen months after the
employee’s employment with the Company ends for any reason
(except for Mr. Hanna, whose non-competition period is twelve
months), to maintain the confidentiality of proprietary and trade
secret information of the Company, and to certain restrictions on
soliciting customers of the Company and soliciting, recruiting or
hiring employees of the Company, for a period of two years after
such officer’s employment with the Company ends for any
reason.
Advisory Services Agreement with H.I.G. Capital
The Company is party to an
Advisory Services Agreement with H.I.G. Capital, L.L.C.
(“H.I.G. Capital”), an affiliate of H.I.G., that
provides for an annual monitoring fee between $250,000 and $500,000
and reimbursement of all other out of pocket fees and expenses
incurred by H.I.G. Capital. In addition, pursuant to the terms of
the Advisory Services Agreement, H.I.G. Capital is entitled to a
financial advisory services fee and a supplemental management fee
in connection with any acquisition, disposition or material public
or private debt or equity financing of the Company, in each case
which has been introduced, arranged, managed and/or negotiated by
H.I.G. Capital or its affiliates. For a sale of the Company, or an
acquisition of 100% of any other company, the financial advisory
fee will be equal to one percent of the enterprise value of such
transaction and the supplemental management fee will be equal to
one percent of the enterprise value of such transaction.
Accordingly, H.I.G. Capital will be entitled to a financial
advisory fee
of $
1.17 million and a
supplemental management
fee
of $1.17 million in
connection with the Merger, payable at the closing of the
Merger.
Directors Appointed by H.I.G.
Certain
members of the Board are affiliated with H.I.G. Mr. Ofenloch is a
Managing Director with H.I.G. Capital. Mr. Phillips was a Managing
Director with H.I.G. Capital and Mr. Sheth was a Principal with
H.I.G. Capital. Accordingly, such members of the Board may have an
indirect interest in the portion of the Merger Consideration to be
paid to H.I.G. In addition, such members may have an indirect
interest in the financial advisory fee of $1.17 million and the
supplemental management fee of $1.17 million payable to H.I.G.
Capital by the Company in connection with the Merger (as further
described above).
Indemnification and Insurance
Pursuant to the
terms of the Merger Agreement, the Company’s non-employee
directors (including directors affiliated with H.I.G.) and
executive officers will be entitled to certain ongoing
indemnification and coverage under certain directors’ and
officers’ liability insurance policies following the Merger.
Such indemnification and insurance coverage is further described in
the section entitled “
The
Merger Agreement — Indemnification and
Insurance
” beginning on page 52.
Material U.S. Federal Income Tax Consequences of
the Merger
The
following is a general discussion of the material U.S. federal
income tax consequences of the Merger to U.S. holders (as defined
below) of Common Stock and Preferred Stock whose shares are
exchanged for cash pursuant to the Merger. This discussion does not
address U.S. federal income tax consequences with respect to
holders other than U.S. holders. This discussion is based on the
provisions of the Code, applicable U.S. Treasury Regulations,
judicial opinions and administrative rulings and published
positions of the Internal Revenue Service (the “IRS”),
each as in effect as of the date hereof. These authorities are
subject to change or differing interpretations, possibly on a
retroactive basis, and any such change or interpretation could
affect the accuracy of the statements and conclusions set forth in
this discussion. This discussion is for general information
purposes only and does not purport to be a complete analysis of all
potential tax consequences. This discussion does not address any
tax consequences arising under the unearned income Medicare
contribution tax pursuant to the Health Care and Education
Reconciliation Act of 2010, nor does it address any tax
considerations under state, local or foreign laws or U.S. federal
laws other than those pertaining to the U.S. federal income tax.
This discussion is not binding on the IRS or the courts and,
therefore, could be subject to challenge, which could be sustained.
No ruling is intended to be sought from the IRS with respect to the
Merger.
For
purposes of this discussion, the term “U.S. holder”
means a beneficial owner of Common Stock or Preferred Stock that is
for U.S. federal income tax purposes:
●
a citizen or
individual resident of the United States;
●
a corporation, or
other entity classified as a corporation for U.S. federal income
tax purposes, created or organized in or under the laws of the
United States, any state thereof, or the District of
Columbia;
●
a trust if
(1) a court within the United States is able to exercise
primary supervision over the trust’s administration, and one
or more U.S. persons are authorized 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 U.S. person; or
●
an estate the
income of which is subject to U.S. federal income tax regardless of
its source.
This
discussion applies only to U.S. holders of shares of Common Stock
or Preferred Stock who hold such shares as a capital asset within
the meaning of Section 1221 of the Code (generally, property held
for investment). Further, this discussion does not purport to
consider all aspects of U.S. federal income taxation that may be
relevant to a U.S. holder in light of its particular circumstances,
or that may apply to U.S. holders subject to special treatment
under U.S. federal income tax laws (including, for example,
insurance companies, dealers or brokers in securities or foreign
currencies, traders in securities who elect the mark-to-market
method of accounting, holders subject to the alternative minimum
tax, U.S. holders that have a functional currency other than the
U.S. dollar, tax-exempt organizations, tax-qualified retirement
plans, banks and other financial institutions, mutual funds,
certain expatriates, partnerships (or other entities or
arrangements treated as partnerships for U.S. federal income tax
purposes), S corporations, or other pass-through entities, or
investors in such partnerships, real estate investment trusts,
regulated investment companies, U.S. holders who hold shares of
Common Stock or Preferred Stock as part of a hedge, straddle,
constructive sale, conversion or other integrated transaction, U.S.
holders who will hold (actually or constructively) an equity
interest in the surviving corporation immediately after the Merger,
and U.S. holders who acquired their shares of Common Stock through
the exercise of employee stock options or other compensation
arrangements). This discussion also does not address the U.S.
federal income tax consequences to holders of shares of Common
Stock who exercise appraisal rights under the DGCL in connection
with the Merger.
If a
partnership (including for this purpose any entity or arrangement
treated as a partnership for U.S. federal income tax purposes)
holds shares of Common Stock or Preferred Stock, the tax treatment
of a partner in such partnership will generally depend on the
status of the partners and the activities of the partnership. If
you are, for U.S. federal income tax purposes, a partner in a
partnership holding shares of Common Stock or Preferred Stock, you
should consult your tax advisor.
This
summary of material U.S. federal income tax consequences is for
general information purposes only and is not tax advice. Holders of
Common Stock or Preferred Stock are urged to consult their own tax
advisors to determine the particular tax consequences to them of
the Merger, including the applicability and effect of the
alternative minimum tax, the unearned income Medicare contribution
tax and any other U.S. federal, or state, local, foreign or other
tax laws.
The
receipt of cash by U.S. holders in exchange for shares of Common
Stock and Preferred Stock pursuant to the Merger will be a taxable
transaction for U.S. federal income tax purposes. In general, for
U.S. federal income tax purposes, a U.S. holder who receives cash
in exchange for shares of Common Stock and/or Preferred Stock
pursuant to the Merger will recognize capital gain or loss in an
amount equal to the difference, if any, between (1) the amount
of cash received and (2) the U.S. holder’s adjusted tax
basis in such shares.
Any
such gain or loss will be long-term capital gain or loss if a U.S.
holder’s holding period in the shares of Common Stock and/or
Preferred Stock surrendered in the Merger is greater than one year
as of the date of the Merger. Long-term capital gains of certain
non-corporate holders, including individuals, are generally subject
to U.S. federal income tax at preferential rates. The deductibility
of capital losses is subject to limitations. If a U.S. holder
acquired different blocks of Common Stock or Preferred Stock at
different times and different prices, such U.S. holder must
determine its adjusted tax basis, gain or loss and holding period
separately with respect to each block of Common Stock or Preferred
Stock.
Information Reporting and Backup Withholding
Payments made in
exchange for shares of Common Stock and Preferred Stock pursuant to
the Merger may be subject, under certain circumstances, to
information reporting and backup withholding (currently at a rate
of 28%). To avoid backup withholding, a U.S. holder that does not
otherwise establish an exemption should complete and return to the
applicable withholding agent a properly completed and executed IRS
Form W-9, certifying that such U.S. holder is a U.S. person, that
the taxpayer identification number provided is correct, and that
such U.S. holder is not subject to backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against a
holder’s U.S. federal income tax liability, if any, provided
that such holder furnishes the required information to the IRS in a
timely manner.
Under
the Merger Agreement, both the Company and Parent have agreed to
use reasonable efforts to obtain all required governmental
approvals and avoid any action or proceeding by a governmental
entity to the extent necessary, proper or advisable to consummate
the Merger. Except for the expiration of 20 days from the
dissemination of this information statement to the Company’s
stockholders and the filing of a certificate of merger with the
Delaware Secretary of State at or before the effective date of the
Merger, we are unaware of any material federal, state or foreign
regulatory requirements or approvals required for the execution of
the Merger Agreement or completion of the Merger or the other
transactions contemplated by the Merger Agreement.
Delisting and Deregistration of Common
Stock
If the
Merger is completed, the Common Stock, which is currently listed on
the OTCQB Tier of the OTC Markets Group, Inc. under the symbol
“AERT,” will cease to be quoted on the OTCQB. In
addition, if the Merger is completed, the Common Stock will be
deregistered under the Exchange Act, and we will no longer file
periodic reports with the SEC on account of our Common
Stock.
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached to this information
statement as Annex A
and which is incorporated by
reference into this information statement. 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. We encourage
you to read carefully the Merger Agreement in its entirety, as the
rights and obligations of the parties thereto are governed by the
express terms of the Merger Agreement and not by this summary or
any other information contained in this information
statement.
Explanatory Note Regarding the Merger
Agreement
The
following summary of the Merger Agreement, and the copy of the
Merger Agreement attached as Annex A
to this information statement, are
intended to provide information regarding the terms of the Merger
Agreement and are not intended to provide any factual information
about the Company or modify or supplement any factual disclosures
about the Company in its public reports filed with the SEC. In
particular, the Merger Agreement and the related summary are not
intended to be, and should not be relied upon as, disclosures
regarding any facts and circumstances relating to the Company. The
Merger Agreement contains representations and warranties by and
covenants of the Company, Parent and Merger Sub which were made
only for purposes of that agreement and as of specified dates. The
representations, warranties and covenants in the Merger Agreement
were made solely for the benefit of the parties to the Merger
Agreement, may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential
disclosures made for the purposes of allocating contractual risk
between the parties to the Merger Agreement instead of establishing
these matters as facts, and may be subject to contractual standards
of materiality or material adverse effect applicable to the
contracting parties that generally differ from those applicable to
stockholders. In addition, information concerning the subject
matter of the representations, warranties and covenants may change
after the date of the Merger Agreement, which subsequent
information may or may not be fully reflected in the
Company’s public disclosures. The representations, warranties
and covenants in the Merger Agreement and any descriptions thereof
should be read in conjunction with the disclosures in the
Company’s periodic and current reports, proxy statements and
other documents filed with the SEC. See the section entitled
“
Where You Can Find
Additional Information
” on page 65. Moreover, the
description of the Merger Agreement below does not purport to
describe all of the terms of such agreement and is qualified in its
entirety by reference to the full text of such agreement, a copy of
which is attached hereto as Annex A
and is incorporated herein by
reference.
Additional
information about the Company may be found elsewhere in this
information statement and the Company’s other public filings.
See the section entitled “
Where You Can Find Additional
Information
” beginning on page 65.
Structure of the Merger; Certificate of
Incorporation; Bylaws; Directors and Officers
At the
effective time of the Merger, Merger Sub will merge with and into
the Company, and the separate corporate existence of Merger Sub
will cease. The Company will be the surviving corporation in the
Merger and will continue its corporate existence as a Delaware
corporation and a wholly-owned subsidiary of Parent. The
certificate of incorporation and bylaws of Merger Sub that are in
effect immediately before the effective time of the Merger will
become the certificate of incorporation and bylaws of the surviving
corporation, although the certificate of incorporation and bylaws
will be amended to reflect the name of the surviving corporation as
“Advanced Environmental Recycling Technologies,
Inc.”
The
individuals holding positions as directors and officers of Merger
Sub immediately before the effective time of the Merger will become
the initial directors and officers of the surviving
corporation.
Consummation and Effectiveness of the
Merger
The
Merger becomes effective upon the date and time of the filing of
the certificate of merger with the Delaware Secretary of State or
such other date and time as may be mutually agreed upon by Parent
and the Company and set forth in the certificate of merger. The
closing of the Merger is scheduled to occur on the later of April
15, 2017 or the business day after the satisfaction or waiver of
the last to be satisfied or waived of the conditions of the
consummation of the Merger set forth in the Merger Agreement (other
than those conditions that by their terms are to be satisfied at
the closing, but subject to the satisfaction or waiver of such
conditions), or such other date and time as Parent and the Company
mutually designate.
Consideration to be Received in the
Merger
Upon
consummation of the Merger, (i) all shares of Common Stock and
Preferred Stock held by the Company (or held in the Company’s
treasury) will be canceled and retired, and no consideration will
be paid in exchange therefor, (ii) each share of Common Stock and
Preferred Stock issued and outstanding immediately prior to the
consummation of the Merger, other than shares for which appraisal
rights have been properly demanded and not withdrawn and shares
held in treasury, will automatically be canceled and will be
converted into the right to receive $0.135936 per share of Common
Stock and $2,603.483278 per share of Preferred Stock, less any
required withholding taxes, if any. Each holder of Common
Stock and Preferred Stock will be entitled to receive a total
amount equal to the product obtained by multiplying the per share
Merger Consideration applicable to shares of Common Stock or
Preferred Stock, respectively, by the number of shares of Common
Stock or Preferred Stock, as applicable, owned by such holder,
rounded up to the nearest cent.
Any
appraisal shares the holders of which neither voted in favor of nor
consented in writing to the adoption of the Merger Agreement will
not be converted into the right to receive the applicable the
Merger Consideration. If any holder of such appraisal shares loses,
withdraws, or fails to perfect the right to appraisal, each such
share of such holder will be converted into the right to receive
the applicable Merger Consideration as of the consummation of the
Merger. The Company will serve prompt notice to Parent of any
demands for appraisal, attempted withdrawals of such notices or
demands and any other instruments served pursuant to Delaware law
received by the Company, and Parent will have the right to
participate in all negotiations and proceedings with respect to
such demands. The Company will not settle or make any payment with
respect to the withdrawal of appraisal demands without the prior
written consent of Parent.
Procedures for Receiving Merger
Consideration
As soon
as reasonably practicable after the consummation of the Merger (but
no later than two business days later), the paying agent will mail
to each holder of record of Company shares immediately prior to the
effective time of the Merger a letter of transmittal and
instructions for use in effecting the surrender of the share
certificates or book entry shares in exchange for the applicable
Merger Consideration.
Upon
surrender to the paying agent of a share certificate for
cancellation or the delivery to the agent of an
“agent’s message,” together with a duly completed
and executed letter of transmittal and any other required
documents, (i) the holder of such Company share will be entitled to
receive, in exchange for such Company share, the applicable amount
of Merger Consideration that such holder has the right to receive,
subject to any required withholding taxes and without interest, and
(ii) any such surrendered share certificate will be
canceled.
If
payment of the Merger Consideration is to be made to a person other
than the person in whose name the share is registered, it will be a
condition of payment that proper endorsement or transfer be
documented and the proper taxes be paid.
Each of
Parent, the surviving corporation and the paying agent will be
entitled to deduct and withhold from amounts otherwise payable
pursuant to the Merger Agreement to any holder of shares of Common
Stock or Preferred Stock, such amounts as are required to be
deducted and withheld pursuant to any applicable tax
laws.
Representations and Warranties
The
Merger Agreement contains customary representations and warranties
of Parent, Merger Sub and the Company, including representations
and warranties relating to, among other things:
●
organization, good
standing, authority and similar matters of the Company, Parent and
Merger Sub;
●
due authorization,
execution, delivery and enforceability of the Merger
Agreement;
●
absence of
conflicts with the parties’ governing documents, contracts,
and applicable laws;
●
absence of required
approvals and authorizations of or other filings with governmental
entities;
●
absence of pending
or, to the knowledge of the respective parties, threatened
litigation that would reasonably be expected to have a material
adverse effect on the respective parties; and
●
absence of
brokers’, financial advisors’ and investment
bankers’ fees or commissions.
In
addition, the Merger Agreement contains the following customary
representations and warranties of the Company:
●
documents filed
with the SEC, compliance with applicable SEC filing requirements
and accuracy of information contained in such
documents;
●
compliance of
financial statements with applicable accounting requirements and
related SEC rules and regulations, preparation of financial
statements in accordance with GAAP and the absence of certain
undisclosed liabilities;
●
maintenance of
certain internal controls and procedures;
●
delivery of a
schedule setting forth certain indebtedness of the Company,
transaction expenses incurred in connection with the Merger,
management and advisory fees owed by the Company and the proper
calculation of the Merger Consideration;
●
compliance with
laws, the applicable provisions of the Sarbanes-Oxley Act, and the
rules and regulations of the OTCQB;
●
interested party
transactions;
●
since September 30,
2016, the absence of any change, event or development that has had
a material adverse effect and the absence of changes to the
Company’s business from past practice;
●
intellectual
property matters;
●
governmental
authorizations;
●
filing of tax
returns, payment of taxes and other tax matters;
●
employee benefit
plans, matters relating to ERISA and labor and employment
matters;
●
ownership and use
of real property;
●
the absence of
legal proceedings by or against the Company;
●
compliance with
environmental laws and regulations;
●
the receipt of a
fairness opinion from William Blair; and
●
the Company’s
customers and suppliers.
The
Merger Agreement also contains the following customary
representations and warranties of Parent and Merger
Sub:
●
activities of
Merger Sub;
●
the availability to
Parent of funds necessary to consummate the Merger;
●
absence of
ownership by Parent, Merger Sub or their respective affiliates of
capital stock of the Company; and
●
the absence of
consent or vote by the holders of Parent’s equity to approve
the Merger.
Certain
of the representations and warranties in the Merger Agreement are
qualified as to “materiality,” “Parent material
adverse effect” or “Company material adverse
effect.” The Merger Agreement provides that a Company
material adverse effect means any effect, change, event,
occurrence, circumstance or development (an “Effect”)
that has or would reasonably be expected to, individually or in the
aggregate with any other Effects, have a material adverse effect on
(i) the assets, liabilities, business, financial condition, or
results of operations of the Company, taken as a whole; or
(ii) Parent’s ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to
the shares of the surviving corporation after the Merger. With
respect to (i) in the preceding sentence, Company material adverse
effect will not include any Effect, alone or in combination, with
respect to, or resulting from:
●
general changes in
the U.S. or global economy, or change in general economic
conditions, including changes in the credit, debt, financial or
capital markets, in each case, in the United States of America or
anywhere else in the world;
●
operating,
business, regulatory or other conditions generally affecting the
industry in which the Company conducts business (except to the
extent that such Effect has a disproportionate adverse effect on
the Company relative to other companies of a similar size operating
in the industry in which the Company conducts
business);
●
changes in
applicable law or in GAAP or other applicable accounting rules or
the interpretation or enforcement thereof;
●
changes in the
market price or trading volume of the Common Stock;
●
failure(s) by the
Company to meet any operating projections or forecasts, or
published revenue or earnings predictions or estimates (but not
excluding any of the reasons for or factors contributing to the
failure);
●
any act or threat
of terrorism or war, any armed hostilities or terrorist activities,
any threat or escalation of armed hostilities or terrorist
activities or any governmental or other response or reaction to any
of the foregoing (other than any act that is targeted at the
Company or causes physical damage to the assets, properties,
facilities or personnel of the Company which such damage causes a
Company material adverse effect);
●
any legal
proceeding against the Company or any of its directors by the
stockholders of the Company challenging or seeking to restrain or
prohibit the consummation of the Merger or any other transaction
contemplated by the Merger Agreement;
●
events attributable
to any action by the Company if that action is contemplated or
required by the Merger Agreement and Parent or Merger Sub refuses
to waive such requirement, or the failure to take any action by the
Company if that action is prohibited by the Merger Agreement and
Parent or Merger Sub refuses to waive such
prohibition;
●
events attributable
to the announcement or performance of the Merger Agreement or the
consummation of the transactions contemplated by the Merger
Agreement or the pendency of the Merger (including the loss or
departure of officers or other employees of the Company), or the
termination, reduction (or potential reduction) or any other
negative effect (or potential negative effect) on the
Company’s relationships or agreements with any of its
licensors, licensees, customers, vendors, strategic partners,
suppliers or other business partners; or
●
any change that the
Company can demonstrate resulted from Parent unreasonably
withholding its consent under the Merger Agreement to any action
requiring Parent’s consent under the Merger Agreement with
respect to the items described in the section entitled
“
Operation of the Company
Business
” below, requested to be taken by the Company
to Parent in writing.
The
Merger Agreement also provides that a Parent material adverse
effect means, with respect to Parent or Merger Sub, any Effect that
would, individually or in the aggregate, restrict, prevent,
prohibit, impede or materially delay the consummation of Merger and
the transactions contemplated by the Merger Agreement or prevent or
materially impair the ability of Parent or Merger Sub to satisfy
the conditions precedent to the Merger.
Operation of the Company’s
Business
Prior
to the consummation of the Merger, without the prior written
consent of Parent (which consent will not be unreasonably withheld,
conditioned or delayed), and except as set forth in the Merger
Agreement and the confidential disclosures the Company delivered in
connection therewith and as required by law, the Company has agreed
to (i) carry on its business in the ordinary course consistent with
prior practice and in material compliance with applicable law and
(ii) use commercially reasonable efforts to maintain and preserve
intact its business organization, present relationships with those
persons having significant business relationships with the Company,
keep available the services of its current executive officers and
maintain in effect all material governmental
authorizations.
Further, the
Company agreed that until the consummation of the Merger, it will
not (except as set forth in the Merger Agreement and the
confidential disclosures the Company delivered in connection
therewith, or with the prior written approval of Parent, which
consent will not be unreasonably withheld, conditioned or
delayed):
●
amend or permit the
adoption of any amendment to the Company charter
documents;
●
effect or become a
party to any merger, consolidation, share exchange, business
combination, amalgamation, recapitalization, reclassification of
shares, stock split, reverse stock split, division or subdivision
of shares, consolidation of shares or similar transaction or adopt
a plan of complete or partial liquidation;
●
declare, accrue,
set aside, or pay any dividend or make any other distribution in
respect of any shares of capital stock; split, combine, or
reclassify any capital stock; or acquire, redeem or otherwise
reacquire any shares of capital stock or other securities, other
than pursuant to the Company’s right to acquire restricted
shares of Common Stock held by an employee of the Company upon
termination of such employee’s employment;
●
sell, issue, grant
or authorize the sale, issuance, or grant of: (i) any capital
stock or other security; (ii) any option, call, warrant or
right to acquire any capital stock or other security;
(iii) any instrument convertible into or exchangeable for any
capital stock or other security, except that the Company may adopt
a stockholder rights plan in response to an Acquisition Proposal
and issue rights to Company stockholders in connection therewith;
or (iv) or any “phantom” stock, “phantom”
stock rights, stock appreciation rights or stock based performance
units.
●
lend money to any
person (other than advances to employees of the Company in the
ordinary course of business);
●
except in the
ordinary course of business and not exceeding $250,000, in the
aggregate, incur or guarantee any indebtedness;
●
other than as
required by GAAP or SEC rules and regulations, change any of its
methods of accounting or accounting practices in any material
respect;
●
make or change any
material tax election or
method,
settle or compromise any material liability of the Company for
taxes (other than (i) in the ordinary course of business and (ii)
the payment of taxes that become due and payable in the ordinary
course), change any method of tax accounting, file any material
amendment to a previously filed tax return, agree to an extension
or waiver of the statute of limitations with respect to the
assessment or determination of material taxes, enter into any
closing agreement with respect to any material tax, or surrender
any right to claim a material tax refund;
●
enter
into (or amend in any respect that
would increase the obligations or liabilities of the Company under)
any contract or other arrangement with H.I.G. or H.I.G. Capital, or
any affiliate or related person of H.I.G. or H.I.G.
Capital;
●
enter into (or
amend in any respect that would increase the obligations or
liabilities of the Company under) any contract or other arrangement
with any broker, finder or investment banker in connection with the
Merger or any of the other transactions contemplated by the Merger
Agreement;
●
make
any acquisition (including by merger, consolidation, stock
acquisition or otherwise) of the capital stock or (except in the
ordinary course of business or as otherwise permitted pursuant to
the Merger Agreement) assets of any other person;
●
transfer,
sell, assign, lease, license, divest, mortgage, sell and leaseback
or otherwise encumber or subject to any encumbrance (other than
certain encumbrances permitted by the Merger Agreement) or
otherwise dispose of any material properties or other material
assets (including any intellectual property), except for (i) sales,
licenses or dispositions of properties or other assets or interests
therein in the ordinary course of business, or (ii) dispositions of
assets that are no longer useful in the conduct of the business of
the Company;
●
pay,
discharge, settle or satisfy any legal proceeding, in each case for
an amount in excess of $125,000, or $250,000 in the aggregate
(excluding amounts that will be paid under any of the
Company’s insurance policies), or that would impose any
material restraint on the continued conduct by the Company of its
business consistent with past practices;
●
amend or modify in any material respect or
terminate any material contract, or unwritten material agreement,
in each case, other than in the ordinary course of business, or
enter into any contract or oral arrangement that would constitute a
material contract if it had been entered into in writing prior to
the date the Merger Agreement was entered into
;
●
except
as required to comply with applicable law or to comply with any
contract or any of the Company’s employee benefit plans
entered into prior to the date hereof (i) adopt, enter into,
terminate or materially amend (A) any of the Company’s
material employee benefit plans or (B) any other agreement, plan or
policy involving the Company and one or more of their respective
current or former officer, members of the Board, or non-officer
employees with base salary in excess of $100,000, in each case that
is not terminable by the Company at will without liability, (ii)
increase the compensation, bonus or fringe or other benefits
offered by the Company other than increases in the ordinary course
of business consistent with past practice, (iii) take any action to
accelerate the vesting or payment of any compensation or benefit
under any of the Company’s employee benefit plans, (iv) loan
or advance any money or other property (other than reimbursement of
reimbursable expenses or any advances of such expenses, whether
directly, pursuant to Company credit cards or otherwise) or forgive
any loans to any current or former member of the Company Board or
officer or employee of the Company, or (v) enter into any agreement
or engage in any transaction with one or more of the
Company’s directors, officers or stockholders, or with any
corporation, partnership (general or limited), limited liability
company, association or other organization of which one or more of
the Company’s directors, officers or stockholders is (A) a
director, officer, manager, managing partner, managing member (or
the holder of any office with similar authority), (B) has a direct
or indirect financial interest, or (C) directly or indirectly
controls, is controlled by or is under common control
with;
●
enter
into any line of business in any geographic area other than the
current lines of business of the Company and products and services
reasonably ancillary thereto;
●
enter
into any new commitment for capital expenditures of the Company
involving, individually or in the aggregate, expected expenditures
of more than $875,000;
●
cancel,
modify, or waive any debts or claims held by it or waive any rights
having in each case a value or cost in excess of $100,000
individually or $250,000 in the aggregate; or
●
authorize any of,
or commit, resolve, propose, or agree in writing or otherwise to
take any of, the foregoing actions.
No
Solicitation by the Company
The
Company has agreed that it will not, nor will it authorize any of
its representatives to, directly or indirectly:
●
solicit, initiate
or knowingly encourage or knowingly facilitate the making,
submission or announcement of an Acquisition Proposal;
●
other than
informing persons of the provisions contained in the
non-solicitation provisions of the Merger Agreement, enter into,
continue or participate in any discussions or any negotiations
regarding any Acquisition Proposal or furnish to any person any
non-public information in connection with or for the purpose of
knowingly encouraging or knowingly facilitating any Acquisition
Proposal; or
●
enter into any
letter of intent, acquisition agreement or similar agreement with
respect to any Acquisition Proposal or with respect to any proposal
or offer that would reasonably be expected to lead to an
Acquisition Proposal.
The
Company has agreed to, and to cause each of its directors and
officers to, and to direct its other representatives to,
immediately cease and cause to be terminated all discussions or
negotiations with any person previously conducted with respect to
any Acquisition Proposal and to require such persons to return or
destroy, and to cease providing access to any non-public
information of or relating to the Company promptly after the
closing. The Company is permitted to grant waivers of any
“standstill” provision to the limited extent that such
provision would otherwise prohibit the counterparty thereto from
making a confidential Acquisition Proposal directly to the Board in
accordance with the terms of the Merger Agreement, in which case
the Company has agreed to similarly waive or terminate any
“standstill” provision applicable to Parent contained
in the confidentiality agreement between the Company and
Parent.
The
Merger Agreement provides that the term “Acquisition
Proposal” means any offer, proposal, or inquiry (other than
an offer, proposal or inquiry by Parent) contemplating or otherwise
relating to any acquisition transaction or series of related
transactions involving:
●
any merger,
consolidation, share exchange, business combination, issuance of
securities, direct or indirect acquisition of securities,
recapitalization, tender offer, exchange offer or other similar
transaction in which (i) a person or “group” (as
defined in the Exchange Act) of persons directly or indirectly
acquires, or if consummated in accordance with its terms would
acquire, beneficial or record ownership of securities representing
more than twenty percent (20%) of the outstanding shares of any
class of voting securities of the Company; or (ii) the Company
issues securities representing more than twenty percent (20%) of
the outstanding shares of any class of voting securities of the
Company; or
●
any sale, lease,
exchange, transfer, acquisition or disposition of any assets of the
Company that constitute or account for twenty percent (20%) or more
of the consolidated net revenues of the Company or consolidated net
income of the Company or twenty percent (20%) or more of the fair
market value of the assets of the Company.
For purposes of a
superior proposal, references to twenty percent (20%) are instead
references to fifty percent (50%).
Other
Offers; Superior Proposal
Notwithstanding the
restrictions described above, if at any time prior to April 15,
2017 the Company receives an unsolicited bona fide written
Acquisition Proposal that does not result from a breach of the
non-solicitation covenant within the Merger Agreement and the Board
(or a duly authorized committee thereof) determines in good faith,
after consultation with its independent financial advisors and
outside legal counsel, that such Acquisition Proposal constitutes
or would reasonably be expected to lead to a superior proposal and
that the failure to take such action would be reasonably likely to
be inconsistent with its fiduciary duties under applicable law,
then the Company is permitted to:
●
furnish information
with respect to the Company to the person or group who has made the
Acquisition Proposal (provided that the Company (i) provides to
Parent any non-public information concerning the Company that is
provided to such person or group and that was not previously
provided to Parent, (ii) enters into an confidentiality agreement
containing terms that are not less favorable to the Company than
those in the confidentiality agreement between Parent and the
Company with such person or group,
and
(iii) if the person making such Acquisition Proposal is a
competitor of the Company, does not provide any commercially
sensitive non-public information to such person other than in
accordance with “clean team” or other similar
procedures designed to limit any adverse effect on the Company of
the sharing of such information),
and
●
engage in
discussions or negotiations with such person or group regarding
such Acquisition Proposal (and waive such person’s or
group’s noncompliance with the provisions of any
“standstill” agreement solely to permit such
discussions and negotiations).
The
Merger Agreement provides that the term “superior
proposal” means a bona fide written proposal for an
acquisition transaction that the Board determines in good faith,
after consultation with its outside legal counsel and independent
financial advisor, to be more favorable to the Company’s
stockholders from a financial point of view than the Merger, in
each case, taking into account at the time of determination, all
legal, financial and regulatory considerations of such acquisition
transaction and the Merger Agreement (including any modification to
the terms of the Merger Agreement as may be proposed by Parent
pursuant to the terms of the Merger Agreement that the Board
determines to be relevant) (including any required financing,
stockholder approval requirements of the person or group making the
proposal, regulatory approvals, stockholder litigation, breakup fee
and expense reimbursement provisions, expected timing and risk and
likelihood of consummation, and, to the extent deemed appropriate
by the Board, such other factors that may be considered in making
such a determination under the DGCL).
As of the
date of this information statement, the Company has not received
any Acquisition Proposal.
The
Company has agreed to keep Parent reasonably apprised in all
material respects on a reasonably current basis of the status and
content of any material discussions regarding any Acquisition
Proposal with any person or group. The Company has also agreed to
notify Parent in writing promptly after receipt (and in any event
within 24 hours) by the Company (or any of its representatives) of
any Acquisition Proposal (or material modification or amendment
thereof), or the granting of any access to non-public information
of the Company or access to their books and records, business
property or assets and such notice shall specify the identity of
the Person making the Acquisition Proposal or receiving such access
and the material terms and conditions thereof. The Company also
agreed to keep Parent informed, on a reasonably current basis, of
the status of any such Acquisition Proposal or access (including
the material terms and conditions thereof and any material
modifications thereto). The Company agreed to provide Parent with
at least 48 hours prior notice of any meeting of the Board at which
the Board is reasonably expected to consider any Acquisition
Proposal. The Company may not enter into any confidentiality
agreement after the date the Merger Agreement was signed that would
prevent the Company from complying with these
requirements.
Adverse Recommendation Change
The
Board and any committee thereof cannot:
●
withhold, withdraw
or rescind (or modify or qualify in a manner adverse to Parent or
Merger Sub), the declaration of advisability by the Board of the
Merger Agreement, the Merger and the related transactions (the
“board recommendation”);
●
adopt, approve or
recommend, or publicly propose to adopt, approve or recommend, any
Acquisition Proposal;
●
fail to include the
board recommendation in the proxy statement if one is disseminated
to the Company’s stockholders;
●
in the event a
tender offer that constitutes an Acquisition Proposal subject to
Regulation 14D under the Exchange Act is commenced, fail to
recommend against such Acquisition Proposal in any solicitation or
recommendation statement made on Schedule 14D-9 within ten
business days of such commencement thereof;
●
make any public
statement inconsistent with the board recommendation (each of the
previously listed items is an “adverse recommendation
change”); or
●
approve, cause or
authorize or permit the Company to execute or enter into, any
letter of intent, memorandum of understanding, agreement in
principle, agreement or commitment (other than an confidentiality
agreement) with any person or group from whom the Company has
received an Acquisition Proposal, or resolve, agree or publicly
propose to take any such action.
Notwithstanding the
foregoing, at any time prior to the April 15, 2017, the Board (or a
duly authorized committee thereof) is permitted to (i) make an
adverse recommendation change, or (ii) terminate the Merger
Agreement to accept such superior proposal, but only if, in either
case:
●
the Board (or a
duly authorized committee thereof) determined in good faith, after
consultation with its outside legal counsel, that the failure to
make an adverse recommendation change in response to the receipt of
such superior proposal not involving a material breach of the
Merger Agreement would reasonably be expected to be inconsistent
with its fiduciary duties under applicable law;
●
the Company
provided Parent prior written notice of its intent to make an
adverse recommendation change or to terminate the Merger Agreement
at least four business days prior to taking such action (which
notice was required to include a summary of the material terms of
the superior proposal, the relevant proposed transaction agreements
and any financing commitments relating thereto);
●
during such four
business day period following Parent’s receipt of the notice,
the Company negotiated, and caused its financial and legal advisors
and other representatives to negotiate, in good faith with Parent
(if Parent desired to so negotiate) to make such adjustments in the
terms and conditions of the Merger Agreement that Parent proposed
to make as would obviate the basis for an adverse recommendation
change or the termination of the Merger Agreement;
●
at the end of such
four business day period and having taken into account any
modifications to the terms of the Merger Agreement proposed by
Parent to the Company in a written, binding and irrevocable offer,
the Board (or a duly authorized committee thereof) determined in
good faith (after consultation with outside legal counsel) that the
failure to make such an adverse recommendation change or the
failure to terminate the Merger Agreement would reasonably be
expected to be inconsistent with its fiduciary duties under
applicable law; and
●
in the event of any
change to the material terms of such superior proposal, the
Company, in each case, had delivered to Parent an additional notice
consistent with that described above.
In
addition and notwithstanding the foregoing, other than in
connection with a superior proposal, the Board (or a duly
authorized committee thereof) is permitted to make an adverse
recommendation change in response to an intervening event, if and
only if:
●
the Board (or a
duly authorized committee thereof) determines in good faith, after
consultation with its outside legal counsel, that the failure to
take such action would reasonably be expected to be inconsistent
with its fiduciary duties under applicable law;
●
the Company then
provided an adverse recommendation change notice to Parent at least
four business days prior to the taking of such action and not later
than April 15, 2017 and describing the intervening event that is
the basis for such action in reasonable detail;
●
during the four
business day period following Parent’s receipt of such
notice, the Company negotiated, and caused its financial and legal
advisors and other representatives to negotiate, with Parent (if
Parent desired to so negotiate) to make such adjustments in the
terms and conditions of the Merger Agreement that Parent proposed
to make as would obviate the basis for an adverse recommendation
change; and
●
following the end
of such four business day period, the Board (or a duly authorized
committee thereof) then determined in good faith, taking into
account any changes to the terms of the Merger Agreement proposed
by Parent to the Company in a written, binding and irrevocable
offer in response to the adverse recommendation change notice, that
the failure to effect an adverse recommendation change in response
to such intervening event would reasonably be expected to be
inconsistent with its fiduciary duties under applicable
law.
The
Merger Agreement provides that the term “intervening
event” means any material event with respect to the Company
occurring or arising prior to April 15, 2017 (other than a superior
proposal) that was neither known to the Board nor reasonably
foreseeable as of or prior to the date the Merger Agreement was
signed, which becomes known to the Board. However, the following
events, developments or changes in circumstances do not constitute
an intervening event: (i) the receipt, existence or terms of an
Acquisition Proposal or any matter relating thereto or consequence
thereof, (ii) any events, developments or changes in circumstances
relating to the Parent or any of Parent’s affiliates or any
competitor of the Company, (iii) changes in law applicable to the
Company, or (iv) changes in the market price or trading volume of
shares of Common Stock or the fact that the Company meets or
exceeds internal or published projections, forecasts or revenue or
earnings predictions for any period (except that the underlying
causes of such change or fact will not be excluded by this clause
(iv) prior to April 15, 2017).
In
addition, nothing contained in the Merger Agreement prohibits the
Company or the Board (or a duly authorized committee thereof) from:
(i) taking and disclosing to the stockholders of the Company a
position contemplated by Rule 14e-2(a) under the Exchange Act
or making a statement contemplated by or otherwise complying with
Item 1012(a) of Regulation M-A or Rule 14d-9 under
the Exchange Act; or (ii) making any disclosure to the stockholders
of the Company if the Board (or a duly authorized committee
thereof) determines in good faith, after consultation with its
outside legal counsel, that the failure to make such disclosure
would be reasonably likely to be inconsistent with its fiduciary
duties under applicable law.
Stockholder Action by Written Consent
Immediately
following the execution and delivery of the Merger Agreement, the
Company agreed to, in accordance with Delaware law, seek and use
its reasonable best efforts to obtain the Written Consent. The
Written Consent was delivered on March 17, 2017 following the
execution of the Merger Agreement. H.I.G. is permitted to revoke
the Written Consent only if the Board makes an adverse
recommendation change.
Reasonable Best Efforts to Complete
Each of
the Company, Merger Sub and Parent have agreed:
●
to use its
reasonable best efforts to, and will use its reasonable best
efforts to cause its representatives to, take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other party or parties hereto in doing, all
things reasonably necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the
Merger and each of the other transactions contemplated by the
Merger Agreement, including using reasonable best efforts to: (i)
cause each of the conditions to the Merger to be satisfied as
promptly as practicable after the date the Merger Agreement is
signed; (ii) obtain, as promptly as practicable after the date the
Merger Agreement is signed, and maintain all necessary actions or
non-actions and consents from any governmental bodies and make all
necessary registrations, declarations and filings with any
governmental bodies that are necessary to consummate the Merger and
the other transactions contemplated by the Merger Agreement; and
(iii) resist, contest, appeal and remove any legal proceeding and
to have vacated, lifted, reversed or overturned any restraint,
whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents, restricts or restrains the transactions
contemplated by the Merger Agreement;
●
not to take any
action that is intended to prevent, impair, materially delay or
otherwise adversely affect the consummation of the Merger or the
other transactions contemplated by the Merger Agreement or the
ability of such party to fully perform its obligations under the
Merger Agreement (except that none of the Company, Parent or Merger
Sub will be required prior to the effective time of the Merger to
pay any consent or other similar fee or consideration or otherwise
assume or incur or agree to assume or incur any obligation,
liability or commitment that is not conditioned upon the
consummation of the Merger, to obtain any consent of any person
(including any governmental body) under any contract);
●
to provide such
information and execute such further instruments and written
assurances as may be reasonably requested by the other parties and
assist and cooperate with the other parties, in each case in
accordance with the terms of the Merger Agreement, in order to
carry into effect the intents and purposes of, and to consummate
the transactions contemplated by, the Merger Agreement as promptly
as practicable after the date the Merger Agreement is
signed;
●
on behalf of itself
and its affiliates, to, between the date the Merger Agreement is
signed and the effective time of the Merger, not, and to cause its
affiliates not to, directly or indirectly, (i) acquire, purchase,
lease or license (or agree to acquire, purchase, lease or license),
by merging with or into or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other
manner, any business or any person or division or part thereof, or
any securities or collection of assets, if doing so would, or such
party reasonably anticipates it would, (A) result in any material
delay in obtaining, or materially increase the risk of not
obtaining, any consent of any governmental body required in
connection with the transactions contemplated by the Merger
Agreement (including the Merger) or (B) restrict, prevent,
prohibit, impede or materially delay the consummation of the Merger
or any of the other transactions contemplated by the Merger
Agreement, or (ii) take or agree to take any other action that it
expects will (A) result in any material delay in obtaining, or
materially increase the risk of not obtaining, any consent of any
governmental body required in connection with the transactions
contemplated by the Merger Agreement (including the Merger) or (B)
restrict, prevent, prohibit, impede, or materially delay the
consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement.
Indemnification and Insurance
The
surviving corporation will honor the obligations of the Company for
six years after the effective time of the Merger under all
indemnification, advancement of expenses and exculpation provisions
in its current governing documents and any indemnification
agreements between the Company and its current or former directors
or officers. In addition, from the effective time of the Merger
through the sixth anniversary of the effective time of the Merger,
the surviving corporation will cause its governing documents to
contain provisions with respect to exculpation, advancement of
expenses and indemnification that are at least as favorable to the
current or former directors or officers as those contained in the
governing documents of the Company as of the date of the Merger
Agreement.
In
addition, the Company will obtain, prior to the effective time of
the Merger, prepaid “tail” directors’ and
officers’ liability insurance policies, for six years from
the effective time of the Merger, for acts or omissions occurring
at or prior to the effective time of the Merger on terms with
respect to coverage and amount no less favorable than those
contained in such policy in effect on the date the Merger Agreement
was signed. In the event any such policy is not available on a
fully prepaid basis, then the Company will obtain, prior to the
effective time of the Merger, such policy for as long a term as is
then available, and Parent will, for the remaining period up to and
including six years after the closing date of the Merger, purchase
and keep such policy available at all times during such period
(except that if the premiums required to be paid by Parent or the
Company for such insurance policy for any one year period would
exceed 300% of the current annual premium paid by the Company for
the directors’ and officers’ liability insurance in
effect as of the date the Merger Agreement was signed, then Parent
or the Company (or any successor thereto) will cause to be
maintained policies of insurance that provide the maximum coverage
available at an annual premium equal to 300% of the Company’s
current premium for its insurance policy as of the date the Merger
Agreement was signed).
If Parent or the Company or any of their successors or assigns, as
the case may be, (i) consolidates with or merges into any
other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or
otherwise conveys all or substantially all of its properties and
assets to any other person, then and in each case, proper
provisions are required to be made so that the successors and
assigns of Parent or the surviving corporation or their respective
successors or assigns, as the case may be, assume in writing all of
the obligations with respect to director and officer
indemnification and insurance set forth in the Merger
Agreement.
The indemnification obligations may not be terminated, amended or
otherwise modified in any manner that adversely affects the current
and former directors and officers of the Company without the prior
written consent of such directors and officers. The current and
former directors and officers of the Company will have the right to
enforce the provisions of the Merger Agreement relating to their
indemnification and insurance and are express third-party
beneficiaries of the Merger Agreement for this
purpose.
In the event any individual who is employed by the Company
immediately prior to the effective time of the Merger (a
“Covered Employee”) first becomes eligible to
participate under any employee benefit plan, program, policy, or
arrangement of Parent or the Company or any of their respective
subsidiaries (the “New Plans”) following the effective
time of the Merger, Parent has agreed to, or to cause the Company
to: (i) waive any preexisting condition exclusions,
“actively-at-work” requirements and waiting periods
with respect to participation and coverage requirements applicable
to any Covered Employee under any New Plan providing medical,
dental, or vision benefits to the same extent such limitation would
have been waived or satisfied under the employee benefit plan
Covered Employee participated in immediately prior to coverage
under the New Plan; and (ii) provide each Covered Employee
with credit for any copayments and deductibles paid prior to the
Covered Employee’s coverage under any New Plan during the
calendar year in which such amount was paid, to the same extent
such credit was given under the employee benefit plan which the
Covered Employee participated in immediately prior to coverage
under the New Plan, in satisfying any applicable deductible or
out-of-pocket requirements under the New Plan.
As of the effective time of the Merger and thereafter, Parent has
agreed to recognize, or cause the Company and their respective
subsidiaries to recognize, all service of each Covered Employee
prior to the Effective Time, to the Company (or, to the extent
previously recognized by the Company, any predecessor entities of
the Company) for vesting and eligibility purposes, and for purposes
of calculating vacation and other paid time off benefits, under any
New Plans. In no event will this requirement result in any
duplication of benefits for the same period of
service.
As of the effective time of the Merger Agreement, the Company has
agreed to take all necessary actions to provide for full vesting of
all amounts credited to the account of each Covered Employee under
the Company’s 401(k) plan.
Other
Covenants and Agreements
The
parties acknowledged that the confidentiality agreement between
Parent and the Company remains in full force and effect in
accordance with its terms until the effective time of the Merger.
The Merger Agreement contains other covenants and agreements in
which each of Parent and the Company covenants or agrees to not
issue any public release or make any public announcement concerning
the Merger Agreement or the transactions contemplated by the Merger
Agreement without the prior written consent of the other (which
consent may not be unreasonably withheld, conditioned, or delayed),
except for pursuant to certain exceptions set forth in the Merger
Agreement and as required by law or applicable regulations (in
which case the party required to make the release or announcement
is required to use its reasonable best efforts to allow the other
party or parties hereto a reasonable opportunity to comment on such
release or announcement in advance of such issuance).
The
Company has also agreed to, during the period between the date the
Merger Agreement is signed and the earlier of: (i) the
effective time of the Merger and (ii) the termination of the
Merger Agreement:
●
provide Parent and
Parent’s representatives with reasonable access during normal
business hours, upon reasonable notice by Parent, to the respective
representatives of the Company, and to the books, records, tax
returns, material operating and financial reports, work papers and
other documents and information relating to the
Company;
●
provide reasonable
access during normal business hours, to the real property owned,
leased, subleased, licensed, other otherwise occupied by Company as
of the date the Merger Agreement is signed for purposes of
conducting Phase I environmental site assessments and limited
reviews of compliance with applicable environmental law, upon
reasonable notice, to the Company’s facilities and personnel;
and
●
permit
Parent’s officers and other employees to meet, upon
reasonable notice and during normal business hours, with the chief
financial officer and other officers and managers of the Company
responsible for the Company’s financial statements and the
internal controls of the Company to discuss such matters as Parent
may reasonably deem necessary or appropriate in order to enable
Parent to satisfy its obligations under the Sarbanes-Oxley Act and
the rules and regulations relating thereto or otherwise in
connection with the Merger.
Information
obtained by Parent or Merger Sub pursuant to these access
obligations are confidential and governed by the terms of the
confidentiality agreement between Parent and the Company. Nothing
in these access obligations requires the Company to permit any
inspection, or to disclose or provide any access to any
information, that in the reasonable judgment of the Company would:
(i) result in a violation of applicable law; or
(ii) reasonably be expected to violate or result in a waiver,
loss or impairment of any attorney-client privilege or work product
doctrine or similar applicable privilege or legal protection. Any
investigation conducted pursuant to these provisions must be
conducted in a manner that does not unreasonably interfere with the
conduct of the business of the Company or create a reasonable risk
of damage or destruction to any property or assets of the Company,
are subject to the Company’s existing security measures and
insurance requirements, and may not include the right to perform
invasive testing without the Company’s prior written consent,
in its reasonable discretion.
The
Company, Parent and Merger Sub agreed to make all required
antitrust filings and to cooperate and coordinate with the other in
the makings of such filings.
The
Company and Parent also agreed to notify the other:
●
upon becoming aware
that any representation or warranty made by it in the Merger
Agreement has become untrue or inaccurate in any material respect,
or of any failure of such person to comply with or satisfy in any
material respect any covenant, condition or agreement to be
complied with or satisfied by it under the Merger
Agreement;
●
of any material
written communication from any governmental body related to the
Merger; and
●
of any legal
proceeding commenced and served upon it that challenges the Merger
or would reasonably be expected to delay or materially impair the
closing of the Merger.
In the
event that any of certain state takeover laws specified in the
Merger Agreement is or becomes applicable to any of the
transactions contemplated by the Merger Agreement, the Company,
Parent and Merger Sub agreed to use their respective reasonable
best efforts to ensure that the transactions contemplated by the
Merger Agreement may be consummated as promptly as practicable on
the terms and subject to the conditions set forth in the Merger
Agreement and otherwise to minimize the effect of such law on the
Merger Agreement and the transactions contemplated by the Merger
Agreement.
In
addition, the Company has agreed to:
●
in consultation
with Parent, prepare and file with the SEC this information
statement and, promptly after receiving clearance from the SEC,
mail this information statement to stockholders of the
Company;
●
furnish information
about itself and such other matters as may be reasonable necessary
or advisable in connection with any statement, filing, notice, or
application made in connection with the Merger and the transactions
contemplated by the Merger Agreement;
●
use its reasonable
best efforts to deliver to Parent the resignations of certain
directors of the Company, which resignations become effective at
the closing of the Merger;
●
prior to the
earlier of the effective time of the Merger or the date of
termination of the Merger Agreement: (i) promptly advise
Parent in writing of any stockholder litigation against the Company
or its directors or officers relating to the Merger Agreement, the
Merger or the other transactions contemplated by the Merger
Agreement and keep Parent reasonably informed regarding any such
stockholder litigation; (ii) give Parent the opportunity, at
Parent’s sole cost and expense, to participate in the defense
or settlement of any stockholder litigation that arises after the
date the Merger Agreement was signed against the Company or its
directors or officers as a result of the Merger Agreement or the
transactions contemplated thereby; and (iii) not agree to any
settlement without Parent’s consent to such settlement, which
consent may not be unreasonably withheld, conditioned or delayed
(and Parent agreed to a reciprocal commitment to the Company),
provided, however, that Parent agreed that the Company is not
obligated to agree to any settlement unless such settlement
includes a full release of any director or executive officer of the
Company that was a party to such litigation;
●
take all such steps
as may be required to cause Merger, and any other dispositions of
equity securities of the Company by any director or executive
officer of the Company who is or will be subject to the reporting
requirements of Section 16(a) of the Exchange Act and the
rules and regulations thereunder, to be exempt under
Rule 16b-3 promulgated under the Exchange Act;
●
prior to the
effective time of the Merger Agreement, cooperate with Parent and
use commercially reasonable efforts to take, or cause to be taken,
all actions, and do or cause to be done all things reasonably
necessary, proper or advisable on its part under applicable laws to
enable the deregistration of the applicable Company shares under
the Exchange Act promptly after the effective time of the Merger
Agreement and to use all commercially reasonable efforts to cause
the applicable Company shares to be deregistered under the Exchange
Act as soon as practicable after the effective time of the Merger
Agreement;
●
on the closing
date, deliver to Parent a release of the Company from any fees or
expenses payable to (a) William Blair under the Engagement Letter,
dated July 20, 2016, between the Company and William Blair and (b)
H.I.G. Capital under the Advisory Services Agreement, dated March
18, 2011, between the Company and H.I.G. Capital;
●
promptly after the
date the Merger Agreement is signed, deliver to Parent a CD-ROM
reflecting the full and complete contents of the “Project
ASCENT” Intralinks data room maintained by the Company as of
the date the Merger Agreement is signed; and
●
file its annual
report on Form 10-K for the year ended December 31, 2016 as soon as
practicable after the execution and delivery of the Merger
Agreement.
Conditions to Completion of the
Merger
The
respective obligations of each party to effect the Merger are
subject to the satisfaction (or, if permitted by applicable Law,
written waiver by the party entitled to the benefit thereof) at or
prior to the closing of the following conditions:
●
All governmental
authorizations having been obtained;
●
No governmental
body having enacted, issued, promulgated or entered any law or
restraint which is in effect and has the effect of making the
transactions contemplated by the Merger Agreement illegal or other
restraining or prohibiting consummation of such
transactions;
●
Either the Written
Consent or the vote required of the stockholders of the Company to
approve the Merger having been obtained; and
●
The information
statement having been cleared by the SEC and mailed to the
stockholders of the Company (in accordance with Regulation 14C of
the Exchange Act) at least twenty (20) days prior to the closing
date of the Merger.
The
obligations of Parent and Merger Sub to effect the Merger are
subject to the satisfaction or waiver, of the following
conditions:
●
(i) the
representations and warranties of the Company related to approval
of the transaction, capitalization (other than de minimis
inaccuracies) and brokers being true and correct in all respects as
of the effective time of the Merger as though made on and as of the
effective time of the Merger, (ii) the representations and
warranties of the Company related to delivery of a schedule setting
forth certain indebtedness of the Company, transaction expenses
incurred in connection with the Merger, management and advisory
fees owed by the Company and the proper calculation of the Merger
Consideration being true and correct in all material respects
(without giving effect to any limitation as to
“materiality” or “Company material adverse
effect”) as of the effective time of the Merger as though
made on and as of such time, and (iii) all other representations
and warranties of the Company contained in the Merger Agreement
being true and correct in all respects (without giving effect to
any limitation as to “materiality” or “Company
material adverse effect”) as of the effective time of the
Merger as though made on and as of such time, except where the
failure of such representations and warranties described in this
clause (iii) to be true and correct does not have, individually or
in the aggregate, a Company material adverse effect; provided in
each case that representations and warranties made as of a specific
date need only be true and correct (subject, in the case of the
representations and warranties described in clauses (ii) and (iii),
to such qualifications) as of such specified date;
●
the Company having
performed in all material respects its obligations or covenants
contained in the Merger Agreement at or prior to the
closing;
●
since the date the
Merger Agreement was signed, there having not occurred any event
that has had, or would reasonably be expected to have, a Company
material adverse effect;
●
the Company having
provided to Parent a certificate dated the closing date signed on
its behalf by the chief financial officer of the Company to the
effect that the conditions set forth in the three bullets above
were satisfied; and
●
at least two
business days prior to closing, the Company having delivered to
Parent a payoff letter from certain holders of the Company’s
indebtedness indicating that upon payment of a specific amount,
such indebtedness will be paid in full and, if applicable, any
related security interest will be automatically released and Parent
or its designees will, to the extent applicable, be authorized to
file releases of all encumbrances relating thereto on the assets
and properties of the Company, including, to the extent applicable
Uniform Commercial Code termination statements, or such other
customary documents or endorsements necessary to evidence the
release of the securities interests of all holders.
The
obligations of the Company to effect the Merger are be subject to
the satisfaction or waiver, of the following
conditions:
●
the representations
and warranties of Parent and Merger Sub contained in the Merger
Agreement being true and correct as of the effective time of the
Merger as though made on and as of such time (other than such
representations and warranties that are made as of a specific date,
which need only be true and correct as of such specified date),
except where the failure of such representations and warranties to
be true and correct (without giving effect to any limitation as to
“materiality” or “Parent material adverse
effect”) does not have, individually or in the aggregate, a
Parent material adverse effect;
●
Parent and Merger
Sub having performed in all material respects its obligations or
covenants contained in the Merger Agreement at or prior to the
closing;
●
Parent having
provided to the Company a certificate dated the closing date signed
on its behalf by the chief financial officer of Parent to the
effect that the conditions set forth in the two bullets above were
satisfied; and
●
simultaneously with
the closing, Parent, on behalf of the Company, paying the amounts
reflected in the payoff letters the Company is required to deliver
to the lenders named therein in the manner set forth
therein.
Termination of the Merger Agreement
The
Merger Agreement may be terminated at any time prior to the
consummation of the Merger by the mutual written consent of Parent
and the Company.
In
addition, the Merger Agreement may be terminated by either Parent
or the Company if:
●
the Merger has not
been consummated on or prior to the Outside Date, provided, that a
party is not permitted to terminate the Merger Agreement pursuant
to this right if the failure to consummate the Merger is
attributable to a failure of such party (and in the case of Parent,
including the failure of Merger Sub) to perform in any material
respect its obligations under the Merger Agreement;
●
any governmental
body of competent jurisdiction has (i) enacted, issued or
promulgated any law that is in effect as of immediately prior to
the consummation of the Merger and which has the effect of making
the Merger illegal or which has the effect of prohibiting or
otherwise preventing the consummation of the Merger in the United
States, or (ii) issued or granted any restraint that is in effect
as of immediately prior to the consummation of the Merger and which
has the effect of making the Merger illegal or which has the effect
of prohibiting or otherwise preventing the consummation of the
Merger, and such restraint is final and nonappealable, provided,
that
the right to
terminate the Merger Agreement pursuant to this right is not
available to a party if the issuance of such restraint is
attributable to a failure of such party (and in the case of Parent,
including the failure of Merger Sub) to perform in any material
respect its obligations under the Merger Agreement; or
●
on or prior to the
Outside Date, the Written Consent has not been obtained and the
vote required of the stockholders of the Company to approve the
Merger has not been obtained at the Company stockholders meeting
duly convened therefor or at any adjournment or postponement
thereof, at which a final vote on the approval of the Merger
Agreement was taken.
The
Merger Agreement also may be terminated by Parent if:
●
the Board has made
an adverse recommendation change;
●
(i) there has
been a breach of any covenant or agreement on the part of the
Company set forth in the Merger Agreement or (ii) any
representation or warranty of the Company set forth in the Merger
Agreement was inaccurate when made or, if not made as of a specific
date, has become inaccurate, which, in either case of clauses (i)
or (ii), results in the conditions to the closing related to the
Company’s representations and warranties not being satisfied,
and in the case of both clauses (i) and (ii), such breach
or inaccuracy is not curable by the Outside Date, or, if curable,
is not cured by the Outside Date; or
●
either (i) the
Written Consent was not obtained and delivered to Parent within the
required period of time, or (ii) the Company Stockholder Approval
was not obtained at the Company stockholders meeting duly convened
therefor or at any adjournment or postponement thereof, at which a
final vote on the approval of the Merger Agreement was
taken.
The
Merger Agreement also may be terminated by the
Company:
●
(i) there has
been a breach of any covenant or agreement on the part of Parent or
Merger Sub set forth in the Merger Agreement; or (ii) any
representation or warranty of Parent or Merger Sub set forth in the
Merger Agreement was inaccurate when made or has become inaccurate,
which, in either case of clauses (i) or (ii), results in the
conditions to the closing related to Parent’s or Merger
Sub’s representations and warranties not being satisfied, and
in the case of both clauses (i) and (ii), such breach or
inaccuracy is not curable by the Outside Date, or, if curable, is
not cured by the Outside Date; or
●
the Board effected
an adverse recommendation change with respect to a superior
proposal or an intervening event (other than an intervening event
that would reasonably be expected to have a material adverse effect
on the Parent and its subsidiaries, taken as a whole) in accordance
with, and in compliance with the requirements of, the Merger
Agreement and concurrently with the termination of the Merger
Agreement, the Company (i) entered into an agreement related to the
applicable superior proposal, if such adverse recommendation change
relates to a superior proposal, and (ii) and paid the termination
fee as required under the Merger Agreement.
Effect
of Termination; Termination Fee; Reverse Termination
Fee
In the
event the Merger Agreement is terminated, the Merger Agreement will
become void and have no effect without any liability or obligation
on the part of Parent, Merger Sub or the Company, unless the Merger
Agreement is terminated as a result of fraud or willful and
material breach of any representations and warranties set forth in
the Merger Agreement or any material breach of any covenant set
forth in the Merger Agreement, in which case the aggrieved party
will be entitled to all remedies available to such party in law and
equity. The parties acknowledged and agreed that any failure by
Parent or Merger Sub to consummate the Merger and other
transactions contemplated by the Merger Agreement after the
applicable conditions to the closing are satisfied or waived
(except for those conditions that by their nature are to be
satisfied at the closing, which conditions would be capable of
being satisfied at the time of such failure to consummate the
Merger) constitutes a material breach of a covenant set forth in
the Merger Agreement.
If the
Merger Agreement is terminated by Parent after the Board makes an
adverse recommendation change or by the Company after the Board
makes an adverse recommendation change (unless the adverse
recommendation change relates to an intervening event that would
reasonably be expected to have an adverse effect on the Parent and
its subsidiaries, taken as a whole), then the Company has agreed to
pay to Parent a termination fee of $4.68 million, in no event more
than once. The termination fee must be paid in cash (i) no later
than two business days following termination by Parent and
(ii) substantially concurrently (or the next Business Day if
payment is not feasible on the date of termination) with any
termination by the Company. Parent’s right to receive payment
of the termination fee constitutes the sole and exclusive remedy of
Parent and Merger Sub against the Company and its affiliates and
representatives for all losses and damages suffered as a result of
the failure of the Merger to be consummated.
In the
event that the Merger Agreement is terminated by the Company
(i) as a result of the Merger not being consummated by the
Outside Date or (ii) as a result of a breach of any covenant or
agreement on the part of Parent or Merger Sub set forth in the
Merger Agreement or the inaccuracy of any representations or
warranties of Parent or Merger Sub set forth in the Merger
Agreement, and in the case of clause (i), both (A) the
conditions to the obligations of all parties and the conditions to
the obligations of Parent and Merger Sub are satisfied or capable
of being satisfied or are waived (other than those conditions that
by their nature are to be satisfied by actions taken at the
closing, each of which is capable of being satisfied at the
Closing), and (B) either Parent or Merger Sub fails to satisfy
its obligations to effect the closing by the date the closing is
required to have occurred pursuant to the Merger Agreement, then
Parent has agreed pay to the Company a reverse termination fee of
$7.02 million. The reverse termination fee must be paid in cash (i)
no later than two business days following termination as a
result of the Merger not being consummated by the Outside Date and
(ii) substantially concurrently (or the next business day if
payment is not feasible on the date of termination) with any other
termination where the reverse termination fee is required to be
paid. The Company’s right to receive the reverse termination
fee constitutes the sole and exclusive remedy of the Company or its
stockholders against the Parent, Merger Sub and their respective
affiliates and representatives for all losses and damages suffered
as a result of the failure of the Merger to be
consummated.
At any
time prior to the consummation of the Merger, the Merger Agreement
and any exhibit attached thereto, may be amended or supplemented in
any and all respects only by a written agreement signed by all of
the parties to the Merger Agreement, provided,
that if in connection with any
amendment or supplement, the Written Consent or the consent of the
Company’s stockholders is required under the DGCL, after the
Written Consent or the consent of the Company’s stockholders
has been obtained, there may not be any amendment or supplement
that would require the further approval of the stockholders of the
Company under the DGCL without such approval having first been
obtained.
Except
as otherwise provided in the Merger Agreement, any provision of the
Merger Agreement may be waived prior to the consummation of the
Merger, if, but only if, such waiver is in writing and is signed by
each party against whom the waiver is to be effective.
Notwithstanding the foregoing, no failure or delay by any party in
exercising any right hereunder will operate as a waiver of rights,
nor will any single or partial exercise of such rights preclude any
other or further exercise of such rights or the exercise of any
other right hereunder. Except as otherwise provided in the Merger
Agreement, the rights and remedies herein provided are cumulative
and not exclusive of any rights provided by law.
The
parties agreed that irreparable damage would occur for which
monetary damages would not be an adequate remedy in the event that
any of the provisions of the Merger Agreement are not performed in
accordance with the terms thereof or are otherwise breached, and
that the party seeking to enforce the Merger Agreement against such
nonperforming party under the Merger Agreement is entitled to
specific performance and the issuance of injunctive and other
equitable relief to prevent breaches or threatened breaches of the
Merger Agreement. The parties further agreed to waive any
requirement for the securing or posting of any bond or similar
collateral in connection with the obtaining of any such injunctive
or other equitable relief, which is in addition to any other remedy
to which they are entitled at law or in equity. Each party also
agreed that it will not oppose the granting of an injunction,
specific performance and other equitable relief on the basis that
or otherwise assert that (i) the other party has an adequate remedy
at law, or (ii) an award of specific performance is not an
appropriate remedy for any reason at law or equity.
The
Merger Agreement is governed by and will
be construed in accordance with the laws of the State of
Delaware, without regard to the conflict of laws principles of
Delaware.
MARKET
PRICE OF THE COMPANY’S COMMON STOCK
The
Company’s Common Stock is traded on the OTCQB Tier of the OTC
Markets Group, Inc. over-the-counter market under the symbol
“AERT”.
The
following table sets forth during the periods indicated the high
and low bid prices for the Common Stock as reported by the OTCQB.
No cash dividends were declared per share for the Common Stock
during such periods.
|
|
|
|
|
|
|
|
Fiscal
2015
|
|
|
|
First
Quarter
|
$
0.10
|
$
0.07
|
|
Second
Quarter
|
$
0.11
|
$
0.07
|
|
Third
Quarter
|
$
0.09
|
$
0.02
|
|
Fourth
Quarter
|
$
0.12
|
$
0.06
|
|
|
|
|
|
Fiscal
2016
|
|
|
|
First
Quarter
|
$
0.10
|
$
0.06
|
|
Second
Quarter
|
$
0.09
|
$
0.06
|
|
Third
Quarter
|
$
0.09
|
$
0.06
|
|
Fourth
Quarter
|
$
0.15
|
$
0.07
|
|
|
|
|
|
Fiscal
2017
|
|
|
|
First
Quarter
|
$
0.13
|
$
0.08
|
|
Second
Quarter (through April 7,
2017)
|
$
0.14
|
$
0.13
|
The
closing price of our Common Stock on March 16, 2017 which was the
last trading day before the Merger was publicly announced, was
$0.1021 per share. On April 7, 2017 the most recent
practicable date before the filing of this information statement,
the closing price for our Common Stock was $0.134 per
share. You are encouraged to obtain current market quotations for
our Common Stock. There are no shares of our Preferred Stock listed
for trading on any market.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The
following table sets forth certain information regarding the
beneficial ownership of our Common Stock and Preferred Stock as of
April 7, 2017 by: (1) each person, or group of
affiliated persons, known by us to beneficially own more than 5% of
our Common Stock or Preferred Stock. (2) each of our
directors; (3) each of our named executive officers. and
(4) all of our directors and executive officers as a group.
Unless otherwise indicated, the persons or entities identified in
the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them, subject to applicable
community property laws.
Information with
respect to beneficial ownership has been furnished by each director
and executive officer. With respect to beneficial owners of more
than 5% of our outstanding Common Stock or Preferred Stock,
information is based on information filed with the SEC. Except to
the extent indicated in the footnotes to the following table, each
of the persons or entities listed therein has sole voting and
investment power with respect to the shares which are reported as
beneficially owned by such person or entity. Unless otherwise noted
below, the address of each beneficial owner listed in the table is
c/o Advanced Environmental Recycling Technologies, Inc., 914 N.
Jefferson Street, Springdale, Arkansas 72764.
|
Title of Class
|
|
Name of Beneficial
Owner
|
|
Amount and
Nature of Beneficial
Ownership(2)
|
Percent of
Class(4)
|
|
|
|
|
|
|
|
|
Series E
Preferred
|
|
H.I.G. AERT,
LLC
(1)
|
|
20,524.149
|
100.0
%
|
|
Class A
Common
|
|
H.I.G. AERT,
LLC
|
|
408,373,979
(3)
|
84.6
%
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
Class A
Common
|
|
Alford E.
Drinkwater
|
|
100,000
|
*
|
|
Class A
Common
|
|
Randall D.
Gottlieb
|
|
0
|
*
|
|
Class A
Common
|
|
J.R. Brian
Hanna
|
|
500,000
|
*
|
|
Class A
Common
|
|
Brent D.
Gwatney
|
|
60,000
|
*
|
|
Class A
Common
|
|
Timothy D.
Morrison
|
|
700,000
|
*
|
|
Class A
Common
|
|
Todd J.
Ofenloch
|
|
0
|
*
|
|
Class A
Common
|
|
Michael R.
Phillips
|
|
0
|
*
|
|
Class A
Common
|
|
Vernon J.
Richardson
|
|
10,000
|
*
|
|
Class A
Common
|
|
Bobby J.
Sheth
|
|
0
|
*
|
|
Class A
Common
|
|
All directors and
executive officers as a group (9 persons)
|
|
1,370,000
|
1.5
%
|
*
Less than 1% of the
Company’s outstanding Common Stock.
(1)
H.I.G. AERT,
LLC’s address is 1450 Brickell Avenue, 31st Floor, Miami,
Florida 33131.
(2)
Beneficial
ownership of shares was determined in accordance with Rule
13-3(d)(1) of the Exchange Act.
(3)
Includes (i)
15,289,890 shares of Common Stock and (ii) 393,084,089 shares of
Common Stock issuable upon conversion of 20,524.149 shares of
Preferred Stock at the fixed rate of 19,152.27 shares of Common
Stock for each share of Preferred Stock, the “Conversion
Rate” for the Preferred Stock pursuant to the Company’s
Certificate of Designations, Preferences and Rights of the Series E
Convertible Preferred Stock in the event a fundamental transaction
(which includes the Merger) occurs prior to August 1, 2017.
Pursuant to Schedule 13D/A last filed by H.I.G. on April 1, 2016
with the SEC, (i) H.I.G. has sole voting and dispositive power over
all the shares and no shared voting or dispositive power with
respect to any shares (ii) beneficial ownership of the securities
is shared with H.I.G. Capital Partners IV, L.P., Bayside
Opportunity Fund, L.P., H.I.G. Advisors IV, LLC, Bayside
Opportunity Advisors, LLC, H.I.G.-GPII, Inc., Sami W. Mnaymneh and
Anthony A. Tamer. Each such party expressly disclaims beneficial
ownership, except to the extent of its pecuniary interest in the
shares of Common Stock. The shares of Preferred Stock are
convertible into shares of Common Stock at H.I.G’s election
and for no additional consideration provided.
(4)
Common Stock
beneficial ownership was calculated by dividing the beneficial
ownership of each stockholder by the sum of (i) the total of
89,631,162 shares of Common Stock outstanding as of April
7, 2017 and (ii) in the case of each such stockholder, any
shares issuable to such stockholder upon the exercise or conversion
of any derivative securities that are currently exercisable or
become exercisable within 60 days of April 7, 2017
(which, with respect to H.I.G., includes 393,084,089 shares of
Common Stock issuable to H.I.G. in connection with conversion of
its Preferred Stock).
The discussion of the provisions set forth below is not a complete
summary regarding your appraisal rights under Delaware law and is
qualified in its entirety by reference to the text of the relevant
provisions of the DGCL, which is attached as Annex C to this
information statement and incorporated herein by reference, and
which sets forth the statutory rights of appraisal and the
procedures for effecting these rights. Holders of record of Common
Stock intending to exercise appraisal rights should carefully
review Annex C. Failure to precisely satisfy any of the statutory
procedures and requirements set forth in Annex C may result in a
termination or waiver of your appraisal rights under applicable
law. Therefore, this summary and Annex C should be reviewed
carefully in their entirety by any stockholder who wishes to
exercise statutory appraisal rights or who wishes to reserve the
right to do so.
Under the DGCL, a
stockholder of record of shares of Common Stock who makes the
demand described below with respect to such shares, who
continuously is the record holder of such shares through the
effective time of the Merger and who otherwise complies with the
statutory requirements of Section 262 of the DGCL ("Section 262")
will be entitled to an appraisal by the Delaware Court of Chancery
(the "Court") of the fair value of such shares of Common Stock. To
exercise and perfect appraisal rights, a record holder of our
Common Stock must follow the statutory procedures of Section 262
required to be followed by a stockholder to perfect appraisal
rights. All references in this summary of appraisal rights to a
"stockholder" or "holders of shares of Common Stock" are to the
record holder or holders of shares of Common
Stock.
Section
262 sets forth the procedures a stockholder must follow to have
his, her or its shares appraised by the Court and to receive
payment of the "fair value" of such shares of Common Stock. The
statutory rights of appraisal granted by Section 262 are subject to
strict compliance with the procedures set forth in Section
262.
Under
the DGCL, holders of our Common Stock who follow the procedures set
forth in Section 262 of the DGCL will be entitled to have their
shares appraised by the Court and to receive payment in cash of the
"fair value" of those shares, exclusive of any element of value
arising from the accomplishment or expectation of the
Merger.
Under
Section 262, where a merger agreement relating to a proposed merger
is adopted by stockholders acting by written consent in lieu of a
meeting of stockholders, either a constituent corporation before
the effective time of the merger or the surviving or resulting
corporation, within 10 days after the effective time of the merger,
must notify each stockholder of each constituent corporation
entitled to appraisal rights of the merger and that appraisal
rights are available to such stockholders, and must include in each
such notice a copy of Section 262. This information statement
constitutes notice to holders of the Common Stock concerning the
availability of appraisal rights under Section 262 and Section 262
is annexed to this information statement as Annex C. Any
stockholder who wishes to exercise such appraisal rights or who
wishes to preserve such stockholder's right to do so should review
the following discussion and Annex C carefully, because failure to
timely and properly comply with the procedures specified will
result in the loss of appraisal rights under the
DGCL.
A
stockholder of record of Common Stock electing to exercise
appraisal rights must deliver to the Company a written demand for
the appraisal of his, her or its shares of Common Stock within 20
days after the date of mailing of this information statement.
Accordingly, this 20-day period will terminate on May
1, 2017. Such demand for appraisal will be sufficient if it
reasonably informs the Company of the identity of the stockholder
of record and that the stockholder intends to demand appraisal of
his, her or its shares of Common Stock. If you wish to exercise
your appraisal rights you must be the record holder of such shares
of our Common Stock on the date the written demand for appraisal is
made and you must continue to hold such shares through the
effective time of the Merger. Accordingly, a stockholder who is the
record holder of shares of Common Stock on the date the written
demand for appraisal is made, but who thereafter transfers such
shares prior to the effective time of the Merger, will lose any
right to appraisal in respect of such shares.
Only a stockholder
of record of shares of our Common Stock at the effective time of
the Merger is entitled to assert appraisal rights for the shares of
Common Stock registered in her, his or its name. The demand for
appraisal should be executed by or on behalf of the stockholder of
record, fully and correctly, as the stockholder's name appears on
the stockholder's stock certificates and must state that such
person intends thereby to demand appraisal of his, her or its
shares. If the shares are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the
demand for appraisal must be made in that capacity, and if the
shares are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand for appraisal must be
executed by or on behalf of all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the
demand for appraisal on behalf of a stockholder of record; however,
the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, he or she is
acting as agent for the record owner.
A record holder
such as a broker who holds shares as nominee for several beneficial
owners may exercise appraisal rights with respect to the shares of
our Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares held for other
beneficial owners; in such case, the written demand must set forth
the number of shares as to which appraisal is sought. Where the
number of shares of our Common Stock is not expressly stated, the
demand will be presumed to cover all shares of Common Stock held in
the name of the record owner. If you hold your shares in brokerage
accounts or other nominee forms and wish to exercise your appraisal
rights, you are urged to consult with your broker to determine the
appropriate procedures for the making of a demand for appraisal. If
a stockholder holds shares of Common Stock through a broker who in
turn holds the shares through a central securities depository
nominee such as Cede & Co., a demand for appraisal of such
shares must be made by or on behalf of the depository nominee and
must identify the depository nominee as record
holder.
All written demands
for appraisal of shares must be mailed or delivered to: Advanced
Environmental Recycling Technologies, Inc., c/o Corporate Secretary
at 914 N. Jefferson Street, Springdale, Arkansas
72764.
Within 120 days
after the effective date of the Merger, the Company or any
stockholder who has satisfied the provisions of Section 262 may
commence an appraisal proceeding by filing a petition with the
Court, with a copy served on the Company in the case of a petition
filed by a stockholder, demanding a determination of the value of
the shares held by all dissenting stockholders. If no such petition
is filed, appraisal rights will be lost for all stockholders who
had previously demanded appraisal for their shares. Stockholders
seeking to exercise appraisal rights should not assume that the
Company will file a petition with respect to the appraisal of the
value of their shares or that the Company will initiate any
negotiations with respect to the "fair value" of such shares.
Accordingly, it is the responsibility of each stockholder to
initiate all necessary action to perfect such stockholder's
appraisal rights within the time periods prescribed by Section
262.
Within 120 days
after the effective date of the Merger, any stockholder who has
theretofore complied with the requirements for exercise of
appraisal rights, as discussed above, will be entitled, upon
written request, to receive from the Company a statement setting
forth the aggregate number of shares with respect to which demands
for appraisal have been made and the aggregate number of holders of
such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by the Company or, if
later, within 10 days after the expiration of the period for
delivery to the Company of appraisal demands. A person who is the
beneficial owner of shares of Common Stock held in a voting trust
or by a nominee on behalf of such person may, in such person's own
name, request such a statement from the Company and may also file a
petition for appraisal.
If a petition for
an appraisal is timely filed and a copy thereof served upon us, we
will then be obligated, within 20 days, to file with the Delaware
Register in Chancery a duly verified list containing the names and
addresses of the stockholders who have demanded appraisal of their
shares and with whom agreements as to the value of their shares
have not been reached. If such petition is filed by the Company,
the petition is required to be accompanied by such a duly verified
list. After notice to the stockholders as required by the Court,
the Court is empowered to conduct a hearing on such petition to
determine those stockholders who have complied with Section 262 and
who have become entitled to appraisal rights thereunder. The Court
may require the stockholders who have demanded an appraisal for
their shares and who hold shares represented by certificates to
submit their certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; if any
stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
After the Court
determines which stockholders are entitled to appraisal of their
shares of Common Stock, the appraisal proceeding shall be conducted
in accordance with the rules of the Court, including any rules
specifically governing appraisal proceedings. Through such
proceeding, the Court shall determine the fair value of such shares
of Common Stock exclusive of any element of value arising from the
accomplishment or expectation of the Merger with interest thereon
to be paid in accordance with Section 262 as the Court so
determines.
Stockholders
considering seeking appraisal should bear in mind that the fair
value of their shares determined under Section 262 could be more,
the same, or less than the per share Merger Consideration they
would be entitled to receive if they do not seek appraisal of their
shares and that investment banking opinions as to fairness from a
financial point of view of the consideration payable in a merger
are not necessarily opinions as to fair value under Section 262.
Although the Company believes the Merger Consideration is fair, no
representation is made as to the outcome of the appraisal of fair
value as determined by the Court. Moreover, the Company does not
anticipate offering more than the per share Merger Consideration to
any stockholder exercising appraisal rights and reserves the right
to assert, in any appraisal proceeding, that, for purposes of
Section 262, the "fair value" of a share of Common Stock is less
than the per share Merger Consideration. In determining "fair
value" of shares, the Court will take into account all relevant
factors. In
Weinberger v.
UOP
,
Inc.
, the
Delaware Supreme Court stated that such factors include "market
value, asset value, dividends, earnings prospects, the nature of
the enterprise and any other facts which were known or which could
be ascertained as of the date of the merger which throw any light
on future prospects of the merged corporation." In
Weinberger
, the Delaware Supreme Court
further stated that "proof of value by any techniques or methods
generally considered acceptable in the financial community and
otherwise admissible in Court" should be considered in an appraisal
proceeding. Section 262 provides that fair value is to be
"exclusive of any element of value arising from the accomplishment
or expectation of the merger." In
Cede & Co. v. Technicolor, Inc.
,
the Delaware Supreme Court stated that such exclusion is a "narrow
exclusion [that] does not encompass known elements of value," but
which rather applies only to the speculative elements of value
arising from such accomplishment or expectation. In Weinberger, the
Delaware Supreme Court construed Section 262 to mean that "elements
of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not
the product of speculation, may be
considered."
When
the fair value is so determined, the Court shall direct the payment
of the fair value of the shares, with interest thereon to be paid
in accordance with Section 262 and as the Court so determines, to
the dissenting stockholders entitled thereto, upon the surrender to
the Company by such dissenting stockholders of the certificates
representing such shares. Unless the Court, in its discretion, sets
a different interest rate for good cause shown, interest on an
appraisal award will accrue and compound quarterly from the
effective time of the Merger through the date the judgment is paid
at 5% over the Federal Reserve discount rate (including any
surcharge) as established from time to time during the period
between the effective time of the Merger and the date of payment of
the judgment. At any time before the entry of judgment in the
proceedings, the surviving entity may pay to each AERT stockholder
entitled to appraisal an amount in cash (which will be treated as
an advance against the payment due to such AERT stockholder), in
which case interest shall accrue after such payment only upon the
sum of (i) the difference, if any, between the amount so paid and
the fair value of the shares as determined by the Court, and (ii)
interest theretofore accrued, unless paid at that time. The costs
of the appraisal proceeding (which do not include attorneys' or
expert fees or expenses) may be determined by the Court and taxed
against the parties as the Court deems equitable under the
circumstances. Upon application of a dissenting stockholder, the
Court may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's
fees and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal. In the
absence of such a determination or assessment, each party bears
her, his or its own expenses.
Any stockholder who
has duly demanded an appraisal in compliance with Section 262 will
not, after the effective time of the Merger, be entitled to vote
the shares subject to such demand for any purpose or be entitled to
receive the payment of dividends or other distributions in respect
of those shares (other than those payable to stockholders of record
as of a date prior to the effective time of the
Merger).
If any
stockholder who demands appraisal of their shares under Section 262
fails to perfect or effectively withdraws or loses the right to
appraisal, the shares of such stockholder will be converted into
the right to receive the per share Merger Consideration in
accordance with the Merger Agreement. A stockholder will fail to
perfect or effectively lose a right to appraisal if no petition for
appraisal is filed within 120 days after the effective time of the
Merger or if the stockholder delivers to the Company a written
withdrawal of such stockholder's demand for an appraisal and an
acceptance of the Merger, except that (i) any such attempt to
withdraw made more than 60 days after the effective time of the
Merger requires the written approval of the Company, and (ii) no
appraisal proceeding in the Court shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just;
provided, however, that this will not affect the right of any
stockholder who has not commenced an appraisal proceeding or joined
such proceeding as a named party to withdraw such stockholder's
demand for appraisal and to accept the terms offered upon the
Merger within 60 days after the effective time of the Merger. The
Company has no obligation or intention to file such a petition.
Therefore, any stockholder who desires a petition to be filed is
advised to file it on a timely basis.
If you properly
demand appraisal of your shares of Common Stock under Section 262
of the DGCL but you fail to perfect, or effectively withdraw or
lose, your right to appraisal as provided in Section 262 of the
DGCL, your shares of Common Stock will be converted into the right
to receive the per share Merger Consideration to be paid pursuant
to the Merger Agreement. You will fail to perfect, or effectively
lose or withdraw, your right to appraisal if, among other things,
no petition for appraisal is filed within 120 days after the
effective time of the Merger, or if you deliver to us a written
withdrawal of your demand for appraisal. Any such attempt to
withdraw an appraisal demand more than 60 days after the effective
time of the Merger will require our written
approval.
If
you desire to exercise your appraisal rights, you must strictly
comply with the procedures set forth in Section 262. Failure to
take any required step in connection with the exercise of appraisal
rights will result in the termination or waiver of such rights. In
view of the complexity of Section 262, stockholders who may wish to
pursue appraisal rights should consult their legal
advisors.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We are
subject to the informational requirements of the Exchange Act. We
file annual, quarterly and current reports, proxy statements and
other information with the SEC. A copy of the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2016 is included as Annex D and constitutes part of this
information statement. You may read and copy any document we file
at the SEC’s public reference room located at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public at the
SEC’s website at http://www.sec.gov. You also may obtain free
copies of the documents we file with the SEC by going to the
“SEC Filings” section of our Investor Relations website
at http://www.aert.com. The information provided on our website is
not part of this information statement, and therefore is not
incorporated by reference herein.
Any
person, including any beneficial owner, to whom this information
statement is delivered may request copies of this information
statement or other information concerning us, without charge, by
written or telephonic request directed to the Company at 914 N.
Jefferson Street, Springdale, Arkansas, 72764, Attention: Investor
Relations, (479) 203-5084, or on the Investor Relations section of
our website (http://www.aert.com) or from the SEC through the
SEC’s website at http://www.sec.gov.
Some
banks, brokers and other nominee record holders may be
participating in the practice of “householding”
information statements and annual reports. This means that only one
copy of this information statement may have been sent to multiple
stockholders in your household, unless we have received contrary
instructions from you or other stockholders in your household. We
will promptly deliver a separate copy of this information statement
to you upon written or oral request to the Company by mail or
telephone to 914 N. Jefferson Street, Springdale, Arkansas, 72764,
Attention: Investor Relations, (479) 203-5084. If you want to
receive separate copies of the Company’s communications to
stockholders in the future, or if you are receiving multiple copies
and would like to receive only one copy per household, you should
contact your bank, broker or other nominee record holder, or you
may contact us at the above address and telephone
number.
Parent
has supplied all information in this information statement
pertaining to Parent and Merger Sub, and we have supplied all
information in this information statement pertaining to
us.
AGREEMENT
AND PLAN OF MERGER
among:
OLDCASTLE
ARCHITECTURAL, INC.
a
Delaware corporation;
OLDCASTLE
ASCENT MERGER SUB, INC.,
a
Delaware corporation; and
ADVANCED
ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.,
a
Delaware corporation
Dated
as of March 16, 2017
|
|
Page
|
|
ARTICLE
I. DEFINITIONS
|
A-1
|
1.1
Definitions
|
A-1
|
|
ARTICLE
II. THE MERGER
|
A-
13
|
|
2.1
The Merger
|
A-
13
|
|
2.2
Closing; Effective Time
|
A-
13
|
|
2.3
Effect of the Merger
|
A-
13
|
|
2.4
Certificate of Incorporation; Bylaws; Directors and
Officers
|
A-
13
|
|
2.5
Conversion of Shares
|
A-
14
|
|
2.6
Closing of the Companys Transfer Books
|
A-
14
|
|
2.7
Surrender of Certificates
|
A-
14
|
|
2.8
Statutory Rights of Appraisal
|
A-
16
|
|
2.9
Further Action
|
A-
16
|
|
ARTICLE
III. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
|
A-
17
|
|
3.1
Qualifications, Organization, etc
|
A-
17
|
|
3.2
Subsidiaries
|
A-
17
|
|
3.3
Corporate Authority; Non-contravention
|
A-
18
|
|
3.4
Capitalization
|
A-
19
|
|
3.5
SEC Filings; Financial Statements
|
A-
20
|
|
3.6
No Undisclosed Liabilities
|
A-
22
|
|
3.7
Interested Party Transactions
|
A-
22
|
|
3.8
Absence of Changes
|
A-
22
|
|
3.9
Title to Assets
|
A-
22
|
|
3.10
Intellectual Property
|
A-
23
|
|
3.11
Contracts
|
A-
24
|
|
3.12
Compliance with Law; Permits
|
A-
24
|
|
3.13
Governmental Authorizations
|
A-
25
|
|
3.14
Tax Matters
|
A-
25
|
|
3.15
Employee Matters
|
A-
26
|
|
3.16
Real Property; Leasehold; Tangible Assets
|
A-
27
|
|
3.17
Insurance
|
A-
28
|
|
3.18
Legal Proceedings
|
A-
28
|
|
3.19
Environmental Matters
|
A-
28
|
|
3.20
Fairness Opinion
|
A-
29
|
|
3.21
Brokers
|
A-
29
|
|
3.22
Customers and Suppliers
|
A-
29
|
|
3.23
No Other Representations
|
A-
30
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
ARTICLE
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB
|
A-
30
|
|
4.1
Qualifications; Organization
|
A-
30
|
|
4.2
Corporate Authority; Non-contravention
|
A-
30
|
|
4.3
No Legal Proceedings Challenging the Merger
|
A-
31
|
|
4.4
Activities of Merger Sub
|
A-
31
|
|
4.5
Information Supplied
|
A-
31
|
|
4.6
Availability of Funds
|
A-
32
|
|
4.7
Brokers
|
A-
32
|
|
4.8
Interested Stockholder
|
A-
32
|
|
4.9
No Parent Vote or Approval Required
|
A-
32
|
|
4.10
No Other Company Representations or Warranties
|
A-
32
|
|
ARTICLE
V. COVENANTS
|
A-
33
|
|
5.1
Access and Investigation
|
A-
33
|
|
5.2
Operation of the Companys Business
|
A-
33
|
|
5.3
No Solicitation by the Company; Other Offers
|
A-
36
|
|
5.4
Stockholder Consent; Preparation of Information
Statement
|
A-
38
|
|
5.5
Reasonable Best Efforts to Complete
|
A-
40
|
|
5.6
Antitrust Filings
|
A-
41
|
|
5.7
Public Statements and Disclosure
|
A-
42
|
|
5.8
Director and Officer Liability
|
A-
42
|
|
5.9
Notification of Certain Events
|
A-
44
|
|
5.10
Employee Matters
|
A-
44
|
|
5.11
Confidentiality
|
A-
45
|
|
5.12
Stockholder Litigation
|
A-
45
|
|
5.13
Section 16 Exemption
|
A-
45
|
|
5.14
Takeover Laws
|
A-
45
|
|
5.15
Post-Closing Reports
|
A-
46
|
|
5.16
Terminations and Releases
|
A-
46
|
|
5.17
Data Room CD-ROM
|
A-
46
|
|
5.18
Filing of Annual Report on Form 10-K
|
A-
46
|
|
ARTICLE
VI. CONDITIONS TO MERGER
|
A-
46
|
|
6.1
Conditions to Obligations of all Parties
|
A-
46
|
|
6.2
Conditions to Obligations of Parent and Merger Sub
|
A-
46
|
|
6.3
Conditions to Obligations of the Company
|
A-
47
|
|
ARTICLE
VII. TERMINATION
|
A-
48
|
|
7.1
Termination
|
A-
48
|
|
7.2
Effect of Termination
|
A-
50
|
|
7.3
Expenses; Termination Fee; Reverse Termination Fee
|
A-
50
|
TABLE OF CONTENTS
(continued)
|
|
Page
|
|
ARTICLE
VIII. MISCELLANEOUS PROVISIONS
|
A-
51
|
|
8.1
Notices
|
A-
51
|
|
8.2
No Survival
|
A-
52
|
|
8.3
Amendment or Supplement
|
A-
52
|
|
8.4
Waiver
|
A-
53
|
|
8.5
Entire Agreement; No Third Party Beneficiary
|
A-
53
|
|
8.6
Governing Law; Jurisdiction
|
A-
53
|
|
8.7
Attorneys Fees
|
A-
54
|
|
8.8
Specific Enforcement
|
A-
54
|
|
8.9
Assignment
|
A-
54
|
|
8.10
Severability
|
A-
54
|
|
8.11
Construction
|
A-
55
|
|
8.12
Descriptive Headings
|
A-
55
|
|
8.13
Disclosure Schedule
|
A-
55
|
|
8.14
Ownership of Attorney-Client Confidences
|
A-
55
|
|
8.15
Counterparts; Signatures
|
A-
55
|
SCHEDULES
|
Part
1.1
|
Specified
Individuals
|
|
Part
1.2
|
Permitted
Encumbrances
|
|
Part
3.3(c)
|
Material
Contract Consents
|
|
Part
3.4(a)
|
Capitalization
|
|
Part
3.5(a)
|
SEC
Filings
|
|
Part
3.5(c)
|
Disclosure
Controls
|
|
Part
3.7
|
Interested
Party Transactions
|
|
Part
3.8
|
Absence
of Changes
|
|
Part
3.9
|
Title
to Assets
|
|
Part
3.10(d)
|
Intellectual
Property
|
|
Part
3.11
|
Contracts
|
|
Part
3.13
|
Governmental
Authorizations
|
|
Part
3.15(a)
|
Employee
Matters
|
|
Part
3.15(d)
|
280G
Payments
|
|
Part
3.16
|
Real
Property; Leasehold; Tangible Assets
|
|
Part
3.19
|
Environmental
Matters
|
|
Part
4.2(b)
|
Corporate
Authority; Non-contravention
|
|
Part
5.2(a)
|
Operation
of the Company’s Business
|
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (this “
Agreement
”) is made and
entered into as of March 16, 2017 (the “
Agreement Date
”) by and
among Advanced Environmental Recycling Technologies, Inc., a
Delaware corporation (the “
Company
”), Oldcastle
Architectural, Inc., a Delaware corporation (“
Parent
”), and Oldcastle
Ascent Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent (“
Merger
Sub
”).
RECITALS
WHEREAS, each of
the respective boards of directors of the Company, Parent and
Merger Sub have determined that it is advisable to effect a merger
of Merger Sub with and into the Company (the “
Merger
”) with the Company
remaining as the surviving corporation in the Merger in accordance
with and pursuant to the General Corporation Law of the State of
Delaware (the “
DGCL
”) upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the board
of directors of the Company (the “
Company Board
”) has (i)
approved and adopted this Agreement, the Merger and the other
transactions contemplated hereby, (ii) determined that this
Agreement and the Merger and the other transactions contemplated
hereby are fair to, advisable and in the best interests of the
Company and its stockholders, and (iii) subject to
Section 5.3
, resolved to
recommend approval of the Agreement by the Company’s
stockholders (such recommendation, the “
Company Board
Recommendation
”);
WHEREAS, the board
of directors of Merger Sub has approved, adopted and declared
advisable this Agreement and the Merger, upon and subject to the
terms of this Agreement;
WHEREAS, the board
of directors of Parent has determined that it is in the best
interests of Parent and its stockholders to consummate the Merger;
and
WHEREAS, Parent, as
the sole stockholder of Merger Sub, has adopted and approved this
Agreement and the Merger.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants and premises
contained in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement agree as
follows:
DEFINITIONS
1.1
Definitions.
As used
in this Agreement, the following terms have the following meanings,
which meanings shall be applicable equally to the singular or
plural of the terms defined:
“
Acceptable Confidentiality
Agreement
” shall mean an agreement which contains
provisions limiting disclosure or use of non-public information
with respect to the Company that are not materially less favorable
in the aggregate to the Company than the terms of the
Confidentiality Agreement.
“
Acquisition Proposal
”
shall mean any offer, proposal, or inquiry (other than an offer,
proposal or inquiry by Parent) contemplating or otherwise relating
to any Acquisition Transaction.
“
Acquisition Transaction
”
shall mean any transaction or series of related transactions
involving: (i) any merger, consolidation, share exchange, business
combination, issuance of securities, direct or indirect acquisition
of securities, recapitalization, tender offer, exchange offer or
other similar transaction in which (A) a Person or
“group” (as defined in the Exchange Act) of Persons
directly or indirectly acquires, or if consummated in accordance
with its terms would acquire, beneficial or record ownership of
securities representing more than twenty percent (20%) of the
outstanding shares of any class of voting securities of the
Company; or (B) the Company issues securities representing
more than twenty percent (20%) of the outstanding shares of any
class of voting securities of the Company; or (ii) any sale, lease,
exchange, transfer, acquisition or disposition of any assets of the
Company that constitute or account for twenty percent (20%) or more
of the consolidated net revenues of the Company or consolidated net
income of the Company or twenty percent (20%) or more of the fair
market value of the assets of the Company.
“
Adverse Recommendation
Change
” has the meaning set forth in
Section 5.3(c)
.
“
Adverse Recommendation Change
Notice
” has the meaning set forth in
Section 5.3(d)(i)
.
“
Affiliate
” shall mean,
with respect to any other Person, any other Person, directly or
indirectly, controlling, controlled by, or under common control
with such Person. As used in this definition of Affiliate, the term
“control” means possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
“
Agreement
” has the
meaning set forth in the Preamble.
“
Agreement Date
” has the
meaning set forth in the Preamble.
“
Antitrust Law
” shall mean
the Sherman Antitrust Act of 1890, as amended, the Clayton Act of
1914, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other Laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose of effect
of monopolization, restraint of trade or significant impediments or
lessening of competition or the creation or strengthening of a
dominant position through merger or acquisition, in any case that
are applicable to the transactions contemplated by this
Agreement.
“
Book-Entry Shares
” has
the meaning set forth in
Section 2.5(a)(ii)
.
“
Business Day
” shall mean
any day, other than a Saturday, Sunday and any day which is a legal
holiday under the laws of the State of New York or is a day on
which banking institutions located in the State of New York are
authorized or required by Law or other governmental action to
close.
“
Certificate
” has the
meaning set forth in
Section 2.5(a)(ii)
.
“
Certificate of Merger
”
has the meaning set forth in
Section 2.2
.
“
Closing
” has the meaning
set forth in
Section 2.2
.
“
Closing Date
” has the
meaning set forth in
Section 2.2
.
“
Code
” shall mean the U.S.
Internal Revenue Code of 1986, as amended.
“
Company
” has the meaning
set forth in the Preamble.
“
Company Acquisition
Agreement
” has the meaning set forth in
Section 5.3(c)
.
“
Company Approvals
” has
the meaning set forth in
Section 3.3(b)
.
“
Company Balance Sheet
”
has the meaning set forth in
Section 3.6
.
“
Company Balance Sheet
Date
” has the meaning set forth in
Section 3.6
.
“
Company Benefit Plan
” has
the meaning set forth in
Section 3.15(a)
.
“
Company Board
” has the
meaning set forth in the Recitals.
“
Company Board
Recommendation
” has the meaning set forth in the
Recitals.
“
Company Charter
Documents
” has the meaning set forth in
Section 3.3(c)
.
“
Company Common Stock
”
shall mean the common stock, $0.01 par value, of the
Company.
“
Company Contract
” shall
mean any Contract to which the Company is currently a party or
bound.
“
Company Insurance Policy
”
has the meaning set forth in
Section 3.17
.
“
Company Intellectual Property
Rights
” has the meaning set forth in
Section 3.10(a)
.
“
Company Material Adverse
Effect
” shall mean any Effect that has or would
reasonably be expected to, individually or in the aggregate with
any other Effects, have a material adverse effect on (1) the
assets, liabilities, business, financial condition, or results of
operations of the Company, taken as a whole; or
(2) Parent’s ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to
the shares of the Surviving Corporation;
provided
,
however
, that with respect to clause
(1) in no event shall any of the following, alone or in
combination, be deemed to constitute, or be taken into account when
determining whether there has been or is reasonably expected to be,
a Company Material Adverse Effect, any Effect with respect to, or
resulting from: (A) general changes in the U.S. or global
economy, or change in general economic conditions, including
changes in the credit, debt, financial or capital markets, in each
case, in the United States of America or anywhere else in the
world; (B) operating, business, regulatory or other conditions
generally affect the industry in which the Company conduct business
(except to the extent that such Effect has a disproportionate
adverse effect on the Company relative to other companies of a
similar size operating in the industry in which the Company
conducts business); (C) changes in applicable Law or in GAAP
or other applicable accounting rules or the interpretation or
enforcement thereof; (D) changes in the market price or
trading volume of the Company Common Stock; (E) failure(s) by
the Company to meet any operating projections or forecasts, or
published revenue or earnings predictions or estimates (but not
excluding any of the reasons for or factors contributing to the
failure); (F) any act or threat of terrorism or war, any armed
hostilities or terrorist activities, any threat or escalation of
armed hostilities or terrorist activities or any governmental or
other response or reaction to any of the foregoing (other than any
act that is targeted at the Company or causes physical damage to
the assets, properties, facilities or personnel of the Company,
which such damage causes a Company Material Adverse Effect); (G)
any Legal Proceeding against the Company or any of its directors by
the stockholders of the Company challenging or seeking to restrain
or prohibit the consummation of the Merger or any other transaction
contemplated by this Agreement; (H) events attributable to any
action by the Company if that action is contemplated or required by
this Agreement and Parent or Merger Sub refuses to waive such
requirement, or the failure to take any action by the Company if
that action is prohibited by this Agreement and Parent or Merger
Sub refuses to waive such prohibition; (I) events attributable
to the announcement or performance of this Agreement or the
consummation of the transactions contemplated hereby or the
pendency of the Merger (including the loss or departure of officers
or other employees of the Company), or the termination, reduction
(or potential reduction) or any other negative effect (or potential
negative effect) on the Company’s relationships or agreements
with any of its licensors, licensees, customers, vendors, strategic
partners, suppliers or other business partners; or (J) any
change that the Company can demonstrate resulted from Parent
unreasonably withholding its consent under
Section 5.2(a)
to any
action requiring Parent’s consent under
Section 5.2(a)
and
requested to be taken by the Company to Parent in
writing.
“
Company Permits
” has the
meaning set forth in
Section 3.12(a)
.
“
Company Preferred Stock
”
means the preferred stock, $0.01 par value, of the
Company.
“
Company SEC Documents
”
has the meaning set forth in
Section 3.5(a)
.
“
Company Share
” means each
share of Company Common Stock and Company Preferred Stock
outstanding immediately prior to the Effective Time.
“
Company Stockholder
Approval
” has the meaning set forth in
Section 3.3(a)
.
“
Company Stockholders
Meeting
” has the meaning set forth in
Section 5.4(d)
.
“
Company Stockholders
”
shall mean the holders of Company Common Stock or Company Preferred
Stock.
“
Confidentiality
Agreement
” has the meaning set forth in
Section 5.11
.
“
Consent
” shall mean any
approval, consent, ratification, permission, waiver, filing, notice
or authorization (including any Governmental
Authorization).
“
Contract
” shall mean any
written agreement, contract, subcontract, lease, understanding,
instrument, note, option, warranty, insurance policy, benefit plan,
or other legally binding commitment, including any amendment,
modification, supplement, exhibit, annex, or schedule
thereto.
“
Covered Employee
” has the
meaning set forth in
Section 5.10(a)
.
“
Delaware SOS
” shall mean
the Secretary of State of the State of Delaware.
“
DGCL
” has the meaning set
forth in the Recitals.
“
Disclosure Schedule
” has
the meaning set forth in
Article III
.
“
Dissenting Company
Shares
” has the meaning set forth in
Section 2.8(a)
.
“
DOJ
” shall mean the
United States Department of Justice or any successor
thereto.
“
EDGAR
” has the meaning
set forth in
Section
3.5(a)
.
“
Effect
” shall mean any
effect, change, event, occurrence, circumstance or
development.
“
Effective Time
” has the
meaning set forth in
Section 2.2
.
“
Encumbrance
” shall mean
any lien, pledge, hypothecation, charge, mortgage, security
interest, option, right of first refusal, preemptive right, or
community property interest.
“
Entity
” shall mean any
corporation (including any nonprofit corporation), general
partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm, or other
enterprise, association, organization or entity.
“
Environmental Laws
” shall
mean any Laws (and the regulations promulgated thereunder) relating
to the protection of the environment (including ambient air,
surface water, groundwater or land) or exposure of any individual
to Hazardous Substances or otherwise relating to the production,
use, emission, storage, treatment, transportation, recycling,
disposal, discharge, release or other handling of any Hazardous
Substances or the investigation, reporting, clean-up or other
remediation or analysis thereof.
“
ERISA
” shall mean the
Employee Retirement Income Security Act of 1974, as
amended.
“
ERISA Affiliate
” means
any person or entity other than the Company under common control
with the Company within the meaning of Section 414(b)(c), (m) or
(o) of the Code and the regulations issued thereunder.
“
Exchange Act
” shall mean
the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
“
Exchange Agent
” has the
meaning set forth in
Section 2.7(a)
.
“
FTC
” shall mean the
United Stated Federal Trade Commission or any successor
thereto.
“
GAAP
” has the meaning set
forth in
Section 3.5(b)
.
“
Governmental
Authorization
” shall mean any: (i) permit,
license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given
or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Law; or (ii) right under
any Contract with or for the benefit of any Governmental
Body.
“
Governmental Body
” shall
mean any: (i) country, nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of
any nature; (ii) federal, state, local, municipal, foreign or
other government (including the European Union); or
(iii) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency,
commission, instrumentality, official, organization, unit, body, or
Entity, and any court or other tribunal, including any arbitral
tribunal).
“
Hazardous Substance
”
shall mean any substance, material or waste (whether solid, liquid
or gas) that is characterized, defined, listed, or regulated under
any Environmental Law as “hazardous,”
“pollutant,” “contaminant,”
“toxic,” “radioactive,” or words of similar
meaning or effect, including petroleum and petroleum products,
polychlorinated biphenyls, asbestos and asbestos-containing
materials.
“
HSR Act
” shall mean the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations promulgated thereunder.
“
Indebtedness
” shall mean
any obligations of Company in respect of: (i) indebtedness for
borrowed money or indebtedness issued in substitution or exchange
for borrowed money or for the deferred or contingent purchase price
of property or services (but excluding any trade payables and
accrued expenses arising in the ordinary course of business), (ii)
indebtedness evidenced by any note, bond, debenture, interest swap
agreements, or other debt security, (iii) leases required to be
treated as capitalized leases under GAAP, consistently applied,
(iv) indebtedness of the types described in the foregoing clauses
(i) through (iii) of any other Person guaranteed by Company or
secured by an Encumbrance on any asset or property of Company, (v)
obligations with respect to interest-rate hedging, swaps or similar
financing arrangements, (vi) prepayment penalties or breakage costs
in respect of any of the foregoing, and (vii) letters of credit.
Indebtedness shall not include (1) undrawn letters of credit, trade
payables or any undrawn fidelity, performance, surety or licensing
bonds or similar instruments, or (2) any indebtedness incurred by,
on behalf of, or at the direction of the Parent or its Affiliates
in connection with the transactions contemplated by this
Agreement.
“
Indemnified Parties
” has
the meaning set forth in
Section 5.8(a)
.
“
Information Statement
”
has the meaning set forth in
Section 3.3(b)
.
“
Intellectual Property
”
shall mean all U.S. and foreign (i) patents (including design
patents and industrial designs); (ii) trademarks, service marks,
trade names, logos, trade dress, domain names and designs and all
goodwill associated therewith; (iii) copyrights and the underlying
works of authorship (including software); (iv) trade secrets
(including inventions, processes, know-how, formulae, methods,
software, business plans, schematics, drawings, and other
technology); and (v) all registrations and applications for any of
the foregoing (including all divisionals, contaminations,
contaminations in part, revisions, and extensions of any
thereof.
“
Interim Period
” has the
meaning set forth in
Section 5.1
.
“
Intervening Event
” shall
mean any material event with respect to the Company occurring or
arising prior to the Window Shop Date (other than a Superior
Proposal) that was neither known to the Company Board nor
reasonably foreseeable as of or prior to the Agreement Date, which
becomes known to the Company Board;
provided
,
however
, that in no event shall the
following events, developments or changes in circumstances
constitute an Intervening Event: (1) the receipt, existence or
terms of an Acquisition Proposal or any matter relating thereto or
consequence thereof, (2) any events, developments or changes in
circumstances relating to the Parent or any of Parent’s
Affiliates or any competitor of the Company, (3) changes in Law
applicable to the Company, or (4) changes in the market price or
trading volume of shares of Company Common Stock or the fact that
the Company meets or exceeds internal or published projections,
forecasts or revenue or earnings predictions for any period;
provided
,
however
, that the underlying causes of
such change or fact shall not be excluded by this clause (4) prior
to the Window Shop Date.
“
International Trade Laws
”
shall mean all Laws concerning the importation of merchandise, the
export or re-export of products, services and technology, the terms
and conduct of international transactions, making or receiving
international payments and the authorization to hold an ownership
interest in a business located in a country other than the United
States, including but not limited to, the Tariff Act of 1930 as
amended and other laws administered by the United States Customs
Service, regulations issued or enforced by the United States
Customs Service, the Export Administration Act of 1979 as amended,
the Export Administration Regulations, the International Emergency
Economic Powers Act, the Arms Export Control Act, the International
Traffic in Arms Regulations, any other export controls administered
by an agency of the United States government, Executive Orders of
the President regarding embargoes and restrictions on trade with
designated countries and Persons, the embargoes and restrictions
administered by the United States Office of Foreign Assets Control,
the Foreign Corrupt Practices Act, the anti-boycott regulations
administered by the United States Department of Commerce, the
anti-boycott regulations administered by the United States
Department of the Treasury, legislation and regulations of the
United States and other countries implementing the North American
Free Trade Agreement, antidumping and countervailing duty laws and
regulations, laws and regulations by other countries concerning the
ability of U.S. Persons to own businesses and conduct business in
those countries, laws and regulations by other countries
implementing the OECD Convention on Combating Bribery of Foreign
Officials, restrictions by other countries on holding foreign
currency and repatriating funds, and other applicable Laws and
regulations adopted by the governments or agencies of other
countries relating to the same subject matter as the United States
statutes and regulations described above, including the U.K.
Bribery Act.
“
IRS
” shall mean the
Internal Revenue Service.
“
Knowledge
” shall mean,
with respect to the Company, the actual knowledge (after reasonable
inquiry of those employees or Representatives of the Company who
would reasonably be expected to have actual knowledge of the matter
in question) of those individuals set forth in
Part 1.1
of the Disclosure
Schedule.
“
Law
” shall mean any
federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, Restraint ruling or requirement
issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental
Body.
“
Leased Real Property
” has
the meaning set forth in
Section 3.16(c)
.
“
Leased Real Property
Improvements
” has the meaning set forth in
Section
3.16(c)
.
“
Legal Proceeding
” shall
mean any action, suit, litigation, arbitration, mediation,
proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard
by or before, or otherwise involving, any court or other
Governmental Body or any arbitrator or arbitration
panel.
“
Material Contract
” shall
mean any of the following to which the Company is a party or by
which it or its assets or properties is bound:
(i) any
Contract containing covenants limiting in any material respect the
freedom of the Company to compete in any line of business or with
any other Person or covenant not to solicit or hire any Person or
that grants “most favored nation” status to any Person
(other than the Company);
(ii) any
material joint venture, strategic alliance, licensing arrangement,
partnership, manufacturer, development or supply agreement or other
Contract, in each case, which involves a sharing of revenue,
profits, losses, costs or liabilities by the Company with any other
Person;
(iii)
any royalty, dividend or similar arrangement to be paid, or
received, by the Company that is based on the revenue or profits of
the Company or any material Contract or agreement involving fixed
price or fixed volume arrangements;
(iv) any
Contract for the purchase or sale of products, materials, supplies,
goods, services, advertisements, equipment or other assets or with
any agent, dealer or reseller and providing for annual payments by
or to the Company, respectively, of $125,000 or more, other than
Contracts that can be terminated by the Company on less than 60
calendar days’ notice without payment by the Company of any
penalty;
(v) any
Contract or agreement under which the Company has incurred any
Indebtedness or Company’s obligations or performance are
secured by any letter of credit or fidelity, performance, surety or
licensing bond or similar instrument of $125,000 or
more;
(vi) any
employment, severance agreement, change in control or similar
arrangement with any employee of the Company other than (A) at-will
employment arrangements and (B) Contracts requiring annual payment
of less than $150,000 and a remaining term of less than two (2)
years;
(vii) any
Company Benefit Plan, any of the benefits of which will be
increased, or the vesting or payment of benefits of which will be
accelerated, by the transactions contemplated hereby (whether or
not contingent on any other event or occurrence) or the value of
any of the benefits of which will be calculated on the basis of the
transactions contemplated hereby;
(viii)
any Contract (other than organizational documents) providing for
indemnification by the Company of any officer, director or employee
of the Company;
(ix)
any Contract that prohibits the payment of dividends or
distributions in respect of the capital stock of the Company or
that prohibits the pledging of the capital stock of the
Company;
(x)
any Contract that contains a put, call or similar right
pursuant to which the Company could be required to purchase or
sell, as applicable, any equity interests of any Person or
assets;
(xi) any
Government Contract;
(xii)
any collective bargaining agreement or contract with any labor
organization, union or association;
(xiii)
any Contract that requires the Company to deal exclusively with any
Person or group of Persons and any “take or pay”
Contract or Contract that contains any minimum purchase or payment
commitment;
(xiv)
any Contract that is an agency, dealer, reseller or other similar
Contract, other than Contracts that can be terminated by the
Company on less than 60 calendar days’ notice without payment
by the Company of any penalty;
(xv)
any Contract pursuant to which the Company licenses any
Intellectual Property of a third party that is material to the
business of the Company, or grants to any third party a license to
any material Intellectual Property of Company, excluding in all
cases (1) non-disclosure and confidentiality agreements entered
into in the ordinary course of business, (2) Contracts with
employees, contractors, consultants, customers, vendors, and
suppliers of the Company entered into in the ordinary course of
business, and (3) licenses for generally commercially available,
off-the-shelf software;
(xvi)
any Contract currently in effect that is a “material
contract” as defined in Item 601(b)(10) of Regulation S-K of
the SEC;
(xvii)
any Contract pursuant to which the Company has any obligation in
respect of any Transaction Expenses;
(xviii)
any Contract that would prohibit or materially delay the
consummation of the Merger or otherwise impair the ability of the
Company to perform its obligations hereunder; or
(xix)
all Contracts pursuant to which the Company (1) leases, licenses,
subleases or sublicenses, from any other Person, or otherwise
occupies any real property, or (2) has the right or obligation to
acquire or dispose of any interest in real property.
“
Merger
” has the meaning
set forth in the
Recitals
.
“
Merger Consideration
”
shall mean the aggregate amount of consideration to be paid to the
holders of equity pursuant to this Agreement, including pursuant to
Section
2.5(a)(ii)
.
“
Merger Consideration Calculation
Schedule
” has the meaning set forth in
Section 3.5(g)
.
“
Merger Sub
” has the
meaning set forth in the Preamble.
“
New Plans
” has the
meaning set forth in
Section 5.10(a)
.
“
OTCQB
” shall mean the
OTCQB Venture Market.
“
Outside Date
” has the
meaning set forth in
Section 7.1(b)(i)
.
“
Owned Real Property
” has
the meaning set forth in
Section 3.16(b)
.
“
Owned Real Property
Improvements
” has the meaning set forth in
Section
3.16(b)
.
“
Parent
” has the meaning
set forth in the Preamble.
“
Parent Approvals
” has the
meaning set forth in
Section 4.2(b)
.
“
Parent Disclosure
Schedule
” has the meaning set forth in
Article IV
.
“
Parent Material Adverse
Effect
” has the meaning set forth in
Section 4.1
.
“
Payment Fund
” has the
meaning set forth in
Section 2.7(a)
.
“
Per Share Merger
Consideration
” has the meaning set forth in
Section
2.5(a)(ii)
.
“
Permitted Encumbrance
”
shall mean: (i) liens for Taxes, including without limitation real
estate taxes, assessments, and other governmental levies, fees, or
charges imposed with respect to Real Property that are not yet due
and payable or liens for Taxes, including without limitation real
estate taxes, assessments, and other governmental levies, fees, or
charges imposed with respect to the Real Property, being contested
in good faith by any appropriate proceedings for which adequate
reserves have been established on the Company Balance Sheet; (ii)
liens to secure obligations to landlords, lessors, renters or other
third Persons under leases or rental agreements that have not been
breached; (iii) deposits or pledges made in connection with, or to
secure payment of, workers’ compensation, unemployment
insurance or similar programs mandated by applicable Law; (iv)
liens in favor of carriers, warehousemen, mechanics and
materialmen, to secure claims for labor, materials or supplies and
other like liens imposed by applicable Law for amounts not yet due;
(v) pledges and deposits to secure the performance of bids, trade
contracts, leases, surety and appeal bonds, performance bonds, and
other obligations of a similar nature, in each case in the ordinary
course of business; (vi) as to Real Property, defects,
imperfections or irregularities in title, easements, covenants,
conditions, restrictions, and rights of way (unrecorded and of
record) and other similar matters (or encumbrances of any type), in
each case that do not adversely affect in any material respect the
current use or occupancy of the applicable property owned, leased,
used or held for use by the Company; (vii) zoning, building codes,
and other land use laws, and other similar codes or restrictions
regulating use or occupancy or the activities conducted on the Real
Property that are not violated in any material respect by the
current use or occupancy of the real property subject thereto;
(viii) liens, the existence of which are disclosed in the notes to
the consolidated financial statements of the Company included in
the Company SEC Documents; (ix) liens in favor of depository banks
and financial institutions constituting statutory, common law or
contractual rights of set off or securing treasury or cash
management obligations arising in the ordinary course of business;
(x) restrictions on transfer of securities imposed by applicable
securities Laws, (xi) the rights of licensors and licensees under
licenses of Intellectual Property; and (xii) with respect to Real
Property, any Encumbrances described on
Part 1.2
of the Disclosure
Schedule.
“
Person
” shall mean any
individual, Entity or Governmental Body.
“
Planned Products
” has the
meaning set forth in
Section 3.10(e)
.
“
Proxy Statement
” has the
meaning set forth in
Section 5.4(d)
.
“
Real Property
” has the
meaning set forth in
Section 3.16(a)
.
“
Representatives
” shall
mean officers, directors, employees, agents, attorneys,
accountants, advisors, and representatives.
“
Restraint
” shall mean any
order, writ, conciliation or remediation agreement, award,
injunction, judgment, decision, decree, ruling or assessment
(whether temporary, preliminary or permanent).
“
Reverse Termination Fee
”
shall mean an amount, in cash, equal to $7,020,000.
“
Sarbanes-Oxley Act
” shall
mean the Sarbanes-Oxley Act of 2002, and the regulations
promulgated thereunder.
“
SEC
” shall mean the
United States Securities and Exchange Commission.
“
Securities Act
” shall
mean the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
“
Stockholder Consent
” has
the meaning set forth in
Section 5.4(a)
.
“
Stockholder Consent Delivery
Period
” has the meaning set forth in
Section 5.4(a)
.
“
Subsidiary
” of a Person
shall mean another Person as to which such first Person directly or
indirectly owns, beneficially or of record: (i) an amount of
voting securities of other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of
the members of such Entity’s board of directors or other
governing body; or (ii) at least fifty percent (50%) of
the outstanding equity or financial interests of such
Entity.
“
Superior Proposal
” shall
mean a bona fide written proposal for an Acquisition Transaction
that the Company Board determines in good faith, after consultation
with its outside legal counsel and independent financial advisor,
to be more favorable to the Company’s stockholders from a
financial point of view than the Merger, in each case, taking into
account at the time of determination, all legal, financial and
regulatory considerations of such Acquisition Transaction and this
Agreement (including any modification to the terms of this
Agreement as may be proposed by Parent pursuant to
Section 5.3(d)(i)
that the
Company Board determines to be relevant) (including any required
financing, stockholder approval requirements of the Person or group
making the proposal, regulatory approvals, stockholder litigation,
breakup fee and expense reimbursement provisions, expected timing
and risk and likelihood of consummation, and, to the extent deemed
appropriate by the Company Board, such other factors that may be
considered in making such a determination under the DGCL);
provided
,
however
,
that for purposes of this
definition of Superior Proposal, the references to
“20%” in the definition of “Acquisition
Transaction” shall be deemed to be references to
“50%.”
“
Surviving Corporation
”
has the meaning set forth in
Section 2.1
.
“
Takeover Laws
” shall mean
any “control share acquisition,” “fair
price,” “moratorium” or other anti-takeover or
similar Law.
“
Tax
” shall mean any tax
(including any income tax, franchise tax, capital gains tax, gross
receipts tax, value added tax, surtax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax, employment tax, or payroll tax including
amounts due under any escheat or unclaimed property Law), levy,
assessment, tariff, duty (including any customs duty), deficiency
or fee, and any related charge or amount (including any additions
thereto, fine, penalty or interest), imposed, assessed or collected
by or under the authority of any Governmental Body.
“
Tax Return
” shall mean
any return (including any information return), report, statement,
declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with
or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment,
collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with
any Law relating to any Tax.
“
Termination Fee
” shall
mean an amount, in cash, equal to $4,680,000.
“
Transaction Expenses
”
shall mean any costs, fees and expenses, paid or payable by the
Company at or after the Closing, either to or for (i) any Person,
that is conditioned, in whole or in part, on the consummation of
the Merger, or (ii) advisors and other third parties in connection
with or in preparation for the Merger (whether or not contingent on
any other event or occurrence), the negotiation of this Agreement
or any other documents required to effectuate the Merger or the
performance thereof (including all fees and disbursements of
counsel, investment banks, financial advisers, lawyers, and
accountants).
“
Window Shop Date
” shall
have the meaning set forth in
Section 5.3(b)
.
ARTICLE II.
THE
MERGER
2.1
The
Merger
. Upon the terms
and subject to the conditions set forth in this Agreement and in
accordance with the DGCL, at the Effective Time, Merger Sub shall
be merged with and into the Company, and the separate existence of
Merger Sub shall thereupon cease. The Company will continue as the
surviving corporation in the Merger (the “
Surviving Corporation
”).
The Merger shall be governed by and shall be effected under the
DGCL. The parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective as soon
as practicable following the Agreement Date and after attainment of
the Company Stockholder Approval in accordance with the
DGCL.
2.2
Closing;
Effective Time
. The closing of
the Merger (the “
Closing
”) shall take
place by electronic mail and overnight courier service, or by
physical exchange of documentation at the offices of Paul Hastings
LLP located at 71 South Wacker Drive, Suite 4500, Chicago, Illinois
60606, at 10:00 a.m., New York time, on the later of thirty (30)
days after the Agreement Date or the Business Day after the
satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in
Article VI
(other than those
conditions that by their terms are to be satisfied at the Closing,
but subject to the satisfaction or waiver of such conditions), or
such other date and time as Parent and the Company shall mutually
designate. The date on which the Closing takes place is referred to
herein as the “
Closing Date
.” On the
Closing Date, a certificate of merger satisfying the applicable
requirements of the DGCL (the “
Certificate of Merger
”)
shall be duly executed by the Company and simultaneously with the
Closing shall be filed with the Delaware SOS. The Merger shall
become effective upon the date and time of the filing of the
Certificate of Merger with the Delaware SOS or such other date and
time as may be mutually agreed upon by Parent and the Company and
set forth in the Certificate of Merger (the time the Merger becomes
effective being referred to hereinafter as the “
Effective
Time
”).
2.3
Effect
of the Merger
. The Merger shall
have the effects set forth in this Agreement, the Certificate of
Merger and in the applicable provisions of the DGCL.
2.4
Certificate
of Incorporation; Bylaws; Directors and
Officers
. At the Effective
Time:
(a) the
certificate of incorporation of Merger Sub as in effect immediately
prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended
in accordance with applicable Law;
(b) the
bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation
until thereafter amended in accordance with applicable Law;
and
(c) the
directors and officers of Merger Sub immediately prior to the
Effective Time shall be the initial directors and officers of the
Surviving Corporation, to serve until the earlier of their
respective resignations or removals or until their respective
successors are duly elected and qualified.
2.5
Conversion
of Shares.
(a) At
the Effective Time, by virtue of the Merger and without any further
action on the part of Parent, Merger Sub, the Company or any
stockholder of the Company:
(i) all
shares of Company Common Stock and Company Preferred Stock held by
the Company (or held in the Company’s treasury) immediately
prior to the Effective Time shall be canceled and retired and shall
cease to exist, and no consideration shall be paid in exchange
therefor;
(ii) except
as provided in clause (i) above and subject to
Section 2.7
and
Section 2.8
, (A)
each share of Company Common Stock outstanding immediately prior to
the Effective Time shall be converted into the right to receive
cash in the amount of $0.135936 and (B) each share of Company
Preferred Stock outstanding immediately prior to the Effective Time
shall be converted into the right to receive cash in the amount
such share would be entitled to receive under the Company Charter
Documents in relation to a Fundamental Transaction (as defined in
the Company Charter Documents) in the amount of $2,603.483278 (the
amounts in each of (A) and (B), the “
Per Share Merger
Consideration
”), less any required withholding Taxes
if any, as described in
Section 2.7(e)
. As of the
Effective Time and subject to
Section 2.8
, all Company Shares
shall no longer be outstanding and shall automatically be canceled
and cease to exist, and the holders immediately prior to the
Effective Time of Company Shares not represented by certificates
(the “
Book-Entry
Shares
”) and the holders of certificates that
immediately prior to the Effective Time represented Company Shares
(each a “
Certificate
”) shall cease
to be outstanding, shall be cancelled, and shall cease to have any
rights with respect thereto, except the right to receive the
applicable Per Share Merger Consideration to be paid in
consideration therefor upon surrender of such Book-Entry Shares or
Certificates in accordance with
Section 2.7
;
and
(iii) each
share of the common stock, no par value, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into one
(1) share of common stock, no par value, of the Surviving
Corporation.
(b) If,
during the period commencing on the Agreement Date and ending at
the Effective Time, any outstanding Company Shares are changed into
a different number or class of shares (including by reason of any
reclassification, recapitalization, stock split, division or
subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, or other similar transaction), the
applicable Per Share Merger Consideration and any other amounts
payable pursuant to this Agreement shall be appropriately
adjusted.
2.6
Closing
of the Company’s Transfer Books
. At the Effective
Time, the stock transfer books of the Company shall be closed with
respect to all Company Shares outstanding immediately prior to the
Effective Time. After the Effective Time, there shall be no further
registration of the transfer of Company Shares. If, after the
Effective Time, Certificates or Book-Entry Shares are presented to
the Exchange Agent, they shall be canceled and shall be exchanged
for the applicable Per Share Merger Consideration as provided for
and in accordance with the procedures set forth in this
Article
II
.
2.7
Surrender
of Certificates.
(a) On
or prior to the Closing Date, Parent shall designate a reputable
bank or trust company reasonably acceptable to the Company which is
authorized to exercise corporate trust or stock powers to act as
exchange agent with respect to the Merger (the “
Exchange Agent
”). At or
prior to the Closing, Parent shall irrevocably deposit, or cause to
be deposited, with the Exchange Agent a cash amount in immediately
available funds necessary for the Exchange Agent to make all
payments of the Merger Consideration as contemplated by
Section 2.5(a)(ii)
.
The cash amount so deposited with the Exchange Agent is referred to
as the “
Payment
Fund
.” The Exchange Agent will invest the funds
included in the Payment Fund in the manner directed by Parent;
provided
,
however
, that: (i) no such investment
or losses thereon shall relieve Parent or the Surviving Corporation
or the Exchange Agent from making the payments of Merger
Consideration required to be paid under
Section 2.5(a)(ii)
; (ii)
in the event there are any losses that result in the amount of
funds in the Payment Fund being insufficient to promptly pay the
portion of the aggregate Merger Consideration that remains unpaid,
Parent shall immediately provide additional funds to the Exchange
Agent to the extent of such insufficiency; and (iii) such
investments shall be in obligations of or guaranteed by the United
States of America or any agency or instrumentality thereof and
backed by the full faith and credit of the United States of
America, or in commercial paper obligations rated A-1 or P-1 or
better by Moody’s Investors Service, Inc. or Standard &
Poor’s Corporation, respectively. Any interest or other
income resulting from the investment of such funds shall be the
property of Parent.
(b) As
soon as practicable after the Effective Time (but in no event more
than two (2) Business Days thereafter), the Surviving Corporation
shall cause the Exchange Agent to mail or otherwise provide to each
holder of record of Company Shares immediately prior to the
Effective Time: (i) a letter of transmittal in (and which, in
the case of Company Shares represented by Certificates, shall
specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent); and (ii) instructions for
use in effecting the surrender of the Certificates or Book-Entry
Shares in exchange for payment of the applicable Per Share Merger
Consideration, in each case, in a customary form to be reasonably
agreed upon by Parent and the Company prior to Closing. Upon
surrender of Certificates for cancellation to the Exchange Agent,
or in the case of Book-Entry Shares, receipt of an
“agent’s message” by the Exchange Agent (or such
other evidence, if any, of transfer as the Exchange Agent may
reasonably request), together with the letter of transmittal, duly
completed and validly executed in accordance with the instructions
(and such other customary documents as may reasonably be required
by the Exchange Agent), the holder of such Certificate or
Book-Entry Share shall be entitled to receive in exchange for each
such Company Share, and Parent and the Surviving Corporation shall
cause the Exchange Agent to pay and deliver as promptly as
reasonably practicable after the Effective Time, subject to any
required withholding Taxes, the applicable Per Share Merger
Consideration without interest. Any Certificate surrendered in
accordance with the preceding sentence shall be canceled. If any
Certificate shall have been lost, stolen or destroyed, Parent or
the Exchange Agent may, in its discretion and as a condition
precedent to the payment of any Merger Consideration with respect
to the Company Shares previously represented by such Certificate,
require the owner of such lost, stolen or destroyed Certificate to
provide an appropriate affidavit and to deliver a bond in such
reasonable amount as Parent may direct as indemnity against any
claim that may be made against the Exchange Agent, Parent or the
Surviving Corporation with respect to such Certificate, and upon
the making of such affidavit and delivering any such bond, the
Exchange Agent will pay, in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration to be
paid in respect of the Company Shares formerly represented by such
Certificate.
(c) If
any portion of the Merger Consideration is to be paid to any Person
other than the Person in whose name the Certificate or the
Book-Entry Shares is registered, it shall be a condition to such
payment that: (i) either such Certificate shall be properly
endorsed or shall otherwise be in proper form for transfer or, in
the case of Book-Entry Shares, that such documentation as may be
reasonably requested by the Exchange Agent is provided; and
(ii) the Person requesting such payment shall pay to the
Exchange Agent any transfer or other Taxes required as a result of
the payment to a Person other than the registered holder of such
Certificate of Book-Entry Shares or to otherwise establish to the
satisfaction of the Exchange Agent that such Tax has been paid or
is not payable.
(d) Any
portion of the Payment Fund that remains undistributed to holders
of Certificates or Book-Entry Shares as of the date that is one (1)
year after the Closing Date shall be delivered to Parent upon
demand, and any holders of Certificates or Book-Entry Shares who
have not theretofore surrendered such Certificates or Book-Entry
Shares in accordance with this
Section 2.7
shall
thereafter look only to Parent for satisfaction of their claims for
the Merger Consideration.
(e) Each
of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable
to any holder of Certificates or Book-Entry Shares (in his or her
capacity as a holder of Company Common Stock or Company Preferred
Stock) such amounts as are required to be deducted or withheld from
such consideration under the Code or any provision of state, local
or foreign Tax Law or under any other applicable Law,
provided
,
however
, that prior to making any such
deduction or withholding, the applicable withholding agent shall
provide notice to the affected recipient of the amounts subject to
withholding and a reasonable opportunity for such recipient to
provide forms or other evidence that would exempt such amounts from
withholding Tax. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts
would otherwise have been paid.
(f) Neither
Parent nor the Surviving Corporation shall be liable to any holder
of Certificates or Book-Entry Shares or to any other Person with
respect to any Merger Consideration delivered to any public
official pursuant to any applicable abandoned property Law, escheat
Law or similar Law.
2.8
Statutory
Rights of Appraisal.
(a) Notwithstanding
anything to the contrary set forth in this Agreement, all shares of
Company Common Stock that are issued and outstanding as of
immediately prior to the Effective Time and held by Company
Stockholders who have (A) neither voted in favor of the adoption of
this Agreement nor consented thereto in writing and (B) properly
and validly exercised their statutory rights of appraisal in
respect of such shares of Company Common Stock in accordance with
Section 262 of the DGCL (the “
Dissenting Company
Shares
”) will not be converted into, or represent the
right to receive, the applicable Per Share Merger Consideration
pursuant to
Section
2.5
. Such Company Stockholders will be entitled to receive
payment of the appraised value of such Dissenting Company Shares in
accordance with the provisions of Section 262 of the DGCL, except
that all Dissenting Company Shares held by Company Stockholders who
have failed to perfect or who have effectively withdrawn or lost
their rights to appraisal of such Dissenting Company Shares
pursuant to Section 262 of the DGCL will be deemed to have been
converted into, and to have become exchangeable for, as of the
Effective Time, the right to receive the applicable Per Share
Merger Consideration, upon surrender of the Certificates or
Book-Entry Shares that formerly evidenced such shares of Company
Common Stock in the manner provided in
Section 2.5
.
(b) The
Company will give Parent (A) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands and
any other instruments served pursuant to the DGCL and received by
the Company in respect of Dissenting Company Shares; and (B) the
opportunity to participate in all negotiations and Legal
Proceedings with respect to demands for appraisal pursuant to the
DGCL in respect of Dissenting Company Shares. The Company may not,
except with the prior written consent of Parent (which consent will
not be unreasonably withheld, conditioned or delayed), voluntarily
make any payment with respect to any demands for appraisal or
settle or offer to settle any such demands for payment in respect
of Dissenting Company Shares. For the purposes of this
Section 2.8(b)
,
“
participate
” means that
Parent will be kept apprised of proposed strategy and other
significant decisions with respect to demands for appraisal
pursuant to the DGCL in respect of Dissenting Company Shares (to
the extent that the attorney-client privilege between the Company
and its counsel is not undermined or otherwise affected) and may
offer comments or suggestions with respect to such demands, and may
attend and participate in all negotiations and other proceedings
related thereto through counsel of its choosing, but prior to
Closing Parent will not be afforded any decision-making power or
other authority over such demands except for the payment,
settlement or compromise consent set forth above.
2.9
Further
Action
. If, at any time
after the Effective Time, any further action is determined by
Parent to be necessary to carry out the purposes of this Agreement
or to vest the Surviving Corporation with full right, title, and
possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the Surviving Corporation
and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company, and otherwise) to take such
action.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except
as disclosed in (a) the Company SEC Documents filed since January
1, 2014 and publicly available at least five (5) Business Days
prior to the Agreement Date (without giving effect to any amendment
to any such Company SEC Document filed on or after such date and
excluding any disclosures that contain general cautionary,
predictive or forward-looking statements set forth in any section
of a Company SEC Document entitled “Uncertainties, Issues and
Risks,” “Forward-looking information,”
“risk factors” or a similar title, or constituting
“forward-looking statements”), or (b) the corresponding
section of the disclosure schedule delivered by the Company to
Parent (the “
Disclosure Schedule
”)
immediately prior to the execution of this Agreement (providing
that a matter disclosed in the Disclosure Schedule with respect to
one representation or warranty shall also be deemed to be disclosed
with respect to each other representation or warranty to the extent
that it is on its face reasonably apparent from the text of such
disclosure that such disclosure applies to or qualifies such other
representation or warranty), the Company represents and warrants to
Parent and Merger Sub, as of the Agreement Date and as of the
Closing Date (subject to any notices delivered by the Company in
accordance with
Section
5.9
of this Agreement), as follows:
3.1
Qualifications,
Organization, etc
. The Company is a
corporation duly organized, validly existing, and in good standing
under the Laws of the State of Delaware and has all requisite
corporate or similar power and authority to own, lease, and operate
its properties and assets and to carry on its business as presently
conducted and is qualified to do business. The Company is in good
standing as a foreign corporation in each jurisdiction where the
ownership, leasing or operation of its assets or properties or
conduct of its business requires such qualification, except where
the failure to be so qualified and in good standing, would not, (a)
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, or (b) prevent or materially delay
the consummation of the Merger.
3.2
Subsidiaries
.
The Company does not own, directly or indirectly, any equity
interest in or other securities of any Person.
3.3
Corporate
Authority; Non-contravention.
(a) The
Company has the requisite corporate power and authority to enter
into this Agreement and, except for the receipt of the Company
Stockholder Approval, to consummate the transactions contemplated
hereby. The separate affirmative votes of the holders of (i) a
majority of the Preferred Company Stock and (ii) a majority of the
votes represented by the Company Shares (including, for the
avoidance of doubt, the votes represented by the Preferred Company
Stock) are the only votes of the holders of the Company’s
Shares required in connection with the consummation of the Merger
(the “
Company
Stockholder Approval
”). The Company Board at a duly
held meeting has: (i) determined that the Merger and the other
transactions contemplated hereby are fair and in the best interests
of the Company and its stockholders, and declared it advisable to
enter into this Agreement; (ii) approved the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby, including the Merger; and (iii)
subject to
Section 5.3
, resolved to
recommend that the Stockholders of the Company adopt this Agreement
and approve the Merger. Except for the Company Stockholder
Approval, no other corporate proceedings on the part of the Company
are necessary to authorize the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming this Agreement
constitutes the valid and binding agreement of Parent and Merger
Sub, constitutes the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms,
except where such enforceability may be limited by bankruptcy,
insolvency, reorganization, preference, fraudulent transfer,
moratorium or other similar Laws relating to or affecting the
rights and remedies of creditors, and by general principles of
equity regardless of whether enforcement is considered in a
proceeding in equity or Law.
(b) The
execution, delivery and performance by the Company of this
Agreement and the transactions contemplated hereby do not and will
not require any consent, approval, authorization or permit of,
action by, filing with or notification to any Governmental Body or
stock exchange other than: (i) the filing of the Certificate of
Merger; (ii) compliance with the applicable requirements of any
antitrust, competition or similar Laws of any foreign jurisdiction;
(iii) compliance with the applicable requirements of the Exchange
Act, including the filing with the SEC of an information statement
of the type contemplated by Rule 14c-2 under the Exchange Act
related to the Merger and this Agreement (such information
statement, including any amendment or supplement thereto, the
“
Information
Statement
”); (iv) compliance with the rules and
regulations of the OTCQB; and (v) compliance with any applicable
foreign or state securities or blue sky laws (collectively, clauses
(i) through (v), the “
Company Approvals
”). The
approvals of the Company Board referred to in
Section 3.3(a)
constitute
all necessary approvals of the Company Board such that no
restrictions of any Takeover Laws apply to the Company with respect
to this Agreement, the Merger or any of the other transactions
contemplated by this Agreement.
(c) Assuming
compliance with the matters referenced in
Section 3.3(b)
, receipt of
the Company Approvals and the receipt of the Company Stockholder
Approval, the execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the Merger
and the other transactions contemplated hereby do not and will not:
(i) contravene or conflict with the certificate of incorporation,
bylaws or any certificate of designation of the Company, including
all amendments thereto (collectively, the “
Company Charter
Documents
”); (ii) contravene or conflict with in any
material respect or constitute a material violation of any
provision of any Law binding upon or applicable to the Company or
its properties or assets; or (iii) except as set forth on
Part 3.3(c)
of the
Disclosure Schedule, result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give rise to
a right of termination, cancellation or acceleration of any
material obligation or to the loss of a material benefit under any
Material Contract or any material oral arrangement binding upon the
Company or result in the creation of any Encumbrance (other than
Permitted Encumbrances) upon any of the properties or assets of the
Company.
3.4
Capitalization.
(a) The
authorized capital stock of the Company consists of 525,000,000
shares of Company Common Stock, $0.01 par value and 30,000 shares
of Company Preferred Stock, $0.01 par value. 89,631,162 shares of
Company Common Stock are issued and outstanding, all of which are
shares of Company’s Class A Common Stock, and 20,524.149
shares of Company Preferred Stock are issued and outstanding, all
of which are shares of Company’s Class E Preferred Stock. No
shares of Company Common Stock are held in the treasury of the
Company and no shares of Company Preferred Stock are held in the
treasury of the Company. All of the outstanding shares of Company
Common Stock and Company Preferred Stock have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as
described in
Part 3.4(a)
of the
Disclosure Schedule: (A) none of the outstanding shares of
Company Common Stock or Company Preferred Stock are entitled or
subject to any preemptive right, right of participation or any
similar right or subject to any right of first refusal in favor of
the Company; (B) there is no Company Contract or other
arrangement relating to the voting or registration of, or
restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or granting any option or similar right
with respect to), any shares of Company Common Stock or Company
Preferred Stock; and (C) the Company is not under any
obligation or bound by any Company Contract or other arrangement
pursuant to which it may become obligated to repurchase, redeem or
otherwise acquire any outstanding shares of Company Common Stock or
Company Preferred Stock. An amendment to the Company’s
certificate of designation substantially identical to the amendment
attached as
Exhibit
A
hereto has been duly and validly adopted, and an amendment
to the Company’s bylaws substantially identical to the
amendment attached as
Exhibit B
hereto has been duly
and validly adopted.
(b) There
are no outstanding options issued by the Company or equity awards
subject to future vesting, including any outstanding
“phantom” stock, “phantom” stock rights,
stock appreciation rights, or stock-based performance units,
whether or not vested.
(c) Except
as set forth in
Part 3.4(a)
of the
Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or similar right (whether or
not currently exercisable) to which the Company is a party
obligating the Company to issue, transfer or sell any shares of the
capital stock or other securities or equity interests of the
Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of the Company;
(iii) rights agreement, stockholder rights plan (or similar
plan commonly referred to as a “poison pill”) or
Company Contract or other arrangement under which the Company is or
may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) agreement or
understanding (including any voting trust or irrevocable proxy) to
which the Company is a party with respect to the issuance of or the
voting interest in or consent of any shares of capital stock or
other equity interests of the Company or which restrict the
transfer of any such shares or equity interests.
(d) All
outstanding shares of Company Common Stock, Company Preferred Stock
and other securities of the Company have been issued and granted in
compliance with: (i) all applicable securities Laws and other
applicable Laws; and (ii) all requirements set forth in
applicable Company Contracts.
3.5
SEC
Filings; Financial Statements.
(a) Except
as set forth on
Part
3.5(a)
of the Disclosure Schedule, the Company has filed or
furnished all registration statements, forms, reports,
certifications and other documents required to be filed by the
Company with the SEC since January 1, 2014 (the “
Company SEC Documents
”),
and, to the extent any Company SEC Document is not available in
full without redaction on the SEC’s website through the
Electronic Data Gathering, Analysis and Retrieval System
(“
EDGAR
”) (including the
full text of any document filed subject to a request for
confidential treatment), the Company has made available to Parent
the unredacted full text of such Company SEC Document. As of their
respective filing dates (after giving effect to any amendments or
supplements thereto), the Company SEC Documents complied as to form
in all material respects with the applicable requirements of the
Securities Act, the Exchange Act, and the Sarbanes-Oxley Act, as
the case may be. Except to the extent that information contained in
any Company SEC Document has been revised, amended, modified or
superseded (prior to the Agreement Date) by a later filed Company
SEC Document, none of the Company SEC Documents when filed or
furnished contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading in any
material respect. The Company has delivered to Parent true and
complete copies of all comment letters received by the Company from
the Staff of the SEC since January 1, 2014 and all responses to
such comment letters by or on behalf of the Company and all other
correspondence since January 1, 2014 between the SEC and the
Company. As used in this
Section 3.5
, the term
“file” shall be broadly construed to include any manner
in which a document or information is filed, furnished,
transmitted, supplied, or otherwise made available to the SEC. The
Annual Report on Form 10-K for the year ended December 31, 2016
(draft dated March 10, 2017) previously delivered by the Company to
Parent will be identical in all material respects to the form in
which it will be filed with the SEC (with such changes thereto
pertaining to this Agreement and the transactions contemplated
hereby as may be reasonably necessary, and which shall be provided
to Parent in advance of signing).
(b) Each
of the consolidated financial statements (including the related
notes) of the Company included in the Company SEC Documents: (i)
complied at the time it was filed (after giving effect to any
amendments or supplements thereto filed before the Agreement Date)
in all material respects with the applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto in effect at the time of such filing; (ii) was
prepared in accordance with generally accepted accounting
principles in the United States (“
GAAP
”) applied on a
consistent basis during the periods covered (except as may be
indicated in the notes to such financial statements or, in the case
of unaudited financial statements, as permitted by the rules and
regulations of the SEC, and except that the unaudited financial
statements may not contain all of the footnotes required in annual
audited financial statements and are subject to year-end
adjustments); and (iii) fairly presented in all material respects
the consolidated financial position of the Company as of the
respective dates thereof and the consolidated results of operations
and cash flows of the Company for the respective periods then ended
(subject, in the case of unaudited statements, to normal year-end
adjustments).
(c) The
Company is and, to the Company’s Knowledge, each of its
officers are, and has or have been since January 1, 2014, in
compliance with the applicable provisions of the Sarbanes-Oxley
Act. Except as set forth on
Part 3.5(c)
of the Disclosure
Schedule, the Company maintains disclosure controls and procedures
required by Rule 13a-15 or 15d-15 under the Exchange Act. Such
disclosure controls and procedures are designed to ensure that all
material information concerning the Company is made known on a
timely basis to the individuals responsible for the preparation of
the Company SEC Documents. Since January 1, 2014, Company’s
outside auditors and the audit committee of the Company Board have
not been advised of (A) any material weaknesses in the design or
operation of internal control over financial reporting which
adversely affect the Company’s ability to record, process,
summarize and report financial information, or (B) any fraud that
involves management or other employees who have a significant role
in the Company’s internal control over financial reporting.
Any material change in internal control over financial reporting
and any significant deficiency or material weakness in the design
or operation of internal control over financial reporting required
to be disclosed in any Company SEC Document has been so disclosed
and each material weakness previously so disclosed has been
remediated.
(d) The
Company is, and since January 1, 2014 has been, in compliance with
the applicable listing and corporate governance rules and
regulations of the OTCQB. The Company has delivered to Parent
complete and correct copies of all material correspondence between
the OTCQB and the Company since January 1, 2014.
(e)
Since January 1, 2014, neither the Company nor, to the Knowledge of
the Company, any Representative of the Company, has received or has
otherwise had written notice of any complaint, allegation,
assertion, or claim regarding the accounting or auditing practices,
procedures, methodologies, or methods of the Company or their
internal control over financial reporting, including any complaint,
allegation, assertion, or claim that the Company has engaged in
questionable accounting or auditing practices.
(f) The
Company has implemented and maintains a system of internal control
over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) sufficient to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with GAAP, including, that: (i) transactions are
executed in accordance with management’s general or specific
authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
The Company has delivered to Parent copies of, all reports and
other documents concerning internal control delivered to the
Company by its auditors since January 1, 2014.
(g) The
Company has delivered to Parent a schedule (the “
Merger Consideration Calculation
Schedule
”) that sets forth, as of the Agreement Date,
the amount of: (i) all outstanding Indebtedness of the Company
(inclusive of any applicable prepayment penalties or breakage costs
assuming repayment in full as of the Agreement Date), (ii)
Transaction Expenses incurred by the Company in respect of all
periods through the Agreement Date, and without duplication of the
foregoing, the amount of any brokerage, finder’s, opinion,
success, transaction or other fee or commission payable or to
become payable to William Blair & Co.
in connection with the Merger or
any of the other transactions contemplated by this Agreement based
on arrangements made by or on behalf of the Company, (iii) all
management, advisory or similar fees accrued or otherwise owing by
the Company to H.I.G. Capital, LLC or any Affiliate in respect of
all periods through the Agreement Date, and (iv) the proper
calculation of the Per Share Merger Consideration under the Company
Charter Documents assuming the Effective Time occurred on the
Agreement Date and the total Merger Consideration were
$65,618,159.00 in the aggregate. As of the Closing, (x) the amount
of outstanding Indebtedness of the Company (inclusive of any
applicable prepayment penalties or breakage costs assuming
repayment in full as of the Closing) shall not be in excess of the
amount shown on the Merger Consideration Calculation Schedule
pursuant to clause (i) of the preceding sentence, plus any
additional amounts incurred in accordance with
Section 5.2(a)(vi)
and
additional interest accrued in accordance with the stated terms of
the applicable Contract, (y) the amount of Transaction Expenses
incurred by the Company in respect of all periods through the
Closing Date shall be the same amount as shown on the Merger
Consideration Calculation Schedule, except that any amounts payable
to the Company’s legal or other third party advisors (other
than William Blair & Co.) shall have increased to include fees
for the periods between the Agreement Date and the Closing Date,
and (z) the amount of management, advisory or similar fees accrued
or otherwise owing by the Company to H.I.G. Capital, LLC or any
Affiliate shall be the same amount as shown on the Merger
Consideration Calculation Schedule plus any amounts accruing in the
period between the Agreement Date and Closing in accordance with
the stated terms of the applicable Contact.
3.6
No
Undisclosed Liabilities
. The Company does
not have any liabilities or obligations except those liabilities or
obligations: (a) reflected or reserved against on the balance
sheet of the Company as of September 30, 2016, including the notes
and other disclosure items thereto (the “
Company Balance Sheet
”
and the date of such balance sheet, the “
Company Balance Sheet
Date
”) included in the Company SEC Documents;
(b) incurred after the Company Balance Sheet Date in the
ordinary course of business, consistent with past practice; or
(c) incurred in connection with this Agreement and the
transactions contemplated hereby.
3.7
Interested
Party Transactions
. Except as
disclosed in the Company SEC Documents or
Part 3.7
of the Disclosure
Schedule, from the Company Balance Sheet Date through the Agreement
Date, no event has occurred that would be required to be reported
by the Company pursuant to Item 404 of
Regulation S-K.
3.8
Absence
of Changes
. Except in
connection with this Agreement and the transactions contemplated
hereby and as required by applicable Law and as set forth on
Part 3.8
of the
Disclosure Schedule, since the Company Balance Sheet Date: (a) the
Company has conducted its business in the ordinary course
consistent with past practice in all material respects; (b) there
has not been any Company Material Adverse Effect; and (c) neither
the Company has not taken any action that, if taken after the
Agreement Date, would require the prior written consent of Parent
under
Section
5.2(a)
.
3.9
Title
to Assets
. The Company owns,
and has good and valid title to, all tangible assets purported to
be owned by it on the Company Balance Sheet. All of said assets are
owned by the Company free and clear of any Encumbrances, except
for: (a) Permitted Encumbrances; and (b) Encumbrances
described in
Part 3.9
of the Disclosure
Schedule. The Company is the lessee of, and holds valid leasehold
interests in, all assets purported to have been leased by
them.
3.10
Intellectual
Property.
(a) To
the Company’s Knowledge, the Company owns, licenses or
otherwise has the right to use all Intellectual Property used by
the Company in the conduct of the business of the Company as
currently conducted (the “
Company Intellectual Property
Rights
”). The Company Intellectual Property Rights
owned by the Company are free and clear of Encumbrances, other than
Permitted Encumbrances. The Company Intellectual Property Rights
which are material to the conduct of the business of the Company,
taken as a whole, as currently conducted, will be owned by or
available for use by the Company after the Closing on terms and
conditions identical to those under which the Company owned or used
such Company Intellectual Property Rights immediately prior to the
Closing. The Company has taken commercially reasonable steps under
the circumstances to protect and maintain the secrecy of its
material trade secrets and other confidential information. To the
Company’s Knowledge, the material Company Intellectual
Property Rights that are the subject of a patent or registration
owned by the Company are valid, subsisting and
enforceable.
(b) The
Company has not received, in the three (3) years preceding the date
hereof, any written charge, complaint, claim, demand, unsolicited
offer to license or notice alleging any material infringement,
misappropriation or violation by the Company that has not been
settled or otherwise fully resolved. To the Company’s
Knowledge, as of the date hereof, no other Person is infringing,
misappropriating or violating any material Company Intellectual
Property Rights owned by the Company.
(c) The
Company is in compliance in all material respects with: (i) all
applicable Laws; and (ii) all of the Company’s published
policies and contractual obligations, in each case relating to
privacy, data protection, and the collection and use of personal
information collected, used, or held for use by the Company. To the
Company’s Knowledge, during the three (3) years prior to the
date hereof, the Company has not experienced any incident in which
personally identifiable information or other information protected
under applicable Law relating to individuals was stolen or
improperly accessed, including any breach of security.
(d)
Part
3.10(d)
of the Disclosure Schedule sets forth a correct and
complete list as of the date hereof of all: (i) patented or
registered Intellectual Property owned by the Company; and (ii)
pending patent applications and applications for other
registrations of Intellectual Property filed by or on behalf of the
Company, including, to the extent applicable, the jurisdictions in
which each such item of Intellectual Property has been issued or
registered or in which any application for such issuance and
registration has been filed. The Company owns such Intellectual
Property, free and clear of all Encumbrances, other than Permitted
Encumbrances.
(e) The
Company owns, or has a valid and enforceable right to use, all
Intellectual Property created by employees, consultants or
contractors for the Company and that is material to the conduct of
the business of the Company, taken as a whole, (a) as currently
conducted and (b) as currently planned to be conducted in
connection with publicly announced but not yet currently marked
product technologies including Co-ex, LPC and CoolDeck (the
“
Planned
Products
”). In respect of the Planned Products, the
Company has delivered to Parent the results of all prior art
searches, freedom-to-operate opinions, and infringement
investigations conducted or prepared by it or on its behalf. The
Company does not currently make, use, sell, offer for sale, or
import products or perform steps that would infringe the as-filed
or currently-pending claims of U.S. patent application number
14/218,166, if issued, nor does the Company currently plan to do so
in the future.
(f) The
Company has not used, modified or distributed any “open
source” software in a manner that requires any software owned
by the Company be (i) disclosed or distributed in source code form,
(ii) licensed for the purpose of making derivative works or (iii)
redistributed at no charge.
(g) Except
for the Material Contracts, the Company is not a party to any
Contract pursuant to which the Company has an express obligation to
pay to any third party, which either individually or in the
aggregate exceed $125,000 or more, in the 12-month period
immediately following the Closing in consideration for a license of
any Intellectual Property from such third party.
(h) Notwithstanding
anything in this Agreement to the contrary, this
Section 3.10
, along with
Section 3.5(b)
,
Section 3.8
,
Section 3.11
and
Section 3.18
,
contain the sole and exclusive representations and warranties of
the Company with respect to Intellectual Property, privacy, and the
collection and use of data (including personal
information).
3.11
Contracts
.
Except as set forth on
Part 3.11
of the Disclosure
Schedule, each “Material Contract” is valid and binding
on the Company and, to the Company’s Knowledge, each other
party thereto and is enforceable against the Company in accordance
with its terms, except where such enforceability may be limited by
bankruptcy, insolvency, reorganization, preference, fraudulent
transfer, moratorium or other similar Laws relating to or affecting
the rights and remedies of creditors and by general principles of
equity regardless of whether enforcement is considered in a
proceeding in equity or Law. Except as set forth on
Part 3.11
of the Disclosure
Schedule, the Company has delivered to Parent correct and complete
copies of all Material Contracts, and summaries of the terms of any
unwritten material contracts. The Company, and to the
Company’s Knowledge, any other party thereto, has performed
all obligations required to be performed under each Material
Contract and neither the Company nor, to the Company’s
Knowledge, the other party thereto, is (or would, with the passage
of time, the giving of notice, or both, be) in breach of or default
under any Material Contract. The Company has not received any
notice in writing from any Person that such Person intends to
terminate, or not renew, any Material Contract in effect as of the
Agreement Date, except for any such notices that have been
withdrawn or where the period for the taking of the threatened
action has lapsed without such action having been
taken.
3.12
Compliance
with Law; Permits
. The Company, is,
and since January 1, 2014 has been, in compliance in all material
respects with, and has not been in material default under or in
material violation of, any applicable Law.
(a) The
Company is in possession of, and is, and since January 1, 2014 has
been, in material compliance with, all material franchises, grants,
authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Body necessary for the Company to own, lease, and
operate its properties and assets or to carry on its businesses as
it is now being conducted (the “
Company Permits
”). All
such material Company Permits are in full force and
effect.
(b) To
the Company’s Knowledge, since January 1, 2014, neither the
Company nor any other Person acting on its behalf, violated or made
any unlawful payment under any anti-bribery, anti-corruption or
similar Laws or any International Trade Laws and, since January 1,
2014, the Company has not received any written notice from a
Governmental Body that alleges any of the foregoing.
3.13
Governmental
Authorizations
. The Company holds
all material Governmental Authorizations necessary to enable the
Company to conduct its business in the manner in which such
business is currently being conducted. All such material
Governmental Authorizations are valid and in full force and effect.
Except as set forth in
Part 3.13
of the
Disclosure Schedule: (a) the Company is, and at all times
since January 1, 2014, has been, in compliance in all material
respects with the terms and requirements of such material
Governmental Authorizations; and (b) since January 1, 2014,
the Company has not received any material notice or other
communication from any Person regarding (i) any actual or
possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (ii) any actual
or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental
Authorization.
3.14
Tax
Matters.
(a) Each
of the material Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body on or before the Closing
Date: (i) has been or will be filed on or before the
applicable due date (including any extensions of such due date);
and (ii) has been, or will be when filed, prepared in all
material respects in compliance with all applicable Laws. All
material Taxes due or required to be paid by the Company on or
before the Closing Date have been or will be paid on or before the
Closing Date, other than any Taxes for which adequate reserves have
been established in accordance with GAAP.
(b) No
claim or Legal Proceeding by any Governmental Body is pending or,
to the Company’s Knowledge, has been threatened against or
with respect to the Company in respect of any material amount of
Taxes. There are no unsatisfied liabilities for material amount of
Taxes (including liabilities for interest, additions to Tax and
penalties thereon and related expenses) with respect to any notice
of deficiency or similar document received by the Company with
respect to any material amount of Taxes (other than liabilities for
Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and
with respect to which adequate reserves for payment have been
established). No extension or waiver of the limitation period
applicable to any of the Company’s Tax Returns has been
granted (by the Company or any other Person), and no such extension
or waiver has been requested by the Company other than as a result
of extending the due date of such Tax Returns. There are no liens
for Taxes upon any of the assets of the Company except liens for
current Taxes not yet due and payable or liens being contested in
good faith by the Company and with respect to which adequate
reserves for payment have been established.
(c) No
written claim has been made within the last three (3) years by any
Governmental Body in a jurisdiction where the Company does not file
a Tax Return that the Company is or may be subject to taxation, or
required to file Tax Returns in, by that jurisdiction.
(d) The
Company is not a party to, bound by, or has any contractual
obligation under any Tax allocation or sharing agreement (except
for customary agreements to indemnify lenders or security holders
in respect of Taxes or other agreements of which the primary
subject matter is not Taxes).
(e) The
Company has not constituted either a “distributing
corporation” or a “controlled corporation” within
the meaning of Section 355(a)(1)(A) of the Code within the
last two (2) years.
(f) The
Company has not been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code or
within the meaning of any similar Law to which the Company may be
subject, other than the affiliated group of which the Company is
the common parent.
(g) The
Company has not participated, nor is it currently participating, in
a “Listed Transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b)(2) or in a similar
transaction under any corresponding or similar Law.
3.15
Employee
Matters.
(a)
Part 3.15(a)
of the Disclosure Schedule sets forth a true and complete list of
each material Company Benefit Plan. As used herein,
“
Company Benefit
Plan
” means each “employee benefit plan”
as defined in Section 3(3) of ERISA, and any other material
pension, retirement, incentive, bonus, employment, consulting,
change in control, retention, severance, deferred compensation,
cafeteria, medical, disability, stock purchase or equity based
compensation plan, policy, program, practice, agreement,
understanding or arrangement (whether written or oral) providing
compensation or other benefits to any current or former director,
officer, employee or consultant of the Company (or to any dependent
or beneficiary thereof), which is maintained, sponsored or
contributed to by the Company, or under which the Company has any
obligation or liability. The Company has made available to Parent
copies of all material documents evidencing the terms of each
material Company Benefit Plan, including all amendments thereto and
all related trust documents, to the extent applicable. Each Company
Benefit Plan has been administered in all material respects in
accordance with its terms and all applicable Laws, including ERISA
and the Code.
(b) (i)
Each Company Benefit Plan which is intended to qualify under
Section 401(a) of the Code has either received a favorable
determination letter from the IRS as to its qualified status or may
rely upon an opinion letter for a prototype plan and, to the
Company’s Knowledge, no event has occurred with respect to
such Company Benefit Plan that would reasonably be expected to
result in a material liability of Company, other than the
obligation to make contributions in the ordinary course of
business; and (ii) no suit, administrative proceeding, Action or
other litigation has been brought, or to the Company’s
Knowledge, is threatened against or with respect to any such
Company Benefit Plan, including any audit or inquiry by the IRS or
United States Department of Labor (other than routine benefit
claims and appeals).
(c) No
Company Benefit Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to
Title IV of ERISA or Code Section 412. No Company Benefit Plan
is a “multiple employer plan” within the meaning of
Section 4063 of ERISA. No act or omission has occurred that has
caused or could reasonably be expected to cause the Company to
incur any Liability under Title IV of ERISA or Code Section 412 as
a result of being an ERISA Affiliate with any other
Person.
(d) The
consummation of any of the transactions contemplated by this
Agreement, alone or in combination with a termination of any
employee, officer, director, stockholder or other service provider
of the Company (whether current, former or retired) or their
beneficiaries, will not give rise to any liability under any
Company Benefit Plan, or accelerate the time of payment or funding
or vesting or increase the amount of compensation or benefits due
to any such Person. Except as set forth on
Part 3.15(d)
of the Disclosure
Schedule, no amount that could be received (whether in cash or
property or the vesting of property), as a result of the
consummation of any of the transactions contemplated by this
Agreement, by any employee, officer, director, stockholder or other
service provider of the Company who is a disqualified individual
(as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any Company Benefit Plan would not be
deductible by reason of Section 280G of the Code or would be
subject to an excise tax under Section 4999 of the Code. The
Company does not have any indemnity obligation on or after the
Effective Time for any Taxes imposed under Section 4999
or 409A of the Code.
(e) Except
as required by Law, no Company Benefit Plan or any other
arrangement provides any post-employment medical or life insurance
benefit coverage.
(f) Since
January 1, 2014, there has not been and there is no pending or, to
the Company’s Knowledge, threatened: (i) strike;
(ii) work stoppage; or (iii) other material labor dispute
against the Company that may interfere with the business activities
of the Company. The Company is not party to any collective
bargaining agreement or collective bargaining relationship with any
labor organization.
3.16
Real
Property; Leasehold; Tangible Assets.
(a)
Part 3.16(i)
of the Disclosure Schedule sets forth a correct and complete list
of all real property owned, leased, subleased, licensed or
otherwise occupied by the Company (collectively,
“
Real
Property
”). Except as set forth on
Part 3.16(ii)
of the Disclosure
Schedule, no Person other than the Company has the right to use or
occupy any of the Real Property or any portion
thereof.
(b) The
improvements (the “
Owned Real Property
Improvements
”) constructed on any real property owned
in fee simple by the Company (the “
Owned Real Property
”) are
in a condition satisfactory for the operation of the
Company’s business in substantially the same manner as
currently conducted, subject to ordinary wear and tear. To the
Company’s Knowledge, the Company has not received any written
notice of the Owned Real Property Improvements violating any
applicable Laws. Since the date of the most current surveys
relating thereto that are in the possession of the Company, the
Company has not made any changes to the Owned Real Property
Improvements.
(c) With
respect to the improvements (the “
Leased Real Property
Improvements
”) constructed on any real property to
which the Company has a leasehold or subleasehold estate (the
“
Leased Real
Property
”), such Leased Real Property Improvements are
in a condition satisfactory for the operation of the
Company’s business in substantially the same manner as
currently conducted, subject to ordinary wear and tear. For the
sake of clarity, the foregoing representation shall apply to the
particular spaces leased or subleased by the Company, and not the
other portions of the improvements adjacent to such Leased Real
Property to which the Company does not have a leasehold or
subleasehold estate.
(d) With
respect to the Owned Real Property, the Company has delivered or
made available to Parent: (y) the most current surveys relating
thereto that are in the possession of the Company, if any, and (z)
the most current title insurance policies that are in the
possession of the Company with respect thereto, if
any.
(e) The
tangible properties, assets and rights of the Company are all of
the material tangible properties, assets and rights necessary to
conduct the business as presently conducted by the
Company.
3.17
Insurance
.
Each insurance policy under which the Company is an insured or
otherwise the principal beneficiary of coverage (each a
“
Company Insurance
Policy
”) is in full force and effect and all premiums
due thereon as of the Agreement Date have been paid in full. To the
Company’s Knowledge: (a) the Company is not in material
breach or default under any Company Insurance Policy; and
(b) no event has occurred which, with notice or lapse of time,
would constitute a material breach or default, or permit
termination or material modification, under any Company Insurance
Policy. The Company has timely given notice of all material losses
or liabilities reasonably expected to be covered under any such
Company Insurance Policy. The Company has delivered to Parent true
and complete copies of any insurance “loss runs” with
respect to Company for the past three (3) years.
3.18
Legal
Proceedings
. There are no
pending Legal Proceedings pending (or, to the Company’s
Knowledge, threatened) by or before any Governmental Body that
involve an amount in controversy greater than $100,000, in the
aggregate, or that seek any form of non-monetary relief with
respect to the Company or any of its material assets, properties or
businesses, or that challenges or seeks to prevent, delay or make
illegal the Merger or any of the other transactions contemplated by
this Agreement. There is no Restraint to which the Company or any
of the assets owned or leased by the Company is
subject.
3.19
Environmental
Matters
. Except as set
forth on
Part 3.19
of the Disclosure Schedule:
(a) The
Company is, and since January 1, 2014, has been, in compliance in
all material respects with all applicable Environmental Laws, which
compliance includes the possession and maintenance of, and
compliance with, all permits required under applicable
Environmental Laws for the operation of the business of the
Company.
(b) There
are no pending or, to the Company’s Knowledge, threatened,
demands, claims, investigations, proceedings, information requests,
or notices against the Company or, to the Company’s
Knowledge, any property owned, leased or occupied by the Company
alleging material non-compliance with or material liability under
any Environmental Law.
(c) The
Company has not stored, released, used or disposed of any Hazardous
Substances in a manner that would reasonably be expected to give
rise to material liability under any Environmental
Laws.
(d) The
Company has provided true and complete copies of all material
environmental assessment reports, health and safety audits, and
reports of investigations in the Company’s possession or
control with respect to the real property owned, leased, subleased,
licensed, other otherwise occupied by the Company or relating to
its operations.
3.20
Fairness
Opinion
. The Company Board
has received the opinion of William Blair & Co. to the effect
that, as of the date of such opinion (which is not more than five
(5) Business Days prior to the Agreement Date), and subject to the
limitations, qualifications, and assumptions set forth therein, the
Per Share Merger Consideration applicable to the Company Common
Stock is fair, from a financial point of view, to the holders of
Company Common Stock.
3.21
Brokers
.
Except for William Blair & Co. and H.I.G. Capital, LLC, no
broker, finder or investment banker is entitled to any brokerage,
finder’s, opinion, success, transaction or other fee or
commission in connection with the Merger or any of the other
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
3.22
Customers
and Suppliers
. The Company has
provided a true, correct, and complete list of the names of (i) the
ten (10) largest customers of the Company, ranked by revenue
received or receivable by such customer, and (ii) the ten (10)
largest suppliers or vendors of the Company, ranked by costs paid
or owed to such supplier or vendor, and any sole source suppliers
or vendors, in each case for the years ended December 31, 2015 and
December 31, 2016. To the Company’s Knowledge, no such listed
customer or supplier (x) has terminated or intends to terminate its
relationship with the Company, (y) has materially reduced or
intends to materially reduce the use of services or goods provided
by or to the Company or (z) has notified the Company of an intent
to renegotiate its Contract or terms of supply with the
Company.
3.23
No
Other Representations
. Except for the
representations and warranties contained in this
Article III
and in any
certificate delivered by the Company hereunder, neither the Company
nor any other Person acting on behalf of the Company makes any
representation or warranty, express or implied with respect to the
Company or its business or with respect to any other information
provided to Parent, Merger Sub or their Representatives or
Affiliates in connection with the transactions contemplated in this
Agreement. Neither the Company nor any other Person acting on
behalf of the Company will have or be subject to any liability or
indemnification obligation to Parent, Merger Sub or any other
Person resulting from the distribution to Parent, Merger Sub or its
or their respective Representatives or Affiliates, or
Parent’s, Merger Sub’s or their Representatives’
or Affiliates’ use of, any such information, including any
information, documents, projections, forecasts or any other
material made available to Parent, Merger Sub or their
Representatives or Affiliates in certain “data rooms”
or management presentations in connection with Parent’s and
Merger Sub’s consideration and review of the transactions
contemplated in this Agreement, unless and to the extent any such
information is expressly included in a representation or warranty
contained in this
Article
III
or any certificate delivered by the Company
hereunder.
ARTICLE IV.
REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB
Except
as disclosed in the disclosure schedule delivered by Parent to the
Company immediately prior to the execution of this Agreement (the
“
Parent Disclosure
Schedule
”), Parent and Merger Sub jointly and
severally represent and warrant to the Company, as of the Agreement
Date and as of the Closing Date (subject to any notices delivered
by Parent in accordance with
Section 5.9
of this Agreement),
as follows:
4.1
Qualifications;
Organization
. Each of Parent
and Merger Sub is a corporation duly organized, validly existing,
and in good standing under the Laws of its respective jurisdiction
of organization and has all requisite corporate or similar power
and authority to own, lease and operate its properties and assets
and to carry on its business as presently conducted and is
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership, leasing or
operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so
organized, validly existing, qualified or in good standing, or to
have such power or authority, would not, individually or in the
aggregate, restrict, prevent, prohibit, impede or materially delay
the consummation of Merger and the transactions contemplated by
this Agreement or prevent or materially impair the ability of
Parent or Merger Sub to satisfy the conditions precedent to the
Merger (any such prevention, delay or impairment, a
“
Parent Material
Adverse Effect
”).
4.2
Corporate
Authority; Non-contravention.
(a) Each
of Parent and Merger Sub has the requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the
board of directors of each of Parent and Merger Sub and by Parent,
as the sole stockholder of Merger Sub, no other corporate
proceedings on the part of Parent or Merger Sub are necessary to
authorize the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Parent and Merger
Sub and, assuming this Agreement constitutes the valid and binding
agreement of the Company, constitutes the valid and binding
agreement of each of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms, except
where such enforceability may be limited by bankruptcy, insolvency,
reorganization, preference, fraudulent transfer, moratorium or
other similar Laws relating to or affecting the rights and remedies
of creditors and by general principles of equity regardless of
whether enforcement is considered in a proceeding in equity or
Law.
(b) The
execution, delivery and performance by Parent and Merger Sub of
this Agreement and the consummation of the Merger by Parent and
Merger Sub do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification
to any Governmental Body other than: (i) the filing of the
Certificate of Merger; (ii) compliance with the applicable
requirements of any antitrust, competition or similar Laws of any
foreign jurisdiction; and (iii) the other consents and/or notices
set forth on
Part 4.2(b)
of the Parent
Disclosure Schedule (collectively, clauses (i) through (iii), the
“
Parent
Approvals
”), and other than any consent, approval,
authorization, permit, action, filing or notification the failure
of which to make or obtain would not individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect.
(c) Assuming
compliance with the matters referenced in
Section 4.2(b)
, and
receipt of the Parent Approvals, the execution, delivery and
performance by each of Parent and Merger Sub of this Agreement, the
consummation by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby do not and will not: (i)
contravene or conflict with the organizational documents of Parent
or Merger Sub; (ii) contravene or conflict with in any material
respect or constitute a material violation of any provision of any
Law binding upon or applicable to Parent or Merger Sub or any of
their respective properties or assets; or (iii) result in any
violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to the
loss of a material benefit under any material contract binding upon
Parent or Merger Sub or result in the creation of any Encumbrance
(other than Permitted Encumbrances) upon any of the properties or
assets of Parent or Merger Sub, other than, in the case of clauses
(ii) or (iii), any such violation, conflict, default, termination,
cancellation, acceleration, right, loss or Encumbrance that would
not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.
4.3
No Legal Proceedings
Challenging the Merger
. As of the
Agreement Date: (a) there is no Legal Proceeding pending
against Parent or Merger Sub that challenges or seeks to prevent,
delay or make illegal, the Merger or any other transaction
contemplated by this Agreement; and (b) to Parent’s
knowledge, no Legal Proceeding has been threatened against Parent
or Merger Sub that challenges or seeks to prevent, delay or make
illegal, the Merger or any other transaction contemplated by this
Agreement.
4.4
Activities
of Merger Sub
. Merger Sub was
formed solely for the purpose of effecting the Merger. Merger Sub
has not and will not engage in any activities other than those
contemplated by this Agreement and has, and will have as of
immediately prior to the Effective Time, no liabilities other than
those contemplated by this Agreement.
4.5
Information
Supplied
. None of the
information supplied or to be supplied to the Company in writing by
or on behalf of Parent, Merger Sub or any of their respective
Affiliates expressly for inclusion or incorporation by reference in
the Information Statement or, if applicable, Proxy Statement, will,
at the time such document is filed with the SEC, at any time such
documents are amended or supplemented or at the time such documents
are first published, sent or given to the Company’s
stockholders, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not
misleading.
4.6
Availability
of Funds
. Parent has
available to it as of the Agreement Date and will have available to
it at the Effective Time sufficient funds to consummate the Merger,
including payment in full for all Company Shares outstanding at the
Effective Time. Each of Parent and Merger Sub expressly acknowledge
and agree that its obligation to consummate the Merger and the
other transactions contemplated by this Agreement is not subject to
any condition or contingency with respect to
financing.
4.7
Brokers
.
Except for Stifel Financial Corp., no broker, finder or investment
banker is entitled to any brokerage, finder’s, opinion,
success, transaction fee or other fee or commission in connection
with the Merger or any of the other transactions contemplated by
this Agreement based upon arrangements made by Parent or Merger
Sub.
4.8
Interested
Stockholder
. None of Parent,
Merger Sub, any of Parent’s Subsidiaries and any of their
respective Affiliates, is or has been, an “interested
stockholder” of the Company as defined in
Section 203(c)(5) of the DGCL. None of Parent, Merger Sub nor
any of their respective Affiliates owns (directly or indirectly,
beneficially or of record) or is a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting, or disposing of, in each case, any shares of capital stock
of the Company (other than as contemplated by this
Agreement).
4.9
No
Parent Vote or Approval Required
. No vote or
consent of the holders of any capital stock of, or other equity or
voting interest in, Parent is necessary to approve this Agreement
or the Merger.
4.10
No Other Company
Representations or Warranties
. Except for the
representations and warranties set forth in
Article III
, each of Parent and
Merger Sub hereby acknowledges and agrees that: (a) neither
the Company, nor any of its Affiliates or Representatives nor any
other Person, has made or is making any other express or implied
representation or warranty with respect to the Company or their
respective businesses or operations, including with respect to any
information provided or made available to Parent, Merger Sub or any
of their respective Affiliates or Representatives or any other
Person; and (b) it is not relying and has not relied on any
representations or warranties whatsoever regarding the subject
matter of this Agreement, express or implied.
ARTICLE V.
COVENANTS
5.1
Access
and Investigation
. Subject to the
Confidentiality Agreement, during the period commencing on the
Agreement Date and ending on the earlier of: (a) the Effective
Time; and (b) the termination of this Agreement pursuant to
Section 7.1
(such period being referred to herein as the “
Interim Period
”), the
Company shall: (A) provide Parent and Parent’s
Representatives with reasonable access during normal business
hours, upon reasonable notice by Parent, to the respective
Representatives of the Company, and to the books, records, Tax
Returns, material operating and financial reports, work papers and
other documents and information relating to the Company; (B)
provide reasonable access during normal business hours, to the real
property owned, leased, subleased, licensed, other otherwise
occupied by Company as of the Agreement Date for purposes of
conducting Phase I environmental site assessments and limited
reviews of compliance with Environmental Law, upon reasonable
notice, to the Company’s facilities and personnel; and
(C) permit Parent’s officers and other employees to
meet, upon reasonable notice and during normal business hours, with
the chief financial officer and other officers and managers of the
Company responsible for the Company’s financial statements
and the internal controls of the Company to discuss such matters as
Parent may reasonably deem necessary or appropriate in order to
enable Parent to satisfy its obligations under the Sarbanes-Oxley
Act and the rules and regulations relating thereto or otherwise in
connection with the Merger. Information obtained by Parent or
Merger Sub pursuant to this
Section 5.1
will
constitute “Evaluation Material” under the
Confidentiality Agreement and will be subject to the provisions of
the Confidentiality Agreement. Nothing in this
Section 5.1
will require
the Company to permit any inspection, or to disclose or provide any
access to any information, that in the reasonable judgment of the
Company would: (x) result in a violation of applicable Law; or
(y) reasonably be expected to violate or result in a waiver,
loss or impairment of any attorney-client privilege or work product
doctrine or similar applicable privilege or legal protection. Any
investigation conducted pursuant to this
Section 5.1
shall be
conducted in a manner that does not unreasonably interfere with the
conduct of the business of the Company or create a reasonable risk
of damage or destruction to any property or assets of the Company,
shall be subject to the Company’s existing security measures
and insurance requirements, and shall not include the right to
perform invasive testing without the Company’s prior written
consent, in its reasonable discretion. The terms and conditions of
the Confidentiality Agreement shall apply to any information
obtained by Parent or any of its Representatives in connection with
any investigation conducted pursuant to this
Section 5.1
. Nothing in
this
Section 5.1
or elsewhere
in this Agreement shall be construed to require the Company or any
of the Company’s Representatives to prepare any appraisals or
opinions.
5.2
Operation
of the Company’s Business.
(a) Except
as expressly contemplated, required or permitted by this Agreement,
as required by applicable Law, as set forth in
Part 5.2(a)
of the
Disclosure Schedule or as consented to in writing by Parent (which
consent will not be unreasonably withheld, conditioned or delayed),
during the Interim Period, the Company shall ensure that it
conducts its business in all material respects in the ordinary
course of business and consistent with past practices and in
material compliance with applicable Law, and the Company will use
commercially reasonable efforts to maintain and preserve intact its
business organization, present relationships with those Persons
having significant business relationships with the Company, keep
available the services of its current executive officers and
maintain in effect all material Governmental Authorizations.
Without limiting the generality of the foregoing, except as
expressly contemplated, required or permitted by this Agreement, as
required by applicable Law, as set forth in
Part 5.2(a)
of the
Disclosure Schedule, or as consented to in writing by Parent (which
consent will not be unreasonably withheld, conditioned or delayed),
during the Interim Period, the Company shall not:
(i) amend
or permit the adoption of any amendment to the Company Charter
Documents;
(ii)
effect or become a party to any merger, consolidation,
share exchange, business combination, amalgamation,
recapitalization, reclassification of shares, stock split, reverse
stock split, division or subdivision of shares, consolidation of
shares or similar transaction or adopt a plan of complete or
partial liquidation;
(iii)
declare, accrue, set aside, or pay any dividend or make any other
distribution in respect of any shares of capital stock; split,
combine, or reclassify any capital stock; or acquire, redeem or
otherwise reacquire any shares of capital stock or other
securities, other than pursuant to the Company’s right to
acquire restricted shares of Company Common Stock held by an
employee of the Company upon termination of such employee’s
employment;
(iv)
sell, issue, grant or authorize the sale, issuance, or grant of:
(A) any capital stock or other security; (B) any option,
call, warrant or right to acquire any capital stock or other
security; or (C) any instrument convertible into or
exchangeable for any capital stock or other security, except that
the Company may adopt a stockholder rights plan in response to an
Acquisition Proposal and issue rights to Company stockholders in
connection therewith; or (D) or any “phantom” stock,
“phantom” stock rights, stock appreciation rights or
stock based performance units.
(v) lend
money to any Person (other than advances to employees of the
Company in the ordinary course of business);
(vi)
except in the ordinary course of business and not exceeding
$250,000, in the aggregate, incur or guarantee any
Indebtedness;
(vii)
other than as required by GAAP or SEC rules and regulations, change
any of its methods of accounting or accounting practices in any
material respect;
(viii)
make or change any material Tax election or
method, settle or compromise any material
liability of the Company for Taxes (other than (A) in the ordinary
course of business and (B) the payment of Taxes that become due and
payable in the ordinary course), change any method of Tax
accounting, file any material amendment to a previously filed Tax
Return, agree to an extension or waiver of the statute of
limitations with respect to the assessment or determination of
material Taxes, enter into any closing agreement with respect to
any material Tax, or surrender any right to claim a material Tax
refund;
(ix)
enter
into (or amend in any
respect that would increase the obligations or liabilities of the
Company under) any Contract or other arrangement with HIG AERT, LLC
or H.I.G. Capital, LLC or any Affiliate or related Person of HIG
AERT, LLC or H.I.G. Capital, LLC,
(x)
enter
into (or amend in any respect that would increase the obligations
or liabilities of the Company under) any Contract or other
arrangement with any broker, finder or investment banker in
connection with the Merger or any of the other transactions
contemplated by this Agreement;
(xi)
make any acquisition (including by
merger, consolidation, stock acquisition or otherwise) of the
capital stock or (except in the ordinary course of business or as
otherwise permitted pursuant to this Agreement) assets of any other
Person;
(xii)
transfer,
sell, assign, lease, license, divest, mortgage, sell and leaseback
or otherwise encumber or subject to any Encumbrance (other than
Permitted Encumbrances) or otherwise dispose of any material
properties or other material assets (including any Intellectual
Property), except (A) for sales, licenses or dispositions of
properties or other assets or interests therein in the ordinary
course of business, or (B) dispositions of assets that are no
longer useful in the conduct of the business of the
Company;
(xiii)
pay, discharge, settle or satisfy any
Legal Proceeding, in each case for an amount in excess of $125,000,
or $250,000 in the aggregate (excluding amounts that will be paid
under any Company Insurance Policies), or that would impose any
material Restraint on the continued conduct by the Company of its
business consistent with past practices;
(xiv)
amend or modify in any material
respect or terminate any Material Contract, or unwritten material
agreement, in each case other than in the ordinary course of
business, or enter into any Contract or oral arrangement that would
constitute a Material Contract if it had been entered into in
writing prior to the
Agreement Date
;
(xv)
except
as required to comply with applicable Law or to comply with any
Contract or Company Benefit Plan entered into prior to the date
hereof (A) adopt, enter into, terminate or materially amend (1) any
material Company Benefit Plan or (2) any other agreement, plan or
policy involving the Company and one or more of their respective
current or former officer, members of the Company Board, or
non-officer employees with base salary in excess of $100,000, in
each case that is not terminable by the Company at will without
liability, (B) increase the compensation, bonus or fringe or other
benefits offered by the Company other than increases in the
ordinary course of business consistent with past practice, (C) take
any action to accelerate the vesting or payment of any compensation
or benefit under any Company Benefit Plan, (D) loan or advance any
money or other property (other than reimbursement of reimbursable
expenses or any advances of such expenses, whether directly,
pursuant to Company credit cards or otherwise) or forgive any loans
to any current or former member of the Company Board or officer or
employee of the Company; (E) enter into any agreement or engage in
any transaction with one or more of the Company’s directors,
officers or stockholders, or with any corporation, partnership
(general or limited), limited liability company, association or
other organization of which one or more of the Company’s
directors, officers or stockholders is (1) a director, officer,
manager, managing partner, managing member (or the holder of any
office with similar authority), (2) has a direct or indirect
financial interest, or (3) directly or indirectly controls, is
controlled by or is under common control with;
(xvi)
enter into any line of business in any
geographic area other than the current lines of business of the
Company and products and services reasonably ancillary
thereto;
(xvii)
enter into any new commitment for
capital expenditures of the Company involving, individually or in
the aggregate, expected expenditures of more than
$875,000;
(xviii)
cancel, modify, or waive any debts or
claims held by it or waive any rights having in each case a value
or cost in excess of $100,000 individually or $250,000 in the
aggregate; or
(xix) authorize
any of, or commit, resolve, propose, or agree in writing or
otherwise to take any of, the foregoing actions.
5.3
No
Solicitation by the Company; Other Offers.
(a) Subject
to
Section 5.3(b)
, from the
Agreement Date until the earlier of the Effective Time and the date
on which this Agreement is terminated pursuant to
Section 7.1
, the Company
shall not, nor shall it authorize any of its Representatives to,
directly or indirectly: (i) solicit, initiate or knowingly
encourage or knowingly facilitate the making, submission or
announcement of an Acquisition Proposal; (ii) other than informing
Persons of the provisions contained in this
Section 5.3
, enter into,
continue or participate in any discussions or any negotiations
regarding any Acquisition Proposal or furnish to any Person any
non-public information in connection with or for the purpose of
knowingly encouraging or knowingly facilitating any Acquisition
Proposal; or (iii) enter into any letter of intent, acquisition
agreement or similar agreement with respect to any Acquisition
Proposal or with respect to any proposal or offer that would
reasonably be expected to lead to an Acquisition Proposal. The
Company shall, and shall cause each of its directors and officers
to, and shall direct its other Representatives to, immediately
cease and cause to be terminated all discussions or negotiations
with any Person previously conducted with respect to any
Acquisition Proposal and require such Persons to return or destroy,
and to cease producing access to said Persons or their
Representatives to, any non-public information of or relating to
the Company promptly after the Closing. Nothing in this
Section 5.3
shall prohibit the Company from granting waivers of any
“standstill” provision to the limited extent that such
provision would otherwise prohibit the counterparty thereto from
making a confidential Acquisition Proposal directly to the Company
Board in accordance with the terms of this
Section 5.3
, in which case
the Company shall similarly waive or terminate any
“standstill” provision applicable to Parent contained
in the Confidentiality Agreement.
(b) Notwithstanding
anything to the contrary contained in
Section 5.3(a),
if at any
time prior to the date which is thirty (30) days after the
Agreement Date (the “
Window Shop Date
”), (i)
the Company, or any of its Representatives receives an unsolicited
bona fide
written
Acquisition Proposal from any Person or group (other than HIG AERT,
LLC or its Affiliate) that did not result from a material breach of
this
Section 5.3
,
and (ii) the Company Board (or a duly authorized committee thereof)
determines in good faith, after consultation with its independent
financial advisors and outside legal counsel, that such Acquisition
Proposal constitutes or would reasonably be expected to lead to a
Superior Proposal and that the failure to take the actions
described in clause (A) or (B) below would be reasonably
likely to be inconsistent with its fiduciary duties under
applicable Law, then the Company, the Company Board (or a duly
authorized committee thereof) shall be permitted to (A) furnish
information with respect to the Company to the Person or group who
has made the Acquisition Proposal;
provided
,
however
, that (x) the Company shall
promptly (and in any event within twenty-four (24) hours) provide
to Parent any non-public information concerning the Company that is
provided to such Person or group and that was not previously
provided to Parent, (y) the Company shall have entered into an
Acceptable Confidentiality Agreement with such Person or group,
and (z) if the Person making such
Acquisition Proposal is a competitor of the Company, the Company
shall not provide any commercially sensitive non-public information
to such Person in connection with any actions permitted by
this
Section 5.3(b)
other than in accordance with
“clean team” or other similar procedures designed to
limit any adverse effect on the Company of the sharing of such
information,
and (B) engage in discussions or negotiations
with such Person or group regarding such Acquisition Proposal (and
waive such Person’s or group’s noncompliance with the
provisions of any “standstill” agreement solely to
permit such discussions and negotiations). The Company will keep
Parent reasonably apprised in all material respects on a reasonably
current basis of the status and content of any material discussions
regarding any Acquisition Proposal with any Person or group. The
Company will notify Parent in writing promptly after receipt (and
in any event within twenty four (24) hours) by the Company (or any
of its Representatives) of any Acquisition Proposal (or material
modification or amendment thereof), or the granting of any access
to non-public information of the Company or access to their books
and records, business property or assets and such notice shall
specify the identity of the Person making the Acquisition Proposal
or receiving such access and the material terms and conditions
thereof. The Company will keep Parent informed, on a reasonably
current basis, of the status of any such Acquisition Proposal or
access (including the material terms and conditions thereof and any
material modifications thereto). The Company shall provide Parent
with at least forty-eight (48) hours prior notice of any meeting of
the Company Board at which the Company Board is reasonably expected
to consider any Acquisition Proposal. The Company agrees that it
will not enter into any confidentiality agreement after the
Agreement Date that would prevent the Company from complying with
this
Section
5.3(b)
.
(c) Except
as otherwise provided in this Agreement (including
Section 5.3(d)
or
Section 5.3(e)
), neither
the Company Board nor any duly authorized committee thereof shall:
(i)(A) withhold, withdraw or rescind (or modify or qualify in a
manner adverse to Parent or Merger Sub), the Company Board
Recommendation; (B) adopt, approve or recommend, or publicly
propose to adopt, approve or recommend, any Acquisition Proposal;
(C) fail to include the Company Board Recommendation in the Proxy
Statement if and when disseminated to the holders of Company
Shares; (D) in the event a tender offer that constitutes an
Acquisition Proposal subject to Regulation 14D under the
Exchange Act is commenced, fail to recommend against such
Acquisition Proposal in any solicitation or recommendation
statement made on Schedule 14D-9 within ten (10) Business Days
of such commencement thereof, or (E) make any public statement
inconsistent with the Company Board Recommendation (any action
described in this clause (i) being referred to herein as an
“
Adverse
Recommendation Change
”); or (ii) approve, cause or
authorize or permit the Company to execute or enter into, any
letter of intent, memorandum of understanding, agreement in
principle, agreement or commitment (other than an Acceptable
Confidentiality Agreement) with any Person or group from whom the
Company has received an Acquisition Proposal (a “
Company Acquisition
Agreement
”), or resolve, agree or publicly propose to
take any such action.
(d) Notwithstanding
anything to the contrary set forth in
Section 5.3(c)
or any
other provision contained in this Agreement,
(i) If
at any time prior to the Window Shop Date, the Company Board (or a
duly authorized committee thereof) may (A) make an Adverse
Recommendation Change, or (B) terminate this Agreement pursuant to
Section 7.1(d)(ii)
to
accept such Superior Proposal, but only if, in either case of
clause (A) or (B), (1) the Company Board (or a duly authorized
committee thereof) determines in good faith, after consultation
with its outside legal counsel, that the failure to make an Adverse
Recommendation Change in response to the receipt of such Superior
Proposal not involving a material breach of this
Section 5.3
would reasonably be
expected to be inconsistent with its fiduciary duties under
applicable Law, (2) the Company provides Parent prior written
notice of its intent to make an Adverse Recommendation Change or to
terminate this Agreement pursuant to
Section 7.1(d)(ii)
at
least four (4) Business Days prior to taking such action (which
notice shall include a summary of the material terms of the
Superior Proposal, the relevant proposed transaction agreements and
any financing commitments relating thereto) (an “
Adverse Recommendation Change
Notice
”) (it being understood that such Adverse
Recommendation Change Notice shall not in itself be deemed an
Adverse Recommendation Change), (3) during such four (4) Business
Day period following Parent’s receipt of the Adverse
Recommendation Change Notice, the Company shall, and shall cause
its financial and legal advisors and other Representatives to,
negotiate in good faith with Parent (if Parent desires to so
negotiate) to make such adjustments in the terms and conditions of
this Agreement that Parent proposes to make as would obviate the
basis for an Adverse Recommendation Change or the termination of
this Agreement pursuant to
Section 7.1(d)(ii)
; (4) at
the end of such four (4) Business Day period and taking into
account any modifications to the terms of this Agreement proposed
by Parent to the Company in a written, binding and irrevocable
offer, the Company Board (or a duly authorized committee thereof)
determines in good faith (after consultation with outside legal
counsel) that the failure to make such an Adverse Recommendation
Change or the failure to terminate this Agreement pursuant to
Section 7.1(d)(ii)
would
reasonably be expected to be inconsistent with its fiduciary duties
under applicable Law; and (5) in the event of any change to the
material terms of such Superior Proposal, the Company shall, in
each case, have delivered to Parent an additional notice consistent
with that described in clause (1) above and the notice period shall
have recommenced, except that the notice period in such case shall
be two (2) Business Days. Any termination of this Agreement
pursuant to
Section
7.1(d)(ii)
to enter into a definitive agreement for a
Superior Proposal shall not relieve the Company of the obligation
to pay the Termination Fee in full in accordance with
Section 7.3(a)
.
(ii) other
than in connection with a Superior Proposal, the Company Board (or
a duly authorized committee thereof) may make an Adverse
Recommendation Change in response to an Intervening Event, if and
only if: (A) the Company Board (or a duly authorized committee
thereof) determines in good faith, after consultation with its
outside legal counsel, that the failure to take such action would
reasonably be expected to be inconsistent with its fiduciary duties
under applicable Law; (B) the Company then provides an Adverse
Recommendation Change Notice to Parent at least four (4) Business
Days prior to the taking of such action and not later than thirty
(30) days after the Agreement Date and describing the Intervening
Event that is the basis for such action in reasonable detail (it
being understood that such Adverse Recommendation Change Notice
shall not itself be deemed an Adverse Recommendation Change); (C)
during the four (4) Business Day period following Parent’s
receipt of the Adverse Recommendation Change Notice related to the
Intervening Event, the Company shall, and shall cause its financial
and legal advisors and other Representatives to, negotiate with
Parent (if Parent desires to so negotiate) to make such adjustments
in the terms and conditions of this Agreement that Parent proposes
to make as would obviate the basis for an Adverse Recommendation
Change; and (D) following the end of such four (4) Business Day
period, the Company Board (or a duly authorized committee thereof)
shall then have determined in good faith, taking into account any
changes to the terms of this Agreement proposed by Parent to the
Company in a written, binding and irrevocable offer in response to
the Adverse Recommendation Change Notice, that the failure to
effect an Adverse Recommendation Change in response to such
Intervening Event would reasonably be expected to be inconsistent
with its fiduciary duties under applicable Law.
(e) Nothing
contained in this Agreement shall prohibit the Company or the
Company Board (or a duly authorized committee thereof) from: (i)
taking and disclosing to the stockholders of the Company a position
contemplated by Rule 14e-2(a) under the Exchange Act or making
a statement contemplated by or otherwise complying with
Item 1012(a) of Regulation M-A or Rule 14d-9 under
the Exchange Act; or (ii) making any disclosure to the stockholders
of the Company if the Company Board (or a duly authorized committee
thereof) determines in good faith, after consultation with its
outside legal counsel, that the failure to make such disclosure
would be reasonably likely to be inconsistent with its fiduciary
duties under applicable Law;
provided
,
however
, that nothing in this
Section 5.3(e)
shall be deemed to modify or supplement the definition of (or the
requirements pursuant to this
Section 5.3
with respect to an)
Adverse Recommendation Change.
5.4
Stockholder
Consent; Preparation of Information Statement.
(a) Immediately
after the execution of this Agreement and in lieu of calling a
meeting of the Company’s stockholders, the Company shall seek
and shall use its reasonable best efforts to obtain an irrevocable
(except as provided in this
Section 5.4
) written consent,
in the form attached hereto as
Exhibit C
, from HIG AERT, LLC
(such written consent, as duly executed and delivered by such
stockholder, the “
Stockholder Consent
”). As
soon as practicable upon receipt of the Stockholder Consent, the
Company shall provide Parent with a copy of such Stockholder
Consent, certified as true and complete by an executive officer of
the Company. If such Stockholder Consent is not delivered to the
Company and Parent within two (2) Business Days after the execution
of this Agreement (the “
Stockholder Consent Delivery
Period
”), Parent shall have the right to terminate
this Agreement as set forth in
Section 7.1(b)(iii)
. In
connection with the Stockholder Consent, the Company shall take all
actions necessary to comply, and shall comply in all respects, with
the DGCL, including Section 228 and Section 262 thereof, and the
Company’s certificate of incorporation, bylaws or like
organizational documents.
(b) As
promptly as reasonably practicable after the date of this Agreement
(and in any event within fifteen (15) days after the date hereof),
the Company shall, with the assistance of Parent, prepare and file
with the SEC the Information Statement. The Information Statement
shall also contain (i) the notice of action by written consent
required by Section 228(e) of the DGCL and (ii) the notice of
availability of appraisal rights and related disclosure required by
Section 262 of the DGCL. Parent, Merger Sub and the Company will
cooperate with each other in the preparation of the Information
Statement and each of Parent and Merger Sub will furnish to the
Company the information relating to it required by the Exchange Act
to be set forth in the Information Statement promptly following
request therefor from the Company. The Company shall promptly
provide Parent and Merger Sub (in writing, if written), and consult
with Parent and Merger Sub regarding, any comments (written or
oral) the Company or its counsel may receive from the SEC or its
staff with respect to the Information Statement as promptly as
practicable after receipt of such comments. Parent and its counsel
shall be given a reasonable opportunity to review any such written
and oral comments and proposed responses. The Company and Parent
shall each use its reasonable best efforts to promptly provide
responses to the SEC with respect to all comments received on the
Information Statement by the SEC and to have the Information
Statement cleared by the staff of the SEC as promptly as reasonably
practicable after such filing. After the Information Statement has
been cleared by the SEC, or, if applicable, eleven (11) calendar
days after the date of the filing of the preliminary Information
Statement with the SEC without notice from the SEC of its intent to
review the Information Statement (or, if such day is not a Business
Day, the first Business Day thereafter), the Company shall promptly
file with the SEC the Information Statement in definitive form as
contemplated by Rule 14c-2 promulgated under the Exchange Act
substantially in the form previously cleared or filed with the SEC,
as the case may be, and mail a copy of the Information Statement to
the Company’s stockholders of record in accordance with
Sections 228 and 262 of the DGCL. Notwithstanding anything to the
contrary herein, if the Company Board (or a duly authorized
committee thereof) makes an Adverse Recommendation Change in
accordance with
Section
5.3(d)
, HIG AERT, LLC may revoke the Stockholder Consent in
its sole discretion and thereafter none of the obligations set
forth in
Section
5.4(a)
or this
Section 5.4(b)
shall apply to
any Person.
(c) Subject
to applicable Law, the Company and Parent (with respect to itself
and Merger Sub) shall each, upon request of the other, furnish the
other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the
Information Statement or the Proxy Statement or any other
statement, filing, notice or application made by or on behalf of
Parent, the Company or any of their respective Subsidiaries to any
third party and/or Governmental Body in connection with the Merger
and the other transactions contemplated by this
Agreement.
(d) In
the event the Stockholder Consent is not obtained and Parent does
not terminate this Agreement, in each case, as provided in
Section 5.4(a)
,
then as soon as practicable after the conclusion of the Stockholder
Consent Delivery Period, the Company shall prepare and file with
the SEC a proxy statement related to the Merger and this Agreement
(such proxy statement, including any amendment or supplement
thereto, the “
Proxy
Statement
”) and, subject to the other provisions of
this Agreement, the Company shall: (i) take all action necessary in
accordance with the DGCL and the Company Charter Documents to duly
call, give notice of, convene and hold a meeting of its
stockholders for the purpose of voting upon the approval and
adoption of this Agreement, including the Merger (the
“
Company
Stockholders Meeting
”), as soon as practicable
following the Agreement Date, and (ii) subject to an Adverse
Recommendation Change, use all reasonable efforts to solicit from
its stockholders proxies in favor of the adoption of this
Agreement. From and after the Agreement Date, unless this Agreement
is validly terminated in accordance with
Section 7.1
, the Company
shall submit this Agreement to its stockholders at the Company
Stockholders Meeting even if the Company Board shall have effected
an Adverse Recommendation Change. The consultation and cooperation
provisions with respect to the preparation, filing and
dissemination of the Information Statement shall apply to the
preparation, filing and dissemination of any Proxy Statement,
mutatis
mutandis
.
5.5
Reasonable
Best Efforts to Complete.
(a) Upon
the terms and subject to the conditions set forth in this
Agreement, each of Parent, Merger Sub and the Company shall use its
reasonable best efforts to, and shall use its reasonable best
efforts to cause its Representatives to, take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other party or parties hereto in doing, all
things reasonably necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the
Merger and each of the other transactions contemplated by this
Agreement, including using reasonable best efforts to: (i) cause
each of the conditions to the Merger set forth in
Article VI
to be satisfied as
promptly as practicable after the Agreement Date; (ii) without
limitation of
Section 5.6
, obtain, as
promptly as practicable after the Agreement Date, and maintain all
necessary actions or non-actions and Consents from any Governmental
Bodies and make all necessary registrations, declarations and
filings with any Governmental Bodies that are necessary to
consummate the Merger and the other transactions contemplated
hereby; and (iii) resist, contest, appeal and remove any Legal
Proceeding and to have vacated, lifted, reversed or overturned any
Restraint, whether temporary, preliminary or permanent, that is in
effect and that prohibits, prevents, restricts or restrains the
transactions contemplated hereby (including any Legal Proceeding or
Restraint in connection with the matters contemplated by
Section 5.6
).
In addition to the foregoing, neither Parent or Merger Sub, on the
one hand, nor the Company, on the other hand, shall take any action
that is intended to prevent, impair, materially delay or otherwise
adversely affect the consummation of the Merger or the other
transactions contemplated hereby or the ability of such party to
fully perform its obligations under this Agreement. Notwithstanding
anything to the contrary herein, none of the Company, Parent or
Merger Sub shall be required prior to the Effective Time to pay any
consent or other similar fee or consideration or otherwise assume
or incur or agree to assume or incur any obligation, liability or
commitment that is not conditioned upon the consummation of the
Merger, to obtain any Consent of any Person (including any
Governmental Body) under any Contract.
(b) In
furtherance and not in limitation of the foregoing, each of Parent,
Merger Sub and the Company shall provide such information and
execute such further instruments and written assurances as may be
reasonably requested by the other parties and assist and cooperate
with the other parties, in each case in accordance with the terms
of this Agreement, in order to carry into effect the intents and
purposes of, and to consummate the transactions contemplated by,
this Agreement as promptly as practicable after the Agreement
Date.
(c) Each
party agrees, on behalf of itself and its Affiliates, that, between
the Agreement Date and the Effective Time, it shall not, and shall
cause its Affiliates not to, directly or indirectly, (i) acquire,
purchase, lease or license (or agree to acquire, purchase, lease or
license), by merging with or into or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any Person or division or part
thereof, or any securities or collection of assets, if doing so
would, or such party reasonably anticipates it would, (A) result in
any material delay in obtaining, or materially increase the risk of
not obtaining, any Consent of any Governmental Body required in
connection with the transactions contemplated hereby (including the
Merger) or (B) restrict, prevent, prohibit, impede or materially
delay the consummation of the Merger or any of the other
transactions contemplated by this Agreement, or (ii) take or agree
to take any other action that it expects will (A) result in any
material delay in obtaining, or materially increase the risk of not
obtaining, any Consent of any Governmental Body required in
connection with the transactions contemplated hereby (including the
Merger) or (B) restrict, prevent, prohibit, impede, or materially
delay the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
5.6
Antitrust
Filings.
(a) If
required, each of Parent and Merger Sub (and their respective
Affiliates, if applicable), on the one hand, and the Company, on
the other hand, shall file with the FTC and the Antitrust Division
of the DOJ a Notification and Report Form (which form shall
specifically request early termination of the waiting period
prescribed by the HSR Act) relating to this Agreement and the
transactions contemplated hereby as required by the HSR Act as soon
as practicable after the Agreement Date but in no event later than
five (5) Business Days following the Agreement Date. Each of Parent
and the Company shall: (i) cooperate and coordinate with the other
in the making of such filings; (ii) promptly, but in no event later
than fifteen (15) Business Days after the date hereof, make any
filings, and use reasonable efforts to timely obtain any consents,
permits, authorizations, waivers, clearances and approvals, and to
cause the expiration or termination of any applicable waiting
periods, as may be required under foreign Antitrust Laws; (iii)
supply the other with any information and documentary material that
may be required in order to make such filings; and (iv) supply any
additional information that reasonably may be required or requested
by the FTC, the DOJ or any applicable foreign Governmental Body.
Without limiting the generality of the foregoing or any other
provision of this Agreement, Parent and the Company shall take any
and all action necessary to cause the expiration or termination of
the applicable waiting periods under the HSR Act as soon as
practicable after the filings contemplated by the first sentence of
this
Section 5.6(a)
, and to
avoid any impediment to the consummation of the Merger under any
Antitrust Laws, including: (A) proposing, negotiating, committing
to and effecting, by consent decree, hold separate order or
otherwise, conduct of business restrictions, a sale or disposition
of such assets or businesses as are required to be divested or a
license or grant of commercialization rights to businesses, product
lines, fields of use, divisions, business arrangements, Contracts,
assets or interests therein of Parent or its Affiliates (including,
after the Closing, the Surviving Corporation and its Affiliates);
(B) amending any venture or other arrangement of Parent or its
Affiliates (including the Surviving Corporation and its
Affiliates); and (C) otherwise taking or committing to take actions
after the Closing with respect to one or more of the businesses,
product lines, fields of use, or assets of Parent and its
Affiliates (including the Surviving Corporation and its
Affiliates), in each case, as may be required in order to enable
the consummation of the transactions contemplated hereby, including
the Merger, to occur as soon as reasonably practicable (and in any
event no later than the Outside Date) and to otherwise avoid the
entry of, or to effect the dissolution of, any preliminary or
permanent injunction which would otherwise have the effect of
preventing the consummation of the transactions contemplated
hereby, including the Merger. Further, and for the avoidance of
doubt, Parent will not extend any waiting period under the HSR Act
or enter into any agreement with the FTC, the Antitrust Division of
the DOJ or any other Governmental Body not to consummate the
transactions contemplated by this Agreement, except with the prior
written consent of the Company (which, in the case of the extension
of the waiting period, consent shall not be unreasonably withheld,
conditioned or delayed). Parent shall be responsible for all filing
fees payable in connection with such filings and for any local
counsel fees.
(b) Parent
and the Company shall, on behalf of the parties hereto, jointly
control and lead all communications with any Governmental Body
relating to Antitrust Laws, subject to compliance with this
Section 5.6
.
Each of Parent and Merger Sub (and their respective Affiliates, if
applicable), on the one hand, and the Company, on the other hand,
shall promptly inform the other of any material communication from
any Governmental Body regarding any of the transactions
contemplated by this Agreement in connection with any filings or
investigations with, by or before any Governmental Body relating to
this Agreement or the transactions contemplated hereby, including
any proceedings initiated by a private party. If any party hereto
or an Affiliate thereof shall receive a request for additional
information or documentary material from any Governmental Body with
respect to the transactions contemplated by this Agreement in
relation to any of the filings contemplated by this
Section 5.6
, then such
party shall use its reasonable best efforts to make, or cause to be
made, as soon as reasonably practicable and after consultation with
the other party, an appropriate response in compliance with such
request. In connection with and without limiting the foregoing, to
the extent reasonably practicable and unless prohibited by
applicable Law or by the applicable Governmental Body, the parties
hereto agree to: (i) give each other reasonable advance notice of
all substantive meetings and conference calls with any Governmental
Body relating to the Merger; (ii) give each other an opportunity to
participate in each of such meetings and conference calls; (iii)
keep the other party reasonably apprised with respect to any oral
communications with any Governmental Body regarding the Merger;
(iv) cooperate in the filing of any analyses, presentations,
memoranda, briefs, arguments, opinions or other written
communications explaining or defending the Merger, articulating any
regulatory or competitive argument or responding to requests or
objections made by any Governmental Body; (v) provide each other
with a reasonable advance opportunity to review and comment upon,
and consider in good faith the views of the other with respect to,
all written communications (including any analyses, presentations,
memoranda, briefs, arguments and opinions) with a Governmental Body
regarding the Merger; (vi) provide each other (or counsel of each
party, as appropriate) with copies of all written communications to
or from any Governmental Body relating to the Merger; and (vii)
cooperate and provide each other with a reasonable opportunity to
participate in, and consider in good faith the views of the other
with respect to, all material deliberations with respect to all
efforts to satisfy the conditions set forth in
Section 6.1(a)
. Any such
disclosures, rights to participate or provisions of information by
one party to the other shall be made on an outside counsel-only
basis at the request of any party.
5.7
Public
Statements and Disclosure
. Neither the
Company, on the one hand, nor Parent or Merger Sub, on the other
hand, shall issue (or shall cause its Affiliates or Representatives
to issue) any public release or make any public announcement
concerning this Agreement or the transactions contemplated by this
Agreement without the prior written consent of the other (which
consent shall not be unreasonably withheld, conditioned, or
delayed), except as such release or announcement is required by
applicable Law or the rules or regulations of the OTCQB or any
other applicable stock exchange or stock market, in which case the
party required to make the release or announcement shall use its
reasonable best efforts to allow the other party or parties hereto
a reasonable opportunity to comment on such release or announcement
in advance of such issuance (it being understood that the final
form and content of any such release or announcement, as well as
the timing of any such release or announcement, shall be at the
final discretion of the disclosing party);
provided
,
however
, that the restrictions set
forth in this
Section 5.7
shall not
apply to any release or announcement made or proposed to be made by
the Company in compliance with
Section 5.3(e)
. The
parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be
in the form heretofore agreed to by the parties. Notwithstanding
the foregoing, (a) to the extent the content of any press
release or other announcement has been approved and made in
accordance with this
Section 5.7
, no separate
approval shall be required in respect of such content to the extent
replicated in whole or in part in any subsequent press release or
other announcement and (b) each party may, without complying
with the foregoing obligations, make any public statement regarding
the transactions contemplated hereby in response to questions from
the press, analysts, investors or those attending industry
conferences, and make internal announcements to employees, in each
case to the extent that such statements are consistent with
previous press releases, public disclosures or public statements
made jointly by the parties or approved by the parties, and
otherwise in compliance with this
Section 5.7
and
provided
that such
public statements do not reveal Evaluation Material (as defined in
the Confidentiality Agreement) or material non-public information
regarding this Agreement or the transactions contemplated
hereby.
5.8
Director
and Officer Liability.
(a) For
six (6) years after the Effective Time, the Surviving Corporation
(or any successor thereto) shall indemnify, defend, and hold
harmless the present and former, and any other Persons who become
prior to the Effective Time, directors and officers of the Company
(the “
Indemnified
Parties
”) in respect of acts or omissions occurring at
or prior to the Effective Time to the fullest extent permitted by
Delaware Law or provided under the Company Charter Documents as in
effect on the Agreement Date.
(b) For
six (6) years after the Effective Time, Parent shall cause to be
maintained in effect provisions in the Surviving
Corporation’s certificate of incorporation and bylaws (or in
such documents of any successor to the business of the Surviving
Corporation) regarding elimination of liability of directors,
indemnification of directors and officers and employees and
advancement of expenses that are no less advantageous to the
intended beneficiaries than the corresponding provisions in the
Company Charter Documents in existence as of the Agreement
Date.
(c) Prior
to the Effective Time, the Company shall purchase a six (6) year
fully prepaid non-cancellable “tail” or
“run-off” directors and officers liability insurance
(including fiduciary liability) policy from a carrier with the same
or better credit rating as the Company’s current insurance
carrier with respect to directors’ and officers’
liability insurance with respect to any actual or alleged error,
misstatement, misleading statement, act, omission, neglect, breach
of fiduciary duty or any other matter claimed against a director or
officer of the Company by reason of him or her serving in such
capacity that existed or occurred prior to the Effective Time
covering each Person currently covered by the Company’s
directors’ and officers’ liability insurance policy on
terms with respect to coverage and amount no less favorable than
those contained in such policy in effect on the Agreement Date. In
the event any such policy is not available on a fully prepaid
basis, then the Company shall, prior to the Effective Time,
purchase such policy for as long a term as is then available, and
Parent shall or shall cause the Surviving Corporation or any
successor thereto, for the remaining period up to and including six
(6) years after the Closing Date, purchase and keep such policy
available at all times during such period;
provided
,
however
, that if the premiums required
to be paid by Parent (or the Surviving Corporation or any successor
thereto) for such insurance policy for any one year period would
exceed 300% of the current annual premium paid by the Company for
the directors’ and officers’ liability insurance in
effect as of the date hereof, then Parent or the Surviving
Corporation (or any successor thereto) shall cause to be maintained
policies of insurance that provide the maximum coverage available
at an annual premium equal to 300% of the Company’s current
premium for its insurance policy as of the date
hereof.
(d) From
and after the Effective Time through the sixth (6th) anniversary of
the Effective Time, the Surviving Corporation will, and Parent will
cause the Surviving Corporation to, fulfill and honor in all
respects the obligations of the Company pursuant to: (i) each
indemnification agreement between the Company and any Indemnified
Party; and (ii) any advancement of costs or expenses or
indemnification provisions and any exculpation provision set forth
in the Company Charter Documents as in effect on the Agreement
Date. If, at any time prior to the sixth (6th) anniversary of the
Effective Time, any Indemnified Party delivers to the Company, the
Surviving Corporation or Parent (or any successors thereto), as
applicable, a written notice asserting a claim for indemnification
under any of the provisions set forth in clause “(i)”
or “(ii)” of this
Section 5.8(d)
, then the
claim asserted in such notice shall survive the sixth (6th)
anniversary of the Effective Time until such claim is fully and
finally resolved.
(e) If
Parent or the Surviving Corporation or any of their successors or
assigns, as the case may be, (A) shall consolidate with or
merge into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger; or
(B) shall transfer or otherwise convey all or substantially
all of its properties and assets to any other Person, then and in
each such case, proper provisions shall be made so that the
successors and assigns of Parent or the Surviving Corporation or
their respective successors or assigns, as the case may be, shall
assume in writing all of the obligations set forth in this
Section 5.8
.
(f) Except
as required by applicable Law, the obligations set forth in this
Section 5.8
shall not be terminated, amended or otherwise modified in any
manner that adversely affects any Indemnified Parties (or any other
Person who is a beneficiary under the “tail” or
“runoff” policy referred to in
Section 5.8(c)
) without
the prior written consent of such affected Indemnified Parties or
other Person who is a beneficiary under the “tail” or
“runoff” policy referred to in
Section 5.8(c)
. Each of
the Indemnified Parties or other Persons who are beneficiaries
under the “tail” or “runoff” policy
referred to in
Section 5.8(c)
(and, if
and to the extent applicable, their heirs and representatives) are
intended to be third party beneficiaries of this
Section 5.8
, with full
rights of enforcement as if a party hereto. The rights of the
Indemnified Parties (and, if and to the extent applicable, their
heirs and representatives) under this
Section 5.8
shall be in
addition to, and not in substitution for, any other rights that
such Persons may have under the certificates of incorporation,
bylaws or other equivalent organizational documents of the Company,
any and all indemnification agreements of or entered into by the
Company, or applicable Law (whether at law or in
equity).
(g) Prior
to the Closing, other than with respect to any directors identified
by Parent in writing to the Company two (2) calendar days prior to
the Closing Date, the Company shall use its reasonable best efforts
to deliver to Parent resignations executed by each director of the
Company in office immediately prior to the Effective Time, which
resignations shall be effective at the Effective Time.
5.9
Notification
of Certain Events
. Each of the
Company and Parent shall, as promptly as reasonably practicable,
notify the other:
(a) upon
becoming aware that any representation or warranty made by it in
this Agreement has become untrue or inaccurate in any material
respect, or of any failure of such Person to comply with or satisfy
in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement;
provided
,
however
, that no such notification
shall affect or be deemed to modify any representation or warranty
of such party set forth herein for purposes of the conditions to
the obligations of the other party to consummate the Merger, or the
remedies available to the parties hereto, and
provided further
, that failure to give
any such notice shall not be treated as a breach of covenant for
the purposes of
Section 7.1(c)(ii)(A)
or
Section 7.1(d)(i)(A)
, as
applicable;
(b) of
any material written communication from any Governmental Body
related to the Merger; and
(c) of
any Legal Proceeding commenced and served upon it that challenges
the Merger or would reasonably be expected to delay or materially
impair the Closing of the Merger.
5.10
Employee
Matters.
(a) In
the event any individual who is employed by the Company (including
the Surviving Corporation or its Subsidiaries) immediately prior to
the Effective Time (each, a “
Covered Employee
”) first
becomes eligible to participate under any employee benefit plan,
program, policy, or arrangement of Parent or the Surviving
Corporation or any of their respective Subsidiaries (the
“
New
Plans
”) following the Effective Time, Parent shall, or
shall cause the Surviving Corporation to: (i) waive any
preexisting condition exclusions, “actively-at-work”
requirements and waiting periods with respect to participation and
coverage requirements applicable to any Covered Employee under any
New Plan providing medical, dental, or vision benefits to the same
extent such limitation would have been waived or satisfied under
the employee benefit plan Covered Employee participated in
immediately prior to coverage under the New Plan; and
(ii) provide each Covered Employee with credit for any
copayments and deductibles paid prior to the Covered
Employee’s coverage under any New Plan during the calendar
year in which such amount was paid, to the same extent such credit
was given under the employee benefit plan Covered Employee
participated in immediately prior to coverage under the New Plan,
in satisfying any applicable deductible or out-of-pocket
requirements under the New Plan.
(b) As
of the Effective Time and thereafter, Parent shall recognize, or
shall cause the Surviving Corporation and their respective
Subsidiaries to recognize, all service of each Covered Employee
prior to the Effective Time, to the Company (or, to the extent
previously recognized by the Company, any predecessor entities of
the Company) for vesting and eligibility purposes, and for purposes
of calculating vacation and other paid time off benefits, under any
New Plans. In no event shall anything contained in this
Section 5.10(b)
result in any duplication of benefits for the same period of
service.
(c) As
of the Effective Time, the Company shall take all necessary actions
to provide for full vesting of all amounts credited to the account
of each Covered Employee under the Company’s 401(k)
plan.
(d)
Nothing in this
Section 5.10
shall be
construed to limit the right of Parent or any of its Subsidiaries
(including, following the Effective Time, the Surviving
Corporation) to amend or terminate any Company Benefit Plan or
other employee benefit plan, to the extent such amendment or
termination is permitted by the terms of the applicable plan, nor
shall anything in this
Section 5.10
be construed
to require Parent or any of its Subsidiaries (including, following
the Effective Time, the Surviving Corporation) to retain the
employment of any particular Covered Employee for any fixed period
of time following the Effective Time;
provided
,
however
,
that Parent otherwise complies
with its obligations under this
Section 5.10
.
5.11
Confidentiality
.
The parties acknowledge that Parent and Company have previously
executed a Confidentiality Agreement, effective as of July 7, 2016,
and that Parent and William Blair & Co. on behalf of the
Company have previously entered into a First Amendment to
Confidentiality Agreement, dated September 28, 2016 (as so amended,
the “
Confidentiality
Agreement
”), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms
until the Effective Time, except as expressly modified
herein.
5.12
Stockholder
Litigation
. Prior to the
earlier of the Effective Time or the date of termination of this
Agreement pursuant to
Section 7.1
: (a) the
Company shall promptly advise Parent in writing of any stockholder
litigation against the Company or its directors or officers
relating to this Agreement, the Merger or the other transactions
contemplated hereby and shall keep Parent reasonably informed
regarding any such stockholder litigation; (b) the Company
shall give Parent the opportunity, at Parent’s sole cost and
expense, to participate in the defense or settlement of any
stockholder litigation that arises after the Agreement Date against
the Company or its directors or officers as a result of this
Agreement or the transactions contemplated hereby; and
(c) neither the Company nor Parent shall agree to any
settlement without the other party’s consent to such
settlement, which consent shall not be unreasonably withheld,
conditioned or delayed;
provided
,
however
,
that the Company shall not be
obligated to agree to any settlement unless such settlement
includes a full release of any director or executive officer of the
Company that was a party to such litigation.
5.13
Section
16 Exemption
. The Company shall
take all such steps as may be required to cause the transactions
contemplated by
Article
II
, and any other dispositions of equity securities of the
Company by any director or executive officer of the Company who is
or will be subject to the reporting requirements of
Section 16(a) of the Exchange Act and the rules and
regulations thereunder, to be exempt under Rule 16b-3
promulgated under the Exchange Act.
5.14
Takeover
Laws
. In the event that
any state Takeover Law is or becomes applicable to any of the
transactions contemplated by this Agreement, the Company, Parent
and Merger Sub shall use their respective reasonable best efforts
to ensure that the transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms and subject
to the conditions set forth in this Agreement and otherwise to
minimize the effect of such law on this Agreement and the
transactions contemplated by this Agreement.
5.15
Post-Closing
Reports
. Prior to the
Effective Time, the Company shall cooperate with Parent and use
commercially reasonable efforts to take, or cause to be taken, all
actions, and do or cause to be done all things reasonably
necessary, proper or advisable on its part under applicable Laws to
enable the deregistration of the applicable Company Shares under
the Exchange Act promptly after the Effective Time. The Surviving
Corporation will use all commercially reasonable efforts to cause
the applicable Company Shares to be deregistered under the Exchange
Act as soon as practicable after the Effective Time.
5.16
Terminations
and Releases
. On the Closing
Date, the Company shall deliver to Parent a release of the Company
from any fees or expenses payable to (a) William Blair & Co.
under the Engagement Letter, dated July 20, 2016, between the
Company and William Blair & Co. and (b) H.I.G. Capital, LLC
under the Advisory Services Agreement, dated March 18, 2011,
between the Company and H.I.G. Capital, LLC.
5.17
Data
Room CD-ROM
. Promptly after
the date hereof, the Company shall deliver to Parent a CD-ROM
reflecting the full and complete contents of the “Project
ASCENT” Intralinks data room maintained by the Company as of
the date of this Agreement.
5.18
Filing
of Annual Report on Form 10-K
. The Company will
file its Annual Report on Form 10-K for the year ended December 31,
2016 as soon as practicable after execution and delivery this
Agreement.
ARTICLE VI.
CONDITIONS TO
MERGER
6.1
Conditions
to Obligations of all Parties.
The
respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction (or, if permitted
by applicable Law, written waiver by the party entitled to the
benefit thereof) at or prior to the Closing of the following
conditions:
(a) All
applicable Governmental Authorizations shall have been
obtained.
(b)
No Governmental Body shall have enacted, issued, promulgated or
entered any Law or Restraint which is in effect and has the effect
of making the transactions contemplated by this Agreement illegal
or other restraining or prohibiting consummation of such
transactions.
(c) Either
the Stockholder Consent or the Company Stockholder Approval shall
have been obtained.
(d) The
Information Statement shall have been cleared by the SEC and mailed
to the stockholders of the Company (in accordance with Regulation
14C of the Exchange Act) at least twenty (20) days prior to the
Closing Date.
6.2
Conditions
to Obligations of Parent and Merger Sub
. The obligations
of Parent and Merger Sub to effect the Merger shall be subject to
the satisfaction or waiver, of the following
conditions:
(a) (i)
The representations and warranties of the Company contained in
Sections 3.3(a)
,
3.4(a)-(c)
(except
for de minimis inaccuracies), and
3.21
of this Agreement shall be
true and correct in all respects as of the Effective Time as though
made on and as of the Effective Time, (ii) the representations and
warranties of the Company contained in
Section
3.5(g)
of this Agreement shall
be true and correct in all material respects (without giving effect
to any limitation as to “materiality” or “Company
Material Adverse Effect”) as of the Effective Time as though
made on and as of the Effective Time, and (iii) all other
representations and warranties of the Company contained in this
Agreement shall be true and correct in all respects (without giving
effect to any limitation as to “materiality” or
“Company Material Adverse Effect”) as of the Effective
Time as though made on and as of the Effective Time, except where
the failure of such representations and warranties described in
this clause (iii) to be true and correct has not had, individually
or in the aggregate, a Company Material Adverse Effect; provided in
each case that representations and warranties made as of a specific
date need only be true and correct (subject, in the case of the
representations and warranties described in clauses (ii) and (iii),
to such qualifications) as of such specified date.
(b) The
Company shall have performed in all material respects with its
obligations or covenants contained in this Agreement at or prior to
the Closing.
(c) Since
the Agreement Date, there shall not have occurred any event that
has had, or would reasonably be expected to have, a Company
Material Adverse Effect.
(d)
The Company shall have provided to Parent a certificate dated the
Closing Date signed on its behalf by the chief financial officer of
the Company to the effect that the conditions set forth in
Section 6.2(a)
,
Section 6.2(b)
and
Section 6.2(c)
have been
satisfied.
(e)
At least two Business Days prior to Closing, the Company shall have
delivered to Parent a payoff letter from each holder of the types
of Company Indebtedness specified in clauses (i) and (ii) of the
definition of “Indebtedness” indicating that upon
payment of a specific amount, such Indebtedness shall be paid in
full and, if applicable, any related security interest shall be
automatically released and Parent or its designees shall, to the
extent applicable, be authorized to file releases of all
Encumbrances relating thereto on the assets and properties of the
Company, including, to the extent applicable Uniform Commercial
Code termination statements, or such other customary documents or
endorsements necessary to evidence the release of the securities
interests of all holders.
6.3
Conditions
to Obligations of the Company
. The obligations
of the Company to effect the Merger shall be subject to the
satisfaction or waiver, of the following conditions:
(a) The
representations and warranties of Parent and Merger Sub contained
in this Agreement shall be true and correct as of the Effective
Time as though made on and as of the Effective Time (other than
such representations and warranties that are made as of a specific
date, which need only be true and correct as of such specified
date), except where the failure of such representations and
warranties to be true and correct (without giving effect to any
limitation as to “materiality” or “Parent
Material Adverse Effect”) has not had, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Parent
and Merger Sub shall have performed in all material respects with
its obligations or covenants contained in this Agreement at or
prior to the Closing.
(c) Parent
shall have provided to the Company a certificate dated the Closing
Date signed on its behalf by the chief financial officer of Parent
to the effect that the conditions set forth in
Section 6.3(a)
and
Section 6.3(b)
have been satisfied.
(d) Simultaneously
with the Closing, Parent shall, on behalf of the Company, pay the
amounts reflected in the payoff letters described in
Section 6.2(e)
to the lenders
named therein in the manner set forth therein.
ARTICLE VII.
TERMINATION
7.1
Termination
.
This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, notwithstanding the receipt
of the Company Stockholder Approval:
(a) by
mutual written consent of Parent and the Company;
(b) by
either Parent or the Company, upon written notice to the other
party, if:
(i) the
Effective Time shall not have occurred on or prior to the close of
banking business, New York time, on May 31, 2017 (the
“
Outside
Date
”);
provided
,
however
, that a party shall not be
permitted to terminate this Agreement pursuant to this
Section 7.1(b)(i)
if the
failure of the Effective Time to occur by the Outside Date is
attributable to a failure of such party (and in the case of Parent,
including the failure of Merger Sub) to perform in any material
respect its obligations under this Agreement;
(ii) any
Governmental Body of competent jurisdiction shall have (A) enacted,
issued or promulgated any Law that is in effect as of immediately
prior to the Effective Time and which has the effect of making the
Merger illegal or which has the effect of prohibiting or otherwise
preventing the consummation of the Merger in the United States, or
(B) issued or granted any Restraint that is in effect as of
immediately prior to the Effective Time and which has the effect of
making the Merger illegal or which has the effect of prohibiting or
otherwise preventing the consummation of the Merger, and such
Restraint is final and nonappealable;
provided
,
however
, that the right to terminate
this Agreement under this
Section 7.1(b)(ii)
shall
not be available to a party if the issuance of such Restraint is
attributable to a failure of such party (and in the case of Parent,
including the failure of Merger Sub) to perform in any material
respect its obligations under this Agreement;
(iii) on
or prior to the Outside Date, the Stockholder Consent has not been
obtained and the Company Stockholder Approval shall not have been
obtained at the Company Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof, at which a final
vote on the approval of this Agreement was taken;
(c) by
Parent, upon written notice to the Company, if:
(i) the
Company Board shall have made an Adverse Recommendation Change; it
being understood that any actions permitted to be taken by the
Company or the Company Board under
Section 5.3(b)
shall not give
rise to a right to terminate under this
Section 7.1(c)(i)
;
(ii) (A) there
shall have been a breach of any covenant or agreement on the part
of the Company set forth in this Agreement; or (B) any
representation or warranty of the Company set forth in
Article III
shall have been
inaccurate when made or, if not made as of a specific date, shall
have become inaccurate, that would, in either case of clauses
“(A)” or “(B)”, result in the conditions
set forth in
Section 6.2(a)
or
Section 6.2(b)
not being satisfied, and in the case of both clauses (A)
and (B), such breach or inaccuracy is not curable by the
Outside Date, or, if curable, is not cured by the Outside
Date;
(iii)
Either (x) the Stockholder Consent shall not have been obtained and
delivered to Parent within the Stockholder Consent Delivery Period,
or (y) the Company Stockholder Approval shall not have been
obtained at the Company Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof, at which a final
vote on the approval of this Agreement was taken;
(d) by
the Company, upon written notice to Parent, if:
(i) (A) there
shall have been a breach of any covenant or agreement on the part
of Parent or Merger Sub set forth in this Agreement; or
(B) any representation or warranty of Parent and Merger Sub
set forth in
Article
IV
shall have been inaccurate when made or shall have become
inaccurate, that would, in either case of clauses “(A)”
or “(B)”, result in the conditions set forth in
Section 6.3(a)
or
Section 6.3(b)
not being
satisfied, and in the case of both clauses (A) and (B),
such breach or inaccuracy is not curable by the Outside Date, or,
if curable, is not cured by the Outside Date; or
(ii)
the Company Board shall have effected an Adverse Recommendation
Change with respect to a Superior Proposal or an Intervening Event
(other than an Intervening Event that would reasonably be expected
to have a material adverse effect on the Parent and its
Subsidiaries, taken as a whole) in accordance with, and in
compliance with the requirements of,
Section 5.3
and
concurrently with the termination hereunder, the Company shall have
(A) entered into a Company Acquisition Agreement, if such Adverse
Recommendation Change relates to a Superior Proposal, and (B) and
paid the Termination Fee in accordance with
Section 7.3(a)
.
7.2
Effect
of Termination
. The party
desiring to terminate this Agreement pursuant to
Section 7.1
(other than
pursuant to
Section 7.1(a)
) shall give
written notice of such termination to the other party and such
termination shall become effective immediately upon delivery of
such notice. In the event this Agreement is terminated as provided
in
Section 7.1
, this
Agreement shall become void and be of no further force or effect;
provided
,
however
, that
Section 5.11
(together
with the Confidentiality Agreement), this
Section 7.2
,
Section 7.3
, and
Article VIII
shall
survive termination of this Agreement, and, except as provided in
such Sections, there shall be no liability on the part of Parent,
Merger Sub or the Company or their respective directors, officers,
other Representatives or Affiliates, whether arising before or
after such termination, based on, arising out of, or relating to
this Agreement or the negotiation, execution, performance, or
subject matter hereof (whether in contract or in tort or otherwise,
or whether at law (including at common law or by statute) or in
equity);
provided
,
however
, that no party
shall be relieved or released from any liabilities or damages
arising out of any fraud or willful and material breach of any
representations and warranties set forth in this Agreement or any
material breach of any covenant set forth in this Agreement, in
each case, that occurred prior to such termination, in which case
the aggrieved party shall be entitled to all remedies available to
such party in law and equity. Without limiting the meaning of a
material breach, the parties acknowledge and agree that any failure
by Parent or Merger Sub to consummate the Merger and other
transactions contemplated hereby after the applicable conditions to
the Closing set forth in
Article VI
have been satisfied
or waived (except for those conditions that by their nature are to
be satisfied at the Closing, which conditions would be capable of
being satisfied at the time of such failure to consummate the
Merger) shall constitute a material breach of a covenant set forth
in this Agreement.
7.3
Expenses;
Termination Fee; Reverse Termination Fee.
(a) In
the event that this Agreement is terminated by Parent pursuant to
Section 7.1(c)(i)
or by
the Company pursuant to
Section 7.1(d)(ii)
, then
the Company shall pay to Parent the Termination Fee; it being
understood that in no event shall the Company be required to pay to
the Termination Fee on more than one occasion. The
Termination Fee payable pursuant to this
Section 7.3(a)
shall be
paid (i) no later than two (2) Business Days following
termination pursuant to
Section 7.1(c)(i)
and (ii)
substantially concurrently (or the next Business Day if payment is
not feasible on the date of termination) with any termination
pursuant to
Section 7.1(d)(ii)
if
Parent shall have provided wiring instructions for payment of the
Termination Fee as of such termination, or if Parent has not then
provided such wiring instructions, then such payment of the
Termination Fee shall be made promptly following delivery of such
wiring instructions by Parent (even if after such
termination). All payments under this
Section 7.3(a)
shall be
made by wire transfer of immediately available funds to an account
designated in writing by Parent. Notwithstanding anything to
the contrary set forth in this Agreement, including
Section 8.8
, Parent’s
right to receive payment of the Termination Fee shall constitute
the sole and exclusive remedy of Parent and Merger Sub against the
Company and its Affiliates and Representatives for all losses and
damages suffered as a result of the failure of the Merger to be
consummated hereunder.
(b) In
the event that this Agreement is terminated by the Company pursuant
to (i)
Section
7.1(b)(i)
or (ii)
Section 7.1(d)(i)
, and in the
case of clause (i), both (A) the conditions to the
Closing set forth in
Sections 6.1
and
6.2
are satisfied or capable of
being satisfied or are waived (other than those conditions that by
their nature are to be satisfied by actions taken at the Closing,
each of which shall be capable of being satisfied at the Closing),
and (B) either Parent or Merger Sub has failed to satisfy its
obligations to effect the Closing by the date the Closing is
required to have occurred pursuant to
Section 2.2
, then Parent shall
pay to the Company the Reverse Termination Fee;
it being understood that in no
event shall the Parent be required to pay to the Reverse
Termination Fee on more than one occasion. The Reverse
Termination Fee payable pursuant to this
Section 7.3(b)
shall be
paid (i) no later than two (2) Business Days following
termination pursuant to
Section 7.1(b)(i)
and (ii)
substantially concurrently (or the next Business Day if payment is
not feasible on the date of termination) with any termination
pursuant to
Section
7.1(d)(i)
if the Company shall have provided wiring
instructions for payment of the Reverse Termination Fee as of such
termination, or if the Company has not then provided such wiring
instructions, then such payment of the Reverse Termination Fee
shall be made promptly following delivery of such wiring
instructions by the Company (even if after such termination).
All payments under this
Section 7.3(b)
shall be
made by wire transfer of immediately available funds to an account
designated in writing by the Company. The Company’s right to
receive payment of the Reverse Termination Fee shall constitute the
sole and exclusive remedy of the Company or its stockholders
against the Parent, Merger Sub and their respective Affiliates and
Representatives for all losses and damages suffered as a result of
the failure of the Merger to be consummated hereunder. For the
avoidance of doubt, nothing herein shall preclude the
Company’s right to enforce payment of the Reverse Termination
Fee, if applicable, pursuant to this
Section 7.3(b)
.
ARTICLE VIII.
MISCELLANEOUS
PROVISIONS
8.1
Notices
.
All notices and other communications hereunder shall be in writing
and shall be deemed duly delivered: (a) four (4) Business
Days after being sent by registered or certified mail, return
receipt requested, postage prepaid; (b) one (1) Business
Day after being sent for next Business Day delivery, fees prepaid,
via a reputable nationwide overnight courier service; (c) on
the date of confirmation of receipt (or the first (1st)
Business Day following such receipt if the date of such receipt is
not a Business Day) of transmission by facsimile; or (d) on
the date delivered if sent by email (or the first (1st)
Business Day following such receipt if the date of such receipt is
not a Business Day) (provided confirmation of email receipt is
obtained), in each case to the intended recipient as set forth
below (or to such other address or facsimile telephone number, with
email as such party shall have specified in a written notice given
to the other parties hereto):
if to
Parent or Merger Sub:
Oldcastle
Architectural, Inc.
Suite
600 - 900 Ashwood Parkway
Atlanta, GA
30338
Attention: Mr. Tim
Ortman, President
Facsimile No.:
(866) 742-3566
Email:
tim.ortman@oldcastle.com
with a
copy to (which copy shall not constitute notice):
Oldcastle Law
Group
Suite
700 - 900 Ashwood Parkway
Atlanta, GA
30338
Attention: John
Tinstman, Esq.
Facsimile No.:
(770) 392-5305
Email:
john.tinstman@oldcastlelaw.com
and
to:
Kilpatrick,
Townsend & Stockton LLP
1100
Peachtree Street, N.E., Suite 2800
Atlanta, GA
30309
Attention: Richard
Cicchillo, Jr., Esq.
Facsimile No.:
(404) 541-3156
Email:
rcicchillo@kilpatricktownsend.com
if to
the Company:
Advanced
Environmental Recycling Technologies, Inc.
914 N.
Jefferson Street
Springdale, AR
72764
Attention: Timothy
Morrison
Facsimile No: (479)
756-7410
Email:
TimothyMorrison@aert.com
with a
copy to (which copy shall not constitute notice):
Paul
Hastings LLP
1117 S.
California Avenue
Palo
Alto, CA 94304
Attention: Rob R.
Carlson
Facsimile No: (650)
320-1830
Email:
robcarlson@paulhastings.com
8.2
No
Survival
. None of the
representations and warranties set forth in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive
the Effective Time. Upon the Effective Time, Parent, Merger Sub,
Surviving Corporation, and its Subsidiaries shall be deemed to have
waived, relinquished and released the Company Board and Company
Stockholders, and each of their representatives, from and against
any and all claims, demands, causes of action (including causes of
action in tort), losses, damages, liabilities, costs and expenses
(including reasonable attorneys’ fees) of any and every kind
or character, known or unknown, which might have asserted or
alleged against them at any time by reason of or arising out of the
environmental condition of the real property owned, leased,
subleased, licensed, or otherwise occupied by Company prior to or
as of the Agreement Date, including without limitation, for
releases of Hazardous Substances;
provided
,
however
, this sentence shall not apply
to any claims arising out of any actions by such Persons in
violation of Law. This
Section 8.2
shall not
limit the survival of any covenant or agreement of the parties
hereto contained in this Agreement which by its terms contemplates
performance after the Effective Time.
8.3
Amendment
or Supplement
. At any time prior
to the Effective Time, this Agreement and any exhibit attached
hereto, may be amended or supplemented in any and all respects only
by a written agreement signed by all of the parties hereto;
provided
,
however
,
that if in connection with any
amendment or supplement, the Stockholder Consent or Company
Stockholder Approval is required under the DGCL, after the
Stockholder Consent or Company Stockholder Approval has been
obtained there shall be no amendment or supplement that would
require the further approval of the stockholders of the Company
under the DGCL without such approval having first been
obtained.
8.4
Waiver
.
Except as otherwise provided in this Agreement, any provision of
this Agreement may be waived prior to the Effective Time, if, but
only if, such waiver is in writing and is signed by each party
against whom the waiver is to be effective. Notwithstanding the
foregoing, no failure or delay by any party in exercising any right
hereunder shall operate as a waiver of rights, nor shall any single
or partial exercise of such rights preclude any other or further
exercise of such rights or the exercise of any other right
hereunder. Except as otherwise provided herein, the rights and
remedies herein provided shall be cumulative and not exclusive of
any rights provided by Law.
8.5
Entire Agreement; No Third
Party Beneficiary
. This Agreement,
any exhibits hereto, the Disclosure Schedule, the Parent Disclosure
Schedule, the documents and instruments relating to the Merger
referred to in this Agreement, and the Confidentiality Agreement,
constitute the entire agreement, and supersedes and cancels all
prior agreements and understandings, both written and oral, among
the parties hereto with respect to the subject matter of this
Agreement. This Agreement is not intended, and shall not be deemed,
to create any agreement of employment with any Person, to confer
any rights or remedies upon any Person other than the parties
hereto and their respective successors and permitted assigns or to
otherwise create any third-party beneficiary hereto, except with
respect to: (a) the rights of Company Stockholders to receive
the applicable Per Share Merger Consideration provided in
Article II
;
(b) the Persons covered by
Section 5.8
; and
(c) the right of the Company on behalf of its stockholders to
recover the Reverse Termination Fee in the event of Parent’s
or Merger Sub’s breach of this Agreement (whether or not the
Agreement has been terminated pursuant to
Article VII
).
8.6
Governing
Law; Jurisdiction
. This Agreement,
and all actions arising under or in connection therewith shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws, except to
the extent the laws of Delaware are mandatorily applicable to the
Merger (including for the avoidance of doubt any laws relating to
appraisal or dissenters’ rights) and the Company Stockholder
Approval. The parties hereto agree that all actions and proceedings
arising out of or relating to this Agreement, the negotiation,
validity or performance of this Agreement, the Merger or the other
transactions contemplated hereby shall be brought and heard in the
Court of Chancery of the State of Delaware (or if the Court of
Chancery lacks jurisdiction, any court in the State of Delaware),
and the parties irrevocably submit to the exclusive jurisdiction of
such court (and, in the case of appeals, the appropriate appellate
court therefrom), in any such action or proceeding and irrevocably
waive the defense of an inconvenient forum to the maintenance of
any such action or proceeding. The consents to jurisdiction set
forth in this paragraph shall not constitute general consents to
service of process in the State of Delaware and shall have no
effect for any purpose except as provided in this
Section 8.6
and shall not
be deemed to confer rights on any Person other than the parties
hereto. The parties agree that service of process in any action or
proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby shall be properly served or
delivered if delivered in the manner contemplated by
Section 8.1
or by any
other manner permitted by applicable Law or court rules governing
service of process in such court. The parties hereto agree that a
final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by applicable Law. EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING (WHETHER SUCH ACTION OR
LEGAL PROCEEDING IS BASED IN CONTRACT, TORT OR OTHERWISE) ARISING
OUT OF OR RELATED TO THIS AGREEMENT, ANY RELATED DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THEREUNDER.
8.7
Attorneys’
Fees
. In any action at
law or suit in equity to enforce this Agreement or the rights of
any of the parties hereunder, the prevailing party in such action
or suit shall be entitled to receive a reasonable sum for its
attorneys’ fees and all other reasonable costs and expenses
incurred in such action or suit.
8.8
Specific
Enforcement
. Notwithstanding
Section 7.3(b)
, the
parties hereto agree that irreparable damage would occur for which
monetary damages would not be an adequate remedy in the event that
any of the provisions of this Agreement are not performed in
accordance with the terms hereof or are otherwise breached, and
that the party seeking to enforce this Agreement against such
nonperforming party under this Agreement shall be entitled to
specific performance and the issuance of injunctive and other
equitable relief to prevent breaches or threatened breaches of this
Agreement. The parties hereto further agree to waive any
requirement for the securing or posting of any bond or similar
collateral in connection with the obtaining of any such injunctive
or other equitable relief, this being in addition to any other
remedy to which they are entitled at law or in equity. Each party
hereto agrees that it will not oppose the granting of an
injunction, specific performance and other equitable relief on the
basis that or otherwise assert that (a) the other party has an
adequate remedy at law, or (b) an award of specific performance is
not an appropriate remedy for any reason at law or
equity.
8.9
Assignment
.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of Law or
otherwise), without the prior written consent of the other parties,
and any attempt to make any such assignment without such consent
shall be null and void, except that Merger Sub may assign, in its
sole discretion, any or all of its rights, interests and
obligations under this Agreement to any one or more direct or
indirect wholly-owned Subsidiaries of Parent without the consent of
the Company, but no such assignment shall relieve Parent or Merger
Sub of any of its respective obligations under this Agreement.
Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.
8.10
Severability
. Any term or
provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions of this
Agreement or the validity or enforceability of the offending term
or provision in any other situation or in any other jurisdiction.
If a final judgment of a court of competent jurisdiction declares
that any term or provision of this Agreement is invalid or
unenforceable, the parties hereto agree that the court making such
determination shall have the power to limit such term or provision,
to delete specific words or phrases or to replace such term or
provision with a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be
valid and enforceable as so modified. In the event such court does
not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term
or provision with a valid and enforceable term or provision that
will achieve, to the extent possible, the economic, business, and
other purposes of such invalid or unenforceable term or
provision.
8.11
Construction.
(a)
Each of the parties hereto acknowledges that it has been
represented by counsel of its choice throughout all negotiations
that have preceded the execution of this Agreement, and that it has
executed the same with the advice of said independent counsel. Each
party and its counsel cooperated and participated in the drafting
and preparation of this Agreement and the documents referred to
herein, and any and all drafts relating thereto exchanged among the
parties shall be deemed the work product of all of the parties and
may not be construed against any party by reason of its drafting or
preparation. Accordingly, any rule of law or any legal decision
that would require interpretation of any ambiguities in this
Agreement against any party that drafted or prepared it is of no
application and is hereby expressly waived by each of the parties
hereto, and any controversy over interpretations of this Agreement
shall be decided without regard to events of drafting or
preparation.
(b)
For purposes of this Agreement, whenever the context requires:
(i) the singular number shall include the plural, and vice
versa; (ii) the masculine gender shall include the feminine
and neuter genders; (iii) the feminine gender shall include
the masculine and neuter genders; and (iv) the neuter gender
shall include the masculine and feminine genders.
(c) As
used in this Agreement, the words “
include
” and
“
including
,” and
variations thereof, shall not be deemed to be terms of limitation,
but rather shall be deemed to be followed by the words
“
without
limitation
.”
(d) Except
as otherwise indicated, all references in this Agreement to
“
Sections
,”
“
Exhibits,
” and
“
Annexes
” are intended to
refer to Sections of this Agreement and Exhibits and Annexes to
this Agreement.
8.12
Descriptive
Headings
. The descriptive
headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
8.13
Disclosure
Schedule
. Any matter
disclosed in any section of the Disclosure Schedule shall qualify:
(a) the correspondingly numbered and/or lettered section or
paragraph of this Agreement; and (b) any other sections and
paragraphs in this Agreement to the extent that it is reasonably
apparent that such disclosure qualifies, and constitutes an
exception to, another section or paragraph in this
Agreement.
8.14
Ownership
of Attorney-Client Confidences
. All
communications involving attorney-client confidences between the
Company or its Affiliates and Paul Hastings LLP in the course of
the negotiation, documentation, and consummation of the
transactions contemplated by this Agreement (other than in
connection with shareholder litigation against the Company arising
out of such transactions) shall be deemed to be attorney-client
confidences that belong solely to H.I.G. AERT, LLC, a Delaware
limited liability company, and its Affiliates (and not the
Company). Accordingly, the Company shall not have access to any
such communications, or to the files of Paul Hastings LLP relating
to the engagement. For the avoidance of doubt, and notwithstanding
anything herein to the contrary, nothing contained in this
Section 8.14
waives
or transfers any attorney-client or other privilege to the extent
relating to Paul Hastings LLP’s representing the Company with
respect to any of on-going or routine matters relating to
Company’s operations, businesses, assets or liabilities
(other than principally in preparation for or in connection with
the transactions contemplated by this Agreement), and such
attorney-client and other privileges shall continue to be the
privilege of the Company.
8.15
Counterparts;
Signatures
. This Agreement
may be executed in two (2) or more counterparts, each of which
shall be deemed an original but all of which together shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties hereto
and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. This Agreement may be
executed and delivered by facsimile transmission, by electronic
mail in “portable document format” (“.pdf”)
form, or by any other electronic means intended to preserve the
original graphic and pictorial appearance of a document, or by
combination of such means, each of which shall be deemed an
original.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
|
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OLDCASTLE
ARCHITECTURAL, INC.
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By:
|
/s/
Tim
Ortman
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Name:
|
Tim
Ortman
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Title:
|
President
|
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OLDCASTLE
ASCENT MERGER SUB, INC.
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By:
|
/s/
Tim
Ortman
|
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Name:
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Tim
Ortman
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Title:
|
President
|
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ADVANCED
ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
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By:
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/s/
Tim
Morrison
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Name:
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Tim
Morrison
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Title:
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CEO and
Chairman
|
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[
Signature Page to Agreement
and Plan of Merger
]
Exhibit A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
THE
SERIES E CONVERTIBLE PREFERRED STOCK OF
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
March
16, 2017
Advanced
Environmental Recycling Technologies, Inc., a corporation organized
and existing under the laws of the State of Delaware (the
“
Corporation
”),
hereby executes and adopts the following Certificate of Amendment
of the Certificate of Designations, Preferences and Rights of the
Series E Convertible Preferred Stock of the Corporation and does
hereby certify as follows:
FIRST:
The name of the
Corporation is Advanced Environmental Recycling Technologies, Inc.,
the date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was December
2, 1988, and the date of filing of its original Certificate of
Designations, Preferences and Rights of the Series E Convertible
Preferred Stock with the Secretary of State of the State of
Delaware was March 17, 2011.
SECOND:
Section 8 of the
Certificate of Designations, Preferences and Rights of the Series E
Convertible Preferred Stock is amended by adding the following as a
new subsection (d):
“In the event
of a Fundamental Transaction occurring prior to August 1, 2017, for
the purposes of determining the amount to which each Holder of
Series E Preferred Stock is entitled pursuant to Section 8(a),
“Conversion Rate” shall mean
19,152.27.”
THIRD:
The foregoing
amendment was duly adopted in accordance with the applicable
provisions of Section 242(b) of the General Corporation Law of the
State of Delaware, Article Fourth of the Certificate of
Incorporation of the Corporation, as amended, and Section 21(b) of
the Certificate of Designations, Preferences and Rights of the
Series E Convertible Preferred Stock of the
Corporation.
FOURTH:
The effective time
of the amendment herein certified shall be the date of
filing.
IN WITNESS WHEREOF
, the undersigned has
executed this amendment of the Certificate of Designations,
Preferences and Rights of the Series E Convertible Preferred Stock
of the Corporation as of the date first written above.
Advanced
Environmental Recycling Technologies, Inc.
Name:
Timothy Morrison
Title:
Chairman and Chief Executive Officer
(Signature Page to Certificate of Amendment)
Exhibit B
Amendment No. 1 to the Bylaws
of
Advanced Environmental Recycling Technologies, Inc.,
a Delaware corporation (the “Corporation”)
by
Written Consent of the Board of Directors of the Company (the
“Board”)
Certain
capitalized terms not otherwise defined herein shall have the
meanings ascribed to such term in the Bylaws of the Corporation (as
the same may be amended, restated or otherwise modified, the
“
Bylaws
”).
PRELIMINARY STATEMENT
WHEREAS, the Board
wishes to amend the Bylaws to alter certain provisions;
and
WHEREAS, pursuant
to section 6.19 of the Bylaws, the Bylaws may be amended by the
Board, and the Board has consented to the execution of this
Amendment No. 1 in accordance with the terms of the
Bylaws.
NOW,
THEREFORE, the Bylaws are hereby amended as follows:
1.
Addition of Section 6.20
. Article VI is
hereby amended by adding a new Section 6.20 to the end
thereof:
6.20.
Forum for Adjudication of
Disputes
. Unless the Corporation consents in writing to the
selection of an alternative forum, the Court of Chancery in the
State of Delaware (the “
Court of Chancery
”) shall
be the sole and exclusive forum for any stockholder (including a
beneficial owner) to bring (i) any derivative action or proceeding
brought on behalf of the Corporation, (ii) any action asserting a
claim of breach of fiduciary duty owed by any director, officer or
other employee of the Corporation to the Corporation or the
Corporation’s stockholders, (iii) any action asserting a
claim against the Corporation, its directors, officers or employees
arising pursuant to any provision of these Bylaws, the Certificate
of Incorporation or the General Corporation Law of the State of
Delaware, (iv) any action asserting a claim against the Corporation
or its directors, officers or employees governed by the internal
affairs doctrine, or (v) any action to interpret, apply, enforce or
determine the validity of these Bylaws or the Certificate of
Incorporation, except for, as to each of clauses (i) through (v)
above, any claim (a) as to which the Court of Chancery determines
that there is an indispensable party not subject to the
jurisdiction of the Court of Chancery (and the indispensable party
does not consent to the personal jurisdiction of the Court of
Chancery within ten (10) days following such determination), or (b)
for which the Court of Chancery does not have subject matter
jurisdiction. If any provision or provisions of this Section 6.20
shall be held to be invalid, illegal or unenforceable as applied to
any person or entity or circumstance for any reason whatsoever,
then, to the fullest extent permitted by law, the validity,
legality and enforceability of such provisions in any other
circumstance and of the remaining provisions of this Section 6.20
(including, without limitation, each portion of any sentence of
this Section 6.20 containing any such provision held to be invalid,
illegal or unenforceable that is not itself held to be invalid,
illegal or unenforceable) and the application of such provision to
other persons or entities and circumstances shall not in any way be
affected or impaired thereby. Any person or entity purchasing or
otherwise acquiring any interest in shares of capital stock of the
Corporation shall be deemed to have notice of and consented to the
provisions of this Section 6.20. Failure to enforce this Section
6.20 would cause the Corporation irreparable harm and the
Corporation shall be entitled to equitable relief, including
injunction and specific performance, to enforce this Section
6.20.
2.
Entire Agreement.
This Amendment No. 1,
the Bylaws and the other agreements and documents referred to
herein and therein contain the complete agreement and understanding
among the parties with respect to the subject matter hereof, and
terminate, supersede, and preempt any prior understandings,
agreements, or representations by or among the parties, written or
oral, which may have related to the subject matter hereof in any
way.
3.
Governing Law
. This Amendment No. 1
shall be governed by, and construed in accordance with, the laws of
the State of Delaware without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of
Delaware or any other jurisdiction) that would cause the
application of the laws of any other jurisdiction other than the
State of Delaware.
*
* * *
Exhibit C
Advanced Environmental Recycling Technologies, Inc.
Form of
Written Consent of Stockholder
In Lieu of Meeting
The
undersigned (the “Stockholder”), being the holder of
(i) a majority of the voting power of the issued and outstanding
shares of common stock and (ii) all of the issued and outstanding
preferred stock of Advanced Environmental Recycling Technologies,
Inc., a Delaware corporation (the “Company”), hereby
irrevocably consents in writing, pursuant to Section 228(a) and
Section 251 of the General Corporation Law of the State of Delaware
(the “DGCL”) and as authorized by the Company’s
bylaws and certificate of incorporation, to the following actions
and adoption of the following resolutions by written consent dated
as of March ___, 2017 in lieu of a meeting of stockholders of the
Company:
WHEREAS, the
Company has entered into an Agreement and Plan of Merger (the
“Merger Agreement”), dated as of March 16, 2017, by and
among the Company, Oldcastle Architectural, Inc., a Delaware
corporation (“Parent”) and Oldcastle Ascent Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of
Parent (“Merger Sub”), a copy of which has been
provided to the undersigned Stockholder and is attached hereto as
Annex A
(capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Merger
Agreement);
WHEREAS, pursuant
to the Merger Agreement, Merger Sub will be merged with and into
the Company (the “Merger”), with the Company continuing
as the surviving corporation of the Merger, upon the terms and
subject to the conditions set forth in the Merger
Agreement;
WHEREAS, pursuant
to the Merger Agreement, at the effective time of the Merger (the
“Effective Time”), each share of common stock, par
value $0.01 per share of the Company (such shares, collectively,
the “Common Shares”) issued and outstanding immediately
prior to the Effective Time (other than shares for which Company
stockholders have exercised their statutory rights of appraisal)
will be converted into the right to receive $0.135936 in cash, and
each share of preferred stock, par value $0.01 per share of the
Company (such shares, collectively, the “Preferred
Shares”; together with the Common Shares, the
“Shares”) issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive
$2,603.483278 in cash, subject in each case to any withholding of
taxes required by applicable Law (the “Merger
Consideration”);
WHEREAS, the Board
of Directors of the Company has received the opinion of William
Blair & Co., dated as of the date of the Merger Agreement,
addressed to the Board of Directors of the Company, to the effect
that, as of such date, the Merger Consideration to be received by
the holders of the Shares pursuant to the terms and subject to the
conditions set forth in the Merger Agreement is fair, from a
financial point of view, to such holders;
WHEREAS, the Board
of Directors of the Company has unanimously (i) determined that the
Merger Agreement is in the best interests of the Company and its
stockholders and declared the Merger Agreement and the transactions
contemplated thereby advisable, (ii) approved the execution,
delivery and performance of the Merger Agreement and the
consummation of the transactions contemplated thereby, including
the Merger, upon the terms and subject to the conditions set forth
in the Merger Agreement, and (iii) resolved to recommend adoption
and approval of the Merger Agreement and the transactions
contemplated thereby, including the Merger, by the holders of the
Shares, upon the terms and subject to the conditions set forth
therein;
WHEREAS, the
affirmative vote in favor of the adoption of the Merger Agreement
by a majority of the votes entitled to be cast thereon by the
stockholders of the Company is required pursuant to Section 251 of
the DGCL;
WHEREAS, pursuant
to the Merger Agreement and in accordance with Section 251(d) of
the DGCL, the Board of Directors of the Company has the power to
terminate the Merger Agreement under certain circumstances after
the Company Stockholder Approval is obtained by this written
consent, upon the terms and subject to the conditions set forth in
the Merger Agreement; and
WHEREAS, pursuant
to Section 5.4(b) the Merger Agreement, in the event the Board of
Directors of the Company terminates the Merger Agreement under
certain circumstances after the Company Stockholder Approval is
obtained by this written consent, this written consent may be
revoked.
NOW,
THEREFORE, BE IT RESOLVED as follows:
RESOLVED, that the
Merger Agreement and the transactions contemplated thereby,
including the Merger, are hereby adopted, authorized, accepted and
approved in all respects, and that the undersigned Stockholder
hereby votes all of the Shares of the Company held by such
Stockholder and entitled to vote thereon in favor of the adoption
and approval of the Merger Agreement and the transactions
contemplated thereby, including the Merger;
provided
, however, that this
written consent shall be of no further force or effect following
any termination of the Merger Agreement in accordance with its
terms;
FURTHER
RESOLVED, that the undersigned Stockholder hereby expressly waives
in all respects, and shall not assert, any and all rights of
appraisal (and otherwise) under Section 262 of the DGCL in
connection with the Merger;
FURTHER
RESOLVED, that the undersigned Stockholder hereby waives any and
all notice requirements, with respect to the time and place of
meeting, and consents to the transaction of all business
represented by this written consent;
FURTHER
RESOLVED, that this written consent shall be irrevocable except to
the extent permitted by Section 5.4(b) of the Merger Agreement;
and
FURTHER
RESOLVED, that a copy of this written consent may be signed in one
or more counterparts, each of which shall be deemed an original,
and all of which shall constitute one instrument and that this
written consent shall be irrevocable and filed with the minutes of
the proceedings of the stockholders of the Company.
[signature pages follow]
IN
WITNESS WHEREOF, the undersigned has executed this Written Consent
as of the date written above.
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H.I.G. AERT, LLC
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By
_______________________________________________
Name:
Title:
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(Signature
Page to Stockholder Consent Approving the Merger)
ANNEX B
March
16, 2017
Advanced
Environmental Recycling Technologies, Inc.
Board
of Directors
914 N
Jefferson Street
Springsdale,
AR 72764
Ladies
and Gentlemen:
You
have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of Class A
common stock, $0.01 par value per share (the “Common
Stock”) (other than holders who have properly exercised
dissentersí rights (“Dissenting Shares”))
(collectively the “Stockholders”) of Advanced
Environmental Recycling Technologies, Inc. (the
“Company”) of the Merger Consideration (as defined
below) to be paid to the Stockholders pursuant to the Agreement and
Plan of Merger, substantially in the form of the draft dated as of
March 15, 2017 (the “Merger Agreement”), by and among
the Company, Oldcastle Architectural, Inc. (“Parent”),
and Oldcastle Ascent Merger Sub, Inc., a wholly-owned subsidiary of
Parent (the “Merger Sub”). Pursuant to the terms of and
subject to the conditions set forth in the Merger Agreement, Merger
Sub will be merged with and into the Company with the Company
continuing as the surviving corporation (the “Merger”)
and each share of Common Stock will be converted into the right to
receive $0.135936 in cash (the “Merger Consideration”)
upon consummation of the Merger.
.
In
connection with our review of the proposed Merger and the
preparation of our opinion herein, we have examined: (a) a draft of
the Merger Agreement dated March 15, 2017, and we have assumed the
final form of the Merger Agreement will not differ from such draft
in any material respects; (b) certain audited historical
financial statements of the Company for the two fiscal years ended
December 31, 2015 and 2014; (c) a draft of the Companyís
Annual Report on Form 10-K, and we have assumed the final form of
such filing will not differ materially from such draft in any
material respects; (d) the unaudited financial statements of the
Company for the year ended December 31, 2016; (e) certain
internal business, operating and financial information and
forecasts of the Company as prepared by the senior management of
the Company (the “Forecasts”) and sensitivities
prepared at the direction of and approved by the board of directors
of the Company relating thereto (the “Sensitivities”);
(f) information regarding publicly available financial terms
of certain other business combinations we deemed relevant;
(g) the financial position and operating results of the
Company compared with those of certain other publicly traded
companies we deemed relevant; (h) current and historical
market prices and trading volumes of the Common Stock; and
(i) certain other publicly available information on the
Company. We have also held discussions with members of the senior
management of the Company to discuss the foregoing, have considered
other matters which we have deemed relevant to our inquiry and have
taken into account such accepted financial and investment banking
procedures and considerations as we have deemed relevant. In
connection with our engagement, we were requested to approach, and
held discussions with, third parties to solicit indications of
interest in a possible acquisition of the Company.
In
rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all
the information examined by or otherwise reviewed or discussed with
us for purposes of this opinion, including without limitation the
Forecasts provided by senior management of the Company. We have not
made or obtained an independent valuation or appraisal of the
assets, liabilities or solvency of the Company. We have been
advised by the senior management of the Company that the Forecasts
examined by us have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the senior
management of the Company, and at the direction of the board of
directors of the Company have also applied the Sensitivities to the
Forecasts. In that regard, we have assumed, with your consent,
that, (i) the Forecasts will be achieved in the amounts and at
the times contemplated thereby, taking into account the application
of the Sensitivities, and (ii) all material assets and
liabilities (contingent or otherwise) of the Company are as set
forth in the Companyís financial statements or other
information made available to us. We express no opinion with
respect to the Forecasts, the Sensitivities or the estimates and
judgments on which they are based. We did not consider and express
no opinion as to the amount or nature of the compensation to any of
the Companyís officers, directors or employees (or any class
of such persons) relative to the Merger Consideration payable to
the Companyís other Stockholders. In addition, we express no
opinion as to any terms or other aspects of the Merger (other than
the Merger Consideration to the extent specified herein) including,
without limitation, the form or structure of the Merger, or the tax
or accounting consequences thereof. Our opinion herein is based
upon economic, market, financial and other conditions existing on,
and other information disclosed to us as of, the date of this
letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We have relied as to
all legal matters on advice of counsel to the Company, and have
assumed that the Merger will be consummated on the terms described
in the Merger Agreement, without any waiver of any material terms
or conditions by the Company.
William
Blair & Company has been engaged in the investment banking
business since 1935. We continually undertake the valuation of
investment securities in connection with public offerings, private
placements, business combinations, estate and gift tax valuations
and similar transactions. In the ordinary course of our business,
we may from time to time trade the securities of the Company for
our own account and for the accounts of customers, and accordingly
may at any time hold a long or short position in such securities.
We have acted as the investment banker to the Company in connection
with the Merger and will receive a fee from the Company for our
services, a significant portion of which is contingent upon
consummation of the Merger. In addition, the Company has agreed to
indemnify us against certain liabilities arising out of our
engagement.
Our
investment banking services and our opinion were provided for the
use and benefit of the board of directors of the Company in
connection with its consideration of the Merger contemplated by the
Merger Agreement. Our opinion is limited to the fairness, from a
financial point of view, to the Stockholders (other than holders of
Dissenting Shares) of the Merger Consideration in connection with
the Merger, and we do not address the merits of the underlying
decision by the Company to engage in the Merger and this opinion
does not constitute a recommendation to any Stockholder as to how
such Stockholder should vote with respect to the proposed Merger.
It is understood that this letter may not be disclosed or otherwise
referred to without prior written consent, except that the opinion
may be included in its entirety in a proxy statement mailed to the
Stockholders by the Company with respect to the Merger. This
opinion has been reviewed and approved by our Fairness Opinion
Committee.
Based
upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the Stockholders (other
than holders of Dissenting Shares).
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Very
truly yours,
/s/
William Blair & Company, L.L.C.
WILLIAM
BLAIR & COMPANY, L.L.C.
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ANNEX C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE
§ 262 Appraisal rights
(a)
Any stockholder of
a corporation of this State who holds shares of stock on the date
of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to § 228 of
this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholderís shares of
stock under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
“stockholder” means a holder of record of stock in a
corporation. the words “stock” and “share”
mean and include what is ordinarily meant by those words. and the
words “depository receipt” mean a receipt or other
instrument issued by a depository representing an interest in 1 or
more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the
depository.
(b)
Appraisal rights
shall be available for the shares of any class or series of stock
of a constituent corporation in a merger or consolidation to be
effected pursuant to § 251 (other than a merger effected
pursuant to § 251(g) of this title and, subject to
paragraph (b)(3) of this section, § 251(h) of this
title), § 252, § 254, § 255,
§ 256, § 257, § 258, § 263
or § 264 of this title:
(1)
Provided, however,
that, except as expressly provided in § 363(b) of
this title, no appraisal rights under this section shall be
available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice
of the meeting of stockholders to act upon the agreement of merger
or consolidation, were either: (i) listed on a national
securities exchange or (ii) held of record by more than 2,000
holders. and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as
provided in § 251(f) of this title.
(2)
Notwithstanding
paragraph (b)(1) of this section, appraisal rights under this
section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation
pursuant to §§ 251, 252, 254, 255, 256, 257, 258,
263 and 264 of this title to accept for such stock anything
except:
a.
Shares of stock of
the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect
thereof.
b.
Shares of stock of
any other corporation, or depository receipts in respect thereof,
which shares of stock (or depository receipts in respect thereof)
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or held of record by more than 2,000 holders.
c.
Cash in lieu of
fractional shares or fractional depository receipts described in
the foregoing paragraphs (b)(2)a. and b. of this section.
or
d.
Any combination of
the shares of stock, depository receipts and cash in lieu of
fractional shares or fractional depository receipts described in
the foregoing paragraphs (b)(2)a., b. and c. of this
section.
(3)
In the event all of
the stock of a subsidiary Delaware corporation party to a merger
effected under § 251(h), § 253 or
§ 267 of this title is not owned by the parent
immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware
corporation.
(4)
In the event of an
amendment to a corporationís certificate of incorporation
contemplated by § 363(a) of this title, appraisal
rights shall be available as contemplated by
§ 363(b) of this title, and the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable,
with the word “amendment” substituted for the words
“merger or consolidation,” and the word
“corporation” substituted for the words
“constituent corporation” and/or “surviving or
resulting corporation.”
(c)
Any corporation may
provide in its certificate of incorporation that appraisal rights
under this section shall be available for the shares of any class
or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which
the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
provisions of this section, including those set forth in
subsections (d), (e), and (g) of this section, shall apply as
nearly as is practicable.
(d)
Appraisal rights
shall be perfected as follows:
(1)
If a proposed
merger or consolidation for which appraisal rights are provided
under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on
the record date for notice of such meeting (or such members who
received notice in accordance with § 255(c) of this
title) with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) of this
section that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section and, if 1 of the constituent
corporations is a nonstock corporation, a copy of § 114
of this title. Each stockholder electing to demand the appraisal of
such stockholderís shares shall deliver to the corporation,
before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholderís shares.
Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholderís shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective.
or
(2)
If the merger or
consolidation was approved pursuant to § 228,
§ 251(h), § 253, or § 267 of this
title, then either a constituent corporation before the effective
date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the
holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of
this section and, if 1 of the constituent corporations is a
nonstock corporation, a copy of § 114 of this title. Such
notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of
the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the
date of mailing of such notice or, in the case of a merger approved
pursuant to § 251(h) of this title, within the later of
the consummation of the offer contemplated by § 251(h) of
this title and 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting
corporation the appraisal of such holderís shares. Such demand
will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holderís shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of
the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within
10 days after such effective date. provided, however, that if
such second notice is sent more than 20 days following the
sending of the first notice or, in the case of a merger approved
pursuant to § 251(h) of this title, later than the later
of the consummation of the offer contemplated by § 251(h)
of this title and 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded appraisal
of such holderís shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall
be the close of business on the day next preceding the day on which
the notice is given.
(e)
Within
120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and
(d) of this section hereof and who is otherwise entitled to
appraisal rights, may commence an appraisal proceeding by filing a
petition in the Court of Chancery demanding a determination of the
value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date
of the merger or consolidation, any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a
named party shall have the right to withdraw such
stockholderís demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections
(a) and (d) of this section hereof, upon written request,
shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of
such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholderís
written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection
(d) of this section hereof, whichever is later.
Notwithstanding subsection (a) of this section, a person who is the
beneficial owner of shares of such stock held either in a voting
trust or by a nominee on behalf of such person may, in such
personís own name, file a petition or request from the
corporation the statement described in this
subsection.
(f)
Upon the filing of
any such petition by a stockholder, service of a copy thereof shall
be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, shall give notice
of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or
more publications at least 1 week before the day of the hearing, in
a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g)
At the hearing on
such petition, the Court shall determine the stockholders who have
complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock
to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings. and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to
such stockholder. If immediately before the merger or consolidation
the shares of the class or series of stock of the constituent
corporation as to which appraisal rights are available were listed
on a national securities exchange, the Court shall dismiss the
proceedings as to all holders of such shares who are otherwise
entitled to appraisal rights unless (1) the total number of shares
entitled to appraisal exceeds 1% of the outstanding shares of the
class or series eligible for appraisal, (2) the value of the
consideration provided in the merger or consolidation for such
total number of shares exceeds $1 million, or (3) the merger was
approved pursuant to § 253 or § 267 of this
title.
(h)
After the Court
determines the stockholders entitled to an appraisal, the appraisal
proceeding shall be conducted in accordance with the rules of the
Court of Chancery, including any rules specifically governing
appraisal proceedings. Through such proceeding the Court shall
determine the fair value of the shares exclusive of any element of
value arising from the accomplishment or expectation of the merger
or consolidation, together with interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors.
Unless the Court in its discretion determines otherwise for good
cause shown, and except as provided in this subsection, interest
from the effective date of the merger through the date of payment
of the judgment shall be compounded quarterly and shall accrue at
5% over the Federal Reserve discount rate (including any surcharge)
as established from time to time during the period between the
effective date of the merger and the date of payment of the
judgment. At any time before the entry of judgment in the
proceedings, the surviving corporation may pay to each stockholder
entitled to appraisal an amount in cash, in which case interest
shall accrue thereafter as provided herein only upon the sum of (1)
the difference, if any, between the amount so paid and the fair
value of the shares as determined by the Court, and (2) interest
theretofore accrued, unless paid at that time. Upon application by
the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may,
in its discretion, proceed to trial upon the appraisal prior to the
final determination of the stockholders entitled to an appraisal.
Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of
this section and who has submitted such stockholderís
certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i)
The Court shall
direct the payment of the fair value of the shares, together with
interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the
certificates representing such stock. The Courtís decree may
be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j)
The costs of the
proceeding may be determined by the Court and taxed upon the
parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion
of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneyís fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to an
appraisal.
(k)
From and after the
effective date of the merger or consolidation, no stockholder who
has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose
or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective
date of the merger or consolidation). provided, however, that if no
petition for an appraisal shall be filed within the time provided
in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written
withdrawal of such stockholderís demand for an appraisal and
an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just. provided, however that this
provision shall not affect the right of any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a
named party to withdraw such stockholderís demand for
appraisal and to accept the terms offered upon the merger or
consolidation within 60 days after the effective date of the
merger or consolidation, as set forth in subsection (e) of
this section.
(l)
The shares of the
surviving or resulting corporation to which the shares of such
objecting stockholders would have been converted had they assented
to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting
corporation.
ANNEX D
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-K
|
☑
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
|
|
|
|
For
the fiscal year ended December 31, 2016
|
|
Or
|
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Commission
file number 1-10367
Advanced
Environmental Recycling Technologies, Inc.
(Exact name of Registrant as specified in its charter)
|
Delaware
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71-0675758
|
|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer
Identification No.)
|
|
914
N Jefferson Street
Springdale,
Arkansas
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72764
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s
telephone number, including area code:
(479) 756-7400
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Class A common stock, $.01 par value
(Title of
Class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes ☐ No ☑
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ☑ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (
§
232.405
of this chapter) during the preceding 12 months (or such shorter
period that the registrant was required to submit and post such
files).
Yes ☑ No ☐
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large accelerated
filer ☐
|
Accelerated
filer ☐
|
|
Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
|
Smaller reporting
company ☑
|
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes ☐ No ☑
The aggregate
market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing stock price of
such common equity as of the last business day of the
registrant’s most recently completed second fiscal quarter
was $5,108,689 (for the purposes hereof, directors, executive
officers and 10% or greater shareholders have been deemed
affiliates).
Number of shares of
Class A common stock outstanding at February 28, 2017:
Class A — 89,631,162
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our
Definitive Proxy Statement for our 2017 annual meeting of
stockholders, expected to be filed within 120 days of our
fiscal year end, are incorporated by reference into Items 10
through 14 Part III of this Annual Report on Form
10-K.
Table of Contents
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PART
I
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D-1
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|
Item 1.
Business.
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D-
1
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Item
1A. Risk Factors.
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D-
5
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Item 2.
Properties.
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D-
6
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Item 3.
Legal Proceedings.
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D-
7
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Item
4. Mine Safety Disclosures.
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D-
7
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PART II
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D-
8
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|
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
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D-
8
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Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
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D-
10
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Item 8.
Financial Statements and Supplementary Data.
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D-
16
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Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
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D-
16
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Item 9A.
Controls and Procedures.
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D-
17
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Item 9B.
Other Information.
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D-
18
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PART III
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D-
22
|
|
Item 10.
Directors, Executive Officers and Corporate
Governance.
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D-
22
|
|
Item 11.
Executive Compensation.
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D-
22
|
|
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
D-
22
|
|
Item 13.
Certain Relationships and Related Transactions, and Director
Independence.
|
D-
22
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Item 14.
Principal Accounting Fees and Services.
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D-
22
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|
PART
IV
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D-
22
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|
Item 15.
Exhibits and Financial Statement Schedules.
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D-
22
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SIGNATURES
|
D-
23
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|
INDEX
TO FINANCIAL STATEMENTS
|
D-24
|
PART
I