SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
Claymont Steel Holdings, Inc.
(Name of Subject Company)
Claymont Steel Holdings, Inc.
(Name of Person(s)
Filing Statement)
Common Stock, par value $0.001 per share
(Title of Class of Securities)
18382P104
(CUSIP Number of Class of Securities)
Allen Egner
Interim Chief Financial
Officer
Claymont Steel Holdings, Inc.
4001 Philadelphia Pike
Claymont, Delaware 19703
(302) 792-5400
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on
Behalf of the Person(s) Filing Statement)
Copy to:
Kimberly A. Taylor, Esq.
Morgan,
Lewis & Bockius LLP
One Oxford Centre
Thirty-Second Floor
Pittsburgh, PA 15219
(412) 560-3300
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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Item 1.
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Subject Company Information.
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(a) Name and
Address.
The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits or annexes hereto, this Schedule 14D-9) relates is Claymont Steel Holdings, Inc., a Delaware
corporation (the Company). The address of the principal executive office of the Company is 4001 Philadelphia Pike, Claymont, Delaware 19703. The telephone number for the Companys principal executive office is (302) 792-5400.
(b) Securities.
The title of the class of equity securities to which this Schedule 14D-9 relates is the Companys common
stock, par value $0.001 per share (Common Stock). As of December 17, 2007, 17,566,754 shares of Common Stock were issued and outstanding.
Item 2.
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Identity and Background of Filing Person.
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(a)
Name and Address.
The name, address and telephone number of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1(a) above.
(b) Tender Offer.
This Schedule 14D-9 relates to a tender offer by Titan Acquisition Sub, Inc., a Delaware corporation (the Purchaser) and a wholly-owned subsidiary of Evraz Group S.A., a company
organized as a société anonyme under the laws of the Grand Duchy of Luxembourg (Evraz), as disclosed in a Tender Offer Statement on Schedule TO, dated December 18, 2007 (as amended or supplemented from time to time,
the Schedule TO), to purchase all outstanding shares of Common Stock at a purchase price of $23.50 per share (the Offer Price), net to the seller in cash, without interest thereon and less any applicable stock transfer taxes
and withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 18, 2007 (the Offer to Purchase) and in the related Letter of Transmittal (which, together with any amendments or
supplements thereto, constitute the Offer). The Offer is made in accordance with the Agreement and Plan of Merger, dated as of December 9, 2007, by and among Evraz, the Purchaser and the Company (the Merger Agreement).
The Schedule TO was filed with the Securities and Exchange Commission (the SEC) on December 18, 2007. Copies of the Offer to Purchase and the Letter of Transmittal are filed as Exhibits (a)(1)(A) and (a)(1)(B) hereto, respectively,
and are incorporated herein by reference.
The Merger Agreement provides that subject to the satisfaction or waiver of certain conditions,
following the completion of the Offer and in accordance with the Delaware General Corporation Law (the DGCL), the Purchaser will be merged with and into the Company (the Merger), with the Company continuing as the surviving
corporation (the Surviving Corporation). The Merger Agreement provides that at the election of Evraz, the Merger may be structured so that the Company will be merged with and into the Purchaser, with the Purchaser being the Surviving
Corporation. At the effective time of the Merger (the Effective Time), each share of Common Stock (other than shares of Common Stock owned by Evraz, the Purchaser or any subsidiary of Evraz or the Company, or shares of Common Stock held
in the treasury of the Company or by any stockholder of the Company who properly exercises appraisal rights under the DGCL) will be converted into the right to receive cash in an amount equal to the Offer Price (the Merger
Consideration), without interest and less any applicable stock transfer taxes and required withholding taxes, and all the shares of Common Stock shall no longer be outstanding, shall automatically be cancelled and shall cease to exist. A copy
of the Merger Agreement is filed as Exhibit (e)(1) hereto and is incorporated herein by reference.
The Schedule TO states that the address
of Evraz is 1 Allée Scheffer, L-2520 Luxembourg. The telephone number of Evraz is +7 (495) 232-1370. The address of the Purchaser is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The telephone number of the Purchaser is
+7 (495) 232-1370.
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Item 3.
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Past Contacts, Transactions, Negotiations and Agreements.
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Except as set forth in the Schedule 14D-9 or in the information statement of the Company filed herewith as Annex I (the Information Statement) and incorporated herein by reference, as of the date hereof, there are no material
agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) its executive officers, directors or affiliates; or (ii) Evraz, the Purchaser or their respective
executive officers, directors or affiliates.
(a) Arrangements with Current Executive Officers, Directors and Affiliates of the Company.
Section 14(f) Information Statement
Certain agreements, arrangements (including employment and compensation arrangements) or understandings in effect between the Company or its affiliates and certain of its directors, executive officers and affiliates
are described in the Information Statement attached hereto as Annex I.
Director and Officer Indemnification and Insurance
The Companys amended and restated certificate of incorporation contains certain provisions permitted under the DGCL relating to
the liability of the Companys directors. These provisions eliminate a directors personal liability to the Company or the Companys stockholders for monetary damages resulting from a breach of fiduciary duty, except in circumstances
involving certain wrongful acts, including:
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for any breach of the directors duty of loyalty to the Company or its stockholders;
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for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
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for any liability under Section 174 of the DGCL (unlawful payment of dividends or unlawful stock purchases or redemptions); or
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for any transaction in which the director derives an improper personal benefit.
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The Companys amended and restated bylaws also contain provisions that allow the Company to indemnify its directors and officers to the fullest
extent permitted by the DGCL.
Under the Merger Agreement, Evraz and the Purchaser have agreed that the certificate of incorporation and
bylaws of the Surviving Corporation and the articles of organization, bylaws or similar constituent documents of any subsidiary of the Company will contain provisions no less favorable with respect to the indemnification of the present or former
directors, officers and employees of the Company or any of its subsidiaries than those currently in effect, which provisions will not be amended, repealed or otherwise modified in a manner that would adversely affect the rights of such directors,
officers and employees of the Company under these constituent documents until the expiration of the statutes of limitations applicable to such matters or unless such amendment, modification or appeal is required by applicable law.
Under the Merger Agreement, the Surviving Corporation has agreed to indemnify and hold harmless, the present and former officers and directors of the
Company and its subsidiaries, against all claims, losses, liabilities, damages, judgments, inquiries, fines and reasonable fees, costs and expenses, including reasonable attorneys fees and disbursements, incurred in connection with any
proceeding, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such person is or was an officer, director, employee, fiduciary or agent of the Company or its subsidiaries, whether asserted or
claimed prior to, at or after the Effective Time, to the extent permitted by the Companys amended and restated certificate of incorporation or amended and restated bylaws in effect as of the date of the Merger Agreement.
Under the Merger Agreement, the Surviving Corporation has agreed to cause to be maintained in effect, for a period of six years following the Effective
Time, policies of directors and officers liability insurance, or a six-year tail insurance policy, covering the persons who were covered by the Companys existing directors and
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officers liability insurance policies as of the date of the Merger Agreement for events that occur prior to the Effective Time and providing coverage
at least as favorable, in the aggregate, as such existing policies. However, the Surviving Corporation will not be required to pay an annual premium in excess of 150% of the aggregate amounts currently paid by the Company to maintain such existing
policies. In the event that equivalent coverage cannot be obtained, or can be obtained only by paying aggregate premiums in excess of 150% of such amount, the Surviving Corporation shall only be required to obtain as much coverage as can be obtained
by paying aggregate premiums equal to 150% of such amount. At the Companys election, and subject to Evrazs reasonable consent, in lieu of the foregoing, the Company may obtain a six-year tail insurance policy, providing coverage no more
favorable, in the aggregate, than the Companys existing directors and officers liability insurance policies; provided that the aggregate premium that the Company will be required to pay for such six-year tail insurance policy shall
not exceed 200% of the annual premium currently paid by the Company to maintain the existing policies.
Acceleration of Options and
Other Equity Based Awards
Pursuant to the Merger Agreement, all of the outstanding and unexercised options to purchase shares of Common
Stock granted under any stock option or similar plan of the Company or under any agreement to which the Company or any of its subsidiaries is a party (an Option) that are outstanding at the Effective Time will vest in full and be
cancelled at the Effective Time. In exchange for such cancellation, option holders will receive, no later than five business days after the Effective Time, with respect to each Option, a cash payment (less any applicable withholding taxes and
without interest) equal to the product of (a) the excess, if any, of the Merger Consideration over the per share exercise or purchase price of such Option and (b) the number of shares subject to such Option.
As of December 9, 2007, the Companys outstanding Options included: 62,348 Options with an exercise price of $17.00; 80,000 Options with an exercise
price of $18.65; and 69,000 Options with an exercise price of $20.90.
The Merger Agreement provides that each holder of an incentive award
or right relating to, or the value of which is based on, the value of shares of Common Stock, that was granted under any employee incentive or similar plan of the Company or under any agreement to which the Company or any of its subsidiaries is a
party (Equity Award) and that is outstanding at the Effective Time, whether or not vested, shall be entitled to receive with respect to each such Equity Award, no later than five business days after the Effective Time, an amount in cash,
less any applicable withholding taxes and without interest, determined pursuant to the terms of such Equity Award based on a value of a share of Common Stock being equal to the Merger Consideration.
There were 84,324 restricted stock units and 75,451 shares of restricted stock outstanding as of December 9, 2007.
Employee Matters
The Merger
Agreement provides that Evraz will cause the Surviving Corporation, for the period commencing at the Effective Time and ending on the first anniversary thereof, to maintain for individuals employed by the Company at the Effective Time (i) the
same level of annual base compensation as in effect immediately prior to the Effective Time and (ii) benefits provided under the Companys employee benefit plans that in the aggregate are substantially no less favorable than the benefits
maintained for and provided to such employees immediately prior to the Effective Time (excluding for this purpose, benefits that are contingent on a change of control or that are based on the value of, or require the issuance of, securities). The
Merger Agreement also provides that bonuses or incentive compensation for fiscal year 2007 shall be paid in accordance with the applicable terms of any bonus or incentive plan of the Company in effect.
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Employment Agreement with Jeff Bradley
The Company entered into an employment agreement with Jeff Bradley (Employment Agreement) pursuant to which, among other things,
Mr. Bradley serves as its Chief Executive Officer. After the Companys initial public offering of common stock, Mr. Bradleys base salary increased to $350,000 per year. Under the Employment Agreement, Mr. Bradley is
eligible for an annual bonus of up to $225,000 of which up to $150,000 is based on the Company attaining certain EBITDA levels and the remaining $75,000 may be earned in the Compensation Committees discretion.
The Offer and the Merger constitute a Change of Control (as defined in the Employment Agreement) under the Employment Agreement. However,
Mr. Bradley will not receive a Change of Control bonus as there is no Equity Deficiency (as defined in the Employment Agreement).
In
the event Mr. Bradleys employment terminates due to (i) death, (ii) disability, (iii) termination for cause or (iv) voluntary termination, Mr. Bradley or his estate shall be entitled to receive his accrued but
unpaid salary through the date of death, date of notice to the Company of disability or date of termination and reimbursement of any unpaid expenses in connection with his duties with the Company.
In the event Mr. Bradleys employment is terminated without cause, Mr. Bradley shall be entitled to receive:
(1) his accrued but unpaid salary through the date of notice of termination;
(2) reimbursement of unpaid expenses in connection with his duties with the Company; and
(3) lump-sum cash payment equal to 12 months salary plus any bonus accrued but not yet payable reduced by any proceeds from a Change of
Control if termination occurs coincident with or following a Change of Control.
Amounts paid pursuant to clause (3) above are
contingent upon satisfaction of a Separation Release whereby Mr. Bradley agrees to waive and release any claims arising from his employment with the Company.
Mr. Bradleys agreement includes typical confidentiality provisions and a 2-year non-competition provision.
The description of the Employment Agreement is qualified in its entirety by reference to the Employment Agreement filed as Exhibit (e)(4) hereto, which is incorporated herein by reference.
Restricted Shares Agreement with Jeff Bradley
Pursuant to a Restricted Shares Agreement between the Company and Mr. Bradley, Mr. Bradley received 75,451 shares of restricted stock. Of such shares, 12.5% vest on each anniversary of the original grant date assuming that
Mr. Bradley is employed on each applicable vesting date. An additional 12.5% of such shares vest beginning on June 30, 2006 and on June 30 of each subsequent year if the Companys EBITDA levels equal or exceed targets established
by the Board of Directors of the Company and Mr. Bradley is employed on each applicable vesting date. The Restricted Shares Agreement provides that if Mr. Bradleys employment is terminated for any reason, all unvested restricted
shares are automatically forfeited and transferred to the Company. If Mr. Bradley is employed during a Change of Control (as defined in Mr. Bradleys employment agreement above), any unvested restricted shares not previously forfeited
will vest and cease to be restricted.
The description of the Restricted Shares Agreement is qualified in its entirety by reference to the
Restricted Shares Agreement filed as Exhibit (e)(5) hereto, which is incorporated herein by reference.
(b) Arrangements with Evraz and
the Purchaser.
Merger Agreement and Confidentiality Agreement
The Company and Evraz entered into a Confidentiality Agreement dated as of November 26, 2007, as amended on November 28, 2007 (the
Confidentiality Agreement). In connection with the transactions contemplated by the Offer, the Company, Evraz and the Purchaser entered into the Merger Agreement.
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Summaries of the Merger Agreement and the Confidentiality Agreement are contained in Section 11 of
the Offer to Purchase and the description of the conditions to the Offer contained in Section 13 of the Offer to Purchase are incorporated herein by reference. The summaries are qualified in their entirety by reference to the Merger Agreement
and the Confidentiality Agreement which are filed as Exhibits (e)(1) and (e)(2), respectively, hereto and are incorporated herein by reference.
Stockholder Support Agreement between Evraz and H.I.G.
As an inducement to Evraz to enter into the Merger Agreement, and in
consideration thereof, Evraz and H.I.G. Capital LLC, Inc. (H.I.G.) entered into a Stockholder Support Agreement (the Support Agreement), dated as of the date of the Merger Agreement. Pursuant to the Support Agreement, H.I.G.
has agreed to tender its shares of Common Stock in the Offer (together with any shares of Common Stock that are issued or otherwise acquired or owned by H.I.G.) (the Owned Shares), within five business days after the commencement of the
Offer, and not to withdraw such tender unless the Support Agreement shall have been terminated in accordance with its terms.
Additionally,
pursuant to the Support Agreement, H.I.G. has agreed, at any meeting of the stockholders of the Company, or any adjournment thereof, called for the purpose of adopting the Merger Agreement, to vote, or to provide a consent with respect to, all
shares of Common Stock (including the Owned Shares), which, as of the relevant record date, H.I.G. has the power to vote, (i) in favor of adopting the Merger Agreement and the transactions contemplated thereby, and (ii) against, and to not
consent to, (A) any Acquisition Proposal (as defined in the Merger Agreement), or (B) any action that would or is designed to delay, prevent or frustrate the Offer and the related transactions contemplated by the Merger Agreement.
Moreover, H.I.G. is obligated to take or refrain from taking such actions regardless of the position of the Companys Board of Directors as to the Merger or the Offer at the time of such stockholder meeting.
The Support Agreement terminates on the earlier of (i) the termination of the Merger Agreement in accordance with its terms and (ii) the date
on which all of the Owned Shares are transferred to Evraz or its affiliate.
If the Merger Agreement is terminated by either the Company or
Evraz because the Offer has not been completed prior to the Outside Date (as defined in the Merger Agreement) or the Offer shall have expired or been terminated without the Purchaser having purchased any shares of Common Stock pursuant thereto and
(i) prior to the event giving rise to such termination, an Acquisition Proposal has been made or publicly announced, (ii) within twelve months following such termination, H.I.G. sells or agrees to sell Owned Shares representing at least
40% of the equity interests in the Company (the Stockholder Sale), and (iii) the Stockholder Sale does not otherwise trigger payment of the Termination Fee (as defined in the Merger Agreement) under the Merger Agreement, then,
pursuant to the Support Agreement, H.I.G. is obligated to immediately pay to Evraz 42.6% of the Termination Fee unless, at least forty-five days prior to the Stockholder Sale, H.I.G. makes a written offer to sell to Evraz, and within ten days Evraz
declines to buy, the Owned Shares for a price per share equal to the Offer Price and otherwise upon terms no less favorable to Evraz than those contained in any Stockholder Sale agreement.
The Board of Directors of the Company has unanimously approved the Support Agreement and the transactions contemplated thereby.
As of the date of the Support Agreement, H.I.G. owned 7,486,303 shares of Common Stock representing approximately 42.6% of the outstanding shares of
Common Stock. The summary of the Support Agreement contained in Section 11 of the Offer to Purchase is incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Support Agreement, which
is filed as Exhibit (e)(3) hereto.
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Item 4.
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The Solicitation or Recommendation.
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(a)
Recommendation.
The Board of Directors of the Company has unanimously: (i) determined that the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, are advisable, fair to and in the best interests of the Companys stockholders; (ii) approved the Merger Agreement and the transactions contemplated thereby; and
(iii) approved and declared advisable the agreement of merger (as such term is used in Section 251 of the DGCL) contained in the Merger Agreement and directed that such agreement of merger be submitted to the stockholders of the Company
for adoption (if necessary) and resolved to recommend the acceptance of the Offer and adoption of the agreement of merger.
A copy of the
letter to the Companys stockholders communicating the Board of Directors recommendation is filed as Exhibit (a)(2)(A) hereto and is incorporated herein by reference.
(b) Background and Reasons for the Recommendation.
Background of the Offer
After having been acquired by H.I.G. in June of 2005, the Company has
regularly reviewed and evaluated its business, strategic direction and prospects in the context of developments in the industry and in the markets in which the Company operates with the goal of enhancing shareholder value. This section summarizes
the developments leading up to the Companys entry into the Merger Agreement with Evraz.
On August 5, 2005, the Company entered
into an engagement letter with Jefferies & Company, Inc. (Jefferies), pursuant to which Jefferies agreed to act as the Companys financial advisor with respect to a debt financing transaction then being pursued by the Company
and potential future business transactions involving the Company. Beginning in September 2005, and at the Companys request, representatives of Jefferies contacted numerous parties that the Company and Jefferies believed might be interested in
pursuing an acquisition of the Company. In all cases where requested, representatives of Jefferies provided the third party with an executive summary, confidentiality agreement and, provided that the confidentiality agreement had been signed, a
confidential information memorandum containing certain confidential information and letters requesting the submission of a preliminary, non-binding indication of interest. In all, 12 parties were provided with confidential information memorandums,
and three parties, including Evraz, were invited to conduct further due diligence with respect to the Company.
On December 5, 2005,
the Company sent Evraz an executive summary and confidentiality agreement, which Evraz signed on February 1, 2006. Jefferies sent a confidential information memorandum to Evraz on the same day, and entered into discussions with Evraz regarding
the Company.
On December 16, 2005, the Company sent one of the three parties (Company A) that submitted an indication of
interest an executive summary and confidentiality agreement, which Company A signed on December 19, 2005. Jefferies sent a confidential information memorandum to Company A on December 20, 2005 and entered into discussions with Company A
regarding the Company.
On January 23, 2006, the Company received a preliminary indication of interest from Company A at an enterprise
valuation between $230 and $350 million. Based on this indication of interest, the Company invited Company A to continue further due diligence on the Company.
On February 1, 2006, Jefferies had a telephonic conversation with Evraz in which Jefferies requested that Evraz submit a preliminary, non-binding indication of interest by February 14, 2006.
On February 10, 2006, Company A was given access to an online dataroom, which contained confidential information. The Companys management made
presentations about the Companys business and hosted a visit to the Companys facility in Claymont, Delaware by representatives of Company A during the week of February 13, 2006.
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On February 15, 2006, the Company received a preliminary, non-binding indication of interest from
Evraz at an enterprise valuation of $275 million. Based on its indication of interest, the Company invited Evraz to continue further due diligence on the Company. The Companys management delivered a presentation about the Companys
business and hosted a visit to the Companys facility in Claymont, Delaware by representatives of Evraz on multiple occasions, during the month of March 2006.
On February 21, 2006, the Company sent one of the three parties (Company B) an executive summary and confidentiality agreement, which Company B signed on the same day. Jefferies sent a confidential
information memorandum to Company B on February 27, 2006 and entered into discussions regarding the Company.
On March 3, 2006,
Jefferies sent Company A a letter which requested that a definitive proposal be submitted on March 17, 2006. Company A later informed Jefferies that it was no longer interested in pursuing further discussions with respect to a potential
acquisition of the Company.
On March 8, 2006, the Company received a preliminary indication of interest from Company B at an
enterprise valuation of $300 million. Based on this indication of interest, the Company invited Company B to continue further due diligence on the Company. The Companys management made presentations about the Companys business and hosted
a visit to the Companys facility in Claymont, Delaware by representatives of Company B on March 20, 2006.
On March 16,
2006, Jefferies sent Evraz a letter which requested that a definitive proposal be submitted on March 31, 2006.
On March 17,
2006, Jefferies sent Company B a letter which requested that a definitive proposal be submitted on March 31, 2006. Company B later informed Jefferies that it was no longer interested in pursuing further discussions with respect to a potential
acquisition of the Company.
On March 31, 2006, Evraz presented the Company with a revised indication of interest at a total
enterprise valuation of $325 to $350 million. Based on this indication, the Company entered into an exclusivity agreement with Evraz on April 26, 2006 and invited Evraz to continue further due diligence on the Company, including providing Evraz
with access to certain of the Companys personnel to provide Evraz with additional information about the Company and its operations.
In April 2006, the Company provided Evraz and Cleary Gottlieb Steen & Hamilton LLP (Cleary Gottlieb), counsel to Evraz, access to certain non-public information about the Company. During April and May 2006, Cleary
Gottlieb and Morgan, Lewis & Bockius LLP (Morgan Lewis), counsel to the Company, exchanged drafts of, and negotiated the terms of, a stock purchase agreement. On May 25 and 26, 2006, representatives of Evraz, including
Cleary Gottlieb, and representatives of the Company, including Morgan Lewis and Jefferies, met in person in New York to negotiate the proposed transaction.
On May 30, 2006, Evraz notified the Company that it was no longer interested in pursuing further discussions with respect to a potential acquisition of the Company.
Subsequent to these events, the Company again evaluated the Companys business, strategies, performance, objectives and prospects in the context of
developments in the steel industry and in the markets in which the Company operates with a view toward enhancing shareholder value.
On
June 21, 2006, the Company signed an amendment to its engagement letter with Jefferies, extending the engagement of Jefferies as the Companys exclusive financial advisor.
In August 2006, a third party (Company C) contacted the Company regarding its interest in discussing a potential acquisition of the Company.
On September 17, 2006, Company C executed a confidentiality agreement
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and was provided a confidential information memorandum. On October 6, 2006, Company C notified the Company that it was no longer interested in pursuing
further discussions with respect to a potential acquisition of the Company.
On December 22, 2006, the Company completed an initial
public offering of its Common Stock at a price of $17 per share. In the offering, the Company sold 6,250,000 shares of Common Stock and H.I.G., the selling stockholder, sold 2,450,000 shares of Common Stock. On December 29, 2006, the
underwriters exercised their option to purchase an additional 1,305,000 shares from H.I.G. at the initial public offering price of $17 per share. Following completion of the offering, including the over-allotment option, H.I.G.s ownership
stake in the Company was 42.6%.
In April 2007, Jefferies was contacted by a financial advisor regarding the interest of its client
(Company D) in discussing a potential business combination transaction with the Company.
In April 2007, at a regularly
scheduled Board meeting, the Board of Directors discussed, among other matters, Company Ds interest in a potential transaction, the ongoing consolidation in the steel industry generally, and the Companys other strategic alternatives,
including remaining an independent public company. The Board of Directors directed management to amend the Companys engagement letter with Jefferies, which had been in place since prior to the Companys initial public offering, and to
direct Jefferies to determine whether there were other third parties interested in a potential business combination transaction with the Company.
Beginning in May 2007, representatives of Jefferies, at the request of the Board of Directors, conducted a targeted search process and contacted a small number of third parties that the Company and Jefferies believed might be interested in
seriously pursuing an acquisition of the Company. Representatives of Jefferies also responded to inquiries that it received from prospective acquirors. In all, representatives of Jefferies had contact with a total of 17 third parties. All of these
parties had been contacted by Jefferies in the earlier process. In all cases where requested, representatives of Jefferies provided the third party with an informational package containing certain publicly available information regarding the
Company.
On June 7, 2007, the Company received a verbal, preliminary, non-binding indication of interest from Company D at a range of
$600 to $650 million of enterprise value.
On June 18, 2007, the Company signed a second amendment to its engagement letter with
Jefferies, extending the engagement of Jefferies as the Companys exclusive financial advisor.
During the week of July 16, 2007,
Company D entered into a confidentiality agreement with the Company.
On July 24, 2007, and pursuant to a request from H.I.G., the Company
filed a registration statement with the SEC, with respect to the registration of shares owned by H.I.G. On August 1, 2007, at the direction of H.I.G., the Company withdrew the registration statement.
Also on July 24, 2007, the Companys management delivered a presentation about the Companys business and hosted a visit to the
Companys facility in Claymont, Delaware by representatives of Company D and its financial advisor.
On August 27, 2007, Company D
informed Jefferies that it was no longer interested in pursuing further discussions with respect to a potential acquisition of the Company.
On August 7, 2007, the Board of Directors held a telephonic meeting to review the status and results of Jefferies targeted search process. Members of the Companys senior management and representatives of Jefferies
participated in this meeting. The search process conducted by Jefferies was terminated at this time.
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On September 27, 2007, Evraz contacted Jefferies to discuss a potential acquisition of H.I.G.s
shares in the Company.
On October 4, 2007, Alexander Frolov, the Chief Executive Officer of Evraz, and Matthew Sanford, a member of
the Board of Directors and a managing director of H.I.G., met in person in London to discuss the terms of the offer. As of this time, the Company had no involvement in, and was unaware of, this proposal and the discussions between H.I.G. and Evraz.
On October 15, 2007, Evraz sent a letter to Jefferies setting forth a proposal to acquire H.I.G.s 42.6% shareholding in the
Company at a price based on a multiple of 7 times the latest 12 months publicly disclosed EBITDA of the Company (ended June 30, 2007), or, alternatively, to acquire over 50% ownership of the Company for an additional 15% premium. Discussions between
representatives of H.I.G., Evraz and Jefferies continued over the next several weeks.
On October 30, 2007, Evraz made a verbal
indication to Jefferies that Evraz would be willing to acquire H.I.G.s shares for $23 per share and purchase additional shares of common stock from Claymont at $23 per share to acquire, in the aggregate 49.5% of the outstanding shares of
Claymont.
On October 30, 2007, Mr. Sanford sent a communication to the Board of Directors indicating that H.I.G. was interested
in the Board of Directors reviewing the potential transaction involving Evrazs acquisition of H.I.G.s shares and the shares held by Jeff Bradley, the Companys chief executive officer, and the Company issuing additional shares
to Evraz at a purchase price of $23 per share (the Initial Proposal). The transactions contemplated by the Initial Proposal would result in Evraz owning approximately 49.5% of the Company. The Initial Proposal also included the
requirement that the Board of Directors approve the transaction, and that Evraz would have the contractual right to appoint a majority of the members of the Board of Directors.
On November 1, 2007, the Board of Directors met via conference call, with representatives of Morgan Lewis attending, to discuss Evrazs
proposal. Representatives of Morgan Lewis advised the Board of Directors of its fiduciary duties and other legal matters in connection with considering the Initial Proposal. After reviewing the details of the Initial Proposal, the Board of Directors
designated a special committee of independent directors who were not affiliated with H.I.G., consisting of Steve Scheinkman and Tracy Shellabarger (the Special Committee), to review the Initial Proposal.
On November 4, 2007, the Special Committee had discussions with Potter Anderson & Corroon LLP (Potter Anderson), counsel to the
Special Committee, and an engagement letter with Potter Anderson was entered into on November 9, 2007.
On November 12, 2007,
representatives from Evraz visited the Companys facility in Claymont, Delaware. At this visit, the Companys management team provided Evraz with publicly available information about the Company and conducted a tour of the Companys
facilities.
At a regularly scheduled board meeting on November 13, 2007, the Board of Directors discussed, among other matters, the
status of the Special Committees review of the Initial Proposal. The members of the Special Committee reported to the other members of the Board of Directors that counsel had been engaged and that the Special Committee intended to interview
financial advisors.
On November 15, 2007, the Special Committee interviewed financial advisors, including Western Reserve Partners
LLC (Western Reserve), to assist the Special Committee with its review of the Initial Proposal.
On November 16, 2007, the
Special Committee selected Western Reserve as its financial advisor.
On November 19, 2007, the members of the Special Committee
contacted Mr. Bradley to provide him an update on the Special Committees review of the Initial Proposal. Also on November 19, 2007, Pavel Tatyanin of Evraz contacted a representative of Jefferies and indicated that Evraz was
considering making a proposal with respect to an acquisition of all of the Companys outstanding shares.
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On November 20, 2007, Evraz submitted a letter to the Company indicating its withdrawal of the
Initial Proposal. Also on November 20, 2007, Evraz submitted a non-binding indication of interest with respect to an acquisition of all issued and outstanding shares of the Company for a purchase price of $22 to $23 per share, subject to
completion of confirmatory due diligence and unanimous approval of the Company Board. Evraz also sought a 30-day exclusivity period.
On
the evening of November 20, 2007, the Board of Directors held a telephonic meeting, with representatives of Morgan Lewis attending, to discuss, among other things, Evrazs new proposal. The Board discussed whether the new proposal should
be evaluated by the Special Committee or by the full Board. It was pointed out that four of our seven directors are affiliated with H.I.G., and that one of our directors, Mr. Bradley, is an employee of the Company. After discussion, the Board
of Directors determined that, in light of the withdrawal of the Initial Proposal and the fact that the new proposal was for all of the outstanding shares the Company, the Special Committee would be disbanded and the proposal would be evaluated by
the entire Board. The Board of Directors agreed that no transaction would be approved by the Board unless it was approved by all of the members of the Board, including the directors previously comprising the Special Committee. Also at the meeting,
representatives of Morgan Lewis advised the Board of Directors of its fiduciary duties and other legal matters in considering a potential transaction. The Board of Directors discussed potential alternative acquirors, and discussed the results of
Jefferies efforts in the late spring and early summer to determine whether third parties were interested in pursuing a business combination transaction with the Company. The Board of Directors also discussed other strategic alternatives
available, including continuing to pursue the Companys current strategies as an independent public company. After further deliberations, it was the consensus of the Board of Directors, based on their business experience and knowledge of the
Company and the industry, that Evrazs proposal of $22 - $23 per share in cash was sufficient to warrant having further discussions with Evraz regarding a potential transaction, and providing Evraz certain due diligence materials. The Board of
Directors then authorized Mr. Sanford and Mr. Bradley to meet with Evraz and discuss further the proposal, subject to Evrazs execution of a confidentiality agreement.
On November 21, 2007, the Company received a draft of a Confidentiality Agreement from Evraz, which proposed that Evraz would be subject to a 12
month standstill provision, except that there would be no restrictions on the ability of Evraz to purchase H.I.G.s shares.
On
November 23 and 24, 2007, the Board of Directors engaged in a series of discussions about Evrazs proposed draft of the Confidentiality Agreement and, in particular the carve-out of the H.I.G. shares from the standstill. During this
period, Cleary Gottlieb advised Morgan Lewis that Evraz was not prepared to agree to a limitation on its ability to acquire H.I.G.s shares.
On November 25, 2007, the Board of Directors held a telephonic meeting to further discuss Evrazs proposed draft of the Confidentiality Agreement. After a thorough discussion, the Board of Directors determined that it could agree
to the carve-out of H.I.G.s shares from the standstill, so long as Evraz agreed that, in the event it purchased any shares from H.I.G., Evraz would make an offer to all stockholders of the Company to purchase their shares at the same price
paid to H.I.G. Evraz and the Company agreed to the terms of the Confidentiality Agreement, and this agreement was executed on November 26, 2007.
On November 26, 2007, Mr. Bradley and Mr. Sanford, on behalf of the Company, and representatives of Jefferies, met in person with representatives of Evraz, including Mr. Frolov and
Mr. Tatyanin, on behalf of Evraz, and representatives of ABN Amro Incorporated. (ABN Amro), financial advisor to Evraz, in London. At this meeting, the parties discussed various aspects of Evrazs proposal. During this meeting,
Mr. Sanford asked Evraz to raise its proposed price of $22 - $23 per share. Mr. Tatyanin indicated that Evraz was prepared to agree to $23 per share, but that Evraz was unwilling to agree to a higher price. After a series of negotiations,
the parties agreed to discuss with their respective Boards of Directors the updated terms of the Evraz proposal.
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Later on November 26, 2007, the Board of Directors held a telephonic meeting, with representatives
of Morgan Lewis and Jefferies attending, to consider Evrazs proposal as discussed by the parties in London. At this meeting, Mr. Sanford provided the Board of Directors with the details of Evrazs proposal, including Evrazs
request for exclusivity and its proposed price of $23 per share. It was pointed out that Evraz was unwilling to have further discussions unless the Company agreed to an exclusivity period. The Board of Directors discussed the proposed price, the
current trading price of the Companys stock, the process undertaken by Jefferies earlier in the year to determine the level of interest of third parties in acquiring the Company, and the Companys strategic alternatives. After discussion,
the Board of Directors authorized Mr. Bradley and Mr. Sanford to negotiate further with Evraz and agree to a limited period of exclusivity. The Board of Directors also determined to pursue its engagement with Western Reserve to advise the
Board on valuation matters and to deliver a second opinion as to the fairness of the consideration to be received by the stockholders in connection with any potential transaction. Mr. Shellabarger contacted Western Reserve about the engagement
on November 26, 2007, and the engagement letter was signed on December 7, 2007.
On November 27, 2007, Cleary Gottlieb
delivered to Morgan Lewis a draft amendment to the existing confidentiality agreement between Evraz and the Company, providing Evraz with a 30-day period of exclusivity. On November 28, 2007, an amendment to the confidentiality agreement,
providing for a 21-day period of exclusivity, was executed by the parties.
On November 30, 2007, the Board of Directors held a
telephonic meeting, with representatives of Morgan Lewis, Jefferies and Western Reserve attending. Jefferies and Western Reserve made separate presentations to the Company Board regarding conditions in the steel industry, the Companys
strategic alternatives and valuation analyses of the Company.
Later in the day on November 30, 2007, Cleary Gottlieb delivered to
Morgan Lewis initial proposed drafts of the Merger Agreement and Stockholder Support Agreement.
On December 1 and 2, 2007, Morgan
Lewis and Cleary Gottlieb engaged in several conference calls to negotiate several terms of the proposed Merger Agreement, including the following provisions:
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whether Evraz, as opposed to one of its wholly-owned subsidiaries, should be a party to the Merger Agreement;
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the conditions to the consummation of the Offer;
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the circumstances under which the Top-Up Option would be exercisable;
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the restrictions on the Companys operations of its business prior to the completion of the Offer;
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the circumstances under which the Company could pursue an alternative transaction;
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the scope of Evrazs right to match the terms of any such alternative transaction;
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the circumstances under which the Company would be required to pay a termination fee or expenses; and
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the definition of Material Adverse Effect.
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The initial draft of the Stockholder Support Agreement did not provide for termination of the Stockholder Support Agreement upon termination of the Merger Agreement. This agreement provided that Evraz would have the
right to purchase H.I.G.s shares for a one-year period following the termination of the Merger Agreement, and that H.I.G. would agree not to sell its shares during the one-year period, and not to vote in favor of any alternative proposal for
the acquisition of the Company during the one-year period.
Between December 1 and December 9, 2007, Morgan Lewis and Cleary
Gottlieb engaged in negotiations and exchanged multiple drafts of the Merger Agreement. During this time, representatives of the Company and Evraz, with their respective financial advisors, engaged in multiple conference calls to negotiate various
terms of the Merger Agreement.
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On December 4, 2007, the Board of Directors met via conference call to receive an update from
Mr. Bradley and Mr. Sanford with respect to the status of negotiations with Evraz. The Board of Directors discussed the Companys prospects for alternative transactions, including those identified by Jefferies and Western Reserve. In
addition, Morgan Lewis reviewed with the Board of Directors the terms and conditions of the proposed Merger Agreement. At this meeting, the Board of Directors discussed the Companys current and historical financial condition, the potential
value that might result from various strategic alternatives available to the Company, including the potential value to stockholders if the Company were to remain an independent public company. The Board of Directors also discussed the challenges
facing the Company as a single facility plate mill in a consolidating industry.
On December 6, 2007, the Board of Directors met via
conference call to engage in further discussions with respect to the November 30th presentations submitted by Jefferies and Western Reserve. In particular, the Board of Directors reviewed several possible strategic alternatives, including
maintaining independence and pursuing organic growth, pursuing growth through acquisitions of target businesses, engaging in strategic transactions, and a potential sale of the Company to Evraz.
Later on December 6, 2007, the Board of Directors met via conference to call to receive an update from the Companys negotiating team on the
progress of negotiations. During this meeting, Morgan Lewis answered various questions from the Board of Directors on the terms and conditions included in the latest draft of the Merger Agreement.
On December 7, 2007, the Board of Directors met via conference call, during which Morgan Lewis reviewed in detail with the Board of Directors the
revised draft of the Merger Agreement submitted by Cleary Gottlieb. The Board of Directors discussed, among other matters, the amount of the termination fee and the proposed price per share. At the conclusion of this meeting, and after
deliberations, the Board instructed Mr. Sanford and Mr. Bradley to seek to obtain a lower termination fee and, if possible without risking the proposal that had been made by Evraz, a higher price. Later that day, Jefferies contacted ABN
Amro and suggested a purchase price of $24 per share. ABN Amro responded to Jefferies that Evraz was unwilling to agree to a purchase price of $24 per share.
On December 8 and December 9, 2007, the parties continued to negotiate the terms of the proposed transaction. As a result of these negotiations, the final proposal included a purchase price of $23.50 per
share in cash, a 3% breakup fee, an additional expense reimbursement of up to $2,150,000, a right of Evraz to match any alternative proposals, the right of the Board of Directors to change its approval or recommendation of the Offer and the Merger,
and, with respect to the Stockholder Support Agreement, the termination of the voting and transfer restrictions, as well as Evrazs right to acquire the H.I.G. shares, upon termination of the Merger Agreement.
On December 9, 2007, the Board of Directors held a telephonic meeting, with representatives of Jefferies, Western Reserve and Morgan Lewis
attending. Mr. Sanford updated the Board of Directors on the negotiations with Evraz. Representatives of Morgan Lewis advised the Board of Directors of its fiduciary duties in connection with the potential transaction and then reviewed the
proposed terms of the Merger Agreement. Representatives from each of Jefferies and Western Reserve made a financial presentation to the Board of Directors. Representatives of Jefferies and Western Reserve responded to questions from members of the
Board of Directors with respect to the information reviewed and the transaction. At the conclusion of their respective presentations, each of Jefferies and Western Reserve delivered an oral opinion, confirmed in writing by opinions dated
December 9, 2007, that the consideration to be received by the holders of shares of Common Stock pursuant to the Merger Agreement, as of the date of the opinions and based upon and subject to the assumptions, limitations, qualifications and
factors contained therein, is fair, from a financial point of view, to such holders. After further discussion and evaluation of the Offer and the terms and conditions of the Merger Agreement, the Board of Directors unanimously determined that the
Merger Agreement and the Offer and the Merger were advisable and fair to, and in the best interests of the stockholders of the Company, and unanimously approved the Merger Agreement, the Support Agreement and the transactions contemplated thereby.
13
Later in the day on December 9, 2007, the Company and Evraz executed and delivered the Merger
Agreement, and Evraz and H.I.G. separately executed and delivered the Stockholder Support Agreement.
On December 10, 2007, the
Company and Evraz issued a joint press release publicly announcing the proposed transaction.
Reasons for the Recommendation
In the course of deliberating and reaching its determinations to approve the Offer and approve the Merger Agreement and other
transactions contemplated thereby, and to recommend that the Companys stockholders accept the Offer and adopt the Merger Agreement and tender their shares of Common Stock pursuant to the Offer, the Board of Directors considered numerous
factors in consultation with its outside legal and financial advisors and the Companys senior management, including the following:
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current and historical market prices of the Common Stock, including the fact that the Offer Price of $23.50 represents (i) a premium of 19.1% to the
Companys three month volume weighted average stock price, (ii) a premium of 38.2% to the Companys initial public offering price in December 2006, and (iii) a premium of 6.8% to the closing price of the shares of Common Stock on
Friday, December 7, 2007;
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the form of consideration to be paid to holders of Shares in the Offer and the Merger is cash, which will provide certainty of value and liquidity to the
Companys stockholders;
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the fact that Evrazs obligation to consummate the acquisition of the shares of Common Stock of the Company is subject to a limited number of conditions, with
no financing condition, and the likelihood and anticipated timing of completing the Offer, in light of the structure of the Offer and the conditions to completion;
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Evrazs business reputation, financial condition and the ability of Evraz to complete the Offer and the Merger in a timely manner;
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the Companys ability to engage in discussions with third parties submitting unsolicited competing offers to purchase the Common Stock of the Company, and the
Companys ability to provide further information to such parties subject to the terms and conditions of the Merger Agreement;
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the ability of the Company, subject to certain conditions, to terminate the Merger Agreement and accept a financially superior proposal from a third party
purchaser, subject to the payment by the Company to Evraz of a 3% termination fee plus an expense reimbursement of up to $2,150,0000;
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the financial analyses of Jefferies and Western Reserve presented to the Board of Directors at its meeting on December 9, 2007, as well as presentations made
by each at prior meetings with respect to certain financial aspects of the Merger and the strategic alternatives available to the Company;
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the opinions provided to the Board of Directors by Jefferies and Western Reserve to the effect that, as of December 9, 2007, and based upon and subject to the
factors and assumptions set forth in their written opinions, the $23.50 per share in cash to be received by holders of Common Stock pursuant to the Offer and the Merger is fair, from a financial point of view, to such holders. The full text of the
written opinions of Jefferies and Western Reserve are attached as Annex II and III, respectively;
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the current and historical financial condition, results of operations, business plan and financial prospects of the Company, the risks associated with achieving and
executing upon the Companys business plan, and that the holders of Common Stock would continue to be subject to the risks and uncertainties of the Companys operations, business plan and financial prospects;
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the general market risks and other conditions that may act to reduce the Companys stock price in the future;
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the highly cyclical nature of the steel industry in which the Company operates, as well as the increasingly competitive nature of the steel industry, the prevalent
environment of consolidation in the steel industry, the advantages obtained by larger steel companies, and the vulnerability of the industry to economic cycles and increased imports;
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the risk that another attractive transaction would not be available if the Company declined to consummate a transaction with Evraz;
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the terms and conditions of the Merger Agreement, including the parties representations, warranties and covenants, the conditions to their respective
obligations under the Merger Agreement, and the circumstances upon which the parties may terminate the Merger Agreement, and the impact on the parties upon such termination;
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the two-step structure of the transaction, which enables holders of Common Stock to receive the $23.50 per share Offer Price in a relatively short time frame,
followed by the second-step Merger in which holders who have not tendered their shares of Common Stock in the Offer will receive the same $23.50 per share Offer Price as is paid in the Offer; and
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the availability of statutory appraisal rights under Delaware law in the second-step Merger for holders who do not tender their shares of Common Stock and meet
certain other statutory requirements of Delaware law in connection with the Merger.
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In the course of its deliberations,
the Board of Directors also considered a variety of risks and other factors related to entering into the Merger Agreement, including:
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the strategic alternatives available to the Company, including continuing to pursue the Companys current strategies as an independent public company, pursuing
growth through acquisitions of target businesses, engaging in strategic transactions, and the risks and uncertainties associated with such strategic alternatives;
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the fact that the Company will no longer exist as an independent public company and, as a result, the Companys stockholders will be unable to participate in
any future earnings growth or receive any benefit from any future increase in value of the Company;
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the risk that the Companys business may be disrupted as a result of the announcement of the Offer and the Merger, and that the Companys management may
have been distracted as a result of negotiating a potential transaction with Evraz;
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the restriction that the Merger Agreement imposes on the Company with respect to soliciting competing acquisition proposals;
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the restrictions imposed by the Merger Agreement on the conduct of the Companys business prior to the completion of the transaction, which require the Company
to conduct its business in the ordinary and usual course of business consistent with past practices, to use its reasonable best efforts to preserve intact its business organization, to keep available the services of its current officers and
employees, and to preserve the goodwill of and maintain relationships with those with whom it has significant business relations, subject to specific exceptions;
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the risk that the failure of the parties to consummate the Offer and the Merger in a timely manner or at all may have a disruptive effect on the Companys
business, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Companys business and customer relationships; and
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the fact that the gains received in an all-cash transaction are generally taxable to the holders of shares of Common Stock that are U.S. persons for U.S. federal
income tax purposes.
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The Board of Directors also considered the fact that the Companys directors and officers may have
interests in the transaction with Evraz that are different from, or in addition to, the interests of the Companys stockholders in general.
After considering these factors, the Board of Directors believed that, in the aggregate, the potential benefits to the stockholders of the Company resulting from the Offer and the Merger outweigh the risks of the Offer and the Merger. The
Board of Directors collectively reached the conclusion to approve the Merger Agreement and Merger after careful consideration of the factors described above and other factors that the members of the Board of Directors believed to be appropriate. The
foregoing discussion of the factors considered by the Board of Directors is for summary purposes only and is not intended to be exhaustive.
In view of the variety of factors considered by the Board of Directors in connection with its evaluation of the proposed transaction with Evraz and the complexity of the negotiation, the Board of Directors did not consider it practical, and
did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in approving the transaction and reaching its recommendation. Rather, the Board of Directors made its recommendation to the Companys
stockholders based on the totality of information presented and the investigation conducted by the Board of Directors and its legal and financial advisors. In considering the factors discussed above, individual members of the Board of Directors may
have applied their own judgment and may have given different weights to different factors.
(c) Intent to Tender.
To the knowledge of the Company, to the extent permitted by applicable securities laws, rules or regulations, all of the Companys executive
officers, directors and affiliates currently intend to tender or cause to be tendered all shares of Common Stock held of record or beneficially by them pursuant to the Offer. The foregoing does not include any shares of Common Stock over which, or
with respect to which, any such executive officer, director, or affiliate acts in a fiduciary or representative capacity or is subject to the instructions of a third party with respect to such tender.
Item 5.
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Person/Assets, Retained, Employed, Compensated or Used.
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Jefferies & Company, Inc.
Jefferies has been retained by the Company as its financial advisor in connection with
the Offer and the Merger and has also provided an opinion as to the fairness of the consideration to be received by the stockholders of the Company in connection with the Offer and Merger. The written opinion is filed herewith as Annex II and is
incorporated herein by reference.
Under the terms of the Companys engagement agreement with Jefferies, the Company has agreed to pay
a fee of $800,000 upon delivery of the fairness opinion. In addition, the Company has agreed, upon consummation of the Merger, to pay the following fees: (i) 0.8% of the cash paid for the Common Stock that is less than $500 million plus
(ii) 2% of the portion of the cash paid for the Common Stock that is greater than $500 million and less than $600 million plus (iii) 1% of the portion of the cash paid for the Common Stock that is greater than $600 million minus
(iv) any part of the $800,000 opinion fee previously paid to Jefferies. The Company has also agreed to reimburse Jefferies for all out-of-pocket expenses incurred by Jefferies in performing its services, including the fees and expenses of
counsel, incurred in connection with its engagement as well as to indemnify Jefferies and related parties against certain liabilities incurred in connection with its engagement.
Jefferies in the past has provided, is currently providing and may in the future provide investment banking and other financial services to the Company,
for which services it has received, and expects to receive, compensation. Jefferies acted as sole lead underwriter in connection with the Companys initial public offering of Common Stock. Jefferies was also the sole book-running manager for
Claymont Steel, Inc.s 8.875% Senior
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Notes due 2015 and the sole manager for its Senior Secured Floating Rate Note due 2010. Furthermore, Jefferies was sole manager for the Companys 15%
Senior Pay-In-Kind Notes due 2010.
Jefferies maintains a market in the securities of the Company, and in the ordinary course of its
business, Jefferies and its affiliates may trade or hold securities of the Company, Evraz, and/or their respective affiliates for their own account and the accounts of their customers and, accordingly, may at any time hold long or short positions in
those securities.
Western Reserve Partners LLC
Western Reserve has been retained by the Company to provide an opinion as to the fairness of the consideration to be received by the stockholders of the Company in connection with the Offer and Merger. The written
opinion is filed herewith as Annex III and is incorporated herein by reference.
Under the terms of the Companys engagement agreement
with Western Reserve (the Engagement Agreement), the Company agreed to pay Western Reserve an initial engagement fee of $50,000. The Company also agreed to pay an opinion fee in the amount of $600,000, $300,000 of which is payable upon
delivery of the final written opinion and $300,000, offset by the initial $50,000 engagement fee, is payable upon the closing of Merger. The Engagement Agreement provides that the Company will reimburse Western Reserve for all reasonable expenses
incurred in connection with its engagement as well as indemnify Western Reserve and related parties against certain liabilities incurred in connection with its engagement.
Other than the services provided by Western Reserve to the Company pursuant to the Engagement Agreement, Western Reserve has had no other investment
banking relationship with the Company over the past 2 years for which it has received compensation.
Except as set forth above, neither the
Company nor any person acting on its behalf has employed, retained or agreed to compensate any person to make solicitations or recommendations to stockholders of the Company concerning the Offer or the Merger.
Item 6.
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Interest in Securities of the Subject Company.
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Pursuant to the Companys 2006 Stock Incentive Plan, Tracy Shellabarger and Steve Scheinkman were each automatically awarded 986 restricted stock units at the annual stockholders meeting on November 13, 2007 for their service on
the Board of Directors.
Other than as described above, no transactions in shares of Common Stock have been effected during the past 60
days by the Company or, to the knowledge of the Company, by any current executive officer, director, affiliate or subsidiary of the Company.
Item 7.
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Purposes of the Transaction and Plans or Proposals.
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Except as set forth in this Schedule 14D-9, the Company is not engaged in any negotiation in response to the Offer that relates to (i) a tender offer or other acquisition of the Companys securities by the Company, any subsidiary
of the Company, or any other person, (ii) an extraordinary transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, (iii) any purchase, sale or transfer of a material amount of assets
of the Company or any of its subsidiaries or (iv) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company.
Except as set forth above, there are no transactions, resolutions of the Board of Directors of the Company, agreements in principle or signed contracts entered into in response to the Offer that relate to one or more
of the events referred to in the preceding paragraph.
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Item 8.
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Additional Information.
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Top-Up Option
Pursuant to the terms of the Merger Agreement, the Company granted the Purchaser an irrevocable option (the Top-Up Option),
to purchase the lowest number of shares of Common Stock that, when added to the number of shares of Common Stock owned by the Purchaser at the time of exercise of the Top-Up Option, shall constitute one more share of Common Stock than 90% of the
shares of Common Stock then outstanding, at a price per share equal to the Offer Price. The Top-Up Option is only exercisable once, at such time as the Purchaser and Evraz, directly or indirectly, own at least 80% of the total number of shares of
Common Stock then outstanding and on or prior to the 10th business day after the expiration of the Offer or the expiration of any subsequent offering period. In no event shall the Top-Up Option be exercisable for a number of shares of Common Stock
in excess of the number of authorized shares of Common Stock available for issuance.
Votes Required to Approve the Merger
The Board of Directors has approved the Offer, the Merger and the Merger Agreement in accordance with the DGCL. Under Section 253
of the DGCL, if the Purchaser acquires, pursuant to the Offer or otherwise, including the issuance by the Company of shares of Common Stock upon the exercise of the Top-Up Option, at least 90% of the outstanding shares of Common Stock, the Purchaser
will effect the Merger after consummation of the Offer without a vote by the Companys stockholders (a Short-Form Merger). If the Purchaser acquires, pursuant to the Offer or otherwise, less than 80% of the outstanding shares of
Common Stock, the Company shall, in accordance with applicable law, call, give notice of, convene and hold a special meeting of its stockholders as soon as practicable following the consummation of the Offer for the purpose of adopting the agreement
of merger (within the meaning of Section 251 of the DGCL). At the special meeting of stockholders, all shares of Common Stock acquired by the Evraz and the Purchaser, pursuant to the Offer or otherwise, will be voted in favor of the Merger.
Section 14(f) Information Statement
The Information Statement attached as Annex I hereto is being furnished in connection with the possible designation by Evraz, pursuant to the Merger Agreement, of certain persons to be appointed by the Board of
Directors, other than at a meeting of the Companys stockholders, as described in this Schedule 14D-9 and in the Information Statement, and is incorporated herein by reference.
Appraisal Rights
No appraisal rights
are available in connection with the Offer. However, if the Merger is consummated, persons who are holders of shares of Common Stock at the Effective Time will have certain rights under Section 262 of the DGCL to demand appraisal of their
shares of Common Stock. Such rights, subject to compliance with the applicable statutory procedures, could entitle the holder to a judicial determination of the fair value of the shares of Common Stock at the Effective Time (excluding
any element of value arising from the accomplishment or the expectation of the Merger), to be paid in cash, in lieu of the Merger Consideration. The value so determined could be more or less than the Merger Consideration.
Antitrust
Expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), is a condition to the Purchasers obligation to accept for payment and pay for shares of Common Stock
tendered pursuant to the Offer.
Under the HSR Act, the purchase of shares of Common Stock in the Offer may not be completed until the
expiration of a 15-calendar day waiting period following the filing by the ultimate parent entities of Purchaser with the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (Antitrust
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Division), unless the waiting period is earlier terminated by the FTC and the Antitrust Division. The Company expects to file a Premerger Notification
and Report Form under the HSR Act with the FTC and the Antitrust Division in connection with the purchase of shares of Common Stock in the Offer and the Merger on or about December 18, 2007. According to Purchaser, the ultimate parent entities
of Purchaser expect to file a Premerger Notification and Report Form under the HSR Act with the FTC and the Antitrust Division in connection with the purchase of shares of Common Stock in the Offer and the Merger on or about December 18, 2007.
Accordingly, the required waiting period with respect to the Offer and the Merger will expire at 11:59 p.m., New York City time, on or about January 2, 2008, unless earlier terminated by the FTC or the Antitrust Division, or unless the FTC
or the Antitrust Division issues a request for additional information and documentary material (a Second Request) prior to that time. If within the 15-calendar day waiting period either the FTC or the Antitrust Division issues a Second
Request, the waiting period with respect to the Offer and the Merger would be extended until ten calendar days following the date of substantial compliance by the ultimate parent entities of Purchaser with that request, unless the FTC or the
Antitrust Division terminates the additional waiting period before its expiration. After the expiration of the ten calendar day waiting period, the waiting period could be extended only by court order or with the consent of the ultimate parent
entities of Purchaser. In practice, complying with a Second Request can take a significant period of time. Although the Company is required to file certain information and documentary material with the FTC and the Antitrust Division in connection
with the Offer, neither the Companys failure to make those filings nor a request for additional documents and information issued to the Company from the FTC or the Antitrust Division will extend the waiting period with respect to the purchase
of shares of Common Stock in the Offer and the Merger. The Merger will not require an additional filing under the HSR Act if the Purchaser owns more than 50 percent of the outstanding shares of Common Stock at the time of the Merger or if the Merger
occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated.
The FTC and the Antitrust
Division will scrutinize the legality under the antitrust laws of the Purchasers proposed acquisition of the Company. At any time before or after the Purchasers acceptance for payment of shares of Common Stock pursuant to the Offer, if
the Antitrust Division or the FTC believes that the Offer would violate the U.S. federal antitrust laws by substantially lessening competition in any line of commerce affecting U.S. consumers, the FTC and the Antitrust Division have the authority to
challenge the transaction by seeking a federal court order enjoining the transaction or, if shares have already been acquired, requiring disposition of such shares of Common Stock, or the divestiture of substantial assets of Purchaser, the Company,
or any of their respective subsidiaries or affiliates. U.S. state attorneys general and private persons may also bring legal action under the antitrust laws seeking similar relief or seeking conditions to the completion of the Offer.
Opinion of Jefferies & Company, Inc.
Jefferies was engaged to render an opinion to the Board of Directors as to whether the consideration to be received by the holders of shares of Common Stock pursuant to the Merger Agreement is fair, from a financial point of view, to such
holders. On December 9, 2007, Jefferies delivered to the Board of Directors its oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications, and
factors contained in its opinion, the consideration to be received by the holders of shares of Common Stock pursuant to the Merger Agreement is fair, from a financial point of view, to such holders. The December 9, 2007 opinion of Jefferies is
referred to hereinafter in this section as the Opinion.
The full text of the Opinion is attached to this Schedule 14D-9 as
Annex II and incorporated into this Schedule 14D-9 by reference. We urge you to read the Opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered, and limits of the review undertaken in arriving
at the Opinion.
The Opinion is for the use and benefit of the Board of Directors in its consideration of the Offer and the Merger. The
Opinion does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor
19
does it address the underlying business decision by the Company to engage in the Merger, the terms of the Merger Agreement, or the documents referred to
therein. The Opinion does not constitute a recommendation to any holder of shares of Common Stock as to whether such stockholder should tender shares of Common Stock in the Offer or as to how any holder of shares of Common Stock should vote on the
Merger or any matter related thereto. In addition, the Board of Directors did not ask Jefferies to address, and the Opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors, or other
constituencies of the Company, other than the holders of shares of Common Stock. Jefferies expresses no opinion as to the price at which shares of Common Stock would trade at any time. Furthermore, Jefferies does not express any view or opinion as
to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Companys officers, directors, or employees, or any class of such persons, in connection with the transactions
contemplated by the Merger Agreement relative to the consideration to be received by holders of shares of Common Stock. The Opinion has been authorized by the Fairness Opinion Committee of Jefferies.
In arriving at the Opinion, Jefferies, among other things:
|
1.
|
reviewed a draft dated December 8, 2007 of the Merger Agreement;
|
|
2.
|
reviewed certain publicly available financial and other information about the Company;
|
|
3.
|
reviewed certain information furnished to Jefferies by the Companys management, including financial forecasts and analyses, relating to the business, operations, and prospects
of the Company;
|
|
4.
|
held discussions with members of senior management of the Company concerning the matters described in clauses (2) and (3) above;
|
|
5.
|
reviewed the share trading price history and valuation multiples for the Common Stock and compared them with those of certain publicly traded companies that Jefferies deemed
relevant;
|
|
6.
|
compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Jefferies deemed relevant; and
|
|
7.
|
conducted such other financial studies, analyses, and investigations as Jefferies deemed appropriate.
|
In Jefferies review and analysis and in rendering the Opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently
investigate or verify, the representations and warranties set forth in the Merger Agreement and the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company to Jefferies, that was
publicly available (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of the Company that the Company is not aware of any facts or
circumstances that would make such information inaccurate or misleading. Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the
properties or facilities of, the Company. Jefferies has not been furnished with any such evaluations or appraisals of such physical inspections, nor does Jefferies assume any responsibility to obtain any such evaluations or appraisals.
With respect to the financial forecasts provided to and examined by Jefferies, Jefferies notes that projecting future results of any company is
inherently subject to uncertainty. The Company informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the
management of the Company as to the future financial performance of the Company. Jefferies expresses no opinion as to the Companys financial forecasts or the assumptions on which they were made.
Jefferies made no independent investigation of any legal or accounting matters affecting the Company. Jefferies assumed the correctness in all respects
material to its analysis of all legal and accounting advice given to the Company and its Board of Directors, including, without limitation, advice as to the legal, accounting, and tax
20
consequences of the terms of, and transactions contemplated by, the Merger Agreement to the Company and its stockholders. In addition, in preparing the
Opinion, Jefferies did not take into account any tax consequences of the transaction to any holder of Common Stock. Jefferies assumed that the final form of the Merger Agreement would be substantially similar to the draft, dated December 8,
2007, reviewed by Jefferies. Jefferies also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents, and releases for the Offer and the Merger, no delay, limitation, restriction, or condition would be
imposed that would have an adverse effect on the Company, Evraz, or the contemplated benefits of the Offer or the Merger in any way meaningful to the analysis performed by Jefferies.
The Opinion was based on economic, monetary, regulatory, market, and other conditions existing and which can be evaluated as of the date of the Opinion.
Jefferies has no obligation to advise any person of any change in any fact or matter affecting the Opinion of which Jefferies becomes aware after the date of the Opinion.
The following is a brief summary of the analyses performed by Jefferies in connection with the Opinion. This summary is not intended to be an exhaustive description of the analyses performed by Jefferies, but includes
all material factors considered by Jefferies in rendering the Opinion. Jefferies did not attribute any particular weight to any analysis, methodology, or factor considered by it, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor; accordingly, the analyses performed by Jefferies must be considered as a whole. Considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create
a misleading or incomplete view of the process underlying the conclusions expressed in the Opinion. Each analysis performed by Jefferies is a common methodology utilized in determining valuations. Although other valuation techniques may exist,
Jefferies believes that the analyses described below, when taken as a whole, provide the most appropriate analyses for Jefferies to arrive at the Opinion.
Comparable Public Company Analysis
Comparable Public Company Analysis is a method of valuing an entity relative to
publicly-traded companies with similar products or services, similar operating or financial characteristics, or servicing similar customer markets. Jefferies reviewed and compared selected financial data for four publicly-traded companies chosen by
Jefferies that were deemed to be comparable to the Company. Jefferies selected these four companies based on their common participation with the Company in the mini-mill steel manufacturing industry and their listing on major U.S. stock exchanges.
The comparable companies chosen by Jefferies included:
|
|
|
Commercial Metals Company
|
|
|
|
Gerdau Ameristeel Corporation
|
No
company utilized in the comparable public company analysis is identical to the Company. Jefferies made judgments and assumptions with regard to industry performance; general business, economic, market, and financial conditions; and other matters,
many of which are beyond the control of the Company. Mathematical analysis of comparable public companies (such as determining means and medians) in isolation from other analyses is not an effective method of evaluating transactions.
For each of the comparable companies, Jefferies calculated total enterprise value as a multiple of (i) that companys revenue for the last
twelve-month period (LTM) ended September 30, 2007, except for Commercial Metals Company, which is for the LTM ended August 31, 2007, as reflected in periodic reports filed with the SEC; (ii) that companys earnings
before interest, taxes, depreciation, and amortization (EBITDA) for the LTM ended September 30, 2007, except for Commercial Metals Company, which is for the LTM ended
21
August 31, 2007, as reflected in periodic reports filed with the SEC; (iii) that companys estimated EBITDA, to the extent available, for the
year ending December 31, 2007, provided by Thomson First Call; and (iv) that companys estimated EBITDA, to the extent available, for the year ending December 31, 2008, provided by Thomson First Call. Jefferies also adjusted each
companys EBITDA in the LTM period to exclude certain non-recurring and non-cash expenses. Total enterprise value (TEV) was calculated as equity market value as of December 7, 2007, plus total debt and less cash as of the last day
of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable. The equity market value reflects the dilutive effect of exercisable options using the treasury stock method.
Jefferies next calculated the corresponding multiples for the Company in the Merger on the same basis, but (i) defining equity market value (for
purposes of calculating TEV) as the $23.50 per share consideration multiplied by the number of fully diluted shares of Common Stock outstanding (based on the treasury stock method) and (ii) using management financial projections for projected
EBITDA for the years ending December 31, 2007 and December 31, 2008. Jefferies also adjusted the Companys EBITDA to exclude certain non-recurring and non-cash expenses, such as management fees, legal settlement costs, and non-cash
compensation costs from 2004 through the LTM period ended September 30, 2007 and adjusted the Companys estimated EBITDA to exclude non-cash compensation costs.
The resulting multiples are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
TEV/LTM
Revenue
|
|
TEV/LTM
EBITDA
|
|
TEV/
EBITDA
2007E
|
|
|
TEV/
EBITDA
2008E
|
Comparable Public Companies
|
|
|
|
|
|
|
|
|
|
Commercial Metals Company
|
|
0.51x
|
|
6.2x
|
|
6.1x
|
|
|
5.8x
|
Gerdau Ameristeel Corporation
|
|
1.44x
|
|
6.8x
|
|
N/A
|
(1)
|
|
7.5x
|
Nucor Corporation
|
|
1.20x
|
|
6.3x
|
|
6.6x
|
|
|
6.2x
|
Steel Dynamics, Inc.
|
|
1.16x
|
|
7.2x
|
|
N/A
|
(1)
|
|
6.4x
|
Mean
|
|
1.08x
|
|
6.6x
|
|
6.4x
|
|
|
6.5x
|
High
|
|
1.44x
|
|
7.2x
|
|
6.6x
|
|
|
7.5x
|
Median
|
|
1.18x
|
|
6.6x
|
|
6.4x
|
|
|
6.3x
|
Low
|
|
0.51x
|
|
6.2x
|
|
6.1x
|
|
|
5.8x
|
The Company
|
|
1.70x
|
|
8.5x
|
|
8.9x
|
|
|
8.0x
|
(1)
|
Estimates for EBITDA for the year ending December 31, 2007 that were pro forma for Gerdau Ameristeel Corp.s acquisition of Chaparral Steel Co. and for Steel Dynamics,
Inc.s acquisition of Omnisource Corp. were not available.
|
Comparable Transaction Analysis
Jefferies analyzed all ten previous acquisition transactions of public and private mini-mill steel manufacturers in the United States since
January 1, 2005. Such transactions are summarized in the following table:
|
|
|
|
|
Date Announced
|
|
Acquiror
|
|
Target
|
11/18/2007
|
|
Gerdau S.A.
|
|
Quanex Vehicular Products Division
|
07/10/2007
|
|
Gerdau Ameristeel Corporation
|
|
Chaparral Steel Co.
|
05/03/2007
|
|
SSAB Svenskt Stal AB
|
|
IPSCO Inc.
|
01/12/2007
|
|
Evraz Group S.A.
|
|
Oregon Steel Mills, Inc.
|
12/08/2006
|
|
Investor Group
|
|
Timken Latrobe Steel Co.
|
04/05/2006
|
|
Gerdau Ameristeel Corporation
|
|
Sheffield Steel Corporation
|
03/17/2006
|
|
Black Diamond Capital Management
|
|
Bayou Steel Corporation
|
10/17/2005
|
|
Steel Dynamics, Inc.
|
|
Roanoke Electric Steel Corporation
|
07/22/2005
|
|
Industrias CH, S.A. de C.V.
|
|
Republic Engineered Products
|
04/18/2005
|
|
Nucor Corporation
|
|
Marion Steel Co.
|
22
Jefferies considered certain publicly available actual financial data relating to the transactions,
including the target companys actual revenue and EBITDA for the most recent fiscal LTM period prior to the announcement of each transaction. For each comparable transaction, Jefferies then calculated TEV (based on the acquisition price) as a
multiple of (i) that target companys revenue for the most recent fiscal LTM prior to the announcement of the transaction, and (ii) that target companys EBITDA for the most recent fiscal LTM period prior to the announcement of
the transaction.
Jefferies next calculated the corresponding multiples for the Company in the Merger on the same basis, using the merger
consideration of $23.50 per share multiplied by the number of fully diluted shares of Common Stock outstanding (based on the treasury stock method) to calculate the TEV.
The resulting multiples are set forth in the table below:
|
|
|
|
|
|
|
Comparable Transactions
|
|
TEV/LTM Revenue
|
|
|
TEV/LTM EBITDA
|
|
Mean
|
|
0.98x
|
|
|
6.6x
|
|
High
|
|
2.13x
|
|
|
10.3x
|
|
Median
|
|
0.61x
|
|
|
6.5x
|
|
Low
|
|
0.33x
|
|
|
3.4x
|
|
The Merger
|
|
1.70x
|
(1)
|
|
8.5x
|
(1)
|
(1)
|
Implied multiples at transaction share price of $23.50 per share.
|
The transactions utilized in the comparable transaction analysis are not identical to the Merger. In evaluating the transactions, Jefferies made judgments and assumptions with regard to industry performance; general business, economic,
market, and financial conditions; and other matters, many of which are beyond the control of the Company. Mathematical analysis of comparable transactions (such as determining means and medians) in isolation from other analyses is not an effective
method of evaluating transactions.
Premiums Paid Analysis
Using data from the Thomson SDC, Jefferies conducted premiums paid analyses using twelve transactions closed since January 1, 2004 where the target company was either a steel manufacturing, processing, or
distribution company located in the United States. Specifically, Jefferies reviewed the following transactions:
|
|
|
|
|
Date Announced
|
|
Acquiror
|
|
Target
|
07/24/2007
|
|
Platinum Equity, L.L.C.
|
|
Ryerson Inc.
|
07/10/2007
|
|
Gerdau Ameristeel Corporation
|
|
Chaparral Steel Co.
|
03/29/2007
|
|
United States Steel Corporation
|
|
Lone Star Technologies, Inc.
|
03/29/2007
|
|
SSAB Svenskt Stal AB
|
|
IPSCO Inc.
|
02/28/2007
|
|
Mitsui & Co. (U.S.A.), Inc.
|
|
Steel Technologies, Inc.
|
11/20/2006
|
|
Evraz Group S.A.
|
|
Oregon Steel Mills, Inc.
|
09/10/2006
|
|
IPSCO Inc.
|
|
NS Group, Inc.
|
07/19/2006
|
|
KNIA Holdings, Inc.
|
|
Niagara Corporation
|
06/12/2006
|
|
Tenaris S.A.
|
|
Maverick Tube Corporation
|
10/18/2005
|
|
Steel Dynamics, Inc.
|
|
Roanoke Electric Steel Corporation
|
05/18/2005
|
|
Apollo Management L.P.
|
|
Metals USA, Inc.
|
10/25/2004
|
|
Ispat International N.V.
|
|
International Steel Group, Inc.
|
23
For each of the target companies involved in the transactions, Jefferies examined the closing stock price
one day, one week, and four weeks prior to the announcement of the relevant transaction in order to calculate the mean, high, median, and low premiums paid by the acquiror over the target companys closing stock price at those points in time.
Jefferies then compared those premiums to the premium implied by the $23.50 per share consideration over the Companys undisturbed stock prices on the dates one day, one week, and four weeks prior to December 10, 2007. A summary of the
premiums observed in those analyses is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Day Prior
|
|
|
One Week Prior
|
|
|
Four Weeks Prior
|
|
Premium Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
24.8
|
%
|
|
|
24.1
|
%
|
|
|
23.0
|
%
|
High
|
|
|
63.1
|
%
|
|
|
58.7
|
%
|
|
|
61.7
|
%
|
Median
|
|
|
19.1
|
%
|
|
|
21.7
|
%
|
|
|
21.6
|
%
|
Low
|
|
|
(8.6
|
)%
|
|
|
(8.6
|
)%
|
|
|
(6.9
|
)%
|
|
|
|
|
Implied Price Per Company Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Mean
|
|
$
|
27.33
|
|
|
$
|
26.65
|
|
|
$
|
23.61
|
|
High
|
|
$
|
35.73
|
|
|
$
|
34.06
|
|
|
$
|
31.04
|
|
Median
|
|
$
|
26.08
|
|
|
$
|
26.13
|
|
|
$
|
23.34
|
|
Low
|
|
$
|
20.02
|
|
|
$
|
19.63
|
|
|
$
|
17.86
|
|
|
|
|
|
Implied Merger Premium Per Share
(
1
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration of $23.50/share
|
|
|
7.3
|
%
|
|
|
9.5
|
%
|
|
|
22.5
|
%
|
(1)
|
Based on Common Stock closing prices of $21.90 per share one day prior to announcement of the Merger, $21.47 per share one week prior to announcement of the Merger, and $19.19 per
share four weeks prior to announcement of the Merger.
|
Discounted Cash Flow Analysis
Jefferies did not perform a discounted cash flow analysis because the projections provided by the Companys management did not extend beyond fiscal
year 2008.
Conclusion
The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at the Opinion, Jefferies considered the results of all its analyses as a whole and did not attribute any
particular weight to any analysis or factor considered by it. Furthermore, Jefferies believes that selecting any portion of its analysis, without considering all analyses, would create an incomplete view of the process underlying the Opinion. In
performing its analyses, Jefferies made judgments and assumptions with regard to industry performance; general business, economic, market, and financial conditions; and other matters, many of which are beyond the control of the Company. The analyses
performed by Jefferies are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Jefferies did not recommend any specific consideration to the Board
of Directors or that any specific consideration constituted the only appropriate consideration with respect to the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger.
Opinion of Western Reserve Partners LLC
Western Reserve was asked by the Board of Directors to render an opinion to the Board of Directors as to the fairness, from a financial point of view, to the Companys stockholders of the consideration to be received by the
stockholders of the Company in connection with the Offer and the Merger. On December 9, 2007, Western Reserve delivered to the Board of Directors its oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, and
based upon and subject to the assumptions, limitations and qualifications contained in its opinion, the consideration to be received by the Companys stockholders pursuant to the Merger Agreement is fair, from a financial point of view, to the
Companys stockholders.
24
The full text of the written opinion of Western Reserve is attached to this Schedule 14D-9 as Annex
III and incorporated into this Schedule 14D-9 by reference. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving
at that opinion.
Western Reserve was retained to serve as an advisor to the Board of Directors and not as an advisor to or agent of any
stockholder of the Company. Western Reserves opinion was prepared for the Board of Directors and is directed only to the fairness, from a financial point of view, as of the date of the opinion, of the consideration to be received by the
Companys stockholders in the Offer and the Merger and does not address the Companys underlying business decision to enter into the Merger Agreement or any other terms of the Offer, the Merger or the Merger Agreement. Western
Reserves opinion does not constitute a recommendation to any stockholder of the Company as to whether such stockholder should tender shares of Common Stock in the Offer contemplated by the Merger Agreement or how such stockholder should vote
at any meeting of the Companys stockholders in connection with the Offer and the Merger.
Western Reserve did not recommend the Offer
Price or the consideration to be paid in the Offer and the Merger. The Offer Price and the Merger Consideration were determined in negotiations between the Company and Evraz, in which Western Reserve did not advise the Board of Directors. No
restrictions or limitations were imposed by the Board of Directors on Western Reserve with respect to the investigations made or the procedures followed by Western Reserve in rendering its opinion.
In rendering its opinion, Western Reserve reviewed, among other things:
|
|
|
a draft of the Merger Agreement, dated December 8, 2007;
|
|
|
|
certain publicly available information concerning the Company, including the Companys Registration Statement No. 333-136352 on Form S-1 related to the
offering of its common stock (as amended), which was originally filed with the SEC on August 7, 2006, and declared effective by the SEC on December 18, 2006, the Annual Report on Form 10-K of the Company for the year ended
December 31, 2006, as amended, and the Companys Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 29, 2007;
|
|
|
|
certain other internal information, primarily financial in nature, including projections, concerning the business and operations of the Company furnished to Western
Reserve by the Company for purposes of Western Reserves analysis;
|
|
|
|
certain publicly available information concerning the trading of, and the trading market for, the Companys shares of Common Stock;
|
|
|
|
certain publicly available information with respect to certain other companies that Western Reserve believed to be comparable to the Company and the trading markets
for certain of such other companies securities;
|
|
|
|
certain publicly available information concerning the nature and terms of certain other transactions that Western Reserve considered relevant to its inquiry; and
|
|
|
|
certain publicly available information concerning Evraz.
|
Western Reserve also visited the Companys facilities in Claymont, Delaware and met with or had conversations with certain officers and employees of the Company to discuss the business and prospects of the
Company, as well as other matters Western Reserve believed were relevant to its inquiry, and considered such other data and information that Western Reserve judged necessary or appropriate to render its opinion.
You should note that in rendering its opinion, Western Reserve assumed and relied upon the accuracy and completeness of all of the financial and other
information provided to it or otherwise publicly available. Western Reserve also assumed the accuracy of and relied upon the representations and warranties of the Company, Evraz
25
and the Purchaser contained in the Merger Agreement. Western Reserve was not engaged to, and did not independently attempt to, verify any of that
information. Western Reserve also relied upon the management of the Company as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases for those projections) provided to it, and assumed, with
the consent of the Board of Directors, that those projections were reasonably prepared and reflect the best currently available estimates and judgments of the Company. Western Reserve was not engaged to assess the reasonableness or achievability of
those projections or the assumptions on which they were based and expressed no view on those matters. Western Reserve did not conduct an appraisal of any of the assets, properties or facilities of the Company, nor was it furnished with any
evaluation or appraisal. Western Reserve also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained.
Western Reserve was not asked to, nor did it render, any opinion as to the material terms of the Merger Agreement or the form of the merger transaction.
Western Reserve, with the consent of the Board of Directors, assumed that the final executed form of the Merger Agreement did not differ in any material respect from the draft that Western Reserve examined in rendering its opinion, and that the
conditions to the Merger as set forth in the Merger Agreement would be satisfied and that the Offer and the Merger would be completed on a timely basis in the manner contemplated by the Merger Agreement. Western Reserve did not solicit, nor was it
asked to solicit, third party interest in a transaction involving the Company.
Western Reserves opinion is based on economic and
market conditions and other circumstances existing on, and information made available, as of the date of its opinion and does not address any matters after such date. Although subsequent developments may affect its opinion, Western Reserve does not
have the obligation to update, revise or reaffirm its opinion.
The following is a brief summary of the analyses performed by Western
Reserve in connection with its opinion. This summary is not intended to be an exhaustive description of the analyses performed by Western Reserve but includes all material factors considered by Western Reserve in rendering its opinion. Western
Reserve drew no specific conclusions from any individual analysis, but subjectively factored its observations from all of these analyses into its qualitative assessment of the Offer Price and the Merger Consideration.
Each analysis performed by Western Reserve is a common methodology utilized in determining valuations. Although other valuation techniques may exist,
Western Reserve believes that the analyses described below, when taken as a whole, provide the most appropriate analyses for Western Reserve to arrive at its opinion.
Comparable Public Company Analysis
Western Reserve reviewed and compared selected financial data for
eight publicly traded companies chosen by Western Reserve that were deemed to be comparable to the Company. Four of the companies are domestic steel mini mill companies and four of the companies are integrated steel mill companies. Western Reserve
selected these eight companies based on their common participation with the Company in the steel manufacturing industry, their similar products and end markets to the Company, and, in the case of the domestic steel mini mill companies, their similar
relative size to the Company. The comparable domestic steel mini mill companies chosen by Western Reserve included:
|
|
|
Gerdau AmeriSteel Corp.;
|
The comparable
integrated steel mill companies chosen by Western Reserve included:
|
|
|
AK Steel Holding Corp.;
|
26
|
|
|
Severstal Joint Stock Company; and
|
|
|
|
United States Steel Corp.
|
For each
of these comparable companies, Western Reserve initially calculated the applicable companys ratios of the total enterprise value as of December 7, 2007 to (1) that companys revenue for the latest twelve month period
(LTM) ended on the last day of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable, (2) that companys earnings before interest, taxes, depreciation and amortization, or EBITDA, for the LTM ended
on the last day of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable, and (3) that companys estimated earnings before interest and taxes, or EBIT, for the LTM ended on the last day of the period covered
by its most recently filed Form 10-K or Form 10-Q, as applicable. Western Reserve also calculated the applicable companys ratio of equity value to that companys book value, as of December 7, 2007.
Western Reserve also calculated the ratios of the common stock share price of each comparable company as of December 7, 2007 to (1) the
companys earnings per share for the LTM ended on the last day of the period covered by its most recently filed Form 10-K or Form 10-Q, as applicable, (2) estimated earnings per share for its fiscal years ending in 2007 and 2008, and
(3) estimated growth in earnings per share for its fiscal year ending 2008. Projections related to earnings per share for the comparable companies were based on consensus FirstCall estimates.
Western Reserve then used these ratios to determine the average and median multiples for the comparable companies (see the second and third columns of
the tables below, respectively).
Western Reserve next calculated corresponding implied multiples for the Company in the Offer and the
Merger. Such calculations consisted of the ratios of the Companys total enterprise value (based on the $23.50 Offer Price and Merger Consideration) to (1) the Companys revenue from September 30, 2006 to September 30, 2007,
(2) the Companys EBITDA from September 30, 2006 to September 30, 2007, and (3) the Companys EBIT from September 30, 2006 to September 30, 2007. In addition, Western Reserve calculated the ratios of the
$23.50 Offer Price and Merger Consideration to (a) estimated earnings per share for the fiscal year ending December 31, 2007, (b) estimated earnings per share for the fiscal year ending December 31, 2008, and (c) estimated
growth in earnings per share for the fiscal year ending December 31, 2008 (see the fourth column of the tables below). Western Reserve then compared such multiples of the Company to the average and median multiples for the selected comparable
companies. Projections related to earnings per share for the Company were based on consensus FirstCall estimates.
The following table sets
forth Western Reserves analysis of comparable domestic steel mini mill companies:
|
|
|
|
|
|
|
|
|
Average
Comparable
Multiple
|
|
Median
Comparable
Multiple
|
|
Implied
Multiple
Claymont
at
$23.50
|
Comparable Public Companies
|
|
|
|
|
|
|
Multiple of EV/LTM Revenue
|
|
1.35x
|
|
1.46x
|
|
1.71x
|
Multiple of EV/LTM EBITDA
|
|
8.0x
|
|
7.2x
|
|
8.1x
|
Multiple of EV/LTM EBIT
|
|
9.3x
|
|
8.5x
|
|
10.6x
|
|
|
|
|
Multiple of Equity Val./Book Val.
|
|
3.4x
|
|
3.1x
|
|
NM
|
|
|
|
|
Multiple of Price/LTM EPS
|
|
11.5x
|
|
11.7x
|
|
NM
|
Multiple of Price/2007E EPS
|
|
11.4x
|
|
11.9x
|
|
18.5x
|
Multiple of Price/2008E EPS
|
|
10.3x
|
|
10.8x
|
|
9.4x
|
|
|
|
|
Multiple of Price/2008E Growth in EPS
|
|
1.3x
|
|
1.5x
|
|
1.2x
|
Western Reserve then applied the mean and median multiples to the Companys estimated 2007
revenues, EBITDA and EBIT in order to determine a range of enterprise values for the Company. This analysis suggested
27
enterprise values for the Company ranging from $449.5 million to $526.7 million, as compared to the $573.0 million enterprise value implied by the terms
of the Merger Agreement. This analysis suggested per share equity values for the Company ranging from $16.84 to $18.87 (basic) and $16.70 to $18.71 (diluted), as compared to the Offer Price and Merger Consideration of $23.50 per share.
The following table sets forth Western Reserves analysis of comparable integrated steel mill companies:
|
|
|
|
|
|
|
|
|
Average
Comparable
Multiple
|
|
Median
Comparable
Multiple
|
|
Implied
Multiple
Claymont
at
$23.50
|
Comparable Public Companies
|
|
|
|
|
|
|
Multiple of EV/LTM Revenue
|
|
1.12x
|
|
0.82x
|
|
1.71x
|
Multiple of EV/LTM EBITDA
|
|
7.5x
|
|
7.1x
|
|
8.1x
|
Multiple of EV/LTM EBIT
|
|
10.0x
|
|
9.6x
|
|
10.6x
|
|
|
|
|
Multiple of Equity Val./Book Val.
|
|
3.2x
|
|
2.2x
|
|
NM
|
|
|
|
|
Multiple of Price/LTM EPS
|
|
14.1x
|
|
11.9x
|
|
NM
|
Multiple of Price/2007E EPS
|
|
13.2x
|
|
13.2x
|
|
18.5x
|
Multiple of Price/2008E EPS
|
|
11.8x
|
|
11.8x
|
|
9.4x
|
|
|
|
|
Multiple of Price/2008E Growth in EPS
|
|
1.7x
|
|
1.7x
|
|
1.2x
|
Western Reserve then applied the mean and median multiples to the Companys estimated 2007
revenues, EBITDA and EBIT in order to determine a range of enterprise values for the Company. This analysis suggested enterprise values for the Company ranging from $272.5 million to $563.1 million, as compared to the $573.0 million enterprise value
implied by the terms of the Merger Agreement. This analysis suggested per share equity values for the Company ranging from $6.56 to $21.87 (basic) and $6.50 to $21.69 (diluted), as compared to the Offer Price and Merger Consideration of $23.50 per
share.
Western Reserve made judgments and assumptions with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of the Company. Mathematical analysis of comparable public companies (such as determining means and medians) in isolation from other analyses is not an effective method of
evaluating transactions.
Precedent Transaction Analysis
Using available information, Western Reserve reviewed seventeen transactions in the diversified, automotive and construction segments of the steel manufacturing industry announced since October 2004, seven of
which involved domestic steel mini mill companies and ten of which involved integrated steel mill companies. These transactions were chosen by Western Reserve based on the Companys and the transaction participants common participation in
the steel manufacturing industry, the comparable size of the transactions relative to the Offer and the Merger and the recent period in which the transactions were completed. The following table sets forth the transactions involving domestic steel
mini mill companies chosen by Western Reserve:
|
|
|
|
|
Month and Year of
Announcement
|
|
Target
|
|
Acquiror
|
November 2007
|
|
Quanex Corporation*
|
|
Gerdau SA
|
July 2007
|
|
Chaparral Steel Company
|
|
Gerdau AmeriSteel Corp.
|
November 2006
|
|
Oregon Steel Mills, Inc.
|
|
Evraz Group SA
|
April 2006
|
|
Sheffield Steel Corp.
|
|
Gerdau AmeriSteel Corp.
|
March 2006
|
|
Bayou Steel Corp.
|
|
Black Diamond Capital
|
October 2005
|
|
Roanoke Electric Steel Corp.
|
|
Steel Dynamics, Inc.
|
July 2005
|
|
Republic Engineered Products
|
|
Industrias CH
|
28
The following table sets forth the transactions involving integrated steel mill companies chosen by
Western Reserve:
|
|
|
|
|
Month and Year of
Announcement
|
|
Target
|
|
Acquiror
|
May 2007
|
|
IPSCO Inc.
|
|
SSAB Svenskt Stal
|
April 2007
|
|
Algoma Steel Inc.
|
|
Essar Steel Ltd.
|
October 2006
|
|
Corus Group Ltd.
|
|
Tata Steel
|
September 2006
|
|
Lucchini SpA
|
|
Severstal Joint Stock Company
|
January 2006
|
|
Arcelor SA
|
|
Mittal Steel Company NV
|
October 2005
|
|
Hylsamex SA de CV
|
|
The Technit Group
|
October 2005
|
|
VAT Kryvorizhstal
|
|
Mittal Steel Company NV
|
September 2005
|
|
Dofasco Inc.
|
|
Arcelor SA
|
July 2005
|
|
Eregli Demir Ve Celik Fabrikalari Tas
|
|
Ordu Yardimlasma Kurumu
|
October 2004
|
|
International Steel Group
|
|
Mittal Steel Company NV
|
For each of these transactions, Western Reserve initially calculated the ratios of the total
enterprise value of the transaction (based on the acquisition price) to (1) the target companys revenue for the LTM ended on the last day of the period covered by the target companys Form 10-K or Form 10-Q, as applicable, last filed
prior to the announcement of the relevant transaction, (2) the target companys EBITDA for the LTM ended on the last day of the period covered by the target companys Form 10-K or Form 10-Q, as applicable, last filed prior to the
announcement of the relevant transaction, and (3) the target companys EBIT for the LTM ended on the last day of the period covered by the target companys Form 10-K or Form 10-Q, as applicable, last filed prior to the announcement of
the relevant transaction. In calculating such ratios, Western Reserve calculated the total enterprise value of the transaction as the market value of the relevant target companys equity securities plus its book value of preferred stock,
indebtedness and minority interests, less its cash.
Western Reserve then used these ratios to determine the average and median multiples
for the selected precedent transactions (see the second and third columns of the tables below, respectively).
The following table sets
forth Western Reserves analysis of precedent transactions involving domestic steel mini mill companies:
|
|
|
|
|
Precedent Transactions
|
|
Average
Comparable
Multiple
|
|
Median
Comparable
Multiple
|
Multiple of EV/LTM Revenue
|
|
1.0x
|
|
0.6x
|
Multiple of EV/LTM EBITDA
|
|
5.6x
|
|
5.3x
|
Multiple of EV/LTM EBIT
|
|
6.4x
|
|
6.8x
|
The median EBITDA multiple paid in the precedent transactions implied an enterprise value for the
Company of $336.5 million. This analysis suggested per share equity values for the Company of $10.21 (basic) and $10.12 (diluted), as compared to the proposed Offer Price and Merger Consideration of $23.50 per share.
The following table sets forth Western Reserves analysis of precedent transactions involving integrated steel mill companies:
|
|
|
|
|
Precedent Transactions
|
|
Average
Comparable
Multiple
|
|
Median
Comparable
Multiple
|
Multiple of EV/LTM Revenue
|
|
1.3x
|
|
1.1x
|
Multiple of EV/LTM EBITDA
|
|
6.4x
|
|
6.6x
|
Multiple of EV/LTM EBIT
|
|
8.7x
|
|
8.6x
|
29
The median EBITDA multiple paid in the precedent transactions implied an enterprise value for the Company
of $419.1 million. This analysis suggested per share equity values for the Company of $14.92 (basic) and $14.80 (diluted), as compared to the Offer Price and Merger Consideration of $23.50 per share.
No transaction utilized in the precedent transaction analysis is identical to the Offer and the Merger. In evaluating the transactions, Western Reserve
made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. Mathematical analysis of comparable transaction
data (such as determining means and medians) in isolation from other analysis is not an effective method of evaluating transactions.
Discounted Cash
Flow Analysis
Western Reserve performed a discounted cash flow analysis of the Company, utilizing financial projections prepared by the
Companys management for the year 2008 and extrapolations made by Western Reserve for the years 2009 through 2012 that were based upon a combination of the Companys historical performance and managements fourth quarter 2007 and full
year 2008 projections. A discounted cash flow analysis is a methodology used to derive a valuation of a corporate entity by discounting to the present its future expected cash flows. The discounted cash flow analysis was conducted by estimating the
Companys weighted average cost of capital at 15.2%. Western Reserve estimated the Companys weighted average cost of capital by performing analyses consistent with the Capital Asset Pricing Model and relative to the Companys
domestic steel mini mill company peers. Western Reserve estimated the Companys exit multiple by applying multiples consistent with domestic steel mini mill company precedent transactions.
Western Reserve calculated the present value of free cash flows for each of the 2008 through 2012 years and the present value of the terminal value of
the Company (the calculated value of the Company at the end of the projection period). Western Reserve calculated the terminal value in year 2012 by applying an exit multiple of 5.3x projected 2012 EBITDA, and using the 15.2% cost of capital to
discount that amount to its present value. By adding together the present values of free cash flows for each of 2008 through 2012 and the present value of the terminal value of the Company, Western Reserve calculated the equity value of the Company
to be $326.7 million, or $9.57 per share (diluted).
In addition, Western Reserve conducted a sensitivity analysis as part of its
discounted cash flow analysis. Using a range of estimated costs of capital (13.2% 17.2%), and a range of EBITDA exit multiples (4.3x 6.3x), Western Reserve determined the implied equity value per share to be $6.11 to $13.57
(diluted), as compared to the Offer Price and Merger Consideration of $23.50 per share.
Leveraged Buyout Analysis
Western Reserve performed a leveraged acquisition analysis in order to ascertain the price at which an acquisition of the Company would be attractive to a
potential financial buyer. Western Reserve performed the leveraged acquisition analysis using the Companys projections. Western Reserve assumed the following in its analyses:
|
|
|
total indebtedness of approximately $267 million, comprised of revolving credit, senior term credit and subordinated debt facilities which are consistent with
current market leverage ratios and interest rates;
|
|
|
|
an equity investment that would achieve a rate of return of approximately 24%; and
|
|
|
|
a 6.2x projected EBITDA exit multiple.
|
Based on these assumptions, the implied leveraged acquisition price per share for the Company was $12.92, as compared to the Offer Price and Merger Consideration of $23.50 per share.
30
Tonnage Production Valuation Analysis
In connection with its review of information on the seventeen transactions in the diversified, automotive and construction segments of the steel
manufacturing industry discussed in the Precedent Transaction Analysis section above, Western Reserve reviewed steel tonnage production information for those transactions. Western Reserve then derived the mean and median enterprise value to LTM
tonnage production multiples for those transactions, which were $781.7 million (mean) and $671.6 million (median).
Western Reserve then
applied the median multiple to the Companys estimated 2007 tonnage production to determine an enterprise value for the Company. This analysis suggested an enterprise value for the Company of $265.0 million, as compared to the $573.0 million
enterprise value implied by the Offer Price and Merger Consideration of $23.50 per share.
Historical Stock Trading Analysis
Western Reserve reviewed the performance of the Companys shares based on a historical analysis of closing prices and trading volumes for the period
since the Companys initial public offering on December 19, 2006 and ended December 7, 2007. Western Reserve noted that the Companys shares have generally traded between $18.00 and $24.00 per share and that the Offer Price and
Merger Consideration of $23.50 per share represents a premium to the market price of the shares on December 7, 2007, the last trading day before the announcement of the Merger Agreement.
Western Reserve also noted that the $23.50 per share Offer Price and Merger Consideration represents premiums of 6.8%, 5.2%, 14.2%, 15.8% and 11.3%,
respectively, to the Companys 1-day, 5-day, 30-day, 90-day and 180-day average closing share prices and 14.6% to the Companys average closing share price since its initial public offering, based on the December 7, 2007 closing price
of the Companys shares.
Conclusion
The summary set forth above describes the principal analyses performed by Western Reserve in connection with its opinion delivered to the Board of Directors on December 9, 2007. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, the analyses underlying the opinion are not readily susceptible to summary
description. Each of the analyses conducted by Western Reserve was carried out in order to provide a different perspective on the Merger and add to the total mix of information available. Western Reserve did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, Western Reserve considered the results of the analyses in light of each
other and ultimately reached its opinion based upon the results of all analyses taken as a whole. Except as indicated above, Western Reserve did not place particular reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, support its determination. Accordingly, notwithstanding the separate factors summarized above, Western Reserve believes that its analyses must be considered as a whole and that selecting portions of its analyses and the
factors considered by them, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinion. In performing its analyses, Western Reserve made numerous assumptions with
respect to industry performance, business and economic conditions and other matters. The analyses performed by Western Reserve are not necessarily indicative of actual value or future results, which may be significantly more or less favorable than
suggested by the analyses.
31
|
|
|
Exhibit No.
|
|
Description
|
(a)(1)(A)
|
|
Offer to Purchase, dated December 18, 2007.*
|
|
|
(a)(1)(B)
|
|
Form of Letter of Transmittal.*
|
|
|
(a)(1)(C)
|
|
Form of Notice of Guaranteed Delivery.*
|
|
|
(a)(1)(D)
|
|
Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
|
|
|
(a)(1)(E)
|
|
Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
|
|
|
(a)(1)(F)
|
|
Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*
|
|
|
(a)(1)(G)
|
|
Joint press release issued by Evraz and the Company on December 10, 2007 (Incorporated by reference to the Schedule 14D-9 filed by the Company on December 10, 2007).
|
|
|
(a)(1)(H)
|
|
Joint press release issued by Evraz and the Company, dated December 18, 2007.*
|
|
|
(a)(1)(I)
|
|
Form of Summary Newspaper Advertisement as published on December 18, 2007.*
|
|
|
(a)(1)(J)
|
|
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (Included as Annex I hereto).
|
|
|
(a)(2)(A)
|
|
Letter to stockholders of the Company, dated December 18, 2007.
|
|
|
(a)(5)(A)
|
|
Opinion of Jefferies & Company, Inc. to the Board of Directors of the Company, dated December 9, 2007 (Included as Annex II hereto).
|
|
|
(a)(5)(B)
|
|
Opinion of Western Reserve Partners LLC to the Board of Directors of the Company, dated December 9, 2007 (Included as Annex III hereto).
|
|
|
(e)(1)
|
|
Agreement and Plan of Merger, dated as of December 9, 2007, among Evraz, the Purchaser and the Company (Incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the Company on December
11, 2007).
|
|
|
(e)(2)
|
|
Confidentiality Agreement between Evraz and the Company, dated as of November 26, 2007 (as amended November 28, 2007).*
|
|
|
(e)(3)
|
|
Stockholder Support Agreement, dated as of December 9, 2007, between Evraz and H.I.G.*
|
|
|
(e)(4)
|
|
Employment Agreement between Jeff Bradley and H.I.G. SteelCo Holdings, Inc. (previously filed as Exhibit 10.8 to Amendment No. 1 to Registration Statement on Form S-4 (File
No. 333-131812-01) of Claymont Steel, Inc. filed with the SEC on April 21, 2006).
|
|
|
(e)(5)
|
|
Restricted Shares Agreement between Jeff Bradley and H.I.G. SteelCo Holdings, Inc. (previously filed as Exhibit 10.9 to Amendment No. 1 to Registration Statement on Form S-4 (File
No. 333-131812-01) of Claymont Steel, Inc. filed with the SEC on April 21, 2006).
|
*
|
Incorporated by reference to the Schedule TO filed by the Purchaser and Evraz on December 18, 2007.
|
|
Included in materials mailed to stockholders of the Company.
|
32
SIGNATURE
After the inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
|
|
|
|
|
Date: December 18, 2007
|
|
By:
|
|
/s/ A
LLEN
E
GNER
|
|
|
Name:
|
|
Allen Egner
|
|
|
Title:
|
|
Interim Chief Financial Officer
|
33
Annex I
CLAYMONT STEEL HOLDINGS, INC.
4001 PHILADELPHIA PIKE
CLAYMONT, DELAWARE 19703
(302) 792-5400
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF SECURITY HOLDERS IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
This Information
Statement is being mailed on or about December 18, 2007 to holders of common stock, par value $0.001 per share (the Common Stock or Shares), of CLAYMONT STEEL HOLDINGS, INC., a Delaware corporation (the
Company).
The Schedule 14D-9 filed on December 18, 2007 with the Securities and Exchange Commission (SEC)
relates to the cash tender offer by Titan Acquisition Sub, Inc., a Delaware corporation (the Purchaser) and a direct wholly owned subsidiary of Evraz Group S.A., a company organized as a société anonyme under the laws of
the Grand Duchy of Luxembourg (Evraz), disclosed in a Tender Offer Statement on Schedule TO dated December 18, 2007 (the Schedule TO) and filed with the SEC, to purchase all of the outstanding Shares at a price of $23.50
per Share, net to the seller in cash (such price per Share, or if increased, such higher price per Share, the Offer Price), without interest thereon and less any applicable stock transfer taxes and withholding taxes, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated December 18, 2007 (the Offer to Purchase), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the
Offer). You are receiving this Information Statement in connection with the possible designation by the Purchaser of persons to serve on at least one-half of the seats on the Board of Directors of the Company (the Board).
This Information Statement is being mailed to you in accordance with Section 14(f) of the Securities Exchange Act of 1934, as amended
(the Exchange Act), and Rule 14f-1 promulgated thereunder. The information set forth herein supplements certain information set forth in the Schedule 14D-9. Please read this Information Statement carefully. You are not, however, required
to take any action.
GENERAL INFORMATION
The Common Stock is the only type of security entitled to vote at a meeting of the stockholders of the Company. Each Share has one vote. As of the close of business on December 17, 2007, there were 17,566,754
outstanding Shares.
BACKGROUND INFORMATION
On December 9, 2007, Evraz, the Purchaser and the Company entered into an Agreement and Plan of Merger (the Merger Agreement). The Merger Agreement provides for the acquisition of the Company by Evraz
in two steps. Subject to the terms and conditions of the Merger Agreement, the Purchaser agreed to commence the Offer to purchase all outstanding Shares at the Offer Price. Under the terms of the Merger Agreement, upon consummation of the Offer, the
Purchaser will be merged with and into the Company (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Evraz (the Surviving Corporation). At the effective time of the Merger, Shares owned by
Evraz or Purchaser and Shares held by the Company (as treasury stock or otherwise) will be canceled. All other outstanding Shares, other than Shares
1
owned by any dissenting stockholder who is entitled to and who properly exercises appraisal rights under Delaware law, will be canceled and each converted
into the right to receive $23.50 in cash, without interest, less any applicable stock transfer taxes and withholding taxes. Consummation of the Merger is not subject to a financing condition, but it is subject to certain customary conditions
described in the Offer to Purchase.
DIRECTORS DESIGNATED BY EVRAZ
Right to Designate Directors
The Merger Agreement provides that promptly upon the purchase of a
majority of the then outstanding Shares pursuant to the Offer and from time to time thereafter (subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder), Evraz will be entitled to designate such number
of directors to serve on the Board (the Designees), rounded up to the next whole number, as will give the Purchaser representation on the Board equal to the product of (a) the total number of directors on the Board (giving effect to
the directors designated by Evraz pursuant to this sentence) and (b) the percentage that the number of Shares purchased in the Offer bears to the number of Shares outstanding. The Company will increase the size of the Board or use its
reasonable best efforts to secure the resignations of incumbent directors as is necessary to enable such Designees to be elected or appointed to the Board (including, if necessary, to ensure that a sufficient number of directors who are considered
independent directors within the meaning of the rules of Nasdaq are serving on the Board in order to satisfy such rules or comply with the federal securities laws). The Merger Agreement provides further that the Company will use its reasonable best
efforts to cause the number of Designees on each committee of the Board to constitute the same percentage as is on the entire Board (after giving effect to the previous sentence).
Information with respect to the Designees
As of the date of this Information Statement, Evraz has
not determined who will be the Designees. However, the Designees will be selected from the list of potential designees provided below (the Potential Designees). The Potential Designees have consented to serve as directors of the Company
if so designated. None of the Potential Designees currently is a director of, or holds any position with, the Company.
Evraz has informed
the Company that, to its knowledge, none of the Potential Designees beneficially owns any equity securities, or rights to acquire any equity securities of the Company, has a familial relationship with any director or executive officer of the
Company, is a party or has an interest adverse to the Company in a material proceeding or has been involved in any transactions with the Company or any of its directors, executive officers or affiliates that are required to be disclosed pursuant to
the rules of the SEC.
2
List of Potential Designees
The following sets forth information with respect to the Potential Designees (including age as of the date hereof, business address, current principal occupation or employment and five-year employment history).
|
|
|
|
|
|
|
Name and Age
|
|
Business Address
|
|
Principal Occupation or Employment
|
|
Country of
Citizenship
|
James Edward Declusin
Age 55
|
|
Evraz Oregon
Steel Mills, Inc.,
1000 SW Broadway,
Suite 2200,
Portland, OR 97205
|
|
Director and Chief Executive Officer, Evraz Oregon Steel Mills, Inc. (2002-2007)
|
|
U.S.A.
|
|
|
|
|
Giuseppe Antonio Mannina
Age 55
|
|
Evraz Overseas S.A.,
Via al Chioso,
8 Ch-6900, Lugano, Switzerland
|
|
Chief Executive Officer, Evraz Overseas S.A. (April 2007-present); Vice President, Sales and Logistics, EvrazHolding LLC (July 2006-April 2007); General Director, East Metals S.A. (2002-2006)
|
|
Switzerland
|
|
|
|
|
Pavel Tatyanin
Age 33
|
|
EvrazHolding LLC,
Bldg, 4-/5, 15, Dolgorukovskaya St.,
Moscow 127006, Russia
|
|
Member, Board of Directors, Evraz Oregon Steel Mills, Inc. (2007-present); Member, Board of Directors, Highveld Steel and Vanadium Corporation Limited (2007-present); Chairman, Board of
Directors, Strategic Minerals Corporation (2007-present); Chairman, Board of Directors, Palini e Bertoli SPA (2007-present); Senior Vice President and Chief Financial Officer, EvrazHolding LLC (2004-present); First Deputy Finance Director,
EvrazHolding LLC (2002-2004)
|
|
Russian Federation
|
|
|
|
|
Timur Yanbukhtin
Age 43
|
|
EvrazHolding LLC,
Bldg, 4 /5, 15, Dolgorukovskaya St.,
Moscow 127006, Russia
|
|
Vice President, Business Development and Strategic Planning, EvrazHolding LLC (2007-present); Member, Board of Directors, Evraz Oregon Steel Mills, Inc. (2007-present); Member, Board of
Directors, Strategic Minerals Corporation (2007-present); Member, Board of Directors, Palini e Bertoli SPA (2005-present); Vice President, Corporate Finance, EvrazHolding LLC (2002-2007)
|
|
Russian Federation
|
3
CURRENT BOARD OF DIRECTORS
The Board currently consists of seven members. Mr. Shellabarger and Mr. Zanarini are serving terms that end in 2010, Mr. Bradley,
Mr. Mnaymneh and Mr. Tamer are serving terms that end in 2009, and Mr. Sanford and Mr. Scheinkman are serving terms that end in 2008, subject to their prior death, resignation or removal.
Information About the Directors
Tracy L.
Shellabarger. Age 50. Mr. Shellabarger has served on Claymonts Board since 2006. Mr. Shellabarger served as chief financial officer and vice president, finance for Steel Dynamics, Inc., a publicly traded steel manufacturer. Prior to
his role with Steel Dynamics, from 1987 to 1994, Mr. Shellabarger served as controller of a division of Nucor Corporation, a Fortune 400 steel manufacturer. Mr. Shellabarger currently serves on the board of directors of Tarpon Industries,
Inc. and two non-profit organizations. Mr. Shellabarger earned a Bachelor of Science degree in Accounting.
Jeffrey Zanarini. Age 37.
Mr. Zanarini has served on Claymonts Board and Claymont Steel, Inc.s Board since 2005. Mr. Zanarini joined H.I.G. Capital in 2004 and currently serves as a managing director. Prior to joining H.I.G. Capital, from 1998 to 2004
Mr. Zanarini held a variety of positions at Bain & Company, a management consulting firm. While at Bain, Mr. Zanarini devised corporate growth strategies and directed diligence efforts for equity investors. Mr. Zanarini
currently serves on the board of directors of several H.I.G. portfolio companies. Mr. Zanarini holds Bachelor of Science and Bachelor of Arts degrees and a Masters in Business Administration.
Matthew Sanford. Age 38. Mr. Sanford has served on Claymonts Board and Claymont Steel, Inc.s Board since 2005. Mr. Sanford joined
H.I.G. Capital in 2000 and currently serves as a managing director. Prior to joining H.I.G. Capital, Mr. Sanford was a manager with Pittiglio, Rabin, Todd and McGrath, an operations-focused consulting firm to technology-based businesses, from
1999 to 2000. Previously, he held a variety of positions at Bain & Company, a management consulting firm, in which he managed the development and implementation of marketing and operating strategies for Fortune 500 business.
Mr. Sanford currently serves on the board of directors of Milacron Inc. and several H.I.G. Capital portfolio companies. Mr. Sanford holds a Bachelor of Arts degree from Stanford University and a Masters in Business Administration from
Harvard Business School.
Steve Scheinkman. Age 54. Mr. Scheinkman has served on Claymonts Board since 2006. Mr. Scheinkman
served as the president and chief executive officer of Transtar Metals Inc. from September 1999 to September 2006. Following Transtars acquisition by A.M. Castle & Co. in September 2006, Mr. Scheinkman served as president of
Transtar until September 30, 2007. Prior to joining Transtar, Mr. Scheinkman served as the president, chief operating officer and chief financial officer of Macsteel Service Centers USA. Mr. Scheinkman earned a Bachelor of Business
Administration degree in Accounting and is a Certified Public Accountant.
Jeff Bradley. Age 47. Mr. Bradley has served as
Claymonts chief executive officer since 2005 and is a member of Claymonts Board. Prior to joining Claymont, from September 2004 to June 2005, Mr. Bradley served as vice president of strategic planning for Dietrich Industries, a $900
million construction products subsidiary of Worthington Industries. Prior to joining Dietrich Industries, from September 2000 to August 2004, Mr. Bradley served as a vice president and general manager for Worthington Steel. Mr. Bradley has
a Business Administration degree.
Sami Mnaymneh. Age 46. Mr. Mnaymneh has served on Claymonts Board and Claymont Steel,
Inc.s Board since 2005. Mr. Mnaymneh is a co-founding partner of H.I.G. Capital and has served as a managing partner of the firm since 1993. Prior to joining H.I.G. Capital, from 1990 to 1993 Mr. Mnaymneh was a managing director at
The Blackstone Group, a merchant bank, where he provided financial advisory services to Fortune 100 companies. Prior to that, from 1984 to 1989 Mr. Mnaymneh was a vice president in the mergers and
4
acquisitions department at Morgan Stanley & Co. where he served as a senior advisor to private equity firms. Mr. Mnaymneh currently serves on
the board of directors of Securus Technologies, Inc., Milacron Inc. and a number of other H.I.G. Capital portfolio companies. Mr. Mnaymneh holds a Bachelor of Arts degree from Columbia University, a Masters in Business Administration from
Harvard Business School and a Juris Doctorate from Harvard Law School.
Tony Tamer. Age 50. Mr. Tamer has served on Claymonts
Board since 2006. Mr. Tamer is a co-founding partner of H.I.G. Capital and has served as a managing partner of the firm since 1993. Prior to joining H.I.G. Capital, Mr. Tamer was a partner at Bain & Company, one of the
worlds leading management consulting firms. Mr. Tamer has in the past held marketing, engineering and manufacturing positions at Hewlett-Packard and Sprint Corporation. Mr. Tamer currently serves on the board of directors of several
H.I.G. Capital portfolio companies. Mr. Tamer holds a Masters in Business Administration degree and a Masters degree in Electrical Engineering.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the current executive officers. Our executive
officers serve at the discretion of the Board. There are no family relationships between any of our directors and executive officers.
Jeff
Bradley. Age 47. Chief Executive Officer and Director. Jeff Bradley has served as Claymonts chief executive officer since 2005 and is a member of Claymonts Board. Prior to joining Claymont Steel, from September, 2004 to June, 2005,
Mr. Bradley served as vice president of strategic planning for Dietrich Industries, a $900 million construction products subsidiary of Worthington Industries. Prior to joining Dietrich Industries, from September, 2000 to August, 2004,
Mr. Bradley served as a vice president and general manager for Worthington Steel. Mr. Bradley has a Business Administration degree.
Allen Egner. Age 54. Interim Chief Financial Officer and Vice President, Finance. Allen Egner was appointed Interim Chief Financial Officer in October 2007 and has served as Claymonts vice president, finance since 2005. From 2001 to
2005, Mr. Egner served as Claymonts controller, from 1998 to 2001 he served as our manager of accounting, and from 1989 to 1998 he served as Claymonts manager of cost accounting. Before joining the Company, Mr. Egner was
employed by Bethlehem Steel from 1974 to 1989, first as a general foreman and then as a senior cost analyst. Mr. Egner holds a Bachelor of Science degree and a Masters in Business Administration.
Steve Lundmark. Age 65. Vice President, Sales and Marketing. Steve Lundmark has served as Claymonts vice president, sales and marketing since
Claymont Steel, Inc.s inception in 1988. Prior to joining Claymont Steel, Inc., Mr. Lundmark served as manager of carbon plate sales for Lukens Steel from 1986-1988, as regional sales manager of Lukens Steel from 1977 to 1986, as a branch
manager for Kaiser Aluminum from 1969 to 1977, as production supervisor at Johnson & Johnson from 1967 to 1969 and as industrial engineer for Owens-Illinois Glass from 1964 to 1967. Mr. Lundmark holds a Bachelor of Science degree and a
Masters in Business Administration.
BOARD ACTIONS; COMMITTEES OF THE BOARD
Prior to the completion of our initial public offering in December 2006, Claymont was a privately held company. During 2006, there were no meetings of
the Board, and the Board acted six times by unanimous written consent. There are two standing committees of the Board: the Audit Committee and the Compensation Committee, each described below. During 2006, each director attended at least 75% of the
total number of meetings held by the Board and all committees of the Board on which such Director served. There was no Annual Meeting of Stockholders during 2006.
5
Audit Committee
The Audit Committee was formed at the time of the completion of our initial public offering in December 2006 and held its first meeting in 2007. The Audit Committee members are Steve Scheinkman and Tracy Shellabarger,
each of whom is independent as defined by Nasdaq and the applicable SEC rules, and Jeffrey Zanarini. The Company is relying on an exemption to the SEC rules for newly public companies whereby the Company has one year from the date of effectiveness
of its initial public offering registration statement to comply with the requirements for an independent audit committee. Reliance on this exemption has not materially adversely affected the ability of the Audit Committee to act independently or
satisfy any other SEC requirements for audit committees. The Board of Directors has adopted a written charter for the Audit Committee, which was annexed to the Companys proxy statement relating to its 2007 Annual Meeting of Stockholders and is
also available on the Companys website at www.claymontsteel.com, under Investor Relations, Corporate Governance, then Documents and Charters. The Audit Committee has sole authority to engage, retain and
dismiss our independent registered public accounting firm, reviews and approves in advance the performance of all audit and lawfully permitted non-audit services, subject to the pre-approval policy discussed below, reviews and discusses with
management and our independent registered public accounting firm the annual audited financial statements and quarterly financial statements included in our filings with the SEC, oversees the internal audit function, and oversees our internal
controls and reviews periodically policies and procedures regarding business conduct and ethics.
The Audit Committee has established a
policy regarding the approval of audit and non-audit services provided by its independent registered public accounting firm. Specifically, the Committee pre-approves all audit and non-audit services to be provided by the independent registered
public accounting firm. The Committee sets maximum amounts that may be allocated to specified non-audit services that we may obtain from the independent registered public accounting firm and requires management to report on specific engagements to
the Committee on a periodic basis and to request any increase in the maximum amount allocated to specified services.
The Audit Committee
has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls and auditing matters and the receipt of confidential, anonymous submissions by our employees with respect to
concerns regarding questionable accounting or auditing matters. Such complaints and submissions may be made by writing to the following address: Claymont Steel Holdings, Inc., 4001 Philadelphia Pike, Claymont, Delaware 19703, Attention: Audit
Committee. Such correspondence will be logged in and forwarded to the members of the Audit Committee.
The Board has determined that
Mr. Shellabarger is an audit committee financial expert within the meaning of the SEC regulations and Mr. Shellabarger is independent as defined by Nasdaq.
Compensation Committee
The Compensation Committee was formed at the time of the completion of our
initial public offering in December 2006 and held its first meeting in 2007. The Compensation Committee members are Matthew Sanford and Jeffrey Zanarini, each of whom is independent as defined by the Nasdaq rules. The Compensation Committee has not
formalized a charter. The Compensation Committee provides oversight on the development and implementation of the compensation policies, strategies, plans and programs for the Companys key employees and outside directors and disclosure relating
to these matters, reviews and approves the compensation of the Chief Executive Officer and the other executive officers of the Company and its subsidiaries, provides oversight concerning selection of officers, management succession planning,
performance of individual executives and related matters and administers the Companys stock incentive plan.
The Compensation
Committee has the authority to delegate such of its authority and responsibilities as the Compensation Committee deems proper to members of the Committee or to a subcommittee. The Compensation
6
Committee may engage compensation consultants, independent counsel and such other advisers as the Compensation Committee determines necessary to carry out
its responsibilities. Authority to select, retain, terminate, approve the fees or other retention terms of any such consultant or adviser is vested solely in the Compensation Committee. In considering executive and director compensation, the
Compensation Committee takes into account the recommendations of the Chief Executive Officer. However, the Chief Executive Officer does not make recommendations or participate in any manner with respect to his own compensation.
Nomination of Directors
Pursuant to the Nasdaq
rules, the Company does not have a formal nominating committee of the Board. All director nominees are selected and recommended for the Boards selection by the majority of the Independent Directors. The full Board approves all recommendations
for director nominees. The Independent Directors seek director candidates based upon a number of qualifications, including a candidates independence, integrity, education, business judgment, business experience, accounting and financial
expertise, diversity of experience, acumen, reputation, civic and community relationships, high performance standards and ability to act on behalf of stockholders. The Independent Directors consider and recommend candidates to the Board so that the
Board collectively possesses a broad range of skills and experience that can be of assistance in the operation of the Companys business. The Independent Directors may engage the services of third party search firms to assist in identifying and
assessing the qualifications of director candidates. In addition, the Independent Directors will consider recommendations for director candidates from stockholders. Stockholder recommendations of candidates should be submitted in writing to:
Claymont Steel Holdings, Inc., 4001 Philadelphia Pike, Claymont, Delaware 19703, Attention: Secretary. In order to enable consideration of the candidate in connection with the Companys 2008 Annual Meeting, a stockholder must have submitted the
following information by December 16, 2007: (1) The name of the candidate and information about the candidate that would be required to be included in a proxy statement under the rules of the SEC; (2) information about the
relationship between the candidate and the recommending stockholder; and (3) the consent of the candidate to serve as a director. In considering any candidate proposed by a stockholder, the Independent Directors will reach a conclusion based on
the criteria described above. The Independent Directors may seek additional information regarding the candidate. After full consideration, the stockholder proponent will be notified of the decision of the Independent Directors. The Independent
Directors will consider all potential candidates in the same manner regardless of the source of the recommendation.
Director Independence
Pursuant to the Nasdaq rules, a majority of the Board must be independent. Of the Companys seven directors, four are independent.
The Board has affirmatively determined that each of Mr. Shellabarger, Mr. Scheinkman, Mr. Sanford and Mr. Zanarini are independent as defined in the Nasdaq listing standards.
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
Any person who wishes to communicate with the Board may direct a written communication, addressed to the Board or any specific director at: Claymont Steel Holdings, Inc., 4001 Philadelphia Pike, Claymont, Delaware 19703, Attention:
Secretary. Such correspondence will be logged in and forwarded to the appropriate director.
DIRECTOR COMPENSATION
Directors who are not employees of the Company nor affiliated with H.I.G. Capital receive an annual retainer of $20,000 and an award of restricted stock
units with a value of $20,000 based on the fair market value of shares of the Companys common stock on the date of grant. Non-employee directors who are not affiliated with H.I.G. Capital are also paid $1,500 for attending each meeting of the
Board or any Committee meeting of the Board. In addition, we reimburse our directors for reasonable expenses in connection with attending board and committee meetings.
7
In connection with the Companys initial public offering of Common Stock, Messrs. Scheinkman and
Shellabarger each were granted options to purchase the Companys common stock at an aggregate exercise price (based on the initial public offering price) of $30,000. The Company did not incur any compensation expense in connection with these
options for the year ended December 31, 2006. The grant date fair value of the option awards granted in 2006 to each director computed in accordance with SFAS 123(R) was $14,523. At December 31, 2006, the number of shares of the
Companys Common Stock underlying options held by the non-employee, non-H.I.G.-affiliated directors was: Mr. Scheinkman, 1,764 shares; and Mr. Shellabarger, 1,764 shares. At the Companys Annual Meeting of Stockholders in
November 2007, Mr. Scheinkman and Mr. Shellabarger were each automatically awarded 986 restricted stock units pursuant to the 2006 Stock Incentive Plan. Also, in connection with Mr. Scheinkmans and Mr. Shellabargers
participation on a special committee of the Board with respect to matters concerning the Offer and the Merger, each received $25,000 in compensation from the Company.
DIRECTOR COMPENSATION TABLE
The following table provides information regarding compensation for the
Companys non-employee directors in 2006, which reflects the directors fees, compensation plans and other arrangements described herein. The table does not include compensation for reimbursement of travel expenses related to attending
Board or Board Committee meetings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
Stock Awards
($)
|
|
Option Awards
($)
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
Sami Mnaymneh
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
Matthew Sanford
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
Steve Scheinkman
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
Tracy Shellabarger
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
Tony Tamer
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
Jeffrey Zanarini
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table furnishes information concerning all persons known to Claymont to beneficially own 5% or more of the voting stock of Claymont as of
December 17, 2007.
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Name and Address of
Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent of Class
|
|
Common Stock
|
|
H.I.G. Capital LLC, Inc.
1001 Brickell
Bay Drive 27th Floor
Miami, FL 33131
|
|
7,486,303
|
|
|
42.6
|
%
|
|
|
|
|
Common Stock
|
|
Sami Mnaymneh 1001 Brickell Bay Drive
27th Floor
Miami, FL 33131
|
|
7,486,303
|
(1)
|
|
42.6
|
%
|
|
|
|
|
Common Stock
|
|
Tony Tamer 1001
Brickell Bay Drive 27th Floor
Miami, FL 33131
|
|
7,486,303
|
(1)
|
|
42.6
|
%
|
8
(1)
|
Messrs. Mnaymneh and Tamer are directors of H.I.G. Capital LLC, Inc. and may be deemed to beneficially own the shares of common stock held of record of H.I.G. Capital LLC, Inc. and
its affiliates. Both Mr. Mnaymneh and Mr. Tamer disclaim beneficial ownership of such shares of common stock except to the extent of any pecuniary interest therein.
|
The following table sets forth the number of shares of Claymonts common stock beneficially owned as of December 17, 2007 by each director and
executive officer of the Company and by all directors and executive officers as a group. No director or executive officer beneficially owned, as of the applicable date, any equity securities of Claymont other than those shown.
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent of Class
|
|
Jeff Bradley
|
|
75,986
|
(1)
|
|
(4
|
)
|
David Clark
|
|
0
|
|
|
|
|
Allen Egner
|
|
0
|
|
|
|
|
Steve Lundmark
|
|
200
|
|
|
(4
|
)
|
Sami Mnaymneh
|
|
7,486,303
|
(2)
|
|
42.6
|
%
|
Matthew Sanford
|
|
0
|
|
|
|
|
Tony Tamer
|
|
7,486,303
|
(2)
|
|
42.6
|
%
|
Jeffrey Zanarini
|
|
0
|
|
|
|
|
Tracy L. Shellabarger
|
|
0
|
|
|
|
|
Steve Scheinkman
|
|
0
|
|
|
|
|
All Directors and Executive Officers as a group (10 persons)
|
|
7,562,489
|
(3)
|
|
42.6
|
%
|
(1)
|
Includes 535 shares owned by Mr. Bradleys children.
|
(2)
|
Messrs. Mnaymneh and Tamer are directors of H.I.G. Capital LLC, Inc. and may be deemed to beneficially own the shares of common stock held of record of H.I.G. Capital LLC, Inc. and
its affiliates. Both Mr. Mnaymneh and Mr. Tamer disclaim beneficial ownership of such shares of common stock except to the extent of any pecuniary interest therein.
|
(3)
|
Total includes shares disclaimed by both Mr. Mnaymneh and Mr. Tamer.
|
(4)
|
Represents less than 1% of the total class.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, our directors and
executive officers, and persons holding more than ten percent of our Common Stock are required to file with the SEC initial reports of their ownership of the our Common Stock and reports of changes in such ownership. To our knowledge, based on
information furnished to us, all of these filing requirements were satisfied for 2006.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy and Overall Objectives
The Company believes that the compensation paid to its Chief Executive
Officer, its Chief Financial Officer and its other executive officers, whom are collectively referred to as the named executive officers (Named Executive Officers), should be closely aligned with the Companys performance as well as
with each Named Executive Officers individual performance on both a short- and long-term basis, and that such compensation should be sufficient to attract and retain highly qualified leaders who can create significant value for the
9
Companys stockholders. The Companys compensation programs are designed to provide the Named Executive Officers meaningful incentives for superior
performance. Performance is evaluated using both financial and non-financial objectives that the Company believes contributes to its long-term success. Among these objectives are financial strength, customer service, operational excellence, employee
commitment and regulatory integrity.
The Companys goal has been to design a compensation program that focuses the executives on the
achievement of specific annual, long-term, and strategic goals set by the Company that align executives interests with those of stockholders by rewarding performance that maintains and improves stockholder value. The plans are created so that
executives receive cash bonuses, stock options, or restricted stock units when specific, measurable goals are achieved.
How is Compensation Determined
The Company believes that an effective total compensation plan should be structured to focus executives on the achievement of specific
business goals set by the Company and to reward executives for achieving those goals. Therefore, the Company established the following key compensation principles to guide the design and ongoing administration of the Companys overall
compensation program:
1.
|
Achieve operational targets;
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2.
|
Achieve EBITDA targets;
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3.
|
Achieve relative stock performance levels compared to peers;
|
4.
|
Create stockholder value; and
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5.
|
Maintain total compensation at market competitive levels.
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The Company intends to use companies in similar industries as benchmarks when establishing Named Executive Officers compensation. The Company also intends to review peer company data when making annual base salary and incentive
recommendations.
Discussion of Specific Compensation Elements
The Company compensates its executive officers through a mix of: base salary; short-term cash incentive compensation (annual bonus); long-term equity incentive compensation (stock options and restricted stock units);
and pension and other benefits.
The Companys mix of base salary, short-term cash incentive and equity compensation varies depending
on the level of the position held by the executive. In allocating compensation among these components, the Company believes that the compensation of our senior-most levels of managementthe levels of management having the greatest ability to
influence the Companys performanceshould be weighted toward performance-based goals putting a greater proportion of their compensation at risk based on achieving specific goals.
Base Salary
The Company determines base salaries for
all Named Executive Officers by reviewing company and individual performance, the value each Named Executive Officer brings to the Company and general labor market conditions. While base salary provides a base level of compensation intended to be
competitive with the external market, the base salary for each Named Executive Officer is determined on a subjective basis after consideration of these factors and is not based on target percentiles or other formal criteria. The base salaries of
Named Executive Officers are reviewed on an annual basis, and any annual increase is the result of an evaluation of the Companys and of the individual Named Executive Officers performance for the period. An increase or decrease in base
pay may also result from a promotion or other significant change in a Named Executive Officers responsibilities during the year.
10
Annual Bonus
The annual bonus is designed to align the interests of senior management with stockholder interests, as well as customer service levels, to achieve overall positive financial performance for the Company. The Compensation Committee, in
partnership with management, sets clear annual performance objectives for all executives and measures annual performance against those objectives.
Individual annual bonuses are set as a percentage of base salary. Annual bonuses are earned based on two levels of criteria. A percentage of the bonus is based on the Company achieving certain EBITDA levels. The remaining bonus is
determined at the discretion of the Compensation Committee.
Long-Term Equity Compensation
The Company believes that equity compensation is the most effective means of creating a long-term link between the compensation provided to officers and
other key management and the gains realized by the stockholders. This program encourages participants to focus on long-term Company performance and provides an opportunity for executive officers and designated key employees to increase their
ownership in the Company through grants of stock options and restricted stock units. The following is a summary of the Companys 2006 Stock Incentive Plan.
2006 Stock Incentive Plan
Introduction.
The Companys 2006 Stock Incentive Plan (the
2006 Plan) was adopted by the Board and approved by the stockholders in November 2006. The 2006 Plan became effective in December 2006 and will terminate no later than November 27, 2016, unless extended with stockholder approval.
Share Reserve.
450,000 shares of common stock have been authorized for issuance under the 2006 Plan. However, no participant in our
2006 Plan may receive awards for more than 100,000 shares of common stock per calendar year.
Equity Incentive Programs.
The 2006
Plan is divided into three separate components:
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|
|
the discretionary grant program, under which eligible individuals in our employ or service may be granted options to purchase shares of common stock or stock
appreciation rights tied to the value of such Common Stock;
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|
|
|
the stock issuance program, under which eligible individuals may be issued shares of common stock pursuant to restricted stock awards, restricted stock units or
other stock-based awards which vest upon the completion of a designated service period or the attainment of pre-established performance milestones, or such shares of common stock may be issued through direct purchase or as a bonus for services
rendered to the Company (or any parent or subsidiary); and
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|
|
|
the automatic grant program, under which awards in the form of stock options and restricted stock units grants will automatically be made at periodic intervals to
our eligible non-employee board members.
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Eligibility.
The individuals eligible to participate in the 2006 Plan
include officers and other employees of the Company, the Companys non-employee board members and any consultants the Company hires and any individuals in similar capacities with any of the Companys parent or subsidiary companies.
Administration.
The Compensation Committee of the Board administers the discretionary grant and stock issuance programs. However,
the Board may, at any time, appoint a secondary committee of one or more board members to have separate but concurrent authority with the compensation committee to make awards under those two programs to individuals other than executive officers and
board members.
11
The plan administrator determines which eligible individuals are to receive awards under these two
programs, the time or times when those awards are to be made, the number of shares subject to each such award, the vesting, exercise and issuance schedules to be in effect for each such award, the maximum term for which such award is to remain
outstanding, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws and the cash consideration payable (if any) for shares issuable under the stock issuance program. The
automatic grant program for the non-employee board members is self-executing, and the plan administrator has limited authority under that program.
Plan Features
. The Companys 2006 Plan includes the following features:
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|
|
The exercise price for options and stock appreciation rights cannot be less than the fair market value per share on the grant date. No option or stock appreciation
right has a term in excess of seven years, and each grant is subject to earlier termination following the recipients cessation of service with the Company. The grants generally vest and become exercisable in installments over the
recipients period of continued service.
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|
Two types of stock appreciation rights may be granted:
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|
Tandem rights which provide the holders with the election to surrender their outstanding options for an appreciation distribution from us equal to the excess of
(i) the fair market value of the vested shares subject to the surrendered option over (ii) the aggregate exercise price payable for those shares; and
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Stand-alone rights which allow the holders to exercise those rights as to a specific number of shares of our common stock and receive in exchange a distribution
from us in an amount equal to the excess of (i) the fair market value of the shares of common stock as to which those rights are exercised over (ii) the aggregate base price in effect for those shares.
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The appreciation distribution on any exercised tandem or stand-alone stock appreciation right is made in shares of our common stock.
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Under the stock issuance program, shares may be issued at a price per share not less than their fair market value, payable in cash or other valid consideration
under the Delaware General Corporation Law. Shares may also be issued as a bonus for past services without any cash purchase price required of the recipient. Shares of our common stock may also be issued pursuant to performance share awards or
restricted stock units which entitle the recipients to receive those shares, without payment of any cash purchase price, upon the attainment of designated performance goals and/or the completion of a prescribed service period or upon the expiration
of a designated time period following the vesting of those awards or units, including (without limitation), a deferred distribution date following the termination of the recipients service with us.
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|
The 2006 Plan includes the following change in control provisions, which may result in the accelerated vesting of outstanding awards:
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|
In the event of a change in control, each outstanding award under the discretionary grant program, which is not to be assumed by the successor corporation or
otherwise continued in effect, will automatically vest in full on an accelerated basis. However, the plan administrator will have the authority to grant awards that will immediately vest in the event of a change in control, even if those awards are
to be assumed by the successor corporation or otherwise continued in effect.
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|
Each award (whether in the form of an option grant or restricted stock units) outstanding under the automatic grant program at the time of a change in control will
automatically vest in full on an accelerated basis.
|
12
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The plan administrator will also have complete discretion to structure one or more awards under the discretionary grant program so those awards will vest as to all
the underlying shares in the event those awards are assumed or otherwise continued in effect but the individuals service with us or the acquiring entity is subsequently terminated within a designated period following the change in control
event.
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Outstanding awards under the stock issuance program may be structured so that those awards will vest immediately upon the occurrence of a change in control event or
upon a subsequent termination of the individuals service with the acquiring entity or us.
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A change in control will be deemed to occur in the event (i) the Company is acquired by merger or asset sale or (ii) there occurs any transaction or
series of related transactions pursuant to which any person or group of related persons becomes directly or indirectly the beneficial owner of securities possessing (or convertible into or exercisable for securities possessing) more than fifty
percent (50%) of the total combined voting power of our securities outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from us or the
acquisition of outstanding securities held by one or more of the Companys stockholders.
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In the event of any stock split, stock dividend, spin-off transaction, extraordinary distribution (whether in cash, securities or other property), recapitalization,
combination of shares, exchange of shares or other similar transaction affecting our outstanding common stock without the Companys receipt of consideration, equitable adjustments will be made by the plan administrator to (i) the maximum
number and/or class of securities issuable under the 2006 Plan, (ii) the maximum number and/or class of securities for which any one person may receive awards under the Plan per calendar year, (iii) the number and/or class of securities
for which awards may subsequently be made under the automatic grant program to new and continuing eligible non-employee directors, (iv) the number and/or class of securities and the exercise or base price per share in effect under each
outstanding award under the discretionary grant and automatic grant programs and (v) the number and/or class of securities subject to each outstanding award under the stock issuance and automatic grant program and the cash consideration (if
any) payable per share.
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The plan administrator may provide one or more individuals holding awards under the 2006 Plan with the right to have the Company withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the withholding taxes to which they become subject in connection with the exercise of those options or stock appreciation rights, the issuance of vested shares or the vesting of unvested
shares issued to them. Alternatively, the plan administrator may allow such individuals to deliver previously acquired shares of the Companys common stock in payment of such withholding tax liability.
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Plan amendments will be subject to stockholder approval to the extent required by applicable law or regulation or the listing standards of the stock exchange (or
NASDAQ National Market) on which the Companys common stock is at the time primarily traded.
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Automatic Option
Grant Program.
Participation in the automatic option grant program is limited to (i) each individual who was serving as an eligible non-employee board member in December 2006 and (ii) any individual who first becomes an eligible
non-employee board member on or after such date. For purposes of the program, an eligible non-employee board member is any non-employee board member who is not a member, officer, manager, equity holder or other affiliate of H.I.G. Capital LLC, Inc.
Grants under the automatic grant program are made as follows:
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Each individual who was serving as an eligible non-employee board member in December 2006 was automatically granted an option to purchase that number of shares of
common stock determined by dividing the sum of thirty thousand dollars by the price per share at which the common stock was sold pursuant to the Companys initial public offering (an IPO grant).
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13
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Each individual who first becomes an eligible non-employee board member at any time after December 2006 will, on the date such individual joins the board,
automatically be granted an option to purchase that number of shares of our common stock determined by dividing the applicable dollar amount, not to exceed fifty thousand dollars, by the fair market value per share of our common stock on such date,
provided that individual has not previously been in our employ (the Initial Grant). The plan administrator will determine the applicable dollar amount at the time of each such grant.
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On the date of each annual stockholders meeting held after the completion of the Companys initial public offering of common stock, each eligible non-employee
board member who is to continue to serve as a non-employee board member, including each of the Companys current eligible non-employee board members, will automatically be awarded restricted stock units covering that number of shares of the
Companys common stock determined by dividing the applicable annual amount, not to exceed thirty thousand dollars, by the fair market value per share of our common stock on such date, provided that such individual has served as an eligible
director for a period of at least six (6) months (the Annual Grant). The plan administrator, on or before the date of the annual stockholders meeting on which those Annual Grants are to be made, will determine the applicable annual
amount.
|
Any fractional share of common stock resulting from the application of the applicable dollar formula will be
rounded up to the next whole share.
Each IPO Grant and Initial Grant will have an exercise price per share equal to the fair market value
per share of the Companys common stock on the grant date and will have a term of seven years, subject to earlier termination following the eligible non-employee directors cessation of board service. The option will be immediately
exercisable for all of the option shares; however, the Company may repurchase, at the lower of the exercise price paid per share or the fair market value per share, any shares purchased under the option that are not vested at the time of the
eligible non-employee directors cessation of board service. The shares subject to each IPO Grant and Initial Grant will vest in a series of four successive annual installments upon the eligible non-employee directors completion of each
year of board service over the four-year period measured from the grant date. The shares subject to each Annual Grant will vest upon the earlier of the eligible non-employee directors completion of one year of board service measured from the
grant date or his or her continuation in board service until the day immediately preceding the next annual stockholders meeting following the grant date. However, the shares subject to each automatic grant held by an eligible non-employee director
(whether in the form of an option grant or restricted stock units) will immediately vest in full upon his or her death or disability while a board member.
Restricted Stock Awards
The Company granted restricted stock to Jeff Bradley in 2005 to provide an incentive to its Chief
Executive Officer to focus on the growth in value of the Companys stock.
Pursuant to the terms of the employment agreement and the
restricted shares agreement between the Company and Jeff Bradley, Mr. Bradley was granted 75,451 shares of our restricted stock, representing 0.6667% of our then outstanding common stock. Of such shares, 12.5% vest each anniversary of the
original grant date assuming that Mr. Bradley is employed on each applicable vesting date. An additional 12.5% of such shares vest each anniversary of the original grant date if the Companys EBITDA levels equal or exceed targets
established by the Compensation Committee of the Board and Mr. Bradley is employed on each applicable vesting date.
Mr. Bradley
received a dividend payment of approximately $276,000 in September 2005. Mr. Bradley was also entitled to a $466,490 dividend on his restricted shares with respect to a dividend to our equity holders declared on June 13, 2006.
Mr. Bradley received $90,000 of the dividend on June 14, 2006 and the remainder
14
was deferred pursuant to the terms of Mr. Bradleys restricted shares agreement. In addition, Mr. Bradley was entitled to a $477,921 dividend
on his restricted shares with respect to a dividend to our equity holders declared on July 12, 2006. The withheld dividends were distributed to Mr. Bradley in January 2007.
In June 2006, the Compensation Committee determined that the Company satisfied the targeted EBITDA levels and as such one-quarter of
Mr. Bradleys restricted stock vested and was released from restrictions.
Defined Benefit Retirement Plan
The Company maintains a noncontributory defined benefit pension plan, which covers substantially all full-time employees. Pension benefits are based on
years of service and average annual earnings. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. Pension benefits are based on an employee reaching the normal retirement age of 65. The
amounts are accumulated by multiplying the employees average base salary by the number of years of un-interrupted service by a pension factor of 1%. The benefit paid out is calculated using a normal form straight-line annuity for a single
person. The benefits paid out are not subject to any deduction for social security or other offset amounts.
Other Benefits
We also provide all employees with a 401(k) plan, health and dental coverage, company-paid term life insurance, disability insurance, paid time off and
paid holidays. These benefits are typical within our industry, are designed to be competitive with overall market practices, and are in place to attract and retain the executives and employees needed to operate our business.
Severance and Change of Control Agreements.
Mr. Bradley and Mr. Clark are and were, respectively, entitled to certain severance and change of control benefits. These agreements are described below in the section entitled Potential Payments Upon Termination or Change
in Control.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation of the Companys Named Executive Officers for the year ended December 31, 2006.
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Name and
Principal Position
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|
Year
|
|
Salary
($)
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|
|
Bonus
($)
|
|
|
Stock
Awards
($)
(1)
|
|
|
Option
Awards
($)
(1)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
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|
All Other
Compensation
($)
|
|
|
Total
($)
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Jeff Bradley
Chief Executive Officer
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|
2006
|
|
$
|
275,000
|
|
|
$
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225,000
|
(3)
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|
$
|
259,000
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(4)
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|
|
|
|
|
|
$
|
13,030
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|
$
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89,000
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(5)
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$
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861,030
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David Clark
Chief Financial Officer
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2006
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$
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29,000
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(2)
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|
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0
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|
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0
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|
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0
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(6)
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|
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0
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$
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29,000
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Allen Egner
Vice President, Finance
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2006
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$
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151,000
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|
$
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175,000
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|
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0
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(7)
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0
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(6)
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|
|
$
|
6,887
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$
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332,887
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Steve Lundmark
Vice President, Sales and Marketing
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2006
|
|
$
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178,000
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|
|
$
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45,000
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|
|
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0
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(7)
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|
0
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(6)
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|
|
$
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24,954
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|
|
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|
|
$
|
247,954
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(1)
|
Amounts in these columns represent the compensation expense recognized by the Company in accordance with SFAS 123(R) for the year ended December 31, 2006. Assumptions used in
the calculation of these amounts are included in Note 13 of the Companys audited financial statements for the year ended December 31, 2006 included in the Companys Annual Report on Form 10-K filed with the SEC.
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(2)
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Mr. Clarks employment with the Company commenced in November 2006. This amount was paid to Mr. Clark from November 2006 through December 2006. Mr. Clarks
annual base salary is $250,000. Mr. Clark resigned from his position with the Company in October 2007.
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15
(3)
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Mr. Bradley was paid a bonus of $225,000 on July 13, 2006 for his performance for the twelve-month period ended June 30, 2006.
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(4)
|
Pursuant to a restricted shares agreement, Mr. Bradley was granted 75,451 shares of our sole stockholders restricted stock, one-quarter of which vested in June 2006.
Mr. Bradley also received $200,000 in restricted stock units in connection with the Companys initial public offering of common stock in December 2006. The restricted stock units vest over four years from the date of grant.
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(5)
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Mr. Bradley received dividend payments of approximately $89,000 in June 2006 with respect to his restricted stock. Mr. Bradley received a distribution of $855,000 of
dividends held in an escrow account pursuant to his restricted shares agreement in January 2007.
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(6)
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Stock options were granted in connection with the Companys initial public offering of common stock in December 2006, however the Company did not recognize any compensation
expense in connection with such options for the year ended December 31, 2006.
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(7)
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Restricted stock units were granted in connection with the Companys initial public offering of common stock in December 2006, however the Company did not recognize any
compensation expense in connection with such restricted stock units for the year ended December 31, 2006.
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GRANTS OF
PLAN-BASED AWARDS
The following table provides information regarding plan-based awards granted to the Named Executive Officers in
2006.
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Name
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|
Grant
Date
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|
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards
(1)
|
|
Estimated Possible Payouts
Under Equity Incentive
Plan
Awards
(3)
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|
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
Exercise or
Base Price
of Option
Awards
($ /Sh)
|
|
Grant
Date Fair
Value of
Stock
and
Option
Awards
($)
(4)
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Threshold
($)
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Target
($)
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Maximum
($)
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Threshold
(#)
(2)
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Target
(#)
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Maximum
(#)
(2)
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Jeff Bradley
|
|
12/18/06
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|
|
|
|
|
|
|
|
|
11,764
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|
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|
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|
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|
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$
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200,000
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David Clark
(5)
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|
12/18/06
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|
|
|
|
|
|
|
|
|
44,117
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|
|
|
|
|
|
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$
|
17.00
|
|
$
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363,083
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Allen Egner
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12/18/06
|
|
|
|
|
|
|
|
|
|
17,647
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|
|
|
|
|
|
|
|
|
|
$
|
300,000
|
|
|
12/18/06
|
|
|
|
|
|
|
|
|
|
11,764
|
|
|
|
|
|
|
|
$
|
17.00
|
|
$
|
96,818
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Steve Lundmark
|
|
12/18/06
|
|
|
|
|
|
|
|
|
|
17,647
|
|
|
|
|
|
|
|
|
|
|
$
|
300,000
|
|
|
12/18/06
|
|
|
|
|
|
|
|
|
|
11,764
|
|
|
|
|
|
|
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$
|
17.00
|
|
$
|
96,818
|
(1)
|
All non-equity payouts to Named Executive Officers during 2006 are considered Bonuses and are reflected in the Summary Compensation Table.
|
(2)
|
There was no specified minimum or maximum award payout with respect to grants made in connection with the Companys initial public offering of common stock.
|
(3)
|
These awards were made under the Companys 2006 Stock Incentive Plan in connection with the Companys initial public offering of common stock.
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(4)
|
The grant date fair value is computed in accordance with SFAS 123(R). Assumptions used in the calculation of the amounts are included in Note 13 to the Companys audited
financial statements for the year ended December 31, 2006 included in the Companys 2006 Annual Report on Form 10-K, as amended, filed with the SEC.
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(5)
|
Mr. Clarks stock options were forfeited upon his resignation from the Company in October 2007.
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Employment Arrangements
Jeff Bradley
The Company entered into an employment agreement with Jeff Bradley pursuant to which, among other things, Mr. Bradley serves as
its Chief Executive Officer. Under this agreement, after the Companys initial public offering of common stock, Mr. Bradleys base salary increased to $350,000 per year, and he is eligible for an annual bonus of up to $225,000 of
which up to $150,000 is based on the Company attaining certain EBITDA levels and the remaining $75,000 may be earned in the Compensation Committees discretion. In addition, Mr. Bradley is eligible for an annual equity award under the
Companys 2006 Stock Incentive Plan of restricted stock units having a value of $125,000 and for the commencement of vesting of options to purchase up to 20,000 shares each year over the next four years. Two-thirds of his equity award will be
based upon the Company attaining certain EBITDA levels and the remaining one-third may be earned in the Compensation Committees discretion. In June 2005, Mr. Bradley was also granted 75,451 shares of Holdings restricted stock,
representing 0.6667% of its outstanding common stock. Of such shares, 12.5% vest each anniversary of the original grant date assuming that Mr. Bradley is employed on each applicable vesting date. An additional 12.5% of such shares vest
beginning on June 30, 2006 and on June 30 of each subsequent year if our EBITDA levels equal or exceed target established by our Board and Mr. Bradley is employed on each
16
applicable vesting date. The first portion of the shares vested on June 23, 2006. In the event that the Company or certain of its affiliates experience
a change of control, Mr. Bradley is entitled to an additional bonus equal to $1,000,000 minus the net proceeds that he receives upon such change of control as a result of his equity ownership. If the Company terminates Mr. Bradley without
cause he is entitled to salary accrued through the effective date of the termination notice, the reimbursement of any expenses, and, if he executes a separation release, one years salary and any bonus accrued as of termination. If the Company
terminates Mr. Bradley with cause he is entitled to his salary accrued through the effective date of the termination notice and the reimbursement of any expenses.
On January 31, 2007, Jeff Bradley was granted options to purchase 80,000 shares of common stock at an exercise price of $18.65 per share. The options expire 7 years after the grant date and vest in four equal
annual installments subject to meeting certain performance criteria.
Additionally, Mr. Bradley was granted restricted stock units
having a value equal to $200,000 based on the initial public offering price of the Companys common stock. The restricted stock units will vest ratably over a four-year period from the date of grant.
David Clark
The terms of
Mr. Clarks employment, pursuant to which he served as the Chief Financial Officer of the Company, were set out in his offer letter which provided that Mr. Clark would receive a base salary of $250,000 per year, and be eligible for an
annual cash bonus of up to $125,000 and an equity award under the Companys 2006 Stock Incentive Plan of restricted stock units having a value of up to $62,500 and options to purchase shares of the Companys common stock having an
aggregate exercise price (based on the fair market value of our common stock on the date of grant) of up to $62,500. Two-thirds of Mr. Clarks cash bonus and two-thirds of his equity award were based upon the Company attaining certain
EBITDA levels and the remaining one-third of both his cash bonus and his equity award could have been earned in the Compensation Committees discretion. If the Company had terminated Mr. Clark without cause, he would have been entitled to
salary accrued through the effective date of the termination notice, the reimbursement of any expenses, and, if he had executed a separation release, one years salary and any bonus accrued as of termination. If the Company had terminated
Mr. Clark with cause, he would have been entitled to his salary accrued through the effective date of the termination notice and the reimbursement of any expenses. Additionally, Mr. Clark was granted options to purchase shares of the
Companys common stock having an aggregate exercise price (based on the initial public offering price) of $750,000. These options would have vested ratably over a four-year period from the date of grant. Mr. Clark resigned from his
position with the Company in October 2007 and forfeited all options granted to him.
Allen Egner
After the Companys initial public offering of common stock, Mr. Egners base salary was increased to $150,000 per year. In October 2007,
Mr. Egners base salary was increased again to $225,000 per year while he acts as Interim Chief Financial Officer. While Interim Chief Financial Officer, Mr. Egner is eligible for an annual cash bonus of up to $112,500 and an equity award
under the Companys 2006 Stock Incentive Plan of options to purchase shares of the Companys common stock having an aggregate exercise price (based on the fair market value of our common stock on the date of grant) of up to $112,500.
One-half of Mr. Egners cash bonus and one-half of his equity award is based upon the Company attaining certain EBITDA levels and the remaining one-half of his cash bonus and his equity award may be earned in the Compensation
Committees discretion. Additionally, Mr. Egner received a cash award of $100,000 and was granted restricted stock units having a value of $300,000 based on the initial public offering price and options to purchase shares of the
Companys common stock having an aggregate exercise price (based on the initial public offering price) of $200,000. These restricted stock units and options each vest ratably over a four-year period from the date of grant.
17
Steve Lundmark
After the Companys initial public offering of common stock, Mr. Lundmarks base salary was increased to $180,000 per year. Mr. Lundmark is eligible for an annual cash bonus of up to $90,000 and an
equity bonus under the Companys 2006 Stock Incentive Plan of options to purchase shares of our common stock having an aggregate exercise price (based on the fair market value of our common stock on the date of grant) of up to $80,000. One-half
of Mr. Lundmarks cash bonus and one-half of his equity award will be based upon the Company attaining certain EBITDA levels and the remaining one-half of both his cash bonus and his equity award may be earned in the Compensation
Committees discretion. Additionally, Mr. Lundmark was granted restricted stock units having a value of $300,000 based on the initial public offering price and options to purchase shares of our common stock having an aggregate exercise
price (based on the initial public offering price) of $200,000. These restricted stock units and options each vest ratably over a four-year period from the date of grant.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information regarding
outstanding stock options and restricted stock held by the Named Executive Officers at December 31, 2006.
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|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(1)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock
That
Have
Not
Vested
(#)
(2)
|
|
Market
Value of
Shares or
Units
of
Stock That
Have Not
Vested
($)
(3)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
(1)
|
|
Equity
Incentive
Plan Awards:
Market
or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
(3)
|
Jeff Bradley
|
|
|
|
|
|
|
|
|
|
|
|
|
56,589
|
|
$
|
1,040,672
|
|
11,764
|
|
$
|
216,340
|
|
|
|
|
|
|
|
|
|
|
David Clark
(4)
|
|
|
|
|
|
44,117
|
|
$
|
17.00
|
|
12/17/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Egner
|
|
|
|
|
|
11,764
|
|
$
|
17.00
|
|
12/17/13
|
|
|
|
|
|
|
17,647
|
|
$
|
324,528
|
|
|
|
|
|
|
|
|
|
|
Steve Lundmark
|
|
|
|
|
|
11,764
|
|
$
|
17.00
|
|
12/17/13
|
|
|
|
|
|
|
17,647
|
|
$
|
324,528
|
(1)
|
Option and Stock Awards vest in four annual installments over the four-year period from the date of grant. Under certain circumstances all stock options and restricted stock grants
will immediately vest upon a Change of Control as defined in the Companys 2006 Stock Incentive Plan. See Potential Payments Upon Termination or Change in Control for a description of when vesting of awards is accelerated.
|
(2)
|
Pursuant to the terms of a restricted shares agreement between the Company and Jeff Bradley, Mr. Bradley was granted 75,451 shares of restricted stock in 2005. Of such shares,
12.5% vest each anniversary of the original grant date, June 30, 2005, assuming that Mr. Bradley is employed on each applicable vesting date. An additional 12.5% of such shares vest each anniversary of the original grant date if the
Companys EBITDA levels equal or exceed targets established by the Compensation Committee and Mr. Bradley is employed on each applicable vesting date. If Mr. Bradley is employed by the Company at the time of a Change of
Control, as defined in Mr. Bradleys employment agreement, all shares of restricted stock not previously forfeited shall immediately vest and cease to be restricted.
|
(3)
|
Based on the $18.39 per share closing price of our common stock on December 29, 2006 as reported on the Nasdaq Global Market.
|
(4)
|
Mr. Clarks stock options were forfeited upon his resignation from the Company in October 2007.
|
18
OPTION EXERCISES AND STOCK VESTED
The following table provides information regarding option exercises by the Named Executive Officers during 2006 and vesting of restricted stock held by
the Named Executive Officers during 2006.
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of Shares
Acquired on Exercise
(#)
|
|
Value Realized
on Exercise
($)
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
Value Realized
on Vesting
($)
(1)
|
Jeff Bradley
|
|
|
|
|
|
18,862
|
|
$
|
175,794
|
|
|
|
|
|
David Clark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Egner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Lundmark
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company was privately held on June 30, 2006, the vesting date. The amount above is based on an estimate of the market value of the Company as of such date.
|
PENSION BENEFITS
The following table sets forth the present value of the Named Executive Officers accumulated benefits under the Companys pension plan as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of Years of
Credited Service
(#)
|
|
Present Value of
Accumulated
Benefit
($)
|
|
Payments
During Last
Fiscal Year
($)
|
Jeff Bradley
|
|
Noncontributory defined benefit pension plan
|
|
1
|
|
$
|
13,030
|
|
0
|
|
|
|
|
|
David Clark
|
|
Noncontributory defined benefit pension plan
|
|
0
|
|
$
|
0
|
|
0
|
|
|
|
|
|
Allen Egner
|
|
Noncontributory defined benefit pension plan
|
|
17
|
|
$
|
71,592
|
|
0
|
|
|
|
|
|
Steve Lundmark
|
|
Noncontributory defined benefit pension plan
|
|
18
|
|
$
|
242,119
|
|
0
|
We maintain a noncontributory defined benefit pension plan, which covers substantially all
full-time employees, including Messrs. Bradley, Clark, Egner and Lundmark. Pension benefits are based on years of service and average annual earnings. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act
of 1974.
Pension benefits are based on an employee reaching the normal retirement age of 65. The amounts are accumulated by multiplying
the employees average base salary by the number of years of un-interrupted service by a pension factor of 1%. The benefit paid out is calculated using a normal form straight-line annuity for a single person. The benefits paid out are not
subject to any deduction for social security or other offset amounts.
Earnings for the purpose of calculating the final earnings are
limited to base salary as reflected in the Summary Compensation Table.
19
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
This section describes payments that may be made to the Companys Named Executive Officers upon several events of termination, including termination
in connection with a change in control, assuming the termination event occurred on December 31, 2006 (except as otherwise noted). The information in this section does not include information relating to the following:
|
|
|
payments and benefits provided on a nondiscriminatory basis to salaried employees generally upon termination of employment, including the Companys
tax-qualified defined contribution plan; and
|
|
|
|
restricted stock that vested prior to the termination eventsee the Outstanding Equity Awards at Fiscal Year-End table.
|
The Company has entered into an Employment Agreement and Restricted Shares Agreement with Jeff Bradley. The Companys other executive officers are
not a party to an employment agreement with the Company.
Jeff BradleyEmployment Agreement
Change of Control
The agreement
entitles Mr. Bradley to a cash Change of Control Bonus equal to the Equity Deficiency, if Mr. Bradley is employed on the effective date of such Change of Control. Equity Deficiency is determined by subtracting the Employees Share
from $1,000,000. If the Employees Share is more than $1,000,000, the Equity Deficiency is $0. The Employees Share equals:
|
|
|
in the case of a Change of Control involving a sale of stock of the Company (or a sale of the stock of H.I.G. Capital, together with all of the outstanding shares
of capital stock of the Company not directly owned by H.I.G. Capital), the amount of Net Proceeds (as defined in the agreement) actually received directly by Mr. Bradley upon the Change of Control;
|
|
|
|
in the case of a Change of Control involving solely a sale of the stock of H.I.G. Capital, the amount that would be payable to Mr. Bradley upon a redemption of
his Company stock immediately following such Change of Control, where the price to be paid in such redemption would equal (x) the aggregate Net Proceeds of such Change of Control divided by the percentage of the Companys stock not owned
by Mr. Bradley at the time of the Change of Control, minus (y) the aggregate Net Proceeds of such Change of Control; and
|
|
|
|
in the case of a Change of Control involving a sale of assets, the amount of Net Proceeds that would have been distributed to Mr. Bradley as a stockholder of
the Company in an extraordinary dividend equal to the aggregate Net Proceeds upon the Change of Control.
|
At the current
prices at which our common stock trades, the Equity Deficiency is $0.
A Change of Control under the agreement means:
|
|
|
any sale, consolidation or merger which results in the acquisition of all or substantially all of the Companys outstanding shares of capital stock by a single
person or entity or by a group of persons or entities acting in concert;
|
|
|
|
any acquisition in a single transaction or group of related transactions of all or substantially all of the outstanding shares of capital stock of H.I.G. Capital
LLC, Inc. either alone or together with all of the outstanding shares of capital stock of the Company not directly owned by H.I.G. Capital; or
|
|
|
|
any sale or transfer of all or substantially all of the assets of the Company and its direct and indirect subsidiaries after which such subsidiaries retain no
material business operations provided however that the term Change of Control shall not include any of the following: (x) a transaction or transactions
|
20
|
with affiliates of H.I.G. Capital (as determined by the Board of Directors of H.I.G. Capital in its sole discretion); (y) a transaction or transactions
pursuant to which more than 50% of the shares of voting stock of the surviving or acquiring entity is owned and/or controlled (by agreement or otherwise), directly or indirectly, by H.I.G. Capital or any of its affiliates (as determined by the Board
of Directors of H.I.G. Capital in its sole discretion); or (z) any transaction which results in aggregate Net Proceeds (as hereinafter defined) of less than $150,000,000.
|
Termination Provisions
In the event
Mr. Bradleys employment terminates due to (i) death, (ii) disability, (iii) termination for cause or (iv) voluntary termination, Mr. Bradley or his estate shall be entitled to receive his accrued but unpaid salary
through the date of death, date of notice to the Company of disability or date of termination and reimbursement of any unpaid expenses in connection with his duties with the Company.
In the event Mr. Bradleys employment is terminated without cause, Mr. Bradley shall be entitled to receive:
(1) his accrued but unpaid salary through the date of notice of termination;
(2) reimbursement of unpaid expenses in connection with his duties with the Company; and
(3) lump-sum cash payment equal to 12 months salary plus any bonus accrued but not yet payable reduced by the Employees Share
(defined above) if termination occurs with a Change of Control.
Amounts paid pursuant to clause (3) above are contingent upon
satisfaction of a Separation Release whereby Mr. Bradley agrees to waive and release any claims arising from his employment with the Company.
Mr. Bradleys agreement includes typical confidentiality clauses and a 2-year non-competition clause.
Jeff
BradleyRestricted Shares Agreement
Pursuant to a Restricted Shares Agreement between the Company and Mr. Bradley,
Mr. Bradley received 75,451 shares of restricted stock. The Restricted Shares Agreement provides that if Mr. Bradleys employment is terminated for any reason, all unvested restricted shares are automatically forfeited and transferred
to the Company. If Mr. Bradley is employed during a Change of Control (as defined in Mr. Bradleys employment agreement above), any unvested restricted shares not previously forfeited will vest and cease to be restricted.
David Clark
The terms of
Mr. Clarks employment were set out in his offer letter which provided severance in the amount of twelve months salary and the amount of Mr. Clarks bonus (up to 50% of his base salary) accrued as of the termination date, if
terminated by the Company other than for cause. Mr. Clark resigned from his position with the Company in October 2007.
Acceleration of Vesting
Provisions Pertaining to Stock Options and Restricted Stock Units Upon a Change in Control
Pursuant to the agreements governing the
stock options and restricted stock units granted under the Companys 2006 Stock Incentive Plan, certain events will accelerate the vesting of the shares.
Stock Options
If options are outstanding but not fully exercisable at the time of a Change of
Control, and such options are not assumed or paid cash consideration in connection with the Change of Control, such options will automatically accelerate and become fully exercisable.
21
Pursuant to Mr. Clarks stock option agreements with respect to his grant of stock options in
connection with the Companys initial public offering of common stock, regardless of whether his options were assumed or he was paid cash consideration in connection with a Change of Control, all of his outstanding but not otherwise fully
exercisable options would automatically accelerate upon a Change of Control.
A Change of Control is defined as a change in the ownership
or control of the Company through any of the following transactions:
|
|
|
a merger, consolidation or other reorganization approved by the Companys stockholders, unless securities representing more than 50% of the total combined
voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Companys outstanding
voting securities immediately prior to such transaction;
|
|
|
|
a stockholder-approved sale, transfer or other disposition of all or substantially all of the Companys assets; or
|
|
|
|
the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a group within the
meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Company or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Company)
becomes directly or indirectly the beneficial owner (within the meaning of 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities possessing) more than 50% of the total combined voting power of the
Companys securities (as measured in terms of the power to vote with respect to the election of Board members) outstanding immediately after the consummation of such transaction or series of related transactions, whether such transaction
involves a direct issuance from the Company or the acquisition of outstaying securities held by one or more of the Companys existing stockholders.
|
Stock options cease to vest upon termination of employment for any reason, including death or disability.
Restricted Stock Units
If restricted stock units are outstanding but unvested at the time of a Change of Control, and such
restricted stock units are not assumed or replaced with a cash retention program in connection with the Change of Control, such restricted stock units will vest immediately.
A Change of Control is defined as a change in the ownership or control of the Company through any of the following transactions:
|
|
|
a merger, consolidation or other reorganization approved by the Companys stockholders, unless securities representing more than 50% of the total combined
voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Companys outstanding
voting securities immediately prior to such transaction;
|
|
|
|
a stockholder-approved sale, transfer or other disposition of all or substantially all of the Companys assets;
|
|
|
|
the closing of any transaction or series of related transactions pursuant to which any person or any group of persons comprising a group within the
meaning of Rule 13d-5(b)(1) of the 1934 Act (other than the Company or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Company)
becomes directly or indirectly the beneficial owner (within the meaning of 13d-3 of the 1934 Act) of securities possessing (or convertible into or exercisable for securities possessing) more than 50% of the total
|
22
|
combined voting power of the Companys securities (as measured in terms of the power to vote with respect to the election of Board members) outstanding
immediately after the consummation of such transaction or series of related transactions, whether such transaction involves a direct issuance from the Company or the acquisition of outstaying securities held by one or more of the Companys
existing stockholders; or
|
|
|
|
a change in the composition of the Board over a period of 12 consecutive months or less such that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.
|
Restricted stock units cease to vest upon termination of employment for any reason, including death or disability.
Table of Benefits Upon Termination Events
The
following tables show potential payments to the Named Executive Officers upon termination of employment, including without limitation a change in control, assuming a December 31, 2006 termination date. In connection with the amounts shown in
the table:
|
|
|
Stock option benefit amounts for each option as to which vesting will be accelerated upon the occurrence of the termination event is equal to the product of the
number of shares underlying the option multiplied by the difference between the exercise price per share of the option and the $18.39 closing price per share of our common stock on December 29, 2006.
|
|
|
|
Restricted stock benefit amounts are equal to the product of the number of restricted shares as to which vesting will be accelerated upon the occurrence of the
termination event multiplied by the $18.39 per share closing price of our common stock on December 29, 2006.
|
Jeff Bradley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Type
|
|
Change in
Control
|
|
|
Termination
without
Cause
|
|
Termination
with Cause
|
|
Voluntary
Termination
|
|
Death or
Disability
|
|
Retirement
|
Severance Payments
|
|
1,000,000
|
(1)
|
|
350,000
|
|
0
|
|
0
|
|
0
|
|
0
|
Accrued Bonus
(2)
|
|
0
|
|
|
225,000
|
|
0
|
|
0
|
|
0
|
|
0
|
Retirement Plan
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
13,030
|
Deferred Compensation Plan
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Stock Options
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Restricted Stock
(3)
|
|
1,257,012
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Excise Tax and Gross-Ups
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Health and Welfare Benefits
|
|
0
|
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
2,257,012
|
|
|
575,000
|
|
0
|
|
0
|
|
0
|
|
13,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This amount is payable under certain circumstances described above. The market price of the Companys common stock as of the hypothetical termination date would result in no
amount being due.
|
(2)
|
Assumes full bonus accrued for the year.
|
(3)
|
Assumes restricted stock units were not assumed or replaced in the event of a Change of Control pursuant to the 2006 Stock Incentive Plan.
|
23
David Clark
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Type
|
|
Change in
Control
|
|
Termination
without
Cause
|
|
Termination
with Cause
|
|
Voluntary
Termination
|
|
Death or
Disability
|
|
Retirement
|
Severance Payments
|
|
0
|
|
250,000
|
|
0
|
|
0
|
|
0
|
|
0
|
Accrued Bonus
|
|
0
|
|
125,000
|
|
0
|
|
0
|
|
0
|
|
0
|
Retirement Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Deferred Compensation Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Stock Options
(2)
|
|
61,311
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Restricted Stock
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Excise Tax and Gross-Ups
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Health and Welfare Benefits
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
61,311
|
|
375,000
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts represented on this table are based on Mr. Clarks offer letter with the Company. Mr. Clark did not have an employment agreement in place at the
hypothetical termination date. Mr. Clark resigned from his position with the Company in October 2007.
|
(2)
|
All of Mr. Clarks options would have accelerated upon a change of control pursuant to his stock option agreement under the 2006 Stock Incentive Plan. Mr. Clark forfeited
his options upon his resignation in October 2007.
|
Allen Egner
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Type
|
|
Change in
Control
|
|
Termination
without Cause
|
|
Termination
with Cause
|
|
Voluntary
Termination
|
|
Death or
Disability
|
|
Retirement
|
Accrued Bonus
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Retirement Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
71,592
|
Deferred Compensation Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Stock Options
(1)
|
|
16,340
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Restricted Stock
(1)
|
|
324,528
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Excise Tax and Gross-Ups
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Health and Welfare Benefits
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
340,868
|
|
0
|
|
0
|
|
0
|
|
0
|
|
71,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assumes options and restricted stock units were not assumed or replaced in the event of a Change of Control pursuant to the 2006 Stock Incentive Plan.
|
Steve Lundmark
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Type
|
|
Change in
Control
|
|
Termination
without Cause
|
|
Termination
with Cause
|
|
Voluntary
Termination
|
|
Death or
Disability
|
|
Retirement
|
Accrued Bonus
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Retirement Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
242,119
|
Deferred Compensation Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Stock Options
(1)
|
|
16,340
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Restricted Stock
(1)
|
|
324,528
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Excise Tax and Gross-Ups
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
Health and Welfare Benefits
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
340,868
|
|
0
|
|
0
|
|
0
|
|
0
|
|
242,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assumes options and restricted stock units were not assumed or replaced in the event of a Change of Control pursuant to the 2006 Stock Incentive Plan.
|
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Approval of Transactions with Related Persons
The
Company does not presently have a written formal policy pertaining solely to the ratification or approval of related party transactions. In general, it is the Boards policy that all transactions with directors, officers and other affiliates be
on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a person or entity that is not an affiliate of the Company.
Management Agreement
On June 10, 2005, our
wholly owned subsidiary Claymont Steel entered into a management agreement with H.I.G. Capital, LLC, an affiliate of our principal stockholder. Pursuant to the terms of this agreement, H.I.G. Capital provided management, consulting and financial
services to Claymont Steel, subject to the supervision of its Board. In exchange for these services, Claymont Steel paid H.I.G. Capital an annual management fee of $675,000. In addition to this fee, H.I.G. Capital received additional compensation
for the introduction or negotiation of any transactions not in the ordinary course of business or pursuant to which we acquire or dispose of any business operations. The amount of any additional compensation was to be determined by good faith
negotiations between H.I.G. Capital and Claymont Steels Board, except that in the case of a sale of a majority of Claymont Steels stock or all or substantially all of its assets to a third party, H.I.G. Capital was entitled to a fee
equal to 1% of the aggregate sale transaction value. Claymont Steel also agreed to reimburse H.I.G. Capital for any expenses incurred in the performance of its duties under the management agreement. In December 2006, this agreement was terminated.
In connection with the agreement, the Company paid H.I.G. Capital a fee of $4 million, $1 million of which represents a transaction fee payable upon completion of the Companys initial public offering of common stock and $3 million of which
represents a fee to terminate our obligation to make payments under the management services agreement.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There are no interlocking relationships between any member of the Companys Compensation Committee and
any executive officer of the Company that require disclosure under the applicable rules promulgated under the U.S. federal securities laws.
25
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management and Crowe Chizek the audited financial statements. The Audit Committee has discussed with
Crowe Chizek the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and
the letter from Crowe Chizek required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T and has discussed with Crowe Chizek
that firms independence. Based on the review and discussion referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the audited financial statements in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the Securities and Exchange Commission.
Respectfully submitted,
Steve Scheinkman
Tracy L. Shellabarger
Jeffrey Zanarini
26
Annex II
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Jefferies & Company, Inc.
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520 Madison Avenue, 12th Floor
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New York, NY 10022
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tel
212.284.2550
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fax
212.284.2111
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www.jefferies.com
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PRIVILEGED AND CONFIDENTIAL
December 9, 2007
The Board of Directors
Claymont Steel Holdings, Inc.
4001 Philadelphia Pike
Claymont, DE 19073-2727
Members of the Board:
We understand that Claymont Steel Holdings, Inc., a Delaware corporation (the Company), Evraz Group S.A., a company organized as a
société anonyme under the laws of the Grand Duchy of Luxembourg (Parent), and Titan Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (Purchaser), propose to enter into an
Agreement and Plan of Merger (the Merger Agreement), which provides, among other things, for (i) the commencement by Purchaser of a tender offer (the Tender Offer) for all outstanding shares of common stock, par value
$.001 per share, of the Company (the Common Stock) for $23.50 per share in cash (the Tender Consideration), and (ii) the subsequent merger of Purchaser with and into the Company (the Merger). Pursuant to the
Merger, the Company will become a wholly owned subsidiary of Parent and each outstanding share of Common Stock not previously tendered in the Tender Offer, other than shares of Common Stock held in the treasury of the Company or owned by Parent,
Purchaser, or the Company, or any of their respective subsidiaries, shall be converted into the right to receive $23.50 in cash (such amount, or if the Tender Consideration shall be greater, such higher amount, the Merger Consideration
and, together with the Tender Consideration, the Consideration). The terms and conditions of the Tender Offer and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be received by the holders of shares of Common Stock pursuant to the Merger Agreement
is fair, from a financial point of view, to such holders.
In arriving at our opinion, we have, among other things:
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(i)
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reviewed a draft dated December 8, 2007 of the Merger Agreement;
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(ii)
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reviewed certain publicly available financial and other information about the Company;
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(iii)
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reviewed certain information furnished to us by the Companys management, including financial forecasts and analyses, relating to the business, operations and prospects of the
Company;
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(iv)
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held discussions with members of senior management of the Company concerning the matters described in clauses (ii) and (iii) above;
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(v)
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reviewed the share trading price history and valuation multiples for the Common Stock and compared them with those of certain publicly traded companies that we deemed relevant;
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(vi)
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compared the proposed financial terms of the Merger with the financial terms of certain other transactions that we deemed relevant; and
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(vii)
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conducted such other financial studies, analyses and investigations as we deemed appropriate.
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In our review and analysis and in rendering this opinion, we have assumed and relied upon, but have not assumed
any responsibility to independently investigate or verify, the representations and warranties set forth in the Merger Agreement and the accuracy and completeness of all financial and other information that was supplied or otherwise made available by
the Company to us or that was publicly available (including, without limitation, the information described above), or that was otherwise reviewed by us. We have relied on assurances of the management of the Company that it is not aware of any facts
or circumstances that would make such information inaccurate or misleading. In our review, we did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did we conduct a physical inspection of any of the
properties or facilities of, the Company, nor have we been furnished with any such evaluations or appraisals of such physical inspections, nor do we assume any responsibility to obtain any such evaluations or appraisals.
With respect to the financial forecasts provided to and examined by us, we note that projecting future results of any company is inherently subject to
uncertainty. The Company has informed us, however, and we have assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to
the future financial performance of the Company. We express no opinion as to the Companys financial forecasts or the assumptions on which they are made.
Our opinion is based on economic, monetary, regulatory, market and other conditions existing and which can be evaluated as of the date hereof. We expressly disclaim any undertaking or obligation to advise any person
of any change in any fact or matter affecting our opinion of which we become aware after the date hereof.
We have made no independent
investigation of any legal or accounting matters affecting the Company, and we have assumed the correctness in all respects material to our analysis of all legal and accounting advice given to the Company and its Board of Directors, including,
without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to the Company and its stockholders. In addition, in preparing this opinion, we have not taken into
account any tax consequences of the transaction to any holder of Common Stock. We have assumed that the final form of the Merger Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that in the course of
obtaining the necessary regulatory or third party approvals, consents and releases for the Tender Offer and the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company, Parent or the
contemplated benefits of the Tender Offer or the Merger in any way meaningful to our analysis.
It is understood that our opinion is for
the use and benefit of the Board of Directors of the Company in its consideration of the Tender Offer and the Merger, and our opinion does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any
alternative transaction or opportunity that might be available to the Company, nor does it address the underlying business decision by the Company to engage in the Tender Offer or the Merger or the terms of the Merger Agreement or the documents
referred to therein. Our opinion does not constitute a recommendation to any holder of shares of Common Stock as to whether such stockholder should tender shares of Common Stock in the Tender Offer or as to how any holder of shares of Common Stock
should vote on the Merger or any matter related thereto. In addition, you have not asked us to address, and this opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other
constituencies of the Company, other than the holders of shares of Common Stock. We express no opinion as to the price at which shares of Common Stock will trade at any time. Furthermore, we do not express any view or opinion as to the fairness,
financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Companys officers, directors or employees, or any class of such persons, in connection with the transactions contemplated by the
Merger Agreement relative to the Consideration to be received by holders of shares of Common Stock. This opinion has been authorized by the Fairness Opinion Committee of Jefferies & Company, Inc.
2
We have been engaged by the Company to act as financial advisor to the Company in connection with the Tender
Offer and the Merger and will receive a fee for our services, a portion of which is payable upon delivery of this opinion and a significant portion of which is payable contingent upon consummation of the Tender Offer and the Merger. We also will be
reimbursed for expenses incurred. The Company has agreed to indemnify us against liabilities arising out of or in connection with the services rendered and to be rendered by us under such engagement. We have, in the past, provided financial advisory
and financing services to the Company and may continue to do so and have received, and may receive, fees for the rendering of such services. We maintain a market in the securities of the Company, and in the ordinary course of our business, we and
our affiliates may trade or hold securities of the Company or Parent and/or their respective affiliates for our own account and for the accounts of our customers and, accordingly, may at any time hold long or short positions in those securities. In
addition, we may seek to, in the future, provide financial advisory and financing services to the Company, Parent or entities that are affiliated with the Company or Parent, for which we would expect to receive compensation. Except as otherwise
expressly provided in our engagement letter with the Company, our opinion may not be used or referred to by the Company, or quoted or disclosed to any person in any matter, without our prior written consent.
Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration to be received by the holders of shares of
Common Stock pursuant to the Merger Agreement is fair, from a financial point of view, to such holders.
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Very Truly Yours,
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JEFFERIES & COMPANY, INC.
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3
Annex III
200 Public Square. Suite 3750. Cleveland, Ohio 44114
Phone: (216) 589-0900. Fax: (216) 589-9558. www.wesrespartners.com
December 9, 2007
PRIVATE AND CONFIDENTIAL
The Board of
Directors
Claymont Steel Holdings, Inc.
4001 Philadelphia
Pike
Claymont, DE 19073-2727
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of view, of the Consideration (as defined below) to be received
by the holders of the issued and outstanding shares of Common Stock, $.001 par value (the Common Stock), of Claymont Steel Holdings, Inc. (the Company), pursuant to the Agreement and Plan of Merger (the Agreement)
by and among Evraz Group S.A. (Evraz), Titan Acquisition Sub, Inc., a wholly-owned subsidiary of Evraz (Purchaser), and the Company.
Under the terms of the Agreement, Evraz will cause Purchaser to commence a tender offer (the Offer) to purchase all of the issued and outstanding shares of Common Stock at a price of $23.50 per share in
cash (the Price), and following consummation of the Offer, Purchaser shall merge with and into the Company (the Merger). At the effective time of the Merger, each issued and outstanding share of Common Stock (other than
shares owned directly or indirectly by Evraz, Purchaser or the Company, which will be cancelled with no consideration issued in exchange therefor, or shares owned by a stockholder who is entitled to and who properly demands and perfects statutory
appraisal rights in compliance with all of the required procedures of Delaware law), will be canceled and converted into the right to receive cash in an amount equal to the Price (such consideration or any higher price as may be paid in the Offer in
accordance with the Agreement, the Consideration), and the Company will become a wholly-owned subsidiary of Evraz (the Offer and Merger are together hereinafter referred to as the Transaction). The specific terms and
conditions of the Transaction are more fully set forth in the Agreement.
In connection with rendering this opinion, we have reviewed and
analyzed, among other things, the following: (i) a draft of the Agreement, dated December 8, 2007, which we understand to be in substantially final form; (ii) certain publicly available information concerning the Company, including
its Registration Statement No 333-136352 on Form S-1 related to the offering of its Common Stock (as amended), which was originally filed with the United States Securities and Exchange Commission on August 7, 2006, and declared effective by the
Commission on December 18, 2006; the Annual Report on Form 10-K of the Company for the year 2006, and the Quarterly Reports on Form 10-Q of the Company for the first three quarters of the current fiscal year; (iii) certain other internal
information, primarily financial in nature, including projections, concerning the business and operations of the Company furnished to us by it for purposes of our analysis; (iv) certain publicly available information concerning the trading of,
and the trading market for, the Common Stock; (v) certain publicly available information with respect to certain other companies that we believe to be comparable to the Company and the trading markets for certain of such other companies
securities; (vi) certain publicly available
Board of Directors
December
9, 2007
Page
2
information concerning the nature and terms of certain other transactions that we consider relevant to our inquiry; and (vii ) certain publicly available
information concerning Evraz. Also, we have visited the Companys facilities in Claymont, Delaware, met or had conversations with certain officers and employees of the Company to discuss the business and prospects of the Company, as well as
other matters we believe relevant to our inquiry, and considered such other data and information we judged necessary or appropriate to render our opinion.
In our review and analysis and in arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all of the financial and other information provided us or publicly available and have assumed
and relied upon the representations and warranties of the Company, Evraz and Purchaser contained in the Agreement. We have not been engaged to, and have not independently attempted to, verify any of such information. We have also relied upon the
management of the Company as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases therefore) provided to us and, with your consent, we have assumed that such projections were reasonably
prepared and reflect the best currently available estimates and judgments of the Company. We have not been engaged to assess the reasonableness or achievability of such projections or the assumptions on which they were based, and express no view as
to such projections or assumptions. Also, we have not conducted an appraisal of any of the assets, properties or facilities of the Company, nor have we been furnished with any such evaluation or appraisal.
We have not been asked to, nor do we, offer any opinion as to the material terms of the Agreement or the form of the Transaction. In rendering our
opinion, we have assumed, with your consent, that the final executed form of the Agreement does not differ in any material respect from the last draft that we have received. In addition, we have assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the Transaction will be obtained, all other conditions to the Transaction as set forth in the Agreement will be satisfied, and the Transaction will be consummated on a timely basis in the
manner contemplated by the Agreement. We have not solicited, nor were we asked to solicit, third party interest in any transaction involving the Company.
It should be noted that this opinion is based upon economic and market conditions and other circumstances existing on, and information made available as of, the date hereof and does not address any matters subsequent
to such date. Also, our opinion is, in any event, limited to the fairness, as of the date hereof, from a financial point of view, of the Consideration to be received by the holders of the Companys Common Stock pursuant to the Agreement, and
does not address the Companys underlying business decision to effect the Transaction or any other terms of the Agreement. In that regard, we further express no opinion concerning the fairness of the amount or nature of any compensation to be
paid to any of the Companys officers, directors or employees, or to any class of such persons, relative to the compensation to be received by the holders of the Companys Common Stock in connection with the Transaction. In addition, it
should be noted that although subsequent developments may affect this opinion, we do not have any obligation to update, revise or reaffirm our opinion.
It is understood that this opinion was prepared solely for the use of the Board of Directors (the Board) in discharging its fiduciary duties in evaluating the proposed Transaction. This opinion may not be
disclosed, summarized, excerpted from or otherwise publicly referred to without our prior written consent; provided, however, that we understand that this opinion, and a summary thereof which we will prepare, may be included in the Proxy Statement
of the Company to be distributed to the holders of the Common Stock in connection with the Transaction.
Our opinion does not constitute a
recommendation to any stockholder of the Company as to whether such stockholder should tender shares of Common Stock into the tender offer contemplated by the Agreement or how such stockholder should vote at any stockholders meeting held in
connection with the Transaction. We have advised the Board that we do not believe that any person (including a stockholder of the Company) other than the directors has the legal right to rely on this opinion for any claim arising under state law and
that, should any such claim be brought against us, this assertion will be raised as a defense. In the absence of governing authority, this
Board of Directors
December
9, 2007
Page
3
assertion will be resolved by the final adjudication of such issue by a court of competent jurisdiction. Resolution of this matter under state law, however,
will have no effect on the rights and responsibilities of Western Reserve Partners LLC under the federal securities laws or on the rights and responsibilities of the Board under applicable law.
We will receive a fee from the Company for our services related to the delivery of this opinion, a portion of which becomes due and payable only if the
Transaction is consummated. The Company has also agreed to indemnify us against certain liabilities, including liabilities under the federal securities laws.
This opinion has been approved by the Valuation and Fairness Opinion Committee of Western Reserve Partners LLC.
Based upon and subject to the foregoing and such other matters as we consider relevant, it is our opinion that as of the date hereof, the Consideration to be received by the holders of shares of Common Stock pursuant to the Agreement is
fair, from a financial point of view, to such holders.
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Very truly yours,
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Western Reserve Partners LLC
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Claymont Steel Hlds (MM) (NASDAQ:PLTE)
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