prer14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
þ Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
Quanex Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o |
|
No fee required. |
|
|
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
|
|
|
1) |
|
Title of each class of securities to which transaction applies: |
|
|
|
2) |
|
Aggregate number of securities to which transaction applies: |
|
|
|
3) |
|
Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): |
|
|
|
4) |
|
Proposed maximum aggregate value of transaction: |
|
|
þ |
|
Fee paid previously with preliminary materials. |
|
o |
|
Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing. |
|
1) |
|
Amount Previously Paid: |
|
2) |
|
Form, Schedule or Registration Statement No.: |
QUANEX CORPORATION
1900 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-4600
To Our Stockholders:
Quanex Corporation has entered into an agreement with Gerdau
S.A. and Gerdau Delaware, Inc. pursuant to which Gerdau
Delaware, Inc. will merge with and into Quanex (we refer to this
agreement, as it may be amended from time to time, as the merger
agreement, and we refer to Gerdau S.A. as Gerdau and Gerdau
Delaware, Inc. as Gerdau Delaware). Immediately prior to and in
connection with the merger, Quanex will spin-off to its
stockholders a subsidiary containing all of the assets
comprising the Building Products Group of Quanex. We are sending
this proxy statement to Quanex stockholders to ask for your vote
in favor of the approval and adoption of the merger agreement.
If Quanex stockholders approve and adopt the merger agreement
and the merger is subsequently completed, Quanex stockholders
will receive $39.20 and one share of Quanex Building Products
Corporation common stock in connection with the spin-off for
each share of Quanex common stock they hold as of the closing
date. Quanex stockholder approval is not needed for, and you are
not being asked for a proxy in relation to, the proposed
spin-off of the Building Products Group of Quanex.
You are cordially invited to attend a special meeting of
stockholders of Quanex to be held at a.m.,
Central time, on March , 2008, at the
Companys principal executive offices at 1900 West
Loop South, 15th Floor, Houston, Texas. This document is a
proxy statement for Quanex to use in soliciting proxies for its
special meeting of stockholders. Attached is an important
document containing answers to frequently asked questions and a
summary description of the merger (beginning on page 1),
followed by more detailed information about Quanex, the proposed
merger and the merger agreement. We urge you to read this
document carefully and in its entirety.
Our Board of Directors has unanimously approved the merger, the
merger agreement and the other transactions contemplated by the
merger agreement, and has declared the merger, the merger
agreement and the other transactions contemplated by the merger
agreement advisable and in the best interests of our company and
its stockholders. Our Board of Directors unanimously
recommends that you vote FOR the proposal to adopt
the merger agreement.
The merger agreement must be adopted by the affirmative vote of
a majority of the outstanding shares of our common stock
entitled to vote on the matter. The proxy statement accompanying
this letter provides you with more specific information
concerning the special meeting, the merger agreement and the
other transactions contemplated by the merger agreement. We
encourage you to read carefully the accompanying proxy
statement, including the annexes. The accompanying proxy
statement also includes a preliminary Information Statement that
describes the proposed spin-off of the Building Products Group
of Quanex. We will send stockholders the final Information
Statement at the time of the spin-off. You also may obtain more
information about our company from us or from documents we have
filed with the Securities and Exchange Commission.
Your vote is very important regardless of the number of
shares of common stock that you own. Whether or not you plan to
attend the special meeting, we urge you to vote and submit your
proxy in order to ensure the presence of a quorum. If you fail
to vote by proxy or in person, or fail to instruct your broker
on how to vote, it will have the same effect as a vote against
the proposal to adopt the merger agreement.
Therefore, we request that you authorize your proxy by
completing, signing, dating and returning the enclosed proxy
card as promptly as possible. The enclosed proxy card contains
instructions regarding voting. If you hold your shares through
an account with a broker, nominee, fiduciary or other custodian,
please follow instructions you receive from them to vote your
shares. If you attend the special meeting, you may continue to
have your shares voted as instructed in the proxy, or you will
have the right to withdraw your proxy at the special meeting and
vote your shares in person.
Sincerely,
Raymond A. Jean
Chairman of the Board
Neither the Securities and Exchange Commission nor any state
securities commission has passed upon the adequacy or accuracy
of this proxy statement. Any representation to the contrary is a
criminal offense.
This proxy statement is dated February , 2008
and is first being mailed to Quanex stockholders on or about
February , 2008.
REFERENCES
TO ADDITIONAL INFORMATION
You can obtain any of Quanex Corporations filings with the
Securities and Exchange Commission from Quanex through the
SEC EDGAR Information link located on the financial
information page of its website at www.quanex.com or from
the Securities and Exchange Commission through its website at
www.sec.gov. We are not incorporating the
contents of the websites of the Securities and Exchange
Commission, Quanex or any other person into this document.
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
To Be Held March , 2008
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Quanex Corporation, a Delaware corporation (the
Company), will be held at the principal executive
offices of the Company, 1900 West Loop South,
Suite 1500, Houston, Texas, on March ,
2008, at a.m., Central time, for the following
purposes:
(1) To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger dated as of
November 18, 2007, by and among Quanex Corporation, Gerdau
S.A. and Gerdau Delaware, Inc. As a result of the merger, the
Company will become a wholly-owned subsidiary of Gerdau S.A. and
each outstanding share of the Companys common stock will
be converted into the right to receive $39.20 per share in cash,
without interest.
(2) To consider and vote upon a proposal to adjourn or
postpone the special meeting, if necessary, to solicit
additional proxies in favor of the approval and adoption of the
merger agreement.
(3) To consider and transact such other business as may
properly come before the meeting or any adjournment or
adjournments thereof.
Information with respect to the above matters is set forth in
the proxy statement that accompanies this Notice.
The Board of Directors has fixed the close of business on
February , 2008, as the record date for
determining stockholders entitled to notice of and to vote at
the meeting. A complete list of the stockholders entitled to
vote at the meeting will be maintained at the Companys
principal executive offices, will be open to the examination of
any stockholder for any purpose germane to the meeting during
ordinary business hours for a period of ten days prior to the
meeting, and will be made available at the time and place of the
meeting during the whole time thereof.
Our Board of Directors unanimously recommends that you vote
FOR the proposal to adopt the merger agreement and
FOR the proposal to approve any adjournments of the
special meeting for purpose of soliciting additional proxies.
The merger agreement must be adopted by the affirmative vote of
a majority of the outstanding shares of our common stock that
are entitled to vote on the matter. Any adjournments of the
special meeting for the purpose of soliciting additional proxies
must be approved by the affirmative vote of a majority of the
outstanding shares of our common stock present in person or by
proxy at the special meeting and entitled to vote on the matter.
Your vote is very important regardless of the number of
shares of common stock that you own. Whether or not you plan to
attend the special meeting, we urge you to vote and submit your
proxy in order to ensure the presence of a quorum. If you fail
to vote by proxy or in person, or fail to instruct your broker
on how to vote, it will have the same effect as a vote against
the proposal to adopt the merger agreement but will have no
effect on the outcome of the adjournment proposal.
We request that you authorize your proxy by completing and
returning the enclosed proxy card as promptly as possible. The
enclosed proxy card contains instructions regarding voting. If
you hold your shares through an account with a broker, nominee,
fiduciary or other custodian, please follow instructions you
receive from them to vote your shares. Stockholders who do
not vote FOR the proposal to adopt the merger
agreement will have the right to seek appraisal of the fair
value of their shares if the merger is completed, but only if
they submit a written demand for appraisal to us before the vote
is taken on the merger agreement and they comply with all other
requirements of Delaware law, which requirements are summarized
in the accompanying proxy statement.
Please execute your vote promptly. Your
designation of a proxy is revocable and will not affect your
right to vote in person if you find it convenient to attend the
meeting and wish to vote in person.
By order of the Board of Directors,
Kevin P. Delaney
Senior Vice President General Counsel and
Secretary
February , 2008
Houston, Texas
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
7
|
|
Stockholder Litigation
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
13
|
|
|
|
|
13
|
|
|
|
|
13
|
|
|
|
|
13
|
|
|
|
|
13
|
|
|
|
|
14
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
17
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
18
|
|
|
|
|
21
|
|
|
|
|
22
|
|
|
|
|
22
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
30
|
|
|
|
|
30
|
|
|
|
|
30
|
|
|
|
|
33
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
43
|
|
|
|
|
45
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
47
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
52
|
|
ANNEXES
|
|
|
Annex A
|
|
Agreement and Plan of Merger, dated November 18, 2007,
among Quanex Corporation, Gerdau S.A. and Gerdau Delaware, Inc.
|
Annex B
|
|
Opinion of Lazard Frères & Co. LLC dated
November 18, 2007
|
Annex C
|
|
Section 262 of the Delaware General Corporation Law
|
Annex D
|
|
Preliminary QBPC Information Statement
|
ii
SUMMARY
This summary highlights selected information from this proxy
statement, including material terms of the merger, and may not
contain all of the information that is important to you.
Included in this proxy statement as Annex D is a preliminary
information statement of Quanex Building Products Corporation,
the QBPC Information Statement, that describes the
spin-off in greater detail. We will send stockholders the final
QBPC Information Statement at the time of the spin-off. To
understand the merger fully and for a more complete description
of the legal terms of the merger, you should carefully read this
entire document, including its annexes, and the documents to
which we refer you. See Where You Can Find More
Information beginning on page 52 of this proxy
statement.
Frequently
Used Terms
We have generally avoided the use of technical defined terms in
this proxy statement but a few frequently used terms may be
helpful for you to have in mind at the outset. We refer to:
|
|
|
|
|
Quanex Corporation and its consolidated subsidiaries other than
the Building Products Group of Quanex Corporation, except where
the context otherwise requires or as otherwise indicated, as
Quanex or the Company;
|
|
|
|
Gerdau S.A., as Gerdau;
|
|
|
|
Gerdau Delaware, Inc., as Gerdau Delaware;
|
|
|
|
the proposed merger of Gerdau Delaware into Quanex, as the
merger;
|
|
|
|
the Agreement and Plan of Merger dated as of November 18,
2007, by and among Quanex, Gerdau and Gerdau Delaware, as the
merger agreement;
|
|
|
|
the engineered products segment and the aluminum sheet segment
of Quanex prior to the spin-off, as the Building Products
Group;
|
|
|
|
the vehicular products segment of Quanex prior to the spin-off,
as the Vehicular Products Group;
|
|
|
|
the entity that will operate the Building Products Group of
Quanex after the spin-off, as Quanex Building
Products;
|
|
|
|
the General Corporation Law of the State of Delaware as the
DGCL;
|
|
|
|
the New York Stock Exchange, as the NYSE; and
|
|
|
|
the United States
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, as the
Hart-Scott-Rodino
Act.
|
When share of Quanex Building Products common stock
is used in this proxy statement, we refer to the share of Quanex
Building Products Corporation common stock that you will receive
following:
|
|
|
|
|
the distribution in the spin-off of a unit of Quanex Building
Products LLC for each share of Quanex common stock
outstanding, and
|
|
|
|
the conversion of each unit into a share of Quanex Building
Products Corporation common stock pursuant to the subsequent
merger of Quanex Building Products LLC into Quanex Building
Products Corporation.
|
See The Spin-Off.
The
Merger Parties
Quanex
Quanex Corporation
1900 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-4600
1
Quanex Corporation is an industry-leading manufacturer of
value-added, engineered materials and components serving the
vehicular products and building products markets. Prior to the
merger, Quanex intends to spin-off its Building Products Group
as a separate company to its stockholders.
Gerdau
and Gerdau Delaware
Gerdau S.A.
Av. Dos Farrapos, 1811
Porto Alegre, RS
90220-005
Brazil
The Gerdau Group is the largest long steel bar producer in the
Americas, and the fourteenth largest steelmaker in the world. It
has over 35,000 employees and operates in 13 countries:
Argentina, Brazil, Canada, Chile, Colombia, the Dominican
Republic, India, Mexico, Peru, Spain, the United States, Uruguay
and Venezuela. It has an annual steel production capacity of
23.2 million metric tons and is one of the largest
recyclers in the Americas. Gerdau Delaware is a wholly-owned
subsidiary of Gerdau and was formed by Gerdau to participate in
the merger.
The
Merger (page 18)
General
On November 18, 2007, the companies agreed to the merger
between Quanex and Gerdau Delaware under the terms of the merger
agreement described in this proxy statement and attached hereto
as Annex A. The merger agreement is the legal
document that governs the merger, and we urge you to read that
agreement.
At the effective time of the merger, Gerdau Delaware will merge
with and into Quanex. Quanex will be the surviving company and
will become a wholly-owned subsidiary of Gerdau. The separate
corporate existence of Gerdau Delaware will cease at the
effective time of the merger.
Merger
Consideration
At the effective time of the merger, each outstanding share of
Quanex (other than any shares owned directly or indirectly by
Quanex or Gerdau and those shares held by dissenting
stockholders) will be converted into the right to receive $39.20
in cash, without interest.
In connection with the merger, Quanex stockholders will receive,
pursuant to the spin-off of Quanexs Building Products
Group, one share of Quanex Building Products common stock for
each share of Quanex common stock they own on the closing date
of the merger.
Treatment
of Quanex Stock Options and Restricted Stock Units
At the effective time of the merger, Quanex stock options will
become vested and exercisable and will be cancelled. The holder
of such Quanex stock options will be entitled to receive an
amount in cash equal to: (x) the total number of shares of
Quanex common stock subject to the stock option times
(y) the excess of (i) the sum of (A) $39.20 and
(B) the closing sales price of a share of Quanex Building
Products common stock on the NYSE on the distribution date for
the spin-off of Quanexs Building Products Group over
(ii) the exercise price per share under the stock option,
less any applicable tax withholding.
Each restricted stock unit that has been issued but has not
vested prior to the effective time of the merger will become
fully vested at the effective time of the merger and will be
converted into the right to receive an amount per restricted
stock unit equal to the sum of (a) $39.20 and (b) the
closing sales price of a share of Quanex Building Products
common stock on the NYSE on the distribution date for the
spin-off of Quanexs Building Products Group.
See Interests of Certain Persons in the Merger
beginning on page 33 for a discussion of the treatment of
restricted stock pursuant to the terms of the spin-off.
2
The
Spin-Off
Immediately prior to and in connection with the merger, Quanex
will spin-off to its stockholders the limited liability company
interests of its building products subsidiary containing all of
the assets and liabilities of Quanexs Building Products
Group known as Quanex Building Products LLC. The interests will
be distributed to Quanexs stockholders on the basis of one
unit of Quanex Building Products LLC for each share of Quanex
common stock outstanding. Immediately following the spin-off,
Quanex Building Products LLC will merge with and into its
wholly-owned subsidiary Quanex Building Products Corporation,
with Quanex Building Products Corporation being the surviving
company in the merger. Each unit of Quanex Building Products LLC
will be converted immediately into one share of Quanex Building
Products Corporation common stock. As a result, a Quanex
stockholder will receive one share of Quanex Building Products
Corporation common stock for each share of Quanex common stock
held by such stockholder.
Quanex stockholder approval is not needed for, and you are not
being asked for a proxy in relation to, the proposed spin-off of
the Building Products Group of Quanex or the subsequent merger
of Quanex Building Products LLC with and into Quanex Building
Products Corporation. Quanex stockholders should read carefully
the QBPC Information Statement that is included as Annex
D to this proxy statement, which describes the spin-off in
greater detail. Holders of Quanex common stock on the record
date of the spin-off, which will be the same date as the closing
date of the merger, will also receive the final QBPC Information
Statement.
Material
U.S. Federal Income Tax Consequences (page 30)
For U.S. federal income tax purposes, we will treat and
report the spin-off and the merger as a single integrated
transaction with respect to the Quanex stockholders in which the
spin-off will be treated as a redemption of shares of Quanex
common stock that qualifies for exchange treatment.
Accordingly, with respect to each Quanex stockholder who is a
citizen or resident of the United States and holds his shares of
Quanex common stock as a capital asset (generally, assets held
for investment), we expect that such a Quanex stockholder will
generally recognize capital gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between
(i) the sum of the amount of cash received in the merger
and the fair market value, determined when the spin-off occurs,
of the property received in the spin-off, and (ii) such
Quanex stockholders adjusted tax basis in his shares of
Quanex common stock immediately prior to the spin-off. The
deduction of any recognized loss may be delayed or otherwise
adversely affected by certain loss limitation rules. Any such
gain or loss will generally be long-term capital gain or loss if
the Quanex stockholders holding period in the shares of
Quanex common stock immediately prior to the spin-off is more
than one year. The amount and character of gain or loss must be
calculated separately for each identifiable block of shares of
Quanex common stock surrendered.
See Material U.S. Federal Income Tax Consequences
beginning on page 30 for a detailed discussion of the U.S.
federal income tax treatment of the spin-off and merger,
including a discussion of possible alternative treatments.
Tax matters are very complicated and the tax consequences
of the merger to any particular Quanex stockholder will depend
on that stockholders particular situation. Quanex
stockholders should consult with their own tax advisors to
determine the specific tax consequences of the merger to
them.
Recommendation
of the Quanex Board of Directors (page 22)
The Quanex Board of Directors has unanimously determined that
the merger is advisable and in your best interests and
unanimously recommends that you vote FOR approval
and adoption of the merger agreement and the transactions
contemplated thereby and any adjournment or postponement of the
special meeting.
Opinion
of Lazard Frères & Co. LLC Financial
Advisor to Quanex (page 22)
In connection with the proposed merger, Quanexs financial
advisor, Lazard Frères & Co. LLC, delivered to
Quanexs Board of Directors a written opinion, dated
November 18, 2007, as to the fairness, from a financial
point of view, to the holders of Quanex common stock of the
merger consideration. The full text of Lazards written
opinion is attached to this proxy statement as
Annex B. We encourage you to read that
3
opinion carefully in its entirety for a description of the
procedures followed, assumptions made, matters considered, and
limitations on the review undertaken by Lazard in rendering its
opinion. Lazards opinion was provided for the use and
benefit of Quanexs Board of Directors in connection with
its evaluation of the merger and does not address the merits of
the proposed merger or constitute a recommendation to any
stockholder as to how he or she should vote on the merger or any
matter relevant to the merger agreement. The opinion addresses
only the fairness, from a financial point of view, as of the
date of the opinion, of the merger consideration to be paid to
holders of shares of Quanex common stock (other than holders of
dissenters shares and shares of Quanex common stock owned
directly by Quanex as treasury stock or by Gerdau or Gerdau
Delaware, and in each case not held on behalf of third parties).
Interests
of Quanex Directors and Executive Officers in the Merger
(page 33)
When you consider the recommendation of Quanexs Board of
Directors that you vote for the approval and adoption of the
merger agreement, you should be aware that certain of our
directors and executive officers may have interests in the
merger that are different from, or in addition to, yours. The
Quanex Board of Directors was aware of these interests and
considered them, among other matters, in unanimously approving
and adopting the merger agreement and unanimously recommending
that Quanex stockholders vote to approve and adopt the merger
agreement. At the close of business on the record date for the
Quanex special meeting, directors and executive officers of
Quanex and their affiliates will be entitled to vote
approximately % of the shares of
Quanex common stock outstanding on that date.
Conditions
to Completion of the Merger (page 47)
Completion of the merger depends on a number of conditions being
satisfied or waived. These conditions include the following:
|
|
|
|
|
the approval of Quanexs stockholders will have been
obtained;
|
|
|
|
the waiting period applicable to the consummation of the merger
under applicable antitrust laws will have expired or have
terminated and any other approvals from governmental entities
will have been obtained;
|
|
|
|
there is no judgment, injunction or other order in effect that
restrains, enjoins or otherwise prohibits consummation of the
merger or the other transactions contemplated by the merger
agreement;
|
|
|
|
the representations and warranties of the parties contained in
the merger agreement will be true and correct as of the date of
the merger agreement and as of the effective time of the merger
in the manner described under the caption The Merger
Agreement Conditions to Completion of the
Merger;
|
|
|
|
the parties will have performed in all material respects their
respective obligations under the merger agreement at or prior to
the closing date; and
|
|
|
|
with respect to the obligations of Gerdau and Gerdau Delaware
only, the spin-off will have been effected by Quanex.
|
Regulatory
Matters (page 26)
Under the
Hart-Scott-Rodino
Act, the parties cannot complete the merger until they have
notified and furnished information to the Federal Trade
Commission (FTC) and the Antitrust Division of the
United States Department of Justice (DOJ), and
specified waiting periods expire or are terminated. On
November 30, 2007, Quanex and Gerdau submitted the
notification filings to the FTC and the DOJ. Early termination
of the waiting period was granted by the FTC on
December 28, 2007.
A party or parties to a transaction may, but are not required
to, submit to the Committee on Foreign Investment in the United
States, which we refer to as CFIUS, in accordance with the
regulations implementing Section 721 of the Defense
Production Act of 1950, as amended, a voluntary notice of the
transaction.
4
Section 721 empowers the President of the United States to
prohibit or suspend an acquisition of, or investment in, a
U.S. company by a foreign person if the
President of the United States, after investigation, finds
credible evidence that the foreign person might take action that
threatens to impair the national security of the United States
and that other provisions of existing law, other than the
International Emergency Economic Powers Act, do not provide
adequate and appropriate authority to protect the national
security. CFIUS has the authority to receive notices of proposed
transactions, determine when an investigation is warranted,
conduct investigations and submit recommendations to the
President of the United States to suspend or prohibit the
completion of transactions or to require divestitures of
completed transactions.
On January 15, 2008, the parties submitted a notice of the
transaction to CFIUS. On February 15, 2008, the parties
received a letter stating that CFIUS has determined not to
conduct an investigation and that CFIUS has concluded its review
of the transaction.
Termination
of the Merger Agreement (page 47)
Before the effective time of the merger, the merger agreement
may be terminated by either party under certain circumstances
specified in the merger agreement, including after a termination
date of April 30, 2008, due to the breach by the other
party of any of its representations, warranties, covenants or
agreements in the merger agreement, under certain circumstances
if the approval of Quanexs stockholders is not obtained or
if Quanex receives and accepts a superior proposal to the merger.
Non-Solicitation
Provisions and Acquisition Proposals (page 43)
Subject to certain conditions, until the effective time of the
merger, Quanex is not permitted to solicit or seek acquisition
proposals, engage in any substantive discussions regarding such
proposals, provide any information to third parties regarding
such proposals, enter into any agreement relating to any such
proposals or release any third party from, or waive any
provision of, any confidentiality or standstill agreement
relating to any such proposals. However, under certain
circumstances, if Quanex receives an unsolicited takeover
proposal from a third party that Quanexs Board of
Directors determines in good faith (after consultation with
outside counsel and financial advisors) constitutes a superior
proposal or would reasonably be expected to lead to a superior
proposal, Quanex may furnish nonpublic information to that third
party and engage in negotiations regarding a takeover proposal
with that third party, subject to specified conditions set forth
in the merger agreement.
Fees and
Expenses (page 48)
If Quanex terminates the merger agreement, Quanex must pay to
Gerdau, in certain circumstances set forth in the merger
agreement, $50,190,000. Gerdau must pay Quanex a termination fee
of $60 million if the merger agreement is terminated in
certain circumstances set forth in the merger agreement
following a second request made by the FTC or the DOJ under the
Hart-Scott-Rodino
Act.
Whether or not the merger is consummated, each of Gerdau, Gerdau
Delaware and Quanex will bear its own fees and expenses in
connection with the merger agreement.
Appraisal
Rights (page 27)
Under Delaware law, you are entitled to appraisal rights in
connection with the merger. As a result, you will have the right
under Delaware law to have the fair value of your
Quanex common stock determined by the Delaware Chancery Court.
This right to appraisal is subject to a number of restrictions
and procedural requirements. Generally, in order to exercise
your appraisal rights, you must:
|
|
|
|
|
Send a written demand to Quanex for appraisal in compliance with
the DGCL before the vote on the adoption of the merger agreement;
|
|
|
|
Not vote in favor of the adoption of the merger
agreement; and
|
5
|
|
|
|
|
Continuously hold your Quanex common stock from the date you
make the demand for appraisal through the effective date of the
merger.
|
Merely voting against the adoption of the merger agreement will
not protect your rights to an appraisal, which requires you to
take all the steps provided under Delaware law. Delaware law
requirements for exercising appraisal rights are described in
further detail in this proxy statement. In addition,
Section 262 of the DGCL, which is the section of Delaware
law regarding appraisal rights, is set forth in Annex C
to this proxy statement.
Market
Price of Our Common Stock (page 50)
Our shares of common stock are traded on the NYSE under the
ticker symbol NX. On November 16, 2007, the
last trading day prior to the date of the public announcement of
the merger agreement, the closing price of our common stock on
the NYSE was $36.74 per share. On February ,
2008, the last trading day prior to the date of this proxy
statement, the closing price of our common stock on the NYSE was
$ per share. You are
encouraged to obtain current market quotations for shares of our
common stock.
6
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The following questions and answers briefly address some
commonly asked questions about the merger and the special
meeting. They may not include all of the information that is
important to you. We urge you to read carefully this entire
proxy statement, including the annexes and the other documents
we refer to in this proxy statement.
About the
Merger
|
|
|
Q1: |
|
When and where is the Quanex special stockholder meeting? |
|
|
|
A1: |
|
The Quanex special stockholder meeting will take place on
March , 2008, at :00 a.m., and will be
held at the Companys principal executive offices at
1900 West Loop South, 15th Floor, Houston, Texas. |
|
|
|
Q2: |
|
What will happen at the special meeting? |
|
A2: |
|
At the Quanex special meeting, Quanex stockholders will vote on
a proposal to approve and adopt the merger agreement and on a
proposal to approve adjournments or postponements of the special
meeting, if necessary, to permit further solicitation of proxies
if there are not sufficient votes at the time of the special
meeting to approve and adopt the merger agreement. We cannot
complete the merger unless, among other things, Quanexs
stockholders vote to approve and adopt the merger agreement. |
|
Q3: |
|
What am I voting on? |
|
A3: |
|
Quanex is proposing to merge with Gerdau Delaware, with Quanex
becoming a wholly-owned subsidiary of Gerdau. Quanex
stockholders are being asked to vote to approve and adopt the
merger agreement. Quanex is also seeking your approval of a
proposal to adjourn or postpone the special meeting, if
necessary, to solicit additional proxies in favor of approval
and adoption of the merger agreement. |
|
Q4: |
|
What will I receive in exchange for my Quanex shares? |
|
A4: |
|
Upon completion of the merger, you will receive $39.20 in cash,
without interest, for each share of Quanex common stock that you
own. The merger consideration is not subject to any adjustment. |
|
|
|
In connection with the merger, Quanex stockholders will receive,
pursuant to the spin-off of Quanexs Building Products
Group, one share of Quanex Building Products common stock for
each share of Quanex common stock that they own on the record
date of the spin-off, which will be the same date as the closing
date of the merger. |
|
Q5: |
|
What will I receive in exchange for my options to purchase
Quanex common stock and my restricted stock units? |
|
A5: |
|
At the effective time of the merger, Quanex stock options will
become vested and exercisable and will be cancelled. If you hold
Quanex stock options, you will be entitled to receive an amount
in cash equal to: (x) the total number of shares of Quanex
common stock subject to the stock option times (y) the
excess of (i) the sum of (A) $39.20 and (B) the
closing sales price of a share of Quanex Building Products
common stock on the NYSE on the distribution date for the
spin-off of Quanexs Building Products Group over
(ii) the exercise price per share under the stock option,
less any applicable withholding. |
|
|
|
Each restricted stock unit that has been issued but has not
vested prior to the effective time of the merger will become
fully vested at the effective time of the merger. If you hold
Quanex restricted stock units, you will have the right to
receive an amount per restricted stock unit equal to the sum of
(y) $39.20 and (z) the closing sales price of a share
of Quanex Building Products common stock on the NYSE on the
distribution date for the spin-off of Quanexs Building
Products Group. |
7
|
|
|
Q6: |
|
What is the required vote to approve and authorize the
merger? |
|
A6: |
|
Holders of a majority of the outstanding shares of Quanex common
stock entitled to vote at the special meeting must vote to
approve and adopt the merger agreement to complete the merger.
Approval of any adjournments of the special meeting to solicit
additional proxies requires the affirmative vote of a majority
of the outstanding shares of Quanex common stock present in
person or by proxy at the special meeting and entitled to vote
on the matter. |
|
|
|
If a quorum is not present at the special meeting, the special
meeting may be adjourned by the vote of a majority of the
outstanding shares of Quanex common stock entitled to vote at
the special meeting and present in person or by proxy. |
|
|
|
Even if the votes set forth above are obtained at the special
meeting, we cannot assure you that the merger will be completed,
because the completion of the merger is subject to the
satisfaction or waiver of other conditions discussed in this
proxy statement, including the completion of the spin-off. |
|
Q7: |
|
What happens if I do not vote? |
|
A7: |
|
Because the required vote of Quanex stockholders is based upon
the number of outstanding shares of Quanex common stock entitled
to vote rather than upon the number of shares actually voted,
abstentions from voting and broker non-votes will
have the same effect as a vote AGAINST approval and
adoption of the merger agreement. If you return a properly
signed proxy card but do not indicate how you want to vote, your
proxy will be counted as a vote FOR approval and
adoption of the merger agreement and FOR approval of
any proposal to adjourn or postpone the special meeting to
solicit additional proxies in favor of approval and adoption of
the merger agreement. |
|
Q8: |
|
How does the Quanex Board of Directors recommend I vote? |
|
A8: |
|
The Board of Directors of Quanex unanimously recommends that
Quanexs stockholders vote FOR approval and
adoption of the merger agreement and FOR the
approval of any proposal to adjourn or postpone the special
meeting to solicit additional proxies in favor of approval and
adoption of the merger agreement. The Board of Directors of
Quanex believes the merger is advisable and in the best
interests of Quanex and its stockholders. |
|
Q9: |
|
Do I have appraisal rights with respect to the merger? |
|
A9: |
|
Yes. Under Delaware law, a Quanex stockholder has the right to
dissent from the merger and, in lieu of receiving the merger
consideration, obtain payment in cash of the fair value of his
or her shares of Quanex common stock as determined by the
Delaware Chancery Court. To exercise appraisal rights, a Quanex
stockholder must strictly follow the procedures prescribed by
Section 262 of the DGCL. See The Merger
Appraisal Rights beginning on page 27 of this proxy
statement. In addition, the full text of the applicable
provisions of Delaware law is included as Annex C to
this proxy statement. |
|
Q10: |
|
When do you expect the merger to be completed? |
|
|
|
A10: |
|
We are working on completing the merger as quickly as possible.
To complete the merger, we must obtain the approval of the
Quanex stockholders and satisfy or waive all other closing
conditions under the merger agreement, which we currently expect
should occur in the first calendar quarter of 2008. However, we
cannot assure you when or if the merger will occur. See
The Merger Agreement Conditions to the
Merger beginning on page 47 of this proxy statement.
If the merger occurs, we will promptly make a public
announcement of that fact. |
|
|
|
Q11: |
|
What will happen to my Quanex shares after completion of the
merger? |
|
A11: |
|
Upon completion of the merger, your shares of Quanex common
stock will be canceled and will represent only the right to
receive $39.20 per share as the merger consideration (or the
fair value of your Quanex common stock if you seek appraisal
rights) and any declared but unpaid dividends that you may be
owed. In addition, trading in shares of Quanex common stock on
the NYSE will cease and price quotations for shares of Quanex
common stock will no longer be available. |
8
|
|
|
|
|
In connection with the spin-off of Quanexs Building
Products Group, Quanex stockholders will also receive one share
of Quanex Building Products common stock for each share of
Quanex common stock that they own on the record date of the
spin-off, which will be the same date as the closing date of the
merger. |
|
Q12: |
|
How does the merger consideration compare to the market price
of the shares of Quanex common stock? |
|
|
|
A12: |
|
The merger consideration is $39.20 per share of Quanex common
stock, without interest. On November 16, 2007, the last
trading day prior to the date of the public announcement of the
merger agreement, the closing price of our common stock on the
NYSE was $36.74 per share. On February , 2008,
the last trading day prior to the date of this proxy statement,
the closing price of our common stock on the NYSE was $per
share. In making this comparison, you should keep in mind that,
as a result of the spin-off, you will also receive one share of
Quanex Building Products common stock for each share of Quanex
common stock that you hold on the record date for the spin-off,
which will be the same date as the closing date of the merger. |
|
|
|
Q13: |
|
What happens if the merger is not completed? |
|
A13: |
|
Quanex will consider its options with respect to alternative
transactions for the Building Products Group and the Vehicular
Products Group and may still proceed with the spin-off of the
Building Products Group. |
About the
Spin-Off
|
|
|
Q14: |
|
What is the spin-off transaction being contemplated by
Quanex? |
|
A14: |
|
Immediately prior to and in connection with the merger, Quanex
will spin-off to its stockholders the limited liability company
interests of its building products subsidiary containing all of
the assets and liabilities of Quanexs Building Products
Group known as Quanex Building Products LLC. The interests will
be distributed to Quanexs stockholders on the basis of one
unit of Quanex Building Products LLC for each share of Quanex
common stock outstanding. Immediately following the spin-off,
Quanex Building Products LLC will merge with and into its
wholly-owned subsidiary Quanex Building Products Corporation,
with Quanex Building Products Corporation being the surviving
company in the merger. Each unit of Quanex Building Products LLC
will be converted immediately into one share of Quanex Building
Products Corporation common stock. As a result, a Quanex
stockholder will receive one share of Quanex Building Products
Corporation common stock for each share of Quanex common stock
held by such stockholder. |
|
|
|
Quanex stockholder approval is not needed for, and you are not
being asked for a proxy in relation to, the proposed spin-off of
the Building Products Group of Quanex or the subsequent merger
of Quanex Building Products LLC with and into Quanex Building
Products Corporation. This proxy statement includes a
preliminary QBPC Information Statement attached hereto as
Annex D that describes the spin-off in greater detail.
Holders of Quanex common stock on the record date of the
spin-off, which will be the same date as the closing date of the
merger, will also receive the final QBPC Information Statement. |
About
Voting at the Special Meeting
|
|
|
Q15: |
|
Who is entitled to vote at the special meeting? |
|
|
|
A15: |
|
Holders of record of Quanex common stock at the close of
business on February , 2008, which is the date
Quanexs Board of Directors has fixed as the record date
for the special meeting, are entitled to receive notice of and
vote at the special meeting. |
|
|
|
Q16: |
|
What is a quorum? |
|
A16: |
|
A quorum is the number of shares that must be present to hold
the meeting. The quorum requirement for the Quanex special
meeting is the holders of a majority of the issued and
outstanding shares of Quanex common stock as of the record date,
present in person or represented by proxy and entitled to vote
at the special meeting. A proxy submitted by a stockholder may
indicate that all or a portion of the shares represented by the
proxy are not being voted with respect to a particular matter.
Proxies that are marked abstain or for which votes
have otherwise been withheld and proxies relating to
street name |
9
|
|
|
|
|
shares that are returned to Quanex but not voted will be treated
as shares present for purposes of determining the presence of a
quorum on all matters. |
|
Q17: |
|
How many shares can vote? |
|
A17: |
|
On the record date, Quanex had
outstanding shares
of common stock, which constitute Quanexs only outstanding
voting securities. Each Quanex stockholder is entitled to one
vote on each proposal for each share of Quanex common stock held
as of the record date. |
|
Q18: |
|
What do I need to do now? |
|
A18: |
|
After carefully reading and considering the information
contained and referred to in this proxy statement, including its
annexes, please authorize your shares of Quanex common stock to
be voted by returning your completed, dated, and signed proxy
card in the enclosed return envelope, or vote by telephone or
Internet, as soon as possible. To be sure that your vote is
counted, please submit your proxy as instructed on your proxy
card even if you plan to attend the special meeting in person.
DO NOT enclose or return your stock certificates with your proxy
card. If you hold shares registered in the name of a broker,
bank, or other nominee, that broker, bank, or other nominee has
enclosed or will provide a voting instruction card for use in
directing your broker, bank, or other nominee how to vote the
shares. |
|
Q19: |
|
May I vote in person? |
|
A19: |
|
Yes. You may attend the special meeting of Quanexs
stockholders and vote your shares in person rather than by
signing and returning your proxy card. If you wish to vote in
person and your shares are held by a broker, bank, or other
nominee, you need to obtain a proxy from the broker, bank, or
nominee authorizing you to vote your shares held in the
brokers, banks, or nominees name |
|
Q20: |
|
If my shares are held in street name, will my
broker, bank, or other nominee vote my shares for me? |
|
A20: |
|
Yes, but your broker, bank, or other nominee may vote your
shares of Quanex common stock only if you instruct your broker,
bank, or other nominee how to vote. If you do not provide your
broker, bank, or other nominee with instructions on how to vote
your street name shares, your broker, bank, or other
nominee will not be permitted to vote them on the merger. You
should follow the directions your broker, bank, or other nominee
provides to ensure your shares are voted at the special meeting.
Please check the voting form used by your broker, bank, or other
nominee to see if it offers telephone or Internet voting. |
|
Q21: |
|
May I change my vote? |
|
A21: |
|
Yes. You may change your vote at any time before your proxy is
voted at the special meeting. If your Quanex common stock is
registered in your own name, you can do this in one of three
ways. |
|
|
|
|
|
First, you can deliver to Quanex, prior to the
special meeting, a written notice stating that you want to
revoke your proxy. The notice should be sent to the attention of
Kevin P. Delaney, Secretary, Quanex Corporation, 1900 West
Loop South, Suite 1500, Houston, Texas 77027, to arrive by
the close of business on March , 2008.
|
|
|
|
|
|
Second, prior to the special meeting, you can
complete and deliver a new proxy card. The proxy card should be
sent to the addressee indicated on the pre-addressed envelope
enclosed with your initial proxy card to arrive by the close of
business on March , 2008. The latest dated and
signed proxy actually received by this addressee before the
special meeting will be counted, and any earlier proxies will be
considered revoked. If you vote electronically through the
Internet or by telephone, you can change your vote by submitting
a different vote through the Internet or by telephone, in which
case your later-submitted proxy will be recorded and your
earlier proxy revoked.
|
|
|
|
|
|
Third, you can attend the Quanex special meeting and
vote in person. Any earlier proxy will thereby be revoked
automatically. Simply attending the special meeting, however,
will not revoke your proxy, as you must vote at the special
meeting to revoke a prior proxy.
|
10
|
|
|
|
|
If you have instructed a broker, bank or nominee to vote your
shares, you must follow directions you receive from your broker
to change or revoke your vote. |
|
|
|
If you are a street-name stockholder and you vote by proxy, you
may later revoke your proxy instructions by informing the holder
of record in accordance with that entitys procedures. |
|
Q22: |
|
How will the proxies vote on any other business brought up at
the special meetings? |
|
A22: |
|
By submitting your proxy, you authorize the persons named on the
proxy card to use their judgment to determine how to vote on any
other matter properly brought before the special meeting. The
proxies will vote your shares in accordance with your
instructions. If you sign, date, and return your proxy without
giving specific voting instructions, the proxies will vote your
shares FOR the proposal. If you do not return your
proxy, or if your shares are held in street name and you do not
instruct your bank, broker or nominee on how to vote, your
shares will not be voted at the special meeting. |
|
|
|
The Quanex Board of Directors does not intend to bring any other
business before the meeting, and it is not aware that anyone
else intends to do so. If any other business properly comes
before the meeting, it is the intention of the persons named on
the proxy cards to vote as proxies in accordance with their best
judgment. |
|
Q23: |
|
What is a broker non-vote? |
|
A23: |
|
A broker non-vote occurs when a bank, broker, or
other nominee submits a proxy that indicates that the broker
does not vote for some or all of the proposals because the
broker has not received instructions from the beneficial owners
on how to vote on these proposals and does not have
discretionary authority to vote in the absence of instructions. |
|
Q24: |
|
Will broker non-votes or abstentions affect the results? |
|
A24: |
|
Yes. Broker non-votes or abstentions will have the same effect
as a vote against the proposal to adopt the merger agreement,
but will have no effect on the outcome of the proposal relating
to adjournments or postponements of the special meeting, if
necessary, to permit further solicitation of proxies. If your
shares are held in street name, we urge you to instruct your
bank, broker, or nominee how to vote your shares for those
proposals on which you are entitled to vote. |
|
Q25: |
|
What happens if I choose not to submit a proxy or to vote? |
|
A25: |
|
If you do not submit a proxy or vote at the Quanex special
meeting, it will have the same effect as a vote against the
proposal to adopt the merger agreement, but will have no effect
on the outcome of the proposal relating to adjournments or
postponements of the special meeting, if necessary, to permit
further solicitations of proxies. |
|
Q26: |
|
Why is it important for me to vote? |
|
A26: |
|
We cannot complete the merger without holders of a majority of
the outstanding Quanex common stock present in person or by
proxy at the special meeting voting in favor of the approval and
adoption of the merger agreement. |
|
Q27: |
|
What happens if I sell my shares of Quanex common stock
before the special meeting? |
|
|
|
A27: |
|
The record date for the special meeting is
February , 2008, which is earlier than the date
of the special meeting. If you hold your shares of Quanex common
stock on the record date you will retain your right to vote at
the special meeting. If you transfer your shares of Quanex
common stock after the record date but prior to the date on
which the merger is completed, you will continue to have the
right to vote at the special meeting but you will lose the right
to receive the merger consideration for shares of Quanex common
stock. The right to receive the merger consideration will pass
to the person who owns your shares of Quanex common stock when
the merger is completed. |
11
General
|
|
|
Q28: |
|
Should I send in my Quanex stock certificates now? |
|
A28: |
|
No. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR
PROXY CARD. After the merger is completed, you will receive
written instructions informing you how to send in your stock
certificates to receive the merger consideration. |
|
Q29: |
|
What does it mean if I get more than one proxy card? |
|
A29: |
|
Your shares of Quanex common stock are probably registered in
more than one account. You should vote each proxy card you
receive. |
|
Q30: |
|
Where can I find more information about the special meeting,
the merger or Quanex? |
|
A30: |
|
You can find more information about Quanex in its filings with
the Securities and Exchange Commission and the NYSE. If you have
any questions about the special meeting, the merger or how to
submit your proxy, or if you need additional copies of this
proxy statement or the enclosed proxy card or voting
instructions, you should contact Quanex at the address or phone
number below. If your broker holds your shares, you can also
call your broker for additional information. |
|
|
|
Quanex Corporation
1900 West Loop South
Suite 1500
Houston, Texas 77027
(713) 961-4600
Attn: Kevin P. Delaney |
STOCKHOLDER
LITIGATION
A putative stockholder derivative and class action lawsuit was
filed in state district court in Harris County, Texas relating
to the spin-off and the merger: Momentum Partners v.
Raymond A. Jean, et al.,
Cause No. 2008-01592
(125th State District Court). This lawsuit is brought
against the members of Quanexs Board of Directors and
Gerdau. The lawsuit also names Quanex as a nominal
defendant, as is customary in putative derivative
lawsuits. The plaintiff alleges, among other things, that the
Quanex Board of Directors breached its fiduciary duties by
benefiting as a result of the accelerated vesting of options,
restricted stock and restricted stock units in the merger and
that the preliminary proxy statement filed by Quanex is
materially misleading and incomplete in certain ways. The
lawsuit seeks an order requiring corrective disclosures to be
issued and an award of money damages to either Quanex or a class
of stockholders from the defendants, and the plaintiff has filed
a motion with the court for a temporary restraining order to
enjoin the spin-off and the merger.
12
INFORMATION
ABOUT THE SPECIAL MEETING AND VOTING
This proxy statement is being furnished to Quanex stockholders
by Quanexs Board of Directors in connection with the
solicitation of proxies from the holders of Quanex common stock
for use at the special meeting of Quanex stockholders and any
adjournments or postponements of the special meeting.
Date,
Time and Place
The special meeting of stockholders of Quanex will be held on
March , 2008 at :00 a.m., at the
Companys principal executive offices at 1900 West
Loop South,
15th Floor,
Houston, Texas.
Matters
to Be Considered
At the special meeting, Quanex stockholders will be asked:
|
|
|
|
|
to consider and vote upon a proposal to approve and adopt the
merger agreement;
|
|
|
|
to consider and vote upon a proposal to adjourn or postpone the
special meeting, if necessary, to solicit additional proxies in
favor of the approval and adoption of the merger
agreement; and
|
|
|
|
to consider and transact any other business as may properly be
brought before the special meeting or any adjournments or
postponements thereof.
|
At this time, the Quanex Board of Directors is unaware of any
matters, other than those set forth above, that it expects to
properly come before the special meeting.
Stockholders
Entitled to Vote
The close of business on February , 2008 has
been fixed by Quanexs Board as the record date for the
determination of those holders of Quanex common stock who are
entitled to notice of, and to vote at, the special meeting and
on any adjournments or postponements thereof. At the close of
business on the record date, there
were shares
of Quanex common stock outstanding and entitled to vote, held by
approximately
holders of record. A list of the stockholders of record entitled
to vote at the special meeting will be available for examination
by Quanex stockholders for any purpose germane to the meeting.
The list will be available at the meeting and for ten days prior
to the meeting during ordinary business hours by contacting
Quanexs Secretary at 1900 West Loop South,
Suite 1500, Houston, Texas 77027.
Quorum
and Required Vote
Each holder of record of Quanex common stock as of the record
date is entitled to cast one vote per share at the special
meeting on each proposal. The presence, in person or by proxy,
of the holders of a majority of the issued and outstanding
shares of Quanex common stock outstanding as of the record date
constitutes a quorum for the transaction of business at the
special meeting. The affirmative vote of the holders of a
majority of the shares of Quanex common stock entitled to vote
at the special meeting is required to approve and adopt the
merger agreement.
As of the record date for the special meeting, directors and
executive officers of Quanex and their affiliates beneficially
owned an aggregate of shares
of Quanex common stock entitled to vote at the special meeting.
These shares represent
approximately % of the Quanex
common stock outstanding and entitled to vote as of the record
date.
As of the record date, Gerdau and its directors, executive
officers, and their affiliates owned none of the outstanding
shares of Quanex common stock.
How
Shares Will Be Voted at the Special Meeting
All shares of Quanex common stock represented by properly
executed proxies received before or at the special meeting, and
not properly revoked, will be voted as specified in the proxies.
Properly executed proxies
13
that do not contain voting instructions will be voted
FOR approval and adoption of the merger agreement
and any adjournment or postponement of the special meeting.
A properly executed proxy marked Abstain with
respect to any proposal will be counted as present for purposes
of determining whether there is a quorum at the special meeting.
However, because the approval and adoption of the merger
agreement requires the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote at the
special meeting, an abstention will have the same effect as a
vote AGAINST approval and adoption of the merger
agreement.
If you hold shares of Quanex common stock in street
name through a bank, broker, or other nominee, the bank,
broker, or nominee may vote your shares only in accordance with
your instructions. If you do not give specific instructions to
your bank, broker, or nominee as to how you want your shares
voted, your bank, broker, or nominee will indicate that it does
not have authority to vote on the proposal, which will result in
what is called a broker non-vote. Broker non-votes
will be counted for purposes of determining whether there is a
quorum present at the special meeting, but because approval and
adoption of the merger agreement requires the affirmative vote
of the holders of a majority of the outstanding shares entitled
to vote at the special meeting, broker non-votes will have the
same effect as a vote AGAINST approval and adoption
of the merger agreement.
If any other matters are properly brought before the special
meeting, the proxies named in the proxy card will vote the
shares represented by duly executed proxies in their sole
discretion.
How to
Vote Your Shares
Record holders may cause their shares of Quanex common stock to
be voted using one of the following methods:
|
|
|
|
|
mark, sign, date and return the enclosed proxy card by mail;
|
|
|
|
submit your proxy or voting instructions by telephone or
Internet by following the instructions included with your proxy
card; or
|
|
|
|
appear and vote in person by ballot at the special meeting.
|
Regardless of whether you plan to attend the special meeting, we
request that you complete and return a proxy for your shares of
Quanex common stock as described above as promptly as possible.
You can always change your vote at the special meeting. If you
properly submit your proxy card or your voting instructions as
described above, one of the individuals named as your proxy will
vote your shares of Quanex common stock as you have directed.
You may vote for or against the proposals submitted at the
special meeting or you may abstain from voting.
If you hold shares of Quanex common stock through a broker,
bank, or other nominee, please follow the voting instructions
provided by that firm. If you do not return your proxy card, or
if your shares are held in a stock brokerage account or held by
a bank, broker, or other nominee, or, in other words, in
street name and you do not instruct your bank,
broker, or other nominee on how to vote those shares, those
shares will not be voted at the special meeting.
A number of banks and brokerage firms participate in a program
that also permits stockholders whose shares are held in
street name to direct their vote by the Internet or
telephone. This option, if available, will be reflected in the
voting instructions from the bank or brokerage firm that
accompany this proxy statement. If your shares are held in an
account at a bank or brokerage firm that participates in such a
program, you may direct the vote of these shares by the Internet
or telephone by following the voting instructions enclosed with
the proxy from the bank or brokerage firm. The Internet and
telephone proxy procedures are designed to authenticate
stockholders identities, to allow stockholders to give
their proxy voting instructions and to confirm that those
instructions have been properly recorded. Votes directed by the
Internet or telephone through such a program must be received by
11:59 p.m., New York, New York time, on
March , 2008. Requesting a proxy prior to the
deadline described above will automatically cancel any voting
directions you have previously given by the Internet or
telephone with respect to your shares. Directing the voting of
your
14
shares will not affect your right to vote in person if you
decide to attend the meeting; however, you must first obtain a
signed and properly executed proxy from your bank, broker, or
other nominee to vote your shares held in street name at the
special meeting.
If you submit your proxy but do not make specific choices, your
proxy will be voted FOR each of the proposals
presented.
How to
Change Your Vote
If you are a registered stockholder, you may revoke your proxy
at any time before the shares are voted at the special meeting
by:
|
|
|
|
|
completing, signing, and timely submitting a new proxy to the
addressee indicated on the pre-addressed envelope enclosed with
your initial proxy card by the close of business on
March , 2008; the latest dated and signed proxy
actually received by such addressee before the special meeting
will be counted, and any earlier proxies will be considered
revoked;
|
|
|
|
|
|
notifying Quanexs Secretary at 1900 West Loop South,
Suite 1500, Houston, Texas 77027, Attn: Kevin P. Delaney,
in writing, by the close of business on March ,
2008, that you have revoked your earlier proxy; or
|
|
|
|
|
|
voting in person at the special meeting.
|
Merely attending the special meeting will not revoke any prior
votes or proxies; you must vote at the special meeting to revoke
a prior proxy.
If you hold shares of Quanex common stock through a bank, broker
or other nominee and you vote by proxy, you may later revoke
your proxy instructions by informing the holder of record in
accordance with that firms procedures.
Solicitation
of Proxies
In addition to solicitation by mail, directors, officers, and
employees of Quanex may solicit proxies for the special meeting
from Quanex stockholders personally or by telephone, facsimile,
and other electronic means without compensation other than
reimbursement for their actual expenses.
Arrangements will be made with brokerage firms and other
custodians, nominees, and fiduciaries for the forwarding of
solicitation material to the beneficial owners of Quanex common
stock held of record by those persons, and Quanex will, if
requested, reimburse the record holders for their reasonable
out-of-pocket expenses in so doing.
Quanex has engaged D.F. King & Co., Inc. to assist in
the solicitation of proxies and provide related advice and
informational support for a services fee and the reimbursement
of customary disbursements that are not expected to exceed
$12,000 in the aggregate.
Recommendation
of the Quanex Board of Directors
The Quanex Board of Directors has unanimously approved the
merger agreement and the transactions contemplated by the merger
agreement, including the merger. The Quanex Board of Directors
determined that the merger is advisable and in the best
interests of Quanex and its stockholders and unanimously
recommends that you vote FOR approval and adoption
of the merger agreement. See The Merger
Quanexs Reasons for the Merger beginning on
page 21 and The Merger Recommendation of
the Quanex Board of Directors beginning on page 22
for a more detailed discussion of the recommendation of the
Quanex Board of Directors.
Special
Meeting Admission
If you wish to attend the special meeting in person, you must
present a form of personal identification and proof of
ownership. If you are a beneficial owner of shares of Quanex
common stock that is held by a
15
bank, broker, or other nominee, you will need proof of such
beneficial ownership of such shares to be admitted to the
meeting. A recent brokerage statement or a letter from your bank
or broker are examples of proof of ownership.
No cameras, recording equipment, electronic devices, large bags,
briefcases, or packages will be permitted in the meeting.
PLEASE DO NOT SEND IN ANY QUANEX COMMON STOCK CERTIFICATES
WITH YOUR PROXY CARD. After the merger is completed, you will
receive written instructions from the exchange agent informing
you how to surrender your stock certificates to receive the
merger consideration.
Adjournment
and Postponements
The special meeting may be adjourned from time to time, to
reconvene at the same or some other place, by approval of the
holders of shares of Quanex common stock representing a majority
of the votes present in person or by proxy at the special
meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the special meeting, so
long as the new time and place for the special meeting are
announced at that time. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is
determined for the adjourned special meeting, a notice of the
adjourned special meeting must be given to each stockholder of
record entitled to vote at the special meeting. If a quorum is
not present at the Quanex special meeting, holders of shares of
Quanex common stock may be asked to vote on a proposal to
adjourn or postpone the Quanex special meeting to solicit
additional proxies. If a quorum is not present at the Quanex
special meeting, the holders of a majority of the shares
entitled to vote who are present in person or by proxy may
adjourn the meeting. If a quorum is present at the Quanex
special meeting but there are not sufficient votes at the time
of the special meeting to approve the other proposal(s), holders
of shares of Quanex common stock may also be asked to vote on a
proposal to approve the adjournment or postponement of the
special meeting to permit further solicitation of proxies.
Appraisal
Rights
Under Delaware law, if you do not vote in favor of adopting the
merger agreement, you will have the right to have the fair
value of your shares of our common stock determined by the
Court of Chancery of the State of Delaware and to receive
payment based on that valuation in lieu of receiving the merger
consideration, but only if you comply with all requirements of
Delaware law, which are summarized in this proxy statement. The
ultimate amount that you receive as a dissenting stockholder in
an appraisal proceeding may be more than, less than, or the same
as, the $39.20 per share you would have received under the
merger agreement. If you intend to exercise appraisal rights,
among other things, you must:
|
|
|
|
|
send a written demand to us for appraisal in compliance with
Delaware law before the vote on adopting the merger agreement at
the special meeting;
|
|
|
|
not vote for the proposal to adopt the merger agreement; and
|
|
|
|
continuously hold your shares of our common stock from the date
you make the demand for appraisal through the effective date of
the merger.
|
If you vote for the proposal to adopt the merger agreement, you
will waive your rights to seek appraisal of your shares of our
common stock under Delaware law. Also, merely voting against or
abstaining with respect to the proposal to adopt the merger
agreement will not protect your rights to an appraisal. Failure
to follow exactly the procedures specified under Delaware law
will result in the loss of your appraisal rights. Delaware law
requirements for exercising appraisal rights are described in
further detail in Appraisal Rights beginning on
page 27 and the relevant section of Delaware law regarding
appraisal rights is reproduced and attached as Annex C
to this proxy statement.
16
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this proxy statement are
forward-looking statements as defined under the
Private Securities Litigation Reform Act of 1995. Generally, the
words expect, believe,
intend, estimate,
anticipate, project, will
and similar expressions identify forward-looking statements,
which generally are not historical in nature. All statements
which address future operating performance, events or
developments that we expect or anticipate will occur in the
future, including statements relating to volume, sales,
operating income and earnings per share, and statements
expressing a general outlook about future operating results, are
forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause
actual results to differ materially from Quanexs
historical experience and our present projections or
expectations. As and when made, management believes that these
forward-looking statements are reasonable. However, caution
should be taken not to place undue reliance on any such
forward-looking statements since such statements speak only as
of the date when made and there can be no assurance that such
forward-looking statements will occur. Quanex undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Factors exist that could cause Quanexs actual results to
differ materially from the expected results described in or
underlying Quanexs forward-looking statements. Such
factors include domestic and international economic activity,
prevailing prices of steel and aluminum scrap and other raw
material costs, the rate of change in prices for steel and
aluminum scrap, energy costs, interest rates, construction
delays, market conditions, particularly in the vehicular, home
building and remodeling markets, any material changes in
purchases by Quanexs principal customers, labor supply and
relations, environmental regulations, changes in estimates of
costs for known environmental remediation projects and
situations, world-wide political stability and economic growth,
Quanexs successful implementation of its internal
operating plans, acquisition strategies and integration,
performance issues with key customers, suppliers and
subcontractors, and regulatory changes and legal proceedings.
Accordingly, there can be no assurance that the forward-looking
statements contained herein will occur or that objectives will
be achieved. All written and verbal forward-looking statements
attributable to Quanex or persons acting on its behalf are
expressly qualified in their entirety by such factors.
17
THE
SPIN-OFF
Immediately prior to and in connection with the merger, Quanex
will spin-off to its stockholders the limited liability company
interests of its building products subsidiary containing all of
the assets and liabilities of Quanexs Building Products
Group known as Quanex Building Products LLC. The interests will
be distributed to Quanexs stockholders on the basis of one
unit of Quanex Building Products LLC for each share of Quanex
common stock outstanding. Immediately following the spin-off,
Quanex Building Products LLC will merge with and into its
wholly-owned subsidiary Quanex Building Products Corporation,
with Quanex Building Products Corporation being the surviving
company in the merger. Each unit of Quanex Building Products LLC
will be converted immediately into one share of Quanex Building
Products Corporation common stock. As a result, a Quanex
stockholder will receive one share of Quanex Building Products
Corporation common stock for each share of Quanex common stock
held by such stockholder.
Quanex stockholder approval is not needed for, and you are not
being asked for a proxy in relation to, the proposed spin-off of
the Building Products Group of Quanex or the subsequent merger
of Quanex Building Products LLC with and into Quanex Building
Products Corporation. This proxy statement includes a
preliminary QBPC Information Statement attached hereto as
Annex D that describes the spin-off in greater
detail. Holders of Quanex common stock on the record date of the
spin-off, which will be the same date as the closing date of the
merger, will also receive the final QBPC Information Statement.
THE
MERGER
Quanexs Board of Directors is using this document to
solicit proxies from the holders of Quanex common stock for use
at the Quanex special meeting, at which holders of Quanex common
stock will be asked to vote upon approval and adoption of the
merger agreement.
The Board of Directors of Quanex has unanimously approved the
merger agreement providing for the merger of Gerdau Delaware
with and into Quanex. Upon the completion of the merger, the
separate corporate existence of Gerdau Delaware will terminate
and Quanex will be a wholly-owned subsidiary of Gerdau. Subject
to the satisfaction or waiver of the conditions to closing of
the merger, including the completion of the spin-off, we expect
to complete the merger in the first calendar quarter of 2008.
Background
of the Merger
Since early 2006 the management and Board of Directors of Quanex
had been debating and exploring the merits of alternative
strategies involving the company, including the separation of
its Building Products Group from its Vehicular Products Group.
Ultimately, management and the Board of Directors determined
that each Group would be better positioned to grow separate from
each other and would receive a better valuation in the
marketplace and, as a result, would deliver enhanced value to
stockholders.
In July 2006, Quanex began active discussions with its financial
and legal advisors regarding a potential tax free spin-off of
the Building Products Group as an initial step towards
delivering value to stockholders, given Quanexs relatively
low market valuation compared to other public companies active
in the building products sector. At a meeting of the Quanex
Board of Directors held in October 2006, Lazard presented
several scenarios to the Board for realizing the potential
values of the Building Products Group and the Vehicular Products
Group as two separate companies. A reverse Morris trust
transaction was introduced as an alternative method to achieve a
tax free separation of the two Groups.
In October 2006, a potential candidate was identified for a
reverse Morris trust transaction involving Quanexs
Building Products Group given the companys size and
business composition. From October 2006 through February 2007,
Quanex and management of this company exchanged high-level
business and financial information and held numerous discussions
regarding the potential merits of a reverse Morris trust
transaction. At a Quanex Board of Directors meeting held in
February 2007, this transaction was presented to the Board and a
special committee of the Board was formed to monitor the
progress of the potential transaction. During
18
March 2007 and April 2007, the two companies conducted formal
due diligence, including numerous site visits, management
presentations and the negotiation of merger terms. Quanex and
this company, however, were unable to reach agreement on certain
key issues and negotiations were ultimately terminated.
On May 4, 2007, Quanexs Board of Directors met with
Lazard to review Quanexs strategic alternatives. At that
meeting, it was concluded that the value of the Vehicular
Products Group would be enhanced under an alternative growth
strategy that might be best achieved through a strategic
combination with a larger, more diversified steel company. Given
that such a strategy was unlikely to include a combination of
the Vehicular Products Group and the Building Products Group,
the Board of Directors approved senior managements
formally exploring separation alternatives for the Building
Products Group, including the potential sale or spin-off of the
division.
On May 16, 2007, Quanex publicly announced the strategic
review of the Building Products Group. Lazard commenced a sale
process for the Building Products Group on May 17, 2007. In
total, 72 prospective buyers were contacted (of which 19 were
potential strategic buyers and 53 were potential financial
buyers), 36 confidentiality agreements were signed and 36
confidential information memoranda were distributed. On
July 11, 2007, 11 preliminary indications of interest were
received from prospective financial buyers for the Building
Products Group
On July 14, 2007, Quanexs Board met with Lazard and
approved five parties to be invited to conduct detailed due
diligence on the Building Products Group, to include site
visits, management presentations and access to an electronic
data room. At this meeting the Board of Directors also gave
Lazard approval to begin contacting a targeted list of potential
strategic buyers for the Vehicular Products Group to solicit
preliminary indications of interest. Lazard contacted 19
potential strategic buyers regarding the Vehicular Products
Group, from which eight confidentiality agreements were signed
and eight confidential information packages were distributed.
In early August 2007, two of the bidders for the Building
Products Group elected not to continue with that process, citing
deteriorating U.S. credit market conditions. The remaining
three bidders attended management presentations in early August,
but significantly reduced or retracted their preliminary
indications of interest, also citing deteriorating
U.S. credit market conditions. During this period the
U.S. new home construction market also began to rapidly
deteriorate, which significantly reduced managements
confidence that an attractive sale price could be secured for
the Building Products Group.
On August 28, 2007, the Quanex Board of Directors met with
Lazard and discussed the merits of a taxable spin-off of the
Building Products Group as a means to facilitate the
continuation of the sales process for the Vehicular Products
Group.
On September 10, 2007, five preliminary indications of
interest were received for the Vehicular Products Group ranging
from $1,000 million to $1,300 million in enterprise
value. All five parties were invited to a second round of due
diligence, which included management presentations in Houston,
Texas, and access to an electronic data room.
On October 12, 2007, the remaining bidders were provided
with draft forms of the merger agreement and the spin-off
related agreements for their review. Bidders were instructed to
submit their second round offers on a per share basis for
Quanex, subject to the separation of the Building Products Group
through a taxable spin-off, assuming a certain level of net
financial debt and other corporate adjustments.
On October 24, 2007, three parties submitted non-binding,
all cash offers for Quanex. These offers ranged from $19.20 to
$32.61 per share, representing $919 million to
$1,418 million in enterprise value. In addition, one other
offer was submitted under an alternative transaction structure.
On October 28, 2007, the Quanex Board met with Lazard to
discuss the various offers received and to review the merits of
the alternative transaction structure. After review, the Board
of Directors instructed Lazard to invite Gerdau and another
company to proceed with a third and final round of confirmatory
due diligence and final contract negotiations. In addition, the
Board of Directors instructed Lazard to determine whether the
company that submitted the alternative transaction structure
would be prepared to submit an offer on an all
19
cash basis similar to the other offers received. This company
declined to proceed on that basis soon thereafter. The Board of
Directors also reviewed the merits of a spin-off transaction
involving the Building Products Group and decided that Quanex
should proceed with a taxable spin-off of the Building Products
Group to Quanex stockholders immediately prior to the closing of
any transaction involving the Vehicular Products Group.
From October 29, 2007 to November 16, 2007,
representatives of Quanex and Quanexs legal advisors
continued to negotiate the terms of the merger agreement, the
spin-off related agreements and the associated schedules to
those agreements with the two remaining bidders. At the same
time, both remaining bidders conducted extensive additional due
diligence through written questions responded to by Quanex
management and telephone conferences attended by representatives
of the bidders, their legal counsel, accountants and financial
advisers and Quanexs management, legal counsel,
accountants and financial advisers. Both bidders were also
provided with the opportunity to visit several of the facilities
of the Vehicular Products Group in Lansing, Michigan, Jackson,
Michigan, Monroe, Michigan, and Ft. Smith, Arkansas.
On the evening of November 16, 2007, Gerdau and the second
bidder submitted their final bids to Quanex together with the
forms of agreements they would be willing to enter into with
Quanex. Gerdau presented a bid of $40.02 per share of
outstanding Quanex common stock, or $1,673 million in
enterprise value (representing an enterprise value to fiscal
year-end 2007 earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA, ratio of 10.3x). The second
bidder presented a bid of $38.67 per share of outstanding Quanex
common stock, or $1,623 million in enterprise value
(representing an enterprise value to fiscal year-end 2007 EBITDA
ratio of 10.0x).
On November 17, 2007, attorneys for Quanex and Gerdau
continued negotiating certain provisions of the agreements. In
addition, Lazard representatives held conversations with
representatives of the second bidder regarding certain
commercial positions that the bidder was proposing in its form
of agreements that varied from Quanexs expectations for
the agreements.
To facilitate the bidding process, Quanex advised the bidders to
make their bids based on the assumption that Quanex, not the
Building Products Group, would remain liable for Quanexs
convertible notes and certain expenses of the transaction,
including expenses dependent on Quanexs share price such
as the cost of employee stock options, restricted stock and
restricted stock units and
change-in-control
obligations, in a stated amount. Pursuant to the agreements
between Quanex and the Building Products Group, if the actual
amount, as determined by Quanexs share price at closing,
exceeded the stated amount, the Building Products Group would
reimburse Quanex, and if the actual amount was less than the
stated amount, Quanex would pay the Building Products Group the
difference. Based on the enterprise values reflected in the two
final bids, management of Quanex believed that the stated amount
underestimated the actual cost of these liabilities and
therefore would require the Building Products Group to make a
payment to Quanex. To avoid this result, Quanex instructed
Gerdau to mathematically adjust its bid to reflect a higher
stated amount which would result in it acquiring Quanex with a
larger liability. This mathematical adjustment changed the
Gerdau bid to $39.20 per share of outstanding Quanex common
stock but that bid, with assumed liabilities, continued to
reflect an enterprise value of $1,673 million.
On the morning of November 18, 2007, at a telephonic
special meeting of the Quanex Board of Directors, the Board met
to discuss the two bids that had been submitted and the status
of negotiations regarding the respective sets of agreements with
both bidders. Raymond Jean and other members of senior
management of Quanex discussed certain aspects of both bids and
the progress that had been made with Gerdau both in the amount
of their bid and the status of the transaction agreements. Also,
representatives of Lazard presented an overview of the financial
aspects of the proposed merger. At the meeting, Lazard delivered
its oral opinion to the Quanex Board of Directors followed by
delivery of its written opinion, dated November 18, 2007,
as described under Opinion of Lazard
Frères & Co. LLC Quanexs
Financial Advisor, to the effect that, as of that date,
and based upon and subject to the assumptions made, matters
considered and limitations described in the opinion, the
consideration to be paid in the merger to holders of shares of
Quanex common stock (other than holders of dissenters
shares and shares of Quanex common stock owned directly by
Quanex as treasury stock or by Gerdau or Gerdau Delaware, and in
each case not held on behalf of third parties) was
20
fair to such holders from a financial point of view. The Board
approved the merger agreement and authorized the Company to
enter into the merger agreement with Gerdau and, contingent upon
completion of the merger, approved the distribution of Quanex
Building Products to Quanexs stockholders.
On November 18, 2007, representatives of the Company and
Gerdau executed and delivered the merger agreement.
Quanexs
Reasons for the Merger
Following a review and discussion of all relevant information
regarding the merger, Quanexs Board of Directors
determined that the merger is in the best interests of Quanex
and its stockholders. In reaching their conclusion, the members
of Quanexs Board of Directors relied on their personal
knowledge of Quanex and the served industries of its operating
groups, and the advice of management and Quanexs legal and
financial advisors. The Quanex Board considered numerous factors
in favor of the merger agreement, including, among other things,
the following:
|
|
|
|
|
Separating the Building Products Group from the Vehicular
Products Group Enhances Stockholder
Value. Separating the groups will better enable
each group to reach its full potential. Management did not see
the Vehicular Products Group as a consolidator in the steel
industry and believes it would be disadvantaged over time in
servicing its increasingly global vehicular customers. The
ongoing steel consolidation trend, where company size and
geographic location can make a competitive difference, is
expected to continue. With respect to the Building Products
Group, management and the Quanex Board believe it should be
managed under an invest for growth strategy and that
there are rapid growth opportunities, both organically
(particularly as the housing sector rebounds), through new
product introduction, and through an acquisition program.
Management and the Board also believe the focus on the Building
Products Group will permit more corporate vigor and a new level
of creativity to be applied to stimulate profitable growth in
this sector business.
|
|
|
|
Creating Stockholder Value With Respect to Quanexs
Vehicular Products Group. The cash to be paid to
stockholders, per the terms of the merger agreement, represent a
fair value in exchange for the assets and liabilities being
assumed by Gerdau. Recent consolidation activity in the market
has created enhanced value for a well-positioned business like
the Vehicular Products Group. However, it has also created
future uncertainty with the potential addition of much larger
competitors. As a result, the Board believes that at present
there is an unusual opportunity to realize capitalized value for
the Quanex stockholders. This view is supported by the fact that
the earnings multiple represented by the enterprise value
implicit in the total consideration is equal to or higher than
multiples paid for similarly situated steel companies in recent
years.
|
|
|
|
Opportunity to Raise Equity Market
Valuation. Over the past decade, the current
Quanex portfolio of companies has not been rewarded in the
equities markets with strong valuation metrics. Equity analysts
and institutional investment managers often specialize in
specific economic sectors. Because of its unique combination of
specialty steel bar mills serving primarily automotive
applications, positioned alongside building products businesses
serving primarily residential, new home and remodeling markets,
Quanex has not neatly fallen into any one investment category,
nor has it been classified as a diversified industrial. In
addition, Quanex shares have traditionally traded at earnings
multiples more in line with steel companies rather than the
higher multiples typically associated with building products
manufacturers. Management and the Board believe that a
separately traded Building Products Group may trade at a higher
multiple.
|
The Quanex Board therefore concluded that the merger and the
spin-off present an opportunity to maximize the cash value of
the Vehicular Products Group under favorable circumstances while
giving our stockholders the opportunity to participate in a pure
play building products business with greater growth and market
pricing potential.
21
Recommendation
of the Quanex Board of Directors
After careful consideration of the matters discussed above, the
Quanex Board of Directors concluded that the proposed merger is
advisable and in the best interests of the stockholders of
Quanex.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF
QUANEX HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AS BEING
ADVISABLE AND IN THE BEST INTERESTS OF QUANEX AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT QUANEXS
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Opinion
of Lazard Frères & Co. LLC
Quanexs Financial Advisor
Under an engagement letter dated as of October 21, 2006, as
amended and restated as of March 16, 2007, Quanex retained
Lazard to act as its investment banker in connection with
certain potential transactions involving Quanex and its
businesses. As part of that engagement, the Board of Directors
of Quanex requested that Lazard evaluate the fairness to the
holders of shares of Quanex common stock (other than holders of
dissenters shares and shares of Quanex common stock owned
directly by Quanex as treasury stock or by Gerdau or Gerdau
Delaware, and in each case not held on behalf of third parties),
from a financial point of view, of the consideration to be
received by such holders in the merger. On November, 18, 2007,
Lazard rendered its opinion to Quanexs Board of Directors
that, as of that date, and subject to certain assumptions,
limitations, factors and qualifications set forth therein, the
merger consideration of $39.20 per share in cash to be received
by each holder of shares of Company common stock (other than
holders of dissenters shares and shares of Quanex common
stock owned directly by Quanex as treasury stock or by Gerdau or
Gerdau Delaware, and in each case not held on behalf of third
parties)in the merger was fair to such holders from a financial
point of view.
The full text of the Lazard opinion, which was approved by
Lazards opinion committee and which sets forth, among
other things, the assumptions made, procedures followed, matters
considered and qualifications and limitations on the review
undertaken by Lazard in connection with the opinion, is attached
as Annex B to this proxy statement and is incorporated into
this proxy statement by reference. You are urged to read
Lazards opinion carefully in its entirety.
In connection with rendering its opinion, Lazard:
(i) reviewed the financial terms and conditions of the
draft, dated November 18, 2007, of the merger agreement;
(ii) analyzed certain publicly available historical
business and financial information relating to Quanex;
(iii) reviewed various financial forecasts and other data
provided to Lazard by the management of Quanex relating to the
business and prospects of Quanex after giving effect to the
disposition of Quanexs Building Products Group;
(iv) held discussions with members of the senior management
of Quanex with respect to the business and prospects of Quanex
after giving effect to the disposition of Quanexs Building
Products Group;
(v) reviewed public information with respect to certain
other companies in lines of business Lazard believes to be
generally comparable to the business of Quanex after giving
effect to the disposition of Quanexs Building Products
Group;
(vi) reviewed the financial terms of certain business
combinations involving companies in lines of business Lazard
believes to be generally comparable to the business of Quanex
after giving effect to the disposition of Quanexs Building
Products Group;
(vii) reviewed the historical stock prices and trading
volumes of Quanexs common stock; and
22
(viii) conducted such other financial studies, analyses and
investigations as Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the
foregoing information and did not assume any responsibility for
any independent verification of (and did not independently
verify) such information or any independent valuation or
appraisal of any of the assets or liabilities of Quanex or
concerning the solvency or fair value of Quanex. With respect to
financial forecasts, Lazard assumed that they were reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the management of Quanex as to the
future financial performance of Quanex. Lazard assumed no
responsibility for and expressed no view as to such forecasts or
the assumptions on which they were based.
In rendering its opinion, Lazard assumed that the merger
agreement would be identical in all material respects to the
draft merger agreement reviewed by Lazard and that the merger
would be consummated on the terms described in the merger
agreement without any waiver or modification of any material
terms or conditions. Lazard further assumed that obtaining the
necessary regulatory approvals and contractual consents for the
merger and the disposition of the Building Products Group would
not have an adverse effect on Quanex or the merger. In addition,
Lazard assumed the representations and warranties contained in
the merger agreement and all agreements related thereto were
true and correct in all material respects. Lazard did not
express any opinion as to any tax or other consequences that
might result from the merger or the disposition of the Building
Products Group, nor did the Lazard opinion address any legal,
tax, regulatory or accounting matters, as to which Lazard
understood that Quanex obtained such advice it deemed necessary
from qualified professionals. In addition, Lazard did not
express any opinion about the fairness of the amount or nature
of, or any other aspect of, the compensation to any of
Quanexs officers, directors or employees, or any class of
such persons, relative to the merger consideration to be paid to
Quanexs public stockholders or otherwise.
In rendering the Lazard opinion, Lazard further assumed that the
stockholders of Quanex prior to the consummation of the merger
(and not the owners of Quanex after giving effect to the merger)
will either own or be entitled to receive the proceeds of the
disposition of Quanexs Building Products Group. Lazard
expressed no opinion as to the value of Quanexs Building
Products Group or as to the fairness or any other aspect of the
disposition of Quanexs Building Products Group.
Lazards opinion was for the benefit of the Board of
Directors in connection with its consideration of the merger and
only addressed the fairness to the holders of shares of common
stock (other than holders of dissenters shares and shares
of Quanex common stock owned directly by Quanex as treasury
stock or by Gerdau or Gerdau Delaware, and in each case not held
on behalf of third parties) of the merger consideration to be
paid to such holders in the merger from a financial point of
view as of the date of the Lazard opinion. Lazards written
opinion did not address the relative merits of the merger as
compared to other business strategies or transactions that might
be available to Quanex or the underlying decision by Quanex to
engage in the merger, and was not intended to and does not
constitute a recommendation to Quanexs stockholders as to
how such stockholders should vote with respect to the merger or
any matter relating thereto. Lazards opinion was
necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to Lazard as of, the date of the Lazard opinion. Lazard assumed
no responsibility for updating or revising the Lazard opinion
based on circumstances or events occurring after the date of the
Lazard opinion. Lazard expressed no opinion as to the price at
which shares of Quanexs common stock may trade at any time
subsequent to the announcement of the merger. The following is
only a summary of the Lazard opinion. You are urged to read the
entire Lazard opinion.
The following is a summary of the material financial analyses
that Lazard performed in connection with rendering its opinion.
The summary of Lazards analyses described below is not a
complete description of the analyses underlying Lazards
opinion. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the
most appropriate and relevant methods of financial analyses and
the application of those methods to the particular
circumstances, and, therefore, is not readily susceptible to
summary description. In arriving at its opinion, Lazard
considered the results of all the analyses and did not attribute
any particular weight to any factor or analysis considered by
it; rather, Lazard made its determination
23
as to fairness on the basis of its experience and professional
judgment after considering the results of all of the analyses.
For purposes of its analyses, Lazard considered industry
performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the
control of Quanex. No company, transaction or business used in
Lazards analyses as a comparison is identical to Quanex,
either before or after giving effect to the disposition of the
Building Products Group, or the merger, and an evaluation of the
results of those analyses is not entirely mathematical. Rather,
the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other
factors that could affect the acquisition, public trading or
other values of the companies, business segments or transactions
analyzed. The estimates contained in Lazards analyses and
the ranges of valuations resulting from any particular analysis
are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Lazards analyses are inherently subject to
substantial uncertainty.
The financial analyses summarized below include information
presented in tabular format. In order to fully understand
Lazards financial analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Lazards
financial analyses.
Financial
Analyses
Discounted Cash Flow Analysis. Based on the
base case and downside case projections provided to Lazard by
Quanex, Lazard performed a discounted cash flow analysis of
Quanex to calculate the estimated present value of the
standalone, unlevered, after-tax free cash flow that Quanex,
after giving effect to the disposition of the Building Products
Group, could generate during the fiscal years ended
October 31, 2008 through October 31, 2011. Lazard
calculated estimated terminal values for Quanex, after giving
effect to the disposition of the Building Products Group, by
applying a range of multiples of 5.0x to 6.0x to Quanexs
fiscal year ended October 31, 2011 base case and downside
case estimated EBITDA. The standalone, unlevered, after-tax free
cash flows and terminal values were discounted to present value
using discount rates ranging from 11.25% to 12.75%, which were
based on the weighted average cost of capital of a selected
group of global steel producers. Based on this analysis, Lazard
calculated an implied enterprise value range for Quanex of
approximately $915 million to $1,080 million in the
base case and $720 million to $840 million in the
downside case. A companys enterprise value is equal to its
short and long term debt plus the market value of its common
equity and the value of any preferred stock (at liquidation
value), minus its cash and cash equivalents.
Comparable Company Analysis. Lazard reviewed
and analyzed selected public companies in the steel industry
that it viewed as reasonably comparable to Quanex, after giving
effect to the disposition of the Building Products Group. In
performing these analyses, Lazard reviewed and analyzed publicly
available financial information relating to the selected
companies and compared that information to the corresponding
information for Quanex, after giving effect to the disposition
of the Building Products Group, based on the forecasts of
management of Quanex. Specifically, Lazard compared Quanex,
after giving effect to the disposition of the Building Products
Group, to the following five public companies in the steel
industry:
|
|
|
|
|
The Timken Company;
|
|
|
|
Steel Dynamics, Inc.;
|
|
|
|
Nucor Corporation;
|
|
|
|
Commercial Metals Company; and
|
24
|
|
|
|
|
Gerdau Ameristeel Corporation.
|
Based on equity analysts estimates and other public
information, Lazard reviewed, among other things, the enterprise
value of each selected comparable company as a multiple of such
companys estimated EBITDA, for calendar year 2008, and
each comparable companys closing stock price on
November 16, 2007, as a multiple of such comparable
companys estimated earnings per share, referred to as EPS,
for calendar year 2008.
Lazard calculated the following multiples for the above
comparable companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 16, 2007
|
|
|
|
Enterprise Value/EBITDA
|
|
|
Closing Stock Price/EPS
|
|
|
|
CY 2008E
|
|
|
CY 2008E
|
|
|
Low
|
|
|
4.8
|
x
|
|
|
7.3
|
x
|
Mean
|
|
|
5.3
|
x
|
|
|
9.2
|
x
|
High
|
|
|
5.8
|
x
|
|
|
10.6
|
x
|
Based on the foregoing, Lazard applied EBITDA multiples of 5.0x
to 6.0x to Quanexs calendar year 2008 estimated EBITDA,
after giving effect to the disposition of the Building Products
Group, provided by Quanexs management, and determined an
implied enterprise value range of $970 million to
$1,165 million.
Comparable Transactions Analysis. Lazard
reviewed and analyzed selected precedent merger and acquisition
transactions involving companies in the steel industry. In
performing these analyses, Lazard analyzed certain financial
information and transaction multiples relating to companies in
the selected transactions and compared such information to the
corresponding information for Quanex, after giving effect to the
disposition of the Building Products Group. Specifically, Lazard
reviewed 14 merger and acquisition transactions since November
2005 involving companies in the steel industry for which
sufficient public information was available. Lazard reviewed,
among other things, the transaction value of each acquired
company implied by the transaction as a multiple of the acquired
companys EBITDA for the last twelve months, or LTM, prior
to the public announcement of the transaction.
The precedent transactions were (listed by acquirer followed by
the acquired company and the date the transaction was publicly
announced):
|
|
|
|
|
Acquirer
|
|
Target Company
|
|
Announcement Date
|
|
United States Steel Corporation
|
|
Stelco Inc.
|
|
8/26/2007
|
Gerdau Ameristeel Corporation
|
|
Chaparral Steel Company
|
|
7/3/2007
|
SSAB Svenskt Stal AB
|
|
IPSCO Inc.
|
|
5/3/2007
|
Ternium S.A.
|
|
Grupo Imsa, S.A.B. de C.V.
|
|
4/30/2007
|
Essar Steel Limited
|
|
Algoma Steel Corporation
|
|
4/15/2007
|
United States Steel Corporation
|
|
Lone Star Technologies, Inc.
|
|
3/29/2007
|
Nucor Corporation
|
|
Harris Steel Group Inc.
|
|
1/2/2007
|
Evraz Group S.A.
|
|
Oregon Steel Mills, Inc.
|
|
11/20/2006
|
IPSCO Inc.
|
|
NS Group Inc.
|
|
9/11/2006
|
KNIA Holdings, Inc.
|
|
Niagara Corporation
|
|
7/19/2006
|
Mittal Steel Company N.V.
|
|
Arcelor S.A.
|
|
6/25/2006
|
Tenaris S.A.
|
|
Maverick Tube Corporation
|
|
6/12/2006
|
Black Diamond Capital Management, L.L.C.
|
|
Bayou Steel Corporation
|
|
3/17/2006
|
Arcelor S.A.
|
|
Dofasco Inc.
|
|
11/23/2005
|
25
Lazard calculated the following multiple for the above selected
transactions used in its analysis:
|
|
|
|
|
|
|
Transaction Value as a
|
|
|
|
Multiple of LTM
|
|
|
|
EBITDA
|
|
|
Low
|
|
|
3.8
|
x
|
Mean
|
|
|
7.5
|
x
|
Median
|
|
|
7.5
|
x
|
High
|
|
|
9.9
|
x
|
Based on the foregoing, Lazard applied LTM EBITDA multiples of
7.0x to 8.9x to Quanexs LTM EBITDA as provided by
Quanexs management, and determined an implied enterprise
value range of $1,130 million to $1,430 million.
Miscellaneous
In connection with Lazards services as investment banker
to Quanex, Quanex agreed to pay Lazard a fee of 0.7% of the
aggregate transaction consideration, or $11.7 million, one
quarter of which is payable upon announcement of the merger and
the remainder will be payable upon consummation of the merger.
Lazard will also be entitled to receive a separate fee of 0.7%
of the aggregate transaction consideration in connection with
the disposition of Quanexs Building Products Group. Lazard
and Quanex have agreed that if the disposition of the building
products business is accomplished through a spin-off, split-off
or similar transaction, and Lazard serves as the resulting
entitys investment banker in connection with a subsequent
sale, merger, consolidation or business combination transaction,
within 18 months following the disposition, 50% of the fee
to be paid to Lazard in connection with Quanexs
disposition of the Building Products Group will be credited
against the fee of 0.7% of the aggregate transaction
consideration payable to Lazard by the resulting entity in such
second stage transaction. The Company has also agreed to
reimburse Lazard for all expenses incurred in connection with
the engagement and to indemnify Lazard and certain related
parties against certain liabilities under certain circumstances
that may arise out of the rendering of its advice, including
certain liabilities under U.S. federal securities laws.
Lazard, as part of its investment banking business, is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, leveraged buyouts, and
valuations for estate, corporate and other purposes. In
addition, in the ordinary course of their respective businesses,
affiliates of Lazard and LFCM Holdings LLC (an entity owned in
large part by managing directors of Lazard) may actively trade
securities of Quanex
and/or the
securities of Gerdau for their own accounts and for the accounts
of their customers and, accordingly, may at any time hold for a
long or short position in such securities.
Lazard is an internationally recognized investment banking firm
providing a full range of financial advisory and securities
services. Lazard was selected to act as investment banker to
Quanex because of its qualifications, expertise and reputation
in investment banking and mergers and acquisitions, as well as
its familiarity with the businesses of Quanex.
The opinion of Lazard was one of many factors taken into
consideration by Quanexs Board of Directors. Consequently,
the analyses described above should not be viewed as
determinative of the opinion of Quanexs Board of Directors
with respect to the merger consideration or of whether
Quanexs Board of Directors would have been willing to
recommend a merger transaction with different merger
consideration. Additionally, Lazards opinion is not
intended to confer any rights or remedies upon any employee or
creditor of Quanex.
Regulatory
Matters
The merger is subject to review by the DOJ and the FTC under the
Hart-Scott-Rodino
Act. The
Hart-Scott-Rodino
Act, and the rules promulgated under it by the FTC, prevent
transactions, such as the merger, from being completed until
required information and materials are furnished to the DOJ and
the FTC
26
and certain waiting periods are terminated or expire. On
November 30, 2007, the parties submitted the notification
filings with the DOJ and the FTC. Early termination of the
waiting period was granted by the FTC on December 28, 2007.
The DOJ, the FTC and others may also challenge the merger on
antitrust grounds after termination of the waiting period.
Accordingly, at any time after the completion of the merger, the
DOJ, the FTC or another regulatory agency could take action
under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the completion
of the merger or permitting completion subject to regulatory
concessions or conditions. We cannot assure you that a challenge
to the merger will not be made or that, if a challenge is made,
it will not prevail.
A party or parties to a transaction may, but are not required
to, submit to the Committee on Foreign Investment in the United
States, which we refer to as CFIUS, in accordance with the
regulations implementing Section 721 of the Defense
Production Act of 1950, as amended, a voluntary notice of the
transaction. Section 721 empowers the President of the
United States to prohibit or suspend an acquisition of, or
investment in, a U.S. company by a foreign
person if the President of the United States, after
investigation, finds credible evidence that the foreign person
might take action that threatens to impair the national security
of the United States and that other provisions of existing law,
other than the International Emergency Economic Powers Act, do
not provide adequate and appropriate authority to protect the
national security. CFIUS has the authority to receive notices of
proposed transactions, determine when an investigation is
warranted, conduct investigations and submit recommendations to
the President of the United States to suspend or prohibit the
completion of transactions or to require divestitures of
completed transactions.
On January 15, 2008, the parties submitted a notice of the
transaction to CFIUS. On February 15, 2008, the parties
received a letter stating that CFIUS has determined not to
conduct an investigation and that CFIUS has concluded its review
of the transaction.
Other than as we describe in this document, the approval of any
other U.S. federal or state agency or any foreign agency is
not a condition to completion of the transaction.
Appraisal
Rights
Under the DGCL, any Quanex stockholder who does not wish to
accept the merger consideration has the right to dissent from
the merger and to seek an appraisal of, and to be paid the fair
value (exclusive of any element of value arising from the
accomplishment or expectation of the merger) for his or her
shares of Quanex common stock, so long as the stockholder
complies with the provisions of Section 262 of the DGCL.
Holders of record of Quanex common stock who do not vote in
favor of the merger agreement and who otherwise comply with the
applicable statutory procedures summarized in this proxy
statement will be entitled to appraisal rights under
Section 262 of the DGCL. A person having a beneficial
interest in shares of Quanex common stock held of record in the
name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect
appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE
LAW PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262
OF THE DGCL, WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX C.
ALL REFERENCES IN SECTION 262 OF THE DGCL AND IN THIS
SUMMARY TO A STOCKHOLDER OR HOLDER ARE
TO THE RECORD HOLDER OF THE SHARES OF COMMON STOCK AS TO WHICH
APPRAISAL RIGHTS ARE ASSERTED.
Under Section 262 of the DGCL, holders of shares of Quanex
common stock who follow the procedures set forth in
Section 262 of the DGCL will be entitled to have their
shares of Quanex common stock appraised by the Delaware Chancery
Court and to receive payment in cash of the fair
value of those shares of Quanex common stock, exclusive of
any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of
interest, if any, as determined by that court.
27
Under Section 262 of the DGCL, when a proposed merger is to
be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
must notify each of its stockholders who was a stockholder on
the record date for the meeting with respect to shares for which
appraisal rights are available, that appraisal rights are so
available, and must include in that required notice a copy of
Section 262 of the DGCL.
This proxy statement constitutes the required notice to the
holders of those shares of Quanex common stock and the
applicable statutory provisions of the DGCL are attached to this
proxy statement as Annex C. Any Quanex stockholder
who wishes to exercise his or her appraisal rights or who wishes
to preserve his or her right to do so should review the
following discussion and Annex C carefully because
failure to timely and properly comply with the procedures
specified in Annex C will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Quanex common stock wishing to exercise
his or her appraisal rights (a) must not vote in favor of
the merger agreement and (b) must deliver to Quanex prior
to the vote on the merger agreement at the Quanex special
meeting, a written demand for appraisal of his or her shares of
Quanex common stock. This written demand for appraisal must be
in addition to and separate from any proxy or vote abstaining
from or against the merger. This demand must reasonably inform
Quanex of the identity of the stockholder and of the
stockholders intent thereby to demand appraisal of his or
her shares. A holder of shares of Quanex common stock wishing to
exercise his or her appraisal rights must be the record holder
of such shares on the date the written demand for appraisal is
made and must continue to hold such shares until the
consummation of the merger. Accordingly, a holder of shares of
Quanex common stock who is the record holder of shares of Quanex
common stock on the date the written demand for appraisal is
made, but who thereafter transfers such shares prior to
consummation of the merger, will lose any right to appraisal in
respect of such shares.
Only a holder of record of shares of Quanex common stock is
entitled to assert appraisal rights for the Quanex shares
registered in that holders name. A demand for appraisal
should be executed by or on behalf of the holder of record,
fully and correctly, as the holders name appears on the
holders stock certificates. If the shares of Quanex common
stock are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should
be made in that capacity, and if the shares of Quanex common
stock are owned of record by more than one owner as in a joint
tenancy or tenancy in common, the demand should be executed by
or on behalf of all joint owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on
behalf of a holder of record. The agent, however, must identify
the record owner or owners and expressly disclose the fact that,
in executing the demand, the agent is agent for the owner or
owners. A record holder such as a broker who holds shares of
Quanex common stock as nominee for several beneficial owners may
exercise appraisal rights with respect to shares of Quanex
common stock held for one or more beneficial owners while not
exercising appraisal rights with respect to shares of Quanex
common stock held for other beneficial owners. In this case, the
written demand should set forth the number of shares of Quanex
common stock as to which appraisal is sought. When no number of
shares of Quanex common stock is expressly mentioned, the demand
will be presumed to cover all shares of Quanex common stock in
brokerage accounts or other nominee forms, and those who wish to
exercise appraisal rights under Section 262 of the DGCL are
urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a
nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED
TO QUANEX CORPORATION, 1900 WEST LOOP SOUTH, SUITE 1500,
HOUSTON, TEXAS 77027, ATTENTION: SECRETARY.
Within ten days after the effective time of the merger, Gerdau
will notify each stockholder who has properly asserted appraisal
rights under Section 262 of the DGCL and has not voted in
favor of the merger agreement.
Within 120 days after the effective time of the merger, but
not thereafter, Gerdau or any stockholder who has complied with
the statutory requirements summarized above may file a petition
in the Delaware Chancery Court demanding a determination of the
fair value of the shares of Quanex common stock held by those
28
stockholders. None of Gerdau, Gerdau Delaware or Quanex is under
any obligation to and none of them has any present intention to
file a petition with respect to the appraisal of the fair value
of the Quanex shares. Accordingly, it is the obligation of
stockholders wishing to assert appraisal rights to initiate all
necessary action to perfect their appraisal rights within the
time prescribed in Section 262 of the DGCL.
Within 120 days after the effective time of the merger, any
Quanex stockholder who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written
request, to receive from Gerdau a statement setting forth the
aggregate number of shares of Quanex common stock not voted in
favor of adoption of the merger agreement and with respect to
which demands for appraisal have been received and the aggregate
number of holders of those shares of Quanex common stock. That
statement must be mailed to those stockholders within ten days
after a written request therefor has been received by Gerdau.
If a petition for an appraisal is filed timely, at a hearing on
the petition, the Delaware Chancery Court will determine the
stockholders entitled to appraisal rights. After determining
those stockholders, the Delaware Chancery Court will appraise
the fair value of their Quanex shares, exclusive of
any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be
the fair value. Stockholders considering seeking appraisal
should be aware that the fair value of their Quanex shares as
determined under Section 262 of the DGCL could be more
than, the same as, or less than the value of the merger
consideration they would receive pursuant to the merger
agreement if they did not seek appraisal of their shares of
Quanex common stock and that investment banking opinions as to
fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262 of the DGCL.
The Delaware Supreme Court has stated that proof of value
by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible
in court should be considered in the appraisal proceedings.
The Delaware Chancery Court will determine the amount of
interest, if any, to be paid upon the amounts to be received by
stockholders whose shares of Quanex common stock have been
appraised. The costs of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed upon the
parties as the Delaware Chancery Court deems equitable. The
Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys fees and the fees and expenses of experts used
in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Quanex common stock entitled to
appraisal.
Any holder of shares of Quanex common stock who has duly
demanded an appraisal in compliance with Section 262 of the
DGCL will not, after the effective time of the merger, be
entitled to vote the shares of Quanex common stock subject to
that demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares of Quanex
common stock (except dividends or other distributions payable to
holders of record of shares of Quanex common stock as of a
record date prior to the effective time of the merger).
If any stockholder who properly demands appraisal of his or her
shares of Quanex common stock under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses, his or her
right to appraisal, as provided in Section 262 of the DGCL,
the shares of Quanex common stock of that stockholder will be
converted into the right to receive the merger consideration
receivable with respect to these shares of Quanex common stock
in accordance with the merger agreement. A stockholder will fail
to perfect, or effectively lose or withdraw, his or her right to
appraisal if, among other things, no petition for appraisal is
filed within 120 days after the consummation of the merger,
or if the stockholder delivers to Quanex or Gerdau, as the case
may be, a written withdrawal of his or her demand for appraisal.
Any attempt to withdraw an appraisal demand in this matter more
than 60 days after the consummation of the merger will
require the written approval of the surviving company.
Failure to follow the steps required by Section 262 of the
DGCL for perfecting appraisal rights may result in the loss of
these rights, in which event a Quanex stockholder will be
entitled to receive the merger consideration receivable with
respect to his or her shares of Quanex common stock in
accordance with the merger agreement.
29
Delisting
and Deregistration of Quanex Common Stock
If the merger is completed, the shares of Quanex common stock
will be delisted from the NYSE and will be deregistered under
the Securities Exchange Act of 1934.
Accounting
Treatment
We expect that the merger will be accounted for as a business
combination using the purchase method of accounting for
financial accounting purposes, whereby the purchase price would
be allocated to our assets and liabilities based on their
relative fair values following Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 141,
Business Combinations.
Material
U.S. Federal Income Tax Consequences
The following discussion summarizes the material
U.S. federal income tax consequences of the spin off and
the merger that may be relevant to Quanex stockholders who hold
shares of Quanex common stock as a capital asset for
U.S. federal income tax purposes (generally, assets held
for investment) and who or that are for U.S. federal income
tax purposes:
|
|
|
|
|
an individual who is a citizen or resident of the United States
(including certain former citizens and former long-term
residents);
|
|
|
|
a corporation, or other entity taxable as a corporation for
U.S. federal tax purposes, created or organized in or under
the laws of the United States or any state thereof or the
District of Columbia;
|
|
|
|
an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
|
|
|
|
a trust (i) that is subject to the primary supervision of a
court within the United States and the control of one or more
United States persons as defined in section 7701(a)(30) of
the Code or (ii) that has a valid election in effect under
applicable Treasury regulations to be treated as a United States
person.
|
This discussion is addressed only to those Quanex stockholders
who exchange shares of Quanex common stock for cash in the
merger.
This discussion is based on the Internal Revenue Code of 1986,
as amended, or the Code, Treasury regulations promulgated
thereunder, court decisions, published rulings of the Internal
Revenue Service, or the IRS, and other applicable authorities,
all as in effect on the date of this proxy statement and all of
which are subject to change or differing interpretations,
possibly with retroactive effect.
This discussion does not address all of the U.S. federal
income tax consequences that may be relevant to Quanex
stockholders in light of their particular circumstances or to
Quanex stockholders who may be subject to special treatment
under U.S. federal income tax laws, such as tax exempt
organizations, foreign persons or entities, S corporations
or other pass-through entities, financial institutions,
insurance companies, broker-dealers, persons who hold Quanex
shares as part of a hedge, straddle, wash sale, synthetic
security, conversion transaction, or other integrated investment
comprised of shares of Quanex common stock and one or more
investments, persons whose functional currency (as
defined in the Code) is not the U.S. dollar, persons who
exercise appraisal rights, and persons who acquired shares of
Quanex common stock in compensatory transactions. Further, this
discussion does not address any aspect of state, local, or
foreign taxation.
We have not sought nor obtained an opinion of counsel or any
advance tax ruling from the IRS regarding the U.S. federal
income tax consequences described below. If the IRS contests a
conclusion set forth herein, no assurance can be given that a
Quanex stockholder would ultimately prevail in a final
determination by a court. Quanex stockholders are urged to
consult their own tax advisors as to the U.S. federal
income tax consequences of the spin-off and the merger, as well
as the effects of state, local, and foreign tax laws.
If a partnership (or other entity classified as a partnership
for U.S. federal tax purposes) is a beneficial owner of
shares of Quanex common stock, the tax treatment of a partner in
that partnership will generally depend on the status of the
partner and the activities of the partnership. Quanex
stockholders that are
30
partnerships and partners in these partnerships are urged to
consult their tax advisors regarding the U.S. federal
income tax consequences of the spin-off and the merger to them.
THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS
OF THE TAX CONSEQUENCES OF THE SPIN OFF AND THE MERGER TO YOU.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE PARTICULAR
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE SPIN
OFF AND THE MERGER IN LIGHT OF YOUR OWN SITUATION.
Tax
Consequences of the Spin-Off and the Merger to Quanex
Stockholders
Quanex believes, and the parties to the merger agreement intend,
that for U.S. federal income tax purposes the spin-off and
the merger will constitute a single integrated transaction with
respect to the Quanex stockholders in which the spin-off will be
treated as a redemption of shares of Quanex common stock in
connection with the complete termination of Quanex stockholders
interests in Quanex. Quanex will treat and report the spin-off
and the merger in a manner consistent with such
characterization. Under such characterization, Quanex
stockholders should generally recognize capital gain or loss for
U.S. federal income tax purposes in an amount equal to the
difference between (i) the sum of the amount of cash
received in the merger and the fair market value, determined
when the spin-off occurs, of the property received in the
spin-off, and (ii) such Quanex stockholders adjusted
tax basis in his shares of Quanex common stock immediately prior
to the
spin-off.
The deduction of any recognized loss may be delayed or otherwise
adversely affected by certain loss limitation rules. Any such
gain or loss will generally be long-term capital gain or loss if
the Quanex stockholders holding period in the shares of
Quanex common stock immediately prior to the spin-off is more
than one year. The amount and character of gain or loss must be
calculated separately for each identifiable block of shares of
Quanex common stock surrendered. Each Quanex stockholder is
urged to consult his tax advisor regarding the manner in which
gain or loss should be calculated as a result of the spin-off
and the merger.
Although Quanex believes the foregoing treatment correctly
characterizes the transaction for U.S. federal income tax
purposes, there is no direct authority on point, and the IRS
could challenge the treatment of the spin-off and the merger as
a single integrated transaction for U.S. federal income tax
purposes. Such a challenge, if successful, could result in
Quanex stockholders being treated as receiving a
dividend distribution in the spin-off in respect of
their shares of Quanex common stock and as selling, in a
separate transaction, their shares of Quanex common stock in the
merger immediately after the spin-off. Under such
characterization, the fair market value of the property treated
as received by a Quanex stockholder in the spin-off would
generally (i) be treated as a dividend to the Quanex
stockholder to the extent of our current or accumulated earnings
and profits, (ii) to the extent such amount exceeded our
earnings and profits, it would be applied to reduce, but not
below zero, each Quanex stockholders adjusted basis in
such Quanex stockholders shares of Quanex common stock,
and (iii) to the extent such amount exceeded the sum of the
amounts described in (i) and (ii), would be taxable as
capital gain to each Quanex stockholder. It is not clear whether
corporations would be entitled to a dividends received
deduction or whether individuals would be entitled to
preferential rates with respect qualified dividend
income. In the merger, each Quanex stockholder would
generally recognize gain or loss in an amount equal to the
difference between the amount of cash received and such Quanex
stockholders adjusted basis in the shares of Quanex common
stock immediately prior to the merger, taking into account the
effect of the spin-off on such adjusted basis as described
above. Quanex stockholders should consult their tax advisors
with respect to the tax consequences of the spin-off and the
merger.
Information
Reporting and Backup Withholding
Under U.S. federal income tax laws, the exchange agent will
generally be required to report to a Quanex stockholder and to
the IRS any reportable payments made to such Quanex stockholder
in the spin-off and the merger. Additionally, a Quanex
stockholder may be subject to a backup withholding tax, unless
the Quanex
31
stockholder provides the exchange agent with his correct
taxpayer identification number, which in the case of an
individual is his social security number, or, in the
alternative, establishes a basis for exemption from backup
withholding. If the correct taxpayer identification number or an
adequate basis for exemption is not provided, a Quanex
stockholder will be subject to backup withholding (which will be
satisfied out of any cash paid to such Quanex stockholder in the
merger) on any reportable payment. To prevent backup
withholding, each Quanex stockholder must complete the IRS
Form W-9
or a substitute
Form W-9
which will be provided by the exchange agent with the
transmittal letter. Any amounts withheld under the backup
withholding rules from a payment to a Quanex stockholder will be
allowed as a credit against his U.S. federal income tax
liability and may entitle him to a refund, if the required
information is furnished to the IRS.
The foregoing discussion is for general information only and
is not intended to be legal or tax advice to any particular
Quanex stockholder. Tax matters regarding the spin-off and the
merger are very complicated, and the tax consequences of the
spin-off and merger to any particular Quanex stockholder will
depend on that stockholders particular situation. Quanex
stockholders should consult their own tax advisor to determine
the specific tax consequences of the spin-off and the merger,
including tax return reporting requirements, the applicability
of U.S. federal, state, local, and foreign tax laws, and
the effect of any proposed change in the tax laws to them.
32
INTERESTS
OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Quanex Board of
Directors with respect to the merger, Quanex stockholders should
be aware that some directors and executive officers of Quanex
have interests in the merger that are different from, or in
addition to, the interests of Quanex stockholders generally. The
Quanex Board of Directors was aware of those interests and took
them into account in approving and adopting the merger agreement
and recommending that Quanex stockholders vote to approve and
adopt the merger agreement. Those interests are summarized below.
Quanexs
Stock Options, Restricted Stock Units and Restricted
Stock
As of December 10, 2007, an aggregate of
850,112 shares of our common stock subject to stock
options, 6,019 restricted stock units and 43,417 shares of
restricted stock were held by our directors and executive
officers under our equity incentive plans.
At the effective time of the merger, Quanex stock options will
become vested and exercisable and will be cancelled. The holder
of such Quanex stock options will be entitled to receive an
amount in cash equal to: (x) the total number of shares of
Quanex common stock subject to the stock option times
(y) the excess of (i) the sum of (A) $39.20 and
(B) the closing sales price of a share of Quanex Building
Products common stock on the NYSE on the distribution date for
the spin-off of Quanexs Building Products Group over
(ii) the exercise price per share under the stock option,
less any applicable withholding.
Each restricted stock unit that has been issued but has not
vested prior to the effective time of the merger will become
fully vested at the effective time of the merger and will be
converted into the right to receive an amount per restricted
stock unit equal to the sum of (y) $39.20 and (z) the
closing sales price of a share of Quanex Building Products
common stock on the NYSE on the distribution date for the
spin-off of Quanexs Building Products Group.
Pursuant to the terms of the spin-off of Quanexs Building
Products Group, all shares of Quanex restricted stock that have
been issued but have not vested immediately prior to the record
date for the spin-off will become fully vested at such time, and
on the distribution date for the spin-off, the owners of such
shares will be entitled to participate in the spin-off, and, at
the effective time of the merger, the owners of such shares will
be entitled to receive the merger consideration in exchange for
their shares. See the preliminary QBPC Information Statement
attached as Annex D hereto for more information.
The following table summarizes the stock options, restricted
stock units, and restricted stock held by each of our directors
and executive officers as of December 10, 2007, and the
consideration (calculated prior to any reduction for any
required withholding taxes) that each of them will receive
pursuant to the merger agreement in connection with the
conversion of restricted stock units and restricted stock and
the cancellation of options in the merger (assuming that a share
of Quanex Building Products common stock on the distribution
date for the spin-off equals $13.29):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration to be
|
|
|
|
Common Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
Received in the
|
|
Name
|
|
Underlying Options
|
|
|
Units
|
|
|
Restricted Stock
|
|
|
Merger
|
|
|
Raymond A. Jean
|
|
|
431,975
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
11,641,663.47
|
|
Thomas M. Walker
|
|
|
40,000
|
|
|
|
0
|
|
|
|
8,300
|
|
|
$
|
1,059,567.00
|
|
Kevin P. Delaney
|
|
|
66,925
|
|
|
|
0
|
|
|
|
6,300
|
|
|
$
|
1,925,403.21
|
|
Mark A. Marcucci
|
|
|
110,151
|
|
|
|
0
|
|
|
|
6,750
|
|
|
$
|
3,387,655.06
|
|
Donald G. Barger, Jr.
|
|
|
31,458
|
|
|
|
1,353
|
|
|
|
4,023
|
|
|
$
|
1,254,210.68
|
|
Susan F. Davis
|
|
|
22,458
|
|
|
|
1,353
|
|
|
|
4,023
|
|
|
$
|
873,325.28
|
|
Joseph J. Ross
|
|
|
40,458
|
|
|
|
1,353
|
|
|
|
4,023
|
|
|
$
|
1,551,145.88
|
|
Joseph J. Rupp
|
|
|
2,528
|
|
|
|
607
|
|
|
|
0
|
|
|
$
|
60,427.83
|
|
Richard L. Wellek
|
|
|
31,458
|
|
|
|
1,353
|
|
|
|
2,898
|
|
|
$
|
1,081,043.48
|
|
Paul A. Hammonds
|
|
|
26,601
|
|
|
|
0
|
|
|
|
1,650
|
|
|
$
|
760,438.13
|
|
Brent L. Korb
|
|
|
20,300
|
|
|
|
0
|
|
|
|
3,900
|
|
|
$
|
612,427.91
|
|
John J. Mannion
|
|
|
25,800
|
|
|
|
0
|
|
|
|
1,550
|
|
|
$
|
713,277.01
|
|
33
Indemnification
of Officers and Directors
Following the effective time of the merger, Gerdau and the
surviving company will indemnify and hold harmless, and provide
advancements of expenses to, each present and former officer or
director of Quanex or any of its subsidiaries. This
indemnification will include indemnification against all losses,
expenses (including reasonable attorneys fees and
expenses), claims, damages and liabilities arising out of
actions or omissions occurring at or prior to the effective time
of the merger (whether asserted or claimed prior to, at or after
the effective time of the merger) that are based on the fact
that the person is or was a director or officer of Quanex or any
of its subsidiaries.
For six years after the effective time of the merger, Gerdau
will also maintain in effect directors and officers
liability insurance covering acts or omissions occurring prior
to the effective time of the merger with respect to those
directors and officers of Quanex who were covered by, and on
terms and in amounts no less favorable than those of,
Quanexs directors and officers liability
insurance at the time the merger agreement was executed. In no
event will the surviving company be required to pay aggregate
annual premiums for insurance in excess of three times the most
recent aggregate annual premium paid by Quanex for such purpose
(which most recent aggregate annual premium was $561,500 in the
aggregate) provided, further, that if the annual premiums of
such insurance coverage exceed such amount, the surviving
company will be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of the Board of
Directors of the surviving company, for a cost up to but not
exceeding 300% of the most recent aggregate annual premium paid
by Quanex. In addition, for six years after the effective time
of the merger, Gerdau will cause the surviving company to
maintain in effect fiduciary liability insurance policies for
employees who serve or have served as fiduciaries under or with
respect to any employee benefit plans described in the
disclosure schedules with coverages and in amounts no less
favorable than those of the policies of Quanex in effect on the
date of the merger agreement.
The indemnification provisions in the merger agreement seek to
ensure that (i) the officers and directors retain the same
rights to indemnification that they currently have and (ii)
directors and officers liability insurance similar
to what the directors and officers currently have is maintained
for six years after the merger closes.
Quanexs
Deferred Compensation Plan
Under the Quanex Deferred Compensation Plan, a participant who
defers a portion of his annual incentive bonuses or director
fees into a fund deemed invested in Quanex common stock units
for a period of three full years or more receives a matching
award of additional deemed units of Quanex common stock equal to
20% of the amount originally deferred. At the effective time of
the merger, the units deemed invested in Quanex common stock
under the Deferred Compensation Plan will become vested and the
account of each participant who is deemed invested in such units
of Quanex common stock will be credited with an amount in cash
equal to: (x) the total number of units deemed invested in
Quanex common stock times (y) the sum of (A) $39.20
and (B) the closing sales price of a share of Quanex
Building Products common stock on the NYSE on the distribution
date for the spin-off of Quanexs Building Products Group.
The following table summarizes the unvested units of Quanex
common stock deemed held by each of our directors and executive
officers as of December 10, 2007, and the consideration
that each of their accounts will be credited with upon
acceleration
34
of the unvested units pursuant to the distribution and merger
agreement (assuming that a share of Quanex Building Products
common stock on the distribution date for the spin-off equals
$13.29):
|
|
|
|
|
|
|
|
|
|
|
Unvested Units
|
|
|
|
|
|
|
Deemed Invested in
|
|
|
Amount Vested and
|
|
|
|
Quanex Common Stock
|
|
|
Credited to Account
|
|
|
|
Under Deferred
|
|
|
Due to Distribution
|
|
Name
|
|
Compensation Plan
|
|
|
and Merger
|
|
|
Raymond A. Jean
|
|
|
|
|
|
|
|
|
Thomas M. Walker
|
|
|
460.67
|
|
|
$
|
24,180.52
|
|
Kevin P. Delaney
|
|
|
1,479.87
|
|
|
$
|
77,678.43
|
|
Mark A. Marcucci
|
|
|
|
|
|
|
|
|
Donald G. Barger, Jr.
|
|
|
690.87
|
|
|
$
|
36,263.79
|
|
Susan F. Davis
|
|
|
652.25
|
|
|
$
|
34,236.71
|
|
Joseph J. Ross
|
|
|
688.49
|
|
|
$
|
36,138.70
|
|
Joseph J. Rupp
|
|
|
|
|
|
|
|
|
Richard L. Wellek
|
|
|
674.60
|
|
|
$
|
35,409.55
|
|
Paul A. Hammonds
|
|
|
599.04
|
|
|
$
|
31,443.61
|
|
Brent L. Korb
|
|
|
370.82
|
|
|
$
|
19,464.13
|
|
John J. Mannion
|
|
|
552.57
|
|
|
$
|
29,004.45
|
|
Quanexs
Frozen Non-Employee Director Retirement Plan
The Quanex Non-Employee Director Retirement Plan, which was
previously frozen, will be terminated as of the effective time
of the merger, and each former or present director who has
accrued benefits under the plan will be paid a lump sum cash
payment of the present value of the directors accrued
benefits, discounted using the interest rate for
30-year
Treasury securities for the month of August 2007 (which rate is
used for lump sum determinations under the Quanex
Employees Pension Plan) or the interest rate for
30-year
Treasury securities for the last month preceding the month in
which the effective time occurs, which ever provides the higher
lump sum amount. Assuming a discount rate of 4.5%, the following
directors would receive the following amounts: Joseph J.
Ross $36,067; Donald G.
Barger $162,809 and Susan F.
Davis $91,050.
Change-in-Control
Agreements with Executive Officers
In the past, the Company entered into change in control
agreements (the
change-in-control
agreements) with Raymond A. Jean, Thomas M. Walker, Kevin
P. Delaney, John J. Mannion, Paul A. Hammonds, Mark A. Marcucci
and Brent L. Korb (each, an executive). On
November 18, 2007, the Board authorized and approved waiver
and release agreements (the waivers) with each of
the executives with the exception of Mr. Marcucci. The
waivers provide that the
change-in-control
agreements with these executives will be deemed to have
terminated immediately prior to the closing date of the merger,
and the executive will release Quanex from all claims he may
have had with respect to his
change-in-control
agreement. The waivers are conditioned upon the consummation of
the merger and the spin-off as well as the executive being
offered employment by Quanex Building Products at a level of
base pay and cash incentive bonus opportunities at or higher
than the level the executive has at present with Quanex along
with other conditions. For more information on the compensation
that Quanex Building Products expects to pay its executive
officers, see the preliminary QBPC Information Statement
attached hereto as Annex D.
The waivers provide that (i) any outstanding unvested stock
options that the executive holds will immediately vest and be
exercisable; (ii) all restrictions on any restricted stock
held by the executive will immediately lapse and the restricted
stock will become free of restrictions and be transferable;
(iii) the executive will be fully vested in his entire
account balance under Quanexs Deferred Compensation Plan
or any portion of such plan that is spun-off to Quanex Building
Products as a result of the spin-off; and (iv) the
35
executives accrued benefit under Quanexs
Supplemental Benefit Plan will be spun-off to Quanex Building
Products as a result of the spin-off.
In conjunction with the waivers, Quanex will also pay each
executive the following:
|
|
|
|
|
If a performance unit award was granted to the executive in 2005
pursuant to Quanexs 2003
Long-Term
Incentive Plan, an amount equal to the number of units granted
under the award times the target value of the award times 3/3;
plus
|
|
|
|
If a performance unit award was granted to the executive in 2006
under Quanexs 2006 Omnibus Incentive Plan, an amount equal
to the number of units granted under the award times the target
value of the award times 2/3; plus
|
|
|
|
An amount equal to the executives bonus under the fiscal
year 2008 bonus plan as determined by the Quanex Board of
Directors times a fraction, the numerator of which is the number
of days in the current fiscal year through the closing date and
the denominator of which is 365.
|
The waivers provide that the executive is entitled to a gross-up
payment for any excise taxes that are imposed upon him under
Section 4999 of the Code as a result of these or any
payments made by Quanex being deemed to be excess
parachute payments under Section 280G of the Code.
We currently value these benefits (excluding the acceleration of
equity awards) for Mr. Jean at approximately $1,526,667,
for Mr. Walker at approximately $329,375, for
Mr. Delaney at approximately $336,458, for Mr. Mannion
at approximately $103,333, for Mr. Hammonds at
approximately $111,000, and for Mr. Korb at approximately
$107,667.
Pursuant to the waivers, Quanex will also cause Quanex Building
Products to enter into a new
change-in-control
agreement and a severance agreement with each executive. Under
the terms of the severance agreement, Quanex Building Products
will provide a severance benefit in an amount equal to
12 months for Messrs. Korb, Hammonds and Mannion,
18 months for Messrs. Delaney and Walker and
24 months for Mr. Jean of their respective base salary
and a prorated annual bonus equal to the executives annual
bonus opportunity prorated through the date of severance if the
executives employment with Quanex Building Products is
terminated by Quanex Building Products without cause
or, if within the one-year period following the closing date,
the executive terminates his employment with good
reason, as each such term will be defined in the severance
agreement.
If the merger or the spin-off fail to close or if Quanex
breaches any of the provisions of the waivers or any other
agreement required to be entered into under the terms of the
waivers, then the waivers will be void and the
change-in-control
agreements will remain in full force and effect.
Since Mr. Marcucci did not execute a waiver, his
change-in-control
agreement will remain in full force and effect. A change
in control is defined generally as (i) an acquisition
of securities resulting in an individual or entity or group
thereof becoming, directly or indirectly, the beneficial owner
of 20% or more of either (a) Quanexs then-outstanding
common stock or (b) the combined voting power of the
then-outstanding voting securities of Quanex entitled to vote
generally in the election of directors, (ii) a change in a
majority of the members of the Board of Directors as of the
effective date of the agreement, (iii) generally, a
reorganization, merger or consolidation or sale of Quanex or
disposition of all or substantially all of the assets of Quanex,
or (iv) the approval by the stockholders of Quanex of a
complete liquidation or dissolution of Quanex.
Upon a change in control, Mr. Marcucci will continue to
receive substantially the same compensation and benefits from
Quanex (or its successor) that he received before the change. In
addition, all options to acquire Quanex common stock held by
Mr. Marcucci will immediately vest and be fully
exercisable, and all restrictions on restricted Quanex common
stock granted to Mr. Marcucci will be removed and the stock
will be fully transferable. If during the two-year period
following a change in control Mr. Marcuccis
employment is terminated by Quanex (or its successor) other than
for cause (as defined in the
change-in-control
agreement) or if Mr. Marcucci terminates his own employment
with the company for good reason (as defined in the
change-in-control
agreement), Mr. Marcucci will be entitled to (i) a
payment equal to two times
36
the sum of (a) his base salary and (b) his annual
bonus (ii) a prorated annual bonus for the year in which
such termination occurs and (iii) continued coverage under
Quanex welfare plans until the earlier to occur of (x) the
third anniversary of his termination of employment and
(y) the date he becomes employed on a full time basis with
another employer. The agreement also provides that
Mr. Marcucci is entitled to a gross-up payment for any
excise taxes that are imposed upon him under Section 4999
of the Code as a result of these or any other payments made by
Quanex being deemed to be excess parachute payments
under Section 280G of the Code.
We currently value these benefits (excluding the acceleration of
equity awards) for Mr. Marcucci at approximately $867,917.
37
THE
MERGER AGREEMENT
The following summary of the merger agreement is qualified by
reference to the complete text of the merger agreement, which is
attached as Annex A and incorporated by reference
into this proxy statement. This section of the proxy statement
describes the material provisions of the merger agreement but
may not contain all of the information about the merger
agreement that is important to you. We encourage you to read the
merger agreement in its entirety. It is an agreement that
establishes and governs the legal relationships among the
parties to the agreement with respect to the transactions
described in this proxy statement. It is not intended to be a
source of factual, business or operational information about any
of the parties to the merger agreement. The representations,
warranties and covenants made in the agreement are qualified and
subject to important limitations. Furthermore, the
representations and warranties may be subject to a contractual
standard of materiality or material adverse effect applicable to
the parties to the agreement that may be different from those
that are applicable to you or may be used to allocate risk among
the parties to the agreement rather than establishing matters of
fact. Some of these representations and warranties may not have
been accurate or complete as of any specified date and do not
purport to be accurate or complete as of the date of this proxy
statement. Accordingly, you should not rely on the
representations and warranties as characterizations of the
actual state of facts at the time they were made or otherwise.
Structure
of the Merger
Following the spin-off of Quanexs Building Products Group,
on the terms and subject to the conditions of the merger
agreement, and in accordance with the DGCL, at the effective
time of the merger, Gerdau Delaware will merge with and into
Quanex. Quanex will continue as the surviving company and will
be a wholly-owned subsidiary of Gerdau. The separate corporate
existence of Gerdau Delaware will cease.
Timing of
Closing
The closing of the merger will occur as promptly as practicable
following the Quanex stockholder meeting and when all other
conditions to the merger, including the completion of the
spin-off, other than those conditions that by their nature are
to be satisfied at the closing, have been satisfied or waived
(or such other date as the parties may agree). However, we
cannot assure you when or if the merger will occur.
As soon as practicable after the closing of the merger, Gerdau
and Quanex will file a certificate of merger with the Secretary
of State of the State of Delaware. The effective time of the
merger will be the time Gerdau and Quanex file the certificate
of merger with the Secretary of State of the State of Delaware
or at a later time as may be agreed to and specified in the
certificate of merger.
Merger
Consideration
At the effective time of the merger, each outstanding share of
Quanex common stock (other than any shares owned directly or
indirectly by Gerdau or Quanex and those shares held by
dissenting stockholders), together with the rights associated
with that share of Quanex common stock under the Third Amended
and Restated Rights Agreement dated as of September 15,
2004, between Quanex and Wells Fargo Bank, N.A. as Rights Agent
(the Rights Plan), collectively will be converted
into the right to receive $39.20 in cash, without interest.
Treatment
of Quanex Stock Options and Restricted Stock Units
At the effective time of the merger, Quanex stock options will
become vested and exercisable and will be cancelled. The holder
of such Quanex stock options will be entitled to receive an
amount in cash equal to: (x) the total number of shares of
Quanex common stock subject to the stock option times
(y) the excess of (i) the sum of (A) $39.20 and
(B) the closing sales price of a share of Quanex Building
Products common stock on the NYSE on the distribution date for
the spin-off of Quanexs Building Products Group over
(ii) the exercise price per share under the stock option,
less any applicable withholding.
38
Each restricted stock unit that has been issued but has not
vested prior to the effective time of the merger will become
fully vested at the effective time of the merger and will be
converted into the right to receive an amount per restricted
stock unit equal to the sum of (y) $39.20 and (z) the
closing sales price of a share of Quanex Building Products
common stock on the NYSE on the distribution date for the
spin-off of Quanexs Building Products Group.
See Interests of Certain Persons in the Merger
beginning on page 33 for a discussion of the treatment of
restricted stock pursuant to the terms of the spin-off.
Exchange
and Payment Procedures
At the effective time of the merger, Gerdau will deposit cash in
an amount sufficient to pay the merger consideration and the
other equity amounts due to each holder of shares of Quanex
common stock or other equity holders with a bank or trust
company (the paying agent) reasonably acceptable to
Quanex. As soon as reasonably practicable after the effective
time of the merger, the paying agent will send to each holder of
Quanex common stock a letter of transmittal and instructions.
The letter of transmittal and instructions will tell each holder
of Quanex common stock how to exchange their shares for the
merger consideration.
QUANEX STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE
ENCLOSED PROXY CARD. QUANEX STOCK CERTIFICATES SHOULD NOT BE
SENT TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL.
Holders of Quanex common stock that hold certificates will not
be entitled to receive the merger consideration until they
surrender their stock certificate or certificates to the paying
agent, together with a duly completed and executed letter of
transmittal and any other documents as may be reasonably
requested by the paying agent. For holders of Quanex common
stock that hold their shares in book-entry form, the letter of
transmittal will provide specific instructions on how to provide
evidence of your ownership of Quanex common stock. The merger
consideration may be paid to a person other than the person in
whose name the corresponding certificate is registered if the
certificate is properly endorsed or is otherwise in the proper
form for transfer. In addition, the person who surrenders such
certificate must pay any transfer or similar taxes or establish
to the satisfaction of the paying agent that such tax has been
paid or is not applicable.
No interest will be paid or will accrue on the cash payable upon
surrender of the certificates. Each of the surviving company and
the paying agent will be entitled to deduct and withhold, and
pay to the appropriate taxing authorities, any applicable taxes
from the merger consideration and the option and restricted
stock unit amounts. Any sum which is withheld and paid to a
taxing authority by the surviving company or the paying agent
will be deemed to have been paid to the person with regard to
whom it is withheld.
At the effective time of the merger, Quanexs stock
transfer books will be closed, and there will be no further
registration of transfers of outstanding shares of Quanex common
stock. If, after the effective time of the merger, certificates
are presented to the surviving company for transfer, they will
be cancelled and exchanged for the merger consideration.
If any certificate is lost, or if it has been stolen or
destroyed, then before the holder of such certificate will be
entitled to receive the merger consideration, such holder will
have to make an affidavit of that fact and, if required by
Gerdau, post a bond or surety in such reasonable amount as
Gerdau may direct as indemnity against any claim that may be
made against it with respect to that certificate.
Certificate
of Incorporation and Bylaws
The certificate of incorporation and bylaws of Quanex will be
amended and restated as of the effective time and, as so amended
and restated, will be the certificate of incorporation and
bylaws of the surviving company.
39
Directors
and Officers
The directors and officers of Gerdau Delaware immediately prior
to the effective time of the merger will be the initial
directors and officers of the surviving company. The directors
and officers will serve in accordance with the certificate of
incorporation and bylaws of the surviving company.
Representations
and Warranties
Quanex makes various representations and warranties in the
merger agreement, including with respect to, among other things:
|
|
|
|
|
the due organization, good standing and qualification of Quanex
and its subsidiaries;
|
|
|
|
Quanexs capital structure, including the number of shares
of Quanex common stock, stock options and other equity-based
interests;
|
|
|
|
Quanexs corporate power and authority to enter into the
merger agreement and to consummate the transactions contemplated
by the merger agreement;
|
|
|
|
the approval and recommendation of Quanexs Board of
Directors of the merger agreement, the merger and the other
transactions contemplated by the merger agreement;
|
|
|
|
the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
|
|
|
|
the absence of violations of or conflicts with Quanexs and
its subsidiaries governing documents, applicable law or
certain agreements as a result of entering into the merger
agreement and consummating the merger;
|
|
|
|
the filing and validity of Quanexs reports filed with the
Securities and Exchange Commission since October 31, 2005
and the accuracy and completeness of the historical financial
statements included therein;
|
|
|
|
the absence of certain fundamental changes and undisclosed
liabilities;
|
|
|
|
material legal proceedings and judgments;
|
|
|
|
employment and labor matters affecting Quanex or its
subsidiaries, including matters relating to Quanex and its
subsidiaries employee benefit plans;
|
|
|
|
compliance with laws;
|
|
|
|
the possession of permits necessary to conduct the Quanex
business;
|
|
|
|
the inapplicability of anti-takeover statutes to the merger;
|
|
|
|
taxes and environmental matters;
|
|
|
|
Quanexs and its subsidiaries insurance policies;
|
|
|
|
intellectual property;
|
|
|
|
the holding of good and valid title to all assets and properties
necessary to conduct the Quanex business as currently conducted;
|
|
|
|
the absence of undisclosed brokers fees;
|
|
|
|
the amendment of Quanexs Rights Plan; and
|
|
|
|
the absence of affiliate transactions.
|
Generally, the Quanex representations and warranties are subject
to a material adverse effect clause. If Quanex does something or
fails to do something that would normally violate a
representation or warranty, but the action or failure does not
result in a material adverse effect, the representation or
warranty has not been
40
breached if it is qualified by the material adverse effect
clause. A material adverse effect is any event or development
that would reasonably be expected to be materially adverse to
the Quanex business or is reasonably likely to prevent or
materially impair or delay the consummation of the merger. The
following events are excluded from being a material adverse
effect:
|
|
|
|
|
general economic, capital market, regulatory, political or
business conditions or acts of war or terrorism;
|
|
|
|
factors generally affecting the industries or markets in which
Quanex operates;
|
|
|
|
entering into the merger agreement or the announcement thereof
or the pendency or consummation of the transactions contemplated
thereby;
|
|
|
|
changes in applicable law, rules or regulations or generally
accepted accounting principles or the interpretation thereof
after the date of the merger agreement; and
|
|
|
|
changes in Quanexs relationships with its employees or
with any labor organization, or any adverse change, effect or
circumstance resulting from or arising in connection with any
labor strike, slowdown, work stoppage or other labor controversy
(in each case relating to collective bargaining negotiations),
that is threatened to occur or occurs after the date of the
merger agreement.
|
The merger agreement also contains various representations and
warranties made by Gerdau and Gerdau Delaware, including with
respect to, among other things:
|
|
|
|
|
their due organization, good standing and qualification;
|
|
|
|
their corporate power and authority to enter into the merger
agreement and to consummate the transactions contemplated by the
merger agreement;
|
|
|
|
the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
|
|
|
|
the absence of violations of or conflicts with their and their
subsidiaries governing documents, applicable law or
certain agreements as a result of entering into the merger
agreement and consummating the merger;
|
|
|
|
the accuracy and completeness of the historical financial
statements included in Gerdaus
Form 6-Ks
filed with the Securities and Exchange Commission on
April 27, 2007 and September 14, 2007;
|
|
|
|
the absence of material litigation or investigations;
|
|
|
|
compliance with laws;
|
|
|
|
material permits necessary to conduct their business;
|
|
|
|
the purpose of the formation of Gerdau Delaware and the prior
activities of Gerdau Delaware;
|
|
|
|
the absence of undisclosed brokers fees;
|
|
|
|
the lack of ownership by Gerdau and Gerdau Delaware of Quanex
common stock; and
|
|
|
|
that Gerdau Delaware has the funds available to consummate the
merger and pay the merger consideration.
|
Conduct
of Business Pending the Merger
During the period from the date of the merger agreement to the
effective time of the merger, Quanex agrees to, and to cause its
affiliates to, carry on its business in the usual, regular and
ordinary course consistent with past practice and use its
reasonable commercial efforts to preserve intact its current
business organization, keep available the services of its
current officers and employees and preserve its relationships
with customers, suppliers, licensors, licensees, distributors
and others having business dealings with Quanex with respect to
its business, in each case consistent with past practice. In
addition, Quanex agrees, with certain exceptions, not to
41
engage in the following actions from the date of the merger
agreement to the effective time of the merger without the prior
written consent of Gerdau or Gerdau Delaware:
|
|
|
|
|
declare, set aside or pay any dividend or distribution in
respect of its capital stock other than regular quarterly cash
dividends not to exceed $0.14 per share of Quanex common stock;
|
|
|
|
split, combine or reclassify any of its capital stock, or issue
or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock;
|
|
|
|
purchase, redeem or otherwise acquire any shares of its capital
stock or any rights, warrants or options to acquire any such
shares, except in connection with certain equity incentive plan
transactions;
|
|
|
|
except as provided for in the documents effecting the spin-off
of Quanexs Building Products Group, issue, deliver or sell
any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or
options to acquire, any shares, voting securities or convertible
securities or any restricted stock units, except in connection
with certain equity incentive plan transactions or pursuant to
any existing obligation described in the disclosure schedules;
|
|
|
|
amend the certificate of incorporation or bylaws of Quanex;
|
|
|
|
acquire or agree to acquire (i) by merger or consolidation
with, or by purchasing an equity interest in or substantial
portion of the assets of any person or any division or business
or (ii) any assets material to the Quanex business except
purchases of supplies, equipment and inventory in the ordinary
course of business consistent with past practice;
|
|
|
|
sell, lease, license, impose a lien or otherwise encumber or
dispose of any of its material properties or assets, other than
in the ordinary course of business consistent with past practice
and in other transactions involving not in excess of
$10 million in the aggregate;
|
|
|
|
incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt
securities or warrants or rights to acquire any debt securities
of Quanex, guarantee any debt securities of another person,
enter into any keep well or other arrangement to
maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of
the foregoing except as agreed to in the merger agreement;
|
|
|
|
make any loans or capital contributions to, or investments in,
any other person;
|
|
|
|
make any capital expenditures, other than as agreed to in the
merger agreement;
|
|
|
|
change any method of tax accounting, make any material tax
election, file any amended tax return for any material tax or
change any annual tax accounting period;
|
|
|
|
except as permitted in the merger agreement, waive the benefits
of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which Quanex is a party or
exempt any third party from the provisions of any anti-takeover
statutes;
|
|
|
|
adopt a plan of complete or partial liquidation or resolutions
authorizing such a liquidation, dissolution, recapitalization or
reorganization of Quanex;
|
|
|
|
enter into any new collective bargaining agreement;
|
|
|
|
except as required by changes in law or GAAP, make any change in
accounting principles used by Quanex;
|
|
|
|
settle or compromise any material litigation;
|
|
|
|
except as provided in the documents effecting the spin-off of
Quanexs Building Products Group, (i) enter into any
new or amend any existing employment, consulting, severance or
termination agreement with any officer, director or employee
whose annual base salary exceeds $100,000, (ii) adopt any
new incentive, retirement or welfare benefit arrangements, plans
or programs for the benefit of current, former or retired
employees or amend any existing benefit plans other than
amendments
|
42
|
|
|
|
|
required by law or to maintain the tax qualified status of such
plans, (iii) grant any increases in employee compensation,
other than in the ordinary course consistent with past practice
provided that any such increase will not include increases in
compensation to officers or any employee whose annual base
salary exceeds $100,000 or (iv) grant any stock options or
stock awards other than as permitted under the merger agreement;
|
|
|
|
|
|
cancel any material debts or waive any material claims or rights
of substantial value except for cancellations made or waivers
granted with respect to claims other than indebtedness in the
ordinary course consistent with past practice or as permitted
under the merger agreement;
|
|
|
|
enter into, make any modification or amendment to certain
specified contracts;
|
|
|
|
take any action or fail to take any action which would result in
any of the conditions to the merger agreement to not be
satisfied; or
|
|
|
|
authorize, commit or agree to take any action described above.
|
Non-Solicitation
Provisions and Acquisition Proposals
Quanex has agreed that it will instruct its advisors or
representatives not to, directly or indirectly:
|
|
|
|
|
solicit, initiate or knowingly take any action to facilitate or
encourage, whether publicly or otherwise, the submission of any
inquiries or the making of any inquiry, proposal or offer or
other efforts or attempts that constitutes, or could reasonably
be expected to lead to, any acquisition proposal;
|
|
|
|
enter into, or participate in any discussions or negotiations
regarding, or furnish to any person any non-public information
for the purpose of encouraging or facilitating any
acquisition proposal; or
|
|
|
|
enter into any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement
or similar agreement with respect to any acquisition
proposal or enter into any agreement or agreement in
principle requiring Quanex to abandon, terminate or fail to
consummate the transactions contemplated under the merger
agreement or breach its obligations under the merger agreement
or agree to do any of the foregoing.
|
An acquisition proposal means any inquiry, proposal
or offer (other than the transactions contemplated by the merger
agreement) from any person or group relating to:
|
|
|
|
|
any proposal or offer for a merger, consolidation, dissolution,
tender offer, recapitalization, reorganization, share exchange,
business combination or similar transaction involving
Quanex; or
|
|
|
|
any proposal or offer to acquire in any manner, directly or
indirectly, over 20% of the equity securities or consolidated
total assets (including, without limitation, equity securities
of Quanexs subsidiaries) of Quanex, in each case other
than the transactions contemplated under the merger agreement.
|
Notwithstanding the above, Quanex may, to the extent failure to
take such actions would reasonably be expected to result in a
breach of the fiduciary obligations of the Quanex Board under
applicable law, as determined in good faith by the Quanex Board
after consultation with outside counsel, in response to a
(1) a superior proposal or (2) a bona
fide, unsolicited written acquisition proposal that
Quanexs Board determines in good faith after consultation
with outside counsel and its financial advisor is or is
reasonably likely to lead to a superior proposal, furnish
information with respect to Quanex to such person that has made
a superior proposal or potential superior
proposal and its representatives (provided that Quanex
will promptly make available to Gerdau and Gerdau Delaware any
material non-public information concerning Quanex or its
subsidiaries that is made available to any person given such
access which was not previously provided to Gerdau and Gerdau
Delaware) pursuant to a customary confidentiality agreement not
less restrictive of the other party than the confidentiality
agreement current in place with Gerdau Ameristeel Corporation,
but excluding any standstill provisions, and participate in
discussions or negotiations with, such person and its
representatives regarding any such superior proposal
or potential superior proposal. Quanex will promptly
advise Gerdau of the receipt by Quanex of any acquisition
proposal or any request for non-public information made by any
person or group of persons that has informed Quanex that it is
considering making an acquisition
43
proposal or any request for discussions or negotiations with
Quanex or its representatives relating to an acquisition
proposal (in each case within 48 hours of receipt thereof),
and Quanex will provide Gerdau (within such 48 hour time
frame) a written summary of the material terms of such
acquisition proposal (which shall include the identity of the
person or group of persons making the acquisition proposal) and
if Quanex determines to begin providing information or to engage
in discussions regarding an acquisition proposal. Quanex will
keep Gerdau reasonably informed of any material change to the
terms and conditions of any acquisition proposal. Quanex agrees
not to enter into any confidentiality agreement with any person
subsequent to the date of the merger agreement which prohibits
Quanex from providing such information to Gerdau.
For purposes of the merger agreement, a superior
proposal means any bona fide written acquisition proposal
made by a third party and not solicited to acquire more than 50%
of the assets of Quanex and its subsidiaries, taken as a whole
but excluding the Building Products Group, pursuant to a tender
or exchange offer, a merger, a recapitalization, a consolidation
or a sale of its assets, which the Board of Directors of Quanex
determines in its good faith judgment (i) to be more
favorable from a financial point of view to Quanex stockholders
than the merger contemplated with Gerdau and (ii) is
reasonably capable of being completed on the terms proposed
therein, after taking into account the likelihood and timing of
completion and after taking into account all financial,
regulatory, legal and other aspects of such proposal.
Quanexs Board of Directors shall generally not be
permitted to make a change in recommendation
regarding the transactions contemplated in the merger agreement
unless, prior to obtaining the Quanex stockholder approval, it
determines in good faith, after consulting with outside legal
counsel, that the failure to do so would reasonably be expected
to result in a breach of its obligations under applicable law
provided that Quanex cannot make such change in
recommendation in response to a superior proposal until:
|
|
|
|
|
at least three business days following Gerdaus receipt of
written notice from Quanex (i) advising Gerdau that the
Quanex Board intends to make a change in
recommendation and the reason for such change,
(ii) specifying the terms and conditions of such superior
proposal (including the proposed financing for such proposal)
and (iii) identifying any party making such superior
proposal, and
|
|
|
|
prior to effecting such change in recommendation in
response to a superior proposal, Quanex and its financial and
legal advisors negotiate with Gerdau and Gerdau Delaware in good
faith (to the extent that Gerdau and Gerdau Delaware desire to
negotiate) to make such adjustments to the terms and conditions
of the merger agreement so that the acquisition proposal ceases
to constitute a superior proposal.
|
For the purposes of the merger agreement, a change in
recommendation occurs when the Quanex Board of Directors
(i) withdraws, qualifies or modifies or proposes publicly
to withdraw, qualify or modify in any manner adverse to Gerdau,
its approval or recommendation with respect to the merger
agreement and the merger or other transactions contemplated
thereby or (ii) approves or recommends any superior
proposal made or received after the date of the merger
agreement. In determining whether to make a change in
recommendation in response to a superior proposal, the Quanex
Board of Directors must take into account any changes to the
terms of the merger agreement proposed by Gerdau in determining
whether such third party acquisition proposal still constitutes
a superior proposal.
Quanex has also agreed to, and will direct its advisors and
representatives to:
|
|
|
|
|
immediately cease all discussions and negotiations that
commenced prior to the date of the merger agreement regarding
any acquisition proposals existing on the date of the merger
agreement, and to request return or destruction of all
confidential information;
|
|
|
|
promptly advise Gerdau of Quanexs receipt of any
acquisition proposal or any request for non-public information
made by any person or group of persons that has informed Quanex
that it is considering making an acquisition proposal or any
request for discussions or negotiations with Quanex or its
representatives relating to an acquisition proposal, in each
case within 48 hours receipt thereof, and Quanex shall
provide Gerdau a written summary of the material terms and
conditions of the proposal, including the identity of the person
or persons making such proposal, and if Quanex determines to
begin providing information or engage in discussions regarding
an acquisition proposal;
|
44
|
|
|
|
|
keep Gerdau reasonably informed of any material change to the
terms and conditions of any acquisition proposal; and
|
|
|
|
not enter into any confidentiality agreement with any person
after the date of the merger agreement which prohibits Quanex
from providing such information to Gerdau.
|
Financing
Commitments; Cooperation of Quanex
Gerdau Delaware has represented in the merger agreement that it
has sufficient funds to consummate the merger and has provided
Quanex a commitment letter from a major bank in order to
demonstrate its ability to pay the merger consideration. The
ability of Gerdau Delaware to pay the merger consideration is
not a condition to the completion of the merger.
Quanex has agreed to use its commercially reasonable efforts to,
and will cause its subsidiaries and its and their respective
officers, employees and representatives to use their
commercially reasonable efforts to assist Gerdau and Gerdau
Delaware in connection with the arrangement of any financing to
be consummated prior to or contemporaneously with the closing of
the merger in order for Gerdau to satisfy its obligations under
the merger agreement or any refinancing or replacement of any
existing, or the arrangement of any new, facility for
indebtedness of Quanex and its subsidiaries. Such assistance may
include the following:
|
|
|
|
|
entering into customary agreements, including underwriting and
purchase agreements, in connection with the debt financing;
|
|
|
|
participating in meetings, due diligence sessions and road shows;
|
|
|
|
assisting in preparing offering memoranda, rating agency
presentations, private placement memoranda, prospectuses and
similar documents;
|
|
|
|
using commercially reasonable efforts to obtain comfort letters
of accountants and legal opinions; and
|
|
|
|
otherwise making available documents and information relating to
Quanex and its subsidiaries.
|
However, such assistance will not be provided if it would:
|
|
|
|
|
unreasonably interfere with the ongoing operations of Quanex or
any of its subsidiaries;
|
|
|
|
cause any representation or warranty in the merger agreement to
be breached;
|
|
|
|
cause any condition to the closing of the merger to fail to be
satisfied or otherwise cause any breach of the merger agreement
or any material agreement to which Quanex or any of its
subsidiaries is a party;
|
|
|
|
involve any binding commitment by Quanex or any of its
subsidiaries which commitment is not conditioned on the closing
of the merger and does not terminate without liability to Quanex
or any of its subsidiaries upon the termination of the merger
agreement; or
|
|
|
|
in the case of Quanexs or its subsidiaries officers,
(i) result in the indemnification protections afforded such
officers by Quanex or its subsidiaries not being in full force
and effect, (ii) not allow such officers to sign documents,
certificates and other instruments in their representative
capacity with Quanex or such subsidiary and (iii) result in
personal liability attaching to such officers as a result of
signing such documents, certificates and other instruments.
|
Employee
Benefits
For a period of one year after the effective time of the merger,
Gerdau will, or will cause the surviving company or its
subsidiaries to, offer base salary and bonus opportunities to
Quanex employees who are not covered by a collective bargaining
agreement that are in the aggregate equal to the base salary,
bonus opportunities and value of the equity incentives being
offered to such employees for the fiscal year immediately
preceding the fiscal year in which the merger is closed.
Generally, Gerdau will grant Quanex employees not covered by a
collective bargaining agreement full credit for past service
with Quanex for purposes of eligibility, vesting and benefit
accrual (other than accrual under certain pension and retiree
medical
45
plans) under any employee benefit plans maintained by Gerdau or
any of its subsidiaries. Gerdau will take any actions as are
necessary so that each Quanex employee who continues as an
employee of Quanex not covered by a collective bargaining
agreement or any of its subsidiaries will not be subject to
preexisting condition exclusions or waiting periods for
coverages under any Gerdau benefit plan.
Directors
and Officers Indemnification and Insurance
Each of Quanexs certificate of incorporation and bylaws
contains a provision eliminating the personal liability of its
directors to the company or its stockholders for monetary
damages for breach of fiduciary duty as a director to the extent
permitted under applicable law. The effect of this provision is
to eliminate the personal liability of directors to the company
or its stockholders for monetary damages for actions involving a
breach of their fiduciary duty. The bylaws of Quanex generally
provide for the mandatory indemnification of, and payment of
expenses incurred by, its directors and officers to the fullest
extent permitted under applicable law. Quanex has obtained
directors and officers liability insurance, which
insures against liabilities that its directors and officers may
incur in these capacities.
Following the effective time of the merger, Gerdau and the
surviving company will indemnify and hold harmless, and provide
advancements of expenses to, each present and former officer or
director of Quanex or any of its subsidiaries. This
indemnification will include indemnification against all losses,
expenses (including reasonable attorneys fees and
expenses), claims, damages and liabilities arising out of
actions or omissions occurring at or prior to the effective time
of the merger (whether asserted or claimed prior to, at or after
the effective time of the merger) that are based on the fact
that the person is or was a director or officer of Quanex or any
of its subsidiaries.
For six years after the effective time of the merger, Gerdau
will also maintain in effect directors and officers
liability insurance covering acts or omissions occurring prior
to the effective time of the merger with respect to those
directors and officers of Quanex who were covered by, and on
terms and in amounts no less favorable than those of,
Quanexs directors and officers liability
insurance at the time the merger agreement was executed. In no
event will the surviving company be required to pay aggregate
annual premiums for insurance under this in excess of three
times the most recent aggregate annual premium paid by Quanex
for such purpose (which most recent aggregate annual premium was
$561,500 in the aggregate) provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the
surviving company will be obligated to obtain a policy with the
best coverage available, in the reasonable judgment of the Board
of Directors of the surviving company, for a cost up to but not
exceeding 300% of the most recent aggregate annual premium paid
by Quanex. In addition, for six years after the effective time
of the merger, Gerdau will cause the surviving company to
maintain in effect fiduciary liability insurance policies for
employees who serve or have served as fiduciaries under or with
respect to any employee benefit plans described in the
disclosure schedules with coverages and in amounts no less
favorable than those of the policies of Quanex in effect on the
date of the merger agreement.
Actions
to Consummate the Merger
Quanex and Gerdau will cooperate with each other and use their
respective reasonable best efforts to take all action to
consummate the merger, including complying with
Hart-Scott-Rodino
Act notice requirements, furnishing information upon request by
the other, keeping each other apprised of the status of matters
relating to the completion of the transactions and affording
representatives of the other party reasonable access to
properties, books, contracts, records and personnel. Gerdau and
Quanex each agreed to make a filing under the
Hart-Scott-Rodino
Act with respect to the merger, to request early termination of
the waiting period with respect to the merger under the
Hart-Scott-Rodino
Act and to use their respective reasonable best efforts to
promptly respond to any request for additional information under
the
Hart-Scott-Rodino
Act. In addition, Gerdau has agreed to use its best efforts,
after consultation with Quanex, to avoid the entry of any
permanent, preliminary or temporary injunction or other order or
judgment that would delay, prevent or prohibit consummation of
the transactions contemplated by the merger agreement, including:
46
|
|
|
|
|
the defense through litigation of any claim brought to delay,
prevent or prohibit the transactions contemplated by the merger
agreement, and
|
|
|
|
the agreement by Gerdau to sell or dispose of assets or
businesses of Gerdau or Quanex if such action is necessary to
obtain termination of the waiting period under the
Hart-Scott-Rodino
Act or to avoid commencement of a proceeding or the issuance of
an order that would delay, prevent or prohibit the transactions
contemplated by the merger agreement.
|
Gerdau has also agreed to use its best efforts, if an
injunction, judgment or decree is issued that would make
consummation of the merger unlawful or would delay, prevent or
prohibit the transactions contemplated by the merger agreement,
to take any and all steps necessary to resist, vacate or modify
the injunction, judgment or decree so as to permit consummation
on a schedule as close as possible to that contemplated by the
merger agreement.
Additional
Covenants
|
|
|
|
|
Quanex agrees to take all action necessary to convene a meeting
of the Quanex stockholders to consider and vote upon the
adoption of the merger agreement, and Quanexs Board of
Directors agrees to recommend such approval and take all lawful
action to solicit such approval.
|
|
|
|
Prior to the effective time of the merger, Quanex will effect
the spin-off of its Building Products Group in accordance with
the terms of the spin-off documents attached as exhibits to the
merger agreement.
|
Conditions
to the Merger
The respective obligation of each party to effect the merger is
subject to the satisfaction or waiver at or prior to the
effective time of the merger of each of the following conditions:
|
|
|
|
|
the approval of Quanexs stockholders will have been
obtained;
|
|
|
|
the waiting period applicable to the consummation of the merger
under applicable antitrust laws will have expired or have
terminated and any other approvals from governmental entities
will have been obtained;
|
|
|
|
there is no judgment, injunction or other order in effect that
restrains, enjoins or otherwise prohibits consummation of the
merger or the other transactions contemplated by the merger
agreement;
|
|
|
|
the representations and warranties of the parties contained in
the merger agreement will be true and correct in all material
respects as of the effective time of the merger;
|
|
|
|
the parties will have performed in all material respects their
respective obligations under the merger agreement at or prior to
the closing date; and
|
|
|
|
with respect to the obligations of Gerdau and Gerdau Delaware
only, the spin-off will have been effected by Quanex.
|
Termination
The merger agreement may be terminated, and the merger may be
abandoned in the following ways:
|
|
|
|
|
at any time prior to the effective time of the merger by mutual
written consent of Quanex and Gerdau or by action of their
respective boards of directors;
|
|
|
|
by Quanex or Gerdau, if the merger is not consummated by
April 30, 2008 provided that, if a second request is made
by the DOJ or FTC under the
Hart-Scott-Rodino
Act, the merger is not consummated by the date that is
60 days after the last day of the additional
30-day
waiting period for such second request, so long as the party
attempting to terminate has not breached in any material respect
its obligations under the merger agreement in a manner that
would have contributed to the failure of the merger to be
consummated by that date;
|
47
|
|
|
|
|
by Quanex or Gerdau, if the approval of Quanexs
stockholders is not obtained;
|
|
|
|
by Quanex or Gerdau, if any order permanently restraining,
enjoining or otherwise prohibiting consummation of the merger
becomes final and non-appealable;
|
|
|
|
by Quanex, if the Board of Directors of Quanex authorizes Quanex
to enter into a binding written agreement concerning a superior
proposal, and Gerdau does not make at least as favorable an
offer, from a financial point of view, as such superior proposal;
|
|
|
|
by Quanex, if there has been a breach of any representation,
warranty, covenant or agreement made by Gerdau or Gerdau
Delaware in the merger agreement or any such representation and
warranty becomes untrue after the date of the merger agreement
and such breach or condition delays, prevents or materially
impairs or is reasonably likely to delay, prevent or materially
impair the ability of Gerdau or Gerdau Delaware to consummate
the transactions contemplated by the merger agreement and is not
curable by April 30, 2008, provided that Quanex is not then
in breach of the merger agreement;
|
|
|
|
by Gerdau, in the event that the Quanex Board of Directors
(i) shall have effected a change in recommendation to the
Quanex stockholders or (ii) fails publicly to reaffirm its
adoption and recommendation of the merger agreement, the merger
or the other transactions contemplated by the merger agreement
within ten business days of receipt of a written request by
Gerdau to provide such reaffirmation following an acquisition
proposal; or
|
|
|
|
by Gerdau, if there has been a material breach of any
representation, warranty, covenant or agreement made by Quanex
in the merger agreement.
|
Fees and
Expenses
Quanex will pay Gerdau a termination fee of $50,190,000 if the
merger agreement is terminated:
1) by Quanex, if Quanexs Board of Directors
authorizes Quanex to enter into a binding written agreement
concerning a superior proposal, and Gerdau does not make at
least as favorable an offer, from a financial point of view, as
such superior proposal;
2) by Gerdau, within 20 business days of the date on which
Quanexs Board of Directors (i) makes a change in
recommendation to the Quanex stockholders to approve the merger
or publicly proposes to do so, (ii) approves or recommends
to the Quanex stockholders an acquisition proposal other than
the merger or resolves to do so or (iii) fails to include
its approval and recommendation with respect to the merger
agreement and the merger in this proxy statement; or
3) if all three of the following conditions are met:
|
|
|
|
|
the merger agreement is terminated (i) by Quanex or Gerdau,
if the merger is not consummated by April 30, 2008 provided
that, if a second request is made by the DOJ or FTC under the
Hart-Scott-Rodino Act, the merger is not consummated by the date
that is 60 days after the last day of the additional 30-day
waiting period for such second request, so long as the party
attempting to terminate has not breached in any material respect
its obligations under the merger agreement in a manner that
would have contributed to the failure of the merger to be
consummated by that date; (ii) by Quanex or Gerdau, if
Quanexs stockholder approval has not been obtained; or
(iii) by Gerdau, if there has been a breach of any
representation, warranty, covenant or agreement made by Quanex
in the merger agreement or any such representation and warranty
becomes untrue after the date of the merger agreement and such
breach or condition causes or is reasonably likely to cause a
material adverse effect and is not curable by April 30,
2008, provided that Gerdau and Gerdau Delaware are not then in
breach of the merger agreement,
|
|
|
|
if, after the date of the merger agreement and prior to the
Quanex stockholders meeting, a third party has made a bona fide
written acquisition proposal for Quanex that has been publicly
disclosed and not publicly withdrawn or rejected by the Quanex
Board of Directors prior to the Quanex stockholders meeting,
|
48
and
|
|
|
|
|
within twelve months of such termination Quanex consummates or
enters into a definitive agreement with respect to an
acquisition proposal.
|
Gerdau agrees to pay Quanex a termination fee of
$60 million if the merger agreement is terminated if a
second request is made by the DOJ or FTC under the
Hart-Scott-Rodino
Act and the merger is not consummated by the date that is
60 days after the last day of the additional
30-day
waiting period for such second request, so long as the party
attempting to terminate has not breached in any material respect
its obligations under the merger agreement in any manner that
would have contributed to the failure of the merger to be
consummated by that date, and at the time of the termination,
there exists an order under U.S. federal or state antitrust
law that would make the consummation of the merger unlawful or
in violation of any court order.
Except as otherwise provided above, all costs and expenses
incurred in connection with the merger agreement and the merger
and the other transactions contemplated by the merger agreement
will be paid by the party incurring such expense.
Modification,
Amendment and Waiver
Subject to applicable law, at any time prior to the effective
time of the merger, the merger agreement may be amended,
modified or supplemented in writing by the parties, by written
agreement executed and delivered by duly authorized officers of
the respective parties.
The conditions to each of the parties obligations to
consummate the merger may be waived by such party in whole or in
part to the extent permitted by applicable law.
49
MARKET
PRICE AND DIVIDEND DATA
Quanex common stock is listed for trading on the NYSE under the
symbol NX. The following table sets forth, for the
fiscal quarters indicated, the high and low sale prices per
share as reported on the NYSE composite tape. Share amounts set
forth below and elsewhere in this proxy statement have been
adjusted to reflect the results of the March 2006 three-for-two
stock split in the form of a stock dividend.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Quarter Ended January 31, 2006
|
|
$
|
42.16
|
|
|
$
|
32.41
|
|
Fiscal Quarter Ended April 30, 2006
|
|
|
49.02
|
|
|
|
38.22
|
|
Fiscal Quarter Ended July 31, 2006
|
|
|
44.91
|
|
|
|
33.81
|
|
Fiscal Quarter Ended October 31, 2006
|
|
|
38.09
|
|
|
|
29.15
|
|
Fiscal Quarter Ended January 31, 2007
|
|
|
39.67
|
|
|
|
32.91
|
|
Fiscal Quarter Ended April 30, 2007
|
|
|
44.99
|
|
|
|
37.79
|
|
Fiscal Quarter Ended July 31, 2007
|
|
|
55.51
|
|
|
|
42.26
|
|
Fiscal Quarter Ended October 31, 2007
|
|
|
48.27
|
|
|
|
36.47
|
|
Fiscal Quarter Ended January 31, 2008
|
|
$
|
53.40
|
|
|
$
|
36.08
|
|
Current Quarter (through February , 2008)
|
|
|
|
|
|
|
|
|
The closing price of the Quanex common stock on the NYSE on
November 16, 2007, the trading day prior to the
announcement of the merger, was $36.74 per share. On
February , 2008, the most recent practicable
date before this proxy statement was printed, the closing price
for the Quanex common stock on the NYSE was
$ per share.
The following table sets forth, for the fiscal quarters
indicated, the quarterly common stock cash dividends paid by
Quanex.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Fiscal Quarter Ended January 31
|
|
$
|
0.1400
|
|
|
$
|
0.1400
|
|
|
$
|
0.1033
|
|
Fiscal Quarter Ended April 30
|
|
|
|
|
|
|
0.1400
|
|
|
|
0.1200
|
|
Fiscal Quarter Ended July 31
|
|
|
|
|
|
|
0.1400
|
|
|
|
0.1200
|
|
Fiscal Quarter Ended October 31
|
|
|
|
|
|
|
0.1400
|
|
|
|
0.1400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.1400
|
|
|
$
|
0.5600
|
|
|
$
|
0.4833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The terms of Quanexs revolving credit agreement do not
specifically limit the total amount of dividends or other
distributions to its stockholders.
50
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following tables set forth certain information with respect
to the beneficial ownership of shares of our common stock
(including shares underlying options) as of December 10,
2007, by each of our directors, our executive officers named in
the summary compensation table of the proxy statement for our
2007 Annual Meeting (other than Michael R. Bayles who retired
from Quanex effective January 9, 2007), all executive
officers and directors as a group and the beneficial owners of
5% or more of our outstanding common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credited
|
|
|
Stock
|
|
|
Common
|
|
|
|
|
|
Percentage of
|
|
|
|
Common
|
|
|
|
|
|
Under
|
|
|
Underlying
|
|
|
Stock
|
|
|
|
|
|
Issued and
|
|
|
|
Stock
|
|
|
Restricted
|
|
|
Deferred
|
|
|
Exercisable
|
|
|
Underlying
|
|
|
|
|
|
Outstanding
|
|
|
|
Owned
|
|
|
Stock
|
|
|
Compensation
|
|
|
Options
|
|
|
Unvested
|
|
|
|
|
|
Common
|
|
Name
|
|
of Record
|
|
|
Units
|
|
|
Plan
|
|
|
(1)
|
|
|
Options(2)
|
|
|
Total
|
|
|
Stock
|
|
|
Raymond A. Jean
|
|
|
188,890
|
|
|
|
0
|
|
|
|
36,074
|
|
|
|
357,641
|
|
|
|
74,334
|
|
|
|
656,939
|
|
|
|
1.76
|
%
|
Thomas M. Walker
|
|
|
8,300
|
(3)
|
|
|
0
|
|
|
|
2,778
|
|
|
|
13,333
|
|
|
|
26,667
|
|
|
|
51,078
|
|
|
|
0.14
|
%
|
Kevin P. Delaney
|
|
|
18,013
|
(4)
|
|
|
0
|
|
|
|
13,298
|
|
|
|
52,358
|
|
|
|
14,567
|
|
|
|
98,236
|
|
|
|
0.26
|
%
|
Mark A. Marcucci
|
|
|
23,243
|
(5)
|
|
|
0
|
|
|
|
0
|
|
|
|
94,467
|
|
|
|
15,684
|
|
|
|
133,394
|
|
|
|
0.36
|
%
|
Donald G. Barger, Jr.
|
|
|
4,173
|
(6)
|
|
|
1,353
|
|
|
|
15,681
|
|
|
|
31,458
|
|
|
|
0
|
|
|
|
52,665
|
|
|
|
0.14
|
%
|
Susan F. Davis
|
|
|
25,182
|
(7)
|
|
|
1,353
|
|
|
|
19,770
|
|
|
|
22,458
|
|
|
|
0
|
|
|
|
68,763
|
|
|
|
0.18
|
%
|
Joseph J. Ross
|
|
|
6,273
|
(8)
|
|
|
1,353
|
|
|
|
14,628
|
|
|
|
40,458
|
|
|
|
0
|
|
|
|
62,712
|
|
|
|
0.17
|
%
|
Joseph J. Rupp
|
|
|
2,528
|
|
|
|
607
|
|
|
|
0
|
|
|
|
2,528
|
|
|
|
0
|
|
|
|
5,663
|
|
|
|
0.02
|
%
|
Richard L. Wellek
|
|
|
2,898
|
(9)
|
|
|
1,353
|
|
|
|
7,983
|
|
|
|
31,458
|
|
|
|
0
|
|
|
|
43,692
|
|
|
|
0.12
|
%
|
All directors and officers as a group
|
|
|
279,500
|
|
|
|
6,019
|
|
|
|
110,214
|
|
|
|
646,159
|
|
|
|
131,252
|
|
|
|
1,173,143
|
|
|
|
3.15
|
%
|
|
|
|
(1) |
|
Includes options exercisable within 60 days. |
|
(2) |
|
These options will vest and be liquidated when the merger closes. |
|
(3) |
|
Includes 8,300 shares of restricted stock. |
|
(4) |
|
Includes 6,300 shares of restricted stock. |
|
(5) |
|
Includes 6,750 shares of restricted stock. |
|
(6) |
|
Includes 4,023 shares of restricted stock. |
|
(7) |
|
Includes 4,023 shares of restricted stock. |
|
(8) |
|
Includes 4,023 shares of restricted stock. |
|
(9) |
|
All of these shares are restricted stock. |
|
|
|
|
|
5% or More Beneficial Owners
|
|
Shares
|
|
|
Lord Abbett & Co
|
|
|
5,087,707
|
|
Artisan Partners Limited
|
|
|
2,415,308
|
|
Barclays Global Investors
|
|
|
1,969,546
|
|
51
STOCKHOLDER
PROPOSALS
If the merger agreement described in Proposal 1 is approved
and adopted and the merger is completed, we will no longer have
any public stockholders and we will not hold an annual meeting
of stockholders in 2008. However, if the merger is not completed
for any reason, we expect to hold a 2008 Annual Meeting of
Stockholders in the second calendar quarter of 2008. Under the
rules of the Securities and Exchange Commission, if a
stockholder wants us to include a proposal in our proxy
statement and form a proxy for presentation at our 2008 Annual
Meeting it must have been received by us at our principal
executive offices by September 21, 2007. Under our bylaws,
if a stockholder has a proposal that they would like us to
consider at the 2008 Annual Meeting or if a stockholder would
like to nominate an individual for a position on the Board of
Directors, the proposal must have been submitted not more than
180 days (October 1, 2007) nor less than
60 days (December 29, 2007) prior to
February 27, 2008, the anniversary date of the 2007 Annual
Meeting. In the event that the date of the Annual Meeting is
more than 45 days (which for the 2008 Annual Meeting would
be April 12, 2008) later than the anniversary date of
the immediately preceding Annual Meeting, notice by the
stockholder to be timely must be received not later than the
close of business on the tenth day following the earlier of the
date on which a written statement setting forth the date of the
Annual Meeting was mailed to stockholders or the date on which
it is first disclosed to the public.
WHERE YOU
CAN FIND MORE INFORMATION
Quanex files annual, quarterly and current reports, proxy
statements, and other information with the Securities and
Exchange Commission. You may read and copy materials that Quanex
has filed with the Securities and Exchange Commission at the
following Securities and Exchange Commission public reference
room:
100 F Street,
N.E., Washington, D.C. 20549
Please call the Securities and Exchange Commission at
1-800-SEC-0330
for further information on the operation of the public reference
room.
Quanex has filed the Quanex Building Products Registration
Statement on Form 10 with the Securities and Exchange Commission
to register the common stock of Quanex Building Products to be
distributed to Quanexs stockholders in the spin-off. The
QBPC Information Statement is part of the Quanex Building
Products Registration Statement. The preliminary QBPC
Information Statement is being furnished to Quanexs
stockholders as part of this proxy statement.
As allowed by the Securities and Exchange Commission rules, this
proxy statement does not contain all of the information that you
can find in the Quanex Building Products Registration Statement
or the exhibits to the Quanex Building Products Registration
Statement.
Quanexs common stock is traded on the NYSE under the
symbol NX, and its Securities and Exchange
Commission filings can also be read at the following address:
11 Wall
Street, New York, NY 10005
The Securities and Exchange Commission filings of Quanex are
also available to the public on the Securities and Exchange
Commissions internet website at www.sec.gov, which
contains reports, proxy, and information statements, and other
information regarding companies that file electronically with
the Securities and Exchange Commission. In addition,
Quanexs Securities and Exchange Commission filings are
also available to the public on Quanexs website,
www.quanex.com. Information contained on the Securities
and Exchange Commissions web site and Quanexs web
site is not incorporated by reference into this proxy statement,
and you should not consider information contained on those web
sites as part of this proxy statement.
52
ANNEX A
Agreement and Plan of Merger dated November 18, 2007
ANNEX A
AGREEMENT
AND PLAN OF MERGER
Among
GERDAU S.A.
(as Parent),
GERDAU DELAWARE, INC.
(as Merger Sub)
and
QUANEX CORPORATION
(as the Company)
Dated November 18, 2007
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I THE MERGER; CLOSING; EFFECTIVE TIME
|
|
|
A-1
|
|
1.1
|
|
The Merger
|
|
|
A-1
|
|
1.2
|
|
Closing
|
|
|
A-1
|
|
1.3
|
|
Effective Time
|
|
|
A-1
|
|
|
|
|
|
|
ARTICLE II CERTIFICATE OF INCORPORATION AND
BYLAWS OF THE SURVIVING ENTITY
|
|
|
A-2
|
|
2.1
|
|
Certificate of Incorporation
|
|
|
A-2
|
|
2.2
|
|
Bylaws
|
|
|
A-2
|
|
|
|
|
|
|
ARTICLE III DIRECTORS AND OFFICERS OF THE SURVIVING ENTITY
|
|
|
A-2
|
|
3.1
|
|
Directors
|
|
|
A-2
|
|
3.2
|
|
Officers
|
|
|
A-2
|
|
|
|
|
|
|
ARTICLE IV EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
|
|
|
A-2
|
|
4.1
|
|
Effect on Capital Stock
|
|
|
A-2
|
|
4.2
|
|
Exchange of Shares for Merger Consideration
|
|
|
A-3
|
|
4.3
|
|
Return and Investment of Exchange Fund
|
|
|
A-3
|
|
4.4
|
|
Further Ownership Rights in Shares
|
|
|
A-3
|
|
4.5
|
|
Lost Certificates
|
|
|
A-4
|
|
4.6
|
|
Withholding Rights
|
|
|
A-4
|
|
4.7
|
|
Closing of the Company Transfer Books
|
|
|
A-4
|
|
4.8
|
|
Dissenters Shares
|
|
|
A-4
|
|
4.9
|
|
Company Options
|
|
|
A-4
|
|
|
|
|
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES
|
|
|
A-5
|
|
5.1
|
|
Representations and Warranties of the Company
|
|
|
A-5
|
|
5.2
|
|
Representations and Warranties of Parent and Merger Sub
|
|
|
A-17
|
|
|
|
|
|
|
ARTICLE VI COVENANTS
|
|
|
A-19
|
|
6.1
|
|
Interim Operations
|
|
|
A-19
|
|
6.2
|
|
Acquisition Proposals
|
|
|
A-22
|
|
6.3
|
|
Proxy Statement
|
|
|
A-24
|
|
6.4
|
|
Company Stockholders Meeting
|
|
|
A-25
|
|
6.5
|
|
Filings; Other Actions; Notification; Access
|
|
|
A-25
|
|
6.6
|
|
Publicity
|
|
|
A-27
|
|
6.7
|
|
Employee Benefits/Labor Matters
|
|
|
A-27
|
|
6.8
|
|
Expenses
|
|
|
A-28
|
|
6.9
|
|
Indemnification; Directors and Officers Insurance
|
|
|
A-28
|
|
6.10
|
|
Other Actions by the Company and Parent
|
|
|
A-29
|
|
6.11
|
|
Spin-Off and Related Intercompany Matters
|
|
|
A-30
|
|
6.12
|
|
Financing Assistance
|
|
|
A-30
|
|
6.13
|
|
Stock Exchange De-listing
|
|
|
A-31
|
|
6.14
|
|
Director Resignations
|
|
|
A-31
|
|
6.15
|
|
Rule 16b-3
|
|
|
A-31
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VII CONDITIONS
|
|
|
A-32
|
|
7.1
|
|
Conditions to Each Partys Obligation to Effect the Merger
|
|
|
A-32
|
|
7.2
|
|
Conditions to Obligations of Parent and Merger Sub
|
|
|
A-32
|
|
7.3
|
|
Conditions to Obligation of the Company
|
|
|
A-32
|
|
|
|
|
|
|
ARTICLE VIII TERMINATION
|
|
|
A-33
|
|
8.1
|
|
Termination by Mutual Consent
|
|
|
A-33
|
|
8.2
|
|
Termination by Either Parent or the Company
|
|
|
A-33
|
|
8.3
|
|
Termination by the Company
|
|
|
A-33
|
|
8.4
|
|
Termination by Parent
|
|
|
A-34
|
|
8.5
|
|
Effect of Termination and Abandonment
|
|
|
A-34
|
|
|
|
|
|
|
ARTICLE IX MISCELLANEOUS AND GENERAL
|
|
|
A-35
|
|
9.1
|
|
Survival
|
|
|
A-35
|
|
9.2
|
|
Modification or Amendment
|
|
|
A-35
|
|
9.3
|
|
Waiver of Conditions
|
|
|
A-35
|
|
9.4
|
|
Counterparts
|
|
|
A-35
|
|
9.5
|
|
GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL
|
|
|
A-35
|
|
9.6
|
|
Notices
|
|
|
A-36
|
|
9.7
|
|
Entire Agreement; NO OTHER REPRESENTATIONS
|
|
|
A-36
|
|
9.8
|
|
No Third Party Beneficiaries
|
|
|
A-36
|
|
9.9
|
|
Obligations of Parent and of the Company
|
|
|
A-37
|
|
9.10
|
|
Severability
|
|
|
A-37
|
|
9.11
|
|
Interpretation; Construction
|
|
|
A-37
|
|
9.12
|
|
Assignment
|
|
|
A-37
|
|
9.13
|
|
Knowledge
|
|
|
A-37
|
|
LIST OF
EXHIBITS
Exhibit A Amended Certificate of Incorporation
of the Surviving Entity
Exhibit B Amended Bylaws of the Surviving Entity
Exhibit C-1
Spin-off Distribution Agreement
Exhibit C-2
Spin-off Transition Services Agreement
Exhibit C-3
Spin-off Tax Matters Agreement
Exhibit C-4
Spin-off Employee Matters Agreement
A-ii
AGREEMENT
AND PLAN OF MERGER
This Agreement and Plan of Merger (this
Agreement) is dated as of November 18,
2007 by and among Gerdau S.A., a corporation organized under the
laws of the Federative Republic of Brazil
(Parent), Gerdau Delaware, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent
(Merger Sub), and Quanex Corporation, a
Delaware corporation (the Company). Merger
Sub and the Company are sometimes hereinafter collectively
referred to as the Constituent Entities.
RECITALS
WHEREAS, the respective boards of directors of each of Parent,
Merger Sub and the Company have approved the merger of Merger
Sub with and into the Company (the Merger)
and approved the Merger upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, prior to the Merger, the Company will spin off or
otherwise dispose of (the Spin-Off) its
businesses involving the manufacture and sale of aluminum sheet
and engineered materials and components primarily used in the
United States building products market (the Building
Products Business) to a newly-formed Delaware entity
(Spinco); and
WHEREAS, the Company, Parent and Merger Sub desire to make
certain representations, warranties, covenants and agreements in
connection with this Agreement, including arrangements with
respect to the disposition of the Building Products Business.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
The Merger;
Closing; Effective Time
1.1 The Merger. Upon the terms
and subject to the conditions set forth in this Agreement, at
the Effective Time, Merger Sub shall be merged with and into the
Company and the separate corporate existence of Merger Sub shall
thereupon cease. The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the
Surviving Entity), and the separate corporate
existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by
the Merger. The Merger shall have the effects specified in
Articles II, III and IV below and the
Delaware General Corporation Law, as amended (the
DGCL).
1.2 Closing. Unless otherwise
mutually agreed in writing between the Company and Parent, the
closing for the Merger (the Closing) shall
take place (i) at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston,
Texas
77010-3095,
at 10:15 A.M. (Central Time) on the first business day (the
Closing Date) following the day on which the
last to be fulfilled or waived of the conditions set forth in
Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or
waived in accordance with this Agreement.
1.3 Effective Time. As soon as
practicable following the Closing, the Company and Parent will
cause a Certificate of Merger (the Delaware Certificate
of Merger) to be executed, acknowledged and filed with
the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL. The Merger shall become effective
at the time when the Delaware Certificate of Merger has been
duly filed with the Secretary of State of the State of Delaware
or at such later time as may be agreed by the parties and
specified in the Delaware Certificate of Merger (the
Effective Time).
A-1
ARTICLE II
Certificate
of Incorporation and
Bylaws of
the Surviving Entity
2.1 Certificate of
Incorporation. At the Effective Time, the
certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended and
restated as of the Effective Time to read as set forth in
Exhibit A attached hereto (the Certificate of
Incorporation) (including a change in the
Companys corporate name) and, as so amended and restated,
shall be the certificate of incorporation of the Surviving
Entity until thereafter amended as provided therein or by
applicable Law.
2.2 Bylaws. At the Effective Time,
the bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be amended and restated as of the
Effective Time to read as set forth in Exhibit B attached
hereto (the Bylaws) and, as so amended and
restated, shall be the bylaws of the Surviving Entity until
thereafter amended as provided therein or by applicable Law.
ARTICLE III
Directors
and Officers of the Surviving Entity
3.1 Directors. The directors of
Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Entity from and after the Effective
Time, until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or
removal in accordance with the Certificate of Incorporation and
Bylaws.
3.2 Officers. The officers of
Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Entity from and after the Effective
Time, until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or
removal in accordance with the Certificate of Incorporation and
Bylaws.
ARTICLE IV
Effect of
the Merger on the Capital Stock
of the
Constituent Entities; Exchange of Certificates
4.1 Effect on Capital Stock. As of
the Effective Time, by virtue of the Merger and without any
action on the part of any holder thereof:
(a) Merger Sub. Each share of
common stock, $0.01 par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be
converted into one share of common stock, $0.01 par value,
of the Surviving Entity.
(b) Excluded Shares. Each share of
common stock, par value $0.50 per share, of the Company
(Company Common Stock) that is owned directly
by the Company as treasury stock or by Parent or Merger Sub and
in each case not held on behalf of third parties (such shares,
the Cancelled Shares) shall be canceled, and
no consideration shall be delivered in exchange therefor. All
shares of Company Common Stock that are owned by any wholly
owned Subsidiary of the Company or by any wholly owned
Subsidiary of Parent, other than shares held on behalf of third
parties (such shares, collectively with Dissenters Shares
and Cancelled Shares, the Excluded Shares),
shall remain outstanding, and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Common
Stock. Each share of Company Common Stock,
together with the associated Rights (each share of Company
Common Stock together with the associated Right, a
Share or, collectively,
Shares) issued and outstanding immediately
prior to the Effective Time (other than the Excluded Shares)
shall be converted into the right to receive $39.20 in cash from
Parent, without interest (the Merger
Consideration).
A-2
4.2 Exchange of Shares for Merger
Consideration.
(a) Exchange of
Certificates. Parent shall select a bank or
trust company in the United States reasonably acceptable to the
Company to act as the paying agent hereunder (the
Paying Agent). At the Effective Time, Parent
shall deposit with the Paying Agent for the benefit of the
holders of certificates, which immediately prior to the
Effective Time represented Shares (the
Certificates), the Merger Consideration, (the
Exchange Fund), payable pursuant to
Section 4.1(c) in exchange for outstanding Shares.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Effective
Time, the Paying Agent will mail to each holder of record of a
Certificate whose Shares were converted into the right to
receive the Merger Consideration, (A) a letter of
transmittal (which will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only
upon proper delivery of the Certificates to the Paying Agent and
will be in such form and have such other provisions as Parent
and the Company may specify consistent with this Agreement) and
(B) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration.
(ii) After the Effective Time, upon surrender of a
Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the
holder of such Certificate will be entitled to receive in
exchange therefor the Merger Consideration that such holder has
the right to receive therefor pursuant to the provisions of this
Article IV, and the Certificate so surrendered will
forthwith be cancelled. In the event of a transfer of ownership
of Shares that are not registered in the transfer records of the
Company, payment may be issued to a person other than the person
in whose name the Certificate so surrendered is registered (the
Transferee) if such Certificate is properly
endorsed or otherwise in proper form for transfer and the
Transferee pays any transfer or other taxes required by reason
of such payment to a person other than the registered holder of
such Certificate or establishes to the satisfaction of the
Paying Agent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this
Section 4.2(b), each Certificate will be deemed at
any time after the Effective Time to represent only the right to
receive, upon such surrender, the Merger Consideration that the
holder thereof has the right to receive in respect of such
Certificate pursuant to the provisions of this
Article IV. No interest will be paid or will accrue
on any cash payable to holders of Certificates pursuant to the
provisions of this Article IV.
4.3 Return and Investment of Exchange Fund.
(a) Any portion of the Exchange Fund that remains
undistributed to the former stockholders of the Company for
15 months after the Effective Time shall be delivered to
the Surviving Entity upon demand of the Surviving Entity, and
any former stockholders of the Company who have not theretofore
complied with this Article IV shall thereafter look
only to the Surviving Entity for payment of their claim for the
Merger Consideration; provided, that such former stockholder of
the Company shall have no greater rights against the Surviving
Entity than may be accorded to general creditors of the
Surviving Entity under applicable Laws. None of the Company,
Parent or the Surviving Entity shall be liable to any holder of
Shares for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar Law.
(b) The Paying Agent shall invest the Exchange Fund as
directed by Parent; provided, that such investments shall be in
obligations of or guaranteed by the United States of America, in
commercial paper obligations rated
A-1 or
P-1 or
better by Moodys Investors Service, Inc. or
Standard & Poors Corporation, respectively, or
in certificates of deposit, bank repurchase agreements or
bankers acceptance of commercial banks with capital
exceeding $10 billion and provided that such investments
shall be made in such a manner so as not to impair the
availability of the Merger Consideration for payment on the
Shares when required.
4.4 Further Ownership Rights in
Shares. All Merger Consideration paid upon
the surrender for exchange of Certificates in accordance with
the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to Shares, subject,
however, to the Surviving Entitys obligation to pay any
dividends or make any other distribution with a record date
prior to the Effective Time which may have been declared or made
by the Company on Shares in accordance with the terms of this
Agreement.
A-3
4.5 Lost Certificates. If any
Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the
Paying Agent will deliver in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration to which such
person is entitled pursuant to Section 4.1 with
respect to Shares formerly represented thereby.
4.6 Withholding Rights. Each of
the Surviving Entity and Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of Shares and Company Options such
amounts as it is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code of
1986, as amended (the Code), and the rules
and regulations promulgated thereunder, or any provision of
state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Entity or Parent, as the case may
be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holders of Shares and
Company Options in respect of which such deduction and
withholding was made by the Surviving Entity or Parent, as the
case may be.
4.7 Closing of the Company Transfer
Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of
Shares shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Entity, they shall
be canceled and exchanged as provided in this
Article IV.
4.8 Dissenters
Shares. Notwithstanding any provision of this
Agreement to the contrary, Shares that are issued and
outstanding immediately prior to the Effective Time and held by
holders of such Shares who exercise appraisal rights with
respect thereto in accordance with applicable provisions of the
DGCL, including, without limitation, Section 262 thereof
(the Dissenters Shares) will not be
exchangeable for the right to receive the Merger Consideration,
and holders of such Dissenters Shares will be entitled to
receive payment of the appraised value of such Dissenters
Shares in accordance with those provisions unless and until such
holders fail to perfect or effectively withdraw or lose their
rights to appraisal and payment under the DGCL. If, after the
Effective Time, any such holder fails to perfect or effectively
withdraws or loses such rights to appraisal and payment under
the DGCL, such Dissenters Shares will thereupon be treated
as if they had been converted into and have become exchangeable
for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. The Company shall
give Parent prompt notice of any demands received by the Company
for appraisals of Shares. The Company shall not, except with the
prior written consent of Parent, make any payment with respect
to any demands for appraisal or offer to settle or settle any
such demands. Notwithstanding any provision of this Agreement to
the contrary, if Parent or the Company abandon or are finally
enjoined or prevented from carrying out the Merger and the other
transactions contemplated under this Agreement, the right of
each holder of Dissenters Shares to receive payment of the
appraised value of Shares as provided herein shall terminate,
effective as of the time of such abandonment, injunction,
prevention or rescission.
4.9 Company Options.
(a) At the Effective Time, each option to purchase Shares
granted under the Stock Plans that is outstanding immediately
prior to the Effective Time (a Company
Option) shall become fully vested and exercisable, and
shall be cancelled and entitle the holder thereof to receive, as
soon as reasonably practicable after the Effective Time (but in
no event more than three business days following the Effective
Time), an amount in cash equal to (x) the total number of
shares of Company Common Stock subject to the Company Option
times (y) the excess of (i) the sum of (A) the
Merger Consideration and (B) the closing sales price of a
share of Spinco Common Stock on the Distribution Date as
reported on the Exchange over (ii) the exercise price per
share under such Company Option (the terms Spinco Common
Stock, Distribution Date and
Exchange being defined in the Distribution Agreement
attached hereto as
Exhibit C-1
(the Distribution Agreement)), less any
applicable withholding.
(b) At the Effective Time, each restricted stock unit in
respect of a share of Company Common Stock (collectively, the
RSUs) shall become fully vested and shall be
converted into the right of each RSU holder to receive, as soon
as reasonably practicable after the Effective Time (but in no
event more than three business days following the Effective
Time), an amount per RSU equal to the sum of (y) the Merger
Consideration and (z) the closing sales price of a share of
Spinco Stock on the Distribution Date as reported on the
Exchange.
A-4
ARTICLE V
Representations
and Warranties
5.1 Representations and Warranties of the
Company. For purposes of this
Section 5.1, the term Retained
Business means the Company and its Subsidiaries taken
as a whole after giving effect to the Spin-Off. Except as set
forth in the corresponding sections or subsections of the
disclosure letter delivered to Parent by the Company prior to
entering into this Agreement (the Company Disclosure
Letter) or in the Companys Annual Report on
Form 10-K
for the fiscal year ended October 31, 2006, or in any of
the Quarterly Reports on
Form 10-Q
filed by the Company thereafter and prior to the date of this
Agreement (collectively, the SEC Reports)
(but, in any case, only to the extent such disclosure does not
constitute a risk factor or a forward-looking
statement under the heading Forward-Looking
Statements in any of such SEC Reports), the Company hereby
represents and warrants to Parent and Merger Sub that:
(a) Organization, Good Standing and
Qualification. Each of the Company and its
Subsidiaries is an entity duly organized, validly existing and
in good standing under the laws of its respective jurisdiction
of organization and has all requisite corporate or similar power
and authority to own and operate its properties and assets and
to carry on its business as presently conducted and is qualified
to do business and is in good standing as a foreign corporation
in each jurisdiction where the ownership or operation of its
assets or properties or conduct of its business requires such
qualification, except where the failure to be in good standing,
or to have such power or authority when taken together with all
other such failures, is not reasonably likely to have a Company
Material Adverse Effect (as defined below). The Company has made
available to Parent a complete and correct copy of the
Companys certificate of incorporation and bylaws, each as
amended to the date of this Agreement. The Companys
certificate of incorporation and bylaws so delivered are in full
force and effect.
As used in this Agreement, the term
(i) Subsidiary means, with respect to
the Company, Parent or Merger Sub, as the case may be, any
entity, whether incorporated or unincorporated, of which at
least a majority of the securities or ownership interests having
by their terms voting power to elect a majority of the board of
directors or other persons performing similar functions is
directly or indirectly owned or controlled by such party or by
one or more of its respective Subsidiaries and
(ii) Company Material Adverse Effect
means (x) a material adverse effect on the financial
condition, business, assets, liabilities or results of
operations of the Retained Business, or (y) an event,
change, effect, development, condition or occurrence that is, or
is reasonably likely to, prevent or materially delay the ability
of the Company to consummate the transactions contemplated by
this Agreement, excluding such effects resulting from or arising
in connection with events, changes, effects, developments,
conditions or occurrences:
(A) that are the result of general economic, capital
market, regulatory, political or business conditions or acts of
war or terrorism to the extent such changes do not
disproportionately affect, in any material respect, the Retained
Business as compared to the typical company operating in the
same industry or market as the Retained Business;
(B) that are the result of factors generally affecting the
industries or markets in which the Retained Business operates to
the extent such changes do not disproportionately affect, in any
material respect, the Retained Business as compared to the
typical company operating in the same industry or market as the
Retained Business;
(C) changes in the Retained Business relationships
with its employees or with any labor organization, or any
adverse change, effect or circumstance resulting from or arising
in connection with any labor strike, slowdown, work stoppage or
other labor controversy (in each case relating to collective
bargaining negotiations), that is threatened to occur or occurs
after the date of this Agreement;
(D) that result from entering into this Agreement or the
announcement thereof or the pendency or consummation of the
transactions contemplated hereby; and
(E) that are the result of changes in applicable Law, rule
or regulations or generally accepted accounting principles or
the interpretation thereof by a Governmental Entity or industry
standard that
A-5
interprets such Law, rule, regulation or principles after the
date of this Agreement to the extent such changes do not
disproportionately affect, in any material respect, the Retained
Business as compared to the typical company operating in the
same industry or market as the Retained Business.
(b) Capital Structure. As of the
date of this Agreement, the authorized capital stock of the
Company consists of 100,000,000 Shares and
1,000,000 shares of preferred stock, no par value per share
(the Preferred Shares), the only series of
Preferred Stock being 150,000 shares of Series A
Junior Participating Preferred Stock (the Series A
Preferred Shares). At the close of business on
October 31, 2007, 37,190,513 Shares were outstanding,
38,301,959 Shares were issued and no Preferred Shares were
issued and outstanding. The Company has no Shares or Preferred
Shares reserved for issuance, except that, at the close of
business on October 31, 2007,
(i) 1,427,275 Shares were reserved for issuance by the
Company pursuant to Company Options or other equity-based awards
granted under the following plans:
|
|
|
Plan
|
|
Shares Reserved for Issuance
|
|
2006 Omnibus Incentive Plan
|
|
328,581 Shares
|
1996 Employee Stock Option and Restricted Stock Plan
|
|
967,578 Shares
|
1997 Key Employee Stock Plan
|
|
86,116 Shares
|
1997 Non-Employee Director Stock Option Plan
|
|
45,000 Shares
|
(collectively, the Stock Plans),
(ii) 2,246,732 Shares were reserved for issuance
pursuant to Company Options or other equity-based awards not yet
granted under the Stock Plans, (iii) 1,877,508 Shares
were reserved for issuance pursuant to the Companys
2.5% Convertible Senior Debentures due 2034 (the
Convertible Debentures),
(iv) 981,117 Shares were held by the Company in its
treasury and (v) 13,618 Series A Preferred Shares were
reserved for issuance pursuant to the rights (the
Rights) under the Third Amended and Restated
Rights Agreement, dated as of September 15, 2004, between
the Company and Wells Fargo Bank, N.A., as Rights Agent, as
amended (the Rights Agreement). Since
October 31, 2007, the Company has not issued any Shares or
Preferred Shares other than the issuance of Shares upon the
exercise in accordance with the terms of the Stock Plans
outstanding on such date and disclosed in
Section 5.1(b)(i) of the Company Disclosure Letter.
The Company has no outstanding stock appreciation rights. The
Company Common Stock is listed on the New York Stock Exchange
(NYSE). All of the outstanding Shares have
been duly authorized and are, and all Shares issuable upon the
exercise of Company Options or other equity-based awards and the
conversion of the Convertible Debentures will be when issued
thereunder, validly issued, fully paid and nonassessable. Each
of the outstanding shares of capital stock or other securities
of each of the Companys Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned by the
Company or by a direct or indirect wholly-owned subsidiary of
the Company, free and clear of any Lien. Except as set forth
above and pursuant to the Rights Agreement, there are no
preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements, calls, commitments
or rights of any kind that obligate the Company or any of its
Subsidiaries to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into
or exercisable for, or giving any individual, corporation
(including not-for-profit), general or limited partnership,
limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity or other entity
of any kind or nature (collectively, Person)
a right to subscribe for or acquire, any securities of the
Company or any of its Subsidiaries, and no securities or
obligations evidencing such rights are authorized, issued or
outstanding. Other than the Convertible Debentures, the Company
does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right
to vote) with the stockholders of the Company on any matter
(Voting Debt). The Company does not own,
directly or indirectly, any voting interest in any Person, other
than its Subsidiaries, that may require a filing by Parent under
the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act) The only outstanding indebtedness for borrowed
money of the Company and its Subsidiaries is set forth in
Section 5.1(b)(ii) of the Company Disclosure Letter.
A-6
(c) Corporate Authority; Approval and
Fairness.
(i) The Company has all requisite corporate power and
authority and has taken all corporate action necessary in order
to execute, deliver and perform its obligations under this
Agreement, and, subject only to approval of this Agreement by
the holders of a majority of the outstanding Shares entitled to
vote on such approval at the Company Stockholders Meeting (the
Company Stockholder Approval), to consummate
the Merger. This Agreement is a valid and binding agreement of
the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights
and to general equity principles (the Bankruptcy and
Equity Exception).
(ii) The Board of Directors of the Company (the
Company Board), at a meeting duly called and
held, (A) has unanimously approved and declared advisable
this Agreement and the Merger and the other transactions
contemplated hereby, (B) has determined that this
Agreement, the Merger and the other transactions contemplated
hereby are advisable and fair to and in the best interest of the
Company and its stockholders, (C) has resolved (subject to
Section 6.2) to recommend this Agreement and the
Merger to its stockholders for approval and adoption,
(D) has directed that this Agreement and the Merger be
submitted to its stockholders for consideration in accordance
with this Agreement and (E) has received the opinion of its
financial advisor, Lazard Freres & Co. LLC
(Lazard), to the effect that the
consideration to be received by the holders of the Shares in the
Merger is fair, as of the date of such opinion, to such holders
from a financial point of view, a complete and correct copy of
which opinion has been delivered to Parent. It is agreed and
understood that such opinion is for the benefit of the Company
Board and may not be relied on by Parent or Merger Sub. The
Company Stockholder Approval is the only vote of the holders of
any class or series of capital stock of the Company required to
adopt this Agreement or approve the transactions contemplated by
this Agreement under applicable Law.
(d) Governmental Filings; No Violations; Certain
Contracts, Etc.
(i) Other than the filings
and/or
notices (A) pursuant to Section 1.3,
(B) under the HSR Act, the Securities Exchange Act of 1934,
as amended (the Exchange Act) and the
Securities Act of 1933, as amended (the Securities
Act), (C) required to be made with the NYSE,
(D) under the Exon Florio Amendment to the
U.S. Defense Production Act, 50 U.S.C. App. 2170, as
amended, and (E) other foreign approvals, state securities,
takeover and blue sky laws, no notices, reports or other filings
are required to be made by the Company with, nor are any
consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any governmental or
regulatory authority, agency, commission, body or other
governmental entity (Governmental Entity), in
connection with the execution and delivery of this Agreement by
the Company and the consummation by the Company of the Merger
and the other transactions contemplated hereby, except those
that the failure to make or obtain are not, individually or in
the aggregate, reasonably likely to have a Company Material
Adverse Effect or prevent, materially delay or materially impair
the ability of the Company to consummate the transactions
contemplated by this Agreement.
(ii) The execution, delivery and performance of this
Agreement by the Company do not, and the consummation by the
Company of the Merger and the other transactions contemplated
hereby will not, constitute or result in (A) a breach or
violation of, or a default under, the certificate of
incorporation or bylaws of the Company or the comparable
governing instruments of any of its Subsidiaries, (B) a
breach or violation of, a termination (or right of termination)
or a default under, the acceleration of any obligations or the
creation of a Lien on the assets of the Retained Business (with
or without notice, lapse of time or both) pursuant to, any
agreement, lease, license, contract, note, mortgage, indenture,
arrangement or other obligation (Contracts)
binding upon the Retained Business or any Laws or governmental
or non- governmental permit or license to which the Retained
Business is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in
the case of clause (B) or (C) above, for any breach,
violation, termination, default, acceleration or creation that,
individually or in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect or prevent, materially
delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
A-7
(iii) The Company has made available to Parent true,
correct and complete copies of all Contracts and other
instruments to which the Retained Business is a party or by
which the Retained Business or any of its properties or assets
is bound that (A) contain covenants that limit the ability
of the Retained Business, or which, following the consummation
of the Merger, could restrict the ability of Parent or any of
its affiliates as of immediately prior to the Effective Time or
the Surviving Entity, to compete or operate in any business or
with any Person or in any geographic area, or to sell, supply or
distribute any service or product or to otherwise operate or
expand its current or future businesses; (B) involve any
exchange traded, over-the-counter or other swap, cap, floor,
collar, futures contract, forward contract, option or any other
derivative financial instrument, other than physical hedging
Contracts entered into in the ordinary course of business
consistent with past practice of the Retained Business;
(C) relate to indebtedness for borrowed money, guarantees
or similar obligations; (D) involve, since October 31,
2006, the acquisition or disposition, directly or indirectly (by
merger or otherwise), of assets or capital stock or other equity
interests of another person for aggregate consideration under
such contract in excess of $5 million (other than
acquisitions or dispositions of assets in the ordinary course of
business, including acquisitions and dispositions of inventory);
(E) with respect to a material joint venture, partnership,
limited liability or other similar agreement or arrangement;
(F) by its terms calls for aggregate payments by the
Company and its Subsidiaries or aggregate payments to the
Retained Business under such Contract of more than
$5 million over the remaining term of such Contract, other
than Contracts pertaining to the purchase of product in the
ordinary course of business of the Retained Business;
(G) with respect to any acquisition by the Retained
Business pursuant to which the Retained Business has continuing
indemnification, earn-out or other contingent
payment obligations, in each case, that could result in payments
in excess of $5 million; (H) in which the counterparty
is any director, executive officer or greater than 5%
stockholder of the Company (other than Company Compensation and
Benefit Plans); (I) involve any labor union or other
employee organization, including any works council or foreign
trade union or trade association or (J) would be required
to be filed by the Retained Business as a material contract
pursuant to Item 601(b)(10) of
Regulation S-K
of the Securities and Exchange Commission (the
SEC). Each such Contract described in
clause (A) through (J) is referred to herein as a
Material Contract.
(iv) Except as would not reasonably be expected to have a
Company Material Adverse Effect, (i) neither the Company
nor any Subsidiary has received any written notice or claim of
default under any Material Contract or any written notice of an
intention to terminate, not renew or challenge the validity or
enforceability of any Material Contract and (ii) each of
the Material Contracts is in full force and effect and, to the
Knowledge of the Company, is the valid, binding and enforceable
obligation of the other parties thereto (except that such
enforceability is subject to the Bankruptcy and Equity
Exception).
(e) Company Reports; Financial
Statements.
(i) The Company furnished or filed, as applicable, on a
timely basis statements, reports, certificates, forms and
documents required to be filed or furnished by it with the SEC
under the Exchange Act or the Securities Act since
October 31, 2005, including the SEC Reports, (including
exhibits, annexes and any amendments thereto) (collectively,
including any such reports filed subsequent to the date of this
Agreement and as amended, the Company
Reports). As of their respective dates (or, if
amended, as of the date of such amendment) the Company Reports
did not, and any Company Reports filed with the SEC subsequent
to the date of this Agreement will not, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which
they were made, not misleading. Each of the consolidated balance
sheets included in or incorporated by reference into the Company
Reports (including the related notes and schedules) fairly
presents, or will fairly present, the consolidated financial
position of the Company and its subsidiaries as of its date and
each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into
the Company Reports (including any related notes and schedules)
fairly presents, or will fairly present, the results of
operations, retained earnings and changes in financial position,
as the case may be, of the Company and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that
will not be material in amount or effect), in each case in
accordance with US. generally accepted accounting principles
(GAAP) consistently applied during the
periods involved, except as may be noted therein. The unaudited
consolidating balance sheet and the unaudited
A-8
corporate balance sheet contained in Section 5.1(e)
of the Disclosure Letter (the Supplemental Financial
Statements) are complete and accurate and were
prepared in the ordinary course and on a basis and in a manner
consistent with past practice. As of October 31, 2007 the
Supplemental Financial Statements fairly present the financial
position of the Retained Business, the Building Products
Business and the corporate level assets and liabilities of the
Company.
(ii) The Company is in compliance in all material respects
with (A) the applicable provisions of the Sarbanes-Oxley
Act of 2002, and the regulations promulgated thereunder (the
Sarbanes-Oxley Act) and (B) the
applicable listing and corporate governance rules and
regulations of the NYSE. The Companys disclosure controls
and procedures (as defined in
Sections 13a-14(c)
and
15d-14(c) of
the Exchange Act) effectively enable the Company to comply with,
and the appropriate officers of the Company to make all
certifications required under, the Sarbanes-Oxley Act. Such
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company is recorded
and reported on a timely basis to the individuals responsible
for the preparation of the Companys filings with the SEC
and other public disclosure documents. The Company has
disclosed, based on its most recent evaluation prior to the date
of this Agreement, to the Companys outside auditors and
the audit committee of the Company Board that they have
identified (A) no significant deficiencies or material
weaknesses in the design or operation of its internal controls
over financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) that would be reasonably likely to
materially and adversely affect the Companys ability to
record, process, summarize and report financial information and
(B) no fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal controls over financial reporting. As of
October 31, 2005, the Company has concluded, following an
evaluation under the supervision and with the participation of
the Companys principal executive officer and its principal
financial officer of the effectiveness of the Companys
disclosure controls and procedures, that the Companys
disclosure controls and procedures were effective. Since the
enactment of the Sarbanes-Oxley Act, neither the Company nor any
of its Subsidiaries has made any prohibited loans to any
executive officer of the Company (as defined in
Rule 3b-7
under the Exchange Act) or director of the Company or any of its
Subsidiaries.
(iii) The Company has made available to Parent true and
complete copies of all material correspondence between the SEC,
on the one hand, and the Company and any of its Subsidiaries, on
the other hand, occurring since October 31, 2005 and prior
to the date of this Agreement. As of the date of this Agreement,
there are no outstanding or unresolved comments from the SEC
staff with respect to any Company Report.
(f) Absence of Certain
Changes. Except as contemplated by this
Agreement, since the Company Balance Sheet Date (as defined
below) the Company and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any
transaction other than in the ordinary and usual course of such
businesses consistent with past practice and have not taken any
action which, if it had been taken after the date hereof, would
have required the prior written consent of Parent pursuant to
clauses (i)-(xx) of Section 6.1 (assuming any
applicable threshold contained therein was already fully
surpassed) or would have breached the Companys obligations
under Section 6.11(c), and there has not been (i) any
change in the financial condition, properties, business or
results of operations of the Company and its Subsidiaries or any
development or combination of developments of which management
of the Company has Knowledge that, individually or in the
aggregate, has had or is reasonably likely to have a Company
Material Adverse Effect or prevent, materially delay or
materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement; (ii) any
material damage, destruction or other casualty loss with respect
to any material asset or property owned, leased or otherwise
used by the Company or any of its Subsidiaries, whether or not
covered by insurance; (iii) any declaration, setting aside
or payment of any dividend or other distribution in cash, stock
or property in respect of the capital stock of the Company,
except for dividends or other distributions on its capital stock
publicly announced prior to the date of this Agreement and
except as expressly permitted hereby or (iv) any change by
the Company in accounting principles or any material accounting
practices or methods. Since the Company Balance Sheet Date,
except as provided for herein or as disclosed in the Company
Reports filed prior to the date of this Agreement, there has not
been any increase in the compensation payable or that could
become payable by the Company or any of its Subsidiaries to
officers or directors or any amendment of any of the Company
Compensation and Benefit Plans other than increases
A-9
or amendments in the ordinary course. For purposes of this
Agreement, Company Balance Sheet Date means
July 31, 2007.
(g) Litigation and Liabilities.
(i) There are no civil, criminal or administrative actions,
suits, claims, hearings, investigations, inquiries or
proceedings (Actions) pending or, to the
Knowledge of the Company, threatened against the Retained
Business except for those that are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the
ability of the Company to consummate the transactions
contemplated by this Agreement.
(ii) Neither the Company nor any of its Subsidiaries has
any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), whether or not required by
GAAP to be set forth on a consolidated balance sheet of the
Company and its Subsidiaries or in the notes thereto, other than
liabilities and obligations (A) set forth in the
Companys consolidated balance sheet, including the notes
to the financial statements of which the balance sheet is a
part, as of the Company Balance Sheet Date included in the
Company Reports, (B) incurred in the ordinary course of
business consistent with past practice since the Company Balance
Sheet Date, (C) incurred in connection with the Merger or
the transactions contemplated by this Agreement or (D) that
are not, individually or in the aggregate, reasonably likely
have a Company Material Adverse Effect.
(h) Employee Benefits.
(i) Section 5.1(h)(i) of the Company Disclosure
Letter contains a complete and correct list of all Company
Compensation and Benefit Plans. The term Company
Compensation and Benefit Plan means all material
employee benefit plan (as defined in
section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), including
without limitation, multiemployer plans within the meaning of
3(37) of ERISA) and all other material employee benefit
agreements or arrangements, including, without limitation,
deferred compensation plans, incentive plans, bonus plans or
arrangements, stock option plans, stock purchase plans, stock
award plans, golden parachute agreements, severance pay plans,
dependent care plans, cafeteria plans, employee assistance
programs, scholarship programs, employment contracts, retention
incentive agreements, vacation policies, and other similar
plans, agreements and arrangements, whether formal or informal,
that are sponsored, maintained or contributed to by the Retained
Business or with respect to which the Retained Business may have
any liability, contingent or otherwise.
Section 5.1(h)(i) of the Company Disclosure Letter
identifies which of the Company Compensation and Benefit Plans
are subject to Title IV of ERISA.
(ii) With respect to each Company Compensation and Benefit
Plan, the Company has heretofore made available to Parent, as
applicable, complete and correct copies of each of the following
documents:
(A) each Company Compensation and Benefit Plan and any
amendments thereto (or if the Company Compensation and Benefit
Plan is not a written agreement, an accurate description
thereof);
(B) the three most recent annual Form 5500 reports
filed with the Internal Revenue Service (the
IRS);
(C) the most recent statement filed with the Department of
Labor pursuant to 29 U.S.C.
Section 2520.104-23;
(D) the most recent annual Form 1041 reports filed
with the IRS;
(E) the actuarial reports for the last three years;
(F) the three most recent reports prepared in accordance
with Statement of Financial Accounting Standards No. 87;
(G) the most recent summary plan description and summaries
of material modifications thereto;
(H) the trust agreement, group annuity contract or other
funding agreement that provides for the funding of a Company
Compensation and Benefit Plan; and
A-10
(I) the most recent determination letter received from the
IRS with respect to each Company Compensation and Benefit Plan
that is intended to qualify under Section 401 of the Code.
(iii) No asset of the Company or any Person (whether or not
incorporated) that is treated as a single employer together with
the Company or any of its Subsidiaries under Section 414 of
the Code (Company ERISA Affiliate) is the
subject of any Lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code; none of the Company or any
Company ERISA Affiliate has been required to post any security
under Section 307 of ERISA or Section 401(a)(29) of
the Code; and, to the Knowledge of the Company, no fact or event
exists that could reasonably be expected to give rise to any
such Lien or requirement to post any such security.
(iv) With respect to any Company Compensation and Benefit
Plan, (i) no actions, suits or claims (other than routine
claims for benefits in the ordinary course) are pending or, to
the Knowledge of the Company, threatened, (ii) no facts or
circumstances exist that could give rise to any such actions,
suits or claims, (iii) no written or oral communication has
been received from the Pension Benefit Guaranty Corporation (the
PBGC) in respect of any Company Compensation
and Benefit Plan subject to Title IV of ERISA concerning
the funded status of any such plan or any transfer of assets and
liabilities from any such plan in connection with the
transactions contemplated herein, and (iv) no
administrative investigation, audit or other administrative
proceeding by the Department of Labor, the PBGC, the Internal
Revenue Service or other governmental agencies are pending,
threatened or in progress (including, without limitation, any
routine requests for information from the PBGC).
(v) No pension benefit plan as defined in Section 3(2)
of ERISA that is maintained or contributed to by the Company or
any Company ERISA Affiliate had an accumulated funding
deficiency as defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, as of the
last day of the most recent fiscal year of the plan ending on or
prior to the date of this Agreement. All contributions required
to be made with respect to any Company Compensation and Benefit
Plan on or prior to the date of this Agreement have been timely
made or are reflected in the most recent financial statements
included in the Company Reports.
(vi) Except as would not, individually or in the aggregate,
reasonably be likely to have a Company Material Adverse Effect,
(A) neither the Company nor any other Person has engaged in
a transaction that could result in the imposition upon the
Company or any of its Subsidiaries of a civil penalty under
Section 409 or 502(i) of ERISA or a tax under
Section 4971, 4972, 4975, 4976, 4980, 4980B or 6652 of the
Code with respect to any Company Compensation and Benefit Plan,
and (B) to the Knowledge of the Company, no fact or event
exists that could reasonably be expected to give rise to any
such liability.
(vii) Except as would not, individually or in the
aggregate, reasonably be likely to have a Company Material
Adverse Effect, each Company Compensation and Benefit Plan has
been operated and administered in all respects in accordance
with its terms and applicable Laws, including but not limited to
ERISA and the Code.
(viii) Each Company Compensation and Benefit Plan that is
intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and, to
the Knowledge of the Company, no condition exists that could be
reasonably expected to result in the revocation of any such
letter.
(ix) No Company Compensation and Benefit Plan provides
medical, surgical or hospitalization benefits (whether or not
insured by a third party) for employees or former employees of
the Company, any of its Subsidiaries or any Company ERISA
Affiliate for periods extending beyond their retirements or
other terminations of service, other than (A) coverage
mandated by applicable Law or (B) death benefits under any
pension benefit plan as defined in Section 3(2) of ERISA.
(x) The consummation of the transactions contemplated by
this Agreement, either alone or in conjunction with another
event that occurs on or prior to the Closing Date (such as a
termination of employment), will not (A) entitle any
current or former employee of the Company or any of its
Subsidiaries to severance pay or any other payment under a
Company Compensation and Benefit Plan, (B) accelerate the
time of payment or vesting of benefits under a Company
Compensation and Benefit Plan, (C) increase the amount of
A-11
compensation due any current or former employee of the Company
or any of its Subsidiaries or (D) result in payments of any
kind that would not be deductible under Section 162(m) or
Section 280G of the Code.
(xi) Except as would not, individually or in the aggregate,
reasonably be likely to have a Company Material Adverse Effect,
there is no litigation, action, proceeding, audit, examination
or claim pending, or to the Knowledge of the Company, threatened
or contemplated relating to any Company Compensation and Benefit
Plan.
(xii) Except as would not, individually or in the
aggregate, reasonably be likely to have a Company Material
Adverse Effect, (A) none of the Company or any Company
ERISA Affiliate has incurred any liability under Title IV
of ERISA that has not been satisfied (other than liability to
the PBGC for the payment of premiums pursuant to
Section 4007 of ERISA) and (B) no condition exists for
which the PBGC is authorized to seek from the Company or a
Company ERISA Affiliate, a late payment charge under
Section 4007(b) of ERISA. To the Knowledge of the Company,
no condition exists that presents a risk that the Company or a
Company ERISA Affiliate will incur any liability under
Title IV of ERISA (other than liability to the PBGC for the
payment of premiums pursuant to Section 4007 of ERISA) that
would, individually or in the aggregate, reasonably be likely to
have a Company Material Adverse Effect.
(xiii) No Company Plan is a multiemployer plan
(as defined in Section 3(37) of ERISA) and neither the
Company, its Subsidiaries nor any Company ERISA Affiliate during
the last six years has at any time during such period sponsored
or contributed to, or has or had any liability or obligation in
respect of, any such multiemployer plan.
(xiv) The most recent financial statements and actuarial
reports, if any, for the Company Compensation and Benefit Plans
reflect the financial condition and funding of the Company
Compensation and Benefit Plans as of the dates of such financial
statements and actuarial reports, and no material adverse change
has occurred with respect to the financial condition or funding
of the Company Compensation and Benefit Plans since the dates of
such financial statements and actuarial reports.
(xv) None of the Company, any of its Subsidiaries or any
Company ERISA Affiliate has entered into any split-dollar
insurance arrangements since July 30, 2002 for any director
or executive officer. None of the Company, any of its
Subsidiaries or any Company ERISA Affiliate has any obligation
or liability under any plan, contract, policy or any other
arrangement that limits its ability to terminate any
split-dollar insurance arrangements, other than a requirement to
provide notice of termination.
(xvi) Except as would not, individually or in the
aggregate, reasonably be likely to have a Company Material
Adverse Effect, no Company Compensation and Benefit Plan that
satisfies the requirements of Section 401(a) of the Code
has incurred a partial termination within the meaning of
Section 41l(d)(3) of the Code during the six- year period
ending on the date of this Agreement.
(i) Compliance with Laws;
Permits. The businesses of the Retained
Business have not been, and are not being, conducted in
violation of any applicable federal, state, local or foreign
law, statute, ordinance, rule, rule of common law, regulation,
judgment, order, injunction, decree, arbitration award, agency
requirement, license or permit of any Governmental Entity
(collectively, Laws), except for violations
or possible violations that, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse
Effect or prevent, materially delay or materially impair the
ability of the Company to consummate the transactions
contemplated by this Agreement. Except as disclosed in the
Company Reports filed prior to the date of this Agreement or
with respect to regulatory matters covered by
Section 6.5, no investigation or review by any
Governmental Entity with respect to the Retained Business is
pending or, to the Knowledge of the Company, threatened, nor has
any Governmental Entity indicated an intention to conduct the
same, except for those the outcome of which are not,
individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect or prevent, materially delay or
materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement. The Retained
Business has all governmental permits, franchises, variances,
exemptions, orders and other governmental authorizations,
consents and approvals (Permits) necessary to
conduct their business as presently conducted except those the
absence of which are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or
prevent or
A-12
materially burden or materially impair the ability of the
Company to consummate the Merger and the other transactions
contemplated by this Agreement. The Retained Business has
complied with, and is not in violation of, any Permits, except
where such noncompliance or violation is not reasonably likely
to have, individually or in the aggregate, a Company Material
Adverse Effect. Except as would not reasonably be likely to have
a Company Material Adverse Effect, all such Permits are in full
force and effect and there are no proceedings pending or, to the
Knowledge of the Company, threatened that seek the revocation,
cancellation, suspension or adverse modification thereof.
(j) Takeover Matters. No
fair price, moratorium, control
share acquisition or other similar anti-takeover statute
or regulation (with the exception of Section 203 of the
DGCL) (each a Takeover Statute) or any
anti-takeover provision in the Companys certificate of
incorporation and bylaws is or at the Effective Time will be,
applicable to the Shares, the Merger or the other transactions
contemplated by this Agreement. The approval of this Agreement
by the Company Board constitutes approval of this Agreement, the
Merger and the other transactions contemplated hereby for
purposes of Section 203 of the DGCL and for all provisions
of the Companys certificate of incorporation and bylaws
and represents the only action necessary to ensure that the
restrictions of Section 203 of the DGCL (and the
restrictions of the Companys certificate of incorporation
and bylaws) do not apply to the execution and delivery of this
Agreement or the consummation of the Merger and the other
transactions contemplated hereby.
(k) Environmental Matters. Except
for such matters that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect:
(i) the Retained Business complies with all, and has not
violated any, Environmental Laws (as defined below);
(ii) no property or facility currently, or to the Knowledge
of the Company after due inquiry, formerly, leased, owned or
operated by the Retained Business (including soils, groundwater,
surface water, buildings or other structures) is or has been
subject to any release or threatened release of any Hazardous
Substance (as defined below) that could reasonably be expected
to result in liability for the Retained Business under any
Environmental Law including with respect to any remediation
required pursuant to any Environmental Law; (iii) the
Retained Business has not received any Action, notice or request
for information alleging liability for any Hazardous Substance
disposal or contamination on any third party property and, to
the Knowledge of the Company after due inquiry, no such Action,
notice or request for information is threatened; (iv) the
Retained Business has not received any Action, notice or request
for information alleging that the Retained Business is in
violation of, or subject to liability under, any Environmental
Law and, to the Knowledge of the Company after due inquiry, no
such Action, notice or request for information is threatened;
(v) the Retained Business is not subject to any order,
decree or directive from any Governmental Entity pursuant to any
Environmental Law and, to the Knowledge of the Company after due
inquiry, no such order, decree or directive is threatened;
(vi) no portion of any of the assets owned or operated by
the Retained Business is listed on, or is, to the Knowledge of
the Company after due inquiry, proposed for listing on, the
National Priorities List; (vii) to the Knowledge of the
Company after due inquiry, the Retained Business has not
released or arranged for the release or other disposal of any
Hazardous Substance in a manner, or to a location, that has
resulted, or that could reasonably be expected to result, in
liability under or relating to any Environmental Law;
(viii) the execution of this Agreement and the consummation
of the transactions contemplated hereby, do not require any
submission to, or any consent or approval of, any Governmental
Entity under or relating to any Environmental Law; and
(ix) the Retained Business has not contractually assumed or
provided indemnity against any liability under or relating to
any Environmental Law.
As used herein, the term Environmental Law
means any applicable Law concerning: (A) the protection of
the environment or natural resources, (B) the handling,
use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, indoor air,
employee or public exposure, wetlands, pollution, contamination
or any injury or threat of injury to persons or property
relating to any Hazardous Substance. As used herein, the term
Hazardous Substance means any waste or any
substance that is listed, classified or regulated pursuant to
any Environmental Law as hazardous,
toxic, a pollutant, a
contaminant, or terms of similar import, including
petroleum, petroleum products, asbestos, asbestos-containing
materials, and polychlorinated biphenyls.
A-13
(l) Taxes. The Company and each of
its Subsidiaries (i) have duly and timely filed (taking
into account any extension of time within which to file) all
material Tax Returns (as defined below) required to be filed by
any of them and all such filed Tax Returns are complete and
accurate in all material respects; (ii) have paid all
material Taxes (as defined below) (A) that are due and
payable (whether or not shown in such Tax Returns) or, where
payment is not due, have made adequate provision for all
material Taxes in the financial statements of the Company or
(B) that the Company or any of its Subsidiaries are
obligated to withhold from amounts owing to any employee,
creditor or third party, except, in each case, with respect to
matters contested in good faith and for which adequate provision
has been made in the Company Reports; and (iii) have not
waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to a Tax assessment
or deficiency. As of the date of this Agreement, there are not
pending or, to the Knowledge of the Company, threatened in
writing, any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters. There are not
any unresolved questions or claims concerning the Companys
or any of its Subsidiaries Tax liability that are
reasonably likely to have a Company Material Adverse Effect and
are not disclosed or provided for in the Company Reports.
Neither the Company nor any of its Subsidiaries has any material
liability with respect to income, franchise or similar Taxes
that accrued on or before the end of the most recent period
covered by the Company Reports filed prior to the date hereof in
excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in the Company
Reports filed on or prior to the date of this Agreement. The
Company has not been a party to the distribution of stock of a
controlled corporation as defined in Section 355(a) of the
Code in a transaction intended to qualify under Section 355
of the Code within the past two years. Neither the Company nor
any of its U.S. Subsidiaries has been a United States real
property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. There
are no material Liens with respect to Taxes upon any of the
assets or properties of either the Company or its Subsidiaries,
other than with respect to Taxes not yet due and delinquent.
Neither the Company nor any of its Subsidiaries (A) is or
has ever been a member of an affiliated group (other than a
group the common parent of which is Company) filing a
consolidated federal income Tax Return or (B) has any
liability for Taxes of any person arising from the application
of Treasury Regulation
section 1.1502-6
or any analogous provision of state, local or foreign Law, or as
a transferee or successor, by contract (except as contemplated
in the Tax Matters Agreement attached hereto as
Exhibit C-3),
or otherwise. No closing agreement pursuant to Section 7121
of the Code (or any similar provision of state, local or foreign
Law) has been entered into by or with respect to the Company or
any of its Subsidiaries. Neither the Company nor any Subsidiary
will be required to include amounts in income, or exclude items
of deduction, in a taxable period beginning after the Closing
Date as a result of (A) a change in method of accounting
occurring prior to the Closing Date, (B) an installment
sale or open transaction arising in a taxable period (or portion
thereof) ending on or before the Closing Date, (C) a
prepaid amount received, or paid, prior to the Closing Date or
(D) deferred gains arising prior to the Closing Date.
Neither the Company nor any of its Subsidiaries has engaged in
any transaction that could give rise to (A) a list
maintenance obligation with respect to any Person under
Section 6112 of the code or the regulations thereunder, as
in effect and as amended by any guidance published by the IRS
for the applicable period, or (B) a disclosure obligation
as a reportable transaction under Section 6011
of the Code and the regulations thereunder, as in effect and as
amended by any guidance published by the IRS for the applicable
period.
As used in this Agreement, (i) the term
Tax (including, with correlative meaning, the
term Taxes) includes all federal, state,
local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added,
occupancy and any other taxes, duties, customs, governmental
fees or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such
amounts and any interest in respect of such penalties and
additions, and (ii) the term Tax Return
includes all returns, reports, or similar statements (including,
without limitation, elections, declarations, disclosures,
schedules, estimates, claims for refunds, amended returns,
declarations of estimated Tax, and information returns, and
including any attached schedules) required to be supplied to a
Tax authority relating to Taxes.
A-14
(m) Labor Matters. As of the date
of this Agreement:
(i) no collective bargaining agreements or other contracts
or agreements with any labor organization are in effect with
respect to the Retained Business, and the Retained Business is
not negotiating any collective bargaining agreement or other
contracts or agreements in respect of employees of the Retained
Business;
(ii) the Retained Business is in compliance with each of
the collective bargaining agreements or other material contracts
or agreements with any labor organization or other
representative of employees to which any of them is a party
except those failures to comply that are not, individually or in
the aggregate, reasonably likely to have a Company Material
Adverse Effect;
(iii) there is no unfair labor practice charge or complaint
pending or, to the Knowledge of the Company, threatened, with
regard to employees of the Retained Business, except those
charges or complaints that are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse
Effect;
(iv) there is no labor strike, material slowdown, material
work stoppage or other material labor controversy in effect or,
to the Knowledge of the Company, threatened against the Retained
Business, and no labor strike, material slowdown, material work
stoppage or other material labor controversy has occurred within
the past 5 years;
(v) no union certification or decertification petition has
been filed (with service of process having been made on the
Company or any of its Subsidiaries), or, to the Knowledge of the
Company, threatened (or pending without service of process
having been made on the Company or any of its Subsidiaries),
that relates to employees of the Retained Business and, to the
Knowledge of the Company, no union authorization campaign or
other organizational effort has been conducted within the past
24 months except those petitions and campaigns that are
not, individually or in the aggregate, reasonably likely to have
a Company Material Adverse Effect;
(vi) no grievance proceeding or arbitration proceeding
arising out of or under any collective bargaining agreement is
pending (with service of process having been made on the Company
or any of its Subsidiaries), or, to the Knowledge of the
Company, threatened (or pending without service of process
having been made on the Company or any of its Affiliates),
against the Retained Business related to any of their employees,
prospective employees, or former employees, except those
proceedings that are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect;
(vii) no action, complaint, charge, inquiry, proceeding or
investigation by or on behalf of any employee, prospective
employee, former employee, labor organization or other
representative of the employees of the Retained Business is
pending or, to the Knowledge of the Company, threatened, except
those that are not, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect;
(viii) the Retained Business is not a party to, or
otherwise bound by, any consent decree with, or citation by, any
Governmental Entity relating to employees or employment
practices of the Retained Business except those consent decrees
or citations that are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect;
(ix) the Retained Business has not closed any plant or
facility or effectuated any material layoffs of employees within
the past 3 years without complying with all relevant Laws,
including the Worker Adjustment and Retraining Notification Act
(together with any similar state or local statute, rule or
regulation, WARN); and
(x) the Retained Business is in compliance with all
applicable agreements, contracts, policies, plans, Laws and
programs relating to employment, employment practices, wages,
hours and terms and conditions of employment of the employees
except those failures to comply that are not, individually or in
the aggregate, reasonably likely to have a Company Material
Adverse Effect.
A-15
Solely for purposes of this subsection (m), clause (C) of
the definition of Company Material Adverse Effect shall not
apply.
(n) Insurance. All material fire
and casualty, general liability, business interruption, product
liability, and sprinkler and water damage insurance policies
maintained by the Retained Business are with reputable insurance
carriers, provide full and adequate coverage for all normal
risks incident to the business of the Retained Business and its
properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards,
except for any such failures to maintain insurance policies
that, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect.
(o) Intellectual Property.
(i) The Retained Business owns, is licensed or otherwise
possesses valid and legally enforceable rights to use all
(A) trademarks, service marks, brand names, trade names,
d/b/as, Internet domain names, logos, trade dress, and all
goodwill associated therewith and symbolized thereby, and
registrations and applications therefor, including renewals;
(B) inventions and discoveries, whether patentable or not,
and all patents, registrations, and applications therefor,
including divisions, continuations,
continuations-in-part
and reissues; (C) published and unpublished works of
authorship, whether copyrightable or not, including computer
software programs, applications, source code and object code,
and databases and other compilations of information, copyrights
in and to the foregoing, including extensions, renewals,
restorations, and registrations and applications therefor;
(D) confidential information, trade secrets and know-how,
including processes, schematics, business methods, formulae,
drawings, prototypes, models, designs, customer lists and
supplier lists; and (E) all other intellectual property
(clauses (A) through (E) collectively, IP
Rights) that are used in the business of the Retained
Business as currently conducted and as currently planned to be
conducted, except for the intellectual property being
transferred to the Building Products Business pursuant to the
Agreement set forth in
Exhibit C-1
attached hereto and except for any such failures to own, be
licensed or possess that, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect.
Section 5.1(o) of the Company Disclosure Letter
identifies all IP Rights exercised in connection with the
Retained Business that are the subject of subsisting patents,
patent applications, trademark registrations, trademark
applications, copyright registrations and copyright applications.
(ii) Except as is not reasonably likely to have a Company
Material Adverse Effect:
(A) no claim is currently pending or threatened in writing
against the Retained Business by any Person alleging that the
operation of the business as currently conducted or as proposed
to be conducted, or the manufacture, sale, licensing or use of
any product as now used, sold or licensed or proposed for use,
sale or license by the Retained Business, infringes or otherwise
violates any IP Rights of any Person;
(B) to the Knowledge of the Company, there are no valid
grounds for any bona fide claims to the effect that the
operation of the business as currently conducted or as proposed
to be conducted, or the manufacture, sale, licensing or use of
any product as now used, sold or licensed or proposed for use,
sale or license by the Retained Business, or the exercise of any
of the Companys IP Rights related to Retained Business,
infringes or otherwise violates any IP Rights of any Person;
(C) to the Knowledge of the Company, there is no
unauthorized use, infringement or other violation by any Person
of any IP Rights owned or held by the Retained Business; and
(D) all IP Rights listed on Section 5.l(o) of
the Company Disclosure Letter are subsisting and have not been
adjudicated invalid.
(E) the Company (i) takes all reasonable actions to
maintain and protect the validity and value of all of its trade
secrets, know how, or other confidential information
(collectively, Trade Secrets), (ii) has
executed confidentiality agreements with all persons who had or
have access to any such Trade Secrets, and (iii) has
executed enforceable intellectual property assignment agreements
with all persons who contributed or contribute to the
development of any such Trade Secrets.
A-16
(p) Owned and Leased
Properties. The Retained Business has such
good and valid title to, or such valid rights by lease, license,
other agreement or otherwise to use, (i) all assets and
properties (in each case, tangible and intangible) necessary to
enable the Retained Business to conduct its businesses as
currently conducted and (ii) all the properties and assets
reflected in the latest audited balance sheet included in the
Company Reports as being owned by the Company or one of its
Subsidiaries or acquired after the date thereof that are
material to the Retained Business on a consolidated basis
(except properties sold or otherwise disposed of since the date
thereof in the ordinary course of business) except, in each
case, for defects in title, easements, restrictive covenants and
similar encumbrances that are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse
Effect. Section 5.1(p) of the Company Disclosure
Letter sets forth a complete and accurate list as of the date of
this Agreement of all such owned and leased property and the
address and owner thereof, other than properties and assets that
in the aggregate are not material to the Retained Business.
(q) Brokers and Finders. Neither
the Company nor any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with
the Merger or the other transactions contemplated in this
Agreement except that the Company has employed Lazard as its
financial advisor, the arrangements with which have been
disclosed to Parent prior to the date of this Agreement. There
are no amounts payable to Lazard in connection with Merger and
the other transactions contemplated by this Agreement other than
as set forth in the Companys engagement letters with
Lazard.
(r) Rights Agreement. Immediately
prior to the execution of this Agreement, the Company amended
the Rights Agreement to provide that (i) Parent and Merger
Sub each shall not be deemed an Acquiring Person (as
defined in the Rights Agreement), (ii) a Stock
Acquisition Date or a Distribution Date (as
such terms are defined in the Rights Agreement) shall not occur
as a result of the execution or delivery of this Agreement, the
consummation of the Merger and the other transactions
contemplated by this Agreement, (iii) the Rights will not
separate from the Shares or become exercisable solely as a
result of entering into this Agreement or consummation of the
Merger
and/or the
other transactions contemplated hereby and (iv) the Rights
Agreement will terminate and the Rights will expire immediately
prior to the Effective Time.
(s) Affiliate Transactions. No
executive officer or director of the Company or any of its
Subsidiaries or any Person beneficially owning 5% or more of the
Shares is a party to any Material Contract with or binding upon
the Company or any of its Subsidiaries or any of their
respective properties or assets or has any material interest in
any material property owned by the Company or any of its
Subsidiaries or has engaged in any material transaction or
series of transactions with any of the foregoing within the last
twelve months or that would be required to be disclosed under
Item 404 of
Regulation S-K
promulgated under the Securities Act.
5.2 Representations and Warranties of Parent and
Merger Sub. Except as set forth in the
corresponding sections or subsections of the disclosure letter
delivered to the Company by Parent prior to entering into this
Agreement (the Parent Disclosure Letter),
Parent and Merger Sub each hereby represent and warrant to the
Company that:
(a) Organization, Good Standing and
Qualification. Each of Parent and Merger Sub
is an entity duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of
organization and has all requisite corporate or similar power
and authority to own and operate its properties and assets and
to carry on its business as presently conducted, except where
the failure to have such power or authority when taken together
with all other such failures, would not, individually or in the
aggregate, be reasonably likely to prevent, materially delay or
materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
Parent has furnished to the Company a complete and correct copy
of its certificate of incorporation and bylaws and Merger Sub
has furnished to the Company a complete and correct copy of its
certificate of incorporation and bylaws, each as in effect on
the date of this Agreement.
(b) Authority.
(i) Each of Parent and Merger Sub has all requisite
corporate or other power and authority and has taken all
corporate or other action necessary in order to execute, deliver
and perform its obligations under this Agreement and to
consummate the Merger. This Agreement is a valid and binding
agreement of Parent and
A-17
Merger Sub, enforceable against each of Parent and Merger Sub in
accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(ii) The Board of Directors of Parent (the Parent
Board), at a meeting duly called and held,
(A) has unanimously (i) approved and adopted this
Agreement, (ii) determined that this Agreement, the Merger
and the other transactions contemplated by this Agreement are in
the best interests of Parent, and (iii) determined to cause
Parent, as the sole stockholder of Merger Sub, to approve and
adopt this Agreement. The affirmative vote of Parent, as the
sole stockholder of Merger Sub, is the only vote of the holders
of any class or series of Merger Sub equity necessary to approve
the Merger. The Board of Directors of Merger Sub (by unanimous
written consent) have approved and adopted this Agreement and
the transactions contemplated hereby, including the Merger.
(c) Governmental Filings; No Violations; Certain
Contracts; Etc.
(i) Other than the filings
and/or
notices (A) pursuant to Section 1.3, and
(B) under the HSR Act, no notices, reports or other filings
are required to be made by Parent or Merger Sub with, nor are
any consents, registrations, approvals, permits or
authorizations required to be obtained by Parent or Merger Sub
from, any Governmental Entity, in connection with the execution
and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Merger and the
other transactions contemplated hereby, except those that the
failure to make or obtain are not, individually or in the
aggregate, reasonably likely to prevent, materially delay or
materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this
Agreement by Parent and Merger Sub do not, and the consummation
by Parent and Merger Sub of the Merger and the other
transactions contemplated hereby will not, constitute or result
in (A) a breach or violation of, or a default under, the
certificate of incorporation or bylaws of Parent or Merger Sub
or the comparable governing instruments of any of Parents
Subsidiaries, (B) a breach or violation of, a termination
(or right of termination) or a default under, the acceleration
of any obligations or the creation of a Lien on the assets of
Parent or any of its Subsidiaries (with or without notice, lapse
of time or both) pursuant to, any Contracts binding upon Parent
or any of its Subsidiaries or any Laws or governmental or
non-governmental permit or license to which Parent or any of its
Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in
the case of clause (B) or (C) above, for breach,
violation, termination, default, acceleration or creation that,
individually or in the aggregate, is not reasonably likely to
prevent, materially delay or materially impair the ability of
Parent or Merger Sub to consummate the transactions contemplated
by this Agreement.
(d) Parent Financial
Statements. Each of the consolidated balance
sheets of the Parent as of December 31, 2006 and
June 30, 2007 (including the related notes and schedules)
filed by Parent with the SEC in its
Form 6-Ks
on April 27, 2007 and September 14, 2007, respectively
(the Parent SEC Reports), fairly presents the
consolidated financial position of Parent and its Subsidiaries
as of its date. Each of the consolidated statements of income
and cash flows for the year ended December 31, 2006 and the
six months ended June 30, 2007 (including any related notes
and schedules) included in the Parent SEC Reports fairly
presents the results of operations, retained earnings and cash
flows, as the case may be, of Parent and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments that
will not be material in amount or effect), in each case in
accordance with GAAP consistently applied during the periods
involved, except as may be noted therein.
(e) Litigation. There are no
civil, criminal or administrative actions, suits, claims,
hearings, investigations, inquiries or proceedings pending or,
to the Knowledge of Parent, threatened against Parent or any of
its Subsidiaries except for those that are not, individually or
in the aggregate, reasonably likely to prevent, materially delay
or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
(f) Compliance with Laws;
Permits. The businesses of each of Parent and
its Subsidiaries have not been, and are not being, conducted in
violation of any Laws, except for violations or possible
violations that prevent, materially delay or materially impair
the ability of Parent or Merger Sub to consummate the
A-18
transactions contemplated by this Agreement. Except as disclosed
in the Parent Reports filed prior to the date of this Agreement
or with respect to regulatory matters covered by
Section 6.5, no investigation or review by any
Governmental Entity with respect to Parent or any of its
Subsidiaries is pending or, to the Knowledge of Parent,
threatened, nor has any Governmental Entity indicated an
intention to conduct the same, except for those the outcome of
which prevent, materially delay or materially impair the ability
of Parent or Merger Sub to consummate the transactions
contemplated by this Agreement. Parent and its Subsidiaries each
has all Permits except those the absence of which are not,
individually or in the aggregate, reasonably likely to prevent
or materially burden or materially impair the ability of Parent
or Merger Sub to consummate the Merger and the other
transactions contemplated by this Agreement.
(g) Operations of Merger
Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement. Merger Sub
has no subsidiaries.
(h) Brokers and Finders. Neither
Parent nor any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders fees in connection with
the Merger or the other transactions contemplated by this
Agreement, except that Parent has employed Citigroup Global
Markets Inc. as its financial advisor, the arrangements with
which have been disclosed in writing to the Company prior to the
date of this Agreement.
(i) Ownership of Shares. Neither
Parent nor any of its Subsidiaries Beneficially Owns
or is the Beneficial Owner (as such terms are
defined in the Rights Agreement) of any Shares.
(j) Financing. Merger Sub has
delivered to the Company a copy of an executed commitment letter
(the Debt Commitment Letter), dated as of
November 16, 2007, from Citigroup Global Markets Inc. (the
Lender), with Lender acting in arranging and
bookrunning roles. Pursuant to the Debt Commitment Letter and
subject to the terms and conditions contained therein (including
the exhibits thereto), the Lender has committed to provide
$1.5 billion in aggregate principal amount of indebtedness
to Merger Sub at the Closing (the Debt
Commitment). The obligations to fund the commitments
under the Debt Commitment Letter are not subject to any
condition other than those set forth in the Debt Commitment
Letter. Merger Sub has no knowledge of any fact or occurrence
that would reasonably be expected to (i) make any of the
assumptions or statements set forth in the Debt Commitment
Letter inaccurate, (ii) cause the Debt Commitment Letter to
be ineffective or (iii) preclude in any material respect
the satisfaction of the conditions set forth in the Debt
Commitment Letter. As of the date of this Agreement, the Debt
Commitment Letter is in full force and effect and has not been
amended in any material respect, and the financing and other
fees that are due and payable on or before the date hereof under
the Debt Commitment Letter have been paid in full. Subject to
the terms and conditions of the Debt Commitment letter, assuming
for purposes of this representation that the conditions set
forth in Article VI are satisfied, the funds contemplated
to be received pursuant to the Debt Commitment Letter will be
sufficient to pay the Merger Consideration and to make all other
necessary payments (including related fees and expenses) by
Merger Sub in connection with the transactions contemplated by
this Agreement.
ARTICLE VI
Covenants
6.1 Interim Operations. The
covenants and agreements set forth in this
Section 6.1 are qualified by and subject to the
transactions contemplated by Section 6.11 and to the
matters set forth in Section 6.1 of the Company
Disclosure Letter. During the period from the date of this
Agreement to the Effective Time (except as otherwise expressly
provided or permitted by the terms of this Agreement), the
Company shall carry on the Retained Business in the usual,
regular and ordinary course in substantially the same manner as
conducted at the date of this Agreement, and, to the extent
consistent therewith, use its reasonable commercial efforts to
preserve intact its current business organizations, keep
available the services of its current officers and employees and
preserve its relationships with customers, suppliers, licensors,
Governmental Entities, licensees, distributors and others having
business dealings with the Company with respect to the Retained
Business, in each case consistent with past practice. Without
limiting the generality of the foregoing, and except as
A-19
otherwise expressly provided or permitted by this Agreement
(including without limitation Section 6.11) or as
set forth in Section 6.1 of the Company Disclosure
Letter, prior to the Effective Time, the Company shall not, and
shall not permit any of its Subsidiaries to, without the prior
written consent of Parent and Merger Sub (which consent shall
not be unreasonably withheld, conditioned or delayed):
(i) (I) other than regular quarterly cash dividends
not to exceed $0.14 per share of Company Common Stock per fiscal
quarter, declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock,
(II) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock or (III) purchase, redeem or otherwise
acquire, except in connection with any Stock Plan, any shares of
capital stock of the Company or any other securities thereof or
any rights, warrants or options to acquire any such shares or
other securities;
(ii) except as provided in the Employee Matters Agreement
attached hereto as
Exhibit C-4,
issue, deliver, grant, sell, pledge, dispose of or otherwise
encumber any of its capital stock or any securities convertible
into, or any rights, warrants or options to acquire, any such
capital stock, or any Voting Debt (other than (I) the
issuance of Shares upon the exercise of Company Options, Company
Restricted Shares or restricted stock units in respect of a
share of Company Common Stock outstanding on the date of this
Agreement or (II) pursuant to any existing obligation in
accordance with its current terms as set forth in the Company
Disclosure Schedule);
(iii) amend the Companys certificate of incorporation
or bylaws;
(iv) acquire or agree to acquire (I) by merging or
consolidating with, or by purchasing a substantial portion of
the stock, or other ownership interests in, or substantial
portion of assets of, or by any other manner, any business or
any corporation, partnership, association, joint venture,
limited liability company or other entity or division thereof or
(II) any assets that would be material, individually or in
the aggregate, to the Retained Business, except purchases of
supplies, equipment and inventory in the ordinary course of
business consistent with past practice;
(v) sell, lease, transfer, sublicense, mortgage, pledge,
grant a lien, mortgage, pledge, security interest, charge, claim
or other encumbrance of any kind or nature (a
Lien) on or otherwise encumber or dispose of
any of its properties or assets, except (I) in the ordinary
course of business consistent with past practice and
(II) in other transactions involving not in excess of
$10 million in the aggregate;
(vi) (I) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person, issue or sell
any debt securities or warrants or other rights to acquire any
debt securities of the Company, guarantee any debt securities of
another Person, enter into any keep well or other
agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic
effect of any of the foregoing, except for (x) working
capital borrowings and increases in letters of credit under
revolving credit facilities incurred in the ordinary course of
business consistent with past practice, (y) indebtedness
incurred to refund, refinance or replace indebtedness for
borrowed money outstanding on the date of this Agreement and
(z) indebtedness existing solely between the Company and
its wholly-owned Subsidiaries or between such Subsidiaries or
(II) make any loans, advances or capital contributions to,
or investments in, any other Person;
(vii) except for capital expenditures in compliance with
the amounts and timing included in the Companys written
capital expenditure plan previously made available to Parent,
make or incur any capital expenditure with respect to the
Retained Business, except in the ordinary course of business
consistent with past practice or involving the expenditure of no
more than $5 million individually or in the aggregate;
(viii) change any method of Tax accounting, make or change
any material election relating to Taxes, file any amended Tax
Return, settle or compromise any material Tax liability, agree
to an extension or waiver of the statute of limitations with
respect to the assessment or determination of Taxes, enter into
any closing agreement with respect to Taxes, or surrender any
right to claim a Tax refund;
A-20
(ix) except to the extent permitted by
Section 6.2(a) of this Agreement, waive the benefits
of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company is a party
or exempt any third party from the provisions of any Takeover
Statutes;
(x) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, restructuring, recapitalization or reorganization;
(xi) enter into any new collective bargaining agreement;
(xii) change any accounting principle used by it, except as
required by applicable Laws or GAAP;
(xiii) settle or compromise any material litigation,
including any litigation that is brought by any current, former
or purported holder of any capital stock or debt securities of
the Company or any of its Subsidiaries relating to the
transactions contemplated by this Agreement, or, except in the
ordinary course of business consistent with past practice or as
otherwise required pursuant to contracts existing on or prior to
the date of this Agreement or entered into in the ordinary
course consistent with past practice after the date of this
Agreement, pay, discharge or satisfy any material claims,
liabilities or obligations so long as such settlement would not
(i) impose any injunctive or similar order on the Retained
Business or restrict in any way the business of the Retained
Business or (ii) exceed $5 million in cost or value to
the Retained Business;
(xiv) except as provided in or contemplated under the
Distribution Agreement attached as
Exhibit C-1
or the Employee Matters Agreement attached as
Exhibit C-4,
(I)enter into any new, or amend any existing, severance
agreement or arrangement, deferred compensation arrangement or
employment agreement with any officer, director or employee
whose annual base salary exceeds $100,000, (II) adopt any
new incentive, retirement or welfare benefit arrangements, plans
or programs for the benefit of current, former or retired
employees or amend any existing Company Compensation and Benefit
Plan (other than amendments required by Law or to maintain the
tax qualified status of such plans under the Code),
(III) grant any increases in employee compensation, other
than in the ordinary course consistent with past practice (which
shall include normal individual periodic performance reviews and
related compensation and benefit increases and bonus payments
consistent with past practices) provided that any such increase
shall not include increases in compensation to officers or any
employee whose annual base salary exceeds $100,000 or
(IV) grant any stock options or stock awards other than as
permitted by this Agreement;
(xv) effect or permit a plant closing or
mass layoff as those terms are defined in WARN
without complying with the notice requirements and all other
provisions of WARN;
(xvi) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
Person or otherwise acquire or agree to acquire any assets which
are material, individually or in the aggregate, to the Retained
Business;
(xvii) cancel any debts or waive any claims or rights of
substantial value (including the cancellation, compromise,
release or assignment of any indebtedness owed to, or claims
held by, the Retained Business), except for cancellations made
or waivers granted with respect to claims other than
indebtedness in the ordinary course of business consistent with
past practice which, in the aggregate, are not material or for
claims other than indebtedness which are cancelled or waived in
connection with the settlement of the actions referred to in,
and to the extent permitted by, clause (xiii) above;
(xviii) (i) enter into any agreement that if entered
into prior to the date hereof would be a Material Contract,
(ii) modify, amend in any material respect, transfer or
terminate any Material Contract or waive, release or assign any
material rights or claims thereto or thereunder,
(iii) enter into or extend in any material respect any
lease with respect to the Retained Businesss real
property, (iv) modify, amend, transfer or terminate in any
material respect any Intellectual Property agreements,
standstill or confidentiality agreement with any third party, or
waive, release or assign any material rights or claims thereto
or thereunder or (v) enter into, modify, amend, transfer or
terminate any contract to provide exclusive rights or
obligations;
A-21
(xix) except as provided in Section 6.2 and
Section 8.3(a), agree, authorize or commit to do any
of the foregoing or any action or fail to take any action which
would, to the Knowledge of the Company, result in any of the
conditions to the Merger set forth in Article VIII not
being satisfied or that would reasonably be expected to result
in a Company Material Adverse Effect; or
(xx) authorize any of, or commit or agree to take any of,
the foregoing actions.
6.2 Acquisition Proposals.
(a) No Solicitation or
Negotiation. The Company hereby covenants
that, except as expressly permitted by this Section 6.2,
the Company shall not, and the Company shall use its reasonable
commercial efforts to instruct and cause its officers,
directors, employees, investment bankers, attorneys, accountants
and other advisors or representatives (such officers, directors,
employees, investment bankers, attorneys, accountants and other
advisors or representatives, collectively,
Representatives) not to, directly or indirectly:
(i) solicit, initiate or knowingly take any action to
facilitate or encourage, whether publicly or otherwise, the
submission of any inquiries or the making of any inquiry,
proposal or offer or other efforts or attempts that constitutes,
or could reasonably be expected to lead to, any Acquisition
Proposal (as defined below);
(ii) enter into, or participate in any discussions or
negotiations regarding, or furnish to any Person any non-public
information for the purpose of encouraging or facilitating, any
Acquisition Proposal; or
(iii) enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement,
merger agreement or similar agreement with respect to any
Acquisition Proposal or enter into any agreement or agreement in
principle requiring the Company to abandon, terminate or fail to
consummate the transactions contemplated hereby or breach its
obligations hereunder or propose or agree to do any of the
foregoing.
The Company shall, and shall direct its Representatives to,
cease immediately all discussions and negotiations that
commenced prior to the date of this Agreement regarding any
Acquisition Proposal existing on the date of this Agreement and
shall use its (and will cause the Company Representatives to use
their) commercially reasonable efforts to require the other
parties thereto to promptly return or destroy in accordance with
the terms of such agreement any confidential information
previously furnished by the Company, its Subsidiaries or its
Representatives thereunder.
Notwithstanding anything to the contrary set forth in this
Agreement the Company may, to the extent failure to do so would
reasonably be expected to result in a breach of the fiduciary
obligations of the Company Board under applicable Law, as
determined in good faith by the Company Board after consultation
with outside counsel, in response to (1) a Superior
Proposal (as defined below) or (2) a bona fide, unsolicited
written Acquisition Proposal that the Company Board determines
in good faith after consultation with outside counsel and its
financial advisor is or is reasonably likely to lead to a
Superior Proposal (any such Acquisition Proposal, a
Potential Superior Proposal),
(x) furnish information with respect to the Company to the
Person making such Superior Proposal or Potential Superior
Proposal and its Representatives (provided that the Company
shall promptly make available to Parent and Merger Sub any
material non-public information concerning the Company or its
Subsidiaries that is made available to any Person given such
access which was not previously made available to Parent and
Merger Sub) pursuant to a customary confidentiality agreement
not less restrictive of the other party than the Confidentiality
Agreement, dated July 17, 2007, between Gerdau Ameristeel
Corporation and the Company, but excluding any
standstill provisions (the Confidentiality
Agreement) and (y) participate in discussions or
negotiations with such Person and its Representatives regarding
any such Superior Proposal or Potential Superior Proposal. The
Company shall promptly advise Parent of the receipt by the
Company of any Acquisition Proposal or any request for non
public information made by any Person or group of Persons that
has informed the Company it is considering making an Acquisition
Proposal or any request for discussions or negotiations with the
Company or the Company Representatives relating to an
Acquisition Proposal (in each case within 48 hours of
receipt thereof), and the Company shall provide to Parent
(within such 48 hour time frame) a written summary of the
material terms of such Acquisition Proposal (it being understood
that such material terms shall include the identity of the
Person
A-22
or group of Persons making the Acquisition Proposal) and if the
Company determines to begin providing information or to engage
in discussions regarding an Acquisition Proposal. The Company
shall keep Parent reasonably informed of any material change to
the terms and conditions of any Acquisition Proposal. The
Company agrees that it and its Subsidiaries will not enter into
any confidentiality agreement with any Person subsequent to the
date hereof which prohibits the Company from providing such
information to Parent.
(b) No Change in Company Recommendation or
Alternative Acquisition Agreement. The
Company Board and each committee thereof shall not:
(i) except as expressly permitted by this
Section 6.2, withdraw or modify (or publicly propose
to withdraw or modify), in a manner adverse to Parent, the
approval or recommendation by the Company Board or any committee
thereof with respect to this Agreement and the Merger and other
transactions contemplated hereby;
(ii) cause or permit the Company to enter into any letter
of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement or similar agreement (an
Alternative Acquisition Agreement) providing
for the consummation of a transaction contemplated by any
Acquisition Proposal (other than a confidentiality agreement
entered into in the circumstances referred to in
Section 6.2(a)); or
(iii) except as expressly permitted by this
Section 6.2, approve, recommend or propose publicly
to approve or recommend any Acquisition Proposal.
Notwithstanding anything to the contrary set forth in this
Agreement, at any time prior to obtaining the Company
Stockholder Approval, the Company Board may withdraw, qualify or
modify or propose publicly to withdraw, qualify or modify in any
manner adverse to Parent, its approval or recommendation with
respect to this Agreement and the Merger and other transactions
contemplated hereby or approve or recommend any Superior
Proposal made or received after the date of this Agreement, if
the Company Board determines in good faith, after consultation
with outside counsel, that failure to do so would reasonably be
expected to result in a breach of its obligations under
applicable Law (a Change in Company
Recommendation); provided, however, that no Change in
Company Recommendation may be made in response to a Superior
Proposal until three business days (the Notice
Period) following Parents receipt of written
notice from the Company (an Adverse Recommendation
Notice) (x) advising Parent that the Company
Board intends to make such Change in Company Recommendation and
the reason for such change, (y) specifying the material
terms and conditions of such Superior Proposal (including the
proposed financing for such proposal) and (z) identifying
any party making such Superior Proposal; provided further prior
to effecting such Change in Company Recommendation in response
to a Superior Proposal, the Company shall, and shall cause its
legal and financial advisors to, during the Notice Period,
negotiate with Parent and Merger Sub in good faith (to the
extent Parent and Merger Sub desire to negotiate) to make such
adjustments to the terms and conditions of this Agreement so
that such Acquisition Proposal ceases to constitute a Superior
Proposal. In the event that during the Notice Period any
revisions are made to the Superior Proposal to which the proviso
in this Section 6.2(b) applies and the Company Board
in its good faith judgment determines such revisions are
material (it being agreed that any change in the purchase price
in such Superior Proposal shall be deemed a material revision),
the Company shall be required to deliver a new Adverse
Recommendation Notice to Parent and Merger Sub and to comply
with the requirements of this Section 6.2(b) with
respect to such new written notice, except that the Notice
Period shall be reduced to two business days. In determining
whether to make a Change in Company Recommendation in response
to a Superior Proposal, the Company Board shall take into
account any changes to the terms of this Agreement proposed by
Parent (in response to an Adverse Recommendation Notice or
otherwise) in determining whether such third party Acquisition
Proposal still constitutes a Superior Proposal.
(c) Certain Permitted
Disclosure. Nothing contained in this
Agreement shall be deemed to prohibit the Company from taking
and disclosing to its stockholders a position with respect to a
tender offer contemplated by
Rule 14d-9
or
Rule 14e-2(a)
promulgated under the Exchange Act or from making any other
disclosure to the Companys stockholders or the general
public if, in the good faith judgment of the Company Board,
after consultation with outside counsel, failure to so disclose
would reasonably be expected to result in a breach of its
fiduciary duties under applicable Law; provided, however, that
neither the Company nor the Company
A-23
Board (or any committee thereof) shall be permitted to recommend
that the Company stockholders tender any securities in
connection with any tender or exchange offer (or otherwise
approve, endorse or recommend any Acquisition Proposal), unless
in each case, in connection therewith, the Company Board effects
a Change in Company Recommendation; provided further that any
such disclosure (other than a stop, look and listen
communication or similar communication of the type contemplated
by
Rule 14d-9(f)
under the Exchange Act) shall be deemed to be a Change in
Company Recommendation unless the Company Board expressly
reaffirms the Company Recommendation at least two business days
prior to the Company Stockholders Meeting if Parent has
delivered to the Company a written request to so reaffirm at
least 48 hours (or if 48 hours is impracticable, as
far in advance as is practicable) prior to the time such
reaffirmation is to be made.
(d) Definitions. As used in
this Agreement:
Acquisition Proposal means, except as
set forth in Section 6.2 of the Company Disclosure
Letter, (i) any proposal or offer for a merger,
consolidation, dissolution, tender offer, recapitalization,
reorganization, share exchange, business combination or similar
transaction involving the Company or (ii) any proposal or
offer to acquire in any manner, directly or indirectly, over 20%
of the equity securities or consolidated total assets
(including, without limitation, equity securities of its
Subsidiaries) of the Company, in each case other than the
transactions contemplated by this Agreement.
Superior Proposal means any bona fide
written Acquisition Proposal made by a third party and not
solicited in violation of Section 6.2(a) to acquire
more than 50% of the equity securities or more than 50% of the
assets of the Company and its Subsidiaries, taken as a whole but
excluding the Building Products Business, pursuant to a tender
or exchange offer, a merger, a recapitalization, a consolidation
or a sale of its assets, which the Company Board determines in
its good faith judgment (after consultation with its financial
advisor) (i) to be more favorable from a financial point of
view to the holders of Company Common Stock than the Merger and
(ii) is reasonably capable of being completed on the terms
proposed therein, after taking into account the likelihood and
timing of completion (as compared to the Merger) and after
taking into account all financial (including the financing terms
of such Acquisition Proposal), regulatory, legal and other
aspects of such proposal.
6.3 Proxy Statement.
(a) As soon as practicable following the date of this
Agreement, the Company shall, in consultation with the Parent,
prepare and file with the SEC the Proxy Statement. As promptly
as reasonably practical, each of the Company, Parent and Merger
Sub shall, or shall cause their respective Affiliates to,
prepare and file with the SEC all Other Filings. Each of the
parties hereto shall provide promptly to the other parties
hereto such information concerning its business and financial
statements and affairs as, in the reasonable judgment of such
party and its counsel, may be required or appropriate for
inclusion in the Proxy Statement or the Other Filings, as
applicable, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other
partys counsel and auditors in the preparation of the
Proxy Statement. Each of the Company, Parent and Merger Sub
shall use its reasonable commercial efforts to respond as
promptly as practicable to any comments of the SEC to the Proxy
Statements or the Other Filings, and the Company shall use its
reasonable commercial efforts to cause the definitive Proxy
Statement to be mailed to the stockholders of the Company.
(b) The Company agrees, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it or
its Subsidiaries for inclusion or incorporation by reference in
the Proxy Statement or the Other Filings and any amendment or
supplement thereto will, at the date of mailing to stockholders
and at the date of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except
that no representation or warranty is made by the Company with
respect to information supplied in writing by Parent of Merger
Sub expressly for inclusion therein. No filing of, or amendment
or supplement to, or correspondence to the SEC or its staff with
respect to the Proxy Statement or the Other Filings will be made
by the Company without providing Parent a reasonable opportunity
to review and comment thereon. If at any time prior to the
Effective Time any information relating to the Company, Parent
or Merger Sub, or any of their respective Affiliates, officers
or
A-24
directors, should be discovered by such party and which should
be set forth in an amendment or supplement to the Proxy
Statement or the Other Filings, so that any of such documents
would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information
shall promptly notify the other party or parties hereto, as
applicable, and an appropriate amendment or supplement to the
Proxy Statement or the Other Filings describing such information
shall be promptly filed with the SEC and, to the extent required
by applicable Law, disseminated to the stockholders of the
Company. The Company shall cause the Proxy Statement and the
Other Filings to comply as to form and substance in all material
respects with the applicable requirements of the Exchange Act
and the rules of the NYSE. All Other Filings that are filed by
the Parent or Merger Sub will comply as to form in all material
respects with the requirements of the Exchange Act.
(c) Parent and Merger Sub agree, as to themselves and their
respective Subsidiaries, that none of the information supplied
or to be supplied by any of them for inclusion or incorporation
by reference in the Proxy Statement or the Other Filings and any
amendment or supplement thereto, at the date of mailing to
stockholders and at the date of the Company Stockholders
Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except
that no representation or warranty is made by Parent or Merger
Sub with respect to information supplied in writing by the
Company expressly for inclusion therein.
6.4 Company Stockholders
Meeting. The Company, acting through the
Company Board, will take, in accordance with applicable Law and
its certificate of incorporation and bylaws, all action
necessary to convene a meeting of holders of Shares (the
Company Stockholders Meeting) as promptly as
practicable after the Proxy Statement is available for mailing
to consider and vote upon the adoption and approval of this
Agreement and the Merger. Subject to Section 6.2(b),
the Company Board shall recommend, and continue to recommend,
such adoption and shall take all lawful action to solicit the
Company Stockholder Approval.
6.5 Filings; Other Actions; Notification;
Access.
(a) The Company and Parent shall cooperate with each other
and use (and shall cause their respective Subsidiaries to use)
their respective reasonable best efforts to take or cause to be
taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement
and applicable Laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement as
soon as practicable, including preparing and filing as promptly
as practicable all documentation to effect all necessary
notices, reports and other filings and to obtain as promptly as
practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any
third party
and/or any
Governmental Entity in order to consummate the Merger or any of
the other transactions contemplated by this Agreement. Subject
to applicable Laws relating to the exchange of information,
Parent and the Company shall have the right to review in
advance, and to the extent practicable each will consult the
other on, all the information relating to Parent or the Company,
as the case may be, and any of their respective Subsidiaries,
that appear in any filing made with, or written materials
submitted to, any third party
and/or any
Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement. In exercising the
foregoing right, each of the Company and Parent shall act
reasonably and as promptly as practicable. Without limiting the
generality of the foregoing, Parent and the Company shall each
file a Pre-Merger Notification and Report Form under the HSR Act
with respect to the Merger as promptly as reasonably possible,
but in no event more than 15 calendar days following the date of
this Agreement. Parent and the Company shall each request early
termination of the waiting period with respect to the Merger
under the HSR Act. Each of the parties agrees to use their
respective reasonable best efforts to promptly respond to any
request for additional information pursuant to Section (e)(l) of
the HSR Act.
(b) Subject to applicable Laws relating to the exchange of
such information, the Company and Parent each shall, upon
request by the other, furnish the other with all information
concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably
necessary or advisable in connection with any other statement,
filing, notice or application made by or on behalf of Parent,
the Company
A-25
or any of their respective Subsidiaries to any third party
and/or any
Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(c) Subject to applicable Law and the instructions of any
Governmental Entity, the Company and Parent each shall keep the
other apprised of the status of matters relating to completion
of the transactions contemplated hereby, including promptly
furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case
may be, or any of its Subsidiaries, from any third party
and/or any
Governmental Entity with respect to the Merger and the other
transactions contemplated by this Agreement. The Company and
Parent each shall give prompt notice to the other of any change
that is reasonably likely to result in a Company Material
Adverse Effect or prevent, materially delay or materially impair
the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement, respectively.
Neither the Company nor Parent shall permit any of its officers
or any other representatives or agents to participate in any
meeting with any Governmental Entity in respect of any filings,
investigation or other inquiry unless it consults with the other
party in advance and, to the extent permitted by such
Governmental Entity, gives the other party the opportunity to
attend and participate thereat.
(d) Without limiting the generality of the undertakings
pursuant to this Section 6.5, each of the Company
(in the case of clauses (i) and (iii) below) and
Parent (in all cases set forth below) agree to take or cause to
be taken the following actions: (i) the prompt provision to
each and every federal, state, local or foreign court or
Governmental Entity with jurisdiction over enforcement of any
applicable antitrust or competition Laws (Government
Antitrust Entity) of non-privileged information and
documents requested by any Government Antitrust Entity or that
are necessary, proper or advisable to permit consummation of the
transactions contemplated by this Agreement; (ii) the
prompt use of Parents best efforts, after consultation
with the Company, to avoid the entry of any permanent,
preliminary or temporary injunction or other order, decree,
decision, determination or judgment that would delay, restrain,
prevent, enjoin or otherwise prohibit consummation of the
transactions contemplated by this Agreement (including, without
limitation, the defense through litigation on the merits of any
claim asserted in any court, agency or other proceeding by any
person or entity (including, without limitation, any
Governmental Entity) seeking to delay, restrain, prevent, enjoin
or otherwise prohibit consummation of such transactions and the
proffer and agreement by Parent of its willingness to sell or
otherwise dispose of, or hold separate pending such disposition,
and promptly to effect the sale, disposal and holding separate
of, such assets, categories of assets or businesses or other
segments of the Company or Parent or eithers respective
Subsidiaries (and the entry into agreements with, and submission
to orders of, the relevant Government Antitrust Entity giving
effect thereto) no later than 60 calendar days from the date of
this Agreement if such action should be reasonably necessary or
advisable to obtain termination of the waiting period under the
HSR Act or to avoid, prevent, eliminate or remove the actual,
anticipated or threatened (x) commencement of any
proceeding in any forum or (y) issuance of any order,
decree, decision, determination or judgment that would delay,
restrain, prevent, enjoin or otherwise prohibit consummation of
the Merger by any Government Antitrust Entity); and
(iii) the prompt use of its best efforts to take, in the
event that any permanent, preliminary or temporary injunction,
decision, order, judgment, determination or decree is entered or
issued, or becomes reasonably foreseeable to be entered or
issued, in any proceeding or inquiry of any kind that would make
consummation of the Merger in accordance with the terms of this
Agreement unlawful or that would delay, restrain, prevent,
enjoin or otherwise prohibit consummation of the Merger or the
other transactions contemplated by this Agreement, any and all
steps (including, without limitation, the appeal thereof, the
posting of a bond or the taking of the steps contemplated by
clause (ii) of this paragraph) necessary to resist, vacate,
modify, reverse, suspend, prevent, eliminate or remove such
actual, anticipated or threatened injunction, decision, order,
judgment, determination or decree so as to permit such
consummation on a schedule as close as possible to that
contemplated by this Agreement.
(e) Upon reasonable notice, and except as may otherwise be
required by applicable Law, the Company shall (and shall cause
each of its Subsidiaries to) afford the Representatives of
Parent reasonable access, during normal business hours
throughout the period prior to the Effective Time, to its
properties, books, contracts, records and personnel and, during
such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to Parent all information
concerning its business, properties and personnel as may
reasonably be requested, provided that no investigation pursuant
to this Section 6.5(e) shall affect or be deemed to
modify
A-26
any representation or warranty made by the Company herein and
provided, further, that nothing in this
Section 6.5(e) shall require the Company to permit
any inspection, or to disclose any information, that in the
reasonable judgment of the Company would result in (i) the
disclosure of any trade secrets of third parties or violate any
of its obligations with respect to confidentiality if the
Company shall have used commercially reasonable efforts to
obtain the consent of such third party to such inspection or
disclosure or (ii) any violation of Laws relating to the
sharing of information between competitors, it being understood
that the Company will provide extracts, or summaries, or
allegations or other information to the greatest extent
practicable in a manner that does not result in any such
violation or improper disclosure. All requests for information
made pursuant to this Section 6.5(e) shall be
directed to an executive officer of the Company or such Person
as may be designated by the Company. All such information shall
be governed by the terms of the Confidentiality Agreement.
6.6 Publicity. The initial press
release regarding the Merger shall be a joint press release and
thereafter the Company and Parent each shall use their
respective reasonable best efforts to agree with each other
prior to issuing any press releases or otherwise making public
announcements with respect to the Merger and the other
transactions contemplated by this Agreement and the Spin-Off
Agreements and prior to making any filings with any third party
and/or any
Governmental Entity with respect thereto, except as may be
required by Law or by obligations pursuant to any listing
agreement with or rules of the NYSE or by the request of any
Government Antitrust Entity; provided, however, the Company
shall provide Parent at least twenty-four hours advance notice
of any press release or public announcement regarding the
Spin-Off Agreements to allow Parent to consent to such release
or announcement, which consent shall not be unreasonably
withheld, and the Company shall be permitted to make such
release or announcement if Parent has not responded within such
twenty-four hour period. Notwithstanding anything to the
contrary contained in this Section 6.6, either party
may respond to questions from stockholders or inquiries from
financial analysts and media representatives in a manner that is
consistent with then-existing public disclosures.
6.7 Employee Benefits/Labor Matters.
(a) For a period of one year after the Effective Time,
Parent shall, or shall cause the Surviving Entity or its
Subsidiaries to, offer employees base salary and bonus
opportunities to Continuing Employees (as defined below) that
are in the aggregate equal to the base salary, bonus
opportunities and value of the equity incentives being offered
to Continuing Employees for the fiscal year immediately
preceding the fiscal year in which the Closing Date occurs, and
other compensation and benefit plans to such Continuing
Employees that are substantially comparable in the aggregate to
those offered under the Company Compensation and Benefit Plans.
Parent shall, or shall cause the Surviving Entity or its
Subsidiaries to, take such actions as are necessary to grant
those employees who are, as of the Effective Time, employed by
the Company or any of its Subsidiaries and are not included in a
unit of employees covered by a collective bargaining agreement
(Continuing Employees) credit for Past
Service (as defined below) for purposes of initial eligibility
to participate, vesting and benefit accrual (other than benefit
accrual under any defined benefit pension plan or plan providing
post-retirement welfare benefits) under, any employee benefit
plans maintained by Parent, the Surviving Entity or any
Subsidiary of Parent or the Surviving Entity in which they are
eligible to participate. Past Service means a
Continuing Employees service with the Company or any
Subsidiary of the Company to the same extent recognized by the
Company and any of its Subsidiaries. Parent shall, or shall
cause the Surviving Entity and its Subsidiaries to, take such
actions as are necessary to give Continuing Employees credit for
their Past Service for purposes of determining the amounts of
sick pay, holiday pay and vacation pay they are eligible to
receive under any sick pay, holiday pay and vacation pay
policies and programs maintained by Parent, the Surviving Entity
or any Subsidiary of the Surviving Entity in which they are
eligible to participate. With respect to each Continuing
Employee who is an active participant in a group health plan (as
defined in Section 5000(b) of the Code) (a Company
Health Plan) immediately prior to the Effective Time,
Parent shall, or shall cause the Surviving Entity or its
Subsidiaries to, take such actions as are necessary to ensure
that the group health plan maintained by Parent, the Surviving
Entity or one of its Subsidiaries in which such Continuing
Employee is eligible to participate during the calendar year in
which the Effective Time occurs (the Current
Year) shall (i) waive any preexisting condition
restrictions and waiting period requirements to the extent that
such preexisting condition restrictions and waiting period
requirements were
A-27
waived or satisfied under the applicable Company Health Plan in
which such Continuing Employee participated immediately prior to
the Effective Time; and (ii) provide credit, for the
Current Year, for any co-payments or deductible payments made by
the Continuing Employee and out of pocket expenditures incurred
by the Continuing Employee under the applicable Company Health
Plan for the Current Year.
(b) Notwithstanding anything contained herein to the
contrary, each Continuing Employee (other than a Continuing
Employee who has entered into a CIC Agreement (as defined
below)) whose employment is terminated by the Surviving Entity
during the
12-month
period following the Effective Time shall be entitled to receive
severance pay and benefits at least equal to the severance pay
and benefits under the applicable severance plan of the Company
listed on Section 5.1(h)(i) of the Company
Disclosure Letter, as in effect on the date of this Agreement.
(c) Parent acknowledges that by operation of Law the
Surviving Entity and its Subsidiaries shall continue to be
obligated to comply with the terms of any Company Compensation
and Benefit Plans that are maintained by the Company and any of
its Subsidiaries immediately prior to the Effective Time;
provided, however, nothing herein shall restrict Parents
or the Surviving Entitys or its Subsidiaries ability
to amend or terminate such Company Compensation and Benefit
Plans in accordance with their terms. Nothing contained herein
is intended to, nor shall it, amend any Company Compensation and
Benefit Plan or any employee benefit plan maintained by Parent,
the Surviving Entity or any Subsidiary of Parent or the
Surviving Entity.
(d) Parent acknowledges that by operation of Law the
Surviving Entity and its Subsidiaries shall continue to be
obligated to comply with the terms of the agreements listed on
Section 6.7(d) of the Company Disclosure Letter (the
CIC Agreements). Parent acknowledges that the
consummation of the Merger contemplated by this Agreement will
constitute a Change of Control within the meaning of
each of the CIC Agreements.
(e) Parent acknowledges that by operation of Law after the
Effective Time the Subsidiaries of the Company that are parties
to collective bargaining agreements shall continue to be
obligated to comply with the terms of such collective bargaining
agreements.
6.8 Expenses. Except as otherwise
provided in Section 8.5(b), whether or not the
Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the Merger and the other
transactions contemplated by this Agreement shall be paid by the
party incurring such expense.
6.9 Indemnification; Directors and
Officers Insurance.
(a) From and after the Effective Time, Parent shall cause
the Surviving Entity to indemnify and hold harmless, to the
fullest extent permitted under applicable Law (and Parent shall
cause the Surviving Entity to also advance expenses as incurred
to the fullest extent permitted under applicable Law provided
the Person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification), each present and
former director and officer of the Company and its Subsidiaries
(collectively, the Indemnified Parties)
against any costs or expenses (including reasonable
attorneys fees and expenses), judgments, fines, losses,
claims, damages or liabilities (collectively,
Costs) incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of
related to such Indemnified Parties service as a director
or officer of the Company or its Subsidiaries or services
performed by such persons at the request of the Company or its
Subsidiaries at or prior to the Effective Time (and whether
asserted or claimed prior to, at or after the Effective Time),
including the transactions contemplated by this Agreement.
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 6.9, upon
learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability
it may have to such Indemnified Party except to the extent such
failure does not materially prejudice the indemnifying party. In
the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective
Time), (i) Parent and the Surviving Entity shall pay the
reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon
request of reimbursement of documented expenses reasonably
incurred, (ii) Parent shall cooperate with the defense of
such matter and (iii) any determination
A-28
required to be made with respect to whether an Indemnified
Partys conduct complies with the standards set forth under
applicable Law and the certificate of incorporation or bylaws
shall be made by independent counsel mutually acceptable to
Parent and the Indemnified Party; provided, however, that Parent
and the Surviving Entity shall not be liable for any settlement
effected without its written consent (which consent shall not be
unreasonably withheld, delayed or conditioned). If such
indemnity is not available with respect to any Indemnified
Party, then the Surviving Entity and the Indemnified Party shall
contribute to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits.
(c) For six years after the Effective Time, Parent shall
maintain in effect directors and officers liability
insurance (D&O Insurance) covering acts
or omissions occurring prior to the Effective Time with respect
to those persons who are currently covered by the Companys
D&O Insurance policy on terms with respect to such coverage
and amount no less favorable than those of the policy of the
Company in effect on the date of this Agreement; provided,
however, that in no event will the Surviving Entity be required
to pay aggregate annual premiums for insurance under this
Section 6.9(c) in excess of three times the most
recent aggregate annual premium paid by the Company for such
purpose (which annual aggregate premium the Company represents
and warrants to be $561,500 in the aggregate) (the
Current Premium); provided, further, that if
the annual premiums of such insurance coverage exceed such
amount, the Surviving Entity will be obligated to obtain a
policy with the best coverage available, in the reasonable
judgment of the Surviving Entity Board, for a cost up to but not
exceeding 300% of the Current Premium. In addition, for six
years after the Effective Time, Parent shall cause the Surviving
Entity to maintain in effect fiduciary liability insurance
policies for employees who serve or have served as fiduciaries
under or with respect to any employee benefit plans described in
Section 6.9 of the Company Disclosure Letter with
coverages and in amounts no less favorable than those of the
policies of the Company in effect on the date of this Agreement.
(d) If Parent or the Surviving Entity or any of their
respective successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such
consolidation or merger or (ii) shall transfer all or
substantially all of such partys properties and assets to
any individual, corporation or other entity, then, and in each
such case, proper provision shall be made so that the successors
and assigns of Parent or the Surviving Entity, as the case may
be, shall assume all of the applicable obligations set forth in
this Section 6.9.
(e) The provisions of this Section 6.9 are
intended to be for the benefit of, and shall be enforceable by,
each of the Indemnified Parties, their heirs and their
representatives and are in addition to, and not in substitution
for, any other rights to indemnification that any such person
may have by contract or otherwise. If any Indemnified Party is
required to bring any action to enforce rights or to collect
moneys due under this Agreement and is successful in such
action, Parent and the Surviving Entity shall reimburse such
Indemnified Party for all of its expenses reasonably incurred in
connection with bringing and pursuing such action including,
without limitation, reasonable attorneys fees and costs.
6.10 Other Actions by the Company and Parent.
(a) Rights. Prior to the Effective
Time, the Company Board shall take all necessary action to
terminate all of the outstanding Rights, effective immediately
prior to the Effective Time.
(b) Takeover Statute. If any
Takeover Statute is or may become applicable to the Merger or
the other transactions contemplated by this Agreement, each of
Parent and the Company and the Company Board shall grant such
approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on
the terms contemplated by this Agreement or by the Merger and
otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
(c) Convertible Debentures. The
Company shall use its commercially reasonable efforts to contact
holders of the Convertible Debentures to encourage such holders
to convert the Convertible Debentures into Company Common Stock
prior to the Distribution Date.
A-29
6.11 Spin-Off and Related Intercompany
Matters.
(a) Prior to the Effective Time, the Company shall effect
the Spin-Off in accordance with the agreements included in
Exhibit C-1
through C-4 attached hereto (the Spin-Off
Agreements). The Company shall execute the
Distribution Agreement, the Tax Matters Agreement and the
Employee Matters Agreement within ten days of the date of this
Agreement. The Company shall execute the Transition Services
Agreement and shall have attached final versions of
Exhibits A and B of the Distribution Agreement to the
Distribution Agreement within thirty days of the date of this
Agreement.
(b) Prior to the Distribution Date, and except as otherwise
provided herein or as otherwise agreed by the parties hereto,
all payments, including employee benefit expenses, insurance
premiums, professional services, bank fees made by either the
Retained Business or the Building Products Business on behalf of
the other from the date of this Agreement until the Effective
Time shall be repaid by the applicable party for each calendar
month during such period by the fifth day of the following month.
(c) Prior to the Distribution Date, the Company shall use
separate and independent bank accounts (the Company
Accounts) or ledgers for the Retained Business that
will be operated by, or, as applicable, on behalf of, the
Retained Business and maintained in accordance with the
Companys normal practice and such records and bank
accounts shall be capable of evidencing, on a daily basis, all
Cash Inflows (as such term is defined in the Distribution
Agreement) and Cash Outflows (as such term is defined in the
Distribution Agreement) of the Retained Business prior to the
Distribution Date.
(d) Prior to the Distribution Date, the Company shall cause
Spinco to use separate and independent bank accounts (the
Spinco Accounts) or ledgers for the Building
Products Business that will be operated by, or, as applicable,
on behalf of, Spinco and maintained in accordance with normal
practice.
(e) From the date of this Agreement to the Distribution
Date, to the extent practicable, the Company shall discharge
Liabilities (as such term is defined in the Distribution
Agreement) incurred by the Retained Business with cash amounts
held in the Company Accounts, and the Company shall, and shall
cause Spinco to, discharge Liabilities incurred by the Building
Products Business with cash amounts held in the Spinco Accounts.
Within ten days following the end of each calendar month during
the period from the date of this Agreement to the Distribution
Date, the Company shall, and shall cause Spinco to, settle the
net amount of any Liabilities paid for by the other during the
previous calendar month. The Company agrees that a final
settlement between the Company and Spinco of the net amount of
any Liabilities paid for by the other in the calendar month
including the Distribution Date shall be made prior to the
Distribution.
(f) The Company shall consult with and obtain written
approval of Parent (which approval shall not be unreasonably
withheld) prior to taking any action relating to the provisions
of any matter contained in the Spin-Off Agreements or that would
require any agreement as between the Retained Business and
Spinco, or any of the Subsidiaries of Spinco, from (and
including) the date of this Agreement to (and including) the
Distribution Date, including without limitation appointment by
the Company or any of its Subsidiaries of any actuary in order
to assess any pension liabilities under the Spin-Off Agreements
or taking any action to enforce any of the provisions of the
Spin-Off Agreements.
6.12 Financing Assistance. (a)
(a) Prior to the Closing, the Company shall use its
commercially reasonable efforts to, and shall cause its
Subsidiaries and its and their respective officers, employees
and representatives to use their commercially reasonable efforts
to, assist Parent and Merger Sub in connection with the
arrangement of any financing to be consummated prior to or
contemporaneously with the Closing required in order for the
Parent to satisfy its obligations under this Agreement or any
refinancing or replacement of any existing, or the arrangement
of any new, facility for indebtedness of the Company and its
Subsidiaries; provided that such assistance does not
(i) unreasonably interfere with the ongoing operations of
the Company or any of its Subsidiaries, (ii) cause any
representation or warranty in this Agreement to be breached,
(iii) cause any condition to Closing set forth in
Article VII to fail to be satisfied or otherwise cause any
breach of this Agreement or any material agreement to which the
Company or any of its Subsidiaries is a party, (iv) involve
any binding commitment by the Company or any of its Subsidiaries
which commitment is not conditioned on the Closing and does not
terminate without liability to the Company or any of its
A-30
Subsidiaries upon the termination of this Agreement or
(v) in the case of the Companys or its
Subsidiaries officers, (A) the indemnification
protections afforded such officers by the Company or its
Subsidiaries are in full force and effect, (B) such
officers will only be required to sign documents, certificates
and other instruments in their representative capacity with the
Company or such Subsidiary and (C) no personal liability
will attach to such officers as a result of signing such
documents, certificates and other instruments.
(b) The Company shall, and shall cause its Subsidiaries and
shall use commercially reasonable efforts to cause its and their
respective officers, employees and representatives to
(i) enter into customary agreements, including underwriting
and purchase agreements, in connection with the debt financing,
(ii) participate in meetings, due diligence sessions and
road shows, (iii) assist in preparing offering memoranda,
rating agency presentations, private placement memoranda,
prospectuses and similar documents, (iv) use commercially
reasonable efforts to obtain comfort letters of accountants and
legal opinions, and (v) otherwise make available documents
and information relating to the Company and its Subsidiaries, in
the case of each of (i) through (iv), as may be reasonably
requested by Parent; provided that the foregoing
clauses (i) through (v) do not (A) unreasonably
interfere with the ongoing operations of the Company or any of
its Subsidiaries, (B) cause any representation or warranty
in this Agreement to be breached, (C) cause any condition
to Closing set forth in Article VII to fail to be satisfied
or otherwise cause any breach of this Agreement or any material
agreement to which the Company or any of its Subsidiaries is a
party, (D) involve any binding commitment by the Company or
any of its Subsidiaries which commitment is not conditioned on
the Closing and does not terminate without liability to the
Company or any of its Subsidiaries upon the termination of this
Agreement or (E) in the case of the Companys or its
Subsidiaries officers, (1) the indemnification
protections afforded such officers by the Company or its
Subsidiaries are in full force and effect, (2) such
officers will only be required to sign documents, certificates
and other instruments in their representative capacity with the
Company or such Subsidiary and (3) no personal liability
will attach to such officers as a result of signing such
documents, certificates and other instruments.
6.13 Stock Exchange
De-listing. Prior to the Closing Date, the
Company shall cooperate with Parent and use commercially
reasonable efforts to take, or cause to be taken, all actions,
and do or cause to be done all things, reasonably necessary,
proper or advisable on its part under applicable Laws and rules
and policies of the NYSE and the other exchanges on which the
common stock of the Company is listed to enable the delisting by
the Surviving Entity of the Shares from the NYSE and the other
exchanges on which the common stock of the Company is listed and
the deregistration of the Shares under the Exchange Act as
promptly as practicable after the Effective Time.
6.14 Director Resignations. The
Company shall cause to be delivered to Parent resignations of
all the directors of the Company and its Subsidiaries to be
effective upon the consummation of the Merger.
6.15 Rule 16b-3. Prior
to the Effective Time, the Company may approve in accordance
with the procedures set forth in
Rule 16b-3
promulgated under the Exchange Act and the Skadden, Arps, Slate,
Meagher & Flom LLP SEC No-Action Letter
(January 12, 1999) any dispositions of equity
securities of the Company (including derivative securities with
respect to equity securities of the Company) resulting from the
transactions contemplated by this Agreement by each officer or
director of the Company who is subject to Section 16 of the
Exchange Act with respect to equity securities of the Company.
ARTICLE VII
Conditions
7.1 Conditions to Each Partys Obligation to
Effect the Merger. The respective obligation
of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each
of the following conditions:
(a) Stockholder Approval. The
Company Stockholder Approval shall have been obtained.
(b) Regulatory Consents. The
waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and,
other than the filing provided for in Section 1.3,
A-31
all notices, reports, applications and other filings required to
be made prior to the Effective Time by the Company or Parent or
any of their respective Subsidiaries with, and all consents,
registrations, approvals, permits, clearances and authorizations
required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from,
any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby by the Company,
Parent and Merger Sub shall have been made or obtained (as the
case may be), except those that the failure to make or to obtain
are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent, materially
delay or materially impair the ability of Parent or Merger Sub
to consummate the transactions contemplated by this Agreement.
(c) Litigation. No court or other
Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute,
Law, ordinance, rule, regulation, judgment, determination,
decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by this Agreement (collectively,
an Order).
7.2 Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub
to effect the Merger are also subject to the satisfaction or
waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and
Warranties. The representations and
warranties of the Company contained in this Agreement shall be
true and correct in all respects (without giving effect to any
limitation as to materiality or Company
Material Adverse Effect or any similar limitation set
forth therein) as of the date of this Agreement and, except to
the extent such representations and warranties speak as of an
earlier date, as of the Effective Time (as though made at and as
of the Effective Time), except where the failure of such
representations and warranties (other than
Sections 5.1(b) and 5.1(q) hereof, which must
be true and correct in all material respects) to be so true and
correct has not had and is not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse
Effect. Parent shall have received at the Closing a certificate
signed on behalf of the Company by an executive officer of the
Company to the effect that such executive officer has read this
Section 7.2(a) and the conditions set forth in this
Section 7.2(a) have been satisfied.
(b) Performance of Obligations of the
Company. The Company shall have performed in
all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to such effect.
(c) The Spin-Off shall have been effected by the Company on
the terms and conditions as set forth in the Spin-Off Agreements.
7.3 Conditions to Obligation of the
Company. The obligation of the Company to
effect the Merger is also subject to the satisfaction or waiver
by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and
Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement
shall be true and correct in all respects (without giving effect
to any limitation as to materiality or any similar
limitation set forth therein) as of the date of this Agreement
and, except to the extent such representations and warranties
speak as of an earlier date, as of the Effective Time (as though
made at and as of the Effective Time), except where the failure
of such representations and warranties to be so true and correct
has not had and is not reasonably likely to have, individually
or in the aggregate, prevent, materially delay or materially
impair the ability of Parent or Merger Sub to consummate the
transactions contemplated by this Agreement. The Company shall
have received at the Closing a certificate signed on behalf of
Parent by an executive officer of Parent to the effect that such
executive officer has read this Section 7.3(a) and
the conditions set forth in this Section 7.3(a) have
been satisfied.
A-32
(b) Performance of Obligations of Parent and Merger
Sub. Each of Parent and Merger Sub shall have
performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by an executive
officer of Parent to such effect.
ARTICLE VIII
Termination
8.1 Termination by Mutual
Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the Company Stockholder Approval
has been obtained, by mutual written consent of the Company and
Parent by action of their respective Boards of Directors.
8.2 Termination by Either Parent or the
Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the
Company:
(a) if the Merger shall not have been consummated by
April 30, 2008, whether such date is before or after the
date of approval by the stockholders of the Company (the
Termination Date); provided,
however, that if an HSR second request is made, such
period shall be extended until 60 days after the time
period for government action on the second request terminates;
provided, further, however, that the right
to terminate this Agreement pursuant to this
Section 8.2(a) shall not be available to any party
that has breached in any material respect its obligations under
this Agreement in any manner that shall have proximately
contributed to the failure of the Merger to be consummated by
the Termination Date.
(b) if the Company Stockholder Approval shall not have been
obtained at the Company Stockholders Meeting duly convened
therefor or at any reconvened meeting following an adjournment
or postponement thereof.
(c) if any Order permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger shall become
final and non-appealable (whether before or after the approval
by the stockholders of the Company).
8.3 Termination by the
Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective
Time, by action of the Company Board:
(a) if, prior to obtaining the Company Stockholder
Approval, (i) the Company Board authorizes the Company,
subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Parent
in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such
notice, (ii) Parent does not make, within two business days
of receipt of the Companys written notification of its
intention to enter into a binding agreement for a Superior
Proposal, an offer that the Company Board determines, in good
faith after consultation with its financial advisors, is at
least as favorable, from a financial point of view, to the
stockholders of the Company as the Superior Proposal and
(iii) the Company prior to such termination pays to Parent
in immediately available funds any fees required to be paid
pursuant to Section 8.5.
(b) if there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in
this Agreement, or any such representation and warranty shall
have become untrue after the date of this Agreement, such that
Section 7.3(a) or 7.3(b) would not be
satisfied and such breach or condition is not curable or, if
curable, is not cured by the Termination Date; provided
that the Company is not then in breach of this Agreement such
that any of the conditions set forth in Section 7.2(a)
or Section 7.2(b) would not be satisfied.
A-33
8.4 Termination by Parent. This
Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time by action of the Parent
Board:
(a) in the event that (i) the Company Board shall have
effected a Change in Company Recommendation or (ii) the
Company Board fails publicly to reaffirm its adoption and
recommendation of this Agreement, the Merger or the other
transactions contemplated by this Agreement within ten business
days of receipt of a written request by Parent to provide such
reaffirmation following an Acquisition Proposal.
(b) if there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this
Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that
Section 7.2(a) or 7.2(b) would not be
satisfied and such breach or condition is not curable by the
Termination Date; provided that Parent and Merger Sub are
not then in breach of this Agreement such that the conditions
set forth in Section 7.3(a) and
Section 7.3(b) would not be satisfied.
8.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than as set
forth in Section 9.1) shall become void and of no
effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal and
financial advisors or other representatives); provided, however,
except as otherwise provided herein, no such termination shall
relieve any party hereto of any liability or damages resulting
from any willful or intentional breach of this Agreement.
(b) The Company agrees to pay Parent a fee in immediately
available funds (in recognition of the fees and expenses
incurred to date by Parent in connection with the matters
contemplated hereby) of $50,190,000 (the Termination
Fee) if this Agreement is terminated:
(i) (A) by Parent as permitted by
Sections 8.2(a), 8.2(b) or 8.4(b) or
the Company as permitted by Sections 8.2(a) or
8.2(b), (B) after the date of this Agreement and
prior to the Company Stockholders Meeting, a bona fide written
Acquisition Proposal has been publicly made to the Company or
shall have been made directly to the stockholders of the Company
or shall have otherwise become publicly known or any person
shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal prior to the
Company Stockholders Meeting and (C) within twelve months
of such termination the Company or any of its Subsidiaries shall
have entered into a definitive agreement, or consummated any
Acquisition Proposal (regardless of whether such Acquisition
Proposal is made before or after the termination of this
Agreement) (for purposes of the foregoing clause the term
Acquisition Proposal has the meaning assigned to
such term in Section 6.2(d) except that the
references to 20% in the definition are deemed to be
references to 50%);
(ii) by the Company as permitted by
Section 8.3(a); or
(iii) by Parent pursuant to Section 8.4(a).
(c) In the event that this Agreement is terminated by
either party pursuant to Section 8.2(a) and at the time of
such termination there exists a decision, injunction, order,
judgment, determination or decree based upon or purportedly
enforcing any federal or state antitrust, competition or trade
regulation law, rule or regulation that would make consummation
of the Merger in accordance with the terms of this Agreement
unlawful or in violation of any court order, then Parent shall
pay the Company, as directed in writing by the Company, a fee in
immediately available funds of $60 million no later than
two business days following such termination.
The Termination Fee shall be paid promptly by the Company, but
in no event later than: (x) two business days after the
first to occur of the execution of an acquisition agreement or
the consummation of the Acquisition Proposal, in the case of
clause (i) above; (y) on the date of termination of
this Agreement in the case of clause (ii) above; and
(z) two business days after termination of this Agreement
in the case of clause (iii) above. The Companys
payment shall be the sole and exclusive remedy of Parent and
Merger Sub against the Company and any of its Subsidiaries and
their respective directors, officers, employees, agents,
A-34
advisors or other representatives with respect to the breach of
any covenant or agreement giving rise to such payment. The
Company acknowledges that the agreements contained in this
Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent and Merger Sub would not enter into
this Agreement.
ARTICLE IX
Miscellaneous
and General
9.1 Survival. This
Article IX and the agreements of the Company, Parent
and Merger Sub contained in Article IV, and
Sections 6.7 (Employee Benefits/Labor Matters),
6.8 (Expenses), and 6.9 (Indemnification;
Directors and Officers Insurance), shall survive the
consummation of the Merger. This Article IX, the
agreements of the Company, Parent and Merger Sub contained in
Section 6.8 (Expenses), Section 8.5
(Effect of Termination and Abandonment) and the Confidentiality
Agreement shall survive the termination of this Agreement. All
other representations, warranties, covenants and agreements in
this Agreement shall not survive the consummation of the Merger
or the termination of this Agreement.
9.2 Modification or
Amendment. Subject to the provisions of
applicable Law, at any time prior to the Effective Time, this
Agreement may be amended, modified or supplemented in writing by
the parties hereto, by written agreement executed and delivered
by duly authorized officers of the respective parties.
9.3 Waiver of Conditions. The
conditions to each of the parties obligations to
consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent
permitted by applicable Law.
9.4 Counterparts. This Agreement
may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all
such counterparts shall together constitute the same agreement.
9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AND ALL DISPUTES BETWEEN THE PARTIES UNDER OR RELATED TO
THE AGREEMENT OR THE FACTS AND CIRCUMSTANCES LEADING TO ITS
EXECUTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL BE
DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the
Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the
transactions contemplated hereby, and hereby waive, and agree
not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in
said courts or that the venue thereof may not be appropriate or
that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that
all claims with respect to such action or proceeding shall be
heard and determined in such a Delaware State or Federal court.
The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and, to the extent
permitted by Law, over the subject matter of such dispute and
agree that mailing of process or other papers in connection with
any such action or proceeding in the manner provided in
Section 9.6 or in such other manner as may be
permitted by Law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT,
A-35
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6 Notices. Any notice, request,
instruction or other document to be given hereunder by any party
to the others shall be in writing and delivered personally or
sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Company:
Quanex Corporation
1900 West Loop South, Suite 1500
Houston, Texas 77027
Attention: General Counsel
Fax:
(713) 626-7549
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax:
(713) 651-5246
if to Parent or Merger Sub:
Gerdau S.A.
Av. Dos Farrapos, 1811
Porto Alegre, RS
90220-005
Attention: Expedito Luz
Fax:
55-51-3323-2288
with a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Alan Klein
Fax:
(212) 455-2502
or to such other persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
9.7 Entire Agreement; NO OTHER
REPRESENTATIONS. This Agreement (including
any exhibits hereto), the Company Disclosure Letter, the Parent
Disclosure Letter and the Confidentiality Agreement constitute
the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and
oral, among the parties, with respect to the subject matter
hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
NEITHER PARENT AND MERGER SUB NOR THE COMPANY RAISES ANY OTHER
REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY
OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL
ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION
AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
9.8 No Third Party Beneficiaries.
Except for the rights of holders of Shares to receive the Merger
Consideration after the Effective Time pursuant to
Section 4.1(c) (Conversion of Company Common Stock), the
A-36
rights of holders of Company Options or RSUs to receive the
consideration provided in Section 4.9 (Company Options) or
as provided in Section 6.9 (Indemnification;
Directors and Officers Insurance) only, Parent and
the Company hereby agree that their respective representations,
warranties and covenants set forth herein are solely for the
benefit of the other party hereto, in accordance with and
subject to the terms of this Agreement, and this Agreement is
not intended to, and does not, confer upon any Person other than
the parties who are signatories hereto any rights or remedies
hereunder. The parties hereto further agree that the rights of
third party beneficiaries under Sections 4.1(c),
4.9 or 6.9 shall not arise unless and until the
Effective Time occurs.
9.9 Obligations of Parent and of the
Company. Whenever this Agreement requires a
Subsidiary of Parent to take any action, such requirement shall
be deemed to include an undertaking on the part of Parent to
cause such Subsidiary to take such action. Whenever this
Agreement requires a Subsidiary of the Company to take any
action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary
to take such action and, after the Effective Time, on the part
of the Surviving Entity to cause such Subsidiary to take such
action.
9.10 Severability. The provisions
of this Agreement shall be deemed severable and the invalidity
or unenforceability of any provision shall not affect the
validity or enforceability or the other provisions hereof. If
any provision of this Agreement, or the application thereof to
any Person or any circumstance, is invalid or unenforceable,
(a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons
or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
9.11 Interpretation; Construction.
(a) The table of contents and headings herein are for
convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect
any of the provisions hereof. Where a reference in this
Agreement is made to a Section or Exhibit, such reference shall
be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation.
(b) The parties have participated jointly in negotiating
and drafting this Agreement. In the event that an ambiguity or a
question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any
provision of this Agreement.
(c) As used in this Agreement, the term
Affiliates shall have the same meaning as the term
affiliates as defined by
Rule 12b-2
under the Exchange Act.
9.12 Assignment. This Agreement
shall not be assignable by operation of law or otherwise;
provided, however, that Parent may designate, by written notice
to the Company, another wholly owned direct or indirect
subsidiary to be a Constituent Corporation in lieu of Merger
Sub, in which event all references herein to Merger Sub shall be
deemed references to such other subsidiary, except that all
representations and warranties made herein with respect to
Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other
subsidiary as of the date of such designation. Any purported
assignment in violation of this Agreement is void.
9.13 Knowledge. As used in this
Agreement, (a) Knowledge of the Company means
to the actual knowledge of the individuals listed on
Section 9.13(a) of the Company Disclosure Letter, and
(b) Knowledge of Parent means to the actual
knowledge of the individuals listed on Section 9.13(b) of
the Parent Disclosure Letter.
A-37
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto
as of the date first written above.
GERDAU S.A.
|
|
|
|
By:
|
/s/ Osvaldo
Burgos Schirmer
|
Osvaldo Burgos Schirmer
Executive Vice President and Chief Financial Officer
GERDAU DELAWARE, INC.
|
|
|
|
By:
|
/s/ Osvaldo
Burgos Schirmer
|
Osvaldo Burgos Schirmer
President
QUANEX CORPORATION
Raymond A. Jean
Chairman and Chief Executive Officer
A-38
ANNEX B
Opinion of Lazard Frères & Co. LLC dated
November 18, 2007
November 18,
2007
The Board of Directors
Quanex Corporation
1900 West Loop South
Suite 1500
Houston, TX 77027
Dear Members of the Board of Directors:
We understand that Quanex Corporation, a Delaware corporation
(the Company), Gerdau S.A., a corporation organized
under the laws of the Federative Republic of Brazil
(Parent), and Gerdau Delaware, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent
(Merger Sub), propose to enter into an Agreement and
Plan of Merger (the Merger Agreement), pursuant to
which, among other things, Merger Sub will be merged with and
into the Company (the Merger). We understand that
prior to the Merger, the Company will spin off or otherwise
dispose of its business involving the manufacture and sale of
aluminum sheet and engineered materials and components primarily
used in the United States building products market (the
Buildings Products Business). We understand that as
a result of the Merger, among other things, each share of the
Companys common stock, par value $0.50 per share
(Company Common Stock), together with the associated
Right (as defined in the Merger Agreement; each share of Company
Common Stock together with the associated Right being
hereinafter referred to as a Share or, collectively,
Shares), issued and outstanding immediately prior to
the effective time of the Merger, other than any (i) shares
of Company Common Stock owned directly by the Company as
treasury stock or by the Parent or Merger Sub and in each case
not held on behalf of third parties, or
(ii) Dissenters Shares (as defined in the Merger
Agreement; the Dissenters Shares and shares referred to in
clause (i) of this sentence are collectively referred to as
the Excluded Shares), shall be automatically
converted into the right to receive $39.20 in cash (the
Merger Consideration). The terms and conditions of
the Merger are set out more fully in the Merger Agreement.
You have requested our opinion as of the date hereof as to the
fairness, from a financial point of view, to the holders of the
Shares (other than holders of Excluded Shares) of the Merger
Consideration to be paid to such holders in the Merger. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the
draft, dated November 18, 2007 of the Merger Agreement (the
Draft Merger Agreement);
(ii) Analyzed certain publicly available historical
business and financial information relating to the Company;
(iii) Reviewed various financial forecasts and other data
provided to us by the management of the Company relating to the
business and prospects of the Company after giving effect to the
disposition of the Building Products Business;
(iv) Held discussions with members of the senior management
of the Company with respect to the business and prospects of the
Company after giving effect to the disposition of the Building
Products Business;
B-1
(v) Reviewed public information with respect to certain
other companies in lines of business we believe to be generally
comparable to the business of the Company after giving effect to
the disposition of the Building Products Business;
(vi) Reviewed the financial terms of certain business
combinations involving companies in lines of business we believe
to be generally comparable to the business of the Company after
giving effect to the disposition of the Building Products
Business;
(vii) Reviewed the historical stock prices and trading
volumes of the Company Common Stock; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the
foregoing information, and have not assumed any responsibility
for any independent verification of (and we have not
independently verified) such information or any independent
valuation or appraisal of any of the assets or liabilities of
the Company or concerning the solvency or fair value of the
Company. With respect to financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the
management of the Company as to the future financial performance
of the Company. We assume no responsibility for and express no
view as to such forecasts or the assumptions on which they are
based.
Further, our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to us as of, the date hereof. We assume no
responsibility for updating or revising our opinion based on
circumstances or events occurring after the date hereof. We do
not express any opinion as to the price at which shares of
Company Common Stock may trade at any time subsequent to the
announcement of the Merger.
In rendering our opinion, we have assumed that the Merger
Agreement will be identical in all material respects to the
Draft Merger Agreement reviewed by us and that the Merger will
be consummated on the terms described in the Merger Agreement,
without any waiver or modification of any material terms or
conditions of the Merger Agreement. We have further assumed that
obtaining the necessary regulatory approvals and contractual
consents for the Merger and the disposition of the Building
Products Business will not have an adverse effect on the Company
or the Merger. In addition, we have assumed that the
representations and warranties contained in the Merger Agreement
and all agreements related thereto are true and complete in all
material respects. We do not express any opinion as to any tax
or other consequences that might result from the Merger or the
disposition of the Building Products Business, nor does our
opinion address any legal, tax, regulatory or accounting
matters, as to which we understand that the Company has obtained
such advice as it deemed necessary from qualified professionals.
In addition, we express no opinion about the fairness of the
amount or nature of, or any other aspect of, the compensation to
any of the Companys officers, directors or employees, or
any class of such persons, relative to the Merger Consideration
to be paid to public stockholders of the Company or otherwise.
In rendering our opinion, we have assumed that the stockholders
of the Company prior to the consummation of the Merger (and not
the owners of the Company after giving effect to the Merger)
will either own or be entitled to receive the proceeds of the
disposition of the Building Products Business. We express no
opinion as to the value of the Building Products Business or as
to the fairness or any other aspect of the disposition of the
Building Products Business.
Lazard Frères & Co. LLC (Lazard) is
acting as investment banker to the Board of Directors in
connection with the Merger and will receive a fee for its
services, a substantial portion of which is payable upon
consummation of the Merger. Lazard will also be entitled to
receive a fee in connection with the disposition by the Company
of the Building Products Business (a BP Separation
Fee). If the disposition of the Buildings Products
Business is accomplished through a spin-off, split-off or
similar transaction, and Lazard serves as the resulting
entitys investment banker in connection with a subsequent
sale, merger, consolidation or business combination transaction
(a Second Stage Transaction) within 18 months
following the disposition, an additional fee would be payable to
Lazard which would be reduced by an amount equal to 50% of the
BP Separation Fee received by Lazard. In addition, in the
ordinary course of their respective businesses,
B-2
affiliates of Lazard and LFCM Holdings LLC (an entity indirectly
owned in large part by managing directors of Lazard) may
actively trade securities of the Company for their own accounts
and for the accounts of their customers and, accordingly, may at
any time hold a long or short position in such securities.
Our engagement and the opinion expressed herein (which has been
approved by our opinion committee) are for the benefit of the
Board of Directors in connection with its consideration of the
Merger. Our opinion does not address the relative merits of the
Merger as compared to other business strategies or transactions
that might be available with respect to the Company or the
underlying business decision by the Company to engage in the
Merger, and is not intended to and does not constitute a
recommendation to any holder of Company Common Stock as to how
such holder should vote with respect to the Merger or any matter
relating thereto.
Based on and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Merger Consideration to be paid
to holders of the Shares (other than holders of Excluded Shares)
in the Merger is fair to such holders from a financial point of
view.
Very truly yours,
Harry Pinson
B-3
ANNEX C
Section 262
of the Delaware General Corporation Law
§262
APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to §228 of this title
shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholders shares of stock under
the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words stock and share
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words depository receipt mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to §251
(other than a merger effected pursuant to §251(g) of this
title), §252, §254, §257, §258, §263 or
§264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to
§§251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under §253 of this
title is not owned by the parent corporation immediately prior
to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
C-1
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§228 or §253 of this title, then, either a constituent
corporation before the effective date of the merger or
consolidation, or the surviving or resulting corporation within
ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this
section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
C-2
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw
such stockholders demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and
who has submitted such stockholders certificates of stock
to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other
C-3
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
C-4
ANNEX D
|
|
|
|
|
Quanex Corporation
1900 West Loop South
Suite 1500
Houston, TX 77027
|
,
2008
Dear Quanex Corporation Stockholder:
As previously announced, the Board of Directors of Quanex
Corporation approved a plan to separate its building products
and vehicular products businesses. To accomplish this, Quanex
Corporation is, immediately prior to and in connection with the
merger of a wholly-owned subsidiary of Gerdau S.A. with and into
Quanex Corporation, spinning off the limited liability company
interests of its building products subsidiary containing all of
the assets and liabilities of Quanex Corporations building
products group known as Quanex Building Products LLC. The
interests are being distributed to Quanex Corporations
stockholders on the basis of one unit of Quanex Building
Products LLC for each share of Quanex Corporation common stock
outstanding. Immediately following the spin-off, Quanex Building
Products LLC will merge with and into its wholly-owned
subsidiary Quanex Building Products Corporation, with Quanex
Building Products Corporation being the surviving company in the
merger. Each unit of Quanex Building Products LLC will be
converted immediately into one share of Quanex Building Products
Corporation common stock. As a result, each Quanex Corporation
stockholder will receive one share of Quanex Building Products
Corporation common stock for each share of Quanex Corporation
common stock held by such stockholder.
Immediately following and in connection with the spin-off, a
wholly-owned subsidiary of Gerdau S.A. will merge with and into
Quanex Corporation, which will consist principally of the
vehicular products business and non-building products related
corporate accounts. Each Quanex Corporation stockholder of
record will be able to exchange the shares of Quanex Corporation
common stock held by such stockholder for cash consideration of
$39.20 per share. The spin-off and merger are taking place
on ,
2008.
Stockholder approval of the spin-off is not required, and you
are not required to take any action to receive your Quanex
Building Products Corporation common stock.
The attached information statement, which is being mailed to all
Quanex Corporation stockholders of record, describes the
spin-off in detail and contains important information, including
financial statements, about Quanex Building Products
Corporation. The shares of Quanex Building Products Corporation
common stock have been authorized for listing and will trade
under the symbol NX on the New York Stock Exchange.
We look forward to our future as a separately-traded public
company and to your support as a holder of Quanex Building
Products Corporation common stock.
Sincerely,
Raymond A. Jean
President and Chief Executive Officer
Preliminary
and Subject to Completion, dated February 15,
2008
INFORMATION
STATEMENT
Quanex
Building Products Corporation
Common Stock
(Par Value $0.01 per share)
This information statement is being furnished in connection with
the issuance of shares of Quanex Building Products Corporation
common stock to holders of Quanex Corporation common stock in
connection with the spin-off of Quanex Building Products LLC,
referred to as the spin-off, and the subsequent merger of Quanex
Building Products LLC with and into Quanex Building Products
Corporation, referred to as the Quanex Building Products merger.
Quanex Corporation will, immediately prior to and in connection
with the merger of a wholly-owned subsidiary of Gerdau S.A. with
and into Quanex Corporation, referred to as the Quanex/Gerdau
merger, spin off the limited liability company interests of its
building products subsidiary containing all of the assets and
liabilities of Quanex Corporations building products group
known as Quanex Building Products LLC. The interests will be
distributed to Quanex Corporations stockholders on the
basis of one unit of Quanex Building Products LLC for each share
of Quanex Corporation common stock outstanding. Immediately
following the spin-off, Quanex Building Products LLC will merge
with and into its wholly-owned subsidiary Quanex Building
Products Corporation, with Quanex Building Products Corporation
being the surviving company in the merger. Each unit of Quanex
Building Products LLC will be converted immediately into one
share of Quanex Building Products Corporation common stock. As a
result, each Quanex Corporation stockholder will receive one
share of Quanex Building Products Corporation common stock for
each share of Quanex Corporation common stock held by such
stockholder.
The units of Quanex Building Products LLC will be distributed to
holders of Quanex Corporation common stock of record
on ,
2008, which will be the record date. These stockholders will
receive one unit of Quanex Building Products LLC for every share
of Quanex Corporation common stock held on the record date. The
distribution will be effective at 9:00 a.m., New York City
time, on the record date, which we also refer to as the
distribution date. Immediately following the distribution, each
unit of Quanex Building Products LLC will be converted into one
share of our common stock in the Quanex Building Products
merger. As a result, these stockholders will receive one share
of our common stock for every share of Quanex Corporation common
stock held on the record date. The Quanex Building Products
merger will be effective at 9:01 a.m., New York City time,
on the distribution date.
No approval of Quanex Corporations stockholders is
required or sought for the distribution or the Quanex Building
Products merger. We are not asking you for a proxy and you are
requested not to send us a proxy. Quanex Corporation
stockholders are not required to pay for the shares of our
common stock being received by them in connection with the
distribution and the Quanex Building Products merger, or to
surrender or to exchange shares of Quanex Corporation common
stock in order to receive our common stock or to take any other
action in connection with the distribution and the Quanex
Building Products merger. There is no current trading market for
our common stock. However, we expect that a limited market,
commonly known as a when- issued trading market, for
our common stock will develop prior to the distribution date,
and we expect regular way trading of our common
stock will begin the first trading day after the distribution
date. Our common stock has been authorized for listing and will
trade on the New York Stock Exchange (the NYSE)
under the symbol NX.
In reviewing this information statement, you should carefully
consider the matters described under the caption Risk
Factors beginning on page 11.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this information statement is
truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this information statement
is ,
2008.
Quanex Corporation first mailed this document to its
stockholders
on ,
2008.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
11
|
|
|
|
|
16
|
|
|
|
|
17
|
|
|
|
|
21
|
|
|
|
|
21
|
|
|
|
|
23
|
|
|
|
|
34
|
|
|
|
|
36
|
|
|
|
|
53
|
|
|
|
|
60
|
|
|
|
|
91
|
|
|
|
|
97
|
|
|
|
|
98
|
|
|
|
|
102
|
|
|
|
|
105
|
|
|
|
|
F-1
|
|
SUMMARY
This summary highlights information contained elsewhere in
this information statement and provides an overview of our
company and the material aspects of our spin-off from Quanex
Corporation. You should read this entire information statement
carefully, especially the risk factors discussed beginning on
page 11 and our consolidated historical and pro forma
financial statements and notes to those statements appearing
elsewhere in this information statement. Unless the context
otherwise requires, references in this information statement to
(i) Quanex Building Products, we,
our and us refer to Quanex Building
Products Corporation and its consolidated subsidiaries and
(ii) Quanex Corporation refer to Quanex
Corporation and its consolidated subsidiaries (other than
us).
You should not assume that the information contained in this
information statement is accurate as of any date other than the
date set forth on the cover. Changes to the information
contained in this information statement may occur after that
date, and we undertake no obligation to update the information,
except in the normal course of our public disclosure obligations
and practices.
We describe in this information statement the building
products businesses to be transferred in connection with the
spin-off and the Quanex Building Products merger as if the
building products businesses were our businesses. However, we
will not conduct any operations separate from Quanex Corporation
prior to the Quanex Building Products merger.
Our
Business
We are a technological leader in the production of aluminum
flat-rolled products, flexible insulating glass spacer systems,
extruded plastic profiles, and precision-formed metal and wood
products which primarily serve the North American building
products markets. We use low-cost production processes, and
engineering and metallurgical expertise to provide customers
with specialized products for specific applications. We believe
these capabilities also provide us with unique competitive
advantages. Our growth strategy is focused on protecting,
nurturing and developing our core building products businesses,
introducing new innovative product lines, and pursuing expansion
through the acquisition of companies that produce similar
products and serve similar or adjacent building products markets
in North America, Europe and Asia.
Our
Business Segments
We operate in two reportable business segments: Engineered
Building Products and Aluminum Sheet Building Products.
Engineered Building Products. The Engineered
Building Products segment is comprised of six fabricated metal
components operations, two facilities producing wood
fenestration (door and window) components, four polyvinyl
chloride (vinyl) extrusion facilities, a flexible insulating
glass spacer operation and a facility that produces automated
equipment for assembling insulating glass units. The
segments operations produce window and door components for
original equipment manufacturers, or OEMs, that primarily serve
the residential construction and remodeling markets. Products
include insulating glass spacer/sealant systems, window and
patio door screens, aluminum cladding and other roll formed
metal window components, door components such as thresholds and
astragals, residential exterior products, engineered vinyl and
composite patio door and window profiles and custom window
grilles, and trim and architectural mouldings in a variety of
woods for the home improvement, residential, and light
commercial construction markets.
Our extrusion operations use highly automated production
facilities to manufacture vinyl and composite profiles, the
framing material used by fenestration OEMs in the assembly of
vinyl windows and patio doors. Value-added capabilities include
window system design, tooling design and fabrication, PVC
compound blending, in-line weatherstrip installation and miter
cutting, and co-extrusion of integrated weather-resistant
coatings. Metal fabrication operations include roll forming,
stamping, and end-product assembly to produce a variety of
fenestration products. In addition, the insulating glass sealant
business uses co-extrusion and laminating technology to produce
highly engineered, butyl rubber-based window spacer products
used to separate two panes of glass in a window sash to improve
its thermal performance. Engineered Products
1
customers end-use applications include windows and window
components, patio door and entry door systems, and custom
hardwood architectural moldings. Key success factors range from
design and development expertise to flexible, world class
quality manufacturing capability and
just-in-time
delivery.
Aluminum Sheet Building Products. The Aluminum
Sheet Building Products segment is comprised of an aluminum
mini-mill casting operation and three stand-alone aluminum sheet
cold finishing operations. Aluminum sheet finishing capabilities
include reducing reroll coil to specific gauge, annealing,
slitting and custom coating. Customer end-use applications
include exterior housing trim, fascias, roof edgings, soffits,
downspouts and gutters. The product is packaged and delivered
for use by various customers in the building and construction
markets, as well as other capital goods and transportation
markets.
Our aluminum mini-mill uses an in-line casting process with the
capacity to produce approximately 400 million pounds of
reroll (hot-rolled aluminum sheet) annually. The mini-mill
converts aluminum scrap to reroll through melting, continuous
casting, and in-line hot rolling processes. It also has aluminum
scrap shredding and blending capabilities, including two rotary
barrel melting furnaces and a dross recovery system that broaden
the mini-mills use of raw materials, allowing it to melt
lesser grades of scrap, while improving raw material yields.
Delacquering equipment improves the quality of the scrap before
it reaches the primary melt furnaces by burning off
combustibles. In addition, scrap is blended using computerized
processes to most economically achieve the desired molten
aluminum alloy composition. We believe our production
capabilities result in a significant manufacturing advantage and
savings from reduced raw material costs, optimized scrap
utilization, reduced unit energy cost and lower labor costs.
The
Distribution, the Quanex/Gerdau Merger and the Quanex Building
Products Merger
Quanex Corporation will, immediately prior to and in connection
with the Quanex/Gerdau merger, spin off the limited liability
company interests of Quanex Building Products LLC, which holds
directly or indirectly all of the assets and liabilities of its
building products group. The interests will be distributed to
Quanex Corporations stockholders on the basis of one unit
of Quanex Building Products LLC for each share of Quanex
Corporation common stock outstanding on the record date.
Immediately following the spin-off, Quanex Building Products LLC
will merge with and into its wholly-owned subsidiary Quanex
Building Products Corporation, with Quanex Building Products
Corporation being the surviving company in the merger. Each unit
of Quanex Building Products LLC will be converted immediately
into one share of Quanex Building Products Corporation common
stock. As a result, each Quanex Corporation stockholder will
receive one share of Quanex Building Products Corporation common
stock for each share of Quanex Corporation common stock held by
such stockholder. When we refer in this information statement to
shares of Quanex Building Products common stock, we mean the
shares of Quanex Building Products Corporation common stock that
Quanex Corporation stockholders will receive following the
conversion of the units of Quanex Building Products LLC into
shares of Quanex Building Products Corporation common stock in
the Quanex Building Products merger.
Immediately following and in connection with the spin-off, a
wholly-owned subsidiary of Gerdau S.A. will merge with and into
Quanex Corporation, which will consist principally of the
vehicular products business and non-building products related
corporate accounts. Each Quanex Corporation stockholder of
record will exchange the shares of Quanex Corporation common
stock held by such stockholder for cash consideration of $39.20
per share. The distribution, the Quanex Building Products merger
and the Quanex/Gerdau merger will take place
on ,
2008.
Our
Strategy
Managements vision is to become North Americas
premier market driven manufacturer of engineered systems and
components sold to OEMs and distributors of building
products. Our vision also includes maximizing stockholder value
by earning a return over the business cycle in excess of our
cost of capital. Execution of the following strategies will be
essential for attainment of this vision:
|
|
|
|
|
Achieve robust organic growth in each of our reportable segments
fueled by unmatched customer service, new product introduction
and development of superior product attributes, particularly
thermal efficiency, enhanced functionality, weatherability,
appearance and
best-in-class
quality;
|
2
|
|
|
|
|
Offer logistic solutions that provide our customers with
just-in-time
service and lower processing costs;
|
|
|
|
Enhance profitability through our continued efforts to adopt,
promulgate and formalize Lean Manufacturing practices within
both our core businesses and the acquisitions we make, including
eliminating waste, minimizing scrap, optimizing work flow and
improving productivity;
|
|
|
|
Maintain elevated priority for employee safety programs through
enhanced process design and diligent supervision;
|
|
|
|
Attract and retain outstanding leadership and facilitate
broad-based employee development through open communication,
active feedback, meaningful goal setting and well-designed
incentives; and
|
|
|
|
Pursue an active acquisition program, growing our existing
fenestration footprint and expanding into other, adjacent
residential and select commercial building products segments,
particularly those that leverage our existing manufacturing
skills (e.g., value-added aluminum processing, metal
fabrication, specialty coating and finishing, roll forming,
polymer and adhesive extrusion, wood and composite materials
processing, and engineered systems design and assembly).
|
Summary
of the Transactions
The following is a brief summary of the terms of the
distribution and other concurrent transactions:
|
|
|
Distributing company |
|
Quanex Corporation. After the distribution, Quanex Corporation
will not own any units of Quanex Building Products LLC or any
shares of our capital stock. |
|
Distributed company |
|
Quanex Building Products LLC, currently a wholly-owned
subsidiary of Quanex Corporation. Immediately following the
distribution, Quanex Building Products LLC will merge with and
into Quanex Building Products Corporation, its wholly owned
subsidiary, with Quanex Building Products Corporation being the
surviving company in the merger. After the distribution and the
Quanex Building Products merger, Quanex Building Products
Corporation will be an independent public company. |
|
Securities to be distributed |
|
Units of Quanex Building Products LLC. Upon the merger of Quanex
Building Products LLC and Quanex Building Products Corporation,
which will occur immediately following the distribution, each
unit of Quanex Building Products LLC will be converted into one
share of Quanex Building Products Corporation common stock. |
|
Distribution ratio |
|
Each Quanex Corporation stockholder will receive one unit of
Quanex Building Products LLC for each share of Quanex
Corporation common stock held by such stockholder on the record
date. Each unit of Quanex Building Products LLC will,
immediately following the distribution, be converted into one
share of Quanex Building Products Corporation common stock in
the Quanex Building Products merger. |
|
Method of distribution |
|
For registered Quanex Corporation stockholders, our transfer
agent will credit shares of our common stock to book-entry
accounts established to hold shares of our common stock.
Book-entry refers to a method of recording stock ownership in
our records in which no physical certificates are issued. For
stockholders who own Quanex Corporation common stock through a
broker or other nominee, their shares of our common stock will
be credited to their accounts by the broker or other nominee.
Following the distribution and the Quanex Building Products
merger, stockholders whose shares are |
3
|
|
|
|
|
held in book-entry form may request the transfer of their shares
of our common stock to a brokerage or other account at any time
and may request the delivery of physical stock certificates for
their shares, in each case without charge. |
|
Record date |
|
The record date is the same as the distribution date. In order
to be entitled to receive shares of our common stock in the
spin-off, holders of shares of Quanex Corporation common stock
must be stockholders on the record date |
|
Distribution date |
|
9:00 a.m., New York City time,
on ,
2008. |
|
Distribution agent, transfer agent and registrar |
|
Wells Fargo Shareowner Services. |
|
|
|
Stock exchange listing |
|
Our common stock has been authorized for listing on the NYSE
under the symbol NX. Trading in our common stock is
expected to commence on a when-issued basis shortly before the
distribution date. On the first trading day following the
distribution date, when-issued trading in respect of our common
stock will end and regular way trading will begin. We cannot
predict the trading prices for our common stock on or after the
distribution date. |
|
|
|
New credit facility |
|
Concurrently with the completion of the distribution and the
Quanex Building Products merger, we anticipate entering into a
senior unsecured credit facility for a term of five years with
aggregate availability of $250 million to $300 million
at closing, and thereafter, and pursuant to an accordion
feature, an increase in such aggregate commitment to
$350 million. |
|
|
|
|
|
Based on the term sheet discussed with the lenders, we expect
that the agreement will include various terms and conditions
consistent with Quanex Corporations existing facility and
with recent transactions for comparable companies. Such terms
and conditions include a leverage-based pricing grid, financial
covenants and limitations on indebtedness, asset or equity
sales, and acquisitions. |
|
|
|
|
|
Proceeds from the facility will be used to provide availability
for working capital, capital expenditures, permitted
acquisitions, letters of credit and general corporate purposes. |
|
|
|
Quanex/Gerdau merger |
|
Quanex Corporation has entered into an agreement with Gerdau
S.A. and Gerdau Delaware, Inc., a wholly-owned subsidiary of
Gerdau S.A., pursuant to which Gerdau Delaware, Inc. will merge
with and into Quanex Corporation. The Quanex/Gerdau merger will
occur immediately following and in connection with the
distribution. Each Quanex Corporation stockholder of record will
exchange the shares of Quanex Corporation common stock held by
such stockholder for cash consideration of $39.20 per share. The
occurrence of the
spin-off is
a condition to the occurrence of the Quanex/Gerdau Merger. |
|
|
|
Tax consequences to stockholders |
|
The receipt by a Quanex Corporation stockholder of property
pursuant to the distribution and cash pursuant to the
Quanex/Gerdau merger will be a taxable transaction for U.S.
federal income tax purposes. With respect to each Quanex
Corporation stockholder who is a citizen or resident of the
United States and holds his |
4
|
|
|
|
|
shares of Quanex Corporation common stock as a capital asset
(generally, assets held for investment), we expect that such
Quanex Corporation stockholder will generally recognize capital
gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between (i) the sum of the amount
of cash received in the Quanex/Gerdau merger and the fair market
value, determined when the spin-off occurs, of the property
received in the spin-off, and (ii) such Quanex Corporation
stockholders adjusted tax basis in his shares of Quanex
Corporation common stock immediately prior to the spin-off. The
deduction of any recognized loss may be delayed or otherwise
adversely affected by certain loss limitation rules. Any such
gain or loss will generally be long-term capital gain or loss if
the Quanex Corporation stockholders holding period in the
shares of Quanex Corporation common stock immediately prior to
the spin-off is more than one year. The amount and character of
gain or loss must be calculated separately for each identifiable
block of shares of Quanex Corporation common stock surrendered.
In addition, we do not expect that such a Quanex Corporation
stockholder will recognize any gain or loss in the Quanex
Building Products merger. We expect that a Quanex Corporation
stockholder will, immediately following the Quanex Building
Products merger, have an aggregate adjusted tax basis in his
shares of Quanex Building Products Corporation common stock
received in the Quanex Building Products merger equal to the
fair market value of such shares when the spin-off occurs, and
his holding period in such shares will begin on the day
following the spin-off and the Quanex Building Products merger.
See Material U.S. Federal Income Tax Consequences
for a more detailed description of the U.S. federal income tax
consequences of the spin-off, the Quanex/Gerdau merger, and the
Quanex Building Products merger. |
|
|
|
Tax matters are very complicated and the tax consequences
of the spin-off, the Quanex/Gerdau merger, and the Quanex
Building Products merger to any particular Quanex Corporation
stockholder will depend on that stockholders particular
situation. Quanex Corporation stockholders should consult with
their own tax advisors to determine the specific tax
consequences of the spin-off, the Quanex/Gerdau merger, and the
Quanex Building Products merger to them. |
|
Dividend policy |
|
We expect to pay a cash dividend of $0.03 per share of common
stock, commencing after the end of the first quarter in which we
conduct operations as Quanex Building Products Corporation. We
expect to continue to pay quarterly cash dividends thereafter.
Payment of future cash dividends will be at the discretion of
our board of directors in accordance with applicable law after
taking into account various factors, including our financial
condition, operating results, current and anticipated cash
needs, plans for expansion, contractual restrictions with
respect to the payment of dividends and any then-existing stock
repurchase program. See Dividend Policy. |
5
|
|
|
Relationship between Quanex Building Products
Corporation, Quanex Building Products LLC and
Quanex Corporation after the distribution |
|
After the distribution, Quanex Corporation will not own any
shares of our common stock, and we will not own any shares of
Quanex Corporations common stock. In connection with the
distribution, we, Quanex Building Products LLC and Quanex
Corporation have entered into a number of agreements that will
govern the spin-off from Quanex Corporation and our future
relationship, including a Tax Matters Agreement, an Employee
Matters Agreement and a Transition Services Agreement. Also, the
Distribution Agreement between Quanex Corporation and Quanex
Building Products Corporation will continue in existence with
respect to certain indemnification, insurance, confidentiality
and cooperation provisions following the distribution. See
Our Relationship with Quanex Corporation After the
Distribution. |
|
|
|
Management of Quanex Building Products Corporation after the
distribution |
|
Following the distribution, the business of Quanex Building
Products Corporation will be managed by the same Houston, Texas
based management team employed by Quanex Corporation prior to
the distribution. |
|
|
|
Anti-takeover effects |
|
Some provisions of our certificate of incorporation, our bylaws
and Delaware law may have the effect of making more difficult an
acquisition of control of us in a transaction not approved by
our board of directors. See Description of Our Capital
Stock. |
You
should carefully read the Risk Factors beginning on
page 11.
If you have any questions relating to the distribution, you
should contact Jeff Galow, Vice President Investor
Relations, at 1900 West Loop South, Suite 1500,
Houston, Texas 77027, telephone number
(713) 961-4600.
6
Corporate
Information and Structure
We were incorporated in Delaware on December 12, 2007 by
Quanex Corporation to facilitate the separation of its vehicular
products and building products businesses through the spin-off
and the Quanex/Gerdau merger. Our principal executive offices
are located at 1900 West Loop South, Suite 1500,
Houston, Texas 77027, and our telephone number is
(713) 961-4600.
We maintain a Web site at www.quanex.com. Our Web site and the
information contained on that site, or connected to that site,
are not incorporated into this information statement. Quanex is
a registered trademark that belongs to us.
The following diagram depicts our corporate structure after
giving effect to the distribution and the other concurrent
transactions described in this information statement:
7
Summary
Unaudited Condensed Pro Forma Consolidated Financial and Other
Data of
Quanex Building Products Corporation
(Accounting Successor to Quanex Corporation)
The summary unaudited condensed pro forma consolidated financial
data for Quanex Building Products Corporation (accounting
successor to Quanex Corporation), which we may refer to herein
as Quanex Building Products, set forth below is
derived from the unaudited pro forma consolidated financial
information of Quanex Building Products included elsewhere in
this information statement.
The following summary unaudited condensed pro forma consolidated
financial data as of and for the years ended October 31,
2007, 2006 and 2005 reflects the effects of the distribution and
capitalization of Quanex Building Products Corporation. The pro
forma data does not represent what Quanex Building Products
Corporations financial position or results of operations
would have been had Quanex Building Products Corporation
operated as a separate, independent public company, nor does the
pro forma data give effect to any events other than those
discussed in the related notes. The pro forma data also does not
project Quanex Building Product Corporations financial
position or results of operations as of any future date or any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands except share data)
|
|
|
Operating Results Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
963,975
|
|
|
$
|
1,043,773
|
|
|
$
|
951,819
|
|
Operating income
|
|
|
88,614
|
|
|
|
103,805
|
|
|
|
101,965
|
|
Depreciation and amortization
|
|
|
37,991
|
|
|
|
36,999
|
|
|
|
32,701
|
|
Income from continuing operations
|
|
|
57,411
|
|
|
|
64,284
|
|
|
|
61,969
|
|
Unaudited pro forma basic earnings from continuing operations
per common share
|
|
$
|
1.55
|
|
|
$
|
1.72
|
|
|
$
|
1.64
|
|
Unaudited pro forma diluted earnings from continuing operations
per common share
|
|
$
|
1.53
|
|
|
$
|
1.69
|
|
|
$
|
1.61
|
|
Weighted average basic common shares outstanding
|
|
|
36,982
|
|
|
|
37,479
|
|
|
|
37,772
|
|
Weighted average diluted common shares outstanding
|
|
|
37,549
|
|
|
|
38,066
|
|
|
|
38,483
|
|
Financial Position data year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
674,608
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,015
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
508,128
|
|
|
|
|
|
|
|
|
|
See Unaudited Pro Forma Consolidated Financial Data of
Quanex Building Products Corporation (Accounting Successor to
Quanex Corporation).
8
Summary
Selected Financial Data of Quanex Corporation
(Accounting Predecessor to Quanex Building Products
Corporation)
The summary selected financial data of Quanex Corporation
(accounting predecessor to Quanex Building Products Corporation)
is derived from audited consolidated financial statements of
Quanex Corporation. Notwithstanding the legal form of the
spin-off, because a wholly-owned subsidiary of Gerdau S.A. will
merge with and into Quanex Corporation immediately following the
distribution and because the senior management of Quanex
Corporation will continue as the senior management of Quanex
Building Products following the distribution, we consider Quanex
Building Products as divesting the Quanex Corporation vehicular
products segment and non-building products related corporate
items and have treated it as the accounting
successor to Quanex Corporation for financial reporting
purposes in accordance with Emerging Issues Task Force (EITF)
Issue
No. 02-11,
Accounting for Reverse Spin-offs
(EITF 02-11).
As such, the information presented in the following summary for
Quanex Building Products (accounting successor to Quanex
Corporation) generally reflects financial and other information
previously filed with the Securities and Exchange Commission
(the SEC) by Quanex Corporation. When the spin-off
occurs, Quanex Building Products will report the historical
results of operations (subject to certain adjustments) of Quanex
Corporations vehicular products segment and non-building
products related corporate items as discontinued operations in
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). Pursuant to SFAS 144, however, this
presentation is not permitted until the distribution date.
The selected operating results data for the three years ended
October 31, 2007 and the financial position data at
October 31, 2007 and 2006 set forth below are derived from
the audited consolidated financial statements of Quanex
Corporation included elsewhere in this information statement.
The selected operating results data for the two years ended
October 31, 2004 and the financial position data at
October 31, 2005, 2004 and 2003 set forth below are derived
from the audited consolidated financial statements of Quanex
Corporation not included in this information statement.
The summary historical consolidated financial data is not
indicative of the results of operations or financial position
that would have occurred if Quanex Building Products had been a
separate, independent company during the periods presented, nor
is it indicative of Quanex Building Products future
performance. This historical data should be read together with
the information under Managements Discussion and
Analysis of Financial Condition and Results of Operations of
Quanex Corporation (Accounting Predecessor to Quanex Building
Products Corporation) and Quanex Corporations
consolidated financial statements and related notes included
elsewhere in this information statement.
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005(1)(2)
|
|
|
2004(1)
|
|
|
2003(1)
|
|
|
|
(Thousands, except per share data)
|
|
|
Selected Operating Results Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,049,021
|
|
|
$
|
2,032,572
|
|
|
$
|
1,969,007
|
|
|
$
|
1,437,897
|
|
|
$
|
878,409
|
|
Operating income(3)
|
|
|
202,940
|
|
|
|
251,394
|
|
|
|
292,775
|
|
|
|
98,997
|
|
|
|
64,887
|
|
Income from continuing operations(4)
|
|
|
134,622
|
|
|
|
160,313
|
|
|
|
177,233
|
|
|
|
57,428
|
|
|
|
43,646
|
|
Income (loss) from discontinued operations, net of tax(5)
|
|
|
|
|
|
|
(130
|
)
|
|
|
(22,073
|
)
|
|
|
(2,961
|
)
|
|
|
(759
|
)
|
Net income(3)(4)(5)
|
|
$
|
134,622
|
|
|
$
|
160,183
|
|
|
$
|
155,160
|
|
|
$
|
54,467
|
|
|
$
|
42,887
|
|
Percent of net sales
|
|
|
6.6
|
%
|
|
|
7.9
|
%
|
|
|
7.9
|
%
|
|
|
3.8
|
%
|
|
|
4.9
|
%
|
Diluted Earnings Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
3.41
|
|
|
$
|
4.09
|
|
|
$
|
4.50
|
|
|
$
|
1.53
|
|
|
$
|
1.18
|
|
Net income
|
|
$
|
3.41
|
|
|
$
|
4.08
|
|
|
$
|
3.95
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Cash dividends declared
|
|
$
|
0.5600
|
|
|
$
|
0.4833
|
|
|
$
|
0.3733
|
|
|
$
|
0.3111
|
|
|
$
|
0.2978
|
|
Financial Position Data Year End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,334,822
|
|
|
$
|
1,202,152
|
|
|
$
|
1,114,778
|
|
|
$
|
940,054
|
|
|
$
|
697,211
|
|
Total debt
|
|
$
|
129,015
|
|
|
$
|
133,401
|
|
|
$
|
135,921
|
|
|
$
|
128,926
|
|
|
$
|
17,542
|
|
Stockholders equity
|
|
|
883,149
|
|
|
|
758,515
|
|
|
|
656,742
|
|
|
|
500,707
|
|
|
|
445,159
|
|
|
|
|
(1) |
|
During the fourth quarter of 2005, Quanex Corporation committed
to a plan to sell its Temroc business. In the first quarter of
2005, Quanex Corporation sold its Piper Impact business and in
the fourth quarter of 2004 sold its Nichols Aluminum
Golden business. Accordingly, the assets and liabilities of
Temroc, Piper Impact and Nichols Aluminum Golden are
reported as discontinued operations in the Consolidated Balance
Sheets for all periods presented, and their operating results
are reported as discontinued operations in the Consolidated
Statements of Income for all periods presented. |
|
(2) |
|
In December 2004, Quanex Corporation acquired Mikron and
accounted for the acquisition under the purchase method of
accounting. Accordingly, Mikrons estimated fair value of
assets acquired and liabilities assumed in the acquisition and
the results of operations are included in Quanex
Corporations consolidated financial statements as of the
effective date of the acquisition. |
|
(3) |
|
Included in operating income are gains on sale of land of
$0.5 million and $0.4 million in fiscal 2004 and 2003,
respectively. |
|
(4) |
|
Fiscal 2003 include gains associated with retired executive life
insurance proceeds of $2.2 million. This represents the
excess of life insurance proceeds over (a) the cash
surrender value and (b) liabilities to beneficiaries of
deceased executives, on whom Quanex Corporation held life
insurance policies. |
|
(5) |
|
Includes effects in fiscal 2005 of Temrocs
$13.1 million (pretax and after-tax) asset impairment
charge in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), and SFAS 144. |
10
RISK
FACTORS
You should carefully consider each of the following risks and
all of the other information set forth in this information
statement. The following risks relate principally to our
business, our leverage, our relationship with Quanex Corporation
and our being a separate publicly-traded company, as well as
risks related to the nature of the spin-off transaction itself.
The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently believe to be
immaterial may also adversely affect our business. If any of the
following risks and uncertainties develop into actual events,
this could have a material adverse effect on our business,
financial condition or results of operations. In that case, the
trading price of our common stock could decline.
Risks
Related to Our Common Stock and the Distribution
There
is no existing market for our common stock and a trading market
that will provide you with adequate liquidity may not develop
for the common stock, and you could lose all or part of your
investment.
Prior to the distribution, there has been no public market for
our common stock. However, we expect that our common stock will
commence trading on the NYSE on a when-issued basis shortly
before the record and distribution date. On the first trading
day following the distribution date, when-issued trading in
respect of the common stock will end and regular way trading
will begin. We cannot predict the extent to which investor
interest will lead to the development of an active and liquid
trading market in our common stock on the NYSE or otherwise. If
an active trading market does not develop, you may have
difficulty selling any of your shares of common stock or
receiving a price when you sell your shares of common stock that
will be favorable.
Substantial
sales of our common stock following the distribution and the
Quanex Building Products merger may have an adverse impact on
the trading price of our common stock.
Based on the number of shares of Quanex Corporation common stock
outstanding
on ,
2008, Quanex Corporation expects that under the United States
federal securities laws, all of these shares will be eligible
for resale immediately in the public market, except for shares
held by our affiliates.
Some of the Quanex Corporation stockholders who receive our
shares of common stock may decide that their investment
objectives do not include ownership of shares in us, and may
sell their shares of common stock following the distribution and
the Quanex Building Products merger. In particular, certain
Quanex Corporation stockholders that are institutional investors
have investment parameters that depend on their portfolio
companies maintaining a minimum market capitalization that we
may not achieve as a result of the separation from Quanex
Corporations vehicular products segment and non-building
products related corporate items. We cannot predict whether
stockholders will resell large numbers of our shares of common
stock in the public market following the distribution and the
Quanex Building Products merger or how quickly they may sell
these shares. If our stockholders sell large numbers of our
shares of common stock over a short period of time, or if
investors anticipate large sales of our shares of common stock
over a short period of time, this could adversely affect the
trading price of our shares of common stock.
We
have no operating history as a separate company and our
historical and pro forma consolidated financial information is
not necessarily representative of the results we would have
achieved as a separate publicly-traded company and may not be a
reliable indicator of our future results.
We are being spun-off from Quanex Corporation, our parent
company, and, therefore, we have no operating history as a
separate public company. The historical and pro forma
consolidated financial information included in this information
statement does not reflect the financial condition, results of
operations or cash flows we would have achieved as a separate
publicly-traded company during the periods presented or those we
will achieve in the future. This is primarily a result of the
following factors:
|
|
|
|
|
Our pro forma consolidated financial results reflect building
products related corporate expenses of Quanex Corporation. Those
building products corporate expenses may be less than the
comparable expenses we would have incurred had we operated as a
separate publicly-traded company.
|
11
|
|
|
|
|
Our pro forma consolidated financial results are based on
certain assumptions regarding the true-ups.
Depending on the stock price used to settle the
true-up items, we could incur liabilities
substantially different than those presented in the pro forma
balance sheet. For example, an average increase of $3.00 in
the stock price would result in a $63 million increase in
the true-ups to be paid by us.
|
|
|
|
|
|
Significant changes may occur in our cost structure, management,
financing and business operations as a result of our operating
as a company separate from Quanex Corporation. These changes may
result in increased costs associated with reduced economies of
scale, stand-alone costs for services currently provided by
Quanex Corporation, the need for additional personnel to perform
services currently provided by Quanex Corporation and the legal,
accounting, compliance and other costs associated with being a
public company with equity securities listed on a national stock
exchange.
|
We
have the ability to issue additional equity securities, which
would lead to dilution of our issued and outstanding common
stock.
The issuance of additional equity securities or securities
convertible into equity securities would result in dilution of
existing stockholders equity interests in us. We are
authorized to issue, without stockholder approval,
1,000,000 shares of preferred stock, no par value, in one
or more series, which may give other stockholders dividend,
conversion, voting, and liquidation rights, among other rights,
which may be superior to the rights of holders of our common
stock. Our board of directors has no present intention of
issuing any such preferred shares, but reserves the right to do
so in the future. In addition, we are authorized, by prior
stockholder approval, to issue up to 125,000,000 shares of
common stock, $0.01 par value per share. We are authorized
to issue, without stockholder approval, securities convertible
into either common stock or preferred stock.
Our
corporate governance documents as well as Delaware law may delay
or prevent an acquisition of us that stockholders may consider
favorable, which could decrease the value of your
shares.
Our certificate of incorporation and bylaws and Delaware law
contain provisions that could make it more difficult for a third
party to acquire us without the consent of our board of
directors. These provisions include restrictions on the ability
of our stockholders to remove directors and supermajority voting
requirements for stockholders to amend our organizational
documents, a classified board of directors and limitations on
action by our stockholders by written consent. In addition, our
board of directors has the right to issue preferred stock
without stockholder approval, which could be used to dilute the
stock ownership of a potential hostile acquirer. Delaware law
also imposes some restrictions on mergers and other business
combinations between any holder of 15% or more of our
outstanding common stock and us. Although we believe these
provisions protect our stockholders from coercive or otherwise
unfair takeover tactics and thereby provide for an opportunity
to receive a higher bid by requiring potential acquirers to
negotiate with our board of directors, these provisions apply
even if the offer may be considered beneficial by some
stockholders. See Description of Our Capital Stock.
Risks
Related to Our Business
If our
raw materials or energy were to become unavailable or to
significantly increase in price, we might not be able to timely
produce products for our customers or maintain our profit
levels.
We require substantial amounts of raw materials, substantially
all of which are purchased from outside sources. We do not have
long-term contracts for the supply of most of our raw materials.
The availability and prices of raw materials may be subject to
curtailment or change due to new laws or regulations,
suppliers allocations to other purchasers or interruptions
in production by suppliers. In addition, the operation of our
facilities requires substantial amounts of electric power and
natural gas. Any change in the supply of, or price for, these
raw materials could affect our ability to timely produce
products for our customers.
12
Portions
of our business are generally cyclical in nature. Fewer housing
starts, reduced remodeling expenditures or weaknesses in the
economy could significantly reduce our revenue, net earnings and
cash flow.
Demand for our products is cyclical in nature and sensitive to
general economic conditions. Our business supports cyclical
industries such as the building and construction industries.
The primary drivers of our business are housing starts and
remodeling expenditures. The building and construction industry
is cyclical and seasonal, and product demand is based on
numerous factors such as interest rates, general economic
conditions, consumer confidence and other factors beyond our
control. Declines in housing starts and remodeling expenditures
due to such factors could have a material adverse effect on our
business, results of operations and financial condition. The
recent downturn in the housing market has had an adverse effect
on the operating results of our building products business.
Further deterioration in industry conditions or in the broader
economic conditions of the markets where we operate could
further decrease demand and pricing for our products and have
additional adverse effects on our operations and financial
results.
We are
subject to various environmental requirements, and compliance
with, or liabilities under, existing or future environmental
laws and regulations could significantly increase our costs of
doing business.
We are subject to extensive federal, state and local laws and
regulations concerning the discharge of materials into the
environment and the remediation of chemical contamination. To
satisfy such requirements, we must make capital and other
expenditures on an ongoing basis. For example, environmental
agencies continue to develop regulations implementing the
Federal Clean Air Act. Depending on the nature of the
regulations adopted, we may be required to incur additional
capital and other expenditures in the next several years for air
pollution control equipment, to maintain or obtain operating
permits and approvals, and to address other air emission-related
issues. Future expenditures relating to environmental matters
will necessarily depend upon the application to us and our
facilities of future regulations and government decisions. It is
likely that we will be subject to increasingly stringent
environmental standards and the additional expenditures related
to compliance with such standards. Furthermore, if we fail to
comply with applicable environmental regulations, we could be
subject to substantial fines or penalties and to civil and
criminal liability.
We may
not be able to successfully identify, manage or integrate future
acquisitions, and if we are unable to do so, our rate of growth
and profitability could be adversely affected.
We cannot provide any assurance that we will be able to identify
appropriate acquisition candidates or, if we do, that we will be
able to successfully negotiate the terms of an acquisition,
finance the acquisition or integrate the acquired business
effectively and profitably into our existing operations.
Integration of future acquired businesses could disrupt our
business by diverting managements attention away from
day-to-day operations. Further, failure to successfully
integrate any acquisition may cause significant operating
inefficiencies and could adversely affect our profitability.
Consummating an acquisition could require us to raise additional
funds through additional equity or debt financing. Additional
equity financing could depress the market price of our common
stock.
We
operate in competitive markets, and our business will suffer if
we are unable to adequately address potential downward pricing
pressures and other factors that may reduce our operating
margins.
The principal markets that we serve are highly competitive.
Competition is based primarily on the precision and range of
achievable tolerances, quality, price and the ability to meet
delivery schedules dictated by customers. Our competition in the
markets in which we participate comes from companies of various
sizes, some of which have greater financial and other resources
than we do and some of which have more established brand names
in the markets we serve. Any of these competitors may foresee
the course of market development more accurately than we do,
develop products that are superior to our products, have the
ability to produce similar products at a lower cost than we can,
or adapt more quickly than us to new technologies or
13
evolving customer requirements. Increased competition could
force us to lower our prices or to offer additional services at
a higher cost to us, which could reduce our gross profit and net
income.
OEMs
have significant pricing leverage over suppliers and may be able
to achieve price reductions over time, which will reduce our
profits.
Our products are sold primarily to OEMs, and to a much lesser
extent, sold through distributors. There is substantial and
continuing pressure from OEMs in all industries to reduce the
prices they pay to suppliers. We attempt to manage such downward
pricing pressure, while trying to preserve our business
relationships with our OEM customers, by seeking to reduce our
production costs through various measures, including purchasing
raw materials and components at lower prices and implementing
cost- effective process improvements. However, our suppliers may
resist pressure to lower our prices and may seek to impose price
increases. If we are unable to offset OEM price reductions
through these measures, our gross margins and profitability
could be adversely affected. In addition, OEMs have substantial
leverage in setting purchasing and payment terms, including the
terms of accelerated payment programs under which payments are
made prior to the account due date in return for an early
payment discount.
We
could lose customers and the related revenues due to the
transfer of manufacturing capacity by our customers out of the
United States to lower cost regions of the world.
Manufacturing activity in the United States has been on the
decline over the past several years. One of the reasons for this
decline is the migration by U.S. manufacturers to other
regions of the world that offer lower cost labor forces. The
combined effect is that U.S. manufacturers can reduce
product costs by manufacturing and assembling in other regions
of the world and then importing those products to the United
States. Some of our customers have shifted production to other
regions of the world and there can be no assurance that this
trend will not continue. We may lose customers and revenues if
our customers locate in areas that we choose not to serve or
cannot economically serve.
If our
relationship with our employees were to deteriorate, we could be
faced with labor shortages, disruptions or stoppages, which
could shut down certain of our operations, reducing our revenue,
net earnings, and cash flows.
Our operations rely heavily on our employees, and any labor
shortage, disruption or stoppage caused by poor relations with
our employees
and/or
renegotiation of labor contracts could shut down certain of our
operations. Approximately 23% of our employees are covered by
collective bargaining agreements which expire between 2009 and
2011. It is possible that we could become subject to additional
work rules imposed by agreements with labor unions, or that work
stoppages or other labor disturbances could occur in the future,
any of which could impact financial results. Similarly, any
failure to negotiate a new labor agreement when required might
result in a work stoppage that could reduce our operating
margins and income.
Equipment
failures, delays in deliveries or catastrophic loss at any of
our manufacturing facilities could lead to production
curtailments or shutdowns that prevent us from producing our
products.
An interruption in production capabilities at any of our
facilities as a result of equipment failure or other reasons
could result in our inability to produce our products, which
would reduce our sales and earnings for the affected period. In
addition, we generally manufacture our products only after
receiving the order from the customer and thus do not hold large
inventories. If there is a stoppage in production at any of our
manufacturing facilities, even if only temporarily, or if we
experience delays as a result of events that are beyond our
control, delivery times could be severely affected. Any
significant delay in deliveries to our customers could lead to
increased returns or cancellations and cause us to lose future
sales. Our manufacturing facilities are also subject to the risk
of catastrophic loss due to unanticipated events such as fires,
explosions or violent weather conditions. We have in the past
and may in the future experience plant shutdowns or periods of
reduced production as a result of equipment failure, delays in
deliveries or catastrophic loss, which could have a material
adverse effect on our results of operations or financial
condition. We may not have adequate insurance to compensate us
for all losses that result from any of these events.
14
Our
business involves complex manufacturing processes that may
result in costly accidents or other disruptions of our
operations.
Our business involves complex manufacturing processes. Some of
these processes involve high pressures, temperatures, hot metal
and other hazards that present certain safety risks to workers
employed at our manufacturing facilities. The potential exists
for accidents involving death or serious injury. The potential
liability resulting from any such accident, to the extent not
covered by insurance, could cause us to incur unexpected cash
expenditures, thereby reducing the cash available to us to
operate our business. Such an accident could disrupt operations
at any of our facilities, which could adversely affect our
ability to deliver product to our customers on a timely basis
and to retain our current business.
Our
new credit facility is expected to contain restrictions on our
ability to implement our acquisition program.
Our new credit facility is expected to contain restrictions on
our ability to enter into acquisitions, including
|
|
|
|
|
we will need to comply with all terms and conditions of the
credit facility on a pro forma basis based on the combined
operating results of the acquisition target and us;
|
|
|
|
|
|
if our leverage ratio is greater than 2.50x, acquisitions will
be limited to 15% of our net worth per transaction; and
|
|
|
|
|
|
we will be restricted from incurring additional indebtedness.
|
The above restrictions may impede our ability to carry out an
active acquisition program, which is an important component of
our future growth strategy. Our failure to comply with the
terms and covenants in our credit facility could lead to a
default under the terms of those documents, which would entitle
the lenders to accelerate the indebtedness and declare all
amounts owed due and payable.
Our
success depends upon our ability to develop new products and
services, integrate acquired products and services and enhance
our existing products and services through product development
initiatives and technological advances.
We have continuing programs designed to develop new products and
to enhance and improve our products. We are expending resources
for the development of new products in all aspects of our
business. Some of these new products must be developed due to
changes in legislative, regulatory or industry requirements or
in competitive technologies that render certain of our products
obsolete or less competitive. The successful development of our
products and product enhancements are subject to numerous risks,
both known and unknown, including unanticipated delays, access
to significant capital, budget overruns, technical problems and
other difficulties that could result in the abandonment or
substantial change in the design, development and
commercialization of these new products.
Given the uncertainties inherent with product development and
introduction, including lack of market acceptance, we cannot
provide assurance that any of our product development efforts
will be successful on a timely basis or within budget, if at
all. Failure to develop new products and product enhancements on
a timely basis or within budget could harm our business and
prospects. In addition, we may not be able to achieve the
technological advances necessary for us to remain competitive.
Our
goodwill and indefinite-lived intangible assets may become
impaired and result in a charge to income.
Our management must use their judgement in making estimates of
future operating results and appropriate residual values to
allocate the purchase price paid for acquisitions to the fair
value of the net tangible and identifiable intangible assets.
Future operating results and residual values could reasonably
differ from the estimates and could require a provision for
impairment in a future period which would result in a charge to
income from operations in the year of the impairment with a
resulting decrease in our recorded net worth.
15
We may
not be able to protect our intellectual property.
A significant amount of time, effort and expense is devoted to
custom engineering which qualifies our products for specific
customer applications and developing superior, proprietary
process technology. We rely on a combination of copyright,
patent, trade secrets, confidentiality procedures and
contractual commitments to protect our proprietary information.
Despite our efforts, these measures can only provide limited
protection. Unauthorized third parties may try to copy or
reverse engineer portions of our products or otherwise obtain
and use our intellectual property. Any patents we own may be
invalidated, circumvented or challenged. Any of our pending or
future patent applications, whether or not being currently
challenged, may not be issued with the scope of the claims we
seek, if at all. If we cannot protect our proprietary
information against unauthorized use, we may not remain
competitive, which would have a material adverse effect on our
results of operations.
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this information
statement, including the sections entitled Summary,
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and Business, that are based on our
managements beliefs and assumptions and on information
currently available to our management. Forward-looking
statements include, but are not limited to, the information
concerning our possible or assumed future results of operations,
business strategies, financing plans, competitive position,
potential growth opportunities, potential operating performance
improvements, benefits resulting from our spin-off from Quanex
Corporation, the effects of competition and the effects of
future legislation or regulations. Forward-looking statements
include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the
words believe, expect, plan,
intend, anticipate,
estimate, predict,
potential, continue, may,
will, should or the negative of these
terms or similar expressions.
Forward-looking statements involve risks, uncertainties and
assumptions. Actual results may differ materially from those
expressed in these forward-looking statements. The risk factors
discussed in Risk Factors beginning on page 11
set forth many of the risks and uncertainties that may cause
actual results to differ from those expressed in the forward
looking statements. There may be other risks and uncertainties
that could have a similar impact. Therefore, you should not put
undue reliance on any forward-looking statements. We do not have
any intention or obligation to update forward-looking statements
after we distribute this information statement.
16
THE
DISTRIBUTION
Background
of the Spin-Off
Since early 2006 the management and Board of Directors of Quanex
Corporation had been debating and exploring the merits of
alternative strategies involving the company, including the
separation of its Building Products Group from its Vehicular
Products Group. Ultimately, management and the Board of
Directors determined that each Group would be better positioned
to grow separate from each other and would receive a better
valuation in the marketplace and, as a result, would deliver
enhanced value to stockholders.
In July 2006, Quanex began active discussions with its financial
and legal advisors regarding a potential tax free spin-off of
the Building Products Group as an initial step towards
delivering value to stockholders, given Quanexs relatively
low market valuation compared to other public companies active
in the building products sector. At a meeting of the Quanex
Board of Directors held in October 2006, representatives of
Lazard Fréres & Co. (Lazard),
Quanexs financial advisor, presented several scenarios to
the Board for realizing the potential values of the Building
Products Group and the Vehicular Products Group as two separate
companies. A reverse Morris trust transaction was introduced as
an alternative method to achieve a tax free separation of the
two Groups.
In October 2006, a potential candidate was identified for a
reverse Morris trust transaction involving Quanexs
Building Products Group given the companys size and
business composition. From October 2006 through February 2007,
Quanex and management of this company exchanged high-level
business and financial information and held numerous discussions
regarding the potential merits of a reverse Morris trust
transaction. At a Quanex Board of Directors meeting held in
February 2007, this transaction was presented to the Board and a
special committee of the Board was formed to monitor the
progress of the potential transaction. During March 2007 and
April 2007, the two companies conducted formal due diligence,
including numerous site visits, management presentations and the
negotiation of merger terms. Quanex and this company, however,
were unable to reach agreement on certain key issues and
negotiations were ultimately terminated.
On May 4, 2007, Quanexs Board of Directors met with Lazard
to review Quanexs strategic alternatives. At that meeting,
it was concluded that the value of the Vehicular Products Group
would be enhanced under an alternative growth strategy that
might be best achieved through a strategic combination with a
larger, more diversified steel company. Given that such a
strategy was unlikely to include a combination of the Vehicular
Products Group and the Building Products Group, the Board of
Directors approved senior managements formally exploring
separation alternatives for the Building Products Group,
including the potential sale or spin-off of the division.
On May 16, 2007, Quanex publicly announced the strategic review
of the Building Products Group. Lazard commenced a sale process
for the Building Products Group on May 17, 2007. In total, 72
prospective buyers were contacted (of which 19 were potential
strategic buyers and 53 were potential financial buyers), 36
confidentiality agreements were signed and 36 confidential
information memoranda were distributed. On July 11, 2007, 11
preliminary indications of interest were received from
prospective financial buyers for the Building Products Group.
On July 14, 2007, Quanexs Board met with Lazard and
approved five parties to be invited to conduct detailed due
diligence on the Building Products Group, to include site
visits, management presentations and access to an electronic
data room. At this meeting the Board of Directors also gave
Lazard approval to begin contacting a targeted list of potential
strategic buyers for the Vehicular Products Group to solicit
preliminary indications of interest. Lazard contacted 19
potential strategic buyers regarding the Vehicular Products
Group, from which eight confidentiality agreements wer