LMI Aerospace, Inc.
LMI AEROSPACE INC (Form: PREM14A, Received: 03/15/2017 09:13:09)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant ☒                               Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-12

 

LMI AEROSPACE, INC.

(Name of Registrant as Specified In Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.
   
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:

 

common stock, par value $0.02 per share

     
  (2)

Aggregate number of securities to which transaction applies: 

As of March 14, 2017, (A) 13,290,658 shares of common stock issued and outstanding, (B) 413,738 shares of common stock underlying outstanding awards of restricted shares, and (C) 28,337 shares of common stock underlying outstanding awards of restricted stock units.

     
  (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):

 

Solely for the purposes of calculating the filing fee, the maximum aggregate value was determined based upon the sum of: (A) 13,290,658 shares of common stock multiplied by $14.00 per share; (B) 413,738 shares of common stock underlying outstanding awards of restricted shares multiplied by $14.00 per share and (C) 28,337 shares of common stock underlying restricted stock units multiplied by $14.00 per share. In accordance with Exchange Act Rule 0-11, as amended, the filing fee was determined by multiplying the sum calculated in the preceding sentence by 0.0001159.

     
  (4)

Proposed maximum aggregate value of transaction:

 

$192,258,262

     
  (5)

Total fee paid:

 

$22,283

 

Fee paid previously with preliminary materials.
   
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.:

 

     
  (3)

Filing Party:

 

     
  (4)

Date Filed:

 

 

 

 

 

 

Preliminary Proxy Statement — Subject to Completion, Dated March 15, 2017

 

LMI AEROSPACE, INC.

 

[●], 2017

 

To the Shareholders of LMI Aerospace, Inc.:

 

You are cordially invited to attend a special meeting of shareholders, which we refer to as the “ Special Meeting, ” of LMI Aerospace, Inc., a Missouri corporation, which we refer to as “ LMI ,” the “ Company ,” “ we ,” “ us ,” or “ our ,” to be held on [●], 2017, at [●], Central time, at our principal executive offices at 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

At the Special Meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, which we refer to as the “ Merger Agreement ,” dated as of February 16, 2017, by and among LMI, Sonaca S.A., a limited liability company validly existing under the laws of Belgium, which we refer to as “ Sonaca ” or “ Parent ,” Sonaca USA Inc., a Delaware corporation and direct wholly-owned subsidiary of Parent, which we refer to as “ Intermediate Co ,” and Luminance Merger Sub, Inc., a Missouri corporation and indirect wholly-owned subsidiary of Parent, which we refer to as “ Sub ,” and approve the Merger (as defined below) and the other transactions contemplated by the Merger Agreement. Pursuant to the terms of the Merger Agreement, Sub will merge with and into LMI, which we refer to as the “ Merger ,” and LMI will be the surviving corporation in the Merger and will become an indirect wholly-owned subsidiary of Parent. At the Special Meeting, you will also be asked to consider and vote on a non-binding, advisory proposal to approve certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

If the Merger is completed, you will be entitled to receive $14.00 in cash, without interest and less any applicable withholding taxes, for each share of common stock of LMI that you own (unless you have properly exercised and perfected your appraisal rights), which represents a premium of approximately (i) 52% over LMI’s closing share price on February 16, 2017, the last trading day prior to the date the Merger Agreement was publicly announced, (ii) 63% over LMI’s three-month volume weighted average price up to and including February 16, 2017, and (iii) 78% over LMI’s sixth-month volume weighted average price up to and including February 16, 2017.

 

The Board of Directors of LMI, which we refer to as the “ Board of Directors ,” other than Daniel G. Korte, a member of our Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction discussed in more detail in the enclosed proxy statement, after considering the factors more fully described in the enclosed proxy statement, has unanimously (1) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated thereby are fair to and in the best interests of LMI and its shareholders; (2) approved and declared advisable the Merger Agreement and the consummation by LMI of the Merger and the other transactions contemplated thereby; (3) directed that the Merger Agreement be submitted to the shareholders of LMI for adoption; and (4) resolved to recommend that LMI shareholders vote in favor of the adoption of the Merger Agreement and approve the Merger and the other transactions contemplated thereby. The Board of Directors, with Mr. Korte abstaining, recommends that you vote (1) “FOR” the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

 

 

The enclosed proxy statement provides detailed information about the Special Meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement. The proxy statement also describes the actions and determinations of the Board of Directors in connection with its evaluation of the Merger Agreement and the Merger. We encourage you to read the proxy statement and its annexes, including the Merger Agreement, carefully and in their entirety, as they contain important information.

 

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted.

 

If you hold your shares in “street name,” you should instruct your broker, bank, trustee or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your broker, bank, trustee or other nominee. Your broker, bank, trustee or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, without your instructions.

 

Your vote is very important, regardless of the number of shares that you own. We cannot complete the Merger unless the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby is approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock of LMI as of [●], the record date for the Special Meeting. Please note that any abstention or other failure to vote your shares of common stock will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and to approve the Merger and the other transactions contemplated thereby.

 

If you have any questions or need assistance voting your shares, please contact our Proxy Solicitor:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York 10022

Shareholders may call toll free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

 

 

 

On behalf of the Board of Directors, I thank you for your support and appreciate your consideration of this matter.

 

  Sincerely,
   
/s/ Gerald E. Daniels /s/ Daniel G. Korte
   
Gerald E. Daniels Daniel G. Korte
Chairman of the Board President and Chief Executive Officer

 

The accompanying proxy statement is dated [●], 2017 and, together with the enclosed form of proxy card, is first being mailed to shareholders of LMI on or about [●], 2017.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Merger, passed upon the merits or fairness of the Merger Agreement or the transactions contemplated thereby, including the proposed Merger, or passed upon the adequacy or accuracy of the information contained in the accompanying proxy statement. Any representation to the contrary is a criminal offense.

 

 

 

LMI AEROSPACE, INC.

 

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held [●], 2017

 

 

 

Notice is hereby given that a special meeting of shareholders, which we refer to as the “ Special Meeting ,” of LMI Aerospace, Inc., a Missouri corporation, which we refer to as “ LMI ,” the “ Company ,” “ we ,” “ us ,” or “ our ,” will be held on [●], 2017, at [●], Central time, at our principal executive offices at 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

1.        Adoption of the Merger Agreement and approval of the Merger. To consider and vote on the proposal to adopt the Agreement and Plan of Merger, which we refer to as the “ Merger Agreement ,” dated as of February 16, 2017, by and among LMI, Sonaca S.A., a limited liability company validly existing under the laws of Belgium, which we refer to as “ Sonaca ” or “ Parent ,” Sonaca USA Inc., a Delaware corporation and direct wholly-owned subsidiary of Parent, which we refer to as “ Intermediate Co ,” and Luminance Merger Sub, Inc., a Missouri corporation and indirect wholly-owned subsidiary of Parent, which we refer to as “ Sub ,” and approve the Merger (as defined below) and the other transactions contemplated by the Merger Agreement. Pursuant to the terms of the Merger Agreement, Sub will merge with and into LMI, which we refer to as the “ Merger ,” and LMI will be the surviving corporation in the Merger and become an indirect wholly-owned subsidiary of Parent;

 

2.        Adjournment or Postponement of the Special Meeting. To consider and vote on any proposal to adjourn the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting;

 

3.        Advisory Vote Regarding Merger-Related Compensation. To consider and approve, on a nonbinding, advisory basis, the compensation that will or may become payable to LMI’s named executive officers that is based on or otherwise relates to adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; and

 

4.        Any Other Business. To transact any other business that may properly come before the Special Meeting or any adjournment, postponement or other delay of the Special Meeting.

 

Only shareholders of record as of the close of business on [●], 2017 are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.

 

 

 

The Board of Directors of LMI, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction discussed in more detail in the enclosed proxy statement, unanimously recommends that you vote (1) “FOR” the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone.

 

If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. If you hold your shares in “street name,” you should instruct your broker, bank, trustee or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your broker, bank, trustee or other nominee. Your broker, bank, trustee or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, without your instructions.

 

By the Order of the Board of Directors,  
   
/s/ Gerald E. Daniels /s/ Daniel G. Korte
   
Gerald E. Daniels Daniel G. Korte
Chairman of the Board President and Chief Executive Officer

  

Dated: [●], 2017

 

 

 

YOUR VOTE IS IMPORTANT

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (1) BY TELEPHONE; (2) THROUGH THE INTERNET; OR (3) BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. IF YOU ARE A SHAREHOLDER OF RECORD, YOU MAY REVOKE YOUR PROXY OR CHANGE YOUR VOTE AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.

 

If you hold your shares in “street name,” you should instruct your broker, bank, trustee or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your broker, bank, trustee or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, without your instructions.

 

If you are a shareholder of record, voting in person by ballot at the Special Meeting will revoke any proxy that you previously submitted. If you hold your shares through a broker, bank, trustee or other nominee, you must obtain a “legal proxy” in order to vote in person at the Special Meeting.

 

If you (1) fail to return your proxy card; (2) fail to grant your proxy electronically over the internet or by telephone; or (3) fail to attend the Special Meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and, if a quorum is present, will have the same effect as a vote “ AGAINST ” the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, but will have no effect on the other two proposals.

 

We encourage you to read the accompanying proxy statement and its annexes, including all documents incorporated by reference into the accompanying proxy statement, carefully and in their entirety. If you have any questions concerning the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of our common stock, please contact our Proxy Solicitor:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York 10022

Shareholders may call toll free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

 

 

 

TABLE OF CONTENTS

 

  Page
   
SUMMARY 1
Parties Involved in the Merger 1
The Merger and the Merger Consideration 2
Treatment of Restricted Shares and Restricted Stock Units 3
Conditions to Completion of the Merger 4
Financing of the Merger 6
Governmental and Regulatory Approvals 7
Recommendation of LMI’s Board of Directors and Reasons for the Merger 7
Opinion of Lazard, Frères & Co. LLC 8
Interests of LMI’s Directors and Executive Officers in the Merger 9
Appraisal Rights 9
Go-Shop; Acquisition Proposals; Change in Recommendation 10
Termination of the Merger Agreement 13
Break-Up Fees 15
Fees Payable by LMI 15
The Special Meeting of LMI Shareholders 16
Effect on LMI if the Merger is Not Completed 19
Accounting Treatment 19
Material U.S. Federal Income Tax Consequences of the Merger 19
When the Merger is Expected to be Completed 20
Delisting and Deregistration of LMI Common Stock 20
Litigation Related to the Merger 20
Additional Information 20
   
QUESTIONS AND ANSWERS 21
   
PARTIES INVOLVED IN THE MERGER 34
LMI Aerospace, Inc. 34
Sonaca S.A . 34
Sonaca USA Inc. 34
Luminance Merger Sub, Inc . 35
   
THE SPECIAL MEETING 36
Date, Time and Place of the Special Meeting 36
Purpose of the Special Meeting 36
Record Date; Shares Entitled to Vote; Quorum 36
Vote Required; Abstentions and Broker Non-Votes 37
Shares Held by LMI’s Directors and Executive Officers 37
Voting of Proxies 37
Revocability of Proxies 39
Recommendation of LMI’s Board of Directors 39
Adjournments and Postponements 40
Solicitation of Proxies 40

 

i

 

 

TABLE OF CONTENTS
(continued)

 

  Page
   
Appraisal Rights 40
Other Matters 41
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on [●], 2017 41
Questions and Additional Information 41
   
PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY 42
   
THE MERGER 43
Parties Involved in the Merger 43
Effect of the Merger 44
Effect on LMI if the Merger is Not Completed 44
Merger Consideration 45
Background of the Merger 46
Recommendation of the Board of Directors and Reasons for the Merger 63
Opinion of Lazard Frères & Co. LLC 68
Management Projections 77
Financing of the Merger 83
Treatment of Restricted Shares and Restricted Stock Units 85
Interests of LMI’s Directors and Executive Officers in the Merger 85
Closing and Effective Time of the Merger 90
Delisting and Deregistration of LMI Common Stock 91
Appraisal Rights 91
Accounting Treatment 93
Material U.S. Federal Income Tax Consequences of the Merger 94
Governmental and Regulatory Approvals 97
Litigation Related to the Merger 99
   
THE MERGER AGREEMENT 100
Explanatory Note Regarding the Merger Agreement 100
Form and Effects of the Merger; Directors and Officers; Articles of Incorporation and Bylaws 101
Closing and Effective Time of the Merger 101
Merger Consideration 102
Exchange and Payment Procedures 103
Representations and Warranties 104
Material Adverse Effect Definition 106
Conduct of Business Pending the Merger 107
Go Shop; Acquisition Proposals; Change of Recommendation 110
Obligations with Respect to Proxy Statement 114
Financing 114
Employee Matters 116

 

ii

 

 

TABLE OF CONTENTS
(continued)

 

  Page
   
Director and Officer Indemnification 117
Directors’ and Officers’ Insurance 118
Other Covenants 118
Conditions to Completion of the Merger 121
Termination of the Merger Agreement 124
Break-Up Fees 125
Fees Payable by LMI 126
Amendment; Extension; Waiver 126
Governing Law 127
Specific Performance 127
   
PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING 128
   
PROPOSAL 3: ADVISORY, NON-BINDING VOTE TO APPROVE CERTAIN MERGER-RELATED EXECUTIVE COMPENSATION ARRANGEMENTS 129
   
MARKET PRICE OF THE COMPANY’S COMMON STOCK 130
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 131
   
FUTURE SHAREHOLDER PROPOSALS 134
   
HOUSEHOLDING 135
   
WHERE YOU CAN FIND MORE INFORMATION 136
   
MISCELLANEOUS 138

 

Annexes      
       
Annex A  –  Agreement and Plan of Merger A-1
Annex B Opinion of Lazard Frères & Co. B-1
Annex C Section 351.455 of the General and Business Corporation Law of Missouri C-1

 

iii

 

 

SUMMARY

 

This summary highlights selected information from this proxy statement related to the merger of Luminance Merger Sub, Inc., an indirect wholly-owned subsidiary of Sonaca S.A., and a direct wholly-owned subsidiary of Sonaca USA Inc. with and into LMI Aerospace, Inc., with LMI Aerospace, Inc. surviving as the indirect wholly-owned subsidiary of Sonaca S.A., which we refer to as the “ Merger ,” and may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms of the Merger, you should carefully read this entire proxy statement, the annexes to this proxy statement and the documents that we refer to in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the section of this proxy statement captioned “Where You Can Find More Information.” The Merger Agreement is attached as Annex A to this proxy statement. We encourage you to read the Merger Agreement, which is the legal document that governs the Merger, carefully and in its entirety.

 

Except as otherwise specifically noted in this proxy statement, “ LMI ,” the “ Company ,” “ we ,” “ our ,” “ us ” and similar words refer to LMI Aerospace, Inc., including, in certain cases, our subsidiaries. Throughout this proxy statement, we refer to Sonaca S.A. as “ Parent ” or “ Sonaca ,” Sonaca USA Inc. as “ Intermediate Co ,” and Luminance Merger Sub, Inc. as “ Sub .” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated as of February 16, 2017, by and among LMI, Parent, Intermediate Co and Sub, as it may be amended from time to time, as the “ Merger Agreement .”

 

Parties Involved in the Merger (Page 34)

 

LMI Aerospace, Inc.

 

LMI is a leading supplier of structural assemblies, kits and components, and design engineering services to the aerospace and defense markets. LMI provides a broad array of manufacturing capabilities, as well as engineering and value-added services to the large commercial, corporate and regional, and military aircraft markets. LMI also provides prototyping, testing and design capabilities to customers in support of new product development and in-service aircraft. LMI is a preferred supplier to aircraft original equipment manufacturers and Tier 1 aerospace suppliers. In addition to aerospace products, LMI produces components and assemblies for laser equipment used by semiconductor equipment manufacturers, electronic and electrical wire harnesses, cable assemblies, and mechanical sub-assemblies for the air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries.

 

Founded in 1948 as a manufacturer of components for the large commercial aircraft market of the aerospace industry, LMI became a publicly-held company in 1998. Historically, its business was primarily dependent on the large commercial aircraft market, specifically with one principal customer. In order to diversify its product and customer base, LMI implemented an acquisition and marketing strategy in the late 1990’s that has broadened the number of industries to which LMI sells its products and services and, within the aerospace industry, diversified its customer base to reduce its dependence on any one principal customer.

 

1  

 

 

LMI’s common stock is listed on The NASDAQ Global Market, which we refer to as “ NASDAQ ,” under the symbol “LMIA.”

 

LMI’s principal executive office is located at 411 Fountain Lakes Blvd., St. Charles, Missouri 63301, and its telephone number is (636) 946-6525.

 

Sonaca S.A.

 

Sonaca is a limited liability company validly existing under the laws of Belgium. Sonaca develops, manufactures and assembles advanced structures for civil, military and space markets. In particular, Sonaca is known for its wing movables expertise where it is regarded as one of the world leaders. Sonaca also supplies engineering services, large sheet metal elements, wing panels, composite structures, and machined components. Sonaca is headquartered in Gosselies, Belgium and has production facilities in China, Romania, Canada and Brazil. Sonaca employs over 2,500 people, including 350 engineers. For more information, visit www.sonaca.com.

 

Sonaca’s principal executive office is located at Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

Sonaca USA Inc.

 

Intermediate Co is a Delaware corporation and a direct, wholly-owned subsidiary of Sonaca. Intermediate Co was formed in September 2015 by Sonaca as a future platform for Sonaca’s United States operations and for the purpose of potentially serving as an acquisition vehicle, but it does not have, and has never had, any operations.

 

Intermediate Co’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11 .

 

Luminance Merger Sub, Inc.

 

Sub is a Missouri corporation, an indirect wholly-owned subsidiary of Sonaca and direct wholly-owned subsidiary of Intermediate Co. Sub formed on February 14, 2017 solely for the purpose of engaging in the Merger and the other transactions contemplated by the Merger Agreement. Sub has not engaged in any business activities except activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement.

 

Sub’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

The Merger and the Merger Consideration (Page 44)

 

Upon the terms and subject to the conditions of the Merger Agreement, if the Merger is completed, Sub will merge with and into LMI, and LMI will continue as the surviving corporation and as a wholly-owned indirect subsidiary of the Parent, which we refer to as the “ surviving corporation .” Upon completion of the Merger, LMI will cease to be a publicly traded company and each outstanding share of LMI common stock, par value $0.02 per share, that is issued and outstanding immediately prior to the effective time of the Merger (other than (i) any shares held by LMI or its wholly-owned subsidiaries as treasury shares or owned, directly or indirectly, by Parent, Intermediate Co or Sub, which we refer to as “ excluded shares ,” and (ii) any shares owned by shareholders who are entitled to and who have properly exercised and perfected appraisal rights under The General and Business Corporation Law of Missouri, which we refer to as the “ MGBCL ”), will be canceled, extinguished and automatically converted into the right to receive $14.00 per share, in cash, without interest and less any applicable withholding taxes, which we refer to as the “ Merger Consideration .”

 

2  

 

 

Following the completion of the Merger, you will no longer own any shares of the capital stock of the surviving corporation. You will, however, have the right to receive the Merger Consideration, but you will no longer have any other rights as a shareholder of LMI (except that shareholders who have properly exercised and perfected their appraisal rights will have the right to receive a payment for the “fair value” of their shares as determined pursuant to an appraisal proceeding as contemplated by the MGBCL, as described below in the section of this proxy statement captioned “ The Merger—Appraisal Rights ”).

 

After the Merger is completed and if your shares of our common stock are held in book-entry form, the paying agent will issue and deliver to you a check or wire transfer for your shares. If you are a shareholder of record with your shares held in certificate form, you will receive a letter of transmittal with instructions on how to send your stock certificate(s) representing your shares of our common stock to the paying agent following consummation of the Merger. The paying agent will issue and deliver to you a check or wire transfer for your shares after you comply with these instructions. Please do not send your stock certificates with your proxy card. See the section in this proxy statement captioned “ The Merger Agreement—Exchange and Payment Procedures ” for additional information.

 

If your shares are held in “street name” by your broker, bank, trustee or other nominee, you will receive instructions from your broker, bank, trust or other nominee as to how to effect the surrender of your shares held in “street name.”

 

Treatment of Restricted Shares and Restricted Stock Units (Page 85)

 

As a result of the Merger, the treatment of LMI’s equity awards that are outstanding immediately prior to the time at which the Merger will become effective will be as follows:

 

Restricted Shares

 

Each share of restricted common stock of LMI granted under LMI’s equity incentive plans or otherwise (each such share, a “ Restricted Share ”) that is outstanding immediately prior to the effective time of the Merger will be fully vested and, at the effective time of the Merger, canceled and extinguished and converted into the Merger Consideration.

 

Restricted Stock Units

 

Each restricted stock unit awarded pursuant to LMI’s equity incentive plans (each, an “ RSU ”) that is outstanding immediately prior to the effective time of the Merger will be fully vested and settled in one share of common stock of LMI and, at the effective time of the Merger, canceled and extinguished and converted into the Merger Consideration.

 

3  

 

 

Conditions to Completion of the Merger (Page 121)

 

The obligations of the Company, Parent, Intermediate Co and Sub to consummate the Merger are subject to the satisfaction or, to the extent permissible under applicable law, waiver of the following conditions at or prior to the effective time of the Merger:

 

the Merger Agreement must have been adopted by the holders of at least two-thirds of the outstanding Company common stock entitled to vote upon the Merger Agreement (the “ Shareholder Approval ”);

 

the waiting period (and any extensions thereof) applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) must have been terminated or must have expired;

 

the Committee on Foreign Investment in the United States (“ CFIUS ”) must have provided confirmation that the U.S. President will not exercise his authority to interfere with the Merger pursuant to Section 721 of the Defense Production Act;

 

60 days must have passed since LMI notified the Directorate of Defense Trade Controls (the “ DDTC ”) of the expected consummation of the Merger and the DDTC must not have taken or threatened to take enforcement action against any of the Parent, Intermediate Co or Sub in connection with the consummation of the Merger, or else must have notified the Company or the Parent, Intermediate Co or Sub that it does not intend to take enforcement action against any of Parent, Intermediate Co or Sub in connection with the consummation of the Merger; and

 

there must have been no temporary restraining order, preliminary or permanent injunction, law or other governmental order issued by any court of competent jurisdiction that is in effect enjoining or otherwise preventing or prohibiting the consummation of the Merger.

 

The obligations of Parent, Intermediate Co and Sub to consummate the Merger are further subject to the satisfaction or waiver (if permissible under applicable law) of the following conditions on or prior to the effective time of the Merger:

 

the representations and warranties of the Company set forth in the Merger Agreement with regard to (i) the number of shares of the Company’s outstanding capital stock and (ii) the number of the Company’s outstanding Restricted Shares and RSU equity awards were true and correct in all respects as of the date of the Merger Agreement (except to the extent that such representation and warranty expressly relates to a specific date, in which case such representation and warranty shall be true and correct as of such date), other than de minimis exceptions;

 

4  

 

 

the representations and warranties of the Company set forth in the Merger Agreement with respect to (i) the absence of certain rights to purchase or acquire equity securities of the Company or any of its subsidiaries, (ii) the absence of any convertible securities or other obligations allowing holders the right to receive equity securities of the Company or the right to vote with shareholders of the Company, (iii) the absence of certain indebtedness, (iv) the Company’s corporate power and authority to enter into and perform the Merger Agreement, (v) the payment of fees to brokers, investment bankers, financial advisors or other persons in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement, (vi) the receipt of a fairness opinion from Lazard Frères & Co. LLC, which we refer to as “ Lazard ,” and (vii) the absence of applicable anti-takeover laws, were true and correct in all material respects as of the date of the Merger Agreement and will be true and correct in all material respects as of the effective time of the Merger as though made at the effective time (except to the extent that such representation and warranty expressly relates to a specific date, in which case such representation and warranty shall be true and correct as of such date);

 

the representations and warranties of the Company set forth in the Merger Agreement with respect to the absence of a Company material adverse effect (as defined in the section of this proxy statement captioned “The Merger Agreement—Material Adverse Effect Definition” ) were true and correct in all respects as of the date of the Merger Agreement and will be true and correct in all respects as of the effective time of the Merger as though made at the effective time;

 

the other representations and warranties of the Company set forth in the Merger Agreement were true and correct as of the date of the Merger Agreement and will be true and correct as of the effective time of the Merger as though made at the effective time (disregarding all materiality qualifiers contained in such representations and warranties, and except to the extent that such representation and warranty expressly relates to a specific date, in which case such representation and warranty shall be so true and correct as of such date only), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had and would not have a Company material adverse effect;

 

the Company will have performed or complied in all material respects with all obligations required to be performed or complied with by it under the Merger Agreement at or prior to the closing date of the Merger;

 

since the date of the Merger Agreement, there must not have occurred any change, event, effect, state of facts, development or occurrence that individually or in the aggregate, has had a Company material adverse effect ; and

 

the Parent will have received a certificate executed by the chief executive officer or chief financial officer of the Company confirming that the above conditions of the Parent’s, Intermediate Co’s and Sub’s obligations to complete the Merger have been satisfied.

 

5  

 

 

The Company’s obligation to complete the Merger is further subject to the satisfaction or waiver (if permissible under applicable law) of the following conditions on or prior to the effective time of the Merger:

 

the representations and warranties of Parent, Intermediate Co and Sub set forth in the Merger Agreement with respect to (i) the Parent’s, Intermediate Co’s and Sub’s corporate power and authority to enter into and perform the Merger Agreement, (ii) the payment of fees to brokers, investment bankers, financial advisors or other persons in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement, and (iii) the ownership of Company common stock by the Parent, Intermediate Co, and Sub were true and correct in all material respects as of date of the Merger Agreement and will be true and correct in all material respects as of the effective time of the Merger as though made at the effective time (disregarding all materiality qualifiers contained in such representations and warranties, and except to the extent that such representation and warranty expressly speaks as of a specific date, in which case such representation and warranty shall be so true and correct in all material respects as of such date);

 

the other representations and warranties of Parent, Intermediate Co and Sub set forth in the Merger Agreement will be true and correct as of the effective time of the Merger as though made at the effective time (disregarding all materiality qualifiers contained in such representations and warranties, and except to the extent that such representation and warranty expressly relate to a specific date, in which case such representation and warranty shall be so true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Parent material adverse effect (as defined in the section of this proxy statement captioned “The Merger Agreement—Material Adverse Effect Definition” );

 

each of Parent, Intermediate Co and Sub will have performed or complied in all material respects with all obligations required to be performed or complied with by it under the Merger Agreement at or prior to the closing date of the Merger; and

 

the Company will have received a certificate executed by an executive officer of Parent confirming that the above conditions to the Company’s obligation to complete the Merger have been satisfied.

 

Financing of the Merger (Page 83)

 

Although obtaining the proceeds of any financing, including financing under the commitment letters described in this section, is not a condition to the completion of the Merger, the failure of Parent or Sub to obtain any portion of certain committed financing described below (or alternative financing) is likely to result in the failure of the Merger to be completed.

 

Parent has obtained equity financing commitments from SFPI-FPIM in an amount up to €15 million, and from Wespavia SA in an amount up to €85 million. Parent has also obtained debt financing commitments from ING Bank N.V., BNP Paribas Fortis SA/NV and ING Belgium SA/NV in connection with the transactions contemplated by the Merger Agreement consisting of (i) a euro denominated term loan facility in the aggregate principal amount of €50 million, (ii) a U.S. dollar denominated term loan facility in an aggregate principal amount of $270 million, and (iii) a euro (and certain other currencies) denominated revolving credit facility in the aggregate amount of up to €60 million.

 

6  

 

 

We believe that the amounts committed under the commitment letters will be sufficient to complete the Merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, one or more of the parties to the commitment letters fails to fund the financing or if the conditions to such commitments are not met, which conditions include the failure to receive the proceeds of the equity financing, as described further in the section of this proxy statement captioned “The Merger—Financing of the Merger.”

 

Governmental and Regulatory Approvals (Page 97)

 

Under the HSR Act and related rules, certain transactions, including the Merger, may not be completed until notifications have been given and information furnished to the Antitrust Division of the United States Department of Justice (“ Antitrust Division ”) and the Federal Trade Commission (“ FTC ”) and all statutory waiting period requirements have expired or been terminated. On March 10, 2017, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC.

 

The Merger is also conditioned on the issuance by CFIUS of a written notification to the parties to the Merger Agreement that it has concluded a review of the notification voluntarily provided pursuant to the Defense Production Act of 1950, as amended (the “ DPA ”), and determined not to conduct a full investigation of the transactions contemplated by the Merger Agreement or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the Merger Agreement from being consummated.

 

The Merger also cannot be completed unless and until (i) 60 days have passed since LMI notified the DDTC of the Merger and the DDTC has not taken or threatened to take enforcement action against Parent in connection with the consummation of the Merger or (ii) the DDTC has notified LMI or Parent that it does not intend to take enforcement action against Parent in connection with the consummation of the Merger.

 

Recommendation of LMI’s Board of Directors and Reasons for the Merger (Page 63)

 

After considering various factors described in the section of this proxy statement captioned “ The Merger—Recommendation of the Board of Directors and Reasons for the Merger,” LMI’s Board of Directors, which we refer to as the “ Board of Directors ,” other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” unanimously (1) determined that the terms of the Merger Agreement, the Merger and the other transactions contemplated thereby are fair to and in the best interests of LMI and its shareholders; (2) approved and declared advisable the Merger Agreement and consummation by LMI of the Merger and the other transactions contemplated thereby; (3) directed that the Merger Agreement be submitted to the shareholders of LMI for adoption and (4) resolved to recommend that LMI shareholders vote in favor of the adoption of the Merger Agreement and approve the Merger and the other transactions contemplated thereby. The Board of Directors, with Mr. Korte abstaining, unanimously recommends that you vote (1) “ FOR ” the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; (2) “ FOR ” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and (3) “ FOR ” the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

7  

 

 

Opinion of Lazard, Frères & Co. LLC (Page 68)

 

In connection with the Merger, on February 16, 2017, the Company’s financial advisor, Lazard, rendered its oral opinion to our Board of Directors, subsequently confirmed in writing, that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the per share merger consideration to be paid to holders of Company common stock (other than (i) excluded shares and (ii) shares of Company common stock held by holders who are entitled to and properly demand an appraisal of their shares (such holders, “ excluded holders ”)), in the Merger was fair, from a financial point of view, to such holders of Company common stock (other than excluded holders).

 

The full text of Lazard’s written opinion, dated February 16, 2017, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. We encourage you to read Lazard’s opinion, and the section “ The Merger—Opinion of Lazard Frères & Co. LLC ” carefully and in their entirety. Lazard’s opinion was directed to our Board of Directors for the information and assistance of our Board of Directors in connection with its evaluation of the Merger and only addressed the fairness, from a financial point of view, to the holders of Company common stock (other than excluded holders) of the per share merger consideration to be paid to such holders in the Merger as of the date of Lazard’s opinion. Lazard’s opinion did not address any other aspect of the Merger and was not intended to and does not constitute a recommendation to any holder of Company common stock as to how such holder should vote or act with respect to the Merger or any matter relating thereto. Lazard expressed no view or opinion as to any terms or other aspects (other than the per share Merger Consideration to the extent expressly specified in the opinion) of the Merger, including, without limitation, the form or structure of the Merger or any agreements or arrangements entered into in connection with, or contemplated by, the Merger. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Merger, or class of such persons, relative to the per share Merger Consideration or otherwise.

 

8  

 

 

Interests of LMI’s Directors and Executive Officers in the Merger (Page 85)

 

When considering the recommendation of the Board of Directors that you vote to approve the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of shareholders generally, as more fully described below. In (i) evaluating and negotiating the Merger Agreement; (ii) approving the Merger Agreement and the Merger; and (iii) recommending that the Merger Agreement and the Merger and the other transactions contemplated thereby be adopted and approved by shareholders, the Board of Directors was aware of and considered these interests to the extent that they existed at the time, among other matters. These interests include the following:

 

the entitlement of each executive officer and director of the Company to the treatment of Restricted Shares and RSUs described above under “ —Treatment of Restricted Shares and Restricted Stock Units.

 

the entitlement of each executive officer pursuant to his or her current or new employment agreement to receive payments and benefits in connection with an involuntary termination of service within a period of time immediately following the effective time of the Merger, which may include:

 

continued base salary for 2.5 years and a pro-rated annual bonus for the year of termination; and

 

continued health benefits at a reduced premium.

 

continued indemnification and directors’ and officers’ liability insurance.

 

If the proposal to adopt the Merger Agreement and to approve the Merger and the other transactions contemplated thereby is approved, the shares of our common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of our common stock held by all other shareholders. For more information, see the section of this proxy statement captioned “The Merger—Interests of LMI’s Directors and Executive Officers in the Merger.”

 

Appraisal Rights (Page 91)

 

Under Section 351.455 of MGBCL, holders of record of our common stock as of the close of business on [●], which we refer to as the “ Record Date ,” as registered in the records of the Company, who object to the Merger Agreement will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of common stock in lieu of receiving the Merger Consideration if the Merger is completed, but only if they comply with all applicable requirements of the MGBCL. This value could be more than, the same as, or less than the Merger Consideration. Any holder of common stock as registered in the records of the Company, as of the Record Date, intending to exercise appraisal rights, among other things, must (i) file with the Company a written objection to the Merger prior to or at the Special Meeting, (ii) not vote in favor of the proposal to approve the Merger Agreement, (iii) make a written demand on the Company within 20 days after the effective time of the Merger for payment of the fair value of his, her or its shares as of the day before the date on which the vote was taken approving the Merger Agreement and (iv) otherwise strictly comply with all of the procedures required by Missouri law. Section 351.455 of the MGBCL is included as Annex C to this proxy statement. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, shareholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with these provisions may result in the waiver of, or inability to exercise, the right of appraisal. Shareholders who vote “ FOR ” the proposal to approve the Merger Agreement will waive their appraisal rights, unless they revoke their proxies, if revocable, prior to the Special Meeting (as defined in the section of this proxy statement below captioned “—The Special Meeting of LMI Shareholders – Date, Time, and Place” ) and otherwise comply with Section 351.455 of the MGBCL.

 

9  

 

 

If you currently hold your shares of common stock in “street name” and wish to avoid loss of rights resulting from the registered owner’s failure to follow the mandated procedural steps under Section 351.455, prior to the Record Date you may wish to instruct the registered owner of your shares ( i.e. your broker, bank, trustee or other nominee) to transfer your security position in such shares to a direct registration system book entry registered directly in your name on the Company’s books with its transfer agent. Please contact your broker, bank, trustee or other nominee for further information.

 

Go-Shop; Acquisition Proposals; Change in Recommendation (Page 110)

 

Go-Shop; Acquisition Proposals

 

From February 16, 2017 and continuing until 11:59 p.m. (New York time) on March 18, 2017 (which we refer to as the “ go-shop period end date ”), the Company and its subsidiaries and their respective representatives are permitted to:

 

solicit (whether publicly or otherwise) any inquiry or the making of any proposal or offer that constitutes an acquisition proposal (as defined in the section of this proxy statement captioned “The Merger Agreement—Go-Shop; Acquisition Proposals; Change of Recommendation—Go-Shop; Acquisition Proposals” ), including by providing information (including non-public information and data) regarding the Company and its subsidiaries, pursuant to a confidentiality agreement, and

 

participate in any discussions or negotiations with respect to any acquisition proposals and cooperate with or assist with any such discussions or negotiations or any effort or attempt to make any acquisition proposals, including by providing information (including non-public information and data) regarding the Company and its subsidiaries pursuant to a confidentiality agreement.

 

The Company is required to notify Parent in writing of the identity of any qualified purchaser (as such term is defined in the section of the proxy statement captioned “The Merger Agreement—Go-Shop; Acquisition Proposals; Change of Recommendation—Go-Shop; Acquisition Proposals” ) no later than March 23, 2017 (four business days after the go-shop period end date).

 

10  

 

 

Except as may relate to any qualified purchaser, after the go-shop period, and subject to certain exceptions described below, the Company and its subsidiaries are prohibited from, directly or indirectly:

 

initiating, soliciting, knowingly encouraging or facilitating (including by way of providing information) the submission or making of any requests, inquiries, proposals or offers that constitute or could reasonably be expected to lead to, any acquisition proposal or engaging in, entering into, continuing or otherwise participating in, any discussions or negotiations with respect thereto, or otherwise cooperating with or assisting or participating in, or facilitating any such requests, proposals, offers, discussions or negotiations, or furnishing to any person or entity any nonpublic information in furtherance of or afford access to the books and records or the directors, officers, employees or other representatives of the Company or any of its subsidiaries to any person with respect to, any proposal or offer that constitutes or could reasonably be expected to result in any acquisition proposal;

 

except as expressly permitted by the Merger Agreement’s customary fiduciary out exceptions, approving, endorsing or recommending, or publicly proposing to approve, endorse or recommend, an acquisition proposal, or entering into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, purchase agreement, option agreement, or other agreement providing for or relating to an acquisition proposal (other than a confidentiality agreement as set forth below) or entering into any agreement or agreement in principle requiring the Company to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement or breach its obligations thereunder or propose or agree to do any of the foregoing;

 

taking any action to make the provisions of any takeover law inapplicable to any transaction contemplated by an acquisition proposal;

 

terminating, amending, releasing, modifying or failing to enforce any provision of, or grant any permission, waiver or request under, any standstill, confidentiality or similar agreement entered into by the Company in respect of or in contemplation of an acquisition proposal; or

 

publicly proposing to do any of the foregoing.

 

Except as may relate to any qualified purchaser, after the go-shop period end date, the Company and its subsidiaries are obligated to cease and terminate any solicitation, negotiation or cooperation with any inquiries, proposals, discussions or negotiations with any persons or entities conducted prior to the date of the Merger Agreement with respect to any acquisition proposal.

 

11  

 

 

Notwithstanding the restrictions above, if after the go-shop period end date and prior to the date and time on which Shareholder Approval is obtained, (i) the Company receives an unsolicited written acquisition proposal from a third party that our Board of Directors determines in good faith to be bona fide, (ii) such acquisition proposal did not result in any material respect from a breach of the covenant not to solicit such proposals under the Merger Agreement, (iii) the Board of Directors determines in good faith, after consultation with its financial advisors and outside counsel, that such acquisition proposal constitutes or would be reasonably expected to result in a superior proposal and that the failure to take the action described immediately below with respect to the third party making such an acquisition proposal would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, then the Company may:

 

enter into a confidentiality agreement (on terms no more favorable to the other party than those in the confidentiality agreement previously entered into between Parent and the Company) with the person or entity making such acquisition proposal and furnish information with respect to the Company and our subsidiaries to that person or entity; and

 

participate in discussions or negotiations with the person or entity making such acquisition proposal.

 

Except as may relate to a qualified purchaser, following the go-shop period end date, the Company is required to promptly notify Parent if it takes any action described in the previous paragraph and provide a copy of any related acquisition proposal, must keep Parent reasonably informed on a prompt basis of any material developments, discussions or negotiations regarding any acquisition proposals and, upon the reasonable request of Parent, must apprise Parent of the status of those discussions or negotiations.

 

Change of Recommendation

 

Until the earlier of the effective time of the Merger or the termination of the Merger Agreement, neither the Board of Directors nor any committee thereof is permitted to effect a Change of Recommendation (as such term is defined in the section of this proxy statement captioned “The Merger Agreement—Go-Shop; Acquisition Proposals; Change of Recommendation—Change of Recommendation” ).

 

Notwithstanding these restrictions, at any time prior to the time the Shareholder Approval has been obtained, if the Board of Directors determines in good faith that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties, the Board of Directors may:

 

change its recommendation as a result of an event, development or change in circumstances that first occurred or became known after the date of the Merger Agreement, other than with respect to a superior proposal; or

 

change its recommendation or terminate the Merger Agreement to enter into a definitive alternative acquisition agreement, with respect to a superior proposal.

 

12  

 

 

The Board of Directors may not change its recommendation or terminate the Merger Agreement in the two circumstances described in the paragraph above unless the superior proposal did not result in any material respect from a breach by the Company of its obligations not to solicit proposals (in the case of a superior proposal) and:

 

the Company has provided four business days’ prior written notice to the Parent, Intermediate Co and Sub of its intention to make a Change of Recommendation or, in connection with a superior proposal, terminate the Merger Agreement; and

 

prior to changing its recommendation or terminating the Merger Agreement to enter into an agreement with respect to a superior proposal, (i) the Company has negotiated with the Parent in good faith to make adjustments to the terms and conditions of the Merger Agreement, and (ii) the Board of Directors has determined in good faith that the superior proposal still constitutes a superior proposal or it would reasonably be expected to be inconsistent with the Board of Directors’ fiduciary duties to the holders of Company common stock under applicable law to not effect a Change of Recommendation.

 

In the event of any material revision to the terms of any superior proposal or acquisition proposal that the Board of Directors determines no longer constitutes a superior proposal, including any change in the price terms, the Company must deliver a new written notice to the Parent, Intermediate Co and Sub within two business days.

 

Termination of the Merger Agreement (Page 124)

 

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after receipt of the Shareholder Approval:

 

by mutual written consent of the Company and Parent;

 

by either the Company or Parent:

 

if the Merger has not been consummated on or before August 16, 2017 (which we refer to as the “ Outside Date ”), provided that either the Company or the Parent may extend the Outside Date until September 29, 2017 if the reason the Merger has not been consummated by the Outside Date is due to the fact that certain regulatory approvals or the Shareholder Approval have not yet been obtained; however, such right of termination is not available to any party if the failure of such party to perform any of its obligations under the Merger Agreement has been a primary cause of the failure of the Merger to be consummated on or before such date;

 

if any temporary restraining order, preliminary or permanent injunction, law or other governmental order issued by any court of competent jurisdiction enjoining or otherwise preventing or prohibiting the consummation of the Merger is in effect and is final and nonappealable, provided, however, that such right of termination is not available to any party unless such party has complied with its obligations under the Merger Agreement to prevent, oppose or remove such restraint;

 

13  

 

 

if the Shareholder Approval has not been obtained at the shareholders’ meeting duly convened or at any adjournment or postponement thereof; or

 

if there is any breach or inaccuracy in any of the other party’s representations or warranties set forth in the Merger Agreement or the other party has failed to perform any of its covenants under the Merger Agreement, which inaccuracy, breach or failure to perform (i) would give rise to, if occurring or continuing at the effective time of the Merger, the failure of any of the terminating party’s conditions to closing and (ii) has not been or is not capable of being cured by such other party prior to the earlier of (a) August 16, 2017 and (b) the 30th calendar day after such other party’s receipt of written notice thereof from the terminating party; provided that neither party has such right of termination if it is then in breach of any of its representations, warranties, covenants, or other agreements under the Merger Agreement which breach or failure to perform would give rise to the failure of any of the conditions to closing applicable to the other party (we refer to such termination by the Parent as a “ Company Breach Termination ”);

 

by Parent, if the Shareholder Approval has not been obtained and (each of which we refer to as a “ Change in Recommendation Termination ”):

 

if the Board of Directors or any committee thereof effects a Change of Recommendation (as defined in the section of this proxy statement captioned “The Merger Agreement—Change of Recommendation” );

 

if the Company failed to include in this proxy statement, when mailed, the Board of Directors’ recommendation that our shareholders adopt the Merger Agreement and a statement of the findings and conclusions of the Board of Directors;

 

if, following the public disclosure or announcement of an acquisition proposal (other than a tender or exchange offer described below), the Board of Directors has failed to reaffirm publicly its recommendation that our shareholders adopt the Merger Agreement within ten business days after Parent requests in writing that such recommendation under such circumstances be reaffirmed publicly; or

 

if a tender or exchange offer relating to securities of the Company has been commenced and the Company has not announced, within ten business days after the commencement of such tender or exchange offer, a statement disclosing that the Company recommends rejection of such tender or exchange offer.

 

by the Company:

 

in order to accept a superior proposal (in compliance with the terms of the Merger Agreement) and enter into an alternative acquisition agreement with respect to such superior proposal, provided, that the Company pays the break-up fee prior to or contemporaneously with such termination (which we refer to as a “ Alternative Acquisition Termination ”); or

 

14  

 

 

if (i) all of Parent’s, Intermediate Co’s and Sub’s conditions to their obligation to close the transactions contemplated by the Merger Agreement have been satisfied (other than those that require deliveries or are tested at the time of closing of the Merger, which conditions would have been satisfied if the closing had occurred at the time of such termination), (ii) the Company has irrevocably confirmed by written notice to Parent that (x) all of the Company’s obligations to effect the Merger have been satisfied or have been irrevocably waived in writing and (y) the Company is prepared to consummate the Merger at the closing, and (iii) Parent, Intermediate Co and Sub fail to consummate the Merger within two business days following delivery of such notice.

 

Break-Up Fees (Page 125)

 

The Company will pay to or cause to be paid to or as directed by Parent a “ break-up fee ” (if a break-up fee has not already been paid pursuant to the terms of the Merger Agreement) in the event that:

 

a Change in Recommendation Termination or Alternative Acquisition Termination occurs or

 

a Company Breach Termination occurs or the Merger Agreement is terminated because the Merger has not been consummated by the Outside Date at a time when a Company Breach Termination was available and, in either case, within twelve months following such termination, the Company either (i) consummates an acquisition transaction that results in a change of control or (ii) enters into a letter of intent, memorandum of understanding or other contract with respect to an acquisition transaction that results in a change of control that is ultimately consummated (whether or not such consummation occurs within twelve months following such termination).

 

The amount of the break-up fee is $10.0 million in the following circumstances:

 

a Change in Recommendation Termination occurs on or prior to the go-shop period end date,

 

an Alternative Acquisition Termination occurs on or prior to the go-shop period end date, or

 

an Alternative Acquisition Termination occurs on or prior to April 17, 2017 in order for the Company to enter into an alternative acquisition agreement with respect to a superior proposal made by a qualified purchaser.

 

The amount of the break-up fee is $15 million under any other circumstance in which a break-up fee is payable, and not described in the paragraph above.

 

Fees Payable by LMI (Page 126)

 

The Company is responsible for paying the filing, printing and mailing fees and expenses associated with this proxy statement.

 

15  

 

 

The Parent is required to reimburse the Company for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company and its Subsidiaries in connection with their cooperation with Parent’s arrangement of the debt financing or alternative financing, and for all documented out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company in connection with its cooperation pursuant to (i) an offer to purchase and/or consent solicitation with respect to, or a redemption of, the existing notes and (ii) a redemption of the IRBs (as such terms are defined in the section of this proxy statement captioned “The Merger Agreement—Financing ).

 

The Parent is also responsible for 100% of the filing fees payable to the FTC, the Antitrust Division, CFIUS, or any other governmental entity in connection with the antitrust, competition, or trade regulation matters contemplated by the Merger Agreement.

 

All other fees and expenses incurred in connection with the Merger Agreement, the Merger, and the transactions contemplated thereby will be paid by the party incurring or required to incur such fees or expenses, except as otherwise provided in this proxy statement.

 

The Special Meeting of LMI Shareholders (Page 36)

 

Date, Time and Place

 

A special meeting of shareholders of LMI, which we refer to as the “ Special Meeting ,” will be held on [●], 2017, at [●], Central time, at our principal executive offices at 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

Record Date; Shares Entitled to Vote

 

You are entitled to vote at the Special Meeting if you owned shares of our common stock at the close of business on [●], 2017, the Record Date. You will have one vote at the Special Meeting for each share of our common stock that you owned at the close of business on the Record Date.

 

Purpose

 

At the Special Meeting, we will ask shareholders to vote on proposals to: (i) adopt the Merger Agreement and approve the Merger and the other transactions thereby, (ii) adjourn the Special Meeting to a later date or dates to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting, and (iii) approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

Quorum

 

As of the Record Date, there were [●] shares of our common stock outstanding and entitled to vote at the Special Meeting. The shareholders of LMI representing a majority of the voting power of the issued and outstanding common stock of LMI, present in person or represented by proxy, shall constitute a quorum at the Special Meeting.

 

16  

 

 

Required Vote

 

The MGBCL requires that two-thirds of the shares of common stock outstanding and entitled to vote at the Special Meeting at the close of business on the Record Date vote in favor of the Merger Agreement in order for the Merger to be consummated. The failure of any shareholder to vote, abstentions, and broker non-votes will have the same effect as a vote by that shareholder “ AGAINST ” the Merger, the Merger Agreement and the transactions contemplated thereby. Approval of each of the adjournment proposal and the advisory non-binding proposal on executive compensation payable to the Company’s named executive officers in connection with the Merger requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock present in person or represented by proxy at the Special Meeting and entitled to vote thereon. Abstentions will have the same effect as a vote “ AGAINST ” these proposals but the failure to vote your shares and broker non-votes will have no effect on the outcome of these proposals.

 

Each share of common stock is entitled to one vote.

 

Share Ownership of Our Directors and Executive Officers

 

At the close of business on the Record Date, directors and executive officers of the Company and their subsidiaries were entitled to vote [●] shares of common stock, or approximately [●]% of the shares of common stock issued and outstanding on that date.

 

Voting and Proxies

 

Any shareholder of record entitled to vote at the Special Meeting may submit a proxy by returning a signed proxy card by mail in the accompanying prepaid reply envelope or granting a proxy electronically over the Internet or by telephone, or may vote in person by appearing at the Special Meeting. If you are a beneficial owner and hold your shares of our common stock in “street name” through a broker, bank, trustee or other nominee, you should instruct your broker, bank, trustee or other nominee on how you wish to vote your shares of our common stock using the instructions provided by your broker, bank, trustee or other nominee. Under applicable stock exchange rules, brokers, banks, trustees and other nominees have the discretion to vote on routine matters. The proposals to be considered at the Special Meeting are non-routine matters, and brokers, banks, trustees and other nominees cannot vote on these proposals without your instructions. As a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Broker non-votes will be treated as shares that are present at the Special Meeting for purposes of determining whether a quorum exists and will have the same effect as votes “ AGAINST ” the proposal regarding adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, but will have no effect on the proposal to adjourn the Special Meeting, whether or not a quorum is present, or on the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s executive officers in connection with the Merger. Therefore, it is important that you cast your vote or instruct your broker, bank, trustee or other nominee on how you wish to vote your shares.

 

17  

 

 

If you are a shareholder of record on the Record Date, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by: (i) signing another proxy card with a later date and returning it to us prior to the Special Meeting; (ii) submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy; (iii) delivering a written notice of revocation to our Corporate Secretary; or (iv) attending the Special Meeting and voting in person by ballot.

 

If you hold your shares of our common stock in “street name,” you should contact your broker, bank, trustee or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your broker, bank, trustee or other nominee.

 

All shares represented by properly executed proxies received in time for the Special Meeting will be voted at the Special Meeting in the manner specified by the holders. Properly executed proxies that do not contain voting instructions will be voted “ FOR ” the proposal regarding adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, “ FOR ” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting, and “ FOR ” the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s executive officers in connection with the Merger.

 

Shares of our common stock represented at the Special Meeting but not voted, including shares of our common stock for which proxies have been received but for which shareholders have abstained, will be treated as present at the Special Meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 

Only shares affirmatively voted for the proposal regarding adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, including properly executed proxies that do not contain specific voting instructions, will be counted “ FOR ” that proposal.

 

If you abstain from voting, it will have the same effect as a vote “ AGAINST ” the proposal regarding adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, “ AGAINST ” the proposal to adjourn the Special Meeting, whether or not a quorum is present, and “ AGAINST ” the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s executive officers in connection with the Merger.

 

If you do not execute a proxy card, it will have the same effect as a vote “ AGAINST ” the proposal regarding adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, but will have no effect on the proposal to adjourn the Special Meeting, whether or not a quorum is present, or on the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s executive officers in connection with the Merger.

 

18  

 

 

Effect on LMI if the Merger is Not Completed (Page 44)

 

If the Merger Agreement is not adopted and the Merger and the other transactions contemplated by the Merger Agreement are not approved by the required vote of LMI shareholders or if the Merger is not completed for any other reason, LMI shareholders will not receive any payment for their shares of our common stock. Instead, LMI will remain an independent public company, our common stock will continue to be listed and traded on NASDAQ and registered under the Securities Exchange Act of 1934, as amended, which we refer to as the “ Exchange Act ,” and we will continue to file periodic and current reports with the Securities and Exchange Commission, which we refer to as the “ SEC .” If the Merger is not completed, depending on the circumstances that caused the Merger not to be completed, the price of our common stock may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement. Under specified circumstances, LMI will be required to pay Sonaca a break-up fee upon the termination of the Merger Agreement. For more details, see the section of this proxy statement captioned “The Merger—Effect on LMI if the Merger is Not Completed.”

 

Accounting Treatment (Page 93)

 

It is currently the intent to have the Merger accounted for as a “purchase transaction” for Belgian financial accounting purposes.

 

Material U.S. Federal Income Tax Consequences of the Merger (Page 94)

 

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined in the section of this proxy statement captioned “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ”) in exchange for such U.S. Holder’s shares of our common stock in the Merger generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger (computed as if there were no applicable withholding taxes) and such U.S. Holder’s adjusted tax basis in the shares of our common stock surrendered in the Merger. Gain or loss realized generally must be calculated separately for each block of shares ( i.e. , shares acquired at the same cost in a single transaction) surrendered pursuant to the Merger.

 

A Non-U.S. Holder (as defined in this proxy statement in the section captioned “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger ”) generally will not be subject to U.S. federal income tax with respect to the exchange of shares of our common stock for cash in the Merger, unless such Non-U.S. Holder has certain connections to the United States.

 

The determination of actual tax consequences of the Merger to a holder of our common stock will depend on the holder’s specific situation. For more information, see the section of this proxy statement captioned “ The Merger — Material U.S. Federal Income Tax Consequences of the Merger .” Shareholders should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or foreign taxing jurisdiction.

 

19  

 

 

When the Merger is Expected to be Completed (Page 101)

 

As of the date of this proxy statement, the Merger is expected to be completed by the second half of 2017. However, there can be no assurances that the Merger will be completed at all or, if completed, that it will be completed by the second half of 2017.

 

Delisting and Deregistration of LMI Common Stock (Page 91)

 

When the Merger is completed, the LMI common stock currently listed on the NASDAQ will cease to be quoted on the NASDAQ and will be deregistered under the Securities Act.

 

Litigation Related to the Merger (Page 99)

 

To date, there is no outstanding litigation related to the Merger.

 

Additional Information (Page 136)

 

You can find more information about the Company in the periodic reports and other information we file with the SEC. The information is available on the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. For a more detailed description of the additional information available, see the section of this proxy statement captioned “Where You Can Find More Information”.

 

20  

 

 

QUESTIONS AND ANSWERS

 

The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. We encourage you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions in the section of this proxy statement captioned “ Where You Can Find More Information .”

 

Q: Why am I receiving this proxy statement?

 

A: On February 16, 2017, the Company entered into the Merger Agreement providing for the Merger of Sub, an indirect, wholly-owned subsidiary of Parent, with and into the Company, with the Company surviving the Merger as an indirect, wholly-owned subsidiary of Parent. You are receiving this proxy statement and form of proxy card in connection with the solicitation of proxies by the Board of Directors in favor of the proposal to approve the Merger Agreement and the other matters to be voted on at the Special Meeting.

 

Q: What is the proposed transaction?

 

A: The proposed transaction is the merger of Sub with and into the Company pursuant to the Merger Agreement. Following the effective time of the Merger, the Company would be privately held as an indirect, wholly-owned subsidiary of Parent.

 

Q: What will I receive in the Merger?

 

A: If the Merger is completed, you will be entitled to receive $14.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own. For example, if you own 100 shares of common stock of the Company, you will be entitled to receive $1,400 in cash in exchange for your shares of common stock, without interest and less any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation or in Parent.

 

Q: What will the holders of LMI restricted shares and restricted stock units receive in the Merger?

 

A: Each Restricted Share and each RSU granted under LMI’s equity incentive plans that is outstanding immediately prior to the effective time of the Merger shall be fully vested and, at the effective time of the Merger, canceled and extinguished, and converted into the right to receive an amount in cash equal to the $14.00 per share Merger Consideration, without interest and less any applicable withholding taxes.

 

21  

 

 

Q: How does the Merger Consideration compare to the market price of the common stock?

 

A: The relationship of the Merger Consideration to the trading price of our common stock constituted a premium of approximately (i) 52% over LMI’s closing share price on February 16, 2017, the last trading day prior to the date when the Merger Agreement was publicly announced, (ii) 63% over LMI’s three-month volume weighted average price up to and including February 16, 2017, and (iii) 78% over LMI’s six-month volume weighted average price up to and including February 16, 2017.

 

Q: Where and when is the Special Meeting?

 

A: The Special Meeting will take place on [●], 2017, at [●], Central time, at our principal executive offices at 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

Q: Who is entitled to vote at the Special Meeting?

 

A: Shareholders as of the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting. Each holder of shares of our common stock is entitled to cast one vote on each matter properly brought before the Special Meeting for each share of our common stock owned as of the Record Date.

 

Q: May I attend the Special Meeting and vote in person?

 

A: Yes. All shareholders as of the Record Date may attend the Special Meeting and vote in person. Seating will be limited. Shareholders will need to present proof of ownership of shares of our common stock, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting, except as administered by the Company.

 

Even if you plan to attend the Special Meeting in person, to ensure that your shares will be represented at the Special Meeting we encourage you to sign, date and return the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy previously submitted by you with respect to the shares so voted in person.

 

If you hold your shares in “street name,” you should instruct your broker, bank, trustee or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your broker, bank, trustee or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, without your instructions. If you hold your shares in “street name,” you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your broker, bank, trustee or other nominee.

 

22  

 

 

Q: What matters will be voted on at the Special Meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

to approve the Merger Agreement;

 

to approve the adjournment of the Special Meeting to solicit additional proxies, if necessary or appropriate, if there are insufficient votes at the time of the Special Meeting to approve the proposal to approve the Merger Agreement;

 

to approve, on an advisory (non-binding) basis, specified compensation that may be payable to the named executive officers of the Company in connection with the Merger; and

 

to act upon other business that may properly come before the Special Meeting or any adjournment or postponement thereof by or at the direction of the Board of Directors.

 

Q: What vote of our shareholders is required to approve the Merger Agreement?

 

A: Under the MGBCL, shareholders holding at least two-thirds of the shares of common stock outstanding and entitled to vote at the Special Meeting at the close of business on the Record Date must affirmatively vote “FOR” the proposal to approve the Merger Agreement. In addition, under the Merger Agreement, the receipt of such required vote is a condition to the consummation of the Merger. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to approve the Merger Agreement.

 

As of the Record Date, there were [●] shares of common stock outstanding.

 

Q: What vote is required to approve any proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting and to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger?

 

A: Approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the outstanding common stock of the Company present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter.

 

Approval, by non-binding, advisory vote, of certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger also requires the affirmative vote of a majority of the outstanding shares of our common stock present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter.

 

23  

 

 

The failure of any shareholder of record to (i) submit a signed proxy card; (ii) grant a proxy over the Internet or by telephone; or (iii) vote in person by ballot at the Special Meeting will not have any effect on either the proposal to adjourn the Special Meeting, or the proposal to approve certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger. If you hold your shares in “street name,” the failure to instruct your broker, bank, trustee or other nominee how to vote your shares will not have any effect on either of these proposals. However, abstentions will have the same effect as a vote “ AGAINST ” these proposals.

 

Q: How many votes am I entitled to cast for each share of Company common stock that I own?

 

A: Each share of common stock is entitled to one vote.

 

Q: What is a quorum?

 

A: A quorum will be present if holders of a majority of the shares of common stock outstanding and entitled to vote on the Record Date are present in person or represented by proxy at the Special Meeting. If a quorum is not present at the Special Meeting, the Special Meeting may be adjourned or postponed from time to time until a quorum is obtained.

 

If you submit a proxy but abstain or fail to provide voting instructions on any of the proposals listed on the proxy card, your shares will be counted for the purpose of determining whether a quorum is present at the Special Meeting.

 

If your shares are held in “street name” by your broker, bank, trustee or other nominee and you do not tell the nominee how to vote your shares, these shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the Special Meeting.

 

Q: How does the Board of Directors recommend that I vote?

 

A: The Board of Directors, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” unanimously recommends that our shareholders vote “ FOR” the proposal to approve the Merger Agreement and the Merger. The Board of Directors, with Mr. Korte abstaining, also unanimously recommends that the shareholders of the Company vote “FOR” the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger and “FOR” the proposal regarding adjournment of the Special Meeting, if necessary or appropriate.

 

24  

 

 

Q: Why is the Board of Directors recommending that I vote “FOR” the Merger?

 

A: After careful consideration, the Board of Directors, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” unanimously determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its shareholders. After such consideration, the Board of Directors, with Mr. Korte abstaining, approved and declared advisable the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement in accordance with the requirements of the MGBCL. In reaching its decision to approve the Merger Agreement and to recommend approval of the proposal to approve the Merger Agreement, the proposal regarding adjournment of the Special Meeting, if necessary or appropriate by our shareholders, and the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger, the Board of Directors consulted with our management, as well as our legal and financial advisors, and considered the terms of the proposed Merger Agreement. The Board of Directors also considered each of the items set forth under the section of this proxy captioned “The Merger—Recommendation of the Board of Directors and Reasons for the Merger.”

 

Q: What effects will the Merger have on LMI?

 

A: Our common stock is currently registered under the Exchange Act and is quoted on the NASDAQ, under the symbol “LMIA.” As a result of the Merger, the Company will cease to be a publicly traded company and will be indirectly wholly-owned by Parent. Following the consummation of the Merger, the registration of our common stock and our reporting obligations under the Exchange Act will be terminated. In addition, upon the consummation of the Merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ.

 

Q: What happens if the Merger is not consummated?

 

A: If the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are not approved by the Company’s shareholders, or if the Merger is not consummated for any other reason, the Company’s shareholders will not receive any payment for their shares of common stock in connection with the Merger. Instead, the Company will remain an independent public company and shares of our common stock will continue to be listed and traded on the NASDAQ. Furthermore, depending on the circumstances that caused the Merger not to be completed, the price of our common stock may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement. Under specified circumstances, the Company may be required to pay to Parent a break-up fee of either $10 million or $15 million (and any costs of collection), depending upon the reason for and timing of the termination. See “ The Merger Agreement—Break-Up Fees ” and “The Merger Agreement—Fees Payable by LMI.

 

25  

 

 

Q: What will happen if shareholders do not approve the advisory proposal on executive compensation payable to the Company’s named executive officers in connection with the Merger?

 

A: The approval of this proposal is not a condition to the completion of the Merger. The vote on this proposal is an advisory vote and will not be binding on the Company or Parent. If the Merger Agreement is approved by the shareholders and the Merger is completed, the Merger-related compensation may be paid to the Company’s named executive officers even if shareholders fail to approve this proposal.

 

Q: What do I need to do now? How do I vote my shares of common stock?

 

A: We urge you to read this proxy statement carefully, including its annexes and the documents referred to or incorporated by reference in this proxy statement, and to consider how the Merger affects you. Your vote is important. If you are a shareholder of record (that is, if your shares of our common stock are registered in your name with Broadridge Corporate Issuer Solutions, Inc., our transfer agent), there are four ways to vote:

 

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;

 

by visiting the Internet at the address on your proxy card;

 

by calling toll-free (within the U.S. or Canada) the phone number on your proxy card; or

 

by attending the Special Meeting and voting in person by ballot.

 

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of our common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet or by telephone, you may incur costs such as internet access and telephone charges for which you will be responsible.

 

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares of our common stock by proxy. If you are a record holder or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of our common stock in person by ballot at the Special Meeting even if you have previously voted by proxy. If you are present at the Special Meeting and vote in person by ballot, your previous vote by proxy will not be counted.

 

If your shares are held in “street name” through a broker, bank, trustee or other nominee, you may vote through your broker, bank, trustee or other nominee by completing and returning the voting form provided by your broker, bank, trustee or other nominee, or, if such a service is provided by your broker, bank, trustee or other nominee, electronically over the Internet or by telephone. To vote over the Internet or by telephone through your broker, bank, trustee or other nominee, you should follow the instructions on the voting form provided by your bank, broker or nominee.

 

26  

 

 

Q: What happens if I do not vote?

 

A: The vote to approve the Merger Agreement is based on the total number of shares of common stock outstanding and entitled to vote at the Special Meeting on the Record Date, not just the shares that are voted. If you do not vote, it will have the same effect as a vote “ AGAINST ” the proposal to approve the Merger Agreement.

 

Q: Should I send in my stock certificates or other evidence of ownership now?

 

A: No. If you hold your shares in your name as a shareholder of record, then shortly after the Merger is completed, you will receive a letter of transmittal from the paying agent for the Merger with detailed written instructions for exchanging your shares of common stock for the Merger Consideration. If your shares of common stock are held in “street name” by your broker, bank, trustee or other nominee, you may receive instructions from your broker, bank, trustee or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the Merger Consideration. Do not send in your certificates now.

 

Q: I do not know where my stock certificate is—how will I get the Merger Consideration for my shares?

 

A: If the Merger is completed, the transmittal materials you will receive after the completion of the Merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your stock certificate. The Company may also require that you provide a customary indemnity agreement to the Company in order to cover any potential loss.

 

Q: What happens if I sell my shares of common stock before completion of the Merger?

 

A: If you transfer your shares of common stock, you will have transferred your right to receive the Merger Consideration in the Merger. In order to receive the Merger Consideration, you must hold your shares of common stock through completion of the Merger.

 

The Record Date for shareholders entitled to vote at the Special Meeting is earlier than the consummation of the Merger. If you transfer your shares of common stock after the Record Date but before the closing of the Merger, you will have transferred your right to receive the Merger Consideration in the Merger, but retained the right to vote at the Special Meeting.

 

Q: Am I entitled to exercise appraisal rights instead of receiving the Merger Consideration for my shares of common stock?

 

A: Dissenting shareholders of record, as registered in the records of the Company, who do not vote in favor of the proposal to approve the Merger Agreement and otherwise comply with the requirements of Section 351.455 of the MGBCL are entitled to statutory appraisal rights under Missouri law in connection with the Merger. This means that if you comply with the requirements of Section 351.455 of the MGBCL, you are entitled to have the “fair value” (as defined pursuant to Section 351.455 of the MGBCL) of your shares of common stock determined in accordance with Missouri law and to receive payment based on that valuation instead of receiving the Merger Consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement. Failure to strictly comply with Section 351.455 of the MGBCL may result in your waiver of, or inability to exercise, appraisal rights. See “The Merger—Appraisal Rights” and the text of the Missouri appraisal rights statute, Section 351.455 of the MGBCL, which is reproduced in its entirety as Annex C to this proxy statement. If you vote “ FOR ” the proposal to approve the Merger Agreement, you will waive your appraisal rights, unless you revoke your proxy, if revocable, prior to the Special Meeting and otherwise comply with Section 351.455 of the MGBCL.

 

27  

 

 

Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?

 

A: If your shares are registered directly in your name with our transfer agent, Broadridge Corporate Issuer Solutions, Inc., you are considered, with respect to those shares, to be the “shareholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by LMI.

 

If your shares are held through a broker, bank, trustee or other nominee, you are considered the “beneficial owner” of shares of our common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your broker, bank, trustee or other nominee who is considered, with respect to those shares, to be the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank, trustee or other nominee how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting. However, because you are not the shareholder of record, you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your broker, bank, trustee or other nominee.

 

Q: If my broker holds my shares in “street name,” will my broker vote my shares for me?

 

A: No. Your broker, bank, trustee or other nominee is permitted to vote your shares on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your broker, bank, trustee or other nominee how to vote. You should follow the procedures provided by your broker, bank, trustee or other nominee to vote your shares. Without instructions, your shares will not be voted on such proposals, which will have the same effect as if you voted against adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, but will have no effect on the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting, or the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

28  

 

 

Q: Can I revoke my proxy?

 

A: Yes. You can revoke your proxy at any time before the vote is taken at the Special Meeting. If you are a shareholder of record, you may revoke your proxy by notifying the Company’s Corporate Secretary in writing at 411 Fountain Lakes Boulevard St. Charles, Missouri 63301, or by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked. In addition, you may revoke your proxy by attending the Special Meeting and voting in person (simply attending the Special Meeting will not cause your proxy to be revoked). Please note that if you hold your shares in “street name” and you have instructed a broker, bank, trustee or other nominee to vote your shares, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank, trustee or other nominee to revoke your voting instructions.

 

Q: What is a proxy?

 

A: A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of our common stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of our common stock is called a “proxy card.” Renée Skonier, our General Counsel and Corporate Secretary, and Clifford C. Stebe, Jr., our Vice President and Chief Financial Officer, with full power of substitution, are the proxy holders for the Special Meeting.

 

Q: If a shareholder gives a proxy, how are the shares voted?

 

A: Regardless of the method you choose to vote, the proxy holders will vote your shares in the way that you indicate. When completing the internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.

 

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted: (i) “ FOR ” the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; (ii) “ FOR ” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and (iii) “ FOR ” the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

29  

 

 

Q: What should I do if I receive more than one set of voting materials?

 

A: Please sign, date and return (or grant your proxy electronically over the Internet or by telephone) each proxy card and voting instruction card that you receive.

 

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you will receive more than one proxy card.

 

Q: Where can I find the voting results of the Special Meeting?

 

A: LMI intends to publish final voting results in a Current Report on Form 8-K to be filed with the SEC following the Special Meeting. All reports that LMI files with the SEC are publicly available when filed. See the section of this proxy statement captioned “ Where You Can Find More Information .”

 

Q: Will I have to pay taxes on the Merger Consideration I receive?

 

A: The receipt of cash in exchange for shares of common stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

 

Q: What is householding and how does it affect me?

 

A: The SEC permits companies to send a single set of proxy materials to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if the applicable shareholder provides advance notice and follows certain procedures.

 

In such cases, each shareholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of common stock held through brokerage firms. If your family has multiple accounts holding common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

Q: When do you expect the Merger to be completed?

 

A: We are working toward completing the Merger as quickly as reasonably practicable and currently expect to complete the Merger by the second half of 2017. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions described in the section of this proxy statement captioned “ The Merger Agreement—Conditions to Completion of the Merger ,” many of which are outside of our control.

 

30  

 

 

Q: If the Merger is completed, how will I receive the cash for my shares?

 

A: If the Merger is completed and your shares of our common stock are held in book-entry, the paying agent will issue and deliver to you a check or wire transfer for your shares without any further action on your part. If you are a shareholder of record with your shares held in certificate form, you will receive a letter of transmittal with instructions on how to send your shares of our common stock to the paying agent in connection with the Merger. The paying agent will issue and deliver to you a check or wire transfer for your shares after you comply with these instructions. Please do not send your stock certificates with your proxy card. See the section in this proxy statement captioned “ The Merger Agreement—Exchange and Payment Procedures .”

 

If your shares are held in “street name” by your broker, bank, trustee or other nominee, you will receive instructions from your broker, bank, trustee or other nominee as to how to effect the surrender of your shares held in “street name.”

 

Q: Do any of LMI’s directors or officers have interests in the Merger that may differ from those of LMI shareholders generally?

 

A: In considering the recommendation of the Board of Directors with respect to the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of shareholders generally. In (i) evaluating and negotiating the Merger Agreement; (ii) approving the Merger Agreement and the Merger; and (iii) recommending that the Merger Agreement be adopted by shareholders, the Board of Directors was aware of and considered these interests to the extent that they existed at the time, among other matters. For more information, see the section of this proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger .”

 

Q: Are there any other risks to me from the Merger that I should consider?

 

A: Yes. There are risks associated with all business combinations, including the Merger. For further detail, see the section of this proxy statement captioned “ Forward-Looking Statements .”

 

Q: Who can help answer my other questions?

 

A: If you have more questions about the Merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact Innisfree M&A Incorporated, which is acting as the proxy solicitation agent and information agent for the Company in connection with the Merger.

 

31  

 

 

Innisfree M&A Incorporated 

501 Madison Avenue, 20th floor 

New York, New York 10022 

Shareholders may call toll free: (888) 750-5834 

Banks and Brokers may call collect: (212) 750-5833

 

If your broker, bank, trustee or other nominee holds your shares, you should also call your broker, bank, trustee or other nominee for additional information.

 

32  

 

 

FORWARD-LOOKING STATEMENTS

 

This proxy statement may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included or incorporated by reference in this proxy statement, other than statements of historical fact, are forward-looking statements. Shareholders can identify forward-looking statements by the use of words such as “estimate,” “may,” “will,” “could,” “anticipate,” “expect,” “intend,” “believe,” “continue” or the negative of such terms, or other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Actual results may be materially different from any future results expressed or implied by such forward-looking statements. Among other risks and uncertainties, there can be no guarantee that the Merger will be completed, or if it is completed, that it will close within the anticipated time frame. Additional risks and uncertainties relating to the acquisition include: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement or conditions to the closing of the Merger may not be satisfied or waived, (2) the failure to obtain the Shareholder Approval or the failure to satisfy the closing conditions, (3) risks related to disruption of management’s attention from the Company’s ongoing business operations due to the proposed Merger, (4) the effect of the announcement of the Merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, operating results and business generally, (5) the transaction may involve unexpected costs, liabilities or delays, (6) the Company’s business may suffer as a result of the uncertainty surrounding the transaction, (7) the outcome of any legal proceeding relating to the transaction, (8) the Company may be adversely affected by other economic, business and/or competitive factors, and (9) other risks to consummation of the transaction, including the risk that the transaction will not be consummated within the expected time period or at all. For a discussion of relevant factors, risks and uncertainties that could materially affect the Company’s future results, attention is directed to “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 15, 2017 and incorporated herein by reference. The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained in this filing to reflect events or circumstances occurring after the date of this filing or to reflect the occurrence of unanticipated events.

 

33  

 

 

PARTIES INVOLVED IN THE MERGER

 

LMI Aerospace, Inc.

 

LMI is a leading supplier of structural assemblies, kits and components, and design engineering services to the aerospace and defense markets. LMI provides a broad array of manufacturing capabilities, as well as engineering and value-added services to the large commercial, corporate and regional, and military aircraft markets. LMI also provides prototyping, testing and design capabilities to customers in support of new product development and in-service aircraft. LMI is a preferred supplier to aircraft original equipment manufacturers and Tier 1 aerospace suppliers. In addition to aerospace products, LMI produces components and assemblies for laser equipment used by semiconductor equipment manufacturers, electronic and electrical wire harnesses, cable assemblies, and mechanical sub-assemblies for the air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries.

 

Founded in 1948 as a manufacturer of components for the large commercial aircraft market of the aerospace industry, LMI became a publicly-held company in 1998. Historically, its business was primarily dependent on the large commercial aircraft market, specifically with one principal customer. In order to diversify its product and customer base, LMI implemented an acquisition and marketing strategy in the late 1990’s that has broadened the number of industries to which LMI sells its products and services and, within the aerospace industry, diversified its customer base to reduce its dependence on any one principal customer.

 

LMI’s common stock is listed on the NASDAQ under the symbol “LMIA.”

 

LMI’s principal executive office is located at 411 Fountain Lakes Blvd., St. Charles, Missouri 63301, and its telephone number is (636) 946-6525.

 

Sonaca S.A .

 

Sonaca is a limited liability company validly existing under the laws of Belgium. Sonaca develops, manufactures and assembles advanced structures for civil, military and space markets. In particular, Sonaca is known for its wing movables expertise where it is regarded as one of the world leaders. Sonaca also supplies engineering services, large sheet metal elements, wing panels, composite structures, and machined components. Sonaca is headquartered in Gosselies, Belgium and has production facilities in China, Romania, Canada and Brazil. Sonaca employs over 2,500 people, including 350 engineers. For more information, visit www.sonaca.com.

 

Sonaca’s principal executive office is located at Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

Sonaca USA Inc .

 

Intermediate Co is a Delaware corporation and a direct, wholly-owned subsidiary of Sonaca. Intermediate Co was formed in September 2015 by Sonaca as a future platform for Sonaca’s United States operations and for the purpose of potentially serving as an acquisition vehicle, but it does not have, and has never had, any operations.

 

34  

 

 

Intermediate Co’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11 .

 

Luminance Merger Sub, Inc .

 

Sub is a Missouri corporation, an indirect wholly-owned subsidiary of Sonaca and direct wholly-owned subsidiary of Intermediate Co. Sub formed on February 14, 2017 solely for the purpose of engaging in the Merger and the other transactions contemplated by the Merger Agreement. Sub has not engaged in any business activities except activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement.

 

Sub’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

35  

 

 

THE SPECIAL MEETING

 

The enclosed proxy is solicited on behalf of the Board of Directors for use at the Special Meeting.

 

Date, Time and Place of the Special Meeting

 

We will hold the Special Meeting on [●], 2017, at [●], Central time, at our principal executive offices at 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

Purpose of the Special Meeting

 

The purpose of the Special Meeting is for our shareholders to consider and vote upon the proposal to approve the Merger Agreement relating to the proposed acquisition of the Company by Parent. Our shareholders must approve the Merger Agreement for the Merger to occur. If our shareholders fail to approve the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A and the material provisions of the Merger Agreement are described under the section of this proxy statement captioned “ The Merger Agreement. ” Our shareholders are also being asked to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement.

 

In addition, in accordance with Section 14A of the Exchange Act, the Company is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its named executive officers in connection with the Merger, the value of which is disclosed in the table in the section of the proxy statement captioned “ The Merger—Interests of the Company’s Directors and Executive Officers in the Merger .” The vote on executive compensation payable in connection with the Merger is a vote separate and apart from the vote to approve the Merger. Accordingly, a shareholder may vote to approve the executive compensation and vote not to approve the Merger and vice versa. Because the vote is advisory in nature only, it will not be binding on either the Company or Parent. Accordingly, because the Company is contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the Merger is approved and regardless of the outcome of the advisory vote.

 

A copy of the Merger Agreement is attached as Annex A to this proxy statement. This proxy statement and the enclosed form of proxy are first being mailed to our shareholders on or about [●], 2017.

 

Record Date; Shares Entitled to Vote; Quorum

 

The holders of record of common stock as of the close of business on [●], 2017, the Record Date for the determination of shareholders entitled to notice of and to vote at the Special Meeting, are entitled to receive notice of and to vote at the Special Meeting. On the Record Date, [●] shares of common stock were outstanding.

 

36  

 

 

The presence at the Special Meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding and entitled to vote at the Special Meeting on the Record Date will constitute a quorum, permitting the Company to conduct its business at the Special Meeting. Treasury shares, which are shares owned by the Company itself, are not voted and do not count for this purpose. Once a share is represented at the Special Meeting, it will be counted for the purpose of determining a quorum at the Special Meeting. However, if a new Record Date is set for the adjourned Special Meeting, then a new quorum will have to be established. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the Special Meeting. If less than a majority of the shares of common stock outstanding and entitled to vote at the Special Meeting are represented at the meeting, the shareholders entitled to vote thereat, present in person or represented by proxy, may adjourn the Special Meeting from time to time without notice other than announcement at the meeting (unless a new Record Date is set) to any shareholder not present at the Special Meeting, to a specified date not later than ninety (90) days after such adjournment.

 

Vote Required; Abstentions and Broker Non-Votes

 

For the Company to complete the Merger, under the MGBCL, shareholders holding at least two-thirds of the shares of common stock outstanding and entitled to vote at the Special Meeting at the close of business on the Record Date must affirmatively vote “FOR” the proposal to approve the Merger Agreement. In addition, under the Merger Agreement, the receipt of such required vote is a condition to the consummation of the Merger. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote “ AGAINST ” the proposal to approve the Merger Agreement.

 

Approval of each of the adjournment proposal and the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the Merger requires the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the Special Meeting and entitled to vote thereon. Abstentions will have the same effect as a vote “ AGAINST ” these proposals but the failure to vote your shares and broker non-votes will have no effect on the outcome of these proposals.

 

As of the Record Date, there were [●] shares of common stock outstanding.

 

Shares Held by LMI’s Directors and Executive Officers

 

At the close of business on the Record Date, directors and executive officers of the Company and their subsidiaries were entitled to vote [●] shares of common stock, or approximately [●]% of the shares of common stock issued and outstanding on that date.

 

Voting of Proxies

 

Attendance

 

All holders of shares of common stock as of the close of business on [●], 2017, the Record Date for voting at the Special Meeting, including shareholders of record and beneficial owners of common stock registered in the “street name” of a broker, bank, trustee or other nominee, are invited to attend the Special Meeting. If you are a shareholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or voting instruction form provided by your broker, bank, trustee or other nominee or other similar evidence of ownership, along with proper identification.

 

37  

 

 

Voting in Person

 

Shareholders of record will be able to vote in person at the Special Meeting. If you are not a shareholder of record, but instead hold your shares in “street name” through a broker, bank, trustee or other nominee, you must provide a proxy executed in your favor from your broker, bank, trustee or other nominee in order to be able to vote in person at the Special Meeting.

 

Submitting a Proxy or Providing Voting Instructions

 

To ensure that your shares are voted at the Special Meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the Special Meeting in person.

 

Shares Held by Record Holder . If you are a shareholder of record, you may submit a proxy using one of the methods described below:

 

Submit a Proxy by Telephone or via the Internet . This proxy statement is accompanied by a proxy card with instructions for submitting voting instructions. You may vote by telephone by calling the toll-free number or via the Internet by accessing the Internet address as specified on the enclosed proxy card. Your shares will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below.

 

Submit a Proxy Card . If you complete, sign, date and return the enclosed proxy card by mail so that it is received in time for the Special Meeting, your shares will be voted in the manner directed by you on your proxy card. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the proposals to approve the Merger Agreement, the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger, and the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies. If you are a shareholder of record and fail to return your proxy card, unless you are a holder of record on the Record Date and attend the Special Meeting and vote in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the proposal to approve the Merger Agreement, but will not affect the vote regarding the adjournment of the Special Meeting or the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger, if necessary or appropriate, to solicit additional proxies.

 

Shares Held in “Street Name.” If your shares are held by a broker, bank, trustee or other nominee on your behalf in “street name,” your broker, bank, trustee or other nominee will send you instructions as to how to provide voting instructions for your shares. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting instructions by a voting instruction form.

 

38  

 

 

In accordance with the rules of the NASDAQ, brokers, banks, trustees or other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to approve the Merger Agreement. Accordingly, if brokers, banks, trustees or other nominees do not receive specific voting instructions from the beneficial owner of such shares they may not vote such shares with respect to the proposal to approve the Merger Agreement. Under such circumstance, a “broker non-vote” would arise. Broker non-votes, if any, will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote “ AGAINST ” the proposal to approve the Merger Agreement, but will have no effect on the adjournment proposal or the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the Merger. For shares of common stock held in “street name,” only shares of common stock affirmatively voted “ FOR ” the proposal to approve the Merger Agreement will be counted as a favorable vote for such proposal.

 

Revocability of Proxies

 

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it any time before it is voted. If you are a shareholder of record, you may revoke your proxy at any time before the vote is taken at the Special Meeting by:

 

submitting a new proxy with a later date, by using the telephone or Internet proxy submission procedures described above, or by completing, signing, dating and returning a new proxy card by mail to the Company;

 

attending the Special Meeting and voting in person; or

 

delivering to the Corporate Secretary of the Company a written notice of revocation c/o LMI Aerospace, Inc., 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301.

 

Please note, however, that only your last-dated proxy will count. Attending the Special Meeting without taking one of the actions described above will not in itself revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to the Company or by sending a written notice of revocation to the Company, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by the Company before the Special Meeting.

 

If you hold your shares in “street name” through a broker, bank, trustee or other nominee, you will need to follow the instructions provided to you by your broker, bank, trustee or other nominee in order to revoke your proxy or submit new voting instructions.

 

39  

 

 

Recommendation of LMI’s Board of Directors

 

The Board of Directors, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” unanimously approved the terms of the Merger Agreement, the Merger and the other transactions contemplated thereby. The Board of Directors, with Mr. Korte abstaining, therefore recommends that you vote “ FOR ” the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, “ FOR ” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and “ FOR ” the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

Adjournments and Postponements

 

Although it is not currently expected, the Special Meeting may be adjourned or postponed for the purpose of soliciting additional proxies. In the event that there is present, in person or by proxy, sufficient favorable voting power to secure the vote of the shareholders of the Company necessary to approve the proposal to approve the Merger Agreement, the Company does not anticipate that it will adjourn or postpone the Special Meeting unless it is advised by counsel that failure to do so could reasonably be expected to result in a violation of applicable law.

 

The Special Meeting may be adjourned by the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the Special Meeting and entitled to vote at the Special Meeting. Any signed proxies received by the Company in which no voting instructions are provided on such matter will be voted in favor of an adjournment in these circumstances.

 

Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow the Company’s shareholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned or postponed.

 

Solicitation of Proxies

 

The Board of Directors is soliciting your proxy, and we will bear the cost of soliciting proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. Innisfree M&A Incorporated, a proxy solicitation firm (“ Innisfree ”), has been retained to assist it in the solicitation of proxies for the Special Meeting and we will pay Innisfree a fee of approximately $25,000, plus certain costs associated with additional services, if required. Proxies may be solicited by mail, personal interview, e-mail, telephone, or via the Internet by Innisfree or, without additional compensation by certain of the Company’s directors, officers and employees.

 

Appraisal Rights

 

Shareholders of the Company are entitled to dissent from the Merger. If a shareholder elects to dissent from the Merger, such shareholder will be entitled to receive the “fair value” of his, her, or its shares of LMI’s common stock if such shareholder complies with the provisions of Section 351.455 of the MGBCL regarding appraisal rights (we refer to such shares as, “ appraisal shares ”). Attached as Annex C to this proxy statement is a copy of the relevant section of the MGBCL regarding such appraisal rights. Appraisal shares will not be converted into the right to receive Merger Consideration. A summary LMI shareholders’ appraisal rights under the MGBCL is provided under “ The Merger—Appraisal Rights .”

 

40  

 

 

To assert appraisal rights, a dissenting shareholder must comply with Section 351.455 of the MGBCL, which requires, among other things, that such shareholder give LMI written notice of his, her or its intent to dissent from the Merger prior to the vote of the shareholders at the Special Meeting and that such shareholder not vote his, her or its shares in favor of the Merger Agreement, the Merger and the transactions contemplated thereby. Any shareholder who returns a signed proxy but fails to provide instructions on the manner in which such shareholder’s shares are to be voted will be deemed to have voted “ FOR ” the Merger. See “ The Merger—Appraisal Rights ” for additional information.

 

Other Matters

 

You should not return your stock certificate or send documents representing common stock with the proxy card. If the Merger is completed, the paying agent for the Merger will send you a letter of transmittal and instructions for exchanging your shares of common stock for the Merger Consideration.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on [●], 2017

 

A copy of this proxy statement is available, without charge, by written request to LMI Aerospace, Inc., Attn: Corporate Secretary, 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301, at www.lmiaerospace.com, or from the SEC website at www.sec.gov.

 

Questions and Additional Information

 

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of our common stock, please contact our Proxy Solicitor:

 

Innisfree M&A Incorporated 

501 Madison Avenue, 20th floor 

New York, New York 10022 

Shareholders may call toll free: (888) 750-5834 

Banks and Brokers may call collect: (212) 750-5833

 

41  

 

 

PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY

 

We are asking you to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger.

 

For a summary of and detailed information regarding this proposal, see the information about the Merger Agreement and the Merger throughout this proxy statement, including the information set forth in the sections captioned “ The Merger ” and “ The Merger Agreement .” A copy of the Merger Agreement is attached to this proxy statement as Annex A. You are urged to read the Merger Agreement carefully in its entirety.

 

Under applicable law, we cannot complete the Merger without the affirmative vote of two-thirds of the outstanding shares of our common stock voting in favor of the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby. If you abstain from voting, fail to cast your vote, in person or by proxy, or fail to give voting instructions to your broker, bank, trustee or other nominee, it will have the same effect as a vote against the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby.

 

The Board of Directors, with Daniel G. Korte abstaining, unanimously recommends that you vote “FOR” this proposal.

 

42  

 

 

THE MERGER

 

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

Parties Involved in the Merger

 

LMI Aerospace, Inc.

 

LMI is a leading supplier of structural assemblies, kits and components, and design engineering services to the aerospace and defense markets. LMI provides a broad array of manufacturing capabilities, as well as engineering and value-added services to the large commercial, corporate and regional, and military aircraft markets. LMI also provides prototyping, testing and design capabilities to customers in support of new product development and in-service aircraft. LMI is a preferred supplier to aircraft original equipment manufacturers and Tier 1 aerospace suppliers. In addition to aerospace products, LMI produces components and assemblies for laser equipment used by semiconductor equipment manufacturers, electronic and electrical wire harnesses, cable assemblies, and mechanical sub-assemblies for the air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries.

 

Founded in 1948 as a manufacturer of components for the large commercial aircraft market of the aerospace industry, LMI became a publicly-held company in 1998. Historically, its business was primarily dependent on the large commercial aircraft market, specifically with one principal customer. In order to diversify its product and customer base, LMI implemented an acquisition and marketing strategy in the late 1990’s that has broadened the number of industries to which LMI sells its products and services and, within the aerospace industry, diversified its customer base to reduce its dependence on any one principal customer.

 

LMI’s common stock is listed on the NASDAQ under the symbol “LMIA.”

 

LMI’s principal executive office is located at 411 Fountain Lakes Blvd., St. Charles, Missouri 63301, and its telephone number is (636) 946-6525.

 

Sonaca S.A.

 

Sonaca is a limited liability company validly existing under the laws of Belgium. Sonaca develops, manufactures and assembles advanced structures for civil, military and space markets. In particular, Sonaca is known for its wing movables expertise where it is regarded as one of the world leaders. Sonaca also supplies engineering services, large sheet metal elements, wing panels, composite structures, and machined components. Sonaca is headquartered in Gosselies, Belgium and has production facilities in China, Romania, Canada and Brazil. Sonaca employs over 2,500 people, including 350 engineers. For more information, visit www.sonaca.com.

 

Sonaca’s principal executive office is located at Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

43  

 

 

Sonaca USA Inc.

 

Intermediate Co is a Delaware corporation and a direct, wholly-owned subsidiary of Sonaca. Intermediate Co was formed in September 2015 by Sonaca as a future platform for Sonaca’s United States operations and for the purpose of potentially serving as an acquisition vehicle, but it does not have, and has never had, any operations.

 

Intermediate Co’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11 .

 

Luminance Merger Sub, Inc.

 

Sub is a Missouri corporation, an indirect wholly-owned subsidiary of Sonaca and direct wholly-owned subsidiary of Intermediate Co. Sub formed on February 14, 2017 solely for the purpose of engaging in the Merger and the other transactions contemplated by the Merger Agreement. Sub has not engaged in any business activities except activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement.

 

Sub’s principal executive office is located at c/o Sonaca S.A. Route nationale 5, 6041 Gosselies, Belgium, and its telephone number is +32.71.25.51.11.

 

Effect of the Merger

 

Upon the terms and subject to the conditions of the Merger Agreement, if the Merger is completed, Sub will merge with and into LMI, and LMI will continue as the surviving corporation, and as a wholly-owned indirect subsidiary of Sonaca, and a wholly-owned direct subsidiary of Intermediate Co. As a result of the Merger, LMI common stock will no longer be publicly traded and will be delisted from NASDAQ. In addition, our common stock will be deregistered under the Exchange Act, and we will no longer file periodic or current reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the surviving corporation.

 

The effective time of the Merger will occur upon the filing of summary articles of merger with the Secretary of State of Missouri, or at such other time as Sonaca and LMI shall agree and specify in the summary articles of merger.

 

Effect on LMI if the Merger is Not Completed

 

If the Merger Agreement is not adopted and the Merger and the other transactions contemplated thereby are not approved by shareholders or if the Merger is not completed for any other reason, LMI shareholders will not receive any payment for their shares of our common stock. Instead, LMI will remain an independent public company, and our common stock will continue to be listed and traded on NASDAQ and registered under the Exchange Act and we will continue to file periodic and current reports with the SEC. In addition, if the Merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that shareholders will continue to be subject to the same risks and opportunities to which they are currently subject, including, among other things, the nature of the industry on which our business largely depends, and general industry, economic, regulatory and market conditions.

 

44  

 

 

Furthermore, if the Merger is not completed, depending on the circumstances that caused the Merger not to be completed, the price of our common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement.

 

Accordingly, if the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. If the Merger is not completed, the Board of Directors will continue to evaluate and review LMI’s business operations, strategic direction and capitalization, among other things, and will make such changes as are deemed appropriate. If the Merger Agreement is not adopted and the Merger and the other transactions contemplated thereby are not approved by shareholders or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Board of Directors will be offered or that LMI’s business, prospects or results of operation will not be adversely impacted.

 

If the Merger Agreement is terminated under certain circumstances, we will be obligated to pay Sonaca a break-up fee of either $10 million or $15 million, depending upon the circumstance. For more information, see the section of this proxy statement captioned “The Merger Agreement—Break-Up Fees .”

 

Merger Consideration

 

At the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger (including any shares resulting from the settlement of Restricted Shares and RSUs which become vested immediately prior to the effective time of the Merger as a result of the consummation of the Merger, but excluding excluded shares and appraisal shares), will be cancelled and automatically converted into the right to receive $14.00 in cash, without interest, and subject to deduction for any required withholding tax. As of the effective time of the Merger, all shares of our common stock will be cancelled and will thereafter represent only the right to receive the Merger Consideration to be paid in accordance with, and subject to, the conditions of the Merger Agreement. At the effective time of the Merger, each share of our common stock held by the Parent, Intermediate Co, or Sub, will be automatically canceled without payment of any consideration. In addition, each share of our common stock held by a shareholder who is entitled to and who properly exercises and perfects appraisal rights under the MGBCL, will not be converted into the right to receive Merger Consideration, unless and until such shareholder fails to perfect or effectively withdraws or loses such shareholder’s right to appraisal under Section 351.455 of the MGBCL, at which time each such share of our common stock will be converted into and will be exchangeable only for the right to receive, as of the later of the effective time of the Merger and the time that such right to appraisal is irrevocably lost, the Merger Consideration. Appraisal shares shall be treated in accordance with Section 351.455, as more fully described in the section of this proxy statement captioned “ The Merger—Appraisal Rights .”

 

45  

 

 

Background of the Merger

 

The Board of Directors and management of the Company regularly evaluate the Company’s long-term strategic plan with the goal of maximizing shareholder value. As part of this ongoing process, the Board of Directors and management of the Company have periodically considered a variety of potential strategic alternatives relating to the Company’s business, including the continuation of the Company’s business plan as a standalone enterprise, potential strategic alliances and other commercial arrangements, modifications to the Company’s strategy, prospects for strategic mergers and acquisitions and other business combinations and sales of certain divisions.

 

On November 4, 2016, and without prior solicitation from the Company or its advisors, a representative of Sonaca’s financial advisor, Credit Suisse AG (“ Credit Suisse ”), contacted Gregory Summe, a member of the Board of Directors, and verbally indicated that Sonaca was interested in making an offer to acquire 100% of the stock of the Company for cash. Credit Suisse had first attempted to contact Gerald Daniels, Chairman of the Board of Directors, but had been unable to reach him prior to contacting Mr. Summe. Mr. Summe immediately referred the inquiry to Mr. Daniels.

 

Later that same day, on November 4, 2016, and without prior solicitation from the Company or its advisors, Bernard Delvaux, Chief Executive Officer of Sonaca, submitted a written letter addressed to Mr. Daniels, expressing Sonaca’s interest in a possible business combination transaction with the Company. The letter envisioned a transaction whereby Sonaca would acquire 100% of the stock of the Company for cash and indicated that, based on Sonaca’s review of publicly-available information, it currently assigned a value range to the Company of $11.00 – $12.50 per share of Company common stock. The letter stated that Sonaca was familiar with the Company’s business and described a number of perceived corporate and business synergies between the Company and Sonaca. The letter noted that a potential acquisition of the Company was a strategic priority for Sonaca and that Sonaca was prepared promptly to commit the necessary resources to complete confirmatory due diligence and negotiate a definitive merger agreement. The letter indicated that Sonaca had already retained Credit Suisse as its financial advisor and Kaye Scholer LLP (now known as Arnold & Porter Kaye Scholer) (“ APKS ”) as its outside legal counsel. The letter requested a 30-day exclusivity period in which to perform additional due diligence, after which Sonaca would be willing to consider increasing the proposed price if its due diligence identified additional value. Enclosed with the letter was a proposed form of exclusivity agreement. On November 4, 2016, the closing price per share of Company common stock on NASDAQ was $7.49.

 

On November 5, 2016, the Company contacted Lazard and expressed its desire to retain Lazard as the Company’s financial advisor in evaluating and responding to Sonaca’s proposal.

 

On November 7, 2016, the Board of Directors contacted Gibson, Dunn & Crutcher LLP (“ Gibson Dunn ”) and expressed its desire to retain Gibson Dunn as its outside legal advisor to advise on matters relating to the Sonaca proposal.

 

46  

 

 

On November 7, 2016, the Board of Directors held a telephonic meeting, with members of Company management present, to discuss the particulars of Sonaca’s proposal and the merits and risks of exploring a potential transaction with Sonaca, including preliminary perspectives on the price range indicated in the November 4 letter from Mr. Delvaux. At the request of the Board of Directors, representatives of both Gibson Dunn and Lazard, each of which has extensive experience in transactions of this type, were also present for the meeting. The Board of Directors discussed with representatives of Gibson Dunn and Lazard various alternatives to a transaction with Sonaca and processes for exploring a potential strategic transaction with Sonaca, including an initial discussion about the merits and challenges of proceeding exclusively with Sonaca for a period of time. A representative of Gibson Dunn reviewed the fiduciary duties of the Board of Directors in the context of an acquisition proposal generally and with respect to Sonaca’s proposal specifically.

 

On November 8, 2016, Mr. Daniels, on behalf of the Board of Directors, delivered a written letter to Mr. Delvaux acknowledging receipt of Sonaca’s letter and explaining that the Board of Directors had met to discuss the proposal and had engaged resources to assist in its investigation of the matter. The letter did not provide any feedback to Mr. Delvaux on either the valuation of Sonaca’s indication of interest or its request for exclusivity.

 

On November 11, 2016, the Board of Directors entered into an engagement letter to formally retain Gibson Dunn as its outside legal counsel.

 

On November 12, 2016, the Board of Directors convened a telephonic meeting, with members of Company management and representatives of Lazard and Gibson Dunn present. The Board of Directors discussed certain financial analyses prepared by Lazard at the request of the Board of Directors. The Board of Directors also further discussed the merits and risks of proceeding exclusively with Sonaca and, if the Company were to consider proceeding exclusively with Sonaca for a period of time, the appropriate parameters of any exclusivity period. A representative of Gibson Dunn reviewed the fiduciary duties of the Board of Directors in considering and responding to an acquisition proposal as well as in relation to Sonaca’s request for exclusivity. It was decided that Daniel G. Korte, President and Chief Executive Officer of the Company, would call Mr. Delvaux to suggest a meeting between the Company and Sonaca management teams, and would indicate on that call that the Company was not prepared to grant exclusivity at the time. After further discussion, the Board of Directors established an ad hoc board committee, referred to as the “ Sunburst Committee ,” consisting of independent directors Mr. Daniels, John Eulich and Mr. Summe; Lawrence Resnick (who was then a special advisor to the Board of Directors on strategic and industry matters) was appointed to advise the Sunburst Committee. Mr. Resnick later became a member of the Sunburst Committee upon joining the Board of Directors effective January 1, 2017. The Sunburst Committee was empowered to evaluate the potential transaction and report back to the full Board of Directors as material developments should arise.

 

On November 13, 2016, Mr. Korte and Mr. Delvaux spoke by telephone to discuss general perspectives on and Sonaca’s rationale regarding the potential fit and strategic alignment of the Company’s and Sonaca’s respective businesses. Mr. Korte also expressed to Mr. Delvaux that, in light of the Company’s status as a publicly-traded company and its fiduciary duties to shareholders, the Board of Directors could not, without sufficient justification, at the time entertain a grant of exclusivity and would in any event require ample opportunity for a market check either before doing so or affirmatively after signing any definitive agreement that may evolve.

 

47  

 

 

On November 14, 2016, Mr. Delvaux sent a written letter to Mr. Korte reiterating Sonaca’s requirement for exclusivity in order to conduct further due diligence for the purpose of determining its ability to increase its previously indicated value range. The letter indicated that, while Sonaca was not prepared to proceed on any basis other than exclusivity, it would be willing to consider a shorter, 21-day exclusivity period and was also prepared to narrow the range of its diligence inquiry to a short list of what it considered to be the most important items based on its prior review of publicly-available information. Mr. Delvaux also acknowledged that Sonaca envisioned that any definitive agreement between the two companies would include a post-signing market check provision.

 

On November 15, 2016, the Sunburst Committee held a telephonic meeting, with members of Company management and representatives of Lazard also present. The Sunburst Committee discussed the November 14 letter from Mr. Delvaux and, in particular, Sonaca’s expressed willingness to agree to a shorter exclusivity period, agreement in principle to a go-shop provision and the proposed scope of the initial diligence effort. Following discussion of various options with respect to exclusivity, the Sunburst Committee agreed that it was in the best interests of the Company’s shareholders for the Company to negotiate and execute with Sonaca a confidentiality agreement containing a standstill provision and granting exclusivity for a period of ten calendar days, after which time a higher value range would need to be provided in order for the Company to agree to extend exclusivity for an additional 11 calendar days.

 

On November 17, 2016, the Board of Directors held a telephonic meeting, with Company management present, to discuss the Sunburst Committee’s recommendation that the Company agree to the exclusivity framework previously discussed by the Sunburst Committee. Namely, the Company would provide Sonaca with exclusivity for an initial period of ten calendar days, during which period the Company would furnish Sonaca with a limited set of non-public information (to be agreed upon in advance by the Company and Sonaca) in order to facilitate the submission by Sonaca of a revised non-binding proposal reflecting an increased value range. If the higher value range justified doing so, the Company would agree to extend the exclusivity period for an additional 11 calendar days. After discussion, the Board of Directors agreed that it was in the best interests of the Company’s shareholders to enter into an appropriate confidentiality and standstill agreement with Sonaca, which would contain an exclusivity provision, and to prepare information about the Company that would allow Sonaca to possibly revise upwards the value range it would assign to the Company.

 

Between November 16, 2016 and November 23, 2016, the Company, Sonaca and their respective counsel negotiated the terms of a confidentiality agreement that included customary standstill and non-solicitation provisions. The Company and Sonaca executed the confidentiality agreement on November 23, 2016. The confidentiality agreement provided Sonaca exclusivity with respect to a potential acquisition of the Company until December 6, 2016, longer than the originally proposed ten calendar day period in part because of the upcoming Thanksgiving holiday weekend. The confidentiality agreement also provided for the possibility of an exclusivity extension for an additional 11 calendar days if, on or before December 6, 2016, Sonaca submitted to the Company an updated written indication of interest with a per share purchase price range reflecting the results of Sonaca’s due diligence findings, and such per share purchase price range represented a range which the Board of Directors determined warranted a continuation of discussions. Under the confidentiality agreement, the initial exclusivity end date of December 6, 2016 would extend on a daily basis until the Company provided to Sonaca substantially all of the items enumerated in an agreed-upon due diligence request list that was negotiated in parallel with the confidentiality agreement.

 

48  

 

 

Also on November 23, 2016, the Company executed a formal engagement letter with Lazard in connection with the potential sale of the Company.

 

On November 24, 2016, the Company provided substantially all of the due diligence materials enumerated in the initial due diligence request list, such that the initial exclusivity period would expire on December 7, 2016 unless extended by the Board of Directors in its discretion pursuant to the confidentiality agreement. These initial due diligence materials provided by the Company to Sonaca included the Company’s August 2016 Plan, which had been previously approved by the Board of Directors in August 2016 and is defined and described in the section captioned “— Management Projections.

 

On November 29, 2016, the Board of Directors convened a brief telephonic meeting, with members of Company management present. Mr. Korte updated the Board of Directors on the Company’s execution of a confidentiality agreement with Sonaca just prior to the Thanksgiving holiday weekend, the key terms of the agreement and the status of the initial diligence production.

 

On the evening of December 1, 2016, Mr. Korte, Clifford C. Stebe, Jr., the Company’s Chief Financial Officer, and Lawrence E. (Ed) Dickinson, principal at Aerospace Consulting, LLC, the former chief financial officer of the Company and currently a strategic consultant to the Company, met over dinner in New York City with Mr. Delvaux, Pierre Sonveaux, Chairman and President of Sonaca, and Erik van Ockenburg, Chief Financial Officer and Strategy Officer of Sonaca. Messrs. Korte, Stebe, Dickinson, Delvaux, Sonveaux and van Ockenburg were also accompanied by representatives of Lazard and Credit Suisse. The dinner was primarily of a social and introductory nature in advance of the next day’s scheduled diligence session.

 

On December 2, 2016, representatives of the Company and Sonaca, including Messrs. Korte, Stebe, Dickinson, Delvaux, Sonveaux and van Ockenburg, along with additional Sonaca executives and accompanied by representatives of Lazard, Credit Suisse and Deloitte (Sonaca’s accounting and tax advisor), held an in-person meeting at Lazard’s New York office to review the initial due diligence materials that the Company had provided on November 24, 2016. The discussion covered aspects of the Company’s operations, content programs and financial performance.

 

On December 5, 2016, Mr. Delvaux submitted a written letter addressed to Messrs. Daniels and Korte revising Sonaca’s non-binding indication of interest to acquire 100% of the Company’s stock for cash at an increased value range of $12.50 – $13.75 per share. The closing price per share of Company common stock on NASDAQ on December 5, 2016 was $9.03. In light of the increased value range stated in Sonaca’s revised proposal, the letter requested (in accordance with the confidentiality agreement) an 11 calendar day extension to the original December 7, 2016 exclusivity termination date, in order to provide Sonaca an opportunity to review additional due diligence materials to be set forth in an expanded due diligence request list for the purpose of enabling Sonaca to formalize an offer by the expiration of such 11-day period.

 

49  

 

 

The next day, on December 6, 2016, the Sunburst Committee convened a telephonic meeting to consider Sonaca’s revised indication of interest and request for extension of exclusivity, with members of Company management and representatives of Lazard and Gibson Dunn present. Members of Company management and representatives of Lazard recounted meetings and discussions with Sonaca and Credit Suisse to date. The Sunburst Committee instructed Lazard to update certain financial analyses on the basis of Sonaca’s most recent offer for presentation to the Sunburst Committee at another meeting scheduled for the next day, at which the Sunburst Committee would decide on a response to Sonaca’s December 5 proposal.

 

On December 7, 2016, the Sunburst Committee convened a telephonic meeting, with members of Company management and representatives of Lazard present. After discussing with Lazard certain of its updated financial analyses and deliberating further, the Sunburst Committee determined that Sonaca’s December 5, 2016 revised indication of interest offered inadequate value for the Company’s shareholders and did not warrant a continuation of discussions with Sonaca nor an extension of exclusivity.

 

On December 7, 2016, the Company sent a written letter to Mr. Delvaux informing him that, after careful consideration of Sonaca’s December 5, 2016 revised indication of interest, including consultations with its financial and legal advisors, the Board of Directors had determined a continuation of discussions with Sonaca was not warranted and that, consequently, the exclusivity period contemplated in the confidentiality agreement had expired.

 

Following delivery of the December 7, 2016 letter to Sonaca until December 16, 2016, there was no further contact between the Company and Sonaca.

 

On December 8, 2016, Mr. Daniels held an informal telephone conference with two other members of the Board of Directors (who were not serving on the Sunburst Committee) to update them on developments to date.

 

On December 16, 2016, Mr. Delvaux submitted a written letter to Mr. Daniels, which included a revised non-binding indication of interest to acquire 100% of the stock of the Company for cash at a value range of $13.00 – $16.00 per share. The letter indicated that the increased value range was predicated on fulfillment of certain additional due diligence requests and further discussions and meetings with Company management in order to confirm Sonaca’s revised assumptions. The letter also stated that Sonaca would seek, as part of a transaction, an agreement in principle on the terms of an employment agreement with Mr. Korte until at least December 31, 2019. The letter requested a new exclusivity period ending at 11:59 p.m. Eastern time on January 22, 2017, assuming receipt of the specified further due diligence information on or before 11:59 p.m. Eastern time on January 2, 2017.

 

50  

 

 

Later in the afternoon on December 16, 2016, the Sunburst Committee, with Company management and representatives of Lazard and Gibson Dunn present, convened a telephonic meeting to discuss the revised indication of interest from Sonaca and the merits and risks of entering into a new exclusivity period with Sonaca until January 22, 2017. The Sunburst Committee sought input from Company management on the feasibility of the outlined process. A representative of Gibson Dunn reviewed again the fiduciary duties of the Board of Directors and recommended inclusion of a go-shop provision in a definitive acquisition agreement, should one be executed. After discussion, the Sunburst Committee instructed Gibson Dunn to prepare an addendum to the existing confidentiality agreement with Sonaca that would provide Sonaca with exclusivity as outlined in its December 16, 2016 letter, but subject to a “drop-dead” exclusivity termination date of January 31, 2017 at 11:59 p.m. Eastern time regardless of whether the Company had delivered substantially all of the requested additional due diligence information by 11:59 p.m. Eastern time on January 2, 2017 or thereafter. Based on the facts then known to it and to the Board of Directors, the Sunburst Committee also instructed Lazard to verbally communicate to Credit Suisse that Sonaca’s next revised proposal would need to fall at the higher end of the indicated value range in order for the Board of Directors to view it as compelling at such time.

 

On December 19, 2016, the Company and Sonaca entered into an addendum to the November 23, 2016 confidentiality agreement. Under this addendum, the Company endeavored to provide certain requested additional due diligence information to Sonaca regarding the Company’s businesses and products and agreed to provide Sonaca with exclusivity from December 19, 2016 until 11:59 p.m. Eastern time on January 22, 2017. The exclusivity period would extend on a daily basis if the Company did not provide substantially all of the agreed-upon additional due diligence information by 11:59 p.m. Eastern time on January 2, 2017 but would in any event terminate on January 31, 2017 at 11:59 p.m. Eastern time. The addendum reiterated the Company’s expectation that if a definitive agreement were to be executed, such definitive agreement would include a post-signing market check provision.

 

On January 2, 2017, in accordance with the confidentiality agreement (as amended by the December 19, 2016 addendum), Lazard, on behalf of the Company, delivered the agreed-upon additional due diligence materials to Credit Suisse, on behalf of Sonaca. The Company concurrently notified Sonaca in writing that such delivery constituted substantially all of the requested information, and that, in accordance with the terms of the confidentiality agreement (as amended by the December 19, 2016 addendum), exclusivity would terminate on January 22, 2017.

 

On January 4, 2017, Messrs. Korte, Stebe and Dickinson held a financial diligence call with representatives of the Sonaca management team, including Paul Costanzo, Chief Financial Officer of Sonaca Montreal.

 

On January 6, 2017, Mr. Stebe and other members of the Company’s management team, accompanied by the Company’s independent auditor, held two due diligence calls with Mr. Costanzo and other representatives of the Sonaca management team covering tax and audit diligence matters, respectively.

 

In response to Sonaca’s legal and confirmatory due diligence requests, the Company established an online data room that was populated with certain non-public information regarding the Company’s organization, business and operations, properties and employees, as well as tax, legal and miscellaneous matters, in response to Sonaca’s specific legal diligence requests. On January 9, 2017, Lazard provided access to these due diligence materials to Sonaca through the online data room in order to facilitate the completion of Sonaca’s confirmatory due diligence.

 

51  

 

 

Also on January 9, 2017, and from time to time thereafter through the execution of the Merger Agreement (including on January 17, 2017, January 23, 2017 and February 6, 2017), members of the Company’s in-house legal team held telephone calls and exchanged e-mails with representatives of APKS regarding legal diligence requests.

 

On January 9-10, 2017, Mr. Korte accompanied Sonaca operations executives on facility site visits to the Company’s facilities located in Vista, California; Fredonia, Kansas; Tulsa, Oklahoma; Cottonwood, Kansas; Washington, Missouri; and St. Charles, Missouri.

 

On January 11-12, 2017, representatives of the Company, including Messrs. Korte, Stebe, Dickinson, and Ms. Renée Skonier, General Counsel and Chief Compliance Officer of the Company, and representatives of Sonaca, including Messrs. Delvaux, van Ockenburg, Costanzo and other Sonaca executives, accompanied by representatives of Lazard and Credit Suisse, conducted in-person meetings in St. Louis, Missouri to review ongoing due diligence requests.

 

Also on the evening of January 11, 2017, Messrs. Korte and Delvaux met in St. Louis, Missouri, over dinner and held general discussions regarding the employment arrangements envisioned for Mr. Korte and potentially certain other executives of the Company if a transaction were to occur, the negotiation of which arrangements was being directed and overseen by the Compensation Committee of the Board of Directors (which is comprised solely of independent directors). Messrs. Korte and Delvaux also further discussed their views on the potential strategic alignment of the Company’s and Sonaca’s respective businesses.

 

On January 12, 2017, Messrs. Stebe and Dickinson held a telephone conference with financial executives of Sonaca regarding various financial diligence matters.

 

On January 13, 2017, Messrs. Stebe and Costanzo spoke again by telephone regarding certain follow-up financial diligence matters.

 

On January 16, 2017, Messrs. Korte, Stebe and Dickinson held a call with representatives of Sonaca to discuss the diligence process and address particular follow-up diligence inquiries.

 

Between January 18-27, 2017 Messrs. Korte and Delvaux spoke from time to time by telephone about potential compensation structures for the Company leadership team following a transaction, if a transaction should occur, the negotiation of which was being directed and overseen by the Compensation Committee of the Board of Directors (which is comprised solely of independent directors).

 

On January 18, 2017, Messrs. Stebe and Costanzo spoke by telephone regarding certain follow-up financial diligence matters.

 

On January 19, 2017, Mr. Delvaux submitted a written letter to Mr. Korte, expressing Sonaca’s continued interest in a potential transaction and requesting an extension of the exclusivity period from 11:59 p.m. Eastern time on January 22, 2017 until 5:00 p.m. Eastern time on January 27, 2017, in order to give Sonaca additional time to evaluate recently received due diligence information in order to be able to make a final price per share proposal. The letter transmitted a preliminary draft Merger Agreement for the Company’s review.

 

52  

 

 

On January 20, 2017 (and again on February 7, 2017), Mr. Stebe e-mailed Mr. Costanzo in response to particular follow-up financial diligence inquiries.

 

On January 21, 2017, Mr. Korte sent a written letter to Mr. Delvaux agreeing to extend the exclusivity period until 5:00 p.m. Eastern time on January 27, 2017 in light of Sonaca’s need to complete its review of the diligence materials provided and obtain required approvals of its final price per share proposal.

 

On January 23, 2017, the Sunburst Committee held a telephonic meeting, with representatives of Lazard and Gibson Dunn present, to review key terms of the preliminary draft Merger Agreement prepared by APKS. The draft Merger Agreement provided for the acquisition of the Company pursuant to a reverse triangular merger of an indirect, wholly-owned subsidiary of Sonaca with and into the Company, with the Company surviving the Merger as an indirect wholly-owned subsidiary of Sonaca. The draft also provided for the full acceleration of outstanding equity awards of the Company and a 21-day “go-shop” period during which the Company could actively solicit alternative proposals from other parties, followed by a “no-shop” period during which the Company could only pursue certain unsolicited alternative proposals (in addition to continuing to pursue certain qualifying proposals received during the “go-shop” period). The draft provided for Sonaca to obtain a combination of debt and equity financing to fund the merger consideration, and included a break-up fee payable by the Company to Sonaca as Sonaca’s sole remedy in certain specified circumstances and a reverse break-up fee payable by Sonaca to the Company as the Company’s sole remedy in certain specified circumstances (including in the event of Sonaca’s failure to obtain financing). The Sunburst Committee discussed with the representatives of Gibson Dunn and Lazard the potential implications of various key provisions in the draft Merger Agreement, including in particular the potential risks that the proposed financing structure and reverse break-up fee construct could pose to deal certainty.

 

Later that same day, on January 23, 2017, representatives of Gibson Dunn called representatives of APKS to provide initial feedback on material issues raised by the draft Merger Agreement, including the Company’s requirement for greater deal certainty and comfort regarding Sonaca’s financing arrangements (specifically, a right to full specific performance and uncapped damages for breach, including in a circumstance where Sonaca was unable to perform due to a financing failure, and removal of the reverse break-up fee concept), a longer “go-shop” period, and a more flexible standard under which the Board of Directors could exercise its “fiduciary out.”

 

On January 27, 2017, a representative of Credit Suisse called a representative of Lazard to verbally indicate a revised proposal with a value of $14.00 per share of Company common stock. On January 27, 2017, the closing price per share of Company common stock on NASDAQ was $8.90.

 

53  

 

 

On January 27, 2017, the Compensation Committee of the Board of Directors held a telephonic meeting, with members of Company management and representatives of the Compensation Committee’s outside compensation consultant also present. The Compensation Committee discussed the potential impact of a transaction with Sonaca on executive employment agreements and incentives and sought input from its consultant on certain matters, including the proposed treatment of outstanding equity awards in the transaction, insight into current market practices and the consultant’s in-process analysis of certain tax-related considerations under Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”).

 

The next morning, on January 28, 2017, the Sunburst Committee convened a telephonic meeting to consider Sonaca’s revised proposal of $14.00 per share. Also in attendance were members of Company management and representatives of Gibson Dunn and Lazard. In addition to discussing the price terms of the latest offer, the Sunburst Committee also discussed certain other terms of the proposal including Sonaca’s request for a commitment on new employment contracts with four to six members of the Company management team and the scheduling of introductory telephone calls with Messrs. Korte and Delvaux and the Company’s three largest customers. After deliberating on the merits and risks of possible alternative responses to Sonaca’s current proposal, the Sunburst Committee decided to instruct Lazard to counter Sonaca’s $14.00 per share proposal with a price of $15.00 per share. In addition, the Sunburst Committee instructed Lazard to request removal of the reverse break-up fee and to offer employment agreements for Messrs. Korte and Stebe only (with no associated closing condition) and calls with only two of the Company’s largest customers. A representative of management then discussed the Company’s ongoing work to update management’s financial forecasts.

 

Shortly following the conclusion of the Sunburst Committee meeting on January 28, 2017, based on the instructions of the Sunburst Committee, a representative of Lazard called Credit Suisse and indicated that the Company was only willing to proceed on the basis of a price per share of at least $15.00 and on the other terms discussed by the Sunburst Committee.

 

The next morning, on January 29, 2017, the full Board of Directors held a telephonic meeting, with members of the Company management team and representatives of Lazard and Gibson Dunn present, at which the Sunburst Committee briefed the other directors on the Sunburst Committee’s decision to reject the $14.00 per share offer and counter at a price per share of $15.00. A representative of Lazard reported that he had delivered this message to a representative of Credit Suisse, and had also communicated the Company’s position that the reverse break-up fee concept must be deleted, that Mr. Korte and Mr. Stebe would agree to post-closing employment arrangements with Sonaca but that there could be no associated closing condition or requirement for any other executive to enter into an employment agreement, and that the Company would not facilitate more than two confirmatory customer calls. A representative of Gibson Dunn reviewed the fiduciary duties of the Board in considering and responding to an acquisition proposal as well certain legal terms of Sonaca’s proposal and answered questions. The Board of Directors also discussed its assessment of certain risks relating to certainty of closing a transaction with Sonaca.

 

54  

 

 

On January 31, 2017, the Board of Directors held a telephonic meeting, with members of Company management and representatives of Lazard and Gibson Dunn present. The meeting began with a representative of Lazard reporting that he had not yet received a response from Credit Suisse to the Company’s $15.00 counter-proposal delivered on January 28, 2017. Members of the Company management team and the Compensation Committee of the Board of Directors (which is comprised solely of independent directors) then updated the Board of Directors on the Compensation Committee’s consideration, direction and oversight of various compensation matters relating to the potential transaction with Sonaca, including the contemplated acceleration of equity awards and certain analyses being performed by the Compensation Committee’s outside compensation consultant. Mr. Stebe updated the Board of Directors on preliminary financial results for the fourth quarter and fiscal year ended December 31, 2016, which indicated an earnings shortfall and higher net debt balance relative to expectations. With respect to net debt, Mr. Stebe informed the Board of Directors that preliminary results indicated an actual net debt balance of $240.8 million at December 31, 2016, approximately $10 million higher than management’s expected net balance of $231.052 million that had been communicated to Sonaca on November 24, 2016 together with the August 2016 Plan. Mr. Stebe also discussed the bridge from the August 2016 Plan to management’s updated January 2017 Plan and to its Risk-Adjusted January 2017 Plan, which are defined and described further in the section of this proxy statement captioned “— Management Projections ,” noting adjustments made relative to the August 2016 Plan to account for market conditions, rate changes, the Company’s 2017 budget and delays in implementation of the Company’s enterprise resource planning system. Discussion ensued, addressing major drivers to sales and profit number reductions reflected in the updated forecasts, and Mr. Stebe answered questions. The Board of Directors and the members of management present discussed at length these results and management’s rationale for the revised forecasts, notably management’s belief that the Risk-Adjusted January 2017 Plan reflected its most up-to-date and balanced forecasts, reflecting in particular completion of the 2017 budget, learnings from the Company’s preliminary 2016 full year financial results, anticipated reductions in certain platform build rate outlooks, management changes, potential challenges in winning new opportunities and potential execution risks on new programs that were not included in the August 2016 Plan and the January 2017 Plan. Representatives of Lazard then reviewed with the Board of Directors certain preliminary valuation analyses and performance statistics of the Company and answered questions.

 

On February 2, 2017, a representative of Credit Suisse called Lazard to verbally indicate a final revised proposal with a value of $14.50 per share of Company common stock.

 

That afternoon, on February 2, 2017, the Sunburst Committee convened a telephonic meeting, which was also attended by members of Company management and representatives of Lazard and Gibson Dunn. A representative of Lazard began by updating the Sunburst Committee on his conversation with Credit Suisse regarding Sonaca’s counter proposal of $14.50 per share. Credit Suisse had characterized the offer as Sonaca’s absolute “best and final” offer and explained that Sonaca’s delay in responding had been due to its need to seek formal approvals from its shareholders, all of which approvals had now been obtained according to Credit Suisse. Credit Suisse had also conveyed that Sonaca had agreed to most of the other terms of the Company’s January 28 counter-proposal, namely that it would require only two confirmatory customer calls, it had agreed to delete the concept of a reverse break-up fee as a limitation on the Company’s damages and to delete all other financing contingency-like provisions from the draft Merger Agreement, would request the delivery at signing of conditional employment agreements only with Messrs. Korte and Stebe with no associated closing condition and would agree to a physical inspection of certain other due diligence items at a location specified by the Company. The Sunburst Committee discussed Sonaca’s proposal and asked questions of Lazard, noting that the mathematical difference between a purchase price of $15.00 versus $14.50 per share represented a relatively small percentage of enterprise and equity value and also a small difference in EBITDA multiples. After further deliberation, the Sunburst Committee directed Lazard to communicate to Credit Suisse that the Company would move forward with negotiating the definitive Merger Agreement on the basis of a $14.50 price per share, while emphasizing that this price remained subject to approval of the full Board of Directors and that the Company continued to seek a longer, 35 calendar day “go-shop” period in lieu of Sonaca’s proposed 21 days. After a review of market data regarding break-up fees involving similarly leveraged transactions presented by representatives of Lazard, and following a discussion with a representative of Gibson Dunn on the legal implications of the break-up fee amount, the Sunburst Committee instructed Lazard to propose to Credit Suisse a single break-up fee of $7.5 million, equal to approximately 3.7% of equity value and 1.7% of enterprise value. The Sunburst Committee authorized Gibson Dunn to reflect this proposal in its revised draft of the Merger Agreement.

 

55  

 

 

On February 2, 2017, shortly following the telephonic meeting of the Sunburst Committee, Lazard called Credit Suisse to communicate the Company’s desire to move forward on the basis of a value of $14.50 per share subject to successful negotiation of a mutually acceptable Merger Agreement and final approval of the full Board of Directors. On this call, Lazard also communicated the Company’s counter-proposal regarding certain terms of the Merger Agreement, including the length of the “go-shop” period and size of the break-up fee.

 

On the morning of February 3, 2017, Gibson Dunn sent to APKS a revised draft of the Merger Agreement reflecting the Company’s previously articulated positions, including with respect to the length of the “go-shop” period and the amount of the break-up fee.

 

Later in the afternoon on February 3, 2017, the Board of Directors held a telephonic meeting, with members of Company management and representatives of Lazard and Gibson Dunn present. During the meeting, members of the Company management team reviewed with the Board of Directors the content of management’s January 2017 Plan and Risk-Adjusted January 2017 Plan, incorporating the most current market and Company operating performance data and management’s updated forecast for 2017, 2018, 2019, and 2020 financial performance provided to the Board of Directors in advance of the meeting. The presentation reviewed certain assumptions of management underlying the January 2017 Plan and Risk-Adjusted January 2017 Plan, as well as differences in the updated plans as compared to the August 2016 Plan that had been previously approved by the Board of Directors in August 2016 and provided to Sonaca on November 24, 2016. Following discussion, the Board of Directors approved the January 2017 Plan and Risk-Adjusted January 2017 Plan and authorized Lazard to provide both of these forecasts, together with management’s update on preliminary financial results for the fourth quarter and fiscal year ended December 31, 2016, to Credit Suisse as soon as possible. The Board of Directors also formally instructed Lazard to rely on the Risk-Adjusted January 2017 Plan for the purpose of rendering its Fairness Opinion to be presented to the Board of Directors at a subsequent meeting, based on its conclusion that the Risk-Adjusted January 2017 Plan represented the most realistic and appropriate basis for Lazard’s analysis. Representatives of Gibson Dunn then reviewed in detail the key terms of the draft Merger Agreement, with a focus on the proposed deal protections and closing conditions. A discussion then ensued regarding the course of negotiations of the deal protections, including the break-up fee, the go-shop and no-shop provisions in the draft Merger Agreement, and the absence of a financing contingency. The Board of Directors asked questions about the extent of operating flexibility afforded by the interim negative covenants and a discussion ensued.

 

56  

 

 

On the evening of February 3, 2017 following the Board of Directors telephonic meeting, Lazard, on behalf of the Company, provided to Sonaca and Credit Suisse an update on preliminary financial results for the fourth quarter and fiscal year ended December 31, 2016, which indicated an earnings shortfall and higher net debt balance relative to expectations. Lazard also provided to Credit Suisse Company management’s revised forecasts as reflected in the January 2017 Plan and Risk-Adjusted January 2017 Plan.

 

Also on February 3, 2017 and February 4, 2017, Messrs. Korte and Delvaux had further discussions regarding the terms of the employment agreements expected to be executed by Messrs. Korte and Stebe concurrently with the execution of a definitive Merger Agreement, which were being directed and overseen and would be subject to review and approval by the Compensation Committee of the Board of Directors (which is comprised solely of independent directors). Messrs. Korte and Delvaux also discussed procedures for the two upcoming planned introductory calls with customers of the Company.

 

On February 5, 2017, Messrs. Korte and Stebe and representatives of Lazard held a conference call with members of Sonaca’s management team and representatives of Credit Suisse to discuss the preliminary financial results of the fourth quarter and fiscal year ended December 31, 2016 and the revised financial forecasts that had been provided to Credit Suisse on February 3, 2017.

 

On the morning of February 6, 2017, the Board of Directors convened a telephonic meeting with members of the Board of Directors, members of Company management and representatives of Gibson Dunn. A representative of the management team updated the Board of Directors on the conversation that had taken place the day before with Sonaca and Credit Suisse regarding the preliminary financial results of the fourth quarter and fiscal year ended December 31, 2016 and Company management’s revised financial forecasts. Following that conversation, Sonaca had communicated both to Mr. Korte and via Credit Suisse to representatives of Lazard that Sonaca believed the updated financial information (and in particular the higher than expected net debt balance) necessitated a decrease in Sonaca’s offer of between $0.75 to $1.00 per share. A member of the management team also then informed the Board of Directors that the Company had received certain letters from a major customer with respect to the Company’s performance under the contract with that customer, and provided information on the Company’s recovery plan regarding such matters. The Board of Directors then reviewed with members of Company management and representatives of Gibson Dunn certain share price projections that had been included in a presentation to the Company in August 2016 by a financial advisor other than Lazard (and which other financial advisor was neither engaged by, involved in nor advising the Company or the Board of Directors with respect to a potential transaction). The Board of Directors discussed and agreed that the assumptions on EBITDA and net debt underlying such projections were invalid and, therefore, that the projections were not useful. Accordingly, the Board of Directors gave no weight to such projections in its consideration of matters relating to a potential transaction with Sonaca. Representatives of Lazard joined the meeting and recounted for the Board of Directors their conversations with Sonaca management and Credit Suisse, during which the Sonaca and Credit Suisse representatives had reiterated that a $0.75 to $1.00 reduction in Sonaca’s offer price was likely forthcoming. After further discussion, the Board of Directors, with the concurrence of Lazard, instructed the Company management team to present an overall business update to Sonaca as soon as possible and prior to receiving a revised offer.

 

57  

 

 

On February 8, 2017, members of the Company management team and representatives of Lazard held a conference call with members of the Sonaca management team and representatives of Credit Suisse to discuss additional business updates, including various opportunities in the Company’s business pipeline that were not reflected in the Company’s 2016 year-end financial results. During that call, a member of the Company management team also disclosed to the representatives of the Sonaca management team that certain performance issues had recently been brought to the Company’s attention by one of its customers, but that such issues were already in the process of being addressed and that, based on subsequent discussions with and new orders subsequently received from that same customer, Company management believed that the ongoing customer relationship remained sound. The members of the Company management also communicated their belief that the identified performance issues did not impact any of the financial forecasts that had been provided to Sonaca and that the Company was willing to facilitate an introductory call with Sonaca and the relevant customer in addition to the two introductory calls with other customers the Company had already agreed to facilitate.

 

On February 9, 2017, a representative of Credit Suisse called a representative of Lazard to verbally indicate a revised proposal with a value of $13.75 per share, which represented a $0.75 reduction from the previously agreed-upon price of $14.50 per share. Credit Suisse communicated that this revised value incorporated the preliminary 2016 fourth quarter financial results, Company management’s revised financial forecasts and the Company’s higher-than-expected net debt balance.

 

The same afternoon, on February 9, 2017, the Sunburst Committee convened a telephonic meeting to consider Sonaca’s revised proposal. Members of the Company management team and representatives of Lazard and Gibson Dunn were also present. After deliberation, the Sunburst Committee instructed Lazard to counter Sonaca’s offer with a value of $14.25 per share.

 

Immediately after the Sunburst Committee meeting on February 9, 2017, a representative of Lazard called a representative of Credit Suisse to counter Sonaca’s offer with a value of $14.25 per share of Company common stock.

 

On February 10, 2017, a representative of Credit Suisse called a representative of Lazard to verbally indicate a final revised proposal with a value of $14.00 per share of Company common stock.

 

The same afternoon, on February 10, 2017, the Sunburst Committee convened a telephonic meeting, with members of the Company management team and representatives of Lazard and Gibson Dunn present, to consider whether to move forward on the basis of Sonaca’s final offer of $14.00 per share. After deliberation, the Sunburst Committee instructed Lazard to communicate to Credit Suisse that the Company would be willing to move forward on the basis of a $14.00 per share price, subject to successful negotiation of a mutually acceptable Merger Agreement and final approval by the full Board of Directors. A representative of Lazard then called a representative of Credit Suisse to communicate the Company’s interest in moving forward.

 

58  

 

 

In the late afternoon on February 10, 2017, representatives of Gibson Dunn and APKS held a conference call to discuss open issues in the revised draft of the Merger Agreement APKS was preparing to send to Gibson Dunn. Shortly after that call, APKS sent to Gibson Dunn a revised draft of the Merger Agreement. Although this draft reflected a resolution of a number of issues in the agreement, some material open issues remained, in particular the length of the go-shop period (Sonaca proposed 25 calendar days versus the Company’s desired 35 calendar days), the amount of the break-up fee (Sonaca proposed $15.4 million versus the Company’s desired $7.5 million), certain of the interim operating covenants and Sonaca’s proposed inclusion of an additional termination right for Sonaca based on an interim revenue test in the event of certain adverse changes in relations with customers or suppliers.

 

On Saturday morning, February 11, 2017, Messrs. Korte and Delvaux held the first of three introductory calls with customers of the Company. The second and third such calls were held on February 13, 2017 and February 15, 2017, respectively.

 

Also on February 11, 2017, representatives of Company management and representatives of Sonaca management, accompanied by representatives of Lazard and Credit Suisse, held a telephone conference regarding certain aspects of Sonaca’s proposed financing structure for the transaction.

 

On February 13, 2017, representatives of Gibson Dunn and APKS held an in-person negotiating session in New York City concerning the Merger Agreement, during which additional issues were resolved but key remaining business issues, including the length of the go-shop period, the outside date for satisfaction of closing conditions, an additional termination right for Sonaca based on an interim revenue test in the event of certain adverse changes in relations with customers or suppliers, the amount of the break-up fee, and the scope of certain interim operating covenants, were deferred to resolution among the business principals.

 

Also on February 13, 2017, Messrs. Korte and Delvaux discussed by telephone the post-closing compensation structure currently contemplated for the Company leadership team following a transaction. Messrs. Korte and Delvaux also discussed logistics for an upcoming customer introductory call.

 

On February 14, 2017, the Compensation Committee of the Board of Directors convened a telephonic meeting to discuss compensation and employee-related matters in the draft Merger Agreement, including the terms of Messrs. Korte’s and Stebe’s contemplated post-closing employment arrangements, the treatment of long-term incentive plan awards under the Merger Agreement and various analyses by the Compensation Committee’s external compensation consultant.

 

On February 14, 2017, Gibson Dunn sent to APKS a revised draft of the Merger Agreement, which proposed a compromise of 30 calendar days for the length of the go-shop period and also reflected the Company’s compromise proposal for a two-tiered break-up fee, which would remain relatively lower ($7.5 million) if triggered by a termination (i) within the 30-day “go-shop” period in order to enter into a superior proposal, or (ii) within 60 days after signing and relating to an acquisition proposal received during or as a result of the go-shop period, but would be relatively higher ($11 million) if triggered by a termination under any other circumstance.

 

59  

 

 

Later on February 14, 2017, representatives of Gibson Dunn and APKS discussed the latest revised draft of the Merger Agreement and further narrowed the list of open issues, the resolution of which was deferred to an all-hands call including business principals scheduled for the next day.

 

On February 15, 2017, members of the Company management team and Sonaca management teams, including Messrs. Korte and Delvaux, along with representatives of Gibson Dunn and APKS, convened an all-hands telephone conference with the intent of resolving all remaining open issues in the draft Merger Agreement. During this call, Sonaca agreed to a 30-day go-shop period, the Company agreed to a final outside date of September 29, 2017, the business principals agreed on the scope of interim operating covenants, and, on the issue of the break-up fee, Sonaca countered with a fee of $10 million if triggered by a termination within the first 60 days and relating to an acquisition proposal received during or as a result of the go-shop period and $15 million otherwise. Members of the Sonaca management team indicated they would consider withdrawing their request for the additional revenue test and termination right based on adverse changes in customer or supplier relations as part of an overall resolution of issues.

 

Later that same afternoon, on February 15, 2017, the Board of Directors convened a telephonic meeting, with members of the Company management team and representatives of Lazard and Gibson Dunn present. A representative of Gibson Dunn updated the Board of Directors on the current status of negotiations regarding the Merger Agreement and material issues that had been resolved since the last Board of Directors meeting, including the length of the go-shop period, as well as remaining open issues, including the amount of the break-up fee and Sonaca’s proposed addition of a revenue test and termination right based on adverse changes in customer or supplier relations. The representative of Gibson Dunn also reviewed with the Board of Directors certain details of Sonaca’s equity and debt financing commitments based on Gibson Dunn’s recent review of such documents and summarized Sonaca’s current proposal regarding the amount of the two-tiered break-up fee. The Board of Directors also discussed with the representatives of Gibson Dunn and Lazard the perceived likelihood of a topping bid and how the proposed break-up fee structure would be expected to affect the ability and willingness of a topping bidder to emerge. After further discussion, the Board of Directors concluded it would be willing to accept Sonaca’s proposed break-up fee structure as part of a package resolution conditioned on the removal of Sonaca’s additional termination right that had been introduced in the last draft circulated by APKS.

 

Later on February 15, 2017 and throughout the day on February 16, 2017, representatives of Gibson Dunn and APKS exchanged multiple drafts of and negotiated the final open issues in the Merger Agreement, ultimately agreeing to the break-up fee construct Sonaca had last proposed and the deletion of the additional termination right that had been requested by Sonaca and the related interim notice covenant and revenue test.

 

60  

 

 

Also on February 15-16, 2017, Messrs. Stebe and van Ockenburg exchanged e-mails and telephone calls to discuss certain technical details in the Merger Agreement as well as the Company’s and Sonaca’s respective views on a communications plan for announcement of the transaction once the Merger Agreement was executed, which was expected to occur sometime in the evening on February 16, 2017.

 

In the early evening on February 16, 2017, the Board of Directors held a telephonic meeting with members of Company management and representatives of Gibson Dunn and Lazard present. A representative of Gibson Dunn reviewed with the Board of Directors its fiduciary duties as well as the proposed final terms of the Merger Agreement and described the material changes to the Merger Agreement from the prior version that had been presented to the Board of Directors. A member of the Compensation Committee of the Board of Directors presented a report on that committee’s independent evaluation of the compensation arrangements involved in the transaction, including the employment agreements to be entered into by Messrs. Korte and Stebe and potentially certain other executives. The Compensation Committee had specifically considered whether such compensation arrangements were of a nature or magnitude that would have diverted value from the Company’s shareholders and determined they were not. The Compensation Committee member reported that the committee’s outside compensation consultant had previously advised that the compensation levels under the proposed employment agreements would bring the executives’ overall compensation closer to the market norm. Representatives of Lazard then reviewed their financial analyses of the merger consideration. The Board of Directors discussed these financial analyses in detail and again reviewed the reasons why the Risk-Adjusted January 2017 Plan was the most appropriate forecast for Lazard to use in its discounted cash flow analysis, namely because the Risk-Adjusted January 2017 Plan incorporated management's most current market and Company operating performance data, and best accounted for the execution risk and challenges facing the Company. The Board of Directors also discussed the possibility that, given uncertainties in the credit markets, rising interest rates and the Company's recent earnings shortfall, the Company's cost of capital in a future refinancing could potentially be higher than originally forecasted and may have posed an additional risk to the Company's operating plan. Following this discussion, a representative of Lazard rendered to the Board of Directors Lazard’s oral opinion, which was subsequently confirmed by delivery of a written opinion dated February 16, 2017, to the effect that, based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in its written opinion, as of February 16, 2017, the per share merger consideration to be paid to the holders of Company common stock (other than excluded holders) in the Merger was fair, from a financial point of view, to such holders of the Company common stock (other than excluded holders), as of the date of Lazard’s opinion. For a detailed discussion of Lazard’s opinion, please see below under the caption “— Opinion of Lazard Frères & Co. LLC .” After further deliberation and discussion, each member of the Board of Directors (other than Mr. Korte, who abstained out of an abundance of caution due to his current and prospective employment with the Company, among other interests in the transaction) (i) authorized and approved the execution, delivery and performance of the Merger Agreement and the transactions contemplated thereby, (ii) approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated thereby, (iii) declared that the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger, on the terms and subject to the conditions set forth in the Merger Agreement, were fair to and in the best interests of the shareholders of the Company, (iv) directed that the approval and adoption of the Merger Agreement be submitted to a vote at a meeting of the shareholders of the Company and (v) recommended that the shareholders of the Company approve and adopt the Merger Agreement.

 

61  

 

 

Later in the evening on February 16, 2017, several hours after the market close, the Company, Sonaca, Intermediate Co. and Sub delivered signatures and entered into the Merger Agreement. The closing price per share of Company common stock on NASDAQ on February 16, 2017 was $9.19.

 

The transaction was announced pursuant to a joint press release issued by the Company and Sonaca shortly after the Merger Agreement was entered into on the evening of February 16, 2017. The press release disclosed the fact that the Company would be soliciting alternative proposals as part of a go-shop process. The Company also separately announced in parallel its preliminary unaudited financial results for the fourth quarter and fiscal year ended December 31, 2016. Immediately following issuance of the press releases, Mr. Korte sent a Company-wide email to all employees of the Company announcing the transaction.

 

Prior to the market open on February 17, 2017, the Company filed a Current Report on Form 8-K, which attached (and filed as solicitation material under Rule 14a-12 under the Exchange Act) the Merger Agreement, forms of employment agreements to be entered into by Messrs. Korte and Stebe at the closing of the Merger, the press releases, Mr. Korte’s email to employees and certain other communications issued concurrently with the announcement of the transaction.

 

The “Go-Shop” Period

 

Beginning on February 17, 2017 representatives of Lazard reached out to representatives of 52 parties with likely strategic interest in the Company and financial capability to complete an acquisition to invite such companies to consider the acquisition of the Company and to provide a form confidentiality agreement in compliance with the terms of the Merger Agreement to interested companies.

 

On February 20, 2017, Company A executed the form confidentiality agreement without proposing any changes to it.

 

On February 21, 2017, Lazard transmitted a process letter to Company A’s financial advisor and provided Company A and its financial advisor with access to diligence materials via an online data room, including the January 2017 Plan, Risk-Adjusted 2017 Plan and the Company’s 2016 full year financial update. On February 27, 2017, representatives of Lazard held a conference call with the chief executive officer and chief financial officer of Company A and representatives of Company A’s financial advisor to discuss Company A’s initial high-level diligence questions.

 

On February 21, 2017, Company B provided minor comments to the form confidentiality agreement and, on February 23, 2017, executed a confidentiality agreement with the Company (but dated February 21, 2017). On February 23, 2017, Lazard provided Company B with access to the initial set of diligence materials via the online data room, including the January 2017 Plan, Risk-Adjusted 2017 Plan and the Company’s 2016 full year financial update.

 

62  

 

 

On February 21, 2017, Company C reached out to the Company and Lazard to express its potential interest in participating in the go-shop process (although it was not one of the 52 parties initially contacted by Lazard). In a subsequent call with a representative of Lazard on February 22, 2017, however, Company C indicated it was reluctant to sign a confidentiality agreement containing a standstill provision, as required by the terms of the Merger Agreement. On February 28, 2017, Company C sent a markup of the form confidentiality agreement that deleted the standstill provision, among other changes.

 

On March 1, 2017, the Board of Directors convened a telephonic meeting, with members of management and representatives of Lazard and Gibson Dunn present. Lazard presented an update on the status of the go-shop process and discussed with the Board of Directors Company C’s indication that it would not sign a confidentiality agreement containing a standstill provision as required by the terms of the Merger Agreement. The Board of Directors and Lazard discussed their respective assessments of Company C’s level of interest and capacity to consummate an acquisition. Following that discussion, the Board of Directors determined at that time not to seek a waiver from Sonaca or take any other special action with respect to Company C and instead to focus the Company’s and its advisors’ resources on filing the Company’s preliminary proxy statement as soon as possible.

 

On March 6, 2017, representatives of Company A informed representatives of Lazard that Company A had determined not to proceed with an acquisition of the Company, indicating that it could not exceed Sonaca’s valuation of $14.00 per share.

 

Also on March 6, 2017, representatives of Company B informed representatives of Lazard that Company B had determined not to proceed with an acquisition of the Company.

 

Recommendation of the Board of Directors and Reasons for the Merger

 

Recommendation of the Board of Directors

 

The Board of Directors, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” has unanimously: (1) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and in the best interests of LMI and its shareholders; and (2) adopted and approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

 

The Board of Directors, with Mr. Korte abstaining, unanimously recommends that you vote: (1) “ FOR ” the adoption the Merger Agreement and approval of the Merger and the other transactions contemplated thereby; (2) “ FOR ” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby at the time of the Special Meeting; and (3) “ FOR ” the non-binding, advisory proposal to approve certain compensation that will or may become payable to LMI’s named executive officers in connection with the Merger.

 

63  

 

 

Reasons for the Merger

 

In evaluating the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Board of Directors consulted with LMI management, and representatives of its financial advisor and outside legal counsel. In recommending that shareholders vote in favor of adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated thereby, the Board of Directors considered a number of factors, including the following (which factors are not necessarily presented in order of relative importance):

 

the fact that the all-cash Merger Consideration will provide certainty of value and liquidity to shareholders, while eliminating the effect of long-term business and execution risk to shareholders.

 

the relationship of the $14.00 Merger Consideration to the trading price of our common stock, including that the Merger Consideration constituted a premium of approximately (i) 52% over LMI’s closing share price on February 16, 2017, the last trading day prior to the date the Merger Agreement was publicly announced, (ii) 63% over LMI’s three-month volume weighted average price up to and including February 16, 2017, and (iii) 78% over LMI’s six-month volume weighted average price up to and including February 16, 2017.

 

the current and historical market prices of the common stock, including the market performance of the common stock relative to those of other participants in the Company’s industry and general market industries.

 

the advantages of entering into the Merger Agreement in comparison with the risks of remaining independent, including risks to achieving projected 2017 performance and long-term financial projections as a standalone company, the risks inherent in LMI’s industry, potential changes in laws and regulations affecting the industry, the economy and capital markets as a whole, and the various additional risks and uncertainties that are listed in Item 1A of Part I or Part II, as applicable, of our most recent annual and quarterly reports.

 

the potential challenges the Company could face in refinancing its debt at desirable rates given the Company's net debt level at the end of fiscal year 2016, which was higher than had been forecasted, the rising interest rate environment, and the Company's lower than expected fourth quarter earnings in 2016.

 

its belief, based on discussions and negotiations with Sonaca, that the $14.00 per share was the highest price Sonaca would be willing to pay.

 

64  

 

 

the oral opinion of Lazard, subsequently confirmed in writing, delivered to the Board of Directors that, as of February 16, 2017 and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in its opinion, the per share Merger Consideration to be paid to holders of the Company common stock (other than excluded holders) in the Merger was fair, from a financial point of view, to such holders of Company common stock (other than excluded holders), as more fully described below in the section of this proxy statement captioned “—Opinion of Lazard Frères & Co. LLC.”

 

there were extensive arm’s length negotiations with Sonaca, which, among other things, resulted in an increase in the offered merger consideration from a value range of $11.00 to $12.50 per share to $14.00 per share.

 

the likelihood that the Merger will be consummated, based on, among other things, the limited number of conditions to the Merger, the absence of a financing condition, Parent’s representation that it will have sufficient financial resources to pay the aggregate Merger Consideration and consummate the Merger, the Board of Directors’ and management’s assessment, after discussion with Lazard and Gibson Dunn and review of the relevant debt and equity financing commitment letters, that the Parent has the financial capability to complete the Merger, the relative likelihood of obtaining required regulatory approvals, and the remedies available under the Merger Agreement to LMI in the event of a breach by Parent.

 

the terms of the Merger Agreement and the related agreements, including LMI’s ability (i) to solicit alternative acquisition proposals through March 18, 2017 and (ii) to thereafter consider and respond to, under certain circumstances specified in the Merger Agreement, a bona fide acquisition proposal, and the Board of Director’s right, after complying with the terms of the Merger Agreement, to terminate the Merger Agreement in order to enter into an agreement with respect to a superior proposal upon payment of either $10 million or $15 million, depending upon the circumstances. For more information, see the section of this proxy statement captioned “The Merger Agreement—Break-Up Fees .”

 

the Merger would be subject to the approval of LMI shareholders holding at least two-thirds of the outstanding shares of common stock as of the Record Date, and the shareholders would be free to reject the Merger.

 

the availability of appraisal rights and payment of fair value under Missouri law to registered holders of shares of common stock, and beneficial owners of shares of common stock whose nominees follow the required statutory procedures, who timely file a written objection to the Merger Agreement, do not vote in favor of the proposal to approve the Merger Agreement and comply with all of the required procedures under Missouri law, which provides those eligible shareholders with an opportunity to have a Missouri court determine the fair value of their shares, which may be more than, less than, or the same as the amount such shareholders would have received under the Merger Agreement.

 

the Board of Director’s view that the Merger Agreement was the product of an arm’s-length negotiations and contained customary terms and conditions.

 

65  

 

 

the timing of the Merger and the risk that if we did not accept Parent’s offer at the time it was made, we might not have had another opportunity to do so, particularly if the markets for private and public debt and private equity fluctuated in a manner that made it more difficult to finance the acquisition.

 

the Board of Director’s understanding of the Company’s business, assets, financial condition and results of operation, its competitive position and historical and projected performance, and the nature of the industry and regulatory environment in which the Company competes.

 

The Board of Directors also considered a number of uncertainties and risks concerning the Merger, including the following (which factors are not necessarily presented in order of relative importance):

 

the fact that the announcement and pendency of the Merger, or the risks and costs to LMI if the Merger does not close, could result in the diversion of management and employee attention, and potentially have a negative effect on our business and relationships with customers and suppliers.

 

the effect of a public announcement of the Company entering into the Merger Agreement on the Company’s operations, stock price and employees and its ability to attract and retain key management and personnel while the Merger is pending.

 

the fact that shareholders will not participate in any future earnings or growth of LMI and will not benefit from any appreciation in value of LMI, including any appreciation in value that could be realized as a result of improvements to our operations.

 

the possibility that Parent will be unable to obtain all or a portion of the financing for the Merger and related transactions, including the debt financing proceeds contemplated by the debt commitment letter it received from the initial lenders.

 

the requirement that LMI may be required to pay Parent a break-up of either $10 million or $15 million, depending upon the circumstances for termination. For more information, see the section of this proxy statement captioned “The Merger Agreement—Break-Up Fees .”

 

the restrictions on the conduct of LMI’s business prior to the consummation of the Merger, including the requirement that we conduct our business in the ordinary course, subject to specific limitations, which may delay or prevent LMI from undertaking business opportunities that may arise before the completion of the Merger and that, absent the Merger Agreement, LMI might have pursued.

 

the fact that an all cash transaction would be taxable to LMI’s shareholders that are U.S. persons for U.S. federal income tax purposes.

 

66  

 

 

the fact that under the terms of the Merger Agreement, LMI is unable to solicit other acquisition proposals following the expiration of the go-shop period.

 

the risk that, while the Merger is expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the Merger will be satisfied, and as a result, it is possible that the Merger may not be completed even if approved by our shareholders.

 

the significant costs involved in connection with entering into the Merger Agreement and completing the Merger and the substantial time and effort of LMI management required to complete the Merger, which may disrupt our business operations.

 

the fact that LMI’s business, sales operations and financial results could suffer in the event that the Merger is not consummated.

 

the risk that the Merger might not be completed and the effect of the resulting public announcement of termination of the Merger Agreement on the trading price of our common stock.

 

the fact that the completion of the Merger will require antitrust and other regulatory approvals in the United States.

 

In addition, our Board of Directors was aware of and considered the interests that certain of our directors and officers may have in the Merger that differ from, or are in addition to, those of LMI’s other shareholders (see below in the section of this proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ”).

 

The foregoing discussion is not meant to be an exhaustive, but summarizes many, if not all, of the material factors considered by the Board of Directors in its consideration of the Merger. After considering these and other factors, the Board of Directors concluded that the potential benefits of the Merger outweighed the uncertainties and the risks. In view of the variety of factors considered by the Board of Directors and the complexity of these factors, the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the foregoing factors in reaching its determination and recommendations. Moreover, each member of the Board of Directors applied his or her own personal business judgment to the process and may have assigned different weights to different factors. The Board of Directors, other than Daniel G. Korte, a member of the Board of Directors and the Company’s President and Chief Executive Officer, who abstained from voting due to his interests in the transaction as described in the section of the proxy statement captioned “ The Merger—Interests of LMI’s Directors and Executive Officers in the Merger ,” unanimously adopted the Merger Agreement and approved the Merger and the other transactions contemplated by the Merger Agreement and recommends that the shareholders adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby based upon the totality of the information presented to and considered by the Board of Directors.

 

67  

 

 

Opinion of Lazard Frères & Co. LLC

 

The Company retained Lazard to act as financial advisor to the Company and to render an opinion to our Board of Directors as to the fairness, from a financial point of view, to holders of Company common stock (other than excluded holders) of the consideration to be paid to such holders in the Merger. On February 16, 2017, Lazard rendered its oral opinion to our Board of Directors, subsequently confirmed in writing, that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the per share Merger Consideration to be paid to holders of Company common stock (other than (i) shares of Company common stock directly owned by the Company as treasury stock or directly owned by Sonaca, Intermediate Co, or Sub and (ii) excluded holders) in the Merger was fair, from a financial point of view, to such holders.

 

The full text of Lazard’s written opinion, dated February 16, 2017, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. The description of Lazard’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Lazard’s written opinion attached as Annex B. We encourage you to read Lazard’s opinion and this section carefully and in their entirety.

 

Lazard’s opinion was directed to our Board of Directors for the information and assistance of the Board of Directors in connection with its evaluation of the Merger and only addressed the fairness, from a financial point of view, to holders of Company common stock (other than excluded holders) of the per share Merger Consideration to be paid to such holders in the Merger as of the date of Lazard’s opinion. The Company did not request Lazard to consider, and Lazard’s opinion did not address, the relative merits of the Merger as compared to any other transaction or business strategy in which the Company might engage or the merits of the underlying decision by the Company to engage in the Merger. Lazard’s opinion was not intended to and does not constitute a recommendation to any holder of Company common stock as to how such holder should vote or act with respect to the Merger or any matter relating thereto. Lazard’s 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 Lazard’s opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard’s opinion did not express any opinion as to the prices at which shares of Company common stock may trade at any time subsequent to the announcement of the Merger.

 

The following is a summary of Lazard’s opinion. We encourage you to read Lazard’s written opinion carefully in its entirety.

 

In connection with its opinion, Lazard:

 

reviewed the financial terms and conditions of a draft, dated February 16, 2017 of the Merger Agreement;

 

68  

 

 

reviewed certain publicly available historical business and financial information relating to the Company;

 

reviewed various financial forecasts and other data provided to Lazard by the Company relating to the business of the Company, including the forecasts identified to Lazard as the Risk-Adjusted January 2017 Plan, as defined in the section of this proxy statement entitled “—Background of the Merger” ;

 

held discussions with members of the senior management of the Company with respect to the business and prospects of the Company;

 

reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the business of the Company;

 

reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally relevant in evaluating the business of the Company;

 

reviewed historical stock prices and trading volumes of Company common stock; and

 

conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

  

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or concerning the solvency or fair value of the Company, and Lazard was not furnished with any such valuation or appraisal. The management of the Company advised Lazard that the Risk-Adjusted January 2017 Plan reflected the best currently available estimates and judgments as to the future financial performance of the Company and, accordingly, at the direction of our Board of Directors, Lazard utilized such forecasts for purposes of its financial analyses in connection with its opinion. With respect to the financial forecasts Lazard utilized in its analyses, Lazard assumed, with the consent of the Company, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of the Company. Lazard assumed no responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.

 

In connection with its engagement, as of the date of its opinion Lazard was not authorized to, and Lazard did not, solicit indications of interest from third parties regarding a potential transaction with the Company.

 

69  

 

 

In rendering its opinion, Lazard assumed, with the consent of the Company, 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 of the Merger Agreement. Representatives of the Company advised Lazard, and Lazard assumed, that the Merger Agreement, when executed, would conform to the draft reviewed by Lazard in all material respects. Lazard also assumed, with the consent of the Company, that obtaining the necessary governmental, regulatory or third party approvals and consents for the Merger would not have an adverse effect on the Company, or the Merger. Lazard’s opinion did not address any legal, tax, regulatory or accounting matters, as to which Lazard understood that the Company obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the per share Merger Consideration to the extent expressly specified in Lazard’s opinion) of the Merger, including, without limitation, the form or structure of the Merger or any agreements or arrangements entered into in connection with, or contemplated by, the Merger. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Merger, or class of such persons, relative to the per share Merger Consideration or otherwise.

 

Summary of Lazard’s Financial Analyses

 

The following is a brief summary of the material financial analyses and reviews that Lazard deemed appropriate in connection with rendering its opinion. The brief summary of Lazard’s analyses and reviews provided below is not a complete description of the analyses and reviews underlying Lazard’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description. Considering selected portions of the analyses and reviews or the summary set forth below, without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion.

 

In arriving at its opinion, Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any factor, analysis or review considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.

 

For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. No company, business or transaction used in Lazard’s analyses and reviews as a comparison is identical to the Company or the Merger, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews 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, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review 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 Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.

 

70  

 

 

The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.

 

Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 16, 2017 and is not necessarily indicative of current market conditions.

 

Financial Analyses

 

Selected Comparable Company Multiples Analysis .

 

Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data related to selected comparable publicly-traded aerospace manufacturing companies whose operations Lazard believed, based on its experience with companies in the aerospace manufacturing industry, to be similar to the Company’s operations for purposes of this analysis. Lazard then compared such information to the corresponding information for the Company.

 

The selected group of companies used in this analysis, which we refer to in this proxy statement as the “ LMI comparable companies ,” was as follows:

 

Ducommun Inc.

 

Héroux-Devtek, Inc.

 

Senior plc

 

Spirit Aerosystems Holdings, Inc.

 

Triumph Group, Inc.

 

Magellan Aerospace Corp.

 

GKN plc

 

Lazard selected the companies reviewed in this analysis because, among other things, the LMI comparable companies operate businesses similar to the business of the Company. However, no selected company is identical to the Company. Accordingly, Lazard believes that purely quantitative analyses are not, in isolation, determinative in the context of the Merger and that qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the LMI comparable companies that could affect the public trading values of each are relevant.

 

71  

 

 

Lazard calculated and compared the ratio of each company’s enterprise value, calculated as the market capitalization of each company (based on its closing share price as of February 15, 2017 and most recently publicly reported fully-diluted share count), plus debt, less cash, cash equivalents and marketable securities (based on the most recent publicly available data) to its calendar year 2016, 2017 and 2018 estimated earnings before interest, taxes, depreciation and amortization, commonly and herein referred to as “ EBITDA .” The EBITDA estimates for each of the LMI comparable companies used by Lazard in its analysis were based on FactSet consensus estimates, except that the calendar year 2016 information for Spirit Aerospace Holdings, Inc., Triumph Group, Inc. and Héroux-Devtek, Inc. was based on actual reported data . The following table summarizes the results of this review:

 

  LMI Comparable Companies Multiples
Enterprise Value to 2016E EBITDA 6.9x - 9.7x
Enterprise Value to 2017E EBITDA 6.1x - 9.7x
Enterprise Value to 2018E EBITDA 5.6x - 8.6x

 

Based on an analysis of the relevant metrics for each of the LMI comparable companies. Lazard selected reference ranges of 7.0x to 8.5x for enterprise value to estimated 2016 EBITDA, 6.5x to 8.0x for enterprise value to estimated 2017 EBITDA and 6.0x to 7.5x for enterprise value to estimated 2018 EBITDA.

 

Lazard applied such range of enterprise values to EBITDA multiples for the LMI comparable companies to the estimated Adjusted EBITDA of the Company for 2016, 2017 and 2018, as described in the section of this proxy statement captioned “—Management Projections.”

 

From this analysis, Lazard estimated implied price per share ranges for shares of the Company common stock as set forth below and as compared to the per share merger consideration of $14.00 provided in the Merger Agreement:

 

  Implied Price Per Share Range
Enterprise Value/ 2016 EBITDA $2.59 - $6.93
Enterprise Value/ 2017 EBITDA $2.38 - $7.00
Enterprise Value/ 2018 EBITDA $2.45 - $7.48

 

Selected Precedent Transactions Multiples Analysis .

 

Lazard performed a selected precedent transactions analysis of the Company by reviewing publicly available financial information of the following selected transactions involving target companies in the aerospace manufacturing industry that it viewed as comparable to the Company. In performing this analysis, Lazard reviewed certain financial information and transaction multiples relating to the companies involved in the selected transactions and compared such information to the corresponding information for the Company. Specifically, Lazard reviewed eight merger and acquisition transactions announced since March 2010 involving companies in the aerospace manufacturing industry for which sufficient public information was available.

 

72  

 

 

The selected group of transactions used in this analysis were as follows:

 

Aerospace Manufacturing

 

Announcement Date   Acquiror   Target
July 2015   GKN plc   Fokker Technologies Group B.V.
August 2013   Triumph Group, Inc.   General Donlee Canada Inc.
March 2013   Greenbriar Equity Group LLC   EDAC Technologies Corp.
October 2010   B/E Aerospace, Inc.   TSI Group, Inc.
March 2010   Triumph Group, Inc.   Vought Aircraft Industries, Inc.

 

Vertically Integrated Aerospace Manufacturing

 

Announcement Date   Acquiror   Target
August 2015   Berkshire Hathaway Inc.   Precision Castparts Corp.
March 2015   Alcoa Inc.   RTI International Metals, Inc.
November 2010   Allegheny Technologies Incorporated   Ladish Co., Inc.

 

To the extent publicly available, with respect to each company, Lazard calculated, among other things, the enterprise value of each target company implied by the selected transactions by applying the enterprise value implied by the acquisition price to the relevant target company’s estimated EBITDA for the latest twelve-month period prior to the date the acquisition was announced, or EV/LTM EBITDA. The results of this analysis are summarized below:

 

  Selected Precedent Transactions EV/LTM EBITDA
  Low High
Aerospace Manufacturing Precedents 6.1x 12.4x
All Precedents 6.1x 14.8x

 

Based on the results of the foregoing analysis and Lazard’s professional judgment, Lazard applied EV/LTM EBITDA multiples ranging from 9.5x to 11.5x to the Company’s estimated Adjusted EBITDA for the twelve-month period ending December 31, 2016 (as reflected in the Risk-Adjusted January 2017 Plan) and derived a reference range of implied equity values per share of the Company common stock of $9.82 to $15.61.

 

73  

 

 

Discounted Cash Flow Analysis - Risk-Adjusted January 2017 Plan .

 

Lazard performed a discounted cash flow analysis of the Company, which is a valuation methodology used to derive a valuation of a company by calculating the present value of estimated future cash flows of the Company. “Future cash flows” refers to projected unlevered free cash flows of a company. Unlevered free cash flow is defined as operating profit, less taxes, change in working capital, capital expenditures, plus depreciation and amortization. Lazard calculated the discounted cash flow value for the Company as the sum of the net present value of each of:

 

the estimated future cash flows that the Company is expected to generate for each of years 2017 through 2020;

 

the estimated value of the Company at the end of 2020, or the terminal value; and

 

the estimated amounts of utilized net operating loss carry-forwards of the Company for each of years 2017 through 2020.

 

The estimated future cash flow was derived from data provided by the Company under the Risk-Adjusted January 2017 Plan, as the Risk-Adjusted January 2017 Plan did not itself provide an explicit calculation of unlevered free cash flows. The following table sets forth the estimated unlevered free cash flow for each of years 2017 through 2020 (in millions) which were calculated without adjustment for the estimated amount of utilized net operating loss carry-forwards of the Company for the periods presented:

 

Fiscal Year Ending December 31,
 
2017E   2018E   2019E   2020E
$11.2   $5.2   $27.0   $39.8

 

For its discounted cash flow calculations, Lazard applied discount rates ranging from 8.25% to 9.25%. Such discount rates were based on Lazard’s judgment of the estimated range of the Company’s weighted average cost of capital.

 

The terminal value of the Company was calculated by applying various exit EBITDA multiples ranging from 7.00x to 8.50x. The exit EBITDA multiples were selected by Lazard by reference to enterprise value to 2016 EBITDA multiples calculated for the LMI comparable companies.

 

The estimated amounts of net operating loss carry-forwards utilized by the Company were calculated based on the Risk-Adjusted January 2017 Plan.

 

74  

 

 

Lazard derived the high and low prices per share implied by these calculations and compared them to the per share Merger Consideration provided in the Merger Agreement as set forth below:

 

Implied Price Per Share Range   Merger Consideration
$12.40 - $18.85   $14.00

 

Other Analyses and Reviews

 

The analyses and data described below were presented to our Board of Directors for reference purposes only and did not provide the basis for, and were not material to, the rendering of Lazard’s opinion.

 

Discounted Cash Flow Analysis - January 2017 Plan .

 

Utilizing the January 2017 Plan, Lazard performed a discounted cash flow analysis to calculate a range of implied equity values for the Company using the same procedures and methodologies summarized above under “— Financial Analyses - Discounted Cash Flow Analysis - Risk Adjusted January 2017 Plan. ” From this analysis, Lazard estimated an implied price per share range for shares of the Company common stock, as compared to the per share merger consideration provided in the Merger Agreement as set forth below:

 

Implied Price Per Share Range   Merger Consideration
$16.68 - $24.21   $14.00

 

The management of the Company advised Lazard that the Risk-Adjusted January 2017 Plan reflected the best currently available estimates and judgments as to the future financial performance of the Company and, accordingly, at the direction of our Board of Directors, Lazard utilized such forecasts for purposes of its financial analyses in connection with its opinion. As a result, the discounted cash flow analysis utilizing the January 2017 Plan did not provide the basis for, and was not material to, the rendering of Lazard’s opinion.

 

52-Week High/Low Trading Prices .

 

Lazard reviewed the range of trading prices of shares of the Company common stock for the 52 weeks ended on February 15, 2017. Lazard observed that, during such period, the intraday share price of Company common stock ranged from $7.01 per share to $9.71 per share, as compared to the per share merger consideration of $14.00 per share.

 

Research Analyst Price Targets .

 

Lazard reviewed and selected equity research analyst projected 12-month price targets for the Company common stock based on published, publicly available Wall Street equity research reports. Lazard observed that such price targets ranged from $10.00 per share to $11.50 per share, as compared to the per share merger consideration of $14.00 per share.

 

75  

 

 

Miscellaneous

 

In connection with Lazard’s services as the Company’s financial advisor, the Company agreed to pay Lazard an aggregate estimated fee of approximately $6.7 million, $1.5 million of which was payable upon the delivery of Lazard’s opinion and the remainder of which is contingent upon the consummation of the Merger. The Company also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against certain liabilities that may arise from or relate to Lazard’s engagement, 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 the past two years, Lazard has provided certain financial advisory services to Société Régionale d'Investissement de Wallonie, an affiliate of Parent, for which Lazard received approximately $150,000. In addition, in the ordinary course of business, Lazard and its affiliates and employees may trade securities of the Company and certain affiliates of the Company and Parent for their own accounts and for the accounts of their customers, may at any time hold a long or short position in such securities and may also trade and hold securities on behalf of the Company, Parent and certain of their respective affiliates. The issuance of this opinion was approved by the Opinion Committee of Lazard.

 

Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services. Lazard was selected to act as investment banker to the Company because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of the Company.

 

The Company and Parent determined the per share Merger Consideration to be paid to the holders of Company common stock in the Merger through arm’s-length negotiations, and our Board of Directors approved the per share Merger Consideration. Lazard conducted the analyses and reviews summarized above for the purpose of providing an opinion to our Board of Directors as to the fairness, from a financial point of view, to the holders of Company common stock (other than excluded holders) of the per share Merger Consideration to be paid to such holders in the Merger. Lazard did not recommend any specific consideration to our Board of Directors or any other person or indicate that any given consideration constituted the only appropriate consideration for the Merger.

 

Lazard’s opinion was one of many factors considered by our Board of Directors. Consequently, the summary of the analyses and reviews provided above should not be viewed as determinative of the opinion of our Board of Directors with respect to the per share Merger Consideration or of whether our Board of Directors would have been willing to recommend a different transaction or determine that a different per share Merger Consideration was fair. Additionally, Lazard’s opinion is not intended to confer any rights or remedies upon any employee or creditor of the Company.

 

76  

 

 

Management Projections

 

In connection with Mr. Korte’s appointment as Chief Executive Officer of LMI effective March 8, 2014, the Company suspended providing financial projections publicly to shareholders in order to give Mr. Korte adequate time to conduct a thorough review of the Company’s financial projections and operations. In March 2015, as part of announcing the Company’s quarterly financial results, the Company recommenced publicly providing annual financial outlook and guidance for the upcoming fiscal year to its investors. Additionally, in May 2016, in connection with the Company’s quarterly earnings call, the Company provided an investor presentation titled “Pathway to Equity Growth” which specified high level financial outlook targets for fiscal year 2018. The presentation was also publicly presented by the Company on various other occasions through November 2016. In connection with preparing this financial outlook and guidance for the upcoming fiscal year and the high-level financial outlook targets for fiscal year 2018 and to assist the Board of Directors in evaluating ordinary course strategic decisions at the August 2016 Board of Directors Meeting, the Company’s management prepared and the Board of Directors reviewed a set of forecasts (the “ August 2016 Plan ”). In January 2017, at the request of the Board of Directors, Company management updated the August 2016 Plan in order to provide the Board of Directors with its current view of the future financial performance of the Company which incorporated the most current market data, reflected changes in operations decisions and management, and updated operating performance data (the “ January 2017 Plan ”). Concurrently with the development of and in relation to the January 2017 Plan, and at the request of the Board of Directors, Company management also prepared for the Board of Directors’ review a set of forecasts taking into account certain market and business risks, including both internal execution risks and external market factors such as projected demand for certain aircraft (the “ Risk-Adjusted January 2017 Plan ”). The August 2016 Plan, the January 2017 Plan, and the Risk-Adjusted January 2017 Plan (collectively, the “ Plans ”) were made available to Lazard for use in connection with its financial analyses and to Credit Suisse and Sonaca in connection with their due diligence review of the Company.

 

The Board of Directors relied primarily on, and for purposes of its analysis and opinion directed Lazard to use, the Risk-Adjusted January 2017 Plan, as the Risk-Adjusted January 2017 Plan reflected management’s most up-to-date and balanced forecasts. In particular, the Risk-Adjusted January 2017 Plan were updated to reflect the completion of the 2017 budget, learnings from the Company’s preliminary 2016 full year financial results, the anticipated impact of reductions in certain platform build rate outlooks, management changes, potential challenges in winning new opportunities, and potential execution risks on new programs that were not included in the August 2016 Plan and January 2017 Plan.

 

Summaries of the Plans are provided below. In developing the Plans, the Company’s management made numerous judgments, estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. The Plans are subjective in many respects and are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Plans constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted, including the various risks set forth in the Company’s periodic reports. There can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The Plans cannot be considered reliable predictors of future results and they should not be relied upon as such. The Plans cover multiple years and such information by its nature becomes less predictive with each successive year.

 

77  

 

 

The Plans do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the Merger. The Plans do not take into account the effect of any failure to occur of the Merger and should not be viewed as accurate or continuing in that context.

 

The Plans were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles in the United States of America (“ GAAP ”), the published guidelines of the SEC regarding forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The prospective financial information included in the Plans has been prepared by, and is the responsibility of, the Company’s management. PricewaterhouseCoopers LLP (“ PwC ”) has neither examined, compiled nor performed any procedures with respect to the accompanying prospective financial information and, accordingly, PwC does not express an opinion or any other form of assurance with respect thereto. The PwC report incorporated by reference into this proxy statement relates to the Company’s historical financial information. It does not extend to the prospective financial information and should not be read to do so. Readers of this document are urged not to place undue reliance on the unaudited prospective financial information set forth below.

 

The inclusion of the Plans herein is not deemed an admission or representation by the Company that the Plans are viewed by the Company as material information of the Company or the surviving corporation. The Plans are not included in this proxy statement in order to induce any holder of the Company common shares to approve the proposal to approve the Merger Agreement. THE COMPANY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE PLANS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR RESPECTIVE PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN TO BE IN ERROR, OR TO REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS.

 

Use of Non-GAAP Measures

 

When viewed with our financial results prepared in accordance with GAAP and accompanying reconciliations, we believe the non-GAAP measures of “ Adjusted EBITDA ” and “ Free Cash Flow ” provide additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the tables below. Adjusted EBITDA and Free Cash Flow, as presented in this proxy statement, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income, or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.

 

78  

 

 

The Company’s Board of Directors and executive management use Adjusted EBITDA, Free Cash Flow, and non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and Free Cash Flow below because we believe that measures such as these provide useful information with respect to our ability to meet our future debt service, capital expenditures, working capital requirements and overall operating performance.

 

Adjusted EBITDA and Free Cash Flow have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:

 

Adjusted EBITDA does not reflect our cash expenditures, future expenditures for capital expenditures or contractual commitments;

 

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

Adjusted EBITDA and Free Cash Flow do not adjust for all non-cash income or expense items that are reflected in our statement of cash flows;

 

Adjusted EBITDA does not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and

 

Other companies in our industry may calculate Adjusted EBITDA and Free Cash Flow differently, limiting their usefulness as comparative measures.

 

You should compensate for these limitations by relying primarily on our GAAP results and use Adjusted EBITDA and Free Cash Flow only as a supplement to this information. See our consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the period ended December 31, 2016, and filed by the Company on March 15, 2017, which is incorporated by reference into this proxy statement.

 

79  

 

 

However, in spite of the above limitations, we believe that Adjusted EBITDA and Free Cash Flow are useful to an investor in evaluating our results of operations because these measures:

 

Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;

 

Help investors evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and

 

Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.

 

Definitions of EBITDA and Free Cash Flow 

 

Adjusted EBITDA, as used by the Company in this proxy statement, means net income (loss) plus (1) depreciation expense, (2) amortization expense, (3) interest expense and certain one-time expenses, (4) income tax expense, and (5) stock based compensation. Examples of one-time expenses included in the definition of Adjusted EBITDA may include costs associated with refinancing our debt and other restructuring-related activities. 

 

Free Cash Flow, as used by the Company in this proxy statement, means net cash provided by operating activities less cash used in investing activities. 

 

The August 2016 Plan, January 2017 Plan and Risk-Adjusted January 2017 Plan 

 

August 2016 Plan (dollars in millions)
Prepared by the Company’s Management in August 2016 

 

The following are forecasts prepared by the Company’s management in August 2016.

 

    2017E   2018E   2019E   2020E
Total Revenue   $ 389.3     $ 461.1     $ 516.0     $ 550.5  
Gross Profit     75.2       92.9       107.9       114.9  
Operating Profit     24.9       43.3       51.7       58.0  
Adjusted EBITDA (1)     48.5       67.2       80.3       88.6  
Free Cash Flow (2)     3.5       6.4       23.3       37.2  

 

80  

 

 

Set forth below is a summary of reconciliations of the non-GAAP financial information included in the August 2016 Plan to the most comparable GAAP financial measures based on financial information available to, or projected by, the Company:

 

    2017E     2018E     2019E     2020E  
Net income   $ 4.6     $ 18.2     $ 21.9     $ 27.2  
Income tax (benefit) expense     0.5       0.5       11.8       14.6  
Depreciation and amortization     19.5       19.9       19.8       21.0  
Stock based compensation     4.0       4.1       4.1       4.2  
Interest and one-time expenses     19.9       24.5       22.7       21.6  
Adjusted EBITDA     48.5       67.2       80.3       88.6  

 

    2017E     2018E     2019E     2020E  
Net cash provided by operating activities   $ 27.6     $ 25.2     $ 38.3     $ 51.5  
Net capital expenditures     (24.1 )     (18.8 )     (15.0 )     (14.3 )
Free cash flow     3.5       6.4       23.3       37.2  

 

January 2017 Plan (dollars in millions)
Prepared by Company’s Management in January 2017

 

The following are revised forecasts prepared by the Company’s management in January 2017 to take into account the completion of the 2017 budget, learnings from the Company’s preliminary 2016 full year financial results, the anticipated impact of reductions in certain platform build rate outlooks, management changes, and other operational updates.

 

    2017E     2018E     2019E     2020E  
Total Revenue   $ 380.4     $ 450.4     $ 503.9     $ 544.0  
Gross Profit     69.7       84.8       97.8       107.5  
Operating Profit     23.4       34.0       42.7       52.6  
Adjusted EBITDA (1)     46.6       57.4       70.7       82.6  
Free Cash Flow (2)     4.4       3.7       35.1       45.4  

 

Set forth below is a summary of reconciliations of the non-GAAP financial information included in the January 2017 Plan to the most comparable GAAP financial measures based on financial information available to, or projected by, the Company:

 

    2017E     2018E     2019E     2020E  
Net income   $ 2.9     $ 9.0     $ 24.7     $ 28.2  
Income tax (benefit) expense     0.5       0.5             8.2  
Depreciation and amortization     18.5       19.6       19.5       20.7  
Stock based compensation     4.6       3.7       3.8       3.8  
Interest and one-time expenses     20.1       24.6       22.7       21.7  
Adjusted EBITDA     46.6       57.4       70.7       82.6  

 

    2017E     2018E     2019E     2020E  
Net cash provided by operating activities   $ 25.3     $ 24.2     $ 50.1     $ 59.7  
Net capital expenditures     (20.9 )     (20.5 )     (15.0 )     (14.3 )
Free cash flow     4.4       3.7       35.1       45.4  

 

81  

 

 

Risk-Adjusted January 2017 Plan (dollars in millions)
Prepared by Company’s Management in January 2017

 

The following are revised forecasts prepared by the Company’s management in January 2017 to adjust the January 2017 Plan to account for certain business risks, including a discount to Boeing 737 volumes from 2018 to 2020, a discount to revenues from new business wins from 2018 to 2020, and a management reserve for potential execution risks on new programs. The Board of Directors relied primarily on, and for purposes of its analysis and opinion directed Lazard to use, the Risk-Adjusted January 2017 Plan rather than the August 2016 Plan or the January 2017 Plan, as the Risk-Adjusted January 2017 Plan reflected management’s most up-to-date and accurate forecasts.

 

    2017E     2018E     2019E     2020E  
Total Revenue   $ 380.4     $ 436.7     $ 486.8     $ 524.5  
Gross Profit     69.7       76.9       88.0       96.1  
Operating Profit     23.4       26.1       32.9       41.2  
Adjusted EBITDA (1)     46.6       49.4       60.9       71.3  
Free Cash Flow (2)     4.4       (0.4 )     30.3       48.0  

 

(1) Adjusted EBITDA is a non-GAAP financial measure, which, as used by the Company, means earnings before, depreciation expense, amortization expense, interest expense and certain one-time expenses, income tax expense, and stock-based compensation expense. The Adjusted EBITDA used by Lazard for the purposes of its financial analyses described under the section of this proxy statement captioned “—Opinion of Lazard Fr è res & Co, LLP” differs from the Company’s Adjusted EBITDA, as it subtracts the amount of annual stock based compensation expense from the Company’s Adjusted EBITDA.

 

(2) Free Cash Flow is cash flow provided by the Company’s operating activities adjusted for cash used in investing activities.

  

Set forth below is a summary of reconciliations of the non-GAAP financial information included in the Risk-Adjusted January 2017 Plan to the most comparable GAAP financial measures based on financial information available to, or projected by, the Company:

 

    2017E     2018E     2019E     2020E  
Net income   $ 2.9     $ 1.0     $ 14.9     $ 25.0  
Income tax (benefit) expense     0.5       0.5              
Depreciation and amortization     18.5       19.6       19.5       20.7  
Stock based compensation     4.6       3.7       3.8       3.8  
Interest and one-time expenses     20.1       24.6       22.7       21.8  
Adjusted EBITDA     46.6       49.4       60.9       71.3  

 

    2017E     2018E     2019E     2020E  
Net cash provided by operating activities   $ 25.3     $ 20.1     $ 45.3     $ 62.3  
Net capital expenditures     (20.9 )     (20.5 )     (15.0 )     (14.3 )
Free cash flow     4.4       (0.4 )     30.3       48.0  

 

82  

 

 

Financing of the Merger

 

Consummation of the Merger is not subject to Parent’s ability to obtain financing; however, Parent expects to obtain financing for a portion of the consideration to be paid in connection with the Merger.

 

Parent has obtained equity financing commitments from SFPI-FPIM in an amount up to €15 million, and from Wespavia SA in an amount up to €85 million. Sonaca has also obtained debt financing commitments from the initial lenders (identified below under “—Debt Financing” ) pursuant to which Sonaca may borrow €50 million under a euro denominated term loan facility, $270 million under a U.S. dollar denominated term loan facility, and up to €60 million euro (or certain other currencies) denominated revolving credit facility in connection with the transactions contemplated by the Merger Agreement.

 

We believe that the amounts committed under the commitment letters will be sufficient to complete the Merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, one or more of the parties to the commitment letters fails to fund the financing or if the conditions to such commitments are not met, which conditions include the failure to receive the proceeds of the equity financing, as described below. Although obtaining the proceeds of any financing, including financing under the commitment letters, is not a contractual condition to the completion of the Merger, the failure of the Parent to obtain any portion of the committed financing (or alternative financing) is likely to result in the failure of the Merger to be completed.

 

Equity Financing

 

Parent is party to equity commitment letters with two of its shareholders, SFPI-FPIM and Wespavia SA.

 

Pursuant to the equity commitment letter between Parent and SFPI-FPIM, dated January 27, 2017 and amended on February 16, 2017, SFPI-FPIM committed to make an equity contribution to Parent, or to purchase on the closing date of the Merger equity securities of Parent, in an aggregate amount of up to €15 million.

 

Pursuant to the equity commitment letter between Parent and Wespavia SA, dated February 16, 2017, Wespavia SA committed to make an equity contribution to Parent, or to purchase on the closing date of the Merger equity securities of Parent, in an aggregate amount of up to €85 million.

 

The equity commitment of SFPI-FPIM and Wespavia SA are each conditioned upon the consummation of the Merger following the satisfaction or waiver of the conditions to the obligations of Parent and Sub to consummate the transactions contemplated by the Merger Agreement. Furthermore, SFPI-FPIM’s and Wespavia SA’s funding of Parent’s debt financing must occur contemporaneously with, or immediately prior to, the closing of the Merger and the issuance of equity securities of the Parent to SFPI-FPIM and Wespavia SA, respectively.

 

83  

 

 

The obligations of SFPI-FPIM and Wespavia SA to fund the equity commitments will terminate upon the earlier to occur of (i) the termination of the Merger Agreement in accordance with its terms, and (ii) the Outside Date (which, pursuant to the Merger Agreement, is August 16, 2017; provided , that either the Company or the Parent may extend the outside date until September 29, 2017 under certain circumstances discussed further under the caption “The Merger Agreement—Termination of the Merger Agreement” ). Upon any such termination of the equity commitment letters, any obligations thereunder will terminate (with certain exceptions).

 

Debt Financing

 

In anticipation of the execution and delivery of the Merger Agreement, on February 16, 2017, Parent entered into a debt commitment letter with ING Bank N.V., as coordinator, and BNP Paribas Fortis SA/NV and ING Belgium SA/NV, as the initial lenders, for a commitment with respect to financing for the acquisition of LMI, the refinancing of certain existing indebtedness of LMI, and to pay fees, costs and expenses incurred in connection with the Merger.

 

The debt commitment letter provides for the initial lenders to provide debt financing consisting of (i) a euro denominated term loan facility in the aggregate principal amount of €50 million, (ii) a U.S. dollar denominated term loan facility in an aggregate principal amount of $270 million, and (iii) a euro (and other currency) denominated revolving credit facility in the aggregate amount of up to €60.

 

The initial lenders’ obligation to provide the debt financing under the debt commitment letter is subject to customary conditions, including, without limitation, the following (subject to certain exceptions and qualifications as set forth in the debt commitment letter):

 

compliance by Parent with the terms of the debt commitment letter and the term sheet and fee letters attached thereto;

 

execution and delivery of definitive documentation consistent with the debt commitment letter no later than April 14, 2017 or any later date mutually agreed upon by the parties;

 

the absence of a Company material adverse effect, during the period from the date of the commitment letter to the signing of definitive documentation;

 

the accuracy in all material respects of each of the representations and warranties made by the Parent or any of its subsidiaries in connection with the transactions contemplated by the debt commitment letter and the term sheet and fee letters attached thereto;

 

84  

 

 

no public offer in respect of the shares of the Parent or a merger by the Parent and another person being announced and no person or group of persons acting in concert gaining control of the Parent;

 

the final version of legal, tax and financial due diligence in respect of LMI containing no material changes compared to the prior due diligence received by the initial lenders prior to and until January 18, 2017; and

 

the delivery of a final structure memorandum satisfactory to the initial lenders.

 

The commitment of the coordinator and the initial lenders under the debt commitment letter expires upon the earliest to occur of (i) 11:59 p.m. Brussels time on September 29, 2017, (ii) the date on which the Parent notifies the coordinator and the initial lenders that the Parent has irrevocably withdrawn from or ceased to participate in the process by which Parent would acquire shares in LMI pursuant to the Merger (which notice Parent must provide promptly upon such event occurring), and (iii) the date on which an agreement for the facilities shall have been entered into by Parent.

 

Treatment of Restricted Shares and Restricted Stock Units

 

Each Restricted Share that is outstanding immediately prior to the effective time of the Merger will be fully vested and, at the effective time, canceled and extinguished and converted into the Merger Consideration. Each RSU that is outstanding immediately prior to the effective time of the Merger will be fully vested and settled in one share of common stock of LMI and, at the effective time, canceled and extinguished and converted into the Merger Consideration.

 

Interests of LMI’s Directors and Executive Officers in the Merger

 

When considering the recommendation of the Board of Directors that you vote to approve the proposal to adopt the Merger Agreement and approve the Merger and the other transactions contemplated thereby, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of shareholders generally, as more fully described below. In (i) evaluating and negotiating the Merger Agreement; (ii) approving the Merger Agreement and the Merger; and (iii) recommending that the Merger Agreement and the Merger and the other transactions contemplated thereby be adopted and approved by shareholders, the Board of Directors was aware of and considered these interests to the extent that they existed at the time, among other matters.

 

Furthermore, due to his interests in the transaction described below in this section, Daniel G. Korte, the Company’s President, Chief Executive Officer and a member of the Board of Directors, abstained from voting as a member of the Board of Directors to approve the Merger Agreement. Each other member of the Board of Directors, who comprise all of the independent directors on the Board of Directors, voted unanimously in favor of approving and adopting the Merger Agreement and the Merger.

 

85  

 

 

Treatment of Equity-Based Awards

 

Consistent with the treatment for all other Restricted Shares outstanding immediately prior to the effective time of the Merger, Restricted Shares held by directors and executive officers will be fully vested and, at the effective time, canceled and extinguished and converted into the Merger Consideration. Each RSU that is outstanding immediately prior to the effective time of the Merger will be fully vested and settled in one share of common stock of LMI and, at the effective time, canceled and extinguished and converted into the Merger Consideration.

 

As of March 1, 2017, there were 442,075 outstanding, unvested Restricted Shares and RSUs, of which 301,500 were directly held by our directors and executive officers. The following table sets forth the number of shares of our common stock and the number of shares of our common stock underlying Company equity awards that as of March 1, 2017 were directly held by each of our executive officers and non-employee directors, in each case that either were directly held or that would vest in connection with the Merger, assuming solely for purposes of this disclosure that the effective time of the Merger occurred on March 1, 2017. The table also sets forth the values of these shares and equity awards based on the $14.00 per share Merger Consideration. No new shares of our common stock or equity awards were granted to any executive officer or non-employee director in contemplation of the Merger.

 

Name   Shares Directly
Held (#)(1)
    Shares Directly
Held ($)(2)
    Unvested
RS/RSUs (#)(3)
    Unvested
RS/RSUs ($)(2)
    Total Shares     Total Proceeds
($)(2)
 
Daniel G Korte     38,250     $ 535,500       150,026     $ 2,100,364       188,276     $ 2,635,864  
Clifford C. Stebe Jr.     10,331     $ 144,634       20,777     $ 290,878       31,108     $ 435,512  
Jay Inman         $       5,239     $ 73,346       5,239     $ 73,346  
Keith Schrader     3,251     $ 45,514       6,015     $ 84,210       9,266     $ 129,724  
David J. Wright         $       6,476     $ 90,664       6,476     $ 90,664  
Jennifer Alfaro         $       15,573     $ 218,022       15,573     $ 218,022  
Renée Skonier     2,416     $ 33,824       12,530     $ 175,420       14,946     $ 209,244  
Gerald E. Daniels     20,635     $ 288,890       14,980     $ 209,720       35,615     $ 498,610  
John S. Eulich     39,425     $ 551,950       12,874     $ 180,236       52,299     $ 732,186  
Sanford S. Neuman     266,553     $ 3,731,742       7,022     $ 98,308       273,575     $ 3,830,050  
Judith W. Northup     35,025     $ 490,350       8,192     $ 114,688       43,217     $ 605,038  
John M. Roeder     47,701     $ 667,814       13,459     $ 188,426       61,160     $ 856,240  
Steven K. Schaffer     1,231     $ 17,234       17,832     $ 249,648       19,063     $ 266,882  
Gregory L. Summe     10,528     $ 147,392       7,022     $ 98,308       17,550     $ 245,700  
Lawrence Resnick     2,880     $ 40,320       3,483     $ 48,762       6,363     $ 89,082  
Total     478,226     $ 6,695,164       301,500     $ 4,221,000       779,726     $ 10,916,164  

 

(1) Reflects shares directly held by the applicable individual as of March 1, 2017. See the table under the section of this proxy statement captioned Security Ownership of Certain Beneficial Owners and Management on page 131 for disclosure that includes certain additional shares owned indirectly.

 

(2) Assumes a share price of $14.00

 

(3) For certain directors, this column includes RSUs that have been deferred.

 

Payments Upon Termination Following Change-in-Control

 

Current Employment Agreements

 

LMI is party to employment agreements with each of the executive officers of LMI as follows: Daniel G. Korte, President and Chief Executive Officer, Clifford C. Stebe, Jr., Vice President and Chief Financial Officer, Jennifer Alfaro, Chief Human Resources Officer, Renée Skonier, General Counsel and Chief Compliance Officer, Jay Inman, President, Engineering Services, Keith Schrader, Vice President, Operations, and Dave Wright, Vice President, Corporate & Business Development (collectively, the “ Current Employment Agreements ”).

 

86  

 

 

Each Current Employment Agreement provides the above listed executives a base salary that is to be reviewed annually by the compensation committee of LMI (the “ Compensation Committee ”) and may be increased, but not decreased. Each Current Executive Employment Agreement other than Mr. Korte’s Current Employment Agreement, also provides that the executive will be eligible for an annual performance bonus targeted at thirty percent (30%) of the executive’s base salary, payable in cash or cash and shares of LMI’s stock as determined by the Compensation Committee, and eligible for long-term incentive grants of restricted stock targeted at $70,000. Mr. Korte’s Current Employment Agreement provides Mr. Korte is eligible for an annual performance bonus of not less than forty-two and one half percent (42.5%) of his base salary, but targeted at eighty-five percent (85%) with a maximum of one hundred and ten percent (110%) of his base salary, payable in cash or cash and shares of LMI’s stock as determined by the Compensation Committee, and grants of restricted stock targeted at one hundred percent (100%) of his base salary.

 

Each Current Employment Agreement has a three-year term, commencing on January 1, 2017, and expiring on December 31, 2019, and may be terminated earlier in accordance with the agreement. If the Merger results in the involuntary termination of the executive or the executive terminates her employment for “good reason” within nine (9) months following the Merger, the executive will be entitled to severance in an amount equal to two and one-half (2 ½) times her base salary plus any reasonably anticipated performance bonus prorated for that fiscal year. In addition to the foregoing, if an executive’s employment is terminated due to a Qualifying Termination, such executive shall be entitled to continued health benefits at a reduced premium for a period equal to the duration of the severance period.

 

New Employment Agreements

 

In connection with the execution of the Merger Agreement, Parent entered into agreements with the following executive officers of LMI pursuant to which such executive officers agreed to enter into an employment agreement with the surviving corporation upon closing of the Merger: Daniel G. Korte, Clifford C. Stebe, Jr., Jay Inman, Keith Schrader, and Dave Wright (collectively, the “ Intention Agreements ”).

 

87  

 

 

The employment agreements contemplated by the Intention Agreements (the “ New Employment Agreements ”) provide the above listed executives an annual base salary, which shall be increased by at least three percent (3%) each year, an initial bonus (equal to $750,000 for Mr. Korte and $105,000 for each of the other executives) to be paid within five (5) calendar days of the closing of the Merger (except in the event the Board of Directors of LMI awards a long-term incentive to such executive under such executive’s prior employment agreement with the Company on or before the closing of the Merger, in which case no initial bonus will be payable), and certain other perquisites and benefits customarily found in employment agreements with executives. Furthermore, beginning in calendar year 2017, each executive will be eligible for an annual performance bonus, in the case of Mr. Korte, equal to no less than fifty percent (50%) and no more than one hundred and ten percent (110%), and in the case of Mr. Stebe, no less than twenty-two and one half percent (22.5%) and no more than forty-nine and one half percent (49.5%), and in the case of the other executives, no less than fifteen percent (15%) and no more than thirty-three percent (33%), of such executive’s then-current base salary, subject to the achievement of performance objectives for the subject calendar year. Beginning in calendar year 2018, Mr. Korte will be entitled to an annual time-based long-term incentive payment equal to three quarters times (.75x) the prior year’s annual base salary and an annual performance incentive payment equal to no less than fifty percent (50%) and no more than one hundred and ten percent (110%) of three quarters times (.75x) the prior year’s base salary. Also beginning in calendar year 2018, the other executives will be entitled to an annual long-term incentive payment equal to $52,500 and an annual performance incentive payment with a target of $52,500, each of which will increase by a minimum of three percent (3%) each calendar year. Both the annual incentive payments and the annual performance incentive payments shall vest in three equal installments, the first of which shall vest on the last day of the calendar year to which it pertains, and the second and third installments of which will vest on the last day of the two (2) successive calendar years, in each case subject to the executive’s continued employment on each such vesting date, and in the case of the annual performance incentive, subject to the achievement of performance objectives for the subject calendar year. In each case, the vested amounts will be paid on the January 30th immediately following the applicable vesting date.

 

The New Employment Agreements shall continue until terminated by either party in accordance with the terms of the agreement. If an executive’s employment is terminated without cause by LMI, or for “good reason” by the executive, or through a corporate dissolution (a “ Qualifying Termination ”), prior to the first anniversary of the Merger, the executive will be entitled to severance in an amount equal to two and one-half (2.5x) times such executive’s then current base salary. In the event of a Qualifying Termination following the first anniversary, but prior to the second anniversary of the Merger, the executive will be entitled to severance in an amount equal to one and one half times (1.5x) times such executive’s then current base salary. In the event of a Qualifying Termination on or after the second anniversary of the Merger, the executive will be entitled to severance in an amount equal to one times (1x) such executive’s then current base salary. In addition to the foregoing, if an executive’s employment is terminated due to a Qualifying Termination, such executive shall be entitled to receive any vested but unpaid annual incentive payment and/or annual performance incentive payment, a prorated amount of the annual bonus and the annual performance incentive payment of the calendar year in which the termination occurred, and continued health benefits at a reduced premium for a period of up to 18 months. Any severance will be paid in equal installments in accordance with the surviving corporation’s regular pay schedule over the length of the period of base salary on which the amount of severance pay is based, and will be subject to the executive executing a release agreement.

 

Non-Employee Directors

 

All equity awards held by our non-employee directors will be subject to the treatment described above under “— Treatment of Equity-Based Awards .”

 

88  

 

 

Golden Parachute Compensation

 

In accordance with Item 402(t) of Regulation S-K, the table below sets forth the compensation that is based on or otherwise relates to the Merger that will or may become payable to each of our named executive officers in connection with the Merger. Please see the previous portions of this section for further information regarding this compensation.

 

The amounts indicated in the table below are estimates of the amounts that would be payable assuming, solely for purposes of this table, that the Merger is consummated on March 1, 2017, and that the employment of each of the named executive officers was terminated without cause by LMI, for “good reason” by the executive on March 1, 2017 under the executive’s applicable employment agreement. As discussed above, under the Intention Agreements with Messrs. Korte, Stebe and Wright, the New Employment Agreements will be entered into upon the closing of the Merger. Thus, although the agreements are not currently in effect, solely for the purposes of this table, it has been assumed that the New Employment Agreements are in effect for these individuals. For Mses. Alfaro and Skonier, payments are shown under the Current Employment Agreements. The assumed March 1, 2017 historical date is used solely for illustrative purposes. Our executive officers will not receive pension, non-qualified deferred compensation, tax reimbursement or other benefits in connection with the Merger.

 

Some of the amounts set forth in the table would be payable solely by virtue of the consummation of the Merger. In addition to the assumptions regarding the consummation date of the Merger and the termination of employment, these estimates are based on certain other assumptions that are described in the footnotes accompanying the table below. Accordingly, the ultimate values to be received by a named executive officer in connection with the Merger may differ from the amounts set forth below. The values in the table below payable by LMI are not subject to the non-binding, advisory proposal to approve certain compensation that will or may become payable to our named executive officers in connection with the Merger.

 

Golden Parachute Compensation

Name   Cash(1)     Equity(2)     Perquisites/
benefits (3)
    Other (4)     Total  
Daniel G. Korte   $ 1,370,747     $ 2,100,364           $ 750,000     $ 4,221,111  
Clifford C. Stebe, Jr   $ 682,355     $ 290,878     $ 24,429     $ 105,000     $ 1,102,662  
Jennifer L. Alfaro   $ 675,924     $ 218,022     $ 39,626           $ 933,572  
Renée Skonier   $ 658,607     $ 175,420     $ 14,038           $ 848,065  
Dave Wright   $ 597,876     $ 90,664     $ 24,407     $ 105,000     $ 817,947  

 

(1) This amount represents the “double trigger” cash severance payments to which each named executive officer may become entitled under their employment agreements (the New Employment Agreements, in the case of Messrs. Korte, Stebe and Wright, and the Current Employment Agreements, in the cases of Mses. Alfaro and Skonier), as described in the section of this proxy statement captioned “— Payment Upon Termination Following Change-in-Control.” This column assumes, solely for the purposes of this table, that the Merger is consummated on March 1, 2017 and that, solely for purposes of this table, that the employment of each of the named executive officers was terminated without cause by LMI, or for “good reason” by the executive on March 1, 2017. The assumed March 1, 2017 historical date is used solely for illustrative purposes. For purposes of estimating pro-rata annual bonuses for the year of termination, the executive’s target bonus has been used as an estimate, in each case, subject to a pro-rata percentage based on the number of days between January 1, 2017 and March 1, 2017 and the full annual performance period.

 

89  

 

 

(2) These are the “single trigger” vesting acceleration benefits to which each named executive officer is entitled the terms of the Merger Agreement, as described in the section of this proxy statement captioned “— Treatment of Equity-Based Awards” above. This column assumes, solely for the purposes of this table, that the Merger is consummated on March 1, 2017. The assumed March 1, 2017 historical date is used solely for illustrative purposes. This amount represents the product of (a) $14.00 per share multiplied by (b) the number of shares subject to each named executive officer’s outstanding equity awards on March 1, 2017.

 

(3) This amount represents the “double trigger” continued health benefit payments to which each named executive officer may become entitled under their employment agreements (the New Employment Agreements, in the case of Messrs. Korte, Stebe and Wright, and the Current Employment Agreements, in the cases of Mses. Alfaro and Skonier), as described in the section of this proxy statement captioned “— Payment Upon Termination Following Change-in-Control.” This column assumes, solely for the purposes of this table, that the Merger is consummated on March 1, 2017 and that, solely for purposes of this table, that the employment of each of the named executive officers was terminated without cause by LMI, for “good reason” by the executive on March 1, 2017. The assumed March 1, 2017 historical date is used solely for illustrative purposes.

 

(4) This amount represents the “single trigger” initial bonuses payable to the executives party to the Intention Agreements/New Employment Agreements, as described in the section of this proxy statement captioned “— Payment Upon Termination Following Change-in-Control.” This column assumes, solely for the purposes of this table, that the Merger is consummated on March 1, 2017. The assumed March 1, 2017 historical date is used solely for illustrative purposes.

 

Insurance and Indemnification of Directors and Executive Officers

 

The directors and officers of the Corporation are entitled to certain insurance and indemnification rights in connection with the Merger. See the sections of this proxy statement captioned “The Merger Agreement – Indemnification” and “The Merger Agreement – Directors’ and Officers’ Insurance” for additional information.

 

Closing and Effective Time of the Merger

 

Unless otherwise mutually agreed in writing by the Parent and LMI, the closing of the Merger is expected to occur at 10:00 a.m. New York City time, on the second business day after the conditions to the Merger set forth in the Merger Agreement and described in the section of this proxy statement captioned “The Merger Agreement — Conditions to Completion of the Merger” have been satisfied or, to the extent permitted by applicable law, waived (other than the conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of those conditions).

 

The Merger will become effective upon the filing of the summary articles of merger with the Secretary of State of the State of Missouri or at such later time as is agreed upon by Sonaca and LMI and specified in the summary articles of merger. As of the date of this proxy statement, we expect to complete the Merger by the second half of 2017; however, consummation of the Merger is subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in the section of this proxy statement captioned “The Merger Agreement — Conditions to Completion of the Merger” and we cannot specify when, or assure you that, LMI and Sonaca will satisfy or waive all or any conditions to the Merger. There may be a substantial amount of time between the date of the Special Meeting and the consummation of the Merger and it is possible that factors outside the control of LMI or Sonaca could delay the consummation of the Merger, or prevent the Merger from being consummated; however, we expect to consummate the Merger promptly following the satisfaction or (to the extent permitted by applicable law) waiver of the conditions more fully described below in the section of this proxy statement captioned “The Merger Agreement — Conditions to Completion of the Merger.”

90  

 

 

Delisting and Deregistration of LMI Common Stock

 

If the Merger is completed, the LMI common stock will no longer be listed on NASDAQ, we will be deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC.

 

Appraisal Rights

 

The discussion of the provisions set forth in this section is not a complete summary regarding your right under Missouri law to be deemed a dissenting shareholder and entitled to appraisal rights and is qualified in its entirety by reference to the text of Section 351.455 of the MGBCL (“ Section 351.455 ”), a copy of which is attached as Annex C to this proxy statement and is incorporated herein by reference. Shareholders intending to exercise appraisal rights should carefully review Annex C to this proxy statement and strictly adhere to Section 351.455. Failure to follow any of the statutory procedures precisely may result in a termination or waiver of these rights. A summary of the principal steps to be taken is set forth below for any shareholders intending to be deemed a dissenting shareholder and be entitled to and exercise appraisal rights.

 

ANY HOLDER OF COMPANY COMMON STOCK WHO WISHES TO BE DEEMED A DISSENTING SHAREHOLDER AND BE ENTITLED TO EXERCISE APPRAISAL RIGHTS, OR WHO WISHES TO PRESERVE SUCH HOLDER’S RIGHT TO DO SO, SHOULD CAREFULLY REVIEW THE FOLLOWING DISCUSSION AND ANNEX C BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. MOREOVER, BECAUSE OF THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE RIGHT TO SEEK APPRAISAL OF SHARES OF COMPANY COMMON STOCK, LMI BELIEVES THAT, IF A SHAREHOLDER CONSIDERS EXERCISING SUCH RIGHTS, SUCH SHAREHOLDER SHOULD SEEK THE ADVICE OF LEGAL COUNSEL.

 

A shareholder of record will be deemed a dissenting shareholder and entitled to appraisal and payment of the fair value of his, her or its shares under Section 351.455 if such shareholder:

 

owns LMI’s common stock as of the close of business on [●], 2017, the Record Date for the Special Meeting;

  

files with the Company, prior to or at the Special Meeting, a written objection to the Merger. Such objection should be delivered or mailed in time to arrive before the Special Meeting to the Company at LMI Aerospace, Inc., 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301, Attention: Corporate Secretary. Such written objection must be made in addition to and separate from any proxy or other vote against the approval of the Merger Agreement. None of a vote against, a failure to vote for, or an abstention from voting will satisfy the requirement that a written objection be delivered to the Company before the vote is taken;

  

does not vote in favor of the Merger Agreement (as a result, shareholders who vote “ FOR ” the proposal to approve the Merger Agreement will waive their appraisal rights, unless they revoke their proxies, if revocable, prior to the Special Meeting); and

 

91  

 

 

within 20 days after the Merger is effected, makes a written demand on the Company, as the surviving corporation, for payment of the fair value of such shareholder’s shares of Company common stock as of the day prior to the Special Meeting. This demand must be mailed or delivered to the Corporate Secretary of the Company at LMI Aerospace, Inc., 411 Fountain Lakes Boulevard, St. Charles, Missouri 63301. Neither a vote against the approval of the Merger Agreement nor the written objection referred to above will satisfy the written demand requirement following the effective time of the Merger referred to in this paragraph.

  

Any shareholder who (i) fails to file a written objection to the Merger prior to or at the Special Meeting, (ii) votes in favor of the Merger, or (iii) fails to make a written demand for payment within the 20 day period after the effective time will be conclusively presumed to have consented to the Merger Agreement and will be bound by the terms thereof. Any such shareholder will not be deemed a dissenting shareholder, will forfeit his, her or its appraisal rights, and will be entitled to receive the Merger Consideration of $14.00 per share for his, her or its shares.

 

If, within 30 days after the effective time of the Merger, the fair value of the dissenting shareholder’s shares of Company common stock is agreed upon between the dissenting shareholder and the surviving corporation, then payment for such shares must be made by the surviving corporation within 90 days after the effective time of the Merger, upon the surrender of the dissenting shareholder’s stock certificates representing such shareholder’s shares. Upon payment of the agreed value, the dissenting shareholder will cease to have any interest in the shares or in the surviving corporation.

 

If, within 30 days after the effective time of the Merger, there is no such agreement as to the fair value of the dissenting shareholder’s shares of Company common stock between the dissenting shareholder and the surviving corporation, then the dissenting shareholder may, within 60 days after the expiration of the 30-day period, file a petition in any court of competent jurisdiction within the county in which the registered office of the surviving corporation is situated, asking for a finding and determination of the fair value such shareholder’s shares as of the day prior to the Special Meeting. The dissenting shareholder will be entitled to judgment against the surviving corporation for an amount equal to the fair value of such shareholder’s shares measured as of the day prior to the Special Meeting, together with interest thereon to the date of the judgment. Shareholders should be aware that the fair value of their shares as determined under Section 351.455 may be more than, the same as or less than the value of the consideration they would receive pursuant to the Merger Agreement if they do not seek appraisal of their shares. Shareholders should also be aware that opinions, if any, of investment banking firms (including the Company’s financial advisers) as to the fairness of the Merger from a financial point of view are not necessarily opinions as to “fair value” under the MGBCL.

 

92  

 

 

In the case of certificated shares of Company common stock, the judgment will only be payable upon and simultaneously with the surrender to the surviving corporation of the stock certificates representing the shares of Company common stock owned by the dissenting shareholder. Upon payment of the judgment, the shareholder will cease to have any interest in the shares or in the surviving corporation. Further, unless the dissenting shareholder files the petition with the court within any of the time limits described above, such shareholder and all persons claiming under such shareholder shall be conclusively presumed to have approved or ratified the Merger and shall be bound by the terms thereof. The right of a dissenting shareholder to be paid the fair value of such shareholder’s shares as provided above ceases if and when LMI abandons the Merger.

 

We do not intend to object, assuming the proper procedures are followed and the shareholder qualifies under the statute, to any shareholders’ demand for payment of the fair value of his, her or its shares. We intend, however, to argue in any discussions or negotiations with dissenting shareholders or in any court proceeding that, for such purposes, the fair value of each share is less than or equal to the per share Merger Consideration.

 

To be effective, a written objection to the Merger and a demand for appraisal by a holder of Company common stock must be made by, or in the name of, the person in whose name shares are registered in the records of the Company. The written objection and demand cannot be made by the beneficial (“ street name ”) holder if he, she or it does not also hold shares of Company common stock registered in his, her or its name in the records of the Company. The “street name” holder must, in such cases, have the registered owner, such as the broker, bank, trust or other nominee, submit the required written objection and demand in respect of those shares of stock. If you hold your shares of Company common stock in a brokerage account or through another nominee, such as a bank or trust, and you wish to be deemed a dissenting shareholder and exercise appraisal rights, you should consult with your broker, bank, trust or other nominee to determine the appropriate procedures for filing a written objection to the Merger and making a demand for appraisal. If you currently hold your shares of Company common stock in “street name” and wish to avoid loss of rights resulting from the registered owner’s failure to follow the mandated procedural steps under Section 351.455, prior to the Record Date you may wish to instruct the registered owner of your shares ( i.e. , your broker, bank, trust or other nominee) to transfer your security position in such shares to a direct registration system book entry registered directly in your name on the Company’s books with its transfer agent. Please contact your broker, bank, trust or other nominee for further information.

 

Under Missouri law, dissenting shareholder and appraisal rights are your exclusive remedy as to the Merger, except in the case of fraud or lack of authorization for the Merger.

 

In view of the complexity of Section 351.455, shareholders of the Company who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors before attempting to exercise these rights. To the extent there are any inconsistencies between the foregoing summary and Section 351.455, Section 351.455 shall govern.

 

Accounting Treatment

 

It is currently the intent to have the Merger accounted for as a “purchase transaction” for Belgian financial accounting purposes.

 

93  

 

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following is a general discussion of the material U.S. federal income tax consequences of the Merger to holders of Company common stock whose shares are exchanged for cash pursuant to the Merger. This discussion is based on the provisions of the Code, applicable U.S. Treasury regulations, judicial opinions, and administrative rulings and published positions of the Internal Revenue Service, each as in effect as of the date hereof. These authorities are subject to change, possibly on a retroactive basis, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion is not binding on the Internal Revenue Service or the courts and, therefore, could be subject to challenge, which could be sustained. No ruling is intended to be sought from the Internal Revenue Service with respect to the Merger.

 

For purposes of this discussion, the term “ U.S. Holder ” means a beneficial owner of Company common stock (other than with respect to Restricted Shares and RSUs) that is:

 

a citizen or individual resident of the United States;

 

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

a trust if (i) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

 

an estate the income of which is subject to U.S. federal income tax regardless of its source.

 

For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of Company common stock (other than with respect to Restricted Shares), other than a partnership or other entity taxable as a partnership for U.S. federal income tax purposes, that is not a U.S. Holder.

 

With respect to U.S. Holders, this discussion applies only to U.S. Holders of shares of Company common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a U.S. Holder in light of its particular circumstances, or that may apply to a U.S. Holder that is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, controlled foreign corporations, passive foreign investment companies, dealers or brokers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. Holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, banks and certain other financial institutions, mutual funds, certain expatriates, partnerships, S corporations, or other pass-through entities or investors in partnerships or such other entities, U.S. Holders who hold shares of Company common stock as part of a hedge, straddle, constructive sale or conversion transaction, U.S. Holders who will hold, directly or indirectly, an equity interest in the surviving corporation, and U.S. Holders who acquired their shares of Company common stock through the exercise of employee stock options or other compensation arrangements).

 

94  

 

 

If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Company common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are a partner of a partnership holding shares of Company common stock, you should consult your tax advisor.

 

Holders of Company common stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the Merger, including the applicability and effect of the alternative minimum tax, and any state, local, foreign or other tax laws.

 

Consequences to U.S. Holders

 

The receipt of cash by U.S. Holders in exchange for shares of Company common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for U.S. federal income tax purposes, a U.S. Holder who receives cash in exchange for shares of Company common stock pursuant to the Merger will recognize gain or loss in an amount equal to the difference, if any, between (i) the amount of cash received (computed as if there were no applicable withholding taxes) and (ii) the U.S. Holder’s adjusted tax basis in such shares.

 

If a U.S. Holder’s holding period in the shares of Company common stock surrendered in the Merger is greater than one year as of the date of the Merger, the gain or loss will be long-term capital gain or loss. Long term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of a capital loss recognized on the exchange is subject to limitations. If a U.S. Holder acquired different blocks of Company common stock at different times and different prices, such U.S. Holder must determine its adjusted tax basis and holding period separately with respect to each block of Company common stock.

 

Consequences to Non-U.S. Holders

 

A Non-U.S. Holder whose shares of Company common stock are converted into the right to receive cash in the Merger generally will not be subject to U.S. federal income taxation unless:

 

gain resulting from the Merger is effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business (and, if required by any applicable income tax treaty, is attributable to a United States permanent establishment of the Non-U.S. Holder);

 

95  

 

 

the Non-U.S. Holder is an individual who is “substantially present” in the United States for 183 days or more in the individual’s taxable year in which the Merger occurs and certain other conditions are satisfied; or

 

the Company is or has been a U.S. real property holding corporation (the “ USRPHC ”) as defined in Section 897 of the Code at any time within the five-year period preceding the Merger, the Non-U.S. Holder owned more than five percent of the Company common stock at any time within that five-year period, and certain other conditions are satisfied.

 

Any gain recognized by a Non-U.S. Holder described in the first bullet above generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a “U.S. person” as defined under the Code. A Non-U.S. Holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on after-tax profits effectively connected with a U.S. trade or business to the extent that such after-tax profits are not reinvested and maintained in the U.S. business.

 

Gain described in the second bullet above generally will be subject to U.S. federal income tax at a flat 30% rate, but may be offset by certain U.S. source capital losses, if any, of the Non-U.S. Holder. An individual is “substantially present” in the U.S. if such individual is physically present in the U.S. on at least 31 calendar days during the current calendar year and 183 days during the current year and the two preceding years, counting all the days of physical presence in the current year, but only one-third the number of days of presence in the first preceding year, and only one-sixth the number of days in the second preceding year.

 

With respect to the third bullet above, generally, the Company will be a USRPHC if the fair market value of our U.S. real property interests equals or exceeds 50% of the sum of the fair market values of our worldwide (domestic and foreign) real property interests and other assets used or held for use in a trade or business, all as determined under applicable U.S. Treasury regulations. We believe that we are not currently and do not expect to become a USRPHC. Even if we are a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as a U.S. real property interest only if the Non-U.S. Holder actually or constructively held more than five percent of our common stock at any time during the shorter of the five-year period preceding the disposition or the Non-U.S. Holder’s holding period for our common stock.

 

Information Reporting and Backup Withholding

 

Payments made in exchange for shares of Company common stock pursuant to the Merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, a U.S. Holder that does not otherwise establish an exemption should complete and return Internal Revenue Service Form W-9, certifying that such U.S. Holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. Holder is not subject to backup withholding. In general, a Non-U.S. Holder will not be subject to U.S. federal backup withholding and information reporting with respect to cash payments to the Non-U.S. Holder pursuant to the Merger if the Non-U.S. Holder has provided an Internal Revenue Service Form W-8BEN (or an Internal Revenue Service Form W-8ECI if the Non-U.S. Holder’s gain is effectively connected with the conduct of a U.S. trade or business).

 

96  

 

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the Internal Revenue Service in a timely manner.

 

Additional Withholding Considerations

 

Pursuant to legislation commonly known as the Foreign Account Tax Compliance Act (“ FATCA ”), foreign financial institutions (which include most foreign hedge funds, private equity funds, mutual funds, securitization vehicles and other investment vehicles) and certain other foreign entities must comply with information reporting rules with respect to their U.S. account holders and investors or pay a withholding tax on U.S. source payments made to them (whether received as a beneficial owner or as an intermediary for another party). More specifically, a foreign financial institution or other foreign entity that does not comply with the FATCA reporting requirements will generally be subject to a 30% withholding tax with respect to any “withholdable payments”. For this purpose, withholdable payments generally include U.S. source payments otherwise subject to nonresident withholding tax (e.g., U.S. source dividends) and also include the entire gross proceeds from the sale of any equity or debt instruments of U.S. issuers. The new FATCA withholding tax will apply even if the payment would otherwise not be subject to U.S. nonresident withholding tax (e.g., capital gain). Final Treasury regulations and IRS guidance defer this withholding obligation for gross proceeds from dispositions of U.S. common stock until after December 31, 2018.

 

This summary of the material U.S. federal income tax consequences is for general information purposes only and is not tax advice. Holders of Company common stock should consult their tax advisors as to the specific tax consequences to them of the Merger, including the applicability and effect of the alternative minimum tax and the effect of any federal, state, local, foreign and other tax laws.

 

Governmental and Regulatory Approvals

 

Antitrust Approval in the U.S.

 

Under the HSR Act and related rules, certain transactions, including the Merger, may not be completed until notifications have been given and information furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied. On March 10, 2017, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC.

 

At any time before or after the effective time of the Merger, the Antitrust Division or the FTC could take action under the antitrust laws, including seeking to prevent the Merger, to rescind the Merger or to conditionally approve the Merger upon the divestiture of assets of the Company or Parent or subject to regulatory conditions or other remedies. In addition, U.S. state attorneys general could take action under the antitrust laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the completion of the Merger or permitting completion of the Merger subject to regulatory conditions. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

 

97  

 

 

Antitrust Approval in Non-U.S. Jurisdictions

 

The Merger is also conditioned on the absence of any temporary restraining order, preliminary or permanent injunction, law or other order issued by any court of competent jurisdiction in effect enjoining or otherwise preventing or prohibiting the consummation of the Merger. Foreign antitrust authorities may take action under the antitrust laws of their jurisdictions including, without limitation, seeking to enjoin the completion of the Merger or permitting completion of the Merger subject to regulatory conditions. There can be no assurance that a challenge to the Merger under foreign antitrust laws will not be made or, if such a challenge is made, that it would not be successful.

 

CFIUS Clearance

 

The Merger is also conditioned on the issuance by CFIUS of a written notification to the parties to the Merger Agreement that it has concluded a review of the notification voluntarily provided pursuant to the DPA, and determined not to conduct a full investigation of the transactions contemplated by the Merger Agreement or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the Merger Agreement from being consummated.

 

The Merger Agreement provides for LMI and Parent jointly submit a draft and a final notice with CFIUS regarding the Merger. Under the terms of the Merger Agreement, consummation of the Merger is subject to the satisfaction or waiver by all parties of the condition that one of the following shall have occurred: (i) CFIUS has concluded that the Merger and the transactions contemplated thereby are not a “covered transaction” and not subject to review under applicable law; (ii) the review of the Merger and the transactions contemplated thereby by the DPA has been concluded, and there are no unresolved national security concerns with respect to such transactions; or (iii) CFIUS has sent a report to the President of the United States requesting the President’s decision on the CFIUS filing submitted by the parties and either (A) the period under the DPA during which the President may announce his decision to take action to suspend, prohibit or place any limitations on the Transactions has expired without any such action being threatened, announced or taken or (B) the President has announced a decision not to take any action to suspend, prohibit or place any limitations on the Merger on the transactions contemplated thereby.

 

DDTC Approval

 

The Merger also cannot be completed unless and until (i) 60 days have passed since LMI notified the DDTC of the Merger and the DDTC has not taken or threatened to take enforcement action against Parent in connection with the consummation of the Merger or (ii) the DDTC has notified LMI or Parent that it does not intend to take enforcement action against Parent in connection with the consummation of the Merger.

 

98  

 

 

Litigation Related to the Merger  

 

To date, there is no outstanding litigation related to the Merger

 

99  

 

 

THE MERGER AGREEMENT

 

Explanatory Note Regarding the Merger Agreement

 

The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and is incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement carefully and in its entirety because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement. Capitalized terms in this section but not defined in this proxy statement have the meaning ascribed to such terms in the Merger Agreement.

 

The representations, warranties, covenants and agreements described in this section and included in the Merger Agreement: (i) were made only for purposes of the Merger Agreement and as of specific dates; (ii) were made solely for the benefit of the parties to the Merger Agreement; and (iii) may be subject to important qualifications, limitations and supplemental information agreed to by LMI, Parent, Intermediate Co, and Sub in connection with negotiating the terms of the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and, in some cases, were qualified by matters disclosed to Parent, Intermediate Co and Sub by LMI in the disclosure letter to the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purposes of allocating contractual risk between the parties to the Merger Agreement, rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Shareholders are not third-party beneficiaries under the Merger Agreement (other than to enforce payment of the Merger Consideration after the effective time) and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of LMI, Parent, Intermediate Co, or Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may have changed after the date of the Merger Agreement and do not purport to be accurate as of the date of this proxy statement and, accordingly, you should not rely on such representations and warranties as characterizations of the actual state of facts at the time they were made or as of the date of this proxy statement. In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of LMI, Parent, Intermediate Co and Sub because the parties may take certain actions that are either expressly permitted in the disclosure letter delivered by LMI in connection with the execution of the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide you with any other factual information regarding LMI, Parent, Intermediate Co or Sub or their respective businesses or affiliates. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone and you should read the information provided elsewhere in this document and in our filings with the SEC regarding LMI and our business.

 

100  

 

 

Form and Effects of the Merger; Directors and Officers; Articles of Incorporation and Bylaws

 

At the effective time of the Merger, Sub will merge with and into the Company and the separate corporate existence of Sub will cease. The Company will be the surviving corporation in the Merger and will continue its corporate existence as a Missouri corporation after the Merger, and all properties, rights, privileges, powers and franchises of the Company and Sub, and all claims, obligations, liabilities, debts and duties of the Company and Sub, shall become the claims, obligations, liabilities, debts and duties of the surviving corporation.

 

The surviving corporation will be a privately held corporation and our current shareholders, other than any LMI executive officers and other key employees who will hold an ownership interest in the surviving corporation, will cease to have any ownership interest in the surviving corporation or rights as our shareholders. Therefore, such current shareholders will not participate in any future earnings or growth of the surviving corporation and will not benefit from any appreciation in value of the surviving corporation.

 

The articles of incorporation of the Company as in effect immediately prior to the effective time of the Merger will be amended and restated in their entirety to read as the articles of incorporation of Sub as of the effective time of the Merger, and, as so amended, will be the articles of incorporation of the surviving corporation until thereafter amended in accordance with the MGBCL and such articles of incorporation. The by-laws of the Company will be amended and restated in their entirety to read as the bylaws of Sub as in effect immediately prior to the effective time of the Merger, and, as so amended, will be the bylaws of the surviving corporation until thereafter amended in accordance with the MGBCL and such bylaws. Subject to applicable law, the directors of Sub as of immediately prior to the effective time of the Merger will be the initial directors of the surviving corporation, and the officers of the Company immediately prior to the effective time of the Merger will be the initial officers of the surviving corporation.

 

Closing and Effective Time of the Merger

 

The closing of the Merger will take place at the offices of Arnold & Porter Kaye Scholer LLP, located at 250 W 55th Street, New York, New York, 10019, at 10:00 a.m., New York City time, on a date which will be the second business day after the satisfaction or (to the extent permitted by law) waiver by the party having the benefit of the applicable condition of the closing conditions stated in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or (to the extent permitted by law) waiver by the party having the benefit of the applicable condition of such conditions) or at such other place, date and time as the Company and Parent, may agree in writing.

 

The Merger will become effective at the time the summary articles of merger are filed with the Secretary of State of the State of Missouri (or at such later time as is agreed upon by the parties to the Merger Agreement and specified in the summary articles of merger), which we refer to as the “ effective time ” of the Merger. We expect to complete the Merger as promptly as practicable after our shareholders adopt the Merger Agreement (assuming the prior satisfaction of the other closing conditions to the Merger as described below).

 

101  

 

 

Merger Consideration

 

Effect of the Merger on LMI’s Common Stock

 

At the effective time of the Merger, except as noted below, each share of our common stock issued and outstanding immediately prior to the effective time will be automatically cancelled and converted at the effective time into the right to receive $14.00 in cash, without interest and less any applicable withholding taxes. The following shares of common stock will not receive the Merger Consideration:

 

treasury shares owned directly by the Company, which shares will be automatically cancelled without consideration;

 

shares held by Parent, Intermediate Co or Sub, which shares will be automatically cancelled without conversion or consideration; and

 

shares held by holders who did not vote in favor of the Merger (or consent to the Merger in writing) and who are entitled to demand and have properly demanded appraisal of such shares pursuant to, and who have complied in all respects with, the provisions of Section 351.455 of the MGBCL, and which shares will be entitled to payment of the fair value of such shares as may be determined to be due to such holders pursuant to Section 351.455 of the MGBCL (unless and until such holder has failed to perfect or has effectively withdrawn or lost rights of appraisal under Section 351.455 of the MGBCL).

 

At the effective time of the Merger, each holder of a certificate formerly representing any shares of common stock or evidence of shares in book-entry form (other than shares for which appraisal rights have been properly demanded, perfected and not withdrawn or lost under Section 351.455) will no longer have any rights with respect to the shares, except for the right to receive the Merger Consideration upon surrender thereof. See the section of this proxy captioned “The Merger—Appraisal Rights ” for more information regarding appraisal rights.

 

At the effective time of the Merger, each share of common stock of Sub issued and outstanding immediately prior to the effective time of the Merger will be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the surviving corporation.

 

Treatment of LMI Equity-Based Awards

 

The Merger Agreement provides that the Company’s equity awards that are outstanding immediately prior to the effective time of the Merger will be subject to the following treatment at the effective time of the Merger:

 

Restricted Shares

 

As soon as reasonably practicable following the date of the Merger Agreement, the Company is required to adopt such resolutions and take such other actions as may be required so that each Restricted Share granted under LMI’s equity incentive plans that is outstanding immediately prior to the effective time of the Merger shall be fully vested and, at the effective time of the Merger, canceled and extinguished, and converted into the right receive, on the date which the effective time of the Merger occurs, an amount in cash equal to the $14.00 per share Merger Consideration, without interest and less any applicable withholding taxes.

 

102  

 

 

Restricted Stock Units

 

As soon as reasonably practicable following the date of the Merger Agreement, the Company is required to adopt such resolutions and take such other actions as may be required so that each RSU granted under LMI’s equity incentive plans that is outstanding immediately prior to the effective time of the Merger shall be fully vested and settled into one share of Company common stock and, at the effective time of the Merger, canceled and extinguished, and converted into the right receive, on the date which the effective time of the Merger occurs, an amount in cash equal to the $14.00 per share Merger Consideration, without interest and less any applicable withholding taxes.

 

Exchange and Payment Procedures

 

Prior to the effective time of the Merger, Parent will designate a paying agent reasonably acceptable to the Company to receive the aggregate Merger Consideration for the benefit of the holders of shares of our common stock. At or prior to the effective time, Parent will deposit (or cause to be deposited) with the paying agent an amount in cash equal to the aggregate Merger Consideration.

 

As promptly as reasonably practical after the effective time of the Merger (and in any event, no later than the second business day following the effective time of the Merger), the surviving corporation will cause the paying agent to mail to each holder of record of our shares a letter of transmittal and instructions advising such holders how to surrender their certificates for the Merger Consideration. The paying agent will pay each holder of record the per share Merger Consideration upon its receipt of (i) surrendered certificates, (ii) a signed letter of transmittal and (iii) any other items reasonably required by the paying agent. Holders of record of our common stock holding book-entry shares do not need to surrender any certificate or complete a letter of transmittal in order to receive payment from the paying agent. As promptly as practicable after the effective time of the Merger (and in any event, no later than the second business day following the effective time of the Merger) the surviving corporation will cause the paying agent to issue and deliver to each holder of Company common stock represented in book-entry form, a check or wire transfer in an amount of the Merger Consideration for each share of book-entry shares held by such holders. Interest will not be paid or accrue in respect of the Merger Consideration. The surviving corporation will reduce the amount of any Merger Consideration paid to you by any applicable withholding taxes. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.

 

103  

 

 

On the close of business on the day on which the effective time of the Merger occurs, we will close our stock transfer books. After that time, there will be no further transfer of shares of our common stock that were outstanding immediately prior to the effective time of the Merger.

 

If any cash deposited with the paying agent is not claimed within nine months following the effective time of the Merger, such cash will be returned to the Parent, upon demand, and any holders of certificates or book entry shares who have not complied with the share certificate exchange procedures in the Merger Agreement may thereafter only look to Parent for, and Parent will remain liable for, payment of their claims for the Merger Consideration.

 

If the paying agent is to pay some or all of a shareholder’s Merger Consideration to a person other than the person in whose name the certificate surrendered is registered in the transfer records of the company, then (i) in the case of a stock certificate, the certificate must be properly endorsed or otherwise be in proper form for transfer, and (ii) the person requesting payment must pay any transfer or other similar taxes payable by reason of the payment of the Merger Consideration to a person other than the registered holder or establish to the Parent’s reasonable satisfaction that the taxes have been paid or are not required to be paid.

 

The letter of transmittal will include instructions if the shareholder has lost the share certificate or if it has been stolen or destroyed. The shareholder will have to provide an affidavit to that fact and, if required by the Parent, post a bond in an amount that Parent or the surviving corporation reasonably directs as indemnity against any claim that may be made against it in respect of the share certificate in order for the paying agent to deliver applicable Merger Consideration.

 

Representations and Warranties

 

In the Merger Agreement, the Company has made customary representations and warranties to the Company with respect to, among other things:

 

corporate matters related to the Company and its subsidiaries, such as due organization, good standing;

 

qualification to conduct business, corporate power and authority to carry on the Company’s businesses, and to enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement;

 

the capital structure of LMI;

 

the absence of violations of, or conflicts with, the governing documents of the Company and its subsidiaries, applicable law and certain agreements and authorizations, as a result of the Company entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement;

 

governmental authorizations required in connection with the Merger;

 

the Company’s filings with the SEC since January 1, 2015 and the financial statements included therein;

 

104  

 

 

the Company’s disclosure controls and procedures and internal controls over financial reporting;

 

the absence of undisclosed liabilities;

 

the absence of certain changes or events;

 

absence of certain litigation;

 

compliance with applicable laws, licenses and permits;

 

environmental matters and compliance with environmental laws by the Company and its subsidiaries;

 

material contracts of the Company and its subsidiaries;

 

employee benefit matters;

 

labor and employment matters;

 

tax matters;

 

real property;

 

intellectual property;

 

insurance matters;

 

affiliate transactions;

 

accuracy of information supplied by the Company for inclusion in this proxy statement;

 

the vote required for the adoption of the Merger Agreement and the transactions contemplated by the Merger

 

finders’ and brokers’ fees and expenses;

 

opinion of financial advisor with respect to the fairness of the Merger Consideration;

 

the inapplicability of state takeover statutes or regulations to the offer or the Merger;

 

government contracts;

 

certain significant customer and suppliers; and

 

product warranties.

 

105  

 

 

In the Merger Agreement, Parent, Intermediate Co and Sub have made customary representations and warranties to the Company with respect to, among other things:

 

corporate matters related to Parent, Intermediate Co and Sub, such as due organization, good standing, qualification to conduct business and corporate power and authority to carry on its business;

 

governmental authorizations required in connection with the Merger;

 

the absence of violations of, or conflicts with, their governing documents, applicable law and certain agreements and authorizations as a result of entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement;

 

financing;

 

absence of certain litigation;

 

accuracy of information supplied by Parent, Intermediate Co or Sub for inclusion in this proxy statement;

 

operation and ownership of Sub;

 

finders’ and brokers’ fees and expenses; and

 

ownership of shares of Company common stock.

 

Material Adverse Effect Definition

 

Some of the representations and warranties in the Merger Agreement are qualified by materiality qualifications or a Company material adverse effect or a Parent material adverse effect clause.

 

For purposes of the Merger Agreement, a “ Company material adverse effect ” means any change, effect, event, state of facts, development or occurrence that, individually or in the aggregate with all other changes, effects, events, states of facts, developments or occurrences is, or would be, materially adverse to the business, assets, condition (financial or otherwise) or results of operation of the Company and its Subsidiaries taken as a whole. However, under certain circumstances, the foregoing will not include events or effects resulting from:

 

general economic, credit, capital or financial markets or political conditions, or changes in any of the foregoing, in the United States or elsewhere in the world, including with respect to interest rates or currency exchange rates;

 

any outbreak or escalation of hostilities, acts of war (whether or not declared), sabotage or terrorism;

 

106  

 

 

any hurricane, tornado, flood, volcano, earthquake or other natural or man-made disaster occurring after the date of this Agreement;

 

any change in applicable law or GAAP or government policy (or authoritative interpretation or enforcement thereof);

 

general conditions in the industries or markets in which the Company and its subsidiaries primarily operate;

 

any failure, in and of itself, by the Company to meet any analyst projections or any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other predicted financial or operating metrics before, on or after the date of the Merger Agreement ( provided that the underlying factors contributing to such failure shall not be excluded);

 

any change in the market price or trading volume of the Company common stock or the credit rating of the Company ( provided that the underlying factors contributing to such changes shall not be excluded);

 

the announcement and pendency of the Merger Agreement and the transactions contemplated thereby, including by reason of the identity of the Parent, Intermediate Co or Sub or any communication by the Parent, Intermediate Co or Sub regarding the plans or intentions of the Parent, Intermediate Co or Sub with respect to the conduct of the business of the Company or any of its subsidiaries and including the impact of any of the foregoing on any relationship, contractual or otherwise, with customers, suppliers, distributors, collaboration partners, employees or regulators; and

 

any action taken or not taken by the Company or its subsidiaries expressly required by the Merger Agreement to be taken or not to be taken, respectively, or taken or not taken with the prior written consent or at the express direction of the Parent, Intermediate Co or Sub.

 

For the purpose of the Merger Agreement, a “ Parent material adverse effect ” means any failure of Parent, Intermediate Co or Sub to have requisite power and authority to carry on its business as presently conducted that would, individually or in the aggregate, be reasonably expected to prevent or materially delay consummation of the Merger and the other transactions, or the Parent’s, Intermediate Co’s or Sub’s ability to observe and perform their material obligations under the Merger Agreement.

 

Conduct of Business Pending the Merger

 

We have agreed in the Merger Agreement that, until the effective time of the Merger, subject to certain exceptions in the Company’s disclosure schedule, except as expressly required or permitted by the Merger Agreement or required by law or consented to in writing by Parent (which consent will not be unreasonably withheld or delayed), we will, and will cause our subsidiaries to:

 

conduct our and their respective operations only in the ordinary course of business consistent with past practice; and

  

107  

 

 

use commercially reasonable efforts to preserve intact our and their business organizations, retain the services of our and their present executive officers and key employees, and to maintain in the ordinary course of business consistent with past practice our and their relationships with, and the good will of, our and their material customers, suppliers, and other persons or entities with whom we and they have similar business relationships.

 

We have also agreed in the Merger Agreement that, until the effective time of the Merger, subject to certain exceptions in the Company’s disclosure schedule, except as expressly required by the Merger Agreement or required by applicable law or consented to in writing by Parent (which consent cannot be unreasonably withheld, conditioned or delayed), the Company will not, and will not permit our subsidiaries to:

 

amend, modify, waive or rescind any provisions of its organizational documents (including our charter and by-laws);

 

adjust, split, combine or reclassify any of its capital stock;

 

make, declare, set aside or pay any dividend or distribution (whether in cash, stock or property) on, any of its capital stock or set any Record Date therefor, other than dividends or distributions to the Company or its wholly-owned subsidiaries;

 

subject to certain exceptions, purchase, redeem or otherwise acquire any shares of its capital stock or any options, warrants or other rights to acquire any such shares;

 

subject to certain exceptions, issue, deliver, sell, grant or cause a lien to be placed upon any shares of its capital stock or other voting securities or equity interests, any securities convertible or exchangeable into any such shares, voting securities or equity interests, any options, warrants or other rights to acquire any such shares, voting securities, equity interests or convertible or exchangeable securities, any stock-based performance units, profits interests or any other rights that give any person or entity the right to receive any economic interest of a nature accruing to the holders of Company common stock;

 

enter into any contract with respect to the sale, voting, registration or repurchase of any securities;

 

subject to certain exceptions, amend, modify or waive any rights under any of the Company’s outstanding or Restricted Shares or RSUs;

 

merge or consolidate with, or purchase an equity interest in or a substantial portion of the assets of, any person or entity or any business or division thereof;

 

subject to certain exceptions, sell, lease, license, abandon or otherwise dispose of, encumber or subject to any lien, any of its properties, assets or rights;

 

108  

 

 

subject to certain exceptions, adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization, or other reorganization of the Company or any of its subsidiaries, or merge, consolidate, restructure, recapitalize or reorganize;

 

subject to certain exceptions, terminate, cancel or materially amend or modify any of the Company’s material contracts, or enter into any contract that, if entered into prior to the date of the Merger Agreement, could have been deemed a material contract;

 

subject to certain exceptions, incur, create, assume, redeem, repurchase, prepay, defease, cancel or otherwise acquire, or modify certain types of indebtedness or enter into any arrangement having the economic effect of any of the foregoing;

 

subject to certain exceptions, grant to any member of the Board of Directors of the Company or any management level employee any increase in compensation or benefits, including any increase in, or new entitlement to, severance or termination pay;

 

subject to certain exceptions, grant to any employee who is not a management level employee any increase in compensation or benefits other than in the ordinary course of business consistent with past practice (other than equity or equity-based compensation and increases in base salary not exceeding 2% of aggregate base salaries);

 

subject to certain exceptions, enter into any employment, consulting, severance, retention or termination agreement with any member of the Board of Directors or management level employee, or other employee;

 

subject to certain exceptions, establish, adopt, enter into or amend any collective bargaining agreement or benefit plan;

 

subject to certain exceptions, take any action to accelerate any rights or benefits under, or adopt a funding vehicle with respect to, any benefit plan;

 

subject to certain exceptions, make any capital expenditure other than in the ordinary course of business consistent with past practice and otherwise in an aggregate amount not to exceed $20.0 million from January 1, 2017 through July 30, 2017;

 

make any material change in accounting methods, principles or practices by the Company or any of its subsidiaries except as required by GAAP or law;

 

fail to maintain or renew its material existing insurance policies to the extent available at comparable rates or pay increased premiums on such policies in excess of generally available market rates;

 

subject to certain exceptions, compromise, settle or agree to settle any claim or litigation, in each case pending against the Company or any of its subsidiaries;

 

enter into any new material line of business outside of its existing business segments;

 

109  

 

 

convene any regular or special meeting of the Company’s shareholders (other than the Special Meeting);

 

subject to certain exceptions, change any material tax election, settle or compromise any claim, audit or assessment in respect of taxes, or enter into any tax sharing agreement; or

 

authorize, commit or agree to do any of the foregoing.

 

Go-Shop; Acquisition Proposals; Change of Recommendation

 

Go-Shop; Acquisition Proposals

 

From February 16, 2017 and continuing until the go-shop period end date (11:59 p.m. (New York time) on March 18, 2017), the Company and its subsidiaries and their respective representatives is permitted to:

 

solicit (whether publicly or otherwise) any inquiry or the making of any proposal or offer that constitutes an acquisition proposal, including by providing information (including non-public information and data) regarding the Company and its subsidiaries, pursuant to a confidentiality agreement, and

 

participate in any discussions or negotiations with respect to any acquisition proposals and cooperate with or assist with any such discussions or negotiations or any effort or attempt to make any acquisition proposals, including by providing information (including non-public information and data) regarding the Company and its subsidiaries pursuant to a confidentiality agreement.

 

The Company are required to notify Parent in writing of the identity of any qualified purchaser no later than March 23, 2017 (four business days after the go-shop period end date).

 

Except as may relate to any qualified purchaser (as defined below), after the go-shop period end date, and subject to certain exceptions described below, we and our subsidiaries are required not to (and are required to direct our representatives not to), directly or indirectly:

 

initiate, solicit, knowingly encourage or facilitate (including by way of providing information) the submission or making of any requests, inquiries, proposals or offers that constitute or could reasonably be expected to lead to, any acquisition proposal or engage in, enter into, continue or otherwise participate in any discussions or negotiations with respect thereto, or otherwise cooperate with or assist or participate in, or facilitate, any such requests, proposals, offers, discussions or negotiations or furnish to any person or entity any nonpublic information in furtherance of or afford access to the books and records or the directors, officers, employees or other representatives of the Company or any of its subsidiaries to any person with respect to, any proposal or offer that constitutes or could reasonably be expected to result in any acquisition proposal;

 

110  

 

 

except as expressly permitted by the Merger Agreement’s fiduciary out exceptions, approve, endorse or recommend, or publicly propose to approve, endorse or recommend, an acquisition proposal, or enter into any confidentiality agreement, merger agreement, letter of intent, agreement in principle, purchase agreement, option agreement, or other agreement providing for or relating to an acquisition proposal (other than a confidentiality agreement as set forth below) or enter into any agreement or agreement in principle requiring the Company to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement or breach its obligations thereunder or propose or agree to do any of the foregoing;

 

take any action to make the provisions of any takeover law inapplicable to any transaction contemplated by an acquisition proposal;

 

terminate, amend, release, modify or fail to enforce any provision of, or grant any permission, waiver or request under, any standstill, confidentiality or similar agreement entered into by the Company in respect of or in contemplation of an acquisition proposal; or

 

publicly propose to do any of the foregoing.

 

Except as may relate to any qualified purchaser, after the go-shop period end date, we have agreed that we will, and will cause our subsidiaries to, and we will cause our and their representatives to, immediately cease and terminate any solicitation, knowing encouragement, discussion or negotiation or cooperation with, or assistance or participation in, or facilitation of any inquires, proposals, discussions or negotiations with any persons or entities conducted prior to the date of the Merger Agreement with respect to any acquisition proposal (as defined below).

 

Notwithstanding the restrictions above, if after the go-shop period end date and prior to the date and time on which Shareholder Approval is obtained, (i) the Company receives an unsolicited written acquisition proposal from a third party that the Board of Directors determines in good faith to be bona fide, (ii) such acquisition proposal did not result in any material respect from a breach of the covenant not to solicit under the Merger Agreement, (iii) the Board of Directors determines in good faith, after consultation with its financial advisors and outside counsel, that such acquisition proposal constitutes or would be reasonably expected to result in a superior proposal (as defined below) and that the failure to take the action described immediately below with respect to the third party making such an acquisition proposal would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, then the Company may (upon written notice to Parent after any such determination by the Board of Directors):

 

enter into a confidentiality agreement (on terms no more favorable to the other party than those in the confidentiality agreement previously entered into between Parent and the Company) with the person or entity making such acquisition proposal and furnish information with respect to the Company and our subsidiaries to that person or entity; and

 

participate in discussions or negotiations with the person or entity making such acquisition proposal.

 

111  

 

 

Except as may relate to a qualified purchaser, following the go-shop period end date, the Company is required to promptly notify Parent if it takes any action described in the previous paragraph and provide a copy of any related acquisition proposal, must keep Parent reasonably informed on a prompt basis of any material developments, discussions or negotiations regarding any acquisition proposals and, upon the reasonable request of Parent, must apprise Parent of the status of those discussions or negotiations.

 

An “ acquisition proposal ” means any inquiry, offer or proposal from any person or entity that is structured to permit such person or entity (other than the Parent, Intermediate Co or the Sub or their respective affiliates) to acquire, directly or indirectly and in a single transaction or a series of related transactions,

 

15% or more (based on the fair market value, as determined in good faith by the Board of Directors) of the assets (including capital stock of the subsidiaries of the Company) of the Company and its subsidiaries, on a consolidated basis;

 

shares of Company common stock which, together with any other shares of Company common stock beneficially owned by such person or entity, would be equal to 15% or more of the issued and outstanding shares of the Company common stock or any other class of equity securities of the Company or any of its Subsidiaries;

 

any tender offer or exchange offer that, if consummated, would result in any person or entity owning, directly or indirectly, shares of Company common stock equal to 15% or more of the issued and outstanding shares of the Company common stock or any other equity securities of the Company or any of its subsidiaries;

 

any merger, consolidation, business combination, binding share exchange or similar transaction involving the Company or any of its subsidiaries pursuant to which any person or entity (or the shareholders of any person, entity or group) would own, directly or indirectly, 15% or more of the aggregate voting power of the Company or of the surviving entity in a merger or the resulting direct or indirect parent of the Company or such surviving entity; or

 

any recapitalization, liquidation, dissolution or any other similar transaction involving the Company or any of its material operating subsidiaries, other than, in each case, the transactions contemplated by the Merger Agreement.

 

A “ qualified purchaser ” means any person or group of persons from whom the Company or any of its representatives has received prior to the go-shop period end date a written acquisition proposal that the Board of Directors determines in good faith (such determination to be made no later than four business days after the go-shop period end date) is or could reasonably be expected to result in a superior proposal; and

 

A “ superior proposal ” means any bona fide written acquisition proposal that did not result in any material respect from a violation of Company’s obligations not to solicit proposals that the Board of Directors determines in good faith (i) is reasonably likely to be consummated in accordance with its terms and the financing of which is fully committed or reasonably likely to be obtained and (ii) would be more favorable to the shareholders of the Company from a financial point of view than the Merger, taking into account all terms and conditions thereof (including all financial, legal, financing, regulatory and other aspects of such acquisition proposal (including the person or group making the acquisition proposal, the financing terms thereof, the expected timing and risk and likelihood of consummation)) and of the Merger Agreement (including any changes to the terms of the Merger Agreement proposed by the Parent, Intermediate Co and Sub); provided, that for purposes of the definition of “superior proposal,” the references to “15%” in the definition of acquisition proposal shall be deemed to be references to “66.66%.”

 

112  

 

 

Change of Recommendation

 

Until the earlier of the effective time of the Merger or the termination of the Merger Agreement, neither the Board of Directors nor any committee thereof is permitted to (we refer to the actions below collectively, as a “ Change of Recommendation ”):

 

withdraw, qualify or modify or publicly propose to withdraw, qualify or modify in any manner its recommendation that our shareholders adopt the Merger Agreement;

 

if a tender offer or exchange offer for shares of capital stock of the Company that constitutes an acquisition proposal is commenced, fail to recommend against the acceptance of such tender offer or exchange offer by the shareholders of the Company (including by taking no position) within ten business days after commencement thereof;

 

approve or recommend or publicly propose to approve or recommend an acquisition proposal; or

 

approve or recommend or publicly propose to approve or recommend, or execute any letter of intent, agreement in principle, acquisition or other agreement relating to any acquisition proposal.

 

Notwithstanding these restrictions, at any time prior to the time Shareholder Approval has been obtained, if the Board of Directors determines in good faith that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties, the Board of Directors may:

 

change its recommendation as a result of an event, development or change in circumstances that first occurred or became known after the date of the Merger Agreement, other than with respect to a superior proposal; or

 

change its recommendation or terminate the Merger Agreement to enter into a definitive alternative acquisition agreement, with respect to a superior proposal.

 

The Board of Directors may not change its recommendation or terminate the Merger Agreement in the two circumstances described in the paragraph above unless the superior proposal did not result in any material respect from a breach by the Company of its obligations not to solicit proposals (in the case of a superior proposal) and:

 

the Company has provided four business days’ prior written notice to the Parent, Intermediate Co and Sub of its intention to make a change of recommendation or, in connection with a superior proposal, terminate the Merger Agreement; and

 

113  

 

 

prior to changing its recommendation or terminating the Merger Agreement to enter into an agreement with respect to a superior proposal, (i) the Company has negotiated with the Parent in good faith to make adjustments to the terms and conditions of the Merger Agreement, and (ii) the Board of Directors has determined in good faith that the superior proposal still constitutes a superior proposal or it would reasonably be expected to be inconsistent with the Board of Directors’ fiduciary duties to the holders of Company common stock under applicable law to not effect a change in recommendation.

 

In the event of any material revision to the terms of any superior proposal or acquisition proposal that the Board of Directors determines no longer constitutes a superior proposal, including any change in the price terms, the Company must deliver a new written notice to the Parent, Intermediate Co and Sub within two business days.

 

Obligations with Respect to Proxy Statement

 

The Merger Agreement provides that, as soon as practicable after February 16, 2017, the Company will prepare and file with the SEC in preliminary form a proxy statement relating to the shareholders’ meeting to be held for purposes of voting upon the adoption of the Merger Agreement, which shall include the Board of Directors’ recommendation that the Company’s shareholders adopt the Merger Agreement, the opinion of Lazard (if not withdrawn and subject to the consent of Lazard) and a copy of Section 351.455 of the MGBCL.

 

In addition, the Company is required to, as promptly as practicable after the SEC confirms that it has no further comments on the proxy statement, (i) establish a record date (if not previously established) for and give notice of a meeting of its shareholders for the purpose of voting upon the adoption of the Merger Agreement and (ii) mail the proxy statement to the holders of shares of Company common stock as of the Record Date established for the shareholders’ meeting. This proxy statement fulfills such obligation.

 

Financing

 

Debt and Equity Financing

 

Pursuant to the terms of the Merger Agreement, Parent, Intermediate Co and Sub will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and obtain the financing on the terms and conditions described in the financing commitments, including using their reasonable best efforts to:

 

maintain in effect the debt financing commitments (which we refer to as the “ debt financing ”) and equity financing commitments (which we refer to as the “ equity financing ”) relating to the financing of the Merger (which we refer to collectively as the “ financing commitments ”), in accordance with the terms and subject to the conditions thereof;

 

114  

 

 

timely negotiate all definitive documents evidencing the financing, timely satisfy all conditions to the financing and otherwise consummate the financing at or prior to the closing of the Merger; and

 

enforce the financing commitments.

 

Furthermore, Parent is required to keep the Company informed on a reasonably current basis in reasonable detail of the status of its efforts to obtain and consummate the debt financing. In the event any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, the Parent, Intermediate Co and Sub are required to use their reasonable best efforts to arrange to obtain alternative financing from alternative sources in an amount sufficient to consummate the transactions contemplated by the Merger Agreement, subject to approval by the Company under certain circumstances.

 

Prior to the closing of the Merger and subject to certain exceptions, the Company is required to use reasonable best efforts to cooperate with Parent in connection with the arrangement of the financing as may be reasonably requested by Parent.

 

Existing Notes and Industrial Revenue Bonds

 

If requested by Parent, the Company is required to, and as applicable, cause its subsidiaries to, use its reasonable best efforts to cause its and its subsidiaries’ respective representatives to, as soon as reasonably practicable following any request by Parent to do so, and in each case on such terms and conditions, including pricing terms, specified by Parent (with certain exceptions):

 

commence one or more conditional offers to purchase for such principal amount of the Company’s 7.375% senior secured notes due 2019 (which we refer to as the “ existing notes ”) specified by Parent (which we refer to as an “ offer to purchase ”); and/or

 

commence one or more consent solicitations (which we refer to as a “ consent solicitation ”) for such amendments to the indenture governing such existing note (which we refer to as the “ indenture ”) specified by Parent, including the elimination of all or substantially all of the restrictive covenants contained in the indenture;

 

amend the terms of any outstanding offer to purchase or consent solicitation; or

 

waive any of the conditions to any offer to purchase or consent solicitation (other than the occurrence of the closing of the Merger);

 

Furthermore, upon receipt of the requisite consents for any consent solicitation and the satisfaction of any other applicable conditions precedent, the Company is required to execute a supplemental indenture implementing the applicable indenture amendments to become effective immediately and operative upon the occurrence of the Merger, and use commercially reasonable efforts to cause the trustee of the indenture to enter into such supplemental indenture. Upon consummation of any offer to purchase and in accordance with the terms thereof, the Company is required to accept for purchase and purchase all existing notes properly tendered and not properly withdrawn pursuant to such offer to purchase.

 

115  

 

 

As directed by and in coordination with Parent, in lieu of commencing an offer to purchase and/or consent solicitation, or in addition thereto, the Company must, and must, as applicable, cause its subsidiaries to, and use its reasonable best efforts to cause its and its subsidiaries’ respective representatives to:

 

send a conditional notice of redemption to the trustee of the indenture providing for redemption of the existing notes on the closing date of the Merger, or such other date as is reasonably agreed by Parent and the Company;

 

take such actions and prepare and deliver all other documents (including any customary officers certificates and legal opinions) as are required under the Indenture and other documents governing the existing notes to cause the Trustee to issue the Notice of Redemption to holders of the existing notes and to otherwise facilitate the redemption of the existing notes; or

 

take such actions and prepare and deliver all other documents (including any customary officers certificates and legal opinions) as are required under the indenture and other documents governing the existing notes to cause and otherwise facilitate the satisfaction and/or discharge of the existing notes pursuant to the applicable sections of the indenture.

 

The Company has agreed to, and as applicable, has agreed to cause its subsidiaries to, use its reasonable best efforts to cause its and its subsidiaries’ respective representatives to, as soon as reasonably practicable following any request by Parent to do so, and in each case on such terms and conditions, specified by Parent (with certain exceptions) redeem certain of the outstanding industrial revenue bonds (which we refer to as the “ IRBs ”) issued by the City of Washington, Missouri or the City of Fredonia, Kansas and/or obtain certain consents or waivers contained in such industrial revenue bonds that would otherwise restrict the consummation of the transactions contemplated by the Merger Agreement.

 

The closing of any offer to purchase, the operation of any indenture amendments, and any redemption of the existing notes, and the redemption of any IRBs is required to be conditioned upon the occurrence of the closing of the Merger and the receipt by the Company of all funds required to satisfy the offer to purchase, consent solicitation, and/or redemption(s). Currently, the Company and Parent do not expect that the IRBs will be redeemed.

 

Employee Matters

 

Parent is required to cause the surviving corporation and each of its subsidiaries, for a period commencing at the effective time of the Merger and ending on the first anniversary thereof, to maintain the severance-related provisions, as in effect on the date of the Merger Agreement, of existing written Company benefit plans and to provide 100% of any severance payments and benefits required thereunder to be provided any Company employee terminated during that 12-month period.

 

116  

 

 

Furthermore, Parent must cause the surviving corporation and each of its subsidiaries, for the period commencing at the effective time of the Merger and ending on December 31, 2017, to provide for any Company employee, cash compensation levels that are each no less favorable than, and other benefits that in the aggregate are substantially comparable to, the overall cash compensation levels and benefits maintained for and provided to such Company employees immediately prior to the effective time of the Merger, excluding equity and equity-based compensation.

 

As of and after the effective time of the Merger, Parent must, or must cause the surviving corporation to, give Company employees full credit for purposes of eligibility and vesting purposes (but not for purposes of benefit accruals except for vacation pay and severance purposes), under any employee compensation, incentive, and benefit (including vacation) plans, programs, policies and arrangements maintained for the benefit of Company employees as of and after the effective time of the Merger by Parent, its subsidiaries or the surviving corporation for the Company employees’ service with the Company, its subsidiaries and their predecessor entities to the same extent recognized by the Company immediately prior to the effective time of the Merger under an analogous Company benefit plan. With respect to each Parent plan that is a “welfare benefit plan” (as defined in Section 3(1) of ERISA), Parent and its subsidiaries are obligated to use commercially reasonable efforts to (i) cause there to be waived any pre-existing condition or eligibility limitations and (ii) give effect, in determining any deductible and maximum out-of-pocket limitations, to claims incurred and amounts paid by, and amounts reimbursed to, Company employees under similar plans maintained by the Company and its subsidiaries immediately prior to the effective time of the Merger.

 

From and after the effective time of the Merger, except as otherwise agreed in writing between Parent and a Company employee or as otherwise provided in the Merger Agreement, Parent must honor, and will cause its subsidiaries to honor, in accordance with its terms, (i) each existing written employment, severance and termination protection plan, policy or agreement of or between the Company or any of its subsidiaries and any officer or employee of the Company or such subsidiary, (ii) all obligations in effect as of the effective time of the Merger under any written bonus or bonus deferral plans, programs or agreements of the Company or its subsidiaries and (iii) all vested and accrued benefits under any employee benefit, employment compensation or similar plans, programs, agreements or arrangements of the Company or its subsidiaries.

 

Director and Officer Indemnification

 

All rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the Merger and rights to advancement of expenses relating thereto now existing in favor of certain indemnitees as provided in the respective articles of incorporation or by-laws or other organizational documents of the Company or any subsidiary or any indemnification agreement between such indemnitee and the Company or any of its subsidiaries will survive the Merger and, for a period of six years after the effective time of the Merger Agreement, will not be amended, repealed or otherwise modified in any manner that would adversely affect any right thereunder of any such indemnitee.

 

117  

 

 

From and after the effective time of the Merger, in the event of any threatened or actual claim, suit, action, proceeding or investigation, whether civil, criminal or administrative, based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that the indemnitee is or was a director (including in a capacity as a member of any board committee), or officer of the Company, any of its subsidiaries or any of their respective predecessors or (ii) the Merger Agreement or any of the transactions contemplated thereby, whether in any case asserted or arising before or after the effective time of the Merger, Parent and the surviving corporation will indemnify and hold harmless, to the fullest extent permitted by law and the organizational documents of the Company or its applicable subsidiary, each such indemnitee against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and expenses in advance of the final disposition of any such proceeding), judgments, fines and amounts paid in settlement of or in connection with any such threatened or actual claim. Parent’s and the surviving corporation’s obligations with respect to indemnification will continue in full force and effect for a period of six years after the effective time.

 

Directors’ and Officers’ Insurance

 

The Company is required to obtain, at or prior to the effective time of the Merger, prepaid or “tail” directors’ and officers’ liability insurance policies in respect of acts or omissions occurring at or prior to the effective time of the Merger for six years from the effective time, covering each person who is covered by such tail policies on February 16, 2017, and certain other individuals set forth on the Company’s disclosure schedule on terms with respect to such coverage and amounts no less favorable than those of such policies in effect on February 16, 2017. Such tail policies may not be amended, modified or cancelled or revoked by the Company, Parent, Intermediate Co or the surviving corporation. If the Company does not obtain such “tail” policies, then for a period of six years from the effective time of the Merger, Parent and Intermediate Co will be required to maintain in effect the Company’s current directors’ and officers’ liability insurance policies, covering each indemnified party on terms with respect to coverage and amounts no less favorable in the aggregate than those of the policies in effect on February 16, 2017. Neither Parent, Intermediate Co, nor the surviving corporation is required to pay an aggregate annual premium for such insurance policy (whether or not a “tail” policy is obtained) in excess of 300% of the annual premium paid by the Company in its last full fiscal year for such insurance coverage. If the annual premium amount exceeds such amount, Parent, Intermediate Co or the surviving corporation must obtain a policy with the greatest amount of coverage available for a cost not exceeding such amount.

 

Other Covenants

 

Access and Investigation

 

Subject to certain exceptions and limitations, throughout the period prior to the earlier of the effective time of the Merger and the termination of the Merger Agreement the Company must, subject to certain exceptions:

 

afford to Parent and to its reasonable access during normal business hours and on reasonable notice, to the Company’s and its subsidiaries’ properties, books and records and to those directors, officers and employees of the Company to whom Parent reasonably requests access;

 

118  

 

 

furnish, as promptly as practicable, all information concerning its and its subsidiaries’ business, properties, contracts, assets, liabilities, personnel, books and records and financial information and other aspects of the Company and its subsidiaries as Parent may reasonably request;

 

reasonably cooperate with Parent to organize and facilitate meetings among Parent and its representatives and the Company’s representatives at the properties, offices or other facilities of the Company and its subsidiaries at such times during normal business hours as Parent may reasonably request;

 

use reasonable best efforts to furnish or produce information related to the financial or tax records of the Company and its subsidiaries if reasonably requested by Parent; and

 

reasonably cooperate with Parent and Parent’s representatives with respect to communications to, and to organize and facilitate meetings with, customers, suppliers and other key business relations of the Company and each subsidiary of the Company as Parent may reasonably request.

 

Required Efforts to Consummate the Merger

 

Each of the Company, Parent, Intermediate Co and Sub have agreed to use their respective reasonable best efforts to:

 

take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on the parties in connection with the consummation of the Merger, including by providing all information that the other party may reasonably request in connection there with; and

 

obtain any consent, authorization, order or approval of, or any exemption by, any governmental entity that is required to be obtained in connection with the Merger as promptly as practicable, and to comply with the terms and conditions of any such consent, authorization, order or approval;

 

Furthermore, each of the Company, Parent, Intermediate Co and Sub has agreed to:

 

file within fifteen business days following the date of the Merger Agreement, a Notification and Report Form under the HSR Act with the United States Federal Trade Commission and the Antitrust Divisions of the United States Department of Justice;

 

as soon as reasonably practicable after the date of the Merger Agreement, make such other filings with any other governmental entities that may be required under applicable antitrust laws;

 

as promptly as practical, respond to any inquiries or requests for additional information or documentation received from the FTC or the Antitrust Division or such other governmental entity; and

 

119  

 

 

not extend any waiting period under the HSR Act or any other antitrust laws or enter into any agreement with any governmental entity not to consummate the transactions contemplated by the Merger Agreement, except with the prior written consent of the other party.

 

Each of the Parent and the Company is required to, among other things, use reasonable best efforts to:

 

promptly furnish information required in connection with submissions and filings required under antitrust laws or the DDTC or by CFIUS; and

 

obtain any consents from third parties (other than governmental entities) that are necessary, proper or advisable to consummate the transactions contemplated by the Merger Agreement.

 

The Merger Agreement provides that the Company and Parent will promptly furnish each other with copies of any notices or written communications received from a third party or governmental entity with respect to the transactions contemplated by the Merger Agreement, and will give each other’s counsel an opportunity to review and comment thereon in advance (and shall consider in good faith such comments). Furthermore, the parties may not independently participate in any substantive meeting or discussions with a governmental authority concerning or in connection with the transactions contemplated by the Merger Agreement, and shall provide the other party and its counsel with the opportunity, on reasonable advance notice, to participate in such meetings or discussions, to the extent permitted by such third party or governmental entity.

 

At the written request of Parent, the Company shall agree to divest, hold separate, or otherwise take or commit to take any action that limits its freedom of action with respect to, or its ability to retain, any of the businesses, services or assets of the Company or any of its subsidiaries; provided , that the Company shall not be required to take