BLT Blount International, Inc.

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Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO. 1)

Filed by the Registrant  ☑

Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

 

 

 

Blount International, Inc.

(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

 

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PRELIMINARY PROXY MATERIAL – SUBJECT TO COMPLETION

BLOUNT INTERNATIONAL, INC.
4909 SE International Way
Portland, Oregon 97222

[                    ], 2016

Dear Stockholder:

A special meeting of stockholders of Blount International, Inc., a Delaware corporation (“Blount” or the “Company”), will be held on [                    ], 2016 at [            ] local time, at [              ]. You are cordially invited to attend.

On December 9, 2015, the Company entered into an Agreement and Plan of Merger (as may be amended, supplemented or otherwise modified in accordance with its terms, the “merger agreement”) with ASP Blade Intermediate Holdings, Inc., a Delaware corporation (“Parent”), and ASP Blade Merger Sub, Inc., a newly formed Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for, subject to the satisfaction or waiver of specified conditions, the acquisition of the Company by Parent at a price of $10.00 per share in cash.  Parent and Merger Sub were formed by affiliated investment funds managed by American Securities LLC solely for the purpose of completing the merger.  Subject to the terms and conditions of the merger agreement, Merger Sub will be merged with and into the Company (the “merger”), with the Company surviving the merger as a wholly owned subsidiary of Parent.

At the special meeting, the stockholders of the Company will be asked to consider and vote on:

·

a proposal to adopt the merger agreement;

·

a non-binding, advisory proposal to approve the compensation that may be paid or become payable to the Company’s named executive officers in connection with, or following, the consummation of the merger; and

·

a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

At the effective time of the merger, each share of the Company’s common stock, par value $0.01 per share (“Company common stock”), issued and outstanding immediately prior to the effective time, other than shares owned by the Company, Parent, Merger Sub or any of the Company’s or Parent’s direct or indirect wholly owned subsidiaries (including shares acquired by Parent or one of its affiliates from the Rollover Stockholders (as defined in the accompanying proxy statement) immediately prior to the effective time of the merger) and shares owned by stockholders who have perfected and not withdrawn a demand for, or lost their right to, appraisal under the General Corporation Law of the State of Delaware, will be converted into the right to receive $10.00 in cash, without interest and less any applicable withholding taxes.

The accompanying proxy statement provides you with more specific information concerning the special meeting, the merger agreement, the merger and the other transactions contemplated by the merger agreement. We encourage you to carefully read the accompanying proxy statement and the copy of the merger agreement attached as Annex A thereto.

A special committee (the “Special Committee”) of the board of directors of the Company (the “Board”), consisting entirely of independent directors, carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger.  The Special Committee unanimously (i) determined the terms and conditions of the merger agreement, the transactions contemplated by the merger agreement and the performance by the Company of its obligations under the merger agreement to be advisable and in the best interests of the Company’s stockholders (other than Parent, the Rollover Stockholders and their respective affiliates) (the Company’s stockholders other than Parent, the Rollover Stockholders and their respective affiliates, the “unaffiliated stockholders”), (ii) approved the merger agreement and the transactions contemplated by the merger agreement and (iii) recommended that the Company’s stockholders adopt the merger agreement and that the Board approve the merger agreement and the transactions contemplated thereby and authorize the submission of the merger agreement to the Company’s stockholders with a recommendation of the Board that the Company’s stockholders adopt it. The independent members of the Board, after careful consideration, and acting upon the unanimous recommendation of the Special Committee, unanimously (i) approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement to be advisable and in the best interests of the Company’s unaffiliated stockholders, (ii) directed that the merger agreement be submitted to the Company’s stockholders for adoption at the special meeting and (iii) recommended that the Company’s stockholders adopt the merger agreement. Accordingly, the Special Committee recommends and the Board (having received the unanimous recommendation of the Special Committee) also recommends a vote “FOR” the proposal to adopt the merger agreement. In addition, the Board recommends a vote “FOR” the non-binding, advisory compensation proposal and “FOR” the adjournment proposal.

 

 

 

Whether or not you plan to attend the special meeting and regardless of the number of shares you own, your careful consideration of, and vote on, the adoption of the merger agreement is important and we encourage you to vote promptly. The merger cannot be completed unless the merger agreement is adopted by stockholders holding a majority of the outstanding shares of Company common stock. The failure to vote will have the same effect as a vote against the proposal to adopt the merger agreement.  The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to adopt the merger agreement, and stockholder approval of the non-binding, advisory compensation proposal is not a condition to the completion of the merger. You may, therefore, vote to adopt the merger agreement and vote not to approve the executive compensation and vice versa.

After reading the accompanying proxy statement, please make sure to vote your shares by promptly voting electronically or telephonically as described in the accompanying proxy statement, or, if you received a paper copy of the proxy card, by completing, dating, signing and returning your proxy card, or attending our special meeting of stockholders in person. Instructions regarding all three methods of voting are provided on the proxy card. If you hold shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares. If you have any questions or need assistance voting your shares, please contact our proxy solicitor, Innisfree M&A Incorporated, toll-free at (888) 750-5834.

I look forward to seeing you at our special meeting.

Very truly yours,

Chad E. Paulson
Vice President, General Counsel and Secretary

The merger has not been approved or disapproved by the Securities and Exchange Commission or any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the merits or fairness of the merger or upon the adequacy or accuracy of the information contained in this document or the accompanying proxy statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated [             ], 2016 and is first being mailed to our stockholders on or about [          ], 2016.

 

 

 

PRELIMINARY PROXY MATERIAL – SUBJECT TO COMPLETION

BLOUNT INTERNATIONAL, INC.
4909 SE International Way
Portland, Oregon 97222

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

The Special Committee of the Board of Directors of the Company and the Board of Directors of the Company (having received the unanimous recommendation of the Special Committee) recommends a vote “FOR” the proposal to adopt the merger agreement. In addition, the Board of Directors of the Company recommends a vote “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal.

 Under Delaware law, stockholders of the Company who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they submit a written demand for such an appraisal prior to the vote on the adoption of the merger agreement and strictly comply with other Delaware law procedures explained in the attached proxy statement.  The applicable provisions of the General Corporation Law of the State of Delaware are reproduced in their entirety in Annex D to the accompanying proxy statement.

Please vote telephonically or electronically for the matters before our stockholders as described in the accompanying proxy statement, or promptly fill in, date, sign and return the enclosed proxy card in the accompanying pre-paid envelope to ensure that your shares are represented at the meeting. You may revoke your proxy before it is voted. If you attend the meeting, you may choose to vote in person even if you have previously sent in your proxy card.

By Order of the Board of Directors,

Chad E. Paulson
Vice President, General Counsel and Secretary

Portland, Oregon

[                    ], 2016

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

BLOUNT INTERNATIONAL, INC.
4909 SE International Way
Portland, Oregon 97222

______________________

SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [                    ], 2016

______________________

PROXY STATEMENT

This proxy statement contains information relating to a special meeting of stockholders of Blount International, Inc., which we refer to as “Blount”, the “Company”, “we”, “us” or “our”. The special meeting will be held on [          ], 2016 at [           ] local time, at [            ]. We are furnishing this proxy statement to stockholders of the Company as part of the solicitation of proxies by the Company’s board of directors, which we refer to as the “Board”, for use at the special meeting and at any adjournments or postponements thereof. This proxy statement is dated [            ], 2016 and is first being mailed to our stockholders on or about [                    ], 2016.

SUMMARY TERM SHEET

This summary term sheet highlights selected information in this proxy statement and may not contain all of the information about the merger that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes hereto and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the special meeting. You may obtain, without charge, copies of documents incorporated by reference into this proxy statement by following the instructions under the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 119.

In this proxy statement, the terms “we,” “us,” “our,” “Blount” and the “Company” refer to Blount International, Inc. unless the context otherwise requires.  The term “Special Committee” refers to the Special Committee of the Board consisting entirely of independent directors.  We refer to American Securities LLC and its affiliates as “American Securities.”  We refer to ASP Blade Intermediate Holdings, Inc. as “Parent” and ASP Blade Merger Sub, Inc. as “Merger Sub.”  We refer to P2 Capital Partners, LLC and its affiliates as “P2”. We refer to American Securities and P2, together, as the “Buyer Parties”. We refer to Joshua L. Collins, our chairman and chief executive officer, David A. Willmott, our president and chief operating officer, and P2 Capital Master Fund I, L.P. (an affiliated investment fund of P2 Capital Partners, LLC), collectively, as the “Rollover Stockholders.”  We refer to the Company’s stockholders (other than Parent, the Rollover Stockholders and their respective affiliates) as the Company’s “unaffiliated stockholders”.

The Parties

(page 21)

Blount is a global manufacturer and marketer of replacement parts, equipment, and accessories for consumers and professionals operating primarily in two market segments: Forestry, Lawn, and Garden (the “FLAG segment”); and Farm, Ranch, and Agriculture (the “FRAG segment”). Blount also sells products in the construction markets and is the market leader in manufacturing saw chain and guide bars for chain saws.  Blount has a global manufacturing and distribution footprint and sells its products in more than 115 countries around the world.  Blount markets its products primarily under the OREGON®, Carlton®, Woods®, TISCO, SpeeCo®, ICS® and Pentruder® brands.  Blount’s common stock is listed on the New York Stock Exchange, which we refer to as the “NYSE”, trading symbol “BLT”.  Blount’s principal executive office is located at 4909 SE International Way, Portland, Oregon 97222 and its telephone number is 503-653-8881.

American Securities is a leading U.S. private equity firm with approximately $15 billion under management. Based in New York with an office in Shanghai, American Securities invests in market-leading North American companies with annual revenues generally ranging from $200 million to $2 billion and/or EBITDA of $50 million to $200 million.  American Securities’ principal executive office is located at 299 Park Avenue, 34th Floor, New York, New York 10171 and its telephone number is 212-476-8000.

 

 

 

Parent and Merger Sub are beneficially owned by affiliated investment funds managed by American Securities and were formed by American Securities solely for the purpose of completing the merger.  Each of Parent and Merger Sub’s principal executive office is located at c/o American Securities LLC, 299 Park Avenue, 34th Floor, New York, New York 10171 and its telephone number is 212-476-8000.

The Merger

(page 28)

The Company, Parent and Merger Sub entered into an Agreement and Plan of Merger, as may be amended, supplemented or otherwise modified in accordance with its terms, which we refer to as the “merger agreement”, on December 9, 2015. A copy of the merger agreement is included as Annex A to this proxy statement. Under the terms of the merger agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will be merged with and into the Company, which we refer to as the “merger”. The Company will survive the merger as a wholly owned subsidiary of Parent (the “surviving corporation”).

Merger Consideration

(page 83)

Upon the consummation of the merger, each share of the Company’s common stock, par value $0.01 per share, which we refer to as “Company common stock”, that is issued and outstanding immediately prior to the effective time (defined below under “The Merger Agreement—Closing and Effective Time of the Merger”) of the merger, other than shares owned by the Company, Parent, Merger Sub or any of the Company’s or Parent’s direct or indirect wholly owned subsidiaries (including shares acquired by Parent or one of its affiliates from the Rollover Stockholders immediately prior to the effective time of the merger pursuant to the rollover agreements described in the section entitled “Rollover Agreements” beginning on page 109)  and shares owned by stockholders who have perfected and not withdrawn a demand for, or lost their right to, appraisal under the General Corporation Law of the State of Delaware (the “DGCL”) (such shares being referred to as “excluded shares”), will be converted into the right to receive $10.00 in cash (the “per share merger consideration”), without interest and less any applicable withholding taxes.  See “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 83.

Treatment of Equity and Equity-Based Awards

(page 83)

At the effective time of the merger:

·

each outstanding option, whether then vested or unvested, to purchase shares of Company common stock, which we refer to as a “stock option”, will be cancelled and converted into the right to receive an amount in cash equal to the product of (x) the number of shares of Company common stock underlying such stock option and (y) the excess (if any) of the per share merger consideration over the exercise price per share of such stock option, less any required withholding taxes, except that each outstanding stock option that has an exercise price that is greater than the per share merger consideration will be cancelled for no consideration;

·

each outstanding stock appreciation right, whether then vested or unvested, to purchase shares of Company common stock, which we refer to as a “SAR”, will be cancelled and converted into the right to receive an amount in cash equal to the product of (x) the number of shares of Company common stock underlying such SAR and (y) the excess (if any) of the per share merger consideration over the reference price per share of such SAR, less any required withholding taxes, except that each outstanding SAR that has a reference price that is greater than the per share merger consideration will be cancelled for no consideration;

·

each outstanding restricted stock unit, whether then vested or unvested, which we refer to as an “RSU”, will be cancelled and converted into the right to receive an amount in cash equal to the per share merger consideration, less any required withholding taxes, with respect to each share of Company common stock subject to such RSU; and

·

each outstanding deferred stock unit, which we refer to as a “DSU”, held by a non-employee director, will be cancelled and converted into the right to receive an amount in cash equal to the per share merger consideration, less any required withholding taxes, with respect to each share of Company common stock subject to such DSU.

 

 

 

See “The Merger Agreement—Treatment of Equity and Equity-Based Awards” beginning on page 83.

The Special Meeting

(page 22)

The special meeting will be held on [                    ], 2016, at [            ] local time. At the special meeting, you will be asked to, among other things, vote on the adoption of the merger agreement. Please see the section of this proxy statement entitled “The Special Meeting” for additional information relating to the special meeting, including how to vote your shares of Company common stock.

Stockholders Entitled to Vote; Vote Required to Approve the Merger Agreement

(page 23)

You may vote at the special meeting if you owned any shares of Company common stock at the close of business on [             ], 2016, the record date for the special meeting. As of the close of business on the record date, there were [               ] shares of Company common stock outstanding and entitled to vote, held by [           ] stockholders of record. You may cast one vote for each share of Company common stock that you held on the record date. The adoption of the merger agreement by the Company’s stockholders requires the affirmative vote of stockholders holding a majority of the outstanding shares of Company common stock as of the close of business on the record date.

Recommendation of the Company’s Special Committee and Board; Reasons for the Merger

(page 44)

  The Special Committee carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger.  The Special Committee unanimously (i) determined the terms and conditions of the merger agreement, the transactions contemplated by the merger agreement and the performance by the Company of its obligations under the merger agreement to be advisable and in the best interests of the Company’s unaffiliated stockholders, (ii) approved the merger agreement and the transactions contemplated by the merger agreement and (iii) recommended that the Company’s stockholders adopt the merger agreement and that the Board approve the merger agreement and the transactions contemplated thereby and authorize the submission of the merger agreement to the Company’s stockholders with a recommendation of the Board that the Company’s stockholders adopt it. The independent members of the Board, after careful consideration, and acting upon the unanimous recommendation of the Special Committee, unanimously (i) approved the merger agreement and declared the merger agreement and the transactions contemplated by the merger agreement to be advisable and in the best interests of the Company’s unaffiliated stockholders, (ii) directed that the merger agreement be submitted to the Company’s stockholders for adoption at the special meeting and (iii) recommended that the Company’s stockholders adopt the merger agreement.  Accordingly, the Special Committee and the Board (having received the unanimous recommendation of the Special Committee) recommend a vote “FOR” the proposal to adopt the merger agreement. In addition, the Board recommends a vote “FOR” the non-binding compensation proposal and “FOR” the adjournment proposal (each as described below under “Questions and Answers about the Special Meeting and the Merger—What proposals will be considered at the special meeting?” beginning on page 14).

 

 

 

 

 

 

 

 

Financing of the Merger

 

 

 

               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the merger agreement and you must NOT vote in favor of the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 114 and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex D to this proxy statement.

Solicitation of Proxies

The Company will bear the cost of soliciting proxies, including the expense of preparing, printing and distributing this proxy statement. In addition to soliciting proxies by mail, telephone or electronic means, we may request brokers to solicit their customers who have Company common stock registered in their names and will reimburse them for the reasonable, out-of-pocket costs of forwarding proxy materials in accordance with customary practice. We may also use the services of our directors, officers and other employees to solicit proxies, personally or by telephone, without additional compensation. In addition, the Company has retained Innisfree M&A Incorporated to solicit stockholder proxies at a total cost to the Company of approximately $10,000 per month until the date of the special meeting, plus an additional fee of $5.50 per incoming or outgoing telephone contact. The Company has agreed to reimburse Innisfree M&A Incorporated for certain fees and expenses and to indemnify Innisfree M&A Incorporated against certain third-party claims.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned, recessed 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 stockholders of the Company necessary to approve the proposal to adopt the merger agreement, the Company does not expect that it will adjourn, recess or postpone the special meeting unless it is advised by counsel that such adjournment, recess or postponement is necessary under applicable law.

The special meeting may be adjourned by the chairman of the Board or by the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and entitled to vote at the special meeting, whether or not there is a quorum. 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.

If the time, date and place of an adjourned meeting are announced at the original convening of the special meeting, no notice of an adjourned meeting need be given unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting, or if the adjournment is for more than 30 days. At any subsequent reconvening of the special meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the original meeting, and all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been validly revoked or withdrawn prior to the reconvened meeting.

Voting by Company Directors, Executive Officers and Principal Securityholders

As of the close of business on [              ], 2016, the record date for the special meeting, the Company’s directors and executive officers owned, in the aggregate, [       ] shares of Company common stock, or collectively approximately [    ]% of the outstanding shares of Company common stock. The Company’s directors and executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of Company common stock in favor of the matters before our stockholders as described in this proxy statement. Certain of the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of the Company’s stockholders generally. For more information, please see the section of this proxy statement entitled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 70.

 

 

Assistance

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact Innisfree M&A Incorporated, which is acting as the Company’s proxy solicitation agent in connection with the merger, toll free at (888) 750-5834. Banks and brokers may call collect at (212) 750-5833.

Cooperation Agreement

The Company has entered into a cooperation agreement with P2 Capital Partners, LLC and certain of its affiliated investment funds, whereby P2 has agreed to vote all of its shares of Company common stock in accordance with the recommendation of the Board regarding the merger agreement at the special meeting or any other meeting of the stockholders of the Company upon which a vote with respect to the merger agreement is sought. In addition, pursuant to the terms of the cooperation agreement, at the special meeting or any other meeting of the stockholders of the Company upon which a vote with respect to any superior proposal is sought, unless the Company has violated its obligations under the merger agreement with respect to acquisition proposals, P2 will vote:

·

in the case of an all-cash superior proposal, all of its shares of Company common stock in accordance with the recommendation made to the Company’s stockholders by the Board; or

·

in the case of a superior proposal that is not an all-cash superior proposal, in the same proportion as the votes cast by the Company’s unaffiliated stockholders.

Rollover Agreements

Concurrently with the execution and delivery of the merger agreement on December 9, 2015, P2 Capital Master Fund I, L.P. entered into a rollover agreement with an affiliate of Parent pursuant to which it committed to contribute, immediately prior to the consummation of the merger, Company common stock held by it to such affiliate of Parent in exchange for equity securities of such affiliate of Parent, and after the execution and delivery of the merger agreement, each of the other Rollover Stockholders entered into agreements with an affiliate of Parent pursuant to which each of them committed to contribute, immediately prior to the consummation of the merger, Company common stock to such affiliate of Parent in exchange for equity securities of such affiliate of Parent.  Collectively, the Rollover Stockholders have committed to contribute to such affiliate of Parent an aggregate amount of 1,363,831 shares of Company common stock (the equivalent of an approximately $13.6 million investment in the aggregate (based upon the per share merger consideration of $10.00)) pursuant to such agreements, and in the case of Mr. Collins $633,390 as an additional subscription (equal to 50% of the value (based upon the per share merger consideration of $10.00) of equity-based awards of the Company held by Mr. Collins at the time the merger agreement was executed), and in the case of Mr. Willmott $299,585 as an additional subscription (equal to 50% of the value (based upon the per share merger consideration of $10.00) of equity-based awards of the Company held by Mr. Willmott at the time the merger agreement was executed), in exchange for certain equity securities of such affiliate of Parent.

 

 

 

PROPOSAL 1:  ADOPTION OF THE MERGER AGREEMENT

As discussed elsewhere in this proxy statement, our stockholders will consider and vote on a proposal to adopt the merger agreement. You are urged to carefully read this proxy statement in its entirety for more detailed information concerning the merger agreement and the merger, including the information set forth under the sections of this proxy statement captioned “The Merger” and “The Merger Agreement.” A copy of the merger agreement is attached as Annex A to this proxy statement. You are urged to read the merger agreement carefully and in its entirety.

THE MERGER

Overview

The Company is seeking the adoption by its stockholders of the merger agreement the Company entered into on December 9, 2015 with Parent and Merger Sub.  Parent and Merger Sub were formed by affiliated investment funds managed by American Securities solely for the purpose of completing the merger. Under the terms of the merger agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. The Board, acting upon the unanimous recommendation of the Special Committee, has approved the merger agreement and recommends that the Company’s stockholders vote to adopt the merger agreement.

Upon the consummation of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time (other than shares owned by the Company, Parent, Merger Sub or any of the Company’s or Parent’s direct or indirect wholly owned subsidiaries (including shares acquired by Parent or one of its affiliates from the Rollover Stockholders immediately prior to the effective time of the merger pursuant to the rollover agreements described in the section entitled “Rollover Agreements” beginning on page 109), and shares owned by stockholders who have perfected and not withdrawn a demand for, or lost their right to, appraisal under the DGCL) (such shares, “excluded shares”), will be converted into the right to receive $10.00 in cash, without interest and less any applicable withholding taxes.

Background of the Merger

 

●

the fact that there can be no assurance that all conditions to the parties’ obligations, including with respect to required regulatory approvals, to complete the merger will be satisfied within the time frames contemplated by the merger agreement, and, as a result, the merger may not be consummated;

●

the fact that certain of the Company’s directors and officers, including the Company’s executive officers who have entered into the rollover agreements, have interests in the merger that are different from, or in addition to, the Company’s stockholders. See “—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 70.

 

Mr. Collins, our chairman and chief executive officer, and Mr. Willmott, our president and chief operating officer, recused themselves from the foregoing approvals and recommendations due to their employment with the company and their anticipated entry into the rollover agreements.

 

The foregoing discussion of the factors considered by the Board is not intended to be exhaustive, but rather includes the material factors considered by the Board. In reaching its decision to approve the merger agreement and deem the merger agreement, the merger and the other transactions contemplated by the merger agreement, to be advisable and in the best interests of the Company, the Board did not quantify or assign any relative weights to the factors considered and individual directors may have given different weights to different factors.  The Board based its recommendation on the totality of the information made available to the Board.

 

This explanation of the Special Committee’s and the Board’s reasons for recommending the adoption of the merger agreement and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors described in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 20.  In addition, in considering the recommendation of the Board with respect to the merger agreement, you should be aware that some of the Company’s directors and executive officers have interests that may be different from, or in addition to, the interests of the Company’s stockholders generally.  Please see the section entitled “The Merger—Interests of the Company’s Directors and Officers in the Merger” beginning on page 70.

 

Financial Projections

The Company does not as a matter of course publicly disclose detailed financial projections due to the difficulty of predicting economic and market conditions and the Company’s results. However, certain financial projections prepared by management, including the November Management Projections and the December Management Projections (collectively, the “Management Projections”) were made available to the Board, the Special Committee, Goldman Sachs and Greenhill, as well as the Buyer Parties, Parent and their advisors.  However, the inclusion of this information should not be regarded as an indication that the Board, the Special Committee, Goldman Sachs, Greenhill, the Buyer Parties, Parent or their advisors considered, or now consider, the Management Projections to be a reliable prediction of future results or to support or fail to support your decision whether to vote for or against the proposal to adopt the merger agreement. No person has made or makes any representation or warranty to any stockholder regarding the information included in the Management Projections.

Because the Management Projections were made available to the Board, the Special Committee, Goldman Sachs, Greenhill, the Buyer Parties, Parent and their advisors and were used by Goldman Sachs and Greenhill to begin preparation of and/or complete their financial analyses of the proposed transaction, they are being provided below.  Although presented with numerical specificity, the Management Projections are based upon and reflect numerous judgments, estimates and assumptions made by the Company’s management 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 Management Projections are subjective in many respects and are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Management Projections constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, including the factors described under “Cautionary Statement Concerning Forward-Looking Information” on page 20.  As a result, we cannot assure you that the estimates and assumptions made in preparing the Management Projections will prove accurate, that the projected results will be realized or that actual results will not be significantly higher or lower than projected results.  In addition, the Management Projections cover multiple years and such information by its nature becomes less predictive with each successive year.

The Management Projections set forth below do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the merger and transaction-related expenses. The Management Projections 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 Management Projections were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the Management Projections are unaudited and neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Management Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the Management Projections. Readers of this document are urged not to place undue reliance on the unaudited prospective financial information set forth below.

 

The Management Projections include certain non-GAAP measures (including gross profit, adjusted EBITDA and free cash flow) because management believed such measures would be useful to the Board and the Special Committee in evaluating the prospects of the Company.  Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP, including net income from continuing operations. The Company’s calculation of these non-GAAP measures may differ from others in its industry and is not necessarily comparable with information presented under similar sounding captions used by other companies.  Please review the reconciliations of the non-GAAP financial measures below to the most directly comparable GAAP measures, which have also been provided

Subject to the foregoing qualifications, the following is a summary of the Management Projections.  The November Management Projections were uploaded to the electronic data room to which the Buyer Parties, Parent and their advisors had been granted access and were made available to the Board, the Special Committee, Goldman Sachs and Greenhill on November 5, 2015. The December Management Projections were uploaded to the electronic data room to which the Buyer Parties, Parent and their advisors had been granted access and were made available to the Board, the Special Committee, Goldman Sachs and Greenhill on December 7, 2015.  The December Management Projections had been updated from the November Management Projections to include the Company’s 2016 budget proposal and other immaterial revisions, such as the Company’s November 2015 actual results and the sale of the Company’s Milwaukie, Oregon factory in 2015:

 

 

 

(1)

2015E includes $63.299 million in goodwill and indefinite-lived intangible asset impairment charges in the FRAG segment.

(2)

2015E includes $2.124 million in restructuring expenses incurred by the Company in the third quarter of 2015.

A reconciliation of free cash flow, a non-GAAP financial measure, to its most directly comparable GAAP financial measure, net cash provided by operating activities, is set forth immediately below:

 

 

 

(1)

2015E includes $63.299 million in goodwill and indefinite-lived intangible asset impairment charges in the FRAG segment.

(2)

2015E includes $2.124 million in restructuring expenses incurred by the Company in the third quarter of 2015.

A reconciliation of free cash flow, a non-GAAP financial measure, to its most directly comparable GAAP financial measure, net cash provided by operating activities, is set forth immediately below:

 

			2015E				2016E				2017E				2018E				2019E				2020E
Net Cash Provided by Operating Activities (GAAP)		$	69,113			$	85,000			$	77,754			$	83,159			$	89,600			$	95,465
Adjustment:
Net Purchases of Property Plant and Equipment(1)			(39,000	)			(40,000	)			(40,927	)			(42,819	)			(44,584	)			(46,463	)
Free Cash Flow		$	30,114			$	45,000			$	36,827			$	40,340			$	45,016			$	49,002

Opinion of Goldman Sachs, Financial Advisor to the Company

On December 9, 2015, Goldman Sachs delivered its opinion to the Board that, as of December 9, 2015 and based upon and subject to the factors and assumptions set forth therein, the $10.00 in cash per share of Company common stock to be paid to the Company’s unaffiliated stockholders pursuant to the merger agreement was fair from a financial point of view to such unaffiliated stockholders.

The full text of the written opinion of Goldman Sachs, dated December 9, 2015, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B.  Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the merger.  The Goldman Sachs opinion is not a recommendation as to how any holder of the Company common stock should vote with respect to the merger, or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

·

the merger agreement;

 

 

 

 

·

annual reports to stockholders and Annual Reports on Form 10‑K of the Company for the five years ended December 31, 2014;

·

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;

·

certain other communications from the Company to its stockholders;

·

certain publicly available research analyst reports for the Company; and

·

the December Management Projections, which were approved for Goldman Sachs’ use by the Company.

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition, and future prospects of the Company; reviewed the reported price and trading activity for the Company common stock; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the outdoor equipment and tools industry and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering the opinion described above, Goldman Sachs, with the consent of the Company, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for independent verification thereof.  In that regard, Goldman Sachs assumed with the consent of the Company that the December Management Projections had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company.  Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of the Company or any of its subsidiaries furnished to Goldman Sachs.  Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis.  Goldman Sachs also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters.  Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the opinion, of the $10.00 in cash per share of Company common stock to be paid to the Company’s unaffiliated stockholders pursuant to the merger agreement.  Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transaction or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the transaction, whether relative to the $10.00 in cash per share of Company common stock to be paid to the Company’s unaffiliated stockholders pursuant to the merger agreement or otherwise.  Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs does not express any opinion as to the impact of the merger on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due.  Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Board in connection with rendering the opinion described above.  The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs.  Some of the summaries of the financial analyses include information presented in tabular format.  The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. 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 December 7, 2015 and is not necessarily indicative of current market conditions.

 

 

 

Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for the Company common stock for the five-year period ended on December 7, 2015.  In addition, Goldman Sachs analyzed the consideration to be paid to holders of the Company common stock pursuant to the merger agreement in relation to the closing price for the Company common stock as of December 7, 2015, the highest closing prices of the Company common stock for the five-year period ended December 7, 2015 and the 52-week period ended December 7, 2015 and the volume-weighted average closing prices of the Company common stock for the 30-day, three-month and one-year periods ended December 7, 2015, respectively.

This analysis indicated that the price per share to be paid to the Company stockholders pursuant to the merger agreement represented:

·

a premium of 75.4% to the closing price of $5.70 per share of Company common stock as of December 7, 2015;

·

a premium of 77.6% to the volume-weighted average closing price of $5.63 per share of Company common stock for the 30-day period ended on December 7, 2015;

·

a premium of 65.9% to the volume-weighted average closing price of $6.03 per share of Company common stock for the three-month period ended on December 7, 2015;

·

a discount of 10.9% to the volume-weighted average closing price of $11.22 per share of Company common stock for the one-year period ended on December 7, 2015;

·

a discount of 44.0% to the highest closing price of $17.85 per share of Company common stock during the 52-week period ended on December 7, 2015; and

·

a discount of 45.6% to the highest closing price of $18.37 per share of Company common stock during the five-year period ended on December 7, 2015.

Selected Companies Analysis.  Goldman Sachs reviewed and compared certain financial information, ratios and public market multiples for the Company to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the outdoor equipment and tools industry:

·

AGCO Corporation

·

Alamo Group, Inc.

·

Briggs & Stratton Corporation

·

Deere & Company

·

Douglas Dynamics Inc.

·

Husqvarna Group

·

Snap-on Incorporated

·

Stanley Black & Decker, Inc.

·

The Toro Company

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because in Goldman Sachs’ professional judgment they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

The multiples and ratios for the selected companies and the Company were calculated using the applicable closing market prices as of December 7, 2015 and, in the case of the Company, the $10.00 in cash per share of Company common stock to be paid to the holders of shares of Company common stock pursuant to the merger agreement. The multiples and ratios of the Company were based on estimates from the Institutional Brokers’ Estimate System (“IBES”) and the December Management Projections, and the multiples and ratios of the selected companies were based on IBES estimates and the most recent publicly available information.  The enterprise value of the Company was calculated using the amount of fully diluted shares of Company common stock outstanding as of December 4, 2015, including dilution from non-qualified stock options, RSUs, DSUs and SARs, as provided by the Company (using the Treasury Stock Method).  With respect to the selected companies and the Company, Goldman Sachs calculated:

·

enterprise value (“EV”), which is the fully diluted market value of common equity plus the book value of debt, including capital leases, less cash and cash equivalents as a multiple of projected earnings before interest, tax, depreciation and amortization (“EBITDA”) for calendar year 2015 (“2015E EBITDA”);

 

 

 

·

EV as a multiple of projected EBITDA for calendar year 2016 (“2016E EBITDA”);

·

EV as a multiple of 2015E EBITDA minus projected capital expenditures (“capex”) for calendar year 2015; and

·

EV as a multiple of 2016E EBITDA minus projected capex for calendar year 2016.

The results of these analyses are summarized as follows:

 

	Company as of Dec. 7, 2015 (IBES)	Company as of Dec. 7, 2015 (December Management Projections)	Company at Offer ($10.00) (IBES)		Company at Offer ($10.00) (December Management Projections)	Outdoor Equipment and Tools
						Median	Range
EV / 2015E EBITDA	6.5x	6.4x	8.6x	8.5x		9.1x	6.5x - 13.4x
EV / 2016E EBITDA	6.0x	5.9x	7.9x	7.8x		9.0x	6.6x - 12.1x
EV / 2015E EBITDA – capex	10.9x	10.5x	14.5x	13.9x		13.1x	7.8x - 15.7x
EV / 2016E EBITDA – capex	9.4x	9.2x	12.5x	12.2x		12.4x	9.9x - 16.2x

 

                Illustrative Present Value of Future Share Price Analysis.  Goldman Sachs performed an illustrative analysis of the implied present value of the potential future value per share of Company common stock at the year-end of each of the calendar years 2015 to 2019 using one-year forward adjusted EBITDA (defined as EBITDA adjusted to account for non-cash acquisition accounting, non-cash impairment of intangible assets, non-cash stock compensation and other items) estimates per the December Management Projections for the calendar years 2016 through 2020, respectively. Goldman Sachs first calculated illustrative enterprise values of the Company at the year-end of each of the calendar years 2015 through 2019 by multiplying the respective one-year forward adjusted EBITDA estimates for the calendar years 2016 through 2020 by one-year forward enterprise value to adjusted EBITDA multiples ranging from 6.5x to 7.5x. Goldman Sachs selected one-year forward enterprise value to adjusted EBITDA multiples ranging from 6.5x to 7.5x utilizing its professional judgment, taking into account several factors, including analysis of historical trading data and enterprise value to adjusted EBITDA multiples for the Company. Goldman Sachs then subtracted the book value of debt and added the assumed amount of cash and cash equivalents in each case as of the relevant year-end per the December Management Projections from the illustrative enterprise values in order to calculate the implied future equity values.  The implied future equity values in turn were divided by the projected year-end fully diluted shares of Company common stock outstanding which included dilution from non-qualified stock options, RSUs, DSUs and SARs, calculated using data provided by the Company, which resulted in an illustrative estimated per share future value for the Company common stock ranging from $7.34 in FY 2015 to $18.14 in FY 2019.  Goldman Sachs then calculated the implied present values of the implied per share future values of the Company common stock by discounting these implied future values to present values as of September 30, 2015 using an illustrative discount rate of 14.0%, reflecting an estimate of the cost of equity for the Company. Goldman Sachs derived this discount rate by application of the Capital Asset Pricing Model, which requires certain Company-specific inputs, including a beta for the Company, as well as certain financial metrics for the United States financial markets generally. The following table presents the results of Goldman Sachs’ analysis:

 

	Implied Present Value per Share of Company Common Stock Based on Illustrative EV to EBITDA Multiples of 6.5x to 7.5x
FY 2015E	$7.10 - $9.26
FY 2016E	$8.06 - $10.10
FY 2017E	$8.54 - $10.42
FY 2018E	$8.77 - $10.48
FY 2019E	$8.81 - $10.39

 

 

 

Illustrative Discounted Cash Flow Analysis.  Using the December Management Projections, Goldman Sachs performed an illustrative discounted cash flow analysis on the Company. Utilizing illustrative discount rates ranging from 8.5% to 10.5%, reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs discounted to present value as of September 30, 2015 (i) estimates of the unlevered free cash flows for the Company for the fourth quarter of 2015 and the five years ending December 31, 2020 per the December Management Projections, and (ii) a range of illustrative terminal values for the Company as of December 31, 2020 derived by applying perpetuity growth rates, ranging from 2.5% to 3.5% to a terminal year estimate of the free cash flow to be generated by the Company, as reflected in the December Management Projections (which analysis implied exit terminal year EBITDA multiples ranging from 5.5x to 8.9x).  The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the December Management Projections and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs also cross-checked such estimates of perpetuity growth rates against the EBITDA multiples that are implied by such growth rates and a range of discount rates referred to above applied to the Company’s future unlevered cash flow forecasts. Goldman Sachs then added the ranges of the present values it derived above of the illustrative terminal value to the present values of the unlevered free cash flows for the fourth quarter of 2015 through fiscal year 2020, added the amount of the Company’s cash and cash equivalents as of September 30, 2015 (using public filings) and subtracted the assumed amount of the Company’s debt as of September 30, 2015 (using public filings) to calculate the range of implied equity values.  Goldman Sachs then divided the implied equity values by the amount of fully diluted shares of Company common stock outstanding as of December 4, 2015, including dilution from non-qualified stock options, RSUs, DSUs and SARs, as provided by the Company, to derive a range of implied present values per fully diluted outstanding share of Company common stock ranging from $6.76 to $14.52.

Selected Transactions Analysis.  Goldman Sachs analyzed certain information relating to the following selected transactions in the outdoor equipment and tools industry since 2009:

 

_____________________

1

Deal size analyzed based on a NOK 1.6 billion offer. Assumes NOK/USD rate of 5.95 as of December 16, 2011.

For each of the selected transactions, Goldman Sachs calculated and compared the target’s total enterprise value, as implied by the precedent transaction, as a multiple of the target’s EBITDA for the most recently reported latest twelve month period ending prior to the announcement of the transaction (“LTM EBITDA”). While none of the companies that participated in the selected transactions are directly comparable to the Company, the selected transactions were all of the transactions since 2009 that, in Goldman Sachs’ professional judgment, involved target companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s results, market size and product profile.

 

 

The following table presents the results of this analysis:

 

	Selected Transactions			Merger
	Range	Median		IBES	December Management Projections
EV / LTM EBITDA1	6.9x-11.0x	8.6x		8.6x	8.5x

 

_____________________

1	Multiples for the merger were calculated using 2015E EBITDA estimates from IBES and from the December Management Projections rather than LTM EBITDA.

Based on the foregoing, Goldman Sachs multiplied a reference range of LTM EBITDA multiples of 6.9x to 11.0x by the Company’s Adjusted EBITDA for the twelve month period ending on September 30, 2015 to derive a range of implied enterprise values for the Company.  Goldman Sachs subtracted from the range of implied enterprise values the amount of the Company’s net debt as of September 30, 2015 and divided the result by the number of fully diluted shares of Company common stock as of December 4, 2015, including dilution from non-qualified stock options, RSUs, DSUs and SARs, as provided by the Company, to derive a reference range of implied per share values for the Company’s common stock of $8.03 to $16.94.

Selected Historical Premia Analysis. Goldman Sachs reviewed and analyzed the acquisition premia for all announced and completed all-cash transactions between $500 million and $1 billion involving United States publicly-traded industrial target companies from January 1, 2009 to December 7, 2015, excluding (i) transactions with premia in excess of 150% or with a discount of more than 50% and (ii) share buybacks and acquisitions of partial interest if the percentage of shares owned after the transaction is below 50%. Announced premia were calculated relative to the target’s closing share price one day prior to announcement.

The following tables present the results of this analysis:

Based on the foregoing and Goldman Sachs’ analyses of the various transactions and its professional judgment and experience, Goldman Sachs multiplied a range of premia from 30% to 45% by the closing price of the Company’s common stock as of December 7, 2015 to derive a reference range of per share values for the Company’s common stock of $7.41 to $8.27.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it.  Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or Parent or the contemplated transaction.

 

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Board as to the fairness from a financial point of view of the $10.00 in cash per share of Company common stock to be paid to the Company’s unaffiliated stockholders pursuant to the merger agreement.  These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, the Board, the Special Committee, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The per share merger consideration was determined through arm’s-length negotiations between the Company and Parent, American Securities, P2 (and their respective affiliates) and was approved by the Board and the Special Committee.  Goldman Sachs provided advice to the Company during these negotiations.  Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or the Board or that any specific amount of consideration constituted the only appropriate consideration for the merger.

As described above, Goldman Sachs’ opinion to the Board was one of many factors taken into consideration by the Board in making its determination to approve the merger agreement.  The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities.  In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of the Company, Parent, P2 Capital Master Fund I, L.P. and any of their respective affiliates and portfolio companies, including American Securities, P2, and their respective affiliates and portfolio companies, and third parties, or any currency or commodity that may be involved in the transaction for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement.  Goldman Sachs has provided certain financial advisory and/or underwriting services to the Company and/or its affiliates from time to time. Goldman Sachs also has provided certain financial advisory and/or underwriting services to American Securities and/or its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as co-manager with respect to the initial public offering of 25 million shares of common stock of Fairmount Minerals Ltd., a portfolio company of American Securities, in October 2014; as bookrunner with respect to a term loan (aggregate principal amount $1.25 billion) of Metaldyne Performance Group Inc., a portfolio company of American Securities, in October 2014; as left-lead bookrunner with respect to the public offering by Metaldyne Performance Group Inc. of its 7.375% Senior Unsecured Notes due October 15, 2022 (aggregate principal amount $600 million) in October 2014; as bookrunner with respect to the initial public offering of 10 million shares of common stock of Metaldyne Performance Group Inc. in December 2014; as bookrunner with respect to the refinancing of a term loan (aggregate principal amount $400 million) of Tekni Plex, Inc., a portfolio company of American Securities, in April 2015; as financial advisor to Unifrax Corporation, a portfolio company of American Securities, with respect to its purchase of a stake in Shandong Luyang in May 2015; and as bookrunner with respect to the repricing of a term loan (aggregate principal amount $460 million) of Unifrax Corporation in June 2015.  Goldman Sachs also has provided certain financial advisory and/or underwriting services to P2 and/or its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as financial advisor to Interline Brands, Inc., an affiliate of P2, with respect to its repurchase of its 7.50% Senior Subordinated Notes due November 15, 2018 (aggregate principal amount $300 million) in March 2014; as sole bookrunner with respect to a term loan (aggregate principal amount $350 million) of Interline Brands, Inc. in March 2014; and as financial advisor to Interline Brands, Inc. with respect to its sale to Home Depot in August 2015.  Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the Company, Parent and their respective affiliates, and American Securities and P2 and their respective affiliates and portfolio companies, for which the Investment Banking Division of Goldman Sachs may receive compensation.  Affiliates of Goldman Sachs also may have co-invested with American Securities, P2 and their respective affiliates from time to time and may have invested in limited partnership units of affiliated investment funds managed by American Securities and P2 from time to time and may do so in the future. During the two-year period ended December 9, 2015, Goldman Sachs has not been engaged by the Company or its affiliates to provide financial advisory or underwriting services for which the Investment Banking Division of Goldman Sachs has received compensation. During the two-year period ended December 9, 2015, the Investment Banking Division of Goldman Sachs has received compensation for financial advisory and/or underwriting services provided directly to American Securities and/or to its affiliates and portfolio companies (which may include companies that are not controlled by American Securities LLC) of approximately $33.5 million. During the two-year period ended December 9, 2015, the Investment Banking Division of Goldman Sachs has received compensation for financial advisory and/or underwriting services provided directly to P2 and/or to its affiliates and portfolio companies (which may include companies that are not controlled by P2 Capital Partners, LLC) of approximately $11.5 million.

 

 

 

The Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger.  Pursuant to a letter agreement dated May 21, 2008, the Company engaged Goldman Sachs to act as its financial advisor in connection with the possible sale of all or a portion of the Company.  Pursuant to the terms of this engagement letter, the Company has agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement, as approximately $8 million, approximately $2.6 million of which became payable upon the execution of the merger agreement and the remainder of which is payable upon consummation of the transaction.  In addition, the Company has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
 

Opinion of Greenhill, Financial Advisor to the Special Committee

The Special Committee retained Greenhill to act as its financial advisor in connection with the Special Committee’s consideration of the proposed terms of the merger. On December 8, 2015, at a meeting of the Special Committee, Greenhill delivered an oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion, dated December 8, 2015, to the effect that, as of that date of the opinion, and based upon and subject to the limitations and assumptions set forth therein, the consideration to be received by the Company’s unaffiliated stockholders pursuant to the merger agreement was fair, from a financial point of view, to such unaffiliated stockholders.  For purposes of the description of Greenhill’s opinion, references to unaffiliated stockholders are to holders of Company common stock other than Parent, the Rollover Stockholders and any of their respective affiliates.

The full text of Greenhill’s written opinion, dated December 8, 2015, which contains the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement and is incorporated herein by reference.  The summary of Greenhill’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion.  You are urged to read the opinion in its entirety.  Greenhill delivered its opinion to the Special Committee (in its capacity as such) in connection with and for purposes of its evaluation of the per share merger consideration from a financial point of view. The Greenhill opinion was not a recommendation to the members of the Special Committee as to whether to approve the merger or the merger agreement and is not a recommendation as to how any holder of Company common stock should vote with respect to the merger, or any other matter.

 

                In arriving at its opinion, Greenhill, among other things, has:

·

reviewed the draft of the merger agreement presented to the Special Committee at its meeting on December 8, 2015, and certain related documents;

·

reviewed certain publicly available financial statements of the Company;

 

·

reviewed certain other publicly available business and financial information relating to the Company that Greenhill deemed relevant;

·

reviewed certain information, including financial forecasts and projections and other financial and operating data concerning the Company, prepared by the management of the Company, and discussed such information, including the financial forecasts and projections and other data, with senior executives of the Company;

 

·

discussed the past and present operations and financial condition and the prospects of the Company with senior executives of the Company;

·

reviewed the historical market prices and trading activity for the Company common stock and analyzed its implied valuation multiples;

·

compared the value of the consideration with that received in certain publicly available transactions that Greenhill deemed relevant;

·

compared the value of the consideration with the trading valuations of certain publicly traded companies that Greenhill deemed relevant;

·

compared the value of the consideration to the valuation derived by discounting projected future cash flows and a terminal value of the business at discount rates Greenhill deemed appropriate;

·

participated in discussions and negotiations among representatives of the Company and its legal and financial advisors, representatives of the Special Committee and its legal advisors and representatives of Parent and its legal and financial advisors; and

·

performed such other analyses and considered such other factors as Greenhill deemed appropriate.

Greenhill’s written opinion was addressed to the Special Committee in connection with the Special Committee’s consideration of the merger.  Greenhill was not requested to opine as to, and its opinion did not in any manner address, the underlying business decision to proceed with or effect the merger.  Greenhill has not expressed any opinion as to any aspect of the transactions contemplated by the merger agreement, other than the fairness to the Company’s unaffiliated stockholders, from a financial point of view, of the consideration to be received by such unaffiliated stockholders. Greenhill’s opinion did not address the amount or nature of any compensation to any officers, directors or employees of the Company, or any class of such persons relative to the consideration to be received by the Company’s unaffiliated stockholders in the merger or with respect to the fairness of any such compensation.  Greenhill’s opinion was approved by its Fairness Committee.  It was not intended to be and did not constitute a recommendation to the Special Committee as to whether it should approve the merger or the merger agreement, nor does it constitute a recommendation as to whether the stockholders of the Company should approve or take any other action in respect of the merger at any meeting of the Company’s stockholders convened in connection with the merger.

In conducting its review and analysis and rendering its opinion, Greenhill assumed and relied upon, without independent verification, the accuracy and completeness of the information publicly available, supplied or otherwise made available to Greenhill by representatives and management of the Company for the purposes of Greenhill’s opinion and further relied upon the assurances of the representatives and management of the Company that they were not aware of any facts or circumstances that would make such information inaccurate or misleading.  With respect to the financial forecasts, projections of the Company and other data with respect to the Company that was furnished or otherwise provided to Greenhill, Greenhill assumed that such financial forecasts, projections and data were reasonably prepared on a basis reflecting the best currently available estimates and good faith judgments of the management of the Company as to those matters, and Greenhill relied upon such forecasts, projections and data in arriving at its opinion.  Greenhill expressed no opinion with respect to such financial forecasts, projections and data or the assumptions upon which they were based.

Greenhill did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was Greenhill furnished with any such valuations or appraisals.  Greenhill assumed that the merger will be consummated in accordance with the terms set forth in the final, executed merger agreement, which Greenhill assumed was identical in all material respects to the latest draft thereof Greenhill reviewed, and without waiver of any material terms or conditions set forth in the merger agreement.  Greenhill further assumed that all material governmental, regulatory and other consents and approvals necessary for the consummation of the merger will be obtained without any effect on the Company or the merger meaningful to its analysis.  Greenhill’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Greenhill as of, the date of the written opinion.  It should be understood that subsequent developments may affect Greenhill’s opinion, and Greenhill does not have any obligation to update, revise or reaffirm its opinion.

Summary of Greenhill’s Financial Analysis.

The following is a summary of the material financial and comparative analyses contained in the presentation that was made by Greenhill to the Special Committee in connection with rendering its opinion described above.  The following summary, however, does not purport to be a complete description of the analyses performed by Greenhill, nor does the order of the analyses described represent the relative importance or weight given to those analyses by Greenhill.  Some of the summaries of the financial analyses include information presented in tabular format.  In order to fully understand the financial analyses performed by Greenhill, the tables must be read together with the full text of each summary and are not alone a complete description of Greenhill’s financial analyses.  Considering the data set forth in the tables below without considering the narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Greenhill’s financial analyses.  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 December 8, 2015, and is not necessarily indicative of current market conditions.

 

Comparable Company Analysis.

Greenhill performed a comparable company analysis of the Company, an analysis that is based on factors such as the then-current market values, capital structure and operating statistics of other publicly traded companies believed to be generally relevant, in order to derive trading multiples for these companies, which could then be applied to the Company to derive an implied per share value range for the Company common stock.

In this analysis, Greenhill reviewed, to the extent publicly available, selected financial data for the following publicly-traded companies, which are collectively referred to below as the “selected companies”:

·

The Toro Company,

·

The Husqvarna Group,

·

Briggs & Stratton, and

·

Alamo Group, Inc.

Greenhill examined these companies because, among other reasons, they are publicly traded companies with operations or businesses in related sectors or for purposes of analysis were considered appropriately similar or reasonably related to those of the Company.  Greenhill believes that none of the selected companies is directly comparable to the Company.  Accordingly, Greenhill’s analysis of these selected publicly-traded companies necessarily involved complex considerations and judgments concerning the differences in scale and financial and operating characteristics, as well as other factors that would necessarily affect the analysis of the operating statistics and trading multiples of the selected publicly-traded companies.  In evaluating the related companies, Greenhill made judgments and assumptions concerning industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the businesses of the Company and the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of the Company or the industry or the financial markets in general.  Greenhill also made judgments as to the relative comparability of such companies to the Company and judgments as to the relative comparability of the various valuation parameters with respect to the companies.  The numerical results may not in themselves be meaningful in analyzing the contemplated transaction as compared to the related companies.

Greenhill calculated and compared various financial multiples and ratios based on information it obtained from filings with the SEC, Capital IQ and FactSet databases, management estimates and other publicly available information as of December 7, 2015.  The multiples for each of the selected companies were based on closing share prices on December 7, 2015 and the most recent filings with the SEC and Capital IQ and FactSet databases.  Greenhill analyzed the enterprise value as a multiple of estimated EBITDA for the years 2015 and 2016 for the selected companies.  From this data, along with a review of estimated revenue and EBITDA growth for the years 2015 and 2016 for the selected companies, Greenhill derived ranges of multiples deemed most meaningful for its analysis, applied such ranges of multiples to the corresponding December Management Projections and, as a result, arrived at ranges of implied estimated per share values for the Company common stock. Information regarding the selected multiples is below:

 

 

When applied to the Company, the enterprise value to estimated 2015 EBITDA multiple yielded an implied per share value range for the Company common stock of approximately $8.16 to $11.25 and the enterprise value to estimated 2016 EBITDA multiple yielded an implied per share value range for the Company common stock of approximately $6.83 to $11.90.  Greenhill compared these ranges to the consideration to be received by the Company’s unaffiliated stockholders in the merger.

Precedent Transaction Analysis.

Greenhill performed an analysis of selected recent change of control transactions (the “Greenhill Precedent Transactions”), consisting of selected transactions with an enterprise value of greater than $100 million in a similar industrial equipment sector as the Company since 2008.  The information used in this analysis was based on the Capital IQ database.

Although Greenhill analyzed the multiples implied by the Greenhill Precedent Transactions, none of these transactions or associated companies is identical to the acquisition of the Company pursuant to the merger agreement.  Accordingly, Greenhill’s analysis of the selected transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics, the parties involved and terms of their transactions and other factors that would necessarily affect the implied value of the Company versus the values of the companies in the selected transactions.  In evaluating the Greenhill Precedent Transactions, Greenhill made judgments and assumptions concerning industry performance, general business, economic, market and financial conditions and other matters.  Greenhill also made judgments as to the relative comparability of those companies to the Company and judgments as to the relative comparability of the various valuation parameters with respect to the companies.

The following table identifies the selected transactions considered in this analysis:

 

                Using enterprise value implied by the transaction and last-twelve-month revenue (for the twelve-month period prior to the fiscal quarter in which the transaction was announced) for each of the target companies (except for Boss SnowPlows and Intersystems, for which such information was not available), Greenhill derived reference ranges of valuation multiples for the Greenhill Precedent Transactions.  The median and mean enterprise value to last-twelve-month revenue ratios were 1.00x and 1.03x, respectively. Based in part on the foregoing multiples and qualitative judgments concerning differences between the characteristics of these transactions and the merger, Greenhill derived indicative enterprise values of the Company by applying multiples of enterprise value to last-twelve-month revenue ranging from 0.80x to 1.20x to the Company’s estimated 2015 revenue.  This analysis resulted in an implied per share value range for the Company common stock of approximately $6.35 to $13.16.  Greenhill compared this range to the consideration to be received by the Company’s unaffiliated stockholders in the merger.

 

Greenhill performed an analysis of the premiums paid in transactions announced in the last five years, with a transaction value between $250 million to $1 billion in enterprise value, involving consideration in cash and an acquisition of a majority stake. Although Greenhill analyzed the premiums implied by the selected transactions, none of these transactions or associated companies is identical to the merger or to the Company.

 

Using publicly available information at the time of the announcement of the relevant transaction, from the Capital IQ database, Greenhill reviewed the consideration paid in the transactions and analyzed the premium in each such transaction over the closing prices on the last trading day, one calendar week and one calendar month, in each case, before the announcement of the applicable transaction.

For these transactions, Greenhill observed that the median premium over the closing price of the target one day prior to the announcement was 20.9%, the median premium over the closing price of the target one calendar week prior to the announcement was 22.6% and the median premium over the closing price of the target one calendar month prior to the announcement was 24.4%.

Based on this analysis, Greenhill applied a summary range of 20.0 – 30.0% based on the median premiums for the transactions described above to the unaffected Company closing share price on December 7, 2015 in cash in order to derive an implied per share value range for the Company common stock.

This methodology resulted in an implied per share value range of approximately $6.84 to $7.41 for the Company. Greenhill compared this range to the consideration to be received by the Company’s unaffiliated stockholders in the merger.

Greenhill noted that the reasons for, and circumstances surrounding, each of the transactions reviewed were diverse and that the premiums fluctuated based on such factors as perceived growth, synergies, strategic value and type of consideration utilized in such acquisition transactions. None of the target companies in these transactions is identical to the Company and, accordingly, Greenhill’s analysis of these transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the comparison of the premium.

Discounted Cash Flow Analysis.

Greenhill performed a discounted cash flow analysis of the Company on a standalone basis to determine indications of implied per share values for the Company common stock using the December Management Projections.

Greenhill calculated a range of implied present values per share of the Company common stock by discounting to present value as of December 31, 2015, using a discount rate range of 8.50% to 9.50% based on the Company’s weighted average cost of capital, the sum of (1) the standalone, after-tax unlevered free cash flows of the Company for fiscal year 2016 through fiscal year 2020, and (2) the present value of a terminal year projection of the standalone, after-tax unlevered free cash flows of the Company for fiscal year 2020 derived from the December Management Projections, growing in perpetuity at a range of rates from 2.0% - 3.5%.  The perpetuity growth rates were selected based on Greenhill’s judgments concerning the future sustainable growth rate of the Company.  This discounted cash flow analysis resulted in an implied per share value range for the Company common stock of approximately $8.09 to $14.88.  Greenhill compared this range to the consideration to be received by the Company’s unaffiliated stockholders in the merger.

Other Information.

Greenhill observed certain additional information that was not considered part of its financial analyses for its opinion but was noted for informational purposes, including the following:

·

Using the December Management Projections, Greenhill performed an illustrative leveraged buyout analysis to determine the prices at which a financial buyer, such as Parent, might effect a leveraged buyout of the Company using a capital structure similar to that proposed for the merger.  As a result of this analysis, Greenhill derived estimated implied equity values per share that a financial buyer might be willing to pay to acquire the Company ranging from $5.65 to $11.19 per share.

·

Greenhill performed a present value (as of December 31, 2015) of future share price analysis, which is designed to provide insight, on a theoretical basis, into the potential future value of a company’s common stock as a function of its projected EBITDA in fiscal year 2018 and its current forward enterprise value to EBITDA multiple, which value is subsequently discounted by a selected discount rate to arrive at a present value for the Company’s stock price. Greenhill multiplied forecasted EBITDA for 2018 from the December Management Projections by a range of forward enterprise value to EBITDA multiples from 6.0x to 8.5x to derive a range of future values per share of Company common stock. Greenhill then discounted this range of future values per share back to December 31, 2015 using an equity discount rate of 15.5%. The analysis resulted in a range of implied present values per share of Company common stock of $7.67 to $12.36.

 

 

                Greenhill’s opinion was one of the many factors considered by the Special Committee in its evaluation of the merger and should not be viewed as determinative of the views of the Special Committee with respect to the merger.

 

 

 

                Each of the equity commitments will terminate upon the earliest to occur of (i) the consummation of the merger, (ii) the valid termination of the merger agreement in accordance with its terms (except for claims by the Company to require Parent to enforce the equity commitments, in which case the equity commitments will be extended until a final, non-appealable resolution of such claim or a written agreement signed by the parties relating thereto) and (iii) the assertion by the Company or its controlled affiliates of any claim against the equity commitment parties or related parties, other than as permitted by the equity commitment letter.  The Company is an express third-party beneficiary of the equity commitment letter and has the right to seek specific performance of the funding of the commitments thereunder under the circumstances in which the Company would be permitted by the merger agreement to obtain specific performance requiring Parent to enforce such commitment.

 

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