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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 2)
PRELIMINARY—SUBJECT TO COMPLETION
Filed by the Registrant ☒
Filed by a party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12
W. R. GRACE & CO.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
 
W. R. Grace & Co. common stock, par value $0.01 per share (“Grace common stock”)
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
 
As of the close of business on June 29, 2021, the maximum number of shares of Grace common stock to which this transaction applies is estimated to be 67,492,795, which consists of: (a) 66,269,318 shares of Grace common stock outstanding; (b) 680,261 shares of Grace common stock issuable pursuant to outstanding options with an exercise price below the per share merger consideration of $70.00; (c) 273,432 shares of Grace common stock underlying restricted stock units that are not subject to performance vesting; and (d) 269,784 shares of Grace common stock underlying performance-based restricted stock units (based on achievement of applicable performance criteria at the actual level of performance (for awards issued in 2019) or target levels (in the case of awards issued in 2020 or 2021)).
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
 
Solely for purposes of calculating the filing fee, the underlying value of the transaction was calculated based upon the sum of: (a) the product of 66,269,318 shares of Grace common stock and the per share merger consideration of $70.00; (b) the product of (i) 680,261 shares of Grace common stock issuable upon exercise of options with an exercise price below the per share merger consideration of $70.00 and (ii) the difference between $70.00 and the weighted average exercise price of such options of $61.63; (c) the product of 273,432 shares of Grace common stock underlying restricted stock units that are not subject to performance vesting and the per share merger consideration of $70.00; and (d) the product of 269,784 shares of Grace common stock underlying performance-based restricted stock units and the per share merger consideration of $70.00.
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
 
$4,682,571,165
 
(5)
Total fee paid:
 
 
$510,869
 
 
 
 
 
In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filed fee was determined by multiplying $4,682,571,165 by 0.00010910.
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
 
 
 
 
 
(3)
 
 
 
 
 
(4)
Date Filed:
 
 
 

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED JULY 6, 2021

W. R. Grace & Co.
7500 Grace Drive
Columbia, Maryland 21044
[     ], 2021
Dear Grace Stockholder:
You are cordially invited to attend a special meeting (including any adjournments or postponements thereof, the “Special Meeting”) of stockholders of W. R. Grace & Co., a Delaware corporation (“Grace” or the “Company”), to be held at [    ], on [    ], 2021, at [    ], Eastern time.
At the Special Meeting, you will be asked to consider and vote on (i) a proposal to adopt the Agreement and Plan of Merger, dated as of April 26, 2021 (the “Merger Agreement”), by and among Gibraltar Acquisition Holdings LLC, a Delaware limited liability company (“Parent”), Gibraltar Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and Grace, (ii) a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Grace’s named executive officers that is based on or otherwise related to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”), and (iii) a proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement at the time of the Special Meeting (the “Adjournment Proposal”). Parent and Merger Sub are entities that are affiliated with Standard Industries Holdings Inc. (“Standard Industries Holdings”), the parent company of Standard Industries Inc., a privately held global industrial company. Standard Industries Holdings’ related investment platform 40 North Management LLC (“40 North”), is a long-standing stockholder of Grace. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Grace and the separate corporate existence of Merger Sub will cease, with Grace continuing as the surviving corporation (the “Merger”) and a wholly owned subsidiary of Parent.
If the Merger is completed, you will be entitled to receive $70.00 in cash, without interest and less any applicable withholding taxes, for each share of Grace common stock that you own, unless you have properly exercised your appraisal rights. This amount represents a premium of approximately 59% over Grace’s closing stock price of $44.05 on November 6, 2020, the last trading day prior to the announcement of 40 North’s initial proposal to acquire the Company on November 9, 2020.
The Board of Directors of Grace (the “Board of Directors”), on behalf of Grace and after considering the factors more fully described in the enclosed proxy statement, has unanimously: (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Grace and its stockholders (including unaffiliated security holders); (ii) approved the execution, delivery and performance of the Merger Agreement by Grace and the consummation of the transactions contemplated by the Merger Agreement; and (iii) resolved to recommend that holders of Grace common stock (including unaffiliated security holders) adopt the Merger Agreement and the consummation of the transactions contemplated thereby. The Board of Directors, on behalf of Grace, unanimously recommends that you vote: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
The enclosed proxy statement provides detailed information about the Special Meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement.
The proxy statement also describes the actions and determinations of the Board of Directors in connection with its evaluation of the Merger Agreement and the Merger. You should carefully read and consider the entire enclosed proxy statement and its annexes, including, but not limited to, the Merger Agreement, as they contain important information about, among other things, the Merger and how it affects you.
Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person, your vote will revoke any proxy that you have previously submitted.
If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.
Your vote is very important, regardless of the number of shares that you own. We cannot complete the Merger unless the proposal to adopt the Merger Agreement is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting. If you fail to vote in person or by proxy, or fail to instruct your broker on how to vote, it will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.
If you have any questions or need assistance voting your shares, please contact our proxy solicitor:
MacKenzie Partners, Inc.
Collect: (212) 929-5550
Toll-Free: (800) 322-2885
E-mail: proxy@mackenziepartners.com
On behalf of the Board of Directors, I thank you for your support and appreciate your consideration of these matters.
Sincerely,
 
 
 
Hudson La Force
 
President and Chief Executive Officer
 
Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger, the Merger Agreement or the other transactions contemplated thereby or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated [    ], 2021 and, together with the enclosed form of proxy card, is first being mailed on or about [    ], 2021.

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED JULY 6, 2021

W. R. Grace & Co.
7500 Grace Drive
Columbia, Maryland 21044

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [  ], 2021
Notice is hereby given that a special meeting of stockholders (including any adjournments or postponements thereof, the “Special Meeting”) of W. R. Grace & Co., a Delaware corporation (“Grace”), will be held at [  ], on [  ], 2021 at [  ], Eastern time. The Special Meeting is being held for the following purposes:
1.
To consider and vote on the proposal to adopt the Agreement and Plan of Merger, dated as of April 26, 2021 (the “Merger Agreement”), by and among Gibraltar Acquisition Holdings LLC, a Delaware limited liability company (“Parent”), Gibraltar Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and Grace. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Grace and the separate corporate existence of Merger Sub will cease, with Grace continuing as the surviving corporation (the “Merger”) and a wholly owned subsidiary of Parent;
2.
To consider and vote on the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Grace’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”); and
3.
To consider and vote on any proposal to adjourn the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement at the time of the Special Meeting (the “Adjournment Proposal”).
Only holders of Grace common stock (“Grace Stockholders”) of record as of the close of business on [  ], 2021, are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.
The Board of Directors, on behalf of Grace, unanimously recommends that you vote: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person, your vote will revoke any proxy that you have previously submitted. If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as a vote “FOR” the proposal to adopt the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement at the time of the Special Meeting.
 
By Order of the Board of Directors,
 
 
 
Cherée H. Johnson
 
Senior Vice President, General Counsel and Secretary
Dated: [  ], 2021

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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE: (1) BY TELEPHONE; (2) THROUGH THE INTERNET; OR (3) BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before it is voted at the Special Meeting.
If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.
If you are a Grace Stockholder of record, voting in person at the Special Meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain a “legal proxy” in order to vote in person at the Special Meeting.
If you fail to (1) return your proxy card, (2) grant your proxy electronically over the Internet or by telephone or (3) vote in person at the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement but will have no effect on the Compensation Proposal or the Adjournment Proposal.
You should carefully read and consider the entire accompanying proxy statement and its annexes, including, but not limited to, the Merger Agreement, along with all of the documents incorporated by reference into the accompanying proxy statement, as they contain important information about, among other things, the Merger and how it affects you. If you have any questions concerning the Merger Agreement, the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of Grace common stock, please contact our proxy solicitor:
MacKenzie Partners, Inc.
Collect: (212) 929-5550
Toll-Free: (800) 322-2885
E-mail: proxy@mackenziepartners.com

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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED JULY 6, 2021
SUMMARY TERM SHEET
This summary highlights selected information from this proxy statement related to the merger of Gibraltar Merger Sub Inc. with and into W. R. Grace & Co. (the “Merger”) and may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms of the Merger, you should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including, but not limited to, the Merger Agreement (as defined below), along with all of the documents to which we refer in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption “Where You Can Find More Information.” The Merger Agreement is attached as Annex A to this proxy statement. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger.
Except as otherwise specifically noted in this proxy statement, “Grace,” “we,” “our,” “us,” the “Company” and similar words refer to W. R. Grace & Co. Throughout this proxy statement, we refer to Gibraltar Acquisition Holdings LLC as “Parent” and Gibraltar Merger Sub Inc. as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated April 26, 2021, by and among Parent, Merger Sub and Grace as the “Merger Agreement,” our common stock, par value $0.01 per share, as “Grace common stock,” and the holders of Grace common stock as “Grace Stockholders.” Unless indicated otherwise, any other capitalized term used herein but not otherwise defined herein has the meaning assigned to such term in the Merger Agreement.
This proxy statement is dated [   ], 2021 and, together with the enclosed form of proxy card, is first being mailed on or about [   ], 2021.
Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger, the Merger Agreement or the other transactions contemplated thereby or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
Parties Involved in the Merger
W. R. Grace & Co.
Grace, a Delaware corporation, is a leading global specialty chemical company. Grace’s two industry-leading business segments—Catalysts Technologies and Materials Technologies—provide innovative products, technologies, and services that enhance the products and processes of our customers around the world. With approximately 4,000 employees, Grace operates and/or sells to customers in over 60 countries. More information about Grace is available at www.grace.com. Grace common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “GRA.”
Gibraltar Acquisition Holdings LLC
Parent was formed on April 22, 2021, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the equity financing and debt financing in connection with the Merger.
Gibraltar Merger Sub Inc.
Merger Sub is a wholly owned subsidiary of Parent and was formed on April 23, 2021, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the equity financing and debt financing in connection with the Merger.
Parent and Merger Sub are each affiliated with Standard Industries Holdings Inc. (“Standard Industries Holdings”), the parent company of Standard Industries Inc. (“Standard Industries”), a privately held global industrial company operating in over 80 countries with over 15,000 employees. The Standard Industries
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ecosystem spans a broad array of holdings, technologies and investments—including both public and private companies from early to late-stage—as well as world-class building materials assets and next-generation solar solutions. Throughout its 140-year history, Standard Industries has leveraged its deep industry expertise and vision to create outsize value across its businesses, which today include operating companies GAF, BMI, Siplast, GAF Energy, Schiedel and SGI, as well as related businesses 40 North Management LLC, a multi-billion-dollar investment platform (“40 North”), 40 North Ventures and Winter Properties. More information about Standard Industries is available at www.standardindustries.com. Standard Industries Holdings’ related investment platform 40 North is a long-standing stockholder of Grace. At the Effective Time (as defined in the section of this proxy statement captioned “—The Merger”), the Surviving Corporation (as defined in the section of the proxy statement captioned “—The Merger”), will be a wholly owned subsidiary of Parent.
In connection with the transactions contemplated by the Merger Agreement, (i) Standard Industries Holdings has provided Parent with an equity commitment of $3,516 million and (ii) Parent has obtained debt financing commitments in an aggregate amount of $3,455 million ($3,905 million including the revolving credit facility commitment) pursuant to the Debt Commitment Letter (as defined in the section of this proxy statement captioned “—Financing of the Merger”). Such amounts will be used to fund the aggregate purchase price required to be paid at the closing of the Merger and to also fund certain other payments (including the Merger Amounts (as defined in the section of this proxy statement captioned “—Financing of the Merger”)), subject to the terms and conditions of the Merger Agreement. In addition, Standard Industries Holdings has agreed to guarantee the payment of certain liabilities and obligations of Parent under the Merger Agreement, subject to an aggregate cap equal to $290 million, including any termination fee and amounts in respect of certain reimbursement and indemnification obligations of Parent and Merger Sub for certain costs, expenses or losses incurred or sustained by Grace, as specified in the Merger Agreement. For more information, please see the section of this proxy statement captioned “—Financing of the Merger.”
The Merger
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Grace and the separate corporate existence of Merger Sub will cease, with Grace continuing as the surviving corporation and as a wholly owned subsidiary of Parent (the “Surviving Corporation”). As a result of the Merger, Grace common stock will no longer be publicly traded and will be delisted from the NYSE. In addition, Grace common stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Grace will no longer file periodic reports with the U.S. Securities and Exchange Commission (the “SEC”). If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation. The time at which the Merger will become effective will occur upon the filing of a certificate of merger with the Secretary of State of the State of Delaware in accordance with the applicable provision of the General Corporation Law of the State of Delaware (the “DGCL”) (the time of such filing and the acceptance for record by the Secretary of State of the State of Delaware, or such later time as may be agreed in writing by Parent and Grace and specified in the certificate of merger, being referred to herein as the “Effective Time”).
Merger Consideration
Grace Common Stock
At the Effective Time, each then-outstanding share of Grace common stock (other than shares of Grace common stock (i) held by Grace as treasury stock, (ii) owned directly or indirectly by Parent, Merger Sub or any other subsidiary of Parent, (iii) owned by any wholly owned subsidiary of Grace or (iv) owned by Grace Stockholders who have properly and validly exercised their statutory rights of appraisal in respect of such shares of Grace common stock in accordance with Section 262 of the DGCL, collectively, the “Excluded Shares”) will be cancelled and retired and automatically converted into the right to receive an amount in cash equal to $70.00 (the “Merger Consideration”), without interest thereon and less any applicable withholding taxes.
Prior to the Effective Time, Parent will deposit (or cause to be deposited) an amount of cash equal to the aggregate Merger Consideration with a designated paying agent in trust for the benefit of the Grace Stockholders. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Exchange and Payment Procedures.”
After the Merger is completed, you will have the right to receive the Merger Consideration, but you will no longer have any rights as a stockholder (except that stockholders who properly exercise their appraisal rights may
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have the right to receive payment for the “fair value” of their shares determined pursuant to an appraisal proceeding, as contemplated by Delaware law). For more information, please see the section of this proxy statement captioned “Special Factors—Appraisal Rights.”
Treatment of Company Equity Awards
Treatment of Company Options and Company SARs. The Merger Agreement provides that each option to purchase shares of Grace common stock (each, a “Company Option”) and each stock appreciation right with respect to shares of Grace common stock (each, a “Company SAR”) that is outstanding immediately prior to the Effective Time will vest at closing and be converted into the right to receive an amount in cash equal to the product of the Merger Consideration (less the applicable exercise price) and the number of shares of Grace common stock covered by such Company Option or Company SAR (without interest and less applicable withholding taxes). Payment of these cash amounts will be paid within three (3) business days after the Effective Time. Any Company Option or Company SAR that has a per share exercise price that is greater than or equal to the Merger Consideration will be cancelled at the Effective Time for no consideration or payment.
Treatment of Company RSU Awards and Company Performance Share Awards. The Merger Agreement provides that each restricted stock unit award (each, a “Company RSU Award”) and each performance-based unit award relating to shares of Grace common stock (each, a “Company Performance Share Award” and, collectively with the Company Options, Company SARs and Company RSU Awards, the “Company Equity Awards”) that is outstanding immediately prior to the Effective Time will be assumed and converted into the right to receive an amount in cash (without interest) equal to the product obtained by multiplying the Merger Consideration by the number of shares of Grace common stock covered by such award immediately prior to the Effective Time, which converted cash award will be subject to continued service vesting and other terms as set forth in the Merger Agreement.
For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Merger Consideration—Treatment of Company Equity Awards.”
Material U.S. Federal Income Tax Consequences of the Merger
The receipt of cash by Grace Stockholders in exchange for shares of Grace common stock in the Merger will be a taxable transaction to Grace Stockholders for U.S. federal income tax purposes. Such receipt of cash by each Grace Stockholder that is a U.S. Holder (as defined under the section, “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”) generally will result in the recognition of gain or loss in an amount equal to the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of Grace common stock surrendered pursuant to the Merger.
Grace Stockholders should read the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger.”
Grace Stockholders should consult their tax advisors in light of their particular circumstances and any consequences arising under U.S. federal, state, local and non-U.S. income and other tax consequences relating to the Merger.
Appraisal Rights
If the Merger is consummated and certain conditions are met, Grace Stockholders who continuously hold shares of Grace common stock through the Effective Time, who do not vote in favor of the adoption of the Merger Agreement and who properly demand appraisal of their shares and who do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL. This means that Grace Stockholders may be entitled to have their shares of Grace common stock appraised by the Delaware Court of Chancery, and to receive payment in cash of the “fair value” of their shares of Grace common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the court (or in certain circumstances described in further detail in the section of this proxy statement captioned “Special Factors—Appraisal Rights,” on the difference between the amount determined to be the fair value and the amount paid by the Surviving Corporation in the Merger to each
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stockholder entitled to appraisal prior to the entry of judgment in any appraisal proceeding). Due to the complexity of the appraisal process, Grace Stockholders who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights.
Grace Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as, or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares of Grace common stock.
To exercise appraisal rights, Grace Stockholders must: (i) submit a written demand for appraisal to Grace before the vote is taken on the proposal to adopt the Merger Agreement; (ii) not submit a proxy or otherwise vote in favor of the proposal to adopt the Merger Agreement; (iii) continue to hold shares of Grace common stock of record through the Effective Time; and (iv) strictly comply with all other procedures for exercising appraisal rights under the DGCL. Failure to follow exactly the procedures specified under the DGCL may result in the loss of appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of Grace unless certain stock ownership conditions are satisfied by the Grace Stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, which is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 of the DGCL is reproduced in Annex D to this proxy statement. If you hold your shares of Grace common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee. For more information, please see the section of this proxy statement captioned “Special Factors—Appraisal Rights.”
Regulatory Approvals Required for the Merger
HSR Act, U.S. Antitrust Matters and Other Regulatory Approvals
Under the Merger Agreement, the Merger cannot be completed until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), has expired or been terminated and approvals, consents, waivers or clearances under the antitrust laws of certain specified foreign jurisdictions have been obtained. Grace and Parent made the filings required under the HSR Act on May 10, 2021, and the applicable waiting period under the HSR Act expired at 11:59 p.m., Eastern time on June 9, 2021.
Commitment to Obtain Approvals
Grace and Parent are each required to take (or cause to be taken), do (or cause to be done), and assist and cooperate in doing all things necessary or advisable to consummate the Merger as promptly as reasonably practicable. Additionally, Parent is required to take all actions necessary, proper or advisable to avoid or eliminate each and every impediment, including any judgment, that may be asserted by a governmental entity pursuant to any antitrust law with respect to the Merger. This includes, if required by regulatory authorities, (i) agreeing to sell, divest or dispose of any assets or businesses of Parent or its affiliates or Grace or its subsidiaries and (ii) agreeing to any limitation on the conduct of Parent or its affiliates (including, after the closing of the Merger, the Surviving Corporation) proposed by a governmental entity enforcing applicable laws. In connection with Parent’s effectuation of these transactions or restrictions, Grace is required to provide such reasonable assistance as Parent may reasonably request; provided that any such transactions or restrictions are subject to, conditioned upon and effective only after the closing of the Merger. See the section of this proxy statement captioned “Special Factors—Regulatory Approvals Required for the Merger.”
Closing Conditions
The obligations of Grace, Parent and Merger Sub, as applicable, to consummate the Merger are subject to the satisfaction or waiver of customary conditions, including (among other conditions), the following:
the adoption of the Merger Agreement by the requisite affirmative vote of stockholders;
the expiration or termination of the applicable waiting period under the HSR Act and the receipt of approvals, consents, waivers or clearances under the antitrust laws of certain specified foreign jurisdictions;
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the absence of any laws or judgments issued by a governmental entity of competent jurisdiction making the Merger illegal or otherwise prohibiting the Merger;
in the case of Parent and Merger Sub, no “Company Material Adverse Effect” having occurred since the date of the Merger Agreement (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Representations and Warranties”);
the accuracy of the representations and warranties of Grace, Parent and Merger Sub in the Merger Agreement, generally subject to a materiality qualification, as of the date of the Merger Agreement and as of the closing of the Merger as if made as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date); and
the performance in all material respects by Grace, Parent and Merger Sub of their respective obligations required to be performed by them under the Merger Agreement at or prior to the Effective Time.
Financing of the Merger
The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition. We anticipate that the total amount of funds necessary to complete the Merger and the related transactions, and to pay the fees and expenses required to be paid at the closing of the Merger by Parent and Merger Sub under the Merger Agreement, will be approximately $7,151 million. This amount includes funds needed to: (i) pay Grace Stockholders the amounts due under the Merger Agreement for their Grace common stock, (ii) make payments in respect of our outstanding Company Equity Awards payable at closing of the Merger pursuant to the Merger Agreement, (iii) repay or refinance certain outstanding indebtedness of Grace and its subsidiaries contemplated by, or required in connection with the transactions described in, the Merger Agreement or the Commitment Letters (as defined below) and (iv) pay any fees and expenses of or payable by Parent, Merger Sub or the Surviving Corporation at the closing of the Merger (collectively, the “Merger Amounts”).
Standard Industries Holdings has committed to contribute or cause to be contributed to Parent at the closing of the Merger an aggregate amount in cash equal to $3,516 million, subject to the terms and conditions set forth in an equity commitment letter, dated as of April 26, 2021 (the “Equity Commitment Letter”). Grace is an express third-party beneficiary of the Equity Commitment Letter and may cause Standard Industries Holdings to perform its funding obligations under the Equity Commitment Letter subject to (i) the limitations and conditions set forth in the Equity Commitment Letter and (ii) the terms and conditions of the Merger Agreement. Standard Industries Holdings has announced that its equity commitment will be supported by (a) the available cash of its subsidiary, Standard Industries Inc., (b) up to $2,500 million in proceeds from a secured term loan and (c) a financing commitment of $600 million by certain investment funds affiliated with Apollo Global Management.
Pursuant to the limited guaranty delivered by Standard Industries Holdings in favor of Grace, dated as of April 26, 2021 (the “Guaranty”), Standard Industries Holdings has agreed to guarantee the payment of certain liabilities and obligations of Parent under the Merger Agreement, subject to an aggregate cap equal to $290 million, including any termination fee and amounts in respect of certain reimbursement and indemnification obligations of Parent and Merger Sub for certain costs, expenses or losses incurred or sustained by Grace, as specified in the Merger Agreement.
In addition, in connection with the Merger Agreement, Parent entered into a debt commitment letter, dated as of April 26, 2021 (as amended, supplemented or otherwise modified, the “Debt Commitment Letter” and, together with the Equity Commitment Letter, the “Commitment Letters”) with JPMorgan Chase Bank, N.A., BNP Paribas, BNP Paribas Securities Corp., Citigroup Global Markets Inc. on behalf of certain entities affiliated with Citi, Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch and Deutsche Bank Securities Inc., pursuant to which the lenders have committed to provide, upon certain terms and subject to certain conditions, Parent with Debt Financing (as defined in the section of this proxy statement captioned “Special Factors—Financing of the Merger”) in an aggregate principal amount of $3,455 million ($3,905 million including the revolving credit facility commitment). For more information, please see the section of this proxy statement captioned “Special Factors—Financing of the Merger.”
Each of Parent and Merger Sub must use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to arrange, consummate and obtain the
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financing described in the Commitment Letters on the terms and subject only to the conditions (including the “flex” provisions contained in any related fee letter) set forth in the Commitment Letters and the Merger Agreement.
Grace has agreed to use its reasonable best efforts to provide, and to use its reasonable efforts to cause its representatives to provide, to Parent and Merger Sub, at Parent’s sole cost and expense, such cooperation as is customary and reasonably requested by Parent in connection with the arrangement of the financing contemplated by the Debt Commitment Letter, subject to the terms set forth in the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Cooperation with Debt Financing.”
Required Stockholder Approval
The affirmative vote of the holders of a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting is required to adopt the Merger Agreement. As of the Record Date, [     ] votes constitute a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting. The transaction has not been structured to require the approval of a majority of unaffiliated Grace Stockholders.
Approval of each of (i) the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Grace’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”) and (ii) the proposal to adjourn the Special Meeting (the “Adjournment Proposal”), whether or not a quorum is present, requires the affirmative vote of a majority of the shares of Grace common stock present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter. The approval of the Compensation Proposal is advisory (non-binding) and is not a condition to the completion of the Merger.
As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [    ] shares of Grace common stock, representing approximately [    ]% of the shares of Grace common stock outstanding as of the Record Date (and approximately [ ]% of the shares of Grace common stock outstanding when taking into account Company Equity Awards held, in the aggregate, by our directors and executive officers).
40 North Latitude Master Fund Ltd. (the “Supporting Stockholder”), an affiliate of 40 North, entered into a voting agreement with the Company, dated as of April 26, 2021 (the “Voting Agreement”). The Supporting Stockholder beneficially owns 9,865,008 shares of Grace common stock representing approximately 14.9% of the outstanding Grace common stock as of June 29, 2021. Pursuant to the Voting Agreement, the Supporting Stockholder has agreed, among other things, to vote its shares of Grace common stock in favor of the proposal to adopt the Merger Agreement (as described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change”). For more information, see the section of this proxy statement captioned “Special Factors—The Voting Agreement.”
We currently expect that our directors and executive officers will vote all of their respective shares of Grace common stock: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
The Special Meeting
Date, Time and Place
A special meeting of Grace Stockholders to consider and vote on the proposal to adopt the Merger Agreement will be held at [    ], on [    ], 2021, at [    ], Eastern time (the “Special Meeting”).
Record Date; Shares Entitled to Vote
You are entitled to vote at the Special Meeting if you owned shares of Grace common stock at the close of business on [    ], 2021 (the “Record Date”). Each holder of Grace common stock will be entitled to one (1) vote for each such share owned at the close of business on the Record Date.
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Quorum
As of the Record Date, there were [   ] shares of Grace common stock outstanding and entitled to vote at the Special Meeting. The holders of a majority of the shares of Grace common stock issued and outstanding and entitled to vote, present in person or represented by proxy, will constitute a quorum at the Special Meeting.
Recommendation of the Board of Directors; Fairness of the Merger
The Board of Directors, on behalf of Grace, has unanimously: (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Grace and its stockholders (including unaffiliated security holders); (ii) approved the execution, delivery and performance of the Merger Agreement by Grace and the consummation of the transactions contemplated by the Merger Agreement; and (iii) resolved to recommend that Grace Stockholders (including unaffiliated security holders) adopt the Merger Agreement and the consummation of the transactions contemplated thereby.
The Board of Directors, on behalf of Grace, unanimously recommends that you vote: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Prior to the adoption of the Merger Agreement by Grace Stockholders, under certain circumstances, the Board of Directors may withdraw or change the foregoing recommendation if it determines in good faith (after consultation with its financial advisors and its outside legal counsel and after taking into account any changes to the terms of the Merger Agreement proposed by Parent during the notice and negotiation period described below) that failure to do so would be inconsistent with the Board of Directors’ fiduciary duties to stockholders under applicable law. However, the Board of Directors cannot withdraw or change the foregoing recommendation unless it complies with certain procedures in the Merger Agreement, including, but not limited to, negotiating with Parent and its representatives in good faith over a five (5) business day period (three (3) business days in the case of subsequent revisions to the material terms of a Superior Company Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Takeover Proposals; No Solicitation”)), after which the Board of Directors shall have determined that the failure to make a Company Adverse Recommendation Change (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change”) would be inconsistent with the Board of Directors’ fiduciary duties to stockholders under applicable law.
The termination of the Merger Agreement by Grace following the Board of Directors’ authorization for Grace to enter into a definitive agreement to consummate an alternative transaction contemplated by a Superior Company Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Takeover Proposals; No Solicitation”) will result in the payment by Grace of a termination fee of $141 million. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change.”
Position of the Purchaser Filing Persons as to Fairness of the Merger
The Purchaser Filing Persons (as defined in the section of the proxy statement captioned “Special Factors—Purpose and Reasons of the Purchaser Filing Persons for the Merger”) did not participate in the deliberations of the Board of Directors regarding, and did not receive advice from the Board of Directors’ legal or financial advisors as to, the fairness of the Merger. The Purchaser Filing Persons have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purpose of assessing the fairness of the Merger to Grace’s unaffiliated security holders. However, based on the knowledge and analysis by the Purchaser Filing Persons of available information regarding Grace, and the factors considered by, and the analysis and resulting conclusions of, the Purchaser Filing Persons discussed in “Special Factors—Purpose and Reasons of the Purchaser Filing Persons for the Merger,” as well as the factors considered by, and the analysis and resulting conclusions of, the Board of Directors discussed in “Special Factors—Purpose and Reasons of Grace for the Merger,” the Purchaser Filing Persons believe that the Merger is substantively and procedurally fair to Grace’s unaffiliated security holders.
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Opinion of Goldman Sachs & Co. LLC
Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its opinion to the Board of Directors of Grace that, as of April 26, 2021 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated April 26, 2021, 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 to this proxy statement. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Grace common stock should vote with respect to the Merger or any other matter.
For more information, see the section of this proxy statement captioned “Special Factors—Opinion of Goldman Sachs & Co. LLC.”
Opinion of Moelis & Company LLC
At the April 25, 2021 meeting of the Board of Directors, Moelis & Company LLC (“Moelis”), financial advisor to Grace, rendered its oral opinion to the Board of Directors, confirmed by the delivery of a written opinion dated April 26, 2021, addressed to the Board of Directors to the effect that, as of the date of such opinion and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken, the Merger Consideration to be received in the Merger by the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace) was fair, from a financial point of view, to such holders.
The full text of Moelis’ written opinion dated April 26, 2021, which sets forth 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. Moelis’ opinion was provided for the use and benefit of the Board of Directors (solely in its capacity as such) in its evaluation of the Merger. Moelis’ opinion is limited solely to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace) in the Merger and does not address Grace’s underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Grace. Moelis’ opinion does not constitute a recommendation as to how any holder of securities should vote or act with respect to the Merger or any other matter.
For more information, see the section of this proxy statement captioned “Special Factors—Opinion of Moelis & Company LLC.”
Purpose and Reasons of Grace for the Merger
Grace’s purpose for engaging in the Merger is to enable the Grace Stockholders to receive the Merger Consideration, which represents a premium of 59% over the closing price of the Grace common stock of $44.05 on November 6, 2020, the last trading day prior to the public announcement of 40 North’s initial proposal to acquire Grace on November 9, 2020. Grace believes that the Merger provides the best opportunity to maximize stockholder value (including for unaffiliated security holders). Grace has also considered certain additional factors in determining to undertake the Merger, which are described in further detail in the section of this proxy statement captioned “Special Factors—Recommendation of the Board of Directors; Reasons for the Merger; Fairness of the Merger.”
Purpose and Reasons of the Purchaser Filing Persons for the Merger
For the Purchaser Filing Persons, the purpose of the Merger is to enable Parent to acquire control of Grace so that Parent can operate Grace as a privately held company via a transaction in which the stockholders of Grace will be cashed out for $70.00 per share of Grace common stock, and Parent will bear the rewards and risks of the ownership of Grace after completion of the Merger.
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Interests of Executive Officers and Directors of Grace in the Merger
When considering the foregoing recommendation of the Board of Directors that you vote to approve the proposal to adopt the Merger Agreement, Grace Stockholders should be aware that Grace’s directors and executive officers may have interests in the Merger that are different from, or in addition to, Grace Stockholders more generally. In (i) evaluating and negotiating the Merger Agreement, (ii) approving the Merger Agreement and the Merger and (iii) recommending that the Merger Agreement be adopted by stockholders, the Board of Directors was aware of and considered these interests, among other matters, to the extent that these interests existed at the time. These interests include:
at the Effective Time, each Company Equity Award held by an executive officer or director will receive the treatment described in the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger—Treatment of Company Equity Awards”;
eligibility of Grace’s executive officers to receive severance payments and benefits under their change in control severance agreements with Grace and equity award vesting acceleration on certain terminations of employment under the Grace stock incentive plans, as described in more detail in the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger”;
eligibility of Grace’s executive officers to receive a retention bonus equal to 50% of the severance payment (as defined in the applicable change in control severance agreement) that would be payable under each such executive’s change in control severance agreement, subject to continued employment through the first anniversary of the closing (and in the event any such executive’s employment is terminated by Grace prior to the first anniversary of the closing, the executive would remain eligible to receive a severance payment as set forth in the executive’s change in control severance agreement); and
continued indemnification and directors’ and officers’ liability insurance to be provided by the Surviving Corporation.
If the proposal to adopt the Merger Agreement is approved, the shares of Grace common stock held by Grace directors and executive officers will be treated in the same manner as outstanding shares of Grace common stock held by all other stockholders. For more information, see the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger.”
Intent to Vote in Favor of the Merger
Grace’s directors and executive officers have informed us that they intend to vote their shares of Grace common stock in favor of the proposal to adopt the Merger Agreement and the other proposals to be considered at the Special Meeting, although they have no obligation to do so. As of the Record Date, our directors and executive officers owned and were entitled to vote, in the aggregate, approximately [   ] shares of Grace common stock, or approximately [   ]% of the outstanding shares of Grace common stock entitled to vote at the Special Meeting.
Company Takeover Proposals; No Solicitation
Under the Merger Agreement, Grace must not, and must cause its subsidiaries not to, and must use reasonable best efforts to cause its affiliates and any of its and their respective representatives not to, directly or indirectly: (i) solicit, initiate or knowingly encourage, induce or facilitate any Company Takeover Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Takeover Proposals; No Solicitation”) or any inquiry or proposal that would reasonably be expected to lead to a Company Takeover Proposal; or (ii) continue, enter into, maintain, participate or engage in any discussions or negotiations with any person regarding, furnish to any such person any non-public information with respect to, any Company Takeover Proposal or any inquiry or proposal that would reasonably be expected to lead to a Company Takeover Proposal. In addition, Grace must, and must cause its affiliates and its and their respective representatives to, (a) immediately cease and cause to be terminated all existing discussions, solicitations or negotiations with or of any person with respect to any Company Takeover Proposal, or any inquiry or proposal that would reasonably be expected to lead to a Company Takeover Proposal, (b) request the prompt return or destruction of all confidential information previously furnished and (c) terminate all physical and electronic data room access previously granted to any such person or its representatives.
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Notwithstanding the foregoing restrictions, under certain specified circumstances, from the date of the Merger Agreement until the adoption of the Merger Agreement by the Grace Stockholders, Grace may, among other things, furnish information to, and participate in discussions and negotiations with, a person in respect of a bona fide, written Company Takeover Proposal made after the date of the Merger Agreement that does not result from a material breach of Grace’s non-solicitation obligations, as described in the immediately preceding paragraph if, subject to complying with certain procedures described in the subsequent paragraph, the Board of Directors determines in good faith (after consultation with its financial advisors and its outside legal counsel) that such Company Takeover Proposal constitutes or could reasonably be expected to lead to a Superior Company Proposal, and, in each case, if (and only if), the Board of Directors determines in good faith (after consultation with its financial advisors and its outside legal counsel) that the failure to take such actions would reasonably be expected to be inconsistent with the Board of Directors’ fiduciary duties to stockholders under applicable law, and Grace has delivered to Parent prior written notice that it intends to take such actions. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Takeover Proposals; No Solicitation.”
Prior to the adoption of the Merger Agreement by the Grace Stockholders, Grace is entitled to terminate the Merger Agreement for the purpose of entering into an agreement in respect of a Superior Company Proposal if it complies with certain procedures in the Merger Agreement, including, but not limited to, negotiating with Parent in good faith over a five (5) business day period in an effort to amend the terms and conditions of the Merger Agreement (three (3) business days in the case of subsequent revisions to the material terms of such Superior Company Proposal), and the Board of Directors determines in good faith (after consultation with its outside legal counsel and financial advisors) that the failure to terminate the Merger Agreement as a result of such Superior Company Proposal would be inconsistent with the Board of Directors’ fiduciary duties under applicable law.
The termination of the Merger Agreement by Grace following the Board of Directors’ authorization for Grace to enter into a definitive agreement to consummate an alternative transaction contemplated by a Superior Company Proposal will result in the payment by Grace of a termination fee of $141 million. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change.”
Termination of the Merger Agreement
In addition to the circumstances described above, Parent and Grace have certain rights to terminate the Merger Agreement under customary circumstances, including:
by mutual agreement;
the imposition of any final and non-appealable law or judgment by a governmental entity of competent jurisdiction that permanently restrains, enjoins or otherwise prohibits the consummation of the Merger;
the other party breaches or fails to perform any of its covenants or agreements set forth in the Merger Agreement or any of the other party’s representations or warranties fails to be true and correct, which, in either case would give rise to a failure of the conditions to completion of the Merger relating to the accuracy of the other party’s representations and warranties or performance of the other party’s covenants and is not reasonably capable of being cured by the End Date (as defined below) or, if capable of being cured, is not cured within 30 calendar days following the delivery of written notice of such breach or failure;
if the Merger has not been consummated by 5:00 p.m., New York City time, on January 26, 2022 (the “End Date”) (subject to extension to April 26, 2022 under certain circumstances, including for purposes of obtaining required regulatory approvals (as further described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement”)); or
if Grace Stockholders fail to adopt the Merger Agreement at the Special Meeting (or any adjournment or postponement thereof).
Under some circumstances, (i) Grace is required to pay Parent a termination fee equal to $141 million (the “Company Termination Fee”); and (ii) Parent is required to pay Grace a termination fee equal to $281 million (the “Parent Termination Fee”). Please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fee.”
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Effect on Grace if the Merger Is Not Completed
If the Merger Agreement is not adopted by Grace Stockholders, or if the Merger is not completed for any other reason:
the Grace Stockholders will not be entitled to, nor will they receive, any payment for their respective shares of Grace common stock pursuant to the Merger Agreement;
(i) Grace will remain an independent public company; (ii) Grace common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act; and (iii) Grace will continue to file periodic reports with the SEC; and
under certain specified circumstances, Grace will be required to pay Parent a Company Termination Fee of $141 million upon the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fee.”
The Voting Agreement
The Supporting Stockholder, which beneficially owns 9,865,008 shares of Grace common stock representing approximately 14.9% of the outstanding Grace common stock as of June 29, 2021, entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Supporting Stockholder has agreed, among other things, to vote its shares of Grace common stock in favor of the proposal to adopt the Merger Agreement.
Litigation Relating to the Merger
On May 26, 2021, a complaint, captioned Shiva Stein v. W. R. Grace & Co. et al., No. 1:21-cv-4731, was filed by a purported stockholder of Grace in the U.S. District Court for the Southern District of New York. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a materially incomplete and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
On May 29, 2021, a complaint, captioned Peter Ansay v. W. R. Grace & Co. et al., No. 1:21-cv-03077, was filed by a purported stockholder of Grace in the U.S. District Court for the Eastern District of New York. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a false and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
On June 3, 2021, a complaint, captioned Charles Bowles v. W. R. Grace & Co. et al., No. 1:21-cv-04922, was filed by a purported stockholder of Grace in the U.S. District Court for the Southern District of New York. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a false and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
On June 23, 2021, a complaint, captioned Kathleen Finger v. W. R. Grace & Co. et al., No. 5:21-cv-01055, was filed by a purported stockholder of Grace in the U.S. District Court for the Central District of California. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a materially incomplete and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
On June 25, 2021, a complaint, captioned Alex Ciccotelli v. W. R. Grace & Co. et al., No. 2:21-cv-02842, was filed by a purported stockholder of Grace in the U.S. District Court for the Eastern District of Pennsylvania. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other
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things, that the defendants violated certain sections of the Exchange Act by disseminating a false and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
On June 30, 2021, a complaint, captioned Sam Carlisle v. W. R. Grace & Co. et al., No. 1:21-cv-00965, was filed by a purported stockholder of Grace in the U.S. District Court for the District of Delaware. The complaint names Grace and the Board of Directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a false and misleading proxy statement in connection with the Merger. The complaint seeks, among other things, to enjoin Grace from taking steps to consummate the Merger or, in the event the Merger is consummated, to rescind the Merger or grant rescissory damages. Grace believes the claims asserted in the lawsuit are without merit.
Grace cannot predict the outcome of or estimate the possible loss or range of loss from these matters. Additional complaints or demands may be filed in connection with the Merger, which could prevent or delay completion of the Merger and result in substantial costs to Grace. If additional similar complaints or demands are filed or made, absent new or different allegations that are material, Grace will not necessarily announce them.
Market Price of Common Stock and Dividends
The shares of Grace common stock are listed for trading on the NYSE, under the symbol “GRA.” Grace has historically declared and paid quarterly cash dividends on the shares of Grace common stock. Pursuant to the Merger Agreement, Grace may not, during the Interim Period (as defined under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Conduct of Business Pending the Merger”), declare, set aside or pay any dividend or make any other distribution in respect of any of its capital stock, equity interests or other voting securities without the prior written consent of Parent, as further described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Conduct of Business Pending the Merger.”
The closing price of the shares of Grace common stock on April 23, 2021, the last trading day before the public announcement of the Merger, was $64.24 per share of Grace common stock. On [   ], 2021, the most recent practicable date before this proxy statement was distributed to Grace Stockholders, the closing price of the shares of Grace common stock on the NYSE was $[   ] per share. You are encouraged to obtain current market quotations for the shares of Grace common stock in connection with voting your shares.
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QUESTIONS AND ANSWERS
The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. You should carefully read and consider the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, including, but not limited to, the Merger Agreement, along with all of the documents we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption, “Where You Can Find More Information.”
Q:
Why am I receiving these materials?
A:
The Board of Directors is furnishing this proxy statement and form of proxy card to the holders of shares of Grace common stock in connection with the solicitation of proxies to be voted at the Special Meeting.
Q:
When and where is the Special Meeting?
A:
Grace will hold the Special Meeting at [    ], on [    ], 2021, at [    ], Eastern time.
Q:
What am I being asked to vote on at the Special Meeting?
A:
You are being asked to vote on the following proposals:
to adopt the Merger Agreement pursuant to which Merger Sub will merge with and into Grace, and Grace will become a wholly owned subsidiary of Parent;
to approve, on an advisory (non-binding) basis, the Compensation Proposal; and
to approve the Adjournment Proposal.
Q:
Who is entitled to vote at the Special Meeting?
A:
Only holders of record of Grace common stock as of the close of business on [    ], 2021, the Record Date for the Special Meeting, are entitled to notice of the Special Meeting and to vote at the Special Meeting. Each holder of Grace common stock will be entitled to cast one (1) vote on each matter properly brought before the Special Meeting for each such share owned at the close of business on the Record Date.
Q:
How do I attend the Special Meeting?
A:
If you are a stockholder of record as of the Record Date, you may attend the Special Meeting in person. If you plan to attend the Special Meeting in person, you must provide proof of ownership of Grace common stock as of the Record Date, such as an account statement indicating ownership on that date and a form of personal identification for admission to the meeting.
Even if you plan to attend the Special Meeting in person, to ensure that your shares will be represented at the Special Meeting, we encourage you to sign, date and return the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person, your vote will revoke any proxy previously submitted.
If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions. If you hold your shares in “street name,” you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your bank, broker or other nominee.
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Q:
How many shares are needed to constitute a quorum?
A:
A quorum will be present if holders of a majority of the shares of Grace common stock issued and outstanding and entitled to vote at the Special Meeting are present in person or represented by proxy at the Special Meeting. If a quorum is not present at the Special Meeting, the Special Meeting may be adjourned or postponed from time to time until a quorum is obtained.
As of the Record Date, there were [    ] shares of Grace common stock outstanding and entitled to vote at the Special Meeting.
If you submit a proxy but fail to provide voting instructions or abstain on any of the proposals listed on the proxy card, your shares will be counted for the purpose of determining whether a quorum is present at the Special Meeting.
If your shares are held in “street name” by your broker, bank or other nominee and you do not instruct the nominee how to vote your shares, your broker, bank or other nominee will not vote on your behalf with respect to any of the proposals, and your shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the Special Meeting.
Q:
What will I receive if the Merger is completed?
A:
Upon completion of the Merger, you will be entitled to receive the Merger Consideration of $70.00 in cash, without interest and less any applicable withholding taxes, for each share of Grace common stock that you own, unless you have properly exercised and not withdrawn your appraisal rights under the DGCL. For example, if you own 100 shares of Grace common stock, you will receive $7,000 in cash in exchange for your shares of Grace common stock, without interest and less any applicable withholding taxes.
Additionally, the Merger Agreement provides that each Company Option and Company SAR outstanding immediately prior to the Effective Time, whether vested or unvested, will be cancelled at the Effective Time and be converted into the right to receive a cash payment (without interest and less applicable withholding taxes) equal to the product of (i) the excess of the Merger Consideration over the per share exercise price of such Company Option or Company SAR, and (ii) the number of shares of Grace common stock covered by such Company Option or Company SAR immediately prior to the Effective Time. Any Company Option or Company SAR that has a per share exercise price that is greater than or equal to the Merger Consideration will be cancelled for no consideration or payment.
Each Company RSU Award and each Company Performance Share Award that is outstanding immediately prior to the Effective Time will be assumed at the Effective Time and converted into the right to receive an amount in cash (without interest) equal to the product of (i) the Merger Consideration and (ii) the number of shares of Grace common stock covered by the applicable award immediately prior to the Effective Time, which converted cash award will be subject to continued service vesting and other terms as set forth in the Merger Agreement, as described in greater detail in the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger—Treatment of Company Equity Awards.”
Q:
What vote is required to adopt the Merger Agreement?
A:
The affirmative vote of the holders of a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting is required to adopt the Merger Agreement. The transaction has not been structured to require the approval of a majority of unaffiliated Grace Stockholders.
If a quorum is present at the Special Meeting, the failure of any stockholder of record to: (i) submit a signed proxy card; (ii) grant a proxy over the Internet or by telephone (using the instructions provided in the enclosed proxy card); or (iii) vote in person at the Special Meeting will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If you hold your shares in “street name” and a quorum is present at the Special Meeting, the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If a quorum is present at the Special Meeting, abstentions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. Each “broker non-vote” will also count as a vote “AGAINST” the
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proposal to adopt the Merger Agreement but will have no effect on the Compensation Proposal or the Adjournment Proposal. If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Q:
Have any Grace Stockholders already agreed to approve the proposal to adopt the Merger Agreement?
A:
Yes. 40 North Latitude Master Fund Ltd., the Supporting Stockholder, which beneficially owns 9,865,008 shares of Grace common stock representing approximately 14.9% of the outstanding Grace common stock as of June 29, 2021, has entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Supporting Stockholder has agreed, among other things, to vote its shares of Grace common stock in favor of the proposal to adopt the Merger Agreement. For more information, see the section of this proxy statement captioned “Special Factors—The Voting Agreement.”
Q:
What happens if the Merger is not completed?
A:
If the Merger Agreement is not adopted by Grace Stockholders or if the Merger is not completed for any other reason, Grace Stockholders will not receive any payment for their shares of Grace common stock. Instead, Grace will remain an independent public company, Grace common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic reports with the SEC.
In the event that either Grace or Parent terminates the Merger Agreement, then, under specified circumstances, Grace will be required to pay Parent a termination fee of $141 million or Parent will be required to pay Grace the Parent Termination Fee of $281 million, as described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fee.”
Q:
Why are the stockholders being asked to cast an advisory (non-binding) vote to approve the Compensation Proposal?
A:
The Exchange Act and applicable SEC rules thereunder require Grace to seek an advisory (non-binding) vote with respect to certain payments that could become payable to its named executive officers in connection with the Merger.
Q:
What vote is required to approve the Compensation Proposal?
A:
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter is required for approval of the Compensation Proposal. An abstention with respect to the Compensation Proposal will have the same effect as a vote “AGAINST” this proposal. A failure to return your proxy card or otherwise vote your shares of Grace common stock (including a failure of your broker, bank or other nominee to vote shares held on your behalf) will have no effect on this proposal, assuming a quorum is present.
Q:
What will happen if the stockholders do not approve the Compensation Proposal at the Special Meeting?
A:
Approval of the Compensation Proposal is not a condition to the completion of the Merger. The vote with respect to the Compensation Proposal is an advisory vote and will not be binding on Grace. Therefore, if the other requisite stockholder approvals are obtained and the Merger is completed, the amounts payable under the Compensation Proposal will continue to be payable to Grace’s named executive officers in accordance with the terms and conditions of the applicable agreements.
Q:
What vote is required to approve the Adjournment Proposal?
A:
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter is required for approval of the Adjournment Proposal. An abstention with respect to the Adjournment Proposal will have the same
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effect as a vote “AGAINST” the proposal. A failure to return your proxy card or otherwise vote your shares of Grace common stock (including a failure of your broker, bank or other nominee to vote shares held on your behalf), will have no effect on this proposal, assuming a quorum is present.
Q:
How does the Board of Directors recommend that I vote?
A:
The Board of Directors, on behalf of Grace, unanimously recommends that Grace Stockholders (including unaffiliated security holders) vote:
FOR” the proposal to adopt the Merger Agreement;
FOR” the proposal to approve, on an advisory (non-binding) basis, the Compensation Proposal; and
FOR” the Adjournment Proposal.
For a discussion of the factors that the Board of Directors considered in determining to recommend in favor of the proposal to adopt the Merger Agreement, see the section of this proxy statement captioned “Special Factors—Recommendation of the Board of Directors; Reasons for the Merger; Fairness of the Merger.” In addition, in considering the recommendation of the Board of Directors with respect to the Merger Agreement, you should be aware that some of our directors and executive officers have interests that may be different from, or in addition to, the interests of Grace Stockholders generally. For a discussion of these interests, see the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger.”
Q:
How do the Grace directors and executive officers intend to vote?
A:
Grace’s directors and executive officers have informed us that they intend to vote their shares of Grace common stock in favor of the proposal to adopt the Merger Agreement and the other proposals to be considered at the Special Meeting, although they have no obligation to do so. As of the Record Date, our directors and executive officers owned and were entitled to vote, in the aggregate, approximately [    ] shares of Grace common stock, or approximately [    ]% of the outstanding shares of Grace common stock entitled to vote at the Special Meeting.
Q:
Am I entitled to rights of appraisal under the DGCL?
A:
If the Merger is completed, stockholders who do not vote in favor of the adoption of the Merger Agreement and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL. This means that holders of shares of Grace common stock are entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Grace common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest on the amount determined to be fair value, if any, as determined by the court. Grace Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. The DGCL requirements for exercising appraisal rights are described in additional detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced in Annex D to this proxy statement. See the section of this proxy statement captioned “Special Factors—Appraisal Rights.”
Q:
What do I need to do now?
A:
You should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including, but not limited to, the Merger Agreement, along with all of the documents that we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. Then sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card), so that your shares can be voted at the Special Meeting, unless you wish to seek appraisal. If you hold your shares in “street name,” please refer to the voting instruction forms provided by your bank, broker or other nominee to vote your shares.
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Q:
Should I send in my stock certificates or other evidence of ownership now?
A:
No. You should not return your stock certificates or send in other documents evidencing ownership of Grace common stock with the proxy card. If the Merger is completed, if your shares of Grace common stock are evidenced by stock certificates, the paying agent for the Merger will send you a letter of transmittal and written instructions that explain how to exchange shares of Grace common stock for the Merger Consideration (without interest and subject to required withholding taxes).
Q:
What happens if I sell or otherwise transfer my shares of Grace common stock after the Record Date but before the Special Meeting?
A:
The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the Merger is expected to be completed. If you sell or transfer your shares of Grace common stock after the Record Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Grace in writing of such special arrangements, you will transfer the right to receive the Merger Consideration, if the Merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote those shares at the Special Meeting. Even if you sell or otherwise transfer your shares of Grace common stock after the Record Date, we encourage you to sign, date and return the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card).
Q:
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
A:
If your shares are registered directly in your name with our transfer agent, EQ Shareowner Services, you are considered, with respect to those shares, to be the “stockholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by Grace.
If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares of Grace common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your bank, broker or other nominee.
Q:
How may I vote?
A: If you are a stockholder of record (that is, if your shares of Grace common stock are registered in your name with EQ Shareowner Services, our transfer agent), there are four (4) ways to vote:
by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;
by visiting the Internet at the address on your proxy card;
by calling toll-free (within the U.S. (including its territories) and Canada) at the phone number on your proxy card; or
by attending the Special Meeting in person.
Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet by visiting the address on your proxy card or by telephone by calling the phone number on your proxy card, in each case, you may incur costs such as Internet access and telephone charges for which you will be responsible.
Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares of Grace common stock by proxy. If you are a record holder or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of Grace common stock in person at the Special Meeting even if you have previously voted by proxy. If you are present at the Special Meeting and vote in person, your previous vote by proxy will not be counted.
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If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee, or, if such a service is provided by your bank, broker or other nominee, electronically over the Internet or by telephone. To vote over the Internet or by telephone through your bank, broker or other nominee, you should follow the instructions on the voting form provided by your bank, broker or nominee.
Q:
If my broker holds my shares in “street name,” will my broker vote my shares for me?
A:
No. Your bank, broker or other nominee is permitted to vote your shares on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your bank, broker or other nominee how to vote. You should follow the procedures provided by your bank, broker or other nominee to vote your shares. Without instructions, your shares will not be voted on such proposals, which will have the same effect as if you voted “AGAINST” the proposal to adopt the Merger Agreement but will have no effect on the Compensation Proposal or the Adjournment Proposal.
Q:
May I change my vote after I have mailed my signed and dated proxy card?
A:
Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:
signing another proxy card with a later date and returning it to us prior to the Special Meeting;
submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;
delivering a written notice of revocation to the Corporate Secretary of Grace; or
by attending the Special Meeting and voting in person.
Please note that if you want to revoke your proxy by mailing a new proxy card to us or by sending a written notice of revocation to us, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by us before the Special Meeting.
If you hold your shares of Grace common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.
Q:
What is a proxy?
A:
A proxy is your legal designation of another person to vote your shares of Grace common stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Grace common stock is called a “proxy card.”
Q:
If a stockholder gives a proxy, how are the shares voted?
A:
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.
If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted: (1) “FOR” the proposal to adopt the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Q:
What should I do if I receive more than one (1) set of voting materials?
A:
Please sign, date and return (or grant your proxy electronically over the Internet or by telephone using the instructions provided in the enclosed proxy card) each proxy card and voting instruction card that you receive.
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You may receive more than one (1) set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one (1) brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one (1) name, you will receive more than one (1) proxy card.
Q:
What is householding and how does it affect me?
A:
The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of common stock held through brokerage firms. If your family has multiple accounts holding common stock, you may have already received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.
Q:
Who will solicit and pay the costs of soliciting proxies?
A:
The Board of Directors is soliciting your proxy, and Grace will bear the costs of this solicitation. MacKenzie Partners, Inc. (“MacKenzie Partners”) has been retained to assist with the solicitation of proxies. MacKenzie Partners will be paid $[   ] and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the Special Meeting. We will reimburse brokerage firms and others for their reasonable expenses of forwarding solicitation material to beneficial owners of outstanding Grace common stock. Proxies may be solicited by mail, personal interview, e-mail, telephone or via the Internet or, without additional compensation, by certain of Grace’s directors, officers and employees.
Q:
Where can I find the voting results of the Special Meeting?
A:
Grace intends to publish final voting results in a Current Report on Form 8-K to be filed with the SEC following the Special Meeting. All reports that Grace files with the SEC are publicly available when filed. For more information, please see the section of this proxy statement captioned “Where You Can Find More Information.”
Q:
When do you expect the Merger to be completed?
A:
We are working toward completing the Merger as quickly as possible and currently expect to complete the Merger in the fourth quarter of 2021. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of our control.
Q:
Will the Merger be a taxable transaction?
A:
The Merger will be a taxable transaction for U.S. federal income tax purposes. Grace Stockholders should read the section of this proxy statement captioned “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” for a more detailed explanation of the U.S. federal income tax consequences of the Merger. Grace Stockholders should consult their tax advisors in light of their particular circumstances and any consequences arising under U.S. federal, state, local and non-U.S. income and other tax consequences relating to the Merger.
Q:
Who can help answer my questions?
A:
If you have any questions concerning the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of Grace common stock, please contact our proxy solicitor:
MacKenzie Partners, Inc.
Collect: (212) 929-5550
Toll-Free: (800) 322-2885
E-mail: proxy@mackenziepartners.com
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FORWARD-LOOKING STATEMENTS
This proxy statement, and any document to which Grace refers in this proxy statement, may contain forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, statements regarding: financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; impact of COVID-19 on Grace’s business; competitive positions; growth opportunities for existing products; benefits from new technology; benefits from cost reduction initiatives; succession planning; markets for securities; the anticipated timing of closing of the proposed transaction and the potential benefits of the proposed transaction. Grace is subject to risks and uncertainties that could cause actual results or events to differ materially from its projections or that could cause forward-looking statements to prove incorrect. Factors that could cause actual results or events to differ materially from those contained in the forward-looking statements include, without limitation:
risks related to foreign operations, especially in areas of active conflicts and in emerging regions;
the costs and availability of raw materials, energy, and transportation;
the effectiveness of Grace’s research and development and growth investments;
acquisitions and divestitures of assets and businesses;
developments affecting Grace’s outstanding indebtedness;
developments affecting Grace’s pension obligations;
legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace;
its legal and environmental proceedings;
environmental compliance costs (including existing and potential laws and regulations pertaining to climate change);
the inability to establish or maintain certain business relationships;
the inability to hire or retain key personnel;
natural disasters such as storms and floods;
fires and force majeure events;
the economics of our customers’ industries, including the petroleum refining, petrochemicals, and plastics industries, and shifting consumer preferences;
public health and safety concerns, including pandemics and quarantines;
changes in tax laws and regulations;
international trade disputes, tariffs, and sanctions;
the potential effects of cyberattacks;
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
the failure to obtain Grace stockholder approval of the transaction or the failure to satisfy any of the other conditions to the completion of the Merger;
risks relating to the financing required to complete the Merger;
the effect of the announcement of the Merger on the ability of Grace to retain and hire key personnel and maintain relationships with its customers, vendors and others with whom it does business, or on its operating results and businesses generally;
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the effects of the transaction on the integration of the Fine Chemistry Services business acquired by Grace from Albemarle Corporation for approximately $570 million, which was announced by Grace on February 26, 2021 and consummated on June 1, 2021 (the “FCS Acquisition”);
risks associated with the disruption of management’s attention from ongoing business operations due to the transaction;
the ability to meet expectations regarding the timing and completion of the Merger;
significant transaction costs, fees, expenses and charges;
the risk of litigation and/or regulatory actions related to the Merger;
other business effects, including the effects of industry, market, economic, political, regulatory or world health conditions (including new or ongoing effects of the COVID-19 pandemic), and other factors detailed in Grace’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2020 and Grace’s other filings with the SEC, which are available at www.sec.gov and on Grace’s website at www.grace.com.
Our reported results should not be considered as an indication of our future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Grace undertakes no obligation to release publicly any revisions to our projections and forward-looking statements, or to update them to reflect events or circumstances occurring after the dates those projections and statements are made.
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THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors for use at the Special Meeting.
Date, Time and Place
The Special Meeting will be held at [    ], on [    ], 2021, at [    ], Eastern time.
Purpose of the Special Meeting
At the Special Meeting, we will ask stockholders to vote on proposals to:
approve the adoption of the Merger Agreement, which is further described in the sections of this proxy statement captioned “Special Factors” and “Proposal 1: Adoption of the Merger Agreement”;
approve, on an advisory (non-binding) basis, certain compensation that may be paid or become payable to Grace’s named executive officers that is based on or otherwise related to the Merger Agreement and the transactions contemplated by the Merger Agreement, the value of which is disclosed in the table in the section of this proxy statement captioned “Special Factors—Interests of Executive Officers and Directors of Grace in the Merger”; and
adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.
Our stockholders must adopt the Merger Agreement for the Merger to occur. If our stockholders fail to adopt the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A, and certain provisions of the Merger Agreement are described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement.”
The vote on the named executive officer Merger-related compensation proposal is a vote separate and apart from the vote on the proposal to adopt the Merger Agreement. Accordingly, you may vote to adopt the Merger Agreement and vote not to approve the named executive officer Merger-related compensation proposal and vice versa. Because the vote on the named executive officer Merger-related compensation proposal is advisory only, it will not be binding on either Grace or Parent. Accordingly, if the Merger Agreement is adopted and the Merger is completed, the compensation will be payable, subject only to the conditions applicable thereto under the applicable compensation agreements and arrangements, regardless of the outcome of the non-binding, advisory vote of the Grace Stockholders.
We do not expect that any matters other than the proposals set forth above will be brought before the Special Meeting. If, however, such a matter is properly presented at the Special Meeting or any adjournment or postponement thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies.
This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about [    ].
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the close of business on [   ], the Record Date for the Special Meeting, are entitled to notice of the Special Meeting and to vote at the Special Meeting. As of the Record Date, there were [    ] shares of Grace common stock outstanding and entitled to vote at the Special Meeting.
The holders of a majority of the Grace common stock issued and outstanding and entitled to vote in person or as represented by proxy will constitute a quorum at the Special Meeting. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned to solicit additional proxies. Once a share is represented at the Special Meeting, it will be counted for purposes of determining whether a quorum is present at the Special Meeting. However, if a new record date is set for an adjourned Special Meeting, a new quorum will have to be established. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the Special Meeting.
Vote Required; Abstentions and Broker Non-Votes
The affirmative vote of the holders of a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting is required to adopt the Merger Agreement. As of the Record Date, [    ]
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votes constitute a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting. The adoption of the Merger Agreement by Grace Stockholders is a condition to the closing of the Merger. The transaction has not been structured to require the approval of a majority of unaffiliated Grace Stockholders.
Approval of each of (i) the Adjournment Proposal, whether or not a quorum is present, and (ii) the Compensation Proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter.
An abstention occurs when a stockholder attends a meeting, in person or by proxy, but abstains from voting. At the Special Meeting, abstentions will be counted in determining whether a quorum is present. If a stockholder abstains from voting or fails to vote its shares of Grace common stock (including the failure of a record owner to execute and return a proxy card and the failure of a beneficial owner of shares held in “street name” by a broker to give voting instructions to the broker), that abstention or failure to vote will have the same effect as if the stockholder voted “AGAINST” the proposal to adopt the Merger Agreement. For stockholders who attend the meeting or are represented by proxy and abstain from voting, the abstention will have the same effect as if the stockholder voted “AGAINST” the Compensation Proposal and “AGAINST” the Adjournment Proposal. However, a failure to return your proxy card or otherwise vote your shares of Grace common stock will have no effect on the Compensation Proposal and the Adjournment Proposal, assuming a quorum is present.
Each “broker non-vote” will also count as a vote “AGAINST” the proposal to adopt the Merger Agreement but will have no effect on the Compensation Proposal or the Adjournment Proposal. Broker non-votes are shares held by brokers that are present in person or by proxy at the Special Meeting, but with respect to which the broker is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal. Because brokers do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Grace common stock held in “street name” does not give voting instructions to the broker, then those shares will not be present in person or by proxy at the Special Meeting. For shares of Grace common stock held in “street name,” only shares of Grace common stock affirmatively voted “FOR” the proposal to adopt the Merger Agreement will be counted as a vote in favor of such proposal.
Stock Ownership and Interests of Certain Persons
Shares Held by Grace’s Directors and Executive Officers
As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [    ] shares of Grace common stock, representing approximately [   ]% of the shares of Grace common stock outstanding on the Record Date (and approximately [    ]% of the total shares of Grace common stock outstanding when taking into account Company Options held, in the aggregate, by our directors and executive officers).
We currently expect that our directors and executive officers will vote all of their respective shares of Grace common stock (1) “FOR” the adoption of the Merger Agreement, (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal, and (3) “FOR” the Adjournment Proposal.
Shares Held by 40 North Latitude Master Fund Ltd.
The Supporting Stockholder, which beneficially owns 9,865,008 shares of Grace common stock representing approximately 14.9% of the outstanding Grace common stock as of June 29, 2021, has entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Supporting Stockholder has agreed, among other things, to vote its shares of Grace common stock in favor of the proposal to adopt the Merger Agreement. For more information, see the section of this proxy statement captioned “Special Factors—The Voting Agreement.”
Voting of Proxies
Attendance
All holders of shares of Grace common stock as of the close of business on [    ], the Record Date, including stockholders of record and beneficial owners of Grace common stock registered in the “street name” of a broker, bank or other nominee, are invited to attend the Special Meeting.
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To attend the Special Meeting in person, you must provide proof of ownership of Grace common stock as of the Record Date, such as an account statement indicating ownership on that date, and a form of personal identification for admission to the Special Meeting. If you hold your shares in “street name,” and you also wish to be able to vote at the Special Meeting, you must obtain a “legal proxy”, executed in your favor, from your bank, broker or other nominee.
Shares of Grace Common Stock Held by Record Holders
If your shares are registered in your name with our transfer agent, EQ Shareowner Services, you may cause your shares to be voted by returning a signed and dated proxy card in the accompanying prepaid envelope, or you may vote in person at the Special Meeting. Additionally, you may grant a proxy electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card). You must have the enclosed proxy card available and follow the instructions on the proxy card in order to grant a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet and telephone proxies, the proxy holders will vote your shares according to your directions.
If you plan to attend the Special Meeting and wish to vote in person, you will be given a ballot at the Special Meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the Special Meeting in person. If you attend the Special Meeting and vote in person, your vote will revoke any previously submitted proxy.
Voting instructions are included on your proxy card. All shares represented by properly signed and dated proxies received in time for the Special Meeting will be voted at the Special Meeting in accordance with the instructions of the stockholder. Properly signed and dated proxies that do not contain voting instructions will be voted: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal. If you fail to return your proxy card or vote by telephone or via the Internet, and you are a holder of record on the Record Date, unless you attend the Special Meeting and vote in person, your shares of Grace common stock will not be considered present at the Special Meeting for purposes of determining whether a quorum is present at the Special Meeting, which will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and, assuming a quorum is present, will have no effect on the Compensation Proposal or the Adjournment Proposal.
Shares of Grace Common Stock Held in “Street Name”
If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee or attending the Special Meeting and voting in person with a “legal proxy” from your bank, broker or other nominee. If such a service is provided, you may vote over the Internet or telephone through your bank, broker or other nominee by following the instructions on the voting form provided by your bank, broker or other nominee. If you do not return your bank’s, broker’s or other nominee’s voting form, do not vote via the Internet or telephone through your bank, broker or other nominee, if possible, or do not attend the Special Meeting and vote in person with a “legal proxy” from your bank, broker or other nominee, it will have the same effect as if you voted “AGAINST” the proposal to adopt the Merger Agreement but will not have any effect on the Compensation Proposal or the Adjournment Proposal.
Revocability of Proxies
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:
signing another proxy card with a later date and returning it to us prior to the Special Meeting;
submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;
delivering a written notice of revocation to the Corporate Secretary of Grace; or
attending the Special Meeting and voting in person.
Please note that if you want to revoke your proxy by mailing a new proxy card to us or by sending a written notice of revocation to us, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by us before the Special Meeting.
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If you have submitted a proxy, your appearance at the Special Meeting will not have the effect of revoking your prior proxy, provided that you do not vote in person or submit an additional proxy or revocation, which, in each case, will have the effect of revoking your proxy.
If you hold your shares of Grace common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.
Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.
Board of Directors’ Recommendation
The Board of Directors, on behalf of Grace, has unanimously: (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Grace and its stockholders (including unaffiliated security holders); (ii) approved the execution, delivery and performance of the Merger Agreement by Grace and the consummation of the transactions contemplated by the Merger Agreement; and (iii) resolved to recommend that Grace Stockholders (including unaffiliated security holders) adopt the Merger Agreement and the consummation of the transactions contemplated thereby.
The Board of Directors, on behalf of Grace, unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Solicitation of Proxies
The expense of soliciting proxies will be borne by Grace. We have retained MacKenzie Partners, a proxy solicitation firm, to solicit proxies in connection with the Special Meeting at a cost of approximately $[   ] plus expenses. We will also indemnify MacKenzie Partners against losses arising out of its provision of these services on our behalf. In addition, we may reimburse banks, brokers and other nominees representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by our directors, officers and employees, personally or by telephone, e-mail, fax, over the Internet or other means of communication. No additional compensation will be paid for such services.
Other Information
You should not return your stock certificates or send in other documents evidencing ownership of Grace common stock with the proxy card. If the Merger is completed, if your shares of Grace common stock are evidenced by stock certificates, the paying agent for the Merger will send you a letter of transmittal and related materials and instructions for exchanging your shares of Grace common stock evidenced by stock certificates for the Merger Consideration (without interest and subject to required withholding taxes).
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval by Grace Stockholders of the proposal to adopt the Merger Agreement, we anticipate that the Merger will be consummated in the fourth quarter of 2021.
Appraisal Rights
If the Merger is consummated, stockholders who continuously hold shares of Grace common stock through the Effective Time, who do not vote in favor of the adoption of the Merger Agreement and who properly demand appraisal of their shares and do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 of the DGCL. This means that holders of shares of Grace common stock who perfect their appraisal rights, who do not thereafter withdraw their demand for appraisal, and who follow the procedures in the manner prescribed by Section 262 of the DGCL may be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Grace common stock, exclusive of any elements of value
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arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest to be paid on the amount determined to be fair value, if any (or in certain circumstances described in further detail in the section of this proxy statement captioned “Special Factors—Appraisal Rights,” on the difference between the amount determined to be the fair value and the amount paid by the Surviving Corporation in the Merger to each stockholder entitled to appraisal prior to the entry of judgment in any appraisal proceeding). Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares are encouraged to review Section 262 of the DGCL carefully and to seek the advice of legal counsel with respect to the exercise of appraisal rights.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares.
To exercise your appraisal rights, you must: (i) submit a written demand for appraisal to Grace before the vote is taken on the adoption of the Merger Agreement; (ii) not submit a proxy or otherwise vote in favor of the proposal to adopt the Merger Agreement; (iii) continue to hold your shares of Grace common stock of record through the Effective Time; and (iv) strictly comply with all other procedures for exercising appraisal rights under Section 262 of the DGCL. Your failure to follow exactly the procedures specified under Section 262 of the DGCL may result in the loss of your appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of the Merger unless certain stock ownership conditions are satisfied by the stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in the section of this proxy statement captioned “Special Factors—Appraisal Rights,” which is qualified in its entirety by Section 262 of the DGCL, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 of the DGCL is reproduced and attached as Annex D to this proxy statement and incorporated herein by reference. If you hold your shares of Grace common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such bank, brokerage firm or nominee.
Delisting and Deregistration of Grace Common Stock
If the Merger is completed, the shares of Grace common stock will be delisted from the NYSE and deregistered under the Exchange Act, and shares of Grace common stock will no longer be publicly traded.
Other Matters
At this time, we know of no other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, your shares of Grace common stock will be voted in accordance with the discretion of the appointed proxy holders.
Householding of Special Meeting Materials
Unless we have received contrary instructions, we may send a single copy of this proxy statement to any household at which two (2) or more stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at your household and helps to reduce our expenses.
If you would like to receive your own set of our disclosure documents, please contact us using the instructions set forth below. Similarly, if you share an address with another stockholder and together both of you would like to receive only a single set of our disclosure documents, please contact us using the instructions set forth below.
If you are a stockholder of record, you may contact us by calling or writing to Grace Shareholder Services at the address or phone number provided below. Eligible stockholders of record receiving multiple copies of this proxy statement can request householding by contacting us in the same manner. If a bank, broker or other nominee holds your shares, please contact your bank, broker or other nominee directly.
W. R. Grace & Co.
Attention: Grace Shareholder Services
7500 Grace Drive
Columbia, Maryland 21044
(410) 531-4167
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Questions and Additional Information
If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of Grace common stock, please contact our proxy solicitor:
MacKenzie Partners, Inc.
Collect: (212) 929-5550
Toll-Free: (800) 322-2885
E-mail : proxy@mackenziepartners.com
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SPECIAL FACTORS
This section of the proxy statement describes the material aspects of the Merger and certain special factors concerning the Merger of which you should be aware. This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger, because this document contains important information about the Merger and how it affects you.
Parties Involved in the Merger
W. R. Grace & Co.
7500 Grace Drive
Columbia, Maryland 21044
(410) 531-4000
Grace, a Delaware corporation, is a leading global specialty chemical company. Grace’s two industry-leading business segments—Catalysts Technologies and Materials Technologies—provide innovative products, technologies, and services that enhance the products and processes of our customers around the world. With approximately 4,000 employees, Grace operates and/or sells to customers in over 60 countries. More information about Grace is available at www.grace.com. Grace common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “GRA.”
A detailed description of the Company’s business is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended, which is incorporated by reference into this proxy statement. See the section of this proxy statement captioned “Where You Can Find More Information.”
Gibraltar Acquisition Holdings LLC
9 West 57th Street, 47th Floor
New York, New York 10019
(212) 821-1600
Parent was formed on April 22, 2021, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the equity financing and debt financing in connection with the Merger.
Gibraltar Merger Sub Inc.
9 West 57th Street, 47th Floor
New York, New York 10019
(212) 821-1600
Merger Sub is a wholly owned subsidiary of Parent and was formed on April 23, 2021, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the equity financing and debt financing in connection with the Merger.
Parent and Merger Sub are each affiliated with Standard Industries Holdings, the parent company of Standard Industries, a privately held global industrial company operating in over 80 countries with over 15,000 employees. The Standard Industries ecosystem spans a broad array of holdings, technologies and investments—including both public and private companies from early to late-stage—as well as world-class building materials assets and next-generation solar solutions. Throughout its 140-year history, Standard Industries has leveraged its deep industry expertise and vision to create outsize value across its businesses, which today include operating companies GAF, BMI, Siplast, GAF Energy, Schiedel and SGI, as well as related businesses 40 North, a multi-billion-dollar investment platform, 40 North Ventures and Winter Properties. More information about Standard Industries is available at www.standardindustries.com. Standard Industries Holdings’ related investment platform 40 North is a long-standing stockholder of Grace. At the Effective Time, the Surviving Corporation, will be directly owned by Parent.
In connection with the transactions contemplated by the Merger Agreement, (i) Standard Industries Holdings has provided Parent with an equity commitment of $3,516 million and (ii) Parent has obtained debt financing
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commitments in an aggregate amount of $3,455 million ($3,905 million including the revolving credit facility commitment) pursuant to the Debt Commitment Letter. Such amounts will be used to fund the aggregate purchase price required to be paid at the closing of the Merger and to also fund certain other payments (including the Merger Amounts), subject to the terms and conditions of the Merger Agreement. In addition, Standard Industries Holdings has agreed to guarantee the payment of certain liabilities and obligations of Parent under the Merger Agreement, subject to an aggregate cap equal to $290 million, including any termination fee and amounts in respect of certain reimbursement and indemnification obligations of Parent and Merger Sub for certain costs, expenses or losses incurred or sustained by Grace, as specified in the Merger Agreement. For more information, please see the section of this proxy statement captioned “—Financing of the Merger.”
Effect of the Merger
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Grace and the separate corporate existence of Merger Sub will cease, with Grace continuing as the Surviving Corporation. As a result of the Merger, Grace will become a wholly owned subsidiary of Parent, and Grace common stock will no longer be publicly traded and will be delisted from the NYSE. In addition, Grace common stock will be deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation.
The Effective Time will occur upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).
Effect on Grace if the Merger Is Not Completed
If the Merger Agreement is not adopted by Grace Stockholders, or if the Merger is not completed for any other reason:
the Grace Stockholders will not be entitled to, nor will they receive, any payment for their respective shares of Grace common stock pursuant to the Merger Agreement;
(i) Grace will remain an independent public company; (ii) Grace common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act; and (iii) Grace will continue to file periodic reports with the SEC;
we anticipate that (i) management will operate the business in a manner similar to that in which it is being operated today and (ii) stockholders will be subject to similar types of risks and uncertainties as those to which they are currently subject, including, but not limited to, risks and uncertainties with respect to Grace’s business, prospects and results of operations, as such may be affected by, among other things, the highly competitive industry in which Grace operates and economic conditions;
the price of Grace common stock may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of Grace common stock would return to the price at which it trades as of the date of this proxy statement;
the Board of Directors will continue to evaluate and review Grace’s business operations, strategic direction and capitalization, among other things, and will make such changes as are deemed appropriate; irrespective of these efforts, it is possible that no other transaction acceptable to the Board of Directors will be offered or that Grace’s business, prospects and results of operations will be adversely impacted; and
under specified circumstances, Grace will be required to pay Parent the Company Termination Fee of $141 million upon the termination of the Merger Agreement, as described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fee.”
Merger Consideration
Grace Common Stock
At the Effective Time, each share of Grace common stock (other than Excluded Shares, which include, for example, shares of Grace common stock owned by stockholders who have properly and validly exercised their
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statutory rights of appraisal in accordance with Section 262 of the DGCL) outstanding as of immediately prior to the Effective Time will be cancelled and automatically converted into the right to receive the Merger Consideration, without interest and less any applicable withholding taxes.
After the Merger is completed, you will have the right to receive the Merger Consideration in respect of each share of Grace common stock that you own (without interest and less any applicable withholding taxes), but you will no longer have any rights as a stockholder (except that stockholders who properly exercise their appraisal rights will have a right to receive payment of the “fair value” of their shares as determined pursuant to an appraisal proceeding, as contemplated by Delaware law). For more information, please see the section of this proxy statement captioned “—Appraisal Rights.”
Treatment of Company Equity Awards
Treatment of Company Options and Company SARs. The Merger Agreement provides that each Company Option and each Company SAR that is outstanding immediately prior to the Effective Time will vest at closing and be converted into the right to receive an amount in cash equal to the product of Merger Consideration (less the applicable exercise price) and the number of shares of Grace common stock covered by such Company Option or Company SAR (without interest and less applicable withholding taxes). Payment of these cash amounts will be paid within three (3) business days after the Effective Time. Any Company Option or Company SAR that has a per share exercise price that is greater than or equal to the Merger Consideration will be cancelled at the Effective Time for no consideration or payment.
Treatment of Company RSU Awards and Company Performance Share Awards. The Merger Agreement provides that each Company RSU Award and each Company Performance Share Award that is outstanding immediately prior to the Effective Time will be assumed and converted into the right to receive an amount in cash (without interest) equal to the product obtained by multiplying the Merger Consideration by the number of shares of Grace common stock covered by such award immediately prior to the Effective Time, which converted cash award will be subject to continued service vesting and other terms as set forth in the Merger Agreement.
Background of the Merger
As part of its ongoing consideration and evaluation of its long-term value creation opportunities, the Board of Directors and senior management regularly review and assess the Company’s business strategies, objectives and key initiatives, including strategic opportunities and challenges, and have considered various strategic options potentially available to the Company, all with the goal of enhancing value for Grace Stockholders. The strategic considerations have focused on, among other things, the Company’s growth opportunities as well as the business environment facing the Company and its industry and have from time to time included consideration of capital structure, potential business combination, acquisition or sale transactions and other financial and strategic alternatives.
Beginning in 2018 after 40 North made its initial investment in the Company, representatives of 40 North periodically met with members of Company management to discuss the Company’s strategic direction and ongoing business plans, among other matters.
On May 7, 2018, 40 North filed with the SEC a beneficial ownership report on Schedule 13D (the “13D”), which disclosed, among other things, that 40 North had acquired beneficial ownership of 9.9% of the then-outstanding shares of Grace common stock. Thereafter, 40 North filed with the SEC several amendments to the 13D, which disclosed, among other things, successive increases in 40 North’s beneficial ownership of Grace common stock such that, as of the December 26, 2018 amendment to the 13D, 40 North reported beneficial ownership of 13.9% of the then-outstanding shares of Grace common stock.
On February 20, 2019, the Company entered into a letter agreement (the “2019 Letter Agreement”) with 40 North and certain of its affiliates pursuant to which the Company agreed to increase the size of the Board of Directors and to include Kathleen G. Reiland, an employee of 40 North, and Henry R. Slack, who had been identified by 40 North but was not associated with either 40 North or the Company, on the slate of director nominees recommended by the Board of Directors for election at the Company’s 2019 annual meeting of stockholders. Pursuant to the 2019 Letter Agreement, 40 North agreed to certain standstill restrictions and confidentiality obligations. In connection with its entry into the 2019 Letter Agreement, 40 North filed with the SEC an amendment to the 13D, which disclosed, among other things, 40 North’s beneficial ownership of 14.0% of the then-outstanding shares of Grace common stock.
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In February 2019, the Company and a potential strategic partner (“Counterparty A”), which had previously expressed an interest in exploring a potential strategic transaction with the Company, entered into a confidentiality agreement and began to engage in discussions and due diligence regarding a potential business combination transaction. Discussions and due diligence continued throughout February and March 2019.
In March 2019, a representative of the Company contacted another potential strategic partner (“Counterparty B”) on behalf of the Company to assess Counterparty B’s possible interest in a potential strategic transaction with the Company. Counterparty B indicated that it did not have an interest in further discussions regarding a transaction with the Company.
In April 2019, Counterparty A notified the Company that it would not continue to pursue a potential strategic transaction with the Company, explaining that it did not want to assume certain legacy liabilities of the Company.
On May 8, 2019, Ms. Reiland and Mr. Slack were elected to the Board of Directors at the Company’s 2019 annual meeting of stockholders for terms expiring at the Company’s annual meeting of stockholders in 2020 and 2022, respectively.
Throughout the second half of 2019 and first half of 2020, the Board of Directors continued to review the Company’s strategic alternatives, including by preliminary discussions with a significant shareholder of Counterparty A to explore possible alternative structures for a potential strategic transaction involving the Company and Counterparty A. The dialogue between the shareholder of Counterparty A and the Company during such period did not include any discussion of the valuation of the Company or the price that would be paid for shares of Grace common stock in a potential strategic transaction.
On May 12, 2020, Ms. Reiland’s term as a director expired and the Board of Directors reappointed her to the Board of Directors for a term expiring at the Company’s annual meeting of stockholders in 2021.
Over the course of the summer of 2020, the Board of Directors and Grace management received communications from several Grace Stockholders not affiliated with 40 North regarding Grace’s strategic direction, including in the form of letters to the Board of Directors and questions to Grace management during scheduled investor conference calls and virtual meetings. Among other things, these investors argued that, in light of Grace’s stock price performance, the Board of Directors should undertake a strategic review process. On August 23, 2020, Ms. Reiland sent an email to other members of the Board of Directors to express her agreement with the substance of these investor communications, and thereby raising concerns regarding the Company’s stock price performance and urging the Board of Directors to accelerate its plans to undertake a strategic review process.
On August 30, 2020, a meeting of the Board of Directors was held, during which the Board of Directors discussed its plans to undertake a strategic review process, as it has historically undertaken from time to time. The consensus view of the Board of Directors was that the Board of Directors should undertake a strategic review process. Following discussion, the Board of Directors determined to engage Goldman Sachs and Moelis to serve as the Company’s financial advisors in conducting a strategic review of the Company’s strategic alternatives, with each of Goldman Sachs and Moelis undertaking independent analyses, in order to assist the Board of Directors in determining the best course of action to maximize long-term value for the Company and its stockholders. The Board of Directors retained each of Goldman Sachs and Moelis based upon their qualifications, experience and expertise.
On September 8, 2020, the Company’s Chief Executive Officer, Hudson La Force, met telephonically with 40 North’s principals, David J. Millstone and David S. Winter, to provide an update on the Board of Directors’ intent to conduct a strategic review with the advice and assistance of the Company’s financial advisors, Goldman Sachs and Moelis, as well as the Company’s outside counsel, Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”).
On September 9, 2020, a meeting of the Board of Directors was held, which was attended by representatives of Goldman Sachs, Moelis and Wachtell Lipton. Representatives of Goldman Sachs and Moelis separately discussed with the Board of Directors their initial perspectives on strategic alternatives potentially available to the Company and plans for a more detailed preliminary assessment scheduled for a subsequent meeting. In addition, representatives of Wachtell Lipton described to the directors their fiduciary duties in connection with evaluating strategic alternatives or considering a mergers and acquisitions process.
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On October 9, 2020, a meeting of the Board of Directors was held, during which representatives of Goldman Sachs and Moelis separately presented their independent preliminary assessments regarding the Company’s potential strategic alternatives, including a review of the public equity market perspectives regarding the Company, a financial analysis of the Company’s standalone plan, potential counterparties to strategic transactions, and possible means of pursuing certain strategic transactions involving the Company. In the course of their presentations, representatives of Goldman Sachs and Moelis reviewed their independent preliminary financial analyses of the Company based on various methodologies. The representatives of Goldman Sachs and Moelis each independently advised the Board of Directors that, in light of equity market volatility and dislocation due to the COVID-19 pandemic, the then-current valuation of Grace common stock in public equity markets undervalued the Company relative to its specialty chemical peers and the values for the Company implied by the preliminary financial analyses. In addition, the representatives of Goldman Sachs and Moelis each independently advised the Board of Directors that any outreach to potential counterparties to a business combination or sale transaction should be made privately in order to, among other things, mitigate the risk that public outreach by the Company would lead to the use of a dislocated market price of Grace common stock as a reference point for possible proposals by potential transaction counterparties rather than the Company’s intrinsic value. Following the presentations from the Company’s financial advisors and discussion among the directors, during which Ms. Reiland expressed her preference for the Company to conduct a public (as opposed to private) strategic review process, the Board of Directors directed the Company’s management and financial advisors to privately contact potential transaction counterparties to evaluate the possibility of a potential business combination or sale transaction involving the Company.
On October 13, 2020, Ms. Reiland delivered to the Board of Directors a letter tendering her resignation from the Board of Directors, effective immediately. In connection with Ms. Reiland’s resignation, 40 North filed with the SEC an amendment to the 13D, which disclosed, among other things, 40 North’s beneficial ownership of 14.9% of the then-outstanding shares of Grace common stock, and to which Ms. Reiland’s resignation letter was attached as an exhibit. As a result of Ms. Reiland’s resignation, pursuant to the 2019 Letter Agreement, the standstill restrictions applicable to 40 North and its affiliates pursuant to the 2019 Letter Agreement expired 15 days following the date of her resignation.
Over the course of October, November and December 2020, Mr. La Force and representatives of the Company, including its financial advisors, at the direction of the Board of Directors, contacted five strategic parties identified by the Company, Goldman Sachs and Moelis as potentially having an interest in a potential strategic transaction involving the Company. In addition, representatives of various financial sponsors contacted Goldman Sachs and Moelis to express an interest in a possible strategic transaction involving a combination of the Company with all or a part of their portfolio companies. While certain parties held one or more meetings with the Company’s management or financial advisors, none of the parties (other than Counterparty C (as defined below)) entered into a confidentiality or standstill agreement with the Company to facilitate further discussions regarding a potential transaction.
In addition, Mr. La Force met telephonically with the Chairman of Counterparty A on multiple occasions between November 2020 and February 2021. The Chairman of Counterparty A indicated that Counterparty A could be interested in a potential strategic transaction with the Company, but did not make a proposal for a transaction with the Company and ultimately did not continue discussions regarding such a transaction.
On November 9, 2020, 40 North sent a letter to the Board of Directors, which was also filed with the SEC as an exhibit to an amendment to the 13D, pursuant to which 40 North and its affiliated investment funds proposed to acquire the Company for $60.00 per share of Grace common stock in cash, subject to certain conditions (the “November 9 Proposal”).
Later that day, a meeting of the Board of Directors was held, which was attended by representatives of Goldman Sachs, Moelis and Wachtell Lipton, during which the Board of Directors reviewed and considered the November 9 Proposal. Following discussion, the Board of Directors determined that the November 9 Proposal was inadequate and significantly undervalued the Company. Following the conclusion of the special meeting of the Board of Directors, the Company issued a press release confirming the Company’s receipt of the November 9 Proposal. The press release disclosed that the Board of Directors was “carefully evaluating and thoroughly discussing its value creation opportunities” and that given “the Company’s strong prospects and its ongoing
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review of the alternative opportunities available, Grace’s Board of Directors unanimously believes that 40 North’s $60 per share proposal significantly undervalues the Company and is not a basis for further discussion.” The press release also explained that the Board of Directors remained “open to all opportunities to maximize value for shareholders.”
On November 17, 2020, Mr. La Force met telephonically with representatives of Counterparty B. Counterparty B indicated that it did not have an interest in pursuing a potential strategic transaction involving the Company at such time.
On November 23, 2020, a meeting of the Board of Directors was held, during which Mr. La Force provided an update regarding the ongoing review of strategic alternatives and the assessment of potential transactions that would maximize the long-term value of the Company for its stockholders.
On December 4, 2020, the Chairman and Chief Executive Officer of a portfolio company of a financial sponsor, along with representatives of the financial sponsor, met telephonically with representatives of the Company to discuss a possible strategic transaction involving a combination of the Company with the portfolio company (“Counterparty C”).
On December 16, 2020, the Company and Counterparty C entered into a confidentiality agreement containing customary provisions, including a customary standstill provision that would terminate upon the occurrence of certain events, including the entry by the Company into an agreement providing for the sale or change in control of the Company. Thereafter, during the remainder of December 2020 and throughout the first three months of 2021, Counterparty C, with the assistance of its advisors, conducted due diligence on the Company, including through telephone calls and videoconferences with Company management.
On December 18, 2020, a meeting of the Board of Directors was held, during which Mr. La Force provided an update regarding the ongoing review of strategic alternatives.
On January 11, 2021, 40 North sent another letter to the Board of Directors, which was also filed with the SEC as an exhibit to an amendment to the 13D, pursuant to which 40 North and its affiliated investment funds proposed to acquire the Company for $65.00 per share of Grace common stock in cash, subject to certain conditions (the “January 11 Proposal”). This letter explained that the January 11 Proposal represented “a premium of 62% over the Company’s unaffected share price” prior to October 14, 2020, when 40 North filed an amendment to the 13D disclosing Ms. Reiland’s resignation, and “a 54% premium over the Company’s unaffected 30-day VWAP” per Bloomberg, as of October 13, 2020. 40 North disclosed that they were advised “by Citi and J.P. Morgan, and [that] they, along with Deutsche Bank and BNP Paribas, have confirmed to us in writing that they are highly confident that they will be able to arrange the necessary financing for the acquisition.” In addition, 40 North reiterated that “we have conducted extensive due diligence and analysis based on publicly available information and can reconfirm that our remaining diligence requirements are strictly confirmatory in nature and can be completed on an accelerated basis.”
On January 12, 2021, a meeting of the Board of Directors was held, which was attended by representatives of Goldman Sachs, Moelis and Wachtell Lipton, during which Mr. La Force provided an update regarding the ongoing review of strategic alternatives, including the Company’s ongoing engagement with Counterparty C. The Board of Directors reviewed 40 North’s January 11 Proposal and determined that it would be in the best interests of the Company to respond to 40 North by offering to enter into a customary confidentiality agreement with 40 North, so that the Company might provide 40 North with additional information, and to engage with 40 North in discussions regarding 40 North’s proposal, in order for 40 North to be in a position to potentially further increase the value of its offer.
On January 15, 2021, in response to 40 North’s January 11 Proposal, the Company sent a letter to Messrs. Millstone and Winter, the text of which was included in a press release issued by the Company. The letter explained that the Board of Directors had “met and discussed [40 North’s] revised proposal [and is] willing to discuss a sale of Grace to 40 North in the context of [Grace’s] ongoing review of strategic alternatives. Any transaction would need to be at a price level that reflects the full value of Grace for its shareholders.” The Company’s letter conveyed that the Company “would be willing to share with [40 North], under customary and appropriate confidentiality arrangements, information that would support a full valuation of Grace.”
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Over the course of January 14 and 15, 2021, members of management of the Company and representatives of Counterparty C, including their financial advisors, held a series of meetings by videoconference to present information regarding each of their respective businesses, managements, strategies and financial attributes.
On January 18, 2021, representatives of Wachtell Lipton provided a draft confidentiality agreement (the “2021 Confidentiality Agreement”) to representatives of Sullivan & Cromwell LLP (“Sullivan & Cromwell”), outside counsel to 40 North.
On January 21, 2021, a meeting of the Board of Directors was held, during which Mr. La Force provided an update regarding the ongoing review of strategic alternatives, including the discussions with Counterparty C and its evaluation of a potential strategic transaction involving the Company, as well as the status of negotiations of the 2021 Confidentiality Agreement with 40 North. The Board of Directors directed the Company’s management to continue to negotiate the 2021 Confidentiality Agreement with 40 North and, following its execution, proceed with furnishing certain due diligence information to 40 North so that it might be in a position to potentially further increase the value of its offer.
Also on January 21, 2021, representatives of Sullivan & Cromwell provided a revised draft of the 2021 Confidentiality Agreement to representatives of Wachtell Lipton, and over the course of the final two weeks of January 2021, representatives of Wachtell Lipton and Sullivan & Cromwell continued to exchange drafts of the 2021 Confidentiality Agreement.
On January 22, 2021, representatives of the Company and Counterparty C, including their respective financial advisors, met by videoconference to discuss certain financial analyses with respect to, and the potential synergies that might be realized by, a hypothetical combined company in order that such parties might determine whether to pursue a potential business combination transaction.
On February 1, 2021, the Company entered into the 2021 Confidentiality Agreement with 40 North and certain of its affiliates. In the 2021 Confidentiality Agreement, 40 North and its affiliates agreed, among other things, to comply with certain standstill restrictions until March 31, 2021, subject to the earlier termination of such restrictions in certain circumstances. The Company agreed, among other things, that the Board of Directors would consider timely any nomination by 40 North of director candidates for the Company’s 2021 annual meeting of stockholders delivered to the Company on or before the fifteenth (15th) day following the expiration or termination of the standstill restrictions.
On February 8, 2021, 40 North and certain of its advisors were provided with access to an electronic data room containing confidential due diligence information with respect to the Company. Thereafter, throughout February, March and April 2021, 40 North, with the assistance of its advisors, conducted additional due diligence on the Company, including through telephone calls and videoconferences with Company management.
On February 15, 2021, members of management of the Company, including its financial advisors, held a series of meetings by videoconference with representatives of 40 North to present information regarding the Company’s business, its management, strategy and financial attributes.
On February 17, 2021, representatives of the Company and Counterparty C, including their respective financial advisors, again met by videoconference to discuss the potential synergies that might be realized by a hypothetical combined company.
On February 22, 2021, Counterparty C delivered a letter from its Chairman and Chief Executive Officer to Mr. La Force, which letter proposed an all-stock merger with Counterparty C (the “February 22 Proposal”), subject to certain conditions. Counterparty C’s February 22 Proposal indicated that Grace Stockholders would retain a 36%-37% ownership interest in the combined company. A financial analysis of Counterparty C’s February 22 Proposal conducted by the Company’s financial advisors indicated that the proposal implied an upfront value per share of Grace common stock (before giving effect to synergies) that was less than the $65.00 per share offered by 40 North in its January 11 Proposal. The financial analysis also indicated that Counterparty C’s February 22 Proposal did not reflect that, based on the information about Counterparty C available to the Company and its advisors at the time, the Company should be valued at a premium multiple relative to the business of Counterparty C proposed to be combined with the Company, even before accounting for a change-of-control premium for the Company’s stockholders.
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On February 24, 2021, Mr. La Force contacted the Chairman and Chief Executive Officer of Counterparty C to express disappointment in the economic terms implied by the proposal, in particular that such terms implied a change of control of the Company without offering an adequate premium. Mr. La Force and the Chairman and Chief Executive Officer of Counterparty C agreed to continue discussions and due diligence and that the Company and Counterparty C would continue to engage with their respective financial advisors so that Counterparty C might submit a revised proposal that would provide greater value to Grace Stockholders.
On February 25, 2021, a meeting of the Board of Directors was held, during which Mr. La Force updated the other members of the Board of Directors regarding the Company’s ongoing engagement with Counterparty C and 40 North. During the meeting, Mr. La Force and the other members of the Board of Directors reviewed the terms of Counterparty C’s February 22 Proposal and considered it in the context of 40 North’s January 11 Proposal. The Board of Directors discussed Mr. La Force’s response to the Chairman and Chief Executive Officer of Counterparty C, and expressed their concurrence with Mr. La Force’s encouragement of continued engagement between the Company and Counterparty C so that Counterparty C might submit a proposal on terms that could be compelling to the Company. The Board of Directors also directed the Company’s management and financial advisors to continue to provide due diligence information to 40 North so that it might be in a position to potentially further increase the value of its offer.
Throughout March 2021, representatives of the Company, including at various times Mr. La Force and the Company’s financial advisors and outside counsel, participated in discussions with representatives of Counterparty C with a view to obtaining additional information from Counterparty C regarding its business and proposed valuation, improving Counterparty C’s proposal and exploring potential transaction structures.
On March 7, 2021, a meeting of the Board of Directors was held, during which the Board of Directors reviewed Counterparty C’s February 22 Proposal and considered it in the context of 40 North’s January 11 Proposal as well as the Company’s standalone strategic plan. The Board of Directors discussed that Counterparty C’s February 22 Proposal depended on valuation assumptions regarding Counterparty C that the Company was not in a position to verify given that Counterparty C was privately held, whereas the material information regarding the Company was publicly disclosed. The Board of Directors discussed that the Company would need additional information from Counterparty C to verify its proposed valuation of itself relative to the Company and that, to date, Counterparty C was unwilling to proceed with mutual due diligence. Therefore, the Board of Directors directed the Company’s management to further engage with Counterparty C, including to respond with a counteroffer to the February 22 Proposal and to seek to facilitate mutual due diligence, in order to determine whether Counterparty C would make an actionable proposal for a potential business combination transaction, while also continuing to engage in the active due diligence process with 40 North to enable 40 North to complete its due diligence review of the Company and submit its best and final offer to acquire the Company.
On March 8, 2021, Mr. La Force called the Chairman and Chief Executive Officer of Counterparty C to convey a counteroffer, in response to Counterparty C’s February 22 Proposal and subject to further due diligence, of a relative valuation that would result in Grace Stockholders retaining a 45% ownership interest in the combined company.
On March 12, 2021, the Chairman and Chief Executive Officer of Counterparty C met telephonically with Mr. La Force and conveyed to Mr. La Force a revised proposal for an all-stock merger between the Company and Counterparty C (the “March 12 Proposal”), subject to certain conditions. Counterparty C’s March 12 Proposal indicated that Grace Stockholders would retain a 39%-40% ownership interest in the combined company.
On March 17, 2021, Mr. La Force met telephonically with the Chairman and Chief Executive Officer of Counterparty C to convey a counteroffer, in response to Counterparty C’s March 12 Proposal and subject to further due diligence, of a relative valuation that would result in Grace Stockholders retaining a 41%-42% ownership interest in the combined company.
In a March 19, 2021 email to Mr. La Force, the Chairman and Chief Executive Officer of Counterparty C reiterated the ownership range contemplated by the March 12 Proposal.
On March 22, 2021, Mr. La Force met telephonically with representatives of Counterparty C to discuss Counterparty C’s March 12 Proposal and the additional work, including due diligence and consideration of transaction structures and mechanics, that would be required to progress discussions toward an actionable
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proposal. During this conversation and various conversations between the advisors to the Company and the advisors to Counterparty C, Counterparty C was unwilling to commit to further improvements to its offer or to advance with any mutual due diligence without an agreement in principle on the relative valuation implied by Counterparty C’s March 12 Proposal.
On March 25, 2021, a meeting of the Board of Directors was held, which was attended by representatives of Goldman Sachs, Moelis and Wachtell Lipton, during which Mr. La Force updated the other members of the Board of Directors regarding the ongoing engagement with Counterparty C and 40 North. Mr. La Force advised the Board of Directors that, in recent discussions, Counterparty C had not been willing to improve the terms of its offer or proceed with further engagement until the Company agreed in principle to the relative valuation implied by Counterparty C’s March 12 Proposal. Mr. La Force also described the status of the ongoing due diligence process undertaken by 40 North, and explained that the Company was continuing to provide information in the virtual data room and organize due diligence calls in an effort to finalize the diligence process and advance the negotiation of deal terms and transaction documentation. Shortly following the conclusion of the Board of Directors’ meeting, at the direction of the Board of Directors, representatives of the Company delivered to representatives of 40 North a bid instruction letter with directions for 40 North’s submission of a final, definitive, binding proposal, including details regarding purchase price, financing, closing certainty and timing, as well as mark-ups of key transaction documents to be provided by the Company.
On March 25, 2021, Mr. La Force wrote the Chairman and Chief Executive Officer of Counterparty C to reiterate that the Company could not commit to the valuation range implied by Counterparty C’s March 12 Proposal and that any change-of-control combination must be at a valuation that compared favorably at the outset with other available alternatives. Mr. La Force suggested that the parties progress their engagement by proceeding with more advanced mutual due diligence and transaction-structuring discussions, without commitments of either party to a specific valuation range.
On March 27, 2021, the Chairman and Chief Executive Officer of Counterparty C responded to Mr. La Force to confirm that it had not identified any means of reaching a compromise on valuation, including in light of the alternatives available to the Company. The Chairman and Chief Executive Officer of Counterparty C further explained that Counterparty C would not agree to mutual due diligence without an agreement in principle on relative valuation.
On March 30, 2021, representatives of Wachtell Lipton sent to representatives of 40 North, including Sullivan & Cromwell, an initial draft of a Merger Agreement and Voting Agreement reflecting, among other things, (1) a termination fee equal to 2.0% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances, (2) a reverse termination fee equal to 10.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances and (3) a right of the Company to continue to pay, during the pendency of the Merger, a dividend to Grace Stockholders consistent with its historical practice. On March 31, 2021, representatives of Wachtell Lipton sent an initial draft of the confidential disclosure schedules to the Merger Agreement to representatives of 40 North, including Sullivan & Cromwell.
On April 1, 2021, following the expiration of the standstill provisions of the 2021 Confidentiality Agreement entered into by the Company and 40 North on February 1, 2021, 40 North delivered another letter to the Board of Directors, which was also filed with the SEC as an exhibit to an amendment to the 13D, pursuant to which 40 North and its affiliated investment funds proposed to acquire the Company for $70.00 per share of Grace common stock in cash, subject to certain conditions (the “April 1 Proposal”). 40 North’s letter explained that the April 1 Proposal did not include any financing contingency, and that 40 North’s financing banks were Citi, J.P. Morgan, Deutsche Bank and BNP Paribas. In its letter, 40 North expressed its confidence that all necessary regulatory approvals could be received in a timely manner. 40 North noted that it had “engaged numerous advisers, consultants and specialists to further [its] analysis of the various facets of [the Company’s] business” and explained that its proposal was “subject only to confirmatory diligence, which [40 North] expect[ed] to be able to complete in two weeks, and the execution of definitive documentation.” 40 North’s proposal letter characterized the April 1 Proposal as 40 North’s “best and final offer.”
Shortly thereafter on April 1, 2021, Mr. La Force sent a letter to Messrs. Millstone and Winter, the text of which was included in a press release issued by the Company. In this letter, Mr. La Force acknowledged the
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Company’s receipt of 40 North’s April 1 Proposal and reiterated the Company’s requests for the information described in the Company’s bid instruction letter provided to 40 North on March 25, 2021, including the details of 40 North’s debt and equity financing commitments, as well as any comments on the draft transaction documentation previously provided to 40 North.
On April 5, 2021, representatives of 40 North provided to representatives of the Company a revised draft of the Merger Agreement, as well as additional draft transaction documentation, including drafts of the Equity and Debt Commitment Letters and the Limited Guaranty. The delivery of the transaction documentation was confirmed by 40 North on April 6, 2021 in a letter from Messrs. Millstone and Winter to Mr. La Force, which letter was also filed with the SEC as an exhibit to an amendment to the 13D. 40 North’s revised draft of the Merger Agreement provided for, among other things, (1) a termination fee equal to 4.0% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances, (2) a reverse termination fee equal to 5.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances and (3) a requirement for the Company to obtain Parent’s consent prior to paying dividends to Grace Stockholders during the pendency of the Merger.
On April 6, 2021, representatives of Moelis met telephonically with the Chairman and Chief Executive Officer of Counterparty C to assess Counterparty C’s interest in re-engaging in discussions or submitting a proposal for a strategic transaction that might be competitive with 40 North’s April 1 Proposal. The Chairman and Chief Executive Officer of Counterparty C explained that a representative of Counterparty C would contact the Company or its representatives if it had an interest in re-engaging in discussions regarding a potential strategic transaction, but thereafter no such contact was made.
On April 7, 2021, a meeting of the Board of Directors was held, during which members of the Company’s senior management and representatives of Wachtell Lipton, Goldman Sachs and Moelis were present. At the meeting, the Board of Directors discussed the Company’s ongoing strategic review, including 40 North’s April 1 Proposal and preliminary financial analyses of the April 1 Proposal. The Board of Directors discussed that Counterparty C had neither demonstrated a willingness to compromise further on relative valuation nor engage in due diligence or other transaction discussions without an agreement on an upfront valuation that did not compare favorably to 40 North’s April 1 Proposal, as well as that Counterparty C had not expressed any interest in re-engaging in discussions. The Board of Directors also discussed the Company’s solicitation activity during its outreach to potential transaction counterparties and the fact that, despite the fact that it had been widely and publicly known for months that Grace was conducting a strategic review process and was engaged in discussions with 40 North, there had been no other indications of interest from other potential counterparties to a strategic business combination or sale transaction. Following the discussion, it was the consensus of the Board of Directors that the Company should proceed in discussions with 40 North on the basis of its April 1 Proposal, contingent on 40 North obtaining acceptable financing commitments and the negotiation of definitive transaction documentation with terms that would be protective of Grace Stockholders and customary for transactions of a similar type and size.
On April 9, 2021, representatives of Wachtell Lipton sent to representatives of Sullivan & Cromwell revised drafts of the Merger Agreement and related transaction and financing documentation. The revised draft of the Merger Agreement provided for, among other things, (1) a termination fee equal to 2.5% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances, (2) a reverse termination fee equal to 8.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances and (3) the right of the Company to continue to pay, during the pendency of the Merger, a dividend to Grace Stockholders consistent with its historical practice.
On April 14, 2021, at 40 North’s request in order for 40 North and its financing sources to complete their due diligence, the Company entered into an amendment to the 2021 Confidentiality Agreement with 40 North and certain of its affiliates, pursuant to which the Company agreed to extend the nomination deadline for 40 North to submit candidates for election to the Company’s Board of Directors at the Company’s 2021 annual meeting of stockholders to April 26, 2021. The Company and 40 North also agreed not to make any further public statements regarding the other party or the ongoing discussions between the parties prior to April 26, 2021.
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Between April 14, 2021 and April 25, 2021, representatives of Wachtell Lipton exchanged drafts of the Merger Agreement and the other transaction documents with representatives of Sullivan & Cromwell and negotiated the terms of such documents.
On April 14, 2021, representatives of Sullivan & Cromwell sent to representatives of Wachtell Lipton a revised draft of the Merger Agreement that did not specify proposed termination fee or reverse termination fee amounts but provided for, among other things, a requirement for the Company to obtain Parent’s consent prior to paying dividends to Grace Stockholders during the pendency of the Merger.
On April 16, 2021, representatives of Wachtell Lipton sent to representatives of Sullivan & Cromwell a revised draft of the Merger Agreement that provided for, among other things, (1) a termination fee equal to 3.0% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances, (2) a reverse termination fee equal to 8.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances and (3) the right of the Company to continue to pay, during the pendency of the Merger, a dividend to Grace Stockholders consistent with its historical practice.
On April 22, 2021, representatives of Sullivan & Cromwell sent to representatives of Wachtell Lipton a revised draft of the Merger Agreement that did not specify proposed termination fee or reverse termination fee amounts but provided for, among other things, a requirement for the Company to obtain Parent’s consent prior to paying dividends to Grace Stockholders during the pendency of the Merger.
On April 24, 2021, representatives of Wachtell Lipton sent to representatives of Sullivan & Cromwell a revised draft of the Merger Agreement that provided for, among other things, (1) a termination fee equal to 3.0% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances, (2) a reverse termination fee equal to 6.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances and (3) the right of the Company to continue to pay, during the pendency of the Merger, a dividend to Grace Stockholders consistent with its historical practice.
Early in the morning of April 25, 2021, representatives of Sullivan & Cromwell sent to representatives of Wachtell Lipton a revised draft of the Merger Agreement that, consistent with the Company’s prior proposal, provided for, among other things, a termination fee equal to 3.0% of the Company’s equity value payable by the Company upon a termination of the Merger Agreement under certain circumstances and a reverse termination fee equal to 6.0% of the Company’s equity value payable by Parent upon a termination of the Merger Agreement under certain circumstances. The revised draft of the Merger Agreement also included a requirement for the Company to obtain Parent’s consent prior to paying dividends to Grace Stockholders during the pendency of the Merger.
On April 25, 2021, a meeting of the Board of Directors was held, during which members of the Company’s senior management and representatives of Wachtell Lipton, Goldman Sachs and Moelis were present. Mr. La Force presented to the other members of the Board of Directors an update on the negotiations with 40 North and Standard Industries Holdings regarding the proposed acquisition of the Company, including the terms of the draft transaction documentation. A representative of Wachtell Lipton described to the directors their fiduciary duties in connection with their consideration of the proposed transaction. Representatives of Goldman Sachs presented the financial analysis undertaken by Goldman Sachs regarding the proposed transaction, including by reference to presentation materials which had been made available to the Board of Directors prior to the meeting. After discussion among the Board of Directors and the Company’s advisors, Goldman Sachs delivered its oral opinion, subsequently confirmed by delivery of a written opinion, dated April 26, 2021, to the Board of Directors to the effect that, as of such date and based upon and subject to the various matters, limitations, qualifications and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock in the proposed transaction was fair, from a financial point of view, to such holders. Representatives of Moelis then presented the financial analysis undertaken by Moelis regarding the proposed transaction, including by reference to presentation materials which had been made available to the Board of Directors prior to the meeting. After discussion among the Board of Directors and the advisors, Moelis rendered its oral opinion, to be subsequently confirmed by delivery of a written opinion, dated April 26, 2021, to the Board of Directors to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken set forth therein, the Merger
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Consideration to be received by the holders of shares of Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, the Company or any other wholly owned subsidiary of the Company) in the Merger was fair from a financial point of view to such holders. Representatives of Wachtell Lipton reviewed the terms of the draft Merger Agreement and other transaction documentation, including by reference to a summary of the agreements and drafts of the agreements, which had been made available to the Board of Directors prior to the meeting. Following discussion among the Board of Directors, the members of the Company’s senior management and representatives of the Company’s advisors, the Board of Directors instructed Mr. La Force to engage with Messrs. Millstone and Winter and attempt to reach a compromise on the outstanding issues in the Merger Agreement. Following a series of adjournments while Mr. La Force engaged in further discussions with Messrs. Millstone and Winter, Mr. La Force and Messrs. Winter and Millstone agreed to a compromise. When the meeting was finally reconvened later in the evening of April 25, the Board of Directors then engaged in a general discussion of the potential transaction and the matters summarized for the Board of Directors at the meeting, including asking questions of the Company’s advisors and senior management. Following this discussion, and after carefully considering the proposed terms of the transaction, and taking into consideration the matters discussed during the meeting and prior meetings of the Board of Directors, the Board of Directors, on behalf of Grace, unanimously (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Grace and its stockholders (including unaffiliated security holders); (ii) approved the execution, delivery and performance of the Merger Agreement by the Company and the consummation of the transactions contemplated by the Merger Agreement; and (iii) resolved to recommend that Grace Stockholders (including unaffiliated security holders) approve the adoption of the Merger Agreement and the consummation of the transactions contemplated thereby.
Early in the morning of April 26, 2021, the parties executed and delivered the Merger Agreement, Voting Agreement, Equity Commitment Letter, Limited Guaranty and Debt Commitment Letter. Shortly thereafter, the parties issued a press release announcing the transaction.
Recommendation of the Board of Directors; Reasons for the Merger; Fairness of the Merger
Recommendation of the Board of Directors
The Board of Directors, on behalf of Grace, has unanimously: (i) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Grace and its stockholders (including unaffiliated security holders); (ii) approved the execution, delivery and performance of the Merger Agreement by Grace and the consummation of the transactions contemplated by the Merger Agreement; and (iii) resolved to recommend that Grace Stockholders (including unaffiliated security holders) approve the adoption of the Merger Agreement and the consummation of the transactions contemplated thereby.
The Board of Directors, on behalf of Grace, unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the Adjournment Proposal.
Reasons for the Merger
In the course of reaching its determination and recommendation, the Board of Directors consulted with Grace management, Wachtell Lipton, Goldman Sachs and Moelis. The Board of Directors considered a number of factors, including those below (which are not listed in any relative order of importance), all of which it viewed as generally supporting its (i) approval of the execution, delivery and performance of the Merger Agreement by Grace and the consummation of the transactions contemplated by the Merger Agreement; and (ii) resolution to recommend, on behalf of Grace, that Grace Stockholders (including unaffiliated security holders) approve the adoption of the Merger Agreement and the consummation of the transactions contemplated thereby:
the current and historical market prices of Grace common stock, including the market performance of the Grace common stock relative to those of other participants in Grace’s industry and general market indices, and the fact that the Merger Consideration constituted a premium of 59% over Grace’s closing stock price of $44.05 on November 6, 2020 (the last trading day prior to the public announcement of 40 North’s initial proposal to acquire Grace on November 9, 2020);
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the belief of the Board of Directors, based upon the course and history of negotiations with 40 North and Standard Industries Holdings (as described in more detail under the section of this proxy statement captioned “—Background of the Merger”), that the Merger Consideration represents the highest price that Parent was willing to pay and that the terms of the Merger Agreement include the most favorable terms to the Company, in the aggregate, to which Parent was willing to agree;
the Board of Directors’ consideration of the strategic alternatives reasonably available to Grace, including the results of the strategic review process undertaken by Grace with the assistance of its financial advisors described in the section of this proxy statement captioned “Background of the Merger”;
the fact that, during the course of such strategic review process, other than Counterparty C, no strategic parties or financial sponsors made a proposal to Grace with respect to a strategic business combination or sale transaction;
the fact that, despite the fact that it had been widely and publicly known for months that Grace was conducting a strategic review process and was engaged in discussions with 40 North (as described in more detail under the section of this proxy statement captioned “—Background of the Merger”), there had been no indications of interest from other potential counterparties (other than 40 North and Counterparty C) to a strategic business combination or sale transaction;
the fact that, as described in the section of this proxy statement captioned “—Background of the Merger,” Counterparty C would not agree to mutual due diligence without an agreement in principle on a relative valuation that did not compare favorably other strategic alternatives reasonably available to the Company;
the fact that, despite an invitation to Counterparty C from representatives of the Company to re-engage in discussions following 40 North’s best and final April 1 Proposal, Counterparty C did not express any interest in re-engaging in discussions or submitting a proposal that might be competitive with 40 North’s April 1 Proposal (as described in more detail under the section of this proxy statement captioned “—Background of the Merger”);
the high degree of certainty that the closing would be achieved in a timely manner, in view of the terms of the Merger Agreement;
the view of the Board of Directors that the Merger Consideration was more favorable to Grace Stockholders on a risk-adjusted basis than the potential value that might result from other alternatives reasonably available to Grace, based upon the Board of Directors’ extensive knowledge of Grace’s business, assets, financial condition and results of operations, its competitive position and historical and projected financial performance, and the belief that the Merger Consideration represented an attractive and comparatively certain value for Grace Stockholders relative to the risk-adjusted prospects for Grace on a standalone basis;
the fact that the Supporting Stockholder, the Company’s most significant stockholder and a long-term investor in the Company, was prepared to execute and deliver the Voting Agreement;
the financial analysis presentation of Goldman Sachs, and the oral opinion of Goldman Sachs, subsequently confirmed by delivery of a written opinion, dated April 26, 2021, to the Board of Directors to the effect that, as of such date and based upon and subject to the various matters, limitations, qualifications and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock in the Merger was fair, from a financial point of view, to such holders, as more fully described below under the section of this proxy statement captioned “—Opinion of Goldman Sachs & Co. LLC,” the full text of which written opinion is attached as Annex B to this proxy statement and is incorporated by reference in this proxy statement in its entirety;
the financial analysis presentation of Moelis, and the oral opinion of Moelis, subsequently confirmed by delivery of a written opinion, dated April 26, 2021, to the Board of Directors to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken set forth therein, the Merger Consideration to be
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received by the holders of shares of Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, the Company or any other wholly owned subsidiary of the Company) in the Merger was fair from a financial point of view to such holders, as more fully described below under the section of this proxy statement captioned “—Opinion of Moelis & Company LLC,” the full text of which written opinion is attached as Annex C to this proxy statement and is incorporated by reference in this proxy statement in its entirety;
the terms and conditions of the Merger Agreement and the other transaction documents, including the following:
Grace’s ability to terminate the Merger Agreement in order to accept a Superior Company Proposal, subject to certain conditions of the Merger Agreement and paying Parent the Company Termination Fee of $141 million – an amount which the Board of Directors believed, based upon the advice of its financial and legal advisors, was unlikely to deter third parties from making Company Takeover Proposals;
the conditions to closing contained in the Merger Agreement, which are limited in number and scope, and which, in the case of the condition related to the accuracy of Grace’s representations and warranties, is generally subject to a Company Material Adverse Effect (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Representations and Warranties”) qualification;
the requirement that the Merger Agreement be adopted by the affirmative vote of the holders of a majority of the outstanding shares of Grace common stock entitled to vote at the Special Meeting;
the fact that Grace has sufficient operating flexibility to conduct its business in the ordinary course prior to the consummation of the Merger;
the provision of the Merger Agreement allowing the Board of Directors to effect a Company Adverse Recommendation Change and to terminate the Merger Agreement, in certain circumstances relating to the presence of a Superior Company Proposal (or to effect a change of recommendation in response to an intervening event) subject to the applicable procedures, terms and conditions set forth in the Merger Agreement (including, if applicable, payment of termination fees) (for more information, see the sections of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change,” “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement” and “Proposal 1: Adoption of the Merger Agreement—Termination Fee”);
the absence of a financing condition in the Merger Agreement;
the limited overlaps between the businesses of Grace and Parent relative to those that could be present in transactions with certain other industry participants;
the end date of January 26, 2022 (subject to extension to April 26, 2022 under certain circumstances, including for purposes of obtaining required regulatory approvals) allowing for sufficient time to complete the Merger;
that Parent has obtained committed debt financing for the transaction from reputable financial institutions and committed equity financing for the transaction from Standard Industries Holdings, an affiliated entity of Parent, that together provide funding of an amount sufficient to cover the aggregate Merger Consideration, all fees and expenses payable by Parent, Merger Sub or Grace and the repayment or refinancing of certain indebtedness required to be repaid or refinanced;
that Parent has announced that the equity commitment from Standard Industries Holdings will be supported by (i) the available cash of Standard Industries Holdings’ subsidiary, Standard Industries Inc. and (ii) up to $2,500 million in proceeds from a secured term loan;
the obligation of Parent and Merger Sub to use reasonable best efforts to consummate the financing and the limited number and nature of the conditions to the debt and equity financing;
the Company’s ability, under circumstances specified in the Merger Agreement, to specifically enforce the obligations of Parent and Merger to consummate the Merger; and
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the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent will pay the Company the Parent Termination Fee of $281 million, and the obligation to pay such amount by Standard Industries Holdings, pursuant to the terms of a limited guaranty, as more fully described under the section of this proxy statement captioned “—Financing of the Merger—Equity Financing” and “—Financing of the Merger—Guaranty.”
the availability of appraisal rights under Delaware law to holders of shares of Grace common stock who do not vote in favor of the adoption of the Merger Agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have a Delaware court determine the fair value of their shares, which may be more than, less than, or the same as the amount such stockholders would have received under the Merger Agreement; and
the fact that, in the absence of the Merger, Grace would continue to incur significant expenses by remaining a public company, including legal, accounting, transfer agent, printing and filing fees, and that those expenses could adversely affect Grace’s financial performance and the value of its shares.
The Board of Directors believes that sufficient procedural safeguards were and are present to ensure the fairness of the Merger and to permit the Board of Directors to represent effectively the interests of the unaffiliated Grace Stockholders, and in light of such procedural safeguards the Board of Directors did not consider it necessary to retain an unaffiliated representative to act solely on behalf of our unaffiliated security holders for purposes of negotiating the terms of the Merger Agreement or preparing a report concerning the fairness of the Merger Agreement and the Merger. These procedural safeguards include the following:
Ms. Reiland resigned from the Board of Directors on October 13, 2020, and since that time no employee or person affiliated with the Purchaser Filing Persons has been a member of the Board of Directors and none of the Purchaser Filing Persons participated in or had any influence on the deliberative process of, or the conclusions reached by, the Board of Directors;
the directors of Grace are not officers or employees of Grace (other than Mr. La Force), are not representatives of the Purchaser Filing Persons, and are not expected to have an economic interest in Grace or the Surviving Corporation following the completion of the Merger;
the Board of Directors received the advice and assistance of experienced legal and financial advisors;
at the direction of the Board of Directors, with the assistance of Grace’s legal and financial advisors, Grace and the Purchaser Filing Persons engaged in extensive arm’s length negotiations regarding the Merger Consideration that resulted in an increase in the Merger Consideration during the course of negotiations, and the improvement, from the perspective of Grace, of other terms of the Merger and the Merger Agreement, including the operating covenants and the amount of the termination fees, relative to the initial terms proposed by the Purchaser Filing Persons;
40 North will receive the same cash consideration as Grace’s other stockholders and the Merger Agreement does not provide for 40 North to “roll over” its shares or receive differential consideration in the Merger;
the Board of Directors met at least ten times during the course of approximately six months to review potential transactions, including the proposal from and negotiations with 40 North, the proposal from Counterparty C and interest from other parties, as well as other strategic options (including the standalone business plan) potentially available to Grace;
after the entry into the 2021 Confidentiality Agreement, the parties engaged in a robust and intensive nearly three-month-long, arm’s-length negotiation and diligence process;
the 2021 Confidentiality Agreement required 40 North and its affiliates, among other things, to comply with certain standstill restrictions until March 31, 2021, subject to the earlier termination of such restrictions in certain circumstances and, as such, prior to the entry into the Merger Agreement, 40 North temporarily relinquished its ability to seek additional influence over Grace, including by purchasing additional shares of Grace common stock, launching a proxy contest to seek representation on the Board of Directors, entering into any arrangements with directors of Grace, launching a hostile tender offer or forming any “groups” with third parties seeking to control Grace;
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the Purchaser Filing Persons do not have any relationship with management of Grace which would provide the Purchaser Filing Persons with a say over the operations or management of Grace or would influence the Board of Directors’ decision to approve the Merger Agreement;
none of the members of management of Grace have discussed, negotiated or entered into any agreement or understanding with the Purchaser Filing Persons with respect to any rollover of their equity interests in Grace, representation on the Surviving Corporation’s board post-closing or the terms of any post-closing employment;
the equity awards held by management as of immediately prior to the closing of the Merger will generally convert into the same cash Merger Consideration that public stockholders will receive, subject to the specific terms and conditions described in this proxy statement;
given the size of 40 North’s ownership interest in Grace, the Supporting Stockholder’s vote in favor of the transaction, without the support of a large number of other stockholders of Grace, would not be sufficient to approve the Merger as a matter of Delaware law; and
the provision of the Merger Agreement allowing the Board of Directors to effect a Company Adverse Recommendation Change and to terminate the Merger Agreement, in certain circumstances relating to the presence of a Superior Company Proposal (or to effect a change of recommendation in response to an intervening event) subject to the applicable procedures, terms and conditions set forth in the Merger Agreement (including, if applicable, payment of a reasonable termination fee) (for more information, see the sections of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Company Board Recommendation; Company Adverse Recommendation Change,” “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement” and “Proposal 1: Adoption of the Merger Agreement—Termination Fee”).
The Board of Directors also considered a number of uncertainties and risks concerning the Merger, including the following (which factors are not necessarily presented in order of relative importance):
the fact that Grace would no longer exist as an independent, publicly traded company, and stockholders would no longer participate in any future earnings or growth and would not benefit from any potential future appreciation in value of Grace;
the risks and costs to Grace if the Merger is not completed in a timely manner or at all, including the potential adverse effect on Grace’s ability to attract and retain key personnel, the diversion of management resources and the potential disruptive effect on Grace’s day-to-day operations and Grace’s relationships with employees, customers, suppliers, partners and other third parties, any or all of which risks and costs, among other things, could adversely affect Grace’s overall competitive position and the trading price of its common stock;
the requirement under certain circumstances that Grace pay Parent a termination fee following termination of the Merger Agreement, including if the Merger Agreement is terminated by Grace in order to enter into a Superior Company Proposal or by Parent because the Board of Directors effects a Company Adverse Recommendation Change;
the fact that, under the terms of the Merger Agreement, if Parent fails to complete the Merger as a result of failure to obtain the Debt Financing (as defined in the section of this proxy statement captioned “Special Factors—Financing of the Merger”), the Company’s remedies will be limited to the termination fee payable by Parent described above, which may be inadequate to compensate Grace for the damage caused;
the restrictions on the conduct of Grace’s business prior to the consummation of the Merger, which may delay or prevent Grace from undertaking business opportunities that may arise before the completion of the Merger and that, absent the Merger Agreement, Grace might have pursued;
the fact that an all cash transaction would be taxable to Grace’s stockholders that are U.S. persons for U.S. federal income tax purposes;
the fact that under the terms of the Merger Agreement, subject to certain exceptions, Grace is unable to solicit other Company Takeover Proposals;
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the significant costs involved in connection with entering into the Merger Agreement and completing the Merger (many of which are payable whether or not the Merger is consummated) and the substantial time and effort of Grace management required to complete the Merger, which may disrupt its business operations and have a negative effect on its financial results;
the risk that 40 North’s ownership interest in Grace would be taken into account by third parties considering whether to make alternative proposals;
the risk that the Merger might not be completed and the effect of the resulting public announcement of termination of the Merger Agreement on the trading price of Grace common stock;
the fact that the completion of the Merger requires certain regulatory clearances and consents, which clearances and consents could subject the Merger to unforeseen delays and risks;
the fact that Parent and Merger Sub are newly formed entities with essentially no assets, and the Guaranty, provided by Standard Industries Holdings, guarantees Parent’s obligations under the Merger Agreement only with respect to payment of the Parent Termination Fee and certain reimbursement obligations and is subject to a cap of $290 million;
the fact that Grace’s directors and officers may have interests in the Merger that may be different from, or in addition to, those of Grace’s stockholders generally (see below under the caption “—Interests of Executive Officers and Directors of Grace in the Merger”); and
the possible loss of key management or other personnel of Grace during the pendency of the Merger.
The Board of Directors concluded that the uncertainties, risks and potentially negative factors relevant to the Merger were outweighed by the potential benefits of the Merger. The Board of Directors also concluded that approval by a majority of the unaffiliated Grace Stockholders is not necessary for approval of the Merger, as such approval is not required by Delaware law and various safeguards and protective steps have been adopted to ensure the procedural fairness of the transactions contemplated by the Merger Agreement, including the Merger, including the procedural safeguards discussed above.
In the course of reaching its decision to approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, the Board of Directors did not consider the liquidation value of Grace, and did not believe it to be a relevant methodology, because (i) it considered Grace to be a viable, going concern, (ii) it believes that liquidation sales generally result in proceeds substantially less than sales of going concerns, (iii) it considered determining a liquidation value to be impracticable given the significant execution risk involved in any breakup of Grace, and (iv) Grace will continue to operate its business following the Merger. Further, the Board of Directors did not consider net book value, which is an accounting concept, as a factor, because it believed that net book value is not a material indicator of the value of Grace as a going concern but rather is indicative of historical costs and because net book value does not take into account the prospects of Grace, market conditions, trends in the industry in which Grace operates or the business risks inherent in that industry. The Board of Directors did not seek to establish a pre-Merger going concern value for Grace, and therefore no such value was considered by the Board of Directors in making its fairness determination on behalf of Grace. Rather, the Board of Directors believed that the financial analyses presented by Goldman Sachs and Moelis, as more fully summarized in the sections of this proxy statement captioned “Special Factors—Opinion of Goldman Sachs & Co. LLC” and “Special Factors—Opinion of Moelis & Company LLC” on which the Board of Directors relied, were indicative of going concern values for Grace as it continues to operate its business. The Board of Directors further believes that the trading price of the Grace common stock at any given time represents the best available indicator of Grace’s going concern value at that time so long as the trading price at that time is not impacted by speculation regarding the likelihood of a potential transaction. In addition, other than as described in the section of the proxy statement captioned “Special Factors—Background of the Merger,” the Board of Directors was not aware of any firm offer for a merger, sale of all or a substantial part of Grace’s assets, or a purchase of a controlling amount of Grace securities having been received by Grace from anyone other than 40 North in the two years preceding the signing of the Merger Agreement.
The Board of Directors adopted the opinions and analyses provided by Goldman Sachs and Moelis, as more fully summarized in the sections of this proxy statement captioned “Special Factors—Opinion of Goldman Sachs & Co. LLC” and “Special Factors—Opinion of Moelis & Company LLC.” Although the reference to Grace’s stockholders in both the opinions of Goldman Sachs and Moelis did not exclude Grace’s directors and officers
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(but did exclude, in the case of the opinion of Goldman Sachs, Parent and its affiliates, and in the case of Moelis, the Supporting Stockholder, Parent, Merger Sub and any other subsidiary of Parent) notwithstanding that such persons are deemed affiliates of Grace, such reference did not affect the Board of Directors’ determination in respect of the Merger Agreement and the transactions contemplated thereby, including the Merger, because such directors and officers will receive the same Merger Consideration as unaffiliated Grace Stockholders, subject to the terms and conditions set forth in this proxy statement.
The foregoing discussion of reasons for the recommendation to approve the adoption of the Merger Agreement is not meant to be exhaustive but addresses the material information and factors considered by the Board of Directors in consideration of its determination that the Merger is fair to the Grace Stockholders (including unaffiliated security holders) and its recommendation. In view of the wide variety of factors considered by the Board of Directors in connection with its evaluation of the Merger and the complexity of these matters, the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Rather, in considering the information and factors described above, individual members of the Board of Directors each applied his or her own personal business judgment to the process and may have given differing weights to differing factors.
The Board of Directors based its unanimous recommendation on the totality of the information presented. The explanation of the factors and reasoning set forth above contain forward-looking statements that should be read in conjunction with the section of this proxy statement captioned “Forward-Looking Statements.”
Position of the Purchaser Filing Persons as to Fairness of the Merger
Under the SEC’s rules governing “going-private” transactions, including Rule 13e-3 under the Exchange Act, the Purchaser Filing Persons are required to provide certain information regarding their position as to the substantive and procedural fairness of the Merger to Grace’s unaffiliated security holders. Each of the Purchaser Filing Persons is making the statements included in this part of the proxy statement solely for the purpose of conforming with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Purchaser Filing Persons should not be construed as a recommendation to any unaffiliated security holder of Grace as to how that security holder should vote on the proposal to adopt the Merger Agreement or any other proposal considered at the Special Meeting.
The Purchaser Filing Persons did not participate in the deliberations of the Board of Directors regarding, and did not receive advice from the Board of Directors’ legal or financial advisors as to, the fairness of the Merger. The Purchaser Filing Persons have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purpose of assessing the fairness of the Merger to Grace’s unaffiliated security holders. However, based on the knowledge and analysis by the Purchaser Filing Persons of available information regarding Grace, and the factors considered by, and the analysis and resulting conclusions of, the Purchaser Filing Persons discussed in “—Purpose and Reasons of the Purchaser Filing Persons for the Merger,” as well as the factors considered by, and the analysis and resulting conclusions of, the Board of Directors discussed in “—Purpose and Reasons of Grace for the Merger,” the Purchaser Filing Persons believe that the Merger is substantively and procedurally fair to Grace’s unaffiliated security holders.
In particular, the Purchaser Filing Persons believe that the Merger is both procedurally and substantively fair to Grace’s unaffiliated security holders based on their consideration of the following factors, among others, which are not presented in any relative order of importance:
the Merger Consideration represents a premium of approximately 59% over Grace’s closing stock price of $44.05 on November 6, 2020, the last trading day prior to the announcement of 40 North’s initial proposal to acquire Grace on November 9, 2020;
the Merger Consideration consists entirely of cash, which provides a degree of certainty of value and liquidity to Grace’s unaffiliated security holders;
the Merger Consideration consists entirely of cash, therefore Grace’s unaffiliated security holders that are subject to U.S. federal income taxation generally should be able to have cash on hand with which to pay all or a portion of their U.S. federal income taxes in connection with the sale of their common shares of Grace;
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Grace’s unaffiliated security holders will not be exposed to risks and uncertainties relating to the prospects of Grace following completion of the Merger;
notwithstanding that the respective opinions of Goldman Sachs and Moelis were provided solely to the Board of Directors in connection with its evaluation of the Merger and are not recommendations as to any action the Board of Directors or any Grace Stockholder may take and that the Purchaser Filing Persons are not entitled to, nor did they, rely on such opinions, the fact that the Board of Directors received:
an opinion of Goldman Sachs, dated as of April 26, 2021, that, as of April 26, 2021 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders; and
an opinion of Moelis, dated April 26, 2021, that, as of April 26, 2021 and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken, the Merger Consideration to be received in the Merger by the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace) was fair, from a financial point of view, to such holders;
in each case, as more fully described under “—Opinion of Goldman Sachs & Co. LLC” and “—Opinion of Moelis & Company LLC”;
the financial and other terms and conditions of the Merger Agreement were the product of extensive arm’s-length negotiations;
the Merger and Merger Agreement were unanimously approved by the Board of Directors, and the Board of Directors unanimously determined that entry into the Merger Agreement was in the best interests of Grace and its stockholders;
Ms. Reiland resigned from the Board of Directors on October 13, 2020, and since that time no employee or person affiliated with the Purchaser Filing Persons has been a member of the Board of Directors and none of the Purchaser Filing Persons participated in or had any influence on the deliberative process of, or the conclusions reached by, the Board of Directors; and
the Merger is conditioned on approval by Grace Stockholders representing a majority of outstanding shares of Grace common stock entitled to vote at the Special Meeting.
The Purchaser Filing Persons did not find it practicable to assign, nor did they assign, specific relative weights to the individual factors considered in reaching their conclusion as to fairness. The Purchaser Filing Persons also did not consider the liquidation value of Grace’s assets, and did not perform a liquidation analysis, because they consider Grace to be a viable going concern. Therefore, no appraisal of liquidation value was sought for purposes of valuing the shares of Grace’s common stock, and the Purchaser Filing Persons believe that the liquidation value of the shares of Grace’s common stock is irrelevant to a determination as to whether the proposed Merger is fair to Grace’s unaffiliated security holders.
Opinion of Goldman Sachs & Co. LLC
Goldman Sachs rendered its opinion to the Board of Directors that, as of April 26, 2021 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated April 26, 2021, 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 to this proxy statement. The summary of Goldman Sachs’ opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Grace common stock should vote with respect to the Merger or any other matter.
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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 Grace Stockholders and Annual Reports on Form 10-K of Grace for the five fiscal years ended December 31, 2020;
certain interim reports to Grace Stockholders and Quarterly Reports on Form 10-Q of Grace;
certain other communications from Grace to the Grace Stockholders;
certain publicly available research analyst reports for Grace; and
certain internal financial analyses and forecasts for Grace prepared by its management, as approved for Goldman Sachs’ use by Grace (as described in the section of this proxy statement captioned “—Management Projections”).
Goldman Sachs also held discussions with members of the senior management of Grace regarding their assessment of the past and current business operations, financial condition and future prospects of Grace; reviewed the reported price and trading activity for the Grace common stock; compared certain financial and stock market information for Grace 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 chemicals 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 this opinion, Goldman Sachs, with Grace’s consent, 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 Grace’s consent that the Management Projections (as defined in the section of this proxy statement captioned “—Management Projections”) were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Grace. 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 Grace or any of its subsidiaries and Goldman Sachs was not furnished with any such evaluation or appraisal. 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 has 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 Grace to engage in the Merger or the relative merits of the Merger as compared to any strategic alternatives that may be available to Grace, nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Parent and its affiliates) of Grace common stock, as of the date of the opinion, of the Merger Consideration to be paid to such holders 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 Merger 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 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 Grace, 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 Grace, or class of such persons in connection with the transaction, whether relative to the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock 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 prices at which shares of Grace common stock trade at any time, as to the potential effects of volatility in the
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credit, financial and stock markets on Grace, Parent or the Merger, or as to the impact of the Merger on the solvency or viability of Grace or Parent or the ability of Grace 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 of Directors in connection with rendering the opinion described above. The order of the analyses described does not represent the 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 April 23, 2021, the last trading day before the public announcement of the Merger, and is not necessarily indicative of current market conditions.
Historical Stock Trading Analysis. Goldman Sachs analyzed the $70.00 in cash per share to be paid to holders of Grace common stock (other than Excluded Shares) pursuant to the Merger Agreement in relation to:
the closing price per share of Grace common stock on April 23, 2021;
the closing price per share of Grace common stock on March 31, 2021, the last trading day before the public announcement of the proposal by 40 North to acquire Grace at $70.00 in cash per share of Grace common stock;
the volume weighted average price per share (“VWAP”) of Grace common stock over the 20-day trading period ended March 31, 2021;
the VWAP of Grace common stock over the 30-day trading period ended March 31, 2021;
the VWAP of Grace common stock after November 6, 2020, the last trading day before the first public announcement of a proposal by 40 North to acquire Grace, through April 23, 2021;
the closing price per share of Grace common stock on November 6, 2020;
the highest closing price per share of Grace common stock during the 52-week period ended April 23, 2021; and
the highest closing price per share of Grace common stock during the 52-week period ended November 6, 2020.
In addition, Goldman Sachs calculated the average stock price performance for the following selected companies (i) after November 6, 2020 through April 23, 2021 and (ii) after October 13, 2020, the last trading day before Kathleen Reiland, the director on the Board of Directors employed and designated by 40 North, announced her resignation from the Board of Directors, through April 23, 2021, and then applied these average performances to the closing price per share of Grace common stock on November 6, 2020 and October 13, 2020, respectively, to derive what are referred to in this proxy statement, for November 6, 2020 or October 13, 2020, as the case may be, as the “hypothetical undisturbed stock price” from such date. The selected companies used in this calculation were:
Umicore;
Clariant;
Johnson Matthey;
PQ Group;
PPG;
Ashland;
Avient; and
NewMarket
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Although none of these selected companies is directly comparable to Grace, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Grace.
This analysis indicated that the $70.00 in cash per share to be paid to the holders of Grace common stock pursuant to the Merger Agreement represented:
a premium of 9.0% based on the closing price per share of the Grace common stock on April 23, 2021 of $64.24;
a premium of 16.9% based on the closing price per share of the Grace common stock on March 31, 2021 of $59.86;
a premium of 17.3% based on the VWAP of the Grace common stock over the 20-day trading period ended March 31, 2021 of $59.69;
a premium of 17.0% based on the VWAP of the Grace common stock over the 30-day trading period ended March 31, 2021 of $59.82;
a premium of 19.2% based on the VWAP of the Grace common stock after November 6, 2020 through April 23, 2021 of $58.71;
a premium of 58.9% based on the closing price per share on November 6, 2020 of $44.05;
a premium of 7.4% based on the highest closing price per share of Grace common stock during the 52-week period ended April 23, 2021 of $65.17;
a discount of 4.6% based on the highest closing price per share of Grace common stock during the 52-week period ended November 6, 2020 of $73.36;
a premium of 19.1% based on the hypothetical undisturbed stock price from November 6, 2020 of $58.77; and
a premium of 31.6% based on the hypothetical undisturbed stock price from October 13, 2020 of $53.21.
Illustrative Discounted Cash Flow Analysis. Using the Management Projections, Goldman Sachs performed an illustrative discounted cash flow analysis on Grace. Using discount rates ranging from 8.0% to 9.0%, reflecting estimates of Grace’s weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2020 (i) estimates of unlevered free cash flow for Grace for the years 2021 through 2025 derived from the Management Projections and (ii) a range of illustrative terminal values for Grace, which were calculated by applying exit terminal year multiples ranging from 9.5x to 11.5x, to an estimate of Grace’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the terminal year, as reflected in the Management Projections (which analysis implied a perpetuity growth rate ranging from 2.0% to 3.9%). Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including Grace’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for Grace, as well as certain financial metrics for the United States financial markets generally. The illustrative terminal value to EBITDA multiple range was derived by Goldman Sachs using its professional judgment and taking into account, among other things, the Management Projections and EBITDA multiples implied by the historical trading prices of the Grace common stock. Goldman Sachs derived ranges of illustrative enterprise values for Grace by adding the ranges of present values it derived above. Goldman Sachs then subtracted, from the range of illustrative enterprise values it derived for Grace, the net debt of Grace, as of December 31, 2020 and adjusted to give effect on a pro forma basis to the pending acquisition by Grace of the FCS business announced in February 2021, as provided by the management of Grace, to derive a range of illustrative equity values for Grace. Goldman Sachs then determined the net present value of tax attributes of Grace, as reflected in the Management Projections and excluded from the foregoing calculations, by applying a discount rate of 8.5%, representing the midpoint of the range of discount rates described above, to the value of these tax attributes and added these tax attributes to the range of illustrative equity values of Grace to derive a range of illustrative equity values that included an illustrative value for the tax attributes. Goldman Sachs then divided the range of illustrative equity values it derived including the tax attributes and excluding the tax attributes, respectively, by
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the number of fully diluted outstanding shares of Grace, as provided by the management of Grace, to derive a range of illustrative present values per share (including the tax attributes) ranging from $69.20 to $89.70 and a range of illustrative present values per share (excluding the tax attributes) ranging from $61.62 to $82.21.
Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per share of Grace common stock, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s financial multiples. For this analysis, Goldman Sachs used the Management Projections for each of the fiscal years 2022 through 2025. Goldman Sachs first calculated the implied enterprise value (“EV”) of Grace as of December 31 for each of the fiscal years 2021 to 2024, by multiplying the one-year forward EBITDA (“NTM EBITDA”) as of such date by an illustrative range of multiples of 9.0x to 11.0x. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data and EV/NTM EBITDA multiples for Grace. To derive illustrative implied equity values per share of Grace common stock, Goldman Sachs then subtracted the amount of Grace’s projected net debt as of December 31 for each of the fiscal years 2021 to 2024, as provided by the management of Grace, to determine implied equity values per share of Grace common stock as of December 31 for each of the fiscal years 2021 to 2024. Goldman Sachs then discounted these implied equity values per share to December 31, 2020 using a discount rate of 10.13%, reflecting an estimate of Grace’s cost of equity. Goldman Sachs derived such discount rate by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for Grace, as well as certain financial metrics for the United States financial markets generally. Goldman Sachs then added to such implied present values the aggregate dividends per share of Grace common stock estimated to be paid by Grace for each of the fiscal years 2021 to 2014 in the Management Projections, and as discounted to December 31, 2020 using a discount rate of 10.13%, reflecting an estimate of Grace’s cost of equity. These analyses resulted in a range of implied present values of $58.17 to $87.08 per share of Grace common stock.
Selected Transactions Analysis. Goldman Sachs analyzed certain publicly available information relating to the following selected transactions in the chemicals industry since 2015:
Date
Acquirer
Target
March 2021
Cerberus / Koch
PQ’s Performance Chemicals Business
February 2021
Grace
Albemarle’s Fine Chemistry Services Business
February 2021
Bain Capital / Cinven
Lonza Specialty Ingredients
October 2020
Ardian
Angus Chemical Company
December 2019
Lone Star
BASF Construction Chemicals
December 2019
Avient
Clariant Masterbatches
April 2019
Merck
Versum
April 2019
Parker-Hannifin
LORD
April 2019
Nippon
Dulux
January 2019
Sika
Parex
August 2018
Cabot Microelectronics
KMG Chemicals
July 2018
Messer / CVC
Linde North America
March 2018
Carlyle
Specialty Chemicals Business of Akzo Nobel
December 2017
Grace
Albemarle Polyolefin Catalysts
September 2017
Kuraray
Calgon Carbon
September 2017
H.B. Fuller
Royal Adhesives
April 2017
Houghton
Quaker
March 2017
Henkel
Darex
October 2016
Carlyle
Atotech
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Date
Acquirer
Target
June 2016
BASF
Chemetall
May 2016
Evonik
Air Products Performance Materials
March 2016
Sherwin-Williams
Valspar Corp
November 2015
Air Liquide SA
Airgas
July 2015
Platform Specialty
Alent plc
July 2015
Solvay
Cytec Industries
June 2015
Apollo Global Management, LLC
OM Group, Inc.
February 2015
Tronox Limited
FMC Corp’s Alkali Chemicals Business
While none of the companies that participated in the selected transactions are directly comparable to Grace, the target companies in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of Grace’s results, market size and product profile. For each of the selected transactions, Goldman Sachs calculated the implied enterprise value of the applicable target company based on the consideration paid in the applicable transaction, as a multiple of the estimated EBITDA of the target company for the last 12-month period ended prior to announcement of each applicable transaction (“LTM EBITDA”), as disclosed in public company filings and other publicly available information.
The following table presents the results of this analysis:
 
Selected Transactions
Proposed
Transaction
 
Range
Median
Mean
EV / LTM EBITDA
9.2x – 16.5x
13.1x
13.0x
14.0x
Goldman Sachs then applied a range of multiples of 9.2x to 16.5x, derived from this analysis, to the estimated 2021 EBITDA for Grace, as reflected in the Management Projections, to derive an illustrative range of enterprise values for Grace. Goldman Sachs then subtracted, from the range of illustrative enterprise values it derived for Grace, the net debt of Grace, as of December 31, 2020 and adjusted to give effect on a pro forma basis to the pending acquisition by Grace of the FCS business announced in February 2021, as provided by the management of Grace, to derive a range of illustrative equity values for Grace. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of Grace, as provided by the management of Grace, to derive a range of illustrative values per share ranging from $48.66 to $114.22.
Premia Analysis. Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for all-cash acquisition transactions announced during the time period from 2016 through April 23, 2021 involving a public company based in the United States as the target where the disclosed enterprise values for the transaction were between $5.0 billion and $10 billion. For the entire period, using publicly available information, Goldman Sachs calculated the median, 25th percentile and 75th percentile premiums of the price paid in the transactions relative to the target’s stock price four weeks prior to the announcement of the transaction. This analysis indicated a median premium of 34.1% across the period. This analysis also indicated a 25th percentile premium of 20.8% and 75th percentile premium of 41.4% across the period. Using this analysis, Goldman Sachs applied a reference range of illustrative premiums of 20.8% to 41.4% to the undisturbed closing price per share of Grace common stock of $44.05 as of November 6, 2020 (the last trading day before the first public announcement of a proposal by 40 North to acquire Grace) and calculated a range of implied equity values per share of Grace common stock of $53.21 to $62.29. In addition, Goldman Sachs applied a reference range of illustrative premiums of 20.8% to 41.4% to the hypothetical undisturbed stock price from November 6, 2020 of $58.77 and calculated a range of implied equity values per share of Grace common stock of $70.99 to $83.10.
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
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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 Grace or Parent or the contemplated transaction.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Board of Directors as to the fairness from a financial point of view of the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Grace common stock 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 Grace, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The Merger Consideration was determined through arm’s-length negotiations between Grace and Parent and was approved by the Board of Directors. Goldman Sachs provided advice to Grace during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Grace or the Board of Directors or that any specific amount of consideration constituted the only appropriate consideration for the Merger.
As described above, Goldman Sachs’ opinion to the Board of Directors was one of many factors taken into consideration by the Board of Directors 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 to this proxy statement.
Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Grace, Parent, any of their respective affiliates and third parties, including 40 North, and its respective affiliates and portfolio companies, or any currency or commodity that may be involved in the Merger. Goldman Sachs acted as financial advisor to Grace in connection with, and participated in certain of the negotiations leading to, the Merger. Goldman Sachs has provided certain financial advisory and/or underwriting services to Grace and/or its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as bookrunner with respect to Grace’s 4.875% Senior Notes due 2027 (aggregate principal amount $750,000,000) in June 2020, Grace’s financial advisor in connection with Grace’s agreement to acquire the FCS business from Albemarle Corporation in February 2021 and as sole arranger with respect to Grace’s Senior Secured Term Loan B-3 due March 2028 (aggregate principal amount $300,000,000) in March 2021. During the two year period ended April 26, 2021, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Grace and/or its affiliates of approximately $1,000,000. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Grace, Parent and 40 North and their respective affiliates and, as applicable, portfolio companies for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may have co-invested with 40 North and its affiliates from time to time and may have invested in limited partnership units of affiliates of 40 North from time to time and may do so in the future.
The Board of Directors 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 March 22, 2021, Grace engaged Goldman Sachs to act as its financial advisor in connection with the Merger. Pursuant to this engagement letter, Grace has agreed to pay Goldman Sachs a $5,000,000 quarterly fee for financial advisory services from and after the fourth quarter of 2020 of up to an aggregate of $25,000,000 (the “Financial Advisory Fee”). This engagement letter also provides for a transaction fee, based on the information available as of the date of announcement of the Merger, of approximately $48,700,000, all of which is contingent upon consummation of the Merger (the “Transaction Fee”). Any Financial Advisory Fee that Grace has already paid to Goldman Sachs will reduce the subsequent Transaction
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Fee. No Financial Advisory Fee will be due to Goldman Sachs after the payment of the Transaction Fee. In addition, Grace has agreed to reimburse Goldman Sachs for certain of 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.
Additional Presentations by Goldman Sachs
Goldman Sachs made a written and oral presentation to certain members of Grace management on April 1, 2021, which provided a preliminary analysis of Grace’s hypothetical undisturbed share price and the implied premiums of 40 North’s $70 per share offer. A copy of such written presentation by Goldman Sachs has been attached as Exhibit (c)(3) to the Schedule 13E-3 filed in connection with the Merger.
Goldman Sachs made a written and oral presentation to the Board of Directors and certain members of Grace management on April 7, 2021, which reviewed a summary of the bids from 40 North and the context of 40 North’s bids in light of market data, including historical share prices, trading multiples, and research analyst coverage. Goldman Sachs also reviewed the Management Projections and provided certain preliminary financial analyses regarding Grace including: (i) illustrative discounted cash flow analyses, (ii) illustrative present value of future share price analyses, (iii) a leveraged buyout analysis, (iv) precedent transactions analyses, (v) analyses of premia paid in precedent transactions, (vi) a historical trading range review, (vii) a review of research analyst price targets and (viii) public comparables analyses. A copy of such written presentation by Goldman Sachs has been attached as Exhibit (c)(4) to the Schedule 13E-3 filed in connection with the Merger.
The financial analyses in such written and oral presentations were based on market, economic and other conditions as they existed as of the date of such presentations as well as other information that was available at such time. Goldman Sachs continued to refine various aspects of these preliminary financial analyses over time in advance of the presentation to the Board on April 25, 2021, which is summarized above. A copy of the April 25, 2021 presentation has been attached as Exhibit (c)(5) to the Schedule 13E-3 filed in connection with the Merger.
Opinion of Moelis & Company LLC
At a meeting of the Board of Directors held on April 25, 2021 to evaluate and approve the Merger, Moelis rendered its oral opinion to the Board of Directors, confirmed by the delivery of a written opinion dated April 26, 2021, addressed to the Board of Directors to the effect that, as of the date of such opinion and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken, the Merger Consideration to be received in the Merger by the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace) was fair, from a financial point of view, to such holders.
The full text of Moelis’ written opinion dated April 26, 2021, which sets forth 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. Moelis’ opinion was provided for the use and benefit of the Board of Directors (solely in its capacity as such) in its evaluation of the Merger. Moelis’ opinion is limited solely to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace) in the Merger and does not address Grace’s underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Grace. Moelis’ opinion does not constitute a recommendation as to how any holder of securities should vote or act with respect to the Merger or any other matter. Moelis’ opinion was approved by a Moelis fairness opinion committee.
In arriving at its opinion, Moelis, among other things:
reviewed certain publicly available business and financial information relating to Grace;
reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of Grace furnished to Moelis by Grace, including financial forecasts provided to or discussed with Moelis by the management of Grace (as described in the section of this proxy statement captioned “—Management Projections”);
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reviewed information relating to the capitalization (including incentive equity) of Grace furnished to Moelis by Grace;
conducted discussions with members of the senior management and representatives of Grace concerning the information described in the foregoing three items in this paragraph, as well as the business and prospects of Grace generally;
reviewed publicly available financial and stock market data of certain other companies in lines of business that Moelis deemed relevant;
reviewed the financial terms of certain other transactions that Moelis deemed relevant;
reviewed an execution version of each of (i) the Merger Agreement, (ii) the Debt Commitment Letter, (iii) the Equity Commitment Letter, (iv) the Guaranty, (v) the Voting Agreement and (vi) the debt commitment letter among JPMorgan Chase Bank, N.A., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Standard Industries;
participated in certain discussions and negotiations among representatives of Grace and Parent and their advisors; and
conducted such other financial studies and analyses and took into account such other information as Moelis deemed appropriate.
In connection with its review, with the consent of the Board of Directors, Moelis relied on the information supplied to, discussed with or reviewed by it for purposes of its opinion being complete and accurate in all material respects. Moelis did not assume any responsibility for independent verification of, and did not independently verify, any of such information. With the consent of the Board of Directors, Moelis relied upon, without independent verification, the assessment of Grace and its legal, tax, regulatory and accounting advisors with respect to legal, tax, regulatory and accounting matters. With respect to the Management Projections (as defined in the section of this proxy statement captioned “—Management Projections”), Moelis assumed, at the direction of the Board of Directors, that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of Grace’s management as to the future performance of Grace. Moelis expressed no views as to the reasonableness of the Management Projections and other financial forecasts or the assumptions on which they were based. In addition, with the consent of the Board of Directors, Moelis did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet, or otherwise) of Grace, nor was Moelis furnished with any such evaluation or appraisal.
Moelis’ opinion did not address Grace’s underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Grace and did not address any legal, regulatory, tax or accounting matters. At the direction of the Board of Directors, Moelis was not asked to, nor did it, offer any opinion as to any terms of the Merger Agreement or any aspect or implication of the Merger, except for the fairness of the Merger Consideration from a financial point of view to the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace). Moelis did not express any opinion as to fair value or the solvency of Grace following the closing of the Merger. In addition, Moelis noted that, pursuant to the Merger Agreement, the Excluded Shares will not be converted into the right to receive the Merger Consideration, and Moelis expressed no opinion with respect to such shares or as to the fairness of the Merger Consideration to holders thereof. In rendering its opinion, Moelis assumed, with the consent of the Board of Directors, that the final executed form of the Merger Agreement would not differ in any material respect from the draft that Moelis reviewed, that the Merger would be consummated in accordance with its terms without any waiver or modification that could be material to Moelis’ analysis, and that the parties to the Merger Agreement would comply with all the material terms of the Merger Agreement. Moelis assumed, with the consent of the Board of Directors, that all governmental, regulatory or other consents or approvals necessary for the completion of the Merger would be obtained, except to the extent that could not be material to Moelis’ analysis.
Moelis’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Moelis as of, the date of its opinion, and Moelis assumed no responsibility to update its opinion for developments after the date of its opinion.
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Moelis’ opinion did not address the fairness of the Merger or any aspect or implication of the Merger to, or any other consideration of or relating to, the holders of any class of securities, creditors or other constituencies of Grace, other than the fairness of the Merger Consideration from a financial point of view to the holders of the Grace common stock (other than the Supporting Stockholder, Parent, Merger Sub, any other subsidiary of Parent, Grace or any wholly owned subsidiary of Grace). In addition, Moelis did not express any opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the Merger, or any class of such persons, relative to the Merger Consideration or otherwise. Moelis’ opinion was approved by a Moelis fairness opinion committee.
Summary of Financial Analyses
The following is a summary of the material financial analyses prepared by Moelis for the Board of Directors in connection with rendering its written opinion, dated April 26, 2021. The complete written presentation delivered to the Board of Directors in connection with the meeting, which we refer to as the “fairness presentation,” has been filed as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the Merger, will be made available for inspection and copying at the principal executive offices of Grace during its regular business hours by any interested holder of common stock, and may be obtained by requesting it in writing from Grace at the address described in the section captioned “Where You Can Find More Information.” Moelis provided this presentation for the use and benefit of the Board of Directors (in its capacity as such) in its evaluation of the Merger.
Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand Moelis’ analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Moelis’ analyses.
Unless the context indicates otherwise, stock prices (i) with respect to Grace, are based on the closing stock price of Grace common stock on April 23, 2021 and March 31, 2021 (which Moelis deemed to be the unaffected trading date for purposes of its analyses) and (ii) with respect to other companies, are also based on closing stock prices on April 23, 2021. For purposes of, among other things, deriving per share implied equity values for Grace, Moelis calculated certain per share amounts for Grace based on diluted shares outstanding as of April 22, 2021 provided by Grace management and approved for use by Moelis in rendering its opinion. For purposes of Moelis’ analyses, Moelis also used Grace management’s projected December 31, 2020 balance sheet, as set forth in the Management Projections and provided as of January 27, 2021, which management confirmed on April 24, 2021 was unchanged.
For purposes of its analyses, Moelis reviewed a number of financial metrics, including the following:
Adjusted EBITDA: generally calculated as the relevant company’s earnings before interest, taxes, depreciation and amortization, as adjusted to exclude one-time charges and benefits and to reflect the full-year impact of material corporate transactions.
Enterprise Value (or EV): which (i) with respect to Grace, was calculated as the market value of Grace’s fully diluted common equity based on its closing stock prices on April 23, 2021 and March 31, 2021 (which Moelis deemed to be the unaffected trading date for purposes of its analyses) and share count information as of April 22, 2021 provided by Grace management and approved by Grace management for use by Moelis in rendering its opinion, plus (a) preferred stock, plus (b) debt, less (c) cash and cash equivalents, less (d) unconsolidated assets and plus (e) book value of non-controlling interests (in each of the foregoing clauses (a) through (e), as projected by Grace management as of December 31, 2020 and provided as of January 27, 2021, which management confirmed on April 24, 2021 was unchanged), and (ii) with respect to other companies, was calculated as the market value of the relevant company’s fully diluted common equity based on its closing stock price as of April 23, 2021, plus (a) preferred stock, plus (b) debt, less (c) cash and cash equivalents, less (d) unconsolidated assets and plus (e) book value of non-controlling interests (in each of the foregoing clauses (a) through (e), as of the relevant company’s most recently reported quarter end).
Unless the context indicates otherwise, (i) the estimates of the future financial performance for the selected publicly traded companies listed below were based on certain publicly available research analyst estimates for
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those companies, and (ii) the estimates of the future financial performance of Grace relied upon for the financial analyses described below were based on the Management Projections.
Selected Publicly Traded Companies Analysis
Moelis reviewed financial and stock market information of the selected publicly traded companies noted below that manufacture specialty chemicals and catalysts on a global basis serving a broad range of transportation, industrial and consumer applications and other specialty chemical companies with similar growth trajectory, financial profile and technological expertise and deemed generally relevant by Moelis in certain respects to Grace. Moelis excluded companies that primarily manufacture commodity chemicals due to the significant differences in business models, go-to-market strategies, competitive dynamics and margin profile compared to Grace.
Moelis reviewed, among other things, the EV of the selected publicly traded companies as a multiple of estimated Adjusted EBITDA for calendar year 2021 and estimated Adjusted EBITDA for calendar year 2022. Financial data for the selected publicly traded companies were based on publicly available median consensus research analyst estimates and public filings. In the case of estimated Adjusted EBITDA for Grace, Moelis reviewed both median consensus research analyst estimates and the Management Projections.
The selected publicly traded companies used in this analysis and their implied trading values to estimated Adjusted EBITDA for calendar year 2021 and estimated Adjusted EBITDA for calendar year 2022 multiples are summarized in the following table:
 
Market Cap
($ in
millions)
EV
($ in
millions)
EV / Adj.
EBITDA
  2021E
EV / Adj.
EBITDA
   2022E
Specialty Chemical Companies
 
 
 
 
Air Products & Chemicals, Inc.
$64,687
$66,883
16.5x
14.9x
Albemarle Corporation
$18,947
$20,673
24.8x
19.3x
Ashland Global Holdings Inc.
$5,718
$7,898
12.9x
11.8x
Celanese Corporation
$18,091
$20,695
10.8x
10.5x
DuPont de Nemours, Inc.
$41,641
$55,670
14.2x
13.3x
Element Solutions Inc.
$5,145
$6,367
13.9x
13.0x
Hexcel Corporation
$4,848
$5,678
28.8x
17.3x
Mean
 
 
17.4x
14.3x
Median
 
 
14.2x
13.3x
Catalyst Companies (For Reference Only)
 
 
 
 
Albemarle Corporation
$18,947
$20,673
24.8x
19.3x
Umicore SA
$14,579
$16,363
13.7x
13.1x
Johnson Matthey Plc.
$8,796
$9,967
9.7x
8.9x
Clariant AG
$7,318
$8,377
11.6x
10.6x
PQ Group Holdings Inc.
$2,343
$2,712
12.1x
10.6x
Mean
 
 
14.4x
12.5x
Median
 
 
12.1x
10.6x
 
 
 
 
 
Grace Consensus (Current – as of 04/23/21)
$4,299
$5,987
11.3x
10.1x
Grace Consensus (Unaffected – as of 03/31/21)
$4,002
$5,689
10.7x
9.7x
Grace Management Projections (Current – as of 04/23/21)
$4,299
$6,572
11.4x
9.4x
Grace Management Projections (Unaffected – as of 03/31/21)
$4,002
$6,274
10.9x
8.9x
In reviewing the characteristics of the selected publicly traded companies for purposes of selecting its reference ranges to apply to Grace’s estimated financial metrics, Moelis noted that the low-end of its reference ranges was informed by Grace’s unaffected trading metrics. Since the three public proposals by 40 North to acquire Grace, Grace had experienced significant share price outperformance relative to the selected publicly traded companies. Moelis deemed the unaffected trading date for these purposes to be March 31, 2021, which was one day prior to 40 North’s “best and final” $70.00 per share cash offer made publicly. Moelis also noted that the high-end of its reference ranges was informed by Ashland Global Holdings Inc., DuPont de Nemours,
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Inc., and Element Solutions Inc., considering their similar growth trajectory, margin profile, and technological expertise. While considered, Moelis did not utilize data for Air Products & Chemicals, Inc. and Albemarle Corporation in its reference ranges because Moelis assessed that those companies have a different customer mix than Grace. Moelis also did not utilize data for Celanese Corporation in its reference ranges because Moelis assessed that Celanese’s overall portfolio of business assets contains less specialty chemical assets than Grace. Finally, Moelis did not utilize data for Hexcel Corporation in its reference ranges because Moelis assessed that Hexcel’s EBITDA estimates are depressed given Hexcel’s exposure to aerospace and defense, which has been disproportionally impacted by COVID-19. The other catalyst manufacturers were included for reference only and not utilized by Moelis for purposes of selecting the reference range due to the limited relative revenue contribution of the catalyst segments to the aggregate product portfolio of the companies.
Based on the foregoing analysis and its professional judgment and experience, Moelis selected reference ranges of 10.5x to 12.5x estimated pro forma Adjusted EBITDA for calendar year 2021 and 9.5x to 11.5x estimated Adjusted EBITDA for calendar year 2022. Moelis then applied these multiples to Grace’s estimated pro forma Adjusted EBITDA for calendar year 2021 and estimated Adjusted EBITDA for calendar year 2022, respectively, provided by Grace’s management. This analysis indicated an implied per share value ranges for the Grace common stock of $60.34 to $78.13 per share, and $65.72 to $86.43 per share, respectively. Moelis compared the implied per share value ranges to the Merger Consideration of $70.00 per share.
Selected Precedent Transactions Analysis
Moelis reviewed financial information for selected precedent transactions announced since 2013 with an EV of at least approximately $300 million involving companies that manufacture specialty chemicals and catalysts on a global basis serving a broad range of transportation, industrial and consumer applications and high value specialty chemical companies with similar financial profile, technology focus and customer exposure. Moelis reviewed, among other things, transaction values of the selected precedent transactions as a multiple of last 12 month (“LTM”) Adjusted EBITDA of the target company. Financial data for the relevant transactions were based on publicly available information relating to the relevant transaction.
The selected precedent transactions used in this analysis and their implied transaction value to LTM Adjusted EBITDA multiples are summarized in the following table:
Date Announced
Acquiror
Target
EV (in
millions)
EV / LTM
Adj.
EBITDA
March 2021
DuPont De Nemours, Inc.
Laird PLC
$2,300
16.5x
March 2021
Cerberus Capital Management, L.P. and Koch Minerals & Trading, LLC
PQ Group Holdings Inc.’s Performance Chemicals business
$1,100
9.4x
February 2021
Bain Capital Private Equity & Cinven Group Ltd.
Lonza Specialty Ingredients
$4,671
13.0x
October 2020
Ardian SA and Ardian Holding SAS
Angus Chemical Company
$2,250
13.1x
April 2019
Merck KGaA
Versum Materials, Inc.
$6,499
14.3x
August 2018
Cabot Microelectronics Corporation
KMG Chemicals, Inc.
$1,566
13.2x
March 2018
Carlyle Group Inc. & GIC Pte.
Akzo Nobel N.V.’s Specialty Chemicals business
$12,524
9.8x
December 2017
W. R. Grace & Co.
Albemarle Corporation’s Polyolefin Catalysts business
$416
12.8x
September 2017
Kuraray Co., Ltd.
Calgon Carbon Corporation
$1,329
15.6x
September 2017
H.B. Fuller Company
Royal Adhesives & Sealants LLC
$1,575
11.4x
December 2016
Evonik Industries AG
J.M. Huber Corporation’s Silica business
$630
10.5x
October 2016
Carlyle Group Inc.
Atotech B.V.
$3,200
11.9x
September 2016
Lanxess AG
Chemtura Corporation
$2,563
9.5x
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Date Announced
Acquiror
Target
EV (in
millions)
EV / LTM
Adj.
EBITDA
June 2016
BASF SE
Albemarle Corporation’s Chemetall Surface Treatment business
$3,200
15.3x
May 2016
Evonik Industries AG
Air Products & Chemicals, Inc.’s Performance Materials division
$3,800
15.8x
November 2015
Air Liquide S.A.
Airgas
$13,400
13.7x
July 2015
Solvay S.A.
Cytec Industries Incorporated.
$6,153
14.8x
July 2015
Platform Specialty Products Corporation
Alent plc
$2,254
13.1x
June 2015
Apollo Affiliated Funds
OM Group, Inc.
$1,100
11.4x
November 2014
Golden Gate Capital
Angus Chemical Company
$1,200
11.2x
September 2014
Eastman Chemical Company
Taminco Corporation
$2,706
10.0x
July 2014
Albemarle Corporation
Rockwood Chemical Co.
$6,142
11.3x
October 2013
W. R. Grace & Co.
Dow Chemical Company’s Catalysts business
$500
11.1x
October 2013
Platform Specialty Products Corporation
MacDermid
$1,800
10.2x
October 2013
Solvay S.A.
Chemlogics Group
$1,345
10.8x
June 2013
Cinven Group Ltd.
CeramTec
$1,988
11.3x
Mean
 
 
 
12.4x
Median
 
 
 
11.7x
In reviewing the characteristics of the selected precedent transactions for purposes of selecting its reference range to apply to Grace’s estimated financial metrics, Moelis noted that its reference range was informed by the mean and median of EV / LTM Adj. EBITDA multiples of selected precedent transactions after considering the selected precedent transactions at the high-end and low-end of the implied transaction multiples. Moelis also noted that its reference range was also informed by selected precedent transactions involving catalysts companies, including Grace’s acquisition of Albemarle Corporation’s Polyolefin Catalysts business at 12.8x EV / LTM Adjusted EBITDA and Grace’s acquisition of Dow Chemical Company’s Catalysts business at 11.1x EV / LTM Adjusted EBITDA. Moelis noted that these were smaller transactions in terms of EV and occurred during a meaningfully different market environment.
Based on the foregoing analysis and its professional judgment and experience, and given the nature of Grace’s operations, Moelis selected a reference range of 11.0x to 13.0x EV / LTM Adjusted EBITDA. Moelis then applied these multiples to Grace’s estimated pro forma Adjusted EBITDA for calendar year 2021 provided by Grace’s management. Moelis used Grace’s Adjusted EBITDA for calendar year 2021 to normalize for the effects of COVID-19 on Grace’s financial performance and included the estimated full-year run-rate impact of the FCS Acquisition. This analysis indicated an implied per share value range for the Grace common stock of $64.81 to $82.55 per share. Moelis compared the implied per share value range to the Merger Consideration of $70.00 per share.
For informational purposes only, Moelis then also applied these multiples to Grace’s estimated Adjusted EBITDA for calendar year 2021 provided by Grace’s management plus an estimated additional run-rate EBITDA of $50 million expected to result from increased capacity from recent capital investments that has not yet been fully realized due to COVID-19 and certain operating segment challenges. This analysis indicated an implied per share value range for the Grace common stock of $72.95 to $92.11 per share. Moelis did not utilize this analysis for purposes of its opinion given the uncertainty of projecting the timing of increased EBITDA resulting from the increased capacity in the current environment. In addition, given the lack of public information relating to adjustments for capital investments of target companies involved in the selected precedent transactions, Moelis noted that applying potential incremental EBITDA resulting from Grace’s increased capital investment to selected precedent information that may not have been adjusted in a consistent way could result in an implied per share value range that was not comparable for purposes of this analysis.
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Discounted Cash Flow Analysis
Moelis performed a discounted cash flow analysis of Grace using the Management Projections and other information and data provided by Grace’s management to calculate the present value of the estimated future unlevered after-tax free cash flows projected to be generated by Grace and the present value of Grace’s estimated terminal value, taking into account the present value of Grace’s net operating losses and other tax credits. For purposes of the discounted cash flow analysis, Moelis calculated unlevered free cash flow as Adjusted EBITDA, less (i) taxes, (ii) capital expenditures, (iii) changes in net working capital, (iv) cash paid for environmental and other legacy liabilities and (v) other miscellaneous adjustments.
Moelis utilized a range of discount rates of 7.50% to 9.25% based on an estimated range of Grace’s weighted average cost of capital. The estimated weighted average cost of capital range reflected a cost of equity derived using the Capital Asset Pricing Model using (i) a risk-free rate based on 20-year U.S. government bonds, (ii) a selected range of unlevered betas and debt to total capitalization ratios informed by the selected publicly traded companies described above, (iii) an equity risk premium and (iv) a size premium based on publicly traded companies with similar equity values to Grace. Moelis used the foregoing range of discount rates to calculate the present values as of December 31, 2020 of (i) Grace’s estimated after-tax unlevered free cash flows for calendar years 2021 through 2025 (in each case, discounted using the mid-year discounting convention) and (ii) the estimated terminal values derived by applying a range of selected terminal multiples of 9.5x to 10.5x to Grace’s estimated terminal year Adjusted EBITDA.
For purposes of selecting the reference range to apply to Grace’s estimated terminal year Adjusted EBITDA, Moelis noted that the terminal multiple was informed most closely by (i) current and historical trading multiples for Grace, (ii) current and historical trading multiples for the selected publicly traded companies and (iii) headwinds in the refining industry, which are expected to drive multiple contraction over time. Based on the foregoing analysis and its professional judgment and experience, Moelis selected a multiple range of 9.5x to 10.5x estimated terminal year Adjusted EBITDA. Moelis then applied such multiple range to Grace’s estimated terminal year Adjusted EBITDA of $824 million provided by Grace’s management to calculate the estimated terminal values. Grace’s estimated terminal year Adjusted EBITDA reflects the impact of Grace’s management’s long-term, publicly disclosed view of expected lower demand for Grace’s FCC business within the Refining Technologies segment based on long-term secular trends in the refining industry.
In calculating the implied per share value ranges for the Grace common stock, Moelis separately valued Grace’s tax attributes including tax credits and net operating losses with the utilization based cash tax savings schedule for calendar years 2021 through 2030 provided by Grace’s management and using a cost of equity range of 8.5% to 12.5%.
Based on the foregoing, Moelis derived implied per share value ranges for the Grace common stock of $66.69 to $83.39. Moelis compared the implied per share value range to the Merger Consideration of $70.00 per share.
For informational purposes only, Moelis also performed a discounted cash flow analysis of Grace with a terminal year Adjusted EBITDA of $882 million based on Grace’s estimated Adjusted EBITDA for calendar year 2025, which was Grace’s terminal year projected Adjusted EBITDA prior to further adjustments by Grace to take into account the impact of the long-term secular trends in the refining industry on the FCC business within the Refining Technologies segment. This analysis indicated an implied per share value range for the Grace common stock of $71.93 to $89.62 per share. Moelis did not utilize this analysis for purposes of its opinion.
Subsequent to the April 25, 2021 presentation to the Board of Directors, Moelis discovered that in performing the foregoing discounted cash flow analysis, Moelis double counted $15.3 million of acquisition-related costs for the FCS Acquisition in Grace’s estimated future unlevered after-tax free cash flow calculation for 2021 and the projected December 31, 2020 balance sheet. Moelis recalculated Grace’s estimated future unlevered after-tax free cash flow for 2021 to remove the $15.3 million of these costs. This recalculation and the impact on the discounted cash flow analysis did not result in any change to Moelis’ ultimate fairness opinion. Moelis did, however, provide the Board of Directors with the revised discounted cash flow analysis, which indicated (i) an increase to the discounted cash flow analysis implied per share value range for the Grace common stock of approximately $0.22 per share, and (ii) an implied per share value range for the Grace common stock of $66.91 to $83.61 (as compared to $66.69 to $83.39 prior to the correction for the estimated future unlevered after-tax free cash flow for 2021). For informational purposes only, Moelis also recalculated its discounted cash flow analysis using the corrected estimated future unlevered after-tax
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free cash flow for 2021 and the terminal year Adjusted EBITDA of $882 million, which indicated an implied per share value range for the Grace common stock of $72.14 to $89.84 (as compared to $71.93 to $89.62 prior to the correction for the estimated future unlevered after-tax free cash flow for 2021).
Other Information
Moelis also noted for the Board of Directors the following additional factors that were not considered part of Moelis’ financial analyses with respect to its opinion, but were referenced for informational purposes: (i) an illustrative leverage buyout analysis for the Grace common stock that reviewed Grace using the Management Projections and other information and data provided by Grace’s management which, based on, among other things, a 6.0x leverage and a 15% to 25% internal revenue rate of return, reflected a range of implied share prices of $48.51 to $65.58, (ii) the historical intraday trading prices for the Grace common stock during the 52-week period ended April 23, 2021, which reflected low and high stock prices during such period of $38.70 and $65.17 per share, (iii) the one-year forward stock price targets for the Grace common stock in recently published, publicly available equity research analysts’ reports, which indicated undiscounted low and high stock price targets ranging from $65.00 to $75.00 per share, and (iv) the one-year forward stock price targets for the Grace common stock in recently published, publicly available equity research analysts’ reports, which was discounted for one year and indicated low and high stock price targets ranging from $58.82 to $67.87 per share.
Miscellaneous
The foregoing is a summary of the analyses undertaken by Moelis in connection with Moelis’ opinion. The preparation of a fairness opinion is a complex analytical process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Moelis’ opinion. In arriving at its fairness determination, Moelis considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Rather, Moelis made its fairness determination 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 analyses described above is identical to Grace or the Merger. In addition, such 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 such analyses. Because the analyses described above are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither Grace nor Moelis or any other person assumes responsibility if future results are materially different from those forecast.
The Merger Consideration was determined through arm’s-length negotiations between Grace and Parent and was approved by the Board of Directors. Moelis did not recommend any specific consideration to Grace or the Board of Directors, or that any specific amount or type of consideration constituted the only appropriate consideration for the transaction. The Board of Directors selected Moelis 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 April 12, 2021, Moelis acted as financial advisor to Grace in connection with the Merger and will receive a fee for its services, estimated to be approximately $28 million in the aggregate based on the information available as of the date of announcement of the Merger, $3 million of which was earned in connection with the delivery of Moelis’ opinion dated April 26, 2021, in connection with the Board of Directors’ consideration of the Merger, regardless of the conclusion reached therein, and the remainder of which is contingent upon completion of the Merger. Furthermore, Grace has agreed to reimburse Moelis for certain expenses and to indemnify Moelis for certain liabilities, including liabilities under the federal securities laws, arising out of its engagement.
Moelis’ affiliates, employees, officers and partners may at any time own securities (long or short) of Grace and Parent. In the past two years, Moelis has not provided investment banking or other services to Grace or Parent. Moelis may, in the future, provide investment banking or other services to Grace, Parent or other parties involved in the Merger and may receive compensation for such services. 40 North or its affiliates have invested in, and from time to time may invest in, securities of entities that are affiliated with Moelis. Mr. Shlomo Yanai, a member of the Board of Directors, serves as a senior advisor to Moelis. Mr. Yanai did not participate in the preparation of the Moelis opinion described above or in the provision of financial advisory services by Moelis to the Board of Directors.
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Additional Presentations by Moelis
In addition to the fairness presentation described above, Moelis presented to the Board of Directors at the meetings held on April 7, 2021 and April 25, 2021 that were each supplemented by respective written presentations. In addition, Moelis provided to the Board of Directors a written supplemental presentation on May 23, 2021. Copies of such presentations (which we collectively refer to as the “additional Moelis presentations”) have been filed as exhibits to the Schedule 13E-3 filed with the SEC in connection with the Merger, will be made available for inspection and copying at the principal executive offices of Grace during its regular business hours by any interested holder of common stock, and may be obtained by requesting it in writing from Grace at the address described in the section of this proxy statement captioned “Where You Can Find More Information.”
The additional Moelis presentations did not form the basis of the Moelis fairness opinion described above. The additional Moelis presentations dated April 7, 2021 and April 25, 2021 were given to the Board of Directors to assist in the negotiations with Parent and the evaluation of the proposed Merger and contained, among other things, an outline of the terms of Parent’s bid as of such date, the status of negotiations with other interested parties and Moelis’ preliminary financial analysis (including a selected publicly traded companies analysis, selected precedent transactions analysis and discounted cash flow analysis), in each case subject to further updates reflected in the fairness presentation. As described above in this section, the supplemental presentation dated May 23, 2021 was provided to the Board of Directors solely to recalculate Grace’s estimated future unlevered after-tax free cash flow for 2021 to remove certain acquisition-related costs for the FCS Acquisition and revise Moelis’ discounted cash flow analysis.
Purpose and Reasons of Grace for the Merger
Grace’s purpose for engaging in the Merger is to enable the Grace Stockholders to receive the Merger Consideration, which represents a premium of 59% over the closing price of the Grace common stock of $44.05 on November 6, 2020, the last trading day prior to the public announcement of 40 North’s initial proposal to acquire Grace on November 9, 2020. Grace believes that the Merger provides the best opportunity to maximize stockholder value (including for unaffiliated security holders). Grace has also considered certain additional factors in determining to undertake the Merger, which are described in further detail in the section of this proxy statement captioned “—Recommendation of the Board of Directors; Reasons for the Merger; Fairness of the Merger.”
Purpose and Reasons of the Purchaser Filing Persons for the Merger
Under the SEC’s rules governing “going-private” transactions, including Rule 13e-3 under the Exchange Act, the following persons (collectively, the “Purchaser Filing Persons”) may be deemed to be “affiliates” of Grace and therefore each Purchaser Filing Person is required to disclose, among other things, its purposes and reasons for the Merger to Grace’s “unaffiliated security holders” as defined in Rule 13e-3:
Merger Sub;
Parent;
Gibraltar Midco Holdings LLC (“Midco Holdings”), the parent company of Parent;
Gibraltar Parent Holdings LLC (“Parent Holdings”), the parent company of Midco Holdings;
Standard Industries;
Standard Industries Holdings, the parent company of both Parent Holdings and Standard Industries;
40 North;
40 North Latitude Fund LP (“40 North Latitude Feeder”);
40 North GP III LLC (“40 North GP III”);
the Supporting Stockholder;
David Winter, the Co-Chief Executive Officer of Standard Industries Holdings and Co-Principal of 40 North; and
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David Millstone, the Co-Chief Executive Officer of Standard Industries Holdings and Co-Principal of 40 North.
Each Purchaser Filing Person is making the statements included in this part of the proxy statement solely for the purpose of conforming with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Purchaser Filing Persons should not be construed as a recommendation to any unaffiliated security holder of Grace as to how that security holder should vote on the proposal to adopt the Merger Agreement or any other proposal considered at the Special Meeting.
For the Purchaser Filing Persons, the purpose of the Merger is to enable Parent to acquire control of Grace so that Parent can operate Grace as a privately held company via a transaction in which the stockholders of Grace will be cashed out for $70.00 per share of Grace common stock, and Parent will bear the rewards and risks of the ownership of Grace after completion of the Merger. In the opinion of the Purchaser Filing Persons, the Merger will provide numerous benefits to the Purchaser Filing Persons and Grace that would follow from Parent acquiring Grace, including, but not limited to:
As a privately held company, Grace will have greater flexibility to operate with a view to the long term without focusing on short-term operating earnings and the associated implications to Grace’s unaffiliated security holders; and
By ceasing to be a public company, Grace will benefit from the elimination of the additional burdens on its management, as well as the expense associated with being a public company, including the burdens of preparing periodic reports, maintaining required controls under U.S. federal securities laws and the costs of maintaining investor relationships, staff and resources.
The Purchaser Filing Persons believe that structuring the transaction as a merger is preferable to other transaction structures because (i) it will enable Parent to acquire all of the outstanding shares of Grace common stock at the same time and (ii) it represents an opportunity for holders of Grace common stock to receive a premium for their shares of approximately 59% over Grace’s closing stock price of $44.05 on November 6, 2020, the last trading day prior to the announcement of 40 North’s initial proposal to acquire Grace on November 9, 2020. Further, the Purchaser Filing Persons believe that structuring the transaction as a merger provides a prompt and orderly transfer of ownership of Grace in a single step, without the necessity of financing separate purchases of shares of Grace common stock in a tender offer and implementing a second-step merger to acquire any shares of Grace common stock not tendered into any such tender offer, and without incurring any additional transaction costs associated with such activities.
Parent will benefit from any future earnings and growth of Grace after the Merger, and will bear the risk of its investment in Grace. Grace’s unaffiliated security holders will not benefit from any future earnings and growth of Grace after the Merger, and they will no longer bear the risk of investment in Grace. The receipt of cash by Grace Stockholders in exchange for shares of Grace common stock in the Merger will be a taxable transaction to Grace Stockholders for U.S. federal income tax purposes. See “—Material U.S. Federal Income Tax Consequences of the Merger.”
Summary of Certain Discussion Materials Provided by Citigroup Global Markets Inc. and J.P. Morgan Securities LLC
40 North retained Citigroup Global Markets Inc. (“Citi”) and J.P. Morgan Securities LLC (“J.P. Morgan”) as financial advisors in connection with its consideration of the transactions contemplated by the Merger Agreement. In this capacity, representatives of Citi and J.P. Morgan provided 40 North with certain financial advisory services. Although Citi and J.P. Morgan generally acted as financial advisor to 40 North, Citi and J.P. Morgan were not requested to provide, and did not provide, to 40 North, any other Purchaser Filing Person, Grace, the holders of any class of securities, creditors or other constituencies of any Purchaser Filing Person or Grace, or any other person (i) any report, opinion or appraisal as to the fairness, from a financial point of view or otherwise, of the transactions contemplated by the Merger Agreement, the Merger Consideration or any other term or aspect of any of the foregoing, (ii) any other valuation of any of the Purchaser Filing Persons or Grace for the purpose of assessing the fairness of the Merger Consideration to any such person or (iii) any advice as to the underlying decision by any Purchaser Filing Person to engage in the transactions contemplated by the Merger Agreement. Because Citi and J.P. Morgan were not requested to, and did not, deliver a fairness opinion in connection with the transactions contemplated by the Merger Agreement, they did not perform financial analyses with a view towards those analyses supporting a fairness opinion. At various times during the course of Citi and
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J.P. Morgan’s engagement as financial advisors to 40 North, representatives of Citi and J.P. Morgan discussed with 40 North various considerations with respect to the transactions contemplated by the Merger Agreement, including what financial analyses would be helpful to 40 North, and Citi and J.P. Morgan produced various financial analyses during the course of their engagement.
The discussion materials prepared by representatives of Citi and/or J.P. Morgan for use in discussions with 40 North (the “Citi and J.P. Morgan Discussion Materials”) have been filed as exhibits to the Schedule 13E-3 filed with the SEC in connection with the transactions contemplated by the Merger Agreement and are incorporated herein by reference. The Schedule 13E-3, including the Citi and J.P. Morgan Discussion Materials, may be examined at, and copies may be obtained from, the SEC in the manner described under “Where You Can Find More Information.” The information in the Citi and J.P. Morgan Discussion Materials is subject to, among other things, the assumptions made, procedures followed, matters considered, and limitations, qualifications and other conditions contained therein and is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Citi and J.P. Morgan as of, the date of such materials. The Citi and J.P. Morgan Discussion Materials are not intended to be and do not constitute a recommendation to any Purchaser Filing Person, Grace, or any other entity with respect to the transactions contemplated by the Merger Agreement, or any other matter. The Citi and J.P. Morgan Discussion Materials do not constitute, and are not intended to represent, any view, opinion, report or appraisal as to the fairness, from a financial point of view or otherwise, of the transactions contemplated by the Merger Agreement or the Merger Consideration to any Purchaser Filing Person, the Grace Stockholders or any other person.
The Citi and J.P. Morgan Discussion Materials were provided solely for the benefit of 40 North for its information and assistance in connection with its consideration of the transactions contemplated by the Merger Agreement. The Citi and J.P. Morgan Discussion Materials do not convey rights or remedies upon the holders of any class of securities, creditors or other constituencies of any Purchaser Filing Person, Grace or any other person (other than 40 North) and should not be relied on as the basis for any other purpose or any investment decision.
In connection with the Citi and J.P. Morgan Discussion Materials, Citi and J.P. Morgan reviewed, among other things, certain publicly available business and financial information concerning Grace and certain non-public information regarding the business and prospects of Grace prepared by management of Grace and approved for Citi and J.P. Morgan’s use by 40 North. Citi and J.P. Morgan also reviewed certain financial analyses and forecasts concerning Grace prepared by 40 North and approved for Citi and J.P. Morgan’s use by 40 North, which predated 40 North's initial November 9 Proposal and were solely based on then-publicly available business and financial information about Grace. Citi and J.P. Morgan assumed and relied, without independent verification, upon the accuracy and completeness of such information. Citi and J.P. Morgan also considered such other factors as Citi and J.P. Morgan deemed appropriate. 40 North did not give any specific instructions nor impose any limitations on Citi and J.P. Morgan with respect to Citi and J.P. Morgan’s preparation of the Citi and J.P. Morgan Discussion Materials.
Citi and J.P. Morgan assumed with the consent of 40 North that the financial analyses and forecasts for Grace prepared by the management of Grace were reasonably prepared on a basis reflecting the best currently available estimates and judgment of the management of Grace, and that the financial analyses prepared by 40 North were reasonably prepared on a basis reflecting the best currently available estimates and judgment of 40 North, in each case as of the date of the analysis or forecast. With respect to any financial forecasts, projections, other estimates and other forward-looking information provided to or otherwise obtained by Citi and J.P. Morgan from public sources, data suppliers and other third parties, Citi and J.P. Morgan assumed that such forecasts, projections, other estimates and information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the preparer as to, and were a reasonable and reliable basis upon which to evaluate, the matters covered thereby. Citi and J.P. Morgan expressed no view as to any of the foregoing financial forecasts, projections, other estimates and other forward-looking information or the assumptions on which they were based. No representation or warranty, express or implied, was made by Citi or J.P. Morgan in relation to the accuracy or completeness of the information presented in the Citi and J.P. Morgan Discussion Materials or their suitability for any particular purpose.
Citi and J.P. Morgan expressed no view, opinion, representation, guaranty or warranty (in each case, express or implied) regarding the reasonableness or achievability of any financial forecasts, projections, other estimates or other forward-looking information provided to, obtained or otherwise reviewed by, or discussed with, Citi or
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J.P. Morgan, or the assumptions upon which they are based. Citi and J.P. Morgan did not conduct, and were not provided with, any independent valuation or appraisal of any assets or liabilities (including any contingent, derivative or other off-balance sheet assets and liabilities) of Grace or any other company or business, nor did Citi or J.P. Morgan make any physical inspection of the properties or assets of Grace or any other company or business. Citi and J.P. Morgan did not express any view with respect to accounting, tax, regulatory, legal or similar matters and relied, with 40 North’s consent, upon the assessments of representatives of Grace as to such matters.
Citi and J.P. Morgan expressed no opinion as to the prices at which Grace common stock will trade at any time, or as to the potential effects of volatility in the credit, financial and stock markets on the Purchaser Filing Persons, Grace or the transactions contemplated by the Merger Agreement, or as to the impact of the transactions contemplated by the Merger Agreement on the solvency or viability of the Purchaser Filing Persons or Grace or the ability of the Purchaser Filing Persons or Grace to pay their respective obligations when they come due. The matters considered by Citi and J.P. Morgan in their financial analyses and reflected in the Citi and J.P. Morgan Discussion Materials were necessarily based on various assumptions, including assumptions concerning general business, economic and capital markets conditions and industry-specific and company-specific factors as in effect on, and information made available to Citi and J.P. Morgan as of the date of such Citi and J.P. Morgan Discussion Materials. Many such conditions are beyond the control of the Purchaser Filing Persons, Grace, Citi and J.P. Morgan. Accordingly, the financial analyses included in the Citi and J.P. Morgan Discussion Materials are inherently subject to uncertainty, and neither of Citi and J.P. Morgan nor any other person assumes responsibility if future results are different from those forecasted. Furthermore, it should be understood that subsequent developments may affect the views expressed in the Citi and J.P. Morgan Discussion Materials and that Citi and J.P. Morgan do not have any obligation to update, revise or reaffirm their financial analyses or the Citi and J.P. Morgan Discussion Materials based on circumstances, developments or events occurring after the date of such Citi and J.P. Morgan Discussion Materials. With respect to the financial analyses performed by Citi and J.P. Morgan in the Citi and J.P. Morgan Discussion Materials, such financial analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by these analyses. While none of the selected companies referred to in the Citi and J.P. Morgan Discussion Materials are directly comparable to Grace, the companies were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Grace based on the familiarity of Citi and J.P. Morgan with the specialty chemicals industry. While none of the selected precedent transactions used in the premia paid analyses and the comparable precedent transaction analyses referred to below are identical to the transactions contemplated by the Merger Agreement and while none of the selected companies involved in such transactions are identical or directly comparable to Grace, the transactions were selected because they involved publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Grace based on the familiarity of Citi and J.P. Morgan with the specialty chemicals industry. Such financial analyses do not purport to be reports, appraisals or to reflect the prices at which shares or other securities or financial instruments of or relating to the common shares of Grace may trade or otherwise be transferable at any time.
The Citi and J.P. Morgan Discussion Materials are not, and should not be viewed as, a recommendation with respect to any matter pertaining to the transactions contemplated by the Merger Agreement. The terms of the transactions contemplated by the Merger Agreement, including the Merger Consideration, were determined solely through negotiations between the parties to the Merger Agreement. The Citi and J.P. Morgan Discussion Materials did not address the relative merits of the transactions contemplated by the Merger Agreement or any other transactions contemplated in connection with the transactions contemplated by the Merger Agreement compared to other business strategies or transactions that may have been considered by the management of the Purchaser Filing Persons.
The following is a summary of the Citi and J.P. Morgan Discussion Materials, which is qualified in its entirety by the full contents of the Citi and J.P. Morgan Discussion Materials. The following summary does not purport to be a complete description of the financial analyses or data presented by Citi and J.P. Morgan or the underlying assumptions made, procedures followed, matters considered, and limitations, qualifications and other conditions contained therein, nor does the order of analyses or materials represent relative importance or weight given to those analyses or materials by Citi and J.P. Morgan. The preparation of financial analyses is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, financial analyses
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are not readily susceptible to summary description. Citi and J.P. Morgan considered the results of all analyses undertaken and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Considering the summaries set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying these analyses, could create a misleading or incomplete view of the Citi and J.P. Morgan Discussion Materials. The Citi and J.P. Morgan Discussion Materials are materials that representatives of Citi and J.P. Morgan presented to the Purchaser Filing Persons with respect to the transactions contemplated by the merger agreement.
October 23, 2020 Discussion Materials
The materials that representatives of Citi sent to certain representatives of the Purchaser Filing Persons on October 23, 2020 summarized among other things (i) trading and financial information for Grace, (ii) analyst and investor views on Grace, (iii) preliminary valuations of Grace, (iv) an analysis of a hypothetical leveraged buyout transaction with Grace, (v) information regarding economic recovery from the impacts of COVID-19 and (vi) a transaction valuation case study. The October 23, 2020 materials included the following:
a review of the historical price performance of Grace’s common stock for the time period from February 4, 2016 to October 16, 2020 based on information Citi obtained from FactSet;
a comparison of firm value (“FV”) / next twelve month earnings before income, taxes, depreciation and amortization (“NTM EBITDA”) and FV / last twelve month earnings before income, taxes, depreciation and amortization (“LTM EBITDA”) for Grace against certain peer companies for the time period from February 2016 to October 2020 based on information Citi obtained from public filings and FactSet;
a review of Grace’s FV / NTM EBITDA distribution based on information Citi obtained from public filings and FactSet;
an overview of certain publicly available research analyst reports for Grace based on information Citi obtained from FactSet, Bloomberg and Wall Street Research;
a review of analyst consensus estimates for Grace’s EBITDA from January 2018 to October 2020 based on information Citi obtained from Factset;
a review of Grace’s historical and projected segment EBITDA based on certain financial information of Grace obtained by Citi as well as public presentations by management of Grace;
an analysis of Grace’s long-term EBITDA margins for the time period of 2007 to 2019 based on certain financial information of Grace obtained by Citi;
a summary of transactions involving Grace’s common stock by certain shareholders and quarterly volume weighted average prices for the time period from September 30, 2018 to September 30, 2020 based on information Citi obtained from Factset;
a summary of investor perceived risks and returns on investment in Grace and certain macro trends that would make Grace attractive to a future strategic acquiror;
a summary of valuations for Grace using methodologies including (i) FV / EBITDA, (ii) pension adjusted FV / EBITDA, (iii) transaction value / EBITDA, and (iv) adjusted transaction value including NOLs / EBITDA, based on information Citi obtained from Factset, and public filings;
a summary of analyses of valuations for Grace using methodologies including (i) future stock price, (ii) discounted cash flow, (iii) equity premiums paid, (iv) comparison with precedent transactions and (v) public comparable valuations, based on information Citi obtained from public presentations by management of Grace, public filings, Factset, Wall Street Research, Citi Deal Intelligence, press releases and industry periodicals; and
a comparison of projections prepared by management of Grace for Revenue and EBITDA against analyst consensus projections, based on information Citi obtained from public filings and Factset.
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TABLE OF CONTENTS

November 16, 2020 Discussion Materials
The materials that representatives of Citi sent to certain representatives of the Purchaser Filing Persons on November 16, 2020 summarized certain financial analyses and data concerning Grace, including the following:
a review of the historical price performance of Grace’s common stock for the time period from February 4, 2016 to November 13, 2020 based on information Citi obtained from FactSet;
a comparison of FV / NTM EBITDA and FV / LTM EBITDA for Grace against certain peer companies for the time period from February 2016 to November 2020 based on information Citi obtained from public filings and FactSet;