RISK FACTORS
An investment in our common stock involves risk. You should consider carefully the risks described below, along with the information discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which are incorporated by reference into this prospectus, together with all the other information included in this prospectus and in the documents we have incorporated by reference. The occurrence of any of the events described could have a material adverse effect on our business, financial condition, results of operations, cash flows, prospects or the value of our common stock. These risks are not the only ones that we face. Additional risks not currently known to us or that we currently deem immaterial also may impair our business. See “Where You Can Find More Information.”
Risks Related to Our Business
You should read and consider risk factors specific to our business before making an investment decision. Those risks are described in the section entitled “Risk Factors
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Risks Relating to Our Industry and Our Business” in our Annual Report on Form 10-K for the year ended December 31, 2018. Please be aware that additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also materially and adversely affect our business, results of operations, financial condition, cash flows, prospects or the value of our common stock.
Risk Factors Relating to the 2019 Rights Offering
We reserve the right to cancel, terminate, amend, or extend the 2019 rights offering at any time prior to the expiration date. If we cancel the 2019 rights offering, neither we nor the subscription agent will have any obligation to you, except to return your subscription payments.
We reserve the right to amend, extend, terminate or cancel the 2019 rights offering on or prior to the expiration date for any reason in our sole discretion. In addition, we may cancel the 2019 rights offering if at any time before completion of the 2019 rights offering there is any judgment, order, decree, injunction, statute, law or regulation entered, enacted, amended or held to be applicable to the 2019 rights offering that in our sole judgment would or might make the 2019 rights offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the 2019 rights offering. If we cancel the 2019 rights offering, in whole or in part, all affected rights will expire without value, and all subscription payments received by the subscription agent will be returned, without interest or penalty, as soon as practicable, and we will promptly arrange for the refund, without interest, of all funds received from holders of rights. All monies received by the subscription agent in connection with the 2019 rights offering will be held by the subscription agent, on our behalf, in a segregated interest bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate the 2019 rights offering and return your subscription payment.
We are currently out of compliance with the NYSE’s minimum share price requirement and are at risk of the NYSE delisting shares of our common stock, which would have an adverse impact on the trading volume, liquidity and market price of shares of our common stock.
On November 27, 2018, we received written notification from the NYSE that we were not in compliance with an NYSE continued listing standard in Rule 802.01C of the NYSE Listed Company Manual because the average closing price of shares of our common stock fell below $1.00 over a period of 30 consecutive trading days. We informed the NYSE that we intend to seek to cure the price condition by executing our strategic plan, which is expected to result in improved operational and financial performance that we expect will ultimately lead to a recovery of the price of shares of our common stock. We can regain compliance with the minimum per share average closing price standard at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, we have (i) a closing share price of at least $1.00 and (ii) an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. We informed the NYSE that we are also prepared to consider a reverse stock split to cure the deficiency, should such action be necessary, subject to approval of our stockholders, at our next annual meeting. Shares of our common stock could also be delisted if our average market capitalization over a consecutive 30 trading-day period is less than $15.0 million, in which case we would not have an opportunity to cure the deficiency, shares of our common stock would be suspended from trading on the NYSE immediately, and the NYSE
would begin the process to delist shares of our common stock, subject to our right to appeal under NYSE rules. We cannot assure you that any appeal we undertake in these or other circumstances will be successful. While we are considering various options, it may take a significant effort to cure this deficiency and regain compliance with this continued listing standard, and there can be no assurance that we will be able to cure this deficiency or if we will cease to comply with another NYSE continued listing standard.
A delisting of shares of our common stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of shares of our common stock; reduce the number of investors willing to hold or acquire shares of our common stock; and negatively impact our ability to access equity markets and obtain financing.
The subscription price may not reflect the value of the Company.
Following negotiations with B. Riley, the backstop exchange party, the Board of Directors determined that the subscription price for shares of our common stock distributed pursuant to the 2019 rights offering should be $0.30 per whole share of common stock. This subscription price was not intended to bear any relationship to the historical price of our common stock or our past or future operations, cash flows, net income, current financial condition, the book value of our assets or any other established criteria for value. As a result, you should not consider the subscription price as an indication of the actual value of our company or of shares of our common stock.
Shareholders who do not exercise their rights will experience dilution.
The rights will permit holders of rights to acquire shares of our common stock representing approximately 98.7% of the aggregate number of shares outstanding as of June 27, 2019. If you do not exercise your right in full and the 2019 rights offering is completed, you will experience significant dilution in your proportionate interest in the equity ownership of our common stock and our Company. If you do not exercise your rights, you may still experience dilution, and you will relinquish any value inherent in the rights. Furthermore, even if you exercise your subscription privilege in full and the 2019 rights offering is completed, you will still experience significant dilution by virtue of the Tranche A-1 Debt Exchange and the Warrant Issuance.
A small number of our shareholders could be able to significantly influence our business and affairs, and you may become a minority stockholder in a controlled company.
As of June 27, 2019, Steel Partners Holdings, L.P., which we refer to as Steel Partners, Vintage and B. Riley beneficially owned approximately 17.8%, 14.9% and 6.5% of our outstanding common stock, respectively (based on each entity's holdings reported on its most recent Schedule 13D filed with the SEC). Immediately following the completion of the Equitization Transactions, based on the scenarios described under “The Equitization Transactions–Dilutive Effects of the Equitization Transactions,” we estimate that Steel Partners will beneficially own between 8.0% and 13.0% of our outstanding common stock, B. Riley will beneficially own between 4.7% and 40.6% of our outstanding common stock and Vintage will beneficially own between 31.6% and 38.1% of our outstanding common stock. Accordingly, a small number of our stockholders could control matters requiring the approval of our stockholders, including the election of directors and the approval of mergers or other business combinations transactions. See “The Equitization Transactions–Dilutive Effects of the Equitization Transactions” for additional information on the assumptions behind these calculations.
B. Riley and Vintage are each significant stockholders of, and lenders to, the Company. A total of five of our seven directors on the Board have been designated by either Vintage or B. Riley pursuant to the Investor Rights Agreement. In addition, we are party to a consulting agreement with B. Riley for the services of our Chief Executive Officer. We have also entered into, or will enter into, various agreements with each of B. Riley and Vintage to implement the Equitization Transactions. These various agreements and relationships may result in B. Riley and Vintage, and any associated directors and officers of the Company, having interests that may be different from those of our stockholders generally. B. Riley and Vintage are financial firms that invest in other companies and securities, including companies that may be our competitors.
Neither B. Riley nor Vintage will be subject to any lock-up with respect to its shares of our common stock following the Equitization Transactions. If B. Riley, alone or together with Vintage, acquires a controlling position in shares of
our common stock as a result of the 2019 rights offering, it will therefore have the ability to sell that controlling position in a privately negotiated transaction and realize a control premium for the shares of our common stock held by it if it is able to find a buyer that is willing to pay such a premium. You should not assume that in connection with such a sale of control there would be a concurrent offer for the shares held by other stockholders or that you would otherwise be able to realize any control premium for your shares. Additionally, if B. Riley, Vintage or others privately sell a significant equity interest in us, we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with the interests of other stockholders.
If B. Riley owns a significant majority of our outstanding common stock following the 2019 rights offering, the liquidity for your shares of our common stock may be adversely affected. Any such reduced liquidity is likely to materially and adversely affect the trading price for our common stock. Other actions that we may take once controlled by B. Riley could have additional material and adverse effects on the liquidity in our common stock and our stock price.
It is also possible that a person or group other than B. Riley may acquire control over us by purchasing unexercised rights in the open market or through private transactions and subsequently exercising those rights. The risks related to control by B. Riley would similarly apply to the control by another person or group.
We may become a “controlled company” within the meaning of NYSE listing standards. Consequently, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements.
If, after the completion of the 2019 rights offering, B. Riley and Vintage, together, own more than 50% of our common stock, we may become a controlled company within the meaning of the NYSE listing standards. Under the NYSE listing standards, a controlled company may elect to not comply with certain NYSE corporate governance standards, including the requirements that (i) a majority of the Board of Directors consist of independent directors, (ii) it maintain a nominating and corporate governance committee that is composed entirely of independent directors with a written charter address addressing the committee’s purpose and responsibilities, (iii) it have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (iv) the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. Following the Equitization Transactions, we may utilize any of these exemptions and others afforded to controlled companies. Consequently, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.
The Equitization Transactions may be deemed a change in control under certain management compensation plans and agreements.
If, after the completion of the Equitization Transactions, B. Riley or Vintage, individually or together as a group, owns more than 30% of our common stock, such acquisition may be deemed a change in control under certain management compensation plans and agreements. A change in control under certain of our management compensation plans and agreements would require the accelerated vesting of all outstanding and unvested equity awards. In addition, if a change in control were to occur following the completion of the Equitization Transactions, certain members of management would be entitled to cash-based severance payments, health and welfare benefits, and bonus payments if such members of senior management are terminated without cause or for good reason (each as defined in their respective employment agreements) within twenty-four months following the change in control. We have not obtained waivers of these provisions in the event the Equitization Transactions constitute a change in control. If we are required to make any payments due to a change in control following consummation of the Equitization Transactions, including cash payments and benefits to certain members of our management, such payments and provision of benefits could have an adverse effect on our liquidity and financial condition.
We cannot guarantee that we will be able to complete the Equitization Transactions, including this 2019 rights offering, in a timely manner or at all, even if they are commenced.
Following the execution of an amendment to our U.S. credit agreement and a letter agreement with B. Riley and Vintage, we committed to use our reasonable best efforts to effect the Equitization Transactions. However, we may not be able to complete the Equitization Transactions, including the 2019 rights offering, in a timely matter or at all, even if they are commenced. In addition, the Equitization Transactions are contingent on a number of conditions described herein, which may prevent us from consummating the Equitization Transactions if these conditions are not achieved. The Board considered numerous factors in concluding that the Equitization Transactions were in our and our stockholders' best interest. If we are unable to complete the Equitization Transactions, we cannot guarantee that we will be able to identify or complete a strategic financing alternative that would be as beneficial to our capital structure as the Equitization Transactions. Failure to complete the Equitization Transactions on our expected timeline could have a material adverse effect on our financial condition and results of operations.
The market price of our common stock may decline before or after the rights expire.
The market price of our common stock could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including:
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the 2019 rights offering, which will involve the issuance of an additional 166,666,667 shares of our common stock, and the other Equitization Transactions described in this prospectus;
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actual or anticipated fluctuations in our results of operations;
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announcements by us or our competitors of significant business developments, changes in customer relationships, acquisitions, or expansion plans;
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changes in the prices or demand for our services;
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our involvement in litigation;
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our sale of our common stock or other securities in the future;
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market conditions in our industry;
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changes in key personnel;
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changes in market valuation or earnings of our competitors;
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the trading volume of our common stock;
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changes in the estimation of the future size and growth rate of our markets; and
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general economic and market conditions.
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We cannot assure you that the market price of our common stock will not decline after you elect to exercise your rights. If that occurs, you may have irrevocably committed to buy shares of our common stock in the 2019 rights offering at a price greater than the prevailing market price, and could have an immediate unrealized loss. Moreover, we cannot assure you that following the exercise of your rights you will be able to sell your shares of our common stock at a price equal to or greater than the subscription price. Until shares of our common stock are delivered upon expiration of the 2019 rights offering, you will not be able to sell shares of our common stock that you purchased in the 2019 rights offering.
Our ability to use net operating loss carryforwards to offset future taxable income will likely be subject to certain limitations.
As of December 31, 2018, we had U.S. federal net operating losses, or NOLs, of approximately $97.6 million. Some or all of our deferred tax assets, consisting primarily of NOLs that are not currently deductible for tax purposes, could expire unused if we are unable to generate sufficient taxable income in the future to take advantage of them or we enter into transactions that limit our right to use them, which includes transactions that result in an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the Code or the IRC.
As a general matter, the treatment of NOL carryforwards arising in tax years beginning on or before December 31, 2017 has not changed under the tax reform legislation enacted in 2017. NOL carryforwards arising in tax years beginning after December 31, 2017, however, may be used to offset only 80% of taxable income. In addition, NOLs arising in tax years ending after December 31, 2017 may be carried forward indefinitely, as opposed to the 20-year carryforward under prior law.
We continue to monitor for the possibility of an ownership change as defined under IRC Section 382. Under IRC Section 382, a company has undergone an ownership change if shareholders owning at least 5% of the company have increased their collective holdings by more than 50% during the prior three-year period. In general, if an ownership change occurs, our ability to use NOL carryforwards and certain credits to reduce tax payments is generally limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate. The determination of whether an ownership change has occurred for purposes of IRC Section 382 is complex and requires significant judgment. Moreover, the number of shares of our common stock outstanding at any particular time for purposes of IRC Section 382 may differ from the number of shares that we report as outstanding in our filings with the SEC.
The issuance of our common stock in this offering, alone or taken together with the other Equitization Transactions will likely cause an ownership change and result in an annual limitation on the use of our NOLs. Further, even if an “ownership change” does not result from any additional financing we obtain, we cannot provide any assurance that we will not undergo an “ownership change” in the future. Small changes in ownership by shareholders owning at least 5% of the Company could result in an ownership change. By way of example, if we had experienced an ownership change as of December 31, 2018, the future utilization of our then federal NOL carryforwards would have been limited annually to approximately $1.7 million, based upon the approximate value of the Company multiplied by the long-term tax-exempt rate at the time of the ownership change.
The IRS could challenge the amount, timing and/or use of our NOL carryforwards.
The amount of our NOL carryforwards has not been audited or otherwise validated by the IRS. Among other things, the IRS could challenge whether an ownership change occurred, as well as the amount, the timing and/or our use of our NOLs. Any such challenge, if successful, could significantly limit our ability to utilize a portion or all of our NOL carryforwards. In light of the inherent uncertainty involved in calculating whether an ownership change has occurred (both because of the complexity of applying IRC Section 382 and because of limitations on a publicly-traded company’s knowledge as to the ownership of, and transactions in, its securities), the calculation of the amount of our utilizable NOL carryforwards could be changed as a result of a successful challenge by the IRS or as a result of new information about the ownership of, and transactions in, our securities.
The 2019 rights offering may cause the price of our common stock to decrease and you may be able to purchase our common stock on the open market at a price below the subscription price.
The announcement of the 2019 rights offering, the subscription price, and the number of shares of our common stock we could issue if the 2019 rights offering is completed could result in an immediate decrease in the trading price of our common stock. This decrease may occur before the expiration date and continue after consummation of the 2019 rights offering. If such a decrease occurs, your purchase of shares of our common stock in the 2019 rights offering may be at a price greater than the prevailing trading price. Further, if a substantial number of rights are exercised and the holders of our common stock received upon exercise of those rights choose to sell some or all of
those shares, the resulting sales could depress the market price of our common stock. Accordingly, you may be able to purchase shares of our common stock on the open market at a price below the subscription price.
You may not revoke your subscription exercise and you could be committed to buying shares above the prevailing market price.
Once you exercise your rights, you may not revoke the exercise of such rights. The public trading market price of our common stock may decline before the rights expire. If you exercise your rights and the public trading market price of our common stock is or afterwards decreases below the subscription price, you will have committed to buy shares of our common stock at a price above the prevailing market price. Moreover, you may be unable to sell the shares of our common stock that you purchase in the 2019 rights offering at a price equal to or greater than the subscription price you paid for such shares.
If you do not act promptly and follow the subscription instructions, your exercise of rights may be rejected.
Stockholders who desire to purchase shares of our common stock in the 2019 rights offering must act promptly to ensure that all required forms and payments are actually received by the subscription agent at or before 5:00 p.m., New York City time, on July 18, 2019, the expiration date of the 2019 rights offering, unless extended. If you are a beneficial owner of shares, you must act promptly to ensure that your broker, bank, or other nominee acts for you and that all required forms and payments are actually received by the subscription agent at or before the expiration date. We will not be responsible if your broker, bank, or nominee fails to ensure that all required forms and payments are actually received by the subscription agent at or before the expiration date. If you fail to complete and sign the required subscription forms, send an incorrect payment amount or otherwise fail to follow the subscription procedures that apply to your exercise in the 2019 rights offering, the subscription agent may, depending on the circumstances, reject your subscription or accept it only to the extent of the payment received. Neither we nor our subscription agent undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.
Significant sales of rights and our common stock, or the perception that significant sales may occur in the future, could adversely affect the market price for the rights and our common stock.
The sale of substantial amounts of the rights and our common stock could adversely affect the price of these securities. Sales of substantial amounts of our rights and our common stock in the public market, and the availability of shares for future sale, including up to 166,666,667 shares of our common stock to be issued in the 2019 rights offering and shares of our common stock to be issued pursuant to the other Equitization Transactions, could adversely affect the prevailing market price of our common stock and the rights and could cause the market price of our common stock to remain low for a substantial time. We cannot foresee the impact of such potential sales on the market, but it is possible that if a significant percentage of such available shares and rights were attempted to be sold within a short period of time, the market for our common stock and the rights would be adversely affected. It is also unclear whether or not the market for our common stock (and any market that develops for our rights) could absorb a large number of attempted sales in a short period of time, regardless of the price at which they might be offered. Even if a substantial number of sales do not occur within a short period of time, the mere existence of this “market overhang” could have a negative impact on the market for our common stock and the rights. See “
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The market price of our common stock may decline before or after the rights expire.”
In administering the 2019 rights offering, we will be relying on statements, representations and other information provided to us by third parties.
In administering the exercising of rights in the 2019 rights offering, we will rely on the accuracy of various statements and representations provided to us by brokers, dealers, holders of rights and other third parties. If these statements or representations are false or inaccurate, it may delay or otherwise negatively affect our or the subscription agent’s ability to administer the 2019 rights offering in accordance with the terms and conditions described in this prospectus.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. You should not place undue reliance on these statements. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements.
These forward-looking statements address matters that involve risks and uncertainties and include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and industry in general. There are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following:
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our ability to continue as a going concern;
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our ability to obtain and maintain sufficient financing to provide liquidity to meet our business objectives, surety bonds, letters of credit and similar financing;
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our ability to satisfy requirements under our U.S. credit agreement;
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our ability to complete the Equitization Transactions and all related transactions in a timely manner, if at all;
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the highly competitive nature of our businesses;
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general economic and business conditions, including changes in interest rates and currency exchange rates;
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general developments in the industries in which we are involved;
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cancellations of and adjustments to backlog and the resulting impact from using backlog as an indicator of future earnings;
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our ability to perform contracts on time and on budget, in accordance with the schedules and terms established by the applicable contracts with customers;
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failure by third-party subcontractors, partners or suppliers to perform their obligations on time and as specified;
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our ability to realize anticipated savings and operational benefits from our restructuring plans, and other cost-savings initiatives;
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our ability to successfully address remaining items and any warranty obligations within our accrued estimated costs for our Vølund & Other Renewable segment;
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our ability to successfully partner with third parties to win and execute contracts within the Vølund & Other Renewable segment;
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changes in our effective tax rate and tax positions, including any limitation on our ability to use our net operating loss carryforwards and other tax assets as a result of an "ownership change" under Section 382 of the Code;
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our ability to maintain operational support for our information systems against service outages and data corruption, as well as protection against cyber-based network security breaches and theft of data;
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our ability to protect our intellectual property and renew licenses to use intellectual property of third parties;
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our use of the percentage-of-completion method to recognize revenue over time; our ability to successfully manage research and development projects and costs, including our efforts to successfully develop and commercialize new technologies and products;
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the operating risks normally incident to our lines of business, including professional liability, product liability, warranty and other claims against us;
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changes in, or our failure or inability to comply with, laws and government regulations;
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actual of anticipated changes in governmental regulation, including trade and tariff policies;
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difficulties we may encounter in obtaining regulatory or other necessary permits or approvals;
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changes in, and liabilities relating to, existing or future environmental regulatory matters;
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changes in actuarial assumptions and market fluctuations that affect our net pension liabilities and income;
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potential violations of the Foreign Corrupt Practices Act;
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our ability to successfully compete with current and future competitors;
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the loss of key personnel and the continued availability of qualified personnel;
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our ability to negotiate and maintain good relationships with labor unions;
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changes in pension and medical expenses associated with our retirement benefit programs;
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social, political, competitive and economic situations in foreign countries where we do business or seek new business; the possibilities of war, other armed conflicts or terrorist attacks;
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the willingness of customers and suppliers to continue to do business with us on reasonable terms and conditions as well as our ability to successfully consummate strategic alternatives for non-core assets, if we determine to pursue them;
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our ability to maintain the listing of our common stock on the NYSE; and
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the other risks set forth under the heading “Risk Factors” in this prospectus or in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, which are incorporated by reference in this prospectus.
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These factors are not necessarily all the factors that could affect us. We assume no obligation to revise or update any forward-looking statement included in this prospectus for any reason, except as required by law.
THE EQUITIZATION TRANSACTIONS
Introduction
We faced significant financial and liquidity challenges throughout 2018 as a result of our European Vølund loss contracts. These challenges became particularly acute during the first quarter of 2019, and there was substantial doubt regarding our ability to continue operation as a going concern as, among other things, we were nearly fully drawn on our U.S. revolving credit facility and were dependent upon a series of short-term, limited waivers with our lenders to maintain compliance with the covenants in our U.S. credit agreement. After evaluating a range of strategic alternatives, in April 2019, we executed an amendment to our U.S. credit agreement and a letter agreement with B. Riley and Vintage pursuant to which we committed to use our reasonable best efforts to effect the following Equitization Transactions:
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a $50.0 million rights offering allowing our stockholders to subscribe for shares of our common stock at a price of $0.30 per share, the proceeds of which will be used to prepay a portion of the Tranche A-3 last-out term loans under our U.S. credit agreement;
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the exchange of Tranche A-1 last-out term loans under our U.S. credit agreement for shares of our common stock at a price of $0.30 per share; and
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the issuance to B. Riley or such other persons as B. Riley may designate of an aggregate 16,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share.
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If the Equitization Transactions are consummated, we will issue approximately 292.4 million shares of common stock. Based on the number of shares of common stock outstanding as of June 27, 2019, the shares issued in the Equitization Transactions will represent approximately 63% of the total shares of common stock outstanding following the Equitization Transactions. This excludes the 16,666,667 shares of common stock subject to issuance pursuant to the warrants issued in the Equitization Transactions as well shares of common stock reserved for issuance under the 2015 LTIP. The actual number of shares of common stock issued in the Equitization Transactions may be higher than the amount indicated, however, due to, among other things, the accumulation of paid-in-kind interest on the outstanding Tranche A-1 last-out term loans under our U.S. credit agreement through the completion of the Tranche A-1 Debt Exchange.
B. Riley and Vintage are significant stockholders of the Company and have various interests in the Equitization Transactions that may differ from those of our other stockholders. See “
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Interests of Our Officers, Directors, and Principal Stockholders in the Equitization Transactions” for more information.
Reasons for the Equitization Transactions
Initial Refinancing Attempts During January and February 2019 Are Unsuccessful
In early 2019, at the urging of the lenders under our U.S. revolving credit facility, management asked Ducera Partners LLC, which we refer to as Ducera, and B. Riley FBR, Inc., the investment banking subsidiary of B. Riley which we refer to as B. Riley FBR, to seek $100 million of new last-out secured financing to address our looming liquidity challenges. Ducera and B. Riley FBR were selected by management because of, among other reasons, their familiarity with us and their experience, qualifications and reputation in connection with sourcing financing for distressed companies.
Ducera and B. Riley FBR provided the financing opportunity to more than 30 financing sources in the special situations lending market. Of these, more than 20 signed non-disclosure agreements, which enabled them to receive, among other confidential information, information regarding our future business plans, our European Vølund EPC loss contracts and our expected liquidity needs. In addition, we held in-person and telephonic management meetings and discussions with 12 of these financing sources. After experiencing general disinterest from the parties contacted, Ducera and B. Riley FBR evaluated various enhancements to the proposed financing package with certain of these potential financing sources, including a first lien position on portions of our European business. By the end of February 2019, none of the potential financing sources approached by Ducera and B. Riley FBR were willing to provide written proposals for financing outside of bankruptcy on any terms.
Further Refinancing Attempts During Early March 2019 Are Also Unsuccessful
In early March 2019, as the prospects for a settlement of our remaining European Vølund EPC loss contracts improved, at the direction of our management, Ducera again approached several of the initial financing sources it had previously approached to seek a reduced last-out secured financing of $70 million, coupled with a $70 million equity financing. Once again, none of these potential financing sources were willing to provide proposals on any terms.
With No Viable Alternatives, B. Riley Makes Rescue Financing Proposal in Mid-March 2019
By mid-March 2019, with the outlook for a successful refinancing appearing increasingly unlikely, B. Riley informed us that it had begun considering a rescue financing proposal. As a result, we determined that B. Riley FBR should no longer act in any advisory capacity to us and should receive no fees or other consideration for services previously rendered to us.
On March 15, 2019, Ducera received a written financing proposal from B. Riley to provide an additional $140 million last-out term loan under our U.S. credit agreement. Part of this additional last-out term loan would be repaid through a $50 million rights offering to be conducted at a price of $0.30 per share. The proposal also specified, among other things, that (1) B. Riley have the right to appoint four members of our Board, (2) Vintage exchange its outstanding $35.1 million of last-out term loans for common stock, (3) B. Riley receive pre-emptive rights over future equity issuances, (4) B. Riley would receive a 2% fee for structuring the financing and receive reimbursement for certain transaction-related expenses, and (5) B. Riley be given a 30-day exclusivity period to negotiate final documentation for the financing. The Board discussed the terms of this proposal with representatives of Ducera at a meeting held on March 17, 2019. During this meeting, representatives of Ducera confirmed to the Board, in response to questions from the Board, that, in Ducera's experience, the financial terms proposed by B. Riley were reasonable under the circumstances and that no other financing proposals had been received to date despite extensive solicitation efforts.
At approximately the same time, several of our vendors and counterparties began to squeeze our liquidity even further, requiring pre-payment and demanding other tightened commercial and payment terms. As a result, management determined that an immediate injection of $10 million was required in order to give us sufficient liquidity to avoid seeking immediate bankruptcy protection for three weeks while we negotiated a more fulsome financing. With our revolving credit facility almost fully drawn and faced with no alternative financing sources that could act fast enough, we asked B. Riley if it would be willing to fund an additional $10 million last-out term loan on the same general terms as our then existing last-out term loan. B. Riley promptly agreed and, within approximately 24 hours, had funded the loan.
With the immediate liquidity crisis averted, over the next three weeks, representatives of each of Ducera, King & Spalding LLP (counsel to the Company), and B. Riley, Vintage and their respective legal counsel engaged in extensive discussions and negotiations concerning the terms of B. Riley’s rescue financing proposal. These negotiations focused on, among other things, the proposed terms (including interest rate, covenant package and make-whole repayment provisions) for the additional last-out term loan, the size of the additional financing and the related rights offering, the possibility of issuing convertible preferred stock in lieu of a last-out term loan, the subscription price for the rights offering, the number of directors B. Riley would be entitled to appoint and the issuance of warrants to B. Riley or its designees. Representatives of Ducera took the lead role in negotiating the financial terms of B. Riley’s rescue financing proposal, including the Equitization Transactions, on our behalf.
During this same period, and with progress continuing on a potential settlement with respect to our remaining European Vølund EPC loss contracts, Ducera again approached six of the financing sources it had previously approached to conduct a “market check” and determine whether any of those parties had interest in making an alternative financing proposal that would be superior to B. Riley’s proposal. Despite discussions with several financing sources, including our largest stockholder, none of the financing sources contacted were willing to provide a financing proposal on any terms.
On April 2, 2019, we filed our annual report on Form 10-K for the year ended December 31, 2018. In that report, we disclosed that we would need additional amendments to, or waivers under, our U.S. credit agreement, as well as additional financing, prior to April 5, 2019 to continue as a going concern. We also disclosed that we were in active
discussions with certain of our related parties regarding their provision of such additional financing and that it was possible we may seek stockholder approval for a reverse stock split and engage in a rights offering and other equity transactions, such as issuing warrants with a
de minimis
strike price, that could result in substantial dilution to our stockholders.
Board Oversight Generally and Approval of the Equitization Transactions Specifically
In the course of evaluating potential financing arrangements, the Board met 19 times in 2019 prior to the announcement of the Equitization Transactions. During these meetings, the Board received regular, detailed updates from management and our outside advisors regarding, among other matters, our deteriorating liquidity position and efforts to obtaining financing necessary to continue as a going concern. During this period, the Board considered alternatives to preserve and maximize stockholder value and was advised by Ducera, Wachtell, Lipton, Rosen & Katz, which has served as special counsel to the Board since 2015, and King & Spalding LLP, which is corporate counsel to the Company. The Board was also advised by Alvarez & Marsal, who advises us on cash management and liquidity matters, among other things, as described in greater detail below. Furthermore, from time to time during the period in which the Board was considering B. Riley’s rescue financing proposal, the Board met in executive session without Messrs. Kahn and Young being present due to their respective relationships with Vintage and B. Riley.
On April 3, 2019, the Board formally considered and approved B. Riley’s rescue financing proposal, including the Equitization Transactions. At this meeting, representatives of Ducera confirmed that they had again reached out to certain potential financing sources they believed could act quickly, including our largest stockholder, and that each of these financing sources affirmatively declined to make a proposal. The Board discussed at length its views that rejection of the B. Riley rescue financing proposal would necessitate that we seek bankruptcy protection. The Board’s advisors agreed and advised the Board that, in a bankruptcy proceeding, the value of our business and assets would likely be used to satisfy the claims of our secured lenders and other creditors, leaving little, if any, value for our stockholders. These creditors would include creditors under certain of our contingent liabilities, such as letters of credit which would be drawn following a bankruptcy proceeding. Moreover, a bankruptcy proceeding would be expensive and highly disruptive, further deteriorating the value of our business and our assets. A bankruptcy proceeding would also have required substantial debtor-in-possession financing, and our secured lenders (a likely source of that financing) indicated that they would only provide such funding if we pursued a sale of substantially all of our assets. Accordingly, the Board determined that a bankruptcy filing should be avoided if an otherwise reasonable alternative existed.
Due to our immediate liquidity needs and inability to otherwise continue as a going concern, the significant time and resources necessary to obtain a fairness opinion or perform a valuation analysis, and the lack of other viable financing alternatives based on the extensive work completed by Ducera in surveying the market for alternative financing proposals, the Board did not request and did not obtain a fairness opinion or any other valuation analysis with respect to the pricing of the Equitization Transactions.
In light of the totality of these discussions and other relevant considerations, the Board concluded that B. Riley’s rescue financing proposal was our best reasonably available alternative under the circumstances to preserve equity value for all of our stockholders. In approving B. Riley’s rescue financing proposal, including the Equitization Transactions, Mr. Bartoli (as a member of management) and Mr. Kahn were excused from the meeting and did not vote on the proposal.
Certain Unaudited Prospective Financial Information
We do not, as a matter of course, publicly disclose long-term financial projections as to future financial performance, earnings or other results. We do not disclose this information due to, among other reasons, the unpredictability of the underlying assumptions and estimates and the inherent unreliability of such projections. To assist the Board in its evaluation of B. Riley's rescue financing proposal, including the Equitization Transactions, management prepared financial projections through fiscal year 2023 for certain financial measures (the “Management Projections”). The Management Projections reflect management’s best available estimates and judgment regarding our future liquidity at the time they were prepared and provided to the Board at its April 3, 2019 meeting.
The Management Projections were not prepared with a view to public disclosure and are included in this prospectus only because such information was provided to the Board. The Management Projections were not prepared with a view to complying with generally accepted accounting principles as applied in the United States (“GAAP”), the published guidelines of the SEC regarding projections and forward-looking statements, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, Deloitte & Touche LLP (“Deloitte”), our independent registered public accounting firm, has not examined, compiled, or performed any procedures with respect to the Management Projections. Accordingly, Deloitte does not express an opinion or any other form of assurance with respect thereto. The Management Projections included in this prospectus have been prepared by, and are the responsibility of, our management, and are subjective in many respects.
Although the Management Projections are presented with numerical specificity, the Management Projections reflect estimates made by our management as to future events that our management believed were reasonable at the time they were prepared and numerous assumptions with respect to our ability to achieve strategic goals, objectives, and targets, industry performance, regulatory environment, general business, economic, market, and financial conditions and other important factors that may affect actual results and cause the Management Projections not to be achieved. In addition, the Management Projections cover multiple future years, and such information by its nature is less reliable in predicting each successive year. The Management Projections constitute forward-looking statements and do not take into account any circumstances or events occurring after the date that they were prepared. Further, the Management Projections assume funding of the Tranche A-3 last-out term loans and the realization of our targeted $100 million in annual cost savings, as well as the completion in September 2019 of the Equitization Transactions. As a result, there can be no assurance that the Management Projections will or would be realized, and actual results may be materially better or worse than those contained in the Management Projections. For information on factors that may cause our future results to materially vary, see the section entitled “Cautionary Statement Concerning Forward-Looking Statements” above. The inclusion of this information should not be regarded as an indication that the Board, the Company, or any of our affiliates or our or their respective directors, officers, employees, or advisors or any other recipient of this information considered, or now considers, the Management Projections to be material information or predictive of actual future results nor should it be construed as financial guidance, and the Management Projections should not be relied upon as such.
The Management Projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in our public filings with the SEC. Management reviewed the Management Projections with the Board, which only considered the Management Projections in connection with its evaluation and approval of B. Riley’s rescue financing proposal, including the Equitization Transactions, because it had been advised by management that the Management Projections reflected management’s best available estimates and judgment regarding our future financial performance.
Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Management Projections to reflect circumstances existing after the date when our management prepared the Management Projections, or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any of the assumptions underlying the Management Projections are shown to be in error.
Furthermore, the adjusted EBITDA measure included in the Management Projections is a non-GAAP financial measure. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, or superior to, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by us may not be comparable to similarly titled amounts used by other companies. We calculate adjusted EBITDA as operating income before depreciation, amortization and other gains or charges that are not related to our core operations; adjusted EBITDA excludes depreciation and amortization and other non-routine items such as restructuring charges, litigation and settlement costs, impairments, gains or losses on asset or business disposals, advisory fees required under the terms of our U.S. credit agreement, and other matters.
It is not possible for us to identify the amount or significance of all future adjustments associated with potential non-routine costs that we adjust in our presentation of adjusted EBITDA. These items are dependent on future events and/or market inputs that are not reasonably estimable at this time. Accordingly, management is unable to reconcile without unreasonable effort its forecasted adjusted EBITDA presented below to a comparable GAAP operating income. However, B&W’s full-year adjusted EBITDA guidance excludes the following estimable adjusting items:
depreciation and amortization of approximately $26 million in 2019, approximately $20 million in 2020 and approximately $15 million in 2021 and thereafter, settlement cost to exit a Vølund contract of $6.5 million, restructuring costs of approximately $10 million in 2019, financial advisory services costs and other professional fees of approximately $25 million 2019.
In light of the foregoing factors and the uncertainties inherent in the Management Projections, stockholders are cautioned not to rely on the Management Projections.
The following tables provide certain metrics reflected in the Management Projections:
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($ in thousands)
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FY 2019
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FY 2020
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FY 2021
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FY 2022
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FY 2023
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Adjusted EBITDA
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$38,530
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$82,685
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$94,812
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$101,425
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$103,814
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Certain Information Concerning Our Advisors
Under the terms of our engagement with Ducera, we paid Ducera a transaction fee of $2.2 million for financial advisory services provided to us by Ducera in connection with the Equitization Transactions. We also agreed to reimburse Ducera’s reasonable expenses, subject to a cap, and to indemnify Ducera, its affiliates, their respective members, managers, directors, officers, partners, agents and employees, and any controlling person of Ducera and its affiliates, against certain liabilities and expenses relating to or arising out of Ducera’s engagement. Beginning July 1, 2019, we have agreed to pay Ducera a quarterly cash fee of $75,000 for ongoing financial advisory services. Ducera has provided various services to us since July 2017. In the two years prior to the approval of the Equitization Transactions, Ducera received approximately $3.4 million from us in connection with such services. In the two years prior to the approval of the Equitization Transactions, Ducera did not receive fees for services rendered to B. Riley, Vintage or any of their respective affiliates. Ducera and its affiliates may provide financial or other services to the Company, B. Riley, Vintage or our or their respective affiliates in the future and in connection with any such services Ducera may receive compensation.
In the two years prior to the approval of the Equitization Transactions, we paid Alvarez & Marsal approximately $21.1 million in connection with services they provided as required under the terms of our U.S. credit agreement, including services related to the Equitization Transactions and our recent amendments to our U.S. credit agreement and the provision of financial advisory services, such as liquidity analysis, activities related to cost reduction initiatives and provision of our Chief Implementation Officer. Alvarez & Marsal is generally paid on an hourly basis for services provide to us, with a fixed monthly fee being paid for persons serving as our officers, and none of their compensation was contingent upon the approval of the Equitization Transactions.
Certain Considerations Relevant to the Equitization Transactions
On April 3, 2019, the Board of Directors met, considered and approved the amendment to our U.S. credit agreement and a letter agreement with B. Riley and Vintage committing us to pursue the Equitization Transactions. Although the Board of Directors determined that the Equitization Transactions are advisable and in the best interests of the Company and our stockholders, the Equitization Transactions involve certain considerations that, in isolation, may be viewed as negative. These considerations include, but are not limited to, the following:
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existing stockholders (other than B. Riley and Vintage) will see their proportionate ownership interest in us reduced as a result of the Equitization Transactions, even if they elect to participate in full in the 2019 rights offering.
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to the extent that a stockholder does not elect to participate in the 2019 rights offering and the 2019 rights offering is consummated, such stockholder’s proportionate ownership interest in us will be substantially reduced.
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the interest rate on our outstanding last-out term loans is currently a fixed rate per annum of 7.5% payable in cash and 8% payable in kind. If we are unable to complete the 2019 rights offering by October 5, 2019, as such date may be extended under our U.S. credit agreement, which we refer to as the Last-Out Term Loan Prepayment Period, the interest rate on our outstanding last-out term loans will become a fixed rate per annum of 12% payable in cash. If we are unable to complete the 2019 rights offering within the Last-Out Term Loan
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Prepayment Period, the interest rate on our outstanding last-out term loans will become a fixed rate per annum of 7.5% payable in cash and 10.5% payable in kind. If the 2019 rights offering is not completed within the Last-Out Term Loan Prepayment Period, we estimate that it would result in approximately an additional $18.0 million of interest and principal payable by us on our last-out term loans during the period from October 5, 2019 (assuming the Last-Out Term Loan Prepayment Period is not extended) through the maturity date of the last-out term loans. In addition, the Equitization Transactions are expected to reduce our debt balance by approximately $85 million. If we are unable to complete the Equitization Transactions at all, or during the Last-Out Term Loan Prepayment Period, the increased amount of our outstanding indebtedness could impair our future efforts to refinance our indebtedness, including our ability to refinance the revolving credit facility portion of our U.S. credit agreement that must be refinanced prior to March 15, 2020 in order to avoid default and to avoid up to approximately $18 million in deferred amendment and ticking fees payable to our revolving credit facility lenders if we are unable to refinance the revolving credit facility prior to December 15, 2019.
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sales of substantial amounts of our common stock in the public market, and the availability of shares for sale, including through the shares being issued in the Equitization Transactions, could adversely affect the prevailing market price of our common stock and cause the market price of our common stock to remain low for a substantial period of time and stockholders may be able to purchase shares of our common stock on the open market at a price below the subscription price for the 2019 rights offering.
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if no stockholder elects to participate in the 2019 rights offering and if all warrants issued in the Equitization Transactions are issued to B. Riley, assuming B. Riley fully backstops the 2019 rights offering on the terms described below, we will issue an aggregate of approximately 183.3 million shares of common stock to B. Riley and approximately 125.7 million shares of common stock to Vintage, which would increase B. Riley’s ownership percentage of our common stock to approximately 40.6% (assuming B. Riley’s beneficial ownership and total shares outstanding as disclosed in its latest amendment to its Schedule 13D filing) and would increase Vintage’s ownership percentage of our common stock to approximately 31.6% (assuming Vintage’s beneficial ownership and total shares outstanding as disclosed in its latest amendment to its Schedule 13D filing) after giving effect to the Equitization Transactions.
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depending on the extent to which holders elect to participate in the 2019 rights offering, such other holders might become minority stockholders in a company controlled by B. Riley and Vintage, and there may be very limited liquidity for our common stock and there may be more limited opportunities for stockholders to realize a control premium (whether or not a stockholder elects to participate in the 2019 rights offering).
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granting B. Riley pre-emptive rights pursuant to the Investor Rights Agreement may enable them to maintain their level of beneficial ownership of our common stock indefinitely in the future.
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if B. Riley and Vintage, together, own more than 50% of our common stock following consummation of the Equitization Transactions, we may become a “controlled company” within the meaning of the NYSE listing standards, which could lessen the governance protections afforded to our stockholders and could make our common stock less attractive to some investors or otherwise harm our stock price.
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the Equitization Transactions are expected to result in a change in ownership as defined under Section 382 of the Code, which would limit our ability to use certain deferred tax assets (consisting primarily of U.S. federal net operating losses (“NOLs”) that are not currently deductible for tax purposes). Under Section 382 of the Code, a company has undergone an ownership change if stockholders owning at least 5% of the company have increased their collective holdings by more than 50% during the prior three-year period. In general, if such an ownership change occurs, our ability to use net operating loss carryforwards and certain credits to reduce tax payments is generally limited to an annual amount based on the fair market value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate.
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We cannot guarantee that we will be able to complete the Equitization Transactions in a timely manner or at all, even if they are commenced. Further, we cannot guarantee that we will be able to identify or complete a strategic financing alternative that would be as beneficial to our capital structure as the Equitization Transactions. Failure to
complete the Equitization Transactions on our expected timeline could have a material adverse effect on our financial condition and results of operations.
The 2019 Rights Offering
We are undertaking the 2019 rights offering to equitize a portion of the Tranche A-3 last-out term loans under our U.S. credit agreement and to satisfy our obligation to use our reasonable best efforts to seek to effect the Equitization Transactions. See “The 2019 Rights Offering” for detailed information about the terms of the 2019 rights offering.
Investor Rights Agreement
As contemplated by the financing transactions announced on April 5, 2019, on April 30, 2019, we entered into the Investor Rights Agreement with Vintage and B. Riley. As part of the Investor Rights Agreement, we agreed to appoint three directors to the Board of Directors nominated by each of Vintage and B. Riley, with the size of the full Board of Directors to remain at seven directors. Vintage re-nominated Henry E. Bartoli and designated Matthew E. Avril and Kenneth Siegel, as its nominees under the Investor Rights Agreement. B. Riley designated Alan B. Howe to serve as a Class II director, and Bryant R. Riley and Brian R. Kahn to serve as Class III directors, under the Investor Rights Agreement.
Pursuant to the Investor Rights Agreement, each of Vintage and B. Riley will retain their right to nominate directors to serve on the Board of Directors so long as they continue to meet certain quantitative thresholds with regard to the amount of our common stock and debt they beneficially own. B. Riley’s contractual rights to nominate directors will continue with respect to:
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prior to the closing of the last of the Equitization Transactions, or the Equitization Closing:
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three Board of Directors members, for so long as B. Riley beneficially owns at least $56.25 million of the Tranche A-2 Term Loan and Tranche A-3 Term Loan, combined;
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two Board of Directors members, after the first time that B. Riley beneficially owns less than $56.25 million of the Tranche A-2 Term Loan and Tranche A-3 Term Loan, combined, but for so long as B. Riley continues to beneficially own at least $37.50 million of the Tranche A-2 Term Loan and Tranche A-3 Term Loan, combined; and
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one Board of Directors member, if after the first time that B. Riley beneficially owns less than $37.50 million of the Tranche A-2 Term Loan and Tranche A-3 Term Loan, combined;
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at and after the Equitization Closing:
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three Board of Directors members, for so long as B. Riley beneficially owns at least 75% of our common stock owned as of the Equitization Closing, which we refer to as the Closing B. Riley Stock Ownership, and at least 75% of the Tranche A-2 Term Loan and Tranche A-3 Term Loan, combined, beneficially owned by B. Riley as of the Equitization Closing, which we refer to as the Closing Loan Ownership;
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b.
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two Board of Directors members, after the first time that B. Riley beneficially owns less than 75% of the Closing B. Riley Stock Ownership or less than 75% of the Closing Loan Ownership, but for so long as B. Riley continues to beneficially own at least 50% of the Closing B. Riley Stock Ownership and at least 50% of the Closing Loan Ownership; and
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one Board of Directors member, after the first time that B. Riley beneficially owns less than 50% of the Closing B. Riley Stock Ownership or less than 50% of the Closing Loan Ownership;
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Vintage’s contractual rights to nominate directors will continue with respect to:
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three Board of Directors members, for so long as Vintage beneficially owns 75% of our common stock owned as of the record date for the 2019 annual meeting of stockholders, which we refer to as the Closing Vintage Stock Ownership;
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two Board of Directors members, after the first time that Vintage beneficially owns less than 75% of the Closing Vintage Stock Ownership but so long as Vintage continues to beneficially own at least 50% of the Closing Vintage Stock Ownership; and
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one Board of Directors member, after the first time that Vintage beneficially owns less than 50% of the Closing Vintage Stock Ownership;
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In all instances, Vintage and B. Riley, respectively, must beneficially own at least 5% of the outstanding voting power of all of our common stock to retain their director nomination rights with regard to any directors.
The Investor Rights Agreement also provides pre-emptive rights to B. Riley with respect to certain future issuances of our equity securities. We have also agreed to reimburse B. Riley and Vintage for all reasonable out-of-pocket costs and expenses they incur, including fees for legal counsel, in the 2019 rights offering.
The rights provided to B. Riley and Vintage as part of the Investor Rights Agreement will remain in full force and effect regardless of whether we are able to complete all or any part of the Equitization Transactions.
Exchange of Tranche A-1 Last-Out Term Loans
Concurrent with the closing of the 2019 rights offering, we expect to complete a debt-for-equity exchange with the holders of all outstanding Tranche A-1 last-out term loans under the U.S. credit agreement, pursuant to which we will
exchange shares of our common stock at the subscription price of $0.30 per share for an equal aggregate principal amount of Tranche A-1 last-out term loans under the U.S. credit agreement.
As of December 31, 2018, all outstanding Tranche A-1 last-out term loans under the U.S. credit agreement were held by Vintage. All shares of our common stock issued pursuant to the Tranche A-1 debt exchange will be issued in a transaction exempt from registration under the Securities Act, and we will not have any obligation to issue shares of our common stock to any person in the absence of such an exemption from registration.
The completion of the Tranche A-1 Debt Exchange will be conditioned on, among other things, the closing of the 2019 rights offering.
Based on approximately $37.7 million aggregate principal amount of Tranche A-1 last-out term loans under the U.S. credit agreement outstanding as of June 27, 2019, if the Tranche A-1 Debt Exchange is completed, we would issue an aggregate of approximately 125.7 million shares of our common stock to holders of the Tranche A-1 last-out term loans. The actual number of shares of our common stock that we issue in the Tranche A-1 Debt Exchange will likely be greater than this amount because the Tranche A-1 last-out term loans accrue interest through the date of the exchange at a fixed rate per annum of 7.5% payable in cash and 8% payable in kind.
Issuance of the Warrants
Concurrent with the closing of the 2019 rights offering, we intend to issue to B. Riley, or such other persons as B. Riley directs, an aggregate of 16,666,667 warrants, each to purchase one share of our common stock at a purchase price of $0.01 per share. These warrants, and the shares of our commons stock issuable upon exercise, will be issued in transactions exempt from registration under the Securities Act.
The following is a brief description of the terms of the warrants. This summary does not purport to be complete in all respects. This description is subject to, and qualified in its entirety by reference to, the form of warrant, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part. Currently, there are no other warrants outstanding.
Exercise of the Warrants
Each warrant initially represents the right to purchase one share of our common stock at an initial exercise price of $0.01 per share. All or any portion of the warrants may be exercised at any time, or from time to time, on or before the third anniversary of their issuance by surrender to us of the warrant and a completed notice of exercise attached as an exhibit to the warrant and the payment of the exercise price per share for the shares of common stock for which the warrants are being exercised. As an alternative to this method of exercising the warrants, warrantholders may exchange their warrants for an aggregate number of shares, from which we will withhold and not issue a number of shares of common stock with an aggregate market price (as defined below) equal to the aggregate exercise price.
Upon exercise of warrants, the shares of common stock issuable upon exercise will be issued by our transfer agent for the account of the exercising warrantholder. Shares issued upon exercise of warrants will be issued in the name or names designated by the exercising warrantholder and will be delivered by the transfer agent to the exercising warrantholder either via book-entry transfer crediting the account of such warrantholder or otherwise in certificated form by physical delivery to the address specified by such warrantholder in the exercise notice. We will not issue fractional shares upon any exercise of the warrants. Instead, the exercising warrantholder will be entitled to a cash payment equal to the pro-rated per share market price of our common stock on the date of exercise of the warrants for any fractional share that would have otherwise been issuable upon exercise of the warrants. We will at all times reserve the aggregate number of shares of our common stock for which the warrants may be exercised.
Issuance of any warrant shares deliverable upon the exercise of warrants will be made without charge to the warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of those shares.
The warrantholders will have no rights or privileges of holders of our common stock, including any voting rights and rights to dividend payments, until (and then only to the extent) the warrants have been exercised, except if we declare or pay a Liquidating Dividend (as defined and described below). Once the warrants are exercised, we expect them to have a dilutive effect on our current stockholders. See “
–
Dilutive Effects of the Equitization Transactions.”
Adjustments to the Warrants
Pursuant to the terms of the warrants, the number of shares of our common stock issuable upon exercise of each warrant (the “warrant shares”) and the warrant exercise price will be adjusted upon occurrence of certain events as follows.
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In the case of subdivisions or combinations of common stock
. If we at any time subdivide (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of the outstanding shares of our common stock into a greater number of shares, the number of warrant shares issuable upon exercise of the warrants immediately prior to any such subdivision will be proportionately increased. If we at any time combine (by reverse stock split or otherwise) one or more classes of the outstanding shares of our common stock into a smaller number of shares, the number of warrant shares issuable upon exercise of the warrants immediately prior to such combination shall be proportionately decreased.
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In the case of liquidating dividends
. If we declare or pay a dividend upon our common stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of our common stock, which we refer to as a Liquidating Dividend, then we will pay to the warrantholders at the time of payment thereof the Liquidating Dividend which would have been paid to such warrantholders on the warrant shares had the warrants been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of our common stock entitled to such dividends are to be determined.
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In the case of purchase rights
. If at any time we grant, issue or sell any options, convertible securities or rights to purchase stock, warrants, securities or other property (other than in connection with any awards approved by the Board of Directors, or any committee thereof, under our existing or future employee incentive plans)
pro rata
to the record holders of any class of our common stock, referred to as purchase rights, then the warrantholders will be entitled to acquire, upon the terms applicable to such purchase rights, the aggregate
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purchase rights which such holders could have acquired if such holders had held the number of shares acquirable upon complete exercise of their warrants immediately before the date on which a record is taken for the grant, issuance or sale of such purchase rights, or, if no such record is taken, the date as of which the record holders of our common stock are to be determined for the grant, issue or sale of such purchase rights.
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In the case of a recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of our assets or other transaction, which in each case is effected in such a way that the holders of our common stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for our common stock (any such transaction, an "organic change”)
. Prior to the consummation of any organic change, we will make appropriate provisions (in form and substance reasonably satisfactory to the warrantholders representing a majority of the warrant shares obtainable upon exercise of all warrants then outstanding) to insure that each of the warrantholders will thereafter have the right to acquire and receive, in lieu of or addition to (as the case may be) the warrant shares immediately theretofore acquirable and receivable upon the exercise of such holder's warrant, such shares of stock, securities or assets as would have been issued or payable in such organic change (if the holder had exercised the warrant immediately prior to such organic change) with respect to or in exchange for the number of warrant shares immediately theretofore acquirable and receivable upon exercise of such holder’s warrant had such organic change not taken place, including by making appropriate provision (in form and substance reasonably satisfactory to the warrantholders representing a majority of the warrant shares obtainable upon exercise of all warrants then outstanding) with respect to such holders’ rights and interests to insure that the provisions of the warrant continue to be applicable. We will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than us) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance reasonably satisfactory to the warrantholders representing a majority of the warrant shares obtainable upon exercise of all warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire.
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Certain events
. If any event occurs as to which the adjustment provisions described here are not strictly applicable but the failure to make any adjustment would not fairly and adequately protect the purchase rights of the warrants then outstanding (but not including, to avoid doubt, the granting of any awards approved by the Board of Directors, or any committee thereof, under our existing or future employee incentive plans), then the Board of Directors shall make an appropriate adjustment in the exercise price and the number of warrant shares obtainable upon exercise of the warrants then outstanding so as to protect the rights of the holders of the warrants.
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We are required to take all actions as may be necessary to assure that the par value per share of the unissued warrant shares acquirable upon exercise of the warrants is at all times equal to or less than the exercise price then in effect. We will notify the warrantholders of any adjustments. If we fail to give such notice, the exercise price and the number of shares issuable upon exercise of the warrants will nevertheless be adjusted.
For purposes of these adjustment provisions, “market price” means as to any security the average of the closing prices of such security’s sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by OTC Markets Group, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "market price" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term “business days” as used in this sentence means business days on which such exchange is open for trading. If at any time such security is not listed on any domestic securities exchange or quoted in the domestic over-the-counter market, the “market price” shall be determined in good faith by the Board of Directors.
Amendment
The provisions of the warrants may be amended and we may take any action prohibited under the warrants, or omit to perform any act required to be performed by us, only if we have obtained the written consent of the warrantholders representing a majority of the warrant shares obtainable upon exercise of all of the warrants then outstanding; provided that, other than in connection with the adjustments to the warrants described above, no such action may change the exercise price of the warrants or the number of shares or class of stock obtainable upon exercise of each warrant without the written consent of the warrantholders representing 100% of the warrant shares obtainable upon exercise of the warrants then outstanding.
Governing Law
The warrants will be governed by New York law.
Registration Rights Agreement
On April 30, 2019, we entered into a registration rights agreement with B. Riley and Vintage (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, we have agreed to provide B. Riley and Vintage with customary demand and piggyback registration rights for all shares of our common stock they beneficially own following the completion of the Equitization Transactions. In addition, we have also agreed to provide certain piggyback registration rights to all persons who receive shares of our common stock through the exercise of warrants or through the Tranche A-1 debt exchange and who sign a joinder to the Registration Rights Agreement.
Interests of Our Officers, Directors, and Principal Stockholders in the Equitization Transactions
B. Riley and Vintage are each significant stockholders of, and lenders to, the Company. A total of five of our seven directors on the Board of Directors have been designated by either Vintage or B. Riley pursuant to the Investor Rights Agreement. In addition, we are party to a consulting agreement with B. Riley for the services of our Chief Executive Officer. We have also entered into or will enter into various agreements with each of B. Riley and Vintage to implement the Equitization Transactions. These various agreements and relationships may result in B. Riley and Vintage, and any associated directors and officers of the Company, having interests that may be different from those of our stockholders generally.
In addition, a change in control under certain of our employee compensation plans and awards and management severance agreements would require the accelerated vesting of all outstanding and unvested equity awards. If a change in control were to occur following the completion of the Equitization Transactions, certain members of management would be entitled to cash-based severance payments, health and welfare benefits, and bonus payments if such members of senior management are terminated without cause or for good reason (each as defined in the applicable employee compensation plans and awards and management severance agreements) within 24 months following the change in control.
Effect of the Equitization Transactions on Our Incentive Plans
The Compensation Committee of the Board of Directors will determine, at the appropriate time, whether the issuance and sale of our common stock in the Equitization Transactions will result in an equitable adjustment to outstanding awards under our incentive plans, based upon, among other things, the market price of shares of our common stock for periods prior to and after the Equitization Transactions have been commenced and completed. In addition, if the Equitization Transactions result in a change in control, it may trigger certain provisions in our management incentive plans that could accelerate the vesting of outstanding equity awards.
Dilutive Effects of the Equitization Transactions
If the Equitization Transactions are consummated, we will issue approximately 292.4 million shares of common stock. Based on the number of shares of common stock outstanding as of June 27, 2019, the shares issued in the Equitization Transactions will represent approximately 63% of the total shares of common stock outstanding following the Equitization Transactions. This excludes the 16,666,667 shares of common stock subject to issuance
pursuant to the warrants issued in the Equitization Transactions as well shares of common stock reserved for issuance under the 2015 LTIP. The actual number of shares of common stock issued in the Equitization Transactions may be higher than the amount indicated, however, due to, among other things, the accumulation of paid-in-kind interest on the outstanding Tranche A-1 last-out term loans under our U.S. credit agreement through the completion of the Tranche A-1 Debt Exchange.
If a stockholder does not exercise any rights in the 2019 rights offering, the number of shares of our common stock that such stockholder owns will not change. However, we intend to issue an aggregate 166,666,667 shares of our common stock through the 2019 rights offering and the backstop exchange commitment. If a stockholder does not exercise its rights in the 2019 rights offering in full, its percentage ownership will be materially diluted after the 2019 rights offering. Further, because we will issue additional shares of our common stock in the other Equitization Transactions and our stockholders (other than B. Riley and Vintage) will not be given the opportunity to participate in those issuances, our stockholders (other than B. Riley and Vintage) will see their percentage ownership materially diluted following the other Equitization Transactions regardless of whether they exercise their rights to participate in the 2019 rights offering.
Assuming we are able to complete the Equitization Transactions, B. Riley’s and Vintage’s respective beneficial ownership of our common stock following the Equitization Transactions will be dependent upon, among other things, the level of participation in the 2019 rights offering by the other existing holders of our common stock, the date of the closing of the Equitization Transactions and the persons to whom warrants are issued in the Equitization Transactions. Set forth below, for illustrative purposes only, are four scenarios, as of June 27, 2019, that indicate the effect that the Equitization Transactions could have on B. Riley’s and Vintage’s respective relative interest following the Equitization Transactions. All numbers are approximated for illustrative purposes only.
Scenario A
. All rights are exercised on a pro rata basis by all of the stockholders to whom the rights were issued. B. Riley purchases only the shares of our common stock that it receives by exercising the rights it receives in the 2019 rights offering in full through an exchange of Tranche A-3 last-out term loans pursuant to the backstop exchange commitment. Vintage exchanges all outstanding Tranche A-1 last-out term loans, totaling approximately $37.7 million aggregate principal amount as of June 27, 2019, for shares of our common stock pursuant to the Tranche A-1 Debt Exchange. None of the warrants are issued to B. Riley, but instead are issued to unrelated persons.
Scenario B
. Holders of half of the shares (not including shares held by B. Riley or Vintage) of our common stock exercise their rights in the 2019 rights offering. Vintage exercises its rights in the 2019 rights offering. B. Riley acquires the remaining shares in the 2019 rights offering through an exchange of Tranche A-3 last-out term loans pursuant to the backstop exchange commitment. Vintage exchanges all outstanding Tranche A-1 last-out term loans, totaling approximately $37.7 million aggregate principal amount as of June 27, 2019, for shares of our common stock pursuant to the Tranche A-1 Debt Exchange. Half of the warrants are issued to B. Riley, with the remaining warrants issued to unrelated persons.
Scenario C
. None of the holders of our common stock (other than Vintage) exercise their rights. B. Riley acquires the remaining shares not purchased by Vintage in the 2019 rights offering through an exchange of Tranche A-3 last-out term loans pursuant to the backstop exchange commitment. Vintage exchanges all outstanding Tranche A-1 last-out term loans, totaling approximately $37.7 million aggregate principal amount as of June 27, 2019, for shares of our common stock pursuant to the Tranche A-1 Debt Exchange. All of the warrants are issued to B. Riley.
Scenario D
. None of the holders of our common stock exercise their rights. B. Riley acquires all shares offered in the 2019 rights offering through an exchange of Tranche A-3 last-out term loans pursuant to the backstop exchange commitment. Vintage exchanges all outstanding Tranche A-1 last-out term loans, totaling approximately $37.7 million aggregate principal amount as of June 27, 2019, for shares of our common stock pursuant to the Tranche A-1 Debt Exchange. All of the warrants are issued to B. Riley.
B. Riley Illustrative Ownership
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Scenario
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Beneficial Ownership Before Equitization Transactions
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Beneficial Ownership After Equitization Transactions
(2)
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Shares
(1)
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Percentage
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Shares
(1)
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Percentage
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A
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10.9
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6.5%
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21.7
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4.7%
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B
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10.9
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6.5%
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95.6
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20.4%
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C
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10.9
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6.5%
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169.5
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35.5%
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D
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10.9
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6.5%
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194.2
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40.6%
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(1)
Number of shares in millions.
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(2)
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Includes warrants issued as part of the Equitization Transactions as these warrants will be exercisable within 60 days following their issuance.
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Vintage Illustrative Ownership
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Scenario
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Beneficial Ownership Before Equitization Transactions
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Beneficial Ownership After Equitization Transactions
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Shares
(1)
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Percentage
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Shares
(1)
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Percentage
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A
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25.1
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14.9%
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175.5
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38.1%
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B
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25.1
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14.9%
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175.5
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37.4%
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C
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25.1
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14.9%
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175.5
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36.7%
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D
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25.1
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14.9%
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150.8
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31.6%
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(1)
Number of shares in millions.
Litigation Relating to the Equitization Transactions
On May 28, 2019, a putative class action complaint was filed against the Board in the Court of Chancery of the State of Delaware. The complaint is captioned
Price v. Avril, et al.
, C.A. No. 2019-0393-JRS (Del. Ch.). The complaint asserts, among other things, that the Board breached its fiduciary duties for failing to disclose all material information necessary for a fully-informed vote on the Equitization Proposals. Among other remedies, the plaintiff seeks to enjoin a vote on Equitization Proposals, as well as damages, costs and attorneys’ fees.
In addition, on June 3, 2019, a second putative class action complaint was filed against the Board, the Company and Mr. Young in the United States District Court for the District of Delaware. The complaint is captioned
Kent v. Babcock & Wilcox Enterprises, Inc., et. al.
, No. 1:19-cv-01032-MN (D. Del.). The complaint asserts, among other things, claims under Sections 14(a) and 20(a) of the Exchange Act for allegedly causing a materially incomplete and misleading proxy statement to be filed with the SEC on May 13, 2019 and subsequently distributed to our stockholders.
The outcome of the pending and any additional future litigation is uncertain. If any case is not resolved, the lawsuit could prevent or delay completion of the Equitization Transactions and result in substantial costs to the Company, including any costs associated with the indemnification of directors and officers. One of the conditions to the completion of the Equitization Transactions is that no order, injunction, or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Equitization Transactions shall be in effect. As such, if plaintiffs are successful in obtaining an injunction prohibiting the completion of the Equitization Transactions on the agreed-upon terms, then such injunction may prevent the Equitization Transactions from being completed at all or within the expected timeframe.
THE 2019 RIGHTS OFFERING
General
The Board of Directors has determined that holders of our common stock will receive one non-transferable right for each share of our common stock held by such holder on the 2019 rights offering record date. We will not issue fractional rights, or pay cash in lieu of fractional rights. Each rights entitles the holder to a basic subscription privilege. Under the basic subscription privilege, each whole rights entitles the holder to purchase 0.986896 shares of our common stock at the subscription price of $0.30 per whole share of common stock. You will not be entitled to exercise an oversubscription privilege to purchase additional shares of common stock that may remain unsubscribed as a result of any unexercised rights. We will not issue any fractional shares of common stock in the 2019 rights offering. Holders of rights may only exercise rights to purchase shares of common stock in whole numbers and any fractional shares will be rounded to the nearest whole share, with such adjustments as may be necessary to ensure that we offer 166,666,667 shares of common stock in the 2019 rights offering. B. Riley, one of our significant stockholders and lenders, will serve as the backstop exchange party in the 2019 rights offering.
The following describes the 2019 rights offering in general and assumes (unless specifically provided otherwise) that you were a holder of our common stock as of the 2019 rights offering record date. If you held your shares of our common stock in a brokerage account or through a dealer or other nominee as of the 2019 rights offering record date, please see the information included in “
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Delivery of Subscription Materials and Payment
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Beneficial Owners.” As used in this prospectus, the term “business day” means any day on which securities may be traded on the NYSE.
Reasons for the 2019 Rights Offering
On April 5, 2019, we announced that we paid a combined £70 million (approximately $91.5 million at exchange rates at the time of announcement) to the customers on our two remaining European Vølund loss projects – referred to as the “second” and “fifth” projects in previous communications – in exchange for significantly limiting the Company’s obligations under these contracts, including a waiver of the customer’s rejection and termination rights on the fifth project. On April 5, 2019, we also announced that we had amended our U.S. credit agreement with our current lenders. The amendment provided an additional $150.0 million of financing from B. Riley through Tranche A-3 last-out term loans as well as an incremental uncommitted facility of up to $15.0 million to be provided by B. Riley or an assignee. The proceeds from the Tranche A-3 last-out term loans were used to pay the amounts due under these settlement agreements on our two remaining European Vølund loss projects and for working capital and general corporate purposes.
In connection with this amendment, we agreed to use our reasonable best efforts to effect a series of transactions intended to equitize a portion of the last-out term loans outstanding under our U.S. credit agreement. These transactions, which we refer to as the Equitization Transactions, are as follows:
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a $50.0 million rights offering allowing our stockholders to subscribe for shares of our common stock at a price of $0.30 per share, the proceeds of which will be used to prepay a portion of the Tranche A-3 last-out term loans under our U.S. credit agreement;
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the exchange of Tranche A-1 last-out term loans under our U.S. credit agreement for shares of our common stock at a price of $0.30 per share; and
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the issuance to B. Riley or its designees of an aggregate 16,666,667 warrants, each to purchase one share of our common stock at an exercise price of $0.01 per share.
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The 2019 rights offering is intended to satisfy our obligation to effect the first of the Equitization Transactions, and, as a result, the proceeds from the 2019 rights offering will be used to repay a portion of our Tranche A-3 last-out term loans under the U.S. credit agreement.
Conditions to the 2019 Rights Offering
Our obligation to consummate the 2019 rights offering is subject to the satisfaction of closing conditions (which may be waived in whole or in part by us) prior to the closing of the 2019 rights offering, including:
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(i)
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the registration statement relating to the 2019 rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto;
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(ii)
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the 2019 rights offering shall have been conducted in accordance with the Backstop Exchange Agreement in all material respects;
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(iii)
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all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of the 2019 rights offering shall have been made or received;
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(iv)
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no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of the 2019 rights offering and the issuance and sale of our common stock in the 2019 rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of the 2019 rights offering and the issuance and sale of our common stock in the 2019 rights offering;
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(v)
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the shares of our common stock to be issued in the 2019 rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition shall not apply in the event our common stock ceases to be listed and traded on the NYSE on or prior to the closing of the 2019 rights offering;
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(vi)
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we shall have received approval from the requisite stockholder vote of each of the Equitization Proposal, which approval was obtained at our 2019 annual meeting of stockholders held on June 14, 2019; and
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(vii)
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the Investor Rights Agreement and the Registration Rights Agreement shall remain in full force and effect with regard to us and B. Riley.
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Determination of Subscription Price
The subscription price was initially established at $0.30 per share of our common stock following negotiations with B. Riley, the backstop exchange party, as part of the negotiations regarding our commitment to seek to undertake the Equitization Transactions. The subscription price was not intended to bear any relationship to the historical price of our common stock or our past or future operations, cash flows, net income, current financial condition, the book value of our assets or any other established criteria for value. As a result, the subscription price should not be considered an indication of the actual value of our company or our common stock.
No Fractional Rights or Shares of Common Stock
Holders of our common stock as of the 2019 rights offering record date will receive one right for each share of our common stock held as of the 2019 rights offering record date. We will not issue fractional rights or pay cash in lieu of fractional rights.
The basic subscription privilege entitles each holder of a right to purchase 0.986896 shares of our common stock at the subscription price of $0.30 per whole share of common stock. However, we will not issue any fractional shares of common stock in the 2019 rights offering. Holders of rights may only exercise rights to purchase shares of our common stock in whole numbers and any fractional shares will be rounded to the nearest whole share, with such adjustments as may be necessary to ensure that we offer 166,666,667 shares of common stock in the 2019 rights offering. In the unlikely event that, because of the rounding of fractional shares of common stock, the 2019 rights offering would have
been subscribed in an amount in excess of 166,666,667 shares of common stock, all shares issued in the 2019 rights offering will be reduced in an equitable manner as we determine in our sole discretion. Any excess funds insufficient to purchase one whole share of our common stock will be returned to the sender by the subscription agent without penalty or interest.
Benefit Plans
Certain retirement plans, like the Benefit Plans, are not permitted to acquire, hold or dispose of subscription rights unless the U.S. Department of Labor issues a prohibited transaction exemption. We have determined that it would not be prudent or cost-effective to request an exemption to permit the Benefit Plans to acquire and hold rights that the Benefit Plans would be unable to exercise. Accordingly, the Benefit Plans have been excluded from receiving any rights under this 2019 rights offering.
Stockholder Approval
Our 2019 annual meeting of stockholders took place on June 14, 2019. At the 2019 annual meeting of stockholders, we asked our stockholders to approve, among other proposals, the following proposals for general improvements in our corporate governance framework and proposals necessary for the conduct of the Equitization Transactions:
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an amendment to our restated certificate of incorporation to increase the authorized number of shares of our common stock from 200,000,000 to 500,000,000 shares;
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an amendment to our restated certificate of incorporation to declassify the Board of Directors;
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amendments to our restated certificate of incorporation to remove provisions that require the affirmative vote of holders of at least 80% of the voting power to approve certain amendments to our restated certificate of incorporation and our bylaws, and replace this requirement with a majority vote requirement;
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•
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approval of the Equitization Transactions;
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•
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an amendment to our restated certificate of incorporation to renounce any interest or expectancy of the Company in, or in being offered an opportunity to participate in, any business opportunity that is presented to B. Riley, Vintage or their respective directors, officers, shareholders, or employees; and
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an amendment to our restated certificate of incorporation to effect a reverse stock split of our common stock.
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At our 2019 annual meeting of stockholders held on June 14, 2019, we received the requisite stockholder approval for, among other things, the proposals regarding the increase in the authorized number of shares of our common stock, the Equitization Transactions and the renunciation of business opportunities at our 2019 annual meeting of stockholders.
Commencement of the 2019 Rights Offering
The 2019 rights offering will commence on June 28, 2019.
Backstop Exchange Agreement
We have entered into the Backstop Exchange Agreement with B. Riley. The following is a summary of the terms and conditions of the Backstop Exchange Agreement. This summary is qualified in its entirety by reference to the Backstop Exchange Agreement.
The Backstop Exchange Commitment
Pursuant to the Backstop Exchange Agreement, B. Riley has agreed to purchase from us, at a price per share equal to the subscription price, all unsubscribed shares of our common stock in the 2019 rights offering for cash or by exchanging an equal principal amount of outstanding Tranche A-2 or Tranche A-3 last-out term loans. B. Riley’s obligations under
the Backstop Exchange Agreement are subject to various terms and conditions described in the Backstop Exchange Agreement. The purchase of shares of our common stock by B. Riley pursuant to the Backstop Exchange Agreement will be competed in a transaction exempt from the registration requirements of the Securities Act.
Conditions to the Backstop Exchange Commitment
Our obligations and the obligations of B. Riley to consummate the transactions contemplated by the Backstop Exchange Agreement are subject to the satisfaction of each of the following conditions (which may be waived in whole or in part by either party with respect to itself in its sole discretion), which we refer to as the joint conditions:
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(i)
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the registration statement relating to the 2019 rights offering shall have been declared effective by the SEC and shall continue to be effective and no stop order shall have been entered by the SEC with respect thereto;
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(ii)
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the 2019 rights offering shall have been conducted in accordance with the Backstop Exchange Agreement in all material respects without the waiver of any condition thereto;
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(iii)
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all material governmental and third-party notifications, filings, consents, waivers, and approvals required for the consummation of the transactions contemplated by the Backstop Exchange Agreement, including the 2019 rights offering shall have been made or received;
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(iv)
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no action shall have been taken, no statute, rule, regulation, or order shall have been enacted, adopted, or issued by any federal, state, or foreign governmental or regulatory authority, and no judgment, injunction, decree, or order of any federal, state or foreign court shall have been issued that, in each case, prohibits the implementation of the 2019 rights offering and the issuance and sale of our common stock in the 2019 rights offering or materially impairs the benefit of implementation thereof, and no action or proceeding by or before any federal, state, or foreign governmental or regulatory authority shall be pending or, to the knowledge of the parties, threatened wherein an adverse judgment, decree, or order would be reasonably likely to result in the prohibition of or material impairment of the benefits of the implementation of the 2019 rights offering and the issuance and sale of our common stock in the 2019 rights offering;
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(v)
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we shall have received approval from the requisite stockholder vote of each of the Equitization Proposal, which approval was obtained at our 2019 annual meeting of stockholders held on June 14, 2019;
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(vi)
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the shares of our common stock to be issued in the 2019 rights offering shall have been approved for listing on the NYSE, subject to official notice of issuance; provided, however, that this condition will not apply in the event our common stock ceases to be listed and traded on the NYSE on or prior to the closing; and
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(vii)
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the Investor Rights Agreement and the Registration Rights Agreement shall remain in full force and effect with regard to us and B. Riley.
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If required, the Company and B. Riley will file a Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice in connection with B. Riley's acquisition of common stock in the Equitization Transactions.
In addition to the joint conditions, our obligation to issue and sell to B. Riley shares of our common stock under the Backstop Exchange Agreement is subject to the satisfaction of each of the following conditions (which may be waived in whole or in part by the Company in its sole discretion):
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(i)
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the representations and warranties of B. Riley made in the Backstop Exchange Agreement shall be true and correct, subject to certain materiality exceptions; and
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(ii)
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B. Riley has performed and complied in all material respects with all covenants and agreements contained in the Backstop Exchange Agreement.
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In addition to the joint conditions, B. Riley’s obligation to purchase shares of our common stock under the Backstop Exchange Agreement is subject to the satisfaction of each of the following conditions (which may be waived in whole or in part by B. Riley in its sole discretion):
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(i)
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our representations and warranties made in the Backstop Exchange Agreement shall be true and correct, subject to certain materiality exceptions; and
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(ii)
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we have performed and complied in all material respects with all covenants and agreements contained in the Backstop Exchange Agreement.
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In addition to the foregoing, our obligation to commence and consummate the 2019 rights offering under the Backstop Exchange Agreement is subject to the conditions set forth in "The 2019 Rights Offering
–
Conditions to the 2019 Rights Offering."
Termination
The Backstop Exchange Agreement may be terminated and the transactions contemplated thereby may be abandoned at any time prior to the closing of the 2019 rights offering and the backstop exchange commitment:
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by mutual written agreement of B. Riley and us;
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by either us or B. Riley, if the transactions contemplated by the Backstop Exchange Agreement do not close by the Additional Term Loan Prepayment Transaction Deadline (as defined below); provided, however, that the right to terminate the Backstop Exchange Agreement is not available to any party whose failure to comply with any provision of the Backstop Exchange Agreement is the cause of, or resulted in, the failure of the closing to occur on or prior to such date;
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by us, (i) if there has been a breach of any covenant or a breach of any representation or warranty of B. Riley, which breach would cause the failure of B. Riley to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to the Additional Term Loan Prepayment Transaction Deadline (as defined below); or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to the Additional Term Loan Prepayment Transaction Deadline (as defined below); and
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•
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by B. Riley, (i) if there has been a breach of any covenant or a breach of any representation or warranty of the Company, which breach would cause the failure of the Company to satisfy any of its conditions, provided that any such breach of a covenant or representation or warranty is not reasonably capable of cure on or prior to the Additional Term Loan Prepayment Transaction Deadline (as defined below); or (ii) upon the occurrence of any event that results in a failure to satisfy any of the joint conditions, which failure is not reasonably capable of cure on or prior to the Additional Term Loan Prepayment Transaction Deadline.
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The U.S. credit agreement defines "Additional Term Loan Prepayment Transaction Deadline" to mean (i) October 5, 2019, or (ii) if the 2019 rights offering has not occurred solely as a result of SEC review or other circumstance beyond our control, January 6, 2020.
Indemnification
Pursuant to the Backstop Exchange Agreement, we have agreed to indemnify B. Riley and its affiliates and their respective officers, directors, members, partners, employees, agents, and controlling persons for losses arising out of or in connection with any claim or proceeding instituted by a third-party with respect to the 2019 rights offering, the Backstop Exchange Agreement, certain other transaction documents related thereto, or the transactions contemplated by the foregoing, subject to certain limited exceptions.
Transfer Restrictions
B. Riley has agreed that it will not, prior to the closing of the backstop exchange commitment, and without our prior written consent, hold an aggregate principal amount of combined Tranche A-2 last-out term loans and Tranche A-3 last-out term loans which, when combined with B. Riley's unrestricted cash available to satisfy its obligations under the backstop exchange commitment, would be less than $50.0 million.
Expenses
Pursuant to the Investor Rights Agreement, we have agreed to reimburse B. Riley and Vintage for all reasonable out-of-pocket costs and expenses they incur, including fees for legal counsel, in the 2019 rights offering.
Expiration Date
You may exercise the basic subscription privilege at any time before the expiration date, which is 5:00 p.m., New York City time, on July 18, 2019, which will be the 20th calendar day following the commencement of the 2019 rights offering, unless the 2019 rights offering is extended. Any rights not exercised before the expiration date will expire and become null and void.
We will not be obligated to honor your exercise of rights if the subscription agent receives any of the required documents relating to your exercise after the expiration date, regardless of when you transmitted the documents.
We may extend the period for exercising the rights, which we refer to as the subscription period, in our sole discretion; provided, however, that we may not extend the subscription period by more than 10 days without the prior written consent of B. Riley. Subject to the foregoing, we may choose to extend the expiration date of the 2019 rights offering if we decide that changes in the market price of our common stock warrant an extension, or if we decide to give holders of rights more time to exercise their rights in the 2019 rights offering. Notwithstanding the foregoing, we will extend the duration of the 2019 rights offering as required by applicable law. Stockholders may exercise their rights at any time during the subscription period.
We may extend the expiration date of the 2019 rights offering by giving oral or written notice to the subscription agent and information agent on or before the scheduled expiration date. If we elect to extend the expiration date of the 2019 rights offering, we will issue a press release announcing the extension no later than 9:00 a.m., New York City time, on the next business day after the most recently announced expiration date.
If a stockholder does not exercise its rights at or before the expiration date of the 2019 rights offering, its unexercised rights will be null and void and will have no value. We will not be obligated to honor a stockholder’s exercise of rights if the subscription agent receives the documents or payment of the subscription price relating to a stockholder’s exercise after the 2019 rights offering expires, regardless of when such stockholder transmitted the documents or payment.
The Backstop Exchange Agreement does not prevent us from cancelling, terminating, amending or extending the 2019 rights offering prior to the commencement of the offering. However, once the 2019 rights offering has commenced, any such cancellation, termination, amendment or extension will require the prior consent of B. Riley (except for an extension of the subscription period by not more than 10 days), unless the Backstop Exchange Agreement is terminated.
Any decision to cancel, terminate, amend or extend the 2019 rights offering will be made by us. If the 2019 rights offering is terminated, all rights will expire without value and we will promptly arrange for the refund, without interest, of all funds received from rights holders prior to termination. All monies received by the subscription agent in connection with the 2019 rights offering will be held by the subscription agent, on our behalf, in a segregated interest-bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate the 2019 rights offering.
Subscription Privileges
Your rights entitle you to a basic subscription privilege. You will not be entitled to exercise an oversubscription privilege to purchase additional shares of our common stock that may remain unsubscribed as a result of any unexercised rights.
Basic Subscription Privilege
. The basic subscription privilege entitles you to purchase 0.986896 shares of our common stock at the subscription price of $0.30 per whole share of common stock prior to the expiration date. You are not required to exercise your basic subscription privilege, in full or in part.
Return of Excess Payment.
If you exercise your basic subscription privilege and, due to rounding, are allocated less than all of the shares of our common stock for which you subscribed, the funds you paid for those shares of common stock that are not allocated to you will be returned by mail or similarly prompt means, without interest or deduction, as soon as practicable after the expiration date.
Exercising Your Rights
Subscription materials, including rights certificates, will be made available to holders upon the commencement of the 2019 rights offering. You may exercise your rights by delivering the following to the subscription agent before the expiration date:
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your properly completed and executed rights certificate evidencing the exercised rights with any required signature guarantees or other supplemental documentation; and
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your payment in full of the subscription price for each share of our common stock subscribed for pursuant to the basic subscription privilege.
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You must provide payment in full of the subscription price for each share of our common stock being subscribed for pursuant to the basic subscription privilege to the subscription agent before the expiration date.
Payment of Subscription Price
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Your cash payment of the aggregate subscription price for all shares of our common stock that you are subscribing for must be made by either check or bank draft drawn upon a U.S. bank payable to the subscription agent, “Computershare Trust Company, N.A.” Your cash payment of the aggregate subscription price will be deemed to have been received by the subscription agent only when:
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any uncertified check clears; or
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the subscription agent receives any certified check or bank draft drawn upon a U.S. bank.
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You should note that funds paid by uncertified personal checks may take five business days or more to clear. If you wish to pay the subscription price in respect of your basic subscription privilege by an uncertified personal check, we urge you to make payment sufficiently in advance of the time the rights expire to ensure that your payment is received and clears by that time. We urge you to consider using a certified or cashier’s check to avoid missing the opportunity to exercise your rights.
You will not be entitled to any interest earned on the cash funds held by the subscription agent.
The subscription agent will hold your payment of the subscription price in a segregated escrow account with other payments received from holders of rights until we issue to you your shares of common stock, or return your overpayment, if any.
Exercising a Portion of Your Rights.
You may subscribe for fewer than all of the shares of our common stock that you are eligible to purchase pursuant to the basic subscription privilege represented by your rights certificate.
Calculation of Rights Exercised
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If you do not indicate the number of rights being exercised, or do not forward full payment of the aggregate subscription price for the number of rights that you indicate are being exercised, then you will be deemed to have exercised the basic subscription privilege with respect to the maximum number of rights that may be exercised for the aggregate subscription price payment you delivered to the subscription agent. If we do not apply your full subscription price payment to your purchase of common stock, we will return the excess amount to you by mail or similarly prompt means, without interest or deduction as soon as practicable after the expiration date.
Instructions for Completing the Rights Certificate.
You should read and follow the instructions accompanying the rights certificate carefully. If you want to exercise your rights, you must send your completed rights certificates, any necessary accompanying documents and payment of the subscription price to the subscription agent. You should not send the rights certificates, any other documentation or payment to us. Any rights certificates and other items received by us will be returned to the sender as promptly as possible.
You are responsible for the method of delivery of rights certificates, any necessary accompanying documents and payment of the subscription price to the subscription agent. If you send the rights certificates and other items by mail, we recommend that you send them by registered mail, properly insured, with return receipt requested. You should allow a sufficient number of days to ensure delivery to the subscription agent and clearance of any payment by uncertified check prior to the expiration date.
Signature Guarantee May Be Required.
Your signature on each rights certificate must be guaranteed by an eligible institution such as a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, subject to standards and procedures adopted by the subscription agent, unless:
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your rights certificate is registered in your name; or
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you are an eligible institution.
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Delivery of Subscription Materials and Payment
You should deliver the rights certificate and payment of the subscription price, as well as any other required documentation:
If delivering by first class mail:
Computershare Trust Company, N.A.
Attn: Corporate Actions Voluntary Offer
P.O. Box 43011
Providence, RI 02940-3011
If delivering by registered, certified or express mail, or overnight courier:
Computershare Trust Company, N.A.
Attn: Corporate Actions Voluntary Offer
150 Royall Street, Suite V
Canton, MA 02021
In considering which method of delivery to use, holders of rights should take into consideration the amount of time remaining in the 2019 rights offering to ensure that materials are delivered prior to the expiration date.
Notices to Nominees
. If you are a broker, a dealer, a trustee or a depositary for securities who will hold shares of our common stock for the account of others as a nominee holder and thus will hold rights for the account of others as a nominee holder, you should notify the respective beneficial owners of those shares of common stock of the issuance of the rights as soon as possible to find out the beneficial owners’ intentions.
You should obtain instructions from the beneficial owner with respect to the rights, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If the beneficial owner so instructs, you should complete the appropriate rights certificates and submit them to the subscription agent with the proper payment. A nominee holder that holds shares for the account(s) of more than one beneficial owner may exercise the number of rights to which all such beneficial owners in the aggregate otherwise would have been entitled if they had been direct record holders of our common stock on the 2019 rights offering record date, so long as the nominee submits the appropriate rights certificates and proper payment to the subscription agent.
Beneficial Owners.
If you are a beneficial owner of our common stock and thus will be a beneficial owner of rights that you hold through a nominee holder, we will ask your broker, dealer or other nominee to notify you of this 2019 rights offering. If you wish to exercise your rights, you will need to have your broker, dealer or other nominee act for you. To indicate your decision with respect to your rights, you should complete and return to your broker, dealer or other nominee the form entitled “Beneficial Owners Election Form.” You should receive this form from your broker, dealer or other nominee with the other subscription materials.
Procedures for DTC Participants.
If you are a broker, a dealer, a trustee or a depositary for securities who holds shares of our common stock for the account of others as a nominee holder and thus will hold rights for the account of others as a nominee holder, you may, upon proper showing to the subscription agent, exercise your beneficial owners’ basic subscription privilege through DTC. Any rights exercised through DTC are referred to as DTC Exercised Rights. You may exercise your DTC Exercised Rights through DTC’s PSOP Function on the “agents subscription over PTS” procedures and instructing DTC to charge the applicable DTC account for the subscription payment and to deliver such amount to the subscription agent. DTC must receive the subscription instructions and payment for the new shares by the expiration date.
Determinations Regarding the Exercise of Rights.
We will decide all questions concerning the timeliness, validity, form and eligibility of your exercise of rights. Our decisions will be final and binding. We, in our sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within whatever time we determine. We may reject the exercise of any of your rights because of any defect or irregularity. Your subscription will not be deemed to have been received or accepted until all irregularities have been waived by us or cured by you within the time we decide, in our sole discretion.
We reserve the right to reject your exercise of rights if your exercise is not in accordance with the terms of the 2019 rights offering or in proper form. Neither we nor the subscription agent will have any duty to notify you of a defect or irregularity in your exercise of the rights. We will not be liable for failing to give you that notice. We will also not accept your exercise of rights if our issuance of shares of our common stock pursuant to your exercise could be deemed unlawful or materially burdensome. See “
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Regulatory Limitations” and “
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Compliance with State Regulations Pertaining to the 2019 Rights Offering” below.
Subscription Agent
We have appointed Computershare Trust Company, N.A. as subscription agent for the 2019 rights offering. We will pay its fees and expenses related to the 2019 rights offering.
Information Agent
You may direct any questions or requests for assistance concerning the method of exercising your rights, additional copies of this prospectus, the instructions or other subscription materials referred to herein, to the information agent, at the following telephone number and address:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll-Free: (800) 622-1649
Email: BW@dfking.com
General Considerations Regarding the Partial Exercise of Rights
You will receive a new rights certificate upon a partial exercise of rights only if the subscription agent receives your properly endorsed rights certificate no later than 5:00 p.m., New York City time, on the fifth business day before the expiration date.
If your instructions and rights certificate are received by the subscription agent after that time and date, you will not receive a new rights certificate and therefore will not be able to exercise your remaining rights.
You are responsible for all commissions, fees and other expenses (including brokerage commissions) incurred in connection with the exercise of your rights, except that we will pay any fees of the subscription agent associated with the exercise of rights. Any amounts you owe will be deducted from your account.
If you do not exercise your rights before the expiration date, your rights will expire and will no longer be exercisable.
Treatment of Stock Options and Other Awards
Holders of options to purchase shares of our common stock on the 2019 rights offering record date will not receive rights, unless they exercise their options prior to the 2019 rights offering record date. Similarly, holders of performance-based or service-based restricted stock units with respect to shares of our common stock on the 2019 rights offering record date (and certain other compensation awards with value based on or related to the value of our common stock) will not receive rights, except to the extent their restricted stock units or such other awards are settled (to the extent applicable) for shares of common stock prior to the 2019 rights offering record date. In lieu of the holders of such options, restricted stock units and other awards receiving any rights, such options are expected to be equitably adjusted (including terms such as the number of stock options and/or the exercise price, as applicable), and such restricted stock units and such other awards are expected to be equitably adjusted so that they relate to an adjusted number of shares of our common stock. In each case, these adjustments would be intended to, in general, prevent (to the extent practicable) dilution or enlargement of such holders’ rights under such awards directly as a result of the 2019 rights offering. Holders of our equity awards are encouraged to speak with their tax advisors.
Transfer Agent and Registrar
Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock.
No Recommendations to Holders of Rights
Neither we nor the Board of Directors have made any recommendation as to whether you should exercise your rights. You should decide whether to subscribe for common stock or simply take no action with respect to your rights, based on your own assessment of your best interests. However, if you do not exercise your rights, you will lose any value inherent in the rights and your percentage ownership interest in us will be diluted. As of the date of this prospectus, none of our directors or executive officers (other than those affiliated with B. Riley) has definitively indicated an intention with respect to participation in the 2019 rights offering. Some of our executive officers and directors may exercise some or all of their rights.
Termination
Subject to our obligations contained in the Backstop Exchange Agreement, we may determine to abandon the 2019 rights offering at any time and, even after the rights have been distributed, may also determine to abandon the 2019 rights offering prior to its commencement or terminate the 2019 rights offering following its commencement for any reason at any time before the expiration date. If we terminate the 2019 rights offering, we will promptly issue a press release announcing the termination, and we will promptly thereafter return all subscription payments. We will not pay interest on, or deduct any amounts from, subscription payments if we terminate the 2019 rights offering.
Regulatory Limitations
All rights issued to any rights holder who would, in our opinion, be required to obtain prior clearance or approval from any state, federal, or non-U.S. regulatory authority for the ownership or exercise of rights or the ownership of additional shares of our common stock are null and void and may not be held or exercised by any such holder if, at such time, if applicable, such holder has not obtained such clearance or approval. We are not undertaking to advise stockholders of any such required clearance or approval or to pay any expenses incurred in seeking such clearance or approval. We reserve the right to refuse to issue shares of our common stock to any rights holder who would, in our opinion, be required to obtain prior clearance or approval from any state, federal, or non-U.S. regulatory authority to own or control such shares if, at the time shares are to be issued upon payment therefor, such holder has not obtained such clearance or approval.
We will not offer or sell, or solicit any purchase of, shares in any state or other jurisdiction in which the 2019 rights offering is not permitted. We reserve the right to delay the commencement of the 2019 rights offering in certain states or other jurisdictions if necessary to comply with local laws. We may elect not to offer shares to residents of any state or other jurisdiction whose laws would require a change in the 2019 rights offering in order to carry out the 2019 rights offering in such state or jurisdiction.
Foreign Shareholders
We will not mail rights certificates to shareholders on the 2019 rights offering record date whose addresses are outside the United States. Instead, we will have the subscription agent hold the rights certificates for those holders’ accounts.
To exercise their rights, foreign holders must notify the subscription agent before 11:00 a.m., New York City time, on the fifth business day prior to the expiration date, and must establish to the satisfaction of the subscription agent that such exercise is permitted under applicable law.
If a foreign holder does not notify and provide acceptable instructions to the subscription agent by such time (and if no contrary instructions have been received), the rights will expire at the expiration date.
We will not be required to issue to you shares of common stock pursuant to the 2019 rights offering if, in our opinion, you would be required to obtain prior clearance or approval from any state or federal regulatory authorities to own or control such shares and if, at the expiration date, you have not obtained such clearance or approval.
Issuance of Common Stock
Unless we earlier terminate the 2019 rights offering, the subscription agent will issue to you the shares of our common stock purchased by you in the 2019 rights offering as soon as practicable after the expiration date. The subscription agent will effect delivery of the subscribed for shares of common stock through the subscription agent’s book-entry registration system by mailing to each subscribing holder a statement of holdings detailing the subscribing holder’s subscribed for shares of common stock and the method by which the subscribing holder may access its account and, if desired, trade its shares.
Your payment of the aggregate subscription price will be retained by the subscription agent and will not be delivered to us, unless and until your subscription is accepted and you are issued your subscribed for shares of common stock. We will not pay you any interest on funds paid to the subscription agent, regardless of whether the funds are applied to the subscription price or returned to you. You will have no rights as a stockholder with respect to your subscribed for shares of common stock until such shares are delivered via the book-entry registration statement. Upon such delivery, you will be deemed the owner of the shares of common stock you purchased by exercise of your rights. Unless otherwise instructed in the rights certificates, the shares issued to you pursuant to your subscription will be registered in your name or the name of your nominee, if applicable.
We will not issue any fractional rights or shares of our common stock.
Compliance with State Regulations Pertaining to the 2019 Rights Offering
We are not making the 2019 rights offering in any state or other jurisdiction in which it is unlawful to do so. We will not accept an offer to purchase shares of our common stock from you if you are a resident of any state or other jurisdiction in which the offer of the rights would be unlawful. We may delay the commencement of the 2019 rights offering in certain states or other jurisdictions in order to comply with the laws of those states or other jurisdictions. However, we may decide, in our sole discretion, not to modify the terms of the 2019 rights offering as may be requested by certain states or other jurisdictions. If that happens and you are a resident of the state or jurisdiction that requests the modification, you will not be eligible to participate in the 2019 rights offering. We do not expect that there will be any changes in the terms of the 2019 rights offering.