Item 1.01 Entry into a Material Definitive Agreement.
On May 11, 2021, Ferro Corporation, an Ohio corporation (“Ferro”), PMHC II Inc., a Delaware corporation (“Prince”) and PMHC Fortune Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Prince (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Ferro (the “Merger”), with Ferro continuing as the surviving corporation in the Merger and as a direct or indirect wholly owned subsidiary of Prince. The board of directors of Ferro has approved the Merger Agreement.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), and as a result of the Merger, each share of common stock of Ferro (“Ferro Common Stock”) that is issued and outstanding immediately prior to the Effective Time (other than (i) shares of Ferro Common Stock held by Ferro as treasury stock or held directly by Prince or any subsidiary of Prince (including Merger Sub) immediately prior to the Effective Time (which will be canceled without payment of any consideration), (ii) shares of Ferro Common Stock for which dissenters rights have been properly exercised and perfected and not withdrawn and (iii) shares of restricted stock) will be converted into the right to receive $22.00 in cash, without interest (the “Merger Consideration”).
Pursuant to the Merger Agreement, as of the Effective Time, each option to acquire shares of Ferro Common Stock, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such option, multiplied by (B) the excess, if any, of the Merger Consideration over the applicable per share exercise price of such option.
In addition, pursuant to the Merger Agreement, as of the Effective Time, (i) each outstanding share of Ferro restricted stock, each restricted share unit (other than performance share units), deferred share unit, phantom share unit or similar stock right, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such right, multiplied by (B) the Merger Consideration, and (ii) each Ferro performance-based share unit, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such performance-based share unit, calculated based on the greater of (x) actual performance achieved in accordance with the terms of such performance-based share unit and the Merger Agreement and (y) target level performance over the entire performance period applicable with respect to such performance-based share unit, multiplied by (B) the Merger Consideration.
Ferro and Prince have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants that (i) Ferro will conduct its and its subsidiaries’ business in all material respects in the ordinary course of business and in a manner consistent with past practice during the interim period between the execution of the Merger Agreement and the Effective Time, (ii) subject to certain exceptions, Ferro will not engage in certain types of transactions or take certain actions outside the ordinary course during such period without the prior consent of Prince, (iii) Ferro will cause a meeting of the Ferro shareholders to be held to consider adoption of the Merger Agreement, and (iv) subject to certain customary exceptions, the board of directors of Ferro will recommend adoption of the Merger Agreement by the shareholders of Ferro. Ferro has also made certain additional customary covenants, including, among others, covenants not to (i) solicit, knowingly encourage or knowingly take any action to facilitate any inquiries, proposals or offers with respect to certain alternative business combination transactions, (ii) subject to certain exceptions designed to allow the board of directors of Ferro to fulfill its fiduciary duties to Ferro’s shareholders (described further below), (x) engage in any discussions concerning, or provide any confidential information to, any person relating to certain alternative business combination transactions, (y) approve, endorse or recommend certain alternative business combination transactions or (z) negotiate, execute or enter into any definitive purchase agreement with respect to certain alternative business combination transactions.
Concurrently with the execution of the Merger Agreement, Prince has delivered to Ferro an executed equity commitment letter from American Securities Partners VII, L.P., American Securities Partners VII(B), L.P. and Securities Partners VII(C), L.P. (the “AS Entities”), pursuant to which the AS Entities have committed, on and subject to the conditions contained in such letter, to provide equity financing to Prince in the amounts set forth therein and to pay, in certain circumstances and subject to the conditions contained in such letter, the Parent Reverse Termination Fee or Parent Regulatory Termination Fee (each as defined below), as applicable.
As of the date of the Merger Agreement, Prince has delivered to Ferro executed debt commitment letters and fee letters pursuant to which the lenders party thereto have committed, subject to the terms and conditions contained in such letters, to provide debt financing in the amounts set forth therein, to enable Prince to consummate the Merger and make payments required under and in connection with the Merger Agreement. The debt and equity financing commitments are subject to the refinancing of certain indebtedness of Prince and its affiliates and other customary closing conditions.
The Merger Agreement contains certain customary termination rights for Ferro and Prince, including Ferro’s right to terminate the Merger Agreement to accept a superior proposal subject to compliance with certain procedures specified in the Merger Agreement. Upon termination of the Merger Agreement under certain specified circumstances, Ferro will be required to pay Prince a termination fee of $55.12 million (the “Company Termination Fee”).
Subject to certain limitations, Ferro may terminate the Merger Agreement if the Merger is not consummated by May 11, 2022 (the “End Date”), provided, however, that if, on such date, certain required regulatory approvals have not been satisfied but all other conditions to closing (other than conditions which by their nature are to be satisfied at the closing) have been satisfied or waived, then unless the Agreement is so terminated by Ferro and such termination is accepted by Prince, the End Date will be automatically extended to August 11, 2022 and each of Ferro and Prince may terminate the Merger Agreement if the Merger is not consummated by such date. The right to terminate the Merger Agreement at the End Date will not be available to a party if the failure of the Merger to have been consummated on or before such date was primarily caused by the failure of such party to perform any of its obligations under the Merger Agreement.
The Merger Agreement provides that Prince will be required to pay Ferro a termination fee of $93.43 million (the “Parent Reverse Termination Fee”) under certain circumstances if the Merger Agreement is terminated by Ferro because (i) there has been a breach of representation, warranty or covenant by Prince or Merger Sub that would cause certain closing conditions not to be satisfied, which is not curable or not cured within a specified period, or (ii) all of the mutual conditions to closing have been satisfied, Ferro has satisfied all of its closing conditions, Ferro confirms that it is ready, willing and able to take all action within its control to close, and Prince and Merger Sub fail to consummate the Merger within two business days. The Merger Agreement also provides that Prince will be required to pay Ferro a termination fee under certain circumstances if the Merger Agreement is terminated in connection with a failure to obtain required regulatory approvals, which fee will be equal to $50 million in the event of such termination absent an extension of the End Date as described above, and $93.43 million in the event of such termination following such extension of the End Date (the “Parent Regulatory Termination Fee”).
Ferro and Prince have agreed to use their respective reasonable best efforts to consummate the Merger, including making filings with and seeking approvals from certain governmental entities necessary in connection with the Merger, including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In furtherance thereof, Prince has agreed to accept certain divestitures or restrictions on the assets of Prince, Ferro and their respective subsidiaries, if and to the extent necessary to obtain such approvals, subject to certain specified limitations set forth in the Merger Agreement.
Consummation of the Merger is subject to certain customary conditions, including (i) the adoption of the Merger Agreement by the holders of two-thirds of the outstanding shares of Ferro Common Stock, (ii) the absence of any law prohibiting or order preventing the consummation of the Merger, (iii) the receipt of certain regulatory approvals, including expiration or termination of any applicable waiting period under the HSR Act, (iv) the absence of a material adverse effect with respect to Ferro, and (v) compliance in all material respects on the part of each of Ferro and Prince with such party’s covenants under the Merger Agreement. The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct, subject to certain materiality exceptions.
The foregoing description of the Merger Agreement and the transactions contemplated thereby in this Current Report on Form 8-K is only a summary and does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and incorporated by reference herein.
The Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about Ferro or Prince. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement as of the specific dates therein, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. The representations and warranties may also be subject to contractual standards of materiality that may be different from those generally applicable under the securities laws. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Ferro’s public disclosures.