Blueprint
 
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
SCHEDULE 14C Information
 
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
_________________________
 
Check the appropriate box:
 
Preliminary Information Statement
 
 
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
 
Definitive Information Statement
 
Advanced Environmental Recycling Technologies, Inc.
 
(Name of Registrant as Specified in its Charter)
 
 
Payment of Filing Fee (Check the appropriate box):
 
 
No fee required.
 

Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
 
(1) 
 
 
Title of each class of securities to which transaction applies:

(2) 
 
 
Aggregate number of securities to which transaction applies:
 

(3) 
 
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
(4) 
 
 
Proposed maximum aggregate value of transaction:
 
 
(5) 
 
 
Total fee paid:
 
 
 
 

 
 
 
 

Fee paid previously with preliminary materials.
 
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1) 
 
 
Amount Previously Paid:
 
(2) 
 
 
Form, Schedule or Registration Statement No.:
 
(3) 
 
 
Filing Party:
 
(4) 
 
 
Date Filed:
 
 
 
 
ADVANCED ENVIRONMENTAL
RECYCLING TECHNOLOGIES, INC.
914 N. Jefferson Street
Springdale, Arkansas 72764
(479) 756-7400
 
NOTICE OF ACTION BY WRITTEN CONSENT AND APPRAISAL RIGHTS
 
AND
 
INFORMATION STATEMENT
 
 
 
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
 
NOT TO SEND US A PROXY.
 
April 10, 2017
 
Dear Stockholder:
 
This notice of action by written consent and appraisal rights and the accompanying information statement are being furnished to the holders of common stock and preferred stock of Advanced Environmental Recycling Technologies, Inc., a Delaware corporation (“AERT,” the “Company,” “we,” “our” or “us”), in connection with the Agreement and Plan of Merger, dated as of March 16, 2017 (the “Merger Agreement”), by and among the Company, Oldcastle Architectural, Inc., a Delaware corporation (“Parent”), and Oldcastle Ascent Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Parent (the “Merger”). Upon completion of the Merger, each share of AERT Class A common stock, par value $0.01 per share (“Common Stock”), and each share of AERT Series E Convertible Preferred Stock, par value $0.01 per share (“Preferred Stock”), issued and outstanding immediately prior to the effective time of the Merger will be cancelled and converted automatically into the right to receive $0.135936 in cash per share of Common Stock and $2,603.483278 in cash per share of Preferred Stock, respectively, without interest and subject to any applicable withholding taxes (the “Merger Consideration”), in each case other than any shares of Common Stock or Preferred Stock owned by the Company (which will automatically be canceled with no consideration paid therefor) and those shares of Common Stock with respect to which stockholders properly exercised appraisal rights and have not effectively withdrawn or lost their appraisal rights. A copy of the Merger Agreement is attached as Annex A to the accompanying information statement.
 
If the Merger is completed, you will be entitled to receive $0.135936 in cash, without interest and subject to required tax withholdings, for each share of Common Stock owned by you and $2,603.483278 in cash, without interest and subject to required tax withholdings, for each share of Preferred Stock owned by you (unless you have properly exercised your appraisal rights under Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) with respect to such shares).
 
The Company’s board of directors (the “Board”) unanimously approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, declared that it was in the best interests of the Company’s stockholders that the Company enter into the Merger Agreement and consummate the Merger and the other transactions contemplated by the Merger Agreement on the terms and subject to the conditions set forth in the Merger Agreement, and recommended that the Company’s stockholders adopt the Merger Agreement.
 
Under Section 251 of the DGCL and the applicable provisions of the Company’s certificate of incorporation and bylaws, each as amended to date, the adoption of the Merger Agreement by AERT’s stockholders required the affirmative vote or written consent of (i) holders of a majority of the votes represented by the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, and (ii) holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class.  On March 17, 2017, H.I.G. AERT, LLC (the “Preferred Stockholder” or “H.I.G.”), holder of 15,289,890 shares of Common Stock and 20,524.149 shares of Preferred Stock (which shares represent all of the outstanding shares of Preferred Stock and are convertible into 393,084,089 shares of Common Stock), which represented approximately 85% of the voting power of the issued and outstanding shares of the Company’s stock entitled to vote on the adoption of the Merger Agreement, delivered a written consent (in the form attached to the Merger Agreement as Exhibit A) adopting the Merger Agreement and approving the Merger, subject to a right to withdraw such consent only if the Board takes certain actions prior to April 15, 2017, including (i) withholding, withdrawing or rescinding (or modifying or qualifying in a manner adverse to Parent or Merger Sub), its recommendation of the Merger, (ii) adopting, approving or recommending, or publicly proposing to adopt, approve or recommend, any acquisition proposal involving the Company (other than with respect to Parent and Merger Sub), and (iii) making any public statement inconsistent with its recommendation of the Merger. As a result, no further action by any stockholder of the Company is required under applicable law or the Merger Agreement (or otherwise) to adopt the Merger Agreement or approve the Merger, and the Company has not solicited and will not be soliciting your authorization and adoption of the Merger Agreement and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the Merger Agreement.
 
 
 
 
This notice of action by written consent and appraisal rights and the accompanying information statement shall constitute notice to you from the Company of the action by written consent to adopt the Merger Agreement taken by the Preferred Stockholder as required by Section 228(e) of the DGCL.
 
Under Section 262 of the DGCL, if the Merger is completed, subject to compliance with the requirements of Section 262 of the DGCL, holders of shares of Common Stock, other than H.I.G., will have the right to seek an appraisal for, and be paid the “fair value” of, their shares of Common Stock (as determined by the Court of Chancery of the State of Delaware) instead of receiving the Merger Consideration. In order to exercise your appraisal rights, you must submit a written demand for an appraisal no later than 20 days after the date of mailing of this notice and the accompanying information statement, or May 1, 2017, and precisely comply with other procedures set forth in Section 262 of the DGCL, which are summarized in the accompanying information statement. A copy of Section 262 of the DGCL is attached to the accompanying information statement as Annex C. This notice of action by written consent and the accompanying information statement shall constitute notice to you from the Company of the availability of appraisal rights under Section 262 of the DGCL.
 
We urge you to read the entire information statement carefully. Please do not send in your stock certificates at this time. If the Merger is completed, you will receive instructions regarding the surrender of your stock certificates and payment for your shares of Common Stock or Preferred Stock.
 
By order of the Board of Directors,
 
 
 
/s/ Bobby J. Sheth                     
Bobby J. Sheth
Secretary
 
Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger, the Merger Agreement or the other transactions contemplated thereby or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
 
This information statement is dated April 10, 2017 and is first being mailed to stockholders on or about April 11, 2017.
 
 
TABLE OF CONTENTS
 

 
 
 
 
PAGE 
SUMMARY
1
The Parties to the Merger
1
The Merger
2
The Merger Consideration
2
Reasons for the Merger
2
Opinion of William Blair, the Company’s Financial Advisor
2
Stockholder Action by Written Consent
3
Interests of the Company’s Directors and Executive Officers in the Merger
3
The Merger Agreement
4
Financing
6
Material U.S. Federal Income Tax Consequences of the Merger
6
Regulatory Approvals
6
Appraisal Rights
6
Delisting and Deregistration of Common Stock
7
Market Price of the Company’s Common Stock
7
Procedures for Receiving Merger Consideration
7
QUESTIONS AND ANSWERS ABOUT THE MERGER
8
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
12
THE PARTIES TO THE MERGER
14
The Company
14
Parent
14
Merger Sub
14
THE MERGER
15
Certain Effects of the Merger
15
Required Approval of the Merger; Written Consent
15
Background of the Merger
15
Reasons for the Merger
22
Certain Company Forecasts
26
Opinion of William Blair, the Company’s Financial Advisor
28
Financing
34
Interests of the Company’s Directors and Executive Officers in the Merger
35
Material U.S. Federal Income Tax Consequences of the Merger
39
Regulatory Approvals
41
Delisting and Deregistration of Common Stock
41
 
 
 
 
THE MERGER AGREEMENT 
42
Explanatory Note Regarding the Merger Agreement
42
Structure of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
42
Consummation and Effectiveness of the Merger
43
Consideration to be Received in the Merger
43
Appraisal Shares
43
Procedures for Receiving Merger Consideration
43
Representations and Warranties
43
Operation of the Company’s Business
46
No Solicitation by the Company
48
Other Offers; Superior Proposal
49
Adverse Recommendation Change
50
Stockholder Action by Written Consent
51
Reasonable Best Efforts to Complete
51
Indemnification and Insurance
52
Employees
53
Other Covenants and Agreements
53
Conditions to Completion of the Merger
55
Termination of the Merger Agreement
57
Effect of Termination; Termination Fee; Reverse Termination Fee
58
Amendment and Waiver
59
Specific Performance
59
Governing Law
59
MARKET PRICE OF THE COMPANY’S COMMON STOCK
60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
61
APPRAISAL RIGHTS
62
WHERE YOU CAN FIND ADDITIONAL INFORMATION
65
 
ANNEX A – Agreement and Plan of Merger
ANNEX B – William Blair Fairness Opinion
ANNEX C – Section 262 of the Delaware General Corporation Law
ANNEX D – Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016
 
 
 
 

 
 
 
 
SUMMARY
 
This summary highlights selected information from this information statement and may not contain all of the information that is important to you. To understand the merger (the “Merger”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 16, 2017, by and among the Company, Oldcastle Architectural, Inc., a Delaware corporation (“Parent”), and Oldcastle Ascent Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”) fully, and for a more complete description of the legal terms of the Merger, you should carefully read this entire information statement, the annexes attached to this information statement and the documents referred to or incorporated by reference in this information statement. We have included page references in parentheses to direct you to the appropriate place in this information statement for a more complete description of the topics presented in this summary. Unless we otherwise indicate or unless the context requires otherwise: all references to the terms “Company,” “AERT,” “we,” “our” and “us” refer to Advanced Environmental Recycling Technologies, Inc.; all references to the “Board” refer to the Company’s board of directors;all references to “H.I.G.” refer to H.I.G. AERT, LLC; all references to “Common Stock” refer to the Company’s Class A common stock, par value $0.01 per share; all references to “Preferred Stock” refer to the Company’s Series E Convertible Preferred Stock, par value $0.01 per share; and all references to the “Merger Consideration” refer to the right to receive $0.135936 in cash per share of Common Stock and $2,603.483278 in cash per share of Preferred Stock, as applicable, without interest and subject to any required withholding taxes, contemplated to be received by the holders of our Common Stock and Preferred Stock pursuant to the Merger Agreement. All references to defined terms not defined herein or in the notice to which this information statement is attached shall have the meanings ascribed to them in the Merger Agreement attached as Annex A to this information statement.
 
The Parties to the Merger (page 14)
 
Advanced Environmental Recycling Technologies, Inc.
 
Advanced Environmental Recycling Technologies, Inc. is a Delaware corporation. Founded in 1988, AERT develops and commercializes technologies to recycle waste polyethylene plastics and develops, manufactures, and markets value-added, green building products. The majority of its products are composite building materials that are a superior replacement for traditional wood or plastic products for exterior applications in building and remodeling homes and for certain other industrial or commercial building purposes. AERT’s products are sold and distributed by leading companies such as Lowe’s Companies, Inc., BlueLinx Corp. and CanWel Building Materials Ltd., its Canadian distributor for Lowe’s Canada. AERT’s shares are traded on the OTCQB Tier of the OTC Markets Group, Inc. under the symbol “AERT”. AERT’s principal executive offices are located at 914 N. Jefferson Street, Springdale, Arkansas 72764, and its telephone number is (479) 756-7400.
 
 Oldcastle Architectural, Inc.
 
Parent is the leading supplier of innovative and sustainable masonry and hardscape products for North America’s building and landscaping markets. Parent is the innovator behind many of the industry’s well-known brands including Belgard Hardscapes, Echelon masonry products, Sakrete bagged dry-mixes and Anchor Wall Systems retaining wall solutions, among others. With over 172 operating locations and 5,300 employees, Parent operates across 33 states and 5 Canadian provinces. Parent is a U.S. subsidiary of CRH plc, a leading global diversified building materials group, employing approximately 87,000 people at 3,800 operating locations in 31 countries worldwide. Parent’s principal executive offices are located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338, and its telephone number is (800) 899-8455.
 
Oldcastle Ascent Merger Sub, Inc.
 
Merger Sub is a Delaware corporation formed by Parent solely for the purpose of completing the Merger with the Company. Merger Sub is a wholly-owned subsidiary of Parent and has not engaged in any business to date, except for activities incidental to its incorporation and activities undertaken in connection with the Merger and the other transactions contemplated by the Merger Agreement. Merger Sub’s principal executive offices are located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338, and its telephone number is (800) 899-8455.
 
 
1
 
 
The Merger (page 15)
 
On March 16, 2017, the Company entered into the Merger Agreement with Parent and Merger Sub. Upon the terms and subject to the conditions provided in the Merger Agreement, and in accordance with Delaware law, at the effective time of the Merger, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation. As a result of the Merger, the Company will cease to be an independent company traded on the OTCQB and will become a wholly-owned subsidiary of Parent. As the Merger Consideration will be paid in cash, you will receive no equity interest in Parent, and after the effective time of the Merger you will have no equity interest in the Company.
 
The Merger Consideration (page 43)
 
At the effective time of the Merger, each issued and outstanding share of Common Stock will be converted into the right to receive $0.135936 in cash, less any required withholding taxes, and each issued and outstanding share of Preferred Stock will be converted into the right to receive $2,603.483278 in cash, less any required withholding taxes, in each case other than any shares of Common Stock and Preferred Stock owned by the Company (which will automatically be canceled with no consideration paid therefor) and those shares of Common Stock with respect to which stockholders have properly exercised appraisal rights and have not effectively withdrawn or lost their appraisal rights. As a result of the Merger, upon surrender of your Common Stock or Preferred Stock, as applicable, you will receive a total amount equal to the product obtained by multiplying the relevant per share Merger Consideration by the number of shares of Common Stock or Preferred Stock, as applicable, that you own at the effective time of the Merger, less any amounts required by law to be withheld.
 
Reasons for the Merger (page 22)
 
After careful consideration of various factors, the Board, after consultation with its financial advisor and its legal advisor, determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable, and in the best interests of the Company and its stockholders, approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommended that the Company’s stockholders adopt the Merger Agreement. For a discussion of the material factors considered by the Board in reaching its conclusion, see the section entitled “The Merger – Reasons for the Merger”.
 
Opinion of William Blair, the Company’s Financial Advisor (page 28)
 
William Blair & Company, L.L.C. (“William Blair”) was retained to act as financial advisor to the Board in connection with the possible sale of the Company. As part of its engagement, the Board requested that William Blair render an opinion to the Board as to whether the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) was fair to such stockholders, from a financial point of view. On March 16, 2017, William Blair delivered its oral opinion to the Board and subsequently confirmed in writing that, as of March 16, 2017 and based upon and subject to the assumptions, qualifications and limitations stated therein, the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) was fair to such stockholders, from a financial point of view.
 
The full text of William Blair’s written opinion, dated March 16, 2017, is attached as Annex B to this information statement and incorporated herein by reference. You are urged to read the entire opinion carefully and in its entirety to learn about the assumptions made, procedures followed, matters considered and limits on the scope of the review undertaken by William Blair in rendering its opinion. The analysis performed by William Blair should be viewed in its entirety; none of the methods of analysis should be viewed in isolation. William Blair’s fairness opinion was directed to the Board for its benefit and use in evaluating the fairness of the Merger Consideration to be received pursuant to the Merger Agreement and relates only to the fairness, as of the date of William Blair’s fairness opinion and from a financial point of view, of the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) in the Merger pursuant to the Merger Agreement. William Blair’s fairness opinion does not address any other aspects of the Merger or any related transaction, and does not constitute a recommendation to any of the holders of Common Stock with respect to the Merger Agreement or the Merger. William Blair did not address the merits of the underlying decision by the Company to engage in the Merger.
 
 
2
 
 
 For further information, see the section entitled “The Merger — Opinion of William Blair, the Company’s Financial Advisor” and Annex B.
 
Stockholder Action by Written Consent (page 15)
 
Under Section 251 of the General Corporation Law of the State of Delaware (the “DGCL”), and the applicable provisions of the Company’s certificate of incorporation and bylaws, each as amended to date, the adoption of the Merger Agreement by AERT’s stockholders may be approved without a meeting by written consent of (i) the stockholders holding a majority of the votes represented by the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, and (ii) stockholders holding a majority of the outstanding shares of Preferred Stock, voting separately as a class.  On March 17, 2017, H.I.G., holder of 15,289,890 shares of Common Stock and 20,524.149 shares of Preferred Stock (which shares represent all of the outstanding shares of Preferred Stock and are convertible into 393,084,089 shares of Common Stock), which represented approximately 85% of the voting power of the issued and outstanding shares of the Company’s stock entitled to vote on the adoption of the Merger Agreement, delivered a written consent (in the form attached to the Merger Agreement as Exhibit A) (the “Written Consent”) adopting the Merger Agreement subject to a right to withdraw the Written Consent only if the Board takes certain actions prior to April 15, 2017, including (i) withholding, withdrawing or rescinding (or modifying or qualifying in a manner adverse to Parent or Merger Sub), its recommendation of the Merger, (ii) adopting, approving or recommending, or publicly proposing to adopt, approve or recommend, any Acquisition Proposal (as defined in the section entitled “The Merger Agreement – No Solicitation by the Company” beginning on page 48) involving the Company (other than with respect to Parent and Merger Sub), and (iii) making any public statement inconsistent with its recommendation of the Merger. As a result, no further action by any stockholder of the Company is required under applicable law or the Merger Agreement (or otherwise) to adopt the Merger Agreement or approve the Merger, and the Company has not solicited and will not be soliciting your authorization and adoption of the Merger Agreement and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the Merger Agreement.
 
When actions are taken by written consent of less than all of the stockholders entitled to vote on a matter, Section 228(e) of the DGCL requires that notice of the action be provided to those stockholders who did not consent. This information statement and the notice attached hereto shall constitute notice to you of action by written consent as required by Section 228(e) of the DGCL.
 
Interests of the Company’s Directors and Executive Officers in the Merger (page 35)
 
You should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the Company’s stockholders generally. Interests of officers and directors that may be different from or in addition to the interests of the Company’s stockholders include, among others, potential bonus payments to executive officers in connection with the closing of the Merger, bonus and severance benefits and other payments to executive officers pursuant to employment agreements entered into with Parent which are effective on, and contingent upon, the consummation of the Merger, and rights to ongoing indemnification and insurance coverage.
 
In addition, certain members of the Board are affiliated with H.I.G. Accordingly, such members of the Board may have an indirect interest in the portion of the Merger Consideration to be paid to H.I.G. as holder of Preferred Stock and Common Stock, and may also have an indirect interest in transaction fees of $2.34 million to be paid to an affiliate of H.I.G, at the closing of the Merger.
 
The Board was aware of these different or additional interests and considered such interests along with other matters in approving the Merger Agreement and the transactions contemplated thereby, including the Merger. These interests are discussed in more detail in the section entitled “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger”.
 
 
3
 
 
The Merger Agreement (page 42)
 
Conditions to Completion of the Merger (page 55)
 
As more fully described in this information statement and the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of a number of conditions, including the absence of any law or order that is in effect and restrains, enjoins or otherwise prohibits the Merger, the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the Merger Agreement. If these conditions are not satisfied or waived, the Merger will not be completed.
 
In addition, pursuant to federal securities laws and the Merger Agreement, the Merger may not be completed until 20 days after the date of mailing of this information statement to AERT stockholders. Therefore, notwithstanding the execution and delivery of the Written Consent (which was obtained shortly after the signing of the Merger Agreement), the Merger will not occur until that time has elapsed. We expect the Merger to be completed during the second quarter of 2017. However, there can be no assurance that the Merger will be completed at that time, or at all.
 
No Solicitation by the Company (page 48)
 
The Company has agreed that it will not, nor will it authorize any of its representatives to, directly or indirectly:
 
solicit, initiate or knowingly encourage or knowingly facilitate the making, submission or announcement of an Acquisition Proposal (as defined in the section entitled “The Merger Agreement – No Solicitation by the Company”);
 
enter into, continue or otherwise participate in any discussions or any negotiations regarding, or furnish to any party any non-public information with or for the purpose of knowingly encouraging or knowingly facilitating an Acquisition Proposal; or
 
enter into any letter of intent, acquisition agreement or similar agreement with respect to any Acquisition Proposal or with respect to any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal.
 
The Company has agreed, and has agreed to cause each of its directors and officers to, and to direct its other representatives to, immediately cease and cause to be terminated all discussions or negotiations with any person previously conducted with respect to any Acquisition Proposal and to require such persons to return or destroy, and to cease producing access to, any non-public information of or relating to the Company promptly after closing. The Company is permitted to grant waivers of any “standstill” provision to the limited extent that such provision would otherwise prohibit the counterparty thereto from making a confidential Acquisition Proposal directly to the Board in accordance with the terms of the Merger Agreement, in which case the Company has agreed to similarly waive or terminate any “standstill” provision applicable to Parent contained in the confidentiality agreement between the Company and Parent. All but one of the confidentiality and nondisclosure agreements entered into by the Company in connection with discussions or negotiations with respect to a potential proposal to acquire the Company included customary “standstill” provisions, the terms of which “standstill” provisions terminated on March 17, 2017 upon announcement of the Company’s entry into the Merger Agreement.
 
Notwithstanding the restrictions described above, if at any time prior to April 15, 2017, the Company receives an unsolicited bona fide written Acquisition Proposal that does not result from a breach of the non-solicitation covenant within the Merger Agreement and the Board determines in good faith, after consultation with its independent financial advisors and outside legal counsel, that such Acquisition Proposal constitutes or would reasonably be expected to lead to a superior proposal and that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, then the Company may furnish information to, and participate in discussions and negotiations with, the party making such Acquisition Proposal (and waive such party’s noncompliance with the provisions of any “standstill” agreement solely to permit such discussions and negotiations).
 
 
4
 
 
Termination of the Merger Agreement (page 57)
 
The Merger Agreement may be terminated at any time prior to the consummation of the Merger by the mutual written consent of Parent and the Company.
 
In addition, the Merger Agreement may be terminated by either Parent or the Company if:
 
the Merger has not been consummated on or prior to the close of banking business, New York time, on May 31, 2017 (the “Outside Date”), provided, that a party is not permitted to terminate the Merger Agreement pursuant to this right if the failure to consummate the Merger is attributable to a failure of such party (and in the case of Parent, including the failure of Merger Sub) to perform in any material respect its obligations under the Merger Agreement;
 
any governmental body of competent jurisdiction has issued a final and nonappealable order or taken any action, or there exists any law, in each case, making illegal, permanently enjoining, restraining or otherwise prohibiting the Merger or any of the other transactions contemplated by the Merger, provided, that a party is not permitted to terminate the Merger Agreement pursuant to this right if the issuance of such order or the taking of such action is attributable to a failure of such party (and in the case of Parent, including the failure of Merger Sub) to perform in any material respect its obligations under the Merger Agreement; or
 
on or prior to the Outside Date, the Written Consent has not been obtained and the requisite Company stockholder approval has not been obtained at the Company stockholders meeting duly convened therefor or at any adjournment or postponement thereof, at which a final vote on the approval of the Merger Agreement was taken.
 
The Merger Agreement also may be terminated by Parent if:
 
the Board has made an adverse recommendation change (as defined in “The Merger Agreement – Adverse Recommendation Change” beginning on page 50);
 
(i) there has been a breach of any covenant or agreement on the part of the Company set forth in the Merger Agreement, or (ii) any representation or warranty of the Company set forth in the Merger Agreement was inaccurate when made or, if not made as of a specific date, has become inaccurate, which, in either case of clauses (i) or (ii), results in the conditions to closing related to the Company’s representations and warranties not being satisfied, and in the case of both clauses (i) and (ii), such breach or inaccuracy is not curable by the Outside Date, or, if curable, is not cured by the Outside Date; or
 
either (i) the Written Consent was not obtained and delivered to Parent within the required period of time, or (ii) the requisite Company stockholder approval was not obtained at the Company stockholders meeting duly convened therefor or at any adjournment or postponement thereof, at which a final vote on the approval of the Merger Agreement was taken.
 
The Merger Agreement also may be terminated by the Company if:
 
(i) there has been a breach of any covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement; or (ii) any representation or warranty of Parent or Merger Sub set forth in the Merger Agreement was inaccurate when made or has become inaccurate, which, in either case of clauses (i) or (ii), results in the conditions to closing related to Parent’s or Merger Sub’s representations and warranties not being satisfied, and in the case of both clauses (i) and (ii), such breach or inaccuracy is not curable by the Outside Date, or, if curable, is not cured by the Outside Date; or
 
the Board effected an adverse recommendation change with respect to a superior proposal (as defined in “The Merger Agreement – Other Offers; Superior Proposal” beginning on page 49) or an intervening event (as defined in “The Merger Agreement – Adverse Recommendation Change ” beginning on page 50) (other than an intervening event that would reasonably be expected to have a material adverse effect on the Parent and its subsidiaries, taken as a whole) in accordance with, and in compliance with the requirements of, the Merger Agreement and concurrently with the termination of the Merger Agreement, the Company (i) entered into an agreement related to the applicable superior proposal, if such adverse recommendation change relates to a superior proposal, and (ii) paid the termination fee as required under the Merger Agreement.
 
 
5
 
 
Termination Fees (page 58)
 
If the Merger Agreement is terminated by Parent after the Board makes an adverse recommendation change or by the Company after the Board makes an adverse recommendation change (unless the adverse recommendation change relates to an intervening event that would reasonably be expected to have a material adverse effect on the Parent and its subsidiaries, taken as a whole), the Company has agreed to pay to Parent a termination fee of $4.68 million.
 
In the event that the Merger Agreement is terminated by the Company (i) as a result of the Merger not being consummated by the Outside Date or (ii) as a result of a breach of any covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement or the inaccuracy of any representations or warranties of Parent or Merger Sub set forth in the Merger Agreement, and in the case of clause (i), both (A) the conditions to the obligations of all parties and the conditions to the obligations of Parent and Merger Sub are satisfied or capable of being satisfied or are waived (other than those conditions that by their nature are to be satisfied by actions taken at closing, each of which is capable of being satisfied at closing), and (B) either Parent or Merger Sub fails to satisfy its obligations to effect closing by the date the closing is required to have occurred pursuant to the Merger Agreement, then Parent has agreed pay to the Company a reverse termination fee of $7.02 million.
 
Financing (page 34)
 
The Merger Agreement does not contain any financing-related closing condition and Parent has represented that it will have sufficient funds at the closing to fund the payment of the Merger Consideration and any other payments required in connection with consummation of the Merger.
 
Material U.S. Federal Income Tax Consequences of the Merger (page 39)
 
If you are a U.S. holder (as defined under “The Merger — Material U.S. Federal Income Tax Consequences of the Merger”), the receipt of cash in exchange for shares of Common Stock or Preferred Stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes, and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. You should consult your own tax advisor regarding the particular tax consequences to you of the exchange of shares of Common Stock or Preferred Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).
 
Regulatory Approvals (page 41)
 
 Under the Merger Agreement, both the Company and Parent have agreed to use reasonable efforts to obtain all required governmental approvals and avoid any action or proceeding by a governmental entity to the extent necessary, proper or advisable to consummate the Merger. Except for the expiration of 20 days from the dissemination of this information statement to the Company’s stockholders and the filing of a certificate of merger with the Delaware Secretary of State at or before the effective date of the Merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger or the other transactions contemplated by the Merger Agreement.
 
Appraisal Rights (page 62)
 
If the Merger is consummated, holders of our Common Stock may elect, in lieu of accepting the Merger Consideration, to pursue appraisal rights under Section 262 of the DGCL and to receive the judicially determined “fair value” of their shares, which could be more or less than, or the same as, the Merger Consideration, but only if they comply with the procedures required by Section 262 of the DGCL. In order to perfect these rights, you must make a written demand for appraisal by no later than May 1, 2017, which is the date that is 20 days following the mailing of this information statement, and otherwise comply with the procedures set forth in Section 262 of the DGCL for exercising appraisal rights. For a summary of these procedures, see the section entitled “Appraisal Rights” beginning on page 62. A copy of Section 262 of the DGCL is also included as Annex C to this information statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.
 
 
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Delisting and Deregistration of Common Stock (page 41)
 
If the Merger is completed, the Common Stock, which is currently listed on the OTCQB Tier of the OTC Markets Group, Inc. under the symbol “AERT,” will cease to be quoted on the OTCQB. In addition, if the Merger is completed, the Common Stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we will no longer file periodic reports with the U.S. Securities and Exchange Commission (the “SEC”) on account of our Common Stock.
 
Market Price of the Company’s Common Stock (page 60)
 
The closing price of our Common Stock on the OTCQB on March 16, 2017, the last trading day prior to our public announcement that we had entered into the Merger Agreement, was $0.1021 per share. On April 7, 2017, the most recent practicable trading date prior to the date of this information statement, the closing price of our Common Stock on the OTCQB was $0.134 per share.
 
Procedures for Receiving Merger Consideration (page 43)
 
Shortly after the effective time of the Merger, a paying agent will mail a letter of transmittal and instructions to stockholders of the Company who hold shares of Company stock represented by stock certificates. The letter of transmittal and instructions will tell you how to surrender your stock certificates in exchange for the Merger Consideration. Holders of uncertificated shares of Company stock (i.e., holders whose shares are held in book-entry form) will automatically receive the Merger Consideration, without interest and subject to reduction for any required withholding taxes, as promptly as practicable after the effective time of the Merger without any further action required on the part of those holders.
 
 
 
7
 
 
 
QUESTIONS AND ANSWERS ABOUT THE MERGER
 
The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger Agreement and the Merger. These questions and answers may not address all questions that may be important to you as an AERT stockholder. Please refer to the additional information contained elsewhere in this information statement, the annexes to this information statement and the documents referred to in this information statement, each of which you should read carefully.
 
Q.
Why am I receiving this information statement?
 
A.
The Company and Parent have agreed to the acquisition of the Company by Parent upon the terms and conditions of the Merger Agreement described in this information statement, and the Preferred Stockholder has adopted the Merger Agreement and approved the Merger. Applicable provisions of Delaware law and applicable securities regulations require us to provide you with information regarding the Merger, even though your vote or consent is neither required nor requested to adopt the Merger Agreement or complete the Merger. This information statement also constitutes notice to you of the availability of appraisal rights under Section 262 of the DGCL, a copy of which is attached to this information statement as Annex C.
 
Q.
What is the proposed transaction?
 
A.
The proposed transaction is the acquisition of the Company by Parent. The proposed transaction will be accomplished through a merger of Merger Sub, a wholly-owned subsidiary of Parent, with and into the Company, with the Company as the surviving corporation. As a result of the Merger, the Company will become a wholly-owned subsidiary of Parent and its Common Stock will cease to be quoted on the OTCQB.
 
Q. 
Why did the Board approve the Merger and the Merger Agreement?
 
A. 
After careful consideration and evaluation of the Merger, the Board determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable, and in the best interests of, the Company and its stockholders, approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommended that the Company’s stockholders adopt the Merger Agreement. To review the Board’s reasons for recommending and approving the Merger and the Merger Agreement, see the section entitled “The Merger - Reasons for the Merger” beginning on page 22.
 
Q. 
Is the approval of stockholders necessary to adopt the Merger Agreement? Why am I not being asked to vote on the Merger Agreement?
 
A. 
The Merger requires the adoption of the Merger Agreement by (i) the holders of a majority of the votes represented by the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, and (ii) the holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class. The requisite stockholder approval was obtained on March 17, 2017, the date on which H.I.G., holder of all of the issued and outstanding shares of Preferred Stock, and holder of approximately 85% of the voting power of the issued and outstanding shares of the Company’s stock on that date, delivered to the Company a written consent adopting and approving the Merger Agreement and the Merger. Therefore, your vote is not required and is not being sought. We are not asking you for a proxy and you are requested not to send us a proxy.
 
Q. 
If the Merger is completed, what will I receive for my shares of Common Stock and my shares of Preferred Stock?
 
A. 
In the Merger, each issued and outstanding share of Common Stock will be converted into the right to receive $0.135936 in cash, less any required withholding taxes, and each issued and outstanding share of Preferred Stock will be converted into the right to receive $2,603.483278 in cash, less any required withholding taxes, which we refer to as the “Merger Consideration.” As a result of the Merger, upon the surrender of your shares of Common Stock or Preferred Stock, as applicable, you will receive a total amount equal to the product obtained by multiplying the Merger Consideration applicable to such shares of Common Stock or Preferred Stock, respectively, by the number of shares of Common Stock or Preferred Stock, as applicable, that you own, rounded up to the nearest cent. This does not apply to any shares of Common Stock or Preferred Stock owned by the Company (which will automatically be canceled with no consideration paid therefor) and those shares of Common Stock with respect to which stockholders properly exercised appraisal rights and have not effectively withdrawn or lost their appraisal rights. You will not own shares in the surviving corporation.
 
 
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Q
Will the Merger Consideration I receive in the Merger increase if AERT’s results of operations improve or if the price of AERT’s Common Stock increases above the current Merger Consideration to be paid in respect of Common Stock?
 
A. 
No. The Merger Consideration in respect of Common Stock is fixed at $0.135936 in cash per share of Common Stock, without interest and subject to any required withholding taxes. The Merger Agreement does not contain any provision that would adjust the Merger Consideration (in either direction) based on fluctuations in the price of the Common Stock or based on the results of operations of the Company prior to the consummation of the Merger.
 
Q. 
Is the Merger subject to fulfillment of certain conditions?
 
A. 
Yes. Before completion of the Merger, the Company, Parent and Merger Sub must fulfill or waive several closing conditions. If these conditions are not satisfied or waived, the Merger will not be completed. See the section entitled “The Merger Agreement - Conditions to Completion of the Merger” beginning on page 55.
 
Q
Am I entitled to appraisal rights instead of receiving the Merger Consideration for my shares?
 
A. 
Yes. Under the DGCL, stockholders who did not provide a consent to the adoption of the Merger Agreement (i.e., stockholders other than H.I.G.) are entitled to appraisal rights in connection with the Merger with respect to their shares, so long as they precisely follow specific procedures to exercise their rights under Delaware law. See the section entitled “Appraisal Rights” beginning on page 62.
 
Q. 
What happens if a third party makes an offer to acquire the Company before the Merger is completed?
 
A. 
If a third party makes an unsolicited bona fide written acquisition proposal to the Company prior to April 15, 2017, the Company may, prior to such date, negotiate and discuss the proposal with the third party under certain circumstances specified in the Merger Agreement. If the Board determines in good faith that such acquisition proposal constitutes a superior proposal and the Company notifies Parent and complies with certain additional requirements of the Merger Agreement, including, if requested by Parent, negotiating with Parent during a period of four business days so that Parent has the opportunity to submit a matching or topping proposal, and Parent does not submit a matching or topping proposal during such four business day period, then the Company may terminate the Merger Agreement until April 15, 2017 to accept the superior proposal, subject to certain notice requirements and other conditions and the requirement that the Company pay Parent the termination fee prior to or concurrently with such termination. See the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 57. As of the date of this information statement, the Company has not received any such acquisition proposal.
 
 
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Q
When is the Merger expected to be completed?
 
A. 
As of the date of this information statement, we expect to complete the Merger during the second quarter of 2017. We are working to complete the Merger as quickly as possible. However, completion of the Merger is subject to the satisfaction or waiver of the conditions to the completion of the Merger, which are described in this information statement, including that the Merger may not be completed until 20 days after the date of mailing of this information statement to AERT stockholders. It is possible that factors outside the control of the Company or Parent could delay the completion of the Merger, or prevent it from being completed at all.
 
Q. 
What happens if the Merger is not completed?
 
A.
If the Merger is not completed for any reason, the Company’s stockholders will not receive any payment for their shares of Common Stock or Preferred Stock in connection with the Merger. Instead, shares of our Common Stock will continue to be registered under the Exchange Act, as well as listed and traded on the OTCQB. In the event that either the Company or Parent terminates the Merger Agreement, then, in certain circumstances, the Company will pay Parent a termination fee of $4.68 million or Parent will pay the Company a reverse termination fee of $7.02 million. See the section entitled “The Merger Agreement — Effect of Termination; Termination Fee; Reverse Termination Fee” beginning on page 58.
 
Q. 
What happens if I sell or otherwise transfer my shares before completion of the Merger?
 
A. 
If you sell or otherwise transfer your shares of Company stock, you will have transferred to the person that acquires your shares of Company stock the right to receive the Merger Consideration to be received in the Merger. To receive the Merger Consideration, you must hold your shares through completion of the Merger.
 
Q. 
Should I surrender my shares of Company stock now?
 
A. 
No. After the Merger is completed, you will be sent detailed instructions for exchanging your shares of stock for the Merger Consideration. Holders of uncertificated shares of Common Stock (i.e., holders whose shares are held in book-entry form) will automatically receive the Merger Consideration, without interest and subject to reduction for any required withholding taxes, as promptly as practicable after the effective time of the Merger without any further action required on the part of those holders.
 
Q. 
Will I owe taxes as a result of the Merger?
 
A. 
The Merger will be a taxable transaction for U.S. holders of our Common Stock or Preferred Stock. As a result, assuming you are a U.S. holder, any gain you recognize as a result of the Merger will be subject to United States federal income tax and also may be taxed under applicable state, local or other tax laws. In general, you will recognize gain or loss equal to the difference between (1) the applicable Merger Consideration and (2) the adjusted tax basis of the shares of Common Stock or Preferred Stock you surrender in the Merger. See the section entitled “The Merger – Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 39 for a more detailed explanation of the tax consequences of the Merger. You should consult your tax advisor on how specific tax consequences of the Merger apply to you.
 
Q. 
Where can I find more information about the Company?
 
A. 
We file periodic reports and other information with the SEC. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 is attached as Annex D to this information statement. You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available on the internet site maintained by the SEC at www.sec.gov. For a more detailed description of the information available, please refer to the section entitled “Where You Can Find More Information” on page 65.
 
 
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Q. 
Who can help answer my questions?
 
A. 
If you have questions about the Merger after reading this information statement, please contact our Investor Relations Department by mail at 914 N. Jefferson Street, Springdale, Arkansas, 72764, Attention: Investor Relations, or by telephone at (479) 203-5084.
 
 
 
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
This information statement, and the documents to which we refer you in this information statement, contain certain “forward-looking statements” under Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the Merger and other information relating to the Merger, and include, without limitation, information in this information statement under the headings “Summary” and “The Merger.” Generally these forward-looking statements can be identified by the use of forward-looking terminology such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “continues” or future or conditional verbs, such as “will,” “should,” “could” or “may,” and variations on these words and similar expressions. Forward-looking statements are based on current expectations. However, actual results may differ materially from expectations due to the risks, uncertainties and other factors that affect the Company’s business. These factors include, among others:
 
the possibility that the closing conditions to the Merger may not be satisfied or waived;
 
the timing and ability to complete the Merger;
 
the occurrence of any event that could give rise to termination of the Merger Agreement;
 
the outcome of legal and regulatory proceedings that may be instituted following the announcement of our entering into the Merger Agreement;
 
risks inherent in the achievement of cost synergies and the timing thereof;
 
risks that the Merger disrupts current plans and operations including potential impairments to our ability to retain and motivate key personnel and maintain relationships with customers, suppliers and other third parties;
 
limitations placed on the Company’s ability to operate its business under the Merger Agreement;
 
the diversion of management's attention from ongoing business operations and opportunities as a result of the Merger;
 
the amounts of costs, fees, and expenses relating to the Merger;
 
market, political or other forces affecting the pricing and availability of plastics and other raw materials;
 
accidents or other unscheduled shutdowns affecting us, our suppliers' or our customers' plants, machinery, or equipment;
 
competition from products and services offered by other enterprises;
 
our ability to refinance short-term indebtedness;
 
state and federal environmental, economic, safety and other policies and regulations, any changes therein, and any legal or regulatory delays or other factors beyond our control;
 
execution of planned capital projects;
 
weather conditions affecting our operations or the areas in which our products are marketed;
 
adverse rulings, judgments, or settlements in litigation or other legal matters;
 
 
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difficult global economic and capital markets conditions; and
 
other risks detailed in our filings with the SEC, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 attached hereto as Annex D.
 
We believe that the assumptions on which our forward-looking statements are based are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed in this information statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this information statement or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of new information, future events or otherwise.
 
 
 
 
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THE PARTIES TO THE MERGER
 
The Company
 
Advanced Environmental Recycling Technologies, Inc.
 
Advanced Environmental Recycling Technologies, Inc. is a Delaware corporation. Founded in 1988, AERT develops and commercializes technologies to recycle waste polyethylene plastics and develops, manufactures, and markets value-added, green building products. The majority of its products are composite building materials that are a superior replacement for traditional wood or plastic products for exterior applications in building and remodeling homes and for certain other industrial or commercial building purposes, and are primarily used in renovation and remodeling by consumers, homebuilders, and contractors as an exterior environmentally responsible building alternative for decking, railing, and trim products. The Company’s products are sold and distributed by leading companies such as Lowe’s Companies, Inc., BlueLinx Corp. and CanWel Building Materials Ltd., its Canadian distributor for Lowe’s Canada. AERT’s shares are traded on the OTCQB Tier of the OTC Markets Group, Inc. under the symbol “AERT.”
 
AERT’s principal executive offices are located at 914 N. Jefferson Street, Springdale, Arkansas 72764, and its telephone number is (479) 756-7400.
 
For more information about AERT, please visit our website at www.aert.com. The information provided on our website is not part of this information statement, and therefore is not incorporated by reference. Detailed descriptions about our business and financial results are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which is attached to this information statement as Annex D.
 
Parent
 
Oldcastle Architectural, Inc.
 
Parent is the leading supplier of innovative and sustainable masonry and hardscape products for North America’s building and landscaping markets. Parent is the innovator behind many of the industry’s well-known brands including Belgard Hardscapes, Echelon masonry products, Sakrete bagged dry-mixes and Anchor Wall Systems retaining wall solutions, among others. With over 172 operating locations and 5,300 employees, Parent operates across 33 states and 5 Canadian provinces. Parent is a U.S. subsidiary of CRH plc, a leading global diversified building materials group, employing approximately 87,000 people at 3,800 operating locations in 31 countries worldwide.
 
Parent’s principal executive offices are located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338, and its telephone number is (800) 899-8455.
 
Merger Sub
 
Oldcastle Ascent Merger Sub, Inc.
 
Merger Sub is a Delaware corporation and a wholly-owned subsidiary of Parent that was formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Merger Sub has not carried on any activities on or prior to the date of this information statement except for activities incidental to its formation and activities in connection with Parent’s acquisition of the Company. Upon completion of the Merger, Merger Sub will merge with and into the Company and will cease to exist. Merger Sub’s principal executive offices are located at 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338, and its telephone number is (800) 899-8455.
 
 
 
 
14
 
 
THE MERGER
 
The description of the Merger in this section and elsewhere in this information statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this information statement. This summary does not purport to be complete and may not contain all of the information about the Merger that is important to you. You are encouraged to read the Merger Agreement carefully and in its entirety.
 
Certain Effects of the Merger
 
Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving the Merger. Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Common Stock will be converted into the right to receive $0.135936 in cash, less any required withholding taxes, and each issued and outstanding share of Preferred Stock will be converted into the right to receive $2,603.483278 in cash, less any required withholding taxes, in each case other than any shares of Common Stock or Preferred Stock owned by the Company (which will automatically be canceled with no consideration paid therefor) and those shares of Common Stock with respect to which stockholders properly exercised appraisal rights and have not effectively withdrawn or lost their appraisal rights. H.I.G. owns all of the outstanding shares of Preferred Stock and is entitled to all of the Merger Consideration to be paid in respect of the Preferred Stock.
 
Required Approval of the Merger; Written Consent
 
Under Section 251 of the DGCL and the applicable provisions of the Company’s certificate of incorporation and bylaws, each as amended to date, the adoption of the Merger Agreement by AERT’s stockholders required the affirmative vote or written consent of (i) holders of a majority of the votes represented by the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, and (ii) holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class.  The Board approved the Merger Agreement on March 16, 2017. On March 17, 2017, H.I.G., holder of 15,289,890 shares of Common Stock and 20,524.149 shares of Preferred Stock (which shares represent all of the outstanding shares of Preferred Stock and are convertible into 393,084,089 shares of Common Stock), which represented approximately 85% of the voting power of the issued and outstanding shares of the Company’s stock entitled to vote on the adoption of the Merger Agreement, delivered a written consent (the “Written Consent”) adopting the Merger Agreement and approving the Merger, subject to a right to withdraw such consent only if the Board takes certain actions prior to April 15, 2017, including (i) withholding, withdrawing or rescinding (or modifying or qualifying in a manner adverse to Parent or Merger Sub), its recommendation of the Merger, (ii) adopting, approving or recommending, or publicly proposing to adopt, approve or recommend, any Acquisition Proposal involving the Company (other than with respect to Parent and Merger Sub), and (iii) making any public statement inconsistent with its recommendation of the Merger. As a result, no further action by any stockholder of the Company is required under applicable law or the Merger Agreement (or otherwise) to adopt the Merger Agreement or approve the Merger, and the Company has not solicited and will not be soliciting your authorization and adoption of the Merger Agreement and does not intend to call a meeting of stockholders for purposes of voting on the adoption of the Merger Agreement.
 
Pursuant to federal securities laws and the Merger Agreement, the Merger may not be completed until 20 days after the date of mailing of this information statement to AERT stockholders. Therefore, notwithstanding the execution and delivery of the Written Consent (which was obtained shortly after the signing of the Merger Agreement), the Merger will not occur until that time has elapsed. We expect the Merger to be completed during the second quarter of 2017. However, there can be no assurance that the Merger will be completed at that time, or at all.
 
Background of the Merger
 
As part of the Company’s ongoing strategic planning, the Board and members of Company management periodically review and assess the Company’s operations and financial performance and industry conditions that may impact the Company’s long-term strategic goals and plans. Company management also regularly discusses with the Board the strategic direction of the Company and ways to maximize shareholder value, including through business combinations, acquisitions and strategic partnerships, and returning capital to stockholders through dividends.
 
 
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On June 22, 2016, the Board held a meeting at which the directors affiliated with H.I.G. updated other members of the Board that H.I.G. was considering liquidating its investment. The Board discussed the exploration of strategic alternatives to maximize value for all stockholders and to achieve liquidity for H.I.G., including a sale of the Company and continuing to operate the Company as an independent public company while taking steps aimed at increasing trading volume of the stock, including recapitalizing the balance sheet to potentially return capital to stockholders in the form of a dividend, and pursuing an acquisition strategy to more quickly grow the Company.
 
On June 30, 2016, the Board and Company management met with representatives of William Blair & Company, L.L.C. (“William Blair”). A representative of William Blair made a presentation regarding a potential sale of the Company. The parties also discussed the possibility of the Company continuing to operate as an independent public company.
 
In a series of discussions during the first week of July 2016, members of the Board considered the pros and cons of exploring strategic alternatives, focusing on the alternatives of a sale of the Company and continuing to operate the Company as an independent public company. The Board discussed the potential benefits to the Company’s stockholders of a sale of the Company, including receiving immediate liquidity and a premium over the current price of the Common Stock. They also considered the possible disruption to the Company’s business that could result from the public announcement of an exploratory process and the resulting distraction of the attention of Company management and employees. The Board considered the Company’s business trajectory, customer concentration and execution risks of new Company products, and the potential benefit of having a partner to assist in their development. The Board also reviewed and discussed materials and information presented to it by Company management, William Blair, and three other investment banks interviewed by the Board, including information regarding comparable public companies, comparable transactions, market forecasts and financing market conditions. At the conclusion of these discussions, the Board determined that it was in the best interests of the Company and its stockholders to explore a sale of the Company.
 
In a series of discussions during the week of July 11, 2016, members of the Board discussed with representatives of Paul Hastings LLP (“Paul Hastings”) the directors’ fiduciary duties under Delaware law in connection with the exploration of strategic alternatives as well as the legal implications of a potential sale of the Company.
 
During the period from July 4, 2016 to July 20, 2016, the Board also discussed the merits of retaining qualified investment banking and legal advisors. The Board evaluated whether to retain William Blair and Paul Hastings. In connection with its evaluation, the Board considered the fact that William Blair provided investment banking services for affiliates of H.I.G. and that Paul Hastings represented H.I.G. and certain of its affiliates in connection with their transactions with the Company and represents affiliates of H.I.G. in connection with matters unrelated to the Company. The Board determined that these preexisting relationships did not present conflicts of interest that would preclude those advisors from representing the Company’s best interests. On July 20, 2016, the Board resolved to engage William Blair as its financial advisor and Paul Hastings as its legal advisor in connection with its consideration of a potential sale of the Company. The Company and William Blair executed an engagement letter on July 20, 2016. The Board retained William Blair as its financial advisor after considering and interviewing other advisors because of, among other things, William Blair’s familiarity with the building products industry, its public company experience and its experience advising companies in similar circumstances. The Board retained Paul Hastings as its legal advisor because of, among other things, its familiarity with the Company through its representation of H.I.G. and its affiliates and its experience advising companies in similar circumstances.
 
With respect to all Board meetings and discussions in June and July 2016, as well as all subsequent Board meetings and discussions related to the Company sale process, where fewer than all members of the Board participated, the directors who did not participate were promptly apprised, by either other directors or Company management, of the matters discussed.
 
In late July and early August 2016, the Company and the Board, with the assistance of William Blair, prepared to commence a process to solicit interest from potential buyers and Company management prepared a preliminary confidential presentation describing the Company’s business and included historical financial information. Working with William Blair, the Board and Company management identified a broad group of potential strategic and financial buyers that they believed might be both interested in acquiring the Company and would have the requisite financial resources to do so.
 
 
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On August 18, 2016, at the direction of the Board, William Blair began contacting potential buyers. Over the next six weeks, William Blair contacted 307 potential buyers, of which 88 were strategic parties and 219 were financial sponsors. Of those 307 potential buyers, 96 parties, including 21 strategic parties and 75 financial sponsors, entered into nondisclosure agreements with the Company and received the preliminary confidential presentation. All but one of these nondisclosure agreements included customary standstill provisions, the terms of which standstills terminated upon announcement of the Company’s entry into the Merger Agreement.
 
In late September 2016, Company management, with the assistance of William Blair, prepared a confidential information presentation to be provided to potential buyers during introductory meetings describing the Company’s business and historical financial information, as well as certain financial projections for 2016 to 2021 prepared by Company management.
 
During the period from September 26, 2016 through October 14, 2016, representatives of Company management and William Blair held introductory meetings, some of which included tours of the Company’s facilities, with seven potential buyers (including Parent) which were viewed as good strategic fits and as having the financial resources to complete an acquisition of the Company.
 
From October 6, 2016 through October 18, 2016, at the direction of the Board, William Blair distributed process letters to 90 potentially interested parties requesting that written indications of interest be submitted by October 25, 2016. During this period of time, William Blair had numerous conversations with these parties. Nine bidders, consisting of eight strategic bidders and one financial sponsor, submitted non-binding initial indications of interest ranging from $76 million to $147 million as follows: Bidder A proposed between $117 million and $147 million; Bidder B proposed $125 million; Bidder C proposed $120 million; Bidder D proposed $113 million; Bidder E proposed between $105 million and $115 million; Bidder F proposed between $95 million and $102 million; Bidder G proposed $76 million; and Parent proposed between $92 million and $110 million. All of the non-binding indications of interest stated that the values represented enterprise values for the Company on a cash-free, debt-free basis. Most also assumed a normalized level of working capital.
 
On October 27, 2016, members of the Board and Company management met with representatives of William Blair. Prior to the meeting, a presentation prepared by William Blair summarizing the marketing process, the potential buyers’ progress on due diligence, and a summary of the indications of interest was distributed to the Board and certain members of Company management. During the meeting, a representative of William Blair reviewed the presentation with members of the Board and Company management. Bidder H had not yet submitted its indication of interest, and William Blair discussed it as a potential strategic buyer whose indication of interest was still outstanding. The Board considered the proposed transaction values, the financial strength of the potential buyers in relation to their ability to consummate a transaction, and the opportunities and challenges the Company would face if it chose not to continue with the exploratory process and remained as an independent company. Following these discussions, the Board directed Company management to continue working with William Blair to explore a potential sale of the Company, including allowing six of the remaining potential buyers who had submitted indication of interest to conduct additional diligence of the Company. The Board determined not to invite Bidder F or Bidder G to move forward to the next phase of the process based on the transaction values set forth in their indications of interest relative to those of other bidders, and with respect to Bidder F, its lack of adequate financial resources. In order to obtain the highest price reasonably available for the Company, the Board determined that the other six bidders should be invited to participate in the next phase of the process which would include management presentations, additional facility visits and access to more extensive information about the Company to be made available via an electronic data room.
 
During the period from late October through late December, members of the Board participated in weekly status calls during which William Blair provided the Board with updates regarding the sale process.
 
On October 28, 2017, Bidder H submitted its initial indication of interest of between $100 million and $120 million, which represented an enterprise value for the Company on a cash-free, debt-free basis and assumed a normalized level of working capital. William Blair notified members of the Board of the indication of interest, and Bidder H was invited to participate in the next phase of the process alongside the other six remaining bidders.
 
 
 
 
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After being told that it was not being invited to participate in the next phase of the process, Bidder G submitted, on November 3, 2016, a revised indication of interest of approximately $135 million, which represented an enterprise value for the Company on a cash-free, debt-free basis and assumed a normalized level of working capital. William Blair notified members of the Board of the revised indication of interest, and Bidder G was invited to remain in the process.
 
During the period from November 8, 2016 through November 29, 2016, Company management met with the eight remaining bidders (including Parent) to present an overview of the Company’s operations, financial performance and industry and strategy, discuss projected future performance of the Company and respond to questions from the bidders.
 
On November 16, 2016, the eight remaining bidders were provided access to the electronic data room, which included the draft merger agreement and detailed information about the Company’s business and operations for the potential buyers to use in their due diligence review.
 
On November 22, 2016, Bidder E withdrew from the process.
 
On November 23, 2016, at the direction of the Board, William Blair distributed process letters to the seven remaining potential buyers requesting that non-binding proposals be submitted by December 20, 2016.
 
On December 1, 2016, Bidder H withdrew from the process.
 
Throughout the first half of December 2016, the remaining six bidders continued their diligence review of the Company.
 
On December 19, 2016, a draft of the confidential disclosure schedules to the merger agreement was made available in the electronic data room.
 
On December 19, 2016, Bidder D withdrew from the process.
 
On December 20 and 21, 2016, respectively, non-binding proposals were submitted by Bidder G and Parent together with each party’s proposed changes to the draft merger agreement indicating the potential buyer’s proposed terms. On December 21, 2016, Bidder B informed William Blair that it was expecting to submit a proposal on December 22, 2016. Bidder A and Bidder C did not submit final proposals on December 20, 2016 and were removed from the process.
 
Bidder G proposed to acquire the Company at an enterprise value of $160 million. Based on the assumptions in Bidder G’s proposal, including a deduction for Company debt of approximately $38.3 million, Bidder G’s proposed per share price for Common Stock equated to $0.2556. Parent proposed to acquire the Company at an enterprise value of $117 million. Based on the assumptions in Parent’s proposal, including deductions for Company debt of approximately $38.9 million and transaction expenses of $5 million, Parent’s proposed per share price for Common Stock equated to $0.15. Both proposals required the Company’s aggregate debt outstanding at the closing and transaction expenses to be paid out of the total consideration, and provided that the remaining consideration was to be distributed to the Company’s stockholders in accordance with the Company’s certificate of incorporation. Bidder G’s proposal required the execution of new agreements between certain members of Company management and the Company as a condition to the consummation of the Merger, and was subject to product durability testing, intellectual property diligence and changes to the Company’s agreement with Lowe’s. Parent’s proposal indicated that it intended to enter into new agreements with certain members of Company management team.
 
On December 21, 2016, the Board met with William Blair to discuss the key terms of both proposals. Prior to the meeting, a presentation prepared by William Blair summarizing the marketing process, the potential buyers’ progress on due diligence, and a summary of the proposals that had been received was distributed to the Board and Company management. The Board considered this information and instructed William Blair and Paul Hastings to continue discussions with Parent and Bidder G, focusing efforts primarily on Bidder G due to Bidder G’s higher valuation.
 
 
18
 
 
On December 23, 2016, Bidder B submitted a proposal to acquire the Company for total consideration of $127 million, consisting of $40 million in cash at closing, assumption of $37.3 million of debt and approximately $50 million contingent upon the achievement of certain financial performance benchmarks over the five-year period after closing. William Blair notified the Board of the proposal. The Board considered the terms of Bidder B’s proposal and directed William Blair to request that Bidder B submit an upfront cash proposal, and if Bidder B did not elect to submit a revised proposal, to notify Bidder B that it was not being selected to advance in the process due to the contingent nature of a significant portion of the total consideration in its proposal as compared to the upfront cash proposals submitted by other bidders.
 
In late December 2016 and early January 2017, members of the Board and Company management met with Paul Hastings to discuss Parent’s and Bidder G’s proposed revisions to the draft merger agreement and provided feedback on the issues raised by each revised draft.
 
On January 4, 2017, Bidder B communicated to William Blair that it declined to revise its proposal and was removed from the process.
 
On January 4, 2017, Paul Hastings circulated to Bidder G’s counsel a revised draft of the proposed merger agreement.
 
On January 5, 2017, Paul Hastings sent a list summarizing the key issues arising out of Parent’s proposed revisions to the draft merger agreement to Kilpatrick Townsend & Stockton LLP, counsel to Parent (“Kilpatrick”), for discussion.
 
On January 9, 2017, representatives of Paul Hastings discussed with representatives of Kilpatrick the issues identified in Parent’s proposed revisions to the merger agreement which included, among others, Parent’s proposed requirement that H.I.G. deliver a stockholder written consent approving the proposed merger in lieu of the Company holding a stockholder meeting, the Company’s ability to consider other acquisition proposals in accordance with its fiduciary duties, an increase in the termination fee payable by the Company to Parent in the event that, among other situations, the Company terminated the merger agreement to enter into an alternative transaction from approximately 2.5% of total consideration, or $2.9 million, to approximately 3% of total consideration, or $3.5 million, and available remedies to the Company if Parent improperly terminated the agreement.
 
On January 10, 2017, Paul Hastings and counsel for Bidder G engaged in further discussions regarding the merger agreement.
 
On January 19, 2017, Bidder G’s counsel circulated a revised draft of the merger agreement to Paul Hastings.
 
On January 20, 2017, representatives of Paul Hastings and Bidder G’s counsel discussed Bidder G’s revised draft of the merger agreement, including among others: Bidder G’s addition of numerous conditions to closing (including provisions that allowed Bidder G not to close the merger if (i) certain diligence was not completed to Bidder G’s sole and absolute discretion related to (a) the Company’s intellectual property with respect to upcoming products and (b) the Company’s products, (ii) certain contracts were not renegotiated satisfactorily, (iii) certain of the Company’s directors and officers had not entered into agreements containing noncompetition and non-solicitation provisions in favor of the Company, and (iv) Bidder G’s board of directors had not approved the merger) and the ability for the Company to consider other acquisition proposals in accordance with its fiduciary duties. During the discussion, Bidder G’s counsel indicated that Bidder G would likely not be in a position to complete its due diligence for several weeks.
 
On January 23, 2017, members of the Board and Company management discussed with Paul Hastings the remaining issues in Bidder G’s proposed merger agreement as well as Bidder G’s proposed timing. Also on January 23, 2017, representatives of Paul Hastings and Bidder G’s counsel discussed Bidder G’s revised draft of the merger agreement in an effort to resolve the open points.
 
 
19
 
 
On January 26, 2017, Bidder G withdrew from the process.
 
On January 30, 2017, Paul Hastings circulated a revised draft of the merger agreement with Parent to Kilpatrick.
 
On February 6, 2017, the Board and Company management met with William Blair. Prior to the meeting, a presentation prepared by William Blair providing an update on the process and a summary of the bidders who had participated in the process and withdrawn was circulated to the Board and Company management. During the meeting, a representative of William Blair reviewed the presentation with the Board and Company management, and discussed Bidder G’s withdrawal from the process and the status of Parent’s proposal.
 
On February 8, 2017, certain members of Parent’s management visited certain of the Company’s properties and conducted on-site due diligence, including meetings with Company management.
 
On February 9, 2017, representatives of Paul Hastings and Kilpatrick discussed the revised draft of the merger agreement.
 
On February 10, 2017, William Blair communicated to Stifel, Parent’s financial advisor, that Parent could be granted exclusivity in negotiations with the Company in exchange for an increase in the enterprise value from $117 million to $125 million. Parent declined to increase the enterprise value and was not granted exclusivity.
 
On February 14, 2017, Bidder A requested an update about the process from William Blair and was provided with a business update regarding the Company’s performance. Bidder A was not responsive to subsequent communications.
 
On February 17, 2017, Kilpatrick circulated a revised version of the merger agreement to Paul Hastings, which included, among other proposed changes, an increase in the termination fee payable to Parent in the event that, among other situations, the Company terminated the merger agreement to enter into an alternative transaction from approximately 3% of total consideration, or $3.5 million, to approximately 4% of total consideration, or $4.7 million. From February 17, 2017 through February 20, 2017, members of the Board and Company management discussed with Paul Hastings the remaining issues in the proposed merger agreement. In addition, in the revised draft, Parent continued to include a requirement that H.I.G. deliver a stockholder written consent approving the proposed merger in lieu of the Company holding a stockholder meeting, but proposed to allow H.I.G. the right to revoke the written consent if the Board, under certain circumstances, were to change its recommendation or pursue a superior proposal within 30 days after the signing of the merger agreement.
 
On February 21, 2017, the board of directors of CRH plc (of which Parent is a subsidiary) met to discuss the proposed merger of Parent with the Company. The board of directors of CRH plc, in accordance with its internal policies regarding acquisitions, authorized Parent’s management and representatives to continue to negotiate the terms of the merger agreement with the Company and its representatives.
 
On February 22, 2017, Paul Hastings circulated a revised draft of the merger agreement to Kilpatrick, which among other things, rejected the increased termination fee.
 
On February 22, 2017, Stifel communicated to William Blair that Parent would require that certain members of Company management enter into new employment agreements with Parent concurrently with the execution of the merger agreement, which agreements would become effective upon closing of the merger. Stifel also requested that Parent be given exclusivity, and continued to periodically ask for exclusivity through March 3, 2017, but Parent was not granted exclusivity for any period of time.
 
On February 23, 2017, members of Parent management met with members of Company management to discuss the terms of the new management employment agreements with Parent.
 
 
20
 
 
On February 24, 2017, William Blair contacted Bidder G and indicated that there was an opportunity to acquire the Company for an enterprise value lower than the $160 million in its proposal.
 
On February 26, 2017, Kilpatrick circulated a list of open issues in the revised draft of the merger agreement for discussion. On the same date, members of the Board and representatives of Paul Hastings discussed the issues outlined on the list provided by Kilpatrick.
 
On February 28, 2017, Kilpatrick communicated to Paul Hastings that Parent would require Tim Morrison (Chief Executive Officer), Brian Hanna (Chief Financial Officer), Randall Gottlieb (President) and Brent Gwatney (Senior Vice President of Sales) to execute employment agreements with Parent simultaneously with the execution of the merger agreement.
 
Between February 26, 2017 and March 3, 2017, representatives of Paul Hastings and Kilpatrick had multiple conversations regarding the outstanding issues in the merger agreement.
 
On March 3, 2017, Kilpatrick circulated a revised draft of the merger agreement to Paul Hastings, which among other things again proposed to increase the termination fee to approximately 4% of total consideration, or $4.7 million. Over the next several days, representatives of Paul Hastings conferred with members of the Board and Company management regarding the revised draft of the merger agreement.
 
Also on March 3, 2017, Kilpatrick sent to management’s counsel draft employment agreements between Parent and each of Messrs. Morrison, Hanna, Gwatney and Gottlieb, Gary Hobbs (Senior Engineer R&D), Mary Jones (Controller), Rich Shields (Vice President Operations) and Stormy Luttrell (Director of Purchasing and Logistics). Under the terms of the revised draft of the merger agreement, execution of these agreements was not a condition to the consummation of the merger. Instead, Kilpatrick indicated that Parent intended to enter into these agreements simultaneously with executing the merger agreement, with such agreements to become effective upon the closing of the merger.
 
On March 7, 2017, representatives of Paul Hastings and Kilpatrick discussed the revised draft of the merger agreement. On March 7, 2017, representatives of Paul Hastings and members of the Board conferred regarding the remaining issues in the Merger Agreement.
 
On March 8, 2017, Paul Hastings circulated a revised version of the Merger Agreement to Kilpatrick, which among other things accepted the increased termination fee of approximately 4% of total consideration, or $4.7 million.
 
On March 8, 2017, Bidder G communicated to William Blair that it was not interested in pursuing a transaction to acquire the Company, even at a lower value than it had originally proposed.
 
From March 11, 2017 through March 15, 2017, representatives from Paul Hastings and Kilpatrick negotiated the remaining open points in the merger agreement, including confirming the final per share merger consideration of $0.135936 per share of Common Stock and $2,603.483278 per share of Preferred Stock.
 
On March 15, 2017, Paul Hastings provided a draft of the Merger Agreement and the related documents to the Board. The Board called for a meeting on March 16, 2017.
 
 
21
 
 
On March 16, 2017, the Board approved by unanimous written consent the amendment of the Company’s Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock (the “Charter Amendment”), and H.I.G., as the sole stockholder of Preferred Stock, approved the amendment by written consent. The amendment fixed the “Conversion Rate” for the Preferred Stock in the event of a Fundamental Transaction (as defined in the certificate of incorporation) occurring prior to August 1, 2017 at 19,152.27. The amendment had the effect of limiting the amount of dividends accruing on the Preferred Stock in the event of such a Fundamental Transaction. The limit was determined based on the amount of dividends that would accrue between the potential signing date of the proposed merger agreement (March 16, 2017) and the shortest period between signing and consummation of the Merger possible under the terms of the proposed merger agreement (30 days). If the Merger is consummated after such date, H.I.G. will not realize the benefit of dividends that would have otherwise accrued but for the adoption of the Amendment. Parent requested that H.I.G. adopt the Charter Amendment in order to facilitate the Merger. On March 16, 2017, representatives of Kilpatrick finalized negotiations with counsel to management of the Company regarding employment agreements that would become effective upon consummation of the Merger.
 
On March 16, 2017, the Board held a meeting via teleconference. Also in attendance were members of Company management and representatives of Paul Hastings and William Blair. A representative of Paul Hastings made a presentation to the Board that included a discussion of the Board’s fiduciary duties under Delaware law. The Board discussed that certain members of the Board had potential conflicts of interest, including the fact that the two management directors would be entitled to receive transaction bonuses in connection with the consummation of the Merger and that they had received unsolicited offers of employment from Parent and had negotiated employment agreements with Parent to become effective upon closing. Paul Hastings’ representative reviewed with the Board the legal terms of the merger agreement submitted by Parent. Representatives of William Blair reviewed and discussed with the Board financial information and analyses with respect to the proposals from Parent. Then, at the request of the Board, William Blair rendered to the Board an oral opinion, confirmed by delivery of a written opinion dated March 16, 2017 to the effect that, as of that date and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth in William Blair’s written opinion, the consideration to be received by the holders of Common Stock (other than the excluded persons) in the Merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to such stockholders, as described in the section entitled “The Merger — Opinion of William Blair, the Company’s Financial Advisor”. A discussion ensued following the presentations by William Blair and Paul Hastings, and at the conclusion of such discussions, the Board determined that pursuing the proposed merger with Parent represented the greatest likelihood of maximizing shareholder value. The Board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommended that the stockholders of the Company approve and adopt the Merger Agreement and the transactions contemplated thereby and that the Merger and the Merger Agreement be submitted to the stockholders of the Company for approval.
 
            
On March 16, 2017, the board of directors of Parent approved the Merger and the Merger Agreement, including all transactions contemplated thereby.
 
On March 16, 2017, the Company and Parent executed the Merger Agreement, and on March 17, 2017, H.I.G., the holder of approximately 85% of the voting power of the outstanding stock of the Company, delivered the Written Consent.
 
Before market open on March 17, 2017, the Company issued a press release announcing the transaction.
 
Reasons for the Merger
 
In the course of the Board making the determination described above in the section entitled “The Merger—Background of the Merger,” the Board consulted with other members of Company management, as well as the Company’s legal and financial advisors, and considered the following potentially positive factors, which are not intended to be exhaustive and are not presented in any relative order of importance:
 
the belief by the Board that the Merger Consideration of $0.135936 per share reflects the highest value per share of Company Common Stock reasonably attainable in light of the sale process conducted by the Board, as more fully described above in the section entitled “The Merger—Background of the Merger”;
 
the fact that the Board sought offers to purchase the Company from a broad group of potential bidders, including strategic parties and financial sponsors, 96 of whom entered into nondisclosure agreements and received information relating to the Company;
 
the belief of the Board that it has obtained the highest price per share for the Common Stock that Parent is willing to pay as a result of extensive negotiations with, and provision of due diligence materials and information to, Parent;
 
 
22
 
 
the fact that after the extensive discussions described above in the section entitled “The Merger—Background of the Merger,” no alternative proposals were received by the Company offering consideration competitive with the form and amount of consideration proposed by Parent, and the fact that the Board considered other strategic alternatives and partnerships reasonably available to the Company (including the prospect of continuing to operate as an independent company and the possibility of growing its business through acquisitions and organically);
 
the fact that the Merger Consideration of $0.135936 per share of Common Stock to be received by the stockholders of the Company in the Merger represents a significant premium over the market price at which shares of Common Stock traded prior to the announcement of the execution of the Merger Agreement, including the fact that the Merger Consideration of $0.135936 per share represented a premium of approximately:
 
o
33.1% over the closing price of shares of Common Stock on March 16, 2017, the last trading day before the announcement of the execution of the Merger Agreement;
 
o
29.9% over the 30-day average closing price of shares of Common Stock for the 30 days ended March 16, 2017, the last trading day before the announcement of the execution of the Merger Agreement;
 
o
4.6% over the highest price of shares of Common Stock of $0.130000 for the 52-week period ended March 16, 2017, the last trading day before the announcement of the execution of the Merger Agreement; and
 
o
117.5% over the lowest price of shares of Common Stock of $0.062500 for the 52-week period ended March 16, 2017, the last trading day before the announcement of the execution of the Merger Agreement;
 
the fact that the Merger Consideration is all cash, which provides liquidity and certainty of value to the stockholders of the Company immediately upon the closing of the Merger in comparison to the risks and uncertainty that would be inherent in continuing to operate as an independent company and executing the Company’s business plan;
 
the Company’s current and historical financial condition, results of operations, competitive position, strategic options and prospects, as well as the financial plan and prospects if the Company were to remain an independent public company and the potential impact of those factors on the trading price of Common Stock (which cannot be quantified numerically);
 
the prospective risks to the Company if it were to remain as an independent public company, including:
 
o
the risks and uncertainties with respect to achieving the Company’s growth plans in light of the current and foreseeable market conditions;
 
o
the risks and uncertainties with respect to attaining Company management’s internal financial projections and that the Company’s actual financial results in future periods could differ materially from Company management’s forecasted results in both the near and long term; and
 
o
the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016;
 
the oral opinion of William Blair, which was confirmed by delivery of a written opinion, dated March 16, 2017, and based upon and subject to the assumptions, limitations, qualifications and conditions described in William Blair’s written opinion, that the Merger Consideration of $0.135936 in cash per share to be received in the Merger by holders of Common Stock was fair, from a financial point of view, to such holders (other than holders of dissenting shares), and the financial analyses related thereto prepared by William Blair and described below in the section entitled “The Merger—Opinion of William Blair, the Company’s Financial Advisor”;
 
 
23
 
 
the support of H.I.G. which controlled approximately 85% of the aggregate voting power of the Company as of March 16, 2017 and will be receiving the same form and amount of Merger Consideration for their shares of Preferred Stock as if they converted all of their shares to shares of Common Stock without any payment of a control premium, as evidenced by its execution and delivery of the Written Consent adopting and approving the Merger Agreement and the Merger;
 
the fact that H.I.G. could eventually decide to divest its holdings in the Company, and the possibility that such sale could relate only to its own stake, in lieu of a sale transaction in which all stockholders would be entitled to participate, and the Board’s belief that such a sale alone by H.I.G. could potentially adversely impact the economic interests of our minority stockholders;
 
the terms of the Merger Agreement and the related agreements, including:
 
o
Parent’s obligation to complete the Merger is not subject to any financing condition;
 
o
the provisions of the Merger Agreement provide the Company with sufficient operating flexibility to conduct its business in the ordinary course of business consistent with past practice between the signing of the Merger Agreement and the closing of the Merger;
 
o
the inclusion of provisions that allowed the Board, under certain circumstances, to consider and respond to unsolicited bona fide written Acquisition Proposals or furnish information to and engage in discussions or negotiations with the person making such Acquisition Proposals, subject to certain notice and other requirements, and until April 15, 2017 to terminate the Merger Agreement in order to accept a superior proposal, subject to certain notice requirements and other conditions and the requirement that the Company pay the termination fee as more fully described in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 57;
 
o
our ability to terminate the Merger Agreement in order to accept a financially superior proposal, subject to paying the termination fee, which the Board determined was reasonable in light of, among other things, the benefits of the Merger to the stockholders of the Company, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not preclude or unreasonably restrict the emergence of alternative transaction proposals as more fully described in “The Merger Agreement — Effect of Termination; Termination Fee; Reverse Termination Fee” beginning on page 58; and
 
o
our ability to collect the reverse termination fee, if Parent does not consummate the Merger under certain circumstances, as more fully described in “The Merger Agreement — Effect of Termination; Termination Fee; Reverse Termination Fee” beginning on page 58;
 
the fact that the Merger Agreement contains customary terms and was the product of arm’s-length negotiations;
 
the belief that several factors increased the likelihood that the Merger would be completed, including:
 
o
the experience, reputation and financial resources of Parent;
 
o
the fact that the consent of H.I.G., which had been involved with the negotiation process, was sufficient to adopt the Merger Agreement without the need for a meeting of stockholders;
 
o
the fact that the Board did not expect there to be significant antitrust or other regulatory impediments to the closing of the Merger; and
 
o
the limited conditions to closing and the fact that the satisfaction of those conditions was, in the view of the Board, likely attainable by May 31, 2017; and
 
 
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the availability of appraisal rights to the holders of Common Stock who properly exercise their statutory rights under Section 262 of the DGCL (see the section entitled “Appraisal Rights” beginning on page 62 and Annex C).
 
The Board also considered and balanced against the potentially positive factors a number of potentially negative factors concerning the Merger, including the following factors which are not intended to be exhaustive and are not presented in any relative order of importance:
 
the fact that following the completion of the Merger, the Company will no longer exist as an independent public company and that the Company’s existing stockholders will not be able to participate in any future earnings or growth of the Company, or in any future appreciation in value of shares of Common Stock;
 
the fact that the Merger Consideration consists of cash and will therefore be taxable to the stockholders of the Company for U.S. federal income tax purposes;
 
the restrictions on the Company’s ability to solicit or engage in discussions or negotiations with a third party regarding an Acquisition Proposal and the requirement that the Company pay Parent the termination fee if the Board accepts a superior proposal;
 
the possible effects on the Company of the pendency or consummation of the transactions contemplated by the Merger Agreement, including the possibility of disruption to the Company’s business, distraction of Company management’s attention from day-to-day operations of the business, the Company’s ability to attract and retain key employees during the pendency of the Merger, and any suit, action or proceeding in respect of the Merger Agreement or the transactions contemplated by the Merger Agreement;
 
the fact that, while the Merger is expected to be completed, there are no assurances that all conditions to the parties’ obligations to complete the Merger will be satisfied or waived, and as a result, it is possible that the Merger may not be completed, as described under the section entitled“The Merger Agreement — Conditions to Completion the Merger” beginning on page 55;
 
the fact that the Company has incurred and will incur substantial expenses related to the transactions contemplated by the Merger Agreement, regardless of whether the Merger is consummated;
 
the fact that the Merger Agreement prohibits the Company from taking a number of actions relating to the conduct of its business prior to the closing without the prior written consent of Parent, which may delay or prevent the Company from undertaking business opportunities that may arise during the pendency of the Merger, whether or not the Merger is completed; and
 
certain execution risks relating to the consummation of the Merger, including the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, and the failure to satisfy conditions to completion of the Merger, including receipt of regulatory approvals and any adverse litigation or regulatory developments.
 
During its consideration of the transaction with Parent, the Board was also aware of and considered that the Company’s directors and executive officers may have interests in the Merger that differ from, or are in addition to, their interests as stockholders of the Company generally, as described below under the section entitled “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 35.
 
The Board concluded that the potentially negative factors associated with the Merger were outweighed by the potential benefits that it expected stockholders of the Company would receive as a result of the Merger, including the belief of the Board that the Merger would maximize the immediate value of the Common Stock and eliminate the risks and uncertainties affecting the future prospects of the Company if it were to continue as an independent public company. The foregoing discussion of the factors considered by the Board is not intended to be exhaustive, but summarizes the material information and factors considered by the Board in its consideration of the Merger. The Board reached the decision to approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommend that the Company’s stockholders adopt the Merger Agreement, in light of the factors described above and other factors the Board felt were appropriate. In view of the variety of factors and the quality and amount of information considered, the Board did not find it practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and individual members of the Board may have given different weights to different factors. The Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Company management, William Blair and Paul Hastings, as financial and legal advisor, respectively, and considered the factors overall to be favorable to, and to support, its determination. The explanation of the Board’s reasoning and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 12.
 
 
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Certain Company Forecasts
 
The Company does not as a matter of general practice develop or publicly disclose forecasts or internal projections of its future performance, revenues, earnings, financial condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, certain financial projections were prepared by Company management and made available to the Board in connection with the Board’s consideration of a sale of the Company, to William Blair in connection with its rendering of a fairness opinion and to Parent in connection with its due diligence review of the Company.
 
In September 2016, Company management prepared projections of certain financial information of the Company for 2016 through 2021. The financial projections were made available to the Board and William Blair and included in the confidential information presentation provided to potential buyers in September and October 2016. Prior to the presentations to potential buyers by Company management in November 2016, Company management made certain adjustments to the original financial projections which reflected higher sales of products which had not yet been introduced to the market and these adjusted financial projections were included in the management presentations. Based on feedback from potential buyers that they had discounted the adjusted financial projections prepared by Company management in November 2016, in particular with respect to sales of new products, Company management no longer considered the adjusted financial projections to be reliable and viewed the financial projections prepared in September 2016 to be the most reliable financial projections reasonably available for the Company as of March 16, 2017 (disregarding the financial projections for the year ended December 31, 2016 which had since been superseded by actual results for such period) (the “Forecasts”). Accordingly, the Board instructed William Blair to utilize the Forecasts in connection with the preparation of its fairness opinion described below under the heading “—Opinion of William Blair, the Company’s Financial Advisor.”
 
While presented with numerical specificity, the Forecasts necessarily were based on numerous variables and assumptions, including, but not limited to, those relating to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. Since the Forecasts cover multiple years, such information by its nature becomes less reliable with each successive year. As such, the Forecasts constitute forward-looking information and are subject to a number of risks and uncertainties, including but not limited to risks and uncertainties relating to the Company’s business, industry performance, general business and economic conditions and other factors described in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 12, as well as the other risks described in the Company’s Form 10-K for the year ended December 31, 2016 attached hereto as Annex D.
 
The Forecasts were prepared solely for internal use and not with a view toward public disclosure or toward complying with U.S. generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Forecasts, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the Forecasts. Furthermore, the Forecasts do not take into account any circumstances or events occurring after the date they were prepared. Nonetheless, a summary of the Forecasts prepared by Company management is provided in this information statement only because these Forecasts were made available to Parent and also to the Board and William Blair. The Forecasts are not fact and should not be relied upon as being necessarily indicative of future results, and readers of this information statement are cautioned not to place undue reliance on this information and to review the Company’s Form 10-K for the year ended December 31, 2016 attached hereto as Annex D and its most recent SEC filings for a description of the Company’s reported financial results.
 
 
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The following table presents a summary of the Forecasts, as described above:
 
 
 
(dollars in thousands)
 
 
 
2017 E
 
 
2018 E
 
 
2019 E
 
 
2020 E
 
 
2021 E
 
Net Revenue
 $94.7 
 $104.8 
 $114.3 
 $119.4 
 $123.6 
COGS
  69.0 
  74.2 
  79.1 
  81.1 
  82.8 
Gross Profit
  25.7 
  30.5 
  35.3 
  38.3 
  40.8 
SG&A Expenses
  13.6 
  14.6 
  15.5 
  16.1 
  16.6 
Other Operating Income (Expenses)
  - 
  - 
  - 
  - 
  - 
EBIT(1)
  12.1 
  16.0 
  19.7 
  22.2 
  24.2 
Interest Income (Expenses) (2)
  (2.9)
  N/A 
  N/A 
  N/A 
  N/A 
Other Income (Expenses) (2)
  - 
  N/A 
  N/A 
  N/A 
  N/A 
Net Income Before Taxes(2)
 $9.2 
  N/A 
  N/A 
  N/A 
  N/A 
Income Taxes(2)
  2.7 
  N/A 
  N/A 
  N/A 
  N/A 
Net Income(2)
 $6.5(3)
  N/A 
  N/A 
  N/A 
  N/A 
   
    
    
    
    
    
EBITDA(4)
 $16.9 
 $21.3 
 $25.6 
 $28.3 
 $30.4 
   
    
    
    
    
    
CapEx
 $3.3 
 $3.6 
 $2.2 
 $2.5 
 $1.1 
 
(1) 
EBIT was calculated as net income before interest income (expenses) and income taxes. EBIT is a non-GAAP financial measure and may be different from EBIT used by other companies.
(2) 
Company management did not prepare projections of interest income (expenses), other income (expenses), net income before taxes, income taxes or net income for 2018 through 2021.
(3) 
Excludes tax affected expense on Preferred Stock.
(4) 
EBITDA was calculated as net income before interest income (expenses), income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure and may be different from EBITDA used by other companies.
 
At the direction of the Board, William Blair calculated the change in net working capital for each period based on the Forecasts for use in William Blair’s analyses, which calculations were approved by Company management. The change in net working capital for the years ending December 31, 2017 through 2021 used by William Blair in its analyses were $2.3 million, $1.9 million, $1.8 million, $0.9 million and $0.8 million, respectively.
 
No representation is made by the Company, William Blair or their respective affiliates, officers, directors or other representatives, or any other person to any stockholder of the Company or any other person regarding the ultimate performance of the Company compared to the information included in the Forecasts. The inclusion of information regarding the Forecasts in this information statement should not be regarded as an indication that the Forecasts will be an accurate prediction of future events, and it should not be relied on as such. Except to the extent required by federal securities laws, neither the Company nor any of its affiliates, financial advisors or representatives intends to, and each of them disclaims any obligation to, update, revise or correct the Forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the Forecasts are shown to be in error or no longer appropriate.
 
The Forecasts contain non-GAAP financial measures. Company management believes such measures are helpful in understanding forecasts of the Company’s future results. These non-GAAP financial measures constitute forward-looking information, and the Company believes that a quantitative reconciliation of such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. You are encouraged to review all of the Company’s financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.
 
 
27
 
 
Opinion of William Blair, the Company’s Financial Advisor
 
William Blair was retained to act as financial advisor to the Board in connection with the possible sale of the Company. As part of its engagement, the Board requested that William Blair render an opinion to the Board as to whether the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) was fair to such stockholders, from a financial point of view. On March 16, 2017, William Blair delivered its oral opinion to the Board and subsequently confirmed in writing that, as of March 16, 2017 and based upon and subject to the assumptions, qualifications and limitations stated therein, the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) was fair to such stockholders, from a financial point of view.
 
The full text of William Blair’s written opinion, dated March 16, 2017, is attached as Annex B to this information statement and incorporated herein by reference. You are urged to read the entire opinion carefully and in its entirety to learn about the assumptions made, procedures followed, matters considered and limits on the scope of the review undertaken by William Blair in rendering its opinion. The analysis performed by William Blair should be viewed in its entirety; none of the methods of analysis should be viewed in isolation. William Blair’s fairness opinion was directed to the Board for its benefit and use in evaluating the fairness of the Merger Consideration to be received pursuant to the Merger Agreement and relates only to the fairness, as of the date of William Blair’s fairness opinion and from a financial point of view, of the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) in the Merger pursuant to the Merger Agreement. William Blair’s fairness opinion does not address any other aspects of the Merger or any related transaction, and does not constitute a recommendation to any of the holders of Common Stock with respect to the Merger Agreement or the Merger. William Blair did not address the merits of the underlying decision by the Company to engage in the Merger. The following summary of William Blair’s fairness opinion is qualified in its entirety by reference to the full text of William Blair’s fairness opinion attached as Annex B to this information statement and incorporated herein by reference.
 
In connection with William Blairs fairness opinion, William Blair examined or discussed, among other things:
 
 
 
 
a draft of the Merger Agreement dated March 15, 2017;
 
 
 
 
audited historical financial statements of the Company for the two fiscal years ended December 31, 2014 and 2015;
 
 
 
 
unaudited financial statements of the Company for the year ended December 31, 2016;
 
 
 
 
a draft dated March 10, 2017 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016;
 
 
 
 
certain internal business, operating and historical financial information of the Company prepared by Company management;
 
 
 
 
the Forecasts prepared by Company management and sensitivity analysis relating to the Forecasts prepared by William Blair at the direction of and approved by the Board relating thereto (the “Sensitivities”);
 
 
 
 
certain information regarding publicly available financial terms of certain other business combinations William Blair deemed relevant;
 
 
 
 
the financial position and operating results of the Company compared with those of certain other publicly traded companies William Blair deemed relevant;
 
 
 
 
the current and historical market prices and trading volumes of the shares of Common Stock; and
 
 
 
 
certain other publicly available information on the Company.
 
 
 
28
 
 
William Blair also held discussions with members of the senior management of the Company to discuss the foregoing, considered other matters that it deemed relevant to its inquiry and took into account such accepted financial and investment banking procedures and considerations as it deemed relevant. In connection with its engagement, William Blair was requested to approach, and held discussions with, third parties to solicit indications of interest for a possible acquisition of the Company.
 
In rendering its opinion, William Blair assumed and relied, without independent verification, upon the accuracy and completeness of all the information examined by or otherwise reviewed or discussed with William Blair for purposes of William Blairs fairness opinion including, without limitation, the Forecasts prepared and provided by the senior management of the Company, and William Blair assumed no responsibility or liability therefor. William Blair did not make or obtain an independent valuation or appraisal of the assets, liabilities or solvency of the Company. William Blair was advised by the senior management of the Company that the Forecasts examined by William Blair were reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of the Company, and at the direction of the Board, William Blair also applied the Sensitivities to the Forecasts. In that regard, William Blair assumed, with the consent of the Board, that (i) the Forecasts will be achieved in the amounts and at the times contemplated thereby, taking into account the application of the Sensitivities, and (ii) all material assets and liabilities (contingent or otherwise) of the Company are as set forth in the Companys financial statements or other information made available to William Blair. William Blair expressed no opinion with respect to the Forecasts, the Sensitivities or the estimates and judgments on which they were based, or the assumptions in or results of the sensitivity analysis. Refer to the section above entitled “—Certain Company Forecasts” for more information about the Forecasts. William Blair did not consider and expressed no opinion as to the amount or nature of the compensation to any of the Companys officers, directors or employees (or any class of such persons) relative to the Merger Consideration payable to the holders of Common Stock. In addition, William Blair expressed no opinion as to any terms or other aspects of the Merger (other than the Merger Consideration to the extent specified herein) including, without limitation, the form or structure of the Merger, or the tax or accounting consequences thereof. William Blairs fairness opinion was based upon economic, market, financial and other conditions existing on, and other information disclosed to William Blair as of, the date of the fairness opinion. Although subsequent developments may affect its opinion, William Blair does not have any obligation to update, revise or reaffirm William Blairs fairness opinion. William Blair assumed in rendering its opinion that the Merger would be consummated on the terms described in the Merger Agreement, without any waiver of any material terms or conditions by the Company.
 
William Blairs investment banking services and its opinion were provided for the use and benefit of the Board in connection with its consideration of the Merger contemplated by the Merger Agreement. William Blairs opinion was limited to the fairness, from a financial point of view, to the holders of Common Stock (other than holders of dissenting shares) of the Merger Consideration in connection with the Merger, and William Blair did not address the merits of the underlying decision by the Company to engage in the Merger and William Blairs fairness opinion does not constitute a recommendation to any holder of Common Stock with respect to the Merger.
 
The following is a summary of the material financial analyses performed and material factors considered by William Blair to arrive at its opinion. William Blair performed certain procedures, including each of the financial analyses described below, and reviewed with the Board the assumptions upon which such analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by William Blair in this regard, it does set forth those considered by William Blair to be material in arriving at William Blair’s fairness opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by William Blair, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by William Blair. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by William Blair. The order of the summaries of the analyses described below does not represent the relative importance or weight given to those analyses by William Blair.
 
 
29
 
 
Selected Public Company Analysis
 
William Blair reviewed and compared certain financial information relating to the Company to corresponding financial information, ratios and public market multiples for eighteen publicly traded companies within the building materials sector that William Blair deemed relevant. The companies selected by William Blair were; (i) American Woodmark, (ii) Armstrong, (iii) Fortune Brands, (iv) Gibraltar Industries, (v) Griffon Corporation, (vi) Lennox International, (vii) MASCO, (viii) Owens Corning, (ix) Quanex, (x) Saint-Gobain, (xi) USG, (xii) Acuity Brands, (xiii) Apogee, (xiv) James Hardie, (xv) PGT, (xvi) Simpson Manufacturing Company, (xvii) Trex, and (xviii) Ply Gem.
 
Among the information William Blair considered were net revenue, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and net income. In calculating adjusted EBITDA, William Blair adjusted for certain non-recurring, non-operating and non-cash items, as applicable. William Blair considered the enterprise value as a multiple of net revenue and adjusted EBITDA for each company for the last 12-month (LTM) period for which results were publicly available. William Blair also considered the equity value as a multiple of calendar year 2017 estimated (CY 2017E) net income for each company for which estimates were publicly available (seventeen of the eighteen companies in the selected public company analysis). The operating results and the corresponding derived multiples for the selected public companies were based on each companys most recent publicly available financial information and closing stock prices as of March 13, 2017. William Blair then used the implied enterprise value and the equity value based on the terms of the Merger to derive implied valuation multiples for the Company based on net revenue and adjusted EBITDA for the LTM period and the estimated net income for CY 2017E which was included in the Forecasts. EBITDA of the Company was adjusted for, among other things, business interruption, gain on sale of assets and other non-recurring items. William Blair then compared the multiples implied for the Company based on the terms of the Merger to the range of trading multiples for the selected public companies. Although William Blair compared the trading multiples of the selected public companies to those implied for the Company, none of the selected public companies is directly comparable to the Company. Accordingly, any analysis of the selected public companies involves considerations and judgments concerning the differences in financial and operating characteristics and other factors that would affect the analysis of trading multiples of the selected public companies. Information regarding the multiples derived from William Blairs selected public company analysis is set forth in the following tables:
 
 
 
 
 
 
 
 
 
Selected Public Companies
 
 
 
Current Multiple(1)
 
 
Implied Transaction Multiple
 
 
Low
 
 
Mean
 
 
Median
 
 
High
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Enterprise Value/LTM Revenue
  1.07x
  1.28x
  0.81x
  1.95x
  1.68x
  4.39x
Enterprise Value/LTM Adjusted EBITDA
  6.3x
  7.5x
  7.9x
  11.1x
  10.1x
  17.1x
Equity Value/CY2017E Net Income
  8.2x
  10.0x
  15.8x
  20.3x
  19.0x
  31.1x
 
(1) Based on the Company’s revenue and adjusted EBITDA, as applicable, for the year ended December 31, 2016.
 
William Blair noted for the Board that the implied multiple for the Merger was within the range of revenue multiples for the selected public companies. Also, William Blair noted for the Board that the implied multiples for the Merger were below the range of adjusted EBITDA and net income multiples for the selected public companies. In addition, William Blair noted for the Board that the companies selected by William Blair had much larger market capitalizations than the Company and, to the knowledge of William Blair, did not have a similar level of customer concentration as the Company.
 
 
30
 
 
Selected Precedent Transactions Analysis
 
William Blair performed an analysis of selected precedent transactions consisting of 11 transactions closed since 2010 within the building materials sector that involved the acquisition of companies William Blair deemed relevant. William Blairs analysis was based on publicly available information regarding such transactions. William Blair did not take into account any announced or consummated transaction for which relevant financial information was not publicly disclosed and available. The selected transactions were not intended to be representative of the entire range of possible transactions in the respective industries. The transactions that were examined were (target/buyer (date closed)):
 
 
(i)          
Icopal / Standard Industries (January 2016);
 
 
(ii)
Anthony Forest Products / Canfor Corporation (September 2015);
 
(iii)
Woodcraft Industries / Quanex Building Products (August 2015);
 
 
(iv)
Norcraft / Fortune Brands (March 2015);
 
 
(v)
IVC Group / Mohawk Industries, Inc. (January 2015);
 
 
(vi)
Simonton Companies / Ply Gem Industries (August 2014);
 
 
(vii)
Pactiv Building Products / Kingspan (August 2014);
 
 
(viii)
CPG International / Ares Management (August 2013);
 
 
(ix)
WoodCrafters Home Products / Fortune Brands (April 2013);
 
 
(x)
Crane Plastics Siding / Royal Mouldings (February 2011); and
 

(xi)
Associated Materials / Hellman & Friedman (September 2010).
 
 
William Blair reviewed the consideration paid in the selected transactions in terms of the enterprise value of the target as a multiple of its revenue and adjusted EBITDA for the LTM period prior to the announcement of the respective transaction. William Blair compared the resulting range of transaction multiples of revenue and adjusted EBITDA for the selected transactions to the implied transaction multiples of LTM net revenue and adjusted EBITDA for the Company based on the terms of the Merger. The following table presents the results of this analysis:
 
 
 
Implied Transaction Multiple
 
 
Min.
 
 
Mean
 
 
Median
 
 
Max.
 
Enterprise Value/LTM Revenue
 
  1.28x
  0.43x
  1.26x
  1.15x
  3.05x
Enterprise Value/LTM Adjusted EBITDA
 
  7.5x
  5.6x
  8.7x
  8.0x
  12.9x
 
William Blair noted for the Board that the implied revenue and adjusted EBITDA multiples for the Merger were within the range of revenue and adjusted EBITDA multiples for the selected precedent transactions.
 
Although William Blair analyzed the multiples implied by the selected transactions and compared them to the implied transaction multiples of the Company, none of these transactions or associated companies is identical to the Company or the Merger as contemplated by the Merger Agreement. Accordingly,any analysis of the selected transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics, parties involved and terms of their transactions and other factors that would necessarily affect the implied value of the Company versus the values of the companies in the selected transactions.
 
 
31
 
 
Discounted Cash Flow Analysis
 
Based solely on the Forecasts (as modified by the Sensitivities), information and assumptions provided by Company management, William Blair performed a discounted cash flow analysis of the Company’s projected free cash flows for the fiscal years ending December 31, 2017 through December 31, 2021. At the direction of the Board, William Blair calculated, based on the Forecasts, free cash flow for each period as adjusted earnings before interest and taxes (“EBIT”) less taxes, less capital expenditures and plus or less change in working capital, as applicable, which calculations were approved by Company management. Using discounted cash flow methodology, William Blair calculated the present values of the projected free cash flows for the Company. In this analysis, William Blair estimated a terminal value by utilizing a range of fiscal year 2021 EBITDA exit multiples of 7.0x to 9.0x and assumed discount rates ranging from 17.0% to 21.0%. The terminal multiples range was derived from the relevant multiple ranges of the selected precedent transaction analysis. The discount rate range was derived based upon a weighted average cost of capital using the capital asset pricing model.
 
William Blair aggregated the present value of the free cash flows over the applicable forecast period with the present value of the range of terminal values to arrive at an implied enterprise value range. William Blair derived a range of implied equity value per share by deducting the Company’s net debt as of December 31, 2016 and transaction bonuses from the resulting enterprise value range and dividing such amount by the Company’s total diluted shares outstanding per a draft schedule of the Merger Consideration as of March 15, 2017. At the direction of the Board, due to a large percentage of the Company’s growth being attributable to new products and the feedback received from potential purchasers indicating that they discounted certain financial projections prepared by Company management, William Blair applied the Sensitivities to the Forecasts. The Sensitivities applied average revenue growth rates for the years 2017 through 2021 ranging from 4.0% to 8.0%, rather than assumptions used in the Forecasts of projected revenue growth of 7.7% for the years 2017 through 2021. The Sensitivities also applied average EBITDA margins for the years 2017 through 2021 ranging from 18.0% to 22.0%, rather than the LTM adjusted EBITDA margin of 17.0% and average EBITDA margin of 21.8% from estimated calendar years 2017 through 2021 used in the Forecasts. This analysis resulted in a range of implied equity values of $0.157273 to $0.253292 per share of Common Stock based solely on the Forecasts and a range of $0.113171 to $0.183121 per share of Common Stock based on the Forecasts as modified by the Sensitivities, as compared to the Merger Consideration of $0.135936 per share of Common Stock.
 
Leveraged Buyout Analysis
 
Based on the Forecasts (as modified by the Sensitivities), William Blair performed a leveraged buyout analysis and projected illustrative implied purchase prices at which a leveraged buyout of the Company could occur for a potential investor. In this analysis, William Blair estimated a terminal value by utilizing a range of fiscal year 2021 EBITDA multiples of 7.0x to 9.0x and assumed internal rate of returns ranging from 22.5% to 27.5%. The terminal multiples range was derived from the relevant multiple ranges of the selected publicly traded companies analysis and the selected precedent transactions analysis. The internal rate of return was derived by William Blair utilizing its professional judgment and experience. At the direction of the Board, due to a large percentage of the Company’s growth being attributable to new products and the feedback received from potential purchasers indicating that they discounted certain financial projections prepared by Company management, William Blair applied the Sensitivities to the Forecasts in the same manner as in the discounted cash flow analysis described above. This analysis resulted in a range of implied purchase prices of $0.117117 to $0.185371 per share of Common Stock based solely on the Forecasts and a range of $0.082053 to $0.134079 per share of Common Stock based on the Forecasts as modified by the Sensitivities, as compared to the Merger Consideration of $0.135936 per share of Common Stock.
 
M&A Premiums Paid Analysis
 
William Blair reviewed data from 187 public U.S. target transactions occurring after January 1, 2012 in which 100% of the target’s equity was acquired at an equity value between $25 million and $100 million, excluding transactions involving closed-end funds or REITs. Specifically, William Blair analyzed the acquisition price per share as a premium to the closing stock price one day, one week, one month, 90 days, 180 days, 270 days and 365 days prior to the announcement of each transaction. William Blair compared the range of resulting per share stock price premiums for the reviewed transactions to the premium implied by the Merger Consideration pursuant to the Merger Agreement based on the closing stock price of the Common Stock one day, one week, one month, 90 days, 180 days, 270 days and 365 days prior to March 13, 2017, four days prior to the public announcement of the Merger. Information regarding the premiums from William Blairs analysis of selected transactions is set forth in the following table:
 
 
32
 
 
Premiums Paid Relative to March 13, 2017
 
   
AERT
Common
Stock Price
 
Premium at $0.135936/ Per Share
 
 
Premiums Paid Data Percentile
 
Period
 
 
 
 
10th
 
 
20th
 
 
30th
 
 
40th
 
 
50th
 
 
60th
 
 
70th
 
 
80th
 
 
90th
 
One Day Prior
 
 
 
$0.12
 
 
13.3%
 
 
 
8.1%
 
 
 
15.0%
 
 
 
23.2%
 
 
 
31.5%
 
 
 
43.9%
 
 
 
56.1%
 
 
 
66.7%
 
 
 
78.3%
 
 
 
103.6%
 
One Week Prior
 
 
 
$0.10
 
 
34.6%
 
 
 
8.5%
 
 
 
17.1%
 
 
 
24.5%
 
 
 
31.7%
 
 
 
43.2%
 
 
 
57.2%
 
 
 
66.7%
 
 
 
80.3%
 
 
 
103.6%
 
One Month Prior
 
 
 
$0.10
 
 
35.4%
 
 
 
4.1%
 
 
 
18.6%
 
 
 
28.0%
 
 
 
33.7%
 
 
 
43.3%
 
 
 
55.4%
 
 
 
69.4%
 
 
 
81.7%
 
 
 
103.7%
 
90-Days Prior
 
 
 
$0.08
 
 
67.8%
 
 
 
1.5%
 
 
 
17.7%
 
 
 
28.0%
 
 
 
37.3%
 
 
 
48.1%
 
 
 
57.9%
 
 
 
74.8%
 
 
 
84.6%
 
 
 
135.4%
 
180-Days Prior
 
 
 
$0.07
 
 
87.5%
 
 
 
4.4%
 
 
 
19.9%
 
 
 
28.7%
 
 
 
36.5%
 
 
 
47.7%
 
 
 
58.6%
 
 
 
76.1%
 
 
 
90.3%
 
 
 
147.3%
 
270-Days Prior
 
 
$0.07
 
 
94.2%
 
 
 
0.2%
 
 
 
18.7%
 
 
 
29.7%
 
 
 
40.9%
 
 
 
50.7%
 
 
 
66.3%
 
 
 
83.9%
 
 
 
98.1%
 
 
 
143.9%
 
365-Days Prior
 
 
$0.07
 
 
93.9%
 
 
 
(2.3%)
 
 
 
15.0%
 
 
 
29.9%
 
 
 
41.8%
 
 
 
56.2%
 
 
 
67.7%
 
 
 
80.7%
 
 
 
101.9%
 
 
 
159.7%
 
 
William Blair noted for the Board that (i) the premium of the per share Merger Consideration to the Company’s closing stock price one day prior to March 13, 2017 was above the 10th percentile and below the 20th percentile of the analyzed precedent public transactions; (ii) the premium of the per share Merger Consideration to the Company’s closing price stock one week and one month prior to March 13, 2017 was above the 40th percentile and below the 50th percentile of the analyzed precedent public transactions; (iii) the premium of the per share Merger Consideration to the Company’s closing stock price 90 days prior to March 13, 2017 was above the 60th percentile and below the 70th percentile of the analyzed precedent public transactions; and (iv) the premium of the per share Merger Consideration to the Company’s closing stock price 180 days, 270 days and 365 days prior to March 13, 2017 was above the 70th percentile and below the 80th percentile of the analyzed precedent public transactions.
 
General
 
This summary is not a complete description of the analysis performed by William Blair, but contains the material elements of the analysis. The preparation of an opinion regarding fairness is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires William Blair to exercise its professional judgment, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by William Blair was carried out in order to provide a different perspective on the financial terms of the Merger and add to the total mix of information available. The analyses were prepared solely for the purpose of William Blair providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which securities actually may be sold. William Blair did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness of the Merger Consideration to be received by the holders of Common Stock. Rather, in rendering its oral opinion on March 16, 2017 (subsequently confirmed in writing) to the Board, as of that date and based upon and subject to the assumptions, qualifications and limitations stated in its written opinion, as to whether the Merger Consideration to be received by the holders of Common Stock (other than holders of dissenting shares) was fair to such stockholders, from a financial point of view, William Blair considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. William Blairs fairness opinion considered each valuation method equally and did not place any particular reliance on a specific analysis. Accordingly, notwithstanding the separate factors summarized above, William Blair believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the Merger. In performing its analyses, William Blair made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by William Blair are not necessarily indicative of future actual values and future results, which may be significantly more or less favorable than suggested by such analyses.
 
 
33
 
 
William Blair has been engaged in the investment banking business since 1935. William Blair continually undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, estate and gift tax valuations and similar transactions.
 
Fees
 
Pursuant to an engagement letter dated July 20, 2016, a retainer fee of $35,000 was paid to William Blair upon execution of the engagement letter and a fee of $450,000 became payable to William Blair upon delivery of William Blairs fairness opinion. A fee equal to $1,586,000 will become payable to William Blair upon the consummation of the Merger. No portion of the fees payable to William Blair was contingent on the conclusions reached by William Blair in William Blairs fairness opinion. In addition, the Company agreed to reimburse William Blair for certain of its out-of-pocket expenses (including fees and expenses of its counsel and any other independent experts retained by William Blair) reasonably incurred by it in connection with its services and to indemnify William Blair against certain potential liabilities arising out of its engagement, including certain liabilities under the U.S. federal securities laws.
 
In the past two years, William Blair has not provided any investment banking or other services to the Company, Parent or Merger Sub. William Blair may provide investment banking and other services to or with respect to the Company or Parent or their respective affiliates in the future, for which it may receive compensation. William Blair and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, any of their respective affiliates and third parties or any currency or commodity that may be involved in the transaction contemplated by the Merger Agreement.
 
Financing
 
The Merger Agreement does not contain any financing-related closing condition and Parent has represented that it will have sufficient funds at the closing to fund the payment of the Merger Consideration and any other payments required in connection with consummation of the Merger.
 
 
34
 
 
Interests of the Company’s Directors and Executive Officers in the Merger
 
You should be aware that the Company’s executive officers and directors have interests in the Merger that may be different from, or in addition to, the interests of the stockholders of the Company generally. The Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending to the stockholders of the Company that the Merger Agreement be adopted. These interests are described in more detail below, and certain of them are quantified within the narrative disclosure and the table below.
 
Quantification of Outstanding Equity
 
The table below sets forth the amounts that each director and executive officer would be eligible to receive (without subtraction of applicable withholding taxes) in connection with the Merger with regard to shares of Common Stock held by such director or executive officer. There are no outstanding options or other equity award relating to our Common Stock or Preferred Stock.
 
Name 
 
Shares of Common Stock (#)
 
 
Value of Common Stock ($)
 
Named Executive Officers
 
 
 
 
 
 
Timothy D. Morrison
  700,000 
 $95,155.20 
Randall D. Gottlieb
  - 
  - 
J.R. Brian Hanna
  500,000 
 $67,968.00 
Other Executive Officers
    
    
Brent D. Gwatney
  60,000 
 $8,156.16 
Alford E. Drinkwater
  100,000 
 $13,593.60 
Non-Employee Directors
    
    
Todd Ofenloch
  - 
  - 
Michael R. Phillips
  - 
  - 
Bobby J. Sheth
  - 
  - 
Vernon J. Richardson
  10,000 
 $1,359.36 
 
Transaction Bonus Plan
 
In connection with the consummation of the Merger, certain of our executive officers will receive transaction bonuses pursuant to the terms of the Advanced Environmental Recycling Technologies, Inc. Key Employee Incentive Plan for Transaction Bonuses, as amended and restated on March 16, 2017 (the “Transaction Bonus Plan”). Pursuant to the terms of the Transaction Bonus Plan, certain members of the Company's management are entitled to cash bonuses upon the consummation of the Merger, half payable within ten business days after the consummation of the Merger subject to their continued employment on such payment date, and half payable within the ten-day period beginning 60 days following the consummation of the Merger, subject to either (i) their continued employment on such 60th day following the consummation of the Merger or (ii) termination of their employment by the Company (or Parent) without “cause” (as defined in the Transaction Bonus Plan) after the consummation of the Merger.
 
The Transaction Bonus Plan provides that if the executive officers violate certain restrictive covenants in their employment agreements with Parent, as applicable, a portion of their bonus is subject to forfeiture. The portion of the bonus that is subject to forfeiture by a participant is calculated as follows: (i) the entire bonus if the violation occurs prior to the 60th day following the Merger; (ii) two-thirds of the bonus if the violation occurs on or after the 60th day following the Merger and before the termination of the participant’s employment with the Company; and (iii) two-thirds of the bonus, multiplied by a fraction, the numerator of which is the number of full or partial months remaining in the participant’s covenant not to compete at the time of the violation and the denominator of which is the total number of months post-termination of employment in the participant’s covenant not to compete, if the violation occurs after the 60th day following the Merger and after the participant’s termination of employment with the Company.
 
 
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The table below sets forth the amounts that each executive officer of the Company is eligible to receive (without subtraction of applicable withholding taxes) pursuant to the Transaction Bonus Plan in connection with the Merger.
 
Name
Title
Cash Bonus Amount
Timothy D. Morrison
Chief Executive Officer
$1,852,977
Randall D. Gottlieb
President
$1,125,022
J.R. Brian Hanna
Chief Financial Officer
$1,125,022
Brent D. Gwatney
Senior Vice President of Sales
$992,666
 
Golden Parachute Compensation in Connection with the Merger
 
The following table shows the aggregate dollar value of the various elements of compensation that each of our named executive officers could receive from the Company and Parent in connection with the Merger, as required by Item 402(t) of Regulation S-K. The underlying calculations assume the consummation of the Merger will occur on May 1, 2017. The named executive officers are expected to continue to provide services after the consummation of the Merger; nevertheless, the underlying calculations further assume that the severance obligations payable to each named executive officer pursuant to his respective employment agreement with Parent are triggered immediately after the consummation of the Merger. The Company’s named executive officers for purpose of the table below are Timothy D. Morrison (Chief Executive Officer), Randall D. Gottlieb (President) and J.R. Brian Hanna (Chief Financial Officer).
 
Name
 
Cash ($)(1)(2)(3)
 
 
Equity ($)
 
 
Pension NQDC
 
 
Perquisites/ Benefits ($)
 
 
Tax Reimbursements
 
 
Other
 
 
Total ($)(4)
 
Timothy D. Morrison
 $2,138,977 
  - 
  - 
  - 
  - 
  - 
 $2,138,977 
Randall D. Gottlieb
 $1,415,022 
  - 
  - 
  - 
  - 
  - 
 $1,415,022 
J.R. Brian Hanna
 $1,498,772 
  - 
  - 
  - 
  - 
  - 
 $1,498,772 
 
    
    
    
    
    
    
    
 
(1) 
Includes the aggregate dollar value of cash severance payable to each of the named executive officers pursuant to his respective employment agreement with Parent, effective as of the closing of the Merger (described in the section entitled “—Severance ” below), estimated increases in base salary (described in note 3 below), and transaction bonuses payable to each pursuant to the Transaction Bonus Plan (described in the section entitled “—Transaction Bonus Plan” above).
 
(2) 
For Mr. Morrison and Mr. Gottlieb, the cash severance consists of a lump sum cash payment equal to twelve months of the executive’s base salary ($273,000 for Mr. Morrison; $260,000 for Mr. Gottlieb). For Mr. Hanna, the cash severance consists of (i) a lump sum cash payment equal to twelve months of the executive’s base salary ($241,500), and (ii) a lump sum cash severance payment of his retention bonus (see the section entitled “Severance ” below). Mr. Morrison and Mr. Hanna also are entitled to lesser severance upon an involuntary termination under existing employment agreements with the Company, but those agreements will be superseded at the closing by the new employment agreements with Parent. As described in the section entitled “—Severance” below, the severance portion of this amount is payable only upon a termination of the executive’s employment without “cause” or due to the executive’s resignation for “good reason”. The retention bonus portion of Mr. Hanna’s amount is also payable only if the executive’s employment is terminated without “cause”.
 
 
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(3) 
The following are the named executive officers’ estimated increases in base salary: $13,000 (calculated as $273,000 minus $260,000) for Mr. Morrison; $30,000 (calculated as $260,000 minus $230,000) for Mr. Gottlieb; and $11,500 (calculated as $241,500 minus $230,000) for Mr. Hanna. These figures represent the difference between the base salary pursuant to the individual’s respective employment agreement with Parent, as compared to current base salary levels pursuant to the individual’s respective employment agreement with the Company.
 
 
(4)
The amounts listed represent the aggregate dollar value of all golden parachute compensation to be provided to each named executive officer.
 
Executive Officer Employment Agreements with Parent
 
In order to promote the retention of key Company employees during the period following the consummation of the Merger, contemporaneously with the execution of the Merger Agreement, Parent entered into employment agreements with certain executive officers and other members of Company management to be effective on, and contingent upon, the consummation of the Merger. For purposes of this “Executive Officer Employment Agreements with Parent” section only, references to the “Company” shall mean to Parent and the Company, collectively.
 
Compensation Terms
 
The following table sets forth the employment term, annual salary and maximum annual bonus arrangements for the AERT executive officers who entered into employment agreements with Parent.
 
Name
Term
Annual Salary
Maximum Annual  Performance Bonus
Timothy D. Morrison
Closing through March 15, 2019
 
$273,000
80% of annual salary
Randall D. Gottlieb
 
Closing through March 15, 2020
$260,000
 
80% of annual salary
J.R. Brian Hanna
Closing through March 15, 2018
 
$241,500
70% of annual salary
Brent D. Gwatney
Closing through March 15, 2020
$180,000
35% of annual salary
 
In addition to the salary and bonus levels above, the employment agreements for the executive officers provide for the following additional compensation and benefits:
 
Each of Mr. Morrison, Mr. Hanna and Mr. Gottlieb will be recommended to participate in Parent’s Deferred Compensation Plan, subject to their meeting eligibility requirements to be eligible to defer compensation into the plan.
 
Certain of the executive officers will be eligible for one-time cumulative performance bonuses of up to $1.5 million in the aggregate if the Company meets certain cumulative EBITDA milestones. The EBITDA milestone for these executive officers to be eligible for a maximum one-time cumulative performance bonus is either (i) $82.8 million in cumulative EBITDA for the fiscal years 2017, 2018 and 2019, or (ii) $48.6 million in cumulative EBITDA for fiscal years 2017 and 2018, as applicable.
 
Mr. Gottlieb will be recommended to participate in the CRH plc Performance Shares Plan at a level of approximately 40% of his annual base salary in 2018. Mr. Gottlieb will be eligible to be considered for annual share awards at the discretion of Parent, subject to vesting restrictions, performance criteria, and the other terms of the plan.
 
Each of Mr. Hanna and Mr. Gwatney is entitled to a retention bonus if he is employed in good standing by the Company on March 15, 2018 for Mr. Hanna and March 15, 2020 for Mr. Gwatney, subject to certain restrictions.
 
 
 
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Severance
 
Each of the executive officers is also entitled to a lump sum severance payment equal to twelve months of the executive’s base salary if his employment is terminated by Parent without “cause” or by the executive for certain reasons constituting “good reason” under the executive’s employment agreement.
 
 “Cause” includes (i) the employee’s material and willful breach of, failure, or refusal to perform and discharge, the employee’s reasonable duties, responsibilities, or other obligations under the employment agreement or any other agreement between the employee and the Company, or under the Company policy which has been provided to the employee, (ii) the employee’s commission of any act that constitutes fraud, embezzlement or other serious misconduct in the performance of his or her duties and responsibilities thereunder, (iii) the employee’s material breach of fiduciary duty to the Company, (iv) the employee’s disparagement of the Company that causes or is likely to cause a material adverse damage to Company’s goodwill, reputation, or business relationships, (v) the employee being formally charged with a felony or any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; provided that in the case of items (i), (ii), (iii) and (iv) above, the Company shall not find that “cause” exists until the Company first provides the employee with a written notice of any alleged facts or circumstances that the Company deems to create “cause,” and, if in the Company’s reasonable opinion such cause can be cured, provides the employee with a thirty day period to effect a reasonable cure.
 
“Good reason” includes (i) the Company materially reducing the officer’s base salary, (ii) the Company changing the place of work to a location that is more than 75 miles from Springdale, Arkansas, (iii) a material diminution in duties or responsibilities, or (iv) a material breach of the employment agreement by the Company; provided that the employee must deliver notice to the Company of his or her resignation for “good reason” within 60 days of such event, and the Company has the right to cure such occurrence during the 30 days after receipt of such notice.
 
For each of Mr. Hanna and Mr. Gwatney, if his employment is terminated by the Company without “cause,” in addition to such severance payment, he will also be entitled to their retention bonus.
 
In the event the executive officer materially breaches the restrictive covenants in his employment agreement, the officer must repay to the Company any portion of the severance payment in excess of $1,000 previously paid to such officer.
 
 
 
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Restrictive Covenants
 
Each of the employment agreements contains a non-competition provision pursuant to which each executive officer agrees to not compete with the Company in the United States, Canada or Mexico during employment and for a period of eighteen months after the employee’s employment with the Company ends for any reason (except for Mr. Hanna, whose non-competition period is twelve months), to maintain the confidentiality of proprietary and trade secret information of the Company, and to certain restrictions on soliciting customers of the Company and soliciting, recruiting or hiring employees of the Company, for a period of two years after such officer’s employment with the Company ends for any reason.
 
Advisory Services Agreement with H.I.G. Capital
 
The Company is party to an Advisory Services Agreement with H.I.G. Capital, L.L.C. (“H.I.G. Capital”), an affiliate of H.I.G., that provides for an annual monitoring fee between $250,000 and $500,000 and reimbursement of all other out of pocket fees and expenses incurred by H.I.G. Capital. In addition, pursuant to the terms of the Advisory Services Agreement, H.I.G. Capital is entitled to a financial advisory services fee and a supplemental management fee in connection with any acquisition, disposition or material public or private debt or equity financing of the Company, in each case which has been introduced, arranged, managed and/or negotiated by H.I.G. Capital or its affiliates. For a sale of the Company, or an acquisition of 100% of any other company, the financial advisory fee will be equal to one percent of the enterprise value of such transaction and the supplemental management fee will be equal to one percent of the enterprise value of such transaction. Accordingly, H.I.G. Capital will be entitled to a financial advisory fee of $1.17 million and a supplemental management fee of $1.17 million in connection with the Merger, payable at the closing of the Merger.
 
Directors Appointed by H.I.G.
 
Certain members of the Board are affiliated with H.I.G. Mr. Ofenloch is a Managing Director with H.I.G. Capital. Mr. Phillips was a Managing Director with H.I.G. Capital and Mr. Sheth was a Principal with H.I.G. Capital. Accordingly, such members of the Board may have an indirect interest in the portion of the Merger Consideration to be paid to H.I.G. In addition, such members may have an indirect interest in the financial advisory fee of $1.17 million and the supplemental management fee of $1.17 million payable to H.I.G. Capital by the Company in connection with the Merger (as further described above).
 
Indemnification and Insurance
 
Pursuant to the terms of the Merger Agreement, the Company’s non-employee directors (including directors affiliated with H.I.G.) and executive officers will be entitled to certain ongoing indemnification and coverage under certain directors’ and officers’ liability insurance policies following the Merger. Such indemnification and insurance coverage is further described in the section entitled “The Merger Agreement — Indemnification and Insurance” beginning on page 52.
 
Material U.S. Federal Income Tax Consequences of the Merger
 
The following is a general discussion of the material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) of Common Stock and Preferred Stock whose shares are exchanged for cash pursuant to the Merger. This discussion does not address U.S. federal income tax consequences with respect to holders other than U.S. holders. This discussion is based on the provisions of the Code, applicable U.S. Treasury Regulations, judicial opinions and administrative rulings and published positions of the Internal Revenue Service (the “IRS”), each as in effect as of the date hereof. These authorities are subject to change or differing interpretations, possibly on a retroactive basis, and any such change or interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion is for general information purposes only and does not purport to be a complete analysis of all potential tax consequences. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion is not binding on the IRS or the courts and, therefore, could be subject to challenge, which could be sustained. No ruling is intended to be sought from the IRS with respect to the Merger.
 
 
39
 
 
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Common Stock or Preferred Stock that is for U.S. federal income tax purposes:
 
a citizen or individual resident of the United States;
 
a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
 
a trust if (1) a court within the United States is able to exercise primary supervision over the trust’s administration, and one or more U.S. persons are authorized to control all substantial decisions of the trust or (2) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or
 
an estate the income of which is subject to U.S. federal income tax regardless of its source.
 
This discussion applies only to U.S. holders of shares of Common Stock or Preferred Stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a U.S. holder in light of its particular circumstances, or that may apply to U.S. holders subject to special treatment under U.S. federal income tax laws (including, for example, insurance companies, dealers or brokers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, tax-qualified retirement plans, banks and other financial institutions, mutual funds, certain expatriates, partnerships (or other entities or arrangements treated as partnerships for U.S. federal income tax purposes), S corporations, or other pass-through entities, or investors in such partnerships, real estate investment trusts, regulated investment companies, U.S. holders who hold shares of Common Stock or Preferred Stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, U.S. holders who will hold (actually or constructively) an equity interest in the surviving corporation immediately after the Merger, and U.S. holders who acquired their shares of Common Stock through the exercise of employee stock options or other compensation arrangements). This discussion also does not address the U.S. federal income tax consequences to holders of shares of Common Stock who exercise appraisal rights under the DGCL in connection with the Merger.
 
If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Common Stock or Preferred Stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are, for U.S. federal income tax purposes, a partner in a partnership holding shares of Common Stock or Preferred Stock, you should consult your tax advisor.
 
This summary of material U.S. federal income tax consequences is for general information purposes only and is not tax advice. Holders of Common Stock or Preferred Stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the Merger, including the applicability and effect of the alternative minimum tax, the unearned income Medicare contribution tax and any other U.S. federal, or state, local, foreign or other tax laws.
 
The receipt of cash by U.S. holders in exchange for shares of Common Stock and Preferred Stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash in exchange for shares of Common Stock and/or Preferred Stock pursuant to the Merger will recognize capital gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) the U.S. holder’s adjusted tax basis in such shares.
 
Any such gain or loss will be long-term capital gain or loss if a U.S. holder’s holding period in the shares of Common Stock and/or Preferred Stock surrendered in the Merger is greater than one year as of the date of the Merger. Long-term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations. If a U.S. holder acquired different blocks of Common Stock or Preferred Stock at different times and different prices, such U.S. holder must determine its adjusted tax basis, gain or loss and holding period separately with respect to each block of Common Stock or Preferred Stock.
 
 
40
 
 
Information Reporting and Backup Withholding
 
Payments made in exchange for shares of Common Stock and Preferred Stock pursuant to the Merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, a U.S. holder that does not otherwise establish an exemption should complete and return to the applicable withholding agent a properly completed and executed IRS Form W-9, certifying that such U.S. holder is a U.S. person, that the taxpayer identification number provided is correct, and that such U.S. holder is not subject to backup withholding.
 
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.
 
Regulatory Approvals
 
Under the Merger Agreement, both the Company and Parent have agreed to use reasonable efforts to obtain all required governmental approvals and avoid any action or proceeding by a governmental entity to the extent necessary, proper or advisable to consummate the Merger. Except for the expiration of 20 days from the dissemination of this information statement to the Company’s stockholders and the filing of a certificate of merger with the Delaware Secretary of State at or before the effective date of the Merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger or the other transactions contemplated by the Merger Agreement.
 
Delisting and Deregistration of Common Stock
 
If the Merger is completed, the Common Stock, which is currently listed on the OTCQB Tier of the OTC Markets Group, Inc. under the symbol “AERT,” will cease to be quoted on the OTCQB. In addition, if the Merger is completed, the Common Stock will be deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC on account of our Common Stock.
 
 
 
41
 
 
THE MERGER AGREEMENT
 
The following is a summary of the material provisions of the Merger Agreement, a copy of which is attached to this information statement as Annex A and which is incorporated by reference into this information statement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read carefully the Merger Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this information statement.
 
Explanatory Note Regarding the Merger Agreement
 
The following summary of the Merger Agreement, and the copy of the Merger Agreement attached as Annex A to this information statement, are intended to provide information regarding the terms of the Merger Agreement and are not intended to provide any factual information about the Company or modify or supplement any factual disclosures about the Company in its public reports filed with the SEC. In particular, the Merger Agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company. The Merger Agreement contains representations and warranties by and covenants of the Company, Parent and Merger Sub which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the Merger Agreement were made 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 contractual standards of materiality or material adverse effect applicable to the contracting parties that generally differ from those applicable to stockholders. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The representations, warranties and covenants in the Merger Agreement and any descriptions thereof should be read in conjunction with the disclosures in the Company’s periodic and current reports, proxy statements and other documents filed with the SEC. See the section entitled “Where You Can Find Additional Information” on page 65. Moreover, the description of the Merger Agreement below does not purport to describe all of the terms of such agreement and is qualified in its entirety by reference to the full text of such agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference.
 
Additional information about the Company may be found elsewhere in this information statement and the Company’s other public filings. See the section entitled “Where You Can Find Additional Information” beginning on page 65.
 
Structure of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
 
At the effective time of the Merger, Merger Sub will merge with and into the Company, and the separate corporate existence of Merger Sub will cease. The Company will be the surviving corporation in the Merger and will continue its corporate existence as a Delaware corporation and a wholly-owned subsidiary of Parent. The certificate of incorporation and bylaws of Merger Sub that are in effect immediately before the effective time of the Merger will become the certificate of incorporation and bylaws of the surviving corporation, although the certificate of incorporation and bylaws will be amended to reflect the name of the surviving corporation as “Advanced Environmental Recycling Technologies, Inc.”
 
The individuals holding positions as directors and officers of Merger Sub immediately before the effective time of the Merger will become the initial directors and officers of the surviving corporation.
 
 
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Consummation and Effectiveness of the Merger
 
The Merger becomes effective upon the date and time of the filing of the certificate of merger with the Delaware Secretary of State or such other date and time as may be mutually agreed upon by Parent and the Company and set forth in the certificate of merger. The closing of the Merger is scheduled to occur on the later of April 15, 2017 or the business day after the satisfaction or waiver of the last to be satisfied or waived of the conditions of the consummation of the Merger set forth in the Merger Agreement (other than those conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), or such other date and time as Parent and the Company mutually designate.
 
Consideration to be Received in the Merger
 
Upon consummation of the Merger, (i) all shares of Common Stock and Preferred Stock held by the Company (or held in the Company’s treasury) will be canceled and retired, and no consideration will be paid in exchange therefor, (ii) each share of Common Stock and Preferred Stock issued and outstanding immediately prior to the consummation of the Merger, other than shares for which appraisal rights have been properly demanded and not withdrawn and shares held in treasury, will automatically be canceled and will be converted into the right to receive $0.135936 per share of Common Stock and $2,603.483278 per share of Preferred Stock, less any required withholding taxes, if any. Each holder of Common Stock and Preferred Stock will be entitled to receive a total amount equal to the product obtained by multiplying the per share Merger Consideration applicable to shares of Common Stock or Preferred Stock, respectively, by the number of shares of Common Stock or Preferred Stock, as applicable, owned by such holder, rounded up to the nearest cent.
 
Appraisal Shares
 
Any appraisal shares the holders of which neither voted in favor of nor consented in writing to the adoption of the Merger Agreement will not be converted into the right to receive the applicable the Merger Consideration. If any holder of such appraisal shares loses, withdraws, or fails to perfect the right to appraisal, each such share of such holder will be converted into the right to receive the applicable Merger Consideration as of the consummation of the Merger. The Company will serve prompt notice to Parent of any demands for appraisal, attempted withdrawals of such notices or demands and any other instruments served pursuant to Delaware law received by the Company, and Parent will have the right to participate in all negotiations and proceedings with respect to such demands. The Company will not settle or make any payment with respect to the withdrawal of appraisal demands without the prior written consent of Parent.
 
Procedures for Receiving Merger Consideration
 
As soon as reasonably practicable after the consummation of the Merger (but no later than two business days later), the paying agent will mail to each holder of record of Company shares immediately prior to the effective time of the Merger a letter of transmittal and instructions for use in effecting the surrender of the share certificates or book entry shares in exchange for the applicable Merger Consideration.
 
Upon surrender to the paying agent of a share certificate for cancellation or the delivery to the agent of an “agent’s message,” together with a duly completed and executed letter of transmittal and any other required documents, (i) the holder of such Company share will be entitled to receive, in exchange for such Company share, the applicable amount of Merger Consideration that such holder has the right to receive, subject to any required withholding taxes and without interest, and (ii) any such surrendered share certificate will be canceled.
 
If payment of the Merger Consideration is to be made to a person other than the person in whose name the share is registered, it will be a condition of payment that proper endorsement or transfer be documented and the proper taxes be paid.
 
Each of Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold from amounts otherwise payable pursuant to the Merger Agreement to any holder of shares of Common Stock or Preferred Stock, such amounts as are required to be deducted and withheld pursuant to any applicable tax laws.
 
Representations and Warranties
 
The Merger Agreement contains customary representations and warranties of Parent, Merger Sub and the Company, including representations and warranties relating to, among other things:
 
organization, good standing, authority and similar matters of the Company, Parent and Merger Sub;
 
due authorization, execution, delivery and enforceability of the Merger Agreement;
 
 
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absence of conflicts with the parties’ governing documents, contracts, and applicable laws;
 
absence of required approvals and authorizations of or other filings with governmental entities;
 
absence of pending or, to the knowledge of the respective parties, threatened litigation that would reasonably be expected to have a material adverse effect on the respective parties; and
 
absence of brokers’, financial advisors’ and investment bankers’ fees or commissions.
 
In addition, the Merger Agreement contains the following customary representations and warranties of the Company:
 
capitalization;
 
documents filed with the SEC, compliance with applicable SEC filing requirements and accuracy of information contained in such documents;
 
compliance of financial statements with applicable accounting requirements and related SEC rules and regulations, preparation of financial statements in accordance with GAAP and the absence of certain undisclosed liabilities;
 
maintenance of certain internal controls and procedures;
 
delivery of a schedule setting forth certain indebtedness of the Company, transaction expenses incurred in connection with the Merger, management and advisory fees owed by the Company and the proper calculation of the Merger Consideration;
 
compliance with laws, the applicable provisions of the Sarbanes-Oxley Act, and the rules and regulations of the OTCQB;
 
interested party transactions;
 
since September 30, 2016, the absence of any change, event or development that has had a material adverse effect and the absence of changes to the Company’s business from past practice;
 
title to assets;
 
intellectual property matters;
 
material contracts;
 
governmental authorizations;
 
filing of tax returns, payment of taxes and other tax matters;
 
employee benefit plans, matters relating to ERISA and labor and employment matters;
 
ownership and use of real property;
 
insurance matters;
 
the absence of legal proceedings by or against the Company;
 
compliance with environmental laws and regulations;
 
 
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the receipt of a fairness opinion from William Blair; and
 
the Company’s customers and suppliers.
 
The Merger Agreement also contains the following customary representations and warranties of Parent and Merger Sub:
 
activities of Merger Sub;
 
the availability to Parent of funds necessary to consummate the Merger;
 
absence of ownership by Parent, Merger Sub or their respective affiliates of capital stock of the Company; and
 
the absence of consent or vote by the holders of Parent’s equity to approve the Merger.
 
Certain of the representations and warranties in the Merger Agreement are qualified as to “materiality,” “Parent material adverse effect” or “Company material adverse effect.” The Merger Agreement provides that a Company material adverse effect means any effect, change, event, occurrence, circumstance or development (an “Effect”) that has or would reasonably be expected to, individually or in the aggregate with any other Effects, have a material adverse effect on (i) the assets, liabilities, business, financial condition, or results of operations of the Company, taken as a whole; or (ii) Parent’s ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the shares of the surviving corporation after the Merger. With respect to (i) in the preceding sentence, Company material adverse effect will not include any Effect, alone or in combination, with respect to, or resulting from:
 
general changes in the U.S. or global economy, or change in general economic conditions, including changes in the credit, debt, financial or capital markets, in each case, in the United States of America or anywhere else in the world;
 
operating, business, regulatory or other conditions generally affecting the industry in which the Company conducts business (except to the extent that such Effect has a disproportionate adverse effect on the Company relative to other companies of a similar size operating in the industry in which the Company conducts business);
 
changes in applicable law or in GAAP or other applicable accounting rules or the interpretation or enforcement thereof;
 
changes in the market price or trading volume of the Common Stock;
 
failure(s) by the Company to meet any operating projections or forecasts, or published revenue or earnings predictions or estimates (but not excluding any of the reasons for or factors contributing to the failure);
 
any act or threat of terrorism or war, any armed hostilities or terrorist activities, any threat or escalation of armed hostilities or terrorist activities or any governmental or other response or reaction to any of the foregoing (other than any act that is targeted at the Company or causes physical damage to the assets, properties, facilities or personnel of the Company which such damage causes a Company material adverse effect);
 
any legal proceeding against the Company or any of its directors by the stockholders of the Company challenging or seeking to restrain or prohibit the consummation of the Merger or any other transaction contemplated by the Merger Agreement;
 
events attributable to any action by the Company if that action is contemplated or required by the Merger Agreement and Parent or Merger Sub refuses to waive such requirement, or the failure to take any action by the Company if that action is prohibited by the Merger Agreement and Parent or Merger Sub refuses to waive such prohibition;
 
 
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events attributable to the announcement or performance of the Merger Agreement or the consummation of the transactions contemplated by the Merger Agreement or the pendency of the Merger (including the loss or departure of officers or other employees of the Company), or the termination, reduction (or potential reduction) or any other negative effect (or potential negative effect) on the Company’s relationships or agreements with any of its licensors, licensees, customers, vendors, strategic partners, suppliers or other business partners; or
 
any change that the Company can demonstrate resulted from Parent unreasonably withholding its consent under the Merger Agreement to any action requiring Parent’s consent under the Merger Agreement with respect to the items described in the section entitled “Operation of the Company Business” below, requested to be taken by the Company to Parent in writing.
 
The Merger Agreement also provides that a Parent material adverse effect means, with respect to Parent or Merger Sub, any Effect that would, individually or in the aggregate, restrict, prevent, prohibit, impede or materially delay the consummation of Merger and the transactions contemplated by the Merger Agreement or prevent or materially impair the ability of Parent or Merger Sub to satisfy the conditions precedent to the Merger.
 
Operation of the Company’s Business
 
Prior to the consummation of the Merger, without the prior written consent of Parent (which consent will not be unreasonably withheld, conditioned or delayed), and except as set forth in the Merger Agreement and the confidential disclosures the Company delivered in connection therewith and as required by law, the Company has agreed to (i) carry on its business in the ordinary course consistent with prior practice and in material compliance with applicable law and (ii) use commercially reasonable efforts to maintain and preserve intact its business organization, present relationships with those persons having significant business relationships with the Company, keep available the services of its current executive officers and maintain in effect all material governmental authorizations.
 
Further, the Company agreed that until the consummation of the Merger, it will not (except as set forth in the Merger Agreement and the confidential disclosures the Company delivered in connection therewith, or with the prior written approval of Parent, which consent will not be unreasonably withheld, conditioned or delayed):
 
amend or permit the adoption of any amendment to the Company charter documents;
 
effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar transaction or adopt a plan of complete or partial liquidation;
 
declare, accrue, set aside, or pay any dividend or make any other distribution in respect of any shares of capital stock; split, combine, or reclassify any capital stock; or acquire, redeem or otherwise reacquire any shares of capital stock or other securities, other than pursuant to the Company’s right to acquire restricted shares of Common Stock held by an employee of the Company upon termination of such employee’s employment;
 
sell, issue, grant or authorize the sale, issuance, or grant of: (i) any capital stock or other security; (ii) any option, call, warrant or right to acquire any capital stock or other security; (iii) any instrument convertible into or exchangeable for any capital stock or other security, except that the Company may adopt a stockholder rights plan in response to an Acquisition Proposal and issue rights to Company stockholders in connection therewith; or (iv) or any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock based performance units.
 
lend money to any person (other than advances to employees of the Company in the ordinary course of business);
 
except in the ordinary course of business and not exceeding $250,000, in the aggregate, incur or guarantee any indebtedness;
 
 
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other than as required by GAAP or SEC rules and regulations, change any of its methods of accounting or accounting practices in any material respect;
 
make or change any material tax election or method, settle or compromise any material liability of the Company for taxes (other than (i) in the ordinary course of business and (ii) the payment of taxes that become due and payable in the ordinary course), change any method of tax accounting, file any material amendment to a previously filed tax return, agree to an extension or waiver of the statute of limitations with respect to the assessment or determination of material taxes, enter into any closing agreement with respect to any material tax, or surrender any right to claim a material tax refund;
 
enter into (or amend in any respect that would increase the obligations or liabilities of the Company under) any contract or other arrangement with H.I.G. or H.I.G. Capital, or any affiliate or related person of H.I.G. or H.I.G. Capital;
 
enter into (or amend in any respect that would increase the obligations or liabilities of the Company under) any contract or other arrangement with any broker, finder or investment banker in connection with the Merger or any of the other transactions contemplated by the Merger Agreement;
 
make any acquisition (including by merger, consolidation, stock acquisition or otherwise) of the capital stock or (except in the ordinary course of business or as otherwise permitted pursuant to the Merger Agreement) assets of any other person;
 
transfer, sell, assign, lease, license, divest, mortgage, sell and leaseback or otherwise encumber or subject to any encumbrance (other than certain encumbrances permitted by the Merger Agreement) or otherwise dispose of any material properties or other material assets (including any intellectual property), except for (i) sales, licenses or dispositions of properties or other assets or interests therein in the ordinary course of business, or (ii) dispositions of assets that are no longer useful in the conduct of the business of the Company;
 
pay, discharge, settle or satisfy any legal proceeding, in each case for an amount in excess of $125,000, or $250,000 in the aggregate (excluding amounts that will be paid under any of the Company’s insurance policies), or that would impose any material restraint on the continued conduct by the Company of its business consistent with past practices;
 
amend or modify in any material respect or terminate any material contract, or unwritten material agreement, in each case, other than in the ordinary course of business, or enter into any contract or oral arrangement that would constitute a material contract if it had been entered into in writing prior to the date the Merger Agreement was entered into;
 
except as required to comply with applicable law or to comply with any contract or any of the Company’s employee benefit plans entered into prior to the date hereof (i) adopt, enter into, terminate or materially amend (A) any of the Company’s material employee benefit plans or (B) any other agreement, plan or policy involving the Company and one or more of their respective current or former officer, members of the Board, or non-officer employees with base salary in excess of $100,000, in each case that is not terminable by the Company at will without liability, (ii) increase the compensation, bonus or fringe or other benefits offered by the Company other than increases in the ordinary course of business consistent with past practice, (iii) take any action to accelerate the vesting or payment of any compensation or benefit under any of the Company’s employee benefit plans, (iv) loan or advance any money or other property (other than reimbursement of reimbursable expenses or any advances of such expenses, whether directly, pursuant to Company credit cards or otherwise) or forgive any loans to any current or former member of the Company Board or officer or employee of the Company, or (v) enter into any agreement or engage in any transaction with one or more of the Company’s directors, officers or stockholders, or with any corporation, partnership (general or limited), limited liability company, association or other organization of which one or more of the Company’s directors, officers or stockholders is (A) a director, officer, manager, managing partner, managing member (or the holder of any office with similar authority), (B) has a direct or indirect financial interest, or (C) directly or indirectly controls, is controlled by or is under common control with;
 
 
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enter into any line of business in any geographic area other than the current lines of business of the Company and products and services reasonably ancillary thereto;
 
enter into any new commitment for capital expenditures of the Company involving, individually or in the aggregate, expected expenditures of more than $875,000;
 
cancel, modify, or waive any debts or claims held by it or waive any rights having in each case a value or cost in excess of $100,000 individually or $250,000 in the aggregate; or
 
authorize any of, or commit, resolve, propose, or agree in writing or otherwise to take any of, the foregoing actions.
 
No Solicitation by the Company
 
The Company has agreed that it will not, nor will it authorize any of its representatives to, directly or indirectly:
 
solicit, initiate or knowingly encourage or knowingly facilitate the making, submission or announcement of an Acquisition Proposal;
 
other than informing persons of the provisions contained in the non-solicitation provisions of the Merger Agreement, enter into, continue or participate in any discussions or any negotiations regarding any Acquisition Proposal or furnish to any person any non-public information in connection with or for the purpose of knowingly encouraging or knowingly facilitating any Acquisition Proposal; or
 
enter into any letter of intent, acquisition agreement or similar agreement with respect to any Acquisition Proposal or with respect to any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal.
 
The Company has agreed to, and to cause each of its directors and officers to, and to direct its other representatives to, immediately cease and cause to be terminated all discussions or negotiations with any person previously conducted with respect to any Acquisition Proposal and to require such persons to return or destroy, and to cease providing access to any non-public information of or relating to the Company promptly after the closing. The Company is permitted to grant waivers of any “standstill” provision to the limited extent that such provision would otherwise prohibit the counterparty thereto from making a confidential Acquisition Proposal directly to the Board in accordance with the terms of the Merger Agreement, in which case the Company has agreed to similarly waive or terminate any “standstill” provision applicable to Parent contained in the confidentiality agreement between the Company and Parent.
 
The Merger Agreement provides that the term “Acquisition Proposal” means any offer, proposal, or inquiry (other than an offer, proposal or inquiry by Parent) contemplating or otherwise relating to any acquisition transaction or series of related transactions involving:
 
any merger, consolidation, share exchange, business combination, issuance of securities, direct or indirect acquisition of securities, recapitalization, tender offer, exchange offer or other similar transaction in which (i) a person or “group” (as defined in the Exchange Act) of persons directly or indirectly acquires, or if consummated in accordance with its terms would acquire, beneficial or record ownership of securities representing more than twenty percent (20%) of the outstanding shares of any class of voting securities of the Company; or (ii) the Company issues securities representing more than twenty percent (20%) of the outstanding shares of any class of voting securities of the Company; or
 
any sale, lease, exchange, transfer, acquisition or disposition of any assets of the Company that constitute or account for twenty percent (20%) or more of the consolidated net revenues of the Company or consolidated net income of the Company or twenty percent (20%) or more of the fair market value of the assets of the Company.
 
For purposes of a superior proposal, references to twenty percent (20%) are instead references to fifty percent (50%).
 
 
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Other Offers; Superior Proposal
 
Notwithstanding the restrictions described above, if at any time prior to April 15, 2017 the Company receives an unsolicited bona fide written Acquisition Proposal that does not result from a breach of the non-solicitation covenant within the Merger Agreement and the Board (or a duly authorized committee thereof) determines in good faith, after consultation with its independent financial advisors and outside legal counsel, that such Acquisition Proposal constitutes or would reasonably be expected to lead to a superior proposal and that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law, then the Company is permitted to:
 
furnish information with respect to the Company to the person or group who has made the Acquisition Proposal (provided that the Company (i) provides to Parent any non-public information concerning the Company that is provided to such person or group and that was not previously provided to Parent, (ii) enters into an confidentiality agreement containing terms that are not less favorable to the Company than those in the confidentiality agreement between Parent and the Company with such person or group, and (iii) if the person making such Acquisition Proposal is a competitor of the Company, does not provide any commercially sensitive non-public information to such person other than in accordance with “clean team” or other similar procedures designed to limit any adverse effect on the Company of the sharing of such information), and
 
engage in discussions or negotiations with such person or group regarding such Acquisition Proposal (and waive such person’s or group’s noncompliance with the provisions of any “standstill” agreement solely to permit such discussions and negotiations).
 
The Merger Agreement provides that the term “superior proposal” means a bona fide written proposal for an acquisition transaction that the Board determines in good faith, after consultation with its outside legal counsel and independent financial advisor, to be more favorable to the Company’s stockholders from a financial point of view than the Merger, in each case, taking into account at the time of determination, all legal, financial and regulatory considerations of such acquisition transaction and the Merger Agreement (including any modification to the terms of the Merger Agreement as may be proposed by Parent pursuant to the terms of the Merger Agreement that the Board determines to be relevant) (including any required financing, stockholder approval requirements of the person or group making the proposal, regulatory approvals, stockholder litigation, breakup fee and expense reimbursement provisions, expected timing and risk and likelihood of consummation, and, to the extent deemed appropriate by the Board, such other factors that may be considered in making such a determination under the DGCL).
 
As of the date of this information statement, the Company has not received any Acquisition Proposal.
 
The Company has agreed to keep Parent reasonably apprised in all material respects on a reasonably current basis of the status and content of any material discussions regarding any Acquisition Proposal with any person or group. The Company has also agreed to notify Parent in writing promptly after receipt (and in any event within 24 hours) by the Company (or any of its representatives) of any Acquisition Proposal (or material modification or amendment thereof), or the granting of any access to non-public information of the Company or access to their books and records, business property or assets and such notice shall specify the identity of the Person making the Acquisition Proposal or receiving such access and the material terms and conditions thereof. The Company also agreed to keep Parent informed, on a reasonably current basis, of the status of any such Acquisition Proposal or access (including the material terms and conditions thereof and any material modifications thereto). The Company agreed to provide Parent with at least 48 hours prior notice of any meeting of the Board at which the Board is reasonably expected to consider any Acquisition Proposal. The Company may not enter into any confidentiality agreement after the date the Merger Agreement was signed that would prevent the Company from complying with these requirements.
 
 
 
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Adverse Recommendation Change
 
The Board and any committee thereof cannot:
 
withhold, withdraw or rescind (or modify or qualify in a manner adverse to Parent or Merger Sub), the declaration of advisability by the Board of the Merger Agreement, the Merger and the related transactions (the “board recommendation”);
 
adopt, approve or recommend, or publicly propose to adopt, approve or recommend, any Acquisition Proposal;
 
fail to include the board recommendation in the proxy statement if one is disseminated to the Company’s stockholders;
 
in the event a tender offer that constitutes an Acquisition Proposal subject to Regulation 14D under the Exchange Act is commenced, fail to recommend against such Acquisition Proposal in any solicitation or recommendation statement made on Schedule 14D-9 within ten business days of such commencement thereof;
 
make any public statement inconsistent with the board recommendation (each of the previously listed items is an “adverse recommendation change”); or
 
approve, cause or authorize or permit the Company to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, agreement or commitment (other than an confidentiality agreement) with any person or group from whom the Company has received an Acquisition Proposal, or resolve, agree or publicly propose to take any such action.
 
Notwithstanding the foregoing, at any time prior to the April 15, 2017, the Board (or a duly authorized committee thereof) is permitted to (i) make an adverse recommendation change, or (ii) terminate the Merger Agreement to accept such superior proposal, but only if, in either case:
 
the Board (or a duly authorized committee thereof) determined in good faith, after consultation with its outside legal counsel, that the failure to make an adverse recommendation change in response to the receipt of such superior proposal not involving a material breach of the Merger Agreement would reasonably be expected to be inconsistent with its fiduciary duties under applicable law;
 
the Company provided Parent prior written notice of its intent to make an adverse recommendation change or to terminate the Merger Agreement at least four business days prior to taking such action (which notice was required to include a summary of the material terms of the superior proposal, the relevant proposed transaction agreements and any financing commitments relating thereto);
 
during such four business day period following Parent’s receipt of the notice, the Company negotiated, and caused its financial and legal advisors and other representatives to negotiate, in good faith with Parent (if Parent desired to so negotiate) to make such adjustments in the terms and conditions of the Merger Agreement that Parent proposed to make as would obviate the basis for an adverse recommendation change or the termination of the Merger Agreement;
 
at the end of such four business day period and having taken into account any modifications to the terms of the Merger Agreement proposed by Parent to the Company in a written, binding and irrevocable offer, the Board (or a duly authorized committee thereof) determined in good faith (after consultation with outside legal counsel) that the failure to make such an adverse recommendation change or the failure to terminate the Merger Agreement would reasonably be expected to be inconsistent with its fiduciary duties under applicable law; and
 
in the event of any change to the material terms of such superior proposal, the Company, in each case, had delivered to Parent an additional notice consistent with that described above.
 
In addition and notwithstanding the foregoing, other than in connection with a superior proposal, the Board (or a duly authorized committee thereof) is permitted to make an adverse recommendation change in response to an intervening event, if and only if:
 
 
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the Board (or a duly authorized committee thereof) determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable law;
 
the Company then provided an adverse recommendation change notice to Parent at least four business days prior to the taking of such action and not later than April 15, 2017 and describing the intervening event that is the basis for such action in reasonable detail;
 
during the four business day period following Parent’s receipt of such notice, the Company negotiated, and caused its financial and legal advisors and other representatives to negotiate, with Parent (if Parent desired to so negotiate) to make such adjustments in the terms and conditions of the Merger Agreement that Parent proposed to make as would obviate the basis for an adverse recommendation change; and
 
following the end of such four business day period, the Board (or a duly authorized committee thereof) then determined in good faith, taking into account any changes to the terms of the Merger Agreement proposed by Parent to the Company in a written, binding and irrevocable offer in response to the adverse recommendation change notice, that the failure to effect an adverse recommendation change in response to such intervening event would reasonably be expected to be inconsistent with its fiduciary duties under applicable law.
 
The Merger Agreement provides that the term “intervening event” means any material event with respect to the Company occurring or arising prior to April 15, 2017 (other than a superior proposal) that was neither known to the Board nor reasonably foreseeable as of or prior to the date the Merger Agreement was signed, which becomes known to the Board. However, the following events, developments or changes in circumstances do not constitute an intervening event: (i) the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto or consequence thereof, (ii) any events, developments or changes in circumstances relating to the Parent or any of Parent’s affiliates or any competitor of the Company, (iii) changes in law applicable to the Company, or (iv) changes in the market price or trading volume of shares of Common Stock or the fact that the Company meets or exceeds internal or published projections, forecasts or revenue or earnings predictions for any period (except that the underlying causes of such change or fact will not be excluded by this clause (iv) prior to April 15, 2017).
 
In addition, nothing contained in the Merger Agreement prohibits the Company or the Board (or a duly authorized committee thereof) from: (i) taking and disclosing to the stockholders of the Company a position contemplated by Rule 14e-2(a) under the Exchange Act or making a statement contemplated by or otherwise complying with Item 1012(a) of Regulation M-A or Rule 14d-9 under the Exchange Act; or (ii) making any disclosure to the stockholders of the Company if the Board (or a duly authorized committee thereof) determines in good faith, after consultation with its outside legal counsel, that the failure to make such disclosure would be reasonably likely to be inconsistent with its fiduciary duties under applicable law.
 
Stockholder Action by Written Consent
 
Immediately following the execution and delivery of the Merger Agreement, the Company agreed to, in accordance with Delaware law, seek and use its reasonable best efforts to obtain the Written Consent. The Written Consent was delivered on March 17, 2017 following the execution of the Merger Agreement. H.I.G. is permitted to revoke the Written Consent only if the Board makes an adverse recommendation change.
 
Reasonable Best Efforts to Complete
 
Each of the Company, Merger Sub and Parent have agreed:
 
to use its reasonable best efforts to, and will use its reasonable best efforts to cause its representatives to, take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party or parties hereto in doing, all things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and each of the other transactions contemplated by the Merger Agreement, including using reasonable best efforts to: (i) cause each of the conditions to the Merger to be satisfied as promptly as practicable after the date the Merger Agreement is signed; (ii) obtain, as promptly as practicable after the date the Merger Agreement is signed, and maintain all necessary actions or non-actions and consents from any governmental bodies and make all necessary registrations, declarations and filings with any governmental bodies that are necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement; and (iii) resist, contest, appeal and remove any legal proceeding and to have vacated, lifted, reversed or overturned any restraint, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, restricts or restrains the transactions contemplated by the Merger Agreement;
 
 
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not to take any action that is intended to prevent, impair, materially delay or otherwise adversely affect the consummation of the Merger or the other transactions contemplated by the Merger Agreement or the ability of such party to fully perform its obligations under the Merger Agreement (except that none of the Company, Parent or Merger Sub will be required prior to the effective time of the Merger to pay any consent or other similar fee or consideration or otherwise assume or incur or agree to assume or incur any obligation, liability or commitment that is not conditioned upon the consummation of the Merger, to obtain any consent of any person (including any governmental body) under any contract);
 
to provide such information and execute such further instruments and written assurances as may be reasonably requested by the other parties and assist and cooperate with the other parties, in each case in accordance with the terms of the Merger Agreement, in order to carry into effect the intents and purposes of, and to consummate the transactions contemplated by, the Merger Agreement as promptly as practicable after the date the Merger Agreement is signed;
 
on behalf of itself and its affiliates, to, between the date the Merger Agreement is signed and the effective time of the Merger, not, and to cause its affiliates not to, directly or indirectly, (i) acquire, purchase, lease or license (or agree to acquire, purchase, lease or license), by merging with or into or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any person or division or part thereof, or any securities or collection of assets, if doing so would, or such party reasonably anticipates it would, (A) result in any material delay in obtaining, or materially increase the risk of not obtaining, any consent of any governmental body required in connection with the transactions contemplated by the Merger Agreement (including the Merger) or (B) restrict, prevent, prohibit, impede or materially delay the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement, or (ii) take or agree to take any other action that it expects will (A) result in any material delay in obtaining, or materially increase the risk of not obtaining, any consent of any governmental body required in connection with the transactions contemplated by the Merger Agreement (including the Merger) or (B) restrict, prevent, prohibit, impede, or materially delay the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement.
 
Indemnification and Insurance
 
The surviving corporation will honor the obligations of the Company for six years after the effective time of the Merger under all indemnification, advancement of expenses and exculpation provisions in its current governing documents and any indemnification agreements between the Company and its current or former directors or officers. In addition, from the effective time of the Merger through the sixth anniversary of the effective time of the Merger, the surviving corporation will cause its governing documents to contain provisions with respect to exculpation, advancement of expenses and indemnification that are at least as favorable to the current or former directors or officers as those contained in the governing documents of the Company as of the date of the Merger Agreement.
 
In addition, the Company will obtain, prior to the effective time of the Merger, prepaid “tail” directors’ and officers’ liability insurance policies, for six years from the effective time of the Merger, for acts or omissions occurring at or prior to the effective time of the Merger on terms with respect to coverage and amount no less favorable than those contained in such policy in effect on the date the Merger Agreement was signed. In the event any such policy is not available on a fully prepaid basis, then the Company will obtain, prior to the effective time of the Merger, such policy for as long a term as is then available, and Parent will, for the remaining period up to and including six years after the closing date of the Merger, purchase and keep such policy available at all times during such period (except that if the premiums required to be paid by Parent or the Company for such insurance policy for any one year period would exceed 300% of the current annual premium paid by the Company for the directors’ and officers’ liability insurance in effect as of the date the Merger Agreement was signed, then Parent or the Company (or any successor thereto) will cause to be maintained policies of insurance that provide the maximum coverage available at an annual premium equal to 300% of the Company’s current premium for its insurance policy as of the date the Merger Agreement was signed).
 
 
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             If Parent or the Company or any of their successors or assigns, as the case may be, (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or otherwise conveys all or substantially all of its properties and assets to any other person, then and in each case, proper provisions are required to be made so that the successors and assigns of Parent or the surviving corporation or their respective successors or assigns, as the case may be, assume in writing all of the obligations with respect to director and officer indemnification and insurance set forth in the Merger Agreement.
 
             The indemnification obligations may not be terminated, amended or otherwise modified in any manner that adversely affects the current and former directors and officers of the Company without the prior written consent of such directors and officers. The current and former directors and officers of the Company will have the right to enforce the provisions of the Merger Agreement relating to their indemnification and insurance and are express third-party beneficiaries of the Merger Agreement for this purpose.
 
Employees
 
             In the event any individual who is employed by the Company immediately prior to the effective time of the Merger (a “Covered Employee”) first becomes eligible to participate under any employee benefit plan, program, policy, or arrangement of Parent or the Company or any of their respective subsidiaries (the “New Plans”) following the effective time of the Merger, Parent has agreed to, or to cause the Company to: (i) waive any preexisting condition exclusions, “actively-at-work” requirements and waiting periods with respect to participation and coverage requirements applicable to any Covered Employee under any New Plan providing medical, dental, or vision benefits to the same extent such limitation would have been waived or satisfied under the employee benefit plan Covered Employee participated in immediately prior to coverage under the New Plan; and (ii) provide each Covered Employee with credit for any copayments and deductibles paid prior to the Covered Employee’s coverage under any New Plan during the calendar year in which such amount was paid, to the same extent such credit was given under the employee benefit plan which the Covered Employee participated in immediately prior to coverage under the New Plan, in satisfying any applicable deductible or out-of-pocket requirements under the New Plan.
 
             As of the effective time of the Merger and thereafter, Parent has agreed to recognize, or cause the Company and their respective subsidiaries to recognize, all service of each Covered Employee prior to the Effective Time, to the Company (or, to the extent previously recognized by the Company, any predecessor entities of the Company) for vesting and eligibility purposes, and for purposes of calculating vacation and other paid time off benefits, under any New Plans. In no event will this requirement result in any duplication of benefits for the same period of service.
 
             As of the effective time of the Merger Agreement, the Company has agreed to take all necessary actions to provide for full vesting of all amounts credited to the account of each Covered Employee under the Company’s 401(k) plan.
 
Other Covenants and Agreements
 
The parties acknowledged that the confidentiality agreement between Parent and the Company remains in full force and effect in accordance with its terms until the effective time of the Merger. The Merger Agreement contains other covenants and agreements in which each of Parent and the Company covenants or agrees to not issue any public release or make any public announcement concerning the Merger Agreement or the transactions contemplated by the Merger Agreement without the prior written consent of the other (which consent may not be unreasonably withheld, conditioned, or delayed), except for pursuant to certain exceptions set forth in the Merger Agreement and as required by law or applicable regulations (in which case the party required to make the release or announcement is required to use its reasonable best efforts to allow the other party or parties hereto a reasonable opportunity to comment on such release or announcement in advance of such issuance).
 
The Company has also agreed to, during the period between the date the Merger Agreement is signed and the earlier of: (i) the effective time of the Merger and (ii) the termination of the Merger Agreement:
 
 
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provide Parent and Parent’s representatives with reasonable access during normal business hours, upon reasonable notice by Parent, to the respective representatives of the Company, and to the books, records, tax returns, material operating and financial reports, work papers and other documents and information relating to the Company;
 
provide reasonable access during normal business hours, to the real property owned, leased, subleased, licensed, other otherwise occupied by Company as of the date the Merger Agreement is signed for purposes of conducting Phase I environmental site assessments and limited reviews of compliance with applicable environmental law, upon reasonable notice, to the Company’s facilities and personnel; and
 
permit Parent’s officers and other employees to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of the Company responsible for the Company’s financial statements and the internal controls of the Company to discuss such matters as Parent may reasonably deem necessary or appropriate in order to enable Parent to satisfy its obligations under the Sarbanes-Oxley Act and the rules and regulations relating thereto or otherwise in connection with the Merger.
 
Information obtained by Parent or Merger Sub pursuant to these access obligations are confidential and governed by the terms of the confidentiality agreement between Parent and the Company. Nothing in these access obligations requires the Company to permit any inspection, or to disclose or provide any access to any information, that in the reasonable judgment of the Company would: (i) result in a violation of applicable law; or (ii) reasonably be expected to violate or result in a waiver, loss or impairment of any attorney-client privilege or work product doctrine or similar applicable privilege or legal protection. Any investigation conducted pursuant to these provisions must be conducted in a manner that does not unreasonably interfere with the conduct of the business of the Company or create a reasonable risk of damage or destruction to any property or assets of the Company, are subject to the Company’s existing security measures and insurance requirements, and may not include the right to perform invasive testing without the Company’s prior written consent, in its reasonable discretion.
 
The Company, Parent and Merger Sub agreed to make all required antitrust filings and to cooperate and coordinate with the other in the makings of such filings.
 
The Company and Parent also agreed to notify the other:
 
upon becoming aware that any representation or warranty made by it in the Merger Agreement has become untrue or inaccurate in any material respect, or of any failure of such person to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement;
 
of any material written communication from any governmental body related to the Merger; and
 
of any legal proceeding commenced and served upon it that challenges the Merger or would reasonably be expected to delay or materially impair the closing of the Merger.
 
In the event that any of certain state takeover laws specified in the Merger Agreement is or becomes applicable to any of the transactions contemplated by the Merger Agreement, the Company, Parent and Merger Sub agreed to use their respective reasonable best efforts to ensure that the transactions contemplated by the Merger Agreement may be consummated as promptly as practicable on the terms and subject to the conditions set forth in the Merger Agreement and otherwise to minimize the effect of such law on the Merger Agreement and the transactions contemplated by the Merger Agreement.
 
 
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In addition, the Company has agreed to:
 
in consultation with Parent, prepare and file with the SEC this information statement and, promptly after receiving clearance from the SEC, mail this information statement to stockholders of the Company;
 
furnish information about itself and such other matters as may be reasonable necessary or advisable in connection with any statement, filing, notice, or application made in connection with the Merger and the transactions contemplated by the Merger Agreement;
 
use its reasonable best efforts to deliver to Parent the resignations of certain directors of the Company, which resignations become effective at the closing of the Merger;
 
prior to the earlier of the effective time of the Merger or the date of termination of the Merger Agreement: (i) promptly advise Parent in writing of any stockholder litigation against the Company or its directors or officers relating to the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement and keep Parent reasonably informed regarding any such stockholder litigation; (ii) give Parent the opportunity, at Parent’s sole cost and expense, to participate in the defense or settlement of any stockholder litigation that arises after the date the Merger Agreement was signed against the Company or its directors or officers as a result of the Merger Agreement or the transactions contemplated thereby; and (iii) not agree to any settlement without Parent’s consent to such settlement, which consent may not be unreasonably withheld, conditioned or delayed (and Parent agreed to a reciprocal commitment to the Company), provided, however, that Parent agreed that the Company is not obligated to agree to any settlement unless such settlement includes a full release of any director or executive officer of the Company that was a party to such litigation;
 
take all such steps as may be required to cause Merger, and any other dispositions of equity securities of the Company by any director or executive officer of the Company who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act and the rules and regulations thereunder, to be exempt under Rule 16b-3 promulgated under the Exchange Act;
 
prior to the effective time of the Merger Agreement, cooperate with Parent and use commercially reasonable efforts to take, or cause to be taken, all actions, and do or cause to be done all things reasonably necessary, proper or advisable on its part under applicable laws to enable the deregistration of the applicable Company shares under the Exchange Act promptly after the effective time of the Merger Agreement and to use all commercially reasonable efforts to cause the applicable Company shares to be deregistered under the Exchange Act as soon as practicable after the effective time of the Merger Agreement;
 
on the closing date, deliver to Parent a release of the Company from any fees or expenses payable to (a) William Blair under the Engagement Letter, dated July 20, 2016, between the Company and William Blair and (b) H.I.G. Capital under the Advisory Services Agreement, dated March 18, 2011, between the Company and H.I.G. Capital;
 
promptly after the date the Merger Agreement is signed, deliver to Parent a CD-ROM reflecting the full and complete contents of the “Project ASCENT” Intralinks data room maintained by the Company as of the date the Merger Agreement is signed; and
 
file its annual report on Form 10-K for the year ended December 31, 2016 as soon as practicable after the execution and delivery of the Merger Agreement.
 
Conditions to Completion of the Merger
 
The respective obligations of each party to effect the Merger are subject to the satisfaction (or, if permitted by applicable Law, written waiver by the party entitled to the benefit thereof) at or prior to the closing of the following conditions:
 
All governmental authorizations having been obtained;
 
 
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No governmental body having enacted, issued, promulgated or entered any law or restraint which is in effect and has the effect of making the transactions contemplated by the Merger Agreement illegal or other restraining or prohibiting consummation of such transactions;
 
Either the Written Consent or the vote required of the stockholders of the Company to approve the Merger having been obtained; and
 
The information statement having been cleared by the SEC and mailed to the stockholders of the Company (in accordance with Regulation 14C of the Exchange Act) at least twenty (20) days prior to the closing date of the Merger.
 
The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction or waiver, of the following conditions:
 
(i) the representations and warranties of the Company related to approval of the transaction, capitalization (other than de minimis inaccuracies) and brokers being true and correct in all respects as of the effective time of the Merger as though made on and as of the effective time of the Merger, (ii) the representations and warranties of the Company related to delivery of a schedule setting forth certain indebtedness of the Company, transaction expenses incurred in connection with the Merger, management and advisory fees owed by the Company and the proper calculation of the Merger Consideration being true and correct in all material respects (without giving effect to any limitation as to “materiality” or “Company material adverse effect”) as of the effective time of the Merger as though made on and as of such time, and (iii) all other representations and warranties of the Company contained in the Merger Agreement being true and correct in all respects (without giving effect to any limitation as to “materiality” or “Company material adverse effect”) as of the effective time of the Merger as though made on and as of such time, except where the failure of such representations and warranties described in this clause (iii) to be true and correct does not have, individually or in the aggregate, a Company material adverse effect; provided in each case that representations and warranties made as of a specific date need only be true and correct (subject, in the case of the representations and warranties described in clauses (ii) and (iii), to such qualifications) as of such specified date;
 
the Company having performed in all material respects its obligations or covenants contained in the Merger Agreement at or prior to the closing;
 
since the date the Merger Agreement was signed, there having not occurred any event that has had, or would reasonably be expected to have, a Company material adverse effect;
 
the Company having provided to Parent a certificate dated the closing date signed on its behalf by the chief financial officer of the Company to the effect that the conditions set forth in the three bullets above were satisfied; and
 
at least two business days prior to closing, the Company having delivered to Parent a payoff letter from certain holders of the Company’s indebtedness indicating that upon payment of a specific amount, such indebtedness will be paid in full and, if applicable, any related security interest will be automatically released and Parent or its designees will, to the extent applicable, be authorized to file releases of all encumbrances relating thereto on the assets and properties of the Company, including, to the extent applicable Uniform Commercial Code termination statements, or such other customary documents or endorsements necessary to evidence the release of the securities interests of all holders.
 
The obligations of the Company to effect the Merger are be subject to the satisfaction or waiver, of the following conditions:
 
the representations and warranties of Parent and Merger Sub contained in the Merger Agreement being true and correct as of the effective time of the Merger as though made on and as of such time (other than such representations and warranties that are made as of a specific date, which need only be true and correct as of such specified date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Parent material adverse effect”) does not have, individually or in the aggregate, a Parent material adverse effect;
 
 
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Parent and Merger Sub having performed in all material respects its obligations or covenants contained in the Merger Agreement at or prior to the closing;
 
Parent having provided to the Company a certificate dated the closing date signed on its behalf by the chief financial officer of Parent to the effect that the conditions set forth in the two bullets above were satisfied; and
 
simultaneously with the closing, Parent, on behalf of the Company, paying the amounts reflected in the payoff letters the Company is required to deliver to the lenders named therein in the manner set forth therein.
 
Termination of the Merger Agreement
 
The Merger Agreement may be terminated at any time prior to the consummation of the Merger by the mutual written consent of Parent and the Company.
 
In addition, the Merger Agreement may be terminated by either Parent or the Company if:
 
the Merger has not been consummated on or prior to the Outside Date, provided, that a party is not permitted to terminate the Merger Agreement pursuant to this right if the failure to consummate the Merger is attributable to a failure of such party (and in the case of Parent, including the failure of Merger Sub) to perform in any material respect its obligations under the Merger Agreement;
 
any governmental body of competent jurisdiction has (i) enacted, issued or promulgated any law that is in effect as of immediately prior to the consummation of the Merger and which has the effect of making the Merger illegal or which has the effect of prohibiting or otherwise preventing the consummation of the Merger in the United States, or (ii) issued or granted any restraint that is in effect as of immediately prior to the consummation of the Merger and which has the effect of making the Merger illegal or which has the effect of prohibiting or otherwise preventing the consummation of the Merger, and such restraint is final and nonappealable, provided, that the right to terminate the Merger Agreement pursuant to this right is not available to a party if the issuance of such restraint is attributable to a failure of such party (and in the case of Parent, including the failure of Merger Sub) to perform in any material respect its obligations under the Merger Agreement; or
 
on or prior to the Outside Date, the Written Consent has not been obtained and the vote required of the stockholders of the Company to approve the Merger has not been obtained at the Company stockholders meeting duly convened therefor or at any adjournment or postponement thereof, at which a final vote on the approval of the Merger Agreement was taken.
 
The Merger Agreement also may be terminated by Parent if:
 
the Board has made an adverse recommendation change;
 
(i) there has been a breach of any covenant or agreement on the part of the Company set forth in the Merger Agreement or (ii) any representation or warranty of the Company set forth in the Merger Agreement was inaccurate when made or, if not made as of a specific date, has become inaccurate, which, in either case of clauses (i) or (ii), results in the conditions to the closing related to the Company’s representations and warranties not being satisfied, and in the case of both clauses (i) and (ii), such breach or inaccuracy is not curable by the Outside Date, or, if curable, is not cured by the Outside Date; or
 
either (i) the Written Consent was not obtained and delivered to Parent within the required period of time, or (ii) the Company Stockholder Approval was not obtained at the Company stockholders meeting duly convened therefor or at any adjournment or postponement thereof, at which a final vote on the approval of the Merger Agreement was taken.
 
 
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The Merger Agreement also may be terminated by the Company:
 
(i) there has been a breach of any covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement; or (ii) any representation or warranty of Parent or Merger Sub set forth in the Merger Agreement was inaccurate when made or has become inaccurate, which, in either case of clauses (i) or (ii), results in the conditions to the closing related to Parent’s or Merger Sub’s representations and warranties not being satisfied, and in the case of both clauses (i) and (ii), such breach or inaccuracy is not curable by the Outside Date, or, if curable, is not cured by the Outside Date; or
 
the Board effected an adverse recommendation change with respect to a superior proposal or an intervening event (other than an intervening event that would reasonably be expected to have a material adverse effect on the Parent and its subsidiaries, taken as a whole) in accordance with, and in compliance with the requirements of, the Merger Agreement and concurrently with the termination of the Merger Agreement, the Company (i) entered into an agreement related to the applicable superior proposal, if such adverse recommendation change relates to a superior proposal, and (ii) and paid the termination fee as required under the Merger Agreement.
 
Effect of Termination; Termination Fee; Reverse Termination Fee
 
In the event the Merger Agreement is terminated, the Merger Agreement will become void and have no effect without any liability or obligation on the part of Parent, Merger Sub or the Company, unless the Merger Agreement is terminated as a result of fraud or willful and material breach of any representations and warranties set forth in the Merger Agreement or any material breach of any covenant set forth in the Merger Agreement, in which case the aggrieved party will be entitled to all remedies available to such party in law and equity. The parties acknowledged and agreed that any failure by Parent or Merger Sub to consummate the Merger and other transactions contemplated by the Merger Agreement after the applicable conditions to the closing are satisfied or waived (except for those conditions that by their nature are to be satisfied at the closing, which conditions would be capable of being satisfied at the time of such failure to consummate the Merger) constitutes a material breach of a covenant set forth in the Merger Agreement.
 
If the Merger Agreement is terminated by Parent after the Board makes an adverse recommendation change or by the Company after the Board makes an adverse recommendation change (unless the adverse recommendation change relates to an intervening event that would reasonably be expected to have an adverse effect on the Parent and its subsidiaries, taken as a whole), then the Company has agreed to pay to Parent a termination fee of $4.68 million, in no event more than once. The termination fee must be paid in cash (i) no later than two business days following termination by Parent and (ii) substantially concurrently (or the next Business Day if payment is not feasible on the date of termination) with any termination by the Company. Parent’s right to receive payment of the termination fee constitutes the sole and exclusive remedy of Parent and Merger Sub against the Company and its affiliates and representatives for all losses and damages suffered as a result of the failure of the Merger to be consummated.
 
In the event that the Merger Agreement is terminated by the Company (i) as a result of the Merger not being consummated by the Outside Date or (ii) as a result of a breach of any covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement or the inaccuracy of any representations or warranties of Parent or Merger Sub set forth in the Merger Agreement, and in the case of clause (i), both (A) the conditions to the obligations of all parties and the conditions to the obligations of Parent and Merger Sub are satisfied or capable of being satisfied or are waived (other than those conditions that by their nature are to be satisfied by actions taken at the closing, each of which is capable of being satisfied at the Closing), and (B) either Parent or Merger Sub fails to satisfy its obligations to effect the closing by the date the closing is required to have occurred pursuant to the Merger Agreement, then Parent has agreed pay to the Company a reverse termination fee of $7.02 million. The reverse termination fee must be paid in cash (i) no later than two  business days following termination as a result of the Merger not being consummated by the Outside Date and (ii) substantially concurrently (or the next business day if payment is not feasible on the date of termination) with any other termination where the reverse termination fee is required to be paid. The Company’s right to receive the reverse termination fee constitutes the sole and exclusive remedy of the Company or its stockholders against the Parent, Merger Sub and their respective affiliates and representatives for all losses and damages suffered as a result of the failure of the Merger to be consummated.
 
 
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Amendment and Waiver
 
At any time prior to the consummation of the Merger, the Merger Agreement and any exhibit attached thereto, may be amended or supplemented in any and all respects only by a written agreement signed by all of the parties to the Merger Agreement, provided, that if in connection with any amendment or supplement, the Written Consent or the consent of the Company’s stockholders is required under the DGCL, after the Written Consent or the consent of the Company’s stockholders has been obtained, there may not be any amendment or supplement that would require the further approval of the stockholders of the Company under the DGCL without such approval having first been obtained.
 
Except as otherwise provided in the Merger Agreement, any provision of the Merger Agreement may be waived prior to the consummation of the Merger, if, but only if, such waiver is in writing and is signed by each party against whom the waiver is to be effective. Notwithstanding the foregoing, no failure or delay by any party in exercising any right hereunder will operate as a waiver of rights, nor will any single or partial exercise of such rights preclude any other or further exercise of such rights or the exercise of any other right hereunder. Except as otherwise provided in the Merger Agreement, the rights and remedies herein provided are cumulative and not exclusive of any rights provided by law.
 
Specific Performance
 
The parties agreed that irreparable damage would occur for which monetary damages would not be an adequate remedy in the event that any of the provisions of the Merger Agreement are not performed in accordance with the terms thereof or are otherwise breached, and that the party seeking to enforce the Merger Agreement against such nonperforming party under the Merger Agreement is entitled to specific performance and the issuance of injunctive and other equitable relief to prevent breaches or threatened breaches of the Merger Agreement. The parties further agreed to waive any requirement for the securing or posting of any bond or similar collateral in connection with the obtaining of any such injunctive or other equitable relief, which is in addition to any other remedy to which they are entitled at law or in equity. Each party also agreed that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that or otherwise assert that (i) the other party has an adequate remedy at law, or (ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
 
Governing Law
 
The Merger Agreement is governed by and will be construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles of Delaware.
 
 
 
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MARKET PRICE OF THE COMPANY’S COMMON STOCK
 
The Company’s Common Stock is traded on the OTCQB Tier of the OTC Markets Group, Inc. over-the-counter market under the symbol “AERT”.
 
The following table sets forth during the periods indicated the high and low bid prices for the Common Stock as reported by the OTCQB. No cash dividends were declared per share for the Common Stock during such periods.
 
 
 
Bid Price
 
 
 
High
 
 
Low
 
Fiscal 2015
 
 
 
 
 
 
First Quarter
 $0.10 
 $0.07 
Second Quarter
 $0.11 
 $0.07 
Third Quarter
 $0.09 
 $0.02 
Fourth Quarter
 $0.12 
 $0.06 
 
    
    
Fiscal 2016
    
    
First Quarter
 $0.10 
 $0.06 
Second Quarter
 $0.09 
 $0.06 
Third Quarter
 $0.09 
 $0.06 
Fourth Quarter
 $0.15 
 $0.07 
 
    
    
Fiscal 2017
    
    
First Quarter
 0.13 
 0.08 
Second Quarter (through April 7, 2017)
 0.14
 0.13
 
The closing price of our Common Stock on March 16, 2017 which was the last trading day before the Merger was publicly announced, was $0.1021 per share. On April 7, 2017 the most recent practicable date before the filing of this information statement, the closing price for our Common Stock was $0.134 per share. You are encouraged to obtain current market quotations for our Common Stock. There are no shares of our Preferred Stock listed for trading on any market.
 
 
 
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the beneficial ownership of our Common Stock and Preferred Stock as of April 7, 2017 by: (1) each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock or Preferred Stock. (2) each of our directors; (3) each of our named executive officers. and (4) all of our directors and executive officers as a group. Unless otherwise indicated, the persons or entities identified in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
 
Information with respect to beneficial ownership has been furnished by each director and executive officer. With respect to beneficial owners of more than 5% of our outstanding Common Stock or Preferred Stock, information is based on information filed with the SEC. Except to the extent indicated in the footnotes to the following table, each of the persons or entities listed therein has sole voting and investment power with respect to the shares which are reported as beneficially owned by such person or entity. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Advanced Environmental Recycling Technologies, Inc., 914 N. Jefferson Street, Springdale, Arkansas 72764.
 
Title of Class  
 
  Name of Beneficial Owner
 
Amount and Nature of Beneficial Ownership(2) 
 Percent of Class(4) 
  
 
   
 
    
    
Series E Preferred
 
H.I.G. AERT, LLC(1)
 
  20,524.149 
  100.0%
Class A Common
 
H.I.G. AERT, LLC
 
408,373,979(3)
  84.6%
Directors and Executive Officers
 
 
 
    
    
Class A Common
 
Alford E. Drinkwater
 
  100,000 
  * 
Class A Common
 
Randall D. Gottlieb
 
  0 
  * 
Class A Common
 
J.R. Brian Hanna
 
  500,000 
  * 
Class A Common
 
Brent D. Gwatney
 
  60,000 
  * 
Class A Common
 
Timothy D. Morrison
 
  700,000 
  * 
Class A Common
 
Todd J. Ofenloch
 
  0 
  * 
Class A Common
 
Michael R. Phillips
 
  0 
  * 
Class A Common
 
Vernon J. Richardson
 
  10,000 
  * 
Class A Common
 
Bobby J. Sheth
 
  0 
  * 
Class A Common
 
All directors and executive officers as a group (9 persons)
 
  1,370,000 
  1.5%
 
Less than 1% of the Company’s outstanding Common Stock.
 
(1) 
H.I.G. AERT, LLC’s address is 1450 Brickell Avenue, 31st Floor, Miami, Florida 33131.
 
(2) 
Beneficial ownership of shares was determined in accordance with Rule 13-3(d)(1) of the Exchange Act.
 
(3) 
Includes (i) 15,289,890 shares of Common Stock and (ii) 393,084,089 shares of Common Stock issuable upon conversion of 20,524.149 shares of Preferred Stock at the fixed rate of 19,152.27 shares of Common Stock for each share of Preferred Stock, the “Conversion Rate” for the Preferred Stock pursuant to the Company’s Certificate of Designations, Preferences and Rights of the Series E Convertible Preferred Stock in the event a fundamental transaction (which includes the Merger) occurs prior to August 1, 2017. Pursuant to Schedule 13D/A last filed by H.I.G. on April 1, 2016 with the SEC, (i) H.I.G. has sole voting and dispositive power over all the shares and no shared voting or dispositive power with respect to any shares (ii) beneficial ownership of the securities is shared with H.I.G. Capital Partners IV, L.P., Bayside Opportunity Fund, L.P., H.I.G. Advisors IV, LLC, Bayside Opportunity Advisors, LLC, H.I.G.-GPII, Inc., Sami W. Mnaymneh and Anthony A. Tamer. Each such party expressly disclaims beneficial ownership, except to the extent of its pecuniary interest in the shares of Common Stock. The shares of Preferred Stock are convertible into shares of Common Stock at H.I.G’s election and for no additional consideration provided.
 
(4) 
Common Stock beneficial ownership was calculated by dividing the beneficial ownership of each stockholder by the sum of (i) the total of 89,631,162 shares of Common Stock outstanding as of April 7, 2017 and (ii) in the case of each such stockholder, any shares issuable to such stockholder upon the exercise or conversion of any derivative securities that are currently exercisable or become exercisable within 60 days of April 7, 2017 (which, with respect to H.I.G., includes 393,084,089 shares of Common Stock issuable to H.I.G. in connection with conversion of its Preferred Stock).
 
 
 
 
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APPRAISAL RIGHTS
 
The discussion of the provisions set forth below is not a complete summary regarding your appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of the DGCL, which is attached as Annex C to this information statement and incorporated herein by reference, and which sets forth the statutory rights of appraisal and the procedures for effecting these rights. Holders of record of Common Stock intending to exercise appraisal rights should carefully review Annex C. Failure to precisely satisfy any of the statutory procedures and requirements set forth in Annex C may result in a termination or waiver of your appraisal rights under applicable law. Therefore, this summary and Annex C should be reviewed carefully in their entirety by any stockholder who wishes to exercise statutory appraisal rights or who wishes to reserve the right to do so.
 
Under the DGCL, a stockholder of record of shares of Common Stock who makes the demand described below with respect to such shares, who continuously is the record holder of such shares through the effective time of the Merger and who otherwise complies with the statutory requirements of Section 262 of the DGCL ("Section 262") will be entitled to an appraisal by the Delaware Court of Chancery (the "Court") of the fair value of such shares of Common Stock. To exercise and perfect appraisal rights, a record holder of our Common Stock must follow the statutory procedures of Section 262 required to be followed by a stockholder to perfect appraisal rights. All references in this summary of appraisal rights to a "stockholder" or "holders of shares of Common Stock" are to the record holder or holders of shares of Common Stock.
 
Section 262 sets forth the procedures a stockholder must follow to have his, her or its shares appraised by the Court and to receive payment of the "fair value" of such shares of Common Stock. The statutory rights of appraisal granted by Section 262 are subject to strict compliance with the procedures set forth in Section 262.
 
Under the DGCL, holders of our Common Stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares appraised by the Court and to receive payment in cash of the "fair value" of those shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger.
 
Under Section 262, where a merger agreement relating to a proposed merger is adopted by stockholders acting by written consent in lieu of a meeting of stockholders, either a constituent corporation before the effective time of the merger or the surviving or resulting corporation, within 10 days after the effective time of the merger, must notify each stockholder of each constituent corporation entitled to appraisal rights of the merger and that appraisal rights are available to such stockholders, and must include in each such notice a copy of Section 262. This information statement constitutes notice to holders of the Common Stock concerning the availability of appraisal rights under Section 262 and Section 262 is annexed to this information statement as Annex C. Any stockholder who wishes to exercise such appraisal rights or who wishes to preserve such stockholder's right to do so should review the following discussion and Annex C carefully, because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights under the DGCL.
 
A stockholder of record of Common Stock electing to exercise appraisal rights must deliver to the Company a written demand for the appraisal of his, her or its shares of Common Stock within 20 days after the date of mailing of this information statement. Accordingly, this 20-day period will terminate on May 1, 2017. Such demand for appraisal will be sufficient if it reasonably informs the Company of the identity of the stockholder of record and that the stockholder intends to demand appraisal of his, her or its shares of Common Stock. If you wish to exercise your appraisal rights you must be the record holder of such shares of our Common Stock on the date the written demand for appraisal is made and you must continue to hold such shares through the effective time of the Merger. Accordingly, a stockholder who is the record holder of shares of Common Stock on the date the written demand for appraisal is made, but who thereafter transfers such shares prior to the effective time of the Merger, will lose any right to appraisal in respect of such shares.
 
Only a stockholder of record of shares of our Common Stock at the effective time of the Merger is entitled to assert appraisal rights for the shares of Common Stock registered in her, his or its name. The demand for appraisal should be executed by or on behalf of the stockholder of record, fully and correctly, as the stockholder's name appears on the stockholder's stock certificates and must state that such person intends thereby to demand appraisal of his, her or its shares. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand for appraisal must be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand for appraisal must be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal on behalf of a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner.
 
 
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A record holder such as a broker who holds shares as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of our Common Stock held for one or more beneficial owners while not exercising such rights with respect to the shares held for other beneficial owners; in such case, the written demand must set forth the number of shares as to which appraisal is sought. Where the number of shares of our Common Stock is not expressly stated, the demand will be presumed to cover all shares of Common Stock held in the name of the record owner. If you hold your shares in brokerage accounts or other nominee forms and wish to exercise your appraisal rights, you are urged to consult with your broker to determine the appropriate procedures for the making of a demand for appraisal. If a stockholder holds shares of Common Stock through a broker who in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder.
 
All written demands for appraisal of shares must be mailed or delivered to: Advanced Environmental Recycling Technologies, Inc., c/o Corporate Secretary at 914 N. Jefferson Street, Springdale, Arkansas 72764.
 
Within 120 days after the effective date of the Merger, the Company or any stockholder who has satisfied the provisions of Section 262 may commence an appraisal proceeding by filing a petition with the Court, with a copy served on the Company in the case of a petition filed by a stockholder, demanding a determination of the value of the shares held by all dissenting stockholders. If no such petition is filed, appraisal rights will be lost for all stockholders who had previously demanded appraisal for their shares. Stockholders seeking to exercise appraisal rights should not assume that the Company will file a petition with respect to the appraisal of the value of their shares or that the Company will initiate any negotiations with respect to the "fair value" of such shares. Accordingly, it is the responsibility of each stockholder to initiate all necessary action to perfect such stockholder's appraisal rights within the time periods prescribed by Section 262.
 
Within 120 days after the effective date of the Merger, any stockholder who has theretofore complied with the requirements for exercise of appraisal rights, as discussed above, will be entitled, upon written request, to receive from the Company a statement setting forth the aggregate number of shares with respect to which demands for appraisal have been made and the aggregate number of holders of such shares. Such statement must be mailed within 10 days after the written request therefor has been received by the Company or, if later, within 10 days after the expiration of the period for delivery to the Company of appraisal demands. A person who is the beneficial owner of shares of Common Stock held in a voting trust or by a nominee on behalf of such person may, in such person's own name, request such a statement from the Company and may also file a petition for appraisal.
 
If a petition for an appraisal is timely filed and a copy thereof served upon us, we will then be obligated, within 20 days, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of the stockholders who have demanded appraisal of their shares and with whom agreements as to the value of their shares have not been reached. If such petition is filed by the Company, the petition is required to be accompanied by such a duly verified list. After notice to the stockholders as required by the Court, the Court is empowered to conduct a hearing on such petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Court may require the stockholders who have demanded an appraisal for their shares and who hold shares represented by certificates to submit their certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
 
After the Court determines which stockholders are entitled to appraisal of their shares of Common Stock, the appraisal proceeding shall be conducted in accordance with the rules of the Court, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court shall determine the fair value of such shares of Common Stock exclusive of any element of value arising from the accomplishment or expectation of the Merger with interest thereon to be paid in accordance with Section 262 as the Court so determines.
 
 
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Stockholders considering seeking appraisal should bear in mind that the fair value of their shares determined under Section 262 could be more, the same, or less than the per share Merger Consideration they would be entitled to receive if they do not seek appraisal of their shares and that investment banking opinions as to fairness from a financial point of view of the consideration payable in a merger are not necessarily opinions as to fair value under Section 262. Although the Company believes the Merger Consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court. Moreover, the Company does not anticipate offering more than the per share Merger Consideration to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the "fair value" of a share of Common Stock is less than the per share Merger Consideration. In determining "fair value" of shares, the Court will take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated that such factors include "market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation." In Weinberger, the Delaware Supreme Court further stated that "proof of value by any techniques or methods generally considered acceptable in the financial community and otherwise admissible in Court" should be considered in an appraisal proceeding. Section 262 provides that fair value is to be "exclusive of any element of value arising from the accomplishment or expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a "narrow exclusion [that] does not encompass known elements of value," but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that "elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered."
 
When the fair value is so determined, the Court shall direct the payment of the fair value of the shares, with interest thereon to be paid in accordance with Section 262 and as the Court so determines, to the dissenting stockholders entitled thereto, upon the surrender to the Company by such dissenting stockholders of the certificates representing such shares. Unless the Court, in its discretion, sets a different interest rate for good cause shown, interest on an appraisal award will accrue and compound quarterly from the effective time of the Merger through the date the judgment is paid at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the Merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving entity may pay to each AERT stockholder entitled to appraisal an amount in cash (which will be treated as an advance against the payment due to such AERT stockholder), in which case interest shall accrue after such payment only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court, and (ii) interest theretofore accrued, unless paid at that time. The costs of the appraisal proceeding (which do not include attorneys' or expert fees or expenses) may be determined by the Court and taxed against the parties as the Court deems equitable under the circumstances. Upon application of a dissenting stockholder, the Court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination or assessment, each party bears her, his or its own expenses.
 
Any stockholder who has duly demanded an appraisal in compliance with Section 262 will not, after the effective time of the Merger, be entitled to vote the shares subject to such demand for any purpose or be entitled to receive the payment of dividends or other distributions in respect of those shares (other than those payable to stockholders of record as of a date prior to the effective time of the Merger).
 
If any stockholder who demands appraisal of their shares under Section 262 fails to perfect or effectively withdraws or loses the right to appraisal, the shares of such stockholder will be converted into the right to receive the per share Merger Consideration in accordance with the Merger Agreement. A stockholder will fail to perfect or effectively lose a right to appraisal if no petition for appraisal is filed within 120 days after the effective time of the Merger or if the stockholder delivers to the Company a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the Merger, except that (i) any such attempt to withdraw made more than 60 days after the effective time of the Merger requires the written approval of the Company, and (ii) no appraisal proceeding in the Court shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however, that this will not affect the right of any stockholder who has not commenced an appraisal proceeding or joined such proceeding as a named party to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the Merger within 60 days after the effective time of the Merger. The Company has no obligation or intention to file such a petition. Therefore, any stockholder who desires a petition to be filed is advised to file it on a timely basis.
 
If you properly demand appraisal of your shares of Common Stock under Section 262 of the DGCL but you fail to perfect, or effectively withdraw or lose, your right to appraisal as provided in Section 262 of the DGCL, your shares of Common Stock will be converted into the right to receive the per share Merger Consideration to be paid pursuant to the Merger Agreement. You will fail to perfect, or effectively lose or withdraw, your right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective time of the Merger, or if you deliver to us a written withdrawal of your demand for appraisal. Any such attempt to withdraw an appraisal demand more than 60 days after the effective time of the Merger will require our written approval.
 
If you desire to exercise your appraisal rights, you must strictly comply with the procedures set forth in Section 262. Failure to take any required step in connection with the exercise of appraisal rights will result in the termination or waiver of such rights. In view of the complexity of Section 262, stockholders who may wish to pursue appraisal rights should consult their legal advisors.
 
 
 
 
64
 
 
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We are subject to the informational requirements of the Exchange Act. We file annual, quarterly and current reports, proxy statements and other information with the SEC. A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 is included as Annex D and constitutes part of this information statement. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov. You also may obtain free copies of the documents we file with the SEC by going to the “SEC Filings” section of our Investor Relations website at http://www.aert.com. The information provided on our website is not part of this information statement, and therefore is not incorporated by reference herein.
 
Any person, including any beneficial owner, to whom this information statement is delivered may request copies of this information statement or other information concerning us, without charge, by written or telephonic request directed to the Company at 914 N. Jefferson Street, Springdale, Arkansas, 72764, Attention: Investor Relations, (479) 203-5084, or on the Investor Relations section of our website (http://www.aert.com) or from the SEC through the SEC’s website at http://www.sec.gov.
 
Some banks, brokers and other nominee record holders may be participating in the practice of “householding” information statements and annual reports. This means that only one copy of this information statement may have been sent to multiple stockholders in your household, unless we have received contrary instructions from you or other stockholders in your household. We will promptly deliver a separate copy of this information statement to you upon written or oral request to the Company by mail or telephone to 914 N. Jefferson Street, Springdale, Arkansas, 72764, Attention: Investor Relations, (479) 203-5084. If you want to receive separate copies of the Company’s communications to stockholders in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and telephone number.
 
Parent has supplied all information in this information statement pertaining to Parent and Merger Sub, and we have supplied all information in this information statement pertaining to us.
 
 
65
ANNEX A

 
AGREEMENT AND PLAN OF MERGER
 
among:
 
 
OLDCASTLE ARCHITECTURAL, INC.
 
a Delaware corporation;
 
 
 
OLDCASTLE ASCENT MERGER SUB, INC.,
 
a Delaware corporation; and
 
 
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.,
 
a Delaware corporation
 
Dated as of March 16, 2017
 
 
 
 
TABLE OF CONTENTS
 

 
 
 
Page
ARTICLE I. DEFINITIONS
A-1
           1.1 Definitions
A-1
ARTICLE II. THE MERGER
A-13
2.1 The Merger
A-13
2.2 Closing; Effective Time
A-13
2.3 Effect of the Merger
A-13
2.4 Certificate of Incorporation; Bylaws; Directors and Officers
A-13
2.5 Conversion of Shares
A-14
2.6 Closing of the Companys Transfer Books
A-14
2.7 Surrender of Certificates
A-14
2.8 Statutory Rights of Appraisal
A-16
2.9 Further Action
A-16
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
A-17
3.1 Qualifications, Organization, etc
A-17
3.2 Subsidiaries
A-17
3.3 Corporate Authority; Non-contravention
A-18
3.4 Capitalization
A-19
3.5 SEC Filings; Financial Statements
A-20
3.6 No Undisclosed Liabilities
A-22
3.7 Interested Party Transactions
A-22
3.8 Absence of Changes
A-22
3.9 Title to Assets
A-22
3.10 Intellectual Property
A-23
3.11 Contracts
A-24
3.12 Compliance with Law; Permits
A-24
3.13 Governmental Authorizations
A-25
3.14 Tax Matters
A-25
3.15 Employee Matters
A-26
3.16 Real Property; Leasehold; Tangible Assets
A-27
3.17 Insurance
A-28
3.18 Legal Proceedings
A-28
3.19 Environmental Matters
A-28
3.20 Fairness Opinion
A-29
3.21 Brokers
A-29
3.22 Customers and Suppliers
A-29
3.23 No Other Representations
A-30
 
 
A-i
 
 
TABLE OF CONTENTS
(continued)
 
 
Page 
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
A-30
4.1 Qualifications; Organization
A-30
4.2 Corporate Authority; Non-contravention
A-30
4.3 No Legal Proceedings Challenging the Merger
A-31
4.4 Activities of Merger Sub
A-31
4.5 Information Supplied
A-31
4.6 Availability of Funds
A-32
4.7 Brokers
A-32
4.8 Interested Stockholder
A-32
4.9 No Parent Vote or Approval Required
A-32
4.10 No Other Company Representations or Warranties
A-32
ARTICLE V. COVENANTS
A-33
5.1 Access and Investigation
A-33
5.2 Operation of the Companys Business
A-33
5.3 No Solicitation by the Company; Other Offers
A-36
5.4 Stockholder Consent; Preparation of Information Statement
A-38
5.5 Reasonable Best Efforts to Complete
A-40
5.6 Antitrust Filings
A-41
5.7 Public Statements and Disclosure
A-42
5.8 Director and Officer Liability
A-42
5.9 Notification of Certain Events
A-44
5.10 Employee Matters
A-44
5.11 Confidentiality
A-45
5.12 Stockholder Litigation
A-45
5.13 Section 16 Exemption
A-45
5.14 Takeover Laws
A-45
5.15 Post-Closing Reports
A-46
5.16 Terminations and Releases
A-46
5.17 Data Room CD-ROM
A-46
5.18 Filing of Annual Report on Form 10-K
A-46
ARTICLE VI. CONDITIONS TO MERGER
A-46
6.1 Conditions to Obligations of all Parties
A-46
6.2 Conditions to Obligations of Parent and Merger Sub
A-46
6.3 Conditions to Obligations of the Company
A-47
ARTICLE VII. TERMINATION
A-48
7.1 Termination
A-48
7.2 Effect of Termination
A-50
7.3 Expenses; Termination Fee; Reverse Termination Fee
A-50
 
 
A-ii
 
 
TABLE OF CONTENTS
(continued)
 
 
Page 
ARTICLE VIII. MISCELLANEOUS PROVISIONS
A-51
8.1 Notices
A-51
8.2 No Survival
A-52
8.3 Amendment or Supplement
A-52
8.4 Waiver
A-53
8.5 Entire Agreement; No Third Party Beneficiary
A-53
8.6 Governing Law; Jurisdiction
A-53
8.7 Attorneys Fees
A-54
8.8 Specific Enforcement
A-54
8.9 Assignment
A-54
8.10 Severability
A-54
8.11 Construction
A-55
8.12 Descriptive Headings
A-55
8.13 Disclosure Schedule
A-55
8.14 Ownership of Attorney-Client Confidences
A-55
8.15 Counterparts; Signatures
A-55
 
 
A-iii
 
 
SCHEDULES
 
Part 1.1
Specified Individuals
Part 1.2
Permitted Encumbrances
Part 3.3(c)
Material Contract Consents
Part 3.4(a)
Capitalization
Part 3.5(a)
SEC Filings
Part 3.5(c)
Disclosure Controls
Part 3.7
Interested Party Transactions
Part 3.8
Absence of Changes
Part 3.9
Title to Assets
Part 3.10(d)
Intellectual Property
Part 3.11
Contracts
Part 3.13
Governmental Authorizations
Part 3.15(a)
Employee Matters
Part 3.15(d)
280G Payments
Part 3.16
Real Property; Leasehold; Tangible Assets
Part 3.19
Environmental Matters
Part 4.2(b)
Corporate Authority; Non-contravention
Part 5.2(a)
Operation of the Company’s Business
 
 
 
A-iv
 
 
 
AGREEMENT AND PLAN OF MERGER
 
This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of March 16, 2017 (the “Agreement Date”) by and among Advanced Environmental Recycling Technologies, Inc., a Delaware corporation (the “Company”), Oldcastle Architectural, Inc., a Delaware corporation (“Parent”), and Oldcastle Ascent Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”).
 
RECITALS
 
WHEREAS, each of the respective boards of directors of the Company, Parent and Merger Sub have determined that it is advisable to effect a merger of Merger Sub with and into the Company (the “Merger”) with the Company remaining as the surviving corporation in the Merger in accordance with and pursuant to the General Corporation Law of the State of Delaware (the “DGCL”) upon the terms and subject to the conditions set forth in this Agreement;
 
WHEREAS, the board of directors of the Company (the “Company Board”) has (i) approved and adopted this Agreement, the Merger and the other transactions contemplated hereby, (ii) determined that this Agreement and the Merger and the other transactions contemplated hereby are fair to, advisable and in the best interests of the Company and its stockholders, and (iii) subject to Section 5.3, resolved to recommend approval of the Agreement by the Company’s stockholders (such recommendation, the “Company Board Recommendation”);
 
WHEREAS, the board of directors of Merger Sub has approved, adopted and declared advisable this Agreement and the Merger, upon and subject to the terms of this Agreement;
 
WHEREAS, the board of directors of Parent has determined that it is in the best interests of Parent and its stockholders to consummate the Merger; and
 
WHEREAS, Parent, as the sole stockholder of Merger Sub, has adopted and approved this Agreement and the Merger.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the mutual covenants and premises contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement agree as follows:
 
ARTICLE I.
DEFINITIONS
 
1.1           Definitions.
 
As used in this Agreement, the following terms have the following meanings, which meanings shall be applicable equally to the singular or plural of the terms defined:
 
Acceptable Confidentiality Agreement” shall mean an agreement which contains provisions limiting disclosure or use of non-public information with respect to the Company that are not materially less favorable in the aggregate to the Company than the terms of the Confidentiality Agreement.
 
 
 
A-1
 
 
 
Acquisition Proposal” shall mean any offer, proposal, or inquiry (other than an offer, proposal or inquiry by Parent) contemplating or otherwise relating to any Acquisition Transaction.
 
Acquisition Transaction” shall mean any transaction or series of related transactions involving: (i) any merger, consolidation, share exchange, business combination, issuance of securities, direct or indirect acquisition of securities, recapitalization, tender offer, exchange offer or other similar transaction in which (A) a Person or “group” (as defined in the Exchange Act) of Persons directly or indirectly acquires, or if consummated in accordance with its terms would acquire, beneficial or record ownership of securities representing more than twenty percent (20%) of the outstanding shares of any class of voting securities of the Company; or (B) the Company issues securities representing more than twenty percent (20%) of the outstanding shares of any class of voting securities of the Company; or (ii) any sale, lease, exchange, transfer, acquisition or disposition of any assets of the Company that constitute or account for twenty percent (20%) or more of the consolidated net revenues of the Company or consolidated net income of the Company or twenty percent (20%) or more of the fair market value of the assets of the Company.
 
Adverse Recommendation Change” has the meaning set forth in Section 5.3(c).
 
Adverse Recommendation Change Notice” has the meaning set forth in Section 5.3(d)(i).
 
Affiliate” shall mean, with respect to any other Person, any other Person, directly or indirectly, controlling, controlled by, or under common control with such Person. As used in this definition of Affiliate, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
 
Agreement” has the meaning set forth in the Preamble.
 
Agreement Date” has the meaning set forth in the Preamble.
 
Antitrust Law” shall mean the Sherman Antitrust Act of 1890, as amended, the Clayton Act of 1914, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose of effect of monopolization, restraint of trade or significant impediments or lessening of competition or the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the transactions contemplated by this Agreement.
 
Book-Entry Shares” has the meaning set forth in Section 2.5(a)(ii).
 
Business Day” shall mean any day, other than a Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in the State of New York are authorized or required by Law or other governmental action to close.
 
 
 
A-2
 
 
 
Certificate” has the meaning set forth in Section 2.5(a)(ii).
 
Certificate of Merger” has the meaning set forth in Section 2.2.
 
Closing” has the meaning set forth in Section 2.2.
 
Closing Date” has the meaning set forth in Section 2.2.
 
Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.
 
Company” has the meaning set forth in the Preamble.
 
Company Acquisition Agreement” has the meaning set forth in Section 5.3(c).
 
Company Approvals” has the meaning set forth in Section 3.3(b).
 
Company Balance Sheet” has the meaning set forth in Section 3.6.
 
Company Balance Sheet Date” has the meaning set forth in Section 3.6.
 
Company Benefit Plan” has the meaning set forth in Section 3.15(a).
 
Company Board” has the meaning set forth in the Recitals.
 
Company Board Recommendation” has the meaning set forth in the Recitals.
 
Company Charter Documents” has the meaning set forth in Section 3.3(c).
 
Company Common Stock” shall mean the common stock, $0.01 par value, of the Company.
 
Company Contract” shall mean any Contract to which the Company is currently a party or bound.
 
Company Insurance Policy” has the meaning set forth in Section 3.17.
 
Company Intellectual Property Rights” has the meaning set forth in Section 3.10(a).
 
 
 
A-3
 
 
 
Company Material Adverse Effect” shall mean any Effect that has or would reasonably be expected to, individually or in the aggregate with any other Effects, have a material adverse effect on (1) the assets, liabilities, business, financial condition, or results of operations of the Company, taken as a whole; or (2) Parent’s ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the shares of the Surviving Corporation; provided, however, that with respect to clause (1) in no event shall any of the following, alone or in combination, be deemed to constitute, or be taken into account when determining whether there has been or is reasonably expected to be, a Company Material Adverse Effect, any Effect with respect to, or resulting from: (A) general changes in the U.S. or global economy, or change in general economic conditions, including changes in the credit, debt, financial or capital markets, in each case, in the United States of America or anywhere else in the world; (B) operating, business, regulatory or other conditions generally affect the industry in which the Company conduct business (except to the extent that such Effect has a disproportionate adverse effect on the Company relative to other companies of a similar size operating in the industry in which the Company conducts business); (C) changes in applicable Law or in GAAP or other applicable accounting rules or the interpretation or enforcement thereof; (D) changes in the market price or trading volume of the Company Common Stock; (E) failure(s) by the Company to meet any operating projections or forecasts, or published revenue or earnings predictions or estimates (but not excluding any of the reasons for or factors contributing to the failure); (F) any act or threat of terrorism or war, any armed hostilities or terrorist activities, any threat or escalation of armed hostilities or terrorist activities or any governmental or other response or reaction to any of the foregoing (other than any act that is targeted at the Company or causes physical damage to the assets, properties, facilities or personnel of the Company, which such damage causes a Company Material Adverse Effect); (G) any Legal Proceeding against the Company or any of its directors by the stockholders of the Company challenging or seeking to restrain or prohibit the consummation of the Merger or any other transaction contemplated by this Agreement; (H) events attributable to any action by the Company if that action is contemplated or required by this Agreement and Parent or Merger Sub refuses to waive such requirement, or the failure to take any action by the Company if that action is prohibited by this Agreement and Parent or Merger Sub refuses to waive such prohibition; (I) events attributable to the announcement or performance of this Agreement or the consummation of the transactions contemplated hereby or the pendency of the Merger (including the loss or departure of officers or other employees of the Company), or the termination, reduction (or potential reduction) or any other negative effect (or potential negative effect) on the Company’s relationships or agreements with any of its licensors, licensees, customers, vendors, strategic partners, suppliers or other business partners; or (J) any change that the Company can demonstrate resulted from Parent unreasonably withholding its consent under Section 5.2(a) to any action requiring Parent’s consent under Section 5.2(a) and requested to be taken by the Company to Parent in writing.
 
Company Permits” has the meaning set forth in Section 3.12(a).
 
Company Preferred Stock” means the preferred stock, $0.01 par value, of the Company.
 
Company SEC Documents” has the meaning set forth in Section 3.5(a).
 
Company Share” means each share of Company Common Stock and Company Preferred Stock outstanding immediately prior to the Effective Time.
 
Company Stockholder Approval” has the meaning set forth in Section 3.3(a).
 
Company Stockholders Meeting” has the meaning set forth in Section 5.4(d).
 
Company Stockholders” shall mean the holders of Company Common Stock or Company Preferred Stock.
 
Confidentiality Agreement” has the meaning set forth in Section 5.11.
 
 
 
A-4
 
 
 
Consent” shall mean any approval, consent, ratification, permission, waiver, filing, notice or authorization (including any Governmental Authorization).
 
Contract” shall mean any written agreement, contract, subcontract, lease, understanding, instrument, note, option, warranty, insurance policy, benefit plan, or other legally binding commitment, including any amendment, modification, supplement, exhibit, annex, or schedule thereto.
 
Covered Employee” has the meaning set forth in Section 5.10(a).
 
Delaware SOS” shall mean the Secretary of State of the State of Delaware.
 
DGCL” has the meaning set forth in the Recitals.
 
Disclosure Schedule” has the meaning set forth in Article III.
 
Dissenting Company Shares” has the meaning set forth in Section 2.8(a).
 
DOJ” shall mean the United States Department of Justice or any successor thereto.
 
EDGAR” has the meaning set forth in Section 3.5(a).
 
Effect” shall mean any effect, change, event, occurrence, circumstance or development.
 
Effective Time” has the meaning set forth in Section 2.2.
 
Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, option, right of first refusal, preemptive right, or community property interest.
 
Entity” shall mean any corporation (including any nonprofit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm, or other enterprise, association, organization or entity.
 
Environmental Laws” shall mean any Laws (and the regulations promulgated thereunder) relating to the protection of the environment (including ambient air, surface water, groundwater or land) or exposure of any individual to Hazardous Substances or otherwise relating to the production, use, emission, storage, treatment, transportation, recycling, disposal, discharge, release or other handling of any Hazardous Substances or the investigation, reporting, clean-up or other remediation or analysis thereof.
 
ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
 
ERISA Affiliate” means any person or entity other than the Company under common control with the Company within the meaning of Section 414(b)(c), (m) or (o) of the Code and the regulations issued thereunder.
 
Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder.
 
 
 
A-5
 
 
 
Exchange Agent” has the meaning set forth in Section 2.7(a).
 
FTC” shall mean the United Stated Federal Trade Commission or any successor thereto.
 
GAAP” has the meaning set forth in Section 3.5(b).
 
Governmental Authorization” shall mean any: (i) permit, license, certificate, franchise, permission, variance, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Law; or (ii) right under any Contract with or for the benefit of any Governmental Body.
 
Governmental Body” shall mean any: (i) country, nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government (including the European Union); or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body, or Entity, and any court or other tribunal, including any arbitral tribunal).
 
Hazardous Substance” shall mean any substance, material or waste (whether solid, liquid or gas) that is characterized, defined, listed, or regulated under any Environmental Law as “hazardous,” “pollutant,” “contaminant,” “toxic,” “radioactive,” or words of similar meaning or effect, including petroleum and petroleum products, polychlorinated biphenyls, asbestos and asbestos-containing materials.
 
HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations promulgated thereunder.
 
Indebtedness” shall mean any obligations of Company in respect of: (i) indebtedness for borrowed money or indebtedness issued in substitution or exchange for borrowed money or for the deferred or contingent purchase price of property or services (but excluding any trade payables and accrued expenses arising in the ordinary course of business), (ii) indebtedness evidenced by any note, bond, debenture, interest swap agreements, or other debt security, (iii) leases required to be treated as capitalized leases under GAAP, consistently applied, (iv) indebtedness of the types described in the foregoing clauses (i) through (iii) of any other Person guaranteed by Company or secured by an Encumbrance on any asset or property of Company, (v) obligations with respect to interest-rate hedging, swaps or similar financing arrangements, (vi) prepayment penalties or breakage costs in respect of any of the foregoing, and (vii) letters of credit. Indebtedness shall not include (1) undrawn letters of credit, trade payables or any undrawn fidelity, performance, surety or licensing bonds or similar instruments, or (2) any indebtedness incurred by, on behalf of, or at the direction of the Parent or its Affiliates in connection with the transactions contemplated by this Agreement.
 
Indemnified Parties” has the meaning set forth in Section 5.8(a).
 
Information Statement” has the meaning set forth in Section 3.3(b).
 
 
 
A-6
 
 
 
Intellectual Property” shall mean all U.S. and foreign (i) patents (including design patents and industrial designs); (ii) trademarks, service marks, trade names, logos, trade dress, domain names and designs and all goodwill associated therewith; (iii) copyrights and the underlying works of authorship (including software); (iv) trade secrets (including inventions, processes, know-how, formulae, methods, software, business plans, schematics, drawings, and other technology); and (v) all registrations and applications for any of the foregoing (including all divisionals, contaminations, contaminations in part, revisions, and extensions of any thereof.
 
Interim Period” has the meaning set forth in Section 5.1.
 
Intervening Event” shall mean any material event with respect to the Company occurring or arising prior to the Window Shop Date (other than a Superior Proposal) that was neither known to the Company Board nor reasonably foreseeable as of or prior to the Agreement Date, which becomes known to the Company Board; provided, however, that in no event shall the following events, developments or changes in circumstances constitute an Intervening Event: (1) the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto or consequence thereof, (2) any events, developments or changes in circumstances relating to the Parent or any of Parent’s Affiliates or any competitor of the Company, (3) changes in Law applicable to the Company, or (4) changes in the market price or trading volume of shares of Company Common Stock or the fact that the Company meets or exceeds internal or published projections, forecasts or revenue or earnings predictions for any period; provided, however, that the underlying causes of such change or fact shall not be excluded by this clause (4) prior to the Window Shop Date.
 
International Trade Laws” shall mean all Laws concerning the importation of merchandise, the export or re-export of products, services and technology, the terms and conduct of international transactions, making or receiving international payments and the authorization to hold an ownership interest in a business located in a country other than the United States, including but not limited to, the Tariff Act of 1930 as amended and other laws administered by the United States Customs Service, regulations issued or enforced by the United States Customs Service, the Export Administration Act of 1979 as amended, the Export Administration Regulations, the International Emergency Economic Powers Act, the Arms Export Control Act, the International Traffic in Arms Regulations, any other export controls administered by an agency of the United States government, Executive Orders of the President regarding embargoes and restrictions on trade with designated countries and Persons, the embargoes and restrictions administered by the United States Office of Foreign Assets Control, the Foreign Corrupt Practices Act, the anti-boycott regulations administered by the United States Department of Commerce, the anti-boycott regulations administered by the United States Department of the Treasury, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement, antidumping and countervailing duty laws and regulations, laws and regulations by other countries concerning the ability of U.S. Persons to own businesses and conduct business in those countries, laws and regulations by other countries implementing the OECD Convention on Combating Bribery of Foreign Officials, restrictions by other countries on holding foreign currency and repatriating funds, and other applicable Laws and regulations adopted by the governments or agencies of other countries relating to the same subject matter as the United States statutes and regulations described above, including the U.K. Bribery Act.
 
 
 
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IRS” shall mean the Internal Revenue Service.
 
Knowledge” shall mean, with respect to the Company, the actual knowledge (after reasonable inquiry of those employees or Representatives of the Company who would reasonably be expected to have actual knowledge of the matter in question) of those individuals set forth in Part 1.1 of the Disclosure Schedule.
 
Law” shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, Restraint ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.
 
Leased Real Property” has the meaning set forth in Section 3.16(c).
 
Leased Real Property Improvements” has the meaning set forth in Section 3.16(c).
 
Legal Proceeding” shall mean any action, suit, litigation, arbitration, mediation, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.
 
Material Contract” shall mean any of the following to which the Company is a party or by which it or its assets or properties is bound:
 
(i)           any Contract containing covenants limiting in any material respect the freedom of the Company to compete in any line of business or with any other Person or covenant not to solicit or hire any Person or that grants “most favored nation” status to any Person (other than the Company);
 
(ii)           any material joint venture, strategic alliance, licensing arrangement, partnership, manufacturer, development or supply agreement or other Contract, in each case, which involves a sharing of revenue, profits, losses, costs or liabilities by the Company with any other Person;
 
(iii)          any royalty, dividend or similar arrangement to be paid, or received, by the Company that is based on the revenue or profits of the Company or any material Contract or agreement involving fixed price or fixed volume arrangements;
 
(iv)           any Contract for the purchase or sale of products, materials, supplies, goods, services, advertisements, equipment or other assets or with any agent, dealer or reseller and providing for annual payments by or to the Company, respectively, of $125,000 or more, other than Contracts that can be terminated by the Company on less than 60 calendar days’ notice without payment by the Company of any penalty;
 
(v)           any Contract or agreement under which the Company has incurred any Indebtedness or Company’s obligations or performance are secured by any letter of credit or fidelity, performance, surety or licensing bond or similar instrument of $125,000 or more;
 
 
 
 
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(vi)           any employment, severance agreement, change in control or similar arrangement with any employee of the Company other than (A) at-will employment arrangements and (B) Contracts requiring annual payment of less than $150,000 and a remaining term of less than two (2) years;
 
(vii)           any Company Benefit Plan, any of the benefits of which will be increased, or the vesting or payment of benefits of which will be accelerated, by the transactions contemplated hereby (whether or not contingent on any other event or occurrence) or the value of any of the benefits of which will be calculated on the basis of the transactions contemplated hereby;
 
(viii)          any Contract (other than organizational documents) providing for indemnification by the Company of any officer, director or employee of the Company;
 
(ix)            any Contract that prohibits the payment of dividends or distributions in respect of the capital stock of the Company or that prohibits the pledging of the capital stock of the Company;
 
(x)            any Contract that contains a put, call or similar right pursuant to which the Company could be required to purchase or sell, as applicable, any equity interests of any Person or assets;
 
(xi)           any Government Contract;
 
(xii)          any collective bargaining agreement or contract with any labor organization, union or association;
 
(xiii)         any Contract that requires the Company to deal exclusively with any Person or group of Persons and any “take or pay” Contract or Contract that contains any minimum purchase or payment commitment;
 
(xiv)         any Contract that is an agency, dealer, reseller or other similar Contract, other than Contracts that can be terminated by the Company on less than 60 calendar days’ notice without payment by the Company of any penalty;
 
(xv)          any Contract pursuant to which the Company licenses any Intellectual Property of a third party that is material to the business of the Company, or grants to any third party a license to any material Intellectual Property of Company, excluding in all cases (1) non-disclosure and confidentiality agreements entered into in the ordinary course of business, (2) Contracts with employees, contractors, consultants, customers, vendors, and suppliers of the Company entered into in the ordinary course of business, and (3) licenses for generally commercially available, off-the-shelf software;
 
(xvi)         any Contract currently in effect that is a “material contract” as defined in Item 601(b)(10) of Regulation S-K of the SEC;
 
(xvii)        any Contract pursuant to which the Company has any obligation in respect of any Transaction Expenses;
 
 
 
 
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(xviii)      any Contract that would prohibit or materially delay the consummation of the Merger or otherwise impair the ability of the Company to perform its obligations hereunder; or
 
(xix)        all Contracts pursuant to which the Company (1) leases, licenses, subleases or sublicenses, from any other Person, or otherwise occupies any real property, or (2) has the right or obligation to acquire or dispose of any interest in real property.
 
Merger” has the meaning set forth in the Recitals.
 
Merger Consideration” shall mean the aggregate amount of consideration to be paid to the holders of equity pursuant to this Agreement, including pursuant to Section 2.5(a)(ii).