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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
GRAFTECH INTERNATIONAL LTD.
(Name of Subject Company (Issuer))
BCP IV GRAFTECH HOLDINGS LP
ATHENA ACQUISITION SUBSIDIARY INC.
its wholly-owned direct subsidiary
(Names of Filing Persons (Offerors))
BROOKFIELD CAPITAL PARTNERS LTD.
BROOKFIELD CAPITAL PARTNERS IV L.P.
(Names of Filing Persons (other person(s)))
Common Stock, Par Value $0.01 Per Share
(Title of Class of Securities)
384313102
(Cusip Number of Class of Securities)
David Nowak
Managing Partner
Brookfield Place, 181 Bay Street, Suite 300
Toronto, Ontario MJ5 2T3
(416) 363-9491
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons)
With copies to:
Michael J. Aiello, Esq.
Jackie Cohen, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000
CALCULATION OF FILING FEE
Transaction Valuation*
Amount of Filing Fee**
$704,729,817.53
$81,889.60
Estimated solely for purposes of calculating the filing fee. This calculation is based on the offer to purchase all of the issued and
outstanding shares of common stock, par value $0.01 per share, of GrafTech International Ltd. (the “Company”), at a purchase
price of $5.05 per share in cash, without interest thereon and subject to any required tax withholding. The underlying value of the
transaction was calculated based on the sum of: (i) 137,240,008 issued and outstanding shares of common stock of the Company,
multiplied by $5.05 per share; (ii) 524,283 shares of common stock of the Company underlying outstanding options with an
exercise price that is less than $5.05 per share, multiplied by $0.81 per share (which is equal to the difference between $5.05 and
$4.24, the exercise price of such options); and (iii) 2,226,358 shares of common stock of the Company underlying outstanding
restricted stock units, multiplied by $5.05 per share. The foregoing numbers of shares of common stock, options and restricted
stock units have been provided by the issuer to the offeror and are as of the close of business on May 22, 2015, the most recent
practicable date. The filing fee was determined by multiplying 0.000116200 by the proposed maximum aggregate value of the
transaction of $704,729,817.53.
*
**
The filing fee was calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, and Fee
Rate Advisory No. 1 for Fiscal Year 2015, issued August 29, 2014, by multiplying the transaction value by 0.000116200.

Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $81,889.60
Filing Party: BCP IV GrafTech Holdings LP and
Athena Acquisition Subsidiary Inc.
Form or Registration No.: Schedule TO
Date Filed: May 26, 2014

Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the statement relates:




third-party tender offer subject to Rule 14d-1
issuer tender offer subject to Rule 13e-4
going-private transaction subject to Rule 13e-3
amendment to Schedule 13D under Rule 13d-2
Check the following box if the filing is a final amendment reporting the results of the tender offer.
If applicable, check the appropriate box(es) below to designate the appropriate rule provision(s) relied upon:


Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
This Amendment No. 1 (this “Amendment”) amends and supplements the Tender Offer Statement on Schedule TO filed by
BCP IV GrafTech Holdings LP, a Delaware limited partnership (“Purchaser”), and Athena Acquisition Subsidiary Inc., a
Delaware corporation (“Acquisition Sub”) with the Securities and Exchange Commission on May 26, 2015 (together with any
subsequent amendments and supplements thereto, the “Schedule TO”). The Schedule TO relates to the offer by Purchaser to
purchase all of the issued and outstanding shares of common stock, par value $0.01 per share (the “Shares”), of GrafTech
International Ltd., a Delaware corporation (the “Company”), at a purchase price of $5.05 per Share in cash, without interest
thereon and subject to any required tax withholding, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated May 26, 2015 (the “Offer to Purchase”), a copy of which is attached as Exhibit (a)(1)(A) to the Schedule TO,
and in the related Letter of Transmittal (the “Letter of Transmittal”), a copy of which is attached as Exhibit (a)(1)(B) to the
Schedule TO, which, together with any amendments or supplements thereto, collectively constitute the “Offer”.
All information contained in the Offer to Purchase and the accompanying Letter of Transmittal, including all schedules thereto,
is hereby incorporated herein by reference in response to Items 1 through 9 and Item 11 in the Schedule TO.
This Amendment is being filed to amend and supplement Items 1, 3, 4, 5, 6, 7, 9, and 11 as reflected below and to amend and
supplement Item 12 with additional exhibits.
In addition, the informational heading titled Special Factors — Section 9 – Certain Relationships between Purchaser or
Acquisition Sub and the Company is hereby amended and restated to “Special Factors — Section 9 – Certain Relationships between
the Purchaser Group and the Company” and the informational heading titled The Tender Offer — Section 8 – Certain Information
Concerning Purchaser and Acquisition Sub is hereby amended and restated to “The Tender Offer — Section 8 – Certain Information
Concerning the Purchaser Group”.
Item 1. Summary Term Sheet.
1. The subsection titled “Who is offering to buy my securities?” is hereby amended and restated as follows:
“BCP IV GrafTech Holdings LP (“Purchaser”), a Delaware limited partnership and Athena Acquisition Subsidiary Inc.
(“Acquisition Sub”), a Delaware corporation, each of which was formed for the purpose of the Offer, is offering to buy your Shares.
Brookfield Capital Partners IV L.P. (“Capital Partners”), a limited partnership formed under the laws of the Cayman Islands, is a
limited partner of Purchaser and has delivered a limited guarantee in favor of the Company, pursuant to which Capital Partners has
irrevocably guaranteed the payment, performance and discharge of the obligations of Purchaser and Acquisition Sub under the Merger
Agreement. Purchaser, Acquisition Sub and Capital Partners are ultimately controlled by Brookfield Capital Partners Ltd.
(“Brookfield”), which is an indirect wholly owned subsidiary of Brookfield Asset Management Inc. (“BAM”). Each of Purchaser,
Acquisition Sub, Capital Partners and Brookfield is referred to herein collectively as the “Purchaser Group”.
Unless the context indicates otherwise, in this Offer to Purchase, we use the terms “us,” “we” and “our” to refer to Purchaser
and, where appropriate, Purchaser Group. We use the term “Purchaser” to refer to BCP IV GrafTech Holdings LP, the term
“Acquisition Sub” to refer to Athena Acquisition Subsidiary Inc., the term “the Company” to refer to GrafTech International Ltd. and
the term “Purchaser Group” to refer to Purchaser, Acquisition Sub, Brookfield Capital Partners IV L.P. and Brookfield Capital
Partners Ltd.
See The Tender Offer — Section 8 – Certain Information Concerning the Purchaser Group.”
2. The subsection titled “Is there a minimum number of Shares that must be tendered in order for you to purchase any
securities?” is hereby amended and supplemented by adding the following:
“In order to satisfy the Minimum Condition, Acquisition Sub must receive valid tenders (that have not been properly withdrawn)
in respect of at least 41,172,003 Shares (if the transactions contemplated by the Investment Agreement are not consummated prior to
the expiration of the Offer) or 20,172,003 Shares (if the transactions contemplated by the Investment Agreement are consummated
prior to the expiration of the Offer), which is the minimum number of Shares equivalent to at least thirty percent (30%) of the Shares
plus all Underlying Shares, in each case assuming no change in the Shares outstanding since May 22, 2015. As previously publicly
disclosed by Purchaser, prior to the commencement of the Offer, it had agreed to acquire shares of Preferred Stock, through the
Investment Agreement, convertible as of the date of issuance into 30,000,000 Shares, a portion of which is subject to stockholder
approval.”
3. The subsection titled “Will a meeting of the Company’s stockholders be required to approve the Merger?” is hereby amended
and supplemented by adding the following:
“In order to satisfy the Merger Condition, Acquisition Sub must receive valid tenders (that have not been properly
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withdrawn) in respect of at least 109,792,007 Shares (if the transactions contemplated by the Investment Agreement are not
consummated prior to the expiration of the Offer) or 103,792,007 Shares (if the transactions contemplated by the Investment
Agreement are consummated prior to the expiration of the Offer), which is the minimum number of Shares equivalent to at least
eighty percent (80%) of the Shares plus all Underlying Shares, in each case assuming no change in the Shares outstanding since
May 22, 2015. As previously publicly disclosed by Purchaser, prior to the commencement of the Offer, it had agreed to acquire shares
of Preferred Stock through the Investment Agreement, convertible as of the date of issuance into 30,000,000 Shares, a portion of
which is subject to stockholder approval.”
Item 3. Identity and Background of Filing Person.
(a) — (c) This Schedule TO is filed by the Purchaser Group. The information set forth in The Tender Offer — Section 8 –
Certain Information Concerning the Purchaser Group in the Offer to Purchase and Schedule I to the Offer to Purchase is incorporated
herein by reference.
1. The Tender Offer — Section 8 – Certain Information Concerning Purchaser and Acquisition Sub is hereby amended and
restated in its entirety as follows:
“8. Certain Information Concerning the Purchaser Group.
Acquisition Sub is a Delaware corporation and a wholly-owned subsidiary of Purchaser and was formed solely for the purpose
of facilitating Purchaser’s investment in, and potential acquisition of, the Company. Purchaser, a Delaware limited partnership, was
formed solely for the purpose of facilitating Purchaser’s investment in, and potential acquisition of, the Company. Neither Purchaser
nor Acquisition Sub has carried on any activities to date, except for activities incidental to its formation and activities undertaken in
connection with the transactions contemplated by the Investment Agreement and the Merger Agreement.
The general partner of Purchaser is BPE IV (Non-Cdn) GP LP, a limited partnership formed under the laws of the Province of
Manitoba (“BPE IV”). The general partner of BPE IV is Brookfield.
Brookfield Capital Partners IV L.P. (“Capital Partners”), a limited partnership formed under the laws of the Cayman Islands, is a
limited partner of Purchaser. The general partner of Capital Partners is Brookfield Capital Partners IV GP, Ltd. (“Capital Partners
GP”), a corporation formed under the laws of the Province of Ontario. Brookfield is the sole stockholder of Capital Partners GP. Each
of Purchaser, Acquisition Sub, Capital Partners and Brookfield is referred to herein collectively as the “Purchaser Group”.
The business office address of each member of the Purchaser Group and each such member’s telephone number is set forth in
the attached Schedule I. The name, citizenship, business address, present principal occupation or employment and five-year
employment history of each of the members, directors or executive officers of each member of the Purchaser Group are set forth in
Schedule I to this Offer to Purchase.
None of the members of the Purchaser Group or, to the best knowledge of Purchaser and Acquisition Sub, the persons listed in
Schedule I has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). None of the members of the Purchaser Group nor, to the best knowledge of Purchaser and Acquisition Sub, the
persons listed in Schedule I has, during the past five years, been a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state
securities laws.
As of the date hereof, and other than as contemplated by the Investment Agreement, neither of the general partners of Purchaser
or Capital Partners, nor any of the directors and officers of Purchaser, Acquisition Sub, Brookfield or Capital Partners beneficially
own any securities in the Company.”
2. Schedule I to the Offer to Purchase is hereby amended and restated in its entirety as follows:
SCHEDULE I:
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER GROUP
The name, current principal occupation or employment and material occupations, positions, offices or employment for the past
five years of each director, executive officer, managers and general partners of the Purchaser Group and their affiliates are set forth
below.
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1.
Acquisition Sub.
Acquisition Sub is a Delaware corporation and a wholly-owned subsidiary of Purchaser and was formed solely for the purpose of
facilitating Purchaser’s investment in, and potential acquisition of, the Company The principal office address of Acquisition Sub is
250 Vesey Street, 15th Floor, New York, New York 10281 . The telephone number of Acquisition Sub is (212) 417-7000.
The name, citizenship, business address, present principal occupation or employment material occupations, positions, offices or
employment for the past five years of each of the directors and executive officers of Acquisition Sub are set forth below. The business
address of Mssrs. Blattman and Neiman is 250 Vesey Street, 15th Floor, New York, New York 10281. The telephone number at such
office is (212) 417-7000. The business address for Ms. Dehl and Mssrs. Nowak and Gregory is Brookfield Place, 181 Bay Street, Suite
300, Toronto, Ontario M5J 2T3 and the telephone number at such address is (416) 363-9491.
Name and Position
Barry Blattman (Director and Senior Managing Partner)
Jaspreet Dehl (Director and Senior Vice President and
Secretary)
David Neiman (Director and Senior Vice President)
Citizenship
United States
Canada
Present Principal Occupation or Employment;
Material Positions Held During the Last Five Years
Mr. Blattman is the Senior Managing Partner of
Brookfield Asset Management Inc. (“BAM”)
responsible for BAM’s global opportunistic real estate
investment programs. Mr. Blattman joined BAM in
2002.
Ms. Dehl is a Senior Vice President at BAM in the
private equity group. Ms. Dehl has held a number of
positions at BAM, including Senior Vice President,
Finance and Operations for the private equity group and
Senior Vice President, Finance and Operations in the
private funds group. Ms. Dehl joined BAM in 2011.
Prior to joining BAM, Ms. Dehl was part of the
Financial Advisory Practice at Deloitte and specialized
in transaction execution services to private equity
clients and corporate restructuring services.
United States
Mr. Neiman is a Senior Vice President at BAM in the
private equity group. Mr. Neiman joined BAM in 2006
and focuses on business development, due diligence,
deal execution and general corporate finance matters.
David Nowak (Managing Partner)
Canada
Mr. Nowak is a Managing Partner at BAM in the
private equity group. Prior to joining BAM in 2011, Mr.
Nowak was a Managing Director at Westerkirk.
David Gregory (Vice President)
Canada
Mr. Gregory is a Vice President at BAM in the private
equity group. Prior to joining BAM in 2010, Mr.
Gregory was an investment banking analyst at Genuity
Capital Markets.
2.
Purchaser
Purchaser, a Delaware limited partnership, was formed solely for the purpose of facilitating Purchaser’s investment in, and potential
acquisition of, the Company. The general partner of Purchaser is BPE IV (Non-Cdn) GP LP, a limited partnership formed under the
laws of the Province of Manitoba (“BPE IV”). The general partner of BPE IV is Brookfield Capital Partners
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Ltd. (“Brookfield”). The name, citizenship, business address, present principal occupation or employment material occupations,
positions, offices or employment for the past five years of each of the directors and executive officers of Brookfield is listed below.
Purchaser is the direct parent of Acquisition Sub and has not engaged in any business except as contemplated by the Merger
Agreement and Investment Agreement.
The principal office address of Purchaser and BPE IV is 181 Bay Street, Suite 300, Toronto, Ontario M5J 2T3. The telephone number
of Purchaser and BPE IV is (416) 363-9491.
3.
Capital Partners
Brookfield Capital Partners IV L.P. (“Capital Partners”), a limited partnership formed under the laws of the Cayman Islands, is a
limited partner of Purchaser. The general partner of Capital Partners is Brookfield Capital Partners IV GP, Ltd. (“Capital Partners
GP”), a corporation formed under the laws of the Province of Ontario. The sole stockholder of Capital Partners GP is Brookfield.
The principal office address of Capital Partners and Capital Partners GP is 181 Bay Street, Suite 300, Toronto, Ontario M5J 2T3. The
telephone number of Capital Partners and Capital Partners GP is (416) 363-9491.
The name, citizenship, business address, present principal occupation or employment material occupations, positions, offices or
employment for the past five years of each of the directors and executive officers of Capital Partners GP are set forth below. Except as
otherwise noted below, the business address of each such director and executive officer is Brookfield Place, 181 Bay Street, Suite 300,
Toronto, Ontario M5J 2T3. The telephone number at such office is (416) 363-9491.
Name and Position
Citizenship
Present Principal Occupation or Employment;
Material Positions Held During the Last Five Years
Jaspreet Dehl (Director and Senior Vice President and
Secretary)
Canada
See above.
Joseph Freedman (Director and Senior Managing
Partner)
Canada
Mr. Freedman is a Senior Managing Partner at BAM in
the private equity group. Since joining BAM in 2002,
Mr. Freedman has held a number of positions including
general counsel and partner responsible for M&A
transaction execution and fund formation and
operations.
David Nowak (Director and Managing Partner)
Canada
See above.
Peter Gordon (Managing Partner)
Canada
Mr. Gordon is a Managing Partner at BAM in the
private equity group. Mr. Gordon joined Brascan (the
predecessor to Brookfield) in 1998.
David Gregory (Vice President)
Canada
See above.
Jon Haick (Senior Managing Partner)
Canada
Mr. Haick is a Senior Managing Partner at BAM and
the Chief Executive Officer of Brookfield Europe. Mr.
Haick joined BAM’s private equity group in 2005 and
has worked in a number of investment and operating
roles within the group since that time. The business
address for Mr. Haick is 99 Bishopsgate London, UK
EC2M 3XD, and the telephone number at such address
is +44 20 7408 8301.
Aaron Kline (Vice President)
Canada
Mr. Kline is Senior Vice President of taxation at BAM.
Mr. Kline joined BAM in 2009 and was previously part
of the M&A tax group at PricewaterhouseCoopers LLP.
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Cyrus Madon (Senior Managing Partner)
Canada
Mr. Madon is the Senior Managing Partner of BAM
responsible for Brookfield’s private equity and lending
activities. Mr. Madon joined BAM in 1998 when he was
appointed Chief Financial Officer of BAM’s real estate
brokerage business.
Pierre McNeil (Senior Vice President)
Canada
Mr. McNeil is Senior Vice President and Chief Operating
Officer of BAM’s private equity group. Mr. McNeil joined
BAM in 1991. Previously, he was Senior Vice President,
Human Resources and Wood Products of Fraser Papers, a
BAM affiliate.
Jim Reid (Managing Partner)
Canada
Mr. Reid is Managing Partner of BAM, based in Calgary,
where he is responsible for BAM’s energy lending
business and for originating, evaluating and structuring
investments and financings in the energy sector and
overseeing operations in Brookfield Infrastructure’s
energy segment. Mr. Reid joined BAM in 2003. The
business address for Mr. Reid is 335 8th Avenue SW,
Calgary, AB T2P 1C9 and the telephone number at such
address is (403) 770-7215.
4.
Brookfield
Brookfield, a corporation formed under the laws of the Province of Ontario, is the sole stockholder of Capital Partners GP and general
partner of BPE IV.
The principal office address of Brookfield is 181 Bay Street, Suite 300, Toronto, Ontario M5J 2T3. The telephone number of
Brookfield is (416) 363-9491.
The name, citizenship, business address, present principal occupation or employment material occupations, positions, offices or
employment for the past five years of each of the directors and executive officers of Brookfield are set forth below. Except as
otherwise noted below, the business address of each such director and executive officer is Brookfield Place, 181 Bay Street, Suite 300,
Toronto, Ontario M5J 2T3. The telephone number at such office is (416) 363-9491.
Name and Position
Present Principal Occupation or Employment;
Citizenship Material Positions Held During the Last Five Years
Jaspreet Dehl (Director and Senior Vice President and
Secretary)
Canada
See above.
Joseph Freedman (Director and Senior Managing Partner)
Canada
See above.
David Nowak (Director and Managing Partner)
Canada
See above.
Peter Gordon (Managing Partner)
Canada
See above.
David Gregory (Vice President)
Canada
See above.
Jon Haick (Senior Managing Partner)
Canada
See above.
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Aaron Kline (Vice President)
Canada See above.
Cyrus Madon (Senior Managing Partner)
Canada See above.
Pierre McNeil (Senior Vice President)
Canada See above.
Jim Reid (Managing Partner)
Canada See above.
Dean Schultz (Vice President)
Canada Mr. Schultz is a Vice President of BAM based in Calgary
and has been with BAM since 2012. Prior to joining BAM,
he was the CFO & VP of Finance at Waldron Energy
Corp. The business address for Mr. Schultz is 335 8th
Avenue SW, Calgary, AB T2P 1C9 and the telephone
number at such address is (403) 770-7215.
Item 4. Terms of the Transaction.
1. The section titled “Purpose of the Offer” under Special Factors — Section 2 – Purpose of the Offer; Plans for the Company is
hereby amended and restated as follows:
“The Offer is being made in connection with certain other transactions between Purchaser and the Company, as described in
Special Factors — Section 6 – The Merger Agreement; Other Agreements. The purpose of the Offer is to enable Purchaser to acquire
control of, and possibly the entire equity interest in, the Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected and reduce the time required for Purchaser to obtain control of the
Company.
The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer if a sufficient
number of Shares are tendered to satisfy the Merger Condition. If the Offer is consummated and the Merger Condition is satisfied,
Purchaser intends to complete the Merger as promptly as practicable thereafter. If the Merger Condition is not satisfied, but the Offer
is consummated, Purchaser will have increased its investment in the Company to become the Company’s largest stockholder.
The purpose of the Offer and the Merger for the Purchaser Group (as defined in the Summary Term Sheet and as described in
more detail in The Tender Offer — Section 9 – Certain Information Concerning the Purchaser Group) is to benefit from any future
earnings and growth of the Company after the consummation of the Offer and, if applicable, the Merger.”
2. Special Factors — Section 4 – Position of the Purchaser and Acquisition Sub Regarding Fairness of the Offer and the Merger
is hereby amended and restated in its entirety as follows:
“4. Position of the Purchaser Group Regarding Fairness of the Offer and the Merger.
Position of the Purchaser Group. The rules of the SEC require the Purchaser Group to express their belief as to the fairness of
the Offer and the Merger to the unaffiliated stockholders of the Company. The Purchaser Group is making the statements included in
this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The
views of Purchaser Group should not be construed as a recommendation to any Company stockholder regarding whether to tender
Shares into the Offer.
The Purchaser Group attempted to negotiate the terms of a transaction that would be most favorable to the Purchaser Group and,
accordingly, did not negotiate the Merger Agreement with the goal of obtaining terms that were fair to the stockholders of the
Company. No member of the Purchaser Group believes that it has or had any fiduciary duty to the Company or its stockholders,
including with respect to the Offer and the Merger and their terms. No member of the Purchaser Group participated in the deliberation
process of the Company’s Board of Directors and No member of the Purchaser Group participated in the conclusions of the
Company’s Board of Directors that the Offer and the Merger were fair to the Company’s stockholders, nor did any member of the
Purchaser Group undertake any independent evaluation of the fairness of the Offer or the Merger or engage a financial advisor for
these purposes. No member of the Purchaser Group received advice from the Company’s Board of Directors or its legal or financial
advisors as to the substantive or procedural fairness of the proposed Offer or the proposed Merger.
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The Purchaser Group believes that the Offer Price to be received by the Company’s unaffiliated stockholders pursuant to
the Offer and the Merger is fair to such stockholders. The Purchaser Group bases their belief on, among other things, the
following material factors, each of which, in their judgment, supports their views:
•
The Offer Price represents a premium of approximately 17% over the closing price of the Shares on April 29, 2015
(the last trading day before the letter of intent related to the Offer (“Tender Offer LOI”) was executed and publicly
announced), and a premium of approximately 26% over the 60 day volume-weighted average closing price of the
Shares ending April 29, 2015.
•
The Offer will provide holders with the option to choose immediate liquidity at a premium, without the brokerage and
other costs typically associated with market sales, by selling some or all of their Shares in the Offer for the Offer Price
and, unless the Merger Condition is met, will have the opportunity to participate in the Company as a stockholder
with the benefit of Brookfield’s sponsorship and certain stockholder protections.
•
The Offer Price to be paid in the Offer and the Merger will be paid in cash, which provides certainty of value and
immediate liquidity to the Company’s stockholders while avoiding long-term business risk.
•
The Company’s stockholders will not be obligated to tender Shares in the Offer, and if they so desire, will be able to
exercise appraisal rights with respect to the Merger.
•
The Offer is not subject to any financing condition and Brookfield provided an appropriate guarantee of the payment
obligations under the Merger Agreement.
•
The other factors considered by, and the findings of, the Company’s Board of Directors with respect to the substantive
fairness of the Offer and the Merger to the Company’s unaffiliated stockholders, as described in the Schedule 14D-9
under the caption “Item 4. The Solicitation Or Recommendation — Background and Reasons for the Board’s
Recommendation — Reasons for the Offer and the Merger; Fairness of the Offer and the Merger” which are expressly
adopted by the Purchaser Group.
In addition, the Purchaser Group believes that the Offer is procedurally fair to the Company’s unaffiliated stockholders, based on the
following factors:
•
The Company’s Board of Directors unanimously (i) determined that the Offer and the Merger are advisable, fair to
and in the best interests of the Company and its stockholders (other than Purchaser and its affiliates), (ii) approved and
adopted the Merger Agreement and the approved transactions contemplated thereby and (iii) resolved to recommend
that the stockholders of the company accept the Offer and tender their Shares pursuant to the Offer.
•
The Company’s Board of Directors was advised by J.P. Morgan, as financial advisor, and by Withers LLP and
Willkie Farr & Gallagher LLP, as legal advisors, each of which are qualified, independent advisors.
•
The Merger Agreement allows the Company’s Board of Directors to solicit alternative acquisition proposals from
third parties and to provide information and participate in negotiations with third parties with respect to such
acquisition proposals during the Go-Shop Period (and, under certain circumstances, continue negotiations with certain
parties for an additional 15-day period) and the fact that the Tender Offer LOI was filed and announced publicly more
than two full weeks prior to signing the Merger Agreement, thereby putting third parties potentially interested in a
business combination on notice;
•
The Company’s Board of Directors received a fairness opinion of JPMorgan that, as of May 17, 2015, and subject to
the factors, assumptions, qualifications and limitations set forth in its opinion, the $5.05 per Share in cash to be
received by the holders of Shares in the Offer and the Merger was fair from a financial point of view to the holders of
such Shares.
•
The Merger Agreement permits the Company’s Board of Directors, under certain circumstances, at any time after
expiration of the Go-Shop Period, to consider an unsolicited alternative acquisition proposal received from a third
party if the Company’s Board of Directors determines in good faith, after consultation with outside legal counsel, that
failure to consider and respond to such acquisition proposal would be inconsistent with the directors’ fiduciary duties
and, after consultation with outside legal counsel and its financial advisor, that such acquisition proposal either
constitutes or would reasonably be expected to result in a proposal superior to the Offer and Merger.
•
The Merger Agreement permits the Company’s Board of Directors to withdraw or modify, or publicly propose to
withdraw or modify, its recommendation based on a material development or change in circumstances that was not
known or reasonably foreseeable to the Company as of the date of the Merger Agreement if it determines in good
faith, after consultation with its financial and legal advisors, that the failure to do so would be inconsistent with its
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fiduciary duties and after giving Purchaser a right to renegotiate the terms of the Merger Agreement, in which case
Purchaser may terminate the Merger Agreement and the Company will be required to pay Purchaser a termination fee.
•
The Offer is conditioned upon there being validly tendered and not withdrawn a number of Shares that satisfies the
Minimum Condition.
•
The Offer is not conditioned upon consummation of the transactions contemplated by the Investment Agreement and
the financing contemplated by the Investment Agreement is not conditioned upon consummation of the Offer or the
Merger.
•
The tender offer structure allows each of the Company’s stockholders to decide voluntarily whether to tender Shares
in the Offer, and unaffiliated stockholders will have sufficient time to make a decision whether to tender in the Offer,
and the difference between the Minimum Condition and the Merger Conditions gives stockholders an opportunity to
retain their Shares and continue to invest in the future of the Company.
•
Purchaser has previously committed to obtaining a significant economic interest in the Company through its pending
investment in Preferred Shares. The proceeds from Purchaser’s investment in the Preferred Shares (together with
other cash and credit resources of the Company), will be used to repay the Company’s senior subordinated notes, and
therefore eliminates any liquidity concerns associated with the Company’s senior subordinated notes, which mature in
November of 2015. In addition, the difference between the Minimum Condition and the Merger Condition of the
Tender Offer gives the stockholders an opportunity to decide voluntarily whether to sell their Shares now at a
premium or retain their Shares and continue to invest in the future of the Company alongside Purchaser and with the
benefit of Brookfield’s sponsorship going forward.
•
The tender offer structure is a direct offer to stockholders and allows the decision regarding the proposed transaction
to be made by the stockholders who actually own the Shares at the time of tendering, and, accordingly, have a true
economic interest in the decision. In a one-step merger, a vote of stockholders is required and voting rights are limited
to those who held Shares on a record date typically several weeks prior to the date of the vote and who therefore may
or may not be stockholders as of the date of the vote. Moreover, the stockholders of the Company would likely
receive the Offer Price in payment for their Shares sooner in a tender offer than if Purchaser pursued a one-step
merger transaction. In a one-step merger, the threshold for stockholder approval of the Merger would be significantly
lower than the Merger Condition. As a result, the Tender Offer as structured increases the likelihood that the
Company’s stockholders will have the option to retain their investment in the Company if they so desire.
•
If the Offer is completed, and the Merger Condition is satisfied, the Merger will be consummated in which all
remaining public stockholders will receive the same price per Share as was paid in the Offer, without interest and less
any applicable withholding tax.
•
The other factors considered by, and the findings of, the board of directors of the Company with respect to the
procedural fairness of the Offer and the Merger to the Company’s unaffiliated stockholders, as described in the
Company’s Schedule 14D-9 under the caption “Item 4. The Solicitation Or Recommendation — Background and
Reasons for the Board’s Recommendation — Reasons for the Offer and the Merger; Fairness of the Offer and the
Merger” which are expressly adopted by the Purchaser Group.
The Purchaser Group also considered the following factors, each of which it considered negative in their considerations concerning
the fairness of the terms of the Transactions:
•
Tendering of Shares in the Offer and, if the Merger Condition is satisfied, the consummation of the Merger, would
eliminate the opportunity for stockholders to participate in any possible future growth and profits of the Company.
•
As to the Offer Price, the financial interests of the Purchaser Group are different than the financial interests of the
Company’s unaffiliated stockholders.
•
The risks and costs to the Company if the Offer does not close, including the potential effect on business and
customer relationships.
•
The all-cash consideration to be received by the Company’s stockholders that are U.S. persons in the Offer and the
Merger would be taxable to such stockholders that have a gain for U.S. federal income tax purposes.
•
The other potentially negative factors considered by the Company’s Board of Directors, and findings of the
Company’s Board of Directors with respect to potentially negative factors, as described in the Schedule 14D-9 under
the caption “Item 4. The Solicitation Or Recommendation — Background and Reasons for the Board’s
Recommendation — Reasons for the Offer and the Merger; Fairness of the Offer and the Merger”.
9
The Purchaser Group did not find it practicable to assign, nor did they assign, relative weights to the individual factors
considered in reaching their conclusion as to fairness.
Upon completion of the Merger, Purchaser’s direct and indirect beneficial ownership interest in the Company’s net book value
and net income would increase from 0% to 100%. Based on the Company’s net book value of approximately $1.0 billion as of
December 31, 2014 (as reported in the Company’s Annual Report on Form 10-K), this increase would result in Purchaser’s direct and
indirect beneficial interest in the Company’s net book value increasing by approximately $1.0 billion. Based on the Company’s net
income as of December 31, 2014 (as reported in the Company’s Annual Report on Form 10-K), this increase would result in
Purchaser’s direct and beneficial ownership interest in the Company’s net loss increasing by approximately $285.4 million.
The Purchaser Group’s consideration of the factors described above reflects their assessment of the fairness of the Offer Price to
the Company’s unaffiliated stockholders in relation to the going-concern value of the Company on a stand-alone basis. In reaching the
conclusion as to fairness, the Purchaser Group did not consider the liquidation value or net book value of the Company. The
liquidation value was not considered because the Company is a viable going concern and Purchaser and the Company has no plans to
liquidate the Company. Therefore, the Purchaser Group believes that the liquidation value of the Company is irrelevant to a
determination as to whether the Offer or the Merger is fair to unaffiliated stockholders. The Purchaser Group did not consider net book
value, which is an accounting concept, as a factor because the Company’s business is not of a nature whose value is traditionally
measured as a multiple of book value, as the Company’s value is derived from cash flows generated by continuing operations, and the
Purchaser Group believes that net book value is not a material indicator of the value of the Company as a going concern but rather is
indicative of historical costs.
The foregoing discussion of the information and factors considered and given weight by the Purchaser Group is not intended to
be exhaustive, but is believed to include the material factors considered by the Purchaser Group. The Purchaser Group’s views as to
the fairness of the Offer and the Merger to stockholders of the Company should not be construed as a recommendation to any
stockholder regarding whether to tender Shares into the Offer.”
3. The first two paragraphs under the subheading “The Merger Agreement” in Special Factors — Section 6 – The Merger
Agreement; Other Agreements are hereby amended and restated as follows:
“The following is a summary of the material provisions of the Merger Agreement. The following description of the Merger
Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is
filed as an exhibit to the Schedule TO and is incorporated herein by reference. For a complete understanding of the Merger
Agreement, you are encouraged to read the full text of the Merger Agreement. References to “business day” in relation to provisions
of the Merger Agreement 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 or the State of Ohio are authorized
or required by law or other governmental action to close.
The Merger Agreement has been filed herewith as required by applicable SEC regulations and solely to inform investors of its
terms. The Merger Agreement contains representations, warranties and covenants, which were made as of specific dates, as a way of
allocating risk to one of the parties if those statements prove to be inaccurate. In addition, such representations, warranties and
covenants may have been qualified by certain disclosures not reflected in the text of the Merger Agreement and may apply standards
of materiality in a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company.”
4. The second to last paragraph of Special Factors — Section 7 – Appraisal Rights is hereby amended and restated as follows:
“The foregoing summary of the appraisal rights of stockholders under the DGCL does not purport to be a complete statement of
the procedures to be followed by the Company’s stockholders desiring to exercise any appraisal rights available thereunder and is
qualified in its entirety by reference to Section 262 of the DGCL. The proper exercise of appraisal rights requires strict and timely
adherence to the applicable provisions of the DGCL. If Section 251(h) is unavailable to consummate the Merger, and the Merger is
consummated pursuant to Section 253 of the DGCL, we will cause the surviving corporation to deliver the notice required by
Section 262(d)(2) of the DGCL, which provides notification of the availability of appraisal rights, within ten (10) days of the
consummation of the Merger. In that case, such additional notice will describe the appraisal procedures for a merger under
Section 253 of the DGCL, and all of the Company’s stockholders will have the time period specified in such separate notice (which
will be twenty (20) days from the mailing of such separate notice) to exercise their appraisal rights. A copy of Section 262 of the
DGCL will be provided to each stockholder of record on the effective date of the Merger in the event that the Merger is consummated
without any meeting of the Company’s stockholders pursuant to Section 251(h) or Section 253 of the DGCL.”
10
5. Special Factors — Section 9 – Certain Relationships between Purchaser or Acquisition Sub and the Company is hereby
amended and restated in its entirety as follows:
“9. Certain Relationships between the Purchaser Group and the Company.
There are no relationships between the Purchaser Group or any of their respective affiliates, on the one hand, and the Company,
on the other hand, that would require disclosure under the rules and regulations of the SEC applicable to this Offer to Purchase other
than in respect of the Merger Agreement and those arrangements described in Special Factors — Section 1 – Background of the Offer;
Past Contacts or Negotiations with the Company, Special Factors — Section 6 – The Merger Agreement; Other Agreements, and
Special Factors — Section 8 – Transactions and Arrangements Concerning the Shares.”
6. The second sentence of the sixth paragraph of The Tender Offer — Section 1 – Terms of the Offer is hereby amended and
restated as follows:
“Any extension, delay, termination or amendment of the Offer will be followed promptly by a public announcement thereof, and
such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.”
7. The subsection titled “Determination of Validity” in The Tender Offer — Section 3 – Procedures for Accepting the Offer and
Tendering Shares is hereby amended and supplemented by adding the following sentence to the end of the subsection:
“Tendering stockholders have the right to challenge our determination with respect to their Shares in a court of competent
jurisdiction.”
The last paragraph of The Tender Offer — Section 4 – Withdrawal Rights is hereby amended and supplemented by adding the
following sentence to the end of the paragraph:
“Tendering stockholders have the right to challenge our determination with respect to their Shares in a court of competent
jurisdiction.”
8. The second full paragraph of The Tender Offer — Section 11 – Conditions to the Offer is hereby amended and restated as
follows:
“The foregoing conditions are for the sole benefit of Purchaser and Acquisition Sub and (subject to certain exceptions described
below) may be waived by Purchaser and Acquisition Sub, in whole or in part at any time prior to the Expiration Date; however,
notwithstanding the foregoing, subject to any applicable rules and regulations of the SEC, each of Purchaser and Acquisition Sub
reserves the right, in its sole discretion and subject to applicable law, to delay the acceptance for payment or payment for Shares until
satisfaction of all conditions to the Offer that are dependent upon the receipt of governmental or regulatory approvals. The failure by
Purchaser and Acquisition Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and
each such right shall be deemed an ongoing right which may be asserted at any time prior to the Expiration Date. Without the prior
written consent of the Company in its sole discretion, Purchaser may not:”
9. The Tender Offer — Section 11 – Conditions of the Offer is hereby amended and supplemented by adding the following to
the end of the last paragraph:
“As of May 22, 2015, 137,240,008 Shares were outstanding. In order to satisfy the Minimum Condition, Acquisition Sub must
receive valid tenders (that have not been properly withdrawn) in respect of at least 41,172,003 Shares (if the transactions contemplated
by the Investment Agreement are not consummated prior to the expiration of the Offer) or 20,172,003 Shares (if the transactions
contemplated by the Investment Agreement are consummated prior to the expiration of the Offer), which is the minimum number of
Shares equivalent to at least thirty percent (30%) of the Shares plus all Underlying Shares. As previously publicly disclosed by
Purchaser, prior to the commencement of the Offer, it had agreed to acquire shares of Preferred Stock, through the Investment
Agreement, convertible as of the date of issuance into 30,000,000 Shares, subject to stockholder approval.
As of May 22, 2015, 137,240,008 Shares were outstanding. In order to satisfy the Merger Condition, Acquisition Sub must
receive valid tenders (that have not been properly withdrawn) in respect of at least 109,792,007 Shares (if the transactions
contemplated by the Investment Agreement are not consummated prior to the expiration of the Offer) or 103,792,007 Shares (if the
transactions contemplated by the Investment Agreement are consummated prior to the expiration of the Offer), which is the minimum
number of Shares equivalent to at least eighty percent (80%) of the Shares plus all Underlying Shares. As previously publicly
disclosed by Purchaser, prior to the commencement of the Offer, it had agreed to acquire shares of Preferred Stock through the
Investment Agreement, convertible as of the date of issuance into 30,000,000 Shares, subject to stockholder approval.
We believe that the number of Shares outstanding immediately prior to expiration of the Offer is likely to change from the
11
number of Shares outstanding as of May 22, 2015, due to grants, vesting and forfeitures of employee equity awards, exercise by
employees of employee stock options, contributions by the Company to the Savings Plan funded with Shares and ordinary course and
other changes and, accordingly, the percentages and numbers of currently outstanding Shares required to be tendered to satisfy the
Minimum Condition and the Merger Condition are likely to change. We do not believe, however, that such changes will be material to
the likelihood of satisfaction of such conditions.”
10. The first paragraph of The Tender Offer — Section 14 – Miscellaneous is hereby amended and restated as follows:
“The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any state in which the
making of the Offer or acceptance thereof would not be in compliance with the laws of such state. However, we may, in our sole
discretion, take such action as we may deem necessary to make the Offer in any such state and extend the Offer to holders of Shares in
such state.”
Item 5. Past Contacts, Transactions, Negotiations and Agreements.
The last paragraph in Special Factors — Section 6 – The Merger Agreement; Other Agreements is hereby amended and restated
as follows:
“The foregoing descriptions of the Confidentiality Agreement, Investment Agreement, Investment Limited Guarantee, Series A
Preferred Stock Certificate of Designation, Series B Preferred Stock Certificate of Designation, Stockholder Rights Agreement,
Registration Rights Agreement, Tender and Support Agreement, Amended and Restated Stockholder Rights Agreement and Limited
Guarantee do not purport to be complete and are qualified in their entirety by reference to the applicable documents of forms thereof.
Copies of the Confidentiality Agreement, Investment Agreement, Investment Limited Guarantee, Limited Guarantee and Tender and
Support Agreement are filed as exhibits to this Schedule TO. Copies of the forms of the Series A Preferred Stock Certificate of
Designation, Series B Preferred Stock Certificate of Designation, Stockholder Rights Agreement, and Registration Rights Agreement
are attached as exhibits to the Investment Agreement, which is filed as an exhibit to this Schedule TO. A copy of the form of
Amended and Restated Stockholder Rights Agreement is attached as an exhibit to the Merger Agreement, which is filed as an exhibit
to this Schedule TO.”
Item 6. Purposes of the Transaction and Plans or Proposals.
1. The first two paragraphs under the subheading “Purpose of the Offer” in Special Factors — Section 2 – Purpose of the Offer;
Plans for the Company are hereby amended and restated as follows:
“The purpose of the Offer is to give Purchaser the opportunity to acquire control of, and possibly the entire equity interest in, the
Company, at the discretion of the Company’s stockholders. The Offer is being made in connection with certain other transactions
between Purchaser and the Company, as described in Special Factors — Section 6 – The Merger Agreement; Other Agreements. The
Offer is being made in connection with the transactions contemplated by the Investment Agreement, which enable the Company to
address any liquidity concerns associated with the Company’s senior subordinated notes, which mature in November of 2015,
irrespective of the outcome of the Offer.
The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer if a sufficient
number of Shares are tendered to satisfy the Merger Condition. If the Offer is consummated and the Merger Condition is satisfied,
Purchaser intends to complete the Merger as promptly as practicable thereafter. If the Merger Condition is not satisfied, but the Offer
is consummated, Purchaser will have increased its investment in the Company to become the Company’s largest stockholder (on an
as-converted basis).”
2. Special Factors — Section 4 – Position of Purchaser and Acquisition Sub Regarding Fairness of the Offer and the Merger has
been amended and supplemented by adding the following paragraph after the second full paragraph:
“Upon completion of the Merger, Purchaser’s direct and indirect beneficial ownership interest in the Company’s net book value
and net income would increase from 0% to 100%. Based on the Company’s net book value of approximately $1.0 billion as of
December 31, 2014 (as reported in the Company’s Annual Report on Form 10-K), this increase would result in Purchaser’s direct and
indirect beneficial interest in the Company’s net book value increasing by approximately $1.0 billion. Based on the Company’s net
income as of December 31, 2014 (as reported in the Company’s Annual Report on Form 10-K), this increase would result in
Purchaser’s direct and beneficial ownership interest in the Company’s net loss increasing by approximately $285.4 million.”
Item 7. Source and Amount of Funds or Other Consideration.
Special Factors — Section 9 – Source and Amount of Funds is hereby amended and supplemented by adding the following
sentence to the end of the first paragraph:
12
“We have no specific alternative financing arrangements or alternative financing plans in connection with the Offer or the
Merger.”
Item 9. Persons/Assets, Retained, Employed, Compensated or Used.
The following is added after the last paragraph in The Tender Offer — Section 13 – Fees and Expenses:
“The following table is an estimate of fees and expenses to be incurred and paid by the Purchaser Group in connection with the
Offer:
Filing Fees
Depositary and Paying Agent Fees
Information Agent
Legal, Printing and Mailing Fees and Expenses
Other Professional Fees and Expenses
$ 91,000
$ 50,000
$ 30,000
$ 1,960,000
$ 400,000
Total
$ 2,531,000
Item 11. Additional Information.
1. The fifth paragraph of the Letter of Transmittal is hereby amended and restated as follows:
“THE TENDER OFFER IS NOT BEING MADE TO (NOR WILL TENDER OF SHARES BE ACCEPTED FROM OR
ON BEHALF OF STOCKHOLDERS IN ANY STATE IN WHICH THE MAKING OF THE TENDER OFFER OR THE
ACCEPTANCE OF THE TENDER OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH STATE.”
2. The Tender Offer — Section 11 – Conditions of the Offer is hereby amended and supplemented by adding the following
paragraph to the last paragraph:
“The condition that the waiting period applicable to the transactions contemplated by the Merger Agreement under the HSR Act
shall have expired or been terminated has been satisfied by the grant of early termination of the HSR Act waiting period by the U.S.
Federal Trade Commission on June 1, 2015. The Offer continues to be subject to the remaining conditions set forth in this
Section 11.”
3. The second paragraph under the subsection titled “Antitrust Compliance” of The Tender Offer — Section 12 – Certain Legal
Matters; Regulatory Approvals is hereby amended and restated as follows:
“The initial waiting period under the HSR Act, which was scheduled to expire at 11:59 pm, EDT on June 4, 2015, was
terminated early, effective June 1, 2015. Accordingly, the condition that the waiting period applicable to the transactions contemplated
by the Merger Agreement under the HSR Act shall have expired or been terminated has been satisfied. The Offer continues to be
subject to the remaining conditions set forth in The Tender Offer — Section 11 – Conditions of the Offer.”
4. The fourth paragraph under the subsection titled “Antitrust Compliance” of The Tender Offer — Section 12 – Certain Legal
Matters; Regulatory Approvals is hereby amended and supplemented by adding the following sentence:
“We filed notice of the Offer to the COFECE on June 3, 2015.”
5. The fifth paragraph under the subsection titled “Antitrust Compliance” of The Tender Offer — Section 12 – Certain Legal
Matters; Regulatory Approvals is hereby amended and supplemented by adding the following sentence:
“We filed notice of the Offer to the FAS on June 3, 2015.”
6. The sixth paragraph under the subsection titled “Antitrust Compliance” of The Tender Offer — Section 12 – Certain Legal
Matters; Regulatory Approvals is hereby amended and supplemented by adding the following sentence:
“We filed notice of the Offer to the SACC on June 3, 2015.”
13
7. The seventh paragraph under the subsection titled “Antitrust Compliance” of The Tender Offer — Section 12 – Certain
Legal Matters; Regulatory Approvals is hereby amended and supplemented by adding the following sentence:
“We filed notice of the Offer to the Turkish Competition Authority on June 1, 2015.”
8. The subsection titled “Committee on Foreign Investment in the United States” of The Tender Offer — Section 12 – Certain
Legal Matters; Regulatory Approvals is hereby amended and restated as follows:
“The Exon-Florio Amendment empowers the President of the United States of America to review and, if necessary, prohibit or
suspend an acquisition of, or investment in, a U.S. company by a “foreign person” if the President, after investigation, determines that
the foreign person’s control threatens to impair the national security of the United States. Pursuant to the Exon-Florio Amendment,
CFIUS has been delegated the authority to receive notices of proposed transactions, determine when an investigation is warranted,
conduct investigations, require mitigation measures and submit recommendations to the President to suspend or prohibit the
completion of transactions or to require divestitures of completed transactions. A party or parties to a transaction may, but are not
required to, submit to CFIUS a voluntary notice of the transaction, except in limited circumstances, which do not apply in this case.
CFIUS also has the power to initiate reviews on its own in the absence of a voluntary notification. The parties filed a voluntary notice
with CFIUS pursuant to the Exon-Florio Amendment and its implementing regulations on May 18, 2015 in connection with the
transactions contemplated by the Investment Agreement. The parties also filed a voluntary notice with CFIUS pursuant to the
Exon-Florio Amendment and its implementing regulations on May 26, 2015 in connection with the transactions contemplated by this
Schedule TO. If CFIUS determines that the transaction contemplated by the Investment Agreement is subject to Exon-Florio and
grants clearance in connection with the Investment Agreement, satisfaction of the CFIUS Clearance Condition will not be required for
consummation of the Offer or the Merger. See The Tender Offer — Section 11 – Certain Conditions of the Offer.
On May 21, 2015, in accordance with International Traffic in Arms Regulations, we filed notice of the transactions contemplated
by the Investment Agreement and of the Offer with the U.S. Department of State Directorate of Defense Trade Controls.”
9. The subsection titled “Legal Proceedings” of The Tender Offer — Section 12 – Certain Legal Matters; Regulatory Approvals
is hereby amended and restated in its entirety to read as follows:
“Six putative class action lawsuits have been filed in connection with Purchaser’s proposed acquisition (the “Transaction”) of
the Company. The first, entitled Kelleher, et al. v. GrafTech International Ltd., et al., was filed on May 22, 2015 in the Court of
Common Pleas, Cuyahoga County, Ohio. An amended complaint in the Kelleher action was filed on June 12, 2015. The remaining
actions, entitled Widlewski v. Carson, et al., Watson v. GrafTech International Ltd., et al., Park v. GrafTech International Ltd., et al.,
Daeda v. GrafTech International Ltd., et al. and Grinberger v. GrafTech International Ltd., et al., and filed between June 2, 2015 and
June 15, 2015, were filed in the Court of Chancery of the State of Delaware. All six lawsuits name the members of the Company’s
board of directors, Purchaser and Acquisition Sub as defendants. BAM, Brookfield, Capital Partners and the Company are also named
as defendants in certain of the actions. All six lawsuits are brought by purported stockholders of the Company, both individually and
on behalf of a putative class of stockholders, alleging that the Company’s board of directors breached its fiduciary duties in connection
with the Transaction by failing to maximize shareholder value and that Purchaser aided and abetted the alleged breaches. Each of the
actions further allege that the May 26, 2015 Schedule 14D-9 filed by the Company is materially misleading. In the Kelleher, Watson
and Park actions, the Company is also alleged to have aided and abetted the alleged breaches. Each of the actions seek, among other
things, injunctive relief preventing the consummation of the Transaction or rescission of the Transaction.”
Item 12. Exhibits.
Item 12 of the Schedule TO is hereby amended and supplemented by adding the following exhibits:
Exhibit No.
Description
(d)(5)
Limited Guarantee, dated as of May 4, 2015, by and between Brookfield Capital Partners IV L.P. and GrafTech
International Ltd. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by GrafTech
International Ltd. with the Securities and Exchange Commission on May 4, 2015).
(d)(6)
Limited Guarantee, dated as of May 17, 2015, by and between Brookfield Capital Partners IV L.P. and GrafTech
International Ltd. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by GrafTech
International Ltd. with the Securities and Exchange Commission on May 17, 2015).
14
Exhibit No.
Description
(a)(5)(A)
Complaint filed by Travis J. Kelleher, individually and on behalf of all others similarly situated, on May 22, 2015,
in the Court of Common Pleas of the State of Ohio, Cuyahoga County.
(a)(5)(B)
Amended Complaint filed by Travis J. Kelleher, individually and on behalf of all others similarly situated, on June
12, 2015, in the Court of Common Pleas of the State of Ohio, Cuyahoga County.
(a)(5)(C)
Complaint filed by David Widlewski, individually and on behalf of all others similarly situated, on June 2, 2015, in
the Court of Chancery of the State of Delaware.
(a)(5)(D)
Complaint filed by Walter Watson, individually and on behalf of all others similarly situated, on June 4, 2015, in
the Court of Chancery of the State of Delaware.
(a)(5)(E)
Complaint filed by Cyhyoung Park, individually and on behalf of all others similarly situated, on June 9, 2015, in
the Court of Chancery of the State of Delaware.
(a)(5)(F)
Complaint filed by Charles Daeda, individually and on behalf of all others similarly situated, on June 15, 2015, in
the Court of Chancery of the State of Delaware.
(a)(5)(G)
Complaint filed by Abraham Grinberger, individually and on behalf of all others similarly situated, on June 15,
2015, in the Court of Chancery of the State of Delaware.
15
SIGNATURES
After due inquiry and to the best knowledge and belief of the undersigned, each of the undersigned certifies that the information
set forth in this statement is true, complete and correct.
Date: June 18, 2015
BCP IV GRAFTECH HOLDINGS LP
By:
BPE IV (Non-Cdn) GP LP,
its general partner
By:
Brookfield Capital Partners Ltd.,
its general partner
By:
/s/ David Nowak
David Nowak
Managing Partner
By:
/s/ J. Peter Gordon
J. Peter Gordon
Managing Partner
ATHENA ACQUISITION SUBSIDIARY INC.
By:
/s/ David Neiman
Name: David Neiman
Title: Senior Vice President
BROOKFIELD CAPITAL PARTNERS LTD.
By:
/s/ David Nowak
Name: David Nowak
Title: Managing Partner
By:
/s/ Peter Gordon
Name: Peter Gordon
Title: Managing Partner
BROOKFIELD CAPITAL PARTNERS IV L.P.
By:
Brookfield Capital Partners IV GP, Ltd.,
its general partner
By:
/s/ David Nowak
David Nowak
Managing Partner
By:
/s/ J. Peter Gordon
J. Peter Gordon
Managing Partner
16
EXHIBIT INDEX
Exhibit No.
Description
(a)(1)(A)
Offer to Purchase dated May 26, 2015.*
(a)(1)(B)
Letter of Transmittal (including IRS Form W-9).*
(a)(1)(C)
Notice of Guaranteed Delivery.*
(a)(1)(D)
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
(a)(1)(E)
Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
(a)(1)(F)
Summary Advertisement as published in the Wall Street Journal on May 26, 2015.*
(b)
Not applicable.
(d)(1)
Agreement and Plan of Merger, dated as of May 17, 2015, by and among BCP IV GrafTech Holdings LP, Athena
Acquisition Subsidiary Inc. and GrafTech International Ltd. (incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K filed by GrafTech International Ltd. with the Securities and Exchange Commission on May 18,
2015).
(d)(2)
Tender and Support Agreement, dated as of May 17, 2015, by and among BCP IV GrafTech Holdings LP, Athena
Acquisition Subsidiary Inc. and Nathan Milikowsky and certain of his affiliates (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed by GrafTech International Ltd. with the Securities and Exchange
Commission on May 18, 2015).
(d)(3)
Confidentiality Agreement, dated as of March 20, 2015, by and between Brookfield Capital Partners LLC and
GrafTech International Ltd.*
(d)(4)
Investment Agreement, dated as of May 4, 2015, by and between GrafTech International Ltd. and BCP IV Holdings
LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by GrafTech International Ltd.
with the Securities and Exchange Commission on May 4, 2015).
(d)(5)
Limited Guarantee, dated as of May 4, 2015, by and between Brookfield Capital Partners IV L.P. and GrafTech
International Ltd. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by GrafTech
International Ltd. with the Securities and Exchange Commission on May 4, 2015).
(d)(6)
Limited Guarantee, dated as of May 17, 2015, by and between Brookfield Capital Partners IV L.P. and GrafTech
International Ltd. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by GrafTech
International Ltd. with the Securities and Exchange Commission on May 17, 2015).
(g)
Not applicable.
(h)
Not applicable.
(a)(5)(A)
Complaint filed by Travis J. Kelleher, individually and on behalf of all others similarly situated, on May 22, 2015, in
the Court of Common Pleas of the State of Ohio, Cuyahoga County.
(a)(5)(B)
Amended Complaint filed by Travis J. Kelleher, individually and on behalf of all others similarly situated, on June
12, 2015, in the Court of Common Pleas of the State of Ohio, Cuyahoga County.
(a)(5)(C)
Complaint filed by David Widlewski, individually and on behalf of all others similarly situated, on June 2, 2015, in
the Court of Chancery of the State of Delaware.
(a)(5)(D)
Complaint filed by Walter Watson, individually and on behalf of all others similarly situated, on June 4, 2015, in the
Court of Chancery of the State of Delaware.
(a)(5)(E)
Complaint filed by Cyhyoung Park, individually and on behalf of all others similarly situated, on June 9, 2015, in the
Court of Chancery of the State of Delaware.
(a)(5)(F)
Complaint filed by Charles Daeda, individually and on behalf of all others similarly situated, on June 15, 2015, in the
Court of Chancery of the State of Delaware.
(a)(5)(G)
Complaint filed by Abraham Grinberger, individually and on behalf of all others similarly situated, on June 15, 2015,
in the Court of Chancery of the State of Delaware.
* Previously filed with the Tender Offer Statement on Schedule TO with the Securities and Exchange Commission on May 26, 2015.
17
Exhibit (a)(5)(A)
NAILAH K. BYRD
CUYAHOGA COUNTY CLERK OF COURTS
1200 Ontario Street
Cleveland, Ohio 44113
Court of Common Pleas
New Case Electronically Filed:
May 22, 2015 12:09
By: PAUL GRIECO 0064729
Confirmation Nbr. 447690
TRAVIS J. KELLEHER, ETC.
CV 15 846032
vrs.
Judge:
GRAFTECH INTERNATIONAL LTD., ET AL.
MICHAEL E. JACKSON
Pages Filed: 26
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
TRAVIS J. KELLEHER, Individually and on
Behalf of All Others Similarly Situated
11511 Larch Street
Coons Rapids, MN 44131
Plaintiff
vs.
GRAFTECH INTERNATIONAL LTD.
HQ
6100 Oak Tree Boulevard, Suite 300
Park Center I
Independence, OH 44131
Also Serving Registered Agent:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
and
BCP IV GRAFTECH HOLDINGS LP
Registered Agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
and
ATHENA ACQUISITION SUBSIDIARY INC.
Registered Agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
and
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Case No.
CLASS ACTION
COMPLAINT FOR BREACH OF
FIDUCIARY DUTY
DEMAND FOR JURY TRIAL
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BROOKFIELD CAPITAL PARTNERS LTD.
HQ:
181 Bay Street
Brookfield Place, Suite 300
Toronto, ON M5J2T3
Canada
and
BROOKFIELD ASSET MANAGEMENT, INC.
HQ:
181 Bay Street
Brookfield Place, Suite 300
Toronto, ON M5J2T3
Canada
and
JOEL L. HAWTHORNE
4025 Meadowvale Court
Fairlawn, OH 44333
and
RANDY CARSON
8 Cogswood Road
Asheville, NC 28804
and
THOMAS A. DANJCZEK
8003 East Vista Canyon Street
Mesa, AZ 85207
and
KAREN FINERMAN
830 Park Avenue, Apt. 12A
New York, NY 10021
and
DAVID R. JARDINI
201 Ryan Lane
Meadow Lands, PA 15347
and
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NATHAN MILIKOWSKY
117 Lyman Road
Chestnut Hill, MA 02467
and
M. CATHERINE MORRIS
9502 East Maplewood Circle
Englewood, CO 80111
Defendants
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Plaintiff Travis J. Kelleher (“plaintiff”), by counsel, individually and on behalf of all others similarly situated, files this action
against the defendants and alleges upon information and belief, except for those allegations that pertain to him, which are alleged upon
personal knowledge, as follows:
SUMMARY OF THE ACTION
1. Plaintiff brings this shareholder class action individually and on behalf of all other public shareholders of GrafTech
International Ltd. (“GrafTech” or the “Company”) against GrafTech, the members of the Company’s Board of Directors (the
“Board”), Brookfield Asset Management Inc. (“BAM”), Brookfield Capital Partners Ltd. (“Brookfield Capital”), BCP IV GrafTech
Holdings LP, a Delaware limited partnership (“Parent”), and Athena Acquisition Subsidiary Inc., a Delaware corporation and a wholly
owned subsidiary of Parent (“Acquisition Sub” and with BAM, Brookfield Capital and Parent, “Brookfield”), for breaches of fiduciary
duties in connection with the proposed buyout and acquisition of GrafTech by Brookfield (the “Proposed Acquisition”).
2. GrafTech is a global company that offers innovative graphite material solutions for customers in a wide range of industries
and end markets, including steel
-3-
manufacturing, advanced energy applications and latest generation electronics. On May 18, 2015, GrafTech announced that it had
entered into a definitive merger agreement (the “Merger Agreement”) with Brookfield pursuant to which Brookfield will acquire the
Company for just $5.05 per share in cash (the “Proposed Acquisition Consideration”). Pursuant to the Merger Agreement, Brookfield
will soon commence an exchange offer (on May 26, 2015) to acquire all of the outstanding shares of the Company’s common stock
for the Proposed Acquisition Consideration (the “Offer”). Defendants are working quickly to consummate the deal; absent judicial
intervention, the Offer will expire on July 7, 2015.
3. The Proposed Acquisition is the product of a hopelessly flawed process that is designed to ensure the sale of GrafTech to
Brookfield on terms preferential to defendants and other GrafTech insiders and to subvert the interests of plaintiff and the other public
stockholders of the Company. The Proposed Acquisition is being driven by GrafTech’s largest shareholder, the Daniel and Nathan
Milikowsky Group (“Milikowsky Group,” whose designee on the Board is defendant Nathan Milikowsky) as well as the Board and
Company management, who together control over 17.2 million Company shares, or over 12.5% of the outstanding GrafTech stock,
and who seek liquidity for their illiquid holdings in GrafTech stock. If the Proposed Acquisition closes, the Milikowsky Group, Board
members and Company management will receive over $87.1 million from the sale of their illiquid holdings. Thus, the Board is
conflicted and serving its own financial interests rather than those of GrafTech’s other shareholders.
4. For years, the Milikowsky Group has been pushing for a change in the control of GrafTech. The Milikowsky Group waged a
successful proxy contest in 2014, winning three of the seven Board seats. In early 2015, the Milikowsky Group commenced another
proxy contest, seeking to elect five members of the GrafTech Board. In response, and prior
-4-
to a shareholder meeting on the proxy contest, GrafTech announced it had entered into an Investment Agreement on May 4, 2015 with
Brookfield, pursuant to which the Company agreed to issue and sell, and Brookfield agreed to purchase and pay for, shares of
convertible preferred stock, for an aggregate purchase price of $150 million in cash. The preferred stock is convertible, at Brookfield’s
option, into at least 19.9% of the outstanding shares of the Company’s common stock. As part of its investment, Brookfield also
received the right to designate at least two members for election to the Board. At the same time, the Company and Brookfield also
entered into a letter of intent in which they agreed to prepare and negotiate definitive documents for a tender offer by Brookfield to
purchase all of the outstanding shares of the Company’s common stock at a purchase price of $5.05 per share. Two weeks after
entering into the Investment Agreement with Brookfield, GrafTech announced the Proposed Acquisition of the Company by
Brookfield, and that the Milikowsky Group had agreed to tender its shares in the Offer and oppose any alternative proposals.
5. The Proposed Acquisition Consideration drastically undervalues the Company’s prospects and is the result of an entirely
unfair sales process. First, while Brookfield acquired approximately 20% of the Company for $5.00 per share, the Proposed
Acquisition Consideration for control of the Company offers GrafTech shareholders just a 1% premium for that control. Moreover, the
$5.05 per share consideration represents a meager 2% premium based on GrafTech’s closing price on the last trading day before the
Proposed Acquisition was announced. Furthermore, according to Yahoo! Finance, at least one analyst has set a price target of $6.00
per share for GrafTech stock.
6. Defendants agreed to the Proposed Acquisition in breach of their fiduciary duties to GrafTech’s public shareholders, which
they brought about through an unfair sales
-5-
process. Rather than undertake a full and fair sales process designed to maximize shareholder value as their fiduciary duties require,
the Board catered to its own liquidity goals, as well as to the interests of Brookfield.
7. To protect against the threat of alternate bidders out-bidding Brookfield after the announcement, defendants implemented or
agreed to preclusive deal protection devices to guarantee that Brookfield will not lose its preferred position. These deal protection
devices effectively preclude any competing bids for GrafTech.
8. First, defendants structured the Proposed Acquisition as a two-step transaction in which Brookfield first acquired a 20%
ownership interest in the Company and then will acquire the remaining 80% through the Offer. The Investment Agreement raises a
significant barrier to alternative bidders – who would be required to negotiate with Brookfield and the Company – and effectively
eliminates any competition for Brookfield in the process leading to the Proposed Acquisition.
9. Second, pursuant to the Merger Agreement, Brookfield will commence the Offer on May 26, 2015. The initial offer period of
the Offer will expire on July 7, 2015. The closing of the merger is subject only to tender by the holders of a simple majority of the
Company’s common stock, and over 12.5% of the Company’s shares are controlled by the Milikowsky Group, the Board and
members of Company management. The Milikowsky Group has signed an agreement with Brookfield to tender its shares, and the
Board and Company will certainly tender their shares, in support of the Merger Agreement. GrafTech and Brookfield have announced
their intent to effect the merger, pursuant to §251(h) of the Delaware General Corporation Law, as a short-form merger – to cash out
any shareholders who do not tender – without so much as a shareholder vote. Thus, fewer than 38% of the Company’s shares need be
tendered in support of the Proposed Acquisition for it to close.
-6-
10. Third, to help ward off accusations of an inadequate process leading to the insufficient Proposed Acquisition
Consideration, the Board implemented a “go-shop” period in which the Company could solicit other potential buyers. This is an
empty gesture, however, because superior offers for GrafTech are discouraged by the preclusive deal protection devices
defendants agreed to in the Merger Agreement, which include: (i) a no-shop clause that will preclude the Company from
soliciting potential competing bidders; (ii) a matching rights provision that would require the Company to disclose confidential
information about competing bids to Brookfield and allow Brookfield to match any competing proposal; and (iii) a termination
and expense fee provision that would require the Company to pay Brookfield a termination fee of $7.5 million if the Proposed
Acquisition is terminated in favor of a superior proposal during the go-shop period, or a $20 million termination fee if such
termination occurs after the go-shop period.
11. In pursuing the unlawful plan to sell the Company for less than fair value and pursuant to an unfair process, defendants have
breached their fiduciary duties of loyalty, due care, independence, candor, good faith and fair dealing, and/or have aided and abetted
such breaches. Defendants are moving quickly to consummate the Proposed Acquisition. According to the defendants, the Offer
will commence shortly and close in just over a month . Consequently, immediate judicial intervention is warranted here to rectify
existing and future irreparable harm to the Company’s shareholders. Plaintiff seeks equitable relief only to enjoin the Proposed
Acquisition or, alternatively, rescind the Proposed Acquisition in the event it is consummated.
12. Because defendants dominate and control the business and corporate affairs of GrafTech, there exists an imbalance and
disparity of economic power between them and the public shareholders of the Company. Therefore, it is inherently unfair for
defendants to
-7-
execute and pursue any proposed transaction agreement under which they will reap disproportionate benefits to the exclusion of the
Company’s shareholders, and without obtaining maximum shareholder value. Nonetheless, instead of attempting to negotiate a
contract reflecting the best consideration available for GrafTech’s shareholders, who the Individual Defendants are bound to serve as
fiduciaries, they have disloyally placed their own interests before those of the Company’s shareholders and tailored the terms and
conditions of the Proposed Acquisition to achieve their own personal needs and objectives.
13. In short, the Proposed Acquisition is designed to unlawfully dilute GrafTech’s public shareholders’ stake in the Company,
and surrender control of the Company and its assets to Brookfield for grossly inadequate consideration. To remedy the Individual
Defendants’ breaches of fiduciary duty and other misconduct, plaintiff seeks, inter alia: (i) injunctive relief preventing consummation
of the Proposed Acquisition unless and until the Company adopts and implements a procedure or process to obtain a transaction that
provides the best possible terms for shareholders; (ii) a directive to the Individual Defendants (as defined below) to exercise their
fiduciary duties to obtain a transaction which is in the best interests of GrafTech’s shareholders; and (iii) rescission of, to the extent
already implemented, the Merger Agreement or any of the terms thereof.
JURISDICTION AND VENUE
14. This Court has jurisdiction over each defendant named herein because each defendant is either a corporation that conducts
business in and maintains operations in this County, or is an individual who has sufficient minimum contacts with Ohio so as to render
the exercise of jurisdiction by the Ohio courts permissible under traditional notions of fair play and substantial justice.
-8-
15. Venue is proper in this Court because one or more of the defendants either resides in or maintains executive offices in
this County, a substantial portion of the transactions and wrongs complained of herein, including the defendants’ primary
participation in the wrongful acts detailed herein and aiding and abetting and conspiracy in violation of fiduciary duties owed to
GrafTech’s shareholders occurred in this County, and defendants have received substantial compensation in this County by
doing business here and engaging in numerous activities that had an effect in this County.
PARTIES
16. Plaintiff Travis J. Kelleher is, and has been at all relevant times, a shareholder of GrafTech.
17. Defendant GrafTech is a Delaware corporation with principal executive offices located at Suite 300 Park Center I, 6100 Oak
Tree Boulevard, Independence, Ohio. GrafTech is sued herein as an aider and abetter.
18. Defendant BAM is a Canadian corporation and is sued herein as an aider and abetter.
19. Defendant Brookfield Capital is the private equity arm and an affiliate of BAM. Brookfield Capital is sued herein as an aider
and abetter.
20. Defendant Parent is a Delaware limited partnership, and is sued herein as an aider and abetter.
21. Defendant Acquisition Sub is a Delaware corporation and a wholly owned subsidiary of Parent. Defendant Acquisition Sub
is sued herein as an aider and abetter.
22. Defendant Joel L. Hawthorne is and at all relevant times has been GrafTech’s CEO and President, and a member of the
Board.
-9-
23. Defendant Randy Carson is and at all relevant times has been GrafTech’s Chairman and a member of the Board.
24. Defendant Thomas A. Danjczek is and at all relevant times has been a member of the Board.
25. Defendant Karen Finerman is and at all relevant times has been a member of the Board.
26. Defendant David R. Jardini is and at all relevant times has been a member of the Board.
27. Defendant Nathan Milikowsky is and at all relevant times has been a member of the Board.
28. Defendant M. Catherine Morris is and at all relevant times has been a member of the Board.
29. The defendants named above in ¶¶22-28 are sometimes collectively referred to herein as the “Individual Defendants.”
THE INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES
30. In any situation where the directors and officers of a publicly traded corporation undertake a transaction that will result in
either a change in corporate control or a break-up of the corporation’s assets, the directors and officers have an affirmative fiduciary
obligation to act in the best interests of the company’s shareholders, including the duty to obtain maximum value under the
circumstances. To diligently comply with these duties, the directors and officers may not take any action that:
(a) adversely affects the value provided to the corporation’s shareholders;
(b) will discourage or inhibit alternative offers to purchase control of the corporation or its assets;
- 10 -
(c) contractually prohibits them from complying with their fiduciary duties; and/or
(d) will provide the directors, executives, or other insiders with preferential treatment at the expense of, or separate from,
the public shareholders, and place their own pecuniary interests above those of the interests of the company and its shareholders.
31. In accordance with their duties of loyalty and good faith, the Individual Defendants, as directors and officers of GrafTech,
are obligated to refrain from:
(a) participating in any transaction where the directors’ or officers’ loyalties are divided;
(b) participating in any transaction where the directors or officers are entitled to receive a personal financial benefit not
equally shared by the public shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment of the public shareholders.
32. The Individual Defendants, separately and together, in connection with the Proposed Acquisition, are knowingly or
recklessly violating their fiduciary duties and aiding and abetting such breaches, including their duties of loyalty, good faith, and
independence owed to plaintiff and other public shareholders of GrafTech. Certain of the defendants are obtaining for themselves
personal benefits, including personal financial benefits not shared equally by plaintiff or the Class (as defined herein). Accordingly,
the Proposed Acquisition will benefit the Individual Defendants in significant ways not shared with the Class members. As a result of
the Individual Defendants’ self-dealing and divided loyalties, neither plaintiff nor the Class will receive adequate or fair value for their
GrafTech common stock in the Proposed Acquisition.
- 11 -
33. Because the Individual Defendants are knowingly or recklessly breaching their fiduciary duties of loyalty, good faith,
and independence in connection with the Proposed Acquisition, the burden of proving the inherent or entire fairness of the
Proposed Acquisition, including all aspects of its negotiation, structure, price, and terms, is placed upon defendants as a matter of
law.
THE PROPOSED ACQUISITION
Background
34. GrafTech’s business was founded in 1886 by the National Carbon Company. The Company has over 125 years of experience
in the research and development of graphite and carbon-based solutions and its intellectual property portfolio is extensive. GrafTech
holds approximately 713 issued and pending patent applications and has been the recipient of seven R&D 100 Awards in the past 12
years. The Company’s technological capabilities include developing products with superior thermal, electrical and physical
characteristics that provide a differentiated advantage. GrafTech is a leading manufacturer of a broad range of high quality graphite
electrodes, products essential to the production of electric arc furnace steel and various other ferrous and nonferrous metals. The
Company also produces needle coke products, which are the primary raw material needed in the manufacture of graphite electrodes.
GrafTech also manufactures carbon, graphite, and semi-graphite refractory products, which protect the walls of blast furnaces and
submerged arc furnaces. GrafTech is one of the leading manufacturers of high quality flexible graphite products, enabling thermal
management solutions for the electronics industry, and is one of the largest manufacturers and providers of advanced graphite and
carbon materials used in the transportation, solar and oil and gas exploration industries.
- 12 -
35. The Company currently manufactures its products in 18 manufacturing facilities strategically located on four
continents. Its Industrial Materials network has the largest manufacturing capacity and the lowest manufacturing cost structure of
all of its major competitors and delivers the highest level quality products. GrafTech has the operating capability, depending on
product demand and mix, to manufacture approximately 195,000 metric tons of graphite electrodes.
36. During 2013 and 2014, the Company announced rationalization plans designed to significantly improve its competitiveness,
allow it to better serve customers and position its Industrial Materials and Engineered Solutions businesses for success. As a result,
GrafTech has reduced its manufacturing facilities in both businesses, reduced graphite electrode capacity and exited certain product
lines in the Engineered Solutions business. Additionally, GrafTech initiated changes to the Company’s operating and management
structure in order to streamline, simplify and decentralize the organization, resulting in savings within its corporate functions. These
strategic initiatives addressed three key areas: profitability, cash flow and future growth.
The Proposed Acquisition Is Announced
37. On May 18,2015, GrafTech issued a press release announcing that GrafTech would be acquired by Brookfield for just $5.05
in cash per GrafTech share. The press release stated in relevant part:
GrafTech Enters Into Definitive Transaction Agreement
with an Affiliate of Brookfield Asset Management
Brookfield to Commence Tender Offer for GrafTech
Common Stock at $5.05 Per Share
…GrafTech International Ltd. (“GrafTech” or the “Company”) today announced it has entered into a definitive agreement and
plan of merger with an affiliate of Brookfield Asset Management Inc. (“Brookfield”) under which Brookfield will commence a
tender offer to acquire up to all of the outstanding shares of GrafTech common stock. The definitive agreement
- 13 -
was unanimously approved by GrafTech’s Board of Directors and follows the letter of intent announced by GrafTech on April 29,
2015. Holders of approximately 11% of the outstanding shares of GrafTech common stock, including GrafTech director Nathan
Milikowsky, have agreed to support the transaction and tender their shares in the tender offer.
Under the terms of the agreement, Brookfield will commence a tender offer to purchase up to all of the outstanding shares of
GrafTech common stock at a purchase price of $5.05 per share, representing a premium of 26% over the average closing price of the
Company’s common shares during the 60 trading days ended April 28, 2015. The tender offer is not subject to any financing
conditions.
The tender offer is intended to provide GrafTech stockholders the option to choose immediate liquidity at a premium as
described above or to participate in GrafTech as a stockholder following the closing of the tender offer (subject to the merger
provisions described below) with the benefit of Brookfield sponsorship going forward. A stockholder might choose to accept a
combination of both cash and continued ownership of GrafTech shares.
The Company believes that Brookfield has an exceptional track record sponsoring public companies in difficult underlying
market conditions, including significant knowledge and experience in steel, mining and metals, and other industrial sectors.
Pursuant to the agreement, the tender offer will commence no later than May 26, 2015 and will expire at 12:00 midnight, New
York City time, on July 7, 2015, unless extended in accordance with the terms of the agreement and the applicable rules and
regulations of the Securities and Exchange Commission. Consummation of the tender offer is subject to certain conditions, including
receipt of required regulatory approvals, the tender of a number of GrafTech shares that, together with any other shares then owned
by Brookfield (including shares issuable upon conversion of the convertible preferred stock expected to be issued to Brookfield as
previously announced), would represent at least 30% of the then outstanding shares plus shares issuable upon such conversion (the
“minimum tender condition”), and other customary conditions. Assuming the convertible preferred stock is issued prior to the
expiration of the tender offer, as of the date hereof, satisfaction of the minimum tender condition would require the tender of
approximately 15% of the currently outstanding GrafTech shares.
If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable
upon conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at
least 80% of the then outstanding shares plus shares issuable upon such conversion (the “merger condition”), then the remaining
outstanding GrafTech shares will be acquired in a merger transaction at the same price offered in the tender offer. Assuming the
convertible preferred stock is issued prior to the expiration of the tender
- 14 -
offer, as of the date hereof, satisfaction of the merger condition would require the tender of approximately 75% of the currently
outstanding GrafTech shares.
Additional details regarding the tender offer are or will be made available in Brookfield’s and the Company’s respective filings
with the Securities and Exchange Commission.
J.P. Morgan Securities LLC is serving as financial advisor, and Withers LLP and Willkie Farr & Gallagher LLP are serving as
legal counsel, to GrafTech in connection with the transaction. Weil, Gotshal & Manges LLP is serving as legal counsel to Brookfield
in connection with the transaction.
38. That same day, on May 18, 2015, GrafTech filed a Current Report on Form 8- K with the U.S. Securities and Exchange
Commission (“SEC”), wherein it reported the Merger Agreement and attached it as an exhibit. The announcement and filing reveal
that the Proposed Acquisition is the product of a flawed sales process and, unless the offer price is increased, would be consummated
at an unfair price. The Merger Agreement also reveals that the Individual Defendants agreed to numerous draconian deal protection
devices designed to preclude any competing bids for GrafTech.
Disabling Conflicts Infect the Process
39. The Proposed Acquisition is the product of a hopelessly flawed process that is designed to ensure the sale of GrafTech to
Brookfield on terms preferential to defendants and other GrafTech insiders and to subvert the interests of plaintiff and the other public
stockholders of the Company. The Proposed Acquisition is being driven by GrafTech’s largest shareholder, the Milikowsky Group
(whose designee on the Board is defendant Nathan Milikowsky) as well as the Board and Company management, who together
control over 17.2 million Company shares, or over 12.5% of the outstanding GrafTech stock, and who seek liquidity for their illiquid
holdings in GrafTech stock. If the Proposed Acquisition closes, the Milikowsky Group, Board members and Company management
will receive over $87.1 million from the sale of their illiquid holdings. Thus, the Board is conflicted and serving its own financial
interests rather than those of GrafTech other shareholders.
- 15 -
40. For years, the Milikowsky Group has been pushing for a change in the control of GrafTech. The Milikowsky Group
waged a successful proxy contest in 2014, winning three of the seven Board seats. On January 23, 2014, the Milikowsky Group
indicated its intent to nominate five candidates – a control slate – for election to the Board at the Company’s 2014 annual
meeting of stockholders (the “2014 Annual Meeting”). The Milikowsky Group later revised its slate of directors and announced
a plan to nominate only three candidates – defendants Nathan Milikowsky, Finerman and Jardini (the “Milikowsky Group
Directors”). GrafTech’s shareholders elected the three Milikowsky Group Directors to the seven member Board at the 2014
Annual Meeting.
41. In early 2015, the Milikowsky Group commenced another proxy contest, seeking to elect five members to, and thereby
control, the GrafTech Board. In response, and prior to a shareholder meeting on the proxy contest, GrafTech announced it had entered
into the Investment Agreement with Brookfield on May 4, 2015, pursuant to which the Company agreed to issue and sell, and
Brookfield agreed to purchase and pay for, shares of convertible preferred stock, for an aggregate purchase price of $ 150 million in
cash. The preferred stock is convertible, at Brookfield’s option, into at least 19.9% of the outstanding shares of the Company’s
common stock. As part of its investment, Brookfield also received the right to designate at least two members for election to the
Board. At the same time, the Company and Brookfield also entered into a letter of intent in which they agreed to prepare and negotiate
definitive documents for a tender offer by Brookfield to purchase all of the outstanding shares of the Company’s common stock at a
purchase price of $5.05 per share.
- 16 -
42. The announcement of the Investment Agreement and the negotiation of a tender offer by Brookfield had the intended
effects: the liquidity interests of the Milikowsky Group and the Board and Company management will be served; the Board
avoids another proxy contest; management, and particularly defendant Hawthorne, avoid ouster from their employment by a
Milikowsky Group in control of the Board; and Brookfield will acquire GrafTech at a low price and without competition from
superior proposals from other bidders for GrafTech. And just two weeks after entering into the Investment Agreement with
Brookfield, GrafTech announced the Proposed Acquisition of the Company by Brookfield, and that the Milikowsky Group had
agreed to tender its shares in the Offer and oppose any alternative proposals.
The Conflicted and Unfair Process
Led to an Unfair Price
43. The Proposed Acquisition undervalues GrafTech and is designed to ensure a sale of the Company to Brookfield on terms
preferential to Brookfield, the Milikowsky Group, the Board and members of Company management.
44. The Proposed Acquisition Consideration drastically undervalues the Company’s prospects and is the result of an entirely
unnecessary sales process. First, while Brookfield acquired approximately 20% of the Company for $5.00 per share, the Proposed
Acquisition Consideration for control of the Company offers GrafTech shareholders just a 1% premium for that control. Moreover, the
$5.05 per share consideration represents a meager 2% premium based on GrafTech’s closing price on the last trading day before the
Proposed Acquisition was announced. Furthermore, according to Yahoo! Finance, at least one analyst has set a price target of $6.00
per share for GrafTech stock.
45. The Proposed Acquisition Consideration fails to reflect the value of GrafTech’s worldwide manufacturing capabilities; that
its Industrial Materials network has
- 17 -
the largest manufacturing capacity and the lowest manufacturing cost structure of all of its major competitors and delivers the
highest-level quality product; and that it is one of the largest manufacturers and providers of advanced graphite and carbon materials
used in the transportation, solar and oil and gas exploration industries. The Offer price also undercuts the value of the Company’s
2013 and 2014 rationalization plans designed to significantly improve its competitiveness and allow it to better serve customers, and
its strategic initiatives focused on three key areas: profitability, cash flow and future growth.
Preclusive Deal Protection Devices
46. To protect against the threat of alternate bidders out-bidding Brookfield after the announcement, defendants implemented or
agreed to preclusive deal protection devices to guarantee that Brookfield will not lose its preferred position. These deal protection
devices effectively preclude any competing bids for GrafTech.
47. First, defendants structured the Proposed Acquisition as a two-step transaction in which Brookfield first acquired a 20%
ownership interest in the Company and then will acquire the remaining 80% through the Offer. The Investment Agreement raises a
significant barrier to alternative bidders – who would be required to negotiate with both Brookfield and the Company – and effectively
eliminates any competition for Brookfield in the process leading to the Proposed Acquisition.
48. Second, pursuant to the Merger Agreement, Brookfield will commence the Offer on May 26, 2015. The initial offer period of
the Offer will expire on July 7, 2015. The closing of the merger is subject only to tender by the holders of a simple majority of the
Company’s common stock, and over 12.5% of the Company’s shares are controlled by the Milikowsky Group, the Board and
members of Company management. The Milikowsky Group has signed an agreement with Brookfield to tender its shares, and the
Board and
- 18 -
Company will certainly tender their shares, in support of the Merger Agreement. GrafTech and Brookfield have announced their intent
to effect the merger, pursuant to §251(h) of the Delaware General Corporation Law, as a short-form merger – to cash out any
shareholders who do not tender – without so much as a shareholder vote. Thus, fewer than 38% of the Company’s shares need be
tendered in support of the Proposed Acquisition for it to close.
49. Third, to help ward off accusations of an inadequate process leading to the insufficient Proposed Acquisition Consideration,
the Board implemented a “go-shop” period in which the Company could solicit other potential buyers. This is an empty gesture,
however, because superior offers for GrafTech are discouraged by the preclusive deal protection devices defendants agreed to in the
Merger Agreement, which include: (i) a no-shop clause that will preclude the Company from soliciting potential competing bidders;
(ii) a matching rights provision that would require the Company to disclose confidential information about competing bids to
Brookfield and allow Brookfield to match any competing proposal; and (iii) a termination and expense fee provision that would
require the Company to pay Brookfield a termination fee of $7.5 million if the Proposed Acquisition is terminated in favor of a
superior proposal during the go-shop period, or a $20 million termination fee if such termination occurs after the go-shop period.
50. These onerous and preclusive deal protection devices render it unlikely that a successful competing bidder will emerge
before the closing of the Proposed Acquisition, thereby ensuring that the unfair transaction is consummated so that the Individual
Defendants can secure their own personal benefits. Accordingly, the Individual Defendants’ efforts to put their own personal interests
before those of the Company’s shareholders have resulted in a proposed transaction presented to GrafTech shareholders at an
untenable and inadequate offer price.
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51. In light of the foregoing, the Individual Defendants must, as their fiduciary obligations require:
•
Withdraw their consent to the merger of GrafTech with Brookfield and allow the shares to trade freely without
impediments such as the aforementioned matching rights and termination fee provisions;
•
Act independently so that the interests of GrafTech’s public stockholders will be protected;
•
Adequately ensure that no conflicts of interest exist between their own interests and their fiduciary obligation to
maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of
GrafTech’s public stockholders; and
•
Solicit competing bids to Brookfield’s offer without the impediments discussed above to ensure that the Company’s
shareholders are receiving the maximum value for their shares.
CLASS ACTION ALLEGATIONS
52. Plaintiff brings this action individually and as a class action on behalf of all stockholders of GrafTech, except defendants
herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants, who are being and/or
will be harmed or threatened by defendants’ actions as described more fully below (the “Class”).
53. This action is properly maintainable as a class action.
54. The Class is so numerous that joinder of all members is impracticable. GrafTech’s stock is publicly traded on the New York
Stock Exchange and pursuant to the Merger Agreement, as of April 20, 2015, there were over 137.6 million outstanding common
shares held by hundreds, if not thousands, of individuals and entities throughout the country. The number and identities of the record
holders of GrafTech shares can be easily determined from the stock transfer journals maintained by GrafTech or its agents.
- 20 -
55. There is a well-defined community of interest in the questions of law and fact affecting the members of the Class,
including, inter alia , the following:
(a) whether the Individual Defendants have breached their fiduciary duty to secure and obtain the best value reasonable
under the circumstances for the benefit of plaintiff and the other members of the Class in connection with the Proposed Acquisition;
(b) whether the Individual Defendants have breached any of their other fiduciary duties to plaintiff and the other members
of the Class in connection with the Proposed Acquisition, including the duties of loyalty, candor, and due care;
(c) whether plaintiff and the other members of the Class would be irreparably harmed were the transactions complained of
herein consummated;
(d) whether the members of the Class have sustained damages, and if so, what is the proper measure of damages; and
(e) whether defendants GrafTech and Brookfield or its affiliates have aided and abetted the Individual Defendants’
breaches of fiduciary duties.
56. Plaintiff is a member of the Class and is committed to prosecuting this action. Plaintiff has retained competent counsel
experienced in litigation of this nature. Plaintiff’s claims are typical of the claims of the other members of the Class. Plaintiff does not
have interests antagonistic to or in conflict with those he seeks to represent. Plaintiff is therefore an adequate representative of the
Class.
57. The likelihood of individual Class members prosecuting separate individual actions is remote due to the relatively small loss
suffered by each Class member as compared to the burden and expense of prosecuting litigation of this nature and magnitude. Absent
a class action, defendants are likely to avoid liability for their wrongdoing, and Class members are unlikely to obtain redress for the
wrongs alleged herein. There are no difficulties likely to be encountered in the management of the Class claims. This Court is an
appropriate forum for this dispute.
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58. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for
defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of
the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their
interests.
59. Defendants have acted on grounds generally applicable to the Class with respect to the matters complained of herein, thereby
making appropriate the relief sought herein with respect to the Class as a whole.
FIRST CAUSE OF ACTION
For Breach of Fiduciary Duties
Against the Individual Defendants
60. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.
61. As alleged herein, the Individual Defendants have breached their fiduciary duties to GrafTech’s shareholders by failing to
take steps to obtain the highest value available for GrafTech in the marketplace and, in fact, agreeing to onerous deal protection
devices to decrease the chances of obtaining the highest value available for GrafTech in the marketplace.
62. As a result of the Individual Defendants’ breaches, plaintiff and the Class will suffer irreparable injury because GrafTech’s
shareholders will not receive fair value for their equity interests in the Company.
63. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties and will attempt to
consummate the merger, to the irreparable harm of the Class.
64. Plaintiff and the Class have no adequate remedy at law.
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SECOND CAUSE OF ACTION
For Aiding and Abetting Breaches of Fiduciary Duty
Against Defendant GrafTech
65. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.
66. The Individual Defendants owed to plaintiff and the members of the Class certain fiduciary duties as fully set out herein.
67. By committing the acts alleged herein, the Individual Defendants breached their fiduciary duties owed to plaintiff and the
members of the Class.
68. GrafTech colluded in or aided and abetted the Individual Defendants’ breaches of fiduciary duties, and was an active and
knowing participant in the Individual Defendants’ breaches of fiduciary duties owed to plaintiff and the members of the Class.
69. Plaintiff and the Class have no adequate remedy at law.
THIRD CAUSE OF ACTION
For Aiding and Abetting Against Defendants BAM, Brookfield Capital,
Parent and Acquisition Sub
70. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.
71. The Individual Defendants owed to plaintiff and the members of the Class certain fiduciary duties as fully set out herein.
72. By committing the acts alleged herein, the Individual Defendants breached their fiduciary duties owed to plaintiff and the
members of the Class.
73. Defendants BAM, Brookfield Capital, Parent and Acquisition Sub colluded in or aided and abetted the Individual
Defendants’ breaches of fiduciary duties, and were active and knowing participants in the Individual Defendants’ breaches of
fiduciary duties owed to
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plaintiff and the members of the Class. As alleged herein, defendants BAM, Brookfield Capital, Parent and Acquisition Sub secured
certain deal protection provisions which unfairly inhibit the advancement of alternative proposals. In addition, defendants BAM,
Brookfield Capital, Parent and Acquisition Sub obtained sensitive non-public information concerning GrafTech’s operations and thus
had the advantage of acquiring the Company at a price that is unfair to plaintiff and the Class.
74. Defendants BAM, Brookfield Capital, Parent and Acquisition Sub participated in the breaches of the fiduciary duties by the
Individual Defendants for the purpose of advancing their own interests. Defendants BAM, Brookfield Capital, Parent and Acquisition
Sub obtained and will obtain both direct and indirect benefits from colluding in or aiding and abetting the Individual Defendants’
breaches. Defendants BAM, Brookfield Capital, Parent and Acquisition Sub will benefit from the acquisition of the Company at an
inadequate and unfair price if the Proposed Acquisition is consummated.
75. As a result, plaintiff and the Class members are being irreparably harmed.
76. Plaintiff and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiff demands judgment against defendants, jointly and severally, as follows:
A. Declaring this action to be a class action and certifying plaintiff as the Class representative and plaintiff’s counsel as Class
counsel;
B. Permanently enjoining defendants and all those acting in concert with them from taking any steps to consummate the
Proposed Acquisition;
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C. Directing defendants, jointly and severally, to account to plaintiff and the Class for all damages suffered and to be
suffered by them as a result of the wrongs complained of herein, if the merger is consummated;
D. In the event the Proposed Acquisition is consummated, rescinding it or ordering rescissory damages;
E. Awarding plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of
plaintiff’s attorneys and experts; and
F. Granting such other and further equitable relief as deemed just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: May 22, 2015
/s/ Paul Grieco
JACK LANDSKRONER (0059227)
PAUL GRIECO (0064729)
DREW LEGANDO (0084209)
LANDSKRONER • GRIECO • MERRIMAN, LLC
1360 West 9th Street, Suite 200
Cleveland, OH 44113
216/522-9000 Phone
216/522-9007 Fax
Jack(@)lgmlegal.com
[email protected]
[email protected]
and
ROBBINS GELLER RUDMAN & DOWD LLP
DAVID T. WISSBROECKER
EDWARD M. GERGOSIAN
655 West Broadway, Suite 1900
San Diego, CA 92101
619/231-1058 Phone
619/231-7423 Fax
and
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DUNNAM DUNNAM HARMON WEST
LINDLEY & RYAN LLP
HAMILTON P. LINDLEY
4125 W. Waco Drive
Waco, TX 76710
254/753-6437 Telephone
254/753-7434 Fax
Attorneys for Plaintiff
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Exhibit (a)(5)(B)
NAILAH K. BYRD
CUYAHOGA COUNTY CLERK OF COURTS
1200 Ontario Street
Cleveland, Ohio 44113
Court of Common Pleas
COMPLAINT Electronically Filed:
June 12, 2015 17:43
By: PAUL GRIECO 0064729
Confirmation Nbr. 465655
TRAVIS J. KELLEHER, ETC.
CV 15 846032
vrs.
Judge:
GRAFTECH INTERNATIONAL LTD., ET AL.
MICHAEL E. JACKSON
Pages Filed: 44
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
TRAVIS J. KELLEHER, Individually and on
Behalf of All Others Similarly Situated
11511 Larch Street
Coons Rapids, MN 44131
)
)
)
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and
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CLASS ACTION
and
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AMENDED COMPLAINT FOR BREACH
OF FIDUCIARY DUTY
BRENDA SCITES
3224 Holyglen Court
Midlothia, VA 23112-3710
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DEMAND FOR JURY TRIAL
MICHAEL BLOOM
4340 Sheridan Street, Suite 102
Hollywood, FL 33021
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Plaintiffs
vs.
GRAFTECH INTERNATIONAL LTD.
HQ
6100 Oak Tree Boulevard, Suite 300
Park Center I
Independence, OH 44131
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Also Serving Registered Agent:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
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)
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and
BCP IV GRAFTECH HOLDINGS LP
Registered Agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
)
)
)
)
)
)
and
)
)
)
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Case No. CV 15-846032
Judge Michael E. Jackson
ATHENA ACQUISITION SUBSIDIARY
INC.
Registered Agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
and
BROOKFIELD CAPITAL PARTNERS LTD.
HQ:
181 Bay Street
Brookfield Place, Suite 300
Toronto, ON M5J2T3
Canada
and
BROOKFIELD ASSET MANAGEMENT,
INC.
HQ:
181 Bay Street
Brookfield Place, Suite 300
Toronto, ON M5J2T3
Canada
and
JOEL L. HAWTHORNE
4025 Meadowvale Court
Fairlawn, OH 44333
and
RANDY CARSON
8 Cogswood Road
Asheville, NC 28804
and
THOMAS A. DANJCZEK
8003 East Vista Canyon Street
Mesa, AZ 85207
and
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KAREN FINERMAN
830 Park Avenue, Apt. 12A
New York, NY 10021
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and
DAVID R. JARDINI
201 Ryan Lane
Meadow Lands, PA 15347
and
NATHAN MILIKOWSKY
117 Lyman Road
Chestnut Hill, MA 02467
and
M. CATHERINE MORRIS
9502 East Maplewood Circle
Englewood, CO 80111
Defendants
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Plaintiffs Travis J. Kelleher, Michael Bloom and Brenda Scites (“Plaintiffs”), by and through their counsel, individually and on
behalf of all others similarly situated, allege upon personal knowledge as to themselves and upon information and belief as to all other
allegations herein as follows:
SUMMARY OF THE ACTION
1. Plaintiffs bring this shareholder class action, individually and on behalf of all other public shareholders of GrafTech
International Ltd. (“GrafTech” or the “Company”), against GrafTech, the members of GrafTech’s Board of Directors (the “Board” or
“Individual Defendants”), Brookfield Asset Management Inc. (“BAM”), Brookfield Capital Partners Ltd. (“Brookfield Capital”), BCP
IV GrafTech Holdings LP (“Parent”), and Athena Acquisition Subsidiary Inc. (“Acquisition Sub” and collectively with BAM,
Brookfield Capital and Parent, “Brookfield”), in connection with the proposed buyout and acquisition of GrafTech by Brookfield (the
“Proposed Acquisition” or the “Proposed Merger”).
-3-
2. GrafTech, an American multinational corporation headquartered in Ohio, is one of the largest manufacturers of synthetic
and natural graphite and carbon-based products in the world.
3. Brookfield is a Canadian asset management company with a focus on property, renewable power, infrastructure and private
equity.
4. On May 4, 2015, GrafTech announced that it had entered into an Investment Agreement with Brookfield (the “Investment
Agreement”) pursuant to which the Company agreed to issue and sell to Brookfield $150 million worth of 7% convertible preferred
shares (“Preferred Stock”) of GrafTech in a private offering. Brookfield has the right to convert the convertible preferred shares into
GrafTech common shares, which will then provide Brookfield an approximately 20% ownership stake in the Company. Brookfield
also received the right to designate members to the Board.
5. Two weeks later, on May 18, 2015, GrafTech announced that it had entered into a definitive merger agreement (the “Merger
Agreement”) with Brookfield, pursuant to which Brookfield will seek to acquire the Company via tender offer (the “Tender Offer”) at
the purchase price of $5.05 per share in cash (the “Tender Offer Consideration”).
6. The Tender Offer Consideration drastically undervalues GrafTech and is a price significantly lower than the Company’s
52-week stock price high of $ 10.77 per share .
7. Assuming consummation of the transactions contemplated by the Investment Agreement prior to the expiration of the Tender
Offer, Brookfield will consummate the Proposed Acquisition if it receives the tender of approximately 75% of the currently
outstanding Shares (the “Merger Condition”).
-4-
8. Even if the Merger Condition is not met, however, Brookfield will close the Tender Offer and purchase the tendered
shares so long as a bare minimum of the shares are tendered. Assuming consummation of the transactions contemplated by the
Investment Agreement prior to the expiration of the Tender Offer, Brookfield will consummate the Tender Offer if it receives of
approximately 15% of the currently outstanding Shares (the “Minimum Tender Condition”).
9. Defendant and Board member Nathan Milikowsky (“Milikowsky”) entered into a Tender and Support Agreement (the
“Support Agreement”), pursuant to which he agreed to tender all of the shares he beneficially owns, totaling 15,263,969 Shares (or
approximately 11.1% of all Shares outstanding as of May 17, 2015).
10. Moreover, all of the Company’s directors – except for Joel L. Hawthorne (“Hawthorne”), GrafTech’s Chief Executive
Officer (“CEO”), President and director – have stated that they intend to tender all of their Shares in the Tender Offer and all of the
Company’s executive officers (including Hawthorne) have stated that they intend to tender at least a portion of their Shares in the
Tender Offer.
11. Thus, it is virtually certain that (1) Brookfield will consummate the Tender Offer, and (2) if Brookfield does not consummate
the Proposed Acquisition, GrafTech’s shareholders that do not tender will become minority investors in a company controlled and
managed by Brookfield.
12. Brookfield commenced the Tender Offer on May 26, 2015.
13. On May 26, 2015, defendants caused GrafTech to file the Schedule 14D-9 Solicitation/Recommendation Statement (the
“14D-9”) with the United States Securities and Exchange Commission (“SEC”), advising shareholders to tender their shares in the
Tender Offer.
-5-
14. The 14D-9 provides little or no meaningful disclosure permitting shareholders to make an informed decision on the
Tender Offer. For example, the 14D-9 omits and/or misrepresents material information about what Brookfield plans to do with
the Company if it consummates the Tender Offer but not the Proposed Acquisition. The 14D-9 does not disclose Brookfield’s
strategic plan for the Company. The 14D-9 does not disclose information necessary to assess whether Brookfield will use its
control of GrafTech to strip it of assets or take other actions to benefit Brookfield, at the cost of GrafTech. The 14D-9 does not
disclose whether Brookfield will take steps to immediately delist and cancel the trading of the Company’s shareholders from
publicly traded exchanges.
15. The effect of this uncertainty is to unlawfully coerce GrafTech’s shareholders to accept Brookfield’s inadequate offering
price rather than wait to determine the undisclosed consequences of Brookfield’s taking control of GrafTech.
16. The members of the Board of GrafTech each have ulterior motives to promote the consummation of the Proposed
Acquisition, without regard to the best interests of the Company’s shareholders.
17. For defendant Nathan Milikowsky and the directors associated with his investment group (the “Milikowsky Group”) –
directors Karen Finerman (“Finerman”), David Jardini (“Jardini”)—the Proposed Acquisition represents a financial and reputational
windfall. After defendant Milikowsky was ousted off the Brookfield board in 2014 (for improperly leaking confidential Company
information to a hedge fund), the Milikowsky Group expended more than $6.4 million in 2014 fighting to regain a board seat for
Milikowsky and attempting to obtain control of the Company. The Milikowsky Group was set to engage in another expensive proxy
battle in 2015 seeking to replace the entire Board and management with Milikowsky Group members. The Proposed Acquisition
represents a
-6-
lucrative opportunity for the Milikowsky Group to exit that fight, obtain cash for their ownership interests in Brookfield at a price they
could not have obtained by selling their share block on the market, and obtain reimbursement for their costs associated with the
proxy fight. The Proposed Acquisition also represents a unique opportunity for the Milikowsky Group to obtain certain and immediate
repayment of the Company’s $200 million senior subordinated notes it owns (the “Senior Subordinated Notes”).
18. For defendant Joel L. Hawthorne (“Hawthorne”) and his supporters – defendants Randy Carson, Thomas A. Danjczek and
M. Catherine Morris – the Proposed Acquisition also represents a financial and reputational windfall. As discussed above, the
Milikowsky Group has been threatening and intimidating the Board, publicly and in the Board room, for the last two years. In early
2015, the Board believed they were faced with the undesirable but real possibility of being publicly ousted by the Milikowsky Group.
The Proposed Acquisition is an opportunity for the Board to exit the Company with their reputations in tact and with millions of
dollars in special “change-of-control” payments.
19. To obtain these personal benefits, the Board agreed to the Proposed Acquisition without following a fair sales process. The
Board made no effort to establish measures to ensure that the interests of the Company’s public shareholders were adequately
protected during the sales process. The Board rushed the sale of the Company to Brookfield, without conducting any semblance of a
pre-announcement market check. The Board locked up the Proposed Acquisition with a myriad of deal protection devices, to ensure
that Brookfield and only Brookfield would be able to purchase the Company. And, as discussed above, the Board agreed to structure
the Proposed Acquisition as a coercive Tender Offer to force the Company’s public shareholders to tender their shares at an unfair and
inadequate price.
-7-
20. Defendants are moving quickly to consummate the deal – absent judicial intervention, the Tender Offer will expire on
July 7, 2015 .
21. Immediate judicial intervention is therefore warranted here to rectify existing and future irreparable harm to the Company’s
public stockholders. Plaintiffs seek equitable relief to enjoin defendants from taking any further steps to consummating the Tender
Offer and/or the Proposed Acquisition or, alternatively, rescind the Tender Offer and/or Proposed Acquisition in the event of
consummation.
JURISDICTION AND VENUE
22. This Court has jurisdiction over each defendant named herein because each defendant is either a corporation that conducts
business in and maintains operations in this County, or is an individual who has sufficient minimum contacts with Ohio so as to render
the exercise of jurisdiction by the Ohio courts permissible under traditional notions of fair play and substantial justice.
23. Venue is proper in this Court because one or more of the defendants either resides in or maintains executive offices in this
County, a substantial portion of the transactions and wrongs complained of herein, including the defendants’ primary participation in
the wrongful acts detailed herein and aiding and abetting and conspiracy in violation of fiduciary duties owed to GrafTech’s
shareholders occurred in this County, and defendants have received substantial compensation in this County by doing business here
and engaging in numerous activities that had an effect in this County.
PARTIES
24. Plaintiff Travis J. Kelleher is, and at all times hereto was, an owner of GrafTech common stock.
25. Plaintiff Michael Bloom is, and at all times hereto was, an owner of GrafTech common stock.
-8-
26. Plaintiff Brenda Scites is, and at all times hereto was, an owner of GrafTech common stock.
27. Defendant GrafTech is a Delaware corporation with principal executive offices located at Suite 300 Park Center I, 6100 Oak
Tree Boulevard, Independence, Ohio. GrafTech is sued herein as an aider and abettor.
28. Defendant BAM is a Canadian asset management company with principal executive offices at Brookfield Place, Suite
300,181 Bay Street, Toronto, Ontario, Canada. BAM is sued herein as an aider and abettor.
29. Defendant Brookfield Capital is the private equity arm and an affiliate of BAM. Brookfield Capital with principal executive
offices at Brookfield Place, Suite 300, 181 Bay Street, Toronto, Ontario, Canada. Brookfield Capital is sued herein as an aider and
abettor.
30. Defendant Parent is a Delaware limited partnership, and is sued herein as an aider and abettor.
31. Defendant Acquisition Sub is a Delaware corporation and a wholly owned subsidiary of Parent. Defendant Acquisition Sub
is sued herein as an aider and abettor.
32. Defendant Joel L. Hawthorne is, and at all relevant times has been, GrafTech’s CEO and President, and a member of the
Board. Hawthorne became GrafTech’s CEO and President, and a director in January 2014. Hawthorne has no prior experience serving
as a CEO for a public company. The Milikowsky Group targeted Hawthorne and urged the Board to replace Hawthorne with Jardini.
Hawthorne
33. Defendant Randy Carson is, and at all relevant times has been, GrafTech’s Chairman and a member of the Board. Carson has
served on GrafTech’s Board of Directors since 2009 and was elected to serve as its Chairman in June 2014. Carson began to serve as
Chairman when Hawthorne stepped down from that role as response to the Milikowsky Group’s efforts to “replace management” and
“destabilize the Board.”
-9-
34. Defendant Thomas A. Danjczek is, and at all relevant times has been, a member of the Board.
35. Defendant Karen Finerman is, and at all relevant times has been, a member of the Board and serves on its Nominating and
Governance Committee. Finerman is associated with the Milikowsky Group. On several separate occasions, Finerman demonstrated
her loyalty to the Milikowsky Group by acting to further the Milikowsky Group’s agenda, including: gathering directors outside the
presence of Hawthorne and insisting that the Board appoint Milikowsky as the Company’s President and CEO; suggesting that the
viability of the Company was in danger, requiring the formation of special committee comprised of Milikowsky Group members to
“review the Company’s future direction, explore strategic alternatives or financial restructuring and address the management of the
Company”; and repeatedly criticizing the Board and Company’s management.
36. Defendant David R. Jardini is, and at all relevant times has been, a member of the Board, and a member of its Audit and
Finance Committee. Jardini is associated with the Milikowsky Group. Defendant Milikowsky specifically selected Jardini to replace
Hawthorne as President and CEO of the Company. On several separate occasions, Jardini demonstrated his loyalty to the Milikowsky
Group by acting to further the Milikowsky Group’s agenda, including: threatening the Board with Milikowsky to adopt the
Milikowsky Group’s strategy; demanding with Milikowsky that the Company terminate senior executives; demanding that the
Company give him and Milikowsky office space at the Company headquarters; demanding that the Board appoint him as Chief
Restructuring Officer; threatening the Board with the Company’s $200 million senior subordinated notes held by him and
Milikowsky; and repeatedly criticizing the Board and Company’s management.
- 10 -
37. Defendant Nathan Milikowsky is, and at all relevant times has been, a member of the Board. Milikowsky rejoined
GrafTech’s Board of Directors in May 2014, and serves as Chair of the Nominating and Governance Committee, and as a
member of the Organization, Compensation and Pension Committee.
38. Defendant M. Catherine Morris is, and at all relevant times has been, a member of the Board, and serves as the Chair of its
Audit and Finance Committee.
39. The defendants named above in ¶¶32-38 are sometimes collectively referred to herein as the “Individual Defendants.”
THE INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES
40. In any situation where the directors and officers of a publicly traded corporation undertake a transaction that will result in
either a change in corporate control or a break-up of the corporation’s assets, the directors and officers have an affirmative fiduciary
obligation to act in the best interests of the company’s shareholders, including the duty to obtain maximum value under the
circumstances. To diligently comply with these duties, the directors and officers may not take any action that:
(a) adversely affects the value provided to the corporation’s shareholders;
(b) will discourage or inhibit alternative offers to purchase control of the corporation or its assets;
(c) contractually prohibits them from complying with their fiduciary duties; and/or
(d) will provide the directors, executives, or other insiders with preferential treatment at the expense of, or separate from,
the public shareholders, and place their own pecuniary interests above those of the interests of the company and its shareholders.
- 11 -
41. In accordance with their duties of loyalty and good faith, the Individual Defendants, as directors and officers of
GrafTech, are obligated to refrain from:
(a) participating in any transaction where the directors’ or officers’ loyalties are divided;
(b) participating in any transaction where the directors or officers are entitled to receive a personal financial benefit not
equally shared by the public shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment of the public shareholders.
42. The Individual Defendants, separately and together, in connection with the Proposed Acquisition, are knowingly or
recklessly violating their fiduciary duties and aiding and abetting such breaches, including their duties of loyalty, good faith, and
independence owed to Plaintiffs and other public shareholders of GrafTech. Certain of the defendants are obtaining for themselves
personal benefits, including personal financial benefits not shared equally by Plaintiffs or the Class (as defined herein). Accordingly,
the Proposed Acquisition will benefit the Individual Defendants in significant ways not shared with the Class members. As a result of
the Individual Defendants’ self-dealing and divided loyalties, neither Plaintiffs nor the Class will receive adequate or fair value for
their GrafTech common stock in the Proposed Acquisition.
43. Because the Individual Defendants are knowingly or recklessly breaching their fiduciary duties of loyalty, good faith, and
independence in connection with the Proposed Acquisition, the burden of proving the inherent or entire fairness of the Proposed
Acquisition, including all aspects of its negotiation, structure, price, and terms, is placed upon defendants as a matter of law.
- 12 -
SUBSTANTIVE ALLEGATIONS
Background to the Proposed Acquisition
44. Founded over 125 years ago, GrafTech is a leading manufacturer of high quality graphite electrodes, which are essential to
the production and manufacture of steel and other metals, and needle coke products, which are the primary raw materials used in
graphite electrodes. GrafTech also manufactures carbon, graphite and semi-graphite refractory products, which are used to protect the
walls of blast furnaces and submerged arc furnaces. The Company’s graphite and carbon products are used in the transportation, solar,
and oil and gas exploration industries. In 2014, worldwide sales of GrafTech products topped $7.4 billion.
45. In the months leading up to the announcement of the Proposed Acquisition, GrafTech was working on dealing with a number
of business challenges. There was a temporary downturn in global steel production, resulting in weaker demand for the Company’s
graphite electrode products; a temporary slowdown in the Chinese economy, which further impaired international sales; and a
temporary weakening of foreign rate exchanges, particularly for the euro, which also contributed to the softening of international
demand for GrafTech products.
46. In the face of these challenging headwinds, GrafTech’s management implemented various strategic initiatives designed to
strengthen its core business, which focused on by reducing manufacturing costs, increasing operational efficiencies, and aligning
production to changing demand. Heading into 2015, GrafTech was making significant progress in implementing these measures. In
the quarter immediately preceding the Proposed Acquisition, GrafTech reported that the roll-out of its cost savings program had
largely been successful and was “ahead of plan” – resulting in a cost savings of more than $120 million and a positive impact on
earnings.
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The Proxy Battle
47. At the same time GrafTech was facing these business challenges, the Company was being besieged by a contentious
corporate governance battle waged among certain of its directors and members of senior management. This proxy fight was initiated
by defendant Milikowsky.
48. Defendant Milikowsky’s relationship with the Company began in 2010. On November 30, 2010, the Company acquired C/G
Electrodes LLC and the portion of Seadrift Coke L.P. not previously owned by GrafTech (the “Seadrift Acquisitions”). Pursuant to the
Seadrift Acquisitions, Milikowsky and/or his investment group became a large shareholder of the Company, became the holder of the
Senior Subordinated Notes, and obtained a seat on the Board.
49. In September 2012, the Company’s then-Chief Financial Advisor indicated that he had received information demonstrating
that an insider had provided unauthorized inside information to a large hedge fund, an investor of the Company, and that the hedge
fund might have improperly traded based off of the inside information.
50. The Board established a Special Committee to investigate these allegations. The Special Committee engaged experienced
and independent counsel, Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”), and spent “over 2,000 hours of personnel time …
collecting and reviewing [thousands of] documents and interviewing personnel.”
51. In March 2013, Morris Nichols reported its findings. Morris Nichols concluded that “such leaks did occur, that there was
evidence that Mr. Milikowsky was the source of the leaks, that there was no evidence to support a conclusion that management or
- 14 -
any other director was the source of the leaks and that at least some of the leaked information could not have been developed
independently.” Morris Nichols also reported its conclusion that Milikowsky did not cooperate fully with the investigation.
52. The Board’s Nominating & Governance Committee, with the assistance from a well-recognized law firm, Wilson Sonsini
Goodrich & Rosati, reviewed Morris Nichols’ report and unanimously reached the conclusion that Milikowsky had not satisfied the
requirements to act as a director of the Company. The Nominating & Governance Committee concluded that Milikowsky had, among
other things, breached his fiduciary duties to stockholders for the “apparent purpose of gaining operational control of the Company.”
53. In March 2013, at the recommendation of the Nominating & Governance Committee, the Board declined to re-nominate
Milikowsky for election as a director. According to the Board, the Board found extensive evidence of how far Milikowsky would go
to further his own interests at the expense of the Company and its shareholders, including that:
•
“Nathan Milikowsky was sharing information with Daniel Milikowsky, in violation of his fiduciary duties and
contractual obligations. There were multiple communications between the Hedge Fund and Daniel Milikowsky that
Nathan Milikowsky did not report to the Board, including communications related to stock buybacks at the same time
that the Audit Committee (of which Nathan Milikowsky was member) was establishing the parameters and directing
the execution thereof. Further, when Mary Cranston, the Board’s lead director, asked Nathan Milikowsky during 2012
whether he was in contact with the Hedge Fund, Nathan Milikowsky stated he had had one telephone call with them.
During a subsequent Board meeting shortly thereafter, in response to a request to report that telephone call to the
Board, Nathan Milikowsky stated that he had not spoken to the Hedge Fund, but rather that his brother, Daniel
Milikowsky, had been contacted by the Hedge Fund. Such statements by Nathan Milikowsky to the Board were
inconsistent with the facts identified in the investigation.”
- 15 -
•
“Another Milikowsky family member, who was also an employee of a different hedge fund, was revealed to be
communicating with the Hedge Fund and Nathan Milikowsky was aware thereof.”
•
“As reported in the Chief Financial Officer’s letter distributed to the Board, the Hedge Fund demonstrated
contemporaneous knowledge of material nonpublic information that was only known to senior management and the
directors. The Hedge Fund stated to our Investor Relations team that it objected to a large acquisition by the Company
in an area about which the Company had not previously disclosed material interest, of almost exactly the same type and
size that the Company was then considering. The Hedge Fund subsequently named the prospective target. The Hedge
Fund disclosed to our Investor Relations team information about the cost structure of our electrode plants and the status
of our capital spending in certain Engineered Solutions business units, information that was some of the Company’s
most sensitive information. Investigatory counsel reported its conclusion that there was no evidence to support a
conclusion that management or any director other than Nathan Milikowsky was the source of that information and that
at least some of the information could not have been determined independently.”
•
“Nathan Milikowsky and another director (who was Chair of the Audit Committee) entered into an undisclosed
arrangement which the Special Committee, with advice of outside counsel, concluded was a free option, enabling that
director to benefit from any increase in value of an approximately $200,000 investment in an early stage medical
technology company sponsored by Nathan Milikowsky without the concomitant investment risk. Thereafter, that same
director became a supporter of Nathan Milikowsky’s agenda. That same director also thereafter assured Mary Cranston
that she would be able to continue as lead director or possibly even become chairperson after management changed.
Nathan Milikowsky never disclosed that conflict of interest when the Special Committee (of which such director was to
be a member) was formed and never produced any of the documents related thereto, even though they were within the
scope of investigatory counsel’s production request. Rather, the arrangement was first disclosed at the very end of the
investigation by that director, who mentioned it at that time to some other directors, stating that it was only about a
$ 10,000 cash investment, and then later admitted the full extent of the arrangement and produced documents in a
follow up interview by investigatory counsel. That director subsequently resigned from the Special Committee.”
•
“Nathan Milikowsky deliberately misrepresented the voting intentions of one director in order to mislead another
director into supporting his agenda.”
•
“Nathan Milikowsky and another director (who was Chair of the Audit Committee) entered into an undisclosed
arrangement which the Special Committee, with advice of outside counsel, concluded was a free option, enabling that
director to benefit from any increase in value of an approximately $200,000 investment in an early stage medical
technology company sponsored by Nathan Milikowsky without the concomitant
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investment risk. Thereafter, that same director became a supporter of Nathan Milikowsky’s agenda. That same director also
thereafter assured Mary Cranston that she would be able to continue as lead director or possibly even become chairperson
after management changed. Nathan Milikowsky never disclosed that conflict of interest when the Special Committee (of
which such director was to be a member) was formed and never produced any of the documents related thereto, even
though they were within the scope of investigatory counsel’s production request. Rather, the arrangement was first
disclosed at the very end of the investigation by that director, who mentioned it at that time to some other directors, stating
that it was only about a $ 10,000 cash investment, and then later admitted the full extent of the arrangement and produced
documents in an follow up interview by investigatory counsel.”
54. In May 2013, Milikowsky ceased to serve as a director of the Company.
55. Milikowsky, however, did not go away quietly. Milikowsky invested millions of dollars in 2014, engaging in a vicious proxy
battle against the Board.
56. Milikowsky’s tactics included attempting to publicly humiliate the Board. For example, he publicly criticized the Board’s
performance numerous times:
•
“we believe that the Company has consistently underperformed as a result of factors including, but not limited to, poor
oversight by the current Board”; and
•
“We believe at the heart of GrafTech’s dreadful performance has been poor leadership, enabled by a consistent lack of
Board oversight, causing a precipitous decline in sales, inefficient operations, and damaged customer relationships.”
57. The Board recognized that Milikowsky’s attempts to obtain control of the Company were based in self-interest. The Board
explained:
•
“The Board believes that the Daniel and Nathan Milikowsky Group continues to pursue a course of action to obtain
control without payment of a premium or other consideration to stockholders”; and
•
“We believe stockholders should be deeply concerned about surrendering control of their company,
especially without payment of a control premium, to the Milikowsky Group, whose platform is
replete with unsound analysis and misinformation.”
58. Despite the Board’s efforts, the Milikowsky Group – after expending more than $6.4 million – won three Board seats in
2014, for Milikowsky, Jardini and Finerman.
- 17 -
59. After obtaining the Board seats in 2014, the Milikowsky Group set about and immediately began a plan of harassment
and threats against the Board members in order to obtain control of the Company.
60. For instance, the Milikowsky Group directors individually argued with separate Board members, in several private
one-on-one meetings, phone calls and e-mails, to adopt the Milikowsky Group’s “commercial strategy to increase the Company’s
market share by focusing on the commodity aspects of the graphite-electrode business and pricing practices similar to those of
low-cost industry participants” (the “Dissident Strategy”). The Milikowsky Group directors threatened the Board members that the
Company’s shareholders had “given an electoral mandate to the Dissident Strategy by electing the Milikowsky Group Directors.”
61. According to the Board: “After numerous unsuccessful attempts to convince the Company Directors that the Dissident
Strategy is the only viable operating strategy for the Company, the three Milikowsky Group Directors began to undermine and seek to
replace management (as discussed below) and to destabilize the Board through changes to the senior management of the Company.”
62. In January 2015, Milikowsky launched a new proxy battle -not just to oust Hawthorne and Carson, but to replace the entire
seven-member Board (except for himself, Finerman and Jardini) with a full slate of candidates of his choosing. The Milikowsky
Group again publicly attacked the Board, disclosing vicious letters criticizing the opposing directors.
63. Milikowsky held the Senior Subordinated Notes over the Board’s head. He threatened that he would extend the maturity of
the Senior Subordinated Notes only if he could dictate who would serve on the Board and as the Company’s management.
64. On March 17, 2015, Milikowsky issued and filed with the SEC a formal proxy statement seeking the election of seven Board
members, including himself, Finerman, Jardini, and four other allies. The vote for this proxy contest was scheduled for the Company’s
annual shareholder meeting on May 29, 2015.
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Brookfield Seeks to Acquire GrafTech
65. Recognizing that GrafTech was in a vulnerable position, due to the challenges to its business and uncertain corporate
governance, Brookfield targeted the Company in early 2015. Brookfield, a Canadian private equity firm with a $200 billion in assets
under management, had initially considered investing in GrafTech through a convertible note offering, but later recognized that it
could acquire the entire Company at a bargain price.
66. In February 2015, representatives of Brookfield approached defendant Hawthorne concerning a potential transaction by
which Brookfield would refinance the senior notes held by Milikowsky, through the issuance of $100 million convertible notes to the
Company. Hawthorne continued to have preliminary discussions with representatives of Brookfield about this proposal through
mid-March 2015; however, the full Board was not advised of these discussions at that time.
67. It was only after Milikowsky and his group launched the formal proxy contest on March 17, 2015 that the Board was finally
spurred into action. By then, Brookfield had decided to acquire GrafTech outright, instead of merely investing in the Company. On
March 19, 2015, the Board convened to discuss Brookfield’s indication of interest to acquire GrafTech at a price range between $5.00
and $5.25 per share in cash, which was far below the Company’s 52-week stock price of $10.77 per share. While the Board directed
the Company’s senior management to continue discussions with Brookfield and later authorized the retention of JP Morgan as the
Company’s financial advisor, it made no effort to evaluate or pursue a broader market check.
- 19 -
68. On April 14, 2015, Brookfield submitted a modified proposal, which contemplated a two-part transaction involving
Brookfield’s purchase of $150,000,000 of GrafTech convertible preferred stock, and then a tender offer for the Company’s
outstanding shares at $5.00 per share. This deal structure would allow Brookfield to acquire a 20% ownership stake in GrafTech
through its initial purchase of the Company’s convertible preferred stock, and then would give Brookfield a controlling stake in
the Company through the Tender Offer. On April 16, the Board met to discuss Brookfield’s proposal, but again refused to
engage in a broader market check and made no effort to solicit the interest of other potential buyers to ensure a competitive
bidding process.
69. By April 28, 2015, the Board agreed to the price of $5.05 per share for the Tender Offer – a nominal five cent increase over
Brookfield’s April 14 proposal. The agreed-upon tender offer price was lower than the high end of the range that Brookfield had
initially proposed on March 19 ($5.25 per share). And, the tender offer price was nowhere close to the Company’s 52-week high stock
price of $10.77 per share.
70. On May 4, 2015, the Company executed the Investment Agreement with Brookfield, pursuant to which Brookfield agreed to
purchase convertible preferred shares in the Company at an aggregate price of $ 150,000,000. Pursuant to the Investment Agreement,
the vast majority of the convertible preferred shares acquired by Brookfield could be converted to shares of GrafTech common stock,
which would provide Brookfield a 20% ownership stake in the Company.
71. As part of its investment, Brookfield also received the right to designate: two members for election to the Board for so long
as Brookfield owned at least 75% of the
- 20 -
Preferred Stock (“Holder Designees”); and one member for election to the Board for so long as Brookfield owned at least 25% of the
Preferred Stock. In addition, as long as Brookfield owned at least 35% of the Company’s outstanding shares, on a fully diluted,
as-converted basis, Brookfield has the right to designate for nomination to the Board the number of directors that is (i) proportionate to
the aggregate percentage ownership of Brookfield less (ii) the number of Holder Designees.
72. Moreover, on top of securing a dominant ownership interest in GrafTech, Brookfield was entitled to receive a hefty 7%
dividend for its $150,000,000 investment (to be paid by the Company).
73. Once the convertible preferred shares were issued to Brookfield, defendants rushed to finalize the second part of their plan –
Brookfield’s acquisition of the remaining shares of the Company through the Tender Offer. GrafTech’s Board and management were
very motivated to seal the deal with Brookfield – indeed, the proposed tender offer would serve as a quick and effective way to
eliminate Milikowsky and his group’s dominant ownership interest in the Company, and finally put an end to his contentious proxy
challenge.
74. This plan proved to be successful. Lured by the opportunity to liquidate his ownership bloc in the Company at a slight
premium over the trading price at the time, Milikowsky indicated on May 5, 2015 that he would be supportive of the Tender Offer and
was willing to execute the Tender and Support Agreement in connection with the Merger Agreement.
75. On May 17, 2015, the Board convened a meeting, ostensibly for the purpose of reviewing the Merger Agreement and
considering the financial analyses and fairness opinion prepared by JP Morgan Securities LLC (“JP Morgan”). Not surprisingly, JP
Morgan
- 21 -
opined that Brookfield’s offer price of $5.05 per share was fair from a financial perspective. For this opinion, the Board agreed to pay
JP Morgan a fee of approximately $10.1 million, contingent upon Brookfield’s acquisition of a majority of the Company’s capital
stock, despite the fact that JP Morgan had made no effort to conduct a market check or solicit the interests of other potential acquirers.
76. The objectivity of JP Morgan’s fairness opinion should also be called into question due to the advisor’s longstanding and
lucrative relationship with Brookfield. Over the last two years, JP Morgan and its affiliates have acted as bookrunner on debt
underwritings for portfolio companies of Brookfield. Also, as recently as May 2015, JP Morgan and Brookfield partnered together to
raise more than $ 1 billion in funds to invest in commercial real estate in Brazil. Furthermore, Brookfield previously acquired 16
commercial properties from JP Morgan for about $200 million. JP Morgan’s pervasive relationship with Brookfield compromised its
ability to provide unbiased advice to its purported client, GrafTech.
77. The objectivity of JP Morgan’s fairness opinion should also be called into question, due to the advisor’s potential conflict of
interest stemming from its lender relationship with the Company. JP Morgan’s banking affiliate is a lender to the Company’s
outstanding credit facilities of the Company, which will presumably be paid or continued favorably in connection with the Proposed
Acquisition.
78. At the May 17 meeting, the Board formally approved of the Merger Agreement and related documents, including the Tender
and Support Agreement entered into by Milikowsky.
- 22 -
79. On May 18, 2015 – a little over two months from the date of Brookfield’s initial proposal – GrafTech issued a press
release announcing that GrafTech would be acquired by Brookfield for $5.05 in cash per GrafTech share. The press release states
in relevant part:
GrafTech Enters Into Definitive Transaction Agreement
with an Affiliate of Brookfield Asset Management
Brookfield to Commence Tender Offer for GrafTech
Common Stock at $5.05 Per Share
… GrafTech International Ltd. (“GrafTech” or the “Company”) today announced it has entered into a definitive agreement and
plan of merger with an affiliate of Brookfield Asset Management Inc. (“Brookfield”) under which Brookfield will commence a
tender offer to acquire up to all of the outstanding shares of GrafTech common stock. The definitive agreement was unanimously
approved by GrafTech’s Board of Directors and follows the letter of intent announced by GrafTech on April 29, 2015. Holders of
approximately 11% of the outstanding shares of GrafTech common stock, including GrafTech director Nathan Milikowsky, have
agreed to support the transaction and tender their shares in the tender offer.
Under the terms of the agreement, Brookfield will commence a tender offer to purchase up to all of the outstanding shares of
GrafTech common stock at a purchase price of $5.05 per share, representing a premium of 26% over the average closing price of the
Company’s common shares during the 60 trading days ended April 28, 2015. The tender offer is not subject to any financing
conditions.
The tender offer is intended to provide GrafTech stockholders the option to choose immediate liquidity at a premium as
described above or to participate in GrafTech as a stockholder following the closing of the tender offer (subject to the merger
provisions described below) with the benefit of Brookfield sponsorship going forward. A stockholder might choose to accept a
combination of both cash and continued ownership of GrafTech shares.
The Company believes that Brookfield has an exceptional track record sponsoring public companies in difficult underlying
market conditions, including significant knowledge and experience in steel, mining and metals, and other industrial sectors.
Pursuant to the agreement, the tender offer will commence no later than May 26, 2015 and will expire at 12:00 midnight, New
York City time, on July 7, 2015, unless extended in accordance with the terms of the agreement and the applicable rules and
regulations of the Securities and Exchange Commission. Consummation of the tender offer is subject to certain conditions, including
receipt of required regulatory approvals, the tender of a number of GrafTech shares that, together with any other shares then owned
by Brookfield (including shares issuable upon conversion of the convertible preferred stock expected to be issued to Brookfield as
previously
- 23 -
announced), would represent at least 30% of the then outstanding shares plus shares issuable upon such conversion (the “minimum
tender condition”), and other customary conditions. Assuming the convertible preferred stock is issued prior to the expiration of the
tender offer, as of the date hereof, satisfaction of the minimum tender condition would require the tender of approximately 15% of
the currently outstanding GrafTech shares.
If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable
upon conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at
least 80% of the then outstanding shares plus shares issuable upon such conversion (the “merger condition”), then the remaining
outstanding GrafTech shares will be acquired in a merger transaction at the same price offered in the tender offer. Assuming the
convertible preferred stock is issued prior to the expiration of the tender offer, as of the date hereof, satisfaction of the merger
condition would require the tender of approximately 75% of the currently outstanding GrafTech shares.
Additional details regarding the tender offer are or will be made available in Brookfield’s and the Company’s respective filings
with the Securities and Exchange Commission.
J.P. Morgan Securities LLC is serving as financial advisor, and Withers LLP and Willkie Farr & Gallagher LLP are serving as
legal counsel, to GrafTech in connection with the transaction. Weil, Gotshal & Manges LLP is serving as legal counsel to Brookfield
in connection with the transaction.
The Tender Offer Consideration is Unfair
80. Not surprisingly, the Board’s flawed and hastily-orchestrated sales process resulted in an inadequate Tender Offer price that
drastically undervalues GrafTech as a standalone business. The $5.05 per share consideration offered under the Tender Offer
represents a meager 2% premium to GrafTech’s closing price on the last trading day before the announcement of the Proposed
Acquisition. The proposed Tender Offer price is a pittance, considering that Company’s stock price achieved a 52-week high of
$10.77 per share .
81. The proposed Tender Offer price fails to reflect the value of GrafTech’s superior manufacturing capabilities. Indeed,
GrafTech is one of the world’s leading
- 24 -
manufacturers of advanced graphite and carbon materials used in the transportation, solar and oil and gas exploration industries. The
Company’s Industrial Materials network reportedly has the largest manufacturing capacity, while maintaining the lowest
manufacturing cost structure of all of its major competitors. And, while GrafTech had recently been experiencing headwinds in its
business, just as other companies involved in the steel industry, its long-term prospects remained strong as ever. In the quarter
immediately preceding the announcement of the deal, Company management reported that it was making significant progress in
addressing these challenges, in part, by taking decisive measures to cut costs and improve earnings:
[Hawthorne]: I am extremely pleased with the progress our team continues to make on our cost savings programs and our ability to
generate and increase positive cash flow as we navigate through these industry challenging times. During 2014 we took numerous
actions to further strengthen our Business. We delivered approximately $50 million in cash savings, ahead of plan during the year as
part of our announced ongoing Company-wide cost savings program. This enabled GrafTech to achieve total annual cost savings of
more than $120 million, approximately $100 million of which are cash savings, which represents 10% of annual sales, which directly
improved EBITDA. We also optimizes the graphite electrode manufacturing platform by rationalizing the two highest costs at
manufacturing sites, including significant manufacturing head count reductions of 20%, which we also reduced annual maintenance
expenditures by approximately $10 million for these two plants. We simplified the operating and management structure to
decentralize the organization, accelerate decision-making, and improve responsiveness to changes in customer demands and we’re
seeing the benefits of that. We redesigned the research and development function to accelerate innovation for new product
development and commercialize introduction and to maximize the efficiency of development costs. We downsized corporate
functions, including head count and other SG&A, achieving a reduction of approximately 20%. We have rationalized and streamlined
under-performing product lines.
82. As reported by management, the Company was successfully implementing its cost-saving plan and increasing positive cash
flow, which ultimately would have resulted in more value to the public shareholders. Recognizing the progress the Company was
making and its robust growth prospects, an investment analyst with Jefferies placed a price target of $7.50 per share on March 2, 2015.
83. As the foregoing demonstrates, the Tender Offer price of $5.05 per share is unfair to the public shareholders in that it does
not reflect the Company’s market value had a full and fair auction been conducted. Defendants planned and orchestrated the Proposed
Acquisition knowing that the Company’s stock was substantially undervalued in the market at the time.
- 25 -
The Tender Offer Coerces Shareholders to Accept the Unfair Tender Offer Consideration
84. Brookfield commenced the Tender Offer on May 26, 2015.
85. Assuming consummation of the transactions contemplated by the Investment Agreement prior to the expiration of the Tender
Offer, Brookfield will consummate the Proposed Acquisition if it receives the tender of approximately 75% of the currently
outstanding Shares – i.e ., the Merger Condition.
86. Even if the Merger Condition is not met, however, Brookfield will close the Tender Offer and purchase the tendered shares
so long as a bare minimum of the shares are tendered. Assuming consummation of the transactions contemplated by the Investment
Agreement prior to the expiration of the Tender Offer, Brookfield will consummate the Tender Offer if it receives of approximately
15% of the currently outstanding Shares – i.e ., the Minimum Tender Condition.
87. Defendant Milikowsky entered into the Support Agreement in connection with the Merger Agreement, pursuant to which he
agreed to tender all of the shares he beneficially owns, totaling 15,263,969 Shares (or approximately 11.1% of all Shares outstanding
as of May 17, 2015).
- 26 -
88. Moreover, all of the Company’s directors, except for Hawthorne, have stated that they intend to tender all of their
Shares in the Tender Offer and all of the Company’s executive officers, including Hawthorne, have stated that they intend to
tender at least a portion of their shares in the Tender Offer.
89. Thus, it is virtually certain that (1) Brookfield will consummate the Tender Offer, and (2) if Brookfield does not consummate
the Proposed Acquisition, GrafTech’s shareholders that do not tender will become minority investors in a company controlled and
managed by Brookfield.
90. Moreover, if the Tender Offer is consummated and the Merger Condition satisfied, but the Proposed Merger is not
completed, the number of the Company’s stockholders and the number of Shares that are still in the hands of the public may be so
small that there will no longer be an active public trading market (or, possibly, there may not be any public trading market) for the
Company’s shares. Also, in such event, it is possible that the Company will be delisted from the NYSE, will no longer be required to
make filings with the SEC under the Exchange Act, or will otherwise not be required to comply with the rules relating to publicly held
companies to the same extent as it is now.
91. On May 26, 2015, defendants caused GrafTech to file the 14D-9, advising shareholders to tender their shares in the Tender
Offer. The 14D-9 is materially deficient in that it fails to disclose sufficient information to shareholders to make an informed decision
the Tender Offer.
92. For example, the 14D-9 omits and/or misrepresents material information about what Brookfield plans to do with the
Company if the Minimum Tender Condition is satisfied and the Tender Offer is consummated but Brookfield is unable to consummate
the Proposed Acquisition. The 14D-9 omits and/or misrepresents material information regarding:
(a) Brookfield’s strategic plan for the Company, its management and its assets;
- 27 -
(b) whether Brookfield will take steps to delist the Company or deregister the Company’s shares;
(c) whether Brookfield has any plans or designs to sell GrafTech’s assets, or take any other actions beneficial to
Brookfield, at the cost of GrafTech; and
(d) Brookfield’s plans with respect to GrafTech’s board and/or management.
93. This information is material because GrafTech’s shareholders face the prospect of becoming minority shareholders in a
company controlled by Brookfield. Shareholders who do not tender their shares may find themselves trapped in a company under
Brookfield’s control: (i) with an uncertain and undisclosed business plan and no information about the background or qualifications of
the directors and managers Brookfield plans to install; (ii) with the substantial risk that Brookfield will use its control of GrafTech to
strip it of assets or take other actions to benefit Brookfield, at the cost of GrafTech; and (iii) without knowing whether Brookfield
intends to immediately take steps to delist and deregister GrafTech from publicly traded exchanges. By failing to disclose the above
information, defendants have unlawfully coerced the public shareholders of GrafTech into tendering their shares at Brookfield’s
inadequate offering price, rather than waiting to determine the undisclosed consequences of Brookfield’s taking control of GrafTech.
- 28 -
94. In addition to the above, the 14D-9 omits and/or misrepresents other material information in order to confuse the
Company’s shareholders and coerce them into tendering.
95. The 14D-9 contains material misstatements and otherwise fails to disclose material information about the flawed sales
process, including:
(a) the basis for the Board’s selection of, and the process by which the Board identified and selected the parties with
potential interest in pursuing a strategic alternative transaction with the Company;
(b) the details concerning the Board’s decision not to conduct a pre-announcement market check;
(c) the details concerning the Board’s consideration of other potential strategic alternatives, including continuing as a
stand-alone, independent company;
(d) the basis for the Board’s decision to conduct the Proposed Acquisition as a two-step process involving the initial sale
of convertible preferred share in the Company, and then the Tender Offer; and
(e) the details concerning Brookfield’s promise or offer of ongoing employment opportunities or Board seats in the newly
acquired company, to the Board or management of GrafTech, and any compensation they will receive in connection with such
opportunities or positions.
96. The 14D-9 also contains material misstatements and otherwise fails to disclose material information about the conflicts of
interests that burdened the process, including:
(a) the details concerning the Board’s decision to conduct the Proposed Acquisition to buy out the interests of the
Milikowsky Group and put an end to the proxy contest.
- 29 -
(a) the basis for the Board’s selection of, the process by which the Board selected and retained JP Morgan as its
financial advisor on the Proposed Acquisition;
(b) the details surrounding JP Morgan’s prior engagements by GrafTech and any of its affiliates, and any fee or payment
generated therefrom;
(c) the details surrounding JP Morgan’s prior or ongoing business dealings with Brookfield or any of its affiliates, and any
fee or payment generated therefrom, including, but not limited to: (i) JP Morgan and Brookfield’s partnership in a $1.2 billion
investment fund for Brazilian commercial real estate; (ii) Brookfield’s $200 million acquisition of various commercial properties from
JP Morgan; and (iii) Brookfield’s retention of JP Morgan for various other investment banking and financial services;
(d) the amount of compensation JP Morgan received for: (i) acting as the joint lead arranger on the Company’s term loan
in February 2015; and (ii) serving as an agent bank and a lender under outstanding credit facilities of the Company; and
(e) the details surrounding the Board’s decision to pay JP Morgan a $10.1 million contingency fee and the reason(s)
behind the fee structure.
97. Without the omitted information identified above, the Company’s shareholders are misled about the fairness of the process
followed by the Board and misled about the fairness of the price offered by Brookfield. By failing to disclose the above information,
defendants are unlawfully coercing the public shareholders of GrafTech to accept the unfair Tender Offer Consideration rather than
face the unknown alternative.
98. Absent disclosure of this material information, Company shareholders will be unable to make an informed decision about
whether to tender their shares in favor of the Proposed Acquisition and are thus threatened with irreparable harm for which damages
are not an adequate remedy.
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99. Plaintiffs and the Company’s shareholders are being irreparably harmed in the following respects:
(f) GrafTech’s shareholders are being deprived of the opportunity to meaningfully evaluate the Tender Offer and make an
informed decision based on all material information on the Tender Offer;
(g) GrafTech’s shareholders that do not want to tender are faced with a possibility that they may unexpectedly be deprived
of the future opportunity to freely and voluntarily liquidate their shares should Brookfield engage in an undisclosed program of
compulsory acquisition, delisting and cancellation of trading, and de-registration, and thus be coerced into tendering;
(h) GrafTech’s shareholders will be deprived of the opportunity to realize the Company’s planned future growth and return
of capital that instead will be siphoned to Brookfield; and
(i) It will be impossible to return GrafTech’s shareholders, and the Company, to the pre-tender offer status quo.
100. Unless promptly enjoined, defendants’ material misrepresentations and omissions will deny GrafTech’s shareholders the
opportunity to properly and meaningfully evaluate Brookfield’s lowball Tender Offer, and deliver the Company into Brookfield’s
hands at an unfair and inadequate price.
Company Insiders Pursued Their Own Financial and Professional Interests in Orchestrating the Proposed Acquisition
101. GrafTech’s Board and management agreed to push through the Proposed Acquisition at a sub-optimal price and coerce the
Company’s shareholders into accepting less than true value of their shares for self-interested reasons unrelated to the merits of the
transaction. First, through the Proposed Acquisition, members of the Board and senior
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management were able to orchestrate the buyout of GrafTech’s largest shareholder and creditor, Milikowsky, a dissident director who
had long been critical of management’s stewardship of the Company.
102. Indeed, the timing of the Proposed Acquisition could not have been better for the fearful Board and management. As
discussed above, in March 2015, Milikowsky, along with his allies, launched a formal proxy contest to replace the entire
seven-member Board with slate of his own hand-picked candidates. The proxy contest was scheduled for a shareholder vote in late
May. But once Brookfield emerged as a interested party in March (around the same time the proxy contest was launched), GrafTech’s
senior management and the directors who opposed Milikowsky were spurred into action and moved quickly to negotiate a two-part
transaction that effectively eliminated his dominant ownership position, including the soon-to-be-due senior notes held by him, and
finally put an end to a tumultuous and embarrassing proxy fight.
103. Had the shareholder vote on the proxy contest moved forward, it likely would have had disastrous consequences to the
reputations and professional standings of the incumbent Board members who were not aligned with Milikowsky. Recent academic
research confirms that proxy contests have a significant adverse effect on the careers of incumbent directors. As explained in an
October 2013 study entitled “Shareholder Democracy in Play Career Consequences of Proxy Contests,” authored by Professor
Margarita Tsoutsoura of the University of Chicago and Professor Vyacheslav Fos of the University of Illinois at Urbana-Champaign,
corporate directors experience a significant decline in their directorship opportunities following a proxy contest. The authors
summarize their findings as follows:
Using hand-collected data on all proxy contests during 1996-2010, this paper studies whether such contests affect the careers of
incumbent
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directors. We show that proxy contests are associated with significant adverse effects on the careers of incumbent directors:
following a proxy contest, incumbents lose seats not only on targeted boards, but also on other unrelated boards. For example,
facing a direct threat of removal is associated with losing more than one board seat over the following three years, which
corresponds to more than $1.3 million in foregone income for the average incumbent director . The results are robust when we
account for director time-invariant characteristics, firm time-varying characteristics, and also when we hold firm and director
matches constant.
*
*
*
Therefore, the proxy-contest mechanism is effective in imposing significant career costs on incumbent directors. Importantly, the
effect is not limit [sic] to targeted companies: it increases the likelihood of losing directorships in other companies as well .
104. Here, the Board members who were not aligned with Milikowsky had their professional reputations and career prospects at
stake due to the pending proxy contest. As a result, these directors placed their own interests before those of the Company’s
shareholders and readily capitulated to the unfair and inadequate deal teams offered by Brookfield. They were well aware that
Milikowsky had been successful in the previous proxy fight, and sought to avoid another shareholder vote at all cost.
105. In fact, the Board was able to secure ongoing board seats for certain of its directors in the newly-formed company. Upon
the closing of the Proposed Acquisition, Brookfield will be obligated to retain at least three directors who were on the Board on the
date of the Merger Agreement.
106. Milikowsky, on the other hand, was happy to oblige the wishes of the other Board members and go along with the sale of
the Company to Brookfield. As GrafTech’s dominant shareholder, he had long been openly critical about the management and
direction of the Company. The issuance of the convertible preferred shares to Brookfield and the ensuing Tender Offer presented an
efficient way for Milikowsky to finally “cash out” his ownership bloc in GrafTech at a premium to the Company’s market price –
which he would
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not be able to do if he had to sell on the market. Moreover, by agreeing to the Proposed Merger, Milikowsky could effectively resolve
his longstanding dispute with the other directors and senior management in such a manner that did not give rise to the appearance that
he surrendered or capitulated to his opposition. The Proposed Acquisition therefore presented a win-win situation for Milikowsky and
the opposing directors and members of management – both sides could walk away from the proxy contest with their professional
reputations intact and without admitting any sort of defeat.
107. In addition to providing a face-saving resolution to the longstanding corporate governance issues, the Proposed Acquisition
also provided a substantial financial windfall to the Individual Defendants and other Company insiders.
108. The Milikowsky Group will be reimbursed for their costs associated with the proxy fights. The Proposed Acquisition
represents a unique opportunity for the Milikowsky Group to obtain certain and immediate repayment of the Company’s $200 million
Senior Subordinated Notes.
109. Moreover, in exchange for hastily approving the deal, the Individual Defendants obtained significant personal benefits not
shared with the public stockholders. Specifically, Board members and senior executives of the Company will receive millions of
dollars in stock consideration for their previously unvested stock options, performance units and restricted shares, all of which will
become fully vested and exercisable upon closing. The accelerated vesting of these previously locked-up and illiquid holdings would
not have occurred if GrafTech had remained a standalone company. Furthermore, pursuant to the Merger Agreement, certain
Company insiders are entitled to receive millions of dollars in change-of-control payments, in the form of “Golden Parachute” cash
payments, perquisites and tax reimbursements.
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110. These personal benefits to be obtained by the members of the Board were key factors in the Individual Defendants’
decision to pursue the Proposed Acquisition with Brookfield. Instead of attempting to negotiate an agreement reflecting the best
consideration reasonably available for the public shareholders they are duty-bound to serve, the Individual Defendants disloyally
placed their own professional and financial interests first, and tailored the terms and conditions of the Proposed Acquisition to
meet their own needs and objectives. The Board’s efforts to advance its members’ personal interests at the expense of
Company’s public shareholders has resulted in the unfair Proposed Acquisition being presented to the shareholders at an
untenable and inadequate price.
The Tender Offer, Merger Agreement and Support Agreement Were Designed to Lock Up the Proposed Acquisition and
Expedite the Deal
111. As discussed above, defendants have structured the Proposed Acquisition as a coercive tender offer, a the Company’s
public shareholders have been left with no practical choice, but to tender their shares an unfair and inadequate price.
112. The Board has agreed to other unfair and restrictive deal protection devices that all but ensure the sale of the Company to
Brookfield is achieved.
113. To expedite the closing of the deal, the Tender Offer contemplates a short initial offer period, which is set to expire by
July 7, 2015. This short window of time deters other potentially interested bidders from conducting a meaningful investigation into the
Company and submitting a superior proposal, particularly when the sales process was kept strictly confidential and the public had no
awareness the Company was even up for sale, until the date of the announcement.
114. The Board also agreed to conduct the Proposed Acquisition as a short-form merger, pursuant to §251(h) of the Delaware
General Corporation Law, which provides that GrafTech may move forward to close the deal, without any vote by the stockholders.
Under
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the Merger Agreement, the acquisition will be effected once 75% of the currently outstanding shares of the Company are tendered.
However, over 11% of the outstanding shares are held by Company insiders, including those owned by Milikowsky and his group, as
well as other Board members and GrafTech executives. Thus, once 64% of the Company’s shares are tendered by the public
shareholders (which is likely in light of the coercive nature of the Tender Offer), the Proposed Merger will close without need of any
vote.
115. To further ensure a quick deal close, the Board authorized Milikowsky and his investment group to enter into a Support
Agreement, under which they have pledged their more than 15.2 million shares in support of the Tender Offer and against any
alternative acquisition proposal. The Support Agreement therefore serves as a deterrent to potentially interested suitors who will face a
significant disadvantage when attempting to procure the necessary stockholder support for a competing proposal.
116. The Board agreed to other unfair and restrictive deal protection provisions in the Merger Agreement. These “lock-up”
provisions include an onerous termination fee provision that requires the Company to pay a $7.5 million fee to Brookfield if the
Proposed Acquisition is terminated in favor of a superior proposal during the go-shop period, which escalates to a $20 million fee if
such termination occurs after the go-shop period.
117. The Board also signed off on a broad “Matching Rights” provision that gives Brookfield substantial procedural advantages
over any subsequent competing bidder. Under this provision, GrafTech must provide written notice to Brookfield of the following:
(i) any competing Acquisition Proposal; (ii) the identity of the party submitting the Acquisition Proposal; (iii) a copy of the
Acquisition proposal itself; (iv) and a summary of material terms of the Acquisition Proposal. And, even if a competing bidder was to
emerge, which is
- 36 -
unlikely, the Matching Rights provision allows Brookfield four business days within which it may negotiate with GrafTech and make
a counter offer that only needs to be as favorable to the Company’s shareholders as the competing Superior Proposal. Brookfield will
therefore be able to match any hypothetical competing offer because the Merger Agreement also grants it unfettered access to the
Superior Proposal, in its entirety, thereby eliminating any leverage that the Company has as a result of receiving the competing offer.
118. Moreover, the go-shop provision in the Merger Agreement is illusory and was not actually intended to attract or secure
higher offers for GrafTech. After the announcement of the Proposed Acquisition, any potentially interested bidder would have seen it
as a fool’s errand and a waste of resources to conduct due diligence during the limited 35-day window of the go-shop and attempt to
negotiate a new deal, particularly when Brookfield had already captured the loyalty of the Board, had already acquired an
insurmountable 20% interest in the Company, held a substantial information advantage over any competitor, and could match any
competing offer.
119. Empirical research has shown that go-shop provisions in buyout transactions are largely ineffective and rarely result in
higher bids, particularly in deals involving private equity firms. See Ryan Dezember, “When Shopping Sprees Go Wrong,” Wall
Street Journal (July 4, 2013). In fact, go-shop provisions may have the opposite effect of decreasing an acquirer’s
pre-announcement offer because when such a provision is inserted in the merger agreement, the acquirer is incentivized not to bid the
maximum value for the company, but instead “reserve future value for expected future rounds of billing” after the announcement of
the deal. Id . Thus, rather than relying on an ineffective and inefficient go-shop period after the deal with Brookfield had been
negotiated, the Board should have pursued a robust presigning market check from the very beginning.
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120. All of the foregoing deal protection devices, in combination with one another, act to restrain the Company’s ability to
solicit or engage in negotiations with any third party regarding a proposal to acquire all or a significant interest in the Company.
The inclusion of these restrictive provisions in the Merger Agreement does not provide the Board an effective “fiduciary out”
under the circumstances. These provisions foreclose any realistic chance that any potential bidders will express interest or make
alternative bids in order to provide the needed market check on the Proposed Acquisition.
121. Defendants are moving quickly to consummate the Proposed Acquisition. Absent judicial intervention, the Tender Offer
will expire on July 7, 2015. Consequently, immediate judicial intervention is warranted here to rectify existing and future
irreparable harm to the Company’s shareholders.
CLASS ACTION ALLEGATIONS
122. Plaintiffs bring this action individually and as a class action on behalf of all stockholders of GrafTech, except defendants
herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants, who are being and/or
will be harmed or threatened by defendants’ actions as described more fully below (the “Class”).
123. This action is properly maintainable as a class action.
124. The Class is so numerous that joinder of all members is impracticable. GrafTech’s stock is publicly traded on the New York
Stock Exchange and pursuant to the Merger Agreement, as of April 20, 2015, there were over 137.6 million outstanding common
shares held by hundreds, if not thousands, of individuals and entities throughout the country. The number and identities of the record
holders of GrafTech shares can be easily determined from the stock transfer journals maintained by GrafTech or its agents.
- 38 -
125. There is a well-defined community of interest in the questions of law and fact affecting the members of the Class,
including, inter alia , the following:
(a) whether the Tender Offer is unlawfully coercive;
(b) whether the Company’s shareholders have enough information in order to make an informed decision on the Tender
Offer;
(c) whether the Individual Defendants have breached any of their other fiduciary duties to Plaintiffs and the other members
of the Class in connection with the Proposed Acquisition, including the duties of loyalty, candor, and due care;
(d) whether the Individual Defendant to secure and obtain the best value reasonable under the circumstances for the benefit
of Plaintiffs and the other members of the Class in connection with the Proposed Acquisition;
(e) whether the Tender Offer Consideration is unfair;
(f) whether Plaintiffs and the other members of the Class would be irreparably harmed were the transactions complained of
herein consummated; and
(g) whether defendants GrafTech and Brookfield have aided and abetted the Individual Defendants’ breaches of fiduciary
duties.
126. Plaintiffs are members of the Class and are committed to prosecuting this action. Plaintiffs have retained competent counsel
experienced in litigation of this nature. Plaintiffs’ claims are typical of the claims of the other members of the Class. Plaintiffs do not
have interests antagonistic to or in conflict with those they seek to represent. Plaintiffs are therefore adequate representatives of the
Class.
127. The likelihood of individual Class members prosecuting separate individual actions is remote due to the relatively small
loss suffered by each Class member as compared to the burden and expense of prosecuting litigation of this nature and magnitude.
Absent a
- 39 -
class action, defendants are likely to avoid liability for their wrongdoing, and Class members are unlikely to obtain redress for the
wrongs alleged herein. There are no difficulties likely to be encountered in the management of the Class claims. This Court is an
appropriate forum for this dispute.
128. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for
defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the
interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.
129. Defendants have acted on grounds generally applicable to the Class with respect to the matters complained of herein,
thereby making appropriate the relief sought herein with respect to the Class as a whole.
FIRST CAUSE OF ACTION
For Breach of Fiduciary Duties
Against the Individual Defendants
130. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein.
131. As alleged herein, the Individual Defendants have breached their fiduciary duties to GrafTech’s shareholders by agreeing to
structure the Proposed Acquisition in a manner as to coerce the Company’s shareholders to accept the unfair Tender Offer
Consideration rather than face the unknown alternative.
132. The Individual Defendants have also breached their fiduciary duties to GrafTech’s shareholders by acting in a
self-interested manner, failing to take steps to obtain the highest value available for GrafTech in the marketplace, faling to disclose all
material information in the 14D-9, and agreeing to onerous deal protection devices to decrease the chances of obtaining the highest
value available for GrafTech in the marketplace.
- 40 -
133. As a result of the Individual Defendants’ breaches, Plaintiffs and the Class will suffer irreparable injury. GrafTech’s
shareholders are being deprived of the opportunity to meaningfully evaluate the Tender Offer and make an informed decision
based on all material information on the Tender Offer. GrafTech’s shareholders are being coerced to accept the unfair Tender
Offer Consideration rather than face the unknown alternative. GrafTech will not receive fair value for their equity interests in the
Company. It will be impossible to return GrafTech’s shareholders, and the Company, to the pre-tender offer status quo once
defendants consummate the Tender Offer and/or Proposed Acquisition.
134. Plaintiffs and the Class have no adequate remedy at law.
SECOND CAUSE OF ACTION
For Aiding and Abetting Breaches of Fiduciary Duty
Against Defendant GrafTech and Brookfield
135. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein.
136. The Individual Defendants owed to Plaintiffs and the members of the Class certain fiduciary duties as fully set out herein.
137. By committing the acts alleged herein, the Individual Defendants breached their fiduciary duties owed to Plaintiffs and the
members of the Class.
138. GrafTech and Brookfield colluded in or aided and abetted the Individual Defendants’ breaches of fiduciary duties, and was
an active and knowing participant in the Individual Defendants’ breaches of fiduciary duties owed to Plaintiffs and the members of the
Class.
- 41 -
139. Moreover, Brookfield was aware of the Board’s willingness to ignore the interests of the Class through the publicized
fight with Milikowsky. Brookfield used this knowledge in order to negotiate and secure transaction terms that were coercive to
the Company’s shareholders but favorable for Brookfield.
140. Brookfield also secured certain deal protection provisions which unfairly inhibit the advancement of alternative proposals.
141. Brookfield participated in the breaches of the fiduciary duties by the Individual Defendants for the purpose of advancing
their own interests. Brookfield obtained and will obtain both direct and indirect benefits from colluding in or aiding and abetting the
Individual Defendants’ breaches. Brookfield obtained sensitive non-public information concerning GrafTech’s operations and thus
had the advantage of acquiring the Company at a price that is unfair to Plaintiffs and the Class. Brookfield will benefit from the
acquisition of the Company at an inadequate and unfair price if the Proposed Acquisition is consummated.
142. Plaintiffs and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs demand judgment against defendants, jointly and severally, as follows:
A. Declaring this action to be a class action and certifying Plaintiffs as the Class representatives and Plaintiffs’ counsel as Class
counsel;
B. Declaring and decreeing that the Proposed Acquisition was entered into in breach of the fiduciary duties of the defendants and
is therefore unlawful and unenforceable;
C. Enjoining defendants, their agents, counsel, employees and all persons acting in concert with them from taking any steps to
consummate the Tender Offer and the Proposed Acquisition;
- 42 -
D. Rescinding, to the extent already implemented, the Investment Agreement, Merger Agreement or any of the terms
thereof, or ordering rescissory damages;
E. Awarding Plaintiffs the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of
Plaintiffs’ attorneys and experts; and
F. Granting such other and further equitable relief as deemed just and proper.
JURY DEMAND
Plaintiffs demand a trial by jury.
DATED: June 12, 2015
/s/ Paul Grieco
LANDSKRONER ● GRIECO ● MERRIMAN, LLC
JACK LANDSKRONER (0059227)
PAUL GRIECO (0064729)
DREW LEGANDO (0084209)
1360 West 9th Street, Suite 200
Cleveland, OH 44113
Telephone: 216/522-9000
216/522-9007 (fax)
ROBBINS GELLER RUDMAN & DOWD LLP
DAVID T. WISSBROECKER
EDWARD M. GERGOSIAN
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
DUNNAM DUNNAM HARMON WEST
LINDLEY & RYAN LLP
HAMILTON P. LINDLEY
4125 W. Waco Drive
Waco, TX 76710
Telephone: 254/753-6437
254/753-7434 (fax)
- 43 -
WOLF POPPER, LLP
CARL L. STINE
845 Third Avenue
New York, NY 10022
Telephone: 212/451-9631
212/486-2093 (fax)
FARMER, JAFFE, WEISSING,
EDWARDS, FISTOS & LEHRMAN, P.L.
SETH LERHMAN
425 North Andrews Ave., Suite 2
Fort Lauderdale, FL 33301
Telephone: 800/400-1098
954/524-2822 (fax)
Attorneys for Plaintiff
- 44 -
Exhibit (a) (5) (c)
EFiled: Jun 02 2015 07:27PM EDT
Transaction ID 57325565
Case No.
IN THE COURT OF CHANCERY OF THE STATE
OF11086DELAWARE
DAVID WIDLEWSKI, Individually
and on Behalf of All Others Similarly
Situated,
Plaintiff,
v.
RANDY CARSON, THOMAS A.
DANJCZEK, KAREN FINERMAN,
JOEL L. HAWTHORNE, DAVID R.
JARDINI, NATHAN MILIKOWSKY,
M. CATHERINE MORRIS, BCP IV
GRAFTECH HOLDINGS LP, and
ATHENA ACQUISITION
SUBSIDIARY INC.,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Civil Action No.
VERIFIED CLASS ACTION COMPLAINT
The allegations of the Complaint are based on the personal knowledge of Plaintiff David Widlewski (“Plaintiff”) as to himself
and on information and belief (including the investigation of counsel and review of publicly available information) as to all other
matters stated herein, as follows:
NATURE OF THE ACTION
1. This is a stockholder class action brought by Plaintiff on behalf of himself and all other similarly situated public stockholders
GrafTech International Ltd. (“GrafTech” or the “Company”) to enjoin a transaction whereby the Board of Directors of the Company
(the “Board” or the “Individual Defendants”) has agreed
to sell GrafTech to Athena Acquisition Subsidiary Inc. (“Acquisition Sub”), a direct wholly-owned subsidiary of BCP IV GrafTech
Holdings LP (“BCP”), each an affiliate of funds managed by affiliates of Brookfield Asset Management Inc. (“Brookfield”) for $5.05
per share in cash (the “Proposed Transaction”), in a tender offer pursuant to an Agreement and Plan of Merger (the “Merger
Agreement”), dated May 17, 2015, between GrafTech, BCP, and Acquisition Sub. The proposed tender offer for all of the Company’s
outstanding stock by Brookfield is at an unfair price and on grossly unfair and inadequate terms, and deprives Plaintiff and the other
public stockholders of the value of, and right to participate in, the future benefits and profitability of the Company.
2. The Proposed Transaction offers unfair and inadequate consideration that does not maximize stockholder value for Plaintiff
and other GrafTech public stockholders and is being advanced through an unfair process. The Board members have therefore breached
their fiduciary duties owed to Plaintiff and the Class to take all necessary steps to ensure that GrafTech stockholders will receive the
maximum realizable value for their shares on a sale of the Company.
3. The Merger Agreement contains preclusive deal protection devices that are not contemplated to benefit the Company or its
stockholders, but instead, to benefit Brookfield. For example, pursuant to the Merger Agreement, following a go-shop period, the
Board is prohibited from soliciting competing bids for the
2
Company. Moreover, the Company is subject to a $20 million dollar termination fee payable to Brookfield if the Proposed Transaction
is terminated by the Company in favor of a superior proposal ($7.5 million if terminated during the go-shop period), which the Board
must provide Brookfiled with any and all material terms and conditions of such offer within 24 hours after receipt. Brookfield is then
given four business days to change the terms of the Merger Agreement to match the alternative offer.
4. The deal protection provisions essentially “lock-up” the Proposed Transaction and prevent the Board from fulfilling its
fiduciary duties to the Company’s public stockholders. The Proposed Transaction will deprive stockholders of adequate consideration
in light of the Company’s promising prospects for growth, increased sales, and future profitability. More importantly, the defendants
commenced the tender offer on May 26, 2015, and the tender offer is set to expire at midnight on July 7, 2015, New York City time.
Non-tendering stockholders may be cashed-out without having been given an opportunity to vote on the Proposed Transaction
5. Moreover, the Proposed Transaction benefits members of the Board, along with other top executives of GrafTech, as the
Proposed Transaction will provide them with lavish change of control payments and stock sales. The Proposed Transaction will
deprive stockholders of adequate consideration in light of the Company’s promising prospects for growth, increased sales, and future
profitability.
3
6. Plaintiff seeks preliminary and permanent injunctive relief preventing the Individual Defendants, who are aided and
abetted by BCP and Acquisition Sub, from inequitably and unlawfully depriving Plaintiff and the Class of their rights to realize
full and fair value for their GrafTech stock.
THE PARTIES
7. Plaintiff has owned the common stock of GrafTech since prior to the announcement of the Proposed Transaction herein
complained of, and continues to own this stock.
8. GrafTech is a corporation organized and existing under the laws of the State of Delaware with its principal executive offices
located in Independence, Ohio. The Company’s common stock is traded on the New York Stock Exchange under the symbol GTI.
9. Defendant Randy Carson (“Carson”) is the Chairman of the Board of GrafTech.
10. Defendant Thomas A. Danjczek (“Danjczek”) is a director of GrafTech.
11. Defendant Karen Finerman (“Finerman”) is a director of GrafTech.
4
12. Defendant Joel L. Hawthorne (“Hawthorne”) is a director of GrafTech. Hawthorne is also GrafTech’s Chief Executive
Officer (“CEO”) and President.
13. Defendant David R. Jardini (“Jardini”) is a director of GrafTech.
14. Defendant Nathan Milikowsky (“Milikowsky”) is a director of GrafTech. Milikowsky was CEO and Chairman of the Board
of C/G Electrodes LLC until its merger with GrafTech in 2010, and prior to that he led the group that purchased Seadrift Coke LP and
was also its President until its merger with GrafTech in 2010.
15. Defendant M. Catherine Morris (“Morris”) is a director of GrafTech.
16. Defendants Carson, Finerman, Danjczek, Hawthorne, Jardini, Milikowsky, and Morris are collectively referred to herein as
the “Individual Defendants” and/or the “Board.”
17. Defendant BCP is a Delaware limited partnership, and an affiliate of Brookfield.
18. Defendant Acquisition Sub is a Delaware corporation and direct wholly owned subsidiary of BCP that was created for the
purpose of facilitating the Proposed Transaction. Acquisition Sub is also an affiliate of Brookfield.
5
INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES
19. The Individual Defendants as officers and/or directors of the Company stand in a fiduciary relationship to Plaintiff and the
Company’s other public stockholders and owes them the highest fiduciary obligations of good faith, due care, and loyalty.
20. Under Delaware law, the directors and officers of a publicly traded corporation have fiduciary duties of loyalty, good faith,
and due care to stockholders. To diligently comply with their fiduciary duties, the Individual Defendants may not take any action that:
(a) adversely affects the value provided to the Company’s stockholders;
(b) favors themselves or will discourage or inhibit alternative offers to purchase control of the Company or its assets;
(c) adversely affects their duty to search for and secure the best value reasonably available under the circumstances for the
Company’s stockholders; and/or
(d) will provide the Individual Defendants with preferential treatment at the expense of, or separate from, the public
stockholders.
21. In accordance with their duties of loyalty and good faith, the Individual Defendants are obligated to refrain from:
6
(a) participating in any transaction where the Individual Defendants’ loyalties are divided;
(b) participating in any transaction where the Individual Defendants receive, or are entitled to receive, a personal financial
benefit not equally shared by the public stockholders of the Company; and/or
(c) unjustly enriching themselves at the expense or to the detriment of the public stockholders.
22. Plaintiff alleges herein that the Individual Defendants, separately and together, in connection with the Proposed Transaction,
are knowingly and/or recklessly violating their fiduciary duties, including their duties of care, loyalty, and good faith owed to Plaintiff
and other public stockholders of GrafTech.
CLASS ACTION ALLEGATIONS
23. Plaintiff brings this action as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
holders of the common stock of the Company (except the defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants) and their successors in interest, who are or will be threatened with injury arising
from Defendants’ actions as more fully described herein (the “Class”).
24. This action is properly maintainable as a class action.
7
25. The Class is so numerous that joinder of all members is impracticable.As of March 31, 2015, there were approximately
137 million shares of GrafTech common stock outstanding, owned by hundreds, if not thousands, of stockholders.
26. There are questions of law and fact that are common to the Class, including, inter alia, the following: (a) whether the
Individual Defendants have breached their fiduciary duties owed by them to Plaintiff and the members of the Class; and (b) whether
the Class is entitled to injunctive relief or damages as a result of the wrongful conduct committed by defendants, as alleged herein.
27. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature.
The claims of the Plaintiff are typical of the claims of other members of the Class and Plaintiff has the same interests as the other
members of the Class. Plaintiff will fairly and adequately represent the Class.
28. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for
Defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the
interests of other members or substantially impair or impede their ability to protect their interests.
8
29. Defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and,
therefore, final injunctive relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
Relevant Background
30. GrafTech manufactures and provides natural and synthetic graphite and carbon based products and services. The Company
offers energy solutions to customers worldwide involved in the manufacture of steel, aluminum, silicon metal, automotive products,
and electronics.
31. On January 21, 2014, GrafTech announced that Chairman, CEO, and President Craig Shuler had decided to retire as
President and CEO, and would retire as Chairman as of December 31, 2014. The Board appointed Hawthorne as CEO, President, and
a member of the Board.
32. However, what appeared to be an innocuous management changeover was far from that. According to an article in The New
York Times dated January 23, 2014, a boardroom battle played out, pitting Craig Shuler and certain members of the Board against
Milikowsky. Milikowsky joined the Board as part of an acquisition three years prior. Milikowsky, however, was subsequently thrown
off the Board for allegedly leaking material non-public information to a hedge fund. Milikowsky countered that he was thrown off for
criticizing the management and Board.
9
33. Milikowsky began a battle by trying to nominate a new slate of directors before the Company’s 2014 annual meeting.
Milikowsky and his brother Daniel Milikowsky, announced they intended to nominate three director candidates, including
Milikowsky, Jardin, and Finerman.
34. On May 15, 2014, following a nasty proxy fight between the Board and Milikowsky, Milikowsky’s slate of directors,
including himself, were chosen to serve on the seven-member Board.
35. Thereafter, on January 23, 2015, Milikowsky, a holder of over 15 million shares or over 11.2% of the common stock of
GrafTech, announced that he had submitted a notice to nominate a full slate of seven candidates for election to the Board at the 2015
annual meeting.
36. In the earlier proxy fight, GrafTech stockholders supported Milikowsky’s nominees by an average margin greater than
three-to-one at the 2014 annual meeting, electing his entire slate of directors, including Jardin, Finerman, and himself. However,
despite having three seats on the Board, Milikowsky’s efforts to change the Company were blocked by the four-member majority of
the Board headed by Hawthorne.
10
37. In his letter to the Board on January 23, 2015, Milikowsky announced his dissatisfaction with Hawthorne as CEO and
his four-person Board majority who have supported his efforts. In response, Milikowsky nominated his own slate of seven
candidates to the Board, including himself and declared his intention to replace Hawthorne as CEO with either himself or Jardin.
Further, it was revealed that Milikowsky would not discuss the extension of the maturity date of some of his GrafTech senior
subordinated notes due in November 2015 unless he received an additional two Board seats to give him a majority, along with
his approval of a new GrafTech CEO and management.
38. On May 4, 2015, GrafTech announced that its Board had entered into an investment agreement with Brookfield under which
Brookfield will acquire $150 million of 7% convertible preferred shares in a private offering.
39. Under the terms of the investment agreement, the convertible preferred shares will be issued in two series. One series would
be immediately convertible into common shares equal to up to 19.9% of the currently outstanding shares of common stock at a
conversion price of $5.00 per common share, subject to customary and anti-dilution adjustments. The other series is proposed on the
same economic terms and would become convertible into common shares equal to up to 2.0% of the currently outstanding shares upon
approval by stockholders. Upon receipt of such approval, the two series would be combined into one series.
11
Pursuant to the investment agreement, Brookfield will designate two directors to be appointed to the Board. With the addition of these
directors, the GrafTech Board will be expanded from seven to nine members.
The Proposed Transaction
40. On May 18, 2015, GrafTech announced it had entered into a Merger Agreement with Brookfield under which Brookfield
will commence a tender offer to acquire all of the outstanding shares of GrafTech’s common stock. Holders of approximately 11% of
the outstanding shares of GrafTech common stock, including Milikowsky, have agreed to support the Proposed Transaction and tender
their shares in the tender offer.
41. Under the terms of the Proposed Transaction, Brookfield will commence a tender offer to purchase all of the outstanding
shares of GrafTech common stock at a purchase price of $5.05 per share.
42. The tender offer is intended to provide GrafTech stockholders the option to receive all cash, all stock, or a combination of
both cash and continued ownership of GrafTech shares (subject to the merger conditions).
43. The tender offer commenced on May 26, 2015 and will expire on July 7, 2015, unless extended. Consummation of the tender
offer is subject to certain conditions, including the tender of a number of GrafTech shares that, together with any other shares then
owned by Brookfield (including shares issuable upon
12
conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at least
30% of the then outstanding shares plus shares issuable upon such conversion (the “minimum tender condition”), and other customary
conditions. Assuming the convertible preferred stock is issued prior to the expiration of the tender offer, as of the date hereof,
satisfaction of the minimum tender condition would require the tender of approximately 15% of the currently outstanding GrafTech
shares. If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable
upon conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at
least 80% of the then outstanding shares plus shares issuable upon such conversion (the “merger condition”), then the remaining
outstanding GrafTech shares will be acquired in a merger transaction at the same price offered in the tender offer. Assuming the
convertible preferred stock is issued prior to the expiration of the tender offer, satisfaction of the merger condition would require the
tender of approximately 75% of the currently outstanding GrafTech shares.
44. The timing of the Proposed Transaction was curious. Just as the Company’s plan to turn things around was taking hold, and
was poised for future growth, the Company announced its entry into the Proposed Transaction.
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45. Indeed, among other things, just prior to the announcement of the Proposed Transaction, the Company developed and
successfully executed on initiatives to improve operations, reduce costs, enhance liquidity, and effectively respond to continuing
weak demand from the global steel industry and other end market challenges to insure long-term success of the Company.
46. These initiatives include:
•
An ongoing company-wide cost savings program, which is enabling GrafTech to achieve total annual cost savings of
more than $120 million (more than 10% of annual sales).
•
Optimization of the graphite electrode manufacturing platform by rationalizing its two highest cost manufacturing
sites, including significant headcount reductions.
•
Changes to the operating and management structure to simplify and decentralize the organization.
•
Redesign of the Company’s research and development function to accelerate innovation for new product development
and commercial introduction.
•
Downsizing of the Company’s corporate functions, including headcount and other SG&A reductions.
•
Rationalization of underperforming product lines.
•
Enhancement of financing arrangements that increased borrowing capacity by over $125 million in the past nine
months.
•
Significant inventory reduction (over $70 million in 2014).
•
Continued development of new products for consumer electronics markets, including lithium ion battery and crystal
growth markets which have contributed approximately 50% of the revenue in the Engineered Solutions segment,
which will provide long-term value creation for the Company and its stockholders.
14
47. As a result, the $5.05 per share agreed to in the Proposed Transaction is an inadequate price, and Defendants’ claims
that the transaction provides a great return for investors are false. The $5.05 per share price is considerably below analyst’s target
price of $6 per share, and below the Company’s reported book value per share of $6.73. Further, the stock reached as high as
$10.88 per share within the past year.
48. The Proposed Transaction is being driven by and is the result of an unfair process through which Milikowsky and the other
members of the Board are acting for their own self interests.
49. Carson, Danjczek, Hawthorne, and Morris feared that they would be removed from the Board as a result of Milikowsky’s
latest announcement of a proxy contest for the upcoming 2015 annual meeting. Previously, Milikowsky was successful in removing
three of GrafTech’s Board members with stockholders supporting him by a margin of three-to-one. Here, he was seeking to replace
the remaining four directors. Carson, Danjczek, Hawthorne, and Morris knew that should they be removed from the Board they would
forgo large sums of money. These members of the Board stood to receive a significant amount of money in special payments for
currently unvested stock options, performance units, and restricted shares, all of which shall become fully vested and exercisable upon
the sale of the Company. Had they been removed from office prior to such a sale, they would have lost this potential windfall.
15
50. Milikowsky also was incentivized to sell the Company to his preferred suitor and entered into a Tender and Support
Agreement to tender in favor of the Proposed Acquisition. Milikowsky desperately wanted to get rid of Hawthorne as CEO and
replace other members of senior management while also setting forth the direction of the Company. Milikowsky found a partner
in Brookfield that will allow just that.
51. Moreover, to ensure the Proposed Transaction would be successful, the Board entered into the investment agreement with
Brookfield. Under the terms of the investment agreement, the convertible preferred shares will be issued in two series. One series
would be immediately convertible into common shares equal to up to 19.9% of the currently outstanding shares of common stock at a
conversion price of $5.00 per common share, subject to customary and anti-dilution adjustments. The other series is proposed on the
same economic terms and would become convertible into common shares equal to up to 2.0% of the currently outstanding shares upon
approval by stockholders.
52. The break up into two series was intended to make sure that Brookfield received 19.9% of the Company’s shares at the time
of the tender offer. Had they not structured it this way and instead made it 21.9% in one series then a
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vote by stockholders would have been required with no guarantees of success. This way, the Board could make sure that Brookfield
had at least 19.9% of the shares that would be included as part of the minimum condition threshold of 30%, thereby guaranteeing the
completion of the tender offer since Milikowsky had already agreed to tender his 11.2% stake.
53. By structuring the investment agreement to make sure Brookfield had a 19.9% stake at the time of the tender, Defendants
acted to usurp its stockholders’ rights to ensure the Proposed Transaction was completed.
Preclusive Deal Protection Devices
54. As part of the Merger Agreement, Defendants agreed to certain onerous and preclusive deal protection devices that operate
conjunctively to make the Proposed Transaction unfair and ensure that no competing offers will emerge for the Company.
55. By way of example, following the go-shop period, § 6.2 of the Merger Agreement includes a “No Solicitation” provision
barring the Company from soliciting interest from other potential acquirers in order to procure a price in excess of the amount offered
by Brookfield.
56. Pursuant to § 6.2 of the Merger Agreement, should an unsolicited bidder submit a bona fide proposal that is more favorable
than the Proposed Transaction terms, the Company must notify Brookfield, within 24 hours, of the bidder’s identity and the material
terms of the bidder’s offer.
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57. The No Solicitation provision takes place following a 35 calendar day go-shop period as set forth in § 6.2(a) of the
Merger Agreement.
58. Under § 7.4 of the Merger Agreement, should the Board determine that the unsolicited offer is a “Superior Proposal,” then
before the Board can change its recommendation to stockholders regarding the Proposed Transaction with Brookfield, it must grant
Brookfield four business days in which the Company must negotiate in good faith with Brookfield (if Brookfield so desires) and allow
Brookfield to amend the terms of the Merger Agreement so that the Superior Proposal ceases to be a Superior Proposal and the Board
is not obligated to change its recommendations to stockholders regarding the Proposed Acquisition with Brookfield. In other words,
the Merger Agreement gives Brookfield access to any rival bidder’s information and allows Brookfield a free right to top any superior
offer simply by matching it. Accordingly, no rival bidder is likely to emerge and act as a “stalking horse” because the Merger
Agreement unfairly assures that any “auction” will favor Brookfield and piggy-back upon the due diligence of the foreclosed second
bidder.
59. Section 9.4 of the Merger Agreement also provides for a termination fee of $20 million payable to Brookfield by GrafTech if
the Company decides to
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pursue the competing offer, thereby essentially requiring that the competing bidder agree to pay a naked premium for the right to
provide the Company’s public stockholders with a superior offer. The termination fee is $7.5 million should the Company decide to
pursue the competing offer during the go-shop period.
60. Any unsolicited competing bidder would have to incur the great expense of conducting due diligence and formulating a
proposal within a very limited time frame, and yet, pursuant to the Merger Agreement, Brookfield would have an opportunity to
simply match it. Further, a competing bidder will need to negotiate with the person or persons at GrafTech in charge of the Proposed
Transaction and already heavily biased in favor of approving the Proposed Transaction. Even if another bidder is tenacious enough to
navigate this obstacle course, that bidder will be further discouraged by having to pay the onerous termination fee to the Company.
61. In the process of considering and ultimately entering into the Merger Agreement with Brookfield, the Board has initiated a
process to sell the Company that imposes heightened fiduciary responsibilities and requires enhanced scrutiny by the Court. However,
the process initiated by the Board fails woefully short of the Board satisfying their fiduciary duty to maximize stockholder value.
Additionally, as discussed supra, the deal protections agreed to by the Board further ensures that no likely bidder will emerge to
salvage the Board from satisfying its fiduciary duties.
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62. Ultimately, these preclusive deal protection provisions illegally restrain the Company’s ability to solicit or engage in
negotiations with any third party regarding a proposal to acquire all or a significant interest in the Company. The circumstances
under which the Board may respond to an unsolicited written bona fide proposal for an alternative acquisition that constitutes, or
would reasonably be expected to constitute, a superior proposal are too narrowly circumscribed to provide a true or effective
“fiduciary out” under the circumstances.
THE MATERIALLY MISLEADING AND
INCOMPLETE RECOMMENDATION STATEMENT
63. On May 26, 2015, GrafTech filed the Recommendation Statement with the United States Securities and Exchange
Commission (“SEC”) in connection with the Proposed Transaction. The Recommendation Statement fails to provide the Company’s
stockholders with material information thereby rendering the stockholders unable to make an informed decision regarding whether or
not to tender their shares in the tender offer.
64. For example, the Recommendation Statement fails to fully disclose the key inputs and assumptions underlying the various
valuation analyses performed by J.P. Morgan Securities LLC (“JP Morgan”). Without this
20
information, as described below, GrafTech’s public stockholders are unable to fully understand the analyses and, thus, are unable to
determine what weight, if any, to place on the fairness opinion rendered in support of the Proposed Transaction. Specifically, the
Recommendation Statement fails to disclose the following:
a.
With respect to Guideline Public Company – The revenue and EBITDA multiples of each of the carbon/graphite peers
reflect negative industry conditions. JP Morgan compared GrafTech to its peers based on a multiple of 2015E and 2016E
EBITDA and arrives at an implied value per share of $1.15 to $2.95. The reason this valuation is so low is because
GrafTech’s EBITDA estimates for this year and next year do not reflect the considerable growth projected for EBITDA.
The 3-year CAGR for EBITDA (2015-2018) is projected to be 36% as compared to 10% for Revenue. EBITDA for 2015
and 2016 is projected at just $83 million and $96 million, respectively. This compares to the devastating guidance reduction
in September 2014 of $105 million to $115 million. Regardless of the multiple applied, such low EBITDA projections
necessarily result in a low valuation.
b.
With respect to Guideline Transactions – Each of the 5 selected transactions is more than 7 years old and cannot possibly be
reliable in terms of measuring market values relative to current market conditions. JP Morgan failed to disclose the
FV/LTM EBITDA multiples for each of the deals. In addition, JP Morgan failed to disclose the multiples for the Carbon
Savoie transaction in which GrafTech was the seller. Without the deal multiples the usefulness/reliability of this analysis is
questionable at best. JP Morgan also failed to disclose the number it is using for GrafTech’s LTM EBITDA as of March 31,
2015.
c.
With respect to Discounted Cash Flow analysis – JP Morgan claims that it calculated unlevered free cash flow (“FCF”)
21
2015-2024 based on management’s projections but then says management prepared the projections and provided them to JP
Morgan (as such we are unclear whose FCF is being used in the Recommendation Statement). Because of this contradiction
it is not clear that JP Morgan’s DCF reflects its’ FCF projections. JP Morgan also fails to disclose the source of a $19
million reduction to be used for discounting purposes for its unlevered free cash flow. JP Morgan further fails to disclose
the method by which it determined the discount rate and terminal growth rate applied in calculating the Company’s WACC
d.
With respect to Premium analysis – JP Morgan failed to provide any premium analysis.
65. The Recommendation Statement fails to disclose material information leading up to the Proposed Transaction, including
information pertaining to the process conducted by the Company in considering a sale. In particular, the “Background of the
Transaction” section of the Recommendation Statement fails to disclose how JP Morgan and the Company resolved JP Morgan’s
policy that JP Morgan does not provide a fairness opinion where there is not an acquisition that creates a majority holder of the subject
company’s outstanding shares. In this regard, it further fails to disclose if the fees JP Morgan would receive for the Proposed
Transaction resolved this issue. Moreover, the Background of the Transaction section fails to disclose whether JP Morgan performed
any work in the past for GrafTech, and if so, the nature of such work and the amount of compensation received, as well as whether JP
Morgan performed any work in the past for Brookfield, and if so, the nature of such work and the amount of any
22
compensation received. Lastly, the Background of the Transaction section fails to disclose whether any discussions took place during
the process regarding Brookfield’s intent to retain any employees, including whether it had any discussions with Milikowsky.
66. The Individual Defendants have violated their fiduciary duties owed to the public stockholders of GrafTech. The Individual
Defendants’ agreement to the terms of the Proposed Transaction and its timing demonstrate a clear lack of due care and loyalty to the
GrafTech public stockholders.
67. Plaintiff and other members of the Class have been and will be damaged in that they have not and will not receive their fair
proportion of the value of GrafTech’s assets and business, and they will be prevented from obtaining fair and adequate consideration
for their shares of GrafTech common stock.
68. Accordingly, the Court should preliminarily enjoin the Proposed Transaction until the Board conducts a proper process to
maximize stockholder value and the Individual Defendants disclose all material information to the Company’s public stockholders
before the tender offer closes.
COUNT I
CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST THE
INDIVIDUAL DEFENDANTS
69. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.
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70. By the acts, transactions, and courses of conduct alleged herein, the Individual Defendants have violated their fiduciary
duties of good faith, loyalty, and due care at the expense of Plaintiff and other members of the Class.
71. As alleged herein, the Individual Defendants have failed to, inter alia:
(a) Adequately consider the Proposed Transaction, including whether it maximizes stockholder value;
(b) Apprise themselves of the true value of the Company, or the benefits associated with pursuing the Proposed
Transaction or an alternative transaction, by, among other things, considering the merits of such transactions and engaging in an
appropriate market check or canvas of the industry; and
(c) Otherwise take the steps necessary to comply with their fiduciary duties, such as by avoiding conflicts of interest and
disclosing all material facts necessary to permit the Company’s public stockholders to make an informed decision with respect to the
Proposed Transaction or any alternate transaction.
72. As such, unless the Individual Defendants’ conduct is enjoined by the Court, they will continue to breach their fiduciary
duties to Plaintiff and the Company’s other public stockholders, and will further a process that inhibits the maximization of
stockholder value and the disclosure of all material information to the Company’s public stockholders.
24
73. In light of the foregoing, the Individual Defendants must, as their fiduciary obligations require:
(a) Undertake an appropriate evaluation of GrafTech’s fair value;
(b) Evaluate the Proposed Transaction and other potential transactions;
(c) Enable public stockholders to consider the Proposed Transaction in a fair and non-coercive manner, without the threat
of deal protection measures or mechanisms that could preclude or dissuade a value-maximizing transaction;
(d) Refrain from favoring the Individual Defendants’ interests over those of the Company’s public stockholders, to, among
other things, ensure that conflicts of interest do not unfairly influence the stockholders’ decisions or available options; and
(e) Disclose all material facts necessary to permit the Company’s public stockholders to make an informed decision with
respect to the Proposed Transaction or any alternate transaction.
74. Absent injunctive relief, Plaintiff and the Class will continue to suffer irreparable harm as result of the Individual
Defendants’ breaches of fiduciary duty, for which Plaintiff and the Class have no adequate remedy at law.
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COUNT II
CLAIM AGAINST BCP AND ACQUISITION SUB
FOR AIDING AND ABETTING BREACHES OF FIDUCIARY DUTIES
75. Plaintiff incorporates each and every allegation set forth above as if fully set forth herein.
76. Defendants BCP and Acquisition Sub have aided and abetted the Individual Defendants in the aforesaid breach of their
fiduciary duties.
77. Such breaches of fiduciary duties could not and would not have occurred but for the conduct of Defendants BCP and
Acquisition Sub, who, therefore, have aided and abetted such breaches in connection with the Proposed Transaction.
78. As a result of the unlawful actions of Defendants BCP and Acquisition Sub, Plaintiff and the other members of the Class will
be irreparably harmed in that they will not receive the true value for GrafTech’s assets and business. Unless the Individual
Defendants’ actions are enjoined by the Court, Defendants BCP and Acquisition Sub will continue to aid and abet the Individual
Defendants’ breaches of their fiduciary duties owed to Plaintiff and the members of the Class.
79. As a result of this conduct, Plaintiff and the other members of the Class have been and will be damaged in that they have
been and will be prevented from obtaining a fair price for their GrafTech shares.
26
80. Absent injunctive relief, Plaintiff and the Class will continue to suffer irreparable harm as a result of the Individual
Defendants’ breaches of fiduciary duty, for which Plaintiff and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff and members of the Class demand judgment against Defendants as follows:
A. Declaring that this action is properly maintainable as a class action and certifying Plaintiff as the representative of the Class;
B. Preliminarily and permanently enjoining Defendants and their counsel, agents, employees and all persons acting under, in
concert with, or for them, from proceeding with, consummating, or closing the Proposed Transaction;
C. In the event that the proposed transaction is consummated, rescinding it and setting it aside, or awarding rescissory damages
to the Class;
D. Awarding compensatory damages against Defendants, individually and severally, in an amount to be determined at trial,
together with pre-judgment and post-judgment interest at the maximum rate allowable by law, arising from the Proposed Transaction;
E. Awarding Plaintiff the costs and disbursements of this action and a reasonable allowances for fees and expenses of Plaintiff’s
counsel and experts; and
27
F. Granting Plaintiff and the Class such other and further relief as the Court may deem just and proper.
Dated: June 2, 2015
RIGRODSKY & LONG, P.A.
By:
OF COUNSEL:
MILBERG LLP
Kent A. Bronson
One Pennsylvania Plaza,
49th Floor
New York, NY 10019
(212) 594-5300
/s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
Attorneys for Plaintiff
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Exhibit (a)(5)(D)
EFiled: Jun 04 2015 06:29PM EDT
Transaction ID 57337254
Case No. 11096-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
WALTER WATSON, individually and on
behalf of all others similarly situated,
Plaintiff,
v.
GRAFTECH INTERNATIONAL LTD.,
RANDY CARSON, THOMAS A.
DANJCZEK, KAREN FINERMAN, JOEL
L. HAWTHORNE, DAVID R. JARDINI,
NATHAN MILIKOWSKY, M.
CATHERINE MORRIS, BROOKFIELD
ASSET MANAGEMENT, INC.,
BROOKFIELD CAPITAL PARTNERS
LTD., BROOKFIELD CAPITAL
PARTNERS IV L.P., BCP IV GRAFTECH
HOLDINGS LP, AND ATHENA
ACQUISITION SUBSIDIARY INC.,
Defendants.
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)
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)
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)
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C.A. No.
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VERIFIED CLASS ACTION COMPLAINT
FOR BREACH OF FIDUCIARY DUTY
Plaintiff Walter Watson (“Plaintiff”), by his attorneys, alleges upon information and belief, except for his own acts, which are
alleged on knowledge, as follows:
1. Plaintiff brings this class action on behalf of the public stockholders of GrafTech International Ltd. (“GrafTech” or the
“Company”) against GrafTech’s Board of Directors (the “Board” or the “Individual Defendants”) for failing to maximize stockholder
value in connection with their attempt to sell the Company to affiliates of Brookfield Asset Management Inc. (collectively referred to
as “Brookfield”).
2. On April 29, 2015, GrafTech announced that Brookfield had entered into a letter of intent whereby Brookfield would
make a $150 million preferred equity investment in GrafTech with immediate conversion rights into GrafTech common shares.
Concurrently with this development, the Company also announced a separate letter of intent announcing a possible tender offer
by Brookfield to acquire the outstanding shares of GrafTech for $5.05 per share.
3. On May 4, 2015, Brookfield and the Company announced the entry into the aforementioned investment agreement (the
“Investment Agreement”) whereby Brookfield would purchase preferred shares of the Company with dividend and conversion rights
for a total transaction value of $150 million. This Investment Agreement also permits Brookfield to nominate two directors to the
Company Board, expanding it from seven to nine members, and contains a preemptive rights provision, among others.
4. On May 18, 2015, Brookfield and the Company announced a definitive agreement, alluded to in the letter of intent, under
which Brookfield would commence a tender offer (“Tender Offer”) to acquire all of the outstanding common shares of GrafTech at a
purchase price consisting of $5.05 per share (the
2
“Proposed Transaction”). The total consideration under the Proposed Transaction is valued at approximately $692.8 million. The
Board has breached its fiduciary duties by agreeing to the Proposed Transaction, which both fails to maximize stockholder value and
deprives GrafTech’s stockholders of their ability to enjoy the Company’s promising long-term growth prospects.
5. On May 26, 2015, Brookfield commenced its Tender Offer and GrafTech filed its Schedule 14D-9
Solicitation/Recommendation Statement (the “Recommendation Statement”) with the U.S. Securities and Exchange Commission
(“SEC”). The Tender Offer is set to close on July 7, 2015.
6. The Proposed Transaction will be effectuated pursuant to DGCL § 251(h), which eliminates a required shareholder vote in the
second step of a two-step transaction as soon as the buyer has a simple majority of shares, i.e., 50.1%.
7. In agreeing to the Proposed Transaction, the Board conducted a rushed process that was not reasonably designed to maximize
stockholder value. In the space of just over two months, the Board acceded to the Investment Agreement and back-end Proposed
Transaction without canvassing the market.
8. The Individual Defendants have exacerbated their breaches of fiduciary duties by agreeing to deal protection provisions that
may inhibit other bidders from making a successful competing offer for the Company. Specifically, pursuant to the Agreement and
Plan of Merger dated May 7, 2014 (the “Merger
3
Agreement”), defendants agreed to: (i) a flawed 35-day go-shop period which, although it allows the Company to enter into discussion
with third parties, requires the Company to pay a termination fee of $7.5 million should it enter into a superior acquisition proposal
negotiated during the go-shop period; (ii) require the Company to inform Brookfield of all material information concerning
discussions with third parties upon the expiration of the go-shop period; (iii) a strict no-solicitation provision following the expiration
of the go-shop period that prohibits the Company from soliciting other potential acquirers or even continuing ongoing discussions and
negotiations with potential acquirers; (iv) a provision that requires the Company to provide Brookfield with 24 hours’ notice if it
receives a superior proposal following the expiration of the go-shop period; and (v) a provision that requires the Company to pay
Brookfield a $20 million termination fee in order to enter into a transaction with a superior bidder after the expiration of the go-shop
period.
9. Finally, the Board has failed to provide GrafTech stockholders with information necessary for them to make an informed
decision regarding whether to tender their shares in the Tender Offer. The Recommendation Statement omits material information
regarding the process conducted by the Board and the key data and inputs underlying the financial valuation analyses that purport to
support the so-called fairness opinion provided by J.P. Morgan Securities LLC (“J.P. Morgan”).
4
10. The Individual Defendants have breached their fiduciary duties and the other defendants have aided and abetted such
breaches. Plaintiff seeks to enjoin the Proposed Transaction unless and/or until defendants cure their breaches of fiduciary duty.
PARTIES
11. Plaintiff is, and has been at all relevant times, the owner of shares of common stock of GrafTech.
12. Defendant GrafTech is a corporation organized and existing under the laws of the State of Delaware. It maintains its
principal executive offices at 6100 Oak Tree Boulevard, Suite 300 Park Center I, Independence, Ohio 44131. The Company, publicly
traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “GTI”, manufactures and sells graphite and carbon
material science-based solutions. It operates through two segments, Industrial Materials and Engineered Solutions. The Company was
founded in 1886.
13. Defendant Randy Carson (“Carson”) has been a director of the Company since 2009 and has served as the Chairman of the
Board since June 2014.
5
14. Defendant Thomas A. Danjczek (“Danjczek”) has been a director of the Company since May 2014.
15. Defendant Karen Finerman (“Finerman”) has been a director of the Company since May 2014.
16. Defendant Joel L. Hawthorne (“Hawthorne”) has been a director, Chief Executive Officer (“CEO”), and President of the
Company since August 1999. Defendant Hawthorne joined the Company as director of investor relations in August 1999.
17. Defendant David R. Jardini (“Jardini”) has been a director of the Company since May 2014.
18. Defendant Nathan Milikowsky (“Milikowsky”) has been a director of the Company since May 2014. Defendant Milikowsky
entered into a Tender and Support Agreement to vote all of the shares he beneficially owns in favor of the Proposed Transaction,
totaling 11% of all outstanding common shares of the Company.
19. Defendant M. Catherine Morris (“Morris”) has been a director of the Company since May 2014.
20. Defendants referenced in paragraphs 13 through 19 are collectively referred to as the Individual Defendants and/or the
Board.
6
21. Defendant Brookfield Asset Management Inc. is a Canadian asset management company that manages a global
portfolio of total assets under management of more than $200 billion.
22. Defendant Brookfield Capital Partners Ltd. (“Brookfield Capital”) is an affiliate of Brookfield Asset Management.
23. Defendant Brookfield Capital Partner IV L.P. is an affiliate of Brookfield Asset Management and has delivered a limited
guarantee in favor of the Company in connection with the Proposed Transaction.
24. Defendant BCP GrafTech Holdings LP (“Parent”) is a Delaware limited partnership and affiliate of Brookfield Asset
Management Inc. that was created for the purpose of effectuating the Proposed Transaction.
25. Defendant Athena Acquisition Subsidiary Inc. (“Merger Sub”) is a Delaware corporation and wholly owned subsidiary of
Parent that was created for the purpose of effectuating the Proposed Transaction.
26. Defendants Brookfield Asset Management Inc., Brookfield Capital, Brookfield Capital Partner IV L.P., Parent, and Merger
Sub may be collectively referred to herein as “Brookfield” or the “Brookfield Entities.”
27. The Individual Defendants, GrafTech, and Brookfield may be collectively referred to herein as “Defendants.”
7
CLASS ACTION ALLEGATIONS
28. Plaintiff brings this action as a class action pursuant to Court of Chancery Rule 23 on behalf of all persons and/or entities
that owned GrafTech common stock (the “Class”). Excluded from the Class are Defendants and their affiliates, immediate families,
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.
29. This actions is properly maintainable as a class action.
30. The Class is so numerous that joinder of all members is impracticable. While the exact number of Class members is
unknown to Plaintiff at this time and can be ascertained through discovery, Plaintiff believes that there are thousands of members in
the Class. According to the Merger Agreement, as of the close of business on April 17, 2015, 131,179,692 shares of common stock
were represented by the Company as issued and outstanding.
31. Questions of law and fact are common to the Class, including, inter alia, the following:
(i) have the Individual Defendants failed to maximize stockholder value for the benefit of Plaintiff and the other members
of the Class in connection with the Proposed Transaction;
(ii) have the Individual Defendants failed to provide GrafTech’s stockholders with material information in connection with
the Tender Offer;
8
(iii) have the other defendants aided and abetted the Individual Defendants’ breaches of fiduciary duties;
(iv) whether Plaintiff and the other members of the Class would be irreparably harmed were the transactions complained
of herein consummated; and
(v) is the Class entitled to injunctive relief or damages as a result of defendants’ wrongful conduct.
32. Plaintiff’s claims are typical of the claims of the other members of the Class. Plaintiff and the other members of the Class
have sustained similar damages as a result of Defendants’ wrongful conduct as alleged herein.
33. Plaintiff will fairly and adequately protect the interests of the Class, and has no interests contrary to or in conflict with those
of the Class that Plaintiff seeks to represent.
34. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying
adjudications that would establish incompatible standards of conduct for Defendants, or adjudications that would, as a practical matter,
be dispositive of the interests of individual members of the Class who are not parties to the adjudications or would substantially impair
or impede those non-party Class members’ ability to protect their interests.
9
35. Moreover, Defendants’ harmful actions in conjunction with the Proposed Transaction are generally applicable to the
Class, thus making relief with respect to the Class as a whole the appropriate remedy.
FURTHER SUBSTANTIVE ALLEGATIONS
36. GrafTech was founded in 1886 and is headquartered in Independence, Ohio. The Company’s vision is to “enable customer
leadership better and faster than our competition, through the creation, innovation and manufacture of carbon and graphite material
science based solutions.” The Company’s product portfolio includes graphite electrodes, advanced carbon and graphite materials, and
flexible graphite. GrafTech manufactures them on four continents and sells in over 70 countries to customers in industries such as
metal production, electronics, chemicals, aerospace and transportation.
Proxy Fight with Defendant Milikowsky
37. In 2010, GrafTech acquired two companies controlled by Defendant Milikowsky, Carbide Graphite Group and Seadrift
Coke. GrafTech paid about $850 million for the Carbide Graphite Group, which made a crucial piece of equipment for steel
manufacturing called a graphite electrode, and Seadrift Coke, which made the raw material needed to produce the electrodes.
38. According to a New York Times article dated January 23, 2014, this deal was a windfall for Defendant Milikowsky, as in
2003 he had bought the assets of Carbide Graphite out of bankruptcy for about $6 million and turned the company around. In 2005, he
acquired Seadrift Coke, allowing him to integrate an important supplier and ramp up revenue at both companies.
10
39. As part of the deal, Defendant Milikowsky was guaranteed a seat on the GrafTech Board as long as he and his
associates held at least 12 million of the Company’s shares. At the time, Defendant Milikowsky was respected in the steel
industry and on good terms with GrafTech’s CEO at the time, Craig S. Schuler (“Schuler”).
40. After Defendant Milikowsky spent a year on the Board, he began to criticize management for spending too much on
overhead and making what he saw as poor strategic choices, causing the Company to underperform. He went on record as saying that
he did not believe any directors, aside from Schuler, knew anything about the graphite electrodes business. By late 2011, Defendant
Milikowsky believed that the Company was turning down orders it should have been taking, and was therefore losing market share.
41. In early 2012, Defendant Milikowsky began meeting with other Board members to make his case. Yet before Defendant
Milikowsky’s campaign could gain traction, inquiries from a hedge fund, Samlyn Capital (“Samlyn”), put the company on edge. The
hedge fund, which had been a passive investor in GrafTech for years, began asking pointed questions in May 2012 about the
Company’s operations.
11
42. Samlyn appeared to have confidential information about the Company, including details that were known only by a
small circle of insiders, including the Board. GrafTech management was worried that there could be insider trading in the stock,
or that Samlyn could be using the information to make its case for change. To several Board members, Samlyn’s criticisms of the
company sounded like those presented by Defendant Milikowsky
43. In 2012, the GrafTech Board unanimously appointed a committee of independent directors as well as independent
investigatory counsel to conduct an investigation into apparent leaks of confidential inside information that were brought to the
Board’s attention by several members of the management team. After completion of its investigation, investigatory counsel reported
its conclusion that there had been leaks of material nonpublic information, that there was evidence that Defendant Milikowsky was the
source of the leaks, that there was no evidence to support a conclusion that management or any other director was the source of the
leaks and that at least some of that information could not have been developed independently.
12
44. As a result of this investigation, Defendant Milikowsky was thrown off the Board. Defendant Milikowsky maintains
that he was not the source of any leaks and that management and other directors ousted him because he was criticizing them and
Schuler, the Company’s CEO at the time, as GrafTech’s share price plunged. Since then, Defendant Milikowsky has been
working with law firms to make his case to the Company that he was improperly ousted.
45. Following this, Defendant Milikowsky attempted to nominate a new slate of directors before the Company’s 2014 annual
meeting. Defendant Milikowsky and his brother Daniel Milikowsky, announced they intended to nominate three director candidates,
including Milikowsky, Jardin, and Finerman.
46. On May 15, 2014, following a proxy fight between the Board and Defendant Milikowsky, Milikowsky’s slate of directors,
including himself, were chosen to serve on the seven-member Board.
47. Thereafter, on January 23, 2015, Defendant Milikowsky, a holder of over 15 million shares or over 11.2% of the common
stock of GrafTech, announced that he had submitted a notice to nominate a full slate of seven candidates for election to the Board at
the 2015 annual meeting. This slate included himself. He further announced his intention to replace Defendant Hawthorne as CEO
with either himself or Jardin. It was reported that Defendant Milikowsky would not discuss the extension of the maturity date of some
of his GrafTech senior subordinated notes due in November 2015 unless he received an additional two Board seats to give him a
majority, along with his approval of a new GrafTech CEO and management.
13
48. On May 4, 2015, GrafTech announced that it had entered into the Investment Agreement with Brookfield.
Summary of the Investment Agreement
49. On April 29, 2015, the Company and Brookfield announced two letters of intent had been executed. The first letter of intent
concerned Brookfield and the Company entering into the Investment Agreement, with Brookfield purchasing preferred equity shares
in the Company. The additional letter of intent revealed that Brookfield was considering a tender offer to purchase all outstanding
shares of GrafTech for $5.05 per share.
50. Prior to the announcement of the Proposed Transaction, on May 4, 2015, Brookfield entered into the Investment Agreement,
whereby the Company sold to Brookfield:
(i) shares of a new Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) in an amount
equal to 19.9% of the Company’s outstanding common stock (the “Series A Preferred Shares”) and (ii) shares of a new Series B
Convertible Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock,” and, together with the Series A Preferred
Stock, the “Preferred Stock”), in an amount equal to 150,000 less the number of Series A Preferred Shares, for an aggregate purchase
price of $150,000,000 in cash (the “Purchase Price”).
14
51. As part of the Investment Agreement, the Company agreed to reimburse Brookfield up to $500,000 for its expenses
incurred in executing the Investment Agreement.
52. The Series A Preferred Stock is immediately convertible, at Brookfield’s option, into shares of common stock of the
Company, at a conversion price of $5.00 per common share, and all of the Preferred Stock is entitled to an annual dividend at the rate
of 7.0% prior to any dividend or distribution with respect to any of the Company’s capital stock junior to the Preferred Stock.
53. Concurrently with the execution of the Investment Agreement, Brookfield and the Company executed a stockholder rights
agreement (the “Stockholder Rights Agreement”) whereby Brookfield will have the right to designate two members of the Company
Board as long as it holds at least 75% of the common stock issuable or actually issued upon conversion of the Series A Preferred
Stock, with concomitant preemptive rights ensuring it has the option to maintain its proportionate equity interest in the Company.
54. The Company stated that the proceeds from the Investment Agreement would be used to repay the Company’s senior
subordinated noted due to mature in November 2015.
15
55. Commenting on the Investment Agreement, Defendant Hawthorne stated that the Investment Agreement “demonstrates
confidence in GrafTech’s strategy, market position and long-term prospects . . . . This strategic investment will strengthen our
capital structure and provide GrafTech with increased financial flexibility to continue executing our strategy and positioning the
company for success as the cycle improves.”
56. Defendant Hawthorne further stated:
Despite the current market dislocation, we believe the electric arc furnace steel market and the markets that our Engineered Solutions
segment serves remain very attractive longer term . . . .
With our new strategic investor, Brookfield, we will continue to leverage our business model and strategic advantages and optimize
our product portfolio to drive long-term stockholder value, and believe that we have positioned the company to capitalize on growth
in these areas as the cycle turns.
Background of the Sales Process
57. The Proposed Transaction was the result of a rushed, single-bidder process dominated by Brookfield. The entire deal,
including the $150 million Investment Agreement and entry into the Proposed Transaction, was completed in just over two months.
During its deliberations with Brookfield, the Board never authorized anyone at the Company or J.P. Morgan to conduct any sort of
pre-market check. This truncated, Brookfield-lead process, followed by a go-shop period requiring the Company to pay a go-shop
termination fee, was ineffective and does not ensure that the Board has complied with its fiduciary duties to maximize shareholder
value.
16
58. Initial contact between the parties was made in mid-February under the pretense that Brookfield was interested in
refinancing the Company’s senior subordinated notes. The parties did not actually meet until March 6, 2015, when Brookfield
offered the Company a $100 million convertible note. Just days later, in connection with discussions of the convertible note,
Brookfield first conveyed its interest in acquiring the Company on March 9, 2015.
59. On March 19, 2015, Brookfield made a non-binding expression of interest to acquire the Company at a price range of
between $5.00 and $5.25 per share. Brookfield indicated that it was willing, “if of interest, a possible offer to afford the Company’s
stockholders an opportunity to retain their Shares of the Company under Brookfield sponsorship.” In the first draft of documents
provided to GrafTech, Brookfield initially considered a post-closing go-shop period of between 30 and 60 days.
60. On April 14, 2015, Brookfield modified their proposal, doing away with the $100 million convertible note offer. Instead,
Brookfield offered to purchase $150 million of convertible preferred stock and a proposed tender offer for up to 100% of the
Company’s shares at a purchase price of $5.00 per share.
61. Discussions continued between the parties, and on April 22, 2015 the Board countered that it would consider a deal but at the
substantially increased price of $5.75 per share. Their attempts to substantially increase the consideration
17
were ultimately unsuccessful, however, and the proposed consideration was only increased $0.05 to $5.05 per share. Additionally, the
parties had no further discussions concerning Brookfield’s offer to provide the Company’s stockholders with the option to retain an
equity interest in the Company after the effectuation of the Proposed Transaction.
62. On April 25, 2015, Brookfield agreed to increase its offer to $5.05 per share, and on April 28, 2015, the Board directed J.P.
Morgan to inform Brookfield that the $5.05 per share offer price was acceptable.
Summary of the Proposed Transaction
63. Despite Defendant Hawthorne’s belief that the Company was poised for long term growth in stockholder value, in a press
release dated May 18, 2015, the Company announced that it had entered into the Merger Agreement with Parent and Merger Sub
pursuant to which Parent would commence a Tender Offer to acquire all of the outstanding common shares of the Company for a
purchase price consisting of $5.05 per share in cash, without interest.
64. The Proposed Transaction is subject to GrafTech’s stockholders tendering at least 30% of the Company’s outstanding shares
in the Tender Offer, along with other customary conditions.
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65. Following the successful completion of the Proposed Transaction, GrafTech will merge with Merger Sub and become a
wholly-owned subsidiary of Parent. At this time, all remaining outstanding shares of GrafTech will receive the same merger
consideration paid to other stockholders in the Tender Offer.
66. The Proposed Transaction is expected to be completed in the third quarter of 2014. Following the completion of the
Proposed Transaction, GrafTech shares will be delisted from NASDAQ.
67. Due to outside market factors and the strength of the dollar, the Company experienced a decline in 2014. However, since
September 2014 the Company’s stock price has leveled, and the Company is well-positioned for growth. Indeed, the Company’s stock
has traded as high as $5.19 as recently as December 30, 2014, and traded as high as $4.92 on May 1, 2015, before the announcement
of the Letter of Intent was announced that Brookfield may commence a tender offer of $5.05 per share.
68. Indeed, Defendant Carson, in a letter to Defendant Milikowsky dated January 26, 2015, highlighted the fact that “Joel
[Hawthorne] and the management team have expeditiously developed and successfully executed on initiatives to improve operations,
reduce costs, enhance liquidity and effectively respond to continuing weak demand from the global steel industry and other end
market challenges to insure long-term success of the Company.” According to Defendant Carson, these initiatives included:
•
An ongoing company-wide cost savings program, which is enabling GrafTech to achieve total annual cost savings of
more than $120 million (more than 10% of annual sales).
19
•
Optimization of the graphite electrode manufacturing platform by rationalizing its two highest cost manufacturing
sites, including significant headcount reductions.
•
Changes to the operating and management structure to simplify and decentralize the organization.
•
Redesign of the Company’s research and development function to accelerate innovation for new product development
and commercial introduction.
•
Downsizing of the Company’s corporate functions, including headcount and other SG&A reductions.
•
Rationalization of underperforming product lines.
•
Enhancement of financing arrangements that increased borrowing capacity by over $125 million in the past nine
months.
•
Significant inventory reduction (over $70 million in 2014).
•
Continued development of new products for consumer electronics markets, including lithium ion battery and crystal
growth markets which have contributed approximately 50% of the revenue in the Engineered Solutions segment,
which will provide long-term value creation for the Company and its stockholders.
20
69. Moreover, Yahoo! Finance reports that at least one analyst set a price target for GrafTech of $6.00 per share—nearly
19% higher than the price per share offered in the Proposed Transaction. Yahoo! Finance further reports that the mean price
target for the Company is $5.53, or nearly 10% higher than the total potential consideration offered under the Proposed
Transaction.
70. The Board’s decision to sell the Company for inadequate consideration both fails to maximize stockholder value and
deprives the Company’s stockholders of their ability to reap the benefits of the Company’s long-term financial returns. Moreover, as
detailed below, the decision by certain Board members to enter into the Proposed Transaction appears to have been motivated by fear
of losing their Board seats.
The Unreasonable Deal Protection Devices
71. Despite the inadequate consideration provided for by the Merger Agreement, the Individual Defendants agreed to certain
terms that are designed to inhibit other bidders from coming forward with a superior offer.
72. Section 6.2 of the Merger Agreement includes a deficient 35-day “go-shop period” provision permitting the Company to
initiate or engage in discussions with third parties concerning an alternative to the Proposed Transaction. This go-shop period is
illusory, however, and does not adequately ensure that a competing proposal will come forward by containing a number of covenants
that restricts the ability of the alternative bidder from tabling a superior bid.
21
73. During the go-shop period, Section 6.2(a) requires the Company to furnish to Brookfield any non-public information
provided to any third party that was not provided to Brookfield within twenty-four hours of doing so. Moreover, no later than
one (1) business day following the expiration of the go-shop period (the no-shop period start date), the Company must notify
Brookfield of the identity of each third party from whom the Company received a written acquisition proposal and provide to
Brookfield a copy of all materials related to any acquisition proposal, the identity of the third parties making such acquisition
proposal(s), and a written summary of the material terms of any acquisition proposal not made in writing. Thus, any competing
bidder will engage into negotiations with the Company knowing that all of the contents, terms, and discussions of such
negotiations will be disclosed to Brookfield.
74. Even if the Company is able to reach an agreement with a third party during the go-shop period, Section 9.4(b) requires the
Company to pay to Brookfield a termination fee of $7.5 million. The existence of a go-shop termination fee defeats the purpose of the
go-shop, as it adds an additional burden and significant disincentive for competing bidders to come forward. Thus, a
competing bidder would not only have to contend with Brookfield having access to all of its deliberations with the Company, it would
also have to pay a naked premium of $7.5 million.
22
75. Following the expiration of the go-shop period, Section 6.2(b) bars the Company from soliciting interest from other
potential acquirers in order to procure a price in excess of the amount offered Brookfield, and demands that the Company and all
its representatives terminate any and all prior or on-going discussions with other potential acquirers.
76. Pursuant to Section 6.2(d) of the Merger Agreement, from the no-shop period start date, should an unsolicited bidder submit
a competing proposal or any inquiry that would reasonably be expected to lead to a competing proposal, within 24 hours the Company
must notify Brookfield of the submission and the material terms and conditions of the bidder’s offer, a copy of the Company’s
confidentiality agreement with the alternative bidder, and the Company’s intention to participate or engage in discussions or
negotiations with such bidder.
77. Compounding matters, should the Company enter into a superior proposal following the expiration of the go-shop period,
Section 9.4(b) requires the Company to pay a termination fee of $20,000,000.
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The Materially Misleading and Incomplete Recommendation Statement
78. On May 26, 2015, GrafTech filed the Recommendation Statement with the SEC in connection with the Proposed
Transaction. The Recommendation Statement fails to provide the Company’s stockholders with material information with regard to
several issues, thereby rendering the stockholders unable to make an informed decision regarding whether or not to tender their shares
in the Tender Offer.
79. The Recommendation Statement fails to disclose material information concerning the events leading up to the announcement
of the Proposed Transaction, including information pertaining to the process conducted by the Company in considering a sale. In
particular, in describing the flawed sales process, the Background of the Transaction section of the Recommendation Statement fails to
disclose:
a. Whether J.P. Morgan conducted any sort of pre-market check and provided this information to the Board;
b. Whether there were any discussions concerning the continued employment of senior management following the
consummation of the Proposed Transaction, and if so, who was involved in such discussions and when such discussions took place;
24
c. Whether the Board held additional discussions with Brookfield concerning Brookfield’s March 19 offer to
the Company’s stockholders to retain their shares of the Company under Brookfield sponsorship, and if not, the reasons
such offer was never given full consideration; and
d. The Company’s basis for failing to canvas the market prior to agreeing to the Proposed Transaction.
80. With respect to past fees received by J.P. Morgan, the Recommendation Statement provides only partial disclosures. These
partial disclosures must be remedied:
a. The Recommendation Statement fails to disclose the amount of compensation J.P. Morgan received for acting as a
bookrunner on debt underwritings for portfolio companies of BCP;
b. The Recommendation Statement fails to disclose the amount of compensation J.P. Morgan has received for acting as the
joint lead arranger on the Company’s term loan in February 2015;
c. The Recommendation Statement fails to disclose the amount of compensation J.P. Morgan has received for serving as
an agent bank and a lender under outstanding credit facilities of the Company; and
25
d. The Recommendation Statement fails to disclose what “other financial benefits” J.P. Morgan has received for
serving as an agent bank and a lender under outstanding credit facilities of the Company.
81. The Recommendation Statement describes J.P. Morgan’s fairness opinion and the various valuation analyses it performed in
support of its opinion. However, the description of J.P. Morgan’s opinion and analyses fails to include key inputs and assumptions
underlying the analyses. Without this information, as described below, GrafTech’s public stockholders are unable to fully understand
the analyses and, thus, are unable to determine what weight, if any, to place on the fairness opinion rendered in support of the
Proposed Transaction. Specifically, the Recommendation Statement fails to disclose:
a. With respect to the Public Trading Multiples analysis: (i) the “complex considerations and judgments” undertaken by
J.P. Morgan, and how these affected its analysis; (ii) the individual implied per share equity values of each of the selected companies;
and (iii) the inputs and assumptions used by J.P. Morgan to arrive at the selected multiple reference ranges used for the Company for
2015E FV/EBITDA and 2016E FV/EBITDA, respectively, particularly for 2015 since the low end of the range exceeds both the mean
and the median of the selected companies’ range.
26
b. With respect to the Selected Transaction Multiples Analysis: (i) the “complex considerations and judgments”
undertaken by J.P. Morgan, and how these affected its selection of the Company’s multiple reference range of 8.0x to 10.0x
for FV/LTM EBITDA; and (ii) the inputs and assumptions used by J.P. Morgan to calculate the FV/LTM EBITDA of the
selected transactions.
c. With respect to the Discounted Cash Flow Analysis: (i) the inputs and assumptions used by J.P. Morgan to apply
perpetual growth rates of 1.5% to 2.5% to the Company’s unlevered free cash flows; and (ii) the inputs and assumptions used by J.P.
Morgan to determine a discount rates from 10.5% to 12.5%.
Individual Defendants’ Self-Interest in the Proposed Transaction
82. Based on the language of the Merger Agreement and public statements, it appears that members of GrafTech’s senior
management may continue with the Company following the consummation of the Proposed Transaction. Section 3.6(b) of the Merger
Agreement states that all officers of the Company will continue in their employment “until their respective successors are duly
appointed.” Likewise, the Merger Agreement contains provisions contemplating the compensation of continuing employees.
27
83. Additionally, in announcing the Proposed Transaction, GrafTech stated it “believes that Brookfield has an exceptional
track record sponsoring public companies in difficult underlying market conditions, including significant knowledge and
experience in steel, mining and metals, and other industrial sectors.” Sponsor seems to imply that Brookfield will continue to
allow the Company to be run by its current management team, with only difference being that it will be backed by Brookfield’s
funding. This fact it borne out by Brookfield’s statements on its website, which touts Brookfield’s “consistent track records of
success partnering with companies,” and its ability to “assist companies experiencing temporary operational or financial
challenges that impede results.”
84. Likewise, while the deal was being finalized, Defendant Hawthorne stated:
Over the last eighteen months, we have taken deliberate steps to position the company for the long term and believe this transaction
is another example of our continued commitment to positioning the company for success . . . . Brookfield shares our focus on
executing a strategy that will allow GrafTech to manage through intensifying industry challenges in preparation for a cyclical upturn.
85. These statements demonstrate that the Company and Brookfield are planning to maintain the current management team
following the effectuation of the Proposed Transaction.
86. Defendant Hawthorne also has interests that put him at odds with the Company shareholders. In the event Defendant
Hawthorn does not continue in his employment with the Company, he will be entitled to golden parachute payments totaling
$8,612,254.
28
87. Moreover, according to Section 3.7, all Company restricted stock units and in-the-money options issued will
immediately vest upon the effectuation of the Proposed Transaction, allowing them to immediately cash in on incentive
payments not shared by the members of the Class. As a result of the Proposed Transaction, Defendant Hawthorne will receive
$147,420 in cancelled stock options and $2,772,278 in cancelled restricted stock units, totaling $2,919,698.
88. Accordingly, Plaintiff seeks injunctive and other equitable relief to prevent the irreparable injury that Company stockholders
will continue to suffer absent judicial intervention.
COUNT I
Breach of Fiduciary Duties
(Against All Individual Defendants)
89. Plaintiff repeats all previous allegations as if set forth in full herein.
90. The Individual Defendants have violated their fiduciary duties owed to the public stockholders of GrafTech and have acted
to put their personal interests ahead of the interests of GrafTech’s stockholders.
91. The Individual Defendants’ recommendation of the Proposed Transaction will result in a sale of the Company which
imposes heightened judicial scrutiny of the Board’s process and its obligation to maximize GrafTech’s value for the benefit of its
stockholders.
29
92. The Individual Defendants have breached their fiduciary duties owed to the stockholders of GrafTech because, among
other reasons:
(i) they failed to take steps to maximize the value of GrafTech to its public stockholders and took steps to avoid
competitive bidding;
(ii) they agreed to deal protection provisions which may inhibit other bidders from coming forward with a superior offer;
(iii) they failed to properly value GrafTech; and
(iv) they ignored or did not protect against the numerous conflicts of interest resulting from the directors’ own connections
and self-interest regarding the Proposed Transaction.
93. As a result of the Individual Defendants’ breaches of their fiduciary duties, Plaintiff and the Class will suffer irreparable
injury in that they have not and will not receive their fair portion of the value of GrafTech’s assets and will be prevented from
benefiting from a value-maximizing transaction.
94. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to Plaintiff and
the Class, and may consummate the Proposed Transaction, to the irreparable harm of the Class.
95. Plaintiff and the Class have no adequate remedy at law.
30
COUNT II
Aiding and Abetting
(Against GrafTech and the Brookfield Entities)
96. Plaintiff repeats all previous allegations as if set forth in full herein.
97. Defendants GrafTech and the Brookfield Entities are well aware that the Individual Defendants have not sought, and are not
seeking, to obtain the best possible transaction for the Company’s public stockholders.
98. As alleged in more detail above, GrafTech and the Brookfield Entities have aided and abetted the Individual Defendants’
breaches of fiduciary duties by causing the Board to accept inadequate consideration for the Company’s public stockholders and
negotiating unreasonably preclusive deal protection terms.
99. As a result, Plaintiff and the Class members are being harmed.
100. Plaintiff and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants jointly and severally, as follows:
(A) declaring this action to be a class action and certifying Plaintiff as the Class Representative and his counsel as Class
Counsel;
(B) enjoining, preliminarily and permanently, the Proposed Transaction;
31
(C) in the event that the transaction is consummated prior to the entry of this Court’s final judgment, rescinding
it or awarding Plaintiff and the Class rescissory damages;
(D) directing that Defendants account to Plaintiff and the other members of the Class for all damages caused by them and
account for all profits and any special benefits obtained as a result of their breaches of their fiduciary duties;
(E) awarding Plaintiff the costs of this action, including a reasonable allowance for the fees and expenses of Plaintiff’s
attorneys and experts; and
(F) granting Plaintiff and the other members of the Class such further relief as the Court deems just and proper.
Dated: June 4, 2015
RIGRODSKY & LONG, P.A.
By:
OF COUNSEL:
LEVI & KORSINSKY, LLP
Donald J. Enright
Elizabeth K. Tripodi
1101 30th Street, N.W.,
Suite 115
Washington, DC 20007
(202) 524-4290
/s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
Attorneys for Plaintiff
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Exhibit (a)(5)(E)
EFiled: Jun 09 2015 05:31PM EDT
Transaction ID 57378383
Case No. 11125-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CYHYOUNG PARK, On Behalf of
Herself and All Others Similarly Situated,
Plaintiff,
v.
GRAFTECH INTERNATIONAL LTD.,
RANDY CARSON, THOMAS A.
DANJCZEK, KAREN FINERMAN,
JOEL L. HAWTHORNE, DAVID R.
JARDINI, NATHAN MILIKOWSKY,
M. CATHERINE MORRIS, BCP IV
GRAFTECH HOLDINGS LP, AND
ATHENA ACQUISITION
SUBSIDIARY INC,
Defendants.
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Civil Action No.
VERIFIED CLASS ACTION COMPLAINT
Plaintiff CyHoung Park (“Plaintiff”), by her undersigned attorneys, for her Verified Class Action Complaint against defendants,
alleges upon personal knowledge with respect to herself, and upon information and belief based upon, inter alia, the investigation
of counsel as to all other allegations herein, as follows:
NATURE OF THE ACTION
1. This is a shareholder class action brought by Plaintiff on behalf of herself and the public shareholders of GrafTech
International Ltd. (“GrafTech” or the “Company”) against GrafTech, the directors of GrafTech (the “Board” or the
“Individual Defendants”), BCP IV GrafTech Holdings LP, and Athena Acquisition Subsidiary Inc. (“Merger Sub”), each an affiliate
of funds managed by Brookfield Asset Management, Inc. (“Brookfield”), arising out of an agreement to sell GrafTech to Athena (the
“Proposed Transaction”). In pursuing the Proposed Transaction, each of the defendants has violated applicable law by directly
breaching and/or aiding breaches of fiduciary duties of loyalty and due care owed to Plaintiff and the proposed class.
2. On April 29, 2015, GrafTech announced that Brookfield had entered into a letter of intent (the “Investment Agreement”)
whereby Brookfield would make a $150 million preferred equity investment in GrafTech with immediate conversion rights into
GrafTech common shares. Concurrently with this development, the Company also announced a separate letter of intent announcing a
possible tender offer by Brookfield to acquire the outstanding shares of GrafTech for $5.05 per share. The Proposed Transaction for
all of the Company’s outstanding stock by Brookfield is at an inadequate price and on unfair and inadequate terms. In addition, it
deprives Plaintiff and the other public stockholders of the value of, and right to participate in, the future benefits and profitability of
the Company.
3. On May 4, 2015, Brookfield and the Company announced the execution of the Investment Agreement whereby Brookfield
would purchase
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preferred shares of the Company with dividend and conversion rights for a total transaction value of $150 million. This Investment
Agreement permitted Brookfield to nominate two directors to the Company Board, expanding it from seven to nine members.
4. On May 17, 2015, Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Merger Sub and
BCP IV Graftech Holdings LP (collectively the “Brookfield Affiliates”) under which Brookfield would seek to acquire all of the
outstanding common shares of GrafTech at a purchase price of $5.05 per share. The total consideration under the Proposed
Transaction is valued at approximately $692.8 million. The Board has breached its fiduciary duties by agreeing to the Proposed
Transaction, which both fails to maximize stockholder value and also deprives GrafTech’s stockholders of their ability to enjoy the
Company’s promising long-term growth prospects.
5. On May 26, 2015, Brookfield commenced the tender offer and GrafTech filed its Schedule 14D-9
Solicitation/Recommendation Statement (the “Recommendation Statement”) with the U.S. Securities and Exchange Commission
(“SEC”). The Proposed Transaction is set to close on July 7, 2015.
6. In agreeing to the Proposed Transaction, the Board conducted a rushed process that was not reasonably designed to maximize
stockholder value. In the space of just over two months, the Board consented to the Investment Agreement and Proposed Transaction
without determining whether other opportunities existed in the market.
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7. The Individual Defendants have breached their fiduciary duties further by agreeing to deal protection provisions that
prevent other bidders from making a successful competing offer for the Company. Specifically, pursuant to the Merger
Agreement defendants agreed to: (i) a 35-day “go-shop” period which requires the Company to pay a termination fee of $7.5
million to Brookfield should it enter into a superior acquisition proposal negotiated during the go-shop period and $20 million if
GrafTech enters into a superior acquisition proposed after the go-shop period; (ii) require the Company to inform Brookfield of
all material information concerning discussions with third parties upon the expiration of the go-shop period; (iii) a strict
no-solicitation provision following the expiration of the go-shop period that prohibits the Company from soliciting other
potential acquirers; and (iv) a provision that requires the Company to provide Brookfield with 24 hours’ notice if it receives a
superior proposal following the expiration of the go-shop period. These deal protection provisions insulate the Proposed
Transaction and preclude the Board from fulfilling its fiduciary duties to the Company’s public stockholders.
8. Finally, the Board has failed to provide GrafTech stockholders with information necessary for them to make an informed
decision regarding whether to
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tender their shares in the Proposed Transaction. The Recommendation Statement omits material information regarding the process
conducted by the Board and the key data and inputs underlying the financial valuation analyses that purport to support the fairness
opinion provided by J.P. Morgan Securities LLC (“J.P. Morgan”).
9. In addition, the Proposed Transaction benefits members of the Board, along with other top executives of GrafTech, as the
Proposed Transaction will provide them with lavish change of control payments and stock sales.
10. The Proposed Transaction will deprive stockholders of adequate consideration in light of the Company’s promising
prospects for growth, increased sales, and future profitability. It is the product of a flawed process that is designed to ensure the sale of
GrafTech to Brookfield on terms preferential to Brookfield, but detrimental to Plaintiff and the other public stockholders of GrafTech.
11. The Individual Defendants have breached their fiduciary duties and the other defendants have aided and abetted such
breaches. Plaintiff seeks to enjoin the Proposed Transaction, which deprives Plaintiff and the Class of their rights to realize the full
and fair value of their GrafTech stock.
PARTIES
12. Plaintiff has been, at all times relevant hereto, a GrafTech shareholder.
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13. Defendant GrafTech is a Delaware corporation that maintains its principal executive offices at 6100 Oak Tree
Boulevard, Suite 300 Park Center I, Independence, Ohio 44131. The Company’s securities trade on the New York Stock
Exchange (“NYSE”) under the symbol “GTI.” Founded in 1886, the Company is a leading manufacturer and seller of graphite
and carbon material science-based solutions.
14. Defendant Randy Carson (“Carson”) has been a director of the Company since 2009 and has served as the Chairman of the
Board since June 2014.
15. Defendant Thomas A. Danjczek (“Danjczek”) has been a director of the Company since May 2014.
16. Defendant Karen Finerman (“Finerman”) has been a director of the Company since May 2014.
17. Defendant Joel L. Hawthorne (“Hawthorne”) has been a director, Chief Executive Officer (“CEO”), and President of the
Company since August 1999. Defendant Hawthorne joined the Company as director of investor relations in August 1999.
18. Defendant David R. Jardini (“Jardini”) has been a director of the Company since May 2014.
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19. Defendant Nathan Milikowsky (“Milikowsky”) has been a director of the Company since May 2014. Defendant
Milikowsky entered into a Tender and Support Agreement to vote all of the shares he beneficially owns in favor of the Proposed
Transaction, totaling 11% of all outstanding common shares of the Company.
20. Defendant M. Catherine Morris (“Morris”) has been a director of the Company since May 2014.
21. The defendants named above in paragraphs 14 through 20 are sometimes collectively referred to herein as the “Individual
Defendants.” 22. The Individual Defendants, as officers and/or directors of the Company, owe fiduciary duties to its public
stockholders. As alleged herein, they have breached their fiduciary duties by failing to maximize shareholder value in the Proposed
Transaction.
23. Defendant BCP GrafTech Holdings LP is a Delaware limited partnership and affiliate of Brookfield Asset Management Inc.
that was created for the purpose of effectuating the Proposed Transaction.
24. Defendant Merger Sub is a Delaware corporation and wholly owned subsidiary of Parent that was created for the purpose of
effectuating the Proposed Transaction.
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CLASS ACTION ALLEGATIONS
25. Plaintiff brings this action on her own behalf and as a class action pursuant to Court of Chancery Rule 23, on behalf of all
holders of Company stock who are being and will be harmed by defendants’ actions described herein (the “Class”). Excluded from the
Class are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any defendants.
26. This action is properly maintainable as a class action.
27. The Class is so numerous that joinder of all members is impracticable. According to recent filings with the SEC, GrafTech
has approximately 136 million shares of common stock outstanding, likely owned by thousands of stockholders.
28. There are questions of law and fact that are common to the Class and which predominate over questions affecting any
individual Class member. The common questions include, inter alia, the following:
(a) Whether the Individual Defendants dialed to maximize stockholder value for the benefit of Plaintiff and the other
members of the Class in connection with the Proposed Transaction;
(b) Whether the Individual Defendants failed to provide GrafTech’s stockholders with material information in connection
with the Tender Offer;
(c) Whether the other defendants have aided and abetted the Individual Defendants’ breaches of fiduciary duties;
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(d) Whether Plaintiff and the other members of the Class would be irreparably harmed were the transactions
complained of herein consummated; and
(e) Whether the Class is entitled to injunctive relief or damages as a result of defendants’ wrongful conduct.
29. Plaintiff’s claims are typical of the claims of the other members of the Class and Plaintiff does not have any interests adverse
to the Class.
30. Plaintiff is an adequate representative of the Class, has retained competent counsel experienced in litigation of this nature
and will fairly and adequately protect the interests of the Class.
31. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class that would establish incompatible standards of conduct for defendants,
or adjudications with respect to individual members of the Class that would, as a practical matter, be dispositive of the interests of the
other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.
32. Defendants have acted on grounds generally applicable to the Class with respect to the matters complained of herein, thereby
making appropriate the relief sought herein with respect to the Class as a whole.
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FACTUAL ALLEGATIONS
33. According to the Company’s annual report, GrafTech researches and developments of graphite and carbon-based solutions.
The Company’s vision is to enable customer leadership better and faster than the competition, through the creation, innovation and
manufacture of carbon and graphite material science based solutions. The Company has seven major product categories including,
graphite electrodes, refractory products, needle coke products, advanced graphite materials, advanced composite materials, advanced
electronics technologies, and advanced materials. GrafTech maintains 18 manufacturing facilities on four continents, and sells its
products in over 70 countries to customers in industries such as metal production, electronics, chemicals, aerospace and transportation.
Board Level Unrest
34. On January 21, 2014, GrafTech’s Chairman, CEO, and President, Craig Shuler, decided to retire as President and CEO, and
announced that he would retire as Chairman of the Board as of December 31, 2014. As a result, the Board appointed Individual
Defendant Hawthorne as CEO, President, and a member of the Board.
35. According to a January 23, 2014 article in The New York Times entitled, “Behind Staid Steel, a Percolating Boardroom
Drama,” this change in management was the result of a fight between “Craig Shuler and certain members of the Board against
[defendant] Milikowsky.”
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36. Milikowsky had been appointed to the Board as part of the acquisition deal GrafTech struck with two companies,
Carbide Graphite Group and Seadrift Coke, which he controlled. A seat on the GrafTech Board was guaranteed as long as he and
his associates held at least 12 million shares of the Company.
37. Milikowsky began to criticize management after about a year on the Board, alleging that management was spending too
much on overhead and making what he saw as poor strategic choices, including turning down orders that he believed the Company
should have accepted. As a result, by late 2011, Milikowsky believed that the Company was losing market share.
38. In early 2012, Samlyn Capital (“Samlyn”), one of GrafTech’s passive hedge fund investors, began to ask questions about the
Company’s operations. Relying on what appeared to be confidential information about the Company, members of the Board believed
that Samlyn’s criticisms of the Company, including comments about specifics known only by a small circle of insiders, sounded like
those held by Milikowsky.
39. In response to Samlyn’s questions, GrafTech appointed a committee of independent directors (the “Committee”) as well as
independent investigatory counsel to conduct an investigation into apparent leaks of confidential inside
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information. The Committee determined that there were leaks of material nonpublic information. Further, they claimed to have
evidence that Milikowsky was the source of the leaks, and that at least some of the information could not have been developed
independently.
40. Defendant Milikowsky was subsequently dismissed from the Board. He maintained the Committee’s findings were wrong,
and that he was ousted from the Board because of his vocal criticism of them and Schuler, the Company’s CEO.
41. It was at this point, and before the Company’s 2014 annual meeting, that Milikowsky tried to nominate a new slate of
directors, announcing (with his brother) that they intended to nominate three director candidates, including Milikowsky, Jardini, and
Finerman.
42. On May 15, 2014, following a contentious proxy fight between the Board and Milikowsky, Milikowsky’s slate of directors,
including himself, were chosen to serve on the seven-member Board.
43. Thereafter, on January 23, 2015, Milikowsky, who held over 15 million shares (or over 11.2% of the Company’s common
stock), announced that he had submitted a notice to nominate a full slate of seven candidates for election to the Board at the 2015
annual meeting. Again, he was included in this slate. Milikowsky also announced his dissatisfaction with Hawthorne as CEO and the
four-member majority supporting his initiatives. Milikowsky stated that he intended to replace Hawthorne as CEO with either himself
or Jardini.
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44. On May 4, 2015, GrafTech announced that its Board had entered into an investment agreement with Brookfield under
which Brookfield was to acquire $150 million of 7% convertible preferred shares in a private offering.
Relevant Information About The Proposed Transaction
45. On April 29, 2015, the Company and Brookfield announced that two letters of intent had been executed. The first concerned
an Investment Agreement under which Brookfield would purchase preferred equity shares in GrafTech. The second announced that
Brookfield was considering a tender offer to purchase all outstanding shares of GrafTech for $5.05 per share.
46. In mid-February, under the pretense that Brookfield was interested in refinancing the Company’s senior subordinated notes,
both it and the Company underwent an initial discussion. The parties did not actually meet until March 6, 2015, when Brookfield
offered the Company a $100 million convertible note. Days later, on March 9, 2015, Brookfield conveyed its interest in acquiring the
Company. And, on April 14, 2015, Brookfield modified its proposal, doing away with the $100 million convertible note offer and
replacing it with an offer to (1) purchase $150 million convertible preferred stock, and (2) initiate a tender offer for up to 100% of the
Company’s shares at a purchase price of $5.00 per share.
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47. On April 22, 2015, the Board countered, agreeing to entertain a deal, but at an increased share price of $5.75 per share.
Their attempt to substantially increase the consideration was unsuccessful. Further, there were no discussions about Brookfield’s
offer to provide the Company’s stockholders with the option to retain an equity interest in the company after the execution of the
Proposed Transaction.
48. On April 25, 2015, Brookfield agreed to a per share price of $5.05.
49. On April 28, 2015, the Board directed J.P. Morgan to confirm that the $5.05 per share offer price was fair.
50. On May 4, 2015, Brookfield entered into the Investment Agreement, whereby the Company sold to Brookfield:
(i) shares of a new Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) in an amount
equal to 19.9% of the Company’s outstanding common stock (the “Series A Preferred Shares”) and (ii) shares of a new Series B
Convertible Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock” and, together with the Series A Preferred
Stock, the “Preferred Stock”), in an amount equal to 150,000 less the number of Series A Preferred Shares, for an aggregate purchase
price of $150,000,000 in cash (the “Purchase Price”).
51. Concurrently with the execution of the Investment Agreement, Brookfield and the Company entered into a stockholder rights
agreement (the “Stockholder Rights Agreement”) under which Brookfield was given the right to designate two members of the
Company’s Board as long as it held at least 75% of
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the common stock issuable or actually issued upon conversion of the Series A Preferred Stock, with concomitant preemptive rights
ensuring it has the option to maintain its proportionate equity interest in the Company.
52. Defendant Hawthorne, now CEO, publicly supported the Investment Agreement, stating that it “demonstrates confidence in
GrafTech’s strategy, market position, and long-term prospects. . . . This strategic investment will strengthen our capital structure and
provide GrafTech with increased financial flexibility to continue executing our strategy and positioning the company for success as
the cycle improves.”
53. On May 18, 2015, GrafTech announced that it entered into the Merger Agreement with the Brookfield Affiliates in a press
release, which stated in pertinent part:
INDEPENDENCE, Ohio—(BUSINESS WIRE)—May 18, 2015— GrafTech International Ltd. (NYSE:GTI) (“GrafTech” or the
“Company”) today announced it has entered into a definitive agreement and plan of merger with an affiliate of Brookfield Asset
Management Inc. (NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA) (“Brookfield”) under which Brookfield will commence a
tender offer to acquire up to all of the outstanding shares of GrafTech common stock. The definitive agreement was unanimously
approved by GrafTech’s Board of Directors and follows the letter of intent announced by GrafTech on April 29, 2015. Holders of
approximately 11% of the outstanding shares of GrafTech common stock, including GrafTech director Nathan Milikowsky, have
agreed to support the transaction and tender their shares in the tender offer.
Under the terms of the agreement, Brookfield will commence a tender offer to purchase up to all of the outstanding shares of
GrafTech
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common stock at a purchase price of $5.05 per share, representing a premium of 26% over the average closing price of the
Company’s common shares during the 60 trading days ended April 28, 2015. The tender offer is not subject to any financing
conditions.
The tender offer is intended to provide GrafTech stockholders the option to choose immediate liquidity at a premium as described
above or to participate in GrafTech as a stockholder following the closing of the tender offer (subject to the merger provisions
described below) with the benefit of Brookfield sponsorship going forward. A stockholder might choose to accept a combination of
both cash and continued ownership of GrafTech shares.
The Company believes that Brookfield has an exceptional track record sponsoring public companies in difficult underlying market
conditions, including significant knowledge and experience in steel, mining and metals, and other industrial sectors.
Pursuant to the agreement, the tender offer will commence no later than May 26, 2015 and will expire at 12:00 midnight, New York
City time, on July 7, 2015, unless extended in accordance with the terms of the agreement and the applicable rules and regulations of
the Securities and Exchange Commission. Consummation of the tender offer is subject to certain conditions, including receipt of
required regulatory approvals, the tender of a number of GrafTech shares that, together with any other shares then owned by
Brookfield (including shares issuable upon conversion of the convertible preferred stock expected to be issued to Brookfield as
previously announced), would represent at least 30% of the then outstanding shares plus shares issuable upon such conversion (the
“minimum tender condition”), and other customary conditions. Assuming the convertible preferred stock is issued prior to the
expiration of the tender offer, as of the date hereof, satisfaction of the minimum tender condition would require the tender of
approximately 15% of the currently outstanding GrafTech shares.
If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable upon
conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at least
80% of the then outstanding shares plus shares issuable upon such conversion
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(the “merger condition”), then the remaining outstanding GrafTech shares will be acquired in a merger transaction at the same price
offered in the tender offer. Assuming the convertible preferred stock is issued prior to the expiration of the tender offer, as of the date
hereof, satisfaction of the merger condition would require the tender of approximately 75% of the currently outstanding GrafTech
shares.
54. The tender offer commenced on May 26, 2015 and is set to expire on July 7, 2015. Holders of approximately 11% of the
outstanding shares of GrafTech common stock, including defendant Milikowsky, have agreed to support the Proposed Transaction and
tender their shares in the Proposed Transaction.
55. Following the successful completion of the Proposed Transaction, GrafTech will merge with Merger Sub and become a
wholly-owned subsidiary of BCP GrafTech Holdings LP. At that time, all remaining outstanding shares of GrafTech will receive the
same merger consideration paid to other stockholders in the Proposed Transaction.
56. The Proposed Transaction is expected to be completed in the third quarter of 2015 at which point GrafTech shares will be
delisted from NASDAQ.
The Timing of the Proposed Transaction Is Questionable
57. At a time when both insiders and outsiders agreed the Company was well positioned for future growth, the Company
announced its entry into the Proposed Transaction.
58. Just prior to the announcement of the Proposed Transaction, the Company developed and successfully executed on initiatives
to improve
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operations, reduce costs, enhance liquidity, and effectively respond to continuing weak demand from the global steel industry and
other end market challenges to insure long-term success of the Company.
59. As a result, the $5.05 per share price agreed to in the Proposed Transaction is an inadequate price, and defendants’ claim that
the transaction provides a great return for investors is inaccurate. The $5.05 per share price is below the Company’s reported book
value per share of $6.73.
60. The Board’s decision to sell the Company at a depressed value fails to maximize stockholder value and deprives the
Company’s stockholders of their ability to reap the benefits of the Company’s long-term financial returns.
The Preclusive Deal Protection Devices
61. In addition to the inadequate consideration provided for by the Merger Agreement, the Individual Defendants deprived
shareholders from receiving the maximum value for their shares by agreeing to preclusive deal terms designed to both insulate
Brookfield’s offer and dissuade other bidders from coming forward with superior proposals.
62. Section 6.2 of the Merger Agreement, for example, includes a brief 35-day “go-shop period” permitting the Company to
initiate or engage in discussions with third parties concerning an alternative to the Proposed Transaction. This go-shop period does not
adequately ensure that a competing proposal will come forward because it contains a number of covenants that restrict third-parties
from offering a superior bid.
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63. During the go-shop period, Section 6.2(a) requires the Company to share with Brookfield, within 24 hours, any
non-public information provided to a third party that was not previously provided to Brookfield. Moreover, no later than one
business day following the expiration of the go-shop period, the Company must notify Brookfield of the identity of each third
party from whom the Company received a written acquisition proposal and provide to Brookfield a copy of all materials related
to any acquisition proposal, the identity of the third parties making such acquisition proposal(s), and a written summary of the
material terms of any acquisition proposal not made in writing. Thus, any competing bidder will engage in negotiations with the
Company knowing that all its terms and discussions will be disclosed to Brookfield.
64. Further, even if another offer were made to acquire the Company, under Section 7.4, the Company must negotiate with
Brookfield in good faith for a period four business days allow Brookfield to amend the terms of the Merger Agreement. In other
words, the Merger Agreement gives Brookfield access to any rival bidder’s information and allows Brookfield a free right to top any
superior offer simply by matching it. Accordingly, no rival bidder is likely to emerge and act as a stalking horse because the Merger
Agreement unfairly assures that any “auction” will favor Brookfield and piggy-back upon the due diligence of the foreclosed second
bidder
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65. If the Company is able to reach an agreement with a third party during the go-shop period, however, Section 9.4(b)(ii)
requires the Company to pay to Brookfield a termination fee of $7.5 million. The existence of a go-shop termination fee renders
the go-shop period obsolete, as it adds an additional economic burden and acts as a disincentive for competing bidders to come
forward, requiring such third party suitors to pay a naked premium.
66. Following the go-shop period, Section 6.2(b) bars the Company from soliciting interest from other potential acquirers in
order to secure a price above that offered by Brookfield, and forces the Company and any representative to cease and desist prior and
continuing discussions with other potential acquirers.
67. Under 6.2(d) of the Merger Agreement, after the no-shop period commences, should an unsolicited bidder submit a
competing proposal or any inquiry that would reasonably be expected to lead to a competing proposal, the Company (within 24 hours)
must notify Brookfield and provide Brookfield with the (1) material terms and conditions of the bidder’s offer, (2) a copy of the
Company’s confidentiality agreement with the alternative bidder, and (3) state what the Company’s intention is in participating or
engaging in discussions or negotiations with such bidder. Further, should the Company accept the superior
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proposal following the expiration of the go-shop period, Section 9.4(b) requires the Company to pay a termination penalty of $20
million, essentially requires that a competing bidder agree to pay a naked premium for the right to provide GrafTech’s stockholders
with a superior offer.
68. Ultimately, these preclusive deal protection provisions illegally restrain the Company’s ability to solicit or engage in
negotiations with any third party regarding a proposal to acquire all or a significant interest in the Company. The circumstances under
which the Board may respond to an unsolicited written bona fide proposal for an alternative acquisition that constitutes or would
reasonably be expected to constitute a superior proposal are too narrowly circumscribed to provide an effective “fiduciary out” under
the circumstances.
The Recommendation Statement is False and Misleading
69. Defendants are withholding material information about the Proposed Transaction from the Company’s public stockholders.
On May 26, 2015, GrafTech filed a Recommendation Statement with the SEC in connection with the Proposed Transaction. The
Recommendation Statement, which recommends that GrafTech stockholders tender their shares, contains numerous material
omissions and misstatements, in contravention of the Board’s duty of candor and full disclosure. As a result, the Company’s
stockholders are unable to make an informed decision regarding whether or not to tender their shares in the Proposed Transaction.
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Disclosures Relating to the Background of the Proposed Transaction
70. The Recommendation Statement fails to disclose material information concerning the events that led up to the announcement
of the Proposed Transaction, including, but not limited to, information pertaining to the process conducted by the Company in
considering a sale. Specifically, the “Background of the Transaction” section fails to disclose:
(a) Whether, and if so, how, J.P. Morgan conducted any sort of pre-market check and provided this information to the
Board;
(b) How the Company and J.P. Morgan overcame J.P. Morgan’s policy of not providing a fairness opinion where there is
not an acquisition that creates a majority holder of the subject company’s outstanding shares; and
(c) Whether there were any discussions concerning the continued employment of senior management following the
consummation of the Proposed Transaction, and if so, who was involved in such discussions and when such discussions took place.
71. With respect to past fees received by J.P. Morgan, the Recommendation Statement provides only partial disclosures, which
must be remedied. The Recommendation Statement fails to disclose the amount of
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compensation J.P. Morgan received for (i) acting as a bookrunner on debt underwritings for portfolio companies of Brookfield;
(ii) acting as the joint lead arranger on the Company’s term loan in February 2015; and (iii) serving as an agent bank and a lender
under outstanding credit facilities of the Company.
72. The Recommendation Statement also fails to disclose certain key data, inputs, and assumptions underlying the financial
analyses supporting the fairness opinion of the Board’s financial advisor, J.P. Morgan. Without this information, GrafTech’s
stockholders are unable to fully understand the analyses, and, thus, are unable to determine what weight, if any, to place on the
fairness opinion rendered in support of the Proposed Transaction.
73. Specifically, regarding the J.P. Morgan’s Public Trading Multiples, the Recommendation Statements fails to disclose: (i) the
2015 estimated firm value as a multiple of EBITDA for each of the selected companies; and (ii) the 2016 estimated firm value as a
multiple of EBITDA for each of the selected companies.
74. With respect to J.P. Morgan’s Selected Transaction Multiples Analysis, the Recommendation Statement fails to disclose:
(i) the equity value of each selected transaction; and (ii) the target company’s firm value as a multiple of last twelve months EBITDA
for each selected transaction.
75. Without significant revision to the Recommendation Statement concerning the above-referenced matters and others, all of
which a reasonable stockholder would consider important in deciding whether to tender their shares in the tender offer, GrafTech
stockholders are unable to be fully informed.
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76. Unless enjoined by this Court, the defendants will continue to breach and/or aid the breaches of fiduciary duties owed
to Plaintiff and the Class, and may consummate the Proposed Transaction to the irreparable harm of the Class.
77. Plaintiff and the other members of the Class have no adequate remedy at law.
FIRST CAUSE OF ACTION
CLAIMFOR BREACHESOF FIDUCIARY DUTIES AGAINSTTHE INDIVIDUAL
DEFENDANTS
78. Plaintiff repeats and re-alleges each allegation set forth herein.
79. The Individual Defendants have violated their fiduciary duties of care and loyalty owed to the public shareholders of
GrafTech. By the acts, transactions and courses of conduct alleged herein, the Individual Defendants are attempting to unfairly deprive
Plaintiff and other members of the Class of the value of their investment in GrafTech in this end-stage transaction.
80. As demonstrated by the allegations above, the Individual Defendants have failed to exercise the necessary care required, and
breached their duties of loyalty because, among other reasons:
(a) they have failed to properly value the Company;
(b) they have failed to take steps to maximize the value of GrafTech to its public shareholders; and
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(c) they have agreed to terms in the Merger Agreement that favor Brookfield and deter alternative bids.
81. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to Plaintiff and
the other members of the Class, and may consummate the Proposed Transaction, which will deprive the Class of its fair proportionate
share of GrafTech’s valuable assets and businesses, to the irreparable harm of the Class.
82. Plaintiff and the Class have no adequate remedy at law. Only through the exercise of this Court’s equitable powers can
Plaintiff and the Class be fully protected from the immediate and irreparable injury which the Individual Defendants’ actions threaten
to inflict.
SECOND CAUSE OF ACTION
CLAIMFOR BREACHESOF FIDUCIARY DUTYOF DISCLOSURE AGAINSTTHE
INDIVIDUAL DEFENDANTS
83. Plaintiff repeats and re-alleges each allegation set forth herein.
84. The Individual Defendants have caused materially misleading and incomplete information to be disseminated to the
Company’s public stockholders. The Individual Defendants have an obligation to be complete and accurate in their disclosures.
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85. The Recommendation Statement fails to disclose material information, including financial information and information
necessary to prevent the statements contained therein from being misleading.
86. The misleading omissions and disclosures by defendants concerning information and analyses presented to and considered
by the Board and its advisors affirm the inadequacy of disclosures to the Company’s stockholders. Because of defendants’ failure to
provide full and fair disclosure, Plaintiff and the Class will be stripped of their ability to make an informed decision with respect to the
Proposed Transaction, and thus are damaged thereby.
87. Plaintiff and the Class have no adequate remedy at law.
THIRD CAUSE OF ACTION
AGAINST GRAFTECHANDTHE BROOKFIELD AFFILIATESFOR AIDINGAND
ABETTING BREACHESOF FIDUCIARY DUTIES
88. Plaintiff repeats and re-alleges each allegation set forth herein.
89. Defendants GrafTech and the Brookfield Affiliates, by reason of their status as parties to the Merger Agreement, and their
possession of non-public information, have aided and abetted the Individual Defendants in the aforesaid breach of their fiduciary
duties.
90. Such breaches of fiduciary duties could not and would not have occurred but for the conduct of defendants GrafTech and the
Brookfield Affiliates, which, therefore, have aided and abetted such breaches in the possible sale of GrafTech to Brookfield.
26
91. As a result of the unlawful actions of GrafTech and the Brookfield Affiliates, Plaintiff and the other members of the
Class will be irreparably harmed in that they will not receive fair value for GrafTech’s assets and business. Unless the actions of
GrafTech and the Brookfield Affiliates are enjoined by the Court, GrafTech and the Brookfield Affiliates will continue to aid and
abet the Individual Defendants’ breaches of their fiduciary duties owed to Plaintiff and the members of the Class.
92. Plaintiff and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands injunctive relief, in Plaintiff’s favor and in favor of the Class and against defendants, as
follows:
A. Declaring that this action is properly maintainable as a class action;
B. Enjoining defendants, their agents, counsel, employees and all persons acting in concert with them from consummating the
Proposed Transaction, unless and until the Company adopts and implements a procedure or process to obtain the highest possible price
for stockholders;
C. Awarding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees; and
D. Granting such other and further equitable relief as this Court may deem just and proper.
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Dated: June 9, 2015
RIGRODSKY & LONG, P.A.
By: /s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
OF COUNSEL:
THE WEISER LAW FIRM, P.C.
James M. Ficaro
22 Cassatt Avenue
Berwyn, PA 19312
(610) 225-2677
Attorneys for Plaintiff
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Exhibit (a)(5)(F)
EFiled: Jun 15 2015 12:45PM EDT
Transaction ID 57401973
Case No.
IN THE COURT OF CHANCERY OF THE STATE
OF11145DELAWARE
CHARLES DAEDA, Individually and on
behalf of all others similarly situated,
Plaintiff,
v.
Civil Action No.
GRAFTECH INTERNATIONAL LTD.,
RANDY CARSON, THOMAS A.
DANJCZEK, KAREN FINERMAN, JOEL
L. HAWTHORNE, DAVID R. JARDINI,
NATHAN MILIKOWSKY, M.
CATHERINE MORRIS, BROOKFIELD
ASSET MANAGEMENT INC., BCP IV
GRAFTECH HOLDINGS LP, and
ATHENA ACQUISITION SUBSIDIARY INC.,
Defendants.
VERIFIED CLASS ACTION COMPLAINT
Plaintiff, by and through his attorneys, alleges upon personal knowledge as to himself, and upon information and belief based
upon, among other things, the investigation of counsel as to all other allegations herein, as follows:
SUMMARY OF THE ACTION
1. This is a shareholder class action brought by Plaintiff on behalf of holders of the common stock of GrafTech International Ltd.
(“GrafTech” or the “Company”) against the Board of Directors of GrafTech (“Individual Defendants” or “Board”) to enjoin the
acquisition of the publicly owned shares of GrafTech
common stock by Brookfield Asset Management Inc. (“BAM”), BCP IV GrafTech Holdings LP (“BCP IV” or “Parent”) and BCP
IV’s wholly owned subsidiary Athena Acquisition Subsidiary Inc. (“Acquisition Sub” and collectively with BAM and Parent,
“Brookfield”) as detailed herein (“Proposed Transaction”).
2. As detailed herein, the Proposed Transaction, and related Investment Agreement (defined below), were designed by
Defendants (defined below) to frustrate the efforts of the Company’s largest shareholder, defendant Nathan Milikowsky
(“Milikowsky”), to replace GrafTech’s Chief Executive Officer (“CEO”) and reconstitute the Board in an effort to fix the Company.
The actions of Defendants over the months leading up to the Proposed Transaction demonstrate that the Board’s negotiation of same
was motivated by a desire to undermine the Milikowsky in the proxy battle that was expected to occur in connection with the
Company’s 2015 Annual Meeting of Stockholders. The conduct and transactions complained of herein are in violation of fiduciary
duties owed to GrafTech’s public shareholders and serve the interests of Defendants to the detriment of the shareholders.
3. GrafTech is a global company that offers innovative graphite material solutions for its customers in a wide range of industries
and end markets, including steel manufacturing, advanced energy applications and latest generation electronics. GrafTech operates 18
principal manufacturing facilities on four continents and sells products in over 70 countries. GrafTech employs approximately 2,400
people.
2
4. In November 2010, GrafTech acquired Seadrift Coke L.P. (“Seadrift”), the world’s second largest producer of
petroleum-based needle coke, and C/G Electrodes LLC (“C/G”), a US-based graphite electrode producer.
5. Defendant Milikowsky and members of his family (the “Milikowsky Group”) were substantial equity owners of Seadrift and
C/G prior to their acquisition by the Company. In connection with those acquisitions, the Milikowsky Group received a portion of the
aggregate consideration paid to the equity holders of Seadrift and C/G, which was comprised of shares of common stock, cash and
non-interest bearing senior subordinated notes due in November 2015 (“Senior Subordinated Notes”) for an aggregate total face
amount of $200 million. In addition, as part of the Seadrift and C/G acquisitions, the Milikowsky Group was guaranteed a seat on the
GrafTech Board as long as he and his associates held at least 12 million of the Company’s shares.
6. Milikowsky began his tenure as a director of GrafTech on December 9, 2010. After spending a year on the Board, his opinion
of management and his fellow board members plunged. He thought the Company was underperforming, spending too much on
overhead and making poor strategic choices and he was vocal about his views.
3
7. Indeed, since shortly after the Seadrift and C/G acquisitions, the Company has consistently underperformed the broad
market and its peers and frequently failed to even meet its own forecasts. As such, Milikowsky had various confrontations with
the Board and Company management and has been vocal about their need to improve the performance and operations of the
Company.
8. In early 2012, Milikowsky began meeting with other directors to make his case. According to public statements by
Milikowsky, at least one of his co-directors was openly supportive and another was sympathetic to his concerns but wary of
confronting management without a majority of board members aligned.
9. Thereafter, Milikowsky began efforts to get the Company to replace then CEO Craig Shular (“Shular”) (who subsequently
resigned on January 21, 2014 and was replaced by defendant Joel Hawthorne as CEO and President.)
10. As Milikowsky escalated his efforts to overhaul the Company, the backlash from the Company’s management and Board
also increased. In May 2013, Milikowsky was pushed off the Board amid accusations from Company management that he leaked
material nonpublic information to a hedge fund. However, according to Milikowsky, the accusations were “a total sham excuse to
protect Shular, and they dreamed up this leak as an excuse to force me off the board.”
4
11. Neverthelss, despite pushing Milikowsky off the Board, the Milikowsky Group was and continues to be the Company’s
largest shareholder and they are the holders of the Senior Subordinated Notes. Thus, they possessed the ability to exert
significant control over the Company, and their continued efforts to overhaul the Company’s Board and senior officers for the
benefit of GrafTech’s public shareholders still posed a significant threat to same.
12. In January 2014, the Milikowsky Group announced their intention to nominate five director candidates, which would
constitute control of the Board, to stand for election to GrafTech’s Board at the Company’s 2014 Annual Meeting of Stockholders.
Over the ensuing months, and after numerous public exchanges with the Board, the Milikowsky Group elected to reduce their director
nominees to three candidates which included defendants Karen Finerman, David R. Jardini and Milikowsky (the “Milikowsky
Directors”).
13. In May 2014, after a costly proxy battle between the Board and the Milikowsky Group, at the Company’s 2014 Annual
Meeting of Stockholders, the Company’s shareholder’s voted in favor of the three Milikowsky Directors each of whom is currently a
director of the Company.
14. On January 23, 2015, the Milikowsky Group (now styled as the “Save GrafTech” group) indicated their intention to once
again wage a proxy contest and nominate a full slate of seven directors to stand for election at the Company’s 2015
5
Annual Meeting of Stockholders as well as their desire to remove the Company’s current CEO, defendant Hawthorne. Save GrafTech
detailed the continued strategic and operational missteps that have contributed to the Company’s downward spiral and identified four
additional independent director nominees who they believed are qualified to oversee a wholesale restructuring of the Company.
15. On February 11, 2015, the Milikowsky Group issued a public letter critiquing the Company’s CEO and Board and
reaffirming the need to replace them in order to save the Company. Among other things, in the letter Milikowsky stated as follows:
I believe the Company’s performance during the past year speaks for itself in demonstrating to shareholders that management’s
actions have been both inadequate and ineffective, that the CEO needs to be promptly replaced and that the Board needs to be
reconstituted. Over the past 12 months, GrafTech has continually failed to meet its own forecasts, the business has suffered net
losses for the past five quarters, the share price has declined by over 60% and both major credit rating agencies have downgraded
the Company’s debt . All of this has occurred in the face of an increasing demand for graphite electrodes and an approximately 3.5%
median share price decrease of GrafTech’s peer group, as indicated in the chart below:
6
[Emphasis added.]
16. The February 11, 2015 letter also highlighted the leverage the Milikowsky Group possesses as a result of the Senior
Subordinated Notes, stating:
absent an agreed upon restructuring, the $200 million of senior subordinated notes will be payable in full in cash on November 30,
2015. Moreover, as GrafTech is undoubtedly aware, the revolving credit facility’s maturity may be accelerated to August 30, 2015 —
which is just over six months away — if a solution for the subordinated notes cannot be achieved before August 30.
17. That very same day, Brookfield initiated contact with the Company and indicated that it was interested in refinancing the
Senior Subordinated Notes. Further discussion of Brookfield’s interest was postponed until March 6, 2015.
7
18. On March 2, 2015, in an effort to mitigate the Milikowsky Group’s leverage over the Board, and defeat their efforts to
improve the operations of GrafTech, the Company announced that it has amended its revolving credit facility to provide
additional flexibility, resulting in access to the full $400 million revolver and that the Company established a new $40 million
senior secured term loan facility. The stated purpose of the credit facility amendment and the term loan facility was to provide
the Company with the necessary liquidity to repay the Senior Subordinated Notes due in November 2015. 1
19. On March 6, 2015, the Company met with Brookfield regarding Brookfield’s interest in “helping the Company” refinance its
Senior Subordinated Notes. However, in light of the amended and new credit facilities announced on March 2, 2015, which already
mitigated the Milikowsky Group’s leverage in connection with the Senior Subordinated Notes, the Board intimated to Brookfield that
a proposed transaction would need to address the Milikowsky Group’s other leverage over the Board, namely its position as the
Company’s largest shareholder.
20. On March 9, 2015, just days after the March 6 meeting, Brookfield contacted defendant Hawthorne and indicated its
potential interest in acquiring the Company.
1
Despite to patent conflict of interest, the term loan facility was provided by a group led by JPMorgan Chase Bank, N.A.,
whose affiliate, J.P. Morgan Securities LLC (“J.P. Morgan”), served as the Company’s financial advisor in connection
with the Proposed Transaction.
8
21. On March 30, 2015, despite their involvement in the amended and new credit facilities announced on March 2, 2015,
the Board determined to engage J.P. Morgan to provide advice to and act for the Board and the Company with respect to the
Brookfield proposal.
22. On April 14, 2015, the Company received a non-binding expression of interest from Brookfield regarding a proposed
purchase of $150,000,000 of convertible preferred stock, which would be used to refinance the Senior Subordinated Notes, and a
proposed tender offer for up to 100% of the Company’s Shares (including a back-end merger) at a purchase price of $5.00 per share.
As was revealed later on in the process, the proposed purchase of $150,000,000 of convertible preferred stock would serve to directly
address the Milikowsky Group’s leverage as the Company’s largest shareholder. Indeed, further confirming that the Board’s real
interest in transacting with Brookfield was to undermine the Milikowsky Group’s leverage, and not to serve the best interests of the
Company’s shareholders, the Board repeatedly advised that it was only authorizing negotiations with Brookfield and not authorizing a
sale of the Company.
23. On April 25, 2015, Brookfield indicated that it would increase its proposed purchase price to $5.05 per share. And on
April 28, 2015, after the Board met and discussed the impact of the proposed transactions on the
9
Company’s credit facility and the Senior Subordinated Notes, and was satisfied that the transactions enabled them to achieve their
agenda with respect to the Milikowsky Group, the Board determined that the $5.05 offer price was acceptable.
24. On April 29, 2015, GrafTech announced that it has entered into a letter of intent regarding the potential sale of $150 million
of 7% convertible preferred shares in a private offering to an affiliate of BAM. GrafTech also announced that it had entered into a
separate letter of intent for a possible tender offer by Brookfield to acquire outstanding shares of GrafTech common stock. Seizing on
the opportunity to conceal the Board’s true agenda, and in furtherance of same, the Company announced that:
In order to give GrafTech stockholders adequate opportunity to consider the choices expected to be presented by the tender offer,
GrafTech’s Board has decided to postpone the Company’s 2015 Annual Meeting of Stockholders to a later date.
which enabled the Company to further undermine the Milikowsky Group’s efforts to restructure the Board and the Company.
25. On May 4, 2015, GrafTech announced that it entered into an investment agreement (“Investment Agreement”) with an
affiliate of BAM under which Brookfield will acquire $150 million of 7% convertible preferred shares of GrafTech in a private
offering.
10
26. Under the terms of the Investment Agreement, upon issuance, the convertible preferred shares will be issued in two
series, Series A shares and Series B shares (collectively, “Company Preferred Stock”). The Series A shares will be immediately
convertible into GrafTech common shares equal to approximately 19.9% of the currently outstanding shares of GrafTech
common stock, at a conversion price of $5.00 per common share, subject to customary anti-dilution adjustments. Subject to
certain conditions, the Series B shares will become convertible into common shares equal to approximately 2% of the currently
outstanding shares.
27. The Investment Agreement was designed to eliminate the Milikowsky Group’s leverage and undermine its efforts to improve
the operations of the Company. The proceeds of the Investment Agreement will be used for the repayment of the Company’s Senior
Subordinated Notes and the convertible preferred shares will result in the Milikowsky Group’s displacement as the Company’s largest
shareholder. Moreover, pursuant to the Investment Agreement, Brookfield will designate two directors to be appointed to the Board
whereby the GrafTech Board will be expanded from seven to nine and the influence of the Milikowsky Directors will be substantially
diluted.
28. On May 5, 2015, the day after announcing the execution of the Investment Agreement, and consistent with the true purpose
and effect of same, Brookfield requested that J.P. Morgan arrange for discussions between Brookfield
11
and Milikowsky regarding whether Milikowsky would be willing to enter into a tender and support agreement with respect to his
shares in connection with the proposed Transaction. On or about May 8, 2015, Brookfield met with Milikowsky and, in light of the
Investment Agreement which effectively served as a “check mate” to his ability to reorganize and fix the Company, Milikowsky was
receptive to Brookfield’s proposal.
29. On May 18, 2015, GrafTech announced that it has entered into a definitive agreement (“Merger Agreement”) with
Brookfield pursuant to which Brookfield will commence a tender offer (“Tender Offer”) to acquire up to all of the outstanding shares
of GrafTech common stock. Under the terms of the Merger Agreement, Brookfield will commence the Tender Offer to purchase up to
all of the outstanding shares of GrafTech common stock at a purchase price of $5.05 per share.
30. Pursuant to the Merger Agreement, the Tender Offer commenced on May 26, 2015 and will expire at 12:00 midnight, New
York City time, on July 7, 2015, unless extended in accordance with the terms of the Merger Agreement and the applicable rules and
regulations of the Securities and Exchange Commission. Consummation of the Tender Offer is subject to certain conditions, including
the tender of a number of GrafTech shares that, together with any other shares then owned by Brookfield (including shares issuable
upon conversion of the convertible
12
preferred stock expected to be issued to Brookfield as previously announced), would represent at least 30% of the then outstanding
shares plus shares issuable upon such conversion (“Minimum Tender Condition”). Assuming the convertible preferred stock is issued
prior to the expiration of the Tender Offer, as of May 18, 2015, satisfaction of the Minimum Tender Condition would only require the
tender of approximately 15% of the currently outstanding GrafTech shares.
31. If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield, would represent at
least 80% of the then outstanding shares plus shares issuable upon such conversion (“Merger Condition”), then the remaining
outstanding GrafTech shares will be acquired in a merger transaction at the same price offered in the Tender Offer. Assuming the
convertible preferred stock is issued prior to the expiration of the Tender Offer, as of May 18, 2015, the Merger Condition would
require the tender of approximately 75% of the currently outstanding GrafTech shares.
32. Concurrently with the execution of the Merger Agreement, the Milikowsky Group entered into a tender and support
agreement (“Support Agreement”) with Brookfield, pursuant to which, among other things, they agreed to tender all of their shares in
the offer and take certain other actions in furtherance of the Merger.
13
33. In addition to the fact that the Proposed Transaction and Investment Agreement were designed to frustrate the
Milikowsky Group’s efforts to protect the interests of the Company’s shareholders, the proposed consideration is woefully
inadequate and fails to fairly compensate the Company’s shareholders for their equity interest in the Company.
34. As recently as August 2014, shares of the Company were trading above $9.00 and in the past year they traded as high as
$10.88. According to Zacks Investment Research, brokerages have set a twelve-month consensus target price of $6.25 for the
Company.
35. Similarly, according to Yahoo! Finance, at least one analyst following the Company has set a price target of $6.00 for the
Company’s shares. In addition, for the next year, it is estimated that the Company’s earnings will grow approximately 142% compared
to just 4.7% for the Industrial Electrical Equipment industry, 5.6% for the Industrial Goods sector, and 12.2% for the S&P 500.
36. In facilitating the acquisition of GrafTech by Brookfield to frustrate the Milikowsky Group’s efforts to protect the interests
of the Company’s shareholders, and by agreeing to the Proposed Transaction for inadequate consideration, each of the Defendants
breached and/or aided the other Defendants’ breaches of their fiduciary duties.
14
37. In addition, the Board exacerbated its breaches of fiduciary duty by agreeing to onerous deal protection devices that
preclude other bidders from making successful competing offers for the Company. For example, the Board agreed to (i) after the
expiration of a brief go-shop period, a strict “no-shop” provision that prevents the Company from actively seeking a superior
proposal; (ii) an “information rights” provision that requires the Company to provide Parent with the material information
regarding proposals it receives both during and after the go-shop period; (iii) a “matching rights” provision that grants Parent
four (4) business days to renegotiate the terms of the Proposed Transaction in order to render its proposal superior to the
unsolicited proposal; and (iv) and a termination fee up to $20 million.
38. The deal protection devices, in conjunction with the Investment Agreement (which will provide Brookfield with
approximately 22% of the Company’s outstanding shares and render Brookfield the largest shareholder in the Company) and the
Support Agreement all operate to ensure that no competing offer emerges.
39. Further breaching the Board’s fiduciary duties, on May 26, 2015, upon the commencement of the Tender Offer, the
Company filed a Schedule 14D-9 Recommendation Statement (“Recommendation Statement”) with the U.S. Securities and Exchange
Commission (“SEC”) recommending that GrafTech
15
shareholders tender their shares in the Proposed Transaction which fails to disclose material information to the shareholders of the
Company so that the shareholders may make an informed decision regarding the Proposed Transaction. Specifically, the
Recommendation Statement omits and/or misrepresents material information concerning, among other things: (a) the background of
the Proposed Transaction; (b) management’s projections; (c) the data and inputs underlying the financial valuation analyses that
purport to support the fairness opinion provided by the Company’s financial advisor, J.P. Morgan Securities LLC (“J.P. Morgan”);
and (d) potential advisor conflicts. In addition, the disclosures in the Recommendation Statement were crafted in such a fashion as to
conceal the true purpose of the Investment Agreement and the Proposed Transaction.
40. For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin the Proposed Transaction or, in the event the
Proposed Transaction is consummated, recover damages resulting from the Individual Defendants’ (as defined herein) violations of
their fiduciary duties and from Brookfield.
PARTIES
41. Plaintiff is, and at all relevant times was, a continuous stockholder of GrafTech.
42. GrafTech is a Delaware corporation with its principal executive offices located at Suite 300 Park Center I, 6100 Oak Tree
Boulevard, Independence, Ohio 44131.
16
43. Defendant Randy Carson (“Carson”) has served as Chairman of the Company since June 2014 and as a director since
2009.
44. Defendant Thomas A. Danjczek (“Danjczek”) has served as a director of the Company since May 2014 and as Chair of the
Company’s Organization, Compensation and Pension Committee, and as a member of the Audit and Finance Committee.
45. Defendant Karen Finerman (“Finerman”) has served as a director of the Company since May 2014 and as a member of the
Nominating and Governance Committee.
46. Defendant Joel L. Hawthorne (“Hawthorne”) has served as the CEO, President and a director of the Company since January
2014.
47. Defendant David R. Jardini (“Jardini”) has served as a director of the Company since May 2014 and as a member of the
Audit and Finance Committee.
48. Defendant Milikowsky has served as a director of the Company from late 2010 until March 2013 and rejoined the Board in
May 2014. He has served as Chair of the Nominating and Governance Committee, and as a member of the Organization,
Compensation and Pension Committee. Mr. Milikowsky previously served as President of Seadrift and Chairman and CEO of C/G,
which he formed in 2003, before selling these companies to GrafTech in 2010.
17
49. Defendant M. Catherine Morris (“Morris”) has served as a director of the Company since May 2014 and as the Chair of
the Audit and Finance Committee.
50. Defendants Carson, Danjczek, Finerman, Hawthorne, Jardini, Milikowsky, and Morris are collectively referred to herein as
the “Board” or the “Individual Defendants.”
51. Defendant BCP IV is a Delaware limited partnership.
52. Defendant Acquisition Sub is a Delaware corporation and a wholly owned subsidiary of BCP IV.
53. Defendant BAM is a global alternative asset manager, with over $200 billion in assets under management, engaged in
(among other activities) managing and making investments in property, renewable energy, infrastructure and private equity. BAM
(NYSE: BAM) has its principal executive offices located at Suite 300, Brookfield Place, 181 Bay Street, P.O. Box 762, Toronto,
Canada M5J 2T3.
54. Collectively, GrafTech, the Individual Defendants, BCP IV, Acquisition Sub and BAM are referred to herein as the
“Defendants.”
CLASS ACTION ALLEGATIONS
55. Plaintiff brings this action on his own behalf and as a class action pursuant to Rule 23 on behalf of all holders of GrafTech
common stock who are being and will be harmed by Defendants’ actions described below (“Class”). Excluded from the Class are
Defendants herein and any person, firm, trust, corporation or other entity related to or affiliated with any of the Defendants.
18
56. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is impracticable. As of May 26, 2015, there were over 137 million
shares of GrafTech common stock issued and outstanding. The actual number of public shareholders of GrafTech will be ascertained
through discovery.
b. There are questions of law and fact that are common to the Class, including:
i)
whether the Individual Defendants have breached their fiduciary duties with respect to Plaintiff and the other
members of the Class in connection with the Proposed Transaction;
ii)
whether the Individual Defendants have breached their fiduciary duty to obtain the best price available for the
benefit of Plaintiff and the other members of the Class in connection with the Proposed Transaction;
iii)
whether the Individual Defendants misrepresented and omitted material facts in violation of their fiduciary
duties owed by them to Plaintiff and the other members of the Class; and
iv)
whether Plaintiff and the other members of the Class would suffer irreparable injury were the Proposed
Transaction complained of herein consummated.
19
c. Plaintiff is an adequate representative of the Class, and has retained competent counsel experienced in litigation of this nature
and will fairly and adequately protect the interests of the Class.
d. Plaintiff’s claims are typical of the claims of the other members of the Class and Plaintiff does not have any interests adverse
to the Class.
e. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying
adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party
opposing the Class.
f. Defendants have acted on grounds generally applicable to the Class with respect to the matters complained of herein, thereby
making appropriate the relief sought herein with respect to the Class as a whole.
20
SUBSTANTIVE ALLEGATIONS
A.
Background
57. GrafTech is a global company that has been redefining limits for more than 125 years. The company offers innovative
graphite material solutions for its customers in a wide range of industries and end markets, including steel manufacturing, advanced
energy applications and latest generation electronics. GrafTech operates 18 principal manufacturing facilities on four continents and
sells products in over 70 countries. GrafTech employs approximately 2,400 people.
58. On November 30, 2010, GrafTech acquired Seadrift, the world’s second largest producer of petroleum-based needle coke,
and C/G, a US-based graphite electrode producer.
59. The Milikowsky Group was substantial equity owners of Seadrift and C/G prior to the acquisitions of those entities by the
Company. In connection with those acquisitions, the Milikowsky Group received a portion of the aggregate consideration paid to the
equity holders of Seadrift and C/G, which was comprised of shares of common stock, cash and the Senior Subordinated Notes due in
November 2015 for an aggregate total face amount of $200 million. In addition, as part of the Seadrift and C/G acquisitions, the
Milikowsky Group was guaranteed a seat on the GrafTech Board as long as he and his associates held at least 12 million of the
Company’s shares.
60. Milikowsky began his tenure as a director of GrafTech on December 9, 2010. After spending a year on the Board, his
opinion of
21
management and his fellow board members plunged. He thought the Company was underperforming, spending too much on overhead
and making poor strategic choices and he was vocal about his views.
61. Indeed, since shortly after the Seadrift and C/G acquisitions, the Company has consistently underperformed the broad market
and its peers and frequently failed to even meet its own forecasts. As such, Milikowsky had various confrontations with the Board and
Company management and has been vocal about their need to improve the performance and operations of the Company.
62. In early 2012, Milikowsky began meeting with other directors to make his case. According to public statements by
Milikowsky, at least one of his co-directors was openly supportive and another was sympathetic to his concerns but wary of
confronting management without a majority of board members aligned.
63. Thereafter, Milikowsky began efforts to get the Company to replace then CEO Shular (who subsequently resigned on
January 21, 2014 and was replaced by defendant Hawthorne as CEO and president.)
64. As Milikowsky escalated his efforts to overhaul the Company, the backlash from the Company’s management and Board
also increased. In May 2013, Milikowsky was pushed off the Board amid accusations from Company management that he leaked
material nonpublic information to a hedge fund.
22
However, according to Milikowsky, the accusations were “a total sham excuse to protect Shular, and they dreamed up this leak as an
excuse to force me off the board.”
65. Nevertheless, despite pushing Milikowsky off the Board, the Milikowsky Group was and continues to be the Company’s
largest shareholder and they are the holders of the Senior Subordinated Notes. Thus, they possessed the ability to exert significant
control over the Company, and their continued efforts to overhaul the Company’s Board and senior officers for the benefit of
GrafTech’s public shareholders still posed a significant threat to same.
66. In January 2014, the Milikowsky Group announced their intention to nominate five director candidates, which would
constitute control of the Board, to stand for election to GrafTech’s Board at the Company’s 2014 Annual Meeting of Stockholders.
Over the ensuing months, and after numerous public exchanges with the Board, the Milikowsky Group elected to reduce their director
nominees to three candidates which included defendants Finerman, Jardini and Milikowsky (the “Milikowsky Directors”).
67. In May 2014, after a costly proxy battle between the Board and the Milikowsky Group, at the Company’s 2014 Annual
Meeting of Stockholders the Company’s shareholder’s voted in favor of the three Milikowsky Directors each of whom is currently a
director of the Company.
23
68. On January 23, 2015, the Milikowsky Group (now styled as the “Save GrafTech” group) sent a letter to the Company
indicating their intention to once again wage a proxy contest and nominate a full slate of seven directors to stand for election at
the Company’s 2015 Annual Meeting of Stockholders as well as their desire to remove the Company’s current CEO, defendant
Hawthorne. Save GrafTech detailed the continued strategic and operational missteps that have contributed to the Company’s
downward spiral and identified four additional independent director nominees who they believed are qualified to oversee a
wholesale restructuring of the Company.
69. The January 23, 2015 letter also referenced a then recent letter sent by the Milikowsky Group to the Board concerning a
potential partial refinancing of the Senior Subordinated Notes that are set to come due in November.
70. On January 26, 2015, GrafTech’s Board responded to the January 23, 2015 letter and specifically addressed the Senior
Subordinated Notes as follows:
Your conceptual discussions with the Board about extending the maturity of some of your senior subordinated notes due in
November 2015 never became a proposal or offer to which the Board could effectively respond. Despite repeated requests from the
Board, you would not discuss extension terms, commercial or otherwise, and your entire willingness to consider an extension was
conditioned both on the addition of two Directors that were selected solely by you and your sole approval of the new CEO and
management. The highly conditional nature of your concept was, and still is, unacceptable to all the independent Board members
who were not elected on your slate.
71. In a press release issued by the Company in connection with their January 26, 2015 letter, the Company confirmed that
Milikowsky’s nominations were made pursuant to his role as (the largest) shareholder, and not as a director.
24
72. On February 11, 2015, the Milikowsky Group issued a public letter critiquing the Company’s CEO and Board and
reaffirming the need to replace them in order to save the Company. Among other things, in the letter Milikowsky stated as
follows:
I believe the Company’s performance during the past year speaks for itself in demonstrating to shareholders that management’s
actions have been both inadequate and ineffective, that the CEO needs to be promptly replaced and that the Board needs to be
reconstituted. Over the past 12 months, GrafTech has continually failed to meet its own forecasts, the business has suffered net
losses for the past five quarters, the share price has declined by over 60% and both major credit rating agencies have downgraded
the Company’s debt . All of this has occurred in the face of an increasing demand for graphite electrodes and an approximately 3.5%
median share price decrease of GrafTech’s peer group, as indicated in the chart below:
25
[Emphasis added.]
73. The February 11, 2015 letter also highlighted the leverage the Milikowsky Group possesses as a result of the Senior
Subordinated Notes, stating:
[A]bsent an agreed upon restructuring, the $200 million of senior subordinated notes will be payable in full in cash on November 30,
2015. Moreover, as GrafTech is undoubtedly aware, the revolving credit facility’s maturity may be accelerated to August 30, 2015 —
which is just over six months away — if a solution for the subordinated notes cannot be achieved before August 30. In the context of
the ongoing public confrontations between the Milikowsky Group concerning the looming proxy contest and imminent maturity of
the Senior Subordinated Notes, in February 2015 Brookfield contacted with the Company and indicated its desire to provide
assistance with refinancing the Senior Subordinated Notes. Brookfield and the Company agreed to meet on March 6, 2015 to discuss
the matter further.
26
74. The very same day, Brookfield initiated contact with the Company and indicated that it was interested in refinancing
the Senior Subordinated Notes. Further discussion of Brookfield’s interest was postponed until March 6, 2015.
75. On March 2, 2015, in an effort to mitigate the Milikowsky Group’s leverage over the Board, and defeat their efforts to
improve the operations of GrafTech, the Company announced that it has amended its revolving credit facility to provide additional
flexibility, resulting in access to the full $400 million revolver and that the Company established a new $40 million senior secured
term loan facility. The primary purpose of the credit facility amendment and the term loan facility is to provide the Company with the
necessary liquidity to repay the Senior Subordinated Notes due in November 2015. Despite to patent conflict of interest, the term loan
facility was provided by a group led by JPMorgan Chase Bank, N.A., whose affiliate, J.P. Morgan, served as the Company’s financial
advisor in connection with the Proposed Transaction.
76. On March 6, 2015, the Company met with Brookfield regarding Brookfield’s interest in “helping the Company” refinance its
Senior Subordinated Notes. As with the Milikowsky Group, Brookfield indicated that it would require representation on the Board
proportionate to its investment. However, in light of the amended and new credit facilities announced on March 2, 2015, which
already mitigated the Milikowsky Group’s leverage in connection with the Senior
27
Subordinated Notes, the Board intimated to Brookfield that a proposed transaction would need to address the Milikowsky Group’s
other leverage over the Board, namely its position as the Company’s largest shareholder.
77. On March 9, 2015, just days after the March 6 meeting, Brookfield contacted defendant Hawthorne and indicated its
potential interest in acquiring the Company.
78. Demonstrating that the Board’s consideration of a potential Brookfield transaction was really motivated by a desire to
undermine the Milikowsky Group’s leverage in the upcoming proxy battle in connection with the Company’s 2015 Annual Meeting of
Stockholders, on March 10, 2015, defendants Hawthorne and Carson considered, and initially did, limit the consideration of the
Brookfield discussion to the special committee of the Board that was formed to handle the issues concerning the Company’s 2015
meeting and thereby excluding the other members of the Board, i.e. the Milikowsky Directors. However, after discussing this
possibility with their counsel, they decided to present the issue to the whole Board.
79. Nevertheless, on March 12, 2015, Brookfield provided a written presentation addressed solely to the special committee and
excluded the Milikowsky Directors. Similarly, on March 18, 2015, Brookfield sent Hawthorne a written expression of interest which
included a preliminary indication of value
28
which Hawthorne initially shared only with Carson. On March 19, 2015, after reassuring themselves of the genuineness of
Brookfield’s interest in assisting them with neutralizing the Milikowsky Group, Hawthorne and Carson finally shared the information
with the full Board, including the Milikowsky Directors.
80. On March 19, 2015, at a meeting of the Board, Carson summarized Brookfield’s expression of interest, which provided for,
among other things:
•
an all cash proposal to acquire all of the outstanding Shares at a price range of between $5.00 and $5.25 per Share, a
28—35% premium to the closing price on March 17, 2015;
•
expedited due diligence and negotiation of definitive agreements, to be completed by April 30, 2015; and
•
no financing condition.
81. On March 30, 2015, despite their involvement in the amended and new credit facilities announced on March 2, 2015, which
were designed to mitigate the Milikowsky Group’s leverage in connection with the Senior Subordinated Notes, the Board determined
to engage J.P. Morgan to provide advice to and act for the Board and the Company with respect to the Brookfield proposal. On
April 21, 2015, the Company formally engaged J.P. Morgan.
82. On April 14, 2015, the Company received a non-binding expression of interest from Brookfield regarding a proposed
purchase of $150,000,000 of convertible preferred stock, which would be used to refinance the Senior Subordinated Notes, and a
proposed tender offer for up to 100% of the Company’s
29
Shares (including a back-end merger) at a purchase price of $5.00 per share. As was revealed later on in the process, the proposed
purchase of $150,000,000 of convertible preferred stock would serve to directly address the Milikowsky Group’s leverage as the
Company’s largest shareholder. Indeed, further confirming that the Board’s real interest in transacting with Brookfield was to
undermine the Milikowsky Group’s leverage, and not to serve the best interests of the Company’s shareholders, the Board repeatedly
advised that it was only authorizing negotiations with Brookfield and not authorizing a sale of the Company.
83. On April 25, 2015, after further negotiations with Brookfield, which apparently excluded the Milikowsky Directors,
Brookfield indicated that it would increase its proposed purchase price to $5.05 per share.
84. On April 27, 2015, the Board instructed management and J.P. Morgan to complete negotiations of the preferred stock
financing which was necessary to eliminate the Milikowsky Group’s remaining leverage as the Company’s largest shareholder, and to
review and negotiate the specific provisions of the definitive documents necessary for effecting the transaction.
85. On April 28, 2015, after the Board met and discussed the impact of the proposed transactions on the Company’s credit
facility and the Senior Subordinated Notes, and was satisfied that the transactions enabled them to achieve their agenda with respect to
the Milikowsky Group, the Board determined that the $5.05 offer price was acceptable.
30
86. On April 29, 2015, GrafTech announced that it has entered into a letter of intent regarding the potential sale of $150
million of 7% convertible preferred shares in a private offering to an affiliate of BAM. GrafTech also announced that it had
entered into a separate letter of intent for a possible tender offer by Brookfield to acquire outstanding shares of GrafTech
common stock. In addition, seizing on the opportunity to conceal the Board’s true agenda, and in furtherance of same, the
Company announced that:
In order to give GrafTech stockholders adequate opportunity to consider the choices expected to be presented by the tender offer,
GrafTech’s Board has decided to postpone the Company’s 2015 Annual Meeting of Stockholders to a later date.
which enabled the Company to further undermine the Milikowsky Group’s efforts to restructure the Board and the Company.
87. On May 4, 2015, GrafTech announced that it entered into the Investment Agreement with an affiliate of BAM under which
Brookfield will acquire $150 million of 7% convertible preferred shares of GrafTech in a private offering.
88. Under the terms of the Investment Agreement, upon issuance, the convertible preferred shares will be issued in two series,
Series A shares and Series B shares (collectively, Company Preferred Stock). The Series A shares will be
31
immediately convertible into GrafTech common shares equal to approximately 19.9% of the currently outstanding shares of GrafTech
common stock, at a conversion price of $5.00 per common share, subject to customary anti-dilution adjustments. Subject to certain
conditions, the Series B shares will become convertible into common shares equal to approximately 2% of the currently outstanding
shares.
89. The Investment Agreement eliminated the Milikowsky Group’s leverage since the proceeds of the Investment Agreement
will be used for the repayment of the Company’s Senior Subordinated Notes and the convertible preferred shares will result in the
Milikowsky Group’s displacement as the Company’s largest shareholder. Moreover, pursuant to the Investment Agreement,
Brookfield will designate two directors to be appointed to the Board whereby the GrafTech Board will be expanded from seven to
nine and the influence of the Milikowsky Directors will be substantially diluted.
90. On May 5, 2015, the day after announcing the execution of the Investment Agreement, and consistent with the true purpose
and effect of same, Brookfield requested that J.P. Morgan arrange for discussions between Brookfield and Milikowsky regarding
whether Milikowsky would be willing to enter into a tender and support agreement with respect to his shares in connection with the
proposed Transaction.
32
91. On or about May 8, 2015, Brookfield met with Milikowsky and, in light of the Investment Agreement which effectively
served as a “check mate” to his ability to reorganize and fix the Company, Milikowsky was receptive to Brookfield’s proposal
and indicted his willingness to support a potential transaction.
B.
The Proposed Transaction
92. On May 18, 2015, GrafTech issued a press release announcing the Proposed Transaction:
GrafTech International Ltd. (NYSE:GTI) (“GrafTech” or the “Company”) today announced it has entered into a definitive agreement
and plan of merger with an affiliate of Brookfield Asset Management Inc. (NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA)
(“Brookfield”) under which Brookfield will commence a tender offer to acquire up to all of the outstanding shares of GrafTech
common stock. The definitive agreement was unanimously approved by GrafTech’s Board of Directors and follows the letter of
intent announced by GrafTech on April 29, 2015. Holders of approximately 11% of the outstanding shares of GrafTech common
stock, including GrafTech director Nathan Milikowsky, have agreed to support the transaction and tender their shares in the tender
offer.
Under the terms of the agreement, Brookfield will commence a tender offer to purchase up to all of the outstanding shares of
GrafTech common stock at a purchase price of $5.05 per share, representing a premium of 26% over the average closing price of the
Company’s common shares during the 60 trading days ended April 28, 2015. The tender offer is not subject to any financing
conditions.
The tender offer is intended to provide GrafTech stockholders the option to choose immediate liquidity at a premium as described
above or to participate in GrafTech as a stockholder following the closing of the tender offer (subject to the merger provisions
described below)
33
with the benefit of Brookfield sponsorship going forward. A stockholder might choose to accept a combination of both cash and
continued ownership of GrafTech shares.
The Company believes that Brookfield has an exceptional track record sponsoring public companies in difficult underlying market
conditions, including significant knowledge and experience in steel, mining and metals, and other industrial sectors.
Pursuant to the agreement, the tender offer will commence no later than May 26, 2015 and will expire at 12:00 midnight, New York
City time, on July 7, 2015, unless extended in accordance with the terms of the agreement and the applicable rules and regulations of
the Securities and Exchange Commission. Consummation of the tender offer is subject to certain conditions, including receipt of
required regulatory approvals, the tender of a number of GrafTech shares that, together with any other shares then owned by
Brookfield (including shares issuable upon conversion of the convertible preferred stock expected to be issued to Brookfield as
previously announced), would represent at least 30% of the then outstanding shares plus shares issuable upon such conversion (the
“minimum tender condition”), and other customary conditions. Assuming the convertible preferred stock is issued prior to the
expiration of the tender offer, as of the date hereof, satisfaction of the minimum tender condition would require the tender of
approximately 15% of the currently outstanding GrafTech shares.
If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable upon
conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at least
80% of the then outstanding shares plus shares issuable upon such conversion (the “merger condition”), then the remaining
outstanding GrafTech shares will be acquired in a merger transaction at the same price offered in the tender offer. Assuming the
convertible preferred stock is issued prior to the expiration of the tender offer, as of the date hereof, satisfaction of the merger
condition would require the tender of approximately 75% of the currently outstanding GrafTech shares.
34
Additional details regarding the tender offer are or will be made available in Brookfield’s and the Company’s respective filings with
the Securities and Exchange Commission.
J.P. Morgan Securities LLC is serving as financial advisor, and Withers LLP and Willkie Farr & Gallagher LLP are serving as legal
counsel, to GrafTech in connection with the transaction. Weil, Gotshal & Manges LLP is serving as legal counsel to Brookfield in
connection with the transaction.
C.
The Unfair Price
93. Pursuant to the Merger Agreement, Brookfield commenced the Tender Offer to purchase up to all of the outstanding shares
of GrafTech common stock at a purchase price of $5.05 per share.
94. The Tender Offer commenced on May 26, 2015 and will expire at 12:00 midnight, New York City time, on July 7, 2015,
unless extended in accordance with the terms of the Merger Agreement and the applicable rules and regulations of the Securities and
Exchange Commission. Consummation of the Tender Offer is subject to certain conditions, including the tender of a number of
GrafTech shares that, together with any other shares then owned by Brookfield (including shares issuable upon conversion of the
convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at least 30% of the then
outstanding shares plus shares issuable upon such conversion. Assuming the convertible preferred stock is issued prior to the
expiration of the Tender Offer, as of May 18, 2015, satisfaction of the Minimum Tender Condition would require the tender of
approximately 15% of the currently outstanding GrafTech shares.
35
95. If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield, would represent
at least 80% of the then outstanding shares plus shares issuable upon such conversion, then the remaining outstanding GrafTech
shares will be acquired in a merger transaction at the same price offered in the Tender Offer. Assuming the convertible preferred
stock is issued prior to the expiration of the Tender Offer, as of May 18, 2015, the Merger Condition would require the tender of
approximately 75% of the currently outstanding GrafTech shares.
96. In addition to being designed to frustrate the efforts of the Milikowsky Group to fix the Company, the proposed
consideration is woefully inadequate and fails to fairly compensate the Company’s shareholders for their equity interest in the
Company.
97. As recently as August 2014, shares of the Company were trading above $9.00 and in the past year they traded as high as
$10.88. As of March 22, 2015, according to Zacks Investment Research, brokerages have set a twelve-month consensus target price of
$6.25 for the Company.
98. Similarly, according to Yahoo! Finance, at least one analyst following the Company has set a price target of $6.00 for the
Company’s shares. In addition,
36
for the next year, it is estimated that the Company’s earnings will grow approximately 142% compared to just 4.7% for the Industrial
Electrical Equipment industry, 5.6% for the Industrial Goods sector, and 12.2% for the S&P 500.
99. The Board should have leveraged GrafTech’s position to extract a greater premium and a favorable merger agreement.
Instead, as a result of their eagerness to stifle Milikowsky, the Board hastily agreed to a deal with Brookfield before fulfilling its
fiduciary duties to maximize shareholder value.
100. As these indicators make clear, GrafTech, if properly exposed to the market for corporate control, would bring a price
materially in excess of the amount offered in the Proposed Transaction.
D.
The Preclusive Deal Protection Measures
101. As part of the Merger Agreement, Defendants agreed to certain onerous and preclusive deal protection devices that operate
conjunctively to make the Proposed Transaction a fait accompli and ensure that no competing offers will emerge for the Company.
102. Although the Merger Agreement provides for a brief 35 day “go-shop” period, at the end of such period the Company must
notify Parent in writing of the identity of each party from whom the Company received an acquisition proposal and must provide a
copy of the proposal and any other written material terms or proposals provided (including financing commitments) including, the
37
identity of the bidder and a written summary of the material terms of any proposal not made in writing. Specifically, § 6.2(a) of the
merger Agreement provides in pertinent part that:
During the period (the “Go-Shop Period”) commencing on the date of this Agreement and continuing until 11:59 p.m. (New York
Time) on the 35th calendar day after the date of this Agreement, unless extended by the Go-Shop Extension (the day on which the
Go-Shop Period (including the Go-Shop Extension, if any) ends, the “No-Shop Period Start Date”), the Company and its Subsidiaries
and their respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives
(collectively, “Representatives”) shall have the right to (i) initiate, solicit and encourage any inquiry or the making of any proposal or
offer that constitutes an Acquisition Proposal, including by providing information (including non-public information and data)
regarding, and affording access to the business, properties, assets, books, records and personnel of, the Company and its Subsidiaries
to any Person pursuant to (x) a confidentiality agreement entered into by such Person containing confidentiality terms that are no
more favorable in the aggregate to such Person than those contained in the Confidentiality Agreement (unless the Company offers to
amend the Confidentiality Agreement to reflect such more favorable terms), or (y) to the extent applicable, the confidentiality
agreement entered into with such Person prior to the date of this Agreement (any such confidentiality agreement, an “Acceptable
Confidentiality Agreement”); provided that the Company shall promptly (and in any event within 24 hours) make available to Parent
any non-public information concerning the Company or its Subsidiaries that is provided to any Person given such access that was not
previously made available to the Parent, and (ii) engage in, enter into, continue or otherwise participate in any discussions or
negotiations with any Persons or group of Persons with respect to any Acquisition Proposals and cooperate with or assist or
participate in or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any Acquisition
Proposals. No later than one (1) Business Day after the No-Shop Period Start Date, the Company shall notify Parent in writing of the
identity of each Person or group of
38
Persons from whom the Company received a written Acquisition Proposal after the execution of this Agreement and prior to the
No-Shop Period Start Date and provide to Parent (x) a copy of any Acquisition Proposal made in writing and any other written
material terms or proposals provided (including financing commitments) to the Company or any of its Subsidiaries, (y) the identity of
the Person or Persons making such Acquisition Proposal and (z) a written summary of the material terms of any Acquisition Proposal
not made in writing (including any terms proposed orally or supplementally).
103. Thereafter, § 6.2(c) of the Merger Agreement prohibits the Company from soliciting interest from other potential acquirors
in order to procure a price in excess of the amount offered by Brookfield. Specifically, § 6.2(c) provides that:
Except as may relate to any Excluded Party (for so long as such Person or group is an Excluded Party), or as expressly permitted by
this Section 6.2 , from the No-Shop Period Start Date continuing until the earlier to occur of the termination of this Agreement
pursuant to Article IX and the Acceptance Time, the Company and its Subsidiaries shall not, and the Company shall instruct and use
its reasonable best efforts to cause its and its Subsidiaries’ Representatives not to, directly or indirectly, (i) solicit, initiate, cause or
induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, an Acquisition Proposal, (ii) furnish
to any Person (other than Parent, Acquisition Sub or any designees of Parent or Acquisition Sub) any non-public information relating
to the Company or any of its Subsidiaries, or afford to any Person (other than Parent, Acquisition Sub or any designees of Parent or
Acquisition Sub) access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the
Company or any of its Subsidiaries, in any such case with the intent to induce the making, submission or announcement of, or the
intent to encourage, facilitate or assist, an Acquisition Proposal or any inquiries or the making of any proposal that would reasonably
be expected to lead to an Acquisition Proposal, (iii) participate or engage in discussions or negotiations with any Person with respect
to an Acquisition Proposal, or (iv) enter into any Contract contemplating or otherwise relating to an Acquisition Transaction (other
than an Acceptable Confidentiality Agreement).
39
104. Moreover, pursuant to § 6.2(f), the Merger Agreement, should an unsolicited bidder submit a competing proposal, the
Company must promptly notify Brookfield of the bidder’s identity and the terms of the bidder’s offer. Specifically, § 6.2(f)
provides that:
In addition to the obligations of the Company set forth in this Section 6.2, the Company shall promptly notify Parent if any director
or executive officer of the Company becomes aware of any receipt by the Company of (i) any Acquisition Proposal, (ii) any request
for information that would reasonably be expected to lead to an Acquisition Proposal, or (iii) any inquiry with respect to, or which
would reasonably be expected to lead to, any Acquisition Proposal, the terms and conditions of such Acquisition Proposal, request or
inquiry, and the identity of the Person or group making any such Acquisition Proposal, request or inquiry (and shall include with
such notice copies of any written materials received from or on behalf of such Person relating to such Acquisition Proposal). The
Company shall keep Parent reasonably informed of the status and terms of any such Acquisition Proposal, request or inquiry (and the
Company shall provide Parent with copies of any additional written materials received that relate to such Acquisition Proposal,
inquiry or request).
40
105. Further, pursuant to § 7.4(e), the Merger Agreement, before the Company may effect a change in recommendation of
the Proposed Transaction in response to a superior proposal, the Company must provide Parent with written notice of an
intention for same and give Parent four business days to match the superior offer. In the event that the superior offer is revised in
response to Parent’s attempt to match same, the Company must repeat this process and provide Parent with an additional two
business days to match the revised offer. Specifically, § 7.4(e) provides that:
No Company Board Recommendation Change may be made in response to a Superior Proposal or an Intervening Event and (ii) no
termination of this Agreement in accordance with Section 7.4(c) may be made: (x) until the fourth (4th) Business Day following
Parent’s receipt of written notice from the Company advising Parent that the Company Board intends to, in the case of clause (i),
make such Company Board Recommendation Change (a “Company Board Recommendation Notice”), or in the case of clause (ii),
terminate this Agreement in accordance with this Section 7.4(e) (a “Notice of Superior Proposal”), which notice shall specify (1) in
the case of such an action taken in connection with a Superior Proposal, the terms and conditions of such Superior Proposal
(including the identity of the Person making such Superior Proposal and a copy of the then-current forms of all of the relevant
proposed transaction documents related thereto, including definitive agreements with respect to such Superior Proposal) or (2) if the
basis of the proposed action by the Company Board is an Intervening Event, a description of the Intervening Event; and (y) unless the
Company shall have (A) during the four (4) Business Day period specified above (and any additional period related to a revision to
the Superior Proposal, as provided below), negotiated, and caused its financial and legal advisors to negotiate, with Parent in good
faith (to the extent Parent desires to negotiate) with respect to proposed adjustments to the terms and conditions of this Agreement so
that such Superior Proposal ceases to constitute a Superior Proposal (or, in the case of a Company Board Recommendation Notice
that is not related to a Superior Proposal, so that the failure to make such Company Board Recommendation Change is no longer
inconsistent with the Company Board’s fiduciary duties under Delaware Law); and (B) prior to or concurrently with a termination of
this Agreement pursuant to Section 7.4(c), paid the Termination Fee required under Section 9.4(b).
The parties agree that, in the case of such actions taken in connection with a Superior Proposal or an Intervening Event, any material
amendment to the financial terms or other material terms of such Superior Proposal, or any new material information regarding the
Intervening Event, shall, in each case, require a new Company Board Recommendation Notice or Notice of Superior Proposal and an
41
additional two (2) Business Day period (the period inclusive of all such days, the “Notice Period”). The Company agrees that:
(i) during the Notice Period the Company shall, and shall cause its financial advisors and outside legal counsel to, negotiate with
Parent in good faith if Parent indicates to the Company that it desires to negotiate the terms of this Agreement; and (ii) the Company
shall take into account all changes to the terms of this Agreement proposed by Parent in determining whether such Acquisition
Proposal continues to constitute a Superior Proposal. The Company shall promptly keep Parent reasonably informed of all material
developments affecting the material terms of any such Superior Proposal (and the Company shall provide Parent with copies of any
additional material written materials received that relate to such Superior Proposal).
106. The Merger Agreement gives Brookfield access to any rival bidder’s information and allows Brookfield a free right to top
any superior offer simply by matching it. Accordingly, no rival bidder is likely to emerge and act as a stalking horse, because the
Merger Agreement unfairly assures that any “auction” will favor Brookfield and will allow Brookfield to piggy-back upon the due
diligence of the foreclosed second bidder.
107. In addition, the Merger Agreement imposes a termination fee of $7.5 million if the Company pursues an alternative
transaction during the go-shop period and $20 million if it does so after the go-shop period ends.
108. Moreover, concurrently with the execution of the Merger Agreement, the Milikowsky Group entered into the Support
Agreement with Brookfield, pursuant to which, among other things, they agreed to tender all of their shares in the offer and take
certain other actions in furtherance of the Merger.
42
109. The Support Agreement together with the other deal protection devices effectively preclude any alternative bidder
from making a superior proposal that will adequately compensate the Company’s shareholders. Ultimately, these preclusive deal
protection provisions illegally restrain the Company’s ability to solicit or engage in negotiations with any third party regarding a
proposal to acquire all or a significant interest in the Company. Coupled with the Support Agreement, the provisions effectively
ensure that the Proposed Transaction is a foregone conclusion.
E.
Insider Benefits
110. The Company’s executive officers and directors have material conflicts of interest and are acting to better their own
personal interest through the Proposed Transaction at the expense of GrafTech’s public shareholders.
111. Under the terms of the Merger Agreement, each Company stock option outstanding at the effective time of the Merger,
regardless of whether they were unvested or unexercisable, will be converted into the right to receive an amount in cash equal to the
product of $5.05, the proposed consideration, (less the per share exercise price of such Company stock option) and the aggregate
number of shares issuable under the option immediately prior to the effective time of the Merger. The following table summarizes,
with respect to each executive officer and director, the cash value of the stock options held by such officer or director as of May 22,
2015.
Name
Number of Stock Option (#)
Joel L. Hawthorne
Darrel A. Blair
Lionel D. Batty
John D. Moran
Quinn J. Coburn
Randy W. Carson
Thomas A. Danjczek
Karen Finerman
David R. Jardini
Nathan Milikowsky
M. Catherine Morris
182,000
43,200
36,000
32,000
10,280
—
—
—
—
—
—
43
Value of Stock Options($)
$
$
$
$
$
$
$
$
$
$
$
147,420
34,992
29,160
25,920
8,327
—
—
—
—
—
—
112. In addition, under the terms of the Merger Agreement, each Company restricted stock unit outstanding at the effective
time of the Merger, even if they are unvested, will be converted into the right to receive an amount in cash, equal to the product
of $5.05, the proposed consideration, and the number of restricted stock units immediately prior to the effective time of the
Merger. The following table summarizes, with respect to each executive officer and director, the cash value, in respect of each
Company restricted stock unit outstanding at May 22, 2015.
Name
Joel L. Hawthorne
Darrel A. Blair
Lionel D. Batty
John D. Moran
Quinn J. Coburn
Randy W. Carson
Thomas A. Danjczek
Karen Finerman
David R. Jardini
Nathan Milikowsky
M. Catherine Morris
Number of Unvested
Restricted Share Units
(#)
Number of Unvested
Performance Share
Units
at Target (#)
196,166
37,866
36,533
35,267
13,310
—
—
—
—
—
—
352,800
74,400
77,200
78,200
33,450
—
—
—
—
—
—
44
Total Value of Unvested
Restricted Share Units and
Performance Share Units ($)
$
$
$
$
$
$
$
$
$
$
$
2,772,278
566,943
574,352
573,008
236,138
—
—
—
—
—
—
113. The table below2 summarizes the “Golden Parachute Compensation” that certain of the Company’s insiders may
receive as a result of the Proposed Transaction:
Name
Joel L.
Hawthorne
Erick R.
Asmussen
(5)
Darrell A.
Blair
Lionel D.
Batty
John D. Moran
Craig S.
Shular
Petrus J.
Barnard
F.
Cash ($)
Golden Parachute Compensation
Pension/
Equity
NQDC
Perquisites/
($)
($)
benefits
2,800,000
2,919,698
—
60,714
2,831,842
—
8,612,254
1,850,063
764,322
—
57,848
1,239,393
—
3,911,626
1,188,000
601,935
—
57,715
—
1,847,650
990,000
603,512
—
57,186
—
2,363,629
992,000
598,928
—
57,362
—
1,648,290
—
358,025
—
—
—
358,025
—
117,867
—
—
—
117,867
Tax
Reimbursement
—
712,931
—
Other
($)
Total
($)
The Materially Incomplete and Misleading Recommendation Statement
114. On May 26, 2015, upon the commencement of the Tender Offer, the Company filed a Recommendation Statement with the
SEC, recommending that GrafTech shareholders tender their shares in the Proposed Transaction, which fails to disclose material
information to the shareholders of the Company so that the shareholders may make an informed decision regarding the Proposed
Transaction.
2
For additional details and explanatory notes, see Recommendation Statement at 33-34.
45
Specifically, the Recommendation Statement omits and/or misrepresents material information concerning, among other things: (a) the
background of the Proposed Transaction; (b) management’s projections; (c) the data and inputs underlying the financial valuation
analyses that purport to support the fairness opinion provided by the Company’s financial advisor, J.P. Morgan; and (d) potential
advisor conflicts.
Omissions Concerning Background of the Proposed Transaction
115. The Recommendation Statement fails to provide material information concerning the process conducted by the Company
and the events leading up to the Proposed Transaction. In particular, the Recommendation Statement fails to disclose the following
information:
a.
The details of the relationship between Brookfield and defendant Danjczek and why Brookfield initially
reached out to him to discuss their proposal;
b.
The connection between Brookfield’s initial contact on February 11, 2015, which concerned the Senior Subordinated
Notes, and the Milikowsky Group’s letter of the same date which highlighted the issues pertaining to the Senior
Subordinated Notes;
c.
The basis for Brookfield initiating contact on February 11, 2015;
d.
The connection between the amended revolving credit facility and
46
new $40 million senior secured term loan facility, announced on March 2, 2015, (whose primary purpose was to
provide the Company with the liquidity to repay the Senior Subordinated Notes) and the negotiations and discussions
with Brookfield around that date concerning the notes;
e.
The connection between the amended revolving credit facility and new $40 million senior secured term loan facility
and the Investment Agreement, including the basis and need for the latter (whose primary purpose was to repay the
Senior Subordinated Notes) in light of the former (which serves the same purpose);
f.
The nature and details of the negotiations between Brookfield and the Company’s representatives on March 6, 2015,
and whether they discussed the Milikowsky Group’s influence as a result of its share ownership and the Senior
Subordinated Notes and requested, suggested, or otherwise, that the parties’ structure the proposed transaction (that
ultimately led to the Investment Agreement) in a way that would dilute Milikowsky’s influence over the Board;
g.
The conversations, negotiations, and impetus behind Brookfield’s indication on March 9, 2015 that it was interested
in acquiring the Company;
47
h.
The basis and details concerning defendants Carson and Hawthorne’s consideration, on March 10, 2015, of limiting
the discussion of Brookfield’s interest to the “special committee” formed by the Board to handle the 2015 annual
shareholders meeting, including, (i) the composition and mandate of that special committee; (ii) when that committee
was formed; (iii) the committee’s role in the developing proxy contest between the Board and the Milikowsky
Group; (iv) the basis for excluding the Milikowsky Group from the discussion; and (v) when the discussion were
finally disclosed to the full Board (as was determined should be based on advise of counsel on or about March 10,
2015);
i.
Whether the confidentiality agreement with Brookfield included a standstill provision;
j.
The nature, composition, and mandate of the “special committee” who received Brookfield’s presentation on
March 12, 2015;
k.
Whether the “special committee” who received Brookfield’s presentation on March 12, 2015 was the same as the
one formed by the Board for the 2015 annual shareholders’ meeting;
l.
The basis for not including the full Board (including the Milikowsky Group) in the March 12, 2015 presentation,
especially in light of the advice of counsel that the full Board be included in the discussions;
48
m.
The selection process for a financial advisor for the Proposed Transaction, including the “benchmarking [of]
engagement proposals” that took place on or about March 30, 2015;
n.
The details of Brookfield’s April 15, 2015 indication of interest, including the proposed share ownership resulting
from the conversion of the proposed preferred stock purchase;
o.
In connection with the April 16, 2015 Board meeting, (i) the “preliminary valuation information on the Company;”
(ii) the various alternatives considered; and (iii) the actions taken to “enhance the performance and liquidity of the
Company;”
p.
The “financing options available to the Company,” which were discussed at the April 19, 2015 Board meeting, and
whether they differed from the options discussed at the April 16 meeting;
q.
In connection with the April 22, 2015 Board meeting, (i) the options still under consideration since the April 19,
2015 meeting; (ii) the differences in the options; (iii) the advantages and disadvantages of each of the options;
(iv) the execution considerations; (v) the amount of capital infusion associated with each option; (vi) the potential
range of Brookfield’s ownership upon completion of each option; (vii) the
49
Board’s views on the various options; (viii) the basis for the Board directing J.P. Morgan and management to
negotiate with Brookfield for a $150 million convertible preferred stock financing in light of the amended revolving
credit facility and new $40 million senior secured term loan facility; (ix) the initial dividend rate and minimum
tender condition proposed by Brookfield; and (x) the basis for the $5.75 per share counter-offer, especially in light of
the Board’s recommendation that the Company’s shareholders tender their shares for $5.05 per share;
r.
The terms of Brookfield’s “latest proposal” discussed at the April 24, 2015 Board meeting, including with respect to
(i) the proposed Preferred Stock financing; (ii) the initial conversion price; (iii) the put right and make-whole
premium payable upon a change of control of the Company; (iv) Board designation rights; and (v) the price and
conditions of the proposed tender offer and related merger;
s.
The updated terms of Brookfield’s proposal and the progression of the negotiations discussed at the April 26, 27, 28,
29 and May 3, 2015 Board meetings;
t.
The negotiations with Brookfield that transpired between each of the Board meetings;
50
u.
The significance and import of the Investment Agreement to (i) the Senior Subordinated Notes held by the
Milikowsky Group; and (ii) their position as the Company’s largest shareholder;
v.
The significance and import of the Investment Agreement to the anticipated proxy contest and the postponement of
the 2015 annual shareholders’ meeting;
w.
The basis for the Milikowsky Group entering into the Support Agreement and the relevance of same to the
anticipated proxy contest;
x.
The nature and details of the “Brookfield proposal” made to the Milikowsky Group on or about May 8, 2015,
including the negotiation and terms of same;
y.
The significance and import of J.P. Morgan’s policy not to provide a fairness opinion “where there is not an
acquisition that creates a majority holder of the subject company’s outstanding shares” including how the Board
utilized/relied on the fairness opinion in the context of Brookfield acquiring less than a majority of GrafTech shares;
and
z.
If and how the Board specifically determined it was acceptable to retain J.P. Morgan to opine on the Proposed
Transaction in light of their role with the amended credit facility and term loan facility.
51
Omissions Concerning Management Projections and J.P. Morgan’s Fairness Opinion
116. The Recommendation Statement fails to disclose key financial projections (or information related thereto) prepared by
GrafTech management and/or relied upon by J.P. Morgan in its financial analysis and in rendering its fairness opinions in support of
the Proposed Transaction, as well as certain data and inputs underlying the financial analysis. Specifically, the Recommendation
Statement fails to disclose:
a.
How the summary of the forecasts included in the Recommendation Statement differs from the non-public, internal
financial forecasts regarding the Company’s projected future operations for the 2015 through 2024 fiscal years
provided to J.P. Morgan;
b.
The complete set of forecasts provided to J.P. Morgan;
c.
Whether the forecasts incorporate the effect of the Investment Agreement and if not, the forecasts that give effect to
same;
d.
How the “unlevered free cash flow for discounting” were calculated; the basis for the discount; and why they were
prepared;
e.
If and how the Company’s book value per share, which was $6.73 as of March 31, 2015, was reflected and/or
considered in J.P Morgan’s analysis;
f.
The significance and import of J.P. Morgan’s policy not to provide a
52
fairness opinion “where there is not an acquisition that creates a majority holder of the subject company’s
outstanding shares” including, (i) how they ultimately provided such an opinion; (ii) the meaning of the opinion in
the context of Brookfield acquiring less than a majority of GrafTech shares;
g.
The effect of J.P. Morgan’s assumption that Brookfield would acquire a sufficient number of shares, upon
consummation of the Proposed Transaction such that they would hold a majority of the outstanding shares and if,
and how, J.P. Morgan’s analysis would differ assuming Brookfield were to acquire less than a majority of the shares;
h.
In connection with the Discounted Cash Flow Analysis, (i) the unlevered free cash flows for fiscal years 2015
through 2024 that J.P Morgan utilized based upon the financial projections prepared by the management of the
Company; (ii) how they differed from those projected by the management of the Company; (iii) how they were
calculated; (iv) whether they were based on the discounted or undiscounted cash flow projections; (v) the basis for
using a different set of projections; (vi) whether management approved and/or concurred with the projections;
(vii) the range of terminal values
53
calculated by J.P. Morgan; (viii) which cash flow figures J.P. Morgan utilized to calculate the range of terminal
values; (ix) the basis for utilizing a perpetual growth rate ranging from 1.5% to 2.5%; and (x) the Company’s
weighted average cost of capital calculated by J.P. Morgan (which was utilized to determine the applicable range of
discount rates);
i.
In connection with the analysis of Public Trading Multiples, (i) the objective selection criteria for the analyzed
companies; (ii) the “firm value,” EBITDA estimates for fiscal years ended 2015 and 2016, and the ratio of the firm
value to EBIDTA estimate for each of the analyzed companies for 2015 and 2016; (iii) the basis for the selected
multiple reference ranges, especially in light of the fact that the reference range applied to GrafTech appears
inconsistent with the observed means and/or medians of the analyzed companies; and (iv) whether any kind of
benchmarking analysis was conducted for GrafTech in relation to the selected comparable companies;
j.
In connection with the Selected Transaction Multiples Analysis, (i) the objective selection criteria for the analyzed
transactions, especially in light of the fact that each of the transactions are between approximately seven to nine
years old and most of them predate the
54
2007-08 financial crisis; (ii) the “firm value,” LTM EBIDTA, and the ratio of the firm value to EBIDTA for each of
the analyzed transactions; (iii) the transaction value for each of the selected transactions; and (iv) whether any kind
of benchmarking was conducted in relation to the analysis.
Omissions Concerning Potential Advisor Conflicts
117. The Recommendation Statement also fails to disclose information that would permit GrafTech shareholders to evaluate the
objectivity of J.P. Morgan. Specifically, the Recommendation Statement fails to disclose the specific services and the amount of
compensation that J.P. Morgan has performed/received for Brookfield, BAM, and GrafTech during the last two years. In addition, the
Recommendation Statement fails to disclose the amount of compensation that J.P. Morgan has/will receive for the amended revolving
credit facility and new $40 million senior secured term loan facility, announced on March 2, 2015 and the current status of same in
light of the Investment Agreement.
*
*
*
*
118. Without the omitted information identified above, GrafTech’s public shareholders are missing critical information
necessary to evaluate whether the Proposed Transaction truly maximizes shareholder value and serves their interests. Moreover,
without the key financial information and related disclosures,
55
GrafTech’s public shareholders cannot gauge the accuracy and reliability of the financial analyses performed by J.P. Morgan and
whether they can reasonably rely on its fairness opinion.
119. Based on the foregoing, it is clear that the Board engaged in an extremely flawed process that failed to maximize
shareholder value, and improperly served to undermine the efforts of the Milikowsky Group to reorganize the Company/Board so that
it fulfills its obligation to serve the interests of the Company’s public shareholders.
120. Accordingly, Plaintiff seeks the following relief, among other things, on his claims related to Defendants’ violations of their
fiduciary duties and/or aiding and abetting same, including the omissions/misstatements of material information in connection with the
Proposed Transaction, (i) enjoinment of the Proposed Transaction; or (ii) rescission of the Proposed Transaction in the event that it is
consummated and to recover damages resulting from Defendants’ misconduct.
FIRST CAUSE OF ACTION
(Against the Individual Defendants for Breach of Fiduciary Duties)
121. Plaintiff repeats and realleges each allegation set forth herein.
122. The Individual Defendants have violated fiduciary duties owed to public shareholders of GrafTech.
56
123. By the acts, transactions and courses of conduct alleged herein, the Individual Defendants have improperly sought to
frustrate the efforts of Milikowsky to fix the Company and have also failed to obtain for the public shareholders of GrafTech the
highest value available for GrafTech in the marketplace.
124. As demonstrated by the allegations above, the Individual Defendants breached their fiduciary duties owed to the
shareholders of GrafTech because they failed to take steps to maximize the value of GrafTech to its public shareholders in a change of
control transaction.
125. As a result of the actions of defendants, Plaintiff and the Class will suffer irreparable injury in that they have not and will
not receive the highest available value for their equity interest in GrafTech. Unless the Individual Defendants are enjoined by the
Court, they will continue to breach their fiduciary duties owed to Plaintiff and the members of the Class, all to the irreparable harm of
the members of the Class.
126. Plaintiff and the members of the Class have no adequate remedy at law. Only through the exercise of this Court’s equitable
powers can Plaintiff and the Class be fully protected from immediate and irreparable injury, which the Individual Defendants’ actions
threaten to inflict.
57
SECOND CAUSE OF ACTION
(Against Parent, Acquisition Sub and BAM for Aiding and Abetting the
Individual Defendants’ Breaches of Fiduciary Duty)
127. Plaintiff repeats and realleges each allegation set forth herein.
128. Parent, Acquisition Sub and BAM have acted and are acting with knowledge of, or with reckless disregard to, the fact that
the Individual Defendants are in breach of their fiduciary duties to the public shareholders of GrafTech, and are participating in such
breaches of fiduciary duties.
129. Parent, Acquisition Sub and BAM knowingly aided and abetted the Individual Defendants’ wrongdoing alleged herein. In
so doing, Parent, Acquisition Sub and BAM rendered substantial assistance in order to effectuate the Individual Defendants’ plan to
consummate the Proposed Transaction in breach of their fiduciary duties.
130. Plaintiff has no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands relief in his favor and in favor of the Class and against Defendants as follows:
A. Declaring that this action is properly maintainable as a Class action and certifying Plaintiff as Class representatives;
B. Enjoining Defendants, their agents, counsel, employees and all persons acting in concert with them from commencing the
Proposed Transaction,
58
unless and until the Company adopts and implements a procedure or process to obtain a merger agreement providing the best available
terms for shareholders and discloses/cures the omitted/misstated material information in the Recommendation Statement;
C. Rescinding, to the extent already implemented, the Proposed Transaction or any of the terms thereof, or granting Plaintiff and
the Class rescissory damages;
D. Directing the Individual Defendants to account to Plaintiff and the Class for all damages suffered as a result of the
wrongdoing;
E. Awarding Plaintiff the costs and disbursements of this action, including reasonable attorney’ and experts’ fees; and
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
59
F. Granting such other and further equitable relief as this Court may deem just and proper.
Dated: June 15, 2015
RIGRODSKY & LONG, P.A.
By: /s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
OF COUNSEL:
BROWER PIVEN
A Professional Corporation
Brian C. Kerr
475 Park Avenue South
33rd Floor
New York, NY 10016
(212) 501-9000
Attorneys for Plaintiff
60
Exhibit (a)(5)(G)
EFiled: Jun 15 2015 05:50PM EDT
Transaction ID 57404820
Case No. 11148-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ABRAHAM GRINBERGER, On Behalf of Himself and All
Others Similarly Situated,
Plaintiff,
v.
GRAFTECH INTERNATIONAL LTD.,
RANDY W. CARSON, THOMAS A.
DANJCZEK, KAREN L. FINERMAN,
JOEL L. HAWTHORNE, DAVID R.
JARDINI, NATHAN MILIKOWSKY, M.
CATHERINE MORRIS, BROOKFIELD
ASSET MANAGEMENT, INC.,
BROOKFIELD CAPITAL PARTNERS
LTD., BCP IV GRAFTECH HOLDINGS
LP, and ATHENA ACQUISITION
SUBSIDIARY INC.,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Civil Action No.
VERIFIED CLASS ACTION COMPLAINT
Plaintiff Abraham Grinberger (“Plaintiff”), on behalf of himself and all others similarly situated, after an examination and
inquiry conducted by and through his counsel, alleges the following for his Complaint:
NATURE AND SUMMARY OF THE ACTION
1. This is a stockholder class action brought by Plaintiff on behalf of himself and all other public stockholders of GrafTech
International Ltd. (“GrafTech” or the “Company”) against GrafTech and its Board of Directors (the
“Board” or “Individual Defendants”), Brookfield Asset Management, Inc. (“BAM”), Brookfield Capital Partners Ltd. (“Brookfield
Capital”), BCP IV GrafTech Holdings LP (“Purchaser”), and Athena Acquisition Subsidiary Inc. (“Acquisition Sub” and together
with BAM, Brookfield Capital and Purchaser, “Brookfield”) (collectively, the “Defendants”).
2. This action arises from breaches of fiduciary duties, and/or aiding or abetting thereof, in connection with a proposed two-step
transaction in which Brookfield will acquire GrafTech.
3. First, on May 4, 2015, GrafTech announced a definitive investment agreement, under which Brookfield will acquire $150
million of 7% convertible preferred shares of GrafTech in a private offering (the “Investment Agreement”). Pursuant to the Investment
Agreement, convertible shares will be issued to Brookfield in two series: (1) Series A shares, which will be immediately convertible
into GrafTech common shares equal to approximately 19.9% of the currently outstanding shares of GrafTech common stock, at a
conversion price of $5.00 per common share, subject to customary anti-dilution adjustments; and (2) Series B shares, which will
become convertible into common shares equal to approximately 2% of the currently outstanding shares upon approval by GrafTech
stockholders.
2
4. Second, on May 18, 2015, GrafTech announced it entered into a definitive agreement and plan of merger dated May 17,
2015 (the “Merger Agreement”) with Brookfield, pursuant to which Brookfield will acquire up to all outstanding shares of
GrafTech through a tender offer to be commenced by Purchaser (the “Tender Offer”), for $5.05 in cash for each share of
GrafTech common stock (the “Offer Price”) for a total of approximately $691.8 million (the “Proposed Transaction”). The
Tender Offer commenced on May 26, 2015, and will expire on July 7, 2015.
5. Although the Proposed Transaction is presented as an arm’s-length tender offer, the interlaced relationship between the
Company’s directors and management reveals that the process preceding the recommendation to stockholders to accept Brookfield’s
Tender Offer was not reasonable under the circumstances and failed to maximize stockholder value, that the stockholders do not have
all material information necessary to assess the Proposed Transaction, and that the information stockholders do have is suspect.
6. Despite having the opportunity from the outset to canvass the market to determine what the best possible price could be for a
sale of the Company, the Board instead chose to negotiate solely with Brookfield, a decision driven by the unique interests of certain
directors and officers. For the second consecutive year, the Board faced a proxy battle led by Company director Nathan Milikowsky
(“Milikowsky”) and his affiliates, which collectively own approximately 11.2% of the Company’s outstanding shares in addition to
$200 million in debt (the “Milikowsky Group”). Eager to end the Milikowsky Group’s campaign to replace management and oust the
Board, the Board agreed to a shotgun marriage with Brookfield.
3
7. Unfortunately for the Company’s public stockholders, the Board gave control of the Company away for a meager 1%
change of control premium. Heightening stockholders’ concerns, the Offer Price is well below analyst price targets for the
Company’s stock of $7.00 and $7.50 per share, and considerably below the Company’s reported book value per share of $6.73.
8. Moreover, on May 26, 2015, the Company filed and disseminated to stockholders a Tender Offer
Solicitation/Recommendation Statement on Schedule 14D-9 (the “14D-9”) with the U.S. Securities and Exchange Commission
(“SEC”). The 14D-9 fails to disclose critical information regarding the flawed process leading up to the signing of the Merger
Agreement, potential conflicts of interest on the part of the Company’s financial advisor, J.P. Morgan Securities LLC (“J.P. Morgan”),
and the financial valuation analyses supporting the fairness opinion provided by J.P. Morgan. As a result, the 14D-9 misrepresents and
fails to disclose material information necessary for the Company’s public stockholders to make an informed decision as to whether the
Offer Price is fair and whether to tender their shares of Company stock in the Tender Offer or seek appraisal if the Proposed
Transaction is consummated.
4
9. For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin Defendants from taking any steps to
consummate the Proposed Transaction or, in the event the Proposed Transaction is consummated, to recover damages resulting
from the Individual Defendants’ violations of their fiduciary duties.
THE PARTIES
10. Plaintiff is, and was at all times relevant hereto, a stockholder of GrafTech.
11. GrafTech, a Delaware corporation, manufactures and sells graphite and carbon material science-based solutions. GrafTech’s
corporate headquarters are located at Park Center Drive I, Suite 300, Independence, OH 44131. Its common stock is traded on the
New York Stock Exchange (“NYSE”) under the symbol “GTI.” 12. Defendant Randy W. Carson (“Carson”) has served as a member
of the Board since 2009 and as Chairman of the Board since June 2014.
13. Defendant Thomas A. Danjczek (“Danjczek”) has served as a member of the Board since May 2014.
14. Defendant Karen L. Finerman (“Finerman”) has served as a member of the Board since May 2014.
5
15. Defendant Joel L. Hawthorne (“Hawthorne”) has served as a member of the Board, GrafTech’s Chief Executive Officer
(“CEO”), and President since January 2014. Defendant Hawthorne joined the Company as a Director of Investor Relations in
August 1999 and has held various positions, including serving as Vice President and President, Engineered Solutions from
March 2011 until January 2014.
16. Defendant David R. Jardini (“Jardini”) has served as a member of the Board since May 2014.
17. Defendant Milikowsky has served as a member of the Board since May 2014 and previously served as a member of the
Board from December 2010 until March 2013.
18. Defendant M. Catherine Morris (“Morris”) has served as a member of the Board since May 2014.
19. Defendants set forth in paragraphs 12 to 18 are referred to herein as the “Board” or the “Individual Defendants.” By virtue of
their positions as directors and/or officers of GrafTech, the Individual Defendants are in a fiduciary relationship with Plaintiff and the
other public stockholders of GrafTech.
20. Each of the Individual Defendants at all relevant times had the power to control and direct GrafTech to engage in the
misconduct alleged herein. The Individual Defendants’ fiduciary obligations required them to act in the best interest of Plaintiff and all
GrafTech stockholders.
6
21. Each of the Individual Defendants owes fiduciary duties of loyalty, good faith, due care, and full and fair disclosure to
Plaintiff and the other members of the Class. The Individual Defendants are acting in concert with one another in violating their
fiduciary duties as alleged herein, and, specifically, in connection with the Proposed Transaction.
22. The Company’s public stockholders must receive the maximum value for their shares through the Proposed Transaction.
Plaintiff alleges herein that the Individual Defendants, separately and together, in connection with the Proposed Transaction, violated,
and are continuing to violate, the fiduciary duties they owe to Plaintiff and the Company’s other public stockholders, due to the fact
that they have engaged in all or part of the unlawful acts, plans, schemes, or transactions complained of herein.
23. Defendant BAM is a global alternative asset manager engaged in (among other activities) managing and making investments
in property, renewable energy, infrastructure and private equity with over $200 billion in assets under management. BAM is a
Canadian asset management company that maintains its principal place of business at Suite 300, Brookfield Place, 181 Bay Street,
P.O. Box 762, Toronto, Canada M5J2T3. Its common stock is traded on the NYSE under the symbol “BAM,” on the Toronto Stock
Exchange under the symbol “BAM.A,” and on the Euronext exchange under the symbol “BAMA.”
7
24. Defendant Brookfield Capital, an indirect wholly-owned subsidiary of Defendant BAM, is part of the private equity
platform of BAM.
25. Defendant Purchaser is a Delaware limited partnership controlled by Brookfield Capital, which was formed for the purpose
of the Tender Offer.
26. Defendant Acquisition Sub is a Delaware corporation controlled by Brookfield Capital, which was formed for the purpose of
the Tender Offer. Upon completion of the Proposed Transaction, Acquisition Sub will merge into the Company and cease its separate
corporate existence.
CLASS ACTION ALLEGATIONS
27. Plaintiff brings this action, pursuant to Court of Chancery Rule 23, individually and on behalf of all holders of the common
stock of GrafTech, and their successors in interest, who have been and will be harmed by the wrongful conduct of the Defendants as
alleged herein (the “Class”). The Class excludes Defendants, and any person, firm, trust, corporation or other entity related to,
affiliated with, or controlled by any of the Defendants, as well as the immediate families of the Defendants.
28. This action is properly maintainable as a class action.
8
29. The Class is so numerous that joinder of all members is impracticable. As of May 22, 2015, the total number of issued
and outstanding GrafTech shares was 137,240,008. Members of the Class are scattered throughout the United States and are so
numerous that it is impracticable to bring them all before this Court.
30. Questions of law and fact exist that are common to the Class, including, among others: (i) whether Defendants have breached
their fiduciary duties owed to Plaintiff and the Class and/or aided and abetted such breaches; and (ii) whether Defendants will
irreparably harm Plaintiff and the other members of the Class if Defendants’ conduct complained of herein continues.
31. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature.
Plaintiff’s claims are typical of the claims of the other members of the Class and Plaintiff has the same interests as the other members
of the Class. Accordingly, Plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the
Class.
32. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for
Defendants, or adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the
interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.
9
33. Defendants have acted, or refused to act, on grounds generally applicable to the Class as a whole, and are causing
injury to the entire Class. Therefore, final injunctive relief on behalf of the Class is appropriate.
SUBSTANTIVE ALLEGATIONS
Background of the Company
34. GrafTech is a leading manufacturer of graphite electrodes used in the production of steel and graphite parts used in
electronics. The Company operates in two divisions: (1) Industrial Materials and (2) Engineered Solutions.
35. GrafTech’s Industrial Materials division manufactures products focused on global steel demand. These products include:
•
graphite electrodes, which are used to melt scrap iron and steel in electronic arc furnaces (“EAF”), as well as
other ferrous and non-ferrous melting applications, including steel refining, fused materials, chemical
processing, and alloy metals;
•
needle coke products, the primary raw material needed in the manufacture of graphite electrodes; and
10
•
refractory products, installed to protect the walls and bottoms of blast and submerged arc furnaces due to their
ability to withstand extreme conditions.
According to the Company’s Form 10-K Annual Report filed with the SEC on March 2, 2015 (the “2014 Annual Report”), the
worldwide sales for products serviced by GrafTech’s Industrial Materials group was approximately $5 billion in 2014, representing
approximately 77% of the Company’s consolidated net sales for the year.
36. GrafTech’s Engineered Solutions division, the Company’s smaller, but growing division, leverages GrafTech’s graphite
expertise to penetrate high-growth markets. The Company’s Engineered Solutions products include:
•
advanced graphite materials, highly engineered synthetic graphite products used in many areas, including
transportation, alternative energy, metallurgical, chemical, and oil and gas exploration;
•
advanced composite materials, highly engineered carbon products primarily used in the aerospace and defense
industries;
•
advanced electronics technologies, including electronic thermal management solutions, fuel cell components,
and sealing materials; and
11
•
advanced materials which use carbon and graphite powders as components or additives in a variety of
industries, including metallurgical processing, battery and fuel cell components, and polymer additives.
According to the 2014 Annual Report, the Engineered Solutions segment had sales $245.2 million in 2014, representing
approximately 23% of the Company’s consolidated net sales for the year.
The Flawed Sales Process
The 2010 Acquisitions and Milikowsky’s Ouster
37. On November 30, 2010, the Company acquired C/G Electrodes LLC (“C/G”) and the portion of Seadrift Coke L.P.
(“Seadrift”) not previously owned by GrafTech for $232 million in cash, $200 million in non-interest bearing five year Senior
Subordinated Notes (the “Senior Subordinated Notes”), and 24 million shares of GrafTech common stock for an aggregate of $692
million (the “2010 Acquisitions”). In connection with the 2010 Acquisitions, Defendant Milikowsky, general partner and majority
owner of both C/G and Seadrift, was named to GrafTech’s Board. In addition, GrafTech agreed to nominate Defendant Milikowsky or
his representative for re-election to the Board so long as the Milikowsky Group continued to hold at least 12 million shares of
Company stock.
12
38. Apparently Milikowsky was unhappy with the Company’s performance. According to a January 23, 2014 New York
Times article entitled “Behind Staid Steel, a Percolating Boardroom Drama,” Milikowsky felt the Company was
underperforming and in early 2012 began a campaign to confront GrafTech management. Then, in May 2012, a formerly passive
investor, Samlyn Capital (“Samlyn”), began inquiring into the Company’s operations, echoing Milikowsky’s criticisms. The
Company suspected an insider was leaking information to Samlyn. In September 2012, the Board appointed a committee of
independent directors and an independent investigatory counsel to conduct a thorough investigation into the alleged leaks.
Following the investigation, in March 2013, investigatory counsel reported there was evidence Defendant Milikowsky had
leaked the confidential information. Although the Milikowsky Group continued to hold 15 million shares, Defendant
Milikowsky was not nominated or re-elected to the Board at the 2013 annual stockholder meeting. Defendant Milikowsky
claimed he was not nominated because he criticized management and former CEO Craig S. Shular (“Shular”).
The Rationalization Plan
39. During this time, the Company faced significant headwinds as the steel industry was slow to recover from the 2008
recession. A slowdown in China coupled with weak macroeconomic conditions in Europe led to an increase in
13
imports from Russia and China. In addition, the Chinese government heavily invested in industrial expansion, resulting in increased
production of higher quality graphite electrodes, and favorable Chinese currency policies led to increased pricing competition from
China.
40. As a result, on October 31, 2013, the Company announced an initiative to improve operating efficiencies and global
competitiveness (the “Rationalization Plan”). The Company’s press release set forth the following bullets summarizing the plan:
•
Initiatives will improve operational efficiencies and global competitiveness of our business model, with a targeted $75
million in annual cost savings ($35 million in 2014)
•
Initiatives expected to be largely complete by the end of the second quarter of 2014
•
Supply chain efficiencies expected to yield $100 million of cash flow from inventory improvement
•
Global workforce reduction targeted at approximately 20 percent
The 2014 Proxy Fight
41. On January 8, 2014, Defendant Milikowsky and his brother Daniel Milikowsky announced their intention to engage with the
Board, management, and other stockholders regarding, among other things, the composition of the Board and the Company’s strategic
plans, and the potential for a proxy contest.
14
42. Then, on January 21, 2014, the Company announced Shular’s retirement as CEO and President, effective immediately.
The Board appointed Defendant Hawthorne as CEO and President, and elected him as a director. According to the January 23,
2014 New York Times article, Defendant Milikowsky called Shular’s retirement and the promotion of Hawthorne “a good first
step in the fundamental turnaround that is necessary to save the company and increase shareholder value.”
43. A shake-up in management was not enough for Milikowsky, however. On January 23, 2014, Defendant Milikowsky and the
Milikowsky Group indicated its intent to nominate five candidates for election to the Board at the Company’s 2014 annual stockholder
meeting. Despite the Board’s willingness to negotiate with the Milikowsky Group, Milikowsky was on a mission to redeem himself
and regain his position on the Board. Following a contentious proxy fight, the Milikowsky Group successfully placed three directors
on the Board at the Company’s May 15, 2014 annual stockholder meeting – Defendants Milikowsky, Finerman, and Jardini (the
“Milikowsky Group Directors”).
Milikowsky Attempts to Force His Agenda on the Company
44. Immediately following their election to the Board, the Milikowsky Group Directors began a campaign to impose a
commodity-driven strategy aimed at maximizing the Milikowsky Group’s own-short term gain, to the detriment of
15
the long-term goals of the Company. According to preliminary proxy statement filed by the Company on March 22, 2015 in
connection with the 2015 annual stockholder meeting, over the next several months, the Milikowsky Group Directors each lobbied
“for a commercial strategy to increase the Company’s market share by focusing on the commodity aspects of the graphite-electrode
business and pricing practices similar to those of low-cost industry participants.” The Milikowsky Group Directors insisted that the
Company’s stockholders had given an electoral mandate to their strategy. Although the remaining Board members addressed the
Milikowsky Group Directors’ concerns, they did not buckle under the Milikowsky Group Directors’ pressure to abandon the
Company’s strategic goals.
45. Unable to persuade the other directors, the Milikowsky Group Directors shifted gears, pushing forward with a new objective
to replace management. Throughout July and August, Defendant Milikowsky urged that Hawthorne and the other members of
management be terminated and replaced immediately. In July, Milikowsky proposed that Jardini replace Milikowsky as President and
CEO. Then, Defendant Milikowsky decided he should replace Defendant Hawthorne himself. Although Finerman proposed this to the
Board in September, and Milikowsky reiterated Finerman’s proposal again in November, Defendant Milikowsky was repeatedly shot
down. The Board similarly remained
16
steadfast against the Milikowsky Group Director’s purported mandate to implement a commodity-driven strategy. At the same time,
Defendant Jardini sought to destabilize the Board, designating himself for a newly created “Chief Restructuring Officer” role reporting
directly to the Board.
Management’s Cost-Cutting Initiatives
46. At the same time, the Hawthorne-led Board took on an aggressive restructuring plan. On July 23, 2014, the Company issued
a press release announcing additional initiatives to increase global competitiveness, reduce cost, and improve profitability. The press
release stated, in pertinent part:
•
GrafTech recognizes an estimated non-cash impairment charge of $126 million due to recent changes in the
competitive environment impacting the Engineered Solutions segment’s advanced graphite materials business
•
New initiatives to rationalize Engineered Solutions product line expected to generate $18 million in annual cost
savings at a total cost of approximately $24 million
•
Continued review across all aspects of business underway for additional cost savings
•
Industrial Materials rationalization plan substantially complete, on target to achieve $75 million in annual savings
•
Cumulative impact of announced initiatives expected to generate over $90 million in annual cost savings when fully
implemented
47. Shortly thereafter, on September 23, 2014, the Company announced an additional $30 million in cost-savings actions. The
press release stated, in part:
17
PARMA, Ohio—(BUSINESS WIRE)—Sep. 23, 2014—GrafTech International Ltd. (NYSE:GTI) announced today that it has
concluded another phase of its on-going company-wide cost savings assessment. As a result, GrafTech has identified approximately
$30 million in cost-savings actions, in addition to the more than $90 million in annual cost savings identified over the past year.
These actions include changes to the Company’s operating and management structure in order to streamline, simplify and
decentralize the organization. The Company believes that these enhancements will allow GrafTech to work more closely with its
customers, drive greater accountability at the local level and respond even more efficiently to changing market dynamics. In addition,
GrafTech will redesign its research and development function and downsize the Company’s corporate functions.
Milikowsky Leverages the Senior Subordinated Notes
48. Undismayed, Defendant Milikowsky turned to alternative means to manipulate the Board – by leveraging the $200 million
Senior Subordinated Notes due to mature in November 2015, which were held entirely by Milikowsky, his associates, and persons
connected with him, including $7.3 million in Senior Subordinated Notes held by Jardini. At the December 16, 2014 Board meeting,
following questions of liquidity and a second proxy fight, Milikowsky indicated he would forego a proxy contest if the Board
immediately appointed two directors identified by his legal counsel and created an operating committee of the Board with effective
control over all Company operational decisions and stakeholder communications. In turn, Milikowsky would extend the maturity of
the Senior Subordinated Notes so long as he was satisfied with management, ensuring his control over the Company.
18
49. The Board did not capitulate to Milikowsky. The Board continued to pursue a compromise, but would not give
Milikowsky a majority of the Board (and effective control of the Company without paying a control premium to stockholders).
Putting further pressure on the Board, on January 23, 2015, Milikowsky formally notified the Board of his intent to nominate
seven director candidates to the Board (the “Milikowsky Control Slate”). 1 Defendant Milikowsky continued to use the Senior
Secured Notes as a negotiating chip. In a February 11, 2015 letter 2 to Defendant Carson, Milikowsky submitted a proposed
term sheet for an amendment to the Senior Subordinated Notes “subject to [the Milikowsky Group] being appropriately satisfied
with the go-forward management and Board.” In the same letter, Defendant Milikowsky further pressed for Defendant
Hawthorne to be replaced, proposing that he, Defendant Jardini, or Milikowsky Control Slate nominee Carr “would be terrific in
the interim CEO role.”
1
2
The Milikowsky Control Slate included Defendants Milikowsky, Jardini, and Finerman along with Frederic Brace, Alan Carr
(“Carr”), Michael Christodolou, and Fiona Scott Morton.
Defendant Milikowsky filed an amendment to a Schedule 13D statement of beneficial ownership with the SEC on February 12,
2015, which included his February 11, 2015 letter to Defendant Carson as Exhibit 1.
19
50. The Board soon took the wind out of Milikowsky’s sails, however, securing alternative financing to repay the Senior
Subordinated Notes. On March 2, 2015, the Company publicly announced it amended its revolving credit facility, providing the
Company access to a $400 million revolver, and established a new $40 million senior secured term loan facility. According to
the Company’s press release, “[t]he primary purpose of the credit facility amendment and the term loan facility is to further
enhance GrafTech’s capital structure and to provide more than ample liquidity to repay its $200 million senior subordinated
notes due in November 2015 while comfortably funding its ongoing operations and initiatives.” (Emphasis added).
51. Good news continued for the Company’s stockholders. Also on March 2, 2015, the Company announced positive fourth
quarter (“4Q”) and year end 2014 financial results. GrafTech reported 4Q 2014 adjusted net income of $0.06 per share, beating
analysts’ estimates by $0.13, and revenue of $259.87 million, beating analysts’ forecasts by $2.57 million. In addition, the Company
reported EBITDA excluding special charges of 37 million – a 13% increase over 4Q 2013 and a 55% increase over the third quarter of
2014. During the March 2, 2015 earnings call, Defendant Hawthorne attributed this significant EBITDA improvement to the
Company’s actions to “improve the cost structure and increase efficiency across [its] global platform.”
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Brookfield Capitalizes on the Disjointed Board and the Board Capitulates
52. Following Defendant Milikowsky’s public attempt to use the Senior Subordinated Notes as leverage to overthrow Company
management and the Board, Brookfield sought to capitalize on the Board’s vulnerability and step in as a “white knight” with an
alternative source of financing for the Senior Subordinated Notes. On February 11, 2015, Brookfield contacted Defendant Danjczek,
indicating it was interested in refinancing the Senior Subordinated Notes.
53. Unfortunately for GrafTech’s public stockholders, the Board took the easy out. Despite the Company’s “ample liquidity” to
repay the Senior Subordinated Notes and positive trajectory following management’s cost-cutting, over the next three weeks, the
Company Board agreed to a shotgun marriage with Brookfield. The benefits for the Board were two-fold. The Milikowsky Group
Directors, having failed to achieve any of their objectives to date, achieved instant liquidity, with the Milikowsky Group receiving full
payment for the Senior Subordinated Notes and reimbursement for expenses related to the 2014 proxy fight. The remaining Board
members saved face, bringing an end to the Milikowsky Group’s campaign. GrafTech’s public stockholders were not so lucky. After
taking no steps to inform itself what the market would bear for the Company before signing the Investment Agreement and Merger
Agreement, the Board “negotiated” a meager 1% change in control premium for GrafTech’s public stockholders.
21
54. On March 6, 2015, Brookfield met with Hawthorne and certain members of Company management. Brookfield
indicated interest in offering the Company a $100 million convertible note to help refinance the Senior Subordinated Notes,
conditioned on Brookfield being given representation on the Board proportionate to its investment. Defendant Hawthorne
indicated the Company “had a solid capital structure, particularly in light of a recent credit agreement amendment to add
liquidity through covenant modifications and the addition of a $40 million term loan facility.” Three days later, on March 9,
2015, Brookfield called Hawthorne and informed him that Brookfield might be interested in acquiring the Company.
55. On March 18, 2015, Brookfield sent Hawthorne an expression of interest including an all cash proposal at a price range of
between $5.00 and $5.25 per share, among other things.
56. On April 14, 2015, Brookfield sent the Company a non-binding indication of interest regarding a purchase of $150 million of
convertible preferred stock and a proposed tender offer for up to 100% of the Company’s shares at a purchase price of $5.00 per share.
22
57. At an April 22, 2015 Board meeting, the Board determined to make a counter-proposal at a price of $5.75 per share. On
April 25, 2015, Brookfield informed the Company it was willing to increase its purchase price to $5.05 per share. Despite
demanding $5.75 only six days earlier, at the April 28, 2015 Board meeting, the Board determined that $5.05 per share – a $0.05,
or 1% premium to Brookfield’s $5.00 per share price under the Investment Agreement – was acceptable. The Company executed
letters of intent with Brookfield on April 29, 2015 (the “Letters of Intent”), and shortly thereafter executed the Investment
Agreement on May 4, 2015 and the Merger Agreement on May 17, 2015.
The Proposed Transaction
58. On May 18, 2015, GrafTech issued a press release announcing the Proposed Transaction. The press release stated, in
pertinent part:
INDEPENDENCE, Ohio – May 18, 2015 – GrafTech International Ltd. (NYSE:GTI) (“GrafTech” or the “Company”) today
announced it has entered into a definitive agreement and plan of merger with an affiliate of Brookfield Asset Management Inc.
(NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA) (“Brookfield”) under which Brookfield will commence a tender offer to acquire
up to all of the outstanding shares of GrafTech common stock. The definitive agreement was unanimously approved by GrafTech’s
Board of Directors and follows the letter of intent announced by GrafTech on April 29, 2015. Holders of approximately 11% of the
outstanding shares of GrafTech common stock, including GrafTech director Nathan Milikowsky, have agreed to support the
transaction and tender their shares in the tender offer. Under the terms of the agreement, Brookfield will commence a tender offer to
purchase up to all of the outstanding shares of GrafTech common stock at a purchase price of $5.05 per share, representing a
premium of 26% over the average closing price of the Company’s common shares during the 60 trading days ended April 28, 2015.
The tender offer is not subject to any financing conditions.
23
The tender offer is intended to provide GrafTech stockholders the option to choose immediate liquidity at a premium as described
above or to participate in GrafTech as a stockholder following the closing of the tender offer (subject to the merger provisions
described below) with the benefit of Brookfield sponsorship going forward. A stockholder might choose to accept a combination of
both cash and continued ownership of GrafTech shares.
The Company believes that Brookfield has an exceptional track record sponsoring public companies in difficult underlying market
conditions, including significant knowledge and experience in steel, mining and metals, and other industrial sectors.
Pursuant to the agreement, the tender offer will commence no later than May 26, 2015 and will expire at 12:00 midnight, New York
City time, on July 7, 2015, unless extended in accordance with the terms of the agreement and the applicable rules and regulations of
the Securities and Exchange Commission. Consummation of the tender offer is subject to certain conditions, including receipt of
required regulatory approvals, the tender of a number of GrafTech shares that, together with any other shares then owned by
Brookfield (including shares issuable upon conversion of the convertible preferred stock expected to be issued to Brookfield as
previously announced), would represent at least 30% of the then outstanding shares plus shares issuable upon such conversion (the
“minimum tender condition”), and other customary conditions. Assuming the convertible preferred stock is issued prior to the
expiration of the tender offer, as of the date hereof, satisfaction of the minimum tender condition would require the tender of
approximately 15% of the currently outstanding GrafTech shares.
If the number of GrafTech shares tendered, together with any other shares then owned by Brookfield (including shares issuable upon
conversion of the convertible preferred stock expected to be issued to Brookfield as previously announced), would represent at least
80% of the then outstanding shares plus shares issuable upon such conversion (the “merger condition”), then the remaining
outstanding GrafTech
24
shares will be acquired in a merger transaction at the same price offered in the tender offer. Assuming the convertible preferred stock
is issued prior to the expiration of the tender offer, as of the date hereof, satisfaction of the merger condition would require the tender
of approximately 75% of the currently outstanding GrafTech shares.
The Offer Price is Inadequate
59. Despite the significant headwinds related to the steel industry, GrafTech management’s significant cost-cutting campaign has
proven successful. Given the Company’s depressed stock price and positioning for future growth once the market revitalizes, the
Proposed Transaction fails to adequately compensate GrafTech’s stockholders for the intrinsic value of the Company.
60. There are reasons to question the adequacy of the $5.05 Offer Price. First, Brookfield acquired approximately 20% of the
Company for $5.00 per share via the Investment Agreement. The Offer Price represents a meager 1% control premium over the $5.00
per share consideration. Indeed, the Offer Price is a paltry 2% premium to the Company stock’s closing price of $4.95 on May 15,
2015, the last trading day before the Merger Agreement was announced. Indeed, on March 2, 2015, analysts at Sidoti & Company
LLC (“Sidoti”) and Jefferies LLC (“Jefferies”) set price targets of $7.00 and $7.50 per share, 3 respectively – well above the Offer
Price. Furthermore, the $5.05 Offer Price is considerably below the Company’s reported book value per share of $6.73.
3
Following the April 29, 2015 Letter of Intent, the analysts at Sidoti and Jefferies reduced their price targets to $6.00 and $5.05,
respectively.
25
61. Defendants agreed to the Proposed Transaction in breach of their fiduciary duties. Rather than face a proxy battle with
the Milikowsky Group, the Board sought an easy out via a quick sale to Brookfield, forcing the Company’s public stockholders
to accept an inadequate change of control premium, and potentially an inadequate Offer Price.
62. Moreover, while the Company’s public stockholders are likely being cashed out for the inadequate Offer Price, Company
management and certain members of the Board have secured benefits for themselves. As a result of the Proposed Transaction,
Company management and the Board members will receive an immediate payday as a result of the accelerated vesting of any
unvested Company stock options and unvested restricted stock unit awards – benefits not available to the Company’s public
stockholders. Notably, Defendant Hawthorne will receive an aggregate of approximately $2.9 million in cancelled stock options and
restricted stock units.
63. Further, it appears Company management may be staying on board for the long term as part of the Proposed Transaction.
While the 14D-9 fails to disclose the details of any employment agreements with Company management, in the April 29, 2015 press
release announcing the Letters of Intent, Defendant Hawthorne commented on the “partnership” between Brookfield and GrafTech,
stating:
26
Over the last eighteen months, we have taken deliberate steps to position the Company for the long term and believe this transaction
is another example of our continued commitment to positioning the Company for success . . . . We are pleased to partner with
Brookfield, which has a long and proven track record of success and has demonstrated confidence in our strategic plan and
prospects. Brookfield shares our focus on executing a strategy that will allow GrafTech to manage through intensifying industry
challenges in preparation for a cyclical upturn. While we continue to face considerable industry challenges, we have made significant
progress in delivering differentiated products to customers, optimizing our portfolio and efficiently managing costs, and we are
committed to achieving these objectives.
(Emphasis added).
64. Moreover, even if Company management does not continue with the post-merger Company, certain members of the Board
and Company management will receive additional compensation if they are terminated in connection with the Proposed Transaction.
Indeed, if Defendant Hawthorne is terminated in connection with the Proposed Transaction, he will be entitled to golden parachute
payments totaling over $8.6 million.
The Unfair Deal Protection Devices
65. In addition to concerns regarding the inadequate Offer Price, the Merger Agreement features several provisions that work to
preclude other bidders from stepping forward with a superior alternative offer. At best, these provisions place stockholders in an
unfortunate position and, at worst, question the impartiality of the Board members in the negotiation process.
27
66. First, the Proposed Transaction is structured as a two-step transaction in which Brookfield first acquired an
approximately 20% ownership in the Company and will acquire the remaining interest through the Tender Offer. The Investment
Agreement raises a significant barrier to alternative bidders.
67. Section 6.2 of the Merger Agreement includes a purported go-shop provision. According to Section 6.2(a), the go-shop
began on May 18, 2015, the date of the Merger Agreement, and will expire on the 35 th calendar day thereafter. However, the go-shop
is illusory.
68. First, Defendant Milikowsky and the Milikowsky Group have already pledged their support for the Proposed Transaction. As
with the pre-merger “process,” the go-shop process will be influenced by conflicted directors who are incentivized for the Proposed
Transaction to close as quickly as possible. The conflicted Board cannot effectively protect stockholders’ interests during the go-shop.
69. In addition, potential investors only have 35 days to conduct due diligence and make a bid within the go-shop period.
Moreover, pursuant to Section 6.2(a) of the Merger Agreement, GrafTech must give Brookfield any non-public information provided
to any third party that was not provided to Brookfield
28
within twenty four hours of doing so. No later than one business day following the expiration of the go-shop period, GrafTech must
notify Brookfield of the identity of each third party from whom the Company received a written acquisition proposal, the identity of
the third parties making such acquisition proposals, and a written summary of the material terms of any acquisition proposal not made
in writing. Then, the Company will have to pay Brookfield $7.5 million if it enters into a merger agreement with the other party,
thereby requiring that the alternate bidder agree to pay a naked premium for the right to provide GrafTech stockholders with a superior
offer. The termination fee increases to $20 million following the go-shop process.
70. Following the expiration of the go-shop, with the exception of an Excluded Party (as defined in the Merger Agreement),
Section 6.2(b) of the Merger Agreement prohibits the Board members and any Company personnel from soliciting interest from other
potential acquirers in order to attain a price in excess of the amount offered by Brookfield.
71. As a result of this web of protections for the Proposed Transaction, it is effectively locked up and the go-shop is mere
window dressing. Ultimately, these unduly restrictive deal protection devices act in combination to restrain the Company’s ability to
solicit or engage in negotiations with any third party regarding a proposal to acquire all or a significant interest in the Company. The
29
inclusion of these provisions in the Merger Agreement does not provide the Board an effective “fiduciary out” under the
circumstances. These provisions foreclose any realistic chance that any potential bidders will express interest or make alternative bids
in order to provide the needed market check on Brookfield’s inadequate offer.
The Materially Misleading 14D-9
72. Further breaching their fiduciary duties to the Company’s public stockholders, the Individual Defendants filed the materially
misleading and incomplete 14D-9 with the SEC, which fails to disclose material facts to the Company’s public stockholders in
contravention of the Board’s duty of disclosure. Without such information being disclosed before the closing of the Tender Offer
(which is scheduled to expire at 12:00 Midnight, New York City time on Tuesday, July 7, 2015, unless extended), the public
stockholders will be irreparably harmed by being forced to make a decision whether to tender their shares of stock in the Tender Offer
or seek appraisal if the Proposed Transaction is consummated without the total mix of information being made available to them.
73. First, the 14D-9 fails to disclose material information regarding the flawed sale process that led up to the Proposed
Transaction. For example, the 14D-9 fails to disclose the details of any discussions concerning the continued employment of GrafTech
senior management following the consummation of the
30
Proposed Transaction, including the timing and parties involved in any such discussions. This information is material for GrafTech’s
public stockholders to assess the credibility of the process the Board employed to sell the Company, the weight to give its
decision-making process, and whether the Board obtained adequate value for the Company so GrafTech’s public stockholders can
make an informed decision on the merits of the Proposed Transaction and whether they should seek appraisal if the Proposed
Transaction is consummated.
74. Next, the 14D-9 fails to disclose material information concerning potential conflicts of interest regarding the Company’s
financial advisor, J.P. Morgan. Specifically, the 14D-9 fails to disclose the contingent component of the fees J.P. Morgan will receive
in connection with the Proposed Transaction. The 14D-9 states:
the Company has agreed to pay J.P. Morgan a fee of approximately $10.1 million (if the Purchaser acquires a majority of the capital
stock of the Company) or $3.5 million (if the Purchaser acquires less than a majority of the capital stock of the Company) a
substantial portion of which, in either case, will become payable only if the [Tender] Offer is consummated or the Purchaser
acquires the Preferred Stock.
(Emphasis added). The 14D-9 also fails to disclose how much compensation J.P. Morgan received for all services rendered to
GrafTech and Brookfield in the last two years. In addition, with respect to May 12, 2015 Board meeting, the 14D-9 fails to disclose
how the Board resolved the potential issue with J.P. Morgan’s fairness opinion in light of J.P. Morgan’s policy “not to provide a
fairness opinion where there is not an acquisition that creates a majority holder of the subject company’s outstanding shares.”
31
75. Finally, the 14D-9 fails to disclose key inputs and assumptions underlying J.P. Morgan’s fairness opinion and the
various valuation analyses it performed in support of its opinion:
(a) With respect to the Public Trading Multiples analysis, the 14D- 9 fails to disclose: (i) the details of J.P. Morgan’s
“complex considerations and judgments,” including how these affected its analysis; (ii) the individual implied per share equity values
of each of the selected companies; and (iii) the inputs and assumptions used by J.P. Morgan to arrive at the selected multiple reference
ranges used for the Company for 2015E FV/EBITDA and 2016E FV/EBITDA, respectively.
(b) With respect to the Selected Transaction Multiples, the 14D-9 fails to disclose: (i) the “complex considerations and
judgments” undertaken by J.P. Morgan, and how these affected its selection of the Company’s multiple reference range of 8.0x to
10.0x for FV/LTM EBITDA; and (ii) the inputs and assumptions used by J.P. Morgan to calculate the FV/LTM EBITDA of the
selected transactions.
32
(c) With respect to the Discounted Cash Flow Analysis, the 14D-9 fails to disclose: (i) the individual inputs and
assumptions that J.P. Morgan used for the selection of discount rates of 10.5% to 12.5%; (ii) the individual inputs and
assumptions that J.P. Morgan used for the selection of perpetual growth rates of 1.5% to 2.5%, as well as the justification
for using a range that includes rates below the expected rate of inflation; (iii) the implied terminal pricing multiples
corresponding to the assumed perpetuity growth raters; and (iv) how stock-based compensation was treated in the
calculation of unlevered free cash flow.
76. As a result of the Individual Defendants’ breaches of their fiduciary duties, Plaintiff and the Class will suffer irreparable
injury in that they have not and will not receive their fair portion of the value of GrafTech’s assets and business and will be prevented
from obtaining the intrinsic value of their equity ownership of the Company.
77. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to Plaintiff and
the Class, and may consummate the Proposed Transaction, to the irreparable harm of the Class.
78. Plaintiff and the other members of the Class are immediately threatened by the wrongs complained of herein, and lack an
adequate remedy at law.
33
COUNT I
(Breach of Fiduciary Duties against the Individual Defendants)
79. Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
80. As members of the Company’s Board, the Individual Defendants have fiduciary obligations to: (a) undertake an appropriate
evaluation of GrafTech’s net worth as a merger/acquisition candidate; (b) take all appropriate steps to enhance GrafTech’s value and
attractiveness as a merger/acquisition candidate; (c) act independently to protect the interests of the Company’s public stockholders;
(d) adequately ensure that no conflicts of interest exist between the Individual Defendants’ own interests and their fiduciary
obligations, and, if such conflicts exist, to ensure that all conflicts are resolved in the best interests of GrafTech’s public stockholders;
(e) actively evaluate the Proposed Transaction and engage in a meaningful auction with third parties in an attempt to obtain the best
value on any sale of GrafTech; and (f) disclose all material information to the Company’s stockholders.
81. The Individual Defendants have breached their fiduciary duties to Plaintiff and the Class.
34
82. As alleged herein, the Individual Defendants have initiated a process to sell GrafTech that undervalues the Company. In
addition, by agreeing to the Proposed Transaction, the Individual Defendants have capped the price of GrafTech at a price that
does not adequately reflect the Company’s true value. The Individual Defendants also failed to sufficiently inform themselves of
GrafTech’s value, or disregarded the true value of the Company. Furthermore, any alternate acquiror will be faced with engaging
in discussions with a management team and Board that are committed to the Proposed Transaction. The Individual Defendants
further breached their fiduciary duties to the Company’s public stockholders by failing to provide all material information
necessary for them to make an informed decision whether to tender their shares in the Tender Offer or seek appraisal if the
Proposed Transaction is consummated.
83. As such, unless the Individual Defendants’ conduct is enjoined by the Court, they will continue to breach their fiduciary
duties to Plaintiff and the other members of the Class, and will further a process that inhibits the maximization of stockholder value.
84. Plaintiff and the members of the Class have no adequate remedy at law.
COUNT II
(Aiding and Abetting the Board’s Breaches of Fiduciary Duties Against Brookfield)
85. Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
35
86. Defendant Brookfield knowingly assisted the Individual Defendants’ breaches of fiduciary duties in connection with
the Proposed Transaction, which, without such aid, would not have occurred. In connection with discussions regarding the
Proposed Transaction, Brookfield obtained sensitive non-public information concerning GrafTech and thus had unfair
advantages that are enabling it to pursue the Proposed Transaction, which offers unfair and inadequate consideration.
87. As a result of this conduct, Plaintiff and the other members of the Class have been and will be damaged in that they have
been and will be prevented from obtaining fair consideration for their GrafTech shares.
88. Plaintiff and the members of the Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment as follows:
A. Certifying this case as a class action, and certifying Plaintiff and his chosen counsel as Class representatives;
B. Enjoining Defendants and all those acting in concert with them from consummating the Tender Offer and/or the Proposed
Transaction;
C. To the extent that the Proposed Transaction is consummated before this Court’s entry of final judgment, awarding rescissory
damages;
36
D. Directing Defendants to account to Plaintiff and the Class for all damages suffered by them as a result of Defendants’
wrongful conduct;
E. Awarding Plaintiff the costs, expenses, and disbursements of this action, including all reasonable attorneys’ and experts’ fees
and expenses; and
F. Awarding Plaintiff and the Class such other relief as this Court deems is just, equitable, and proper.
Dated: June 15, 2015
RIGRODSKY & LONG, P.A.
By: /s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
OF COUNSEL:
WEISSLAW LLP
Richard A. Acocelli
Michael A. Rogovin
Kelly C. Keenan
1500 Broadway, 16th Floor
New York, NY 10036
(212) 682-3025
Attorneys for Plaintiff
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EFiled: Jun 15 2015 05:50PM EDT
Transaction ID 57404820
Case No. 11148-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ABRAHAM GRINBERGER, On Behalf
of Himself and All Others Similarly
Situated,
Plaintiff,
v.
GRAFTECH INTERNATIONAL LTD.,
RANDY W. CARSON, THOMAS A.
DANJCZEK, KAREN L. FINERMAN,
JOEL L. HAWTHORNE, DAVID R.
JARDINI, NATHAN MILIKOWSKY, M.
CATHERINE MORRIS, BROOKFIELD
ASSET MANAGEMENT, INC.,
BROOKFIELD CAPITAL PARTNERS
LTD., BCP IV GRAFTECH HOLDINGS
LP, and ATHENA ACQUISITION
SUBSIDIARY INC.,
Defendants.
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Civil Action No.
AFFIDAVIT AND VERIFICATION OF ABRAHAM GRINBERGER
PURSUANT TO COURT OF CHANCERY RULES 23(aa) AND 3(aa)
STATE OF NEW JERSEY
COUNTY OF OCEAN
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ss.:
I, ABRAHAM GRINBERGER, duly affirm and hereby state as follows:
1. My name is Abraham Grinberger. I make this Affidavit and Verification pursuant to Court of Chancery Rules 23(aa) and
3(aa) in connection with the filing of a Verified Class Action Complaint (the “Complaint”) in the above-captioned action.
2. I currently hold shares of GrafTech International Ltd. and have held such shares continuously throughout the wrongs
alleged in the Complaint.
3. I have retained the law firm of WeissLaw LLP in connection with this litigation. I have reviewed and authorized the filing of
the Complaint against the defendants in this action. I am familiar with the allegations of the Complaint.
4. I verify that I have reviewed the foregoing Complaint and that the allegations as to myself and my own actions are true and
correct and all other allegations upon information and belief are true and correct.
5. Neither myself, nor anyone else affiliated with myself, has received, been promised or offered, and will not accept any form
of compensation, directly or indirectly, for prosecuting or serving as a representative party in this action except for (i) such damages or
other relief as the Court may award me as a member of the Class; (ii) such fees, costs or other payments as the Court expressly
approves to be paid to or on my behalf; or (iii) reimbursement, paid by my attorneys, of actual and reasonable out-of-pocket expenses
incurred by myself directly in connection with prosecution of this action.
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I make this Affidavit and Verification under penalty of perjury that the foregoing is true and correct.
Executed this 14 day of June, 2015.
/s/ Abraham Grinberger
Abraham Grinberger
AFFIRMED TO AND SUBSCRIBED
before me this 14 day of June, 2015.
Notary Public
My Commission Expires:
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EFiled: Jun 15 2015 05:50PM EDT
Transaction ID 57404820
Case No. 11148-
June 15, 2015
VIA LEXISNEXIS FILE & SERVEXPRESS
Register In Chancery
New Castle County Courthouse
500 North King Street
Wilmington, DE 19801
Re:Grinberger v. GrafTech International Ltd., C.A. No. Unassigned
Dear Sir/Madam:
I write on behalf of plaintiff in the above-captioned action to respectfully request that the Register in Chancery issue summonses
for the parties listed below via special process server, DLS Discovery LLC, pursuant to Court of Chancery Rule 4(c).
GrafTech International Ltd.
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Randy Carson
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Register in Chancery
June 15, 2015
Page 2
Thomas A. Danjczek
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Karen Finerman
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Joel L. Hawthorne
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
David R. Jardini
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Nathan Milikowsky
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
M. Catherine Morris
c/o GrafTech International Ltd.
(Pursuant to 10 Del. C. § 3114)
c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Brookfield Asset Management Inc.
c/o National Corporate Research
615 S. Dupont Highway
Dover, DE 19901
BCP IV GrafTech Holdings LP
c/o Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
Athena Acquisition Subsidiary Inc.
c/o Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
Register in Chancery
June 15, 2015
Page 3
Thank you for your assistance. If you require any additional information, please do not hesitate to call.
Respectfully,
/s/ Brian D. Long
Brian D. Long (#4347)
BDL/ac
EFiled: Jun 15 2015 05:50PM EDT
Transaction ID 57404820
Case No. 11148-
SUPPLEMENTAL INFORMATION PURSUANT TO RULE 3(A)
OF THE RULES OF THE COURT OF CHANCERY
The information contained herein is for the use by the Court for statistical and administrative purposes only. Nothing stated
herein shall be deemed an admission by or binding upon any party.
1. Caption of Case: Abraham Grinberger, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. GrafTech International
Ltd., Randy Carson, Thomas A. Danjczek, Karen Finerman, Joel L. Hawthorne, David R. Jardini, Nathan Milikowsky, M. Catherine
Morris, Brookfield Asset Management, Inc., Brookfield Capital Partners Ltd., BCP IV GrafTech Holdings LP, and Athena
Acquisition Subsidiary Inc., Defendants.
2. Date Filed: June 15, 2015
3. Name and address of counsel for plaintiff(s): Seth D. Rigrodsky (#3147), Brian D. Long (#4347), Gina M. Serra (#5387), Jeremy J.
Riley (#5791), Rigrodsky & Long, P.A., 2 Righter Parkway, Suite 120, Wilmington, DE 19803, (302) 295-5310
4. Short statement and nature of claim asserted: Stockholder class action for breach of fiduciary duties
5. Substantive field of law involved (check one):
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Administrative law
Commercial law
Constitutional law
Corporation law
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Trade secrets/trade mark/or other intellectual property
Labor law
Real Property
348 Deed Restriction
Zoning
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Trusts, Wills and Estates
Consent trust petitions
Partition
Rapid Arbitration (Rules 96,97)
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Other
6. Related cases, including any Register of Wills matters (this requires copies of all documents in this matter to be filed with the
Register of Wills): C.A. No. 11086-VCL; C.A. No. 11096-VCL; C.A. No. 11125-VCL
7. Basis of court’s jurisdiction (including the citation of any statute(s) conferring jurisdiction):
10 Del. C. §3114; 10 Del. C. §341
8. If the complaint seeks preliminary equitable relief, state the specific preliminary relief sought.
9. If the complaint seeks a TRO, summary proceedings, a Preliminary Injunction, or Expedited Proceedings, check here. (If #9 is
checked, a Motion to Expedite must accompany the transaction.)
10. If the complaint is one that in the opinion of counsel should not be assigned to a Master in the first instance, check here and attach
a statement of good cause. 
/s/ Brian D. Long (#4347)
Signature of Attorney of Record & Bar ID
STATEMENT OF GOOD CAUSE
This proceeding is brought under Rule 23 of the Rules of the Court of Chancery. It is the opinion of counsel for plaintiff,
Abraham Grinberger, that this action should not be assigned to a Master in the first instance. This action may require the immediate
attention of the Court and may require expedited proceedings and, therefore, should proceed directly before the Chancellor or a Vice
Chancellor.
Dated: June 15, 2015
RIGRODSKY & LONG, P.A.
By: /s/ Brian D. Long
Seth D. Rigrodsky (#3147)
Brian D. Long (#4347)
Gina M. Serra (#5387)
Jeremy J. Riley (#5791)
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
Attorneys for Plaintiff