Presstek merger details revealed in proxy

Presstek Inc.'s top three executives could be paid a total of $3.2 million in severance if the proposed sale of the printing equipment manufacturer to the American Industrial Partners (AIP) private equity firm is completed, according to the preliminary version of a proxy that will eventually be sent to shareholders for their approval.

The 50-cent-a-share deal – with an equity value of $18.7 million — would mean the end of Presstek as a public company, but neither the merger agreement nor the proxy spells out what will happen to the workforce at the Greenwich, Conn.-based company's biggest facility in Hudson, N.H.

But negotiators for the company did try to include the top executives' continued employment as part of a deal with the private equity firm. That condition – later nixed by the Presstek board of directors – might have held up the deal at a time when the company's value was declining.

Presstek officials shopped around the company in early 2011, after it became clear that the company would be unlikely to produce a profit, given the downturn of the economy in general and the printing industry in particular, according to the preliminary proxy.

According to that proxy, in June 2011, the company hired Savvian Advisors LLC to help it on its quest, but as the company continued to search, its losses continued, revenue declined, top executives quit, the stock price declined, and it faced imminent delisting or a reverse stock split.

During the next year and quarter, Savvian reached out to some 54 firms, including 31 strategic companies and 23 financial advisers. Presstek made presentations to 11 firms, and five showed some interest, but that interest lessened as the company's situation deteriorated. Only two serious bids were made.

In May 2012, one private equity firm – not identified by Presstek — originally made a proposal of 77 cents a share, subject to due diligence. But a week later, Savvian noted to the Presstek board that the deal did not include "payments to certain executives in the event that their employment was terminated." The board instructed Savvian to get the equity firm to clarify its offer.

On June 8, the firm revised its offer downward to 67 cents (when Presstek's share price was 51 cents), but that deal included as a "key assumption " the retention of Presstek CEO Stanley E. Freimuth and chief financial officer Arnon Dror. But the unnamed equity firm said that it would reduce its offer by the value of any severance payments if the two executives were not retained and their terms of employment became part of the negotiations. By the end of June, the firm said it would withdraw from the process.

That left AIP, with its offer of 50 cents per share. On July 16, the two companies hammered out a proposal that included both a condition that management remain with the company and a $1.5 million termination fee, if Presstek got a better offer. But the board dropped the retention requirement three days later, according to the preliminary proxy.

Final details were approved and released on Aug. 22, after Peter Kellogg, the largest stockholder, signed on to the deal, the preliminary proxy said. That means that 25 percent of outstanding shares were pledged to the merger.

However, Presstek still needs a majority of outstanding shares to approve the deal before it can go forward. Shareholders who abstain or don't bother to vote will effectively be casting a vote against the merger. The proxy did not disclose when the vote will take place.

If there is no majority, the company could call for another vote at a special meeting.

Under the final deal, CEO Freimuth would get $1.35 million in severance and can cash in $500,000 in options. CFO Dror would receive $450,000 in severance and general counsel James Van Horn will get $879,000 in severance.

In addition, Savvian would receive an additional $1 million if the merger is completed.

The executives and the adviser will also be indemnified against litigation. On Sept. 12, a class action suit was filed in a Connecticut court, alleging that the board shortchanged stockholders for selling the company too cheaply.

Savvian recommends the merger for a number of reasons, the most prominent being that the 50-cent sale price represents a 16.3 percent premium compared to the company's closing price on Aug. 22, the last trading day before the deal was announced, and a 13.6 percent premium compared to the previous 30-day average.

However, the preliminary proxy noted that the price represents an 82 percent discount compared to the stock's two-year high. On March 10, 2011 – about the time the executives were starting to shop the company – Presstek stock was selling for $2.73 a share.


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