Item 1.01 Entry Into A Material Definitive
Agreement.
Agreement and Plan of Merger
On February 12, 2022,
Zurn Water Solutions Corporation (“Zurn” or the “Company”) entered into a definitive agreement to combine with
Elkay Manufacturing Company (“Elkay”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by
and among Zurn, Elkay, Zebra Merger Sub, Inc., a wholly-owned subsidiary of Zurn (“Merger Sub”), and Elkay Interior Systems
International, Inc., as representative of the stockholders of Elkay. The Merger Agreement provides that among other matters, and
subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Elkay would merge with Merger Sub, with Elkay
surviving as a wholly-owned subsidiary of Zurn (the “Merger”). Capitalized terms used but not defined herein are as defined
in the Merger Agreement.
Pursuant to the terms and
subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), Zurn
will exchange up to 52.5 million newly issued shares of Zurn common stock (the “Merger Consideration”) for 100% of the outstanding
equity of Elkay. Upon completion of the Merger, the former Elkay stockholders are expected to own approximately 29% of Zurn common stock
on a fully diluted basis.
Zurn and Elkay agreed to
customary representations, warranties and covenants in the Merger Agreement, including covenants relating to obtaining the requisite
approvals of the respective stockholders of Zurn and Elkay. The Merger Agreement also contains customary indemnification obligations
for certain matters, which in the case of indemnification of Zurn are the subject of customary escrow arrangements with respect to
shares otherwise issuable by Zurn to the Elkay stockholders at the Effective Time.
The closing of the
Merger is subject to customary conditions, including, among others, the absence of Laws or Orders by a Governmental Authority of
competent jurisdiction enjoining or prohibiting the consummation of the transactions contemplated by the Merger Agreement; the
expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (“HSR”); the required approvals by the respective stockholders of Zurn and Elkay; the Registration Statement (as
defined below) having become effective in accordance with the provisions of the Securities Act of 1933, as amended (the
“Securities Act”), and not being subject to any stop order suspending the Registration Statement; the shares of Zurn
common stock to be issued in the Merger being approved for listing on the New York Stock Exchange as of the closing; the accuracy of
the parties’ representations and warranties contained in the Merger Agreement (subject to certain materiality qualifications);
the parties’ compliance with the covenants and agreements in the Merger Agreement in all material respects; and the absence of
any material adverse effect on Zurn or Elkay. The Merger is expected to close in the third quarter of 2022.
Pursuant to the Merger Agreement, Elkay may not solicit or engage in negotiations with respect to alternative transaction
proposals. Additionally, Zurn’s board may not change its recommendation to Zurn’s stockholders to approve the issuance of
the Merger Consideration unless, prior to obtaining Zurn’s required stockholder approval, Zurn’s board of directors determines
in good faith (after consultation with its outside legal counsel and a financial advisor of nationally recognized reputation) that the
failure to do so would be inconsistent with its fiduciary duties under applicable law, subject to the terms and conditions of the Merger
Agreement.
The Merger Agreement
contains certain customary termination rights, including, among others: the right of either party to terminate the Merger Agreement
with mutual written consent; the right of either party to terminate the Merger Agreement if Zurn’s stockholders fail to
approve the issuance of Zurn common stock in the Merger; the right of Zurn to terminate the Merger Agreement if Elkay does not
deliver its required stockholder vote by 8:00 p.m. central time on the second business day after the date the Registration Statement
is declared effective; the right of either party to terminate the Merger Agreement due to a material breach by the other party of
any of its representations, warranties or covenants (which, if capable of being cured, is not cured within 30 days after written notice of such breach) which
would result in the closing conditions not being satisfied; the right of either party to terminate the Merger Agreement if the
Merger has not occurred by November 14, 2022, with an extension of three months if the parties are awaiting approval under HSR;
and the right of either party to terminate the Merger Agreement if the Merger or any of the other transactions contemplated by the
Merger Agreement is permanently enjoined or prohibited by the terms of a final, non-appealable governmental order. The Merger
Agreement further provides that, upon termination of the Merger Agreement under specified circumstances relating to a change in the
recommendation of Zurn’s board of directors (the “Board”), Zurn may be required to pay Elkay a termination fee of
$50.0 million.
The Merger Agreement provides
for Zurn to call a meeting of stockholders to vote on the issuance of shares of Zurn common stock pursuant to the Merger. In connection
with the Merger, Zurn will prepare and file a registration statement on Form S-4 (the “Registration Statement”), in which
a proxy statement will be included as a proxy statement/prospectus (the “Proxy Statement”), to register the Zurn common stock
to be issued to Elkay stockholders in connection with the Merger and solicit the approval of Zurn’s stockholders of the issuance
of Zurn common stock in connection with the Merger, pursuant to the rules and regulations of the New York Stock Exchange. Elkay will
also solicit written consents from its stockholders to adopt
the Merger Agreement and approve the transactions contemplated thereby.
Concurrently with the closing
of the Merger, Zurn will appoint two Elkay representatives to the Board. The name of the combined company will be Zurn Elkay Water Solutions
Corporation. Todd Adams will continue to be Chair of the Board and Chief Executive Officer of Zurn, Craig Wehr will continue to lead the
Zurn business and Ted Hamilton will continue to lead the Elkay business. Zurn has also committed, subject to fiduciary duties, to increase
its dividend for one year following the closing of the Merger.
Concurrently with the
closing of the Merger, Zurn and certain stockholders of Elkay will enter into a Registration Rights Agreement, substantially in the
form attached to the Merger Agreement (the “Registration Rights Agreement”), pursuant to which Zurn will grant such
stockholders a right to demand registration of one public offering within the first three years of closing, subject to certain
minimum and maximum thresholds and other customary conditions. Zurn will pay certain expenses of the parties incurred in connection
with the exercise of their rights under the Registration Rights Agreement, and indemnify them for certain securities law matters in
connection with any registration statement.
The foregoing description
of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement,
which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Merger Agreement
has been attached to this Current Report on Form 8-K to provide investors with information regarding its terms. The Merger Agreement
is not intended to provide any other factual information about Zurn, Elkay or any of their respective subsidiaries or affiliates. The
representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement as of
the specific dates set forth therein, were solely for the benefit of the parties to the Merger Agreement, may be subject to important
qualifications and limitations agreed upon by the parties for the purposes of allocating contractual risk among such parties to the Merger
Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to such contracting
parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or
any descriptions thereof as characterizations of the actual state of facts or condition of the parties to the Merger Agreement or any
of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties
may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in Zurn’s public
disclosures.
Board Observer Agreement
Concurrently with the
execution and delivery of the Merger Agreement, Zurn entered into a Board Observer Agreement (the “Board Observer
Agreement”) with Ronald Katz. The Board Observer Agreement provides that Mr. Katz will have the right to attend and
observe meetings of the Board, subject to certain exceptions. Mr. Katz’s rights under the Board Observer Agreement will
terminate upon the earliest of (i) at any time following the first anniversary of the Closing Mr. Katz, together with
certain affiliates and related parties of Mr. Katz, no longer beneficially owning at least 5% of the shares of Zurn received by them
in connection with the closing of Merger, (ii) Mr. Katz resigning in writing, or (iii) Mr. Katz’s death or
disability.
The foregoing description
of the Board Observer Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the
Board Observer Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference
herein.
Support Agreement
Following the execution and
delivery of the Merger Agreement, but prior to the date hereof, Zurn entered into Support Agreements (the “Support Agreements”)
with certain stockholders of Elkay (the “Support Stockholders”), solely in their respective capacities as Elkay stockholders.
The Support Stockholders, together with their affiliated entities, beneficially own an aggregate of approximately 73% of the Elkay shares
entitled to vote on the Merger. On the terms and subject to the conditions set forth in the Support Agreements, each Support Stockholder
has agreed to vote all of its respective shares of outstanding stock of Elkay in favor of the adoption of the Merger Agreement and the
transactions contemplated thereby, and against any competing acquisition proposal.
The foregoing description of the Support Agreement
does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Support Agreement, which
is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated by reference herein.
Standstill and Lock-Up Agreement
Concurrently with the execution
and delivery of the Merger Agreement, certain stockholders of Elkay have entered into a Standstill and Lock-Up Agreement (the “Standstill
Agreement”). Pursuant to the Standstill Agreement, each of certain stockholders of Elkay agreed, for a period of 18 months from
the closing of the Merger, not to sell or transfer their shares of Zurn common stock, subject to certain exceptions. Such stockholders
have also agreed, for a period of five years from the closing of the Merger, not to take certain actions with respect to potential change
of control or related transactions or activities with respect to Zurn. Such stockholders, together with their affiliated entities, own
an aggregate of approximately 76% of the Elkay shares being acquired in the merger.
The foregoing description
of the Standstill Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form
of Standstill Agreement, which is filed as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated by reference
herein.