Table of Contents

As filed with the Securities and Exchange Commission on June 12, 2013

Registration No. 333-188182

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Integrated Electrical Services, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		1731		76-0542208
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

5433 Westheimer Road, Suite 500

Houston, Texas 77056

(713) 860-1500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Gail Makode

Senior Vice President, General Counsel and Secretary

5433 Westheimer Road, Suite 500

Houston, Texas 77056

(713) 860-1500

(Name, address, including zip code, and telephone number, including area code of agent for service)

 

 

Copies to:

 

G. Michael O’Leary George Vlahakos Andrews Kurth LLP 600 Travis, Suite 4200 Houston, Texas 77002 (713) 220-4200		Michael P. Moore MISCOR Group, Ltd. Chief Executive Officer and President 800 Nave Road, SE Massillon, Ohio 44646 (330) 830-3500		Molly Z. Brown Sean T. Peppard Ulmer & Berne LLP 1660 West 2nd Street, Suite 1100 Cleveland, Ohio 44113 (216) 583-7240

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to closing of the proposed merger described herein.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

---

Table of Contents

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x  (Do not check if a smaller reporting company)		Smaller reporting company		¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered(3)		Proposed maximum offering price per share		Proposed maximum aggregate offering price(4)		Amount of registration fee(5)
Common Stock, par value $0.01 per share(1)		2,943,767		N/A		$12,308,594		$1,679
Preferred Stock Purchase Rights(1)(2)		2,943,767		N/A		N/A		$0

(1)	Each share of common stock includes one preferred stock purchase right.

(2)	No separate consideration is payable for the preferred stock purchase right. The registration fee for these securities is included in the fee for common stock.

(3)

Represents the maximum number of shares of common stock of Integrated Electrical Services, Inc. issuable upon completion of the merger described herein, based on (x) 11,775,066 shares of MISCOR Group, Ltd. (“MISCOR”) common stock, which is the maximum possible number of shares of MISCOR common stock that may be canceled and exchanged in the merger, multiplied by (y) an exchange ratio of 0.250, as described, and based on the assumptions set forth, in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-1 of the Form S-4 registration statement (File No. 333-188182) filed with the Securities and Exchange Commission on April 26, 2013.

(4)

Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act and calculated pursuant to Rule 457(f)(1) and (f)(3) and 457(c) of the Securities Act. The proposed maximum aggregate offering price of the registrant’s common stock was calculated based upon the market value of shares of MISCOR common stock (the securities to be canceled in the merger) in accordance with Rule 457(c) under the Securities Act as follows: (i) the product of (x) $1.42, the average of the high and low sales price per share of MISCOR common stock as reported on the OTCQB on April 19, 2013, and (y) 11,775,066, the maximum possible number of shares of MISCOR common stock that may be canceled and exchanged in the merger, less (ii) the estimated amount of cash of $4.412 million that would be paid by IES in exchange for such maximum possible number of shares of MISCOR common stock, as described, and based on the assumptions set forth, in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-1 of the Form S-4 registration statement (File No. 333-188182) filed with the Securities and Exchange Commission on April 26, 2013. See Note 3 to the “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page F-2 of this registration statement for a sensitivity analysis related to the potential consideration that may be received by MISCOR shareholders in the merger.

(5)	Registration fee previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

---

Table of Contents

The information in this joint proxy statement/prospectus is not complete and may be changed. Integrated Electrical Services, Inc. may not distribute or issue the shares of Integrated Electrical Services Inc. common stock being registered pursuant to this registration statement until the registration statement filed with the Securities and Exchange Commission, of which this joint proxy statement/prospectus is a part, is effective. This joint proxy statement/prospectus is not an offer to distribute these securities and Integrated Electrical Services, Inc. is not soliciting offers to receive these securities in any state where such offer or distribution is not permitted.

 

SUBJECT TO COMPLETION, DATED JUNE 12, 2013

 

PROPOSED MERGER—YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Integrated Electrical Services, Inc. and the Shareholders of MISCOR Group, Ltd.:

On March 13, 2013, Integrated Electrical Services, Inc. (“IES”) and MISCOR Group, Ltd. (“MISCOR”) entered into an Agreement and Plan of Merger, providing for the acquisition of MISCOR by IES. Pursuant to the merger agreement, IES and MISCOR agreed that, subject to the satisfaction of certain closing conditions (including the approvals by each company’s stockholders), MISCOR will merge with and into IES Subsidiary Holdings, Inc., a wholly-owned subsidiary of IES (“Merger Sub”), with Merger Sub surviving the merger as a direct, wholly-owned subsidiary of IES.

The merger agreement provides that at the effective time of the merger, each outstanding share of MISCOR common stock (other than shares held by MISCOR shareholders who do not vote in favor of the adoption of the merger agreement and who are entitled to and properly demand appraisal rights in accordance with Indiana law and shares to be canceled pursuant to the terms of the merger agreement) will be converted into the right to receive merger consideration comprised of, at the election of the holder, either: (1) a per share dollar amount, which amount shall not be less than $1.415 (the “Cash Consideration”), equal to the quotient obtained by dividing (x) the difference between $24.0 million and the amount of MISCOR’s Net Debt (as defined in the merger agreement) and (y) the number of shares of MISCOR common stock outstanding as of the fifteenth business day prior to the closing date, including shares issuable upon the exercise of outstanding options and warrants; or (2) a number of shares of IES common stock (the “Stock Consideration”) equal to a fraction (the “Exchange Ratio”), the numerator of which is the Cash Consideration and the denominator of which is the volume-weighted average of the sale prices per share of IES common stock (the “VWAP”) for the 60 consecutive trading days ending with the fifteenth business day prior to the closing date (the “IES Common Stock Value”); provided, however, that if the IES Common Stock Value is less than $4.024 per share or greater than $6.036 per share, then the IES Common Stock Value will be $4.024 per share or $6.036 per share, respectively.

MISCOR shareholders have the right to elect to receive all Cash Consideration, all Stock Consideration or a mix of Cash Consideration and Stock Consideration; provided, however, that the aggregate Cash Consideration to be paid in connection with the merger shall not exceed a threshold, as described in the merger agreement (the “Maximum Cash Amount”), equal to the product obtained by multiplying (x) the Cash Consideration by (y) 50% of the number of shares of MISCOR common stock outstanding immediately prior to the effective time of the merger. Based on the estimates and assumptions described in the joint proxy statement/prospectus, IES and MISCOR do not anticipate reaching the Maximum Cash Amount. As such, IES and MISCOR do not expect that any MISCOR shareholder electing to receive Cash Consideration will receive Stock Consideration in lieu of Cash Consideration.

The IES board of directors has determined that the merger is advisable and in the best interests of IES and its stockholders and recommends that the stockholders of IES approve the issuance of shares of IES common stock in the merger. No stockholder vote is required for Merger Sub to adopt the merger agreement and consummate the transactions contemplated thereby, other than the vote of IES acting as the sole stockholder of Merger Sub.

The MISCOR board of directors has determined that the merger and the merger agreement are in the best interests of MISCOR and its shareholders. The board of directors of MISCOR recommends that MISCOR shareholders approve the adoption of the merger agreement and the “golden parachute” compensation proposal.

Your vote is very important. We cannot complete the transaction unless, among other things, the holders of IES common stock vote to approve the issuance of shares of IES common stock in the merger and the holders of

---

Table of Contents

MISCOR common stock vote to adopt the merger agreement. Each of IES and MISCOR will hold a special meeting of stockholders to vote on proposals related to the merger. The special meetings of stockholders will be held at the date, time and location set forth below. Regardless of whether you plan to attend your company’s special meeting, please take the time to submit your proxy by completing and mailing the enclosed proxy card or, in the case of MISCOR, by using the telephone or Internet procedures provided to you. If your shares of IES common stock or MISCOR common stock are held in “street name,” you must instruct your broker how to vote those shares.

 

For IES stockholders:		For MISCOR shareholders:
, 2013 at 9:00 a.m. Central Time at the IES corporate office located at 5433 Westheimer Road, Suite 500, Houston, Texas 77056.		, 2013 at 10:00 a.m. Eastern Daylight Time at the MISCOR corporate office located at 800 Nave Road, SE, Massillon, Ohio 44646.
The IES board of directors recommends that IES stockholders vote FOR the issuance of shares of IES common stock in the merger.		The MISCOR board of directors recommends that MISCOR shareholders vote FOR the adoption of the merger agreement.

Before casting your vote, please take the time to review carefully this joint proxy statement/prospectus, including the section entitled “Risk Factors” beginning on page [—] for a discussion of the risks relating to the merger.

Shares of IES common stock trade on the NASDAQ Global Select Market under the symbol “IESC.” Shares of MISCOR common stock trade on the OTCQB under the symbol “MIGL.”

Sincerely,

 

James M. Lindstrom		Michael P. Moore
Chairman of the Board of Directors, President and Chief Executive Officer		Chief Executive Officer and President MISCOR Group, Ltd.
Integrated Electrical Services, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated             , 2013, and is first being mailed to IES stockholders and MISCOR shareholders on or about             , 2013.

---

Table of Contents

INTEGRATED ELECTRICAL SERVICES, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on             , 2013

Notice is hereby given that a special meeting of the stockholders of Integrated Electrical Services, Inc., a Delaware corporation (“IES”), will be held on             , 2013, at 9:00 a.m., Central Time, at the IES corporate office located at 5433 Westheimer Road, Suite 500, Houston, Texas 77056 (the “IES Meeting”) for the following purposes:

 

1.

to approve the issuance of shares of IES common stock to the shareholders of MISCOR Group, Ltd. (“MISCOR”) in connection with the merger of MISCOR with and into IES Subsidiary Holdings, Inc., a wholly-owned subsidiary of IES (“Merger Sub”), with Merger Sub surviving the merger as a direct, wholly-owned subsidiary of IES, as set forth in the Agreement and Plan of Merger, dated as of March 13, 2013, by and among IES, MISCOR and Merger Sub, a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice;

 

2.

to approve the adjournment or postponement of the IES Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposal; and

 

3.

to transact any other business as may properly come before the IES Meeting or any adjournments or postponements thereof.

Attached to this notice is a joint proxy statement/prospectus setting forth information with respect to these proposals and certain other information. Pursuant to the registration statement, of which the joint proxy statement/prospectus forms part, IES is registering 2,943,767 shares of IES common stock together with the associated preferred stock purchase rights that may be issued to MISCOR shareholders in connection with the merger.

The IES board of directors has fixed the close of business on            , 2013 as the record date for the determination of stockholders entitled to notice of and to vote at the IES Meeting or any adjournment or postponement thereof. Only holders of record of IES common stock at the close of business on the record date are entitled to notice of and to vote at the IES Meeting.

The IES board of directors recommends that you vote FOR the issuance of shares of IES common stock in the merger and FOR the adjournment or postponement of the IES Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies. In considering the recommendation of the IES board of directors, you should be aware that certain directors of IES have personal interests that may motivate them to support the merger.

Your vote is important. Regardless of whether you plan to attend the IES Meeting, please sign, date and return the enclosed proxy card as promptly as possible in the envelope provided, using the procedures in the voting instructions provided to you. Your proxy may be revoked at any time prior to the time it is voted at the IES Meeting.

By Order of the Board of Directors

 

James M. Lindstrom

Chairman of the Board of Directors, President and Chief Executive Officer

Houston, Texas

            , 2013

---

Table of Contents

MISCOR GROUP, LTD.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On             , 2013

Notice is hereby given that a special meeting of the shareholders of MISCOR Group, Ltd., an Indiana corporation (“MISCOR”), will be held on             , 2013, at 10:00 a.m., Eastern Daylight Time, at the MISCOR corporate office located at 800 Nave Road, SE, Massillon, Ohio 44646 (the “MISCOR Meeting”) for the following purposes:

 

1.

to adopt the Agreement and Plan of Merger, dated as of March 13, 2013, by and among Integrated Electrical Services, Inc. (“IES”), MISCOR and IES Subsidiary Holdings, Inc., a wholly-owned subsidiary of IES (“Merger Sub”), a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, pursuant to which MISCOR will merge with and into Merger Sub, with Merger Sub surviving the merger as a direct, wholly-owned subsidiary of IES;

 

2.

to approve on an advisory (non-binding) basis the “golden parachute” compensation that may be paid to MISCOR’s executive officers in connection with the merger (which is referred to as the “merger-related named executive officer compensation” proposal);

 

3.

to approve the adjournment or postponement of the MISCOR Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposals; and

 

4.

to transact any other business as may properly come before the MISCOR Meeting or any adjournments or postponements thereof.

Attached to this notice is a joint proxy statement/prospectus setting forth information with respect to these proposals and certain other information. Pursuant to the merger agreement, each MISCOR shareholder will have the right to elect to receive all cash consideration, all stock consideration or a mix of cash and stock consideration, subject to an aggregate maximum cash amount equal to approximately 50% of the total consideration to be received by MISCOR shareholders in the merger, or $8.7 million, based on certain estimates and assumptions described in the joint proxy statement/prospectus. While, based on the election indications received from MISCOR’s significant shareholders, it is not anticipated that the aggregate cash consideration will exceed the maximum cash amount, if the aggregate cash consideration were to exceed the maximum cash amount, MISCOR shareholders electing to receive cash consideration would receive stock consideration, in lieu of cash consideration, for a portion of their shares, based on a pro rata selection process described in the joint proxy statement/prospectus.

The MISCOR board of directors has fixed the close of business on             , 2013 as the record date for the determination of shareholders entitled to notice of and to vote at the MISCOR Meeting or any adjournment or postponement thereof. Only holders of record of MISCOR common stock at the close of business on the record date are entitled to notice of and to vote at the MISCOR Meeting or any adjournment or postponement thereof.

The MISCOR board of directors recommends that you vote FOR the adoption of the merger agreement, FOR the approval of the merger-related named executive officer compensation proposal and FOR the adjournment or postponement of the MISCOR Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies. In considering the recommendation of the MISCOR board of directors, you should be aware that certain directors and executive officers of MISCOR have interests in the transactions contemplated by the merger agreement that may be different from, or in addition to, the interests of MISCOR shareholders generally.

Your vote is important. Regardless of whether you plan to attend the MISCOR Meeting, please sign, date and return the enclosed proxy card as promptly as possible in the envelope provided or submit your proxy by telephone or via the Internet, using the procedures in the voting instructions provided to you. Your proxy may be revoked at any time prior to the time it is voted at the MISCOR Meeting.

 

						By Order of the Board of Directors
						Michael P. Moore
						President and Chief Executive Officer

Massillon, Ohio

            , 2013

---

Table of Contents

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about IES and MISCOR from other documents filed with the Securities and Exchange Commission (the “SEC”) that are not included or delivered with this proxy statement/prospectus. See “Where You Can Find More Information; Incorporation by Reference” beginning on page      for a detailed description of the documents incorporated by reference into this joint proxy statement/prospectus.

You can obtain any of the documents incorporated by reference into this joint proxy statement/prospectus without charge by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers.

 

Integrated Electrical Services, Inc. 5433 Westheimer Road, Suite 500 Houston, Texas 77056 Attention: Investor Relations Telephone number: (713) 860-1500 http://www.ies-corporate.com		MISCOR Group, Ltd. 800 Nave Road, SE Massillon, Ohio 44646 Attention: Investor Relations Telephone number: (330) 830-3500 http://www.miscor.com

To receive timely delivery of the requested documents in advance of the applicable special meeting, you should make your request no later than             , 2013.

You can also obtain free copies of the documents filed by the Company and MISCOR with the SEC at the SEC’s web site at www.sec.gov. You may also read and copy any reports, statements or other information filed with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit the SEC’s website for additional information on its public reference room.

Information contained on the IES and MISCOR websites and any other website is not incorporated by reference herein.

All information in this joint proxy statement/prospectus concerning IES has been furnished by IES. All information in this joint proxy statement/prospectus concerning MISCOR has been furnished by MISCOR. IES has represented to MISCOR, and MISCOR has represented to IES, that the information furnished by and concerning it is true and complete in all material respects.

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the SEC by IES (File No. 333-188182), constitutes a prospectus of IES under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of IES common stock to be issued to MISCOR shareholders in the merger pursuant to the merger agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (1) with respect to the IES Meeting, at which IES stockholders will be asked to consider and vote upon certain proposals, including a proposal to approve the issuance of shares of IES common stock in the merger and (2) with respect to the MISCOR Meeting, at which MISCOR shareholders will be asked to consider and vote upon certain proposals, including a proposal to adopt the merger agreement.

You should rely only on the information contained in or incorporated by reference into this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document.

---

Table of Contents

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS			1
SUMMARY			9
The Companies			9
The Merger			10
Risk Factors			10
Merger Consideration			11
Treatment of MISCOR Stock Options and Other Equity Awards			15
Recommendation of the IES Board of Directors			15
Recommendation of the MISCOR Board of Directors			15
Opinions of Financial Advisers			16
Ownership of IES After the Merger			17
Share Ownership of Directors and Executive Officers of IES			17
Share Ownership of Directors and Executive Officers of MISCOR			17
Interests of Directors, Executive Officers and Affiliates of MISCOR in the Merger			18
Listing of Shares of IES Common Stock; Removal and Deregistration of Shares of MISCOR Common Stock			20
Appraisal Rights in the Merger			20
Conditions to the Completion of the Merger			21
No Solicitation			22
Termination of the Merger Agreement			22
Termination Fees and Expenses			23
Tax Treatment of the Merger			24
Accounting Treatment			24
Payment of Dividends			25
Financing of the Merger			25
Comparison of Rights of IES Stockholders and MISCOR Shareholders			25
SPECIAL FACTORS			26
Background of the Merger			26
Recommendation of the MISCOR Board of Directors and Its Reasons for the Merger			43
Recommendation of the IES Board of Directors and Its Reasons for the Merger			49
Opinion of IES’ Financial Adviser			53
Opinion of MISCOR’s Financial Adviser			61
Interests of Directors and Executive Officers of MISCOR in the Merger			71
Golden Parachute Compensation			74
Relationship with Tontine			76
Regulatory Matters			80
Accounting Treatment			80
Listing of IES Common Stock			81
Deregistration of MISCOR Common Stock			81
Restrictions on Sales of Shares of IES Common Stock Received in the Merger			81
SELECTED HISTORICAL FINANCIAL INFORMATION OF IES			82
SELECTED HISTORICAL FINANCIAL INFORMATION OF MISCOR			84
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			86
UNAUDITED COMPARATIVE PER SHARE DATA			87
COMPARATIVE MARKET PRICE AND DIVIDEND DATA			89
Historical Market Prices			89
Dividends			90
Holders of IES Common Stock			91
Holders of MISCOR Common Stock			93

 

i

---

Table of Contents

RISK FACTORS			95
Risk Factors Relating to the Merger			95
Risk Factors Relating to IES Following the Merger			99
Risk Factors Relating to IES Common Stock Following the Merger			102
Risk Factors Relating to MISCOR’s Business and Operations			102
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS			104
THE IES MEETING			106
Date, Time, Place and Purposes of the IES Meeting			106
Who Can Vote at the IES Meeting			106
Votes Required for Approval			106
Quorum			107
Adjournments			107
Manner of Voting			107
Proxy Voting by Holders of Record			107
Voting of Shares Held in “Street Name”			108
How Proxies Will Be Voted			108
Revoking a Proxy			108
Solicitation of Proxies and Expenses			108
Questions About Voting or the IES Meeting			109
THE MISCOR MEETING			110
Date, Time, Place and Purposes of the MISCOR Meeting			110
Who Can Vote at the MISCOR Meeting			110
Votes Required for Approval			110
Quorum			111
Adjournments			111
Manner of Voting			111
Proxy Voting by Holders of Record			112
Voting of Shares Held in “Street Name”			112
How Proxies Will Be Voted			112
Revoking a Proxy			113
Tabulation of the Votes			113
Solicitation of Proxies and Expenses			113
Questions About Voting or the MISCOR Meeting			113
DESCRIPTION OF CAPITAL STOCK OF IES			114
General			114
Common Stock and Restricted Common Stock			114
Preferred Stock			114
Series A Junior Participating Preferred Stock			115
Statutory Business Combination Provision			118
Limitation on Directors’ Liability			118
Amended and Restated Certificate of Incorporation and Bylaw Provisions			119
Rights Agreement			120
Transfer Agent and Registrar			120
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER			121
THE MERGER AGREEMENT			125
Structure of the Merger			125
Effective Time of the Merger			125
Merger Consideration			125
Election Procedures			127
Conversion of Shares; Exchange of Certificates			128
Treatment of MISCOR Stock Options and Other Equity Awards			130
Representations and Warranties			130

 

ii

---

Table of Contents

Conditions to the Completion of the Merger			131
Covenants			133
Termination of the Merger Agreement and Termination Fees			138
Waiver			140
Amendment			140
APPRAISAL RIGHTS			141
FINANCING OF THE MERGER			144
COMPARISON OF RIGHTS OF IES STOCKHOLDERS AND MISCOR SHAREHOLDERS			145
Authorized Capital			145
Number and Election of Directors			145
Stockholders’ Meetings and Provisions for Notices			146
Voting by Stockholders			146
Amendment of Certificate of Incorporation			147
Amendment of Bylaws			147
Exchange Listing of Common Stock			147
BUSINESS OF IES			148
Net Operating Loss Carry Forward			148
Operating Segments			149
Discontinued Operations			151
Safety Culture			152
Risk Management and Insurance			152
Customers			152
Backlog			152
Seasonality and Quarterly Fluctuations			152
Regulations			153
Capital Facilities			153
Financing Information			153
Employees			153
Locations			153
Available Information			153
PROPERTY OF IES			154
IES LEGAL PROCEEDINGS			154
IES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			155
Executive Overview			155
Results of Operations for the Fiscal Years Ended September 30, 2012, 2011 and 2010			156
Results of Operations for the Three Months and Six Months Ended March 31, 2013 and March 31, 2012			163
Working Capital			172
Liquidity and Capital Resources			176
Controlling Shareholder			177
Off-Balance Sheet Arrangements and Contractual Obligations			178
IES QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			180
Commodity Risk			180
Interest Rate Risk			180
IES DIRECTORS			180
IES EXECUTIVE OFFICERS			182
IES BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD			183
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS OF IES			184
IES EXECUTIVE COMPENSATION			186
Compensation Discussion and Analysis			186
Tax Considerations			198

 

iii

---

Table of Contents

Payments Upon a Change in Control			198
Human Resources and Compensation Committee Report			198
2012 Summary Compensation Table			199
All Other Compensation			199
Grants of Plan Based Awards in Fiscal Year 2012			200
Outstanding Equity Awards at 2012 Fiscal Year End			200
Option Exercises and Stock Vested in Fiscal Year 2012			201
Nonqualified Deferred-Compensation			201
Severance and Employment Agreements			202
Director Compensation			206
BUSINESS OF MISCOR			208
Business Strategy			208
Employees			208
Segment Information			208
Segment Performance			209
PROPERTY OF MISCOR			213
MISCOR LEGAL PROCEEDINGS			214
MISCOR DIRECTORS AND EXECUTIVE OFFICERS			214
MISCOR MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION			216
Overview			216
Recent Developments			216
Financing Matters			217
Prior Financing Transactions Involving Tontine			218
Operating Results			218
Off-Balance Sheet Transactions			227
Critical Accounting Policies and Estimates			227
PROPOSALS BEING SUBMITTED TO A VOTE AT THE IES MEETING			230
Proposal No. 1: APPROVAL OF THE ISSUANCE OF SHARES OF IES COMMON STOCK IN THE MERGER			230
Proposal No. 2: APPROVAL OF THE ADJOURNMENT OR POSTPONEMENT OF THE IES MEETING			230
PROPOSALS BEING SUBMITTED TO A VOTE AT THE MISCOR MEETING			231
Proposal No. 1: ADOPTION OF THE MERGER AGREEMENT			231
Proposal No. 3: APPROVAL OF THE ADJOURNMENT OR POSTPONEMENT OF THE MISCOR MEETING			232
MERGER FEES AND EXPENSES			233
LEGAL MATTERS			233
EXPERTS			233
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE			233
IES Filings (File No. 001-13783)			234
MISCOR Filings (File No. 001-52380)			234
INDEX TO FINANCIAL STATEMENTS			F-1

 

Annex A—Agreement and Plan of Merger dated as of March 13, 2013
Annex B—Opinion of Stifel, Nicolaus & Company, Incorporated
Annex C—Opinion of Western Reserve Partners LLC
Annex D—Chapter 44 of the Indiana Business Corporation Law

 

iv

---

Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

Important Information and Risks: The following are brief answers to some questions that you may have regarding the IES Meeting and the MISCOR Meeting and the proposals being considered at the meetings. IES and MISCOR urge you to read and consider carefully the remainder of this joint proxy statement/prospectus, including the Risk Factors beginning on page     and the attached Annexes, because the information in this section does not provide all of the information that might be important to you. Additional important information and descriptions of risk factors are also contained in the documents incorporated by reference in this joint proxy statement/prospectus.

Your vote is very important. You are encouraged to submit a proxy as soon as possible.

 

Q:	Why am I receiving this joint proxy statement/prospectus?

 

A:

You are receiving this joint proxy statements/prospectus in connection with the proposed merger of MISCOR with and into Merger Sub, with Merger Sub surviving the merger as a direct, wholly-owned subsidiary of IES. The terms of the merger are governed by the Agreement and Plan of Merger, dated as of March 13, 2013, by and among IES, MISCOR and Merger Sub, a copy of which is attached as Annex A to this joint proxy statement/prospectus.

As a condition to completion of the merger, the IES stockholders and MISCOR shareholders must approve certain proposals related to the merger. At the IES Meeting, IES stockholders will be asked to approve the issuance of shares of IES common stock in the merger. At the MISCOR Meeting, MISCOR shareholders will be asked to adopt the merger agreement and the merger-related named executive compensation proposal.

 

Q:	When and where will the IES Meeting take place?

 

A:	The IES Meeting will be held on             , 2013 at 9:00 a.m., Central Time, at the IES corporate office located at 5433 Westheimer Road, Suite 500, Houston, Texas 77056.

 

Q:	When and where will the MISCOR Meeting take place?

 

A:	The MISCOR Meeting will be held on             , 2013 at 10:00 a.m., Eastern Daylight Time, at the MISCOR corporate office located at 800 Nave Road, SE, Massillon, Ohio 44646.

 

Q:	Who can attend and vote at the stockholders’ meetings?

 

A:	IES: The record date for the IES Meeting is             , 2013. All IES stockholders of record as of the close of business on             , 2013 are entitled to receive notice of and to vote at the IES Meeting.

MISCOR: The record date for the MISCOR Meeting is             , 2013. All MISCOR shareholders of record as of the close of business on             , 2013 are entitled to receive notice of and to vote at the MISCOR Meeting.

 

Q:	What proposals are to be considered and voted upon at the IES Meeting and the MISCOR Meeting?

 

A:	IES: IES stockholders are being asked to consider and vote on:

 

(1)

the issuance of shares of IES common stock in the merger, and

 

(2)

a proposal to approve the adjournment or postponement of the IES Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of IES common stock in the merger.

 

1

---

Table of Contents

These proposals are more fully described in the section “Proposals Being Submitted to a Vote of IES Stockholders at the IES Meeting,” beginning on page     .

MISCOR: MISCOR shareholders are being asked to consider and vote on:

 

(1)

the adoption of the merger agreement,

 

(2)

a proposal to approve on an advisory (non-binding) basis the merger-related named executive officer compensation to be paid to MISCOR’s executive officers in connection with the merger, and

 

(3)

a proposal to approve the adjournment or postponement of the MISCOR Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt the merger agreement.

These proposals are more fully described in the section “Proposals Being Submitted to a Vote of MISCOR shareholders at the MISCOR Meeting,” beginning on page     .

 

Q:	How does the IES board of directors recommend that IES stockholders vote?

 

A:

The IES board of directors recommends that IES stockholders vote FOR the issuance of shares of IES common stock in the merger. The IES board of directors also recommends that IES stockholders vote FOR the adjournment or postponement of the IES Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies. In considering the recommendation of the IES board of directors, you should be aware that certain directors of IES have personal interests that may motivate them to support the merger.

For a more complete description of the recommendations of the IES board of directors, see “The Merger—Recommendation of the IES Board of Directors and Its Reasons for the Merger,” beginning on page     .

 

Q:	How does the MISCOR board of directors recommend that MISCOR shareholders vote?

 

A:

The MISCOR board of directors unanimously recommends that MISCOR shareholders vote FOR the proposal to adopt the merger agreement and FOR the approval of the merger-related named executive officer compensation proposal. The MISCOR board of directors also recommends that MISCOR shareholders vote FOR the adjournment or postponement of the MISCOR Meeting to a later or date or dates, if necessary or appropriate, to solicit additional proxies. In considering the recommendation of the MISCOR board of directors, you should be aware that certain directors and executive officers of MISCOR have interests in the transactions contemplated by the merger agreement that may be different from, or in addition to, the interests of MISCOR shareholders generally.

For a more complete description of the recommendations of the MISCOR board of directors, see “The Merger—Recommendation of the MISCOR Board of Directors and Its Reasons for the Merger,” beginning on page     .

 

Q:	What are the votes required to approve each of the IES and MISCOR proposals related to the merger?

 

A:

IES: Under the NASDAQ listing rules, the issuance of shares of IES common stock in the merger must be approved by the affirmative vote of the holders of a majority of the votes cast at a meeting at which a majority of the outstanding shares of IES common stock as of the record date are present in person or by proxy. This stockholder vote is required under the NASDAQ listing rules because Tontine directly or indirectly owns greater than a 5% interest in both IES and MISCOR and the issuance of shares of IES common stock in the merger could result in an increase in outstanding IES common stock immediately prior to the completion of the merger of 5% or more.

 

2

---

Table of Contents

If an IES stockholder attends but fails to vote on the issuance of shares of IES common stock in the merger, or if an IES stockholder abstains, the presence of the IES stockholder will be counted for purposes of a quorum, but will not constitute a vote cast. Abstentions and broker non-votes will not be counted either in favor of or against approval of the issuance of shares of IES common stock in the merger at the IES Meeting. Please see “—What votes are required to satisfy the IES and MISCOR Minority Approval conditions to the completion of the merger?” below for a discussion of the vote required to satisfy the IES Minority Approval condition.

If the IES Meeting had been held on June 4, 2013, the directors, executive officers and affiliates of IES would have beneficially owned and been entitled to vote approximately 8,969,325 shares of IES common stock (including the 8,562,409 shares of IES common stock owned by Tontine), collectively representing approximately 59.4% of the shares of IES common stock that would have been outstanding and entitled to vote on that date.

MISCOR: Under the Indiana Business Corporation Law (the “IBCL”), adoption of the merger agreement must be approved by the affirmative vote of the holders of a majority of the outstanding shares of MISCOR common stock entitled to vote as of the record date. Accordingly, if a MISCOR shareholder fails to vote at the MISCOR Meeting, fails to return a proxy or abstains, that will have the same effect as a vote against adoption of the merger agreement. Broker non-votes will also have the same effect as a vote against adoption of the merger agreement. Please see “—What votes are required to satisfy the IES and MISCOR Minority Approval conditions to the completion of the merger?” below for a discussion of the vote required to satisfy the MISCOR Minority Approval condition.

If the MISCOR Meeting had been held on June 4, 2013, the directors, executive officers and affiliates of MISCOR would have beneficially owned and been entitled to vote approximately 8,665,132 shares of MISCOR common stock (including the 5,833,332 shares of MISCOR common stock owned by Tontine), collectively representing approximately 74.2% of the shares of MISCOR common stock that would have been outstanding and entitled to vote on that date.

 

Q:	What votes are required to satisfy the IES and MISCOR Minority Approval conditions to the completion of the merger?

 

A:

IES: Pursuant to the merger agreement, as a condition to the completion of the merger, the holders of fifty percent (50%) or more of all of the issued and outstanding shares of IES common stock entitled to vote (excluding shares held by certain affiliates of IES and MISCOR), shall not have voted against IES’ proposal to issue shares of IES common stock in the merger. Accordingly, such holders must not affirmately vote against the issuance of shares of IES common stock in the merger. Abstentions and broker non-votes will not be counted either in favor of or against the proposal to issue shares of IES common stock in the merger for the purpose of determining satisfaction of the IES Minority Approval.

The 8,562,409 shares of IES common stock held by affiliates of Tontine Capital Management, L.L.C., which represented approximately 56.7% of the shares of IES common stock issued and outstanding as of June 4, 2013, will be excluded in determining whether the IES Minority Approval has been received. If the IES Meeting had been held on June 4, 2013, in order for IES to receive IES Minority Approval, no more than 3,265,175, or 49.9%, of the remaining 6,543,437 shares of IES common stock that would have been outstanding and entitled to vote on that date could have been voted against IES’ proposal to issue shares of IES common stock in the merger.

Any or all of the conditions to the completion of the merger, including IES Minority Approval, may, to the extent permitted by applicable law, be waived in writing in whole or in part by either IES or MISCOR.

 

3

---

Table of Contents

MISCOR: Pursuant to the merger agreement, as a condition to the completion of the merger, the holders of fifty percent (50%) or more of all of the issued and outstanding shares of MISCOR common stock entitled to vote (excluding shares held by certain affiliates of IES and MISCOR), shall not have voted against MISCOR’s proposal to adopt the merger agreement. Accordingly, such holders must not affirmatively vote against the adoption of the merger agreement. Abstentions and broker non-votes will not be counted either in favor of or against the proposal to adopt the merger agreement for the purpose of determining satisfaction of the MISCOR Minority Approval.

The 8,572,132 shares of MISCOR common stock held by Mr. Martell and affiliates of Tontine Capital Management, L.L.C., which represented approximately 73.4% of the shares of MISCOR common stock issued and outstanding as of June 4, 2013, will be excluded in determining whether the MISCOR Minority Approval has been received. If the MISCOR Meeting had been held on June 4, 2013, in order for MISCOR to receive MISCOR Minority Approval, no more than 1,555,927, or 49.9%, of the remaining 3,111,855 shares of MISCOR common stock that would have been outstanding and entitled to vote on that date could have been voted against MISCOR’s proposal to adopt the merger agreement.

Any or all of the conditions to the completion of the merger, including MISCOR Minority Approval, may, to the extent permitted by applicable law, be waived in writing in whole or in part by either IES or MISCOR.

 

Q:	What is “golden parachute” compensation and why am I being asked to vote on it?

 

A:

Under certain rules adopted by the SEC, MISCOR must seek an advisory (non-binding) vote of MISCOR shareholders on “golden parachute” compensation. “Golden parachute” compensation is certain compensation that is tied to or based on the merger and that will or may be paid by MISCOR to its named executive officers in connection with the merger. The proposal regarding “golden parachute” compensation is referred to in this joint proxy statement/prospectus as the “merger-related named executive officer compensation proposal.”

 

Q:	What vote is required to approve the merger-related named executive officer compensation proposal?

 

A:

The affirmative vote of holders of at least a majority of the shares of MISCOR common stock present in person or represented by proxy at the MISCOR Meeting and entitled to vote is required to approve the merger-related named executive officer compensation proposal. Accordingly, if a MISCOR shareholder abstains from voting on the merger-related named executive officer compensation proposal, it will have the same effect as a vote “AGAINST” the proposal. Alternatively, if a MISCOR shareholder who holds his or her shares in “street name” through a broker, bank or other holder of record fails to give voting instructions to that broker, bank or other holder of record, or if a MISCOR shareholder otherwise fails to vote his or her shares, it will have no effect on the proposal.

 

Q:	What will happen if MISCOR shareholders do not approve the merger-related named executive officer compensation proposal?

 

A:

Approval of the merger-related named executive officer compensation proposal is not a condition to completion of the merger. The vote with respect to the proposal is an advisory vote and will not be binding on MISCOR or IES. If the merger agreement is adopted by MISCOR shareholders and the merger is completed, the merger-related named executive officer compensation may be paid to MISCOR’s named executive officers even if MISCOR shareholders fail to approve the proposal as long as the otherwise applicable conditions to payment are satisfied. For a more detailed description of the merger-related named executive officer compensation and the terms and conditions applicable for payment of such compensation to be triggered, please see “Special Factors—Golden Parachute Compensation” beginning on page     .

 

4

---

Table of Contents

Q:	What is the vote required to approve the proposals to adjourn or postpone the special meetings?

 

A:	IES: The affirmative vote of a majority of the votes cast at the IES Meeting is required to approve the proposal to adjourn or postpone the IES Meeting.

If an IES stockholder attends but fails to vote on the proposal to adjourn or postpone the IES Meeting, as discussed above, or if an IES stockholder abstains, the presence of the IES stockholder will be counted for purposes of a quorum, but will not constitute a vote cast. Abstentions and broker non-votes will not be counted either in favor of or against approval of the proposal to adjourn or postpone the IES Meeting.

MISCOR: The affirmative vote of a majority of the votes cast at the MISCOR Meeting is required to approve the proposal to adjourn or postpone the MISCOR Meeting.

If a MISCOR shareholder attends but fails to vote on the proposal to adjourn or postpone the MISCOR Meeting, as discussed above, or if a MISCOR shareholder abstains, the presence of the MISCOR shareholder will be counted for purposes of a quorum, but will not constitute a vote cast. Abstentions and broker non-votes will not be counted either in favor of or against approval of the proposal to adjourn or postpone the MISCOR Meeting.

 

Q:	What is required to establish a quorum at each of the meetings?

 

A:

IES: The presence in person or by proxy of holders of at least a majority of the shares of IES common stock issued and outstanding and entitled to vote at the IES Meeting will constitute a quorum. Abstentions and broker non-votes will be counted in determining whether a quorum is present at the IES Meeting.

MISCOR: The presence in person or by proxy of holders of at least a majority of the shares of MISCOR common stock issued and outstanding and entitled to vote at the MISCOR Meeting will constitute a quorum. Abstentions and broker non-votes will be counted in determining whether a quorum is present at the MISCOR Meeting.

 

Q:	How do I vote my shares?

 

A:

After you have carefully read this joint proxy statement/prospectus, please respond by completing, signing and dating your proxy card and returning it in the enclosed postage-paid envelope as soon as possible or, if you are a MISCOR shareholder, submit your proxy by telephone or via the Internet, as described under “The MISCOR Meeting—Proxy Voting by Holders of Record,” beginning on page     .

Please refer to your proxy card or the information forwarded by your broker, bank or other nominee to see which options are available to you. MISCOR’s Internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow you to confirm that your instructions have been properly recorded.

The method you use to submit a proxy will not limit your right to vote in person at the IES Meeting or the MISCOR Meeting, as applicable, if you later decide to attend the meeting. If your shares of IES common stock or MISCOR common stock are held in the name of a broker, bank or other nominee, you must obtain a proxy, executed in your favor, from the holder of record, to be able to vote in person at the applicable stockholders’ meeting.

 

Q:	How will my shares be voted?

 

A:	IES: All shares of IES common stock entitled to vote and represented by properly completed proxies received prior to the IES Meeting, and not revoked, will be voted at the IES Meeting as instructed on the proxies.

 

5

---

Table of Contents

Except as indicated in the next “Q&A” with respect to shares held in street name, if you properly complete and sign your proxy card but do not indicate how your shares should be voted on a proposal, the shares of IES common stock represented by your proxy will be voted as the IES board of directors recommends and therefore will be voted FOR the issuance of shares of IES common stock in the merger and FOR the adjournment or postponement of the IES Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in favor of such proposal.

MISCOR: All shares of MISCOR common stock entitled to vote and represented by properly completed proxies received prior to the MISCOR Meeting, and not revoked, will be voted at the MISCOR Meeting as instructed on the proxies.

Except as indicated in the next “Q&A” with respect to shares held in street name, if you properly complete and sign your proxy card but do not indicate how your shares of MISCOR common stock should be voted on a proposal, the shares of MISCOR common stock represented by your proxy will be voted as the MISCOR board of directors recommends and therefore will be voted FOR the adoption of the merger agreement, FOR the approval of the merger-related named executive officer compensation proposal and FOR the adjournment or postponement of the MISCOR Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in favor of such proposal.

 

Q:	If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me in connection with the approval of the merger agreement and the issuance of shares of IES common stock in the merger?

 

A:

No. Your broker, bank or other nominee will NOT be able to vote your shares of IES or MISCOR common stock held in “street name” on either the IES proposal to approve the issuance of shares of IES common stock in the merger or the MISCOR proposal to adopt the merger agreement, as applicable, unless you instruct your broker, bank or other nominee how to vote. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to IES or MISCOR or by voting in person at your stockholders’ meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.

If you are an IES stockholder and you do not instruct your broker or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee may not vote your shares on the proposal to approve the issuance of shares of IES common stock in the merger, and your vote will not be cast in favor of this proposal.

If you are a MISCOR shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee may not vote your shares on the proposal to adopt the merger agreement, which will have the same effect as a vote AGAINST the adoption of the merger agreement.

You should therefore provide your broker, bank or other nominee with instructions as to how to vote your shares of IES or MISCOR common stock, as applicable.

 

Q:	If, as a MISCOR shareholder, I do not favor adoption of the merger agreement, what are my rights?

 

A:

Holders of MISCOR common stock who do not vote in favor of adoption of the merger agreement will be entitled to exercise appraisal rights in connection with the merger, and, if such rights are properly demanded and perfected and not withdrawn or lost and the merger is completed, such shareholders will be entitled to obtain payment for the judicially determined fair value of their shares of MISCOR common stock.

 

6

---

Table of Contents

MISCOR shareholders who wish to seek appraisal of their shares are urged to seek the advice of counsel with respect to the availability of appraisal rights. A MISCOR shareholder who (1) delivers to MISCOR, before the shareholder vote is taken at the MISCOR Meeting, written notice of the shareholder’s intent to demand payment in cash for shares owned if the merger is effectuated and (2) does not vote the shareholder’s shares in favor of the merger will not receive the merger consideration. The shareholder will instead be entitled to assert dissenters’ rights and seek an appraisal of his or her shares, unless the shareholder fails to take the steps prescribed by Chapter 44 of the IBCL to perfect such shareholder’s dissenters’ rights. Upon consummation of the merger and receipt of a payment demand, former MISCOR shareholders who have complied with all statutory requirements will be paid the fair value of their shares as of the time immediately before the merger. The full text of Chapter 44 of the IBCL is attached as Annex D to this joint proxy statement/prospectus.

For more information on appraisal rights, see “Appraisal Rights” beginning on page ___. MISCOR shareholders who wish to seek appraisal of their shares are in any case urged to seek the advice of counsel with respect to the availability of appraisal rights.

 

Q:	Are IES stockholders entitled to appraisal rights?

 

A:	Holders of IES common stock will not have the right to seek appraisal of the fair value of their shares of IES common stock.

 

Q:	Can I change my vote after I deliver my proxy?

 

A:	Yes. You may change your vote at any time before your proxy is voted at the IES Meeting or the MISCOR Meeting, as applicable. You can do this in any of the three following ways:

 

•

by sending a written notice to the Secretary of IES or MISCOR, as applicable, in time to be received before the IES Meeting or the MISCOR Meeting, as applicable, stating that you would like to revoke your proxy;

 

•

by completing, signing, dating and submitting to the Secretary of IES or MISCOR, as applicable, a later proxy card or, if you are a MISCOR shareholder, by submitting a later proxy via the Internet or by telephone (before 11:59 p.m. Eastern Daylight Time on the day before the MISCOR Meeting), in which case your later-submitted proxy will be recorded and your earlier proxy revoked; or

 

•

if you are a holder of record, or if you hold a proxy in your favor executed by a holder of record, by attending the applicable stockholders’ meeting and voting in person.

Simply attending the IES Meeting or the MISCOR Meeting, as applicable, without voting will not revoke your proxy or change your vote.

If your shares of IES common stock or MISCOR common stock are held in an account at a broker, bank or other nominee and you desire to change your vote, you should contact your broker, bank or other nominee.

 

Q:	If I am a MISCOR shareholder, should I send in my stock certificates with my proxy card?

 

A:

No. Please DO NOT send your MISCOR stock certificates with your proxy card. After the merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your MISCOR common stock certificates for the merger consideration. If your shares of MISCOR common stock are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration.

 

7

---

Table of Contents

Q:	What should I do if I receive more than one set of voting materials for the IES Meeting or the MISCOR Meeting?

 

A:

You may receive more than one set of voting materials for the IES Meeting or the MISCOR Meeting and the materials may include multiple proxy cards or voting instruction cards. For example, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive according to the instructions on it or, if you are a MISCOR holder of record, submit a proxy by telephone or via the Internet for each proxy card you receive.

 

Q:	Can I submit my proxy by telephone or the Internet?

 

A:	IES: No. Holders of record of IES common stock may not submit their proxies by telephone or by the Internet. See “The IES Meeting—Proxy Voting by Holders of Record,” beginning on page     .

MISCOR: Yes. Holders of record of MISCOR common stock may submit their proxies by telephone or via the Internet. See “The MISCOR Meeting—Proxy Voting by Holders of Record,” beginning on page    .

 

Q:	Who can answer my questions?

 

A:

If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this joint proxy statement/prospectus, the enclosed proxy card, voting instructions or the election form, you should contact the information agent, which is assisting us in the solicitation of proxies, as follows:

Banks and Brokers call:

IES stockholders call toll-free:

MISCOR shareholders call toll-free:

 

8

---

Table of Contents

 

9

---

Table of Contents

 

10

---

Table of Contents

 

11

---

Table of Contents

 

12

---

Table of Contents

 

13

---

Table of Contents

 

14

---

Table of Contents

 

15

---

Table of Contents

 

16

---

Table of Contents

 

17

---

Table of Contents

 

18

---

Table of Contents

 

19

---

Table of Contents

 

20

---

Table of Contents

 

21

---

Table of Contents

 

22

---

Table of Contents

 

23

---

Table of Contents

 

24

---

Table of Contents

 

25

---

Table of Contents

SPECIAL FACTORS

The following is a description of the material aspects of the merger. While IES and MISCOR believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to IES stockholders and MISCOR shareholders. IES and MISCOR encourage their respective stockholders to carefully read this entire joint proxy statement/prospectus, including the merger agreement attached as Annex A to this joint proxy statement/prospectus and incorporated herein by reference, for a more complete understanding of the merger.

Background of the Merger

IES’ board of directors and management regularly evaluate strategies to improve returns on capital and generation of free cash flow in an effort to increase shareholder value. Among other such strategies, IES focuses on acquiring or investing in similar stand-alone platform companies based in North America or acquiring businesses that strategically fit within IES’ existing business segments. While IES may use acquisitions to build its presence in the electrical infrastructure industry, it also considers potential acquisitions in other industries. IES looks to acquisitions in other industries as a means of expanding into new end markets and diversifying its revenue and profit streams.

In evaluating potential acquisition candidates, the IES board of directors relies on a set of focused investment criteria, which include, among other characteristics:

 

•

significant market share in niche industries and low technological and/or product obsolescence risk;

 

•

proven management with a willingness to continue post-acquisition;

 

•

established market position and sustainable advantage;

 

•

high returns on invested capital; and

 

•

strong cash flow characteristics.

In addition to the above characteristics, the board of directors and management of IES place particular emphasis on identifying and acquiring businesses that will not inhibit the value of IES’ significant net operating loss carry forwards (“NOLs”). IES has experienced substantial operating losses, and under the Internal Revenue Code of 1986, as amended (the “Code”), and rules promulgated by the Internal Revenue Service, IES may “carry forward” these losses in certain circumstances to offset any current and future earnings and, thus, reduce its federal income tax liability, subject to certain requirements and restrictions. As of September 30, 2012, IES had approximately $452 million of federal NOLs that are available to use to offset taxable income, inclusive of NOLs from the amortization of additional tax goodwill, and approximately $313 million of federal NOLs that are available to use to offset taxable income, exclusive of NOLs from the amortization of additional tax goodwill.

The MISCOR board of directors has, over the years, engaged with MISCOR’s senior management in considering various strategic transactions in light of MISCOR’s performance and prospects and to maximize value in light of competitive, economic, and other developments. These discussions have, from time to time, developed into negotiations with third parties regarding potential business combinations.

In 2010, MISCOR divested three of its five subsidiaries. MISCOR sold its Construction and Engineering Services subsidiaries Martell Electric and Ideal in February to MISCOR’s founder and Chairman of the MISCOR board of directors, John Martell and his wife, Bonnie Martell. The next month, MISCOR completed the sale of its subsidiary American Motive Power, Inc. In each of these transactions, Western Reserve participated as financial advisor to MISCOR. MISCOR also explored the sale of HKEC until deciding in December 2011 to no longer list HKEC as held for sale.

 

26

---

Table of Contents

Upon his appointment as interim Chief Executive Officer of IES on June 30, 2011, James Lindstrom, who was also then serving as Chairman of the IES board of directors, began evaluating opportunities for potential profit improvement. Mr. Lindstrom and members of IES management identified acquisitions as a means to add diversified revenue and profit streams to mitigate IES’ exposure to the cyclicality of the construction industry. While they determined that IES’ acquisition capabilities were limited by its market capitalization, availability of cash and debt financing, availability of equity financing due to potential NOL limitations and ongoing internal operational challenges at the time, IES pursued opportunities to acquire businesses subject to these constraints.

During the summer of 2011, Mr. Lindstrom identified MISCOR as an acquisition target that could be potentially acquired within IES’ financial capabilities and also provide additional profitability. From 2006 until October 2011, Mr. Lindstrom was an employee of Tontine Associates, L.L.C. (“TA”), an affiliate of Tontine, and in such capacity had followed several companies in, and had become very familiar with, the electrical services industry. One such company with which Mr. Lindstrom had particular familiarity was MISCOR, a portfolio holding of Tontine. Pursuant to the agreements by which Tontine initially acquired its ownership interests in MISCOR, MISCOR granted Tontine board observer rights with respect to meetings of the MISCOR board of directors. While Mr. Lindstrom was at TA, he regularly attended these meetings, on behalf of Tontine.

Mr. Lindstrom considered MISCOR to be an attractive acquisition target due to its focus on industrial electromechanical services as well as its size, financial performance, profitability and potential synergies. Mr. Lindstrom also viewed MISCOR as an attractive target because of its relatively low market capitalization, which would allow IES to acquire MISCOR using its limited financial resources, and because, due to Tontine’s significant ownership of MISCOR, to the extent that IES was issuing stock as consideration in the transaction, IES could potentially issue stock to Tontine without contributing to an ownership change under applicable tax law that could limit its ability to use its NOLs. While IES management and the IES board considered Tontine’s holdings in MISCOR to be an attractive aspect of the acquisition because of the benefit that all IES shareholders would receive in connection with preserving IES’ NOLs, they did not actively seek to acquire businesses owned by Tontine, and the IES board has not discussed acquisitions of other businesses in which Tontine has an ownership interest. IES management briefly considered acquisition of another business in which Tontine has an ownership interest but did not pursue it given that it did not meet the other acquisition criteria for IES.

In light of these considerations, in July of 2011, Mr. Lindstrom contacted Mr. Martell to informally discuss the companies, their potential synergies and the benefits that a business combination could provide both companies and their shareholders. The benefits and synergies discussed by Mr. Martell and Mr. Lindstrom in July 2011 included: (a) cross-selling opportunities for both companies, where each could sell products and services to the other’s customer base; (b) the IES footprint, which could provide an expanded presence for Magnetech; (c) IES would have access to additional services through MISCOR - including apparatus repair services and predictive and preventative maintenance services - which IES could add to its current service offerings; and (d) IES, because of its size, would have improved access to capital to help assist potential growth and expansion opportunities for MISCOR. At the conclusion of the call, Messrs. Lindstrom and Martell agreed that the companies should enter into a confidentiality agreement after which further discussions regarding a potential transaction could be conducted.

On July 14, 2011, IES and MISCOR executed a confidentiality agreement (the “Initial Confidentiality Agreement”), pursuant to which the companies agreed to share the information necessary to evaluate a potential transaction. Later that day, representatives of IES’ and MISCOR’s management teams gathered telephonically to engage in introductory discussions regarding the companies and explore potential synergies.

Following the July 2011 execution of the Initial Confidentiality Agreement, Mr. Lindstrom determined that he should no longer attend meetings of the MISCOR board of directors on behalf of Tontine. The final meeting that Mr. Lindstrom attended on behalf of Tontine was held in August 2011. The meeting, which Mr. Lindstrom attended telephonically, had no agenda items related to the potential transaction between IES and MISCOR or any other strategic considerations regarding a potential sale of MISCOR, nor did the MISCOR board of directors engage in any discussions regarding these items during the meeting.

 

27

---

Table of Contents

Overview of Timeline and Valuation

The discussion that follows reviews the negotiations and other details between the parties. In order to better provide a context to the written offers made by the parties, we have provided charts illustrating the valuation metrics considered by the companies at the time that the indications of interest and written offers were made. While the IES board generally considered fundamental financial performance of MISCOR in evaluating offer prices, the MISCOR board generally considered premium to trading value in its evaluation. As such, in the case of the first chart, we have shown a comparison between MISCOR’s EBITDA, which was a key valuation metric for IES, and the offer prices discussed by the parties, and in the case of the second chart, we have shown a comparison between MISCOR’s stock price, which was a key valuation metric for MISCOR, and the offer prices discussed by the parties.

The indications of interest submitted by IES reflected a variety of valuation metrics, including discounted cash flow analysis, accretion/dilution analysis and comparable company analysis. While market premiums were considered, they were not a significant factor for the IES board. Over the duration of negotiations, MISCOR continued to experience improved financial performance and reduced debt levels. As a result, and although the enterprise value offer price increased on an absolute basis over that time, from IES’ perspective, MISCOR’s strengthened financial profile and increased profitability resulted in improved pricing for IES relative to certain valuation metrics, such as the ratio of Enterprise Value to EBITDA for the prior twelve months, which declined in the period as shown in the table below.

 

Description		Date		Enterprise Value ($ in mm)				Price Per Share				% Premium				Enterprise Value to LTM EBITDA (1)
Initial Indication of Interest		September 2, 2011		$	16.0 - $17.2			$	0.50 - $0.60				85.2	%			8.6x
Second Indication of Interest		February 28, 2012		$	17.9 - $19.1			$	0.80 - $0.90				128.6	%			5.1x
Third Indication of Interest		May 9, 2012		$	18.2			$	0.90				42.9	%			4.3x
Third Indication of Interest revised counteroffer		May 15, 2012		$	19.5			$	1.00				33.3	%			4.6x
Signed Merger Agreement		March 13, 2013		$	24.0			$	1.47 - $1.57				17.6	%			5.1x

 

(1)	Enterprise Value to EBITDA is based on the midpoint of the Enterprise Value offer range

 

28

---

Table of Contents

In an effort to ensure that they achieved fair value for unaffiliated shareholders, MISCOR’s board of directors and its financial advisors consistently worked to achieve merger consideration consistent with the trading value of the stock for a deal with a strategic partner. The following chart shows the MISCOR stock price and the written offers made by IES to MISCOR. As the chart illustrates, the offer prices between the parties were correlated with the stock price of MISCOR common shares.

 

1	For each offer involving an estimated price-per-share range, the chart plots the price per share in the middle of the estimated range.

The variation in the premium to the MISCOR share price was in part due to volatility in MISCOR’s stock price on the OTCQB. For example, on May 2, 2012, after MISCOR filed its quarterly report on Form 10-Q, reporting a 13.1% increase in net revenues and continued profitability, MISCOR’s stock price moved up sharply from a prior close at $0.40 per share to close at $0.75 per share on volume of 98,014 shares. Two weeks later, on May 16, 2012, MISCOR’s share price climbed from a previous close of $.75 to $.95 per share. Likewise, on July 26, 2012, while IES had proposed a price per share of $1.04 and MISCOR had countered with an enterprise value equivalent to a price per share of $1.12, MISCOR’s share price unexpectedly moved up from its previous close of $1.01 to $1.16 on volume of only 3,150 shares. By March 6 – March 12, 2013, MISCOR stock traded at $1.30. As negotiations developed, MISCOR (by May 2012) had transitioned to a valuation formula for the merger based upon enterprise value. As the following discussion illustrates, initially the parties had difficulty coming to agreement on the formula, with MISCOR seeking an adjustment to the consideration for the reduction of Net Debt. Eventually, the parties came to agreement on this as well as on the governor mechanism allowing for an increase in the Merger Consideration based upon reduction of Net Debt because MISCOR was in the process of gradually paying down debt. The following discussion provides further detail on the development of the transaction.

Timeline Details

On July 27, 2011, Mr. Lindstrom, along with William Fiedler and Terry Freeman, who were then-serving as IES’ General Counsel and Chief Financial Officer, respectively, presented to the IES board of directors in a special telephonic board meeting an overview of the background and business of MISCOR as well as summary information regarding a potential investment in or other business relationship with MISCOR, including a potential acquisition of MISCOR. The IES board of directors reviewed a proposed transaction structure involving issuance of IES stock and assumption of MISCOR’s debt, as well as acquisition multiples and a discounted cash flow analysis of MISCOR. The IES board of directors discussed the financial benefits associated with the

 

29

---

Table of Contents

transaction, including potential earnings accretion, which the board of directors considered valuable given IES’ focus on increasing earnings as it emerged from the recession and was refocusing its priorities away from construction and towards service-based revenues such as those MISCOR offered. The IES board of directors also discussed its process for reviewing a potential transaction with MISCOR. Following this discussion, the IES board of directors authorized Mr. Lindstrom and John E. Welsh III, an independent member of the IES board of directors, to continue discussions with MISCOR to ascertain whether it was an appropriate time to consider a potential transaction and whether such a transaction could potentially be structured so as to be mutually beneficial to IES and its stockholders, on the one hand, and MISCOR and its shareholders, on the other hand. The IES board of directors also determined that, in light of Mr. Lindstrom’s employment with Tontine and its ownership interest in both IES and MISCOR, a lead director should be appointed to lead future board meetings concerning the potential transaction. Mr. Welsh was then appointed to serve as lead director.

On or about July 29, 2011, Mr. Lindstrom, on behalf of IES, and Mr. Martell, on behalf of MISCOR, spoke by telephone and informally discussed IES’ potential interest in acquiring MISCOR at an enterprise value of approximately $16 million, which would yield approximately $0.50 per share of MISCOR common stock. On July 30, 2011, Mr. Martell consulted with representatives of Western Reserve regarding a market valuation of MISCOR. That same day, the MISCOR board of directors conducted a special meeting by telephone to inform the MISCOR board of directors about and discuss preliminarily IES’ expression of interest. After reviewing IES’ proposed terms and Western Reserve’s advice, the MISCOR board of directors authorized Mr. Martell to continue preliminary discussions with IES.

During August 2011, IES conducted further diligence on the potential transaction and prepared a preliminary financial analysis of the transaction, which supported a MISCOR enterprise value range of $16 million to $17.2 million, or $0.50 to $0.60 per share of MISCOR common stock.

On September 2, 2011, the IES board of directors held a special telephonic board meeting, with representatives of IES management in attendance, to review a draft of and to discuss certain matters related to a non-binding indication of interest (the “Initial Indication of Interest”), in which IES would propose to acquire MISCOR for an enterprise value of $16 million to $17.2 million, or $0.50 to $0.60 per share. Based on the financial analysis prepared by IES management, internal management projections, introductory discussions on July 14, 2011, MISCOR’s publicly available information and the information presented at the board’s July 27, 2011 meeting, the IES board of directors, with Mr. Lindstrom abstaining, approved the proposed transaction consideration set forth in the Initial Indication of Interest and authorized IES management to deliver the Initial Indication of Interest to the MISCOR board of directors.

On September 6, 2011, Mr. Fiedler, on behalf of IES, sent the Initial Indication of Interest to Michael Moore, Chief Executive Officer of MISCOR, and the MISCOR board of directors, as directed by the IES board of directors on September 2, 2011. Pursuant to the Initial Indication of Interest, IES proposed a business combination of IES and MISCOR with an aggregate equity value of $5.9 million to $7.1 million, or $0.50 to $0.60 per share (based upon 11,785,826 shares of MISCOR common stock then-issued and outstanding), and assuming debt outstanding of not more than $10.1 million, which implied a total enterprise value of $16 million to $17.2 million. At the midpoint of the range, the offer represented a 104% premium to MISCOR’s then-current stock price of $0.27 per share. IES proposed that the transaction be effected by a merger of a newly-created subsidiary of IES with MISCOR, with the surviving entity being a wholly-owned subsidiary of IES. IES also proposed that the merger consideration be paid in shares of IES common stock; however, it was noted that the IES board of directors was open to discussing adding a cash component to the merger consideration if it was of interest to the MISCOR board of directors.

On September 12, 2011, the MISCOR board of directors held a special telephonic meeting to review the Initial Indication of Interest. Following a discussion of the Initial Indication of Interest, the potential transaction with IES and the prospects for MISCOR as a stand-alone business, the MISCOR board of directors concluded that the offer should be declined, believing additional shareholder value could be created as MISCOR continued to

 

30

---

Table of Contents

execute its growth initiatives and pay down outstanding debt. Shortly thereafter, Mr. Martell informed Mr. Lindstrom that the MISCOR board of directors had rejected the proposal set forth in the Initial Indication of Interest as not sufficiently compelling to proceed with a transaction, and the discussions between IES and MISCOR were terminated.

On October 3, 2011, upon his appointment as IES’ Chief Executive Officer and President (having served in such capacities on an interim basis since June 2011), Mr. Lindstrom terminated his employment with TA, an affiliate of Tontine.

Between October 2011 and December 2011, Mr. Martell and Mr. Lindstrom spoke occasionally to discuss their respective company’s operations and financial performance. As a result of MISCOR’s significant restructuring, changes in senior leadership and refocused strategic plan, the three months ended September 30, 2011, marked MISCOR’s third consecutive quarter of profitability after nine consecutive quarters of operating losses.

As MISCOR’s stock price and financial performance improved, IES management continued to evaluate the benefits and terms of a potential business combination with MISCOR. As a result of this evaluation, following the substantial completion by IES of its fiscal year end reporting and proxy process and the completion of MISCOR’s debt refinancing, Mr. Lindstrom, on behalf of IES, called Mr. Martell on or about January 3, 2012, to express IES’ renewed interest in exploring a potential business combination with MISCOR given IES’ continued focus on acquisitions as a means to grow IES and continued belief that MISCOR represented an attractive acquisition candidate, particularly given the financial improvement and profitability reported in MISCOR’s most recent quarterly report. Mr. Martell was receptive to reopening discussions regarding a potential transaction, and shortly thereafter, the companies again began to engage in discussions and exchange information under the Initial Confidentiality Agreement.

On February 8, 2012, IES retained Periculum Capital Company, LLC (“Periculum”), an independent third-party financial advisor and FINRA registered broker dealer, to provide financial analysis and advisory services with respect to a potential transaction between IES and MISCOR. As Periculum had recently been appointed as a refinancing advisor to IES in connection with an amendment to IES’ revolving credit facility, and as such was already familiar with IES’ operational and financial status and prospects, IES management believed that Periculum was well-positioned to advise IES with respect to a potential transaction with MISCOR.

On February 9, 2012, following a regularly scheduled meeting, the IES board of directors convened, with no members of IES management other than Mr. Lindstrom present, to discuss and consider additional information and financial analysis developed by IES management with respect to MISCOR and a potential business combination. During the meeting, the IES board of directors considered the perceived increase in MISCOR’s value as a result of the improvements in MISCOR’s financial performance and its decreased debt levels. In particular, the IES board of directors considered MISCOR’s improved business results and the fact that MISCOR’s debt had decreased by over $1.1 million in the five months following IES’ Initial Indication of Interest. Based on the information presented, the IES board of directors discussed and were informed that IES management intended to send MISCOR a second non-binding indication of interest with revised terms, including an increase in the offered consideration.

On February 28, 2012, Mr. Lindstrom, on behalf of IES, sent a second indication of interest (the “Second Indication of Interest”) to Mr. Martell. Pursuant to the Second Indication of Interest, IES proposed a transaction with an aggregate equity value of $9.4 million to $10.6 million, or $0.80 to $0.90 per share (based upon 11,785,826 shares of MISCOR common stock then-issued and outstanding), and assuming debt outstanding of not more than $8.5 million, which implied a total enterprise value of $17.9 million to $19.1 million. At the midpoint of the range, the offer represented a 143% premium to MISCOR’s then-current stock price of $0.35 per share. IES proposed that the merger consideration be paid as a combination of shares of IES common stock and cash and, subject to certain tax considerations, anticipated offering each MISCOR shareholder the opportunity to elect the percentage of its consideration to be received in each form. IES also noted that, following the

 

31

---

Table of Contents

transaction, it anticipated using a combination of internal funds and new financing to pay off MISCOR’s outstanding debt. In addition, IES requested that the parties enter into a 90-day exclusive-dealing arrangement to provide the time necessary to undertake due diligence and work toward a mutually acceptable definitive agreement.

Shortly thereafter, in early March 2012, Mr. Martell, on behalf of MISCOR, contacted Mr. Lindstrom to express interest in IES’ revised offer and to schedule a meeting to discuss a possible transaction between the companies.

On March 13, 2012, Mr. Martell, Mr. Moore, Mr. Lindstrom, representatives of management of both MISCOR and IES, including Robert Lewey, IES’ recently-appointed Chief Financial Officer, and representatives of Periculum and Western Reserve, financial advisors to IES and MISCOR, respectively, met at MISCOR’s offices in Massillon, Ohio to discuss their respective companies, their respective financial performance, possible synergies, the potential transaction and the proposal set forth in the Second Indication of Interest. The parties reviewed each of their financial statements and notes and also discussed customer needs, demands, and geography and the ability of the combination to allow for growth of the MISCOR products and services. During this visit, IES was also given the opportunity to tour MISCOR’s facilities and learn more about its operations. Following the March 13, 2012 meeting, Mr. Lindstrom and representatives of MISCOR’s management spoke by telephone on several occasions regarding additional information that IES would need to review in order to fully evaluate MISCOR and a possible transaction between the companies.

In late March 2012, IES retained Crowe Horwath LLP, a third-party accounting and consulting firm, to assist in due diligence related to and financial analysis of MISCOR and the proposed transaction. Following the review of initial documents provided by MISCOR in response to IES’ requests, on April 11, 2012, representatives of IES provided MISCOR with a formal due diligence request list and a preliminary timeline for a possible transaction. Soon thereafter, MISCOR began providing IES with the additional requested documentation and information, and IES management continued its diligence of MISCOR.

Shortly thereafter, on April 3, 2012, MISCOR executed an engagement letter with Western Reserve providing that Western Reserve would advise the MISCOR board of directors on the financial aspects of the potential transaction. Due to Western Reserve’s involvement in the exploration of the transaction at an earlier date, MISCOR’s directors felt the firm was well-suited to advising the company.

On May 3, 2012, Mr. Lindstrom and IES directors David Gendell and Donald Luke traveled to MISCOR’s offices in Massillon, Ohio, where MISCOR’s management presented an overview of MISCOR to Messrs. Luke and Gendell. In addition, the parties discussed the benefits of a potential business combination between IES and MISCOR. Mr. Gendell, who was appointed to the IES board of directors on February 28, 2012, is an employee of Tontine and the brother of Jeffrey Gendell, the founder and managing member of Tontine, which owned approximately 56.7% of the outstanding common stock of IES and 49.9% of the outstanding common stock of MISCOR as of March 31, 2013.

On May 8, 2012, during a regularly scheduled meeting, the IES board of directors discussed matters related to management’s due diligence findings to date. During the meeting, IES management also presented the IES board of directors with management’s revised financial analyses, updated to reflect continued improvements in MISCOR’s financial performance and information gathered by IES management in its due diligence. After reviewing the revised financial analyses, and having the opportunity to ask questions of and engage in a discussion with management regarding the information provided, the IES board of directors discussed the proposed transaction structure and price and considered the merits of revising the non-binding offer made to MISCOR in the Second Indication of Interest. Based on the information gathered and reviewed to date, the IES board of directors determined that a third non-binding indication of interest, reflecting an enterprise value of $18.2 million, or $0.90 per share, should be sent to MISCOR (the “Third Indication of Interest”). The IES board of directors also determined that pricing and structural terms would need to be established prior to conducting additional diligence.

 

32

---

Table of Contents

Prior to adjournment of the meeting, the IES board of directors discussed potential governance measures related to the board’s consideration of the proposed transaction, including, specifically, whether a special committee should be appointed to review all information regarding, and make a recommendation to the full board with respect to, the proposed transaction. After considering the facts and any conflicts that members of the IES board of directors might be perceived to have with respect to the proposed transaction, the IES board of directors determined to forego the formation of a special committee. In reaching its determination, the IES board of directors considered the following: Mr. Gendell’s business and personal relationships with Tontine; Mr. Lindstrom’s prior business relationship with Tontine; the fact that Mr. Gendell would not be present for or participate in any board discussions or negotiations regarding the proposed transaction; and the fact that Mr. Gendell and Mr. Lindstrom would each abstain from voting on matters related to the proposed transaction, each as described below.

In lieu of forming a special committee, each of Mr. Lindstrom, based on his prior employment with Tontine, and David Gendell, based on his current employment with Tontine and his familial relationship with Jeffrey Gendell, founder and managing member of Tontine, determined that he would abstain from voting on matters related to any proposed transaction with MISCOR. Notwithstanding that determination, the IES board of directors concluded that Mr. Lindstrom’s prior business relationship with Tontine should not preclude him from participating in board discussions and, as IES’ Chief Executive Officer and President, negotiations with MISCOR regarding the proposed transaction. In making this determination, the IES board of directors considered the fact that, as of May 2012, Mr. Lindstrom had not been employed by Tontine for a period of seven months and maintained only insignificant holdings in Tontine’s funds, which holdings Mr. Lindstrom subsequently liquidated in December 2012. However, in light of David Gendell’s current business and familial relationships with Tontine, the IES board of directors determined that it would be best if he recused himself from future board discussions and deliberations involving MISCOR and the proposed transaction; provided that he would be permitted to attend, but would recuse himself immediately following, any presentations by IES’ management and outside advisors with respect to the proposed transaction.

In accordance with the corporate governance measures adopted by the IES board at its May 8, 2012 meeting, David Gendell played no role in negotiations between IES and MISCOR or deliberations of the IES board of directors regarding the transaction. His role on the board during discussions of the transaction was limited to being present during presentations of management. In addition, Mr. Gendell will not receive any direct benefit from the transaction. However, he may indirectly benefit from the transaction through his holdings in the Tontine funds that hold shares of common stock of IES and MISCOR.

From time to time during IES’ evaluation of the potential business combination, certain members of IES’ management team and board of directors spoke with David Gendell and Jeffrey Gendell, who, as the managing member of the Tontine funds, is deemed to be the beneficial owner of Tontine’s holdings in IES and MISCOR, regarding the potential benefits to be derived from the proposed transaction and structural considerations of a potential transaction. Items discussed with Jeffrey Gendell include updates on the status of the transaction, the possibility of a voting agreement, as further described below, corporate governance procedures relating to the interests of minority shareholders in IES, such as the IES Minority Approval, and the forms of consideration to be offered in the transaction and the potential election of stock consideration by Tontine. During these discussions, all these parties (as well as MISCOR) supported IES’ and MISCOR’s separate efforts to conduct an independent evaluation of each other and the proposed transaction. All parties consistently expressed a view that any potential transaction should be in the best interests of each of the respective companies and their respective shareholders.

On May 9, 2012, Mr. Lindstrom, on behalf of IES, sent to Mr. Martell the Third Indication of Interest, reflecting IES’ proposal to acquire MISCOR for $0.90 per share, based, in part, on MISCOR’s balance sheet as of March 31, 2012, and the projections provided to the IES board of directors on December 30, 2011. The offer represented a 43% premium to MISCOR’s then-current stock price of $0.63 per share. Pursuant to the proposal, MISCOR’s aggregate equity value and the amount of consideration per share of MISCOR common stock would be determined at the latest practicable time prior to the signing of a definitive agreement, and the merger

 

33

---

Table of Contents

consideration would be payable in cash, shares of IES common stock, or a mixture of both, at the election of each MISCOR shareholder, with no cap on the amount of cash payable in connection with the transaction. Pursuant to the Third Indication of Interest, IES’ execution of a definitive transaction agreement would be conditioned on each of MISCOR’s major shareholders, directors and executive officers, including Tontine, entering into voting agreements, pursuant to which such shareholders and insiders would agree to support the proposed transaction and vote their shares of MISCOR common stock in favor of the transaction at the MISCOR Meeting. The Third Indication of Interest also contained certain additional terms, including provisions related to confidentiality and exclusivity.

On May 9, 2012, MISCOR held its Annual Meeting, after which the MISCOR board of directors held a meeting to briefly discuss the IES proposal and the role of Western Reserve in assisting the MISCOR board of directors with evaluation of the proposal. Later that same day, Mr. Martell and Mr. Moore held a conference call with MISCOR’s counsel and financial advisors to discuss IES’ Third Indication of Interest. On May 10, 2012, the MISCOR board of directors conducted another telephonic board meeting to discuss and authorize Western Reserve to speak with Periculum regarding a possible counter-proposal with a valuation for MISCOR based on enterprise value rather than price per share. Thereafter, on May 10, 2012, in response to IES’ Third Indication of Interest, Western Reserve, on behalf of MISCOR, contacted Periculum to relay that the MISCOR board of directors was seeking a total enterprise value of $20.5 million, or $1.10 per share.

The MISCOR board of directors preferred that the merger consideration be based upon a fixed enterprise value rather than a fixed price per share because MISCOR was in the process of gradually paying down debt. MISCOR proposed a formula that would fix the enterprise value of MISCOR, with any decrease in Net Debt benefiting the MISCOR shareholders by causing the merger consideration to increase dollar-for-dollar as the debt decreased, which IES management agreed would be in the interest of IES shareholders given the benefit of providing certainty around the enterprise value of MISCOR.

On May 11, 2012, on behalf of the IES board of directors, Periculum contacted Western Reserve to convey that the IES board of directors could not support a transaction at the price proposed by the MISCOR board of directors in its counteroffer of May 10, 2012, which represented a 75% premium to the then-current market value of MISCOR’s common stock.

On May 15, 2012, the MISCOR board of directors held a special telephonic meeting to renew its discussions regarding the proposed transaction with IES. After discussions among the board members and consultation with Western Reserve, the MISCOR board of directors determined that an enterprise value of $19.5 million represented a fair transaction price and, therefore, determined to instruct Western Reserve as to its revised counteroffer of approximately $1.00 per share or $19.5 million enterprise value. Following the meeting, Western Reserve, on behalf of MISCOR, advised IES that MISCOR had revised its counteroffer to an enterprise value of $19.5 million, or approximately $1.00 per share, which represented a 33% premium to the then-current market value of MISCOR’s common stock.

On May 21, 2012, the MISCOR board of directors conducted a conference call with MISCOR’s legal counsel, Tuesley Hall Konopa, and financial advisor, Western Reserve, to discuss further the proposal set forth in IES’ Third Indication of Interest. Thereafter, on May 23, 2012, Western Reserve, on behalf of MISCOR, submitted to Periculum, on behalf of IES, a revised draft of IES’ Third Indication of Interest (the “MISCOR Response”), reflecting the $19.5 million enterprise value previously relayed to IES, with price-per-share to be calculated by subtracting MISCOR’s projected total debt on the day of closing from the enterprise value and dividing the remainder by the total number of outstanding shares.

On May 24, 2012, Western Reserve and James Lewis, former MISCOR General Counsel and current partner with Tuesley Hall Konopa, legal advisor to MISCOR, participated in a conference call with Periculum and Andrews Kurth LLP, legal advisor to IES, to discuss the MISCOR Response and counterproposal. Specifically,

 

34

---

Table of Contents

the parties discussed both (a) how MISCOR would define enterprise value and “Net Debt” as referenced in its counter proposal, and (b) reasons behind MISCOR’s request that the parties jointly issue a press release following the execution of the interim letter agreement, and IES’ suggested reasons not to issue a press release at that time.

On May 25, 2012, Mr. Martell, on behalf of MISCOR, and Mr. Lindstrom, on behalf of IES, together with their respective legal and financial advisors, participated in a conference call to discuss the MISCOR Response and various matters related thereto. Specifically, the parties discussed (a) whether “Net Debt” would need to be fixed as of the date of the interim letter agreement or could continue to float; (b) whether there would be voting agreements in place with Tontine and Mr. Martell; and (c) whether a press release was advisable in light of the volatility in MISCOR’s stock price.

On May 30, 2012, the IES board of directors held a special telephonic meeting, with Periculum and Andrews Kurth in attendance, to review and discuss management’s updated due diligence findings, the MISCOR Response, MISCOR’s year-to-date performance, Periculum’s revised financial analyses, and the anticipated timeline of the proposed transaction with MISCOR. The IES board of directors also continued its prior discussion of potential governance measures, such as the formation of a special committee, to be taken in connection with the proposed transaction. The board of directors affirmed the decisions made during the May 8, 2012 board meeting regarding the roles of Messrs. Lindstrom and Gendell and the formation of a special committee. Following this discussion, and in accordance with this decision, Mr. Gendell recused himself from the meeting to allow the board to continue its discussion regarding the proposed transaction. Thereafter, in light of the MISCOR Response, and after reviewing management’s and Periculum’s revised financial analyses, and having the opportunity to ask questions of and engage in a discussion with management and Periculum regarding their updated analyses, the IES board of directors discussed revising the Third Indication of Interest to increase its proposed consideration for MISCOR. Based on the information gathered and reviewed to date, the IES board of directors, with Messrs. Lindstrom and Gendell abstaining (the members of the IES board of directors, other than Messrs. Lindstrom and Gendell, being referred to herein as the “disinterested members”), determined that a revised Third Indication of Interest (the “Revised Third Indication of Interest”) should be sent to MISCOR proposing an enterprise value of $19.5 million based on their view that MISCOR’s counteroffer of this amount fell within IES’ valuation range for MISCOR. Prior to concluding the meeting, the IES board of directors discussed the importance of obtaining a fairness opinion and the process of selecting a fairness opinion provider. After discussion, the IES board of directors, with Messrs. Lindstrom and Gendell abstaining, authorized IES management to engage Houlihan Lokey, Inc. (“Houlihan”), an independent third-party financial advisor, to prepare and provide the IES board of directors an opinion as to the fairness to IES and its stockholders of the consideration to be paid to MISCOR shareholders in the proposed transaction.

On May 30, 2012, Mr. Lindstrom, on behalf of IES, sent the Revised Third Indication of Interest to Mr. Martell, pursuant to which IES proposed to proceed with discussions based on a total enterprise value of $19.5 million, or approximately $1.00 per share, which represented an 11% premium to MISCOR’s then-current stock price of $0.90 per share. All other material terms of the Third Indication of Interest remained unchanged.

On May 31, 2012, the MISCOR board of directors held a special meeting, including counsel and financial advisors, to discuss and consider the Revised Third Indication of Interest. During this meeting, the law firm of Tuesley Hall Konopa advised the MISCOR board of directors on its fiduciary duties with respect to shareholders, employees, customers, and other stakeholders in the company when evaluating a potential sale of the business under Indiana law. Under Indiana law, a director may, in considering the best interests of the corporation, consider the effects of any action on shareholders, employees, suppliers, and customers of the corporation, and communities in which officers or other facilities of the corporation are located, and any other factors the director considers pertinent. The MISCOR board of directors evaluated the Revised Third Indication of Interest and voted to approve its execution and moving forward with due diligence.

 

35

---

Table of Contents

On June 4, 2012, Andrews Kurth, at the request and on behalf of IES, sent Tuesley Hall Konopa a first draft of a definitive merger agreement reflecting the proposed merger of MISCOR with and into a to-be-formed subsidiary of IES, with the subsidiary surviving the merger as a wholly-owned subsidiary of IES.

On June 5, 2012, Western Reserve, on behalf of MISCOR, sent to IES and Periculum a formal due diligence request outlining certain information that MISCOR would need to review in order to conduct appropriate due diligence on IES.

On June 7, 2012, Mr. Martell and Mr. Moore, along with Marc Valentin, MISCOR’s Chief Accounting Officer, and James DePew, MISCOR’s Corporate Secretary and Director of Quality and H.S.E., met with Mr. Lindstrom and certain members of IES management at IES’ office in Houston, Texas, to conduct diligence on IES and discuss the proposed transaction and the benefits of a potential combination. IES management gave an overview of IES’ organization, financial performance, and corporate strategy. IES management described each of IES’ business units, introduced the senior leadership team of IES’ Commercial and Industrial businesses to the MISCOR representatives and discussed potential synergies. In response to questions from MISCOR’s representatives, the group discussed IES’ organizational structure and management philosophy.

On June 14, 2012, IES retained Houlihan to prepare and provide the IES board of directors an opinion as to the fairness to IES and its stockholders of the consideration to be paid to MISCOR shareholders in the proposed transaction. Also on June 14, 2012, the MISCOR board of directors reviewed and suggested changes to a draft revision of the merger agreement through a series of emails.

On June 19, 2012, the MISCOR board of directors reviewed and approved a revised draft of the merger agreement, which Tuesley Hall Konopa, on behalf of MISCOR, sent to Andrews Kurth, on behalf of IES.

On June 27, 2012, representatives of Andrews Kurth sent to representatives of Tuesley Hall Konopa a third draft of the merger agreement. This version did not include a definite price per share but instead included a placeholder, pending agreement as to projected debt at closing. It included a collar for the exchange ratio, set 20% above and below the volume-weighted average of IES’ market price to protect shareholders from volatility in the stock price. It also had a non-solicitation (no-shop clause) and a flat termination fee of $975,000. At this stage, other less material terms were also being modified and discussed, such as the list of “knowledge persons”, how “material adverse effect” would be defined, limits on conduct of business pending closing, and covenants regarding protections for current MISCOR employees.

On June 29, 2012, MISCOR retained Ulmer & Berne LLP (“Ulmer & Berne”) to advise the company on federal securities law requirements.

On July 5, 2012, representatives of Tuesley Hall Konopa sent to representatives of Andrews Kurth a fourth draft of the merger agreement. This version inserted a definite price of $1.12 per share, modified the non-solicitation paragraph to allow other discussions with third parties who may make unsolicited inquiries, and reduced termination fees to $360,000 plus a $240,000 additional fee if MISCOR consummated a merger transaction with a third party under certain circumstances. Less material terms were also modified.

On July 11, 2012, representatives of Andrews Kurth sent to representatives of Tuesley Hall Konopa a fifth draft of the merger agreement including price-per-share of $1.04, tightened the non-solicitation provision, and reverted back to the $975,000 termination fee reflecting IES’ view of comparable termination fees based on other transactions with similar enterprise values, along with a shorter list of less material changes.

On July 17, 2012, representatives of Tuesley Hall Konopa sent to representatives of Andrews Kurth a sixth draft of the merger agreement that included a price-per-share of $1.12, a two-tiered termination fee of $360,000 or $600,000, depending upon the circumstances of termination, which reflected MISCOR’s view that fees should

 

36

---

Table of Contents

reflect those in comparable transactions with similar equity values, and certain shareholder protections that the parties agreed to include such as a 30-day “Go Shop” clause and a “Majority of the Minority” clause.

On July 19, 2012, representatives of IES and MISCOR, along with representatives from Andrews Kurth, Tuesley Hall Konopa, Western Reserve and Periculum, participated in a conference call to discuss certain material unresolved terms of the merger agreement, including the structure of the consideration to be paid to MISCOR shareholders and the amount of termination fees. However, ultimately, the call concluded without any agreement or any further terms of a potential combination due to lack of agreement on the amount of the termination fee and the structure and amount of the consideration for the transaction.

On July 21, 2012, the MISCOR board of directors conducted a telephonic meeting, including counsel from Tuesley Hall Konopa and financial advisors from Western Reserve, to discuss and consider open issues with respect to the proposed merger agreement, including consideration, solicitation, structure of the majority-of-the-minority approval, and the termination fee. With respect to price-per-share, Western Reserve advised the MISCOR board of directors that a price of $1.12 per share was the minimum price that would be fair and appropriate due to significant developments in the stock price since May 2012; the MISCOR board of directors resolved to propose a final offer of $1.12 per share with a 25% collar, a $650,000 termination fee, and other terms.

On July 23, 2012, Mr. Lindstrom, on behalf of IES, called Mr. Moore to discuss the companies’ impasse regarding the price per share to be paid to MISCOR shareholders and termination fees. Messrs. Lindstrom and Moore discussed the potential for increasing the price per share to $1.12 but, in exchange, removing the collar from the share exchange ratio.

On July 26, 2012, Mr. Lindstrom and Mr. Martell discussed by telephone certain features of the current proposal. Also on July 26, 2012, members of the MISCOR board of directors exchanged e-mails on the merits of the latest proposal, especially the need for a collar with respect to the share exchange ratio, and issues regarding termination fee tiers.

On July 27, 2012, the IES board of directors, other than Mr. Gendell, held a special telephonic meeting during which it discussed certain matters related to the proposed transaction, including the draft merger agreement and a potential voting agreement between IES and Tontine, in which Tontine would commit to voting in favor of the transaction in order to ensure that IES and MISCOR would receive the stockholder approvals necessary to effect the transaction.

On July 27, 2012, MISCOR’s stock price increased to $1.80 per share and then declined to $1.20 per share on total volume of 9,860 shares. The MISCOR board of directors conducted a meeting by conference call, including counsel from Tuesley Hall Konopa and advisors from Western Reserve. The MISCOR board of directors agreed that even though fairness of the transaction should be viewed with respect to 60- or 90-day trading averages, in light of the market moves it would be necessary to wait several days to observe where MISCOR’s stock price settled. Following the MISCOR board meeting, Mr. Martell called Mr. Lindstrom and advised him that, in light of recent fluctuations in the market price of MISCOR common stock, the MISCOR board of directors believed it would be necessary to postpone further discussions for a few days while the market for MISCOR’s stock stabilized. Mr. Lindstrom advised Mr. Martell due to the extended timeline of the acquisition process, substantial resources dedicated to the acquisition process and potential other investment opportunities for IES that the IES board of directors was prepared to terminate discussions unless MISCOR delivered a firm counter-offer before July 30, 2012.

On July 28, 2012, the MISCOR board of directors conducted another conference call, including counsel and financial advisors. After discussion of all open issues, the MISCOR board of directors agreed to extend a proposal to IES based on the terms approved by the MISCOR board of directors at the July 27, 2012 board meeting plus an additional requirement that IES agree to indemnify the MISCOR board of directors and MISCOR’s executive officers regarding any challenge to the corporate action.

 

37

---

Table of Contents

On July 29, 2012, Western Reserve, on behalf of the MISCOR board of directors, contacted Periculum to relay the material terms of MISCOR’s revised proposal, which included increasing the price per share to $1.12 but, in exchange, removing the collar from the share exchange ratio. During the call, Western Reserve also informed Periculum that the MISCOR board of directors would require indemnification from IES in connection with the transaction.

On July 30, 2012, Mr. Lindstrom, Mr. Martell, and representatives of Andrews Kurth, Tuesley Hall Konopa, Periculum, and Western Reserve participated in a conference call. During the conference call, Andrews Kurth, on behalf of IES, informed MISCOR that IES would not agree to the requested indemnification because it would expose IES stockholders to additional risk and was not customary.

On July 31, 2012, the MISCOR board of directors conducted a special meeting by conference call, including counsel and financial advisors. Mr. Martell advised that MISCOR and IES were at an impasse, and while IES management was amenable to MISCOR’s other proposed terms, it could not recommend to the IES board of directors acceptance of the MISCOR board of directors’ request for indemnification. The MISCOR board of directors agreed to put the transaction on hold and move forward with filing MISCOR’s quarterly report on Form 10-Q with the plan that, once the stock price settled down after release of the Form 10-Q, the MISCOR board of directors would revisit the willingness of MISCOR to proceed.

At the end of July 2012, IES management again considered the possibility of entering into voting agreements with IES’ significant stockholders. After further consideration and discussion, IES management determined that such voting agreements would not be in the best interest of IES or its stockholders if they contained provisions relating to indemnification of the stockholders, which could expose IES’ resources to additional risk.

In early August 2012, Western Reserve contacted Periculum regarding certain other strategic buyers that were, according to Western Reserve, interested in MISCOR. However, no particular details were provided, and after learning of the information, the IES board of directors determined not to make any changes to its most recent offer price of $1.12 per MISCOR share.

On August 15, 2012, Mr. Lindstrom and Mr. Martell spoke by telephone. Mr. Lindstrom advised Mr. Martell that IES was preparing to send a letter terminating discussions with MISCOR regarding the proposed transaction. However, in hopes of reaching agreement on certain principal terms, Mr. Lindstrom requested that MISCOR provide a final revised draft of the merger agreement reflecting the minimum terms that MISCOR would be willing to accept.

On August 17, 2012, the MISCOR board of directors conducted a conference call, including counsel and financial advisors, to discuss the pricing of the deal and other terms. Thereafter, via conference call, Western Reserve, on behalf of MISCOR, communicated the terms of a revised offer to Periculum. At Periculum’s request, on August 21, 2012, representatives of Tuesley Hall Konopa sent Andrews Kurth a revised draft of the merger agreement, which reflected a price per share of $1.30, no collar on the exchange ratio, a 30-day “go shop” period, approval of a majority of the minority of MISCOR shareholders, and a three-tiered termination fee ranging from $400,000 to $800,000, depending on the reason for termination.

On August 22, 2012, following a review of and discussions by the IES board of directors, other than Mr. Gendell, regarding the terms of MISCOR’s revised proposal, representatives of Andrews Kurth sent Tuesley Hall Konopa a revised draft of the merger agreement with a blank price term to represent continuing discussions regarding price, but otherwise accepting MISCOR’s proposed changes, including the conditions that a majority of the minority stockholders of MISCOR and IES not vote against the merger agreement and the issuance of shares of IES common stock in the merger, respectively.

Later in the day on August 22, 2012, after having the opportunity to review IES’ revised draft of the merger agreement, representatives of IES’ and MISCOR’s respective management teams held a telephonic conference

 

38

---

Table of Contents

call to discuss MISCOR’s interim performance and forecast for the remainder of 2012. During the call, Mr. Martell, on behalf of MISCOR, informed IES that the MISCOR board of directors would not be willing to accept any offer less than $1.30 per share without a collar (which represented an 8% premium to the then-current market value of MISCOR’s common stock of $1.20) or $1.25 per share with a collar (which represented a 4% premium to the then-current market value of MISCOR’s common stock). Hours later, Mr. Lindstrom, on behalf of IES, sent a Notice of Termination of the Interim Letter Agreement to Mr. Martell via email terminating discussions between the parties due to MISCOR’s increased consideration expectations and improving investment alternatives for IES.

Following termination of discussions between IES and MISCOR, the IES board of directors also determined that it would no longer require Houlihan Lokey’s services with respect to the proposed fairness opinion. As such, IES and Houlihan terminated their engagement with respect to the MISCOR transaction shortly thereafter.

On August 29, 2012, at its regularly scheduled quarterly meeting, the MISCOR board of directors reviewed the termination of the IES transaction and considered whether to pursue other strategic alternatives. The MISCOR board also discussed whether it would be prudent to solicit other potential buyers or merger candidates, possibly through a formal marketing or auction process. The MISCOR board of directors, however, decided to focus instead on improving operating results.

From September through December 2012, Mr. Martell and Mr. Lindstrom spoke periodically by phone to discuss changes in the electrical industry and their respective companies. During one such call, on November 21, 2012, Mr. Martell suggested to Mr. Lindstrom that the MISCOR board of directors might be willing to restart negotiations based on a $26 million enterprise value. However, Mr. Lindstrom elected not to formally respond to the offer based on his concerns that the requested consideration was not reflective of MISCOR’s value.

On December 6, 2012, during a regularly scheduled meeting, the IES board of directors, other than Mr. Gendell, discussed MISCOR’s interest in resuming discussions regarding a potential acquisition and Mr. Lindstrom provided an update to the board on his recent discussions with Mr. Martell regarding the same. After noting that discussions with MISCOR were preliminary, including the timing and pricing of a potential transaction, Mr. Lindstrom briefly reviewed MISCOR’s recent operating performance with the board. Thereafter, Mr. Gendell joined the meeting, and as part of its regular strategic review, the IES board of directors discussed IES’ overall acquisition strategy and reviewed a wide range of investment opportunities that had been evaluated by IES management but had not proceeded beyond the initial evaluation stage.

On December 18, 2012, in pursuit of elevated corporate governance standards, the MISCOR board of directors conducted a special meeting to discuss potential protective measures to be taken by the MISCOR board of directors in connection with its consideration of a potential transaction with IES. Due to certain factors, including Tontine’s common ownership of MISCOR and IES, Mr. Martell’s significant ownership in MISCOR, and Mr. Moore’s dual capacity as a director and Chief Executive Officer and President, the MISCOR board of directors decided to form a special committee (the “Special Committee”), consisting of the board’s two independent directors, William J. Schmuhl, Jr. and Michael Topa, with Mr. Schmuhl as Chair, to evaluate strategic alternatives, including renewing discussions with IES. The Special Committee was granted the authority to negotiate the terms of the merger agreement, to recommend for or against MISCOR approving the merger agreement and entering into the merger, and to explore alternative transactions. The MISCOR board of directors formed the Special Committee to ensure the independent review of the merger agreement and the transactions related to the merger. Pursuant to the authority delegated to the Special Committee by the MISCOR board of directors, the Special Committee, in consultation with MISCOR’s management and its financial and legal advisors, thereafter conducted MISCOR’s negotiation of the merger agreement, on behalf of MISCOR, and oversaw MISCOR’s due diligence and solicitation processes.

During December 2012, each of Mr. Martell and Mr. Lindstrom continued to evaluate the long-term value of a transaction between IES and MISCOR. On or around December 31, 2012, Mr. Lindstrom and Mr. Martell

 

39

---

Table of Contents

engaged in another discussion regarding a possible business combination between IES and MISCOR and affirmed each other’s interest in continuing discussions without reference to the specific timing or pricing of a potential transaction.

On February 5, 2013, at a regularly scheduled meeting, the IES board of directors discussed as part of its regular strategic review a number of strategic options for growth for IES, including non-acquisition related strategies and capital deployment through acquisitions as a general strategy, as well as investment criteria for potential acquisitions. Shortly thereafter, Messrs. Lindstrom and Martell spoke briefly about the possibility of resuming discussions on a potential transaction and again affirmed their mutual interest in continuing discussions, without reference to the specific timing or pricing of a potential transaction. Subsequently, on February 15, 2013, John Martell contacted Jeffrey Gendell to confirm that voting agreements would not be sought by either IES or MISCOR, and as such, indemnification would not be sought by Tontine in connection with a potential transaction involving the two companies. In the course of Mr. Martell’s discussion with Jeffrey Gendell, he also confirmed Tontine’s support for the companies pursuing a potential transaction.

On February 21, 2013, Mr. Schmuhl, in his capacity as Chair of the MISCOR Special Committee, sent Mr. Lindstrom an email to inform him of the formation of the MISCOR Special Committee to evaluate the potential transaction with IES and that Mr. Schmuhl was serving as Chair of the Special Committee. The email also indicated, among other things, that MISCOR would be willing to proceed with a business combination at an enterprise value of $26 million, which, based on MISCOR’s debt outstanding as of December 31, 2012 of $7.2 million, represented an offer price per share of $1.61, or a 24% premium to the then-current market value of MISCOR’s common stock of $1.30.

On the same date the email was sent, Mr. Lindstrom informed Mr. Schmuhl that he could not recommend to IES’ board of directors a business combination with MISCOR at an enterprise value of $26 million, particularly in view of MISCOR’s recent financial performance against its budget. Mr. Lindstrom then informed Mr. Schmuhl that, based on his review of MISCOR’s most recent financial and operational data, he was willing to consider recommending to the IES board of directors a transaction at an enterprise value in the range of $23.5 million to $24 million. The same day, after concluding the call with Mr. Lindstrom, Mr. Schmuhl sent an email to other members of the MISCOR board advising them of the key terms of the counterproposal extended by Mr. Lindstrom.

On February 24, 2013, the MISCOR board of directors met to discuss the recent proposal and counter-proposal between the Special Committee and Mr. Lindstrom.

On February 25, 2013, Mr. Lindstrom and Mr. Schmuhl spoke telephonically. During the call, Mr. Schmuhl expressed the MISCOR board of directors’ willingness to consider a transaction with, among other things, an enterprise value of $24 million and a 20% collar on the exchange ratio. Mr. Lindstrom conveyed his willingness to recommend a business combination at that value and on the terms discussed and committed to convene the IES board of directors for discussion. Thereafter, on February 25, 2013, Mr. Schmuhl, on behalf of the Special Committee, requested that Tuesley Hall Konopa begin preparing a revised draft of the merger agreement to reflect the terms of the tentative agreement. Ulmer & Berne continued to advise MISCOR on the requirements of the federal securities laws. Mr. Schmuhl also discussed the need for and preparation of a fairness opinion with MISCOR’s financial advisors.

On February 28, 2013, in light of the time that had elapsed since termination of the companies’ prior negotiations in August 2012, IES and MISCOR determined it was prudent to, and did, enter into a second confidentiality agreement, effective as of February 22, 2013, pursuant to which MISCOR began providing IES with the financial and operational information necessary to support its proposal. Also on February 28, 2013, Andrews Kurth and Tuesley Hall Konopa again began revising and exchanging drafts of the merger agreement, to reflect the revised transaction terms then under consideration by IES and MISCOR.

 

40

---

Table of Contents

On March 1, 2013, Mr. Lindstrom convened a special meeting of the IES board of directors to discuss the revised terms of the proposed transaction and IES management’s recommendation to proceed with transaction at an enterprise value of $24 million and a price per share to be calculated subject to MISCOR’s Net Debt. Assuming that MISCOR’s anticipated Net Debt at closing of the transaction would be between $6.5 million and $5.5 million, the offer price per share would be between $1.50 and $1.58, which would represent a 13% to 20% premium to the then-current market value of MISCOR’s common stock of $1.32 per share. During the meeting, IES management presented to the IES board of directors the results of due diligence conducted since the resumption of discussions with MISCOR in February 2013 and the risks and benefits of the potential transaction.

The IES board of directors discussed the following key benefits of the potential transaction:

 

•

MISCOR’s management, who had demonstrated a willingness to stay post-transaction;

 

•

the financial performance of MISCOR and the opportunity for further operational improvements;

 

•

favorable industry trends for MISCOR, including rail equipment investments, increased infrastructure spending and the growing market for outsourced industrial services;

 

•

the fact that the transaction provided an opportunity to diversify away from the cyclical construction environment by acquiring a business with recurring maintenance and repair work;

 

•

the fact that IES currently did not service, repair or manufacture electro-mechanical components and power assemblies that MISCOR offered;

 

•

IES’ enhanced access to MISCOR’s end markets, which include industrial, utility, energy and transportation industries;

 

•

potential electro-mechanical sales synergies with IES’ industrial locations;

 

•

a favorable projected annual return on invested capital compared to alternative available investments;

 

•

the expectation that the transaction would be accretive to earnings per share for IES shareholders; and

 

•

the expectation that the transaction would enhance future investment capacity by not only increasing debt capacity but also by preserving IES’ capacity to issue shares of common stock in the future without limiting its ability to utilize its NOLs in that, due to the significant ownership of MISCOR by an affiliate of IES, IES’ issuance of common stock to fund the MISCOR acquisition is not expected to trigger an ownership change under applicable tax law that could have the effect of limiting its NOLs.

Key risks of the potential transaction that were discussed by the IES board of directors at the meeting included MISCOR’s customer concentration with Union Pacific, Inc. and CSX, Inc.; the fact that MISCOR competes against large original equipment manufacturers in its rail services segment; and below average peer financial performance in MISCOR’s industrial services segment. The IES board of directors also discussed risks and corporate governance related to Tontine’s ownership interests in both companies.

During the meeting, management also provided the IES board of directors with an updated financial analysis of the transaction. The IES board of directors, other than Mr. Gendell, discussed the items presented and determined that management should continue discussions with MISCOR regarding a potential transaction. In addition, the board again discussed the importance and benefits of obtaining a fairness opinion in connection with the proposed transaction and reviewed with IES management several potential fairness opinion providers, including Stifel, an independent third-party financial advisor. With Messrs. Lindstrom and Gendell abstaining, the IES board of directors delegated to IES management the authority to engage one of the investment banks discussed to prepare a fairness opinion in connection with the proposed transaction. Based on the IES board of directors’ directive, on March 7, 2013, IES management engaged Stifel, on behalf of the IES board of directors, to prepare the fairness opinion in connection with the proposed transaction. Stifel was selected because of its experience and reputation with transactions of this nature and transactions in MISCOR’s industry more specifically. As directed by the IES board of directors, Stifel’s engagement was limited to providing an opinion as to the fairness,

 

41

---

Table of Contents

from a financial point of view, to IES of the consideration to be paid to MISCOR shareholders in connection with the merger. The IES board of directors did not request that Stifel, and Stifel did not, explore alternatives to the merger, solicit the interest of any other parties in pursuing transactions with IES or consider the use of, or the impact of the merger on, IES’ NOLs.

Between March 1, 2013 and March 11, 2013, IES continued to conduct due diligence with respect to MISCOR and the proposed transaction, with particular focus on updating its internal financial analyses to reflect MISCOR’s latest interim financial information and revised forecasts. As part of these due diligence efforts, on March 6 and 7, 2013, members of IES management visited MISCOR’s offices in Massillon, Ohio to discuss MISCOR’s operating performance and to review the audit work papers prepared by BDO USA, LLP, MISCOR’s independent registered public accounting firm. During this period, IES also began providing Stifel with the documentation and information necessary to prepare its opinion. In addition, IES and MISCOR, through their respective legal counsels, continued to negotiate and revise the merger agreement and participate in conference calls with members of each companies’ respective management teams to gather additional information regarding MISCOR’s business and operations.

On March 8, 2013, during its regularly scheduled quarterly meeting, the MISCOR board of directors discussed the most recent version of the merger agreement.

On March 11, 2013, the IES board of directors attended a special telephonic meeting to discuss the proposed MISCOR transaction, the material terms of which included a total transaction value of $24 million and a price per share to be calculated subject to MISCOR’s Net Debt. At the meeting, Stifel formally presented its opinion to the IES board of directors and members of IES management that as of such date, the merger consideration to be paid by IES to holders of MISCOR common stock in the merger, pursuant to the merger agreement, was fair, from a financial point of view, to IES. Following Stifel’s presentation, the IES board of directors discussed and reviewed with Stifel the materials presented by Stifel and the financial analyses contained therein. Following a thorough evaluation of, and discussion with Stifel regarding, its opinion and the supplemental information provided, the IES board of directors, excluding Mr. Gendell (who excused himself from the meeting following Stifel’s presentation), discussed the proposed transaction structure and price and considered the conclusions and assumptions set forth in Stifel’s opinion. Based on the information reviewed and presented, the IES board of directors determined that a formal vote should be taken with respect to the proposed transaction. The IES board of directors, with Messrs. Lindstrom and Gendell abstaining, formally approved and recommended the merger agreement and the issuance of shares of IES common stock to MISCOR shareholders in connection with the proposed transaction in accordance with the formula set forth in the merger agreement.

On March 12, 2013, the MISCOR board of directors held a special telephonic meeting, including its legal advisors, Tuesley Hall Kanopa and Ulmer & Berne, and financial advisor, Western Reserve. Western Reserve presented its opinion that the Cash Consideration to be received by the shareholders of MISCOR (other than IES and its affiliates, including Tontine) pursuant to the proposed merger agreement is fair, from a financial perspective. The MISCOR board of directors also discussed the benefits of the transaction, namely: (a) the expected synergy between the companies, given the common customer base and lack of direct competition between IES and MISCOR, (b) the expectation that MISCOR’s power services and transformer businesses should grow given that IES has a significant customer base in those areas, (c) the enhanced ability to expand through acquisitions, given IES’ resources, and (d) the decreased administrative expenses associated with not being a separate public reporting entity. The MISCOR board of directors also discussed that the Special Committee approved the transaction and recommended it for approval by the MISCOR board of directors. Prior to the vote, Mr. Martell had informed the MISCOR board of directors that he would abstain from the board of directors’ vote in light of his significant ownership interest in MISCOR. Mr. Martell held approximately 23.4% of the outstanding shares of MISCOR as of March 12, 2013. Mr. Martell’s holdings were obtained in transactions exempt from registration from the Securities Act of 1933, and are not subject to registration rights. Accordingly, the merger consideration, in the form of stock and/or cash, presents a liquidity event of particular value to Mr. Martell. For this reason, Mr. Martell chose to abstain from the MISCOR board of directors vote on the merger.

 

42

---

Table of Contents

On March 13, 2013, the parties signed the merger agreement, which reflected an enterprise value of approximately $24 million and a price per share that was then-estimated to be in the range of $1.48 to $1.57 per share, or an 18% to 26% premium to the then-current market value of MISCOR’s common stock of $1.25, but that, pursuant to the merger agreement, would not be less than $1.415 per share.

On March 13, 2013, following the issuance of a joint press release announcing IES’ and MISCOR’s execution of the merger agreement, MISCOR’s Special Committee, along with MISCOR’s management and counsel, participated in a conference call with Western Reserve regarding plans for their joint management of the “go shop” period. Following a joint effort by MISCOR and Western Reserve to identify parties, Western Reserve contacted 29 parties approved by the MISCOR board of directors to pursue solicitations of offers. On March 16, 2013, MISCOR’s Special Committee met telephonically and agreed that, after their execution of a confidentiality agreement, interested parties would receive a process letter and certain non-public information before their submission of a company acquisition proposal. The Special Committee would then review any proposal or indication of interest and determine whether it was appropriate to provide additional due diligence information. IES would be given access to any additional diligence information that MISCOR provided to other prospective buyers. Four parties signed confidentiality agreements and received the initial due diligence package.

On March 27, 2013, MISCOR’s Special Committee received from Western Reserve an indication of interest for the acquisition of MISCOR by a third party (the “Third Party Indication”). The Third Party Indication, which did not constitute an offer, proposed an enterprise value of $27 million for MISCOR (which MISCOR understood to be subject to a net debt adjustment), but this valuation was highly contingent and subject to revision, depending on the results of the interested party’s extensive due diligence, which, in addition to document review, was to include conference calls and on-site meetings with MISCOR management. On March 28, 2013, MISCOR’s Special Committee consulted with members of management and counsel and evaluated the Third Party Indication. In accordance with the terms of the merger agreement, MISCOR’s counsel also shared the Third Party Indication with counsel for IES. On March 29, 2013, MISCOR’s Special Committee held a conference call with counsel to discuss strategy for responding to the Third Party Indication. The Special Committee agreed to provide equal access to due diligence materials to the interested party, with the exception that some materials in the data room would need to be removed or redacted in light of competitive concerns because, unlike with IES, the interested party was a direct competitor of MISCOR’s Magnetech subsidiary. On April 8, 2013, the remaining interested party notified MISCOR through its financial advisor, Western Reserve, that it was not interested in further pursuing an acquisition of MISCOR, because of its determination that HKEC demonstrated the strongest financial performance of MISCOR’s business segments and the fact that rail services were not core to the interested party’s operations. On April 13, 2013, the go-shop solicitation period expired, without any competing offers being received by MISCOR.

Recommendation of the MISCOR Board of Directors and Its Reasons for the Merger

On March 12, 2013, the MISCOR board of directors held a special telephonic meeting, including its legal advisors, Tuesley Hall Kanopa and Ulmer & Berne, and financial advisor, Western Reserve. Western Reserve presented its opinion that the Cash Consideration to be received by the shareholders of MISCOR (other than IES and its affiliates (including Tontine)) pursuant to the proposed merger agreement is fair, from a financial perspective. The MISCOR board of directors also discussed other benefits of the transaction, namely: (a) the expected synergy between the companies, given the common customer base and lack of direct competition between IES and MISCOR, (b) the expectation that MISCOR’s power services and transformer businesses should grow given that IES has a significant customer base in those areas, (c) the enhanced ability to expand through acquisitions, given IES’ resources, and (d) the decreased administrative expenses associated with not being a separate public reporting entity. The MISCOR board of directors also discussed that the Special Committee unanimously approved the transaction and recommended it for approval by the MISCOR board of directors.

Prior to the vote, Mr. Martell had informed the MISCOR board of directors that he would abstain from the board of directors’ vote in light of his significant ownership interest in MISCOR. As of March 12, 2013, Mr. Martell

 

43

---

Table of Contents

held approximately 23.4% of the outstanding shares of MISCOR common stock Mr. Martell’s holdings were obtained in transactions exempt from registration from the Securities Act and are not subject to registration rights. Accordingly, the merger consideration, in the form of Stock Consideration and/or Cash Consideration, presents a liquidity event of particular value to Mr. Martell. For this reason, Mr. Martell chose to abstain from the vote on the merger.

After careful consideration, at a special meeting held on March 12, 2013, the voting members of the MISCOR board of directors, upon the recommendation by the MISCOR Special Committee, unanimously determined that the merger agreement and the other transactions contemplated by the merger agreement were advisable and in the best interests of MISCOR and its shareholders and stakeholders, including employees, vendors and customers, approved the merger agreement, the merger and the transactions contemplated thereby and directed that the merger agreement be submitted for adoption by the MISCOR shareholders at the MISCOR Meeting. The MISCOR board of directors recommends that MISCOR shareholders vote FOR adoption of the merger agreement.

After careful consideration, at a special meeting held on March 12, 2013, the MISCOR Special Committee and the voting members of the MISCOR board of directors, upon recommendation by the MISCOR Special Committee, each unanimously determined that the merger agreement and the other transactions contemplated by the merger agreement were advisable and in the best interests of MISCOR and its shareholders and stakeholders, including employees, vendors and customers, approved the merger agreement, the merger and the transactions contemplated thereby and directed that the merger agreement be submitted for adoption by the MISCOR shareholders at the MISCOR Meeting. The MISCOR board of directors recommends that MISCOR shareholders vote FOR adoption of the merger agreement.

The MISCOR board of directors believes this transaction to be substantively and procedurally fair to unaffiliated shareholders based on the following facts that its diligence revealed:

 

•

IES is a strategic buyer with growth potential;

 

•

the merger will allow the combined company to offer more products and services to IES’ and MISCOR’s existing customer base;

 

•

the merger will allow the combined company to serve customers in geographic areas where MISCOR does not currently have a presence;

 

•

the Enterprise Value assigned to MISCOR that reflects an EBITDA multiple of 5.7x (based on the last twelve months as of February 2013);

 

•

the MISCOR board of directors voted to approve the merger (with Mr. Martell abstaining);

 

•

the structure of the merger requires both approval of the holders of a majority of the outstanding shares of MISCOR common stock and MISCOR Minority Approval; and

 

•

the merger represents a liquidity event for unaffiliated shareholders.

Terms of the Merger Agreement and Merger Consideration

In reaching its determination to approve and recommend the merger agreement for adoption by the MISCOR stockholders, the MISCOR Special Committee and board of directors consulted with management as well as Western Reserve, MISCOR’s financial advisor, and MISCOR’s legal counsel, Tuesley Hall Konopa and Ulmer & Berne. In view of the wide variety of factors considered in connection with the merger, the MISCOR board of directors did not consider it practicable to assign relative weights to the specific material factors it considered in reaching its decision. In addition, individual members of the MISCOR board of directors may have given different weight to different factors. The MISCOR board of directors considered this information and these factors as a whole and, overall, considered the relevant information and factors to be favorable to, and in support of its recommendation.

 

44

---

Table of Contents

The MISCOR board of directors considered the following factors as generally supporting its decision to recommend that MISCOR stockholders approve the adoption of the merger agreement:

 

•

The Cash Consideration being paid to shareholders is based upon an assumed enterprise value, as defined in the merger agreement, of MISCOR of $24 million, less Net Debt, which represents the average over the thirty-day period ending on the Merger Consideration Determination Date of the sum of MISCOR’s funded debt and other debt, not including ordinary trade payables; divided by the number of shares of MISCOR common stock outstanding on the Merger Consideration Determination Date.

 

•

As of March 11, 2013, MISCOR’s Net Debt (for the 30-day period ending on that date), was approximately $7.2 million, and MISCOR estimated that its Net Debt as of the Merger Consideration Determination Date could range from $6.5 million to $5.5 million.

 

•

The terms of the merger agreement provide for a per share floor for the Cash Consideration of not less than $1.415 per share.

 

•

The merger agreement provides that up to 50% of the merger consideration may be paid in the form of cash.

 

•

Subject to the Maximum Cash Amount and provided no MISCOR shareholder (other than Tontine) becomes a 5% or more holder of IES common stock as a result of the merger, there is no cap on the number of shares of IES common stock to be received by MISCOR shareholders in the transaction (subject to fractional share provisions).

 

•

The transaction is expected to be treated as a tax-free reorganization under the Code.

 

•

The number of shares of IES common stock to be issued in the merger will be based, in part, on the volume-weighted average of the sale prices per share of IES common stock for the 60 consecutive trading days ending with the Merger Consideration Determination Date.

 

•

The MISCOR board of directors has received the opinion of Western Reserve to the effect that, as of the date of such opinion, the minimum Cash Consideration of $1.415 per share to be received by the holders of MISCOR common stock (other than IES and its affiliates (including Tontine)) in the merger is fair, from a financial point of view, to such holders.

 

•

IES will apply to list the shares of IES common stock to be issued to MISCOR shareholders as Stock Consideration in the merger on NASDAQ.

 

•

Inclusion of a “go shop” clause providing MISCOR the right to solicit, initiate or encourage the submission of a company acquisition proposal and to participate in discussions or negotiations regarding the same for a period of 31 days after execution of the merger agreement (or until April 13, 2013).

 

•

MISCOR restricted stock shall vest immediately prior to the effective time of the merger, and MISCOR stock options shall become fully exercisable.

 

•

IES agreed to comply with the obligations of MISCOR following the effective time of the merger to indemnify its directors and officers in effect immediately prior to the effective time. IES further agreed that the organizational documents of the surviving corporation shall contain provisions with respect to indemnification that are at least as favorable to the indemnified parties as those contained in the MISCOR charter documents, as in effect on the date of execution of the merger agreement, which provisions shall not, for a period of six years from the effective time of the merger, be amended, repealed, or otherwise modified in a manner that would adversely affect the rights thereunder of individuals who, immediately prior to the effective time, were directors, officers, employees, or agents of MISCOR. Furthermore, the surviving corporation shall maintain MISCOR’s officers’ and directors’ liability insurance policies and fiduciary insurance policies in effect on March 13, 2013.

 

•

The absence of any material adverse effect and certain other changes at IES since September 30, 2012.

 

45

---

Table of Contents

•

The merger agreement provides for standard closing conditions, and aside from stockholder approval and filings with the SEC, it did not appear to contain any conditions to the closing of the merger that would be expected to result in a significant delay in completing the merger.

Strategic and Other Considerations

The other strategic alternatives reasonably available to shareholders, as considered by the MISCOR board, were (1) proceeding forward as a standalone public company, or (2) looking for another candidate to buy or merge with the corporation. The IES transaction was deemed more favorable to shareholders than either of these, for the following reasons.

 

•

If MISCOR would proceed forward as a standalone public company, it would continue to bear the considerable administrative (legal and accounting) expense of being a small public company, which has limited the corporation’s profitability particularly since it reduced its scale by divesting several subsidiary companies in 2009 and 2010. MISCOR would also likely remain listed on the OTCQB, which limits investment and shareholder liquidity when compared with NASDAQ. As a smaller company, MISCOR’s ability to grow through acquisitions would be extremely limited. For these reasons, the MISCOR board believed that a sale or merger would be in the best interests of shareholders.

 

•

MISCOR’s board had consulted with Western Reserve, an investment bank that has significant familiarity with the company with experience going back to 2008. Through discussions with Western Reserve, MISCOR’s board believed that the corporation would have greater value to a strategic buyer than to a financial buyer. Moreover, a strategic buyer would more likely retain the integrated combination of manufacturing and services businesses, which would be favored by other stakeholders including the corporation’s employees.

 

•

Since 2008, MISCOR’s board had participated in preliminary discussions with several possible strategic merger candidates. From this process, as well as through discussions with Western Reserve, MISCOR’s board learned about which features of a potential merger candidate might best fit with the strengths of MISCOR’s business. From its due diligence with respect to IES, MISCOR’s board believed that IES would be a strategic fit providing potential for growth that MISCOR was not likely to find among other potential market candidates.

In addition to the factors listed above, the MISCOR board of directors considered the following strategic and other factors:

 

•

The adequacy of the merger consideration and the other value provided to MISCOR shareholders, which the MISCOR board of directors viewed as favorable, including:

 

•

the fully-diluted share value provided by the $1.415 minimum share price provides an approximate $16.7 million transaction equity value, and

 

•

an EBITDA multiple of 5.7x based on a last twelve months (LTM) February 2013 EBITDA.

 

•

The importance of scale in the increasingly competitive market environments in which MISCOR operates, and the potential for the merger to enhance MISCOR’s ability to compete effectively in those environments, including by accelerating sales force efficiency and effectiveness, realizing savings on raw materials costs, and reducing administrative costs. For example:

 

•

In the increasingly competitive market environments in which MISCOR operates, both with respect to its electric-equipment service business, and also its magnet and diesel-engine-component manufacturing businesses, larger organizations have certain advantages, particularly if they have a national footprint. In sales and marketing, national organizations can more quickly publicize and promote product and service developments, reducing the time from innovation to sale. Large organizations with similar operating segments – such as electrical service, a common

 

46

---

Table of Contents

denominator across MISCOR and IES – can realize savings on raw materials, such as copper wire, when purchased in bulk. And large organizations can achieve administrative efficiencies by spreading certain costs including legal, human resources, employee benefits and accounting expenses, across a larger organization.

 

•

With respect to its electric-equipment service business in particular, competitive pressure compelled MISCOR to increase its service center footprint to become a truly national provider. National service organizations appeal to national customers, who prefer to engage one national provider rather than multiple regional providers. MISCOR’s board believed that this would require adding at least four to six additional service centers. A merger with IES would facilitate such expansion, allowing for possible co-location in IES’ current facilities where MISCOR does not currently have a service center nearby, such as Arizona, Colorado, Nebraska, North Carolina, Oregon, and Texas. IES, because of its size, also has better access to capital to facilitate any additional expansion. MISCOR’s board did not see such expansion a realistic near-term option for organic growth or acquisition through MISCOR’s standalone strategic plan, given MISCOR’s limited capacity for capital investment.

 

•

The current and future landscape of the industries in which MISCOR and IES operate, and in light of the financial and competitive challenges facing these industries, the likelihood that the combined company would be better positioned to overcome these challenges if the expected strategic and financial benefits of the transaction were fully realized.

 

•

MISCOR’s board of directors compared the execution risks and benefits of achieving MISCOR’s standalone strategic plan with the risks and benefits of the merger. Based on the MISCOR board’s evaluation of the uncertainties associated with MISCOR’s standalone strategic plan, the MISCOR board of directors believes that the merger offers a unique and valuable opportunity to combine with a strategic partner that has relevant industry knowledge and connections, for example in the wind power arena, that create exiting opportunities for long-term value creation for MISCOR’s shareholders.

 

•

The MISCOR board of directors’ view that the merger agreement and the transaction contemplated by the merger agreement were more favorable to MISCOR’s shareholders than the other strategic alternatives reasonably available to the MISCOR shareholders.

 

•

While MISCOR and IES share a similar customer base, the different geographic density of the MISCOR and IES customers combined with the strength of IES’ customer base present potential growth opportunities for the combined corporation and for MISCOR’s business following the merger. These synergies provide potential for MISCOR to market its technology and skill sets more effectively to a broader group of customers.

 

•

The MISCOR shareholders would own approximately 14.1% of the combined corporation (including the shares of IES common stock to be issued to Tontine in the merger, as reflected in the beneficial ownership table set forth in “Comparative Market Price and Dividend Data—Holders of IES Common Stock”), based on the assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2, which assumptions will not be definitively determined until the Merger Consideration Determination Date, and assuming 15,105,846 shares of IES common stock outstanding immediately prior to the effective time of the merger. As a result, the MISCOR shareholders would benefit from the future performance of the combined corporation and the other strengths of the combined corporation.

 

•

The transaction provides a liquidity event opportunity for both the MISCOR shareholders electing to receive Cash Consideration as well as those that elect to receive Stock Consideration, due to the liquidity of IES’ common stock. The MISCOR board of directors also found it appealing that this transaction gives MISCOR shareholders the option to choose the opportunity to align themselves with a financially larger and stronger entity with the resulting greater opportunity for capital appreciation.

 

47

---

Table of Contents

•

The MISCOR board of director’s discussions with Tuesley Hall Konopa and Ulmer & Berne regarding the terms and conditions of the merger agreement and the fiduciary duties of the MISCOR board of directors in considering the merger.

 

•

The extensive efforts by MISCOR and its financial and legal advisors to negotiate the financial and other terms and conditions of the merger agreement.

 

•

The financial and other terms and conditions of the merger agreement, as reviewed by the MISCOR board of directors, and the fact that such terms and conditions were the product of extensive negotiations between the parties.

 

•

The fact that the merger agreement permits MISCOR to terminate the agreement in the event that the MISCOR board of directors (or any committee thereof) makes a company adverse recommendation change or company acquisition proposal recommendation or MISCOR enters into a company acquisition agreement, subject to certain terms and conditions, including compliance with the non-solicitation provisions of the agreement following expiration of the go-shop period on April 13, 2013.

 

•

The fact that a vote of the MISCOR shareholders on the merger is required under Indiana law and that the MISCOR shareholders who do not vote in favor of the merger will have the right to dissent from the merger and to demand appraisal of the fair value of their shares under Indiana law.

 

•

The fact that IES’ common stock price had steadily risen from a 52-week low of $2.57 per share in June 2012 to $5.95 per share as of March 12, 2013.

 

•

At their option, MISCOR shareholders can elect to receive either the Cash Consideration, which will not be less than $1.415 per share, the Stock Consideration, which will be calculated based on the Exchange Ratio, or a mix of the Cash Consideration and the Stock Consideration.

Risks and Challenges of the Merger

The MISCOR board of directors also considered the following potential risks related to the merger with IES, but concluded that the anticipated benefits from the merger with IES were likely to outweigh these risks:

 

•

fluctuations in the amount of MISCOR’s Net Debt and the value of IES common stock could reduce the merger consideration that MISCOR shareholders receive;

 

•

the cap on Cash Consideration may prevent MISCOR shareholders from receiving their preferred form of merger consideration;

 

•

the election process requires MISCOR shareholders to tender their shares of MISCOR common stock, which will temporarily reduce the liquidity of their investment;

 

•

the conditions precedent to the merger make the extent of its benefits to MISCOR shareholders, and the date on which MISCOR shareholders will receive their merger consideration, uncertain;

 

•

MISCOR shareholders who receive shares of IES common stock as all or part of their merger consideration may have their rights as shareholders adversely affected by provisions of the DGCL and IES’ certificate of incorporation and bylaws;

 

•

the merger agreement limits MISCOR’s ability pursue alternative strategic transactions;

 

•

MISCOR will incur substantial transaction costs associated with the merger, even if the merger does not take place;

 

•

MISCOR’s directors and executive officers have incentives related to the merger that may cause their interests to differ from those of MISCOR shareholders;

 

•

IES may not be able to integrate MISCOR’s business as successfully as it expects or achieve the synergies and cost savings expected;

 

48

---

Table of Contents

•

IES may not be able to retain MISCOR’s key employees or replace them with equally qualified individuals;

 

•

the market’s reaction to the merger could cause the price of IES common stock to decline, regardless of the results of IES’ efforts to integrate MISCOR’s business;

 

•

the price of IES common stock may fluctuate due to variables that either do not currently affect the price of MISCOR common stock or affect MISCOR common stock differently from IES common stock;

 

•

the fact that the cash portion of the merger consideration will be taxable for U.S. federal income tax purposes to those MISCOR shareholders who are U.S. persons and elect to receive any Cash Consideration; and

 

•

other matters described under “Risk Factors,” beginning on page     .

Although the preceding list of factors considered is not intended to be exhaustive, in the judgment of the MISCOR board of directors, the potential benefits of the merger outweigh the risks and the potential disadvantages. In view of the variety of factors considered in connection with its evaluation of the proposed merger and the terms of the merger agreement, the MISCOR board of directors did not quantify or assign relative weight to the factors considered in reaching its conclusion. Rather, the MISCOR board of directors views its recommendation as being based on the totality of the information presented to and considered by it. In addition, individual MISCOR directors may have given different weight to different factors.

It should be noted that this explanation of the reasoning of the MISCOR board of directors and all other information presented in this section is forward-looking in nature and therefore should be read in light of the factors discussed under the heading “Cautionary Statement Concerning Forward-Looking Statements,” beginning on page     . The MISCOR board of directors is not aware of any firm offers made by a third party to acquire MISCOR during the past two years.

Recommendation of the IES Board of Directors and Its Reasons for the Merger

After careful consideration, at a special meeting held on March 11, 2013, the disinterested members of the IES board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the issuance of shares of IES common stock in the merger, are advisable and in the best interests of IES and its stockholders and approved the merger and the merger agreement. The IES board of directors recommends that IES stockholders vote FOR the issuance of shares of IES common stock in the merger.

Terms of the Merger Agreement and Merger Consideration

In reaching its decision to approve the merger agreement and recommending the issuance of shares of IES common stock in the merger, the disinterested members of the IES board of directors considered the following factors relating to the terms of the merger agreement:

 

•

the form of the merger consideration, which consists of a limited amount of cash and a limited aggregate number of shares of IES common stock and, therefore, permits IES to project its expected capital structure and indebtedness immediately following the merger;

 

•

the written opinion of Stifel to the IES board of directors dated March 11, 2013 that, as of such date, and based upon and subject to the assumptions, qualifications and limitations set forth in such opinion, the merger consideration to be paid by IES to the holders of MISCOR common stock was fair, from a financial point of view (the full text of Stifel’s written opinion is set forth in Annex B to this joint proxy statement/prospectus and should be carefully read in its entirety in conjunction with the information contained in “—Opinion of IES’ Financial Adviser”), as well as the financial analyses performed by Stifel in connection with its fairness opinion and reviewed with the IES board of directors;

 

49

---

Table of Contents

•

the structure of the merger transaction, which is not taxable to IES or its stockholders;

 

•

the expectation that the merger will preserve, and accelerate the utilization of, IES’ significant net operating loss tax carryforwards (“NOLs”), in that the issuance of the Stock Consideration in connection with the merger is not expected to cause a change of control of IES under Section 382 of the Code which, if it were to occur, would significantly limit IES’ utilization of its NOLs;

 

•

the expected availability of financing from Wells Fargo, which provides IES the ability to borrow the funds necessary to pay the cash component of the merger consideration, repay outstanding MISCOR debt and pay expenses relating to the merger; and

 

•

the fact that, aside from stockholder approval and filings with the SEC, there did not appear to be any conditions to closing in the merger agreement that would be expected to result in a significant delay in completing the merger.

Strategic and Other Considerations

The IES board of directors believes that the transaction will deliver strategic and financial benefits to IES and will create long-term value for IES stockholders. In reaching this determination, the IES board of directors considered the following key factors related to the transaction:

Improved Financial Profile

 

•

The transaction will diversify IES’ revenues and operating income, thereby reducing its exposure to the cyclical nature of the commercial and residential construction industries, in that:

 

•

IES currently does not service, repair or manufacture the electro-mechanical components and power assemblies that MISCOR offers,

 

•

the transaction will increase IES’ exposure to MISCOR’s non-construction-related end markets, which include industrial, utility, energy and transportation industries,

 

•

the transaction will provide IES with exposure to a new customer base, including some of the leading Class I railroads, steel producers and chemical manufacturers in the United States, and

 

•

on a pro forma basis for the twelve months ended September 30, 2012, MISCOR would contribute to the combined company $49.0 million of revenue, or 9.7% of combined revenue, and $3.3 million of operating income, or 113.0% of combined operating income;

 

•

The transaction is expected to be accretive to IES’ earnings and operating cash flow per share, net of acquisition costs and without assuming cost savings or revenue synergies, based upon IES’ financial projections and the structuring assumptions described in Notes 3 and 5 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2 (which, with respect to Note 3, will not be definitively determined until the Merger Consideration Determination Date);

 

•

The transaction is expected to provide potential for enhanced future earnings and growth prospects when compared to IES’ prospects as a smaller company on a stand-alone basis;

 

•

The transaction is expected to help improve IES’ operating performance by increasing IES’ scale, improving overall profitability and margins, and providing access to new end markets and customers; and

 

•

The transaction is expected to further progress IES towards its goal of generating above average returns on invested capital, in that, even without assuming cost savings or projecting revenue synergies, the valuation of MISCOR relative to its expected earnings and ongoing capital requirements generates an above average return on invested capital.

 

50

---

Table of Contents

Utilization of NOLs

 

•

The transaction is expected to preserve, and accelerate the utilization of, IES’ significant NOLs, as described above, which, with respect to federal NOLs, was approximately $453 million at September 30, 2012.

Execution of Acquisition Strategy

 

•

The transaction is expected to improve IES’ credit profile and overall access to capital, thereby expanding its future acquisition capabilities; and

 

•

The transaction will allow IES to grow strategically through acquisition, which the IES board of directors believes is advantageous relative to the challenges of sustainable, organic growth in IES’ divisions that are exposed to construction cycles.

The IES board of directors also considered the following factors related to compatibility of IES’ and MISCOR’s respective businesses and assets:

 

•

the complementary nature of IES’ and MISCOR’s electrical businesses;

 

•

MISCOR’s domestic and international geographic footprint and customer base, which has no major customer or competitive overlaps with that of IES;

 

•

MISCOR’s strong historical reputation for service, repair and manufacturing of electro-mechanical components and power assemblies;

 

•

MISCOR’s historical financial performance;

 

•

MISCOR’s favorable industry trends, including with respect to rail equipment investments, increased infrastructure spending, and the growing market for outsourced industrial services;

 

•

the opportunity to retain both MISCOR’s proven management team, which is expected to continue to run and operate the business following completion of the merger, as well as substantially all of MISCOR’s non-executive management employees, many of whom have skills and experience needed by IES and are expected to continue their employment with the combined company; and

 

•

IES’ and MISCOR’s similar focus on accountability.

While IES has not entered, and does not anticipate entering, into agreements with any of MISCOR’s executive officers regarding employment following completion of the merger, it is anticipated, based on current discussions between the companies, that all members of MISCOR’s management team will continue with the surviving corporation following completion of the merger.

In reaching its determination to approve the merger, the disinterested members of the IES board of directors also considered the following factors:

 

•

the expectation that IES would be the acquirer of MISCOR for generally accepted accounting purposes, and that IES’ accounting policies would remain the same for the combined company;

 

•

IES’ management team’s successful track record of operating and improving standalone businesses;

 

•

the historical and current market prices of IES and MISCOR common stock, as well as the financial analyses and presentations prepared by Stifel;

 

•

although the number of shares of IES common stock to be issued in the merger may fluctuate until fifteen business days prior to the closing date and the aggregate value of the shares to be issued may fluctuate prior to closing as the result of fluctuations in the market price of IES common stock, ultimately, the maximum number of shares of IES common stock to be issued in the merger is fixed; and

 

51

---

Table of Contents

•

the risks and investment returns associated with pursuing alternative acquisitions and potential uses of capital, including the following:

 

•

risks related to the probability and ability to close the acquisition;

 

•

the purchase price relative to IES’ resources and relative to the valuation of the investment;

 

•

the IES board of directors’ familiarity with the investment, its operations and end markets relative to businesses and industries with which the board was not as familiar;

 

•

IES’ ability to issue shares of IES common stock to fund the investment without triggering a change of control under applicable tax law that could limit its NOLs, in contrast to the MISCOR merger, where the issuance of IES common stock is not expected to trigger such a change of control due to the significant ownership of MISCOR by an affiliate of IES, Tontine;

 

•

risks associated with expanding IES’ existing operations into new end markets; and

 

•

lower investment returns associated with alternative investments.

Risks of the Merger

The disinterested members of the IES board of directors also considered the following potential risks related to the merger with MISCOR, but concluded that the anticipated benefits from the merger with MISCOR were likely to outweigh these risks:

 

•

the Exchange Ratio used to determine the number of shares of IES common stock into which each share of MISCOR common stock will be convertible will fluctuate due to fluctuations in the market value of IES common stock;

 

•

the issuance of shares of IES common stock to MISCOR shareholders in the merger will dilute the ownership interests of current IES stockholders;

 

•

any delay in completing the merger and integrating the businesses may reduce the benefits expected to be obtained by IES from the merger;

 

•

the merger may not be completed on a timely basis or at all, and failure to complete the merger could negatively impact IES’ stock price and the future business and financial results;

 

•

IES may experience difficulties in integrating MISCOR’s business and could fail to realize potential benefits of the merger;

 

•

failure to retain key employees of MISCOR could adversely affect IES following the merger;

 

•

IES and MISCOR will incur substantial costs in connection with the merger, which will be incurred regardless of whether the merger is consummated;

 

•

the price of IES common stock will continue to fluctuate after the merger and may be affected differently from the separate factors that currently affect the prices of IES common stock and MISCOR common stock; and

 

•

the market value of IES common stock could decline if large amounts of IES common stock are sold following the merger.

In addition, the disinterested members of the IES board of directors considered potential risks related to MISCOR’s business, including customer concentration, competition with original equipment manufacturers in MISCOR’s rail services segment, and below average peer financial performance in MISCOR’s industrial services segment. The disinterested members of the IES board also considered corporate governance related to Tontine’s ownership interest in both companies.

The preceding risks and factors considered is not intended to be exhaustive. After due consideration of the potential benefits and risks and other information, the disinterested members of the IES board of directors

 

52

---

Table of Contents

determined, in their judgment, that the merger is in the best interests of IES and its stockholders. The disinterested members of the IES board of directors did not quantify or assign relative weight to the factors considered in reaching their conclusion but approved the merger based on the totality of the information they reviewed and considered. Individual directors may have given different weight to different factors.

This description of the factors considered by the disinterested members of the IES board of directors and all other information presented in this section is forward-looking in nature and therefore should be read in light of the factors discussed under the heading “Cautionary Statement Concerning Forward-Looking Statements,” beginning on page     .

Opinion of IES’ Financial Adviser

IES has engaged Stifel to provide a fairness opinion in connection with the merger. In connection with this engagement, the IES board of directors requested that Stifel evaluate the fairness, as of the date of such opinion, from a financial point of view, to IES, of the merger consideration to be paid by IES to holders of MISCOR common stock in the merger pursuant to the merger agreement. On March 11, 2013, at a meeting of the IES board of directors held to evaluate the merger, Stifel rendered to the board an oral opinion, confirmed by delivery of a written opinion dated March 11, 2013, to the effect that, as of such date and based on and subject to the matters described in its opinion, the aggregate merger consideration to be paid by IES to the holders of shares of MISCOR common stock in the merger was fair to IES, from a financial point of view.

The full text of Stifel’s written opinion, dated March 11, 2013, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference in its entirety. Stifel’s opinion was provided for the information of, and directed to, the IES board of directors for its information and assistance in connection with its consideration of the financial terms of the merger. Stifel’s opinion does not constitute a recommendation to the IES board of directors as to how the board of directors should vote on the merger or to any holder of IES or MISCOR common stock as to how any such holder should vote at any stockholders’ meeting at which the merger is considered, or whether or not any stockholder of IES should enter into a voting, stockholders’, or affiliates’ agreement with respect to the merger, or exercise any dissenters’ or appraisal rights that may be available to such stockholder or whether or to what extent a shareholder of MISCOR should elect to receive Cash Consideration or Stock Consideration. In addition, Stifel’s opinion does not compare the relative merits of the merger with any other alternative transactions or business strategies which may have been available to IES and does not address the underlying business decision of the IES board of directors or IES to proceed with or effect the merger. Stifel was not requested to, and did not, explore alternatives to the merger or solicit the interest of any other parties in pursuing transactions with IES. This summary of Stifel’s opinion is qualified in its entirety by reference to the full text of its opinion.

In connection with its opinion, Stifel, among other things:

 

•

discussed the merger and related matters with IES’ counsel and reviewed a draft copy of the merger agreement dated March 8, 2013;

 

•

reviewed the audited consolidated financial statements of MISCOR contained in its Annual Reports on Form 10-K for the three years ended December 31, 2012, with 2012 being in draft form, and unaudited consolidated financial statements of MISCOR contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2012;

 

•

reviewed the audited consolidated financial statements of IES contained in its Annual Reports on Form 10-K for the three years ended September 30, 2012 and the unaudited consolidated financial statements of IES contained in its Quarterly Report on Form 10-Q for the quarter ended December 31, 2012;

 

•

reviewed and discussed with IES’ management certain other publicly available information concerning IES and MISCOR;

 

53

---

Table of Contents

•

reviewed certain non-public information concerning IES, including internal financial analyses and forecasts prepared by its management and held discussions with IES’ senior management, including with respect to estimates of certain cost savings, operating synergies, merger charges, the pro forma financial impact of the merger on IES and recent developments;

 

•

reviewed certain non-public information concerning MISCOR, including internal financial analyses and forecasts prepared by its management and held discussion with MISCOR’s senior management regarding recent developments;

 

•

reviewed and analyzed certain publicly available information concerning the terms of selected merger and acquisition transactions that Stifel considered relevant to its analysis;

 

•

reviewed and analyzed certain publicly available financial and stock market data relating to selected public companies that Stifel deemed relevant to its analysis;

 

•

reviewed the reported prices and trading activity of the equity securities of each of MISCOR and IES;

 

•

conducted such other financial studies, analyses and investigations and considered such other information as Stifel deemed necessary or appropriate for purposes of its opinion; and

 

•

took into account Stifel’s assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuations and its knowledge of MISCOR’s and IES’ industries generally.

In connection with its review, Stifel relied upon and assumed, without independent verification, the accuracy and completeness of all of the financial and other information that was provided to Stifel by or on behalf of MISCOR or IES, or that was otherwise reviewed by Stifel, and did not assume any responsibility for independently verifying any of such information. With respect to the financial forecasts supplied to Stifel by MISCOR and IES (including, without limitation, potential cost savings and operating synergies realized by a potential acquirer and MISCOR’s projected Net Debt), Stifel assumed, at the direction of MISCOR, that such financial forecasts were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of MISCOR and IES, as applicable, as to the future operating and financial performance of MISCOR and IES, as applicable, and that they provided a reasonable basis upon which Stifel could form its opinion. Stifel relied on this projected information without independent verification or analyses and did not in any respect assume any responsibility for the accuracy or completeness thereof.

Stifel also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either MISCOR or IES, or the number of shares of MISCOR common stock on a fully diluted basis, in each case since the date of the last financial statements of each company made available to Stifel. Stifel also assumed, without independent verification and with the consent of the IES board of directors, that the aggregate allowances for loan losses set forth in the respective financial statements of MISCOR and IES are in the aggregate adequate to cover all such losses. Stifel did not make or obtain any independent evaluation, appraisal or physical inspection of either MISCOR’s or IES’ assets or liabilities, the collateral securing any of such assets or liabilities, or the collectability of any such assets nor did Stifel review loan or credit files of MISCOR or IES, nor was Stifel furnished with any such evaluation or appraisal. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, Stifel assumed no responsibility for their accuracy.

Stifel’s opinion was limited to whether the merger consideration to be paid by IES to the holders of MISCOR common stock in the merger was fair, as of March 11, 2013, to IES, from a financial point of view, and did not address any other terms, aspects or implications of the merger including, without limitation, the form or structure of the merger, any consequences of the merger on IES, its stockholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger or otherwise. Stifel’s opinion also did not consider,

 

54

---

Table of Contents

address or include: (i) any other strategic alternatives currently (or which have been or may be) contemplated by IES’ board of directors or IES; (ii) the legal, tax or accounting consequences of the merger on IES; (iii) the fairness of the amount or nature of any compensation to any officers, directors or employees of IES or MISCOR, or any class of such persons; (iv) the fairness of the merger or the amount or nature of the merger consideration to any particular stockholder of IES (specifically including Tontine and its affiliates), which are or may be stockholders of IES and MISCOR); (v) whether IES has sufficient cash, available lines of credit or other sources of funds to enable it to pay the Cash Consideration component of the merger consideration to the holders of shares of MISCOR common stock at the closing of the merger; or (vi) the election by holders of shares of MISCOR common stock to receive the Stock Consideration or the Cash Consideration, or any combination thereof, or the actual allocation of the merger consideration between the Stock Consideration and the Cash Consideration among holders of shares of MISCOR common stock (including, without limitation, any re-allocation of the merger consideration pursuant to the merger agreement). Furthermore, Stifel did not express any opinion as to the prices, trading range or volume at which IES’ securities will trade following public announcement or consummation of the merger.

Stifel’s opinion was necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to Stifel by or on behalf of IES or its advisors, or information otherwise reviewed by Stifel, as of the date of its opinion. It is understood that subsequent developments may affect the conclusion reached in Stifel’s opinion and that Stifel does not have any obligation to update, revise or reaffirm its opinion. Further, Stifel expressed no opinion or view as to any potential effects of volatility in the credit, financial and stock markets on MISCOR, IES or the merger. Stifel also assumed that the merger would be consummated substantially on the terms and conditions described in the merger agreement, without any waiver of material terms or conditions by MISCOR or any other party and without any adjustment to the merger consideration (other than as expressly contemplated by the merger agreement), and that obtaining any necessary regulatory approvals or satisfying any other conditions for consummation of the merger will not have an adverse effect on MISCOR, IES or the merger. Stifel assumed that the merger will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations. Stifel further assumed that IES relied upon the advice of its counsel, independent accountants and other advisors (other than Stifel) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to IES, the merger and the merger agreement.

This summary is not a complete description of Stifel’s opinion or the financial analyses performed and factors considered by Stifel in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances; therefore, a financial opinion is not readily susceptible to summary description. Stifel arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Stifel believes that its analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Stifel’s analyses and opinion.

In performing its analyses, Stifel considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond MISCOR’s control and are not necessarily indicative of current market conditions. No company, business or transaction used in the analyses is identical to MISCOR or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

The assumptions and estimates contained in Stifel’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly

 

55

---

Table of Contents

more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the assumptions and estimates used in, and the results derived from, Stifel’s analyses are inherently subject to substantial uncertainty.

Stifel was not requested to, and it did not, recommend the specific consideration payable in the merger. The type and amount of consideration payable in the merger were determined through negotiation between MISCOR and IES and was approved by the disinterested members of the IES board of directors. The decision to enter into the merger agreement was solely that of the disinterested members of the IES board of directors. Stifel’s opinion and financial analysis was only one of many factors considered by the IES board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the IES board of directors or IES’ management with respect to the merger or the merger consideration.

The following is a summary of the material financial analyses reviewed with the IES board of directors in connection with the delivery of Stifel’s opinion dated March 11, 2013. The financial analyses summarized below include information presented in tabular format. In order to fully understand Stifel’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Stifel’s financial analyses.

Financial Analysis Related to MISCOR

Selected Company Analysis. Based on public and other available information, Stifel calculated MISCOR’s implied enterprise value (which Stifel defined as fully diluted market capitalization, plus total debt less cash and cash equivalents) and MISCOR’s implied fully diluted equity value, in each case, using multiples of last twelve months (“LTM”) earnings before interest, taxes, stock-based compensation, depreciation and amortization, or “EBITDA”, and projected calendar year (“CY”) 2013 EBITDA and net income, which multiples were implied by the estimated enterprise values and equity values, and projected EBITDA and net income of the selected companies listed below. LTM and projected CY 2013 information for MISCOR was provided by IES management. Projections for the selected companies were based upon First Call Consensus estimates, publicly available investment banking research and public filings.

 

		Equity Value				Enterprise Value				EBITDA								Net Income				EPS
Industrial Specialty Contractor										LTM				CY 2013P				CY 2013P				CY 2013P
		($ in millions, except per share figures)
The Babcock & Wilcox Company		$	3,256.8			$	2,805.5			$	351.0			$	435.1			$	263.1			$	2.30
Graham Corp.		$	238.6			$	183.7			$	12.3			$	20.5			$	11.9			$	1.11
Global Power Equipment Group Inc.		$	309.6			$	277.7			$	24.1			$	31.3			$	16.4			$	0.94
Integrated Electrical Services, Inc.		$	85.3			$	69.4			$	7.9				NA				NA				NA
Matrix Service Company		$	435.2			$	405.5			$	42.1			$	61.7			$	29.4			$	1.07
MYR Group, Inc.		$	511.6			$	491.7			$	79.9			$	88.9			$	37.8			$	1.81
Pike Electric Corporation		$	515.1			$	720.2			$	105.8			$	91.3			$	23.4			$	0.65

The following table sets forth the multiples indicated by this analysis:

 

Enterprise Value to:

First Quartile

Median

Mean

Third Quartile

LTM EBITDA

7.4x

8.8x

9.4x

10.6x

CY 2013 Projected (“P”) EBITDA

6.5x

7.2x

7.4x

8.6x

Equity Value to:

CY 2013P net income

13.8x

17.4x

17.3x

20.9x

 

56

---

Table of Contents

The multiples derived from the implied estimated enterprise values and equity values, and applicable EBITDA and net income of the companies listed above, were calculated using data that excluded all extraordinary items and non-recurring charges.

The ranges of implied MISCOR per share equity values below were each calculated based on a range of EBITDA or net income multiples in the first quartile to third quartile of the multiples derived by Stifel for the selected companies listed above. In each case, Stifel multiplied these ranges of EBITDA multiples by MISCOR’s actual or estimated EBITDA, as applicable, to calculate enterprise value, and subtracted MISCOR’s net debt position (calculated as total debt less cash and cash equivalents) to derive equity value. Using the Treasury Stock Method, Stifel then derived MISCOR’s implied per share equity value. Stifel also multiplied these ranges of EBITDA multiples by MISCOR’s actual or estimated net income, as applicable, to calculate equity value. Using the Treasury Stock Method to calculate MISCOR’s fully diluted shares outstanding, Stifel then derived MISCOR’s implied per share equity value.

 

Enterprise Value to:		Low				High
LTM EBITDA		$	2.35			$	3.62
CY 2013P EBITDA		$	2.43			$	3.44
Equity Value to:
CY 2013P Net Income		$	3.59			$	5.41

Stifel noted that the value of the per share consideration to be received by holders of MISCOR common stock pursuant to the merger was assumed to be $1.57.

Although no company utilized in the selected company analysis is identical to MISCOR, the selected companies were chosen because they are publicly traded companies that operate in a similar industry as MISCOR and have lines of business and financial and operating characteristics similar to MISCOR. Using its professional judgment, Stifel determined that these selected companies were the most appropriate for this analysis. Stifel did not identify any other companies for this purpose. In evaluating comparable companies, Stifel made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond MISCOR’s control, such as the impact of competition on its business and the industry generally, industry growth and the absence of any adverse material change in MISCOR’s financial condition and prospects or the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.

 

57

---

Table of Contents

Selected Transactions Analysis. Based on public and other available information, Stifel calculated MISCOR’s implied enterprise value based on multiples of LTM EBITDA, implied by the fourteen (14) acquisitions of companies listed below in the specialty contractor industry announced since January 1, 2010. The acquisitions reviewed in this analysis were the following:

 

Effective Date		Acquirer		Target		Enterprise Value				LTM EBITDA
						($ in millions)
Announced		Energy Capital Partners		EnergySolutions, Inc.		$	1,100.0			$	155.9
Announced		KS International, LLC		Michael Baker Corporation		$	167.6			$	34.7
2/13/2013		Chicago Bridge & Iron Company N.V.		The Shaw Group Inc.		$	3,288.8			$	165.4
12/28/2012		Clean Harbors, Inc.		Safety-Kleen, Inc.		$	1,250.0			$	147.7
7/11/2012		DXP Enterprises, Inc.		HSE Integrated Ltd.		$	80.8			$	15.7
5/16/2012		Insight Equity		Flanders Corporation		$	192.5			$	11.8
5/14/2012		URS Corporation		Flint Energy Services Limited		$	1,488.7			$	134.5
5/8/2012		Wabash National Corp.		Walker Group Holdings LLC		$	364.0			$	52.8
11/10/2011		CH2M Hill Europe Limited		Halcrow Holdings Ltd.		$	356.9			$	20.0
8/2/2011		Aegion Corporation		Hockway Ltd.		$	6.1			$	0.9
6/30/2011		Aegion Corporation		CRTS, Inc.		$	39.0			$	3.8
11/12/2010		Primoris Services Corporation		Rockford Corporation		$	92.5			$	10.0
7/13/2010		The Churchill Corporation		Seacliff Construction Corp.		$	315.0			$	38.8
7/1/2010		Willbros Group Inc.		InfrastruX Group, Inc.		$	480.0			$	15.9

The following table sets forth the multiples indicated by this analysis:

 

Enterprise Value to:

First Quartile

Median

Mean

Third Quartile

LTM EBITDA

6.8 x

7.6x

7.8x

9.1x

The ranges of implied MISCOR per share equity values below were each calculated based on a range of EBITDA multiples in the first quartile to third quartile of the multiples derived by Stifel for the selected transaction listed above. In each case, Stifel multiplied this range of EBITDA multiples by MISCOR’s actual EBITDA to calculate enterprise value, and subtracted MISCOR’s net debt position to derive equity value. Using the Treasury Stock Method to calculate MISCOR’s fully diluted shares outstanding, Stifel then derived MISCOR’s implied per share equity value.

 

Enterprise Value to:		Low				High
LTM EBITDA		$	2.11			$	3.02

Stifel noted that the value of the per share consideration to be received by holders of MISCOR common stock pursuant to the Merger was assumed to be $1.57.

While no transaction used in the selected precedent transactions analysis is identical to the merger and no company that participated in the selected precedent transactions analysis is identical to MISCOR, Stifel chose such transactions based on, among other things, a review of transactions involving companies in the specialty contractor industry announced since January 1, 2010, Stifel’s knowledge about MISCOR, the industries in which MISCOR operates, the geographical and operational nature of MISCOR’s business and the similarity of the applicable target companies in the selected precedent transactions to MISCOR with respect to the size, mix, margins and other characteristics of their businesses. Accordingly, an analysis of the results of the foregoing is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the target companies and other factors that could affect the public trading value of the companies and the transactions to which MISCOR and the merger are being compared.

 

58

---

Table of Contents

Premiums Paid Analysis.    Stifel reviewed the consideration paid in the forty (40) majority acquisitions of U.S. target companies announced between January 1, 2012 and March 8, 2013 with transaction values ranging between $0 and $100 million. Stifel calculated the premium paid in each of these transactions over each applicable target company’s closing stock price on the last trading day prior to announcement of the acquisition offer or the date that knowledge of a potential transaction became public. In addition, Stifel calculated the implied premium to each target company’s average stock price five (5) days prior to the announcement date, and the implied premium to the average stock price thirty (30) days prior to the announcement date.

 

		Premium One Day prior to Announcement				Premium Five Days prior to Announcement				Premium 30 Days prior to Announcement
3rd Quartile			62.8	%			61.9	%			67.4	%
Mean			44.7	%			44.3	%			47.1	%
Median			40.3	%			41.2	%			41.6	%
1st Quartile			20.2	%			24.8	%			25.0	%

With respect to each of the analyses above, Stifel noted that the premiums implied by the proposed acquisition by IES were 21.1%, 19.6% and 25.0%, respectively, for the one day, one week and one month periods prior to the date of the Stifel opinion.

Using a reference range of first quartile to third quartile for each time period listed above, Stifel performed a premiums paid analysis using the closing prices per share of MISCOR’s common stock for the periods 1-day, 5-days and 30-days prior to March 8, 2013. This analysis indicated a range of implied value per share of MISCOR common stock of approximately $1.56 to $2.13. Stifel noted that the value of the per share consideration to be received by holders of MISCOR common stock pursuant to the merger was assumed to be $1.57.

Discounted Cash Flow Analysis. Stifel performed a discounted cash flow analysis of MISCOR based on the forecasts prepared by the management of IES through 2017. Stifel estimated the terminal value of the projected cash flows by applying terminal multiples to IES’ estimated 2017 EBITDA for MISCOR, which multiples ranged from 6.9x to 7.9x. This range of terminal multiples was selected based on a review of MISCOR’s and other companies current and historical trading multiples reviewed in connection with the companies identified under the caption “—Selected Company Analysis.” Stifel then discounted the cash flows projected through 2017 and the terminal value to present values using discount rates from 14.7% to 16.7%, which were derived based on the capital asset pricing model and a range of pre-tax cost of debt figures and debt/capitalization. This analysis indicated a range of aggregate values, which were then decreased by MISCOR’s Net Debt of $7.2 million, to calculate a range of equity values. These equity values were then divided by fully diluted shares outstanding to calculate implied equity values per share ranging from $2.24 to $2.70. Stifel noted that the value of the per share consideration to be received by holders of MISCOR common stock pursuant to the merger was $1.57. A discounted cash flow analysis was included because it is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, including terminal multiples and discount rates.

Stifel’s analysis did not purport to be indicative of actual future results and did not purport to reflect the prices at which MISCOR common stock may trade in the public markets.

Financial Analysis Related to IES

Selected Company Analysis. Based on public and other available information, Stifel calculated IES’ implied enterprise value (which Stifel defined as fully diluted market capitalization, plus total debt less cash and cash equivalents) and IES’ implied fully diluted equity value, in each case, using multiples of last twelve months (“LTM”) earnings before interest, taxes, stock-based compensation, depreciation and amortization, or “EBITDA”, and projected calendar year (“CY”) 2013 EBITDA and net income, which multiples were implied by the estimated enterprise values and equity values, and projected EBITDA and net income of the selected

 

59

---

Table of Contents

companies listed below. LTM and projected CY 2013 information for IES was provided by IES management. Projections for the selected companies were based upon First Call Consensus estimates, publicly available investment banking research and public filings.

 

		Equity Value				Enterprise Value				EBITDA								Net Income				EPS
General Specialty Contractor										LTM				CY 2013P				CY 2013P				CY 2013P
		($ in millions, except per share figures)
Comfort Systems USA Inc.		$	479.6			$	463.2			$	42.4			$	45.8			$	14.8			$	0.39
EMCOR Group Inc.		$	2,683.6			$	2,240.4			$	304.7			$	331.1			$	159.9			$	2.36
MYR Group, Inc.		$	511.6			$	491.7			$	79.9			$	88.9			$	37.8			$	1.81
Pike Electric Corporation		$	515.1			$	720.2			$	105.8			$	91.3			$	23.4			$	0.65
Primoris Services Corporation		$	1,042.8			$	1,038.7			$	130.1			$	151.4			$	68.4			$	1.30

The following table sets forth the multiples indicated by this analysis:

 

Enterprise Value to:

First Quartile

Median

Mean

Third Quartile

LTM EBITDA

6.8x

7.4x

7.8x

8.0x

CY 2013 Projected (“P”) EBITDA

6.8x

6.9x

7.4x

7.9x

Equity Value to:

CY 2013P net income

15.6x

16.8x

20.3x

22.5x

The multiples derived from the implied estimated enterprise values and equity values, and applicable EBITDA and net income of the companies listed above, were calculated using data that excluded all extraordinary items and non-recurring charges.

The ranges of implied IES per share equity values below were each calculated based on a range of EBITDA or net income multiples in the first quartile to third quartile of the multiples derived by Stifel for the selected companies listed above. In each case, Stifel multiplied these ranges of EBITDA multiples by IES’ actual or estimated EBITDA, as applicable, to calculate enterprise value, and subtracted IES’ net debt position (calculated as total debt less cash and cash equivalents) to derive equity value. Using the Treasury Stock Method, Stifel then derived IES’ implied per share equity value. Stifel also multiplied these ranges of EBITDA multiples by IES’ actual or estimated net income, as applicable, to calculate equity value. Using the Treasury Stock Method to calculate IES’ fully diluted shares outstanding, Stifel then derived IES’ implied per share equity value.

 

Enterprise Value to:		Low				High
LTM EBITDA		$	4.66			$	5.27
CY 2013P EBITDA		$	5.35			$	6.06
Equity Value to:
CY 2013P Net Income		$	4.21			$	5.16

Although no company utilized in the selected company analysis is identical to IES, the selected companies were chosen because they are publicly traded companies that operate in a similar industry as IES and have lines of business and financial and operating characteristics similar to IES. Using its professional judgment, Stifel determined that these selected companies were the most appropriate for this analysis. Stifel did not identify any other companies for this purpose. In evaluating comparable companies, Stifel made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond IES’ control, such as the impact of competition on its business and the industry generally, industry growth and the absence of any adverse material change in IES’ financial condition and prospects or the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.

 

60

---

Table of Contents

Discounted Cash Flow Analysis. Stifel performed a discounted cash flow analysis of IES based on the forecasts prepared by the management of IES through 2017. Stifel estimated the terminal value of the projected cash flows by applying terminal multiples to IES’ estimated 2017 EBITDA for IES, which multiples ranged from 6.3x to 7.3x. This range of terminal multiples was selected based on a review of MISCOR’s and other companies current and historical trading multiples reviewed in connection with the companies identified under the caption “—Selected Company Analysis.” Stifel then discounted the cash flows projected through 2017 and the terminal value to present values using discount rates from 14.6% to 16.6%, which were derived based on the capital asset pricing model and a range of pre-tax cost of debt figures and debt/capitalization ratios. This analysis indicated a range of aggregate values, which were then increased by IES’ net cash of $16.0 million, to calculate a range of equity values. These equity values were then divided by fully diluted shares outstanding to calculate implied equity values per share ranging from $6.65 to $7.62. A discounted cash flow analysis was included because it is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, including terminal multiples and discount rates.

Stifel’s analysis did not purport to be indicative of actual future results and did not purport to reflect the prices at which IES common stock may trade in the public markets.

Conclusion

Based upon the foregoing analyses and the assumptions and limitations set forth in full in the text of Stifel’s opinion letter, Stifel was of the opinion that, as of March 11, 2013, the consideration to be paid by IES to holders of MISCOR common stock in the merger pursuant to the merger agreement was fair, from a financial point of view, to IES.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Stifel considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Stifel believes that the summary provided and the analyses described above must be considered as a whole and that selecting portions of these analyses, without considering all of them, would create an incomplete view of the process underlying Stifel’s analyses and opinion; therefore, the range of valuations resulting from any particular analysis described above should not be taken to be Stifel’s view of the actual value of MISCOR.

Miscellaneous

Stifel acted as financial advisor to the IES board of directors and received a fee of $250,000 upon the delivery of its opinion that is not contingent upon consummation of the merger (the “Opinion Fee”). IES has also agreed to reimburse Stifel for certain of its expenses incurred in connection with Stifel’s engagement. Stifel will not receive any payment or compensation contingent upon the successful consummation of the merger. In addition, IES has agreed to indemnify Stifel for certain liabilities arising out of its engagement. In the ordinary course of business, Stifel and its clients may transact in the equity securities of MISCOR or IES and may at any time hold a long or short position in such securities. There are no material relationships that existed during the two years prior to the date of Stifel’s opinion or that are mutually understood to be contemplated in which any compensation was received or is intended to be received by Stifel as a result of the relationship between Stifel and any party to the merger. Stifel may seek to provide investment banking services to IES in the future, for which Stifel would seek customary compensation. Stifel has consented in writing to the inclusion of its opinion as an annex to this joint proxy statement/prospectus.

Opinion of MISCOR’s Financial Adviser

Western Reserve rendered its opinion to MISCOR’s board of directors that, as of March 13, 2013, and based upon and subject to the factors and assumptions set forth in its opinion, the Cash Consideration of $1.415 per common share of MISCOR to be paid to the holders of such shares is fair from a financial point of view to such holders. The opinion of Western Reserve was necessarily based on economic, market, tax, legal and other conditions as in effect on, and the information made available to it as of March 13, 2013.

 

61

---

Table of Contents

The full text of Western Reserve’s written opinion, dated March 13, 2013, which sets forth, among other things, the assumptions made, procedures followed, matters and factors considered and limitations and qualifications on the review undertaken in connection with the opinion, is attached as Annex C to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference in its entirety. The summary of Western Reserve’s opinion is qualified in its entirety by reference to the full text of the opinion. Western Reserve’s opinion, the issuance of which was approved by Western Reserve’s internal valuation and fairness opinion committee, was provided to the MISCOR board of directors in connection with its evaluation of the proposed transaction contemplated by the merger agreement and was limited to the fairness, from a financial point of view, as of the date of the opinion, to the MISCOR shareholders of the Cash Consideration to be received by the shareholders of MISCOR (other than other than IES and its affiliates (including Tontine). Western Reserve’s opinion does not address any other aspect of the transaction, including the tax consequences of the transaction to MISCOR, IES or the shareholders of MISCOR or IES, the underlying business decision of MISCOR to effect the transaction, the relative merits of the transaction as compared to any alternative business strategies that might exist for MISCOR or the effect of any other transactions in which MISCOR may engage, and does not constitute a recommendation to the shareholders of MISCOR or stockholders of IES as to how to vote at any stockholders meetings held in connection with the transaction. Western Reserve’s opinion expressly assumes that all of MISCOR’s shareholders, other than IES and its affiliates (including Tontine), elect to receive Cash Consideration and therefore expresses no opinion as to what the value of IES’ shares actually will be when issued or the price at which IES’ shares will trade at any time.

In connection with this opinion, Western Reserve has made such reviews, analyses and inquiries as deemed necessary and appropriate under the circumstances. Western Reserve also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation and with respect to similar transactions. Western Reserve’s procedures, investigations, and financial analysis with respect to the preparation of this opinion included, but were not limited to, the following: (i) a draft of the merger agreement, dated March 12, 2013, which Western Reserve understood to be in substantially final form; (ii) publicly available information and SEC filings related to MISCOR, including the 2012 and 2011 Annual Reports on Form 10-K and the Quarterly Report on Form 10-Q of MISCOR for the third fiscal quarter ended September 30, 2012; (iii) certain other internal information, primarily financial in nature, including internal 2012 financial estimates and financial projections for fiscal years 2013 through 2015, concerning the business and operations of MISCOR, as furnished to Western Reserve by MISCOR for purposes of our analyses; (iv) financial projections for fiscal years 2016 and 2017 that were reviewed and approved by management of MISCOR; (v) publicly available information with respect to certain other companies that Western Reserve believes to be comparable to MISCOR and the historical trading price and volume of such other companies’ securities; (vi) publicly available information concerning the nature and terms of certain other transactions that Western Reserve considered relevant to its inquiry; (vii) certain valuation and comparative analyses, using generally accepted valuation and analytical techniques, that Western Reserve deemed relevant; (viii) Western Reserve’s analysis of MISCOR’s historical share price performance and trading volume; (ix) visits to MISCOR’s facilities and interviews with the management of MISCOR relating to its current and projected operations and financial condition; and (x) such other data and information Western Reserve judged necessary or appropriate to render its opinion.

Western Reserve’s opinion addressed only the fairness, from a financial point of view, to the shareholders of MISCOR (other than other than IES and its affiliates (including Tontine)) of the Cash Consideration to be received by such holders in the merger, expressly assumed that all of MISCOR’s shareholders, other than IES and its affiliates (including Tontine), elect to receive Cash Consideration and did not address any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise including, without limitation, the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration or otherwise.

 

62

---

Table of Contents

In Western Reserve’s review and analysis and in arriving at its opinion, Western Reserve has assumed and relied upon the accuracy and completeness of all of the financial and other information provided to it or publicly available and has assumed and relied upon as fact that all information supplied and representations made by MISCOR management regarding MISCOR and the merger are substantially accurate in all respects material to Western Reserve’s analysis, and has assumed and relied upon the representations and warranties of MISCOR and IES contained in the merger agreement. Western Reserve has not been engaged to, and has not independently attempted to, verify any of such information. Western Reserve has assumed that information supplied and representations made by MISCOR management regarding MISCOR and the merger are substantially accurate in all respects material to Western Reserve’s analysis. Western Reserve has also relied upon the management of MISCOR as to the reasonableness and achievability of the financial and operating projections (and the assumptions and bases therefor) provided to Western Reserve and, with MISCOR’s consent, Western Reserve has assumed that such projections were reasonably prepared and reflect the best currently available estimates and judgments of MISCOR. Western Reserve was not engaged to assess the reasonableness or achievability of such projections or the assumptions on which they were based, and expressed no view as to such projections or assumptions. Also, Western Reserve did not conduct an appraisal of any of the assets, properties or facilities of MISCOR.

Western Reserve was not asked to, nor did it, offer any opinion as to the material terms of the merger agreement or the form of the merger. In rendering its opinion, Western Reserve assumed, with MISCOR’s consent, that the final executed form of the merger agreement did not differ in any material respect from the last draft that Western Reserve received. In addition, Western Reserve assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained, all other conditions to the merger as set forth in the merger agreement will be satisfied, and that the merger will be consummated on a timely basis in the manner contemplated by the merger agreement. Western Reserve did not solicit, nor was it asked to solicit, third party interest in any transaction involving MISCOR prior to the rendering of this opinion.

It should be noted that Western Reserve’s opinion is necessarily based upon economic and market conditions and other circumstances existing on, and information made available as of, the date of the opinion as they could be evaluated on that date and does not address any matters subsequent to such date. Western Reserve has assumed that all of the conditions required to implement the merger will be satisfied, that the merger will be completed in accordance with the merger agreement without any material amendments thereto or any material waivers or delays of any terms or conditions thereof, and that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on MISCOR or the consummation of the merger. Also, Western Reserve’s opinion does not address either MISCOR’s or IES’ underlying business decision to effect the merger or any other terms of the merger agreement. In addition, it should be noted that although subsequent developments may affect this opinion, Western Reserve does not have any obligation to update, revise or reaffirm its opinion.

In preparing its opinion to the MISCOR board of directors, Western Reserve performed a variety of analyses, including those described below. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of those methods to the unique facts and circumstances presented. As a consequence, neither Western Reserve’s opinion nor the analyses underlying its opinion are readily susceptible to partial analysis or summary description. Western Reserve arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, specific conclusions from any individual analysis, analytic method or factor, but subjectively factored its observations from all of these analyses into its qualitative assessment of the Cash Consideration. Accordingly, Western Reserve believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 13, 2013, and is not necessarily indicative of current market conditions.

 

63

---

Table of Contents

No company, business or transaction used in Western Reserve’s analyses for comparative purposes is identical to MISCOR or the proposed merger. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Western Reserve did not make separate or quantifiable judgments regarding individual analyses. The implied reference range values indicated by Western Reserve’s analyses are illustrative and not necessarily indicative of actual values nor predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond MISCOR’s control and the control of Western Reserve. Much of the information used in, and accordingly the results of, Western Reserve’s analyses are inherently subject to substantial uncertainty.

Historical Stock Trading Analyses

Western Reserve reviewed historical closing prices and trading volumes of MISCOR common shares and noted the following:

 

•

MISCOR common shares traded at a 52-week high closing price of $1.38 per share on March 3, 2013, and a 52-week low closing price of $0.31 per share on March 27, 2012;

 

•

Between January 1, 2009 and March 12, 2013, MISCOR common shares closed below the Cash Consideration of $1.415 per share 99.6% of the time, on a weighted average price basis; and

 

•

The Cash Consideration of $1.415 per share represents premiums of 8.8%, 10.0%, and 16.0% to MISCOR’s 1-day, 30-day volume-weighted average, and 60-day volume-weighted average closing share prices, respectively.

Book Value Analysis

Western Reserve analyzed MISCOR’s net book value and net tangible book value utilizing MISCOR’s unaudited financial reports for the four week period ending February 24, 2013. Western Reserve calculated MISCOR’s net book value and net tangible book value to be $1.22 per fully diluted common share and $0.70 per fully diluted common share, respectively. The Cash Consideration of $1.415 per MISCOR common share fell above this range.

Premiums Paid Analysis

To assess the share price premium offered to MISCOR shareholders, Western Reserve reviewed the premiums paid for public target transactions within the Industrial NAIC codes valued less than $250 million that were completed since January 1, 2006. Western Reserve calculated the premium paid in each transaction by comparing the announced transaction value per share to the target company’s stock price four weeks prior to the announcement of the transaction. Western Reserve selected a range around the median premium paid for the public target transactions and applied it to MISCOR’s share price 30 days prior to announcing the merger. This analysis indicated the following valuation range for MISCOR’s share price; Cash Consideration of $1.415 per MISCOR common share fell within this range:

 

Four-Week Median Stock Price Premiums Paid:							21.8	%
MISCOR share price 30 days prior to announcing merger						$	1.15
Selected Premium Range			20.0	%			—				25.0	%
Selected Valuation Range		$	1.38				—			$	1.44

Reference Public Companies Analysis

In order to assess how the public market values shares of publicly traded companies that have operating characteristics similar to those of MISCOR, Western Reserve reviewed and compared the financial and operating performance of publicly traded companies within the Industrial and Rail Services markets. The Industrial

 

64

---

Table of Contents

Services group was comprised of five publicly traded companies focused on providing industrial, specialty contracting and engineering services to the metals, infrastructure and other general industrial markets. The Rail Services group was comprised of three publicly traded companies that focused on manufacturing products and components and providing specialty services that serve the rail industry. The selected companies were selected because they had publicly traded equity securities and were deemed to be similar to MISCOR in one or more respects including the nature of their business, size, diversification, financial performance and geographic concentration. No specific numeric or other similar criteria were used to select the selected companies and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria. As a result, a significantly larger or smaller company with substantially similar lines of businesses and business focus may have been included while a similarly sized company with less similar lines of business and greater diversification may have been excluded. Western Reserve identified a sufficient number of companies for purposes of its analysis but may not have included all companies that might be deemed comparable to MISCOR.

Western Reserve analyzed these two groups, recognizing MISCOR’s separate operating segments. The groups were comprised of the following companies:

 

Industrial Services		Rail Services
Dycom Industries Inc.		American Railcar Industries
EMCOR Group Inc.		Greenbrier Companies
Harsco Corporation		Westinghouse Air Brake Technologies Corporation
MYR Group, Inc.
Primoris Services Corporation

None of the companies used in this analysis is identical or directly comparable to MISCOR. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the selected companies.

Western Reserve examined reference company enterprise values as a multiple of trailing 12 months EBITDA to arrive at its valuation of MISCOR. For each of the selected companies, Western Reserve calculated the applicable company’s ratio of total enterprise value as of March 12, 2013 to its EBITDA as of the trailing 12 months period ending as of the end of the period covered by the applicable company’s most recently filed annual report on Form 10-K or quarterly report on Form 10-Q (“LTM EBITDA”). Enterprise value (“EV”) is calculated as the market value of the company’s equity (as of March 12, 2013); plus the value of the company’s indebtedness, minority interest and preferred stock; minus the company’s cash and cash equivalents.

 

($ in millions)
Company		Enterprise Value				LTM EBITDA				EV/LTM EBITDA
Industrial Services:
Dycom Industries Inc.		$	1,100			$	140				7.9x
EMCOR Group Inc.		$	2,175			$	305				7.1x
Harsco Corporation		$	2,929			$	458				6.4x
MYR Group, Inc.		$	481			$	80				6.0x
Primoris Services Corporation		$	1,041			$	136				7.7x
Median EV/LTM EBITDA Multiple											7.1x
Rail Services:
American Railcar Industries		$	1,037			$	145				7.1x
Greenbrier Companies		$	1,088			$	152				7.2x
Westinghouse Air Brake Technologies Corporation		$	4,816			$	436				11.0x
Median EV/LTM EBITDA Multiple											7.2x

 

65

---

Table of Contents

Western Reserve blended the median EV / LTM EBITDA multiple of the Industrial and Rail Services groups based on the percentage of gross profit each of MISCOR’s operating segments generated during fiscal year 2012. Based on its professional judgment and after considering, among other things, applicable discounts for differences in size, growth, profitability, liquidity and customer concentration between the Company and the reference public companies, as well as applicable equity control premiums to account for value not implicit in the reference companies’ public minority share valuations, Western Reserve utilized an adjusted EV / EBITDA valuation range of approximately 4.9x to 5.9x EV / trailing 12 months EBITDA (trailing 12 months as of February 24, 2013). This implied a valuation range of per share values for MISCOR of $1.13 to $1.50. The Cash Consideration of $1.415 per MISCOR common share fell within this range.

The following table summarizes this analysis:

 

Trading Multiples Analysis:

Weight

Industrial Services Median EV/EBITDA Multiple

7.1x

56

%

Rail Services Median EV/EBITDA Multiple

7.2x

44

%

Reference Companies Blended Median EV/EBITDA Multiple

7.1x

Comparability Discount Relative to Size, Growth, Profitability, Customer

(25.0

%)

Concentration

Adjusted Reference Companies EV/EBITDA Multiple

5.4x

Adjusted Multiple Range (+/- 0.5x)

4.9x

—

5.9x

Applied Discount for Illiquidity (15%)

(0.7x

)

(0.9x

)

Applied Premium for Control Share Valuation (20%)

0.8x

—

1.0x

Adjusted EV / EBITDA Valuation Multiple Range

4.9X

—

5.9X

*multiples do not add due to rounding

Implied Equity Value per Fully Diluted Share

$

1.13

—

$

1.50

Western Reserve also examined reference company enterprise values as a multiple of their three-year average EBITDA to supplement the Reference Public Company Analysis. For each of the selected companies, Western Reserve calculated the applicable company’s ratio of total enterprise value as of March 12, 2013 to the average EBITDA of the last three fiscal years covered by the applicable company’s filed annual reports on Form 10-K (“Average EBITDA”).

 

($ in millions)
Company		Enterprise Value				Average EBITDA				EV/Average EBITDA
Industrial Services:
Dycom Industries Inc.		$	1,100			$	105				10.5x
EMCOR Group Inc.		$	2,175			$	208				7.8x
Harsco Corporation		$	2,929			$	479				6.1x
MYR Group, Inc.		$	481			$	56				8.6x
Primoris Services Corporation		$	1,041			$	117				8.9x
Median EV/Avg. EBITDA Multiple											9.4x
Rail Services:
American Railcar Industries		$	1,037			$	69				15.0x
Greenbrier Companies		$	1,088			$	106				10.2x
Westinghouse Air Brake Technologies Corporation		$	4,816			$	338				14.2x
Median EV/Avg. EBITDA Multiple											14.2x

 

66

---

Table of Contents

Western Reserve blended the median EV / Average EBITDA multiple of the Industrial and Rail Services groups based on the percentage of gross profit each of MISCOR’s operating segments generated during fiscal year 2012. Western Reserve then utilized the median EV / Average EBITDA multiple and, based on its professional judgment, applied the same discounts used in its EV / LTM EBITDA analysis above to derive an adjusted median range of 7.9x to 8.9x. Western Reserve multiplied MISCOR’s Average EBITDA to the discounted median range and subtracted MISCOR’s average net debt over fiscal years 2010, 2011 and 2012 to derive a range of implied equity values for MISCOR’s common shares. On a per share basis, the valuation range was between $0.87 and $1.08. The Cash Consideration of $1.415 per MISCOR common share fell above this range.

The following table summarizes this analysis:

 

Trading Multiples Analysis:

Weight

Industrial Services Median EV/EBITDA Multiple

8.6x

56

%

Rail Services Median EV/EBITDA Multiple

14.2x

44

%

Reference Companies Blended Median EV/EBITDA Multiple

11.1x

Comparability Discount Relative to Size, Growth, Profitability, Customer Concentration

(25.0

%)

Adjusted Reference Companies EV/EBITDA Multiple

8.3x

Adjusted Multiple Range (+/- 0.5x)

7.8x

—

8.8x

Applied Discount for Illiquidity (15%)

(1.2x

)

(1.3x

)

Applied Premium for Control Share Valuation (20%)

1.3x

—

1.5x

Adjusted EV / EBITDA Valuation Multiple Range

7.9X

—

8.9X

*multiples do not add due to rounding

Implied Equity Value per Fully Diluted Share

$

0.87

—

$

1.08

Reference M&A Transaction Analysis:

Western Reserve compared MISCOR to target companies involved in control sale transactions. Using publicly available information and, in one instance, Western Reserve’s proprietary data, Western Reserve reviewed and compared multiples paid in 14 precedent transactions with announcement dates ranging from February 2006 to May 2012 for purposes of its analysis, as shown in the table below. Similar to the Reference Public Companies Analysis, Western Reserve examined acquisitions of both Industrial Services and Rail Services companies.

 

Announcement		Target		Acquirer
Industrial Services:
May 2012		Taylor & Goodman Limited		Peja Producten B.V.
April 2011		Mccaine Electric Ltd.		Churchill Corp.
July 2010		Seacliff Construction Corp.		Churchill Corp.
June 2010		Castle Support Services PLC		Sulzer (UK) Holdings Limited
April 2009		Lockerbie & Hole Inc.		Aecon Group Inc.
February 2008		Electro-Mec, Inc.		Integrated Power Services
February 2006		Dowding and Mills plc		North Atlantic Value Fund and Starlight Investments
Rail Services:
April 2012		Cudahy Car Shop, Inc.		Watco Companies, LLC
February 2011		Waycross Railcar		CF Rail Service
November 2010		DTE Rail Services, Inc.		FreightCar America Inc.
December 2010		Portec Rail Products Inc.		Foster Thomas, Inc.
August 2010		Electro-Motive Diesel, Inc.		Progress Rail Services Corporation
January 2010		American Railcar Industries, Inc.		Icahn Enterprises, L.P.
March 2008		American Allied Railway Equipment Co., Inc.		Greenbrier Rail Services, LLC

 

67

---

Table of Contents

None of the acquired companies used in this analysis are identical or directly comparable to MISCOR. Accordingly, an evaluation of the results of this analysis was not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning these transactions and how they could be viewed relative to the proposed merger.

Western Reserve examined enterprise values as a multiple of EBITDA in conducting this analysis. Western Reserve calculated these multiples by dividing the acquired company’s enterprise value by its most recent trailing 12 months EBITDA prior to the transaction. Western Reserve blended the median EV / LTM EBITDA multiples of the Industrial and Rail Services groups based on the percentage of gross profit each of MISCOR’s operating segments generated during fiscal year 2012.

Based on its professional judgment and after considering, among other things, applicable discounts for differences in size, growth and profitability between the Company and the reference transaction target companies, Western Reserve utilized an adjusted valuation range of 4.4x to 5.4x EV / EBITDA. This analysis implied a fully diluted per share valuation range of $0.96 to $1.32. The Cash Consideration of $1.415 per MISCOR common share fell above this range.

The following table summarizes this analysis:

 

Reference M&A Transaction Analysis:
							Weight
Industrial Services Median EV/EBITDA Multiple			5.8x				56	%
Rail Services Median EV/EBITDA Multiple			5.8x				44	%
Reference M&A Transaction Analysis Blended Median EV/EBITDA Multiple			5.8x
Comparability Discount Relative to Size, Growth, and							(15.0	%)
Profitability
Adjusted Reference Transaction Analysis EV / EBITDA							4.9x
Multiple
Adjusted EV/EBITDA Multiple Range (+/- 0.5x)			4.4x				—				5.4x
Implied Equity Value per Fully Diluted Share		$	0.96				—			$	1.32

Discounted Cash Flow Analysis

Based on its analysis of MISCOR’s financial projections for the years ending 2013 through 2017, Western Reserve performed two discounted cash flow analyses, one that assessed MISCOR’s equity value under a “status quo” scenario (as per discussions with and guidance from MISCOR’s management) and one that assessed MISCOR’s equity value under a “go-private” scenario. In both scenarios, Western Reserve discounted to a present value MISCOR’s projected stream of free cash flows for the years 2013 through 2017 (using MISCOR’s management projections) and for an estimated terminal value, each adjusted for certain projected non-cash items (such as depreciation and amortization), tax assumptions, projected capital expenditures and projected changes in net non-cash working capital. Based on its professional judgment and after taking into consideration, among other things, an estimate of the weighted average cost of capital (“WACC”) for the Referenced Public Companies, an equity size premium related to the Company’s market capitalization and a Company-specific risk premium, the discounted cash flow analysis was conducted based on an estimated weighted average cost of capital for MISCOR of 33.0%. Western Reserve calculated the estimated terminal value of MISCOR at the end of the forecast period by applying a Gordon Growth Model calculation and, based on its professional judgment, a 3.0% perpetuity growth rate on MISCOR’s 2018 free cash flow and a discount factor of 33.0%. In both scenarios, Western Reserve conducted a sensitivity analysis using a WACC range of 30.0% to 36.0% and a perpetuity growth rate range of 2.0% to 4.0%, in addition to using the Company’s net debt balance as of February 24, 2013 of $7,340.

 

68

---

Table of Contents

The following table summarizes this analysis:

 

Discounted Cash Flow Analysis:
			Industrial Services								Rail Services
Estimated Weighted Average Cost of Capital
Estimate WACC of Reference Public Companies			8.1	%							10.1	%
Equity Size Premium			12.1	%							12.1	%
Company Specific Risk Premium			15.0	%							15.0	%
WACC (assuming 70% Equity/30% Debt Capital Structure)			31.6	%							33.6	%
Assumed Range of Costs of Capital			30	%			—				36	%
Assumed Range of Perpetuity Growth Rates			2.0	%			—				4.0	%
Implied Equity Value per Fully Diluted Share
Status Quo Scenario		$	1.31				—			$	1.45
Go-Private Scenario		$	1.03				—			$	1.16

Under the “status quo” scenario, MISCOR’s projected cash flows were based on the assumption that MISCOR would continue realizing the full benefits of its net operating loss carryforwards (“NOLs”), estimated to be $17.2 million and generally expiring through 2030. The “status quo” sensitivity analysis suggested a range of per share values for MISCOR common stock of $1.31 to $1.45. Under the “go-private” scenario, MISCOR’s projected cash flows were adjusted assuming that MISCOR had effected a transaction that changed the Company’s ownership base by at least 50% (as would occur under the proposed merger), and, as such, would under applicable tax law, be limited on an annual basis to realize only a portion of its NOLs totaling $544 per year through their expiration. The “go private” sensitivity analysis suggested a range of per share values for MISCOR common shares of $1.03 to $1.16. The Cash Consideration of $1.415 per MISCOR common share fell within the suggested range under the “status quo” scenario and above the range under the “go private” scenario.

Leveraged Buyout Analysis

Western Reserve performed a leveraged acquisition analysis in order to ascertain the price at which an acquisition of MISCOR would be attractive to a potential financial buyer. Western Reserve performed this analysis using MISCOR’s projections and based the analysis on the following assumptions:

 

•

a buyer of MISCOR would be able use MISCOR’s trailing 12 month EBITDA as of February 24, 2013 (“LTM February 2013 EBITDA”) as a basis to raise debt capital;

 

•

total indebtedness of $10.5 million, comprised of senior term debt (1.5x LTM February 2013 EBITDA), and subordinated debt (1.0x LTM February 2013 EBITDA)

 

•

a range of projected EBITDA exit multiples in 2017 of 5.25x to 5.75x; and

 

•

an equity investment that would achieve a rate of return of at least 25.0%.

Based on these assumptions, Western Reserve generated a range of likely equity investments, which implied a leveraged acquisition price per share range for MISCOR common shares of $1.25 to $1.43. The Cash Consideration of $1.415 per MISCOR common share fell within the implied range.

Miscellaneous

The summary set forth above describes the principal analyses performed by Western Reserve in connection with its opinion delivered to the MISCOR board of directors on March 13, 2013. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the

 

69

---

Table of Contents

application of these methods to the particular circumstances and, therefore, the analyses underlying the opinion are not readily susceptible to summary description. Each of the analyses conducted by Western Reserve was carried out in order to provide a different perspective on the proposed merger transaction and add to the total mix of information available. Western Reserve did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, Western Reserve considered the results of the analyses in light of each other and ultimately reached its opinion based upon the results of all analyses taken as a whole. Except as indicated above, Western Reserve did not place particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, support its determination. Accordingly, notwithstanding the separate factors summarized above, Western Reserve believes that its analyses must be considered as a whole and that selecting portions of its analysis and the factors considered by it, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinion. In performing its analyses, Western Reserve made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by Western Reserve are not necessarily indicative of actual value or future results, which may be significantly more or less favorable than suggested by the analyses.

Western Reserve was not requested to, and it did not, recommend the specific consideration payable in the merger. The type and amount of consideration payable in the merger were determined through negotiation between MISCOR and IES and was approved by the Special Committee of the MISCOR board of directors and the MISCOR board of directors.

MISCOR agreed to pay Western Reserve an aggregate fee of $221,496.50 for its services in connection with the proposed merger, a portion of which was paid throughout Western Reserve’s engagement as a retainer, and a portion of which was payable upon the rendering of its opinion. MISCOR has also agreed to reimburse Western Reserve for certain of its expenses incurred in connection with Western Reserve’s engagement and to indemnify Western Reserve against certain liabilities, including liabilities under the federal securities laws.

Western Reserve has in the past provided investment banking services to MISCOR, for which Western Reserve has received compensation, including having acted as financial advisor to MISCOR in connection with MISCOR’s dispositions of its American AMP Rail Services Canada Inc. and American Motive Power Inc. subsidiaries and its Construction and Engineering Services operating segment.

Western Reserve was first engaged by MISCOR in October 2008 to assist MISCOR in refinancing its existing debt and raising capital to pursue future acquisitions. MISCOR paid Western Reserve a retainer fee of $25,000 for its services in connection with this engagement and reimbursed Western Reserve for certain of its expenses incurred.

Western Reserve was later engaged by MISCOR in July 2009 to advise MISCOR in the sale of American Motive Power, Inc. and HK Engine Components, LLC. In December 2009, and March 2010, MISCOR completed the sale of American AMP Rail Services Canada Inc. and the sale of American Motive Power, Inc., respectively. In December 2011, MISCOR announced its intention to end the sale process for HK Engine Components. MISCOR paid Western Reserve a retainer fee of $25,000 for its services in connection with this engagement and reimbursed Western Reserve for certain of its expenses incurred.

In December 2009, MISCOR engaged Western Reserve to opine on the divestiture of its Construction and Engineering Services segment, which was completed in February 2010. MISCOR paid Western Reserve a fee of $75,000 for its services in rendering the opinion and also reimbursed Western Reserve for certain of its expenses incurred in connection with this engagement.

Western Reserve is actively involved in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions.

 

70

---

Table of Contents

Interests of Directors and Executive Officers of MISCOR in the Merger

In considering the recommendation of the Special Committee and the MISCOR board of directors with respect to the merger agreement, MISCOR shareholders should be aware that some of MISCOR’s directors and executive officers have interests in the merger and have arrangements that may be different from, or in addition to, those of the MISCOR shareholders generally. These interests and arrangements may create potential conflicts of interest. Under Indiana law, a conflict of interest transaction is not voidable by a corporation soley because of a director’s direct or indirect interest in that transaction if the board or committee of the board had knowledge of the director’s interest when, in light of all other material facts, it approved the transaction. The Special Committee and the MISCOR board of directors were aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement.

Restricted Stock and Stock Options

Certain of MISCOR’s directors and its executive officers will benefit from the lapse of restrictions on shares of restricted common stock, and the payment of the merger consideration in respect of such shares in the merger, as described under “The Merger Agreement—Treatment of MISCOR Equity Awards” beginning on page     .

The following table sets forth the following information for each of MISCOR’s directors and executive officers:

 

•

the number of shares of MISCOR unvested restricted common stock held by each such person;

 

•

the aggregate cash payment that will be made to each such person as consideration for shares of MISCOR restricted common stock upon the consummation of the merger;

 

•

the estimated value of IES common stock to be received by each such person as consideration for shares of MISCOR restricted common stock upon the consummation of the merger;

 

•

the number of MISCOR unvested stock options held by each such person;

 

•

the aggregate cash payment that will be made to each such person as consideration for shares of MISCOR common stock resulting from the exercise of stock options upon the consummation of the merger;

 

•

the estimated value of IES common stock to be received by each such person as consideration for shares of MISCOR common stock resulting from the exercise of stock options upon the consummation of the merger;

 

•

the number of shares of MISCOR common stock held by each such person;

 

•

the aggregate cash payment that will be made to each such person as consideration for shares of MISCOR common stock upon the consummation of the merger;

 

•

the estimated value of IES common stock to be received by each such person as consideration for shares of MISCOR common stock upon the consummation of the merger; and

 

•

the maximum estimated value of total merger consideration to be received by each such person in the merger.

The information presented in the table is based on the assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2, under which: (i) the Merger Consideration Determination Date is June 4, 2013, (ii) Net Debt is $6.493 million, (iii) 11,775,066 shares of MISCOR common stock are issued and outstanding, (iv) the IES Common Stock Value is $5.29 per share, and (v) a market price of $5.29 per share for IES common stock, the closing price reported on the NASDAQ Global Market System on June 4, 2013. Additionally, the information presented in the table assumes that each named executive officer (other than Mr. Martell, whose election regarding the merger consideration is explained in the assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements)

 

71

---

Table of Contents

elected to receive fifty percent (50%) of his merger consideration as Cash Consideration and fifty percent (50%) as Stock Consideration (which is MISCOR’s best estimate based upon the expectation that each named executive officer will elect to receive an as of yet undetermined combination of Cash Consideration and Stock Consideration in the merger). The assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements will not be will not be definitively determined until the Merger Consideration Determination Date. See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2 for further discussion of these assumptions and a sensitivity analysis related to the potential consideration that may be received by MISCOR shareholders.

 

		Restricted Stock Awards												Stock Option Awards												Common Stock
						Merger Consideration (2)												Merger Consideration (2)												Merger Consideration (2)
		Unvested Shares				Cash				Estimated Value of Shares of IES Common Stock				Unvested Shares				Cash				Estimated Value of Shares of IES Common Stock				Shares Owned				Cash				Estimated Value of Shares of IES Common Stock				Maximum Estimated Value of Total Merger Consideration
Directors:
John A. Martell			—			$	0			$	0				—			$	0			$	0				2,738,800			$	2,585,229			$	1,486,789			$	4,072,018
Michael P. Moore (1)			13,000			$	9,664			$	9,664				60,000			$	44,604			$	44,604				—			$	0			$	0			$	108,536
William Schmuhl, Jr.			—			$	0			$	0				—			$	0			$	0				10,000			$	7,434			$	7,434			$	14,868
Michael Topa			—			$	0			$	0				—			$	0			$	0				—			$	0			$	0			$	0
Executive Officers:
Marc Valentin			3,000			$	2,230			$	2,230				7,000			$	5,204			$	5,204				—			$	0			$	0			$	14,868

 

(1)	Mr. Moore also serves as MISCOR’s President and Chief Executive Officer.

(2)

At the effective time of the merger, each outstanding share of MISCOR common stock (other than Dissenting Shares and shares to be canceled pursuant to the terms of the merger agreement) will be converted into the right to receive merger consideration comprised of, at the election of the holder, either: (1) Cash Consideration of not less than $1.415 per share, equal to the quotient obtained by dividing (x) the difference between $24.0 million and the amount of MISCOR’s Net Debt and (y) the number of shares of MISCOR common stock outstanding as of the Merger Consideration Determination Date, including shares issuable upon the exercise of outstanding options and warrants; and/or (2) Stock Consideration equal to a fraction, the numerator of which is the Cash Consideration and the denominator of which is the IES Common Stock Value; provided, however, that the if the IES Common Stock Value is less than $4.024 per share or greater than $6.036 per share, then the IES Common Stock Value will be $4.024 per share or $6.036 per share, respectively.

Severance Arrangements of MISCOR Executive Officers

MISCOR’s Chief Executive Officer, Michael Moore, may be entitled to severance benefits under his employment agreement, as described below in connection with the consummation of the merger. No other MISCOR executive officers are entitled to severance benefits.

Employment Agreements

Michael P. Moore. On June 14, 2010, MISCOR entered into an employment agreement with Michael P. Moore, MISCOR’s Chief Executive Officer and President, for an initial one-year term. Upon the expiration of the initial one-year term, the agreement automatically extended for successive one-year periods unless (i) at least three months written notice of termination or intent to renegotiate is given by either party prior to the end of the initial term or any anniversary date thereafter, or (ii) the agreement is earlier terminated due to Mr. Moore’s termination of employment, retirement, death, or disability.

Under the agreement and subsequent amendments thereto, Mr. Moore receives an annual base salary of $185,400. He is eligible to receive an annual incentive bonus of up to 40% of his base salary, payable once per

 

72

---

Table of Contents

year. The incentive bonus will be based on certain performance criteria set forth in the agreement. MISCOR also provides Mr. Moore with a car allowance of $750 per month and a company fuel card. Mr. Moore also received options to purchase 50,000 shares of MISCOR’s common stock granted under MISCOR’s 2005 Stock Option Plan and 10,000 shares of restricted stock granted under MISCOR’s Restricted Stock Purchase Plan.

Mr. Moore is entitled to receive the following severance benefits if his employment is terminated due to his death or disability, is terminated by MISCOR for Cause (as defined in the agreement), or is terminated by him without Good Reason (as defined in the agreement): his unpaid base salary through the date of termination (plus accrued vacation time), and MISCOR will continue to honor any vested obligations under MISCOR’s benefit plans applicable to him.

If Mr. Moore’s employment is terminated by MISCOR without Cause or is terminated by him for Good Reason, then he will receive his unpaid base salary through the end of the month during which termination occurs (plus accrued vacation time), plus base salary for six months. MISCOR also will maintain for Mr. Moore, for six months, all employee benefit plans in which he was entitled to participate immediately prior to his termination, and MISCOR will pay up to $10,000 of outplacement services costs on behalf of Mr. Moore.

Mr. Moore is bound by noncompetition and nonsolicitation provisions that restrict him from competing with or soliciting customers or employees of MISCOR or any of its subsidiaries or affiliated entities for up to a maximum of six months following the date of his termination of employment. The agreement also imposes confidentiality restrictions on Mr. Moore and requires the compulsory assignment to MISCOR of all intellectual property produced by him during the term of his agreement and for one year after his termination.

Marc Valentin. Mr. Valentin was promoted to Chief Accounting Officer on January 4, 2011, effective January 1, 2011, under a letter agreement appointing him as Controller effective October 25, 2010. Under that agreement, he is paid $105,000/year, increased to $128,000 per year subsequent to December 31, 2012, and is eligible for a 20% bonus based on achievement of mutually agreed criteria. He participates in MISCOR benefit plans and is entitled to three weeks of paid vacation.

Continuing Employment with IES

IES does not have any written agreements with MISCOR’s senior management regarding their continued employment following the merger.

Liquidity Event Presented by Merger

As of March 13, 2013, Mr. Martell held approximately 23.4% of the outstanding shares of MISCOR common stock. Mr. Martell’s holdings were obtained in transactions exempt from registration from the Securities Act and are not subject to registration rights. Accordingly, the merger consideration, in the form of stock and/or cash, presents a liquidity event of particular value to Mr. Martell. For this reason, Mr. Martell chose to abstain from the MISCOR board of director’s vote on the merger. MISCOR’s other directors and the MISCOR officers may also gain value from receiving merger consideration and the liquidity event it presents.

Indemnification and Insurance

The merger agreement provides that, for a period of six years from the effective time of the merger, IES will cause the surviving corporation in the merger, to indemnify, defend and hold harmless, to the fullest extent permitted by applicable law, current and former, officers, directors and fiduciaries of MISCOR and any of its subsidiaries in their capacities as directors and officers to the fullest extent permitted by law for claims and expenses occurring at or before the effective time of the merger. The same provisions of the merger agreement also require IES to cause the surviving corporation to pay the expenses of the indemnified person in advance of the final disposition of any claim made against the indemnified person during such six-year period.

 

73

---

Table of Contents

In addition, the merger agreement provides that IES will cause the organizational documents of the surviving corporation to contain provisions with respect to indemnification that are at least as favorable to as those contained in the certificate of incorporation and bylaws of each of MISCOR and its subsidiaries in effect as of the date of the merger agreement, and shall comply with any indemnification agreements between MISCOR and its subsidiaries and their respective current and former directors, officers and fiduciaries. IES and the surviving corporation may not, for a period of six years from the effective time of the merger, amend, repeal or otherwise modify, unless required by law, any such provisions in any manner that would adversely affect the rights under such provisions of any indemnitee, and all rights to indemnification thereunder in respect of any claim asserted or made within such period shall continue until the final disposition or resolution of such claim.

For a period of six years after the effective time of the merger, the surviving corporation will also maintain liability insurance for directors and officers with respect to claims arising from actions or omissions that occurred at or prior to the effective time of the merger. The surviving corporation may substitute policies of at least the same coverage and amounts containing terms no less advantageous to such former directors or officers from insurance carriers with financial strength ratings equal to or greater than the financial strength rating of MISCOR’s current insurance carrier and, such substitution shall not result in gaps or lapses of coverage with respect to matters occurring prior to the effective time. However, the surviving corporation will not be obligated to make annual premium payments for this insurance to the extent that the premiums exceed 250% of the per annum rate of the premium currently paid by MISCOR for similar insurance as of the date of the merger agreement. In the event that the annual premium for this insurance exceeds the maximum amount, the surviving corporation will purchase as much coverage per policy year as reasonably practicable for the maximum amount. IES will have the right to cause the coverage to be extended under the insurance by obtaining a six year “tail” policy on terms and conditions no less advantageous than the existing insurance policy.

Golden Parachute Compensation

Under Michael Moore’s employment agreement, in the event of a “Change of Control” (as defined therein), MISCOR is not required to compensate Mr. Moore. Mr. Moore’s employment agreement requires MISCOR to ensure that any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of MISCOR will expressly, absolutely and unconditionally assume and agree to perform Mr. Moore’s employment agreement in the same manner and to the same extent that the MISCOR would be required to perform it if no such succession or assignment had taken place. Any failure to obtain such agreement prior to the effectiveness of any such succession or assignment is considered a material breach of the employment agreement.

Accordingly, the merger does not trigger any compensation or benefits for Mr. Moore under his employment agreement with MISCOR. Mr. Valentin does not have an employment agreement with MISCOR. Accordingly, none of the MISCOR named executive officers is expected to receive any severance payment or benefits. The only consideration that they are expected to receive relates to their shares of restricted stock or stock options, which are either already vested and owned or will vest as a result of the merger.

The following table sets forth the amount of payments and benefits in connection with the merger that each MISCOR named executive officer may receive based on, or otherwise related to, the merger, assuming the effective time of the merger was June 4, 2013 (the latest practicable date), MISCOR or IES terminated the employment of each named executive officer without cause on the same day and each named executive officer elected to receive fifty percent (50%) of his merger consideration as Cash Consideration and fifty percent (50%) as Stock Consideration (which is MISCOR’s best estimate based upon the expectation that each named executive officer will elect to receive an as of yet undetermined combination of Cash Consideration and Stock Consideration in the merger). Because of these assumptions, which may or may not occur, the actual amount of payments and benefits that a named executive officer may receive may differ materially from the amounts set forth in the table and footnotes below. For example, Mr. Moore may not receive any severance payments related to the merger because, although IES does not currently have any agreements with MISCOR named executive

 

74

---

Table of Contents

officers regarding their continued employment, IES expects to retain these officers following the merger. For additional details regarding the terms of the amounts quantified below, see “Interests of Directors and Executive Officers of MISCOR in the Merger.”

 

Golden Parachute Compensation
Name		Cash ($)				Equity(1) ($)				Pension/ NQDC ($)				Perquisites/ benefits ($)				Tax reimbursement ($)				Other ($)				Total ($)
Michael P. Moore		$	104,095	(2)		$	108,563	(3)			—			$	8,814	(4)			—			$	10,000	(5)		$	231,472
Marc Valentin			—			$	14,868	(6)			—				—				—				—			$	14,868

 

(1)

At the effective time of the merger, each outstanding share of MISCOR common stock (other than Dissenting Shares and shares to be canceled pursuant to the terms of the merger agreement) will be converted into the right to receive merger consideration comprised of, at the election of the holder, either: (1) a per share dollar amount, which amount shall not be less than $1.415 (the “Cash Consideration”), equal to the quotient obtained by dividing (x) the difference between $24.0 million and the amount of MISCOR’s Net Debt (as defined in the merger agreement) and (y) the number of shares of MISCOR common stock outstanding as of the fifteenth business day prior to the closing date; and/or (2) a number of shares of IES common stock (the “Stock Consideration”) equal to a fraction, the numerator of which is the Cash Consideration and the denominator of which is the 60-day VWAP of IES common stock ending with the fifteenth business day prior to the closing date (the “IES Common Stock Value”); provided, however, that the if the IES Common Stock Value is less than $4.024 per share or greater than $6.036 per share, then the IES Common Stock Value will be $4.024 per share or $6.036 per share, respectively. Under the assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2, for the purpose of calculating the merger consideration as of June 4, 2013: (1) Net Debt is equal to $6.493 million; (2) 11,775,066 shares of MISCOR common stock are outstanding; and (3) the IES Common Stock Value is $5.29. Accordingly, the Cash Consideration would have been approximately $1.49 per share of MISCOR common stock, and the Stock Consideration would have had a value of approximately $1.49 per share of MISCOR common stock.

(2)

Pursuant to Mr. Moore’s employment agreement, this amount includes severance payments of $11,395 to reflect Mr. Moore’s approximate base salary through the end of June 2013, payable within two business days following the date of termination, and $92,700 to reflect an additional six months of base salary, payable in installments in accordance with MISCOR’s usual payroll periods. These severance payments are single-trigger benefits resulting from Mr. Moore’s termination without cause and are not conditioned on the occurrence of a change of control.

(3)

This amount includes Cash Consideration of approximately $9,664 and Stock Consideration with a value of approximately $9,664 resulting from the accelerated vesting of 13,000 shares of restricted stock under MISCOR’s Restricted Stock Purchase Plan as well as Cash Consideration of approximately $44,604 and Stock Consideration with a value of approximately $44,604 resulting from the accelerated vesting and exercise of options to purchase 60,000 shares of MISCOR common stock under MISCOR’s 2005 Stock Option Plan. The accelerated vesting of Mr. Moore’s restricted stock and stock option awards are single-trigger benefits tied to the consummation of the merger.

(4)

Pursuant to Mr. Moore’s employment agreement, this amount represents MISCOR’s estimated costs to maintain on Mr. Moore’s behalf, for a period of six months after the date of his termination, all MISCOR medical insurance and other employee benefits plans in which Mr. Moore was entitled to participate immediately prior to the date of his termination. The estimated cost to maintain Mr. Moore’s health insurance plan for six months is approximately $8,680, and the estimated cost to maintain his long-term disability and life insurance plans for the same period is $134. The payment of these costs are single-trigger benefits resulting from Mr. Moore’s termination without cause and are not conditioned on the occurrence of a change of control.

(5)

Pursuant to Mr. Moore’s employment agreement, this amount represents the maximum amount of costs that MISCOR will pay on Mr. Moore’s behalf related to his participation in a senior executive outplacement program at an outplacement firm. The payment of these costs is a single-trigger benefit resulting from Mr. Moore’s termination without cause and is not conditioned on the occurrence of a change of control.

 

75

---

Table of Contents

(6)

This amount includes Cash Consideration of approximately $2,230 and Stock Consideration with a value of approximately $2,230 resulting from the accelerated vesting of 3,000 shares of restricted stock under MISCOR’s Restricted Stock Purchase Plan as well as Cash Consideration of approximately $5,204 and Stock Consideration with a value of approximately $5,204 resulting from the accelerated vesting and exercise of options to purchase 7,000 shares of MISCOR common stock under MISCOR’s 2005 Stock Option Plan. The accelerated vesting of Mr. Valentin’s restricted stock and stock option awards are single-trigger benefits tied to the consummation of the merger.

Relationship with Tontine

As of June 4, 2013, MISCOR and IES were owned 49.9% and 56.7%, respectively, by Tontine, and following completion of the merger, Tontine will own an estimated 58.0% of the outstanding shares of IES common stock, based on the assumptions described in Note 3 to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page F-2. The following is an overview of the material relationships between Tontine and IES and MISCOR, respectively. For additional information, please see “—Background of the Merger” beginning on page     .

Relationship between IES and Tontine

The shares of IES common stock owned by Tontine were acquired through open market purchases and private placements of IES common stock, including those shares issued to Tontine pursuant to IES’ Second Amended Joint Plan of Reorganization, dated May 12, 2006 (the “Plan”). The shares of IES common stock issued pursuant to the Plan were issued pursuant to Section 1145 of the Bankruptcy Code, which exempts the issuance of securities from the registration requirements of the Securities Act.

On July 16, 2006, IES entered into a Stock Purchase Agreement with Tontine Capital Overseas Master Fund, L.P. (“TMF”), pursuant to which IES issued shares of IES common stock to TMF in a transaction that was exempt from the registration requirements of the Securities Act. The shares of IES common stock owned by Tontine are currently, at Tontine’s request, being registered for resale pursuant to a Registration Rights Agreement, dated May 12, 2006 (as amended, the “Registration Rights Agreement”), by and between IES, Tontine and Southpoint Master Fund, L.P. (“Southpoint”). The Registration Rights Agreement was amended by that certain First Amendment to Registration Rights Agreement, dated September 11, 2007, by and among IES and Tontine following Tontine’s acquisition of Southpoint’s registrable shares, which transaction was exempt from the registration requirements of the Securities Act.

The Registration Rights Agreement requires IES to file a “shelf” registration statement upon the written request of the holders of at least 10% of the registrable securities (as defined in the Registration Rights Agreement) and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC within 120 days of such request. To comply with this requirement, on February 21, 2013, IES filed a registration statement on Form S-1 (Reg. No. 333- 186786) concerning such shares. The registration statement is currently under review by the SEC. At any time that a shelf registration statement is not effective, the holders of at least 10% of the registrable securities may require that IES effect a registration of such securities (a “Demand Registration”); provided, however, that IES will not be required to effect more than two Demand Registrations unless it is eligible to effect such registrations on Form S-3, in which event there are no limitations on the number of Demand Registrations that may be requested. In the event that IES proposes to file a registration statement on its own behalf or on behalf of its security holders for the general registration of securities, the holders of registrable securities will have an opportunity to have their registrable securities included in such registration statement.

On December 12, 2007, IES entered into a Note Purchase Agreement with Tontine Capital Partners, L.P. (“TCP”), pursuant to which, on December 12, 2007, IES sold Tontine $25.0 million aggregate principal amount of IES’ 11% Senior Subordinated Notes due 2013 (the “Tontine Note”). The Note Purchase Agreement contained

 

76

---

Table of Contents

customary representations and warranties of the parties and indemnification provisions whereby IES agreed to indemnify Tontine against certain liabilities. The Tontine Note was not registered under the Securities Act and was sold to Tontine on a private placement, which transaction was exempt from the registration requirements of the Securities Act. The Tontine Note bore interest at 11% per annum and was due on May 15, 2013.

On April 30, 2010, IES prepaid $15.0 million of principal on the Tontine Note, and on May 1, 2010, Tontine assigned the Tontine Note to Tontine Capital Overseas Master Fund II, L.P. (“TCP2”). On February 13, 2013, IES prepaid the remaining $10.0 million of principal on the Tontine Note, plus accrued interest. The Tontine Note was an unsecured obligation of IES and its subsidiary borrowers, contained no financial covenants or restrictions on dividends or distributions to stockholders, and was subordinated to IES’ revolving credit facility with Wells Fargo.

On March 29, 2012, IES entered into a sublease agreement with Tontine Associates, L.L.C. (“TA”), an affiliate of Tontine, for corporate office space in Greenwich, Connecticut. The lease extends from April 1, 2012 through March 31, 2014, with monthly payments due in the amount of $6,000. The lease has terms at market rates and payments by IES are at a rate consistent with that paid by TA to its landlord.

Mr. Lindstrom has served as IES’ Chief Executive Officer and President since October 2011 and has served as Chairman of the IES board of directors since February 2011. Mr. Lindstrom previously served as IES’ interim Chief Executive Officer and President since June 2011. Mr. Lindstrom was an employee of TA from 2006 until October 2011.

David B. Gendell has served as a member of the IES board of directors since February 2012. Mr. Gendell, who is the brother of Jeffrey Gendell, the founder and managing member of Tontine, is also an employee of TA.

Relationship between MISCOR and Tontine

January 2007 Private Equity Financing

On January 18, 2007, MISCOR sold an aggregate of 2,500,000 shares of its common stock (after giving effect to the 25-for-1 reverse stock split of MISCOR common stock, which became effective on January 14, 2008 (the “Reverse Stock Split”) to Tontine for an aggregate purchase price of $12.5 million, or $5.00 per share, pursuant to a securities purchase agreement dated as of the same date (the “Initial Securities Purchase Agreement”). MISCOR used the proceeds from the sale to repay approximately $10.0 million of senior secured debt and for general working capital purposes. Before MISCOR issued shares to Tontine, Mr. Martell, MISCOR’s Chairman of the Board and former President and Chief Executive Officer, beneficially owned 66.9% of MISCOR’s outstanding common stock. Mr. Martell’s shares represented 46.9% of the outstanding shares of MISCOR common stock immediately after the sale and 23.2% as of December 17, 2012. In connection with the sale, MISCOR granted various rights to Tontine, as described below.

Board Designee(s). MISCOR granted Tontine the right to appoint members to the MISCOR board of directors as follows:

 

•

if Tontine or its affiliates hold at least 10% of MISCOR’s outstanding common stock, Tontine has the right to appoint one member of the MISCOR board of directors;

 

•

if Tontine or its affiliates hold at least 20% of MISCOR’s outstanding common stock, and the MISCOR board of directors consists of five or fewer directors, Tontine has the right to appoint one member of the MISCOR board of directors; and

 

•

if Tontine or its affiliates hold at least 20% of MISCOR’s outstanding common stock, and the MISCOR board of directors consists of six or more directors, Tontine has the right to appoint two members of the MISCOR board of directors.

 

77

---

Table of Contents

The MISCOR board of directors currently consists of four directors. MISCOR also agreed that, for as long as Tontine has the right to appoint directors pursuant to the Initial Securities Purchase Agreement, the number of directors on the MISCOR board of directors will not exceed seven. Tontine has not appointed a director to the MISCOR board of directors.

Board Observer. In addition to Tontine’s right to appoint directors, MISCOR also granted Tontine the right to have a representative attend all meetings of the MISCOR board of directors, the boards of directors of MISCOR’s subsidiaries and their respective committees, for so long as Tontine or its affiliates continue to hold at least 10% of MISCOR’s outstanding common stock. A representative of Tontine periodically attended these meetings in the past, but no Tontine representative has done so since August 10, 2011.

Future Offerings. MISCOR granted Tontine the right to participate in future equity offerings to allow Tontine to maintain its percentage of ownership, on a fully diluted basis, of MISCOR common stock immediately prior to any such offering.

Future Acquisitions. The MISCOR board of directors adopted resolutions approving any future acquisition by Tontine and its affiliates of up to 30% of MISCOR’s common stock, on a fully diluted basis, so that Tontine and its affiliates are not subject to the anti-takeover provisions of the Business Combinations Chapter of the IBCL. MISCOR also agreed not to revoke these resolutions and to use its best efforts to ensure that any future acquisitions by Tontine of up to 30% of MISCOR’s outstanding common stock, on a fully diluted basis, are not subject to any anti-takeover laws and regulations or any anti-takeover provisions in its or MISCOR’s subsidiaries’ organizational documents. Tontine agreed to obtain written approval from the MISCOR board of directors before acquiring in excess of 30% of MISCOR’s common stock, on a fully diluted basis, except in the case of an increase in Tontine’s percentage ownership due to a redemption or repurchase of any of MISCOR’s common stock, or in the case where Tontine inadvertently acquires in excess of 30% of MISCOR’s common stock, on a fully diluted basis.

Martell Proxy. In connection with this transaction, Mr. Martell granted Tontine a proxy to vote his shares of MISCOR common stock for the election to the MISCOR board of directors of Tontine’s designees and to enforce Tontine’s rights with respect to future acquisitions of MISCOR common stock. In conjunction with the November 2007 Private Equity Financing, Mr. Martell granted Tontine a restated irrevocable proxy as described below.

Registration Rights. MISCOR did not register the issuance of the shares of common stock to Tontine with the SEC under the Securities Act, in reliance on exemptions from the registration requirements of the Securities Act. TCP and TCOMF are “accredited investors,” as that term is defined in Rule 501 of Regulation D, and the issuance of these securities was exempt from registration under the Securities Act in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering, and Rule 506 of Regulation D. MISCOR and Tontine entered into the Initial Registration Rights Agreement, pursuant to which MISCOR agreed to register for resale the shares issued to Tontine. To comply with this requirement, MISCOR filed a registration statement concerning such shares with the SEC on July 13, 2007, which the SEC declared effective on September 2, 2008.

November 2007 Private Equity Financing

On November 30, 2007, MISCOR sold 3,333,332 shares (after giving effect to the Reverse Stock Split) of its common stock to Tontine for an aggregate purchase price of $20.0 million, or $6.00 per share (after giving effect to the Reverse Stock Split), pursuant to a securities purchase agreement dated as of the same date (the “New Securities Purchase Agreement”). Prior to this private placement, Tontine owned approximately 33.2% of MISCOR’s issued and outstanding shares of common stock. MISCOR used $16.7 million of the proceeds from the sale to finance the cash portion of the purchase price of all of the issued and outstanding membership interest units of 3-D Service, Ltd. (“3-D”). In addition, MISCOR paid off the outstanding balance under its revolving credit facility of $2.2 million, with the remaining proceeds to be used for general working capital purposes. Before MISCOR issued the shares to

 

78

---

Table of Contents

Tontine under the New Securities Purchase Agreement, Mr. Martell beneficially owned 37.9% of MISCOR’s outstanding common stock. His shares represented 32.0% of MISCOR’s outstanding common stock immediately after the sale and 23.2% as of December 17, 2012. Tontine owned 52.5% of MISCOR’s outstanding common stock immediately after the sale and 49.5% as of December 17, 2012.

Board Designee(s). Pursuant to the New Securities Purchase Agreement, MISCOR and Tontine affirmed the provisions of the Initial Securities Purchase Agreement relating to Tontine’s rights to appoint directors to the MISCOR board of directors and limitations on the size of the MISCOR board of directors. See “January 2007 Private Equity Financing Transaction—Board Designee(s)” above.

Board Observer. Pursuant to the New Securities Purchase Agreement, MISCOR and Tontine affirmed the provisions of the Initial Securities Purchase Agreement related to Tontine’s board observation rights.

Future Offerings. Pursuant to the New Securities Purchase Agreement, MISCOR and Tontine affirmed the provisions of the Initial Securities Purchase Agreement, granting Tontine the right to participate in future equity offerings to allow Tontine to maintain its percentage of ownership, on a fully diluted basis, of MISCOR common stock immediately prior to any such offering.

Future Acquisitions. Pursuant to the New Securities Purchase Agreement, MISCOR’s Board adopted resolutions approving any future acquisition by Tontine and its affiliates of up to 50% of MISCOR’s common stock, on a fully diluted basis, so that Tontine and its affiliates are not subject to the anti-takeover provisions of the IBCL’s Business Combinations Chapter. MISCOR also agreed not to revoke these resolutions and to use its best efforts to ensure that any future acquisitions by Tontine of up to 50% of MISCOR’s outstanding common stock, on a fully diluted basis, are not subject to any anti-takeover laws and regulations or any anti-takeover provisions in its or MISCOR’s subsidiaries’ organizational documents. Tontine agreed to obtain written approval from the MISCOR board of directors before acquiring in excess of 50% of MISCOR’s common stock, on a fully diluted basis, except in the case of an increase in Tontine’s percentage ownership due to a redemption or repurchase of any of MISCOR’s common stock, or in the case where Tontine inadvertently acquires in excess of 50% of MISCOR’s common stock, on a fully diluted basis.

Martell Proxy. Pursuant to the New Securities Purchase Agreement, Mr. Martell has granted Tontine a restated irrevocable proxy to vote his shares of MISCOR common stock for the election to the MISCOR board of directors of Tontine’s designees and to enforce Tontine’s rights with respect to certain future acquisitions of MISCOR common stock, each as described above.

Registration Rights. MISCOR did not register the issuance of the shares of common stock to Tontine with the SEC under the Securities Act, in reliance on exemptions from the registration requirements of the Securities Act. TCP and TCOMF are “accredited investors,” as that term is defined in Rule 501 of Regulation D, and the issuance of these securities was exempt from registration under the Securities Act in reliance on including Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering, and Rule 506 of Regulation D. MISCOR entered into the Amended and Restated Registration Rights Agreement with Tontine pursuant to which MISCOR has agreed to register for resale the shares issued to Tontine. To comply with this requirement, MISCOR filed a registration statement on Form S-1 (Reg. No. 333-185603) concerning such shares on December 21, 2012. The SEC declared such registration statement effective on February 14, 2013.

Tontine Schedule 13D Filing. As reported in a Schedule 13D filed by Tontine on March 10, 2010, Tontine may dispose of its shares of MISCOR common stock at any time and, from time to time, in the open market, through dispositions in kind to parties holding an ownership interest in TCP, TCOMF and/or TCOMF II, or otherwise. In addition, TCOMF II may obtain shares of MISCOR common stock through open market purchases, transfers from other Tontine entities, or otherwise. As discussed in this joint proxy statement/prospectus, because Tontine’s rights to nominate directors, to appoint representatives to observe meetings of the MISCOR board of

 

79

---

Table of Contents

directors, and to require MISCOR to limit the size of its board of directors are dependent on Tontine’s ownership of a certain aggregate percentage of MISCOR common stock, the disposition of Tontine’s equity interests in MISCOR may result in changes to the size and/or composition of the MISCOR board of directors.

Regulatory Matters

Antitrust Approvals

As of the date of this joint proxy statement/prospectus, neither IES nor MISCOR is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States to consummate the merger. IES must comply with applicable federal and state securities laws in connection with the issuance of shares of IES common stock to MISCOR’s stockholders and the filing of this joint proxy statement/prospectus with the SEC. As of the date hereof, the registration statement of which this joint proxy statement/prospectus is a part has not become effective.

Regulatory Procedures

The merger may be subject to certain regulatory requirements of other municipal, state, federal and foreign governmental agencies and authorities, including those relating to the offer and sale of securities. IES and MISCOR are currently working to evaluate and comply in all material respects with these requirements, as appropriate, and do not currently anticipate that they will hinder, delay or restrict completion of the merger.

It is possible that one or more of the regulatory approvals required to complete the merger will not be obtained on a timely basis or at all. In addition, it is possible that any of the governmental entities with which filings are made may seek regulatory concessions as conditions for granting approval of the merger. Under the merger agreement, IES and MISCOR have each agreed to take all actions and do all things necessary to complete the merger, including to obtain required approvals, except that no party to the merger agreement is required to sell any business or assets to obtain such approvals. See “The Merger Agreement—Covenants,” beginning on page     .

Although IES and MISCOR do not expect regulatory authorities to raise any significant objections to the merger, IES and MISCOR cannot be certain that all required regulatory approvals will be obtained or that these approvals will not contain terms, conditions or restrictions that would be detrimental to IES or the combined corporation after the effective time of the merger.

Accounting Treatment

The merger will be accounted for as an acquisition of a business. IES will record net tangible and identifiable intangible assets acquired and liabilities assumed from MISCOR at their respective fair values at the date of the completion of the merger. Any excess of the purchase price, which will equal the market value at the date of the completion of the merger, of the IES common stock and cash issued as consideration for the merger over the net fair value of such assets and liabilities will be recorded as goodwill.

The financial condition and results of operations of IES after completion of the merger will reflect MISCOR’s balances and results after completion of the merger but will not be restated retroactively to reflect the historical financial condition or results of operations of MISCOR. The earnings of IES following the completion of the merger will reflect acquisition accounting adjustments, including the effect of changes in the carrying value for assets and liabilities on depreciation and amortization expense. Goodwill will not be amortized but will be tested for impairment at least annually, and all assets including goodwill will be tested for impairment when certain indicators are present. If, in the future, IES determines that tangible or intangible assets (including goodwill) are impaired, IES would record an impairment charge at that time.

 

80

---

Table of Contents

Listing of IES Common Stock

IES will use its reasonable best efforts to properly notify NASDAQ of the listing of additional shares of IES common stock to be issued upon the completion of the merger. No approval of the listing of the shares of IES common stock to be issued in the merger is required by NASDAQ.

Deregistration of MISCOR Common Stock

If the merger is completed, MISCOR common stock will be deregistered under the Exchange Act and will cease to be traded on the OTCQB.

Restrictions on Sales of Shares of IES Common Stock Received in the Merger

The shares of IES common stock to be issued in the merger will be registered under the Securities Act and will be freely transferable, except for shares of IES common stock issued to any person who may be deemed to be an “affiliate” of IES under the Securities Act following the closing of the merger. Such persons may not sell any of the shares of IES common stock received by them in connection with the merger except pursuant to:

 

•

an effective registration statement under the Securities Act covering the resale of those shares;

 

•

an exemption provided by Rule 144 under the Securities Act; or

 

•

any other applicable exemption under the Securities Act.

 

81

---

Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION OF IES

The following table shows selected historical consolidated financial data for IES as of and for the periods presented. The financial data as of, and for the years ended, September 30, 2012, 2011 and 2010 are derived from IES’ audited consolidated financial statements for those periods. The financial data as of, and for the years ended, September 30, 2009 and 2008 are derived from IES’ unaudited consolidated financial statements for those periods, which reflect the impact of discontinued operations. The financial data as of, and for the six months ended, March 31, 2013 and 2012 are derived from IES’ unaudited consolidated financial statements for those periods. IES’ management believes that the interim unaudited consolidated financial statements have been prepared on a basis consistent with its audited financial statements and include all normal and recurring adjustments necessary for a fair presentation of the results for each interim period. Operating results for the six months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year.

The information in the following table is only a summary and is not indicative of the results of future operations of IES. You should read the following information together with “IES Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page      of this joint proxy statement/prospectus and IES’ Annual Report on Form 10-K for the year ended September 30, 2012, IES’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, the other information that IES has filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information; Incorporation by Reference.” See also the pro forma information set forth elsewhere in this joint proxy statement/prospectus regarding the proposed merger with MISCOR.

 

		Six Months Ended March 31,								Years Ended September 30,
		2013				2012				2012				2011				2010				2009				2008
																						(unaudited)
		(in thousands, except share and per share data)
Statement of Operations Data
Continuing Operations:
Revenues		$	249,259			$	216,606			$	456,115			$	406,141			$	382,431			$	516,124			$	597,766
Cost of services			215,283				189,624				398,063				361,757				326,939				422,507				496,390
Gross Profit			33,976				26,982				58,052				44,384				55,492				93,617				101,376
Selling, general and administrative expenses			31,528				27,091				58,609				63,321				74,251				95,750				99,648
Gain on sale of Assets			(40	)			(155	)			(168	)			(6,555	)			(128	)			(339	)			(7	)
Asset impairment			—				—				—				4,804				—				—				—
Restructuring charges			—				—				—				—				763				7,407				4,598
(Loss) Income from Operations			2,488				46				(389	)			(17,186	)			(19,394	)			(9,201	)			(2,863	)
Other (income) expense:
Interest expense, net			930				1,073				2,290				2,210				3,271				4,094				6,529
Other expense (income), net			1,696				(64	)			(62	)	&n