purposes of the transaction;
whether the transaction is comparable to a transaction that could be available with an unrelated party, or is on terms that the Company offers generally to persons who are not related parties;
whether the transaction is in the ordinary course of the Company’s business and was proposed and considered in the ordinary course of business;
the effect of the transaction on the Company’s business and operations, including on the Company’s internal control over financial reporting and system of disclosure controls or procedures; and
any additional conditions or controls (including reporting and review requirements) that should be applied to such transaction.
Furthermore, the Company’s Related Party Transactions Policy requires that all related party transactions shall be publicly disclosed to the extent and in the manner required by applicable legal requirements and listing standards.
Related Party TransactionsMaster Reorganization Agreement
In connection with the initial public offering (the “IPO”), we entered into a Master Reorganization Agreement (the “Master Reorganization Agreement”), dated June 13, 2018, among the Company and the other parties named therein, pursuant to which: (i) (A) Charah Holdings, a Delaware limited partnership, contributed all of its interests in Charah Management LLC, a Delaware limited liability company (“Charah Management”), and Allied Power Holdings, LLC, a Delaware limited liability company (“Allied Power Holdings”), to the Company in exchange for 17,514,745 shares of Common Stock, (B) CEP Holdings, a Kentucky corporation, contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 4,605,465 shares of Common Stock, (C) Charah Management Holdings LLC, a Delaware limited liability company (“Charah Management Holdings”), contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 907,113 shares of Common Stock and (D) Allied Management Holdings, LLC, a Delaware limited liability company (“Allied Management Holdings”), contributed all of its interests in Charah Management and Allied Power Holdings to the Company in exchange for 409,075 shares of Common Stock; (ii) each of Charah Management Holdings and Allied Management Holdings distributed the shares of Common Stock received by it pursuant to clause (i) above to its respective members in accordance with the respective terms of its limited liability company agreement; and (iii) Charah Holdings distributed a portion of the shares of Common Stock it received in clause (i) above to certain direct and indirect blocker entities which merged into the Company, with the Company surviving, and BCP Energy Services Fund, LP, a Delaware limited partnership owned by BCP and certain related affiliates, and BCP Energy Services Fund-A, LP, a Delaware limited partnership owned by BCP and certain related affiliates, received 14,020,861 shares of Common Stock as consideration in the mergers.
In addition and pursuant to the Master Reorganization Agreement, in exchange for the contribution of their profits interests in Charah Management Holdings and Allied Management Holdings, the Company issued, pursuant to a restricted stock award agreement, to certain of the then-current officers and employees who owned equity interests in Charah Management and Allied Power Holdings, including through Charah Management Holdings and Allied Management Holdings, 1,215,956 shares of Common Stock at the closing of the IPO, of which 303,993 were vested at the IPO and of which the remaining 911,963 shares were subject to time-based vesting conditions or performance vesting conditions, and of which shares 403,114 vested in 2019, 118,439 vested in 2020 and the last tranche of 148,516 vested in 2021. The remaining shares forfeited.
In connection with the Master Reorganization Agreement, we agreed to indemnify Charah Holdings, CEP Holdings and any of their respective affiliates and directors, officers, partners, employees, members, managers, equityholders, agents and representatives to the fullest extent permitted by applicable law against liabilities that they may incur as a result of acting as a direct or indirect director, officer, partner, employee, member, manager, equityholder, agent, representative or affiliate of Charah Management, Allied Power Holdings or any of their respective subsidiaries.
Registration Rights Agreement
In connection with the closing of the IPO, the Company entered into a Registration Rights Agreement (the
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“Registration Rights Agreement”) with certain stockholders identified on the signature pages thereto as the Holders.
Pursuant to, and subject to the limitations set forth in, the Registration Rights Agreement, dated June 13, 2018, filed by the Company with the SEC on June 15, 2018, BCP has the right to require the Company by written notice to prepare and file a registration statement registering the offer and sale of a number of BCP’s shares of Common Stock. The Company is required to use all commercially reasonable efforts to maintain the effectiveness of any such registration statement until all shares covered by such registration statement have been sold.
In addition, pursuant to the Registration Rights Agreement, BCP has the right to require the Company, subject to certain limitations set forth therein, to affect a distribution of any or all of BCP’s shares of Common Stock by means of an underwritten offering. Further, subject to certain exceptions, if at any time the Company proposes to register an offering of its equity securities or to conduct an underwritten offering, whether or not for its account, then the Company must notify BCP of such proposal before the anticipated filing date or commencement of the underwritten offering, as applicable, to allow BCP to include a specified number of its shares in that registration statement or underwritten offering, as applicable.
These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration or offering and the Company’s right to delay or withdraw a registration statement under certain circumstances. The Company will generally pay all registration expenses in connection with its obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective.
On March 16, 2020, the Company amended the Registration Rights Agreement in order to grant to Charah Preferred Stock Aggregator, LP the registration rights applicable to the other BCP-affiliated parties thereto with respect to the Common Stock into which the Preferred Stock is convertible.
In accordance with the Registration Rights Agreement, at the request of BCP the Company filed a registration statement on May 12, 2021, with respect to the registration of up to 15,455,921 shares of Common Stock.
Stockholders’ Agreement
In connection with the closing of the IPO, the Company entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”), dated as of June 18, 2018, with CEP Holdings, BCP and certain members of management. Among other things, the Stockholders’ Agreement provides BCP with the right to nominate a number of directors to the Board in a proportionate amount to the number of shares of Common Stock that it holds, as follows: (i) a majority of the directors as long as BCP owns at least 50% of the Common Stock; (ii) at least 40% of the directors as long as BCP owns at least 40% but less than 50% of the Common Stock; (iii) at least 30% of the directors as long as BCP owns at least 30% but less than 40% of the Common Stock; (iv) at least 20% of the directors as long as BCP owns at least 20% but less than 30% of the Common Stock; and (v) at least 10% of the directors as long as BCP owns at least 5% but less than 20% of the Common Stock. Pursuant to its right under the Stockholders’ Agreement, of the members currently serving on the Board, BCP has previously nominated and/or the Board of Directors has designated, as applicable, Messrs. Blossman, Poché, Spender, and Simon and Ms. Clyburn as BCP Directors.
As of the date of this Proxy Statement, BCP owns less than 50% but in excess of 40% of the Common Stock and therefore it has the right to nominate four directors. Ms. Clyburn has not been renominated at the 2022 Annual Meeting for election to the Board as a BCP Director pursuant to BCP’s rights under the Stockholder’s Agreement. As described below, Ms. Clyburn will become the Preferred Director in connection with the 2022 Annual Meeting. Messrs. Blossman, Poché, Simon, and Spender will remain designated as BCP Directors.
Information Rights Agreement
On October 9, 2018, Charah Solutions entered into an Information Rights Agreement (the “Information Rights Agreement”) with BCP, pursuant to which the Company will provide BCP with certain financial and other information and other rights. Specifically, the Information Rights Agreement provides that (i) the Company will deliver, or cause to be delivered, to BCP, upon written request, certain monthly, quarterly and annual financial information as well as the Company’s annual budget, business plan, and financial forecasts and projections for so long as BCP and its affiliates beneficially own at least 10% of the outstanding shares of the Common Stock;
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(ii) the Company will deliver to BCP, upon written request, such other information about the Company and its subsidiaries and provide access to the Company’s management, in each case, as may be reasonably requested by BCP for so long as BCP and its affiliates beneficially own at least 20% of the outstanding shares of the Common Stock; (iii) BCP will have the right to appoint one non-voting observer to the Board, provided that the observer will not be considered a director of the Company or otherwise constitute a member of the Board and will in no event be entitled to vote on any matters presented to the Board, for so long as BCP and its affiliates beneficially own at least 10% of the outstanding shares of the Common Stock; (iv) BCP and its affiliates, employees, agents and representatives will be bound by certain confidentiality and use restrictions regarding any information obtained pursuant to the Information Rights Agreement; and (v) BCP will notify the Chairman of the Board if BCP or its affiliates have agreed to purchase or beneficially own 10% or more of the equity of a competitor of the Company, in such event, the Company will not comply with the provisions of the Information Rights Agreement requiring it (A) to deliver, or cause to be delivered, to BCP certain monthly financial information as well as the Company’s annual budget, business plan, and financial forecasts and projections, (B) to deliver to BCP such other information about the Company and its subsidiaries and to provide access to the Company’s management, in each case, as may be reasonably requested by BCP and (C) to provide BCP the right to appoint a non-voting observer to the Board, in each case, if the Board determines that doing so could have an adverse impact on the Company. The Company’s entering into the Information Rights Agreement was approved by the Audit Committee of the Board as well as the Board.
Preferred Stock Purchase Agreement
On March 5, 2020, we entered into a Series A Preferred Stock Purchase Agreement (the “Preferred Stock Purchase Agreement”), by and between us and Charah Preferred Stock Aggregator, LP (the “Preferred Stock Investor”), an affiliate of BCP, which beneficially owns approximately 59% of the total voting power of the outstanding shares of the Voting Stock, including 100% of the Preferred Stock on an as-converted basis, whereby we agreed to issue and sell to the Preferred Stock Investor 26,000 shares of Preferred Stock in exchange for approximately $25.2 million. As a condition to entering into the Preferred Stock Purchase Agreement, we agreed to amend the Registration Rights Agreement to give the Preferred Stock Investor certain registration rights with respect to the Preferred Stock.
The Certificate of Designations provides that so long as any shares of Preferred Stock are outstanding, the preferred stockholders have the right, but not the obligation, to appoint either a non-voting observer (the “Preferred Board Observer”), or a director to the Board (the “Preferred Director”). The Preferred Board Observer or Preferred Director shall be elected by a majority of the preferred stockholders for a term expiring at the next annual meeting of the Company.
On April 29, 2022, the Preferred Stock Investor exercised its rights under the Certificate of Designations to appoint Ms. Clyburn as the Preferred Director, effective concurrent with the expiration of her term of office at the 2022 Annual Meeting. As the Preferred Director, Ms. Clyburn’s term will expire at the 2023 annual meeting of stockholders.
ATC Group Services LLC Service Contract
ATC Group Services LLC (“ATC”), an entity owned by BCP, which beneficially owns approximately 59% of the total voting power of the outstanding shares of the Voting Stock, including the Preferred Stock on an as-converted basis, provided environmental consulting and engineering services at certain service sites. Expenses paid to ATC in fiscal 2021 were $126,162.73.
Sale of Allied Power Holdings, LLC
On November 19, 2020, the Company entered into a Unit Purchase Agreement to sell its subsidiary engaged in maintenance, modification and repair services to the nuclear and fossil power generation industry, Allied Power Holdings, LLC, to Allied Group Intermediate Holdings, LLC, an affiliate of Bernhard Capital Management LP, the Company’s majority stockholder, in an all-cash deal for $40 million. The sale was approved by a special committee of the Company’s board of directors consisting solely of independent directors, which obtained a fairness opinion in connection with the sale. The Company and Allied Group Intermediate Holdings, LLC made customary representations and warranties and agreed to customary covenants in the Purchase Agreement. In addition, the Company agreed to a non-competition and non-solicitation arrangement under the purchase
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agreement with Allied Group Intermediate Holdings, LLC, subject to customary exceptions.
Transition Services Agreement with Allied Group Intermediate Holdings, LLC
The Company entered into a Transition Services Agreement with Allied Group Intermediate Holdings, LLC pursuant to which the Company will provide Allied Power Holdings, LLC and Allied Group Intermediate Holdings, LLC, an affiliate of BCP, with certain transition assistance services from the sale date of the Allied Power Holdings, LLC until April 30, 2021, in exchange for total payments of less than $100,000.
Stock Purchase Agreement
On August 6, 2021, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), by and between the Company and B. Riley Securities, Inc. (“Investor”), whereby the Company agreed to issue and sell to Investor, and Investor agreed to purchase from the Company, 2,888,889 shares of the Company’s Common Stock, at a price of $4.50 per share for an aggregate purchase price of approximately $13.0 million (the “Private Placement”). The Private Placement closed on August 6, 2021 (the “Closing”). The issuance of the Common Stock was offered and sold in reliance on the exemption afforded by Section 4(a)(2) of the Securities Act of 1933 (the “Act”). Pursuant to the Investor Rights Agreement (as defined below), the Company has agreed to register the resale of such shares of Common Stock under the Act. Investor owns 8.57% of the Common Stock.
Investor Rights Agreement
Pursuant to the terms of the Stock Purchase Agreement, on August 6, 2021, the Company, the Investor and B. Riley entered into an Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, for so long B. Riley and its affiliates beneficially own at least 4% of the outstanding shares of Common Stock, B. Riley is entitled to nominate one Class I Director (the “B. Riley Nominee”) to the Company’s Board”), who shall initially be Kenneth M. Young. For so long as affiliates of B. Riley beneficially own at least 3% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding immediately following the Closing plus any equity issuances under the Company’s equity plans, but without regards to any subsequent equity issuances) and if no B. Riley Nominee is serving on the Board, B. Riley has the right to appoint one Board observer. In addition, the Investor or any of its affiliates holding the shares of Common Stock issued pursuant to the Stock Purchase Agreement have certain demand and piggy-back registration rights with respect to such shares. The Investor and its affiliates have also agreed to certain customary standstill covenants.
Letter of Credit Cash Collateralization Promissory Note
On August 25, 2021, Charah, LLC, a Kentucky limited liability company and indirect subsidiary of the Company, issued a Secured Promissory Note (the “Promissory Note”), as the borrower, in favor of B. Riley Commercial Capital, LLC, as the noteholder (the “Noteholder”), evidencing a loan in aggregate principal amount of $17,851,827.50 made by the Noteholder to Charah, LLC. The loan outstanding under the Promissory Note bears interest at a rate of eight percent (8%) per annum and matures on the thirteen-month anniversary of the effective date of the Promissory Note. The proceeds of the Promissory Note were used by the Company and its subsidiaries and were repaid as such cash collateral was released to the Company or Charah, LLC, as applicable.
Pursuant to the terms of the Promissory Note, Charah, LLC will be subject to certain covenants and restrictive provisions which will, among other things, limit Charah, LLC’s ability to incur additional indebtedness for borrowed money or additional liens; consolidate, merge or transfer all or substantially all of our assets; make certain restricted payments; modify certain material agreements; engage in certain types of transactions with affiliates; each of which will be subject to customary and usual exceptions and baskets. The loan evidenced by the Promissory Note is secured by a pledge of substantially all of the assets of Charah, LLC, subject to certain customary exceptions and limitations. This loan was paid off in full on December 30, 2021.
The Board’s Role in Risk OversightThe Board of Directors oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a whole Board and through its committees. The full Board reviews strategic risks and
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opportunities facing the Company. Among other areas, the Board is involved in overseeing risks related to the Company’s overall strategy, business results, capital structure, capital allocation and budgeting, and executive officer succession. Certain other important categories of risk are assigned to designated Board committees (which are compromised solely of independent directors) that report back to the full Board. In general, the committees oversee the following risks:
The Audit Committee oversees risks related to internal financial and accounting controls, legal, regulatory and compliance risks, cybersecurity, work performed by the Company’s independent registered public accounting firm and the Company’s internal audit function, related party transactions, and the overall risk management governance structure and risk management function;
The Compensation Committee oversees the Company’s compensation programs and practices; and
The Nominating and Corporate Governance Committee oversees issues that may create governance risks, such as Board composition and structure, director selection and director succession planning.
The Board leadership structure supports the Company’s governance approach to risk oversight as the Chief Executive Officer is involved directly in risk management as a member of the Company’s management team, while the Chairman of the Board and the committee chairpersons, in their respective areas, maintain oversight roles as independent members of the Board.
Compensation Committee AdvisorsThe Compensation Committee has sole authority under its charter to retain compensation consultants and other advisors and to approve such consultants’ and advisors’ fees and retention terms. The Compensation Committee has retained Meridian Compensation Partners, LLC (“Meridian”) to serve as its independent advisor and to provide it with advice and support on executive compensation issues. Meridian reports directly to the Compensation Committee.
The Compensation Committee has reviewed and confirmed the independence of Meridian as the Compensation Committee’s compensation consultant. Neither Meridian nor any of its affiliates provides any services to Charah Solutions except for services provided to the Compensation Committee. In addition to Meridian, the Compensation Committee has reviewed the independence of each other outside advisor in advance of receiving advice from such person.
During 2021, the Compensation Committee asked Meridian to attend Compensation Committee meetings and to advise and recommend to the Compensation Committee on the compensation of our executive officers and non-employee directors. Meridian also recommended a peer group and prepared peer group analysis of their compensation policies and performance. Further, Meridian advised the Compensation Committee with regard to the form and performance criteria of the Company’s long-term incentive plan grants.
Communications with the Board of DirectorsStockholders and other interested parties can communicate directly with any of the Company’s directors by sending a written communication to a director at Charah Solutions, Inc. c/o Corporate Secretary, 12601 Plantside Drive, Louisville, Kentucky 40299. Stockholders and other interested parties wishing to communicate with the Chairman of the Board, or with the independent directors as a group may do so by sending a written communication to Chairman of the Board at the above address.
All communications received as set forth in the preceding paragraph will be opened by the Corporate Secretary for the sole purpose of determining whether the contents represent a message to the Company’s directors. The Corporate Secretary will forward copies of all correspondence that, in the opinion of the Corporate Secretary, deals with the functions of the Board or its committees or that he or she otherwise determines requires the attention of any member, group or committee of the Board. The Corporate Secretary will not forward other correspondence.April 16, 2023
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