F-4/A
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As filed with the Securities and Exchange Commission on September 8, 2021.

Registration No. 333-257732

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALGOMA STEEL GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

British Columbia   3312   Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer
Identification Number)

105 West Street

Sault Ste. Marie, Ontario

P6A 7B4, Canada

(705) 945-2351

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

 

 

Algoma Steel USA Inc.

1209 Orange Street

Wilmington, Delaware 19801

(302) 658-7581

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

Copies to:

 

John Naccarato

Algoma Steel Inc.

105 West Street

Sault Ste. Marie,

Ontario

P6A 7B4, Canada

Tel: (705) 945-2351

 

Adam M. Givertz

Paul, Weiss, Rifkind, Wharton

& Garrison LLP

1285 Avenue of the Americas

New York, New York

10019-6064

Tel: (212) 373-3000

 

Robert Chadwick

Michael Partridge

Goodmans LLP

Bay Adelaide Centre

333 Bay Street, Suite 3400

Toronto, Ontario M5H 2S7, Canada

Tel: (416) 863-2400

 

David A. Miller

Jeffrey M. Gallant

Graubard Miller

The Chrysler Building

405 Lexington Avenue, 11th Floor

New York, New York 10174

Tel: (212) 818-8800

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement and all other conditions to the proposed Merger described herein have been satisfied or waived.

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.  ☐

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)  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act  ☐

 

 

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 which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, 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.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY COPY – SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 2021

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

OF

LEGATO MERGER CORP.

and

PROSPECTUS FOR UP TO 30,307,036 COMMON SHARES, 24,179,000 WARRANTS

AND

24,179,000 COMMON SHARES ISSUABLE UPON EXERCISE OF WARRANTS

OF

ALGOMA STEEL GROUP INC.

 

 

Legato Merger Corp., a Delaware corporation (“Legato”), has approved the Agreement and Plan of Merger, dated as of May 24, 2021 (the “Merger Agreement”), by and among Algoma Steel Group Inc. (formerly known as 1295908 B.C. Ltd.), a corporation organized under the laws of the Province of British Columbia (“Algoma”), Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Algoma (“Merger Sub”), and Legato, which provides for, among other things, the merger of Merger Sub with and into Legato, with Legato surviving as a wholly-owned subsidiary of Algoma, and with the securityholders of Legato becoming securityholders of Algoma (the “Merger”).

Pursuant to the Merger Agreement, prior to the effective time of the Merger (the “Effective Time”), (i) Algoma will effectuate a reverse stock split (“Stock Split”), such that each outstanding common share in the capital of Algoma will become such number of common shares of Algoma (“Algoma Common Shares”), each valued at $10.00 per share, as determined by the Conversion Factor (as defined in the Merger Agreement) with such Algoma Common Shares to be subsequently distributed to the equityholders of Algoma’s ultimate parent company (the “Parent Distribution”), and (ii) each outstanding LTIP Award that has vested will be exchanged for the right to acquire a number of Algoma Common Shares as determined by reference to the Conversion Factor (“Replacement LTIP Awards”), subject to the holder of such LTIP Award executing an exchange agreement and joinder to the Lock-up Agreement, such that after giving effect to the Stock Split and the LTIP Exchange, it is expected that immediately prior to the Merger (and prior to the completion of the PIPE Investment), there will be 75.0 million Algoma Common Shares outstanding on a fully-diluted basis.

As a result of the Merger, (i) each outstanding unit of Legato will be separated immediately prior to the Effective Time into one share of common stock, par value $0.0001 per share, of Legato (“Legato Common Stock”) and one warrant exercisable for one share of Legato Common Stock (“Legato Warrant”), (ii) at the Effective Time each outstanding share of Legato Common Stock will be converted into and exchanged for the right to receive one newly issued Algoma Common Share and (iii) at the Effective Time, pursuant to the Warrant Agreement, each Legato Warrant shall be converted into an equal number of Algoma Warrants, with each warrant exercisable for one Algoma Common Share for $11.50 per share, subject to adjustment, with the exercise period beginning 30 days following the closing of the Merger (“Closing”).

In addition, pursuant to the Merger Agreement, holders of Algoma Common Shares prior to the Transactions and each holder of Replacement LTIP Awards (collectively, the “Existing Algoma Investors”) will be granted or issued the contingent right to receive their pro rata portion of up to 37.5 million Algoma Common Shares if certain targets based on Earnout Adjusted EBITDA (as defined below) and the trading price of the Algoma Common Shares are met (the “Earnout Rights”).

The registration statement of which this proxy statement/prospectus is a part covers the Algoma Common Shares and Algoma Warrants issuable to the securityholders of Legato as described above. Accordingly, we are registering up to an aggregate of 30,307,036 Algoma Common Shares, 24,179,000 Algoma Warrants, and 24,179,000 Algoma Common Shares issuable upon the exercise of the Algoma Warrants. We are not registering the Algoma Common Shares issued or issuable to the Existing Algoma Investors, including up to 37.5 million Algoma Common Shares that may be issuable after consummation of the Merger pursuant to the Earnout Rights (as described above), or Algoma Common Shares issuable to the PIPE Investors (as defined below).

Proposals to approve the Merger Agreement and the other matters discussed in this proxy statement/prospectus will be presented at the Special Meeting of Legato securityholders scheduled to be held virtually at             a.m., Eastern Time, on            , 2021.

Although Algoma is not currently a public reporting company in any jurisdiction, following the effectiveness of the registration statement of which this proxy statement/prospectus is a part, Algoma will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Algoma has applied to list the Algoma Common Shares and Algoma Warrants on The Nasdaq Stock Market (“Nasdaq”) under the proposed symbols “ASTL” and “ASTLW,” respectively, to be effective at the consummation of the Merger. In addition, Algoma expects that it will become a reporting issuer in Canada under applicable Canadian securities laws following the closing of the Merger and intends to apply for listing of the Algoma Common Shares and Algoma Warrants on the Toronto Stock Exchange (the “TSX”) under the proposed symbols “ASTL” and “ASTL.WT,” respectively, to be effective upon the consummation of the Merger. It is a condition of the consummation of the Merger that the Algoma Common Shares and the Algoma Warrants are approved for listing on Nasdaq, subject only to official notice of issuance thereof and the satisfaction of customary conditions, and conditionally approved for listing on the TSX, subject to the satisfaction of customary conditions. While trading of the Algoma Common Shares and the Algoma Warrants on Nasdaq and the TSX is expected to begin on the first business day following the date of completion of the Merger, there can be no assurance that Algoma’s securities will be listed on Nasdaq or the TSX or that a viable and active trading market will develop. See “Risk Factors” beginning on page 40 for more information.

Algoma will be a “foreign private issuer” as defined in the Exchange Act and will be exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, Algoma’s officers, directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions under Section 16 of the Exchange Act. Moreover, Algoma will not be required to file periodic reports and financial statements with the U.S. Securities and Exchange Commission as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Additionally, Nasdaq rules allow foreign private issuers to follow home country practices in lieu of certain of Nasdaq’s corporate governance rules. As a result, its shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

The accompanying proxy statement/prospectus provides Legato stockholders with detailed information about the Merger and other matters to be considered at the Special Meeting of Legato. We encourage you to read the entire accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors beginning on page 40 of the accompanying proxy statement/prospectus.

None of the Securities and Exchange Commission, any state securities commission or the securities commission of any Canadian province or territory has approved or disapproved of the securities to be issued in connection with the Merger, or determined if this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated            , 2021, and is first being mailed to Legato stockholders on or about            , 2021.


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LEGATO MERGER CORP.

777 Third Avenue, 37th Floor

New York, NY 10017

NOTICE OF SPECIAL MEETING

IN LIEU OF 2021 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON            , 2021

TO THE STOCKHOLDERS OF LEGATO MERGER CORP.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Legato Merger Corp., a Delaware corporation (“Legato”), will be held virtually at            a.m., Eastern Time, on            , 2021, accessible at            or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed (the “Special Meeting”). You are cordially invited to attend the Special Meeting, which will be held for the following purposes:

 

  (1)

to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 24, 2021 (the “Merger Agreement”), by and among Algoma Steel Group Inc. (formerly known as 1295908 B.C. Ltd.), a corporation organized under the laws of the Province of British Columbia (“Algoma”), Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Algoma (“Merger Sub”), and Legato, and to approve the merger of Merger Sub with and into Legato, with Legato surviving as a wholly-owned subsidiary of Algoma (the “Merger” and together with the other transactions contemplated by the Merger Agreement, to be effective upon consummation of the Merger, the “Transactions”). We refer to this proposal as the “Merger Proposal” and a copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A; and

 

  (2)

to consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if determined by the applicable parties to the Merger Agreement in accordance with the Merger Agreement – we refer to this proposal as the “Adjournment Proposal.”

These items of business are described in the attached proxy statement/prospectus, which we encourage you to read in its entirety before voting. Only holders of record of common stock, par value $0.0001 per share, of Legato (“Legato Common Stock”), at the close of business on                     , 2021, are entitled to notice of the Special Meeting and to vote and have their votes counted at the Special Meeting and any adjournments or postponements of the Special Meeting.

After careful consideration, the Legato board of directors has determined that the Merger Proposal and the Adjournment Proposal are advisable and fair to and in the best interest of Legato and its stockholders and recommends that you vote or give instruction to vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal, if presented.

The Merger is conditioned on the approval of the Merger Proposal at the Special Meeting. The proposals are more fully described in the accompanying proxy statement/prospectus, which each stockholder is encouraged to read carefully and in its entirety. If the Merger Proposal is not approved by Legato’s stockholders, the Merger will not be consummated and the PIPE Investors will not have the opportunity to invest in Algoma.

All of Legato’s stockholders are cordially invited to attend the Special Meeting virtually. To ensure your representation at the Special Meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If you are a stockholder of record of Legato Common Stock, you may also cast your vote virtually at the Special Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the Special Meeting and vote in person, you must obtain a proxy from your broker or bank. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the Merger Proposal, but will have no effect on the Adjournment Proposal. Abstentions will be counted as present for purposes of establishing a quorum for the Special Meeting; Broker Non-Votes will not.

A complete list of Legato stockholders of record entitled to vote at the Special Meeting will be available for ten (10) days before the Special Meeting at the principal executive offices of Legato for inspection by stockholders during ordinary business hours for any purpose germane to the Special Meeting.


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Your vote is important regardless of the number of shares you own. Whether you plan to attend the Special Meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker or bank to ensure that votes related to the shares you beneficially own are properly counted. The Merger is conditioned on the approval of the Merger Proposal at the Special Meeting. Each of the proposals is more fully described in the accompanying proxy statement/prospectus, which each stockholder is encouraged to read carefully and in its entirety.

Thank you for your participation. We look forward to your continued support.

This proxy statement/prospectus is dated,            , 2021 and is first being mailed to Legato stockholders on or about            , 2021.

 

By Order of the Board of Directors

 

David D. Sgro

Chief Executive Officer

New York, New York

                    , 2021

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS. PUBLIC STOCKHOLDERS ARE NOT REQUIRED TO AFFIRMATIVELY VOTE FOR OR AGAINST THE MERGER PROPOSAL OR AT ALL OR TO BE A HOLDER OF RECORD ON THE RECORD DATE IN ORDER TO HAVE THEIR SHARES REDEEMED FOR CASH. TO EXERCISE REDEMPTION RIGHTS, HOLDERS MUST TENDER THEIR SHARES TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, LEGATO’S TRANSFER AGENT, NO LATER THAN TWO (2) BUSINESS DAYS PRIOR TO THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING CONTINENTAL STOCK TRANSFER & TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE TRANSACTIONS ARE NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. SEE “SPECIAL MEETING OF LEGATO STOCKHOLDERS – REDEMPTION RIGHTS” FOR MORE SPECIFIC INSTRUCTIONS.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on             , 2021: Legato’s proxy statement/prospectus is available at https://                .

 


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     Page  

ABOUT THIS PROXY STATEMENT/PROSPECTUS

     1  

PRESENTATION OF ALGOMA’S FINANCIAL INFORMATION

     1  

EXCHANGE RATE INFORMATION

     1  

NON-IFRS FINANCIAL MEASURES

     2  

INDUSTRY AND MARKET DATA

     4  

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

     4  

FREQUENTLY USED TERMS

     4  

SUMMARY OF THE MATERIAL TERMS OF THE MERGER

     8  

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

     11  

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

     24  

UNAUDITED HISTORICAL COMPARATIVE AND PRO FORMA COMBINED PER SHARE DATA OF LEGATO AND ALGOMA

     37  

PRICE RANGE OF SECURITIES AND DIVIDENDS

     39  

RISK FACTORS

     40  

FORWARD-LOOKING STATEMENTS

     76  

SPECIAL MEETING OF LEGATO STOCKHOLDERS

     78  

PROPOSAL NO. 1 – THE MERGER PROPOSAL

     81  

PROPOSAL NO. 2 – THE ADJOURNMENT PROPOSAL

     114  

THE MERGER AGREEMENT

     115  

AGREEMENTS ENTERED INTO IN CONNECTION WITH THE MERGER AGREEMENT

     124  

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     126  

CERTAIN MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

     142  

INFORMATION ABOUT THE COMPANIES

     144  

LEGATO’S BUSINESS

     145  

ALGOMA’S BUSINESS

     154  

SELECTED HISTORICAL FINANCIAL DATA OF LEGATO

     184  

LEGATO’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     185  

SELECTED HISTORICAL FINANCIAL DATA OF ALGOMA

     188  

ALGOMA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     190  

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

     220  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

     228  

MANAGEMENT OF ALGOMA FOLLOWING THE MERGER

     234  

EXECUTIVE COMPENSATION

     245  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     262  

DESCRIPTION OF ALGOMA WARRANTS

     265  

DESCRIPTION OF ALGOMA COMMON SHARES

     268  

ALGOMA COMMON SHARES ELIGIBLE FOR FUTURE SALE

     274  

CANADIAN SECURITIES LAWS MATTERS

     276  

COMPARISON OF RIGHTS OF ALGOMA SHAREHOLDERS AND LEGATO STOCKHOLDERS

     277  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ALGOMA

     298  

APPRAISAL RIGHTS

     301  

PRIOR SALES

     301  

ANNUAL MEETING STOCKHOLDER PROPOSALS

     301  

OTHER STOCKHOLDER COMMUNICATIONS

     302  

LEGAL MATTERS

     302  

EXPERTS

     302  

DELIVERY OF DOCUMENTS TO STOCKHOLDERS

     302  

ENFORCEABILITY OF CIVIL LIABILITY

     303  

WHERE YOU CAN FIND MORE INFORMATION

     304  


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     Page  

INDEX TO FINANCIAL STATEMENTS

     F-1  

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

     II-1  

SIGNATURES

     II-5  

AUTHORIZED REPRESENTATIVE

     II-6  

ANNEXES

 

A

Agreement and Plan of Merger, dated as of May  24, 2021, by and among Algoma Steel Group Inc. (formerly known as 1295908 B.C. Ltd.), Algoma Merger Sub, Inc., and Legato Merger Corp.

B

Opinion of Cassel Salpeter & Co., LLC

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Algoma, constitutes a prospectus of Algoma under Section 5 of the U.S. Securities Act of 1933, as amended (the “Securities Act”), with respect to the Algoma Common Shares to be issued to Legato stockholders, the Legato Warrants that will become exercisable for Algoma Common Shares in accordance with the terms of the Warrant Agreement, which we refer to as the Algoma Warrants, and the Algoma Common Shares underlying the Algoma Warrants, if the Merger described herein is consummated. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the Special Meeting of Legato stockholders at which Legato stockholders will be asked to consider and vote upon a proposal to approve the Merger by the adoption of the Merger Agreement, among other matters.

All references in this proxy statement/prospectus to “Legato” refer to Legato Merger Corp. Unless otherwise indicated or the context otherwise requires, all references in this proxy statement/prospectus to the terms “Algoma” and the “Company” refer to Algoma Steel Group Inc., together with its subsidiaries. Algoma is the parent holding company of Algoma Steel Inc. Algoma Steel Inc. was incorporated in 2016 solely for the purpose of purchasing substantially all of the operating assets and liabilities of Essar Steel Algoma Inc. (“Old Steelco”) and its subsidiaries in connection with a restructuring under the Canadian Companies’ Creditors Arrangement Act (“CCAA”). The purchase transaction (the “Purchase Transaction”) was completed on November 30, 2018. Prior to November 30, 2018, Algoma Steel Inc. had no operations, and was capitalized with one common share with a nominal value. All references in this proxy statement/prospectus to “Old Steelco” means Essar Steel Algoma Inc. and its consolidated subsidiaries.

PRESENTATION OF ALGOMA’S FINANCIAL INFORMATION

Algoma’s functional currency is the United States dollar and its presentation currency is the Canadian dollar. Old Steelco’s functional currency was the United States dollar and its presentation currency was the Canadian dollar.

All of Algoma’s financial information included in this proxy statement/prospectus is presented in Canadian dollars, except as otherwise indicated. Algoma’s financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). IFRS differs in certain material respects from U.S. generally accepted accounting principles (“U.S. GAAP”) and, as such, Algoma’s financial statements are not comparable to the financial statements of U.S. companies prepared in accordance with U.S. GAAP. This proxy statement/prospectus does not include any explanation of the principal differences or any reconciliation between IFRS and U.S. GAAP.

Unless otherwise indicated, the historical financial information of Algoma included in this proxy statement/prospectus derives from, and should be read together with the condensed interim consolidated financial statements of Algoma Steel Group Inc. as at June 30, 2021 and March 31, 2021 and for the three month periods ended June 30, 2021 and 2020 and the audited consolidated financial statements of Algoma Steel Group Inc. as at March 31, 2021 and 2020 and for the years ended March 31, 2021, 2020 and for the four-month period ended March 31, 2019 and for the eight-month period ended November 30, 2018 for Old Steelco.

EXCHANGE RATE INFORMATION

In this proxy statement/prospectus, all dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars and are referred to as “$” or “ US$”. Canadian dollars are referred to as “C$”. The high, low, closing and average exchange rates for Canadian dollars in terms of the United States dollar for each of the indicated periods, as quoted by the Bank of Canada, were as follows:

 

     Three months ended
June 30, 2021
     Year ended
March 31, 2021
     Year ended
March 31, 2020
     Year ended
March 31, 2019
 
     (expressed in C$)  

High

     1.2653        1.2628        1.4346        1.3441  

Low

     1.2004        1.2540        1.4095        1.3343  

Closing

     1.2286        1.2621        1.4179        1.3431  

Average

     1.2282        1.2574        1.3953        1.3368  

 

1


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On September 7, 2021 the daily average exchange rate for Canadian dollars in terms of the United States dollar, as quoted by the Bank of Canada, was US$1.00 = C$1.2621.

NON-IFRS FINANCIAL MEASURES

In this proxy statement/prospectus we use certain non-IFRS measures to evaluate the performance of Algoma. These terms do not have any standardized meaning prescribed within IFRS and, therefore, may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of our financial performance from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. As described in more detail, below, the terms “Adjusted EBITDA” and “Further Adjusted EBITDA” are financial measures utilized by Algoma in reporting its financial results that are not defined by IFRS. In addition, “Earnout Adjusted EBITDA” is a financial measure utilized by Algoma and Legato solely for the purposes of calculating whether the targets with respect to the Earnout Rights are met pursuant the Merger Agreement and for developing certain projections (see “Proposal No. 1 – The Merger Proposal – General – Certain Unaudited Prospective Financial Information Regarding Algoma” and “ – Certain Updated Unaudited Prospective Financial Information Regarding Algoma”).

The terms “Net Sales Realization” and “Cost Per Ton of Steel Products Sold” are financial measures utilized by Algoma in reporting its financial results that are not defined by IFRS. Net Sales Realization, as defined by Algoma, refers to steel revenue less freight per steel tons shipped. Net Sales Realization is included because it allows management and investors to evaluate our selling prices per ton of steel products sold excluding the geographic impact of freight charges in order to enhance comparability when comparing our sales performance to that of our competitors. Cost Per Ton of Steel Products Sold, as defined by Algoma, refers to cost of steel revenue less freight, amortization, carbon tax and exceptional items (included in cost of steel revenue) per steel tons shipped. Cost Per Ton of Steel Products Sold allows management and investors to evaluate the Company’s cost of steel products sold on a per ton basis, excluding the items that we exclude when calculating Adjusted EBITDA, to evaluate our operating performance and to enhance the comparability of our costs over different time periods. We consider each of Net Sales Realization and Cost Per Ton of Steel Products Sold to be meaningful measures to assess our operating performance in addition to IFRS measures. For a reconciliation of each of Net Sales Realization and Cost Per Ton of Steel Products Sold to their most comparable IFRS financial measures see “Algoma’s Management’s Discussion and Analysis of Financial Condition and Results of Operations – Steel Revenue and Cost of Sales.”

Adjusted EBITDA, as defined by Algoma, refers to net (loss) income before amortization of property, plant, equipment and amortization of intangible assets, finance costs, interest on pension and other post-employment benefit obligations, income taxes, restructuring costs, impairment reserve, foreign exchange loss (gain), finance income, carbon tax, share based compensation related to performance share units and business combination adjustments. Further Adjusted EBITDA is defined as Adjusted EBITDA before tariff expense and capacity utilization adjustment. Further Adjusted EBITDA is not utilized by Algoma in reporting its financial results for the three month period ended June 30, 2021, because Algoma was not subject to tariff expenses nor did it record capacity utilization adjustments in the three month period ended June 30, 2021 or in the three month period ended June 30, 2020. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue for the corresponding period, and Further Adjusted EBITDA margin is calculated by dividing Further Adjusted EBITDA by revenue for the corresponding period. Adjusted EBITDA per ton is calculated by dividing Adjusted EBITDA by tons of steel products sold for the corresponding period, and Further Adjusted EBITDA per ton is calculated by dividing Further Adjusted EBITDA by tons of steel products sold for the corresponding period. Earnout Adjusted EBITDA is defined as Further Adjusted EBITDA before non-cash adjustments and write-downs, loss (gain) on commodity hedging and loss (gain) associated with the Algoma Warrants. Earnout Adjusted EBITDA is calculated on a consolidated basis at the Algoma Steel Inc. level and does not include certain expenses of Algoma Steel Inc.’s parent companies such as equity incentives issued under the Algoma Steel Holdings Inc. Long-Term Incentive Plan. Adjusted EBITDA and Further Adjusted EBITDA are not intended to represent cash flow from operations, as defined by IFRS, and should not be considered as alternatives to net earnings, cash flow from operations, or any other measure of performance prescribed by IFRS. Adjusted EBITDA and Further Adjusted EBITDA, as defined and used by Algoma, may not be comparable to Adjusted EBITDA and Further Adjusted EBITDA as defined and used by other companies. We consider Adjusted EBITDA and Further Adjusted EBITDA to be meaningful measures to assess our operating performance in addition to

 

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IFRS measures. They are included because we believe they can be useful in measuring our operating performance and our ability to expand our business and provide management and investors with additional information for comparison of our operating results across different time periods and to the operating results of other companies. Adjusted EBITDA and Further Adjusted EBITDA are also used by analysts and our lenders as a measure of our financial performance. In addition, we consider Adjusted EBITDA margin, Adjusted EBITDA per ton, Further Adjusted EBITDA margin and Further Adjusted EBITDA per ton to be useful measures of our operating performance and profitability across different time periods that enhance the comparability of our results. For a reconciliation of Adjusted EBITDA and Further Adjusted EBITDA to their most comparable IFRS financial measures or to other non-IFRS financial measures see “Algoma’s Management’s Discussion and Analysis of Financial Condition and Results of Operations – Adjusted EBITDA.”

Adjusted EBITDA, Further Adjusted EBITDA, Adjusted EBITDA margin, Further Adjusted EBITDA margin, Adjusted EBITDA per ton, Further Adjusted EBITDA per ton, Earnout Adjusted EBITDA, Net Sales Realization and Cost Per Ton of Steel Products Sold have limitations as analytical tools and should not be considered in isolation from, or as alternatives to, net income, cash flow from operations or other data prepared in accordance with IFRS. Some of these limitations are:

 

   

they do not reflect cash outlays for capital expenditures or contractual commitments;

 

   

they do not reflect changes in, or cash requirements for, working capital;

 

   

they do not reflect the finance costs, or the cash requirements necessary to service interest or principal payments on indebtedness;

 

   

they do not reflect income tax expense or the cash necessary to pay income taxes;

 

   

they do not reflect interest on pension and other post-employment benefit obligations;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Further Adjusted EBITDA do not reflect cash requirements for such replacements;

 

   

they do not reflect the impact of earnings or charges resulting from matters we believe not to be indicative of our ongoing operations; and

 

   

other companies, including other companies in our industry, may calculate this measure differently than as presented in by us, limiting their usefulness as a comparative measure.

Because of these limitations, such measures should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness. We compensate for these limitations by relying primarily on our IFRS results using such measures only as supplements to such results.

 

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INDUSTRY AND MARKET DATA

In this proxy statement/prospectus, we present industry data, information and statistics regarding the markets in which Algoma competes as well as publicly available information, industry and general publications and research and studies conducted by third parties. This information is supplemented where necessary with Algoma’s own internal estimates and information obtained from discussions with its customers, taking into account publicly available information about other industry participants and Algoma’s management’s judgment where information is not publicly available. This information appears in “Summary of the Proxy Statement/Prospectus,” “Algoma’s Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Information About the Companies – Algoma’s Business” and other sections of this proxy statement/prospectus.

Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this proxy statement/prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in any forecasts or estimates.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

Legato, Merger Sub and Algoma own or have rights to trademarks, trade names and service marks that they use in connection with the operation of their businesses. In addition, their names, logos and website names and addresses are their trademarks or service marks. Other trademarks, trade names and service marks appearing in this proxy statement/prospectus are the property of their respective owners. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this proxy statement/prospectus are listed without the applicable ®, and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names and service marks.

FREQUENTLY USED TERMS

Unless otherwise stated or unless the context otherwise requires, the term “Algoma” refers to Algoma Steel Group Inc., a corporation organized under the laws of the Province of British Columbia, together with its subsidiaries, the term “Legato” refers to Legato Merger Corp., a Delaware corporation, and “Merger Sub” refers to Algoma Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Algoma.

In addition, in this document:

“Adjournment Proposal” means the proposal to adjourn the Special Meeting of the stockholders of Legato to a later date or dates, if determined by the applicable parties to the Merger Agreement in accordance with the Merger Agreement.

“Algoma Common Shares” means the common shares, without par value, of Algoma.

“Algoma Warrants” means the Legato Warrants, each of which will be converted into and become exercisable for one Algoma Common Share for $11.50 per share, in accordance with the terms of the Warrant Agreement, with the exercise period beginning 30 days following Closing.

“BCA” means Business Corporations Act (British Columbia).

“Broker Non-Vote” means the failure of a Legato stockholder, who holds his or her shares in “street name” through a broker or other nominee, to give voting instructions to such broker or other nominee.

“C$” means the legal currency of Canada.

 

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“Closing” means the closing of the transactions contemplated by the Merger Agreement and the PIPE Subscription Agreements, and “Closing Date” means the date on which the Closing is completed.

“Code” means the Internal Revenue Code of 1986, as amended.

“DGCL” means the Delaware General Corporation Law.

“DTC” means The Depository Trust Company.

“EBC” means EarlyBirdCapital, Inc., the representative of the underwriters of the IPO.

“Effective Time” means the effective time of the Merger pursuant to the Merger Agreement and the DGCL.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Existing Legato Charter” means Legato’s amended and restated certificate of incorporation.

“Founder Shares” means the shares of Legato Common Stock sold by Legato prior to the IPO (but not including the Representative Shares).

“Founders” means the holders of Founder Shares.

“Intermediate Redemption Scenario” assumes that 12,501,565 Public Shares are redeemed for an aggregate payment of approximately $125.0 million from the Trust Account, which is the maximum amount of redemptions that could occur and still satisfy the Minimum Cash Condition.

“Investor Rights Agreement” means the investor rights agreement to be entered into by Algoma, the Founders and the shareholders of Algoma Steel Parent S.C.A.

“IPO” means the initial public offering of Units of Legato, consummated on January 22, 2021.

“Legato Common Stock” means the common stock, par value $0.0001 per share, of Legato.

“Legato Warrant” means a warrant to purchase one share of Legato Common Stock at a price of $11.50 per share, which may be either a Public Warrant or a Private Warrant.

“Lock-Up Agreement” means the lock-up agreement entered into concurrently with the execution of the Merger Agreement by Algoma’s sole shareholder and the Founders.

“LTIP Awards” means equity incentives granted to certain directors, officers and other employees of Algoma Steel Holdings Inc., a direct wholly-owned subsidiary of Algoma, and/or its subsidiaries, under the Algoma Steel Holdings Inc. Long-Term Incentive Plan.

“LTIP Exchange” means the exchange of vested LTIP Awards for Replacement LTIP Awards, as contemplated by and subject to the terms and conditions of the Merger Agreement.

“Maximum Redemption Scenario” means that all Legato Public Stockholders holding approximately 23,575,000 Public Shares will exercise their redemption rights for the $235,793,946 of funds in the Trust Account as of June 30, 2021.

“Merger” means the merger of Merger Sub with and into Legato, with Legato surviving the merger and becoming a wholly-owned subsidiary of Algoma.

“Merger Agreement” means the Agreement and Plan of Merger, dated as of May 24, 2021, by and among Legato, Algoma and Merger Sub, as such agreement may be amended or otherwise modified from time to time in accordance with its terms.

“Merger Proposal” means the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby.

 

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“Minimum Cash Condition” is a closing condition set forth in the Merger Agreement that provides that Algoma will not be required to consummate the Merger if the funds contained in the Trust Account (after giving effect to the Redemptions and payment of Legato’s transaction costs), together with (i) the aggregate amount of proceeds from the PIPE Investment and (ii) the cash on Legato’s balance sheet, do not, at or prior to consummation of the Merger, equal or exceed Two Hundred Million Dollars ($200,000,000). The Minimum Cash Condition may be waived by Algoma in its sole discretion.

“Nasdaq” means the Nasdaq Stock Market.

“No Redemption Scenario” means no holder of Public Shares elects to have such shares redeemed in connection with the Merger.

“PIPE Investment” means the purchases of PIPE Shares pursuant to the PIPE Subscription Agreements, such purchases to be consummated substantially concurrently with, and contingent upon, the consummation of the Merger.

“PIPE Investors” means certain U.S. and Canadian accredited investors within the meaning of applicable securities laws, including certain of the Founders and their affiliates.

“PIPE Shares” means an aggregate of 10,000,000 Algoma Common Shares and shares of Legato Common Stock subscribed for and to be purchased by the PIPE Investors pursuant to the PIPE Subscription Agreements.

“PIPE Subscription Agreements” means the subscription agreements entered into by the PIPE Investors with Algoma and Legato, pursuant to which the PIPE Investors have committed to subscribe for and purchase the PIPE Shares at a purchase price per share of $10.00.

“Private Units” means the Units sold to the Founders and EBC and its affiliates in a private placement in connection with the IPO, such Units being comprised of one share of Legato Common Stock and one Legato Warrant.

“Private Warrants” means Legato Warrants included in Private Units.

“Prospectus” means the prospectus included in the Registration Statements on Form S-1 (Registration No. 333-248997) filed with the SEC in connection with the IPO.

“Public Shares” means shares of Legato Common Stock issued as part of the Units sold in the IPO.

“Public Stockholders” means the holders of Public Shares of Legato.

“Public Warrants” means Legato Warrants included in Units sold in the IPO.

“Redemption” means Legato’s acquisition of Public Shares in connection with the Merger pursuant to the right of the holders of Public Shares to have their shares redeemed in accordance with the procedures set forth in this proxy statement/prospectus.

“Representative Shares” means an aggregate of 234,286 shares of Legato Common Stock issued to EBC and its designees prior to the IPO.

“Restated Articles” means the restated articles of Algoma, adopted on September 7, 2021.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

“Special Meeting” means the Special Meeting of the stockholders of Legato, to be held virtually on            , 2021 at            a.m., Eastern Time, accessible at            or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed.

 

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“Support Agreement” means the Support Agreement pursuant to which the Founders have agreed, among other things, to vote their shares of Legato Common Stock and take certain other actions, in support of the Merger.

“TSX” means the Toronto Stock Exchange.

“Transaction” or “Transactions” means the transactions contemplated by the Merger Agreement and the other Transaction Agreements, including the Merger.

“Transaction Agreements” means the Merger Agreement, the Lock-Up Agreement, the Support Agreement, the PIPE Subscription Agreements and the Investor Rights Agreement.

“Treasury” means the U.S. Department of the Treasury.

“Trust Account” means the trust account that holds a portion of the proceeds of the IPO and the concurrent sale of the Private Units.

“Units” means Units issued in the IPO, each consisting of one share of Legato Common Stock and one Public Warrant.

“U.S.” means the United States of America.

“U.S. dollar,” “US$” and “$” mean the legal currency of the United States.

“U.S. GAAP” means generally accepted accounting principles in the United States.

“Warrant Agreement” means that certain Warrant Agreement, dated as of January 19, 2021, between Legato and Continental Stock Transfer & Trust Company.

 

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SUMMARY OF THE MATERIAL TERMS OF THE MERGER

The descriptions below of the material terms of the Merger are intended to be summaries of such terms. Such descriptions do not purport to be complete and are qualified in their entirety by reference to the terms of the agreements themselves.

The parties to the Merger Agreement are Legato, Algoma and Merger Sub. Pursuant to the Merger Agreement, Merger Sub, a wholly-owned subsidiary of Algoma, will merge with and into Legato, with Legato being the surviving corporation and a direct, wholly-owned subsidiary of Algoma, and with the stockholders of Legato becoming stockholders of Algoma.

Algoma has applied to list the Algoma Common Shares and Algoma Warrants on Nasdaq under the proposed symbols “ASTL” and “ASTLW,” respectively, to be effective at the consummation of the Merger. In addition, Algoma expects that it will become a reporting issuer in Canada under applicable Canadian securities laws following the closing of the Merger and intends to apply for listing of the Algoma Common Shares and Algoma Warrants on the TSX under the proposed symbols “ASTL” and “ASTL.WT,” respectively, to be effective upon the consummation of the Merger.

Pursuant to the Merger Agreement, (i) prior to the Effective Time, Algoma will effectuate a Stock Split, such that each outstanding Algoma Common Share will become such number of Algoma Common Shares, each valued at $10.00 per share, as determined by the Conversion Factor (as defined in the Merger Agreement) with such Algoma Common Shares to be subsequently distributed in the Parent Distribution; (ii) prior to the Effective Time, each outstanding LTIP Award that has vested and that is held by an executive officer or director of Algoma who has executed an exchange agreement and joinder to the Lock-up Agreement will be exchanged for Replacement LTIP Awards, which is referred to as the LTIP Exchange; (iii) immediately prior to the Effective Time, each outstanding Legato Unit will be separated into one share of Legato Common Stock and one Legato Warrant, (iv) at the Effective Time, each outstanding share of Legato Common Stock (other than shares of Legato Common Stock held in Legato’s treasury or owned by Algoma or Merger Sub or any other wholly-owned subsidiary of Algoma or Legato) will be exchanged for one Algoma Common Share; and (v) at the Effective Time, each outstanding Legato Warrant shall be converted into an equal number of Algoma Warrants, with each warrant exercisable for one Algoma Common Share for $11.50 per share, subject to adjustment, with the exercise period beginning 30 days following Closing.

In connection with the listing of the Algoma Warrants on the TSX, in accordance with the TSX’s listing requirements in respect of warrants, Algoma will provide certain undertakings to the TSX to the effect that Algoma will not exercise certain of its rights under the Warrant Agreement, including, notably, (i) lowering of the exercise price of the Algoma Warrants and (ii) extending the duration of the Algoma Warrants by delaying the expiration date thereof.

In addition, pursuant to the Merger Agreement, holders of Algoma Common Shares prior to the Transactions and the Existing Algoma Investors will be granted or issued Earnout Rights.

The Merger Agreement defines “Earnout Adjusted EBITDA” (referenced as “Adjusted EBITDA” in the Merger Agreement) as the consolidated net income (loss) of Algoma Steel Inc. for the twelve-month period ending December 31, 2021 before amortization of property, plant, equipment and amortization of assets, finance costs, interest on pension and other post-employment benefit obligations, income taxes, reorganization costs, finance income, inventory write-downs, carbon tax, certain exceptional items, tariff expense, non-cash adjustments and write-downs, loss (gain) on commodity hedging, loss (gain) on foreign exchange and loss (gain) associated with the Algoma Warrants.

The Earnout Rights granted or issued to Existing Algoma Investors will be converted into the following aggregate number of Algoma Common Shares upon the satisfaction of the following targets (each, an “Earnout Event”):

(i) 15,000,000 Algoma Common Shares if Earnout Adjusted EBITDA (as calculated by Algoma’s management and accepted by its board of directors, including a majority of disinterested directors), is equal to or greater than $674,000,000 (the “First Earnout Event”). Additionally, the Earnout Rights will entitle Existing Algoma Investors to acquire up to an additional 22,500,000 Algoma Common Shares in connection with the First Earnout Event if Earnout Adjusted EBITDA exceeds $674,000,000, as follows: (x) a percentage (not to exceed 100.0%) of 7,500,000 additional

 

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Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $674,000,000 and $750,000,000 (the “Second EBITDA Issuance”); (y) a percentage (not to exceed 100.0%) of 7,500,000 additional Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $750,000,000 and $825,000,000 (the “Third EBITDA Issuance”); and (z) a percentage (not to exceed 100.0%) of 7,500,000 additional Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $825,000,000 and $900,000,000 (the “Fourth EBITDA Issuance”).

(ii) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Second EBITDA Issuance, if the volume weighted average price (“VWAP”) of Algoma Common Shares on Nasdaq or other primary stock exchange exceeds $12.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Second Earnout Event”).

(iii) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Third EBITDA Issuance, if the VWAP exceeds $15.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Third Earnout Event”).

(iv) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Fourth EBITDA Issuance, if the VWAP exceeds $18.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Fourth Earnout Event”).

Algoma Common Shares will be issuable in connection with each Earnout Event; provided, however, the maximum number of Algoma Common Shares issuable in connection with (i) the Second EBITDA Issuance and the Second Earnout Event, together, shall be 7,500,000, (ii) the Third EBITDA Issuance and the Third Earnout Event, together, shall be 7,500,000, and (iii) the Fourth EBITDA Issuance and the Fourth Earnout Event, together, shall be 7,500,000.

Based on the current estimates of Algoma’s Earnout Adjusted EBITDA, it is currently expected that the Existing Algoma Investors will acquire all of the 37.5 million Algoma Common Shares issuable under the Earnout Rights. However, we cannot assure you that any or all of the Earnout Events will occur.

Additionally, in connection with the consummation of the Merger, the following will occur:

 

   

the PIPE Investors have subscribed for and will purchase an aggregate of 10,000,000 Algoma Common Shares and shares of Legato Common Stock for $10.00 per share and an aggregate purchase price of $100.0 million;

 

   

the Existing Algoma Investors and Founders have entered into the Lock-Up Agreement (which may be waived with the written consent of Algoma and persons holding a majority of the shares subject to the lock-up), pursuant to which the Algoma Common Shares to be issued to the Founders in exchange for their Founder Shares (and, in the case of Eric S. Rosenfeld, David Sgro, and Brian Pratt, the Algoma Common Shares and Algoma Warrants to be issued to them in exchange for their Private Units), but not including any PIPE Shares, will be subject to transfer restrictions until the earlier of (a) the six-month anniversary of the Closing, in the case of the Existing Algoma Investors, or the twelve-month anniversary of the Closing, in the case of the Founders and (b) the date on which the closing share price of the Algoma Common Shares equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period following the Closing; and

 

   

prior to the Effective Time, the Founders and the shareholders of Algoma Steel Parent S.C.A. will enter into the Investor Rights Agreement, pursuant to which the Algoma Warrants and Algoma Common Shares held by them and their permitted transferees, including the Algoma Common Shares issuable upon the exercise of Algoma Warrants and other derivative securities, shall bear customary registration rights, and certain parties to the Investor Rights Agreement will have the right to nominate, in the aggregate, four directors to the Algoma board for so long as they maintain approximately 7.36% of outstanding Algoma Common Shares (which percentage assumes (i) the No Redemption Scenario and (ii) that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued).

 

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The Merger Agreement may be terminated under certain customary and limited circumstances at any time prior the Closing, including, among other reasons:

 

   

by mutual written consent of Legato and Algoma;

 

   

by either Legato or Algoma if the Transactions are not consummated on or before December 31, 2021 (provided that the right to terminate the Merger Agreement shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Transactions to occur on or before such date and such action or failure to act constitutes a material breach of the Merger Agreement);

 

   

by either Legato or Algoma if a governmental entity shall have issued a final, non-appealable governmental order, rule or regulation permanently enjoining or prohibiting the consummation of the Transactions;

 

   

by either Legato or Algoma if the other party has breached any of its covenants or representations and warranties such that the party’s closing conditions would not be satisfied at the Closing (subject to a thirty-day cure period);

 

   

by either Legato or Algoma if the Merger Proposal is not approved by Legato stockholders (the “Legato Stockholder Approval”);

 

   

by Algoma if Legato’s board of directors or any committee thereof changes its recommendation to Legato’s stockholders prior to the receipt of the Legato Stockholder Approval; or

 

   

by Algoma if the Minimum Cash Condition is not satisfied within ten days following the meeting called for the purpose of obtaining the Legato Stockholder Approval (including any permitted adjournments) or at any time thereafter.

Algoma has agreed to use reasonable best efforts to increase the size of Algoma’s board of directors to up to ten members, of which three will be appointed by Legato (who will initially be Eric S. Rosenfeld, David Sgro, and Brian Pratt, each an officer and/or director of Legato), up to six will be appointed by Algoma, and Legato and Algoma will use reasonable efforts to mutually appoint the final director. Algoma and Legato expect that the remaining unnamed director will be considered an independent director under the rules of Nasdaq.

Upon completion of the Merger, Legato and Algoma anticipate that the current officers of Algoma Steel Inc., as of March 31, 2021, will become officers of Algoma, holding the same positions as held by them with Algoma Steel Inc. prior to the Merger. See the section entitled “Management of Algoma Following the Merger.”

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

 

Q. Why am I receiving this proxy statement/prospectus?    A. Legato and Algoma have agreed to a merger under the terms of the Merger Agreement that is described in this proxy statement/prospectus. A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A and Legato encourages its stockholders to read it in its entirety. Legato’s stockholders are being asked to consider and vote upon a proposal to approve the Merger Agreement, which, among other things, provides for Merger Sub to be merged with and into Legato with Legato being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of Algoma, and the other transactions contemplated by the Merger Agreement. See “Proposal No. 1 – The Merger Proposal.
Q. What is being voted on at the Special Meeting?   

A. Legato’s stockholders are being asked to vote to adopt a proposal to approve the Merger Agreement and the transactions contemplated thereby. See the section entitled “Proposal No. 1 – The Merger Proposal.

 

The stockholders may also be asked to consider and vote upon a proposal to adjourn the meeting to a later date, if determined by the applicable parties to the Merger Agreement in accordance with the Merger Agreement. See the section entitled “Proposal No. 2 – The Adjournment Proposal.”

 

Legato will hold the Special Meeting of its stockholders to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the proposed Merger and the other matters to be acted upon at the Special Meeting. Stockholders should read it carefully.

 

The vote of stockholders is important. Stockholders are encouraged to submit their completed proxy card as soon as possible after carefully reviewing this proxy statement/prospectus.

Q. Why is Legato proposing the Merger?   

A. Legato was organized to effect a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination or other transaction similar to the Merger with one or more businesses or entities.

 

Legato completed its IPO of 20,500,000 Units on January 22, 2021, with each Unit consisting of one share of Legato Common Stock and one Public Warrant, concurrently with a private placement of 542,500 Private Units. Each Legato Warrant entitles the holder to purchase one share of Legato Common Stock at a price of $11.50. On January 25, 2021, the underwriters exercised in full their over-allotment option to purchase 3,075,000 Units, and Legato completed the sale of an additional 61,500 Private Units pursuant to the subscription agreements for such Private Units. Of the gross proceeds of the IPO and private placement, an aggregate of $235,750,000 was deposited into the Trust Account. Since the IPO, Legato’s activity has been limited to the evaluation of Merger candidates.

 

Algoma is a fully integrated steel producer of hot and cold rolled steel products including sheet and plate. With a current production capacity of an estimated 2.8 million tons per year, Algoma’s size and diverse capabilities enable it to deliver responsive, customer-driven product solutions straight from the ladle to direct applications in the automotive, construction, energy, defense, and manufacturing sectors. Algoma has been engaging in transformative investments that are expected to drive improved financial performance and sustainable returns through the steel pricing cycle, and there is potential for a substantial investment in electric arc furnace (“EAF”) steelmaking.

 

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   In considering whether to recommend the Merger to Legato’s stockholders, Legato’s board of directors considered qualitative factors such as: (1) management strength and depth, (2) currently favorable supply/demand dynamics, (3) expected tailwinds from infrastructure spending, (4) Algoma’s position as a low-cost manufacturer, (5) limited environmental liabilities, and (6) plans for a possible conversion to EAF steelmaking, as well as quantitative factors such as: (a) Algoma’s current and expected future free cash flow generation, (b) the current and expected future price of steel, (c) low relative level of debt, and (d) intrinsic value of Algoma based on both discounted cash flow (“DCF”) and comparable company valuation metrics. In addition, Legato’s board of directors considered the financial analysis reviewed by Cassel Salpeter & Co., LLC (“Cassel Salpeter”) with the Legato board, and the oral opinion of Cassel Salpeter to the Legato board (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement. Legato’s board of directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Merger, including, but not limited to, the risks described in the section of this proxy statement/prospectus titled “Risk Factors”. Overall, Legato’s board of directors determined that the positive aspects of the Merger outweighed the potential risk factors. See “Proposal No. 1 – The Merger Proposal – The Legato Board of Directors’ Reasons for the Merger.”
Q. What will happen to Legato’s securities upon consummation of the Merger?    A. The Legato Units, the Legato Common Stock and the Legato Warrants are currently listed on Nasdaq under the symbols “LEGOU,” “LEGO” and “LEGOW,” respectively. Legato’s securities will cease trading following the consummation of the Merger. Algoma has applied for listing of the Algoma Common Shares and the Algoma Warrants on Nasdaq under the proposed symbols “ASTL” and “ASTLW,” respectively, and intends to apply for the listing of the Algoma Common Shares and the Algoma Warrants on the TSX under the proposed symbols “ASTL” and “ASTL.WT,” respectively, to be effective upon consummation of the Merger. While trading of the Algoma Common Shares and the Algoma Warrants on Nasdaq and the TSX is expected to begin on the first business day following the consummation of the Merger, there can be no assurance that Algoma’s securities will be listed on Nasdaq or the TSX or that a viable and active trading market will develop. See “Risk Factors – Risks Related to the Merger” for more information.
Q. What will happen in the Merger?    A. At the Closing, Merger Sub will merge with and into Legato, with Legato surviving as a wholly-owned subsidiary of Algoma. By virtue of the Merger, (i) each outstanding Legato Unit will be separated immediately prior to the Effective Time into one share of Legato Common Stock and one Legato Warrant, (ii) at the Effective Time each outstanding share of Legato Common Stock will be converted into and exchanged for the right to receive one newly issued Algoma Common Share and (iii) at the Effective Time each Legato Warrant will be converted into an equal number of Algoma Warrants, with each warrant exercisable for one Algoma Common Share, with the exercise period beginning 30 days following Closing. Assuming the No Redemption Scenario (a) all outstanding shares of Legato Common Stock, consisting of (i) 23,575,000 Public Shares and (ii) 6,732,036 shares held by the Founders and EBC (including the Founder Shares, Representative Shares, and shares of Legato Common Stock underlying Private Units) will be converted into Algoma Common Shares on a one-for-one basis, and (b) all outstanding Legato Warrants, consisting of (i) 23,575,000 Public Warrants and (ii) 604,000 Private Warrants will become Algoma Warrants, each of which will entitle the holder thereof to purchase one Algoma Common Share for $11.50 per share, subject to adjustment, and exercisable beginning 30 days after Closing.

 

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Q. What will be the relative equity stakes of Legato’s Public Stockholders, the Founders, the PIPE Investors and Algoma’s existing shareholders in Algoma upon completion of the Merger?   

A. Upon consummation of the Merger, Algoma will become a public company and Legato will become a wholly-owned subsidiary of Algoma. The former security holders of Legato and the PIPE Investors will all become security holders of Algoma.

 

Upon consummation of the Merger, assuming the No Redemption Scenario and prior to the issuance of any additional Algoma Common Shares pursuant to the Earnout Rights, the post-Closing share ownership of Algoma Common Shares would be as follows:

     

Algoma

Common Shares(1) (%)

   Legato Public Stockholders    23,575,000 (20.4%)
   Founders & EBC    6,732,036 (5.8%)
   PIPE Investors    10,000,000 (8.7%)
   Existing Algoma Investors(2)(3)    75,000,000 (65.0%)
   Total    115,307,036 (100.0%)
  

 

(1)   Excludes all 24,179,000 Legato Warrants. If all 24,179,000 Legato Warrants were exercised for cash and all 24,179,000 Algoma Common Shares underlying such Legato Warrants upon their conversion to Algoma Warrants were included, the post-Closing share ownership of Algoma Common Shares would be as follows: Legato Public Stockholders, 23,575,000 (16.9%); Legato Public Warrantholders, 23,575,000 (16.9%); Founders & EBC, 7,336,036 (5.3%); PIPE Investors, 10,000,000 (7.2%); and Existing Algoma Investors,(2)(3) 75,000,000 (53.8%).

(2)   Assumes the consummation of the Stock Split and the LTIP Exchange.

(3)   Includes Algoma Common Shares issuable upon exercise of Replacement LTIP Awards.

 

   Upon consummation of the Merger, assuming the Maximum Redemption Scenario, and prior to the issuance of any additional Algoma Common Shares pursuant to the Earnout Rights, the post-Closing share ownership of Algoma Common Shares would be as follows:
     

Algoma

Common Shares(1) (%)

   Legato Public Stockholders    0 (0.0%)
   Founders & EBC    6,732,036 (7.3%)
   PIPE Investors    10,000,000 (10.9%)
   Existing Algoma Investors(2)(3)    75,000,000 (81.8%)
  

Total

   91,732,036 (100.0%)
  

 

(1)   Excludes all 24,179,000 Legato Warrants. If all 24,179,000 Legato Warrants were exercised for cash and all 24,179,000 Algoma Common Shares underlying such Legato Warrants upon their conversion to Algoma Warrants were included, the post-Closing share ownership of Algoma Common Shares would be as follows: Legato Public Stockholders, 0 (0.0%); Legato Public Warrantholders, 23,575,000 (20.3%); Founders & EBC, 7,336,036 (6.3%); PIPE Investors, 10,000,000 (8.6%); and Existing Algoma Investors,(2)(3) 75,000,000 (64.7%).

(2)   Assumes the consummation of the Stock Split and the LTIP Exchange.

(3)   Includes Algoma Common Shares issuable upon exercise of Replacement LTIP Awards.

 

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   Following the Merger, assuming the No Redemption Scenario and assuming that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued, the share ownership of Algoma Common Shares would be as follows:
     

Algoma

Common Shares(1) (%)

   Legato Public Stockholders    23,575,000 (15.4%)
   Founders & EBC    6,732,036 (4.4%)
   PIPE Investors    10,000,000 (6.5%)
   Existing Algoma Investors(2)(3)    112,500,000 (73.6%)
   Total    152,807,036 (100.0%)
  

 

(1)   Excludes all 24,179,000 Legato Warrants. If all 24,179,000 Legato Warrants were exercised for cash and all 24,179,000 Algoma Common Shares underlying such Legato Warrants upon their conversion to Algoma Warrants were included, the post-Closing share ownership of Algoma Common Shares would be as follows: Legato Public Stockholders, 23,575,000 (13.3%); Legato Public Warrantholders, 23,575,000 (13.3%); Founders & EBC, 7,336,036 (4.1%); PIPE Investors, 10,000,000 (5.7%); and Existing Algoma Investors,(2)(3) 112,500,000 (63.6%).

(2)   Assumes the consummation of the Stock Split and the LTIP Exchange.

(3)   Includes Algoma Common Shares issuable upon exercise of Replacement LTIP Awards.

 

   Following the Merger, assuming the Maximum Redemption Scenario, and assuming that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued, the share ownership of Algoma Common Shares would be as follows:
     

Algoma

Common Shares(1) (%)

   Legato Public Stockholders    0 (0.0%)
   Founders & EBC    6,732,036 (5.2%)
   PIPE Investors    10,000,000 (7.7%)
   Existing Algoma Investors(2)(3)    112,500,000 (87.1%)
   Total    129,232,036 (100.0%)
  

 

(1)   Excludes all 24,179,000 Legato Warrants. If all 24,179,000 Legato Warrants were exercised for cash and all 24,179,000 Algoma Common Shares underlying such Legato Warrants upon their conversion to Algoma Warrants were included, the post-Closing share ownership of Algoma Common Shares would be as follows: Legato Public Stockholders, 0 (0.0%); Legato Public Warrantholders 23,575,000 (15.4%); Founders & EBC, 7,336,036 (4.8%); PIPE Investors, 10,000,000 (6.5%); and Existing Algoma Investors,(2)(3) 112,500,000 (73.3%).

(2)   Assumes the consummation of the Stock Split and the LTIP Exchange.

(3)   Includes Algoma Common Shares issuable upon exercise of Replacement LTIP Awards.

 

   See also “Summary of the Proxy Statement/Prospectus – Ownership of Algoma” and “Unaudited Historical Comparative and Pro Forma Combined per Share Data of Legato and Algoma.”
   Pursuant to the Existing Legato Charter, in connection with the completion of the Merger, Legato’s Public Stockholders may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with the Existing Legato Charter. Payment for such redemptions will come from the Trust Account. Legato’s Public Stockholders are not required to affirmatively vote for or against the Merger Proposal or at all or to be a holder of record on the record date in order to have their shares redeemed for cash. To the extent Legato’s Public Stockholders elect to have their shares redeemed, the consideration to be paid will vary as described herein.

 

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Q. What are the U.S. federal income tax consequences of the Merger to U.S. holders of Legato Common Stock and/or Public Warrants?   

A. As described more fully under the section entitled “Certain Material U.S. Federal Income Tax Considerations – U.S. Holders – U.S. Federal Income Tax Considerations of the Merger,” the parties to the Merger intend that the Merger qualify as a tax-deferred reorganization within the meaning of Section 368(a) of the Code to U.S. Holders (as defined below) of Legato Common Stock and/or Legato Warrants. However, the U.S. federal income tax consequences of the Merger to U.S. Holders of Legato Common Stock and/or Legato Warrants are not certain, and it is unclear under applicable law whether the Merger will in fact qualify as a reorganization. If the Merger does not so qualify, the Merger will be treated, for U.S. federal income tax purposes, as a taxable exchange of Legato Common Stock and/or Legato Warrants for Algoma Common Shares and/or Algoma Warrants.

 

Section 367(a) of the Code and the Treasury regulations promulgated thereunder, in certain circumstances, may impose additional requirements for certain U.S. Holders to qualify for such tax-deferred treatment with respect to the exchange of Legato Common Stock and/or Legato Warrants in the Merger.

 

The tax consequences of the Merger are complex and will depend on your particular circumstances. For a more detailed discussion of the U.S. federal income tax considerations of the Merger for U.S. Holders of Legato Common Stock and/or Legato Warrants, including the application of Section 367(a) of the Code, see the section entitled “Certain Material U.S. Federal Income Tax Considerations – U.S. Holders – U.S. Federal Income Tax Considerations of the Merger.” If you are a U.S. Holder whose Legato Common Stock and/or Legato Warrants are exchanged in the Merger, you are urged to consult your tax advisor to determine the tax consequences thereof.

 

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Material U.S. Federal Income Tax Considerations.”

Q. What are the U.S. federal income tax consequences of exercising my redemption rights?    A. Whether the redemption is subject to U.S. federal income tax depends on the particular facts and circumstances. Please see the section entitled “Certain Material U.S. Federal Income Tax Considerations – U.S. Holders – U.S. Holders Exercising Redemption Rights with Respect to Legato Common Stock” or “Certain Material U.S. Federal Income Tax Considerations – Non-U.S. Holders – Non-U.S. Holders Exercising Redemption Rights with Respect to Legato Common Stock” for additional information. You are urged to consult your tax advisors regarding the tax consequences of exercising your redemption rights.

 

Q. What are the Canadian federal income tax consequences of the ownership and disposition of Algoma Common Shares and/or Algoma Warrants?   

Dividends received or deemed to be received by a Holder (as defined in the section entitled “Certain Material Canadian Federal Income Tax Considerations”) on Algoma Common Shares will be subject to Canadian withholding tax at a rate of 25%, unless the rate is reduced under an applicable income tax treaty or convention. The rate of such withholding tax will generally be reduced to 15% for certain Holders that are residents of the United States for purposes of the Canada-United States Tax Convention (1980), as amended.

 

A Holder will not be subject to Canadian tax on any capital gain realized on a disposition or deemed disposition of Algoma Common Shares, unless the Algoma Common Shares are “taxable Canadian property” to the Holder, and are not “treaty-protected property” of the Holder, at the time of disposition.

 

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Material Canadian Federal Income Tax Considerations.”

 

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Q. Did the Legato board of directors obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Merger?    A. Yes. Although the Existing Legato Charter does not require the Legato board of directors to seek a third-party valuation or fairness opinion in connection with a business combination unless the target business is affiliated with Legato’s initial stockholders, officers, directors or their affiliates, the Legato board of directors received an opinion from Cassel Salpeter to the effect that, as of the date of such opinion and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations and qualifications set forth therein, (i) the consideration to be received by holders of Public Shares in the Merger pursuant to the Merger Agreement, after giving effect to the Stock Split and the grant of Earnout Rights, is fair, from a financial point of view, to such holders, and (ii) Algoma has a fair market value equal to at least 80% of the balance of the Trust Fund (excluding taxes payable on interest earned). Please see the section entitled “Proposal No. 1 – The Merger Proposal – Opinion of Legato’s Financial Advisor.” The full text of the written opinion is attached to this proxy statement/prospectus as Annex C.
Q. How many votes do I have at the Special Meeting?    A. Legato stockholders are entitled to one vote at the Special Meeting for each share of Legato Common Stock held of record as of                     , 2021, the record date for the Special Meeting. As of the close of business on the record date, there were 30,307,036 shares of Legato Common Stock outstanding.
Q. What vote is required to approve the proposals presented at the Special Meeting?    A. The approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Legato Common Stock entitled to vote. The approval of the Adjournment Proposal, if presented, will require the affirmative vote of the holders of a majority of shares of Legato Common Stock present or represented by proxy and entitled to vote at the Special Meeting. Abstentions will have the same effect as voting “AGAINST” the Merger Proposal and the Adjournment Proposal. Broker Non-Votes will have the same effect as voting “AGAINST” the Merger Proposal, but will have no effect on the Adjournment Proposal.
Q. What constitutes a quorum at the Special Meeting?    A. Holders of a majority of the Legato Common Stock issued and outstanding and entitled to vote at the Special Meeting constitute a quorum. In the absence of a quorum, the chairman of the meeting has power to adjourn the Special Meeting. As of the record date, 15,153,518 shares of Legato Common Stock would be required to achieve a quorum. Abstentions will count as present for purposes of achieving a quorum; Broker Non-Votes will not.

 

Q. How do the insiders of Legato intend to vote on the proposals?    A. The Founders beneficially own and are entitled to vote an aggregate of approximately 21% of the outstanding shares of Legato’s Common Stock. The Founders have agreed to vote their securities in favor of each of the proposals.

 

Q. What interests do the Founders and the current officers and directors of Legato have in the Merger?   

A. In considering the recommendation of the Legato board of directors to vote in favor of the Merger, Legato stockholders should be aware that, aside from their interests as stockholders, the Founders (which includes Legato’s directors and officers) have interests in the Merger that are different from, or in addition to, those of other stockholders generally. Legato’s directors were aware of and considered these interests, among other matters, in evaluating the Merger, in recommending to stockholders that they approve the Merger and in agreeing to vote their shares in favor of the Merger. Stockholders should take these interests into account in deciding whether to approve the Merger. These interests include, among other things, the fact that:

 

•   If the Merger with Algoma or another business combination is not consummated by July 22, 2022 (or such later date as may be approved by Legato stockholders), Legato will cease all operations except for the purpose of winding up, redeeming 100% of the

 

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outstanding Public Shares for cash and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, the Founder Shares, would be worthless because the Founder Shares are not entitled to participate in any Redemption or distribution with respect to such shares. Such shares had an aggregate market value of $             based upon the closing price of $             per share on Nasdaq on                     , 2021, the record date for the Special Meeting. On the other hand, if the Merger is consummated, each outstanding share of Legato Common Stock will be converted into one Algoma Common Share.

 

•   The Founders, Legato’s officers or directors, or their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Legato’s behalf, such as identifying and investigating possible business targets and mergers. If Legato fails to consummate the Merger, they will not have any claim against the Trust Account for repayment or reimbursement. In addition, in order to meet its working capital needs the Founders may, but are not obligated to, loan Legato funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. These loans would be repayable upon consummation of the Merger or, with the consent of Algoma, may be converted into Private Units immediately prior to the Effective Time at an exchange rate of $10.00 of borrowings per Private Unit. In the event that the Merger does not close, Legato may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no other proceeds from the Trust Account would be used for such repayment. Accordingly, Legato may not be able to repay or reimburse these amounts if the Merger is not completed.

 

  

•   Certain of the Founders purchased 604,000 Private Units from Legato for $10.00 per Private Unit. This purchase took place on a private placement basis simultaneously with the consummation of the IPO. The Legato Common Stock and Legato Warrants comprising part of the Private Units and the Legato Common Stock underlying such Warrants will become worthless if Legato does not consummate an initial business combination by July 22, 2022 (or such later date as may be approved by Legato stockholders). On the other hand, if the Merger is consummated, each outstanding Legato Warrant will become an Algoma Warrant exercisable to purchase one Algoma Common Share following consummation of the Merger and each outstanding share of Legato Common Stock will be converted into one Algoma Common Share.

 

•   Three of the Founders, Brian Pratt, John Ing and Stephen Lack, and/or their affiliates agreed to purchase approximately 2.64 million PIPE Shares. Messrs. Pratt and Ing are directors of Legato. If the Merger is not consummated, the PIPE will not be consummated and the PIPE Investors will not have the opportunity to invest in Algoma.

 

•   John Ing, one of Legato’s board members, is a principal in Maison Placements Canada, an entity that participated as a placement agent in the PIPE Investment. As a result of its participation in the PIPE Investment, Maison Placements Canada will receive a fee of $1,133,100, which is conditioned upon the closing of the Merger.

 

•   Three of Legato’s directors, Eric S. Rosenfeld, David Sgro and Brian Pratt, are expected to be appointed to the board of directors of

 

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Algoma following the Merger. As a result, they will likely receive the same compensation that other directors of Algoma will receive following the Merger.

 

•   In connection with Legato’s IPO, Crescendo Advisors LLC (“Crescendo”), an entity affiliated with Eric S. Rosenfeld, Legato’s Chief SPAC Officer, has agreed to be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by certain claims of target businesses or vendors or other entities that are owed money by Legato for services rendered or contracted for or products sold to Legato. The agreement entered into by Crescendo specifically provides for two exceptions to the indemnity given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with Legato waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of Legato’s IPO against certain liabilities, including liabilities under the Securities Act. WithumSmith+Brown, PC, Legato’s independent registered public accounting firm, and the underwriters of the initial public offering, have not executed agreements with Legato waiving such claims to the monies held in the Trust Account. Legato has not independently verified whether Crescendo has sufficient funds to satisfy its indemnity obligations, it has not asked it to reserve for such obligations and it does not believe it has any significant liquid assets. Accordingly, Legato believes it is unlikely that Crescendo will be able to satisfy its indemnification obligations if it is required to do so. See the section entitled “Proposal No. 1 – The Merger Proposal – Interests of Legato’s Directors and Officers in the Merger” for more information.

Q. Do I have redemption rights?   

A. If you are a holder of Public Shares, you have the right to request that Legato redeem all or a portion of your Public Shares for cash provided that you follow the procedures and deadlines described elsewhere in this proxy statement/prospectus. Public Stockholders may elect to redeem all or a portion of the public shares held by them regardless of if or how they vote in respect of the Merger Proposal or any other proposal set forth herein and even if they are not a holder of Public Shares on the record date. If you wish to exercise your redemption rights, see the answer to the next question: “How do I exercise my redemption rights?”

 

As a condition to their purchase of Founder Shares, the Founders agreed to waive their redemption rights in connection with the consummation of the Merger with respect to all of the shares of Legato Common Stock held by them. EBC has agreed to waive its redemption rights with respect to the Representative Shares and shares underlying the Private Units held by it. See the section titled “Special Meeting of Legato Stockholders – Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

Q. How do I exercise my redemption rights?    A. In order to exercise your redemption rights, you must, prior to 5:00 p.m., Eastern Time, on             , 2021 (two business days before the Special Meeting), (x) submit a written request, which includes the name of the beneficial owner of the Public Shares to be redeemed, to Continental Stock Transfer & Trust Company, Legato’s transfer agent, that Legato redeem your Public Shares for cash, and (y) deliver your stock to the transfer agent

 

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physically or electronically through the DTC. The address of Continental Stock Transfer & Trust Company, Legato’s transfer agent, is listed under the question “Who can help answer my questions?” below.

 

Any demand for redemption, once made, may be withdrawn at any time until the date of the Special Meeting. After the date of the Special Meeting, a demand for redemption may only be withdrawn with Legato’s consent. If you deliver your shares for redemption to Legato’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that Legato’s transfer agent return the shares to you (physically or electronically). You may make such request by contacting Legato’s transfer agent at the address listed under the question “Who can help answer my questions?” below.

Q. Do I have appraisal rights if I object to the proposed Merger?    A. Under Section 262 of the General Corporation Law of the State of Delaware, the holders of Legato Common Stock and Legato Warrants will not have appraisal rights in connection with the Merger.
Q. If I am a Warrant holder, can I exercise redemption rights with respect to my Warrants?    A. No. The holders of Warrants have no redemption rights with respect to such securities.

 

Q. If I am a Unit holder, can I exercise redemption rights with respect to my Units?   

A. No. Holders of outstanding Units must separate the underlying shares of Legato Common Stock and Public Warrants prior to exercising redemption rights with respect to the Public Shares.

 

If you hold Units registered in your own name, you must deliver the certificate for such Units to Continental Stock Transfer & Trust Company, Legato’s transfer agent, with written instructions to separate such Units into Public Shares and Public Warrants. This must be completed far enough in advance to permit the mailing of the Public Share certificates back to you so that you may

  

then exercise your redemption rights upon the separation of the Public Shares from the Units. See “How do I exercise my redemption rights?” above. The address of Continental Stock Transfer & Trust Company is listed under the question “Who can help answer my questions?” below.

 

If a broker, bank, or other nominee holds your Units, you must instruct such broker, bank or nominee to separate your Units. Your nominee must send written instructions by facsimile to Continental Stock Transfer & Trust Company, Legato’s transfer agent. Such written instructions must include the number of Units to be split and the nominee holding such Units. Your nominee must also initiate electronically, using DTC’s deposit withdrawal at custodian (DWAC) system, a withdrawal of the relevant Units and a deposit of an equal number of Public Shares and Public Warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights upon the separation of the Public Shares from the Units. While this is typically done electronically the same business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your Public Shares to be separated in a timely manner, you will likely not be able to exercise your redemption rights.

Q. I am a Legato Warrant holder. Why am I receiving this proxy statement/prospectus?    A. As a holder of Legato Warrants, which will become Algoma Warrants in connection with the Merger, following consummation the Merger you will be entitled to purchase one Algoma Common Share in lieu of one share of Legato Common Stock at a purchase price of $11.50, subject to adjustment. This proxy statement/prospectus includes important information about Algoma and the business of Algoma and its subsidiaries following consummation of the

 

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   Merger. Since Legato Warrants will become exercisable for Algoma Common Shares following consummation of the Merger, we urge you to read the information contained in this proxy statement/prospectus carefully.
Q. What happens to the funds deposited in the Trust Account after consummation of the Merger?    A. Of the net proceeds of Legato’s IPO (including the net proceeds of the underwriters’ exercise of their over-allotment option) and the simultaneous private placement of the Private Units, a total of $235,750,000 was placed in the Trust Account. Prior to the Effective Time, the funds in the Trust Account will be released to Legato and used by Legato to pay holders of the Public Shares who exercise redemption rights, to pay fees and expenses incurred in connection with the Merger (including fees of an aggregate of $8,251,250 payable to EBC for services in connection with the Merger, of which $2.7 million has been allocated to BMO Capital Markets Corp., and an aggregate of $2,183,100 payable to the placement agents engaged by Legato in connection with the PIPE Investment, conditioned upon the Closing) and for other expenses and unpaid liabilities incurred by Legato following the IPO, including repayment of loans and reimbursement of expenses to Legato’s directors, officers, and stockholders. Thereafter, the Trust Account shall terminate and any remaining funds shall be released to Algoma.

 

Q. What happens if a substantial number of Public Stockholders vote in favor of the Merger Proposal and exercise their Redemption rights?    A. Legato’s Public Stockholders may vote in favor of the Merger and exercise their Redemption rights. The Merger may be consummated even though the funds available from the Trust Account and the number of Public Stockholders is substantially reduced as a result of redemption by Public Stockholders so long as the funds in the Trust Account (after giving effect to any Redemptions and the payment of Legato’s transaction costs), together with (i) the aggregate amount of proceeds from the PIPE Investment and (ii) the cash on Legato’s balance sheet, equals or exceeds $200 million, which is referred to as the Minimum Cash Condition, provided that the Minimum Cash Condition may be waived by Algoma in its sole discretion. Although the pro forma amount of cash under the Maximum Redemption Scenario is less than the Minimum Cash Condition, Algoma has not elected to waive the Minimum Cash Requirement. Unless Algoma elects to waive this requirement, the Maximum Redemption Scenario cannot occur. In addition, the Merger will not be consummated if, immediately prior to or upon the consummation of the Merger, Legato does not have at least $5,000,001 in net tangible assets after giving effect to the Redemption. In the event of significant Redemptions, with fewer Public Shares and Public Stockholders, the trading market for Algoma Common Shares may be less liquid than the market for shares of Legato Common Stock was prior to the Merger and Algoma may not be able to meet the listing standards for Nasdaq, another national securities exchange or the TSX.
Q. What happens if the Merger is not consummated?    A. If Legato does not complete the Merger with Algoma (or another initial business combination) by July 22, 2022 (or such later date as may be approved by Legato’s stockholders), Legato must redeem 100% of the outstanding Public Shares, at a per-share price, payable in cash, equal to the amount then held in the Trust Account (approximately $             per share as of the record date).
Q. When do you expect the Merger to be completed?    A. It is currently anticipated that the Merger will be consummated promptly following the Special Meeting which is scheduled for             , 2021; however, such meeting could be adjourned, as described above. For a description of the conditions for the completion of the Merger, see the section entitled “Proposal No. 1 – The Merger Proposal – The Merger Agreement – Conditions to Closing of the Merger.”

 

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Q. When and where will the Special Meeting take place?   

A. The Special Meeting will be held virtually on             , 2021, at             a.m., Eastern Time. You may attend the Special Meeting webcast by accessing the web portal located at             and following the instructions set forth below. Stockholders participating in the Special Meeting will be able to listen only and will not be able to speak during the webcast. However, in order to maintain the interactive nature of the Special Meeting, virtual attendees will be able to:

 

•   vote via the web portal during the Special Meeting webcast; and

 

•   submit questions or comments to Legato’s directors and officers during the Special Meeting via the Special Meeting webcast.

Q. What do I need to do now?    A. Legato urges you to read carefully and consider the information contained in this proxy statement/prospectus, including the annexes, and to consider how the Merger will affect you as a stockholder and/or warrant holder of Legato. Stockholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card.
Q. How do I vote?    A. If you are a holder of record of Legato Common Stock on the record date, you may vote virtually at the Special Meeting or by submitting a proxy for the Special Meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee with instructions on how to vote your shares or, if you wish to attend the meeting and vote virtually, obtain a proxy from your broker, bank or nominee.
Q: How do I attend the Special Meeting?   

A. Due to health concerns stemming from the COVID-19 pandemic and to support the health and well-being of the Legato stockholders, the Special Meeting will be held virtually. Any stockholder wishing to virtually attend the Special Meeting must register in advance. To register for and attend the Special Meeting, please follow these instructions as applicable to the nature of your ownership of Legato Common Stock:

 

•   Shares Held of Record. If you are a record holder, and you wish to attend the virtual Special Meeting, go to                     , enter the control number you received on your proxy card or notice of the meeting and click on the “Click here to preregister for the online meeting” link at the top of the page. Immediately prior to the start of the Special Meeting, you will need to log back into the meeting site using your control number. You must register before the meeting starts.

 

•   Shares Held in Street Name. If you hold your shares in “street” name, which means your shares are held of record by a broker, bank or nominee, and you wish to attend the virtual Special Meeting, you must obtain a legal proxy from the stockholder of record and e-mail a copy (a legible photograph is sufficient) of your proxy to proxy@continentalstock.com. Holders should contact their bank, broker or other nominee for instructions regarding obtaining a proxy. Holders who e-mail a valid legal proxy will be issued a meeting control number that will allow them to register to attend and participate in the Special Meeting. You will receive an e-mail prior to the meeting with a link and instructions for entering the Special Meeting. “Street name” holders should contact Continental Stock Transfer on or before close of business on                 , 2021.

 

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Stockholders will also have the option to listen to the Special Meeting by telephone by calling:

 

•   Within the U.S. and Canada: (toll-free)

 

•   Outside of the U.S. and Canada: (standard rates apply)

 

The passcode for telephone access:             #. You will not be able to vote or submit questions unless you register for and log in to the Special Meeting webcast as described above.

Q. If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?    A. No. As disclosed in this proxy statement/prospectus, your broker, bank or nominee cannot vote your shares on the Merger Proposal unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. Failure to instruct your broker, bank or nominee on how to vote, which we refer to as a Broker Non-Vote, will have the same effect as a vote “AGAINST” the Merger Proposal, but will have no effect on the Adjournment Proposal. Broker Non-Votes will not be counted as present for purposes of establishing a quorum for the Special Meeting.

 

Q. May I change my vote after I have mailed my signed proxy card?    A. Yes. Stockholders may send a later dated, signed proxy card to Legato at the address set forth below so that it is received by Legato’s proxy solicitor prior to the vote at the Special Meeting or attend the Special Meeting virtually and vote. Only your latest dated proxy card will be counted. Stockholders also may revoke their proxy by sending a notice of revocation to Legato’s proxy solicitor, which must be received by Legato’s proxy solicitor prior to the vote at the Special Meeting.
Q. What happens if I fail to take any action with respect to the Special Meeting?    A. If you fail to take any action with respect to the Special Meeting and the Merger is adopted by stockholders and consummated, you will become a shareholder and/or warrant holder of Algoma. If you fail to take any action with respect to the Special Meeting and the Merger is not approved, you will continue to be a stockholder and/or warrant holder of Legato.
Q. What should I do if I receive more than one set of voting materials?    A. Stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are 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 in order to cast a vote with respect to all of your Legato Common Stock.
Q. What happens if I sell my Legato Common Stock before the Special Meeting?    A. The record date for the Special Meeting is earlier than the date of the Special Meeting and earlier than the date the Merger is expected to be completed. If you transfer your shares after the record date, but before the Special Meeting date, unless you grant a proxy to the transferee, you will retain your right to vote at the Special Meeting.
Q. What should I do with my share and/or warrant certificates?    A. Warrant holders and those stockholders who do not elect to have their shares of Legato Common Stock redeemed for a pro rata share of the Trust Account should wait for instructions from Legato’s transfer agent regarding what to do with their certificates. Legato stockholders who exercise their redemption rights must deliver their share certificates to Legato’s transfer agent (either physically or electronically) no later than two (2) business days prior to the Special Meeting as described above. Upon consummation of the Merger, the Legato Warrants, by their terms, will entitle holders to purchase Algoma

 

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   Common Shares. Therefore, warrant holders need not deliver their warrants to Legato or Algoma at that time.

 

Q. Who can help answer my questions?   

A. If you have questions about the Merger or if you need additional copies of the proxy statement/prospectus or the enclosed proxy card you should contact:

 

David D. Sgro

Legato Merger Corp.

777 Third Avenue, 37th Floor

New York, NY 10017

Tel: (212) 319-7676

 

You may also contact the proxy solicitor at:

 

MacKenzie Partners Inc.

1407 Broadway, 27th Floor

New York, NY 10018

Tel: (800) 322-2885

 

You may also obtain additional information about Legato from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.” If you are a holder of Public Shares and you intend to seek redemption of your shares, you will need to deliver your stock (either physically or electronically) to Legato’s transfer agent at the address

  

below at least two (2) business days prior to the Special Meeting. If you have questions regarding the certification of your position or delivery of your stock, please contact:

 

Attention: Mr. Mark Zimkind

Continental Stock Transfer & Trust Company

1 State Street, 30th Floor

New York, New York 10004

Telephone: 212-509-4000

E-mail: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the Special Meeting, including the Merger, you should read this entire document carefully, including the Merger Agreement attached as Annex A to this proxy statement/prospectus. The Merger Agreement is the legal document that governs the Merger and share exchange and the other transactions that will be undertaken in connection with the Merger. It is also described in detail in this proxy statement/prospectus in the section entitled “Proposal No. 1 — The Merger Proposal — The Merger Agreement.”

Information About the Companies

Algoma

Algoma, a corporation organized under the laws of the Province of British Columbia, is a fully integrated steel producer of hot and cold rolled steel products including sheet and plate. With a current production capacity of an estimated 2.8 million tons per year, Algoma’s size and diverse capabilities enable it to deliver responsive, customer-driven product solutions straight from the ladle to direct applications in the automotive, construction, energy, defense, and manufacturing sectors. Algoma was incorporated in March 2021 and is the parent holding company of Algoma Steel Inc., which was transferred to Algoma on March 29, 2021.

The mailing address for Algoma’s principal executive office is 105 West Street, Sault Ste. Marie, Ontario, P6A 7B4, Canada and its telephone number is (705) 945-2351.

Algoma Merger Sub, Inc.

Algoma Merger Sub, Inc. is a newly formed Delaware corporation and a wholly-owned subsidiary of Algoma. Merger Sub was formed solely for the purpose of effecting the Merger and has not carried on any activities other than those in connection with the Merger. The address and telephone number for Merger Sub’s principal executive offices are the same as those for Algoma.

Legato

Legato is a blank check company formed on June 26, 2020 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more target businesses. Legato’s efforts to identify a prospective target business were not limited to a particular industry or geographic region, although it focused on target businesses in the renewables, infrastructure, engineering and construction and industrial industries. Prior to executing the Merger Agreement, Legato’s efforts were limited to organizational activities, completion of its initial public offering and the evaluation of possible business combinations.

In August 2020, Legato issued an aggregate of 5,031,250 shares of Legato Common Stock for an aggregate purchase price of $25,000. In January 2021, the Company effected a stock dividend of approximately 0.17 shares for each outstanding share resulting in there being an aggregate of 5,893,750 of such Founder Shares outstanding.

In August 2020, the Company issued to EBC and its designees an aggregate of 234,286 shares of Legato Common Stock (after giving effect to the dividend effected in January 2021) for nominal consideration.

On January 22, 2021, Legato closed its IPO of 20,500,000 Units, with each Unit consisting of one share of Legato Common Stock and one Public Warrant. Each Public Warrant entitles the holder to purchase one share of Legato Common Stock at a purchase price of $11.50 beginning 30 days following consummation of an initial business combination. The Units from the initial public offering were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $205,000,000.

Simultaneously with the consummation of the initial public offering, Legato consummated a private placement of 542,500 Private Units to the Founders and EBC and its designees. The Private Units were sold at an offering price of


 

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$10.00 per unit, generating gross proceeds of $5,425,000. Each Private Unit consists of one share of Legato Common Stock and one Private Warrant. The Private Warrants are identical to the Public Warrants sold in the IPO, except that the Private Warrants are not redeemable and are exercisable on a cashless basis as long as held by the Founders or their permitted transferees. The Founders, EBC, and its designees have agreed that these Private Warrants will not be sold or transferred (except to certain permitted transferees) until after Legato has completed an initial business combination.

On January 25, 2021, the underwriters fully exercised their over-allotment option of 3,075,000 Units at $10.00 per Unit, generating gross proceeds of $30,750,000. In connection with the underwriters’ exercise of their over-allotment option, Legato also consummated the sale of an additional 61,500 Private Units at $10.00 per unit, generating total proceeds of $615,000. Legato funded the Trust Account with $235,750,000 of the cash proceeds from the IPO (including the exercise of the over-allotment option), and the net proceeds from the Private Warrants after the payment of expenses associated with the IPO.

The IPO was conducted pursuant to a registration statement on Form S-1 (Reg. No. 333-248997) that became effective on January 19, 2021. As of the date of this proxy statement/prospectus, there was approximately $235.8 million held in the Trust Account.

Legato’s Units, the Legato Common Stock and the Legato Warrants are listed on Nasdaq under the symbols “LEGOU,” “LEGO,” and “LEGOW,” respectively.

The mailing address of Legato’s principal executive office is 777 Third Avenue, 37th Floor, New York, NY 10017. After the consummation of the Merger, Legato will become a wholly-owned subsidiary of Algoma and its principal executive office will be that of Algoma.

The Merger Agreement (page 115)

The terms and conditions of the merger of Merger Sub with and into Legato, with Legato surviving the merger as a wholly-owned subsidiary of Algoma, are contained in the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus. We encourage you to read the Merger Agreement carefully, as it is the legal document that governs the Merger.

Merger Consideration

The post-Closing enterprise value of Algoma upon consummation of the Merger is estimated to approximate $1.7 billion, including the Earnout Rights. We estimate that, upon consummation of the Merger, assuming none of Legato’s Public Stockholders seek Redemption pursuant to the Existing Legato Charter, the Existing Algoma Investors will own approximately 65% of the outstanding Algoma Common Shares (inclusive of Replacement LTIP Awards) and the securityholders of Legato, including the Public Stockholders, the Founders, EBC and its designees, and the PIPE Investors, will own the remaining Algoma Common Shares, in each case, excluding Algoma Common Shares issuable pursuant to the Earnout Rights and Algoma Common Shares underlying Algoma Warrants. Included in the post-Closing enterprise value above is the contingent right of the Existing Algoma Investors to acquire their pro rata portion of up to 37.5 million Algoma Common Shares pursuant to the Earnout Rights if certain earnout targets based on Earnout Adjusted EBITDA and/or the trading price of the Algoma Common Shares are met. Assuming all Algoma Common Shares issuable pursuant to the Earnout Rights are issued, the Existing Algoma Investors will own approximately 74% of the outstanding Algoma Common Shares (inclusive of Replacement LTIP Awards), excluding Algoma Common Shares underlying Algoma Warrants. Based on the current estimates of Algoma’s Earnout Adjusted EBITDA, it is currently expected that all of 37.5 million Algoma Common Shares will be issued pursuant to the Earnout Rights. However, we cannot assure you that any or all of the Earnout Events will occur.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding share of Legato Common Stock will be converted into and exchanged for the right to receive one newly issued Algoma Common Share. Legato’s outstanding warrants to purchase one share of Legato Common Stock will be converted into and become Algoma Warrants, with each warrant exercisable for one Algoma Common Share for $11.50 per share, subject to adjustment, with the exercise period beginning 30 days following Closing.


 

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Stock Split and Parent Distribution

Pursuant to the Merger Agreement, prior to the Effective Time, Algoma will effectuate a reverse stock split, which is referred to as the Stock Split, such that each outstanding Algoma Common Share (after the exchange of LTIP Awards described below) will become such number of Algoma Common Shares, each valued at $10.00 per share, equal to $750 million of shares, as determined by the Conversion Factor. In addition, immediately following the Stock Split and prior to the Closing, such Algoma Common Shares will be distributed to the current equityholders of Algoma’s ultimate parent company.

LTIP Exchange

Prior to the Effective Time, each outstanding LTIP Award that has vested and that is held by an executive officer or director of Algoma who has executed an exchange agreement and joinder to the Lock-up Agreement will be exchanged for Replacement LTIP Awards.

Algoma’s Reasons for the Merger (page 88)

Algoma’s reason for the Merger include that the Merger provides Algoma with a means to become a public company, which will provide Algoma with access to capital to partially fund its proposed transformation to electric arc furnace (“EAF”) steelmaking.

The Legato Board of Directors’ Reasons for the Merger (page 88)

Legato was formed for the purpose of effecting an initial business combination with one or more businesses. Legato sought to do this by utilizing the networks and industry experience of its officers, directors, and Founders to identify and consummate an initial business combination with one or more businesses in the renewables, infrastructure, engineering and construction and industrial industries, although Legato was not limited to a particular industry or sector.

In considering whether to recommend the Merger to Legato’s stockholders, Legato’s board of directors considered qualitative factors such as: (1) management strength and depth, (2) currently favorable supply/demand dynamics, (3) expected tailwinds from infrastructure spending, (4) Algoma’s position as a low cost manufacturer, (5) limited environmental liabilities, and (6) plans for a possible conversion to EAF steelmaking, as well as quantitative factors such as: (a) Algoma’s current and expected future free cash flow generation, (b) the current and expected future price of steel, (c) low relative level of debt, and (d) intrinsic value of Algoma based on both DCF and comparable company valuation metrics. In addition, Legato’s board of directors considered the financial analysis reviewed by Cassel Salpeter with the Legato board, and the oral opinion of Cassel Salpeter to the Legato board (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement. Legato’s board of directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Merger, including, but not limited to, the risks described in the section of this proxy statement/prospectus titled “Risk Factors”. Overall, Legato’s board of directors determined that the positive aspects of the Merger outweighed the potential risk factors.

Opinion of Legato’s Financial Advisor (page 103)

Legato engaged Cassel Salpeter to render an opinion, as of May 24, 2021, as to (i) the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement, and (ii) whether Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account (excluding taxes payable on interest earned). Cassel Salpeter is an investment banking firm that regularly is engaged in the evaluation of businesses and their securities in connection with acquisitions, corporate restructuring, private placements and for other purposes. Legato’s board of directors decided to use the services of Cassel Salpeter because it is a recognized investment banking firm that has substantial experience in similar matters, and has rendered similar services to other blank check companies, including five of which Messrs. Rosenfeld and Sgro were previously officers and/or directors.


 

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On May 24, 2021, Cassel Salpeter rendered its oral opinion to Legato’s board of directors (which was confirmed in writing by delivery of Cassel Salpeter’s written opinion dated such date), to the effect that, as of May 24, 2021 and based on and subject to the assumptions, limitations, qualifications and other matters considered in the preparation of such opinion, the merger consideration to be received by Legato’s Public Stockholders in the merger pursuant to the Merger Agreement, after giving effect to the Stock Split and the issuance of the Earnout Shares, was fair, from a financial point of view, to such holders and (ii) Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account (less taxes payable on interest earned).

The summary of Cassel Salpeter’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex B to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Merger or otherwise.

The opinion was addressed to Legato’s board of directors for the use and benefit of the members of the board of directors (in their capacities as such) in connection with the board’s evaluation of the business combination. Cassel Salpeter’s opinion was just one of the several factors the board of directors considered in making its determination to recommend the Merger, including those described elsewhere in this proxy statement/prospectus.

Interests of Legato’s Officers and Directors in the Merger (page 109)

John Ing and Brian Pratt, directors of Legato, participated in the PIPE Investment and, to avoid the appearance of a conflict of interest, each abstained from the Legato board’s vote to approve the Merger. Additionally, when you consider the recommendation of Legato’s board of directors in favor of approval of the Merger Proposal, you should keep in mind that the Founders, including Legato’s directors and executive officers, have interests in such proposal that may be different from, or in addition to, your interests as a stockholder. These interests include, among other things:

 

   

If the Merger with Algoma or another business combination is not consummated by July 22, 2022 (or such later date as may be approved by Legato stockholders), Legato will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding Public Shares for cash and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, the Founder Shares, would be worthless because the Founder Shares are not entitled to participate in any Redemption or distribution with respect to such shares. Such shares had an aggregate market value of $            based upon the closing price of $            per share on Nasdaq on             , 2021, the record date for the Special Meeting. On the other hand, if the Merger is consummated, each outstanding share of Legato Common Stock will be converted into one Algoma Common Share.

 

   

The Founders, Legato’s officers or directors, or their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Legato’s behalf, such as identifying and investigating possible business targets and mergers. If Legato fails to consummate the Merger, they will not have any claim against the Trust Account for repayment or reimbursement. In addition, in order to meet its working capital needs the Founders may, but are not obligated to, loan Legato funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. These loans would be repayable upon consummation of the Merger or, with the consent of Algoma, may be converted into Private Units immediately prior to the Effective Time at an exchange rate of $10.00 of borrowings per Private Unit. In the event that the Merger does not close, Legato may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no other proceeds from the Trust Account would be used for such repayment. Accordingly, Legato may not be able to repay or reimburse these amounts if the Merger is not completed.


 

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Certain of the Founders purchased 604,000 Private Units from Legato for $10.00 per Private Unit. This purchase took place on a private placement basis simultaneously with the consummation of the IPO. The Legato Common Stock and Legato Warrants comprising part of the Private Units and the Legato Common Stock underlying such Warrants will become worthless if Legato does not consummate an initial business combination by July 22, 2022 (or such later date as may be approved by Legato stockholders). On the other hand, if the Merger is consummated, each outstanding Legato Warrant will become an Algoma Warrant exercisable to purchase one Algoma Common Share following consummation of the Merger and each outstanding share of Legato Common Stock will be converted into one Algoma Common Share.

 

   

Three of the Founders, Brian Pratt, John Ing and Stephen Lack, and/or their affiliates agreed to purchase approximately 2.64 million PIPE Shares. Messrs. Pratt and Ing are directors of Legato. If the Merger is not consummated, the PIPE Investment will not be consummated and the PIPE Investors will not have the opportunity to invest in Algoma.

 

   

John Ing, one of Legato’s board members, is a principal in Maison Placements Canada, an entity that participated as a placement agent in the PIPE Investment. As a result of its participation in the PIPE Investment, Maison Placements Canada will receive a fee of $1,133,100, which is conditioned upon the closing of the Merger.

 

   

Three of Legato’s directors, Eric S. Rosenfeld, David Sgro and Brian Pratt, are expected to be appointed to the board of directors of Algoma following the Merger. As a result, they will likely receive the same compensation that other directors of Algoma will receive following the Merger.

 

   

In connection with Legato’s IPO, Crescendo, an entity affiliated with Eric S. Rosenfeld, Legato’s Chief SPAC Officer, has agreed to be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by certain claims of target businesses or vendors or other entities that are owed money by Legato for services rendered or contracted for or products sold to Legato. The agreement entered into by Crescendo specifically provides for two exceptions to the indemnity given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with Legato waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of Legato’s IPO against certain liabilities, including liabilities under the Securities Act. WithumSmith+Brown, PC, Legato’s independent registered public accounting firm, and the underwriters of the initial public offering, have not executed agreements with Legato waiving such claims to the monies held in the Trust Account. Legato has not independently verified whether Crescendo has sufficient funds to satisfy its indemnity obligations, it has not asked it to reserve for such obligations and it does not believe it has any significant liquid assets. Accordingly, Legato believes it is unlikely that Crescendo will be able to satisfy its indemnification obligations if it is required to do so.

At any time prior to the Special Meeting, during a period when they are not then aware of any material nonpublic information regarding Legato or its securities, the Founders, Algoma, or the equity holders of Legato and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the Merger Proposal, or who redeem or indicate an intention to redeem their public shares, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of Legato Common Stock or vote their shares in favor of the Merger Proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirement that the holders of a majority of the then outstanding shares of Legato Common Stock vote to approve the Merger Proposal and/or to decrease the number of Redemptions. While the nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including, subject to the Lock-Up Agreement, the granting of put options and the transfer to such investors or holders of shares or warrants owned by the Founders for nominal value.

Entering into any such arrangements may have a depressive effect on the price of the Legato Common Stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than the market price and may therefore be more likely to sell the shares he owns, either prior to or immediately after the Special Meeting.


 

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If such transactions are effected, the consequence could be to cause the Merger Proposal to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Merger Proposal and other proposals to be presented at the Special Meeting and would likely increase the chances that such proposals would be approved.

As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such effect have been entered into with any such investor or holder. Legato will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons.

Agreements entered into in connection with the Merger Agreement (page 124)

In connection with the Merger, certain related agreements have been entered into, or will be entered into on or prior to the Closing Date, including:

 

   

PIPE Subscription Agreements entered into concurrently with the Merger Agreement, by and among Algoma, Legato and the PIPE Investors, pursuant to which the PIPE Investors have agreed to purchase, and Algoma and Legato have agreed to issue to the PIPE Investors, an aggregate of 10,000,000 Algoma Common Shares and shares of Legato Common Stock, for the purchase price of $10.00 per share and at an aggregate purchase price of $100,000,000. The obligations to consummate the transactions contemplated by the PIPE Subscription Agreements are conditioned upon, among other things, the consummation of the Merger. If the Merger is not consummated, the PIPE investors will not have the opportunity to invest in Algoma. Shares acquired pursuant to the PIPE Subscription Agreements will not have redemption rights and such shares will be restricted securities within the meaning of Rule 144 under the Securities Act; accordingly, the PIPE Subscription Agreements include customary resale registration rights provisions. Certain PIPE Investors will exchange their PIPE Shares for Algoma Common Shares pursuant to the PIPE Subscription Agreements immediately prior to, rather than at the Effective Time of the Merger.

 

   

Support Agreement pursuant to which the Founders agreed to vote or cause to be voted all shares of Legato Common Stock beneficially held by them (i) in favor of approval of the adoption of the Merger Agreement, the approval of the Transactions, and each other proposal presented by Legato for approval by Legato’s stockholders, and (ii) against (x) any proposal or offer from any other person (other than Algoma and its affiliates) with respect to certain competing transactions and (y) any action, proposal, transaction, or agreement that could reasonably be expected to materially impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Transactions or the fulfillment of Legato’s obligations under the Merger Agreement or change in any manner the voting rights of any class of shares of Legato (including any amendments to the Existing Legato Charter or Legato’s bylaws other than in connection with the Transactions). Pursuant to the Support Agreement, the Founders also agreed to waive any appraisal and dissenters’ rights under applicable law and not to exercise any right to redeem shares of Legato Common Stock for a pro rata portion of the Trust Account.

 

   

Lock-Up Agreement pursuant to which the Algoma Common Shares held by Existing Algoma Investors immediately prior to the Effective Time will be subject to transfer restrictions until the earlier of (a) the six-month anniversary of the Closing, (b) the date on which the closing share price of the Algoma Common Shares equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period following the Closing, and (c) the date on which Algoma completes a change of control following the Closing. The Founders will be subject to the same lock-up as the Existing Algoma Investors with respect to the Algoma Common Shares to be issued to the Founders in exchange for their Founder Shares (and, in the case of Eric S. Rosenfeld, David Sgro, and Brian Pratt, the Algoma Common Shares and Algoma Warrants to be issued to them in exchange for their Private Units), but not including any PIPE Shares, except that the release date will be the twelve-month anniversary of the Closing, rather than the six-month anniversary. In addition, the Merger Agreement provides that each person who will receive Replacement LTIP Awards will sign a joinder to the Lock-Up Agreement. The Lock-Up Agreement may be waived with the written consent of the Company and persons holding a majority of the shares subject to the lock-up.

 

   

Investor Rights Agreement pursuant to which the Algoma Warrants and Algoma Common Shares held by the Founders and shareholders of Algoma Steel Parent S.C.A. and their respective permitted transferees


 

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(collectively, the “IRA Parties”), including the Algoma Common Shares issuable upon the exercise of Algoma Warrants and other derivative securities, shall bear customary registration rights and nomination rights. Specifically, Algoma will agree to file a registration statement as soon as practicable upon a request from certain IRA Parties to register the resale of certain registrable securities under the Securities Act and Canadian securities laws (such request, a “demand registration”), subject to required notice provisions to other IRA Parties; provided, Algoma shall not be obligated to effect a demand registration (i) unless the aggregate proceeds expected to be received from the sale of the registrable securities equals or exceeds C$50,000,000 or (ii) if Algoma has effected a demand registration within the six-month period prior to receipt of the request therefor. Algoma has also agreed to provide customary “piggyback” registration rights with respect to any valid demand registration request. Algoma will pay certain expenses relating to such registrations and indemnify the IRA Parties against certain liabilities. Additionally, certain IRA Parties that currently have board designation rights with respect to Algoma Steel Holdings Inc. will have the right to nominate, in the aggregate, four directors to the Algoma board for so long as they maintain approximately 7.36% of outstanding Algoma Common Shares (which percentage assumes (i) the No Redemption Scenario and (ii) that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued).

Certain Material U.S. Federal Income Tax Considerations (page 126)

For a description of certain material U.S. federal income tax consequences of the Merger, the exercise of redemption rights in respect of shares of Legato Common Stock and the ownership and disposition of Algoma Common Shares and/or Algoma Warrants, please see the information set forth in “Certain Material U.S. Federal Income Tax Considerations” beginning on page 126.

Certain Material Canadian Federal Income Tax Considerations (page 142)

For a description of certain Canadian federal income tax consequences of the ownership and disposition of Algoma Common Shares, please see the information set forth in “Certain Material Canadian Federal Income Tax Considerations” beginning on page 142.

Redemption Rights

Pursuant to the Existing Legato Charter, a holder of Public Shares may demand that Legato redeem such shares for cash if the Merger is consummated. If you are a holder of Public Shares, you will be entitled to receive cash for your Public Shares regardless of whether you vote for or against the Merger Proposal or do not vote at all, and regardless of whether you held your Public Shares on the record date, and will be permitted to demand that Legato redeem your shares for cash no later than 5:00 p.m., Eastern Time, on                        , 2021 (two (2) business days prior to the Special Meeting) by (A) submitting your redemption request, which includes the name of the beneficial owner of the Public Shares to be redeemed, in writing to Continental Stock Transfer & Trust Company and (B) delivering your stock to Legato’s transfer agent physically or electronically using DTC’s DWAC (Deposit Withdrawal at Custodian) System. If the Merger is not completed, these shares will not be redeemed for cash. In such case, Legato will promptly return any shares delivered by holders of Public Shares for redemption and such holders may only share in the assets of the Trust Account upon the liquidation of Legato. This may result in holders receiving less than they would have received if the Merger was completed and they had exercised their redemption rights in connection therewith due to potential claims of creditors. If a holder of Public Shares properly demands redemption, Legato will redeem each Public Share for a full pro rata portion of the Trust Account, calculated as of two business days prior to the anticipated consummation of the Merger. As of                 , the record date, this would amount to approximately $                per share. If a holder of Public Shares exercises its redemption rights, then it will be exchanging its shares of Legato Common Stock for cash and will no longer own the shares. See the section entitled “Special Meeting of Legato Stockholders — Redemption Rights” for a detailed description of the procedures to be followed if you wish to convert your shares of Legato Common Stock into cash.

Holders of Legato Warrants and Units will not have redemption rights with respect to such securities.

Assuming that 23,575,000 Public Shares are redeemed for an aggregate payment of approximately $235.8 million from the Trust Account, which is the maximum amount of redemptions that could occur and still satisfy the


 

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requirement for Legato to maintain minimum net tangible assets of at least $5.0 million immediately prior to or upon the consummation of the Merger, and using the closing Legato Warrant price on Nasdaq of $2.73 as of August 13, 2021, the aggregate fair value of Legato Warrants that can be retained by the redeeming stockholder is $66,008,670. The actual market price of the Legato Warrants may be higher or lower on the date that holders seek to sell such Legato Warrants. Additionally, Legato cannot assure the holders of Legato Warrants that they will be able to sell their Legato Warrants in the open market as there may not be sufficient liquidity in such securities when warrantholders wish to sell their Legato Warrants. Further, while the level of redemptions of Public Shares will not directly change the value of the Legato Warrants because the Warrants will remain outstanding regardless of the level of redemptions, as redemptions of Public Shares increase, a holder of Legato Warrants who exercises such Legato Warrants will ultimately own a greater interest in Algoma because there would be fewer shares outstanding overall. See “Risk Factors – An active, liquid trading market for Algoma Common Shares and Algoma Warrants may not develop, which may limit your ability to sell Algoma Common Shares and Algoma Warrants” and “A significant portion of our total outstanding Algoma Common Shares and Algoma Warrants will be restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of Algoma Common Shares and Algoma Warrants to drop significantly, even if our business is doing well.

Appraisal Rights

Legato stockholders (including the initial stockholders) and holders of other Legato securities do not have appraisal rights in connection with the Merger under the DGCL.

The Adjournment Proposal

If Legato is unable to consummate the Merger at the time of the Special Meeting, if determined by Legato and Algoma in accordance with the Merger Agreement the Legato board of directors may submit a proposal to adjourn the Special Meeting to a later date or dates. Please see the section entitled “Proposal No. 2 — The Adjournment Proposal.”

Date, Time and Place of Special Meeting of Legato’s Stockholders

The Special Meeting of the stockholders of Legato will be held virtually at                        a.m., Eastern Time, on                , 2021, and accessible at                or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed, to consider and vote upon the Merger Proposal, and if necessary, the Adjournment Proposal.

Voting Power; Record Date

Stockholders will be entitled to vote or direct votes to be cast at the Special Meeting if they owned shares of Legato Common Stock at the close of business on                 , 2021, which is the record date for the Special Meeting. Stockholders will have one vote for each share of Legato Common Stock owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. Warrants do not have voting rights. On the record date, there were 30,307,036 shares of Legato Common Stock outstanding, of which 23,750,000 were Public Shares.

Quorum and Vote of Legato Stockholders

A quorum of Legato stockholders is necessary to hold a valid meeting. A quorum will be present at the Special Meeting if a majority of the outstanding shares of Legato Common Stock entitled to vote at the meeting are represented virtually or by proxy. Abstentions will count as present for purposes of establishing a quorum; Broker Non-Votes will not. The proposals presented at the Special Meeting will require the following votes:

 

   

Pursuant to the DGCL, the approval of the Merger Proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Legato Common Stock entitled to vote. There are currently 30,307,036 shares of Legato Common Stock outstanding, of which 23,575,000 are Public Shares.


 

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The approval of the Adjournment Proposal, if presented, will require the affirmative vote of the holders of a majority of shares of Legato Common Stock present or represented by proxy and entitled to vote at the Special Meeting.

Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal and the Adjournment Proposal. Broker Non-Votes will have the same effect as a vote “AGAINST” the Merger Proposal, but will have no effect on the Adjournment Proposal.

The Merger is conditioned on the approval of the Merger Proposal. Neither the Merger Proposal nor the Adjournment Proposal are conditioned upon the approval of any other proposal. The proposals are more fully described in this proxy statement/prospectus, which each stockholder is encouraged to read carefully and in its entirety.

Certain Voting Arrangements

As of                 , 2021, the record date of the Special Meeting, the Founders beneficially owned and were entitled to vote 6,379,875 shares of Legato Common Stock. The foregoing shares represent approximately 21% of the issued and outstanding shares of Legato Common Stock. The Founders have entered into the Support Agreement whereby they have agreed to vote their shares in favor of, and take certain other actions in support of, the Merger.

Proxy Solicitation

Proxies may be solicited by mail, telephone or in person. Legato has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies.

If a stockholder grants a proxy, it may still vote its shares virtually if it revokes its proxy before the Special Meeting. A stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “Special Meeting of Legato Stockholders — Revoking Your Proxy.”

Recommendation to Stockholders

The Legato board of directors believes that the Merger Proposal and the other proposals to be presented at the Special Meeting are fair to and in the best interest of Legato’s stockholders and recommends that Legato stockholders vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal, if presented.

Comparison of Rights of Stockholders of Legato and Shareholders of Algoma (page 277)

If the Merger is successfully completed, holders of Legato Common Stock will become holders of Algoma Common Shares, and their rights as shareholders will be governed by Algoma’s organizational documents. There are also differences between the laws governing Legato, a Delaware corporation, and Algoma, a corporation organized under the laws of the Province of British Columbia. Please see “Comparison of Rights of Algoma Shareholders and Legato Stockholders” on page 258 for more information.

Foreign Private Issuer

Algoma will be a “foreign private issuer” under SEC rules following the consummation of the Merger. Consequently, Algoma will be subject to the reporting requirements under the Exchange Act applicable to foreign private issuers.

Based on its foreign private issuer status, Algoma will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as a U.S. company whose securities are registered under the Exchange Act and will also be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. Algoma will also not be required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information. In addition, among other matters, Algoma officers, directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery


 

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provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Algoma Common Shares. Additionally, Nasdaq rules allow foreign private issuers to follow home country practices in lieu of certain of Nasdaq’s corporate governance rules. As a result, its shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

Ownership of Algoma

The following table illustrates varying beneficial ownership levels in Algoma upon consummation of the Merger under each of the No Redemption Scenario, the Intermediate Redemption Scenario and the Maximum Redemption Scenario, in each case assuming that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued and all outstanding warrants are exercised:

 

    Algoma Common Share Ownership              
    No Redemption Scenario(1)     Intermediate

Redemption Scenario(2)
    Maximum
Redemption Scenario(3)
 
    Number of
Algoma Common
Shares
    Percentage of
Outstanding
Algoma
Common
Shares
    Number of
Algoma
Common
Shares
    Percentage of
Outstanding
Algoma
Common
Shares
    Number of
Algoma
Common
Shares
    Percentage of
Outstanding
Algoma
Common
Shares
 

Legato Public Stockholders

    23,575,000       13.3     11,073,435       6.7     0       0.0

Founders & EBC

    6,732,036       3.8     6,732,036       4.1     6,732,036       4.4

PIPE Investors

    10,000,000       5.7     10,000,000       6.1     10,000,000       6.5

Holders of Public Warrants

    23,575,000       13.3     23,575,000       14.3     23,575,000       15.4

Holders of Private Warrants(4)

    604,000       0.3     604,000       0.4     604,000       0.4

Existing Algoma Investors(5)(6)

    75,000,000       42.4     75,000,000       45.6     75,000,000       48.9

Earnout Rights issuable to Existing Algoma Investors

    37,500,000       21.2     37,500,000       22.8     37,500,000       24.4

Total

    176,986,036       100.0 %      164,484,471       100.0 %      153,411,036       100.0 % 

 

(1)

This scenario assumes that no Public Shares are redeemed.

(2)

This scenario assumes that 12,501,565 Public Shares are redeemed for an aggregate payment of approximately $125.0 million from the Trust Account, which is the maximum amount of redemptions that could occur and still satisfy the Minimum Cash Condition (which may be waived by Algoma in its sole discretion).

(3)

This scenario assumes that all Legato Public Stockholders holding approximately 23,575,000 Public Shares will exercise their redemption rights for the $235,793,946 of funds in the Trust Account as of June 30, 2021. Although the pro forma amount of cash under the Maximum Redemption Scenario is less than the Minimum Cash Condition, Algoma has not elected to waive the Minimum Cash Requirement. Unless Algoma elects to waive this requirement, the Maximum Redemption Scenario cannot occur.

(4)

All 604,000 Private Warrants are held by the Founders and EBC.

(5)

Assumes the consummation of the Stock Split and the LTIP Exchange.

(6)

Includes Algoma Common Shares issuable upon exercise of Replacement LTIP Awards.

Underwriting Fees as a Percentage of IPO Proceeds Net of Redemptions

The deferred underwriting fee is payable if a business combination is consummated without regard to the number Public Shares redeemed by holders in connection with a business combination. The following table presents the deferred fee as a percentage of the aggregate proceeds from the IPO net of redemptions across the No Redemption Scenario, the Intermediate Redemption Scenario and the Maximum Redemption Scenario:

 

     No
Redemption
Scenario(1)
    Intermediate
Redemption
Scenario(2)
    Maximum
Redemption
Scenario(3)
 

IPO underwriting fees

   $ 4,715,000     $ 4,715,000     $ 4,715,000  

IPO proceeds net of redemptions

   $ 235,750,000     $ 110,734,350     $ 0  

Underwriting fees as a % of IPO proceeds net of redemptions

     2.0     4.26     N/A  

 

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(1)

This scenario assumes that no Public Shares are redeemed.

(2)

This scenario assumes that 12,501,565 Public Shares are redeemed for an aggregate payment of approximately $125,015,650 from the Trust Account, which is the maximum amount of redemptions that could occur and still satisfy the Minimum Cash Condition.

(3)

This scenario assumes that Algoma waives the Minimum Cash Condition and all 23,575,000 Public Shares are redeemed for the $235,793,946 of funds in the Trust Account as of June 30, 2021.

Regulatory Matters

The Merger is not subject to any federal or state regulatory requirement or approval, except for the filing of the Notice of Alteration (as defined in the Merger Agreement) under the BCA and the certificate of Merger under the DGCL.

Risk Factors

In evaluating the proposals to be presented at the Special Meeting, a stockholder should carefully read this proxy statement/prospectus, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.” Some of the risks related to Algoma and Legato are summarized below:

 

   

Market and industry volatility could have a material adverse effect on Algoma’s results.

 

   

Algoma has a recent history of losses and may not return to or sustain profitability in the future.

 

   

Algoma’s cost and operational improvements plan may not continue to be effective.

 

   

Algoma faces significant domestic and international competition, and there is a possibility that increased use of competitive products could cause its sales to decline.

 

   

Increased imports of low-priced steel products into North America and decreased trade regulation could impact the North American steel market, resulting in a loss of sales volume and decreased pricing that could adversely impact Algoma’s operating results and financial position.

 

   

Tariffs and other trade barriers may restrict Algoma’s ability to compete internationally.

 

   

All of Algoma’s operations are conducted at one facility using one blast furnace and are subject to unexpected equipment failures and other business interruptions.

 

   

The North American steel industry and certain industries Algoma serves, such as the automotive, construction, appliance, machinery and equipment, and transportation industries, are cyclical, and prolonged economic declines would have a material adverse effect on Algoma’s business.

 

   

Algoma’s operations could be materially affected by labor interruptions and difficulties.

 

   

Algoma’s operations, production levels, sales, financial results and cash flows could be adversely affected by transportation, raw material or energy supply disruptions, or poor quality of raw materials, particularly coal and iron ore.

 

   

Algoma’s ability to generate revenue is dependent on its ability to maintain its customer base and certain key customers.

 

   

Currency fluctuations, including a significant increase in the value of the Canadian dollar, could have a materially adverse effect on Algoma’s financial performance and financial position.

 

   

Algoma depends on third parties to supply sophisticated and complex machinery for its plants and it is exposed to risks relating to the timing or quality of their services, equipment and supplies.

 

   

Algoma depend on third parties for transportation services, and increases in costs or the availability of transportation may adversely affect its business and operations.

 

   

Any increases in annual funding obligations resulting from Algoma’s under-funded pension plans could have a material adverse effect on Algoma’s financial position.


 

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Environmental compliance and site remediation obligations could result in substantially increased costs and could materially adversely affect Algoma’s competitive position.

 

   

Increased regulation associated with climate change and greenhouse gas emissions could impose significant additional costs compliance costs on Algoma’s operations.

 

   

Legato’s current directors and executive officers have interests in the Merger that are different from or in addition to the interests of Public Stockholders. Such interests may have influenced their decision to approve the Merger with Algoma.

 

   

The Founders have agreed to vote in favor of the Merger, regardless of how Legato’s Public Stockholders vote.

 

   

The exercise of discretion by Legato’s directors and officers in agreeing to changes to the terms of or waivers of closing conditions in the Merger Agreement may result in a conflict of interest when determining whether such changes to the terms of the Merger Agreement or waivers of conditions are appropriate and in the best interests of Legato’s stockholders.

 

   

Algoma becoming a publicly listed company as a result of the Merger differs significantly from an underwritten initial public offering, which may present material risks to unaffiliated investors that would not exist if Algoma became a publicly listed company through an underwritten initial public offering instead of upon completion of the Merger.

 

   

The Algoma securities to be received by Legato’s stockholders as a result of the Merger will have different rights from Legato’s securities.

 

   

Legato stockholders may, as a whole, experience significant dilution due to any redemptions of Public Shares in connection with the Merger, and Legato stockholders individually and as a whole may experience significant dilution due to the issuance of Algoma Common Shares pursuant to the Earnout Rights and exercises of Algoma Warrants. Having a minority share position in Algoma may reduce the influence that Legato stockholders have on the management of the combined company.

 

   

Legato’s Private Warrants are accounted for as liabilities and the changes in value of the Private Warrants could have a material effect on the financial results of Algoma following the Merger.

 

   

Subsequent to the completion of the Merger, Algoma may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and Algoma’s common share price, which could cause you to lose some or all of your investment.

 

   

If Legato Public Stockholders fail to properly demand redemption of their shares, they will not be entitled to redeem their shares of Legato Common Stock for a pro rata portion of the Trust Account.

Recent Developments

Government Funding

On July 5, 2021, Algoma announced that the Government of Canada has, subject to final documentation, committed up to C$420 million in financial support for Algoma’s proposed EAF transformation. The C$420 million of financial support consists of (i) a loan of up to C$200 million from the Innovation Science and Economic Development Canada’s Strategic Innovation Fund (the “SIF Funding”) and (ii) a loan of up to C$220 million from the Canada Infrastructure Bank (the “CIB Funding” and together with the SIF Funding, the “Green Steel Funding”). It is currently expected that the CIB Funding will be a low-interest loan on commercial terms and that annual repayment of the SIF Funding will be scalable based on Algoma’s greenhouse gas emission (“GHG”) performance. The Green Steel Funding is subject to, and contingent on, the negotiation of definitive documentation.


 

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CEO Succession Plan

Our current Chief Executive Officer, Michael McQuade, joined the board of directors of Algoma Steel Inc. following the restructuring of the company under CCAA. Mr. McQuade became Chief Executive of Algoma Steel Inc. in March 2019 following the termination of the previous Chief Executive Officer. Mr. McQuade has informed the Algoma Steel Inc. board of directors that, while he is pleased to continue serving as a director of Algoma, he is considering retiring from the Chief Executive Officer position in the next 12 months. Mr. McQuade has committed to remain as Chief Executive Officer until a successor is identified, and will remain as Chief Executive Officer of Algoma to complete the Merger and to commence the EAF transformation process, and thereafter it is expected that he will continue to serve as a director of Algoma. The Algoma board of directors has retained an internationally recognized search firm to assist the board in hiring a successor to Mr. McQuade with a current intention that a new CEO candidate will be identified by the end of 2021.


 

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UNAUDITED HISTORICAL COMPARATIVE AND PRO FORMA

COMBINED PER SHARE DATA OF LEGATO AND ALGOMA

The following table sets forth summary historical comparative share and unit information for Legato and Algoma and unaudited pro forma condensed combined per share information of Legato after giving effect to the Merger (as defined in the section titled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information”), assuming three redemption scenarios as follows:

 

   

Assuming No Redemptions: This presentation assumes that no Legato stockholders exercise redemption rights with respect to their Public Shares.

 

   

Assuming Intermediate Redemptions: This presentation assumes that 12,501,565 Public Shares are redeemed for an aggregate payment of approximately $125.0 million from the Trust Account, which is the maximum amount of redemptions that could occur and still satisfy the Minimum Cash Condition.

 

   

Assuming Maximum Redemptions: This presentation assumes that the PIPE Investment closes and that Legato will satisfy the requirement to have at least $5,000,001 in net tangible assets either immediately prior to or upon consummation of the Merger even if all Legato Public Stockholders holding approximately 23,575,000 Public Shares exercise their redemption rights for the $235,793,946 of funds in the Trust Account as of June 30, 2021. Algoma’s obligations under the Merger Agreement are subject to the condition that the funds contained in the Trust Account (after giving effect to redemptions and payment of certain Legato transaction costs), together with the aggregate amount of proceeds from the PIPE Investment and the cash on Legato’s balance sheet, equal or exceed $200 million, which condition may be waived exclusively by Algoma. Although the pro forma amount of cash under the Maximum Redemption Scenario is less than the Minimum Cash Condition, Algoma has not elected to waive the Minimum Cash Requirement. Unless Algoma elects to waive this requirement, the Maximum Redemption Scenario cannot occur. In addition, each of Algoma’s and Legato’s obligations under the Merger Agreement are subject to Legato having net tangible assets of at least $5,000,001 either immediately prior to or upon consummation of the Merger.

The unaudited pro forma book value information reflects the Merger as if it had occurred on June 30, 2021 and March 31, 2021. The weighted average shares outstanding and net earnings per share information reflect the Merger as if it had occurred on April 1, 2020. Such information in respect of Legato is derived arithmetically, without adjustments, by adding the audited consolidated financial statements of Legato for the year ended December 31, 2020, which includes the period from June 26, 2020 to December 31, 2020, and the interim financial statements of Legato for the three and six months ended June 30, 2021.

This information is only a summary and should be read together with the summary historical financial information included elsewhere in this proxy statement/prospectus, and the historical financial statements of Legato and Algoma and related notes that are included elsewhere in this proxy statement/prospectus. The unaudited pro forma combined per share information of Legato and Algoma is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined consolidated financial statements and related notes included elsewhere in this proxy statement/ prospectus.


 

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The unaudited pro forma combined earnings per share information below does not purport to represent the earnings per share which would have occurred had the companies been combined during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of Legato and Algoma would have been had the companies been combined during the periods presented.

 

    Historical           Pro Forma Combined(3)  
    Legato     Algoma     Algoma
Post-Stock
Split***
    Assuming
No
Redemptions
    Assuming
Intermediate
Redemptions
    Assuming
Maximum
Redemptions
 

As of and For the Three Month Period Ended June 30, 2021(2)

           

Book value per share(1)

  C$ 0.85     C$ 3.62     C$ 4.83     C$ 2.82     C$ 1.65     C$ 0.42  

Weighted average shares outstanding – basic and diluted*

    6,732,036       100,000,002       75,000,000       115,307,036       102,805,471       91,732,036  

Net income (loss) per share – basic and diluted

  C$ (0.21   C$ 2.04     C$ 2.71     C$ 1.85     C$ 2.08     C$ 2.33  

As of and For the Year Ended March 31, 2021(2)

           

Book value per share(1)

  C$ 0.88     C$ 1.74     C$ 2.32     C$ 1.22     C$ (0.16)     C$ (1.63

Weighted average shares outstanding – basic and diluted*

    5,024,345       100,000,002       75,000,000       115,307,036       102,805,471       91,732,036  

Net income (loss) per share – basic and diluted

  C$ 0.06     C$ (0.76   C$ (1.01   C$ (1.92   C$ (2.15)     C$ (2.35

 

*

As a result of pro forma net loss, the earnings per share amounts exclude the dilutive impact from the 37.5 million Algoma Shares issuable pursuant to Earnout Rights granted to existing Algoma shareholders as part of the Merger Agreement, and 24,179,000 Algoma Common Shares issuable to existing Legato stockholders upon conversion of warrants. For the three month period ended June 30, 2021 when there is pro forma net income, the earnings per share amounts also exclude the dilutive impact of the Earnout Rights because such rights are issuable pursuant to a contingent event that has not yet occurred, as well as the Algoma Common Shares issuable to existing Legato stockholders upon conversion of warrants as they are anti-dilutive.

 

**

Represents the weighted average shares outstanding before the split.

 

***

Calculated for standalone Algoma after giving effect to the Stock Split based on an estimated ratio of 71.8% pre-Stock Split shares to one (1) Algoma Common Share, which ratio is subject to change.

 

(1)

Book value per share equals total equity divided by total shares outstanding. The Legato total shares outstanding excludes 23,575,000 shares subject to redemption for Legato at June 30, 2021.

 

(2)

No cash dividends were declared under the periods presented.

 

(3)

The pro forma combined per share amounts are presented on a post-Stock Split basis, and equivalent pro forma per share amounts would be equal to pro forma combined per share amounts due to the exchange ratio of 1:1 on a post Stock Split basis.

Sensitivity

A one percent change in the number of Public Shares redeemed in each of the No Redemption Scenario, Intermediate Redemption Scenario and Maximum Redemption Scenario would result in a change in the book value per share of C$(0.02), C$0.01 and C$0.03, respectively.


 

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PRICE RANGE OF SECURITIES AND DIVIDENDS

Legato

The Legato Units, Legato Common Stock and Legato Warrants are currently listed on Nasdaq under the symbols “LEGOU,” “LEGO” and “LEGOW,” respectively. Each Legato Unit consists of one share of Legato Common Stock and one Public Warrant. Each Legato Warrant entitles its holder to purchase one share of Legato Common Stock at a price of $11.50 per share, beginning 30 days following consummation of an initial business combination. The Legato Units commenced trading on Nasdaq on January 20, 2021. The Legato Common Stock and Legato Warrants commenced separate trading on Nasdaq on March 4, 2021.

Holders

As of the date of this proxy statement/prospectus, there were 21 holders of record of Legato Units, 40 holders of record of Legato Common Stock and 21 holders of record of Legato Warrants. Management believes Legato has in excess of 300 beneficial holders of its securities.

Dividends

Prior to the initial public offering, on January 19, 2021, Legato effected a dividend of approximately 0.17 shares for each outstanding Founder Share, resulting in an aggregate of 5,893,750 Founder Shares outstanding. Legato has not paid any cash dividends to its stockholders.

Algoma

Market Price of Algoma Common Shares

Historical market price information regarding Algoma is not provided because there is no public market for its securities. Algoma has applied to list its Algoma Common Shares and Algoma Warrants on Nasdaq and intends to apply to list the Algoma Common Shares and Algoma Warrants on the TSX upon the Effective Time under the ticker symbols “ASTL” and “ASTLW” or “ASTL.WT”, respectively.

Holders

As of the date of this proxy statement/prospectus, Algoma had one holder of record.

Dividends

Algoma has not paid any dividends to its shareholders. Following the completion of the Merger, Algoma’s board of directors will consider whether or not to institute a dividend policy. The determination to pay dividends will depend on many factors, including, among others, Algoma’s financial condition, current and anticipated cash requirements, contractual restrictions and financing agreement covenants, solvency tests imposed by applicable corporate law and other factors that Algoma’s board of directors may deem relevant.


 

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RISK FACTORS

Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refer to Algoma and its subsidiaries prior to the consummation of the Merger. Stockholders should carefully consider the following risk factors, together with all of the other information included in this proxy statement/prospectus, before they decide whether to vote or instruct their vote to be cast to approve the proposals described in this proxy statement/prospectus. This proxy statement/prospectus also contains forward-looking statements that involve risks and uncertainties and actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this proxy statement/prospectus.

Risks Related to Algoma’s Business

The outbreak of COVID-19 and the downturn in the global economy caused a sharp reduction in worldwide demand for steel. A protracted global recession or depression will have a material adverse effect on the steel industry and therefore our business and operations.

Our activities and financial performance are affected by international, national and regional economic conditions. The COVID-19 pandemic, which began during the first quarter of calendar year 2020, has had a profound impact on economies world-wide, with various levels of governments implementing border closings, travel restrictions, mandatory stay-at-home and work-from-home orders, mandatory business closures, cessation of certain construction activities, public gathering limitations and prolonged quarantines. These efforts and other governmental and individual reactions to the pandemic have led to lower consumer demand for goods and services and general uncertainty regarding the near-term and long-term impact of the COVID-19 pandemic on the domestic and international economy and on public health.

The manufacture of steel has been deemed to be an essential service by the government of Ontario, and we have continued to operate during the COVID-19 pandemic, in part with funds we received from government assistance programs. In spite of our continued operations, as the pandemic spread, slowdowns and disruptions in the operations of our customers led to a reduction in demand that had a negative impact on our business and operations. It is uncertain how the COVID-19 pandemic, or any other similar epidemic or pandemic, will impact our business and operations in the future. There is no assurance that the continued spread of COVID-19 and efforts to contain the virus (including, but not limited to, voluntary and mandatory quarantines, vaccines, restrictions on travel, limiting gatherings of people, and reduced operations and extended closures of many businesses and institutions) will not materially impact our business, financial performance and financial position. Disruptions in our business activities, and costs incurred by us in response to changing conditions and regulations and reduction in demand for the steel products that we manufacture, could have a material adverse impact on our business, operating results and financial position. To the extent the COVID-19 pandemic, or any other similar epidemic or pandemic, adversely affects our businesses, it may also have the effect of exacerbating many of the other risks described in this proxy statement/prospectus, any of which could have a material adverse effect on our business and operations.

A significant and prolonged recession or depression in the United States, Canada or Europe, or significantly slower growth or the spread of recessionary conditions in emerging economies that are substantial consumers of steel (such as China, Brazil, Russia and India, as well as emerging Asian markets, the Middle East and the Commonwealth of Independent States) would exact a heavy toll on the steel industry. Financial weakness among substantial consumers of steel products, such as the automotive industry and the construction industry, or the bankruptcy of any large companies in such industries, would have a negative impact in market conditions. Protracted declines in steel consumption caused by poor economic conditions in North America or by the deterioration of the financial position of our key customers would have a material adverse effect on demand for our products and our operational and financial results.

Steel companies have significant fixed costs, which are difficult to reduce in response to reduced demand. However, we could implement a variety of measures in response to a market downturn and a decline in demand for steel products. These measures might include: curtailing the purchase of raw materials; spreading raw material contracts over a longer period of time; reducing capital spending; negotiating reduced pricing for major inputs, reducing headcount through temporary layoffs, limiting overtime and reducing use of contractors; managing fixed costs with changes in production levels; improving operational practices to reduce lead time; and venturing into export

 

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markets in order to increase capacity utilization. However, these initiatives may not prove sufficient, in terms of cost reduction or in realigning our production levels with reduced demand, to achieve profitability and maintain cash flow necessary to pay for capital expenditures and other funding needs.

Failure to complete, or delays in completing, our proposed EAF transformation could adversely affect our business and prospects. There are significant risks and uncertainties associated with, and we may fail to realize the anticipated benefits of, the proposed EAF transformation.

One of our reasons for undertaking the Merger is to provide us with access to capital to partially fund our proposed transformation to EAF steelmaking. The proposed EAF transformation may never be completed or may only be completed after significant delays. Failure to complete, or delays in completing, the proposed EAF transformation, could have a material adverse effect on our business, financial position, financial performance or prospects.

In addition, the proposed EAF transformation will require significant capital expenditures and divert the attention of management from our business. If we are not successful at integrating the EAF and related technology and equipment into our business, our cost of production relative to our competitors may increase and we may cease to be profitable or competitive. The proposed EAF transformation may be more costly than expected to complete and entails additional risks as to whether the EAF and related technology and equipment will reduce our cost of production sufficiently to justify the capital expenditure to obtain them. Additionally, there is no guarantee that the proposed EAF transformation will allow us to achieve our emissions targets. If such risks were to materialize, the anticipated benefits of the proposed EAF transformation may not be fully realized, or realized at all.

Our exposure to the higher cost of internally generated power and market pricing for electricity sourced from the current grid in Northern Ontario may have an adverse impact on our production and financial performance if we are able to complete the proposed EAF transformation.

Electricity is a significant input required in EAF steelmaking, and competitor EAF producers typically enter into fixed-price electricity contracts. Our exposure to the higher cost of internally generated of power and market pricing for electricity sourced from the current grid in Northern Ontario may have an adverse impact on our production and financial performance if we are able to complete the proposed EAF transformation. We have limited access to power from the current grid in Northern Ontario. As a result, we are planning to upgrade our internal natural gas power plant in order to supply sufficient power in combination with the available grid power to operate EAF furnaces. Delays in acquiring the specialized power equipment and associated specialty services may impact on our timing to complete the proposed EAF transformation. Furthermore, operating an internal power plant subjects us to planned and unplanned outages to maintain and/or repair the equipment, which would result in an associated outage of the steelmaking production.

The Ontario provincial regulator, Independent Electricity System Operator (“IESO”) plans for the resources needed to meet Ontario’s future electricity needs. This includes accounting for Ontario’s forecasted electricity requirements, and carrying out integrated resource planning for energy efficiency, generation and transmission infrastructure to meet those requirements. This process is not within our control. We will need to operate our internal natural gas power plant until regional power system upgrades are determined and recommended by the IESO for installation. In the long-term, in order to operate EAF furnaces from grid power alone, we will require regional power system upgrades, with new transmission wires outside the city providing for more power to Sault Ste. Marie. These regional power system upgrades may not be completed until 2029 or later.

Due to our limited access to power from the current grid in Northern Ontario, our plan is to adapt our number 7 blast furnace (“Blast Furnace No. 7”) to run at a lower rate in order to feed liquid iron into the EAFs to reduce our power requirements and to balance the amount of power expected to be available from internal generation and available grid power. Operating the blast furnace at a reduced rate subjects us to planned and unplanned outages in order to maintain and/or repair the equipment, which would result in associated outages in steelmaking production.

Operating the blast furnace together with EAF steelmaking while using internal power generation from natural gas (“Hybrid Mode”) presents both an operating risk and a market risk, as we would be running the facilities at suboptimal levels and are subject to outages with internal power generation. Furthermore, the presence of ice and/or snow in steel scrap materials as they are introduced to EAF steelmaking could result in explosions which may result in further unplanned outages and/or health and safety consequences.    

 

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We are pursuing a local electricity transmission infrastructure upgrade and technical contingency solution to allow us to access more power sooner from the current grid into Sault Ste. Marie.    Delays in designing, approving, and installing these local infrastructure upgrades may result in a delay or inability to access more power from the grid. This may result in a disruption to our steelmaking operations and/or failure to grow our business.

In connection with the proposed EAF transformation, our access to an adequate supply of the various grades of steel scrap at competitive prices may result in a disruption to our operations and/or financial performance.    

The principal raw material of our proposed transformation to EAF steelmaking operations will be scrap metal derived from internal operations within our steel mills and industrial scrap generated as a by-product of manufacturing; obsolete scrap recovered from end-of-life manufactured goods such as automobiles, appliances, and machinery; and demolition scrap recovered from obsolete structures, containers and machines. Scrap is a global commodity influenced by economic conditions in a number of industrialized and emerging markets throughout Asia, Europe and North America.

The markets for scrap metals are highly competitive, both in the purchase of raw or unprocessed scrap, and processed scrap. As a result, we will need to compete with other steel mills in attempting to secure scrap supply through direct purchasing from scrap suppliers. Any failure to secure access to an adequate supply of the various grades of steel scrap at competitive prices may result in a disruption to our operations and/or financial performance.    

We will also need to supplement our proposed EAF operations with higher-purity substitutes for ferrous scrap which may be sourced from higher-quality-lower-residual prime scrap, or iron units such as pig iron, pelletized iron, hot briquetted iron, direct reduced iron, and other forms of processed iron. Any failure to secure access to an adequate supply of the substitutes for ferrous scrap at competitive prices may result in a disruption to our operations and/or financial performance. Furthermore, we may not be able to source competitive modes of freight transportation for inbound scrap and other materials.

Many variables can impact ferrous scrap prices, including the level of domestic steel production, the level of exports of scrap from the United States and Canada, and the amount of obsolete scrap production. Domestic ferrous scrap prices generally have a strong correlation and spread to global pig iron pricing. Generally, as domestic steel demand increases, so does scrap demand and resulting scrap prices. The reverse is also typically true with scrap prices following steel prices downward when supply exceeds demand, but this is not always the case. When scrap prices greatly accelerate, this can challenge one of the principal elements of an EAF based steel mill’s traditional lower cost structure – the cost of its metallic raw material.

Even if we are able to complete the proposed EAF transformation, we may fail to achieve the anticipated benefits due to reduced product qualities.

Even if we are to complete the proposed EAF transformation, we may fail to achieve the anticipated benefits. For example, as a result of residual chemistry attributes of steel from the EAF processing of scrap, we may be limited in our ability to produce a full range of product types and qualities. This may result in an inferior product or a more limited range of products we are able to produce, either of which could result in reduced sales and have a material adverse effect on our results of operations and/or adversely affect our reputation with existing and potential customers.

Market and industry volatility could have a material adverse effect on our results. A protracted fall in steel prices, or any significant and sustained increase in the price of raw materials in the absence of corresponding steel price increases, would have a material adverse effect on our results.

The steel market is a cyclical commodity business with significant volatility in prices in response to various factors, including market demand, supply chain inventory levels, and imports. Factors specific to our business include a prolonged cyclical downturn in the steel industry, macroeconomic trends such as global or regional recessions and trends in credit and capital markets more generally. Market price volatility results in a high level of cash flow volatility with prolonged periods of negative cash flow. Steel prices are volatile and the global steel industry has historically been cyclical. During 2015, hot rolled coil prices fell sharply by approximately $200/ton to $354/ton in the North American market, as a result of a significant increase in imports, driven primarily by the strengthening of the U.S. dollar against other currencies. In 2018, hot rolled coil prices rose to over $900/ton over a short period then fell to

 

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under $500/ton in the fall of 2019. Hot rolled coil prices recovered slightly, but fell to under $500/ton once again as a result of the COVID-19 pandemic and the related global economic slowdown; however, since that low in 2020, hot rolled coil prices have risen to an all-time high of over $1,600/ton in 2021 (CRU U.S. Midwest Hot-Rolled Coil). These significant market price fluctuations affect our bottom line. Protracted pricing or volume declines in the future would adversely affect our cash flow and ability to pay for our fixed costs, capital expenditures and other funding obligations.

Steel production also requires the use of large volumes of bulk raw materials and energy, in particular iron ore and coal, as well as energy, alloys, scrap, oxygen, natural gas, electricity and other inputs, the prices of which can be subject to significant fluctuation. The prices of iron ore and coal can vary greatly from period to period and our results have historically been impacted by movements in coal and iron ore prices. Iron ore and coal prices have been volatile in recent years. In addition, to the extent that we have quoted prices to our customers and accepted customer orders for our products prior to purchasing necessary raw materials, we may be unable to raise the price of our products to cover all or part of the increased cost of the raw materials. Alternatively, we may be faced with having agreed to purchase raw materials and energy at prices that are above the then current market price or in greater volumes than required. There can be no assurance that adequate supplies of electricity, natural gas, coal, iron ore, alloys, scrap and other inputs will be available in the future or that future increases in the cost of such materials will not adversely affect our financial performance.

Our largest input cost in the steel-making process is iron ore, which we purchase under our supply contracts with Cliffs Natural Resources (“Cliffs”) and United States Steel Corporation (“U.S. Steel”). We believe that our long-term agreements with Cliffs and U.S. Steel ensure supply of iron ore pellets through to the close of the 2024 shipping season, but there can be no assurances that they will meet our needs or that we will be able to retain such long term contracts.

We have a recent history of losses and may not return to or sustain profitability in the future.

We have incurred net losses in recent reporting periods and for the fiscal year ended March 31, 2021, we had a net loss of approximately C$62.0 million. This history of our business incurring significant losses, among other things, led predecessor operators of our business to seek creditor protection and/or to complete corporate restructuring proceedings. See “ – Predecessor operators of our business have sought creditor protection and completed corporate restructurings on a number of occasions.” We may not maintain profitability in future periods, our earnings could decline or grow more slowly than we expect and we may incur significant losses in the future for a number of reasons, including the risks described in this proxy statement/prospectus.

Our cost and operational improvements plan may not continue to be effective.

Our cost and operational improvements strategy has resulted in reduced costs. However, there can be no assurance that we will continue to achieve such savings in the future or that we will realize the estimated future benefits of these plans. Moreover, our continued implementation of these plans may disrupt our operations and performance. Additionally, our estimated cost savings for these plans are based on several assumptions that may prove to be inaccurate and, as a result, there can be no assurance that we will realize these cost savings.

Our utilization rates may decline as a result of increased global steel production and imports.

In addition to economic conditions and prices, the steel industry is affected by other factors such as worldwide production capacity and fluctuations in steel imports/exports and tariffs. Historically, the steel industry has suffered from substantial overcapacity. If demand for steel products was to rapidly decline, it is possible that global production levels will fail to adjust fully. If production increases outstrip demand increases in the market, an extended period of depressed prices and market weakness may result.

China is now the largest worldwide steel producing country by a significant margin and has significant unused capacity. In the future, any significant excess capacity utilization in China and increased exports by Chinese steel companies would depress steel prices in many markets.

We expect that consolidation in the steel sector in recent years should, as a general matter, help producers to maintain more consistent performance through the down cycles by preventing fewer duplicate investments and

 

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increasing producers’ utilization and therefore efficiency and economies of scale. However, overcapacity in the industry may re-emerge. Although certain U.S. producers temporarily shut down production capacity during the COVID-19 pandemic, a restart of previously idled capacity and the development of new capacity by producers has subsequently occurred.

We face significant domestic and international competition, and there is a possibility that increased use of competitive products could cause our sales to decline.

We compete with numerous foreign and domestic steel producers. Significant global steel capacity growth through new and expanded production in recent years has caused and may continue to cause capacity to exceed global demand, which has resulted and may result in lower prices and steel shipments. Some of our competitors have greater financial and capital resources than we do and continue to invest heavily to achieve increased production efficiencies and improved product quality. We primarily compete with other steel producers based on the delivered price of finished products to our customers. Our costs are generally higher than many foreign producers; however, freight costs for steel can often make it uneconomical for distant steel producers to compete with us. Foreign producers may be able to successfully compete if their higher shipping costs are offset by lower cost of sales.

Although we are continually striving to improve our operating costs, we may not be successful in achieving cost improvements or gaining operating efficiencies that may be necessary to remain competitive on a global scale.

The North American steel industry has, in the past, experienced lengthy periods of difficult markets due to increased foreign imports. Due to unfavorable foreign economic conditions, excess foreign capacity and a stronger U.S. dollar compared to global currencies, imports of steel products to U.S. and Canadian markets have occasionally reached high levels.

In addition, in the case of certain product applications, steel competes with a number of other materials such as plastic, aluminum, and composite materials. Improvements in the technology, production, pricing or acceptance of these competitive materials relative to steel or other changes in the industries for these competitive materials could cause our net sales to decline. There is ongoing research and technological developments with respect to the various processes associated with steel production which have the potential to reduce costs and improve quality and operational efficiency. Such research and technological developments could substantially impair our competitive position if other companies implement new technology that we elect not to implement or are unable to implement.

A number of steel producers have completed successful restructurings, through which they have made production improvements, achieved lower operating costs and been relieved of legacy obligations, including environmental and pension and retiree obligations. As a result, these entities may be able to operate with lower costs and cause us to face increased competition.

There has been a significant increase in new EAF steelmaking capacity commissioned in North America. EAF producers typically require lower capital expenditures for construction and maintenance of facilities, and may have lower total employment costs. In addition the market pricing for our hot rolled steel is more correlated to scrap steel as the main material for EAF producers. While we have plans to transform to EAF steelmaking, the proposed EAF transformation may never be completed or may only be completed after significant delays or at a substantially greater cost than anticipated. Failure to complete, or delays and/or cost overruns in completing the proposed EAF transformation could adversely affect our results of operations and ability to compete in our industry.

Increased imports of low-priced steel products into North America and decreased trade regulation could impact the North American steel market, resulting in a loss of sales volume and decreased pricing that could adversely impact our operating results and financial position.

Imports of flat-rolled steel to the U.S. accounted for approximately 14% of the U.S. market for flat-rolled steel products in 2020. Imports of flat-rolled steel to Canada accounted for approximately 35% of the Canadian market for flat-rolled steel products in 2020 (Statistics Canada, American Iron and Steel Institute, Phoenix SPI). Increases in future levels of imported steel to North America could reduce future market prices and demand levels for steel products produced in those markets and reduce our profitability.

 

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In addition, our business has historically been affected by “dumping” – the selling of steel into Canadian or U.S. markets at prices below cost or below the price prevailing in a foreign company’s domestic market. Dumping may result in injury to steel producers in Canada or the U.S. in the form of suppressed prices, lost sales, lower profits and reductions in production, employment levels and the ability to raise capital. Some foreign steel producers are owned, controlled or subsidized by foreign governments. Decisions by these foreign producers to continue production at marginal facilities may be influenced to a greater degree by political and economic policy considerations than by prevailing market conditions and may further contribute to excess global capacity. Although trade legislation to limit dumping has had some success, it may be inadequate to prevent future unfair import pricing practices which individually or collectively could materially adversely affect our business. If Canadian or U.S. trade laws are weakened, an increase in the market share of imports into the U.S. and Canada may occur, which would have a material adverse effect on our business and financial performance.

The Canadian steel industry has worked with the Canadian government to modernize the Canadian trade remedy system to provide the appropriate tools to respond to unfair trade. These changes came into force in 2017 and again in 2019 through a number of amendments to the Special Import Measures Act and related trade remedy regulations to strengthen the trade remedy system, while remaining aligned with international trade rules. Although the Government of Canada continues to work with industry to respond to unfair trade practices, there can be no assurance that such measures will sufficiently offset any resulting loss caused to us by such unfair practices, and there can be no assurance that the protective measures put in place by the Government of Canada and/or the Canadian International Trade Tribunal will be kept in place and, as a result, such unfair trade practices may have a material adverse effect on our business, financial position, results or operations and cash flow.

Tariffs and other trade barriers may restrict our ability to compete internationally.

We have a significant number of customers located in the United States. For the three month period ended June 30, 2021, 60.7% of our revenue was from customers located in the United States. For the year ended March 31, 2021, 57.1% of our revenue was from customers located in the United States. Our ability to sell to these customers and compete with producers located in the United States could be negatively affected by tariffs and/or trade restrictions imposed on our products.

On April 20, 2017, the United States issued an executive order directing the United States Department of Commerce to investigate whether imports of foreign steel are harming U.S. national security. The directive falls under Section 232 of the Trade Expansion Act of 1962, which allows the U.S. president to restrict trade of a good if such trade is determined to be harmful to U.S. national security. On February 16, 2018, the United States Department of Commerce released its report regarding the Section 232 investigation. The recommendations in that report include options regarding tariffs and/or quotas that are intended to adjust the level of steel imports into the United States as it has been determined that those imports are an impairment to national security. Subsequently, the United States announced tariffs of 25% by presidential proclamation dated March 8, 2018 on steel and aluminum imports. Canada, Mexico and certain other countries were granted temporary exemptions, which expired on May 31, 2018. As a result, Canadian steel producers became subject to 25% tariffs on all steel revenues earned on shipments made to the United States effective as of June 1, 2018. Effective on July 1, 2018, Canada began imposing a series of counter tariffs on certain U.S. goods, including steel products. The Canadian government has also announced various relief measures aimed to helping companies affected by the tariffs and counter tariffs on goods imported from the United States.

The United States lifted these tariffs as they relate to Canadian imports effective May 2019, subject to a mutual understanding with Canada on maintaining certain trade levels into the United States. The Canadian government subsequently lifted counter tariffs on goods imported from the United States. As the trade agreement is between countries, there is no assurance that the Canadian domestic steel industry will maintain adherence to the trade level guidelines set out in the agreement. As a result, there can be no assurance that the United States will not once again levy tariffs on our products shipped to customers in the United States.

All of our operations are conducted at one facility using one blast furnace and are subject to unexpected equipment failures and other business interruptions.

Our manufacturing processes are dependent upon critical steelmaking equipment such as furnaces, continuous casters, rolling mills and electrical equipment (such as transformers), and this equipment may incur downtime as a result of unanticipated failures. In particular, as a single blast furnace operation, any unplanned or prolonged outage in

 

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the operation of the blast furnace may have a material adverse effect on our ability to produce steel and satisfy pending and new orders, which will materially impact our revenues, cash flows and profitability. We have insurance coverage for property damage and business interruption losses. Our business interruption insurance, which is subject to specific retentions, provides coverage for loss of gross profit resulting from the interruption of business operations.

Our predecessor, Old Steelco, experienced plant shutdowns or periods of reduced production as a result of such equipment failures.

On January 21, 2011, Blast Furnace No. 7 experienced significant water leakage and this ultimately led to the chilling of the furnace. Production of raw steel was halted for 23 days with production returning to normal after 33 days.

During fiscal year 2012, a substantial number of stack plate coolers were replaced and a leak detection system was installed at Blast Furnace No. 7. This program has continued into the current fiscal year. The purpose of these measures is to detect and prevent incidents of water into the furnace hearth.

During April 2019, we experienced an unplanned outage that disrupted production in our Blast Furnace No. 7 as a result of an operator error causing a chemistry imbalance of certain materials. The resulting lost production led to a shipping volume reduction during the three-month period ended June 30, 2019, of over 100,000 tons. During April 2019, we recorded a capacity utilization adjustment of C$32.7 million to cost of steel products sold.

On October 18, 2019, there was a rupture of a steam drain line which was located below an electrical room in our cokemaking by-products plant (“BP”), which resulted in a loss of power to the BP. In accordance with our emergency procedures, the coke oven gas bleeders were lit to flare the coke oven gas. Additionally, the loss of power caused the cokemaking south raw liquor tank and the tar running tanks to overflow. Raw liquor was conveyed to the main water filter plant (“MWFP”) via a sewer located in the BP. This resulted in effluent exceedances at the MWFP for phenol, ammonia and total cyanide and a toxicity failure for rainbow trout. The incident remains under investigation by MECP.

As a single blast furnace operation, our ability to curtail our operating configuration in response to declining market conditions is very limited.

Unexpected interruptions in production capabilities and unexpected failures in our computer systems would adversely affect productivity and financial performance for the affected period. No assurance can be given that a significant shutdown will not occur in the future or that such a shutdown will not have a material adverse effect on our business, financial position or financial performance.

It is also possible that operations may be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, pandemics, states of emergency declared by governmental agencies, environmental incidents, accidents, severe weather conditions and cyberattacks. To the extent that lost production could not be compensated for at unaffected facilities and depending on the length of the outage, our sales and our unit production costs could be adversely affected.

We could incur significant cash expenses for temporary and potential permanent idling of facilities.

We perform strategic reviews of our business, which may include evaluating each of our plants and operating units to assess their viability and strategic benefits. As part of these reviews, we may idle, whether temporarily or permanently, certain of our existing facilities in order to reduce participation in markets where we determine that our returns are not acceptable. If we decide to permanently idle any facility or assets, we are likely to incur significant cash expenses, including those relating to labor benefit obligations, take-or-pay supply agreements and accelerated environmental remediation costs, as well as substantial non-cash charges for impairment of those assets. If we elect to permanently idle material facilities or assets, it could adversely affect our operations, financial results and cash flows. In the past, certain of our facilities have been idled as a result of poor profitability.

For any temporarily idled facilities, we may not be able to respond in an efficient manner when restarting these to fully realize the benefits from changing market conditions that are favorable to integrated steel producers. When we restart idled facilities, we incur certain costs to replenish raw material inventories, prepare the previously idled

 

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facilities for operation, perform the required repair and maintenance activities and prepare employees to return to work safely and resume production responsibilities. The amount of any such costs can be material, depending on a variety of factors, such as the period of time during which the facilities remained idle, necessary repairs and available employees, and is difficult to project.

The North American steel industry and certain industries we serve, such as the automotive, construction, appliance, machinery and equipment, and transportation industries, are cyclical, and prolonged economic declines would have a material adverse effect on our business.

The North American steel industry is cyclical in nature and sensitive to general economic conditions, including the current COVID-19 pandemic. The financial position and financial performance of companies in the steel industry are generally affected by macroeconomic fluctuations in the Canadian, U.S. and global economies. Due mainly to our product mix, we have a higher exposure to spot markets than most of our North American competitors. We are therefore subject to more volatility in selling prices. In addition, steel prices are sensitive to trends in cyclical industries such as the North American automotive, construction, appliance, machinery and equipment, and transportation industries, which are significant markets for our products. Recent economic situations resulting from the COVID-19 pandemic have negatively impacted our performance.

In addition, many of our customers are also affected by economic downturns, including as a result of the current COVID-19 pandemic, which may in the future result in defaults in the payment of accounts receivable owing to us and a resulting negative impact on our financial results and cash flows.

There can be no assurance that economic or market conditions will be favorable to the steel industry or any of the end-use industries that we intend to serve in the future. Economic downturns, a stagnant economy or otherwise unfavorable economic or market conditions may adversely affect our business, financial performance and financial position.

The lag between the time an order is placed and when it is fulfilled can have a material impact on our financial results, which could be adverse.

As we have a substantial portion of spot-based sales, orders are priced at current prices, subject to discounts, incentives and other negotiated terms, for production and delivery in the future. Generally, there is a lag of approximately six to eight weeks between when an order is booked and ultimately delivered. At certain times, particularly in rapidly increasing price environments, lead times could grow even longer based on increased customer demand and orders. As a result, our financial performance generally lags changes in market price, both positive and negative. Furthermore, in the circumstances where market prices are falling, our customers may seek to cancel orders or seek to renegotiate more favorable pricing to reflect the changes in market price. Our financial position and financial performance could be materially adversely affected in such circumstances.

Predecessor operators of our business have sought creditor protection and completed corporate restructurings on a number of occasions.

Old Steelco’s predecessor company initiated a bankruptcy proceeding in 1990 and subsequently emerged from bankruptcy protection by way of a C$60 million bridge loan from the Government of Ontario. As a result of business, operational and financial challenges, Old Steelco’s predecessor company later filed for protection under the CCAA in April 2001 and emerged from creditor protection in 2002 following the completion of a corporate restructuring.

In 2014, as a result of depressed steel prices, a legacy iron ore supply contract that contained above-market pricing terms, substantial pension funding obligations and a significant amount of debt and related interest expense, all of which negatively impacted Old Steelco’s operations, financial position and liquidity, Old Steelco implemented an arrangement under section 192 of the Canada Business Corporations Act (“CBCA”). The CBCA proceedings enabled Old Steelco to restructure its unsecured notes, refinance its secured debt and obtain a significant capital infusion. Old Steelco also commenced a recognition proceeding in the United States under Chapter 15 of the United States Bankruptcy Code, in order to recognize and enforce the arrangement in the United States. On September 15, 2014, the Canadian court issued a final order approving the arrangement, which order was recognized by the U.S. court on September 24, 2014. The arrangement was completed in November 2014.

 

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On November 9, 2015, Old Steelco sought and obtained CCAA protection as a result of, among other things, a dispute with a critical supplier of iron ore, a significant decrease in steel prices, an inability to comply with payment and other obligations under its credit agreements, and operational cost issues. Old Steelco carried out a sale and investment solicitation process that ultimately resulted in our acquisition of substantially all of the operating assets of Old Steelco on November 30, 2018. The transaction resulted in a significant capital structure deleveraging and negotiated arrangements with a number of labor, pension, and governmental stakeholders. The CCAA proceedings and our acquisition of the business were given effect in the United States pursuant to a recognition proceeding under Chapter 15 of the United States Bankruptcy Code.

There can be no assurance that we will not experience serious financial difficulties in the future that would necessitate the commencement of restructuring proceedings, which could have a material adverse effect on our business, financial position, financial performance and prospects and the legal and economic entitlements of our stakeholders.

We are reliant on information technology systems, including cyber security systems, and any failure or breach of such systems could disrupt our operations.

We are reliant on the continuous and uninterrupted operation of our Information Technology (“IT”) systems. User access and security of all sites and corporate IT systems can be critical elements to our operations. Protection against cyber security incidents, cloud security and security of all of our IT systems are critical to our operations. Any IT failure pertaining to availability, access or system security could result in disruption for personnel and could adversely affect our reputation, operations or financial performance.

We may fall victim to successful cyber-attacks and may incur substantial costs and suffer other negative consequences as a result, which may include, but are not limited to, a material disruption in our ability to produce and/or ship steel products, excessive remediation costs that may include liability for stolen assets or information, repairing system damage that may have been caused, and potentially making ransom payments in connection with a cyber-attack. We and our business partners maintain significant amounts of data electronically in locations on and off our site. This data relates to all aspects of our business, including current and future products, and also contains certain customer, consumer, supplier, partner and employee data. We maintain systems and processes designed to protect this data, including operating in the Cloud and contracting with third-party system security providers, but notwithstanding such protective measures, there is a risk of intrusion, cyber-attacks or tampering that could compromise the integrity and privacy of this data. In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, including production delays or downtimes, harm our customers, consumers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.

Increased global information technology security requirements, vulnerabilities, threats and a rise in sophisticated and targeted cybercrime pose a risk to the security of our systems, our information networks, and to the confidentiality, availability and integrity of our data, as well as to the functionality of our automated and electronically controlled manufacturing operating systems and data collection and analytics capabilities, which our management believes are important and are expected to contribute to our ability to efficiently operate and compete. Although we have adopted procedures and controls, including operating in the Cloud and contracting with third-party system security providers, to protect our information and operating technology, including sensitive proprietary information and confidential and personal data, there can be no assurance that a system or network failure, or security breach, will not occur. This could lead to system interruption, production delays or downtimes and operational disruptions and/or the disclosure, modification or destruction of proprietary and other key information, which could have an adverse effect on our reputation, financial results and financial performance.

 

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Changes to global data privacy laws and cross-border transfer requirements could adversely affect our business and operations.

Our business depends on the transfer of data between our affiliated entities, to and from our business partners, and with third-party service providers, which may be subject to global data privacy laws and cross-border transfer restrictions. While we take steps to comply with these legal requirements, changes to the applicability of those laws may impact our ability to effectively transfer data across borders in support of our business operations.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial position.

IFRS and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, impairment of goodwill and intangible assets, inventory, income taxes and litigation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our financial performance or financial position in accordance with IFRS.

Our products may not benefit from intellectual property protection and we must respect intellectual property rights of others.

Some information about our products including product chemistries and methods and processes of production are publicly known. Thus, other facilities could produce competitive products using such information. As a result, we may not be able to distinguish our products from competitors that use the same publicly known chemistries, methods and processes that we use. Other information related to our products including product chemistries and methods and processes used to make them are proprietary to third parties who hold intellectual property rights such as patents or trade secrets therein. Our commercial success depends on our ability to operate without infringing the patents and other proprietary rights of third parties, and there can be no assurance that our operations, product chemistries and methods and processes of production do not or will not infringe the patents or proprietary rights of others. Further, if our competitors use their own proprietary intellectual property rights in their products that we do not have access to, such competitors may have an advantage over us which could have an adverse effect on our business.

Our operations could be materially affected by labor interruptions and difficulties.

We had 2,696 full-time employees as of June 30, 2021, of which approximately 95% are represented by two locals of the United Steelworkers of Canada (“USW”) under two collective bargaining agreements. On June 26, 2018, Local 2251 members and Local 2724 members voted to ratify new collective bargaining agreements. These agreements were conditional upon closing of the sale transaction discussed above pursuant to which we acquired substantially all of the operating assets of Old Steelco. The agreements with Local 2251 and Local 2724 expire on July 31, 2022.

Our customers, or companies upon whom we are dependent for raw materials, transportation or other services, could also be affected by labor difficulties. Any such activities, disruptions or difficulties could result in a significant loss of production and sales and could have a material adverse effect on our financial position or financial performance.

Our operations, production levels, sales, financial results and cash flows could be adversely affected by transportation, raw material or energy supply disruptions, or poor quality of raw materials, particularly coal and iron ore.

Due to our location on Lake Superior, we are dependent on seasonally available waterways for the delivery of substantial amounts of raw materials, including coal and iron ore. The waterways close from approximately mid-January to the end of March each year. Extreme cold weather conditions in the United States and Canada impact shipping on the Great Lakes and could disrupt the delivery of iron ore to us and/or increase our costs related to iron ore. Failure to have adequate coal and iron ore on site prior to the closure of the waterways would adversely affect our ability to operate during such closure and could have a material adverse effect on our production levels, business, financial position, financial performance and prospects. For example, during the period from January through April 2014, the upper Great Lakes suffered a severe freeze-over, which resulted in the waterways being generally

 

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inaccessible for shipping until early May 2014. As a result, raw material supply was depleted and production was therefore reduced. In addition, extreme weather conditions may limit the availability of railcars or otherwise affect our capacity to receive inbound raw materials, and/or ship products to our customers, which may have a material impact on increasing our costs and /or realizing our revenues. Finally, such disruptions or quality issues, whether the result of severe financial hardships or bankruptcies of suppliers, natural or man-made disasters or other adverse weather events, or other unforeseen circumstances or events, could reduce production or increase costs at our plants and potentially adversely affect customers or markets to which we sell our products. Any resulting financial impact could constrain our ability to fund additional capital investments and maintain adequate levels of liquidity and working capital.

Our business requires substantial capital investment, capital commitments and maintenance expenditures, which we may have difficulty in meeting and will cause us to incur operating costs.

Our operations are capital intensive. We expect to make ongoing capital and maintenance expenditures to achieve and maintain competitive levels of capacity, cost, productivity and product quality. We may not generate sufficient future operating cash flow and external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures, service or refinance our indebtedness, or fund other liquidity needs. Failure to make sufficient capital investment, capital commitments and maintenance expenditures could have a material adverse effect on our business, financial position, financial performance and prospects.

Our Blast Furnace No. 7 was last relined in 2007 which resulted in a downtime of 52 days and capital expenditure of C$72 million. Relines generally last for 20 years. We monitor the health of our furnace. We will expect Blast Furnace No. 7 to require a future reline, which we anticipate occurring no sooner than 2024, which will result in downtime and capital expenditure, which could have a material adverse effect on our business, financial position, financial performance or prospects.

In addition, our profitability and competitiveness are, in large part, dependent upon our ability to maintain low production costs for products with prices that fluctuate based on factors beyond our control. Through our participation in the Canadian Steel Producers Association, we have committed to pursue the aspirational goal of carbon neutrality by 2050. We continue to evaluate strategies to both meet this goal and maintain our competitiveness, including through the modernization of our existing facilities and/or the adoption of other technologies such as less carbon-intensive iron making or EAF steel-making. Unless we continue to invest in newer technologies and equipment such as modernized plants and information technology systems and are successful at integrating such newer technologies and equipment to make our operations more efficient, our cost of production relative to our competitors may increase and we may cease to be profitable or competitive. However, newer technologies and equipment are expensive and the necessary investments may be substantial. Moreover, such investments entail additional risks as to whether the newer technologies and equipment will reduce our cost of production sufficiently to justify the capital expenditures to obtain them. Any failure to make sufficient or appropriate investments in newer technologies and equipment or in integrating such newer technologies and equipment in our operations could have a material adverse effect on our business, financial position, financial performance or prospects.

Our ability to generate revenue is dependent on our customer base and certain key customers.

We serve more than 200 customers across multiple sectors in North America. For the three month period ended June 30, 2021, our top ten customers accounted for approximately 52% of our revenue, and no single customer represented more than 11% of our revenue. For the fiscal year ended March 31, 2021, our top ten customers accounted for approximately 52% of our revenue, and no single customer represented more than 11% of revenue. The average tenure for our top ten customers is more than 20 years. The composition and concentration of our customer base could change over time.

While we benefit from diverse end market exposure with limited customer concentration, we rely on certain key customers for a material portion of our revenues. These customers may not consistently purchase our products at a particular rate over any subsequent period. The loss of one or more significant customers, or a decline in steel demand for customers operating in particular industries as a result of macroeconomic or industry-specific factors, could have a material adverse effect on our revenues, financial performance and financial position, particularly if we are unable to replace such lost business with new customer orders. In addition, certain of our top customers may be able to exert pricing and other influences on us, requiring us to produce, market, deliver and promote our products in a manner that may be more costly to us.

 

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The closing or relocation of customer facilities could adversely affect us.

Our ability to meet delivery requirements and the overall cost of our products as delivered to customer facilities are important competitive factors. If customers close or move their production facilities further away from our production facility, it could have an adverse effect on our ability to meet competitive conditions, which could result in the loss of sales. Likewise, if customers move their production facilities outside North America, it could result in the loss of potential sales for us.

We depend on third parties to supply sophisticated and complex machinery for our plants and we are exposed to risks relating to the timing or quality of their services, equipment and supplies.

We have purchased in the past, and propose to purchase going forward, equipment, machinery and services from third parties in relation to our plant. Given that we do not have any direct control over these third parties, we rely on them to provide goods and services in a timely manner and in accordance with our specifications. In addition, we require continued and timely support of certain original equipment manufacturers to supply necessary services and parts to maintain our plants at reasonable cost. If we are unable to procure the required services or parts from these manufacturers for any reason (including the closure of operations or bankruptcy of such manufacturers), if the cost of these services or parts exceeds our budget or if the services or parts provided are deficient or sub-standard, there may be an adverse effect on our business, financial position, financial performance, cash flows and prospects.

We depend on third parties for transportation services, and increases in costs or the availability of transportation may adversely affect our business and operations.

Our business depends on the transportation of a large number of products, both domestically and internationally. We rely primarily on third parties for transportation of the products we manufacture as well as delivery of our raw materials. Any increase in the cost of the transportation of our raw materials or products, as a result of increases in fuel or labor costs, higher demand for logistics services, consolidation in the transportation industry or otherwise, may adversely affect our financial performance as we may not be able to pass such cost increases on to our customers.

If any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to manufacture and deliver our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at a reasonable cost.

In addition, such failure of a third-party transportation provider could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our financial position and financial performance.

Parties with whom we do business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to us.

We are a party to business relationships, transactions and contracts with various third parties, pursuant to which such third parties have performance, payment and other obligations to us. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, our rights and benefits in relation to our business relationships, contracts and transactions with such third parties could be terminated, modified in a manner adverse to us, or otherwise impaired. We cannot make any assurances that we would be able to arrange for alternate or replacement business relationships, transactions or contracts on terms as favorable as our existing business relationships, transactions or contracts if at all. Any inability on our part to do so could have a material adverse effect on our business and financial performance.

We are dependent on the operation of our port facility to receive raw materials and deliver steel shipments.

In the three month period ended June 30, 2021, we received approximately 69% of our raw material inputs and shipped approximately 25% of our total steel shipments and approximately 99% of our by-products through our captive port facility located on-site at our steel plant in Sault Ste. Marie, Canada. In the fiscal year ended March 31, 2021, we received approximately 75% of our raw material inputs and shipped approximately 20% of our total steel shipments and approximately 90% of our by-products through our captive port facility. Any material or prolonged disruption in our ability to receive or send shipments through the port facility would have a material adverse effect on our business and financial performance.

 

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Any increases in annual funding obligations resulting from our under-funded pension plans could have a material adverse effect on us.

We are the sponsor of Old Steelco’s defined benefit pension plan for hourly employees (the “Hourly Plan”) and its defined benefit pension plan for salaried employees (the “Salaried Plan”) (collectively, the “DB Pension Plans”), which we assumed in connection with the Purchase Transaction. The latest actuarial valuations of the DB Pension Plans as of April 1, 2020 indicate that the DB Pension Plans are underfunded. The actual valuations indicate that the Hourly Plan had a solvency ratio of 71% and that the Salaried Plan had a solvency ratio of 69% as of April 1, 2020. The low solvency position of our DB Pension Plans as of April 1, 2020 was a result of a sharp decline in markets resulting from COVID-19. Markets have since rebounded and the solvency position of the DB Pension Plans has improved. In connection with the Purchase Transaction, Ontario Regulation 484/18: Essar Steel Algoma Inc. Pension Plans for Salaried Employees and Hourly Employees, as filed on November 30, 2018 (the “2018 Pension Regulations”) was implemented to provide a funding framework for the DB Pension Plans. Current service costs and provisions for adverse deviations are to be determined pursuant to the general regulations applicable to all Ontario registered pensions (the “General Regulations”). Under the 2018 Pension Regulations, among other things, the aggregate going concern and solvency special payments to the DB Pension Plans equal C$31 million per annum until the solvency ratio of each of the DB Pension Plans is at least 85%.

As of March 1, 2021, both DB Pension Plans have obtained an 85% solvency ratio. As a result, the General Regulations apply, but with some restrictions including a cap of C$31 million on the aggregate of the special payments for the DB Pension Plans. In addition, benefits from the DB Pension Plans are now subject to the Ontario Pension Benefit Guarantee Fund (the “PBGF”), which requires us to make annual assessment payments to the PBGF determined based on a formula that includes, among other factors, the funding status and number of members of the pension plan. The 2018 Pension Regulations provide that subsection 57(4) of the Ontario Pension Benefits Act (the “PBA”) does not apply to the DB Pension Plans and that subsection 57(3) of the PBA does not apply to us in respect of contributions due and not paid into the DB Pension Plans before the 2018 Pension Regulations came into force. The C$31 million minimum funding and cap will cease to apply on the earlier of the year in which we elect to have the funding rules in the General Regulations apply or in 2039.

We are also the sponsor of closed defined benefit pension plan for pensioners who retired prior to January 1, 2002 (the “Wrap Plan”) that provides a pension benefit in excess of the limits provided by the PBGF. We assumed the Wrap Plan in connection with the completion of the Purchase Transaction, subject to transitional provisions pending the implementation of regulatory measures. Ontario Regulation 2017/19 as filed on June 20, 2019 (the “Wrap Regulations”) was implemented to provide a funding framework for the Wrap Plan. The Wrap Regulations require us to make monthly contributions to the Wrap Plan equal to the lesser of C$416,667 and the amount of the prior month’s benefit payments from the Wrap Plan fund until the Wrap Plan’s solvency ratio is 100%. This funding requirement supersedes the normal funding requirements under the PBA and the General Regulations. The Wrap Regulations provide that subsection 57(4) of the PBA does not apply to the Wrap Plan and that subsection 57(3) of the PBA does not apply to us in respect of contributions due and not paid into the Wrap Plan before the Wrap Regulations came into force.

While our near-term funding obligations in respect of the DB Pension Plans and the Wrap Plan are determined in large part based on the 2018 Pension Regulations and the Wrap Regulations, changes to our collective bargaining agreements, the cost of pension benefits paid to plan members, the impact of market outcomes (including interest rates and investment returns), the occurrence of any adverse deviations or changes to governmental regulations affecting the DB Pension Plans or the Wrap Plan, among other things, could affect the funding status of such pension plans and/or the contributions that we are required to make to the pension plans. We could be adversely impacted by any adverse changes to the funding status of the pension plans or increases in our annual funding obligations.

Post-employment benefits owed to our retirees could increase and obligate us to make greater payments.

We provide certain post-employment benefits to our retirees. These benefits include drug, life insurance and hospitalization coverage. We do not pre-fund these obligations. Our obligations for these benefits could increase in the future due to a number of factors including changes in interest rates, changes to collective bargaining agreements, increasing costs for these benefits, particularly drugs, and any transfer of costs currently borne by the Canadian government to us.

 

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Currency fluctuations, including a significant increase in the value of the Canadian dollar, could have a materially adverse effect on our financial performance and financial position.

For the three month period ended June 30, 2021, 60.7% of our revenue was from customers located in the United States and for the year ended March 31, 2021, 57.1% of our revenue was from customers located in the United States. Increases in the value of the Canadian dollar relative to the U.S. dollar make Canadian steel products less competitive in U.S. markets and also encourage steel imports from the United States into Canada. Our revenue is driven by U.S. dollar-based indices. 70% of our cost is based on U.S. dollar-indices and 30% of our cost is in Canadian dollars, which is impacted by exchange rate fluctuation. The increase in the value of the Canadian dollar relative to the U.S. dollar will also have a negative impact on expenditures in Canadian dollars. Therefore, a significant increase in the value of the Canadian dollar could adversely affect our financial performance and financial position.

Limited availability of raw materials and energy may constrain operating levels and reduce profit margins.

We and other steel producers have periodically been faced with problems in obtaining sufficient raw materials and energy in a timely manner due to delays, defaults or force majeure events by suppliers, shortages or transportation problems (such as shortages of barges, vessels, rail cars or trucks, or disruption of rail lines, waterways or natural gas transmission lines), resulting in production curtailments. For example, we faced an increase in the price of natural gas throughout the fourth quarter of our 2014 fiscal year, due to disruptions in supply as a result of extreme weather conditions, including the bursting of the pipeline that supplies the region in which we are located. We may be exposed to additional risks concerning pricing and availability of raw materials from third parties. Any curtailments and escalated costs may further reduce profit margins. Specifically, if demand is such that our blast furnaces are at full production capacity, we may become dependent upon outside purchased coke, especially if some of our existing coke facilities produce at less than capacity.

Environmental compliance and site remediation obligations could result in substantially increased costs and could materially adversely affect our competitive position.

We are required to comply with an evolving body of Canadian federal, provincial and local environmental, health and safety laws concerned with, among other things, GHG, other emissions into the air, discharges to surface and ground water, the investigation and remediation of contaminated property, noise control, waste management and disposal, mine closure and rehabilitation, and the generation, handling, storage, transportation, presence and disposal or, or exposure to hazardous substances. Significant expenditures could be required for compliance with any laws or regulations relating to environmental protection and remediation, which may have an adverse effect on our financial performance and financial position.

We are subject to current and new environmental compliance measures pertaining to the integrated blast furnace coke oven steelmaking operations, including coke oven gas desulfurization and slag granulation, among others. In the event we do not receive exemptions or other accommodations from the relevant regulatory authorities, we may need to invest significant capital in these compliance measures while they remain in operation.

By January 1, 2026, we will be required to implement plans and measures to reduce the amount of sulphur dioxide emitted from the combustion of coke oven gas by-product by implementing coke oven gas desulphurization technology. This requirement arises under a notice (the “Notice”) issued under subsection 56(1) of the Canadian Environmental Protection Act, 1999 (“CEPA”) which requires prescribed persons to prepare and implement pollution prevention plans in respect of specified toxic substances released from the iron and steel sector. The Notice applies to all steel mills, including ours. Facilities subject to the Notice are required, among other things, to prepare a pollution prevention plan that will achieve prescribed baseline emission targets by the specified date, and submit certain written declarations and progress reports. We currently estimate that it will cost approximately C$60 million to comply with the Notice. If our estimate is inaccurate or we discover additional changes or requirements that we are required to comply with under the Notice, depending on the magnitude of such increased costs, such increased costs could adversely impact our financial results.

In the United States and Canada, certain environmental laws and regulations impose joint and several liabilities on certain classes of persons for the costs of investigation, management and remediation of contaminated properties and for the management of emissions into the environment. Liability may attach regardless of fault or the legality of the release or disposal of the substance or waste at the time it occurred. Some of our present and former facilities have

 

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been in operation for many years and, over such time, have used substances and disposed of wastes that may require management, investigation, mitigation and remediation. We could be liable for the costs of such investigations and remediation. Costs for any investigation, management, mitigation and remediation of contamination, on or off site, whether known or not yet discovered, or to address other issues relating to pollution and waste disposal, emissions into the air or water, or the storage or handling of materials, could be substantial and could have an adverse effect on our financial performance. In addition, while we are subject to GHG emissions tax liability in Canada, we need to compete alongside foreign competitors in Canada and the United States that may not be similarly subject to such carbon tax liabilities, resulting in our reduced competitiveness in the market which may affect revenues and profitability.

In connection with the proposed EAF transformation, we may incur a higher carbon tax liabilities unless we develop a facility-specific GHG emissions performance standard in connection with operations in the Hybrid Mode. Algoma has received comfort letters from MECP committing to work together on a pathway to address the support sought. Furthermore, the dust generated during the EAF steel scrap melting process may contain a significant amount of zinc, and is considered a hazardous waste, the disposal of which is expensive and regulated.    

Our Environmental Department regularly reviews and audits our operating practices to monitor compliance with our environmental policies and legal requirements. Our environmental management system is ISO 14001-2015 registered.

No assurance can be given that unforeseen changes, such as new laws or stricter enforcement policies, including in respect of carbon pricing, or an incident at one of our properties or operations, will not have a material adverse effect on our business, estimated capital or operating costs, financial position, or financial performance. Our operations are required to have governmental permits and approvals. Any of these permits or approvals may be subject to denial, revocation, expiry or modification under various circumstances. Failure to obtain or comply with the conditions and terms of permits or approvals may adversely affect our operations and may subject us to regulatory orders, penalties and fines. In addition, if environmental laws are amended or are interpreted or enforced differently, or if new environmental legislation is enacted, we may be required to obtain additional permits or approvals and incur additional costs. There can be no assurance that we will be able to meet all applicable regulatory requirements. In addition, we may be subject to regulatory orders, penalties, fines or other liabilities arising from our actions imposed under environmental laws, including as a result of actions or other proceedings commenced by third parties, such as neighbors or government regulators, including with respect to an emissions incident at our cokemaking by-products plant.

Increased regulation associated with climate change and greenhouse gas emissions could impose significant additional costs on our operations.

The effects of government policy, legislation or regulation enacted to address climate change may adversely impact our operations as well as those of our suppliers and our customers, and including the transportation of the associated raw materials and products. In addition, government action to address climate change may, among other things, reduce the demand for our products. Although we have made efforts to mitigate the effects of government action related to climate change on our business, there can be no assurance that these efforts will be effective or that the effects of climate change policies will not adversely impact our operations, business and financial results.

On July 3, 2018, Ontario revoked Ontario Regulation 144/16, The Cap and Trade Program under the Climate Change Mitigation and Low-carbon Economy Act, 2016, effectively ceasing Ontario’s cap and trade program which had been in effect since May 18, 2016. The revocation regulation also prohibits registered participants in the former cap and trade program from purchasing, selling, trading or otherwise dealing with emission allowances and credits. Without a cap and trade system or carbon tax in place in Ontario that meets minimum federal requirements for GHG emissions, regulated entities in Ontario are subject to the federal Greenhouse Gas Pollution Pricing Act (generally referred to as the “Federal Backstop”).

On January 1, 2019, the federal government’s Output-Based Pricing System (the “OBPS Program”) under the Federal Backstop came into effect in Ontario. The OBPS Program includes registration, monitoring, reporting and payment obligations for GHG emitters subject to the Federal Backstop.

 

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On July 4, 2019, Ontario’s Emissions Performance Program (the “EPS Program”) under Ontario Regulation 241/19 came into effect. The EPS Program requires all large industrial emitters in the province to comply with capped emission levels tied to their level of output or production and the program may include compliance flexibility mechanisms such as offset credits and/or payment of an amount to achieve compliance. On September 20, 2020, the EPS Program was accepted by the federal government as an alternative to the federal OBPS Program. The federal and Ontario governments are currently in the process of planning the transition from the OBPS Program to the EPS Program for GHG emitters in Ontario. Until that transition is completed, both the OBPS Program and the EPS Program remain in effect in Ontario. The EPS Program is expected to be implemented in stages to give Ontario industries time to meet their obligations thereunder.

The EPS Program is part of the Made-in-Ontario Environment Plan (the “Provincial Plan”) which was released in November 2018. The Provincial Plan also includes the Ontario Carbon Trust, which will use financing techniques and market development tools in partnership with the private sector to speed up the deployment of low-carbon solutions, as well as a commitment by the Ontario government to encourage private investments in clean technologies and green infrastructure projects.

Prior to the federal government’s acceptance of the EPS Program, Ontario and a number of other provinces commenced legal challenges to the Federal Backstop. On March 25, 2021, the Supreme Court of Canada rendered a decision upholding the constitutionality of the Federal Backstop. While, at this point, we cannot definitively predict the full effect of the EPS Program on us when the federal OBPS Program is phased out, our financial position, operations (including any plans to increase production) and ability to compete with companies in foreign jurisdictions may be materially affected by the new regime. The absence of similar requirements in other jurisdictions could negatively impact our ability (and that of our customers and suppliers) to compete with companies situated in those jurisdictions.

On December 11, 2020, the federal government announced its new climate plan entitled “A Healthy Environment and a Healthy Economy”. For the 2020 compliance year, the carbon tax payable under the OPBS Program by large industrial emitters if emissions at their facilities exceed a set level is set at C$30 per tonne of carbon dioxide equivalent (“CO2e”) and is scheduled to increase by C$10 per tonne annually until it reaches C$50 per tonne in 2022. The “A Healthy Environment and a Healthy Economy” plan, if implemented into law, would increase the carbon tax by C$15 per tonne per year starting in 2023 until the tax becomes C$170 per tonne CO2e in 2030.

Any additional regulatory or other changes that are adopted in the future to address climate change and GHG emissions could negatively impact our ability (and that of our customers and suppliers) to compete with companies situated in areas not subject to such requirements. Taken together, these regulatory changes could have a material adverse effect on our business, financial performance or financial results.

Pursuant to an Environmental Compliance Approval issued by the Ontario Ministry of Environment and Climate Change, we are required to install certain equipment in our number 6 blast furnace (“Blast Furnace No. 6”) to reduce casthouse emissions. The cost of this equipment and its installation is currently estimated at approximately C$18.0 million. The actual cost of the equipment and its installation could vary significantly due to cost escalation, design changes, regulatory policies or other factors. In addition, the tightening of air emissions standards in Ontario for our blast furnace and cokemaking operations could result in significant costs for additional pollution controls or other equipment or operational changes. The foregoing costs would not be incurred until Blast Furnace No. 6, which is currently idled, is restarted. There is no assurance that these costs may not be higher than as currently estimated.

Pursuant to an Environmental Compliance Approval issued by the Ontario Ministry of Environment and Climate Change, we are required to apply technology or process changes to mitigate noise levels from identified sources within its Sault Ste. Marie operations. It is estimated that the capital cost associated with the noise abatement plan is approximately C$4.0 million to be completed by 2023. There is no assurance that these costs may not be higher than currently estimated.

The U.S. government and various governmental agencies have introduced or are contemplating regulatory changes in response to the potential impact of climate change. International treaties or agreements may also result in increasing regulation of GHG emissions, including the introduction of carbon emissions trading mechanisms. Any such regulation regarding climate change and GHG emissions could impose significant costs on our steelmaking and metals recycling operations and on the operations of our customers and suppliers, including increased energy, capital

 

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equipment, environmental monitoring and reporting and other costs in order to comply with current or future laws or regulations and limitations imposed on our operations by virtue of climate change and GHG emissions laws and regulations. The potential costs of “allowances,” “offsets” or “credits” that may be part of potential cap-and-trade programs or similar future regulatory measures are still uncertain. Any adopted future climate change and GHG regulations could negatively impact our ability (and that of our customers and suppliers) to compete with companies situated in areas not subject to such limitations. From a medium and long-term perspective, as a result of these regulatory initiatives, we may see an increase in costs relating to our assets that emit significant amounts of GHGs. These regulatory initiatives will be either voluntary or mandatory and may impact our operations directly or through our suppliers or customers. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect on our business, financial performance or financial position, but such effect could be materially adverse to our business, financial performance and financial position.

Our industry could be subject to increased regulatory oversight or changes in government policies that could have adverse effects.

Our industry could be subject to increased regulatory oversight. Changing regulatory policies and other actions by governments and third parties may all have the effect of limiting our revenues and increasing our operating costs, which could have a material adverse effect on our business, financial position and financial performance. Due to regulatory restructuring initiatives at the federal, provincial and state levels, the steel industry has undergone changes over the past several years. Future government initiatives will further change the steel industry. Some of these initiatives may delay or reverse the movement towards competitive markets. We cannot predict the ultimate effect that on-going regulatory changes will have on our business prospects, financial position and financial performance.

Impairment in the carrying value of long-lived assets could negatively affect our operating results and reduce our earnings.

We have a significant amount of long-lived assets on our consolidated balance sheets. Under IFRS, we periodically evaluate long-lived assets for potential impairment whenever events or changes in circumstances have occurred that indicate that impairment may exist, or the carrying amount of the long-lived asset may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable based on its estimated future discounted cash flows. Events and conditions that could result in impairment in the value of our long-lived assets include cash flow or operating losses, other negative events or long-term outlook, cost factors that have negative effect on earnings and cash flows, changes in business conditions or strategy, as well as significantly deteriorating industry, market, and general economic conditions. Impairment in the carrying value of long-lived assets could negatively affect our operating results and reduce our earnings.

We face increased competition from alternative materials, which could impact the price of steel and adversely affect our profitability and cash flow.

As a result of increasingly stringent regulatory requirements, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as aluminum, composites, plastics and carbon fiber in their products. Increased government incentives and requirements for the use of such materials to meet regulatory requirements could reduce the demand for steel products, which could potentially reduce our profitability and cash flows.

Pending or threatened litigation or claims could negatively affect our profitability and cash flow in a particular period.

We are subject to litigation arising in the normal course of business and may be involved in legal disputes or matters with other parties, including governments and their agencies, regulators and members of our workforce, which may result in litigation. The causes of potential litigation cannot be known and may arise from, among other things, business activities, employment matters, including compensation issues, or grievances under our collective bargaining agreements, environmental, health and safety laws and regulations, tax matters and securities matters. The timing of resolutions to such matters, should they arise, is uncertain and we may incur expenses in defending them and the possible outcomes or resolutions could include adverse judgments, orders or settlements or require us to implement corrective measures any of which could require substantial payments and adversely affect our reputation and operations, and may also negatively affect our profitability and cash flow in a particular period.

 

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Failure to maintain our current senior management or inability to attract additional senior management could have an adverse effect on our operations.

Our operations and prospects depend, in large part, on the performance of our senior management team. We cannot assure that such individuals will remain as employees. In addition, we can make no assurance that we would be able to find qualified replacements for any of these individuals if their services were no longer available. The loss of the services of one or more members of senior management or difficulty in attracting, retaining and maintaining additional senior management personnel could have a material adverse effect on our business, financial position and financial performance.

A failure to maintain adequate insurance could have a materially adverse effect on our operations.

To date, we have been able to obtain liability insurance for the operation of our business. However, there can be no assurance that our existing liability insurance will be adequate, or that it will be able to be maintained, or that all possible claims that may be asserted against us will be covered by insurance. The occurrence of a significant adverse event that causes losses in excess of limits specified under the relevant policy or losses arising from events not covered by insurance policies, could materially adversely affect our business, financial position, financial performance and prospects.

Our income tax filing positions may be subject to challenge by tax authorities, which could subject us to increased tax liabilities.

We file tax returns that may contain interpretations of tax law and estimates. Positions taken and estimates utilized by us may be challenged by applicable tax authorities. Rulings that alter filed tax returns may have an adverse impact on income. In addition, we are involved in and potentially subject to regular audits from Canadian federal and provincial tax authorities relating to income, capital and commodity taxes and, as a result of these audits, may receive assessments and reassessments. For example, we were notified in June 2021 that the Canada Revenue Agency (the “CRA”) is currently conducting an audit of Algoma Steel Inc.’s 2018 and 2019 January to December taxation years. The audit is in its preliminary stages and we have not been informed of any issues by the CRA. In the event that the CRA successfully challenges the manner in which we have filed our tax returns and reported income, it could potentially result in additional income taxes, penalties and interest, which could have a material adverse effect on our business.

We are subject to risks related to shifting steel supplies.

As traditional steel-consuming markets are negatively impacted from reduced demand due to a variety of factors, including COVID-19, or other regulatory changes (such as, for instance, the revocation in January 2021 of the presidential permit necessary to construct and operate the Keystone oil pipeline at the international border of Canada and the United States), suppliers of steel products into these affected sectors will divert their sales efforts to markets where we traditionally participate, thereby creating pressure on lowering pricing in response to increased supply. The oil and gas industry is a significant end market for steel, and has experienced and continues to experience a significant amount of disruption and oversupply at a time of declining demand, resulting in more competition in other sectors of the economy.

Changes in our credit profile may affect our relationships with our suppliers, which could have a material adverse effect on our liquidity.

Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices or require us to prepay, particularly given our high level of outstanding indebtedness. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers, and consequently may have a material adverse effect on our business, financial performance and financial position.

Some of our operations present significant risk of injury or death.

The industrial activities conducted at certain of our facilities present significant risk of serious injury or death to our employees, contractors, customers or other visitors to our operations. Notwithstanding our safety precautions,

 

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including our material compliance with federal and provincial employee health and safety regulations, we may be unable to avoid material liabilities for injuries or deaths. We maintain workers’ compensation insurance to address the risk of incurring material liabilities for injuries or deaths, but there can be no assurance that the insurance coverage will be adequate or will continue to be available on the terms acceptable to us, or at all, which could result in material liabilities to us for any injuries or deaths. We could also incur fines and other sanctions as a result of safety incidents.

Our cross-border operations require us to comply with anti-corruption laws and regulations of the U.S. government and various non-U.S. jurisdictions.

Doing business in multiple countries requires us and our subsidiaries to comply with Canadian and other laws and regulations governing corruption and bribery, including the Canadian Corruption of Foreign Public Officials Act. The laws generally prohibit companies and their officers, directors, employees and agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. As a result, business dealings between our employees or our agents and any such public official could expose us to the risk of violating anti-corruption laws. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel in complying with applicable laws and regulations; however, we cannot assure investors that these policies and procedures will completely eliminate the risk of a violation of these legal requirements. Any such violation (inadvertent or otherwise) could have a material adverse effect on our business prospects, financial position and financial performance.

Shortages of skilled labor, increased labor costs, or our failure to attract and retain other highly qualified personnel in the future could disrupt our operations and adversely affect our financial results.

We depend on skilled labor for the manufacture of our products. Our continued success depends on the active participation of our key employees. Shortages of some types of skilled labor could restrict our ability to maintain or increase production rates, lead to production inefficiencies and increase our labor costs. The competitive nature of the labor markets in which we operate, the cyclical nature of the steel industry and the resulting employment needs increase our risk of not being able to recruit, train and retain the employees we require at efficient costs and on reasonable terms, particularly when the economy expands, production rates are high or competition for such skilled labor increases. Many companies, including ours, have had employee lay-offs as a result of reduced business activities in an industry downturn. The loss of our key people or our inability to attract new key employees could adversely affect our operations. Additionally, layoffs or other adverse actions could result in an adverse relationship with our workforce. If we are unable to recruit, train and retain adequate numbers of qualified employees on a timely basis or at a reasonable cost or on reasonable terms, our business and financial performance could be adversely affected.

The expansion of social media platforms present new risks and challenges.

The expansion of social media platforms present new risks and challenges. The inappropriate use of certain social media vehicles could cause brand damage or information leakage or could lead to legal implications from the improper collection and/or dissemination of personally identifiable information or the improper dissemination of material information. In addition, negative posts or comments about us and/or any of our key personnel on any social networking web site could seriously damage our reputation. If our sensitive information is disclosed or if our reputation or that of our key personnel is seriously damaged through social media, it could have a material adverse effect on our business, financial position and financial performance.

Risks Related to Being a Public Company

Algoma’s management has limited experience operating a public company, and thus its success in such endeavors cannot be guaranteed.

Algoma’s executive officers have limited experience in the management of a publicly traded company. Algoma’s management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under U.S. and Canadian securities laws. Their limited

 

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experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the post-combination company. Algoma may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States and Canada. Algoma is in the process of upgrading its finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact its ability or prevent it from timely reporting its operating results, timely filing required reports with the SEC and applicable Canadian securities regulators and complying with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The development and implementation of the standards and controls necessary for Algoma to achieve the level of accounting standards required of a public company in the United States and Canada may require costs greater than expected. It is possible that Algoma will be required to expand its employee base and hire additional employees to support its operations as a public company which will increase its operating costs in future periods.

If Algoma is unable for any reason to meet the continued listing requirements of Nasdaq or the TSX, such action or inaction could result in a delisting of the Algoma Common Shares or Algoma Warrants.

If, after listing, Algoma fails to satisfy the continued listing requirements of Nasdaq or the TSX (for example, the Nasdaq corporate governance requirements or the Nasdaq minimum closing bid price requirement), such exchanges may take steps to delist the Algoma Common Shares or Algoma Warrants. Such a delisting would likely have a negative effect on the price of the Algoma Common Shares or Algoma Warrants and would impair your ability to sell or purchase the Algoma Common Shares or Algoma Warrants when you wish to do so. In the event of a delisting, Algoma can provide no assurance that any action taken by it to restore compliance with listing requirements would allow the Algoma Common Shares or Algoma Warrants to become listed again, stabilize the market price or improve the liquidity of the Algoma Common Shares or Algoma Warrants, prevent such securities from dropping below any minimum bid price requirement or prevent future non-compliance with Nasdaq’s or the TSX’s listing requirements.

If securities and industry analysts do not publish research or reports about Algoma’s business or publish negative reports about its business, Algoma’s share price and trading volume may suffer.

The trading market for the Algoma Common Shares will depend on the research and reports that securities or industry analysts publish about Algoma or its business. Currently, Algoma does not have any analyst coverage and may not obtain analyst coverage in the future. In the event Algoma obtains analyst coverage, it will not have any control over such analysts. If one or more of the analysts who cover Algoma downgrade Algoma’s shares or change their opinion of Algoma’s shares, Algoma’s share price would likely decline. If one or more of these analysts cease coverage of Algoma or fail to regularly publish reports on Algoma, Algoma could lose visibility in the financial markets, which could cause its share price or trading volume to decline.

There is a risk that Algoma will fail to maintain an effective system of internal controls and its ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected. Algoma may identify material weaknesses in its internal controls over financing reporting which it may not be able to remedy in a timely manner.

As a public company, Algoma will operate in an increasingly demanding regulatory environment, which requires it to comply with the Sarbanes-Oxley Act, the regulations of Nasdaq and the TSX, the rules and regulations of the SEC and Canadian securities regulators, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for Algoma to produce reliable financial reports and are important to help prevent financial fraud. Prior to the Closing, Algoma has never been required to test its internal controls within a specified period and, as a result, it may experience difficulty in meeting these reporting requirements in a timely manner.

Algoma anticipates that the process of building its accounting and financial functions and infrastructure will require significant additional professional fees, internal costs and management efforts. Algoma may need to enhance and/or implement a new internal system to combine and streamline the management of its financial, accounting, human resources and other functions. However, the enhancement and/or implementation of a system may result in substantial

 

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costs. Any disruptions or difficulties in implementing or using such a system could adversely affect Algoma’s controls and harm its business. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management’s attention. In addition, Algoma may discover additional weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. Algoma’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If Algoma is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if it is unable to maintain proper and effective internal controls, Algoma may not be able to produce timely and accurate financial statements. If Algoma cannot provide reliable financial reports or prevent fraud, its business and results of operations could be harmed, investors could lose confidence in its reported financial information and Algoma could be subject to sanctions or investigations by Nasdaq, the TSX, the SEC, Canadian securities regulators or other regulatory authorities.

Algoma will incur increased costs as a result of its operation as a public company, and its management will be required to devote substantial time and resources to employing new compliance initiatives in order to comport with the regulatory requirements applicable to public companies.

If Algoma completes the Merger and becomes a public company, it will incur significant legal, accounting and other expenses that it did not incur as a private company. As a public company, Algoma will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC, Canadian securities regulators, Nasdaq and the TSX. Algoma’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, Algoma expects these rules and regulations to substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly. For example, Algoma expects these rules and regulations to make it more difficult and more expensive for it to obtain director and officer liability insurance and it may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. Algoma cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Algoma to attract and retain qualified persons to serve on its board of directors, its board committees or as executive officers.

Our Investor Rights Agreement will provide certain IRA Parties the right to nominate up to four of our directors.

In connection with the consummation of the Merger, we will enter into an Investor Rights Agreement pursuant to which, among other things, certain IRA Parties that currently have board designation rights with respect to Algoma Steel Holdings Inc. will have the right to nominate, in the aggregate, four directors to the Algoma board for so long as they maintain approximately 7.36% of outstanding Algoma Common Shares (which percentage assumes (i) the No Redemption Scenario and (ii) that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued). If such IRA Parties are able to exert significant influence over the Algoma board as a result of their nomination rights pursuant to the Investor Rights Agreement, other holders of Algoma Common Shares may have limited ability to influence corporate matters and, as a result, we may take action that other holders of Algoma Common Shares do not view as beneficial.

Algoma will be a foreign private issuer and, as a result, it will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon the closing of the Merger, Algoma will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because Algoma will qualify as a foreign private issuer under the Exchange Act, it will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time

 

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and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, although it will be subject to Canadian laws and regulations with regard to certain of these matters and intends to furnish comparable quarterly information on Form 6-K. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

As Algoma is a “foreign private issuer” and intends to follow certain home country corporate governance practices, its shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

As a foreign private issuer, Algoma has the option to follow certain home country corporate governance practices rather than those of Nasdaq, provided that it discloses the requirements it is not following and describes the home country practices it is following. Algoma intends to rely on this “foreign private issuer exemption” with respect to the Nasdaq rules for shareholder meeting quorums and Nasdaq rules requiring shareholder approval. Algoma may in the future elect to follow home country practices with regard to other matters. As a result, its shareholders will not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

Algoma may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, Algoma is a foreign private issuer, and therefore is not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and may take advantage of certain exemptions to Nasdaq’s corporate governance rules. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to Algoma on September 30, 2021. In the future, Algoma would lose its foreign private issuer status if (1) more than 50% of its outstanding voting securities are owned by U.S. residents and (2) a majority of its directors or executive officers are U.S. citizens or residents, or it fails to meet additional requirements necessary to avoid loss of foreign private issuer status. If Algoma loses its foreign private issuer status, it will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. Algoma would also have to mandatorily comply with U.S. federal proxy requirements, and its officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, it would lose its ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq. As a U.S. listed public company that is not a foreign private issuer, Algoma would incur significant additional legal, accounting and other expenses that it will not incur as a foreign private issuer.

Risks Related to the Merger

Legato may not have sufficient funds to consummate the Merger.

As of June 30, 2021, Legato had a cash balance of approximately $240,000 to fund its working capital requirements. If Legato is required to seek additional capital, it would need to borrow funds from the Founders or other third parties to operate or it may be forced to liquidate. None of such persons is under any obligation to advance funds to Legato in such circumstances. Any such advances would be repaid only from funds held outside the Trust Account or from funds released to Legato upon completion of the Merger, or, with Algoma’s consent pursuant to the Merger Agreement, could be converted into Private Units immediately prior to the Closing. If Legato is unable to consummate the Merger because it does not have sufficient funds available, Legato will be forced to cease operations and liquidate the Trust Account. Consequently, Legato’s Public Stockholders may receive less than $10 per share and their warrants will expire worthless.

 

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The Merger remains subject to conditions that Legato cannot control and if such conditions are not satisfied or waived, the Merger may not be consummated.

The Merger is subject to a number of conditions, including the condition that Legato maintaining at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-5(g)(1) of the Exchange Act) either immediately prior to or upon consummation of the Merger, (which condition may not be waived by either party), the Minimum Cash Condition (which may be waived by Algoma in its sole discretion), the condition that there is no legal prohibition against consummation of the Merger, the condition that the Algoma Common Shares and Algoma Warrants are approved for listing upon the Closing on Nasdaq, subject only to official notice of issuance thereof and the satisfaction of customary conditions, and conditionally approved for listing on the TSX, subject to the satisfaction of customary conditions, receipt of securityholder approvals, continued effectiveness of the registration statement of which this proxy statement/prospectus is a part, the truth and accuracy of Legato’s and Algoma’s representations and warranties made in the Merger Agreement, the non-termination of the Merger Agreement and consummation of certain ancillary agreements. There are no assurances that all conditions to the Merger will be satisfied or that the conditions will be satisfied in the time frame expected.

The Founders have agreed to vote their shares in favor of the Merger, regardless of how Legato’s Public Stockholders vote.

In connection with the Merger, the Founders agreed to vote their shares of Legato Common Stock in favor of the Merger and all other proposals being presented at the Special Meeting. Currently, the Founders own approximately 21% of the outstanding shares of Legato Common Stock. In addition to the shares of Legato Common Stock held by the Founders, Legato would need 8,773,643 shares, or approximately 36%, of the 23,575,000 public shares sold in the Legato IPO to be voted in favor of the Merger Proposal.

Legato and Algoma will incur significant transaction and transition costs in connection with the Merger.

Legato and Algoma have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Merger and operating as a public company following the consummation of the Merger. Algoma may also incur additional costs to retain key employees. All expenses incurred in connection with the Merger, including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be paid at Closing out of the funds raised in the PIPE Investment financing and the funds in the Trust Account.

Algoma becoming a publicly listed company as a result of the Merger differs significantly from an underwritten initial public offering.

Algoma will become a publicly listed company in connection with the Merger. The Merger is not an underwritten initial public offering of Algoma’s securities and differ from an underwritten initial public offering in several significant ways, which include, but are not limited to, the following:

Like other business combinations and spin-offs, in connection with the Merger investors will not receive the benefits of the diligence performed by the underwriters in an underwritten public offering. In an underwritten public offering, an issuer initially sells its securities to the public market via one or more underwriters, who distribute or resell such securities to the public. Underwriters have potential liability under the U.S. securities laws for material misstatements or omissions in a registration statement pursuant to which an issuer sells securities. Because the underwriters have a “due diligence” defense to any such liability by, among other things, conducting a reasonable investigation, the underwriters and their counsel conduct a due diligence investigation of the issuer. Due diligence entails engaging legal, financial and/or other experts to perform an investigation as to the accuracy of an issuer’s disclosure regarding, among other things, its business and financial results. The due diligence conducted by underwriters in an underwritten public offering is expected to provide additional assurance that the disclosure does not contain material misstatements or material omissions. In contrast, Algoma investors will not have the benefit of an independent review and investigation of the type normally performed by an independent underwriter in a public securities offering. While sponsors, private investors and management in a business combination undertake a certain level of due diligence, it is not necessarily the same level of due diligence undertaken by an underwriter in a public securities offering and, therefore, there could be a heightened risk of material misstatements or omissions in this proxy statement/prospectus.

 

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In addition, because there are no underwriters engaged in connection with the Merger, prior to the opening of trading on the trading day immediately following the closing, there will be no traditional “roadshow” or book building process, and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the initial post-closing trades. Therefore, buy and sell orders submitted prior to and at the opening of initial post-closing trading of Algoma securities will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an underwritten initial public offering. There will be no underwriters assuming risk in connection with an initial resale of Algoma securities or helping to stabilize, maintain or affect the public price of Algoma securities following the closing. In addition, unlike in an underwritten initial public offering where the underwriters would customarily obligate directors, officers and substantially all other shareholders of the issuer to execute a lock up agreement, the requirements of which could only be waived by such underwriters and would not typically be waived at a time or in a manner that would have an unduly adverse impact on the market price of shares sold in such initial public offering, the Lock-Up Agreement may be waived with the written consent of Algoma and persons holding a majority of the shares subject to the lock-up. Moreover, Algoma will not engage in, and have not and will not, directly or indirectly, request financial advisors to engage in, any special selling efforts or stabilization or price support activities in connection with the Algoma securities that will be outstanding immediately following the closing. In addition, since Algoma will become public through a merger, securities analysts of major brokerage firms may not provide coverage of Algoma since there is no incentive to brokerage firms to recommend the purchase of its common shares. No assurance can be given that brokerage firms will, in the future, want to conduct any offerings on Algoma’s behalf. All of these differences from an underwritten public offering of Algoma’s securities could result in a more volatile price for the Algoma’s securities.

Such differences from an underwritten public offering may present material risks to unaffiliated investors that would not exist if Algoma became a publicly listed company through an underwritten initial public offering instead of upon completion of the Merger.

Legato stockholders, as a whole, may experience significant dilution due to any redemptions of Public Shares in connection with the Merger, and Legato stockholders individually and as a whole may experience significant dilution due to the issuance of Algoma Common Shares pursuant to the Earnout Rights and exercises of Algoma Warrants.

Based on the assumptions described under the section entitled “Questions and Answers About the Proposals – What will be the relative equity stakes of Legato’s Public Stockholders, the Founders, the PIPE Investors and Algoma’s existing shareholders in Algoma upon completion of the Merger?” upon the consummation of the Merger, assuming the No Redemption Scenario and prior to the issuance of any additional Algoma Common Shares pursuant to the Earnout Rights and excluding any exercises of Algoma Warrants, Legato Public Stockholders would hold, in the aggregate, approximately 20.4% of the outstanding voting power of Algoma post-Closing and the Founders and EBC would hold, in the aggregate, approximately 5.8% of the outstanding voting power of Algoma post-Closing. Without limiting the other assumptions described in such section, these ownership percentages do not take into account:

 

   

the issuance of up to 37.5 million Algoma Common Shares pursuant to the Earnout Rights; and

 

   

all 24,179,000 Legato Warrants, which will be converted into an equal number of Algoma Warrants in connection with the Merger.

Upon the consummation of the Merger, assuming the No Redemption Scenario, and assuming that all of the Algoma Common Shares issuable pursuant to the Earnout Rights are issued and including all 24,179,000 Algoma Common Shares underlying Legato Warrants following their conversion to Algoma Warrants, Legato Public Stockholders would hold, in the aggregate, approximately 13.3% of the outstanding voting power of Algoma post-Closing (not including shares underlying any Legato Warrants such holders may beneficially own) and the Founders and EBC would hold, in the aggregate, approximately 4.1% of the outstanding voting power of Algoma post-Closing (including shares underlying the Private Warrants owned by the Founders and EBC).

In addition, if any of the Public Shares are redeemed in connection with the Merger, the percentage of Algoma Common Shares held by the Legato stockholders as a whole will decrease relative to the percentage held if none of the Public Shares are redeemed. Such dilution could, among other things, limit the ability of Legato’s current shareholders to influence Algoma’s management through the election of directors following the Merger. See “Summary of the Proxy

 

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Statement/Prospectus – Ownership of Algoma” for a detailed breakdown of diluted post-Closing ownership based on the No Redemption Scenario, Intermediate Redemption Scenario and Maximum Redemption Scenario, respectively.

Subsequent to the completion of the Merger, Algoma may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and Algoma’s common share price, which could cause you to lose some or all of your investment.

Although Legato has conducted extensive due diligence on Algoma, Legato cannot assure you that this diligence will surface all material issues that may be present in Algoma’s business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Algoma’s business and outside of its control will not later arise. As a result of these factors, Algoma may be forced to later write-down or write-off assets, restructure its operations, or incur impairment or other charges that could result in its reporting losses. Even if Legato’s due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with Legato’s preliminary risk analysis. Even though these charges may be non-cash items and would not have an immediate impact on Algoma’s liquidity, the fact that Algoma reports charges of this nature could contribute to negative market perceptions of Algoma or its securities. In addition, charges of this nature may cause Algoma to violate net worth or other covenants to which Algoma may be subject as a result of Algoma obtaining post-combination debt financing. Accordingly, any stockholders who choose to remain shareholders following the Merger could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction in value.

The Algoma securities to be received by Legato’s securityholders as a result of the Merger will have different rights from Legato securities.

Following completion of the Merger, Legato’s securityholders will no longer be securityholders of Legato but will instead be securityholders of Algoma. There will be important differences between your current rights as a Legato securityholder and your rights as an Algoma securityholder. See “Comparison of Rights of Algoma Shareholders and Legato Stockholders” for a discussion of the different rights associated with the Algoma securities.

Legato’s stockholders will have a reduced ownership and voting interest after consummation of the Merger and will exercise less influence over management.

After the completion of the Merger, Legato’s stockholders will own a smaller percentage of Algoma than they currently own of Legato. Immediately following the Merger, Existing Algoma Investors would hold approximately 65% of the issued and outstanding Algoma Common Shares (inclusive of Replacement LTIP Awards) and (i) current Public Stockholders of Legato; (ii) the Founders; and (iii) EBC and its designees would each hold approximately 20.4%, 5.6% and 0.2%, respectively, of the issued and outstanding Algoma Common Shares (assuming no holder of Legato Common Stock exercises redemption rights as described in this proxy statement/prospectus), in each case, excluding Algoma Common Shares issuable to Existing Algoma Investors pursuant to the Earnout Rights and the Algoma Common Shares underlying Algoma Warrants. Assuming all Algoma Common Shares issuable pursuant to the Earnout Rights are issued, Existing Algoma Investors would hold approximately 74% of the outstanding Algoma Common Shares (inclusive of Replacement LTIP Awards), excluding Algoma Common Shares underlying Algoma Warrants. Consequently, Legato’s stockholders, as a group, will have reduced ownership and voting power in Algoma compared to their ownership and voting power in Legato.

Even if Algoma consummates the Merger, there is no guarantee that the Algoma Warrants will ever be in the money, and they may expire worthless and the terms of the warrants may be amended.

Upon consummation of the Merger, the Legato Warrants will become Algoma Warrants. The exercise price for the Algoma Warrants will be $11.50 per Algoma Common Share. There is no guarantee that the Algoma Warrants, following the Merger, will ever be in the money prior to their expiration, and as such, the warrants may expire worthless.

 

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Legato’s current directors and executive officers beneficially own shares of Legato Common Stock and Warrants that will be worthless if the Merger is not approved. Such interests may have influenced their decision to approve the Merger with Algoma.

Legato’s officers and directors and/or their affiliates beneficially own or have a pecuniary interest in shares that the Founders purchased prior to, or simultaneously with, Legato’s IPO. Legato’s executive officers and directors and their affiliates have no redemption rights with respect to these securities in the event a business combination is not effected in the required time period. Therefore, if the Merger with Algoma or another business combination is not approved within the required time period, such securities held by such persons will be worthless. Such securities had an aggregate market value of approximately $                million based upon the closing prices of Legato Common Stock and Units on Nasdaq on             , 2021. Furthermore, the Founders, Legato’s officers or directors, or their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Legato’s behalf, such as identifying and investigating possible business targets and Mergers. If Legato fails to consummate the Merger, they will not have any claim against the Trust Account for repayment or reimbursement. In addition, in order to meet its working capital needs the Founders may, but are not obligated to, loan Legato funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. These loans would be repayable upon consummation of the Merger or, with the consent of Algoma, may be converted into Private Units immediately prior to the Effective Time at an exchange rate of $10.00 of borrowings per Private Unit. In the event that the Merger does not close, Legato may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no other proceeds from the Trust Account would be used for such repayment. Accordingly, Legato may not be able to repay or reimburse these amounts if the Merger is not completed. See the section entitled “Proposal No. 1 – The Merger Proposal – Interests of Legato’s Directors and Officers in the Merger.”

These financial interests may have influenced the decision of Legato’s directors to approve the Merger with Algoma and to continue to pursue the Merger. In considering the recommendations of the Legato board of directors to vote for the Merger Proposal and other proposals, Legato’s Public Stockholders should consider these interests.

Recent SEC guidance required Legato to reconsider the accounting of the Legato Warrants and led Legato to conclude that the Private Warrants be accounted for as derivative liabilities rather than as equity and such requirement resulted in a revision of Legato’s previously issued balance sheet.

On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). In the Statement, the SEC staff expressed it view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Since issuance, all of the Legato Warrants were accounted for as equity within Legato’s balance sheet, and after discussion and evaluation, including with Legato’s independent auditors, Legato concluded that the Private Warrants should be presented as liabilities with subsequent and periodic fair value re-measurement. Therefore, Legato conducted a valuation of the Private Warrants and included in its Form 10-Q for the quarter ended March 31, 2021, a correction of certain line items included in its previously audited balance sheet as of January 22, 2021. Such correction resulted in unanticipated costs and diversion of management resources and may result in potential loss of investor confidence. Although Legato has now completed the revision, Legato cannot guarantee that it will have no further inquiries from the SEC or Nasdaq regarding the re-valuation of the Private Warrants or matters relating thereto.

Any future inquiries from the SEC or Nasdaq as a result of the revision of the Legato historical financial statements will, regardless of the outcome, likely consume a significant amount of our resources in addition to those resources already consumed in connection with the revision itself.

Legato has identified a material weakness in its disclosure controls and procedures. This material weakness could continue to adversely affect Legato’s ability to report its results of operations and financial condition accurately and in a timely manner.

Legato’s management is responsible for establishing and maintaining adequate disclosure controls and procedures and adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our

 

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Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including Legato’s principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Legato’s management is likewise required, on a quarterly basis, to evaluate the effectiveness of Legato’s internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Legato’s annual or interim financial statements will not be prevented or detected on a timely basis.

Under the supervision and with the participation of Legato’s management, including its principal executive officer and principal financial and accounting officer (the “Certifying Officers”), Legato conducted an evaluation of the effectiveness of its disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2021. Based upon that evaluation and in light of the SEC Staff Statement, the Certifying Officers concluded that, solely due to Legato’s misapplication of the accounting for the Private Warrants as liabilities, as described in Legato’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 24, 2021, Legato’s disclosure controls and procedures were not effective as of March 31, 2021.

To respond to this material weakness, Legato performed additional analysis as deemed necessary to ensure that the unaudited interim financial statements included in its Form 10-Q for the quarter ended June 30, 2021 were prepared in accordance with U.S. GAAP. Legato has also devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting. While Legato has processes to identify and appropriately apply applicable accounting requirements, it plans to enhance these processes to better evaluate its research and understanding of the nuances of the complex accounting standards that apply to Legato’s financial statements. Legato’s plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among its personnel and third-party professionals with Legato consults regarding complex accounting applications. The elements of Legato’s remediation plan can only be accomplished over time, and the initiatives may not ultimately have the intended effects.

Any failure to maintain such internal control could adversely impact Legato’s ability to report its financial position and results from operations on a timely and accurate basis. If Legato’s financial statements are not accurate, investors may not have a complete understanding of its operations. Likewise, if Legato’s financial statements are not filed on a timely basis, Legato could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. In either case, such a failure could result in a material adverse effect on Legato’s business.

The measures Legato has taken and plans to take in the future may not remediate the material weakness identified. Additional material weaknesses or revisions of financial results may also arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if Legato is successful in strengthening its controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of its financial statements.

Legato may face litigation and other risks as a result of the material weakness in its disclosure controls and procedures.

As a result of the material weakness Legato identified in its disclosure controls and procedures, the change in accounting for the Private Warrants, and other matters raised or that may in the future be raised by the SEC, Legato faces potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims. As of the date of this proxy statement/prospectus, Legato has no knowledge of any such litigation or dispute. However, such litigation or dispute may arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on the business of the combined company and its results of operations and financial condition.

Crescendo, an affiliate of Eric S. Rosenfeld, is liable to ensure that proceeds of the Trust Account are not reduced by vendor claims in the event the Merger is not consummated. Such liability may have influenced the Legato board of directors’ decision to pursue the Merger and the board’s decision to approve it.

If the Merger or another business combination is not consummated by Legato on or before July 22, 2022, Crescendo, an entity affiliated with Mr. Rosenfeld, Legato’s Chief SPAC Officer, is liable to ensure that the proceeds

 

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in the Trust Account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money by Legato for services rendered or contracted for or products sold to Legato, but only if such a vendor or target business has not executed a waiver agreement. If Legato consummates an initial business combination, on the other hand, Legato will be liable for all such claims. However, Legato has not independently verified whether Crescendo has sufficient funds to satisfy its indemnity obligations, Legato has not asked it to reserve for such obligations and Legato does not believe it has any significant liquid assets.

These obligations of Crescendo may have influenced the Legato board of directors’ decision to pursue the Merger with Algoma or the board’s decision to approve the Merger. In considering the recommendations of the Legato board of directors to vote for the Merger Proposal and other proposals, stockholders should consider these interests. See the section of this proxy statement/prospectus titled “Proposal No. 1 The Merger Proposal – Interests of Legato’s Directors and Officers in the Merger.”

Legato’s directors may decide not to enforce the indemnification obligations in respect of the Trust Account, resulting in a reduction in the amount of funds in the Trust Account available for distribution to Legato’s Public Stockholders in the event an initial business combination is not consummated.

Crescendo has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money by Legato for services rendered or contracted for or products sold to Legato. However, Legato has not independently verified whether Crescendo has sufficient funds to satisfy its indemnity obligations, Legato has not asked it to reserve for such obligations and Legato does not believe it has any significant liquid assets. If proceeds in the Trust Account are reduced below $10.00 per public share and Crescendo asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, Legato’s independent directors would determine whether to take legal action against Crescendo to enforce its indemnification obligations. It is possible that Legato’s independent directors in exercising their business judgment may choose not to do so in any particular instance. If Legato’s independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to Legato’s Public Stockholders may be reduced below $10.00 per share.

Activities taken by existing Legato stockholders to increase the likelihood of approval of the Merger Proposal and other proposals could have a depressive effect on the Legato Common Stock.

At any time prior to the Special Meeting, during a period when they are not then aware of any material nonpublic information regarding Legato or its securities, the Founders, Legato’s officers and directors, Algoma, the Algoma officers and directors and/or their respective affiliates, or Algoma shareholders may purchase Legato Common Stock from institutional and other investors who vote, or indicate an intention to vote, against the Merger Proposal or who indicate an intention to redeem their Public Shares, or they may execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of Legato Common Stock or vote their shares of Legato Common Stock in favor of the Merger Proposal. The purpose of such purchases and other transactions would be to increase the likelihood of approval of the Merger Proposal by the holders of a majority of the outstanding shares of Legato Common Stock and ensure that Legato has in excess of $5,000,001 of net assets and satisfies the Minimum Cash Condition to consummate the Merger where it appears that such requirements would otherwise not be met. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including, subject to the Lock-Up Agreement, the granting of put options and the transfer to such investors or holders of shares or warrants owned by the Founders for nominal value. Entering into any such arrangements may have a depressive effect on the Legato Common Stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares of Legato Common Stock at a price lower than market and may therefore be more likely to sell the Legato Common Stock he owns, either prior to or immediately after the Special Meeting.

In addition, if such purchases are made, the public “float” of the Algoma Common Shares following the Merger and the number of beneficial holders of Algoma securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of Algoma securities on Nasdaq, another national securities exchange or the TSX or reducing the liquidity of the trading market for the Algoma Common Shares.

 

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The Merger may be completed even though material adverse effects may result from the announcement of the Merger, industry-wide changes and other causes.

In general, either Legato or Algoma may refuse to complete the Merger if there is a material adverse effect affecting the other party between the signing date of the Merger Agreement and the planned closing. However, certain types of changes do not permit either party to refuse to consummate the Merger, even if such change could be said to have a material adverse effect on Algoma or Legato, including the following events (except, in certain cases where the change has a disproportionate effect on a party):

 

   

the outbreak or escalation of war or any act of terrorism, civil unrest or natural disasters, including the COVID-19 pandemic;

 

   

changes (including changes in law) or a downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance markets;

 

   

changes in IFRS, or the authoritative interpretation of IFRS; or

 

   

changes attributable to the public announcement or pendency of the Merger or the execution or performance of the Merger Agreement.

Furthermore, Legato or Algoma may waive the occurrence of a material adverse effect affecting the other party. If a material adverse effect occurs and the parties still consummate the Merger, the market trading price of the Algoma Common Shares and Algoma Warrants may suffer.

Delays in completing the Merger may substantially reduce the expected benefits of the Merger.

Satisfying the conditions to, and completion of, the Merger may take longer than, and could cost more than, Legato expects. Any delay in completing or any additional conditions imposed in order to complete the Merger may materially adversely affect the benefits that Legato expects to achieve from the Merger.

Legato and Algoma have no history operating as a combined company. The unaudited pro forma condensed combined consolidated financial information may not be an indication of Algoma’s financial condition or results of operations following the Merger, and accordingly, you have limited financial information on which to evaluate Algoma and your investment decision.

Algoma and Legato have no prior history as a combined entity and their operations have not been previously managed on a combined basis. The unaudited pro forma condensed combined consolidated financial information contained in this proxy statement/prospectus has been prepared using the consolidated historical financial statements of Legato and Algoma, and is presented for illustrative purposes only and should not be considered to be an indication of the results of operations including, without limitation, future revenue, or financial condition of Algoma following the Merger. Certain adjustments and assumptions have been made regarding Legato and Algoma after giving effect to the Merger. Algoma and Legato believe these assumptions are reasonable, however, the information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments are difficult to make with accuracy. These assumptions may not prove to be accurate, and other factors may affect Algoma’s results of operations or financial condition following the consummation of the Merger. For these and other reasons, the pro forma condensed combined financial information included in this proxy statement/prospectus does not necessarily reflect Algoma’s results of operations and financial condition and the actual financial condition and results of operations of Algoma following the Merger may not be consistent with, or evident from, this pro forma financial information.

The projections and forecasts presented in this proxy statement/prospectus may not be an indication of the actual results of the transaction or Algoma’s future results.

This proxy statement/prospectus contains projections and forecasts prepared by Algoma. None of the projections and forecasts included in this proxy statement/prospectus have been prepared with a view toward public disclosure other than to certain parties involved in the Merger or toward complying with SEC guidelines or IFRS. The projections and forecasts were prepared based on numerous variables and assumptions which are inherently uncertain and may be beyond the control of Algoma and Legato and exclude, among other things, transaction-related expenses. Important factors that may affect actual results and results of Algoma’s operations following the Merger, or could lead to such

 

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projections and forecasts not being achieved include, but are not limited to: significant domestic and international competition, increased use of competitive products, a protracted fall in steel prices, excess capacity, resulting in part from expanded production in China and other developing economies, low-priced steel imports and decreased trade regulation, protracted declines in steel consumption caused by poor economic conditions in North America or by the deterioration of the financial position of our key customers, supply and cost of raw materials and energy, currency fluctuations, including an increase in the value of the Canadian dollar against the U.S. dollar, unexpected equipment failures and other business interruptions, successful management and retention of key personnel, unexpected expenses and general economic conditions. As such, these projections and forecasts may be inaccurate and should not be relied upon as an indicator of actual past or future results.

Legato may not be able to complete the Merger or any other Merger within the prescribed time frame, in which case Legato would cease all operations, except for the purpose of winding up and Legato would redeem Legato’s Public Shares and liquidate.

Legato must complete an initial combination by July 22, 2022 (or such later date as may be approved by Legato’s stockholders). Legato may not be able to consummate the Merger or any other business combination by such date. If Legato has not completed any initial business combination by such date, it will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable and up to $100,000 of interest that may be released to Legato to pay liquidation expenses) divided by the number of then outstanding Public Shares, which redemption will completely extinguish the Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of Legato’s remaining stockholders and board of directors, dissolve and liquidate, subject in each case to Legato’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

Legato may be a target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements or similar agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Legato’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger, then that injunction may delay or prevent the Merger from being completed. Currently, Legato is not aware of any securities class action lawsuits or derivative lawsuits being filed in connection with the Merger.

The ongoing COVID-19 pandemic may adversely affect Legato’s and Algoma’s ability to consummate the Merger.

The COVID-19 pandemic has resulted in governmental authorities worldwide implementing numerous measures to contain the virus, including travel restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. More generally, the pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets. The pandemic may also amplify many of the other risks described in this proxy statement/prospectus.

Legato and Algoma may be unable to complete the Merger if continued concerns relating to COVID-19 restrict travel and limit the ability to have meetings with Algoma personnel. The extent to which COVID-19 impacts Legato’s and Algoma’s ability to consummate the Merger will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, Legato’s and Algoma’s ability to consummate the Merger may be materially adversely affected.

 

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The grant and future exercise of registration rights may adversely affect the market price of Algoma Common Shares upon consummation of the Merger.

The Investor Rights Agreement will provide that Algoma will, under certain circumstances, agree to file a registration statement as soon as practicable upon a request from certain IRA Parties to register the resale of certain registrable securities under the Securities Act and Canadian securities laws (such request, a “demand registration”). Algoma has also agreed to provide customary “piggyback” registration rights with respect to any valid demand registration request. In addition, following the consummation of the Merger, Algoma is required to file and maintain an effective registration statement under the Securities Act covering the Securities held by PIPE Investors, and intends to maintain an effective registration statement for the other outstanding Algoma Common Shares (other than the Algoma Common Shares issued to Legato Public Stockholders pursuant to the Merger). See “—A significant portion of our total outstanding Algoma Common Shares will be restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of Algoma Common Shares and Algoma Warrants to drop significantly, even if our business is doing well.”

The registration of these securities will permit the public sale of such securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of Algoma Common Shares post-Merger.

Legato has conducted due diligence to assess the management of Algoma’s business but cannot assure you that Algoma’s management has all the skills, qualifications or abilities necessary to manage a public company.

Legato’s conducted due diligence on Algoma and its management team but its assessment of the capabilities of Algoma’s management may prove to be incorrect and Algoma management may lack the skills, qualifications or abilities that Legato believed the Algoma management to have. Should Algoma’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of Algoma or Algoma post-Merger may be negatively impacted. Accordingly, any stockholders who choose to remain stockholders of Algoma following the Merger could suffer a reduction in the value of their shares.

If the Adjournment Proposal is not approved, and a quorum is present but an insufficient number of votes have been obtained to approve the Merger Proposal, the Legato board of directors will not have the ability to adjourn the Special Meeting to a later date in circumstances where such adjournment is necessary to permit the Merger to be approved.

If, at the Special Meeting, Legato board of directors determine that it would be in the best interests of Legato to adjourn the Special Meeting to give Legato more time to consummate the Merger for whatever reason (such as if the Merger Proposal is not approved, or if Legato would have net tangible assets of less than $5,000,001 either immediately prior to or upon the consummation of the Transactions, or if additional time is needed to fulfill other closing conditions), the Legato board of directors will seek approval to adjourn the Special Meeting to a later date or dates. If the Adjournment Proposal is not approved, and a quorum is present but an insufficient number of votes have been obtained to approve the Merger Proposal, the Legato board of directors will not have the ability to adjourn the Special Meeting to a later date in order to solicit further votes or take other steps to cause the conditions to the Merger to be satisfied. In such event, the Merger would not be completed.

The exercise of Legato’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Merger may result in a conflict of interest when determining whether such changes to the terms of the Merger or waivers of conditions are appropriate and in Legato’s stockholders’ best interest.

In the period leading up to the closing of the Merger, events may occur that, pursuant to the Merger Agreement, would require Legato to agree to amend the Merger Agreement, to consent to certain actions taken by Algoma or to waive rights that Legato is entitled to under the Merger Agreement. Such events could arise because of changes in the course of Algoma’s business, a request by Algoma to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or the occurrence of other events that would have a material adverse effect on Algoma’s business and would entitle Legato to terminate the Merger Agreement. In any of those circumstances, it would be at Legato’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk factors may result in a conflict of interest on the part of one or more of the directors between what they may believe is best for Legato and

 

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what they may believe is best for themselves in determining whether or not to take the requested action. While certain changes could be made without further stockholder approval, Legato will circulate a new or amended proxy statement/prospectus and resolicit Legato’s stockholders if changes to the terms of the transaction that would have a material impact on its stockholders are required prior to the vote on the Merger Proposal.

Risks Related to the U.S. Federal Income Tax Treatment of the Merger

If the Merger does not qualify as a reorganization under Section 368(a) of the Code or is taxable under Section 367(a) of the Code, then the Merger generally would be taxable with respect to U.S. Holders of Legato Common Stock and/or Legato Warrants.

The Merger (i) is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code (a “reorganization”), and (ii) is not expected to result in gain being recognized by U.S. Holders (as defined in “Certain Material U.S. Federal Income Tax Considerations”) of Legato Common Stock and/or Legato Warrants immediately prior to the Effective Time (other than with respect to certain holders that own, actually or constructively, 5% or more (by vote or value) of the outstanding shares of Algoma stock immediately after the Merger, as discussed in “– Tax Consequences of the Merger Under Section 367(a) of the Code”) (together, the “Intended Tax Treatment”). To the extent applicable, the parties intend to report the Merger in a manner consistent with the Intended Tax Treatment. However, there are significant factual and legal uncertainties as to whether the Merger will qualify for the Intended Tax Treatment. For example, under Section 368(a) of the Code and the Treasury regulations promulgated thereunder, the acquiring corporation (or, in the case of certain reorganizations structured similarly to the Merger, its corporate parent) must continue, either directly or indirectly through certain controlled corporations, either a significant line of the acquired corporation’s historic business or use a significant portion of the acquired corporation’s historic business assets in a business. However, there is an absence of guidance directly on point as to how the above rules apply in the case of an acquisition of a corporation with investment-type assets, such as Legato. Moreover, Section 367(a) of the Code and the applicable Treasury regulations promulgated thereunder provide that, where a U.S. shareholder exchanges stock or securities in a U.S. corporation for stock or securities in a non-U.S. (“foreign”) corporation in a transaction that qualifies as a reorganization, the U.S. shareholder is required to recognize any gain, but not loss, realized on such exchange unless certain additional requirements are met. There are significant factual and legal uncertainties concerning the determination of whether these requirements will be satisfied. Moreover, the closing of the Merger is not conditioned upon the receipt of an opinion of counsel that the Merger will qualify for the Intended Tax Treatment, and neither Legato nor Algoma intends to request a ruling from the U.S. Internal Revenue Service (the “IRS”) regarding the U.S. federal income tax treatment of the Merger. Accordingly, no assurance can be given that the IRS will not challenge the Intended Tax Treatment or that a court will not sustain a challenge by the IRS.

If, at the Effective Time, any requirement of Section 368(a) of the Code or the Treasury regulations promulgated thereunder is not met, then a U.S. Holder of Legato Common Stock and/or Legato Warrants generally would recognize gain or loss in an amount equal to the difference, if any, between the fair market value (as of the closing date of the Merger) of Algoma Common Shares and/or Algoma Warrants received in the Merger, over such holder’s aggregate adjusted tax basis in the corresponding Legato Common Stock and/or Legato Warrants surrendered by such holder in the Merger.

If the Merger does meet the requirements of Section 368(a) of the Code, but at the Effective Time, any requirement for Section 367(a) of the Code not to impose gain on a U.S. Holder is not satisfied, then a U.S. Holder of Legato Common Stock and/or Legato Warrants generally would recognize gain (but not loss) in an amount equal to the excess, if any, of the fair market value as of the closing date of the Merger of Algoma Common Shares and/or Algoma Warrants received in the Merger, over such holder’s aggregate tax basis in the Legato Common Stock and/or Legato Warrants surrendered by such holder in the Merger.

The tax consequences of the Merger are complex and will depend on your particular circumstances. For a more detailed discussion of the U.S. federal income tax considerations of the Merger for U.S. Holders of Legato Common Stock and/or Legato Warrants, including the application of Section 367(a) of the Code, see the section entitled “Certain Material U.S. Federal Income Tax Considerations – U.S. Holders – U.S. Federal Income Tax Considerations of the Merger.” If you are a U.S. Holder whose Legato Common Stock and/or Legato Warrants are exchanged in the Merger, you are urged to consult your tax advisor to determine the tax consequences thereof.

 

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The IRS may not agree that Algoma should be treated as a non-U.S. corporation for U.S. federal income tax purposes.

Although Algoma is incorporated and tax resident in Canada, the IRS may assert that it should be treated as a U.S. corporation for U.S. federal income tax purposes pursuant to Section 7874 of the Code. For U.S. federal income tax purposes, a corporation is generally considered a U.S. “domestic” corporation if it is created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia. Because Algoma is not so created or organized (but is instead incorporated only in Canada), it would generally be classified as a foreign corporation (that is, a corporation other than a U.S. “domestic” corporation) under these rules. Section 7874 of the Code provides an exception under which a corporation created or organized only under foreign law may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes.

As more fully described in the section titled “Certain Material U.S. Federal Income Tax Considerations – U.S. Federal Income Tax Treatment of Algoma – Tax Residence of Algoma for U.S. Federal Income Tax Purposes,” based on the terms of the Merger, the rules for determining share ownership under Section 7874 of the Code and the Treasury regulations promulgated thereunder (the “Section 7874 Regulations”), and certain factual assumptions, Algoma is not currently expected to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code after the Merger. However, the application of Section 7874 of the Code is complex, is subject to detailed regulations (the application of which is uncertain in various respects and would be impacted by changes in such U.S. tax laws and regulations with possible retroactive effect), and is subject to certain factual uncertainties. Accordingly, there can be no assurance that the IRS will not challenge the status of Algoma as a foreign corporation under Section 7874 of the Code or that such challenge would not be sustained by a court.

If the IRS were to successfully challenge under Section 7874 of the Code Algoma’s status as a foreign corporation for U.S. federal income tax purposes, Algoma and certain Algoma shareholders could be subject to significant adverse tax consequences, including a higher effective corporate income tax rate on Algoma and future withholding taxes on certain Algoma shareholders, depending on the application of any income tax treaty that might apply to reduce such withholding taxes. In particular, holders of Algoma Common Shares and/or Algoma Warrants would be treated as holders of stock and warrants of a U.S. corporation.

See “Certain Material U.S. Federal Income Tax Considerations – U.S. Federal Income Tax Treatment of Algoma – Tax Residence of Algoma for U.S. Federal Income Tax Purposes” for a more detailed discussion of the application of Section 7874 of the Code to the Merger. Investors in Algoma should consult their own advisors regarding the application of Section 7874 of the Code to the Merger.

Section 7874 of the Code may limit the ability of Legato to use certain tax attributes following the Merger, increase Algoma’s U.S. affiliates’ U.S. taxable income or have other adverse consequences to Algoma and Algoma’s shareholders.

Following the acquisition of a U.S. corporation by a foreign corporation, Section 7874 of the Code can limit the ability of the acquired U.S. corporation and its U.S. affiliates to use U.S. tax attributes (including net operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions, as well as result in certain other adverse tax consequences, even if the acquiring foreign corporation is respected as a foreign corporation for purposes of Section 7874 of the Code. In general, if a foreign corporation acquires, directly or indirectly, substantially all of the properties held directly or indirectly by a U.S. corporation, and after the acquisition the former shareholders of the acquired U.S. corporation hold at least 60% (by either vote or value) but less than 80% (by vote and value) of the shares of the foreign acquiring corporation by reason of holding shares in the acquired U.S. corporation, subject to other requirements, certain adverse tax consequences under Section 7874 of the Code may apply.

If these rules apply to the Merger, Algoma and certain of Algoma’s shareholders may be subject to adverse tax consequences including, but not limited to, restrictions on the use of tax attributes with respect to “inversion gain” recognized over a 10-year period following the transaction, disqualification of dividends paid from preferential “qualified dividend income” rates and the requirement that any U.S. corporation owned by Algoma include as “base erosion payments” that may be subject to a minimum U.S. federal income tax any amounts treated as reductions in gross income paid to certain related foreign persons. Furthermore, certain “disqualified individuals” (including officers and directors of a U.S. corporation) may be subject to an excise tax on certain stock-based compensation held thereby at a rate of 20%.

 

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As more fully described in the section titled “Certain Material U.S. Federal Income Tax Considerations – U.S. Federal Income Tax Treatment of Algoma – Utilization of Legato’s Tax Attributes and Certain Other Adverse Tax Consequences to Algoma and Algoma’s Shareholders,” based on the terms of the Merger, the rules for determining share ownership under Section 7874 of the Code and the Section 7874 Regulations (as defined above), and certain factual assumptions, Algoma is not currently expected to be subject to these rules under Section 7874 of the Code after the Merger. The above determination, however, is subject to detailed regulations (the application of which is uncertain in various respects and would be impacted by future changes in such U.S. tax laws and regulations, with possible retroactive effect) and is subject to certain factual uncertainties. Accordingly, there can be no assurance that the IRS will not challenge whether Algoma is subject to the above rules or that such a challenge would not be sustained by a court.

However, even if Algoma is not subject to the above adverse consequences under Section 7874 of the Code, Algoma may be limited in using its equity to engage in future acquisitions of U.S. corporations over a 36-month period following the Merger. If Algoma were to be treated as acquiring substantially all of the assets of a U.S. corporation within a 36-month period after the Merger, the Section 7874 Regulations would exclude certain shares of Algoma attributable to the Merger for purposes of determining the Section 7874 Percentage (as defined in “Certain Material U.S. Federal Income Tax Considerations – U.S. Federal Income Tax Treatment of Algoma – Tax Residence of Algoma for U.S. Federal Income Tax Purposes”) of that subsequent acquisition, making it more likely that Section 7874 of the Code will apply to such subsequent acquisition.

See “Certain Material U.S. Federal Income Tax Considerations – U.S. Federal Income Tax Treatment of Algoma – Utilization of Legato’s Tax Attributes and Certain Other Adverse Tax Consequences to Algoma and Algoma’s Shareholders” for a more detailed discussion of the application of Section 7874 of the Code to the Merger. Investors in Algoma should consult their own advisors regarding the application of Section 7874 of the Code to the Merger.

Risks Related to Redemptions of Public Shares

You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to redeem or sell your Public Shares or Warrants, potentially at a loss.

Public Stockholders will be entitled to receive funds from the Trust Account only upon the earlier to occur of: (i) Legato’s completion of the Merger or, if the Merger is not completed, an alternative business combination, or in connection with an amendment to the Existing Legato Charter to extend the date by which Legato must complete an initial business combination, and then only in connection with those shares of Legato Common Stock that such stockholder properly elected to redeem, subject to the limitations described herein, and (ii) the redemption of Legato’s Public Shares if Legato is unable to complete an initial business combination by July 22, 2022, subject to applicable law and as further described herein. In addition, if Legato plans to redeem its Public Shares because Legato is unable to complete an initial business combination by July 22, 2022, for any reason, compliance with Delaware law may require that Legato submit a plan of dissolution to Legato’s then-existing stockholders for approval prior to the distribution of the proceeds held in the Trust Account. In that case, Public Stockholders may be forced to wait beyond July 22, 2022, before they receive funds from the Trust Account. In no other circumstances will Public Stockholders have any right or interest of any kind in the Trust Account. Accordingly, to liquidate your investment, you may be forced to sell your Public Shares or Warrants, potentially at a loss.

If Legato Public Stockholders fail to properly demand redemption of their shares, they will not be entitled to redeem their shares of Legato Common Stock into a pro rata portion of the Trust Account.

Legato stockholders holding Public Shares may demand that Legato redeem their Public Shares for a pro rata portion of the Trust Account, calculated as of two business days prior to the anticipated consummation of the Merger. Legato stockholders who seek to exercise this redemption right must deliver their Public Shares (either physically or electronically) to Legato’s transfer agent at least two (2) business days prior to the vote at the Special Meeting. Public Stockholders are not required to vote for or against the Merger Proposal or at all, or to be stockholders of record on the record date in order to exercise redemption rights. Any Public Stockholder who fails to properly demand redemption of such stockholder’s Public Shares will not be entitled to redeem his or her Public Shares for a pro rata portion of the Trust Account. See the section entitled “Special Meeting of Legato Stockholders – Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

 

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Risks Related to Ownership of Algoma Common Shares and Algoma Warrants following the Merger

Algoma may issue additional Algoma Common Shares or other securities following the Merger without shareholder approval, which would dilute existing ownership interests and may depress the market price of Algoma Common Shares.

Algoma may issue additional Algoma Common Shares or other equity securities of equal or senior rank in the future in connection with, among other things, Algoma’s equity incentive plan, without shareholder approval, in a number of circumstances. Algoma’s issuance of additional Algoma Common Shares or other equity securities of equal or senior rank would have the following effects:

 

   

Algoma’s existing shareholders’ proportionate ownership interest in Algoma may decrease;

 

   

the amount of cash available per share, including for payment of dividends in the future, may decrease;

 

   

the relative voting strength of each previously outstanding Algoma Common Share may be diminished; and

 

   

the market price of Algoma Common Shares may decline.

Algoma’s share price may be volatile and may decline regardless of its operating performance.

The market price of the Algoma Common Shares may fluctuate significantly in response to numerous factors and may continue to fluctuate for these and other reasons, many of which are beyond Algoma’s control, including:

 

   

actual or anticipated fluctuations in Algoma’s revenue and results of operations;

 

   

the financial projections Algoma may provide to the public, any changes in these projections or its failure to meet these projections;

 

   

failure of securities analysts to maintain coverage of Algoma, changes in financial estimates or ratings by any securities analysts who follow Algoma or its failure to meet these estimates or the expectations of investors;

 

   

announcements by Algoma or its competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments;

 

   

changes in operating performance and stock market valuations of other steel companies;

 

   

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

 

   

trading volume of the Algoma Common Shares;

 

   

the inclusion, exclusion or removal of the Algoma Common Shares from any indices;

 

   

changes in Algoma’s board of directors or management;

 

   

transactions in the Algoma Common Shares by directors, officers, affiliates and other major investors;

 

   

lawsuits threatened or filed against us;

 

   

changes in laws or regulations applicable to our business;

 

   

changes in Algoma’s capital structure, such as future issuances of debt or equity securities;

 

   

short sales, hedging and other derivative transactions involving Algoma’s capital stock;

 

   

general economic conditions in the United States;

 

   

pandemics or other public health crises, including, but not limited to, the COVID-19 pandemic;

 

   

other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and

 

   

the other factors described in this “Risk Factors” section.

The stock market has recently experienced extreme price and volume fluctuations. The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their operating results. In the past, stockholders have sometimes instituted securities class action litigation against companies

 

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following periods of volatility in the market price of their securities. Any similar litigation against Algoma could result in substantial costs, divert management’s attention and resources, and harm its business, financial condition, and results of operations.

An active, liquid trading market for Algoma Common Shares and Algoma Warrants may not develop, which may limit your ability to sell Algoma Common Shares and Algoma Warrants.

Prior to the completion of the Merger, there was no public market for Algoma Common Shares and Algoma Warrants. Although we have applied to list the Algoma Common Shares and Algoma Warrants on Nasdaq and we intend to apply to list the Algoma Common Shares and Algoma Warrants on the TSX upon the Effective Time under the ticker symbols “ASTL” and “ASTLW” or “ASTL.WT”, respectively, an active trading market for Algoma Common Shares and Algoma Warrants may never develop or be sustained following the consummation of the Merger. The initial valuation of $10 per Algoma Common Share may not be indicative of the market price of Algoma Common Shares that will prevail in the open market after the consummation of the Merger. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of Algoma Common Shares and Algoma Warrants. The market price of Algoma Common Shares may decline below $10 per share, and you may not be able to sell your Algoma Common Shares at or above $10 per share, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing Algoma Common Shares or Algoma Warrants.

A significant portion of our total outstanding Algoma Common Shares will be restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of Algoma Common Shares and Algoma Warrants to drop significantly, even if our business is doing well.

Sales of a substantial number of Algoma Common Shares and Algoma Warrants in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of holders intend to sell Algoma Common shares or Algoma Warrants, could reduce the market price of Algoma Common Shares or Algoma Warrants. Immediately following the consummation of the Merger, an aggregate of 75,000,000 Algoma Common Shares issued to Existing Algoma Investors, prior to the issuance of any additional Algoma Common Shares pursuant to the Earnout Rights, will be subject to transfer restrictions. Transfer restrictions will also apply to the 6,379,875 Algoma Common Shares held by the Founders and the 262,254 Algoma Warrants and underlying Algoma Common Shares held by Eric S. Rosenfeld, David Sgro and Brian Pratt. All of these Algoma Common Shares and Algoma Warrants will, however, be able to be resold after the expiration of the lock-up period or its waiver (which may occur with the written consent of Algoma and persons holding a majority of the shares subject to the lock-up), as well as pursuant to customary exceptions thereto. Moreover, certain holders of Algoma Common Shares (including Algoma Common Shares underlying Algoma Warrants) will have certain registration rights that could require us to file registration statements in connection with sales of Algoma Common Shares and Algoma Warrants by such holders. Such sales by such holders could be significant. As restrictions on resale end, the market price of Algoma Common Shares and Algoma Warrants could decline if the holders of currently restricted Algoma Common Shares or Algoma Warrants sell them or are perceived by the market as intending to sell them.

Pursuant to the PIPE Subscription Agreements relating to the PIPE Investment, Algoma has agreed that, as soon as practicable (but in any case no later than thirty (30) calendar days after the consummation of the Merger, it will file with the SEC (at Algoma’s sole cost and expense) a registration statement registering the resale of the 10,000,000 PIPE Shares (the “Resale Registration Statement”), and Algoma will use its commercially reasonable efforts to have the Resale Registration Statement declared effective as soon as practicable after the filing thereof, but in any event, no later than the earlier of (i) ninety (90) calendar days after the consummation of the Merger if the SEC notifies Algoma that it will “review” the Resale Registration Statement and (ii) ten (10) business days after Algoma is notified (orally or in writing, whichever is earlier) by the SEC that the Resale Registration Statement will not be “reviewed” or will not be subject to further review, subject to certain conditions. Algoma also intends to register an additional 81,732,036 Algoma Common Shares (including Algoma Common Shares issuable upon exercise of Replacement LTIP Awards) as part of the Resale Registration Statement or one or more additional registration statements.

 

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FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this proxy statement/prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “pipeline,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking by their nature:

 

   

the risk that the benefits of the Merger may not be realized;

 

   

the risk that the Merger may not be completed in a timely manner or at all, which may adversely affect the price of Legato’s securities;

 

   

the failure to satisfy the conditions to the consummation of the Merger, including the failure of Legato’s stockholders to approve and adopt the Merger Agreement or the failure to satisfy the Minimum Cash Condition following redemptions by Legato stockholders;

 

   

the inability to complete the PIPE Investment;

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

   

the outcome of any legal proceedings that may be initiated following announcement of the Merger;

 

   

the effect of the announcement or pendency of the Merger on Algoma’s business relationships, operating results and business generally;

 

   

risks that the proposed Merger could disrupt current plans and operations of Algoma;

 

   

foreign exchange rate;

 

   

future financial performance;

 

   

future cash flow and liquidity;

 

   

future capital investment;

 

   

our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness, with a substantial amount of indebtedness;

 

   

significant domestic and international competition;

 

   

increased use of competitive products;

 

   

a protracted fall in steel prices;

 

   

excess capacity, resulting in part from expanded production in China and other developing economies;

 

   

low-priced steel imports and decreased trade regulation;

 

   

protracted declines in steel consumption caused by poor economic conditions in North America or by the deterioration of the financial position of our key customers;

 

   

increases in annual funding obligations resulting from our under-funded pension plans;

 

   

supply and cost of raw materials and energy;

 

   

currency fluctuations, including an increase in the value of the Canadian dollar against the U.S. dollar;

 

   

environmental compliance and remediation;

 

   

unexpected equipment failures and other business interruptions;

 

   

a protracted global recession or depression;

 

   

changes in our credit ratings or the debt markets;

 

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the ability of Algoma to implement and realize its business plans, including Algoma’s ability to make investments in EAF steelmaking;

 

   

the risk that the anticipated benefits of the Green Steel Funding will fail to materialize as planned or at all;

 

   

changes in general economic conditions, including as a result of the COVID-19 pandemic;

 

   

projected increases in capacity liquid steel as a result of the proposed transformation to EAF steelmaking;

 

   

projected cost savings associated with the proposed transformation to EAF steelmaking;

 

   

projected reduction in CO2 emissions associated with the proposed transformation to EAF steelmaking, including with respect to the impact of such reductions on the Green Steel Funding and carbon taxes payable;

 

   

our ability to enter into contracts to source scrap and the availability of scrap; and

 

   

the availability of alternative metallic supply.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks provided under “Risk Factors” in this proxy statement/prospectus.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this proxy statement/prospectus, to conform these statements to actual results or to changes in our expectations.

 

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SPECIAL MEETING OF LEGATO STOCKHOLDERS

General

Legato is furnishing this proxy statement/prospectus to Legato’s stockholders as part of the solicitation of proxies by the Legato board of directors for use at the Special Meeting of Legato stockholders. This proxy statement/prospectus provides Legato’s stockholders with information they need to know to be able to vote or instruct their vote to be cast at the Special Meeting.

Date, Time and Place

The Special Meeting of stockholders will be held virtually on                , 2021 at                , a.m. Eastern Time, or at such other time, on such other date and at such other place to which the meeting may be adjourned or postponed. You may attend and participate in the Special Meeting webcast by accessing the meeting web portal located at                . Stockholders participating in the Special Meeting will be able to listen only and will not be able to speak during the special meeting webcast. To participate in the virtual meeting, a stockholder of record will need the 16-digit control number included on their proxy card or instructions that accompanied their proxy materials, if applicable, or will need to obtain a proxy form from their broker, bank or other nominee. Stockholders are encouraged to access the Special Meeting prior to the start time. If you encounter any difficulties accessing the virtual meeting or during the meeting time, please call the technical support number that will be posted on the virtual meeting login page.

At the Special Meeting, Legato is asking holders of Legato Common Stock to:

 

   

consider and vote upon the Merger Proposal; and

 

   

consider and vote upon the Adjournment Proposal, if presented.

Recommendation of the Legato Board of Directors

The Legato board of directors has determined that each of the Merger Proposal and the Adjournment Proposal to be presented at the Special Meeting is in the best interests of Legato and its stockholders, and recommends that Legato stockholders vote “FOR” each of the proposals.

Record Date; Outstanding Shares; Stockholders Entitled to Vote

Legato has fixed the close of business on                 , 2021, as the “record date” for determining Legato stockholders entitled to notice of and to attend and vote at the Special Meeting. As of the close of business on the record date, there were 30,307,036 shares of Legato Common Stock outstanding and entitled to vote. Each share of Legato Common Stock is entitled to one vote per share at the Special Meeting.

Quorum

The presence, virtually or by proxy, of a majority of all the outstanding shares of Legato Common Stock entitled to vote constitutes a quorum at the Special Meeting. As of the record date for the Special Meeting, the presence by virtual attendance or by proxy of 15,153,518 shares of Legato Common Stock is required to achieve a quorum. Abstentions will count as present for purposes for establishing a quorum; Broker Non-Votes will not.

Vote Required

The approval of the Merger Proposal will require the affirmative vote by the holders of a majority of the shares of outstanding Legato Common Stock entitled to vote. The approval of the Adjournment Proposal, if presented, will require the affirmative vote of the holders of a majority shares of Legato Common Stock present or represented by proxy and entitled to vote at the Special Meeting. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal and the Adjournment Proposal. Broker Non-Votes will have the same effect as a vote “AGAINST” the Merger Proposal but will not have an effect on the Adjournment Proposal.

The Merger is conditioned on the approval of the Merger Proposal. The proposals are more fully described in this proxy statement/prospectus, which each stockholder is encouraged to read carefully and in its entirety.

 

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Voting Your Shares

Each share of Legato Common Stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of Legato Common Stock that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

There are two ways to vote your shares of Legato Common Stock at the Special Meeting:

You Can Vote by Signing and Returning the Enclosed Proxy Card.    If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by the Legato board of directors “FOR” the Merger Proposal and the Adjournment Proposal, if presented. Votes received after a matter has been voted upon at the Special Meeting will not be counted.

You Can Virtually Attend the Special Meeting and Vote Online.    You will be able to vote virtually at                    . However, if your shares are held in the name of your broker, bank or another nominee, you must get a legal proxy from the broker, bank or other nominee. That is the only way Legato can be sure that the broker, bank or nominee has not already voted your shares.

Certain Voting Arrangements

As of             , 2021, the record date for the Special Meeting, the Founders beneficially owned and were entitled to vote 6,379,875 shares of Legato Common Stock. In the aggregate, the foregoing shares represent approximately 21% of the issued and outstanding shares of Legato Common Stock. The Founders have committed to Legato to vote such shares in favor of the Merger Proposal. In addition, the Founders have entered into the Support Agreement whereby they have agreed to vote shares of Legato Common Stock that they currently hold or which they may acquire prior to the Special Meeting in favor of, and take certain other actions in support of, the Merger (including causing such shares to be present at the Special Meeting for the purposes of establishing a quorum).

Revoking Your Proxy

If you are a stockholder and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

   

you may send another proxy card with a later date;

 

   

you may notify Legato’s secretary, in writing, before the Special Meeting that you have revoked your proxy; or

 

   

you may attend the Special Meeting, revoke your proxy, and vote virtually, as indicated above.

Who Can Answer Your Questions About Voting Your Shares

If you are a stockholder and have any questions about how to vote or direct a vote in respect of your shares of Legato Common Stock, you may call Mackenzie Partners, Inc., Legato’s proxy solicitor, at (800) 322-2885.

Redemption Rights

Holders of Public Shares may seek to have their shares redeemed for cash, regardless of whether they vote for or against the Merger Proposal or at all or whether they hold their shares on the record date. Any stockholder holding Public Shares may demand that Legato redeem such shares into a full pro rata portion of the Trust Account (approximately $                 per share as of the record date), calculated as of two business days prior to the anticipated consummation of the Merger. If a holder properly seeks redemption as described in this section and the Merger is consummated, Legato will redeem these shares for a pro rata portion of funds deposited in the Trust Account and the holder will no longer own these shares.

As a condition to their purchase of Founder Shares, the Founders agreed to waive their redemption rights in connection with the consummation of the Merger with respect to all of the shares of Legato Common Stock held by them, directly or indirectly. EBC has agreed to waive its redemption rights with respect to the Representative Shares and shares underlying the Private Units held by it.

 

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Holders demanding redemption are also required to (A) submit their redemption request, which includes the name of the beneficial owner of the Public Shares to be redeemed, in writing to Continental Stock Transfer & Trust Company, Legato’s transfer agent and (B) deliver their stock, either physically or electronically using DTC’s DWAC System, to Legato’s transfer agent no later than 5:00 p.m., Eastern Time, on                , 2021 (two (2) business days prior to the Special Meeting). If you hold the shares in street name, you will have to coordinate with your broker to have your shares certificated or delivered electronically. Shares represented by certificates that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. In the event the proposed Merger is not consummated this may result in an additional cost to stockholders for the return of their shares.

Any demand for redemption, once made, may be withdrawn at any time until the date of the Special Meeting. After the date of the Special Meeting, a demand for redemption may only be withdrawn with Legato’s consent.

If the Merger is not approved or completed for any reason, then Public Stockholders who elected to exercise their redemption rights will not be entitled to have their shares redeemed. Legato will thereafter promptly return any shares delivered by Public Stockholders. In such case, Public Stockholders may only share in the assets of the Trust Account upon the liquidation of Legato. This may result in Public Stockholders receiving less than they would have received if the Merger was completed and they had exercised redemption rights in connection therewith due to potential claims of creditors.

The closing price of Legato Common Stock on the record date was $                . The cash held in the Trust Account on such date was approximately $                million (approximately $                per public share). Prior to exercising redemption rights, Public Stockholders should verify the market price of Legato Common Stock as they may receive higher proceeds from the sale of their shares of Legato Common Stock in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. Legato cannot assure its stockholders that they will be able to sell their shares of Legato Common Stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in its securities when Legato stockholders wish to sell their shares.

Appraisal Rights

None of the stockholders, Unit holders or warrant holders of Legato have appraisal rights in connection the Merger under the DGCL.

Proxy Solicitation Costs

Legato is soliciting proxies on behalf of its board of directors. This solicitation is being made by mail but also may be made by telephone or in person. Legato and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. Legato will bear the cost of the solicitation.

Legato has hired Mackenzie Partners, Inc. to assist in the proxy solicitation process, Legato will pay a fee of $15,000, plus disbursements.

Legato will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. Legato will reimburse them for their reasonable expenses.

 

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PROPOSAL NO. 1 – THE MERGER PROPOSAL

Holders of Legato Common Stock are being asked to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger. Legato stockholders should read carefully this proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus. Please see the section entitled “ – The Merger Agreement” below, for additional information and a summary of certain terms of the Merger Agreement. You are urged to read carefully the Merger Agreement in its entirety before voting on this proposal.

Legato may consummate the Merger only if it is approved by the affirmative vote of the holders of a majority of the issued and outstanding shares of Legato Common Stock entitled to vote.

General

Transaction Structure

The Merger Agreement provides for the merger of Merger Sub with and into Legato, with Legato surviving the Merger as a wholly-owned subsidiary of Algoma.

Pro Forma Capitalization

The post-Closing enterprise value of Algoma upon consummation of the Merger is currently estimated to be approximately $1.7 billion, including Earnout Rights. We estimate that at the Effective Time, in the No Redemption Scenario and assuming that no additional Algoma Common Shares are issued pursuant to the Earnout Rights, the Existing Algoma Investors will own approximately 65% of the outstanding Algoma Common Shares (or, assuming all Algoma Common Shares issuable pursuant to the Earnout Rights are issued, 74%) (inclusive of Replacement LTIP Awards) and the securityholders of Legato, namely the Public Stockholders, the Founders, EBC and its designees, and the PIPE Investors, will own the remaining Algoma Common Shares.

Merger Consideration

Prior to the Effective Time, (i) Algoma intends to effect the Stock Split, and (ii) the LTIP Exchange. Following the Stock Split and the LTIP Exchange and immediately prior to the Merger (and prior to the completion of the PIPE Investment), there will be 75.0 million Algoma Common Shares outstanding (inclusive of Replacement LTIP Awards).

Pursuant to the Merger Agreement, (i) each outstanding Legato Unit will be separated immediately prior to the Effective Time into one share of Legato Common Stock and one Legato Warrant, (ii) at the Effective Time each outstanding share of Legato Common Stock will be converted into and exchanged for the right to receive one newly issued Algoma Common Share, and (iii) at the Effective Time each Legato Warrant shall be converted into an equal number of Algoma Warrants, with each warrant exercisable for one Algoma Common Share for $11.50 per share, subject to adjustment, with the exercise period beginning 30 days following Closing.

In addition, Existing Algoma Investors will be granted or issued the contingent right to acquire their pro rata portion of up to 37.5 million Algoma Common Shares pursuant to the Earnout Rights if certain targets based on Earnout Adjusted EBITDA and/or the trading price of the Algoma Common Shares are met.

The Merger Agreement defines “Earnout Adjusted EBITDA” (referenced as “Adjusted EBITDA” in the Merger Agreement) as consolidated net income (loss) of Algoma Steel Inc. for the twelve-month period ending December 31, 2021 before amortization of property, plant, equipment and amortization of assets, finance costs, interest on pension and other post-employment benefit obligations, income taxes, reorganization costs, finance income, inventory write-downs, carbon tax, certain exceptional items, tariff expense, non-cash adjustments and write-downs, loss (gain) on commodity hedging, loss (gain) on foreign exchange and loss (gain) associated with the Algoma Warrants.

The Earnout Rights to be granted or issued to Existing Algoma Investors will be converted into the following aggregate number of Algoma Common Shares upon the satisfaction of the following Earnout Events:

(i) 15,000,000 Algoma Common Shares if Earnout Adjusted EBITDA (as calculated by Algoma’s management and accepted by its board of directors, including a majority of disinterested directors), is equal to or greater than

 

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$674,000,000 (the “First Earnout Event”). Additionally, the Earnout Rights will entitle the Existing Algoma Investors to acquire up to an additional 22,500,000 Algoma Common Shares in connection with the First Earnout Event if Earnout Adjusted EBITDA exceeds $674,000,000, as follows: (x) a percentage (not to exceed 100.0%) of 7,500,000 additional Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $674,000,000 and $750,000,000 (the “Second EBITDA Issuance”); (y) a percentage (not to exceed 100.0%) of 7,500,000 additional Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $750,000,000 and $825,000,000 (the “Third EBITDA Issuance”); and (z) a percentage (not to exceed 100.0%) of 7,500,000 additional Algoma Common Shares based on the linear interpolation between Earnout Adjusted EBITDA of $825,000,000 and $900,000,000 (the “Fourth EBITDA Issuance”).

(ii) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Second EBITDA Issuance, if the VWAP of Algoma Common Shares on Nasdaq or other primary stock exchange exceeds $12.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Second Earnout Event”).

(iii) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Third EBITDA Issuance, if the VWAP exceeds $15.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Third Earnout Event”).

(iv) 7,500,000 Algoma Common Shares, less the number of shares issued in connection with the Fourth EBITDA Issuance, if the VWAP exceeds $18.00 per share (as adjusted appropriately in light of any stock dividend, share capitalization, reclassification, recapitalization, split, combination, consolidation or exchange of shares, or any similar event related thereto) for 20 consecutive trading dates at any time between the Closing and the five-year anniversary of the Closing (the “Fourth Earnout Event”).

Algoma Common Shares will be issuable in connection with each Earnout Event; provided, however, the maximum number of Algoma Common Shares issuable in connection with (i) the Second EBITDA Issuance and the Second Earnout Event, together, shall be 7,500,000, (ii) the Third EBITDA Issuance and the Third Earnout Event, together, shall be 7,500,000, and (iii) the Fourth EBITDA Issuance and the Fourth Earnout Event, together, shall be 7,500,000.

Based on the current estimates of Algoma’s Earnout Adjusted EBITDA, it is currently expected that the Existing Algoma Investors will acquire all of the 37.5 million Algoma Common Shares issuable under the Earnout Rights. However, we cannot assure you that any or all of the Earnout Events will occur.

Background of the Merger

On January 19, 2021, Legato consummated its IPO and simultaneous private placement of units. Promptly following Legato’s IPO, Legato’s officers and directors contacted several investment banks, private equity firms, consulting firms, legal and accounting firms, and numerous other business relationships.

Through inbound inquiries, personal relationships of Legato’s board of directors and management, and independent third parties acting as finders, Legato reviewed dozens of possible transactions and held discussions with over 20 private companies. In connection with this review, Legato executed approximately 20 confidentiality agreements, none of which contained exclusivity, standstill, or other provisions limiting the ability of either party to seek alternate business combination transactions. Legato ultimately entered into substantial discussions with six of those companies regarding, among other things, the type and amount of consideration to be provided relative to a potential transaction. Legato ultimately issued three term sheets/letters of intent. Of these, one (the letter of intent with Algoma) was fully executed by Legato and its potential merger target. The negotiations with each of these potential merger targets are summarized below.

Negotiations with Target 1

On February 3, 2021, David D. Sgro, Legato’s Chief Executive Officer, received an email from an investment banker representing a renewable infrastructure company and a nondisclosure agreement was subsequently executed on

 

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February 7, 2021. Legato met with the target’s management team via videoconference and reviewed all aspects of its operations. Following several weeks of discussions, Legato executed and sent a letter of intent to the target on March 15, 2021. This letter of intent was not executed by the target and discussions were terminated shortly thereafter.

Negotiations with Target 2

On February 18, 2021, Brian Pratt, Legato’s Chairman, received a call from an investment banker who introduced a telecommunications infrastructure company. On February 22, 2021, Legato and the target company executed a nondisclosure agreement and discussions ensued. Mr. Sgro met with the target’s management team at their headquarters on February 24, 2021 and Mr. Pratt, Eric Rosenfeld, Legato’s Chief SPAC Officer, and John Ing, a Legato director, participated via videoconference. Following a number of discussions with the target’s management team and the review of diligence material, Legato delivered a transaction proposal to the target on March 3, 2021. After obtaining additional information and guidance from the target’s financial advisor, Legato revised, formalized and resubmitted its indication of interest on March 17, 2021. Shortly thereafter, Legato received a counterproposal from the target and Legato’s management team elected not to modify its original proposal. As a result, discussions were then terminated by the target.

Negotiations with Algoma

On January 28, 2021, a representative from Jefferies LLC (“Jefferies”), Algoma’s investment banking firm, contacted Mr. Sgro regarding a possible business combination with Legato. On February 1, 2021, Messrs. Sgro and Rosenfeld, and Adam Jaffe, Legato’s Chief Financial Officer, conducted a videoconference with representatives of Jefferies, who provided general information about Algoma on a no-name basis and its industry. The representatives of Legato indicated that they were interested in obtaining additional information regarding the company and a mutual nondisclosure agreement (“NDA”) was entered into on February 3, 2021. The NDA contained a customary trust account waiver provision pursuant to which Algoma waived any right, title, interest or claim in the Trust Account and agreed not to seek recourse against the Trust Account for any reason. Legato received a detailed presentation shortly after executing the NDA and on February 9, 2021, a meeting was held between Messrs. Sgro, Rosenfeld, Jaffe and Pratt and Gregory Monahan (a member of the Legato due diligence team), Michael McQuade (Algoma’s Chief Executive Officer), Rajat Marwah (Algoma’s Chief Financial Officer), John Naccarato (Algoma’s VP of Strategy and General Counsel) and representatives from Jefferies. On February 10, 2021, Jefferies provided additional information to Legato, including summary financial projections and comparable company data, and on February 15,, 2021, a call was held between Legato and Jefferies where valuation considerations were discussed. Between February 15, 2021 and February 23, 2021, Legato evaluated the materials provided and worked on the structure of a possible transaction between the two parties. On February 23, 2021, Messrs. Sgro, Rosenfeld, Pratt, Ing, Jaffe and Monahan participated in a conference call with representatives of Jefferies to discuss the material that had been provided and to request additional information. On February 25, 2021, Jefferies provided more detailed information regarding quarterly cash flows, detailed projections, third party research, business plans and illustrative transaction structures.

Following the meeting held on February 25, 2021 and through March 4, 2021, representatives of Legato and Jefferies communicated via email and exchanged additional clarifying information. Over this weeklong period, management of Legato refined their thoughts with regard to transaction structure and on March 4, 2021, Legato delivered a letter of intent (the “LOI”) to Algoma. The LOI proposed that Legato would complete a reverse merger with Algoma, whereby Legato would issue shares and contingent shares to the current Algoma shareholders in return for 100% of the equity of Algoma. The LOI further stipulated that the proposed equity consideration for the transaction would consist of $750,000,000 of Legato Common Stock at closing (priced at $10.00 per share) and up to an additional $150,000,000 of stock-based contingent consideration. The contingent consideration was based on the attainment of calendar year 2021 Further Adjusted EBITDA of $674,000,000 and calendar year 2022 Further Adjusted EBITDA of $590,000,000, with the contingent consideration to be divided equally between the two targets. Further, the LOI noted that the parties would work collaboratively to raise $100,000,000 in PIPE financing prior to the execution of a merger agreement. The LOI also called for 5% of the shares outstanding at closing to be allocated for an employee stock option/RSU plan and that the continuing board of directors would be made up of three Legato appointees, who were determined by Legato’s management team and Chairman of the Board, and five Algoma appointees. On March 6, 2021, Messrs. Sgro, Rosenfeld and Monahan held a conference call with Jefferies in order to clarify certain provisions contained in the LOI.

 

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On March 13, 2021 and March 14, 2021, Messrs. Sgro and Rosenfeld held conference calls with representatives of Jefferies to discuss Algoma’s response to the LOI. The primary areas of focus in these conversations were the amount and structure of the contingent consideration, the lock-up provision and the impact of dilution. As a result of these discussions, Legato elected to amend the contingent consideration by removing the 2022 Further Adjusted EBITDA target, adding the consideration associated with the former 2022 Further Adjusted EBITDA target to the 2021 Further Adjusted EBITDA target and adding an additional $150,000,000 of stock based contingent consideration (15,000,000 shares of Legato Common Stock) in three equal $50,000,000 (5,000,000 share) tranches. The contingent consideration would be earned based on Legato Common Stock trading at prices of $12.00, $15.00 and $18.00 per share for 20 out of 30 trading days within five years of the Closing. From March 14, 2021 through March 19, 2021, representatives of Legato and Jefferies discussed various transaction terms, including the terms of an exclusivity agreement, and on March 19, 2021, Legato submitted an amended letter of intent (the “First Amended LOI”). The substantive changes from the LOI to the First Amended LOI were the movement of $75,000,000 of contingent consideration from a calendar year 2022 Further Adjusted EBITDA target to the calendar year 2021 Further Adjusted EBITDA target and the addition of the aforementioned $150,000,000 stock price based contingent consideration targets.

On March 19, 2021, management of Legato provided information to its board of directors with regard to the Algoma transaction as well as the other two targets referred to above that letters of intent had been sent to and on March 22, 2021, Legato’s board of directors met to discuss each of these potential transactions. Given the attractiveness of the valuation and the fit with Legato’s stated objectives, Legato’s board of directors concluded that the transaction with Algoma should be prioritized and authorized the management team to execute an updated letter of intent (the “Second Amended LOI”) with Algoma. The Second Amended LOI, which was forwarded to Algoma on March 22, 2021, made minor adjustments to the exclusivity provision and included a provision that both sides would work collaboratively to find the most efficient structure for the transaction. The Second Amended LOI was executed by Algoma on March 23, 2021, and a 30-day exclusivity period on Algoma’s part, commenced.

On March 24, 2021, Legato engaged Graubard Miller, Legato’s outside counsel, to assist Legato with legal due diligence and to prepare legal and regulatory documents related to the potential transaction with Algoma. The Algoma team granted the Legato team access to the data room on March 24, 2021 and Legato forwarded a comprehensive due diligence request list to Jefferies on March 26, 2021. On March 24, 2021, Legato’s management team contacted Cassel Salpeter, an investment banking company, regarding its ability and willingness to provide a fairness opinion to Legato’s board of directors with respect to the potential transaction with Algoma. Legato retained a steel industry expert on March 26, 2021 to help Legato’s management team asses both Algoma’s current operations and its proposed plan to transition from traditional blast furnace steelmaking to EAF steelmaking.

On March 29, 2021, Legato signed an engagement letter with Cassel Salpeter. to render to the Legato board of directors an opinion as to the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement, and whether the target had a fair market value equal to at least 80% of the balance in the Trust Account.

On March 31, 2021, Legato and Algoma executed Amendment No. 1 to the NDA dated February 3, 2021. This amendment facilitated the transfer of confidential information to Legato’s outside advisors. On March 31, 2021, Mr. Rosenfeld contacted McCarthy Tetrault LLP (“McCarthy”), a Canadian law firm, to assist Legato with its environmental due diligence of Algoma. Messrs. Rosenfeld and Sgro had several conversations with representatives from McCarthy over the ensuing weeks and on April 23, 2021, Legato formally retained McCarthy to review Algoma’s framework agreement with the Province of Ontario concerning legacy environmental issues at the main site works in Sault Ste Marie.

On April 1, 2021, representatives of Legato, Algoma and Jefferies held a video conference to review the PIPE process and to discuss the investor presentation. In conjunction with this meeting, Jefferies forwarded a draft of the PIPE investor presentation to Legato. Legato and its advisors reviewed the presentation over the following three days and provided suggested changes during a videoconference held on April 5, 2021. Further refinements were made and representatives of Legato, Algoma, Jefferies and EBC, the representative of the underwriters of Legato’s IPO, held another call on April 6, 2021 to discuss the presentation materials.

On April 6, 2021, Legato retained a Canadian pension specialist to help Legato review the plan assumptions for reasonableness and to identify pension related issues.

 

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On April 7, 2021, representatives of Legato, Algoma and Jefferies held a videoconference to finalize the PIPE presentation. On April 8, 2021, pursuant to the underwriting agreement between EBC and Legato, EBC was retained as the placement agent for the PIPE transaction. The engagement letter between EBC and Legato allowed Legato to retain Maison Placements Canada, an investment firm affiliated with Legato director John Ing, to assist in the placement of the PIPE. Pursuant to the EBC engagement letter, EBC would be entitled to a cash placement fee, conditioned upon the Closing, of up to 3% of the aggregate PIPE Investment (not including proceeds with respect to certain investors introduced by Algoma, Legato, and Maison Placements Canada), with a minimum guaranteed payment of 1.05% of the gross proceeds paid by all PIPE Investors at Closing. Pursuant to the engagement letter with Maison Placements Canada, Maison Placements Canada would be entitled to a cash placement fee, conditioned upon the Closing, with respect to the PIPE Investors introduced by it, provided that the sum of the fees payable to EBC and Maison Placements Canada will not exceed 3% of the proceeds of the PIPE Investment. On April 8, 2021, Legato and Algoma hosted a “teach-in” for the EBC salesforce.    

From April 7, 2021 to April 26, 2021, representatives of Algoma, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Algoma’s counsel (“Paul, Weiss”), and Goodmans LLP, Algoma’s Canadian counsel, along with EBC and Graubard Miller, prepared the PIPE subscription agreement and established “wall-crossing” procedures by which EBC or Maison Placements Canada would share confidential information with potential investors and such potential investors would agree not to disclose any such information to the public for a period of time. Amendments to the structure of the PIPE subscription agreement were made thereafter, but the financial terms of the PIPE remained consistent.

On April 9, 2021, Legato held a meeting of its board of directors to review Legato’s progress on the transaction with Algoma and to review other deal flow. Following a thorough review and an opportunity for open discussion, the board encouraged Legato’s management team to continue to focus on the transaction with Algoma.

During the week of April 12, 2021, and extending through the week of May 17, 2021, representatives of Legato, Algoma, EBC and Maison Placements held video conference calls to discuss the proposed PIPE transaction with a certain selected group of wall-crossed investors who agreed to be subject to certain confidentiality and other restrictions in order to gain access to information related to the proposed PIPE transaction. The PIPE Subscription Agreement was made available to interested investors beginning on April 27, 2021, and from May 10, 2021 through May 20, 2021, Legato and Algoma received subscriptions for $100 million of committed PIPE financing at $10.00 per share prior to the signing of the definitive merger agreement.

The subscription price of the PIPE was set at $10.00 per share as this price represented the expected amount of cash per share that a holder of Public Shares could expect to receive if such holder elected to redeem its Public Shares in connection with the business combination. Holders of Public Shares will have the option of retaining their Public Shares through the closing of the business combination or redeeming such shares for approximately $10.00. As such, Legato believed that this was the appropriate price at which the PIPE Shares should be priced.

A first draft of the Merger Agreement was sent from Paul, Weiss to Graubard Miller on April 14, 2021. Consistent with the Second Amended LOI, the proposed transaction structure differed from what had been contemplated by the LOI in that it contemplated that Algoma would issue shares to Legato and be the surviving company of the merger.    

On April 15, 2021, Messrs. Sgro and Rosenfeld contacted employees of BMO Capital Markets (“BMO”) to gauge their interest in participating in the de-SPACing process. Messrs. Sgro and Rosenfeld offered to compensate BMO through a $2.7 million carve out from EBC’s business combination marketing fee that Legato is permitted to allocate to other financial advisors pursuant to the terms of the underwriting agreement entered into by Legato and EBC, as representative of the several underwriters of Legato’s IPO. BMO executed a nondisclosure agreement with Legato on April 19, 2021, and later that day, representatives from BMO and Legato held a conference call to discuss the proposed transaction. Numerous discussions were held between the parties over subsequent days and on April 26, 2021, BMO hosted a business update call with Algoma’s management team. BMO presented Legato with a draft engagement letter on April 26, 2021, which was negotiated over the following four weeks and executed on May 21, 2021. The executed engagement letter provides that BMO will assist Legato in the de-SPACing process and receive a fee of $2.7 million, payable from the business combination marketing fee and conditioned on the closing of the transaction.

On April 16, 2021, Algoma hosted a virtual site tour for Legato’s representatives since Canadian travel restrictions due to the COVID-19 pandemic prevented an in-person site tour. The tour, which was hosted by John

 

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Naccarato and Mark Nogalo (Algoma’s Vice President of Maintenance and Operating Services), and included the Company’s on-site power plant, docks, coke batteries, blast furnace, plate mill and direct strip production center. The tour was followed by a discussion between Legato’s management, Legato’s steel consultant and Algoma’s management team. Topics of discussion included the current steelmaking operations, the anticipated transition to electric arc furnace steelmaking, current and future lines of business and current and anticipated power availability.

On April 21, 2021, representatives of Legato, Algoma and Jefferies conducted diligence videoconferences to review the sales and marketing organization and the status of financing discussions regarding the possible electric arc furnace conversion. On April 22, 2021, representatives of Legato, Algoma and Jefferies conducted diligence videoconferences to review steelmaking operations, the potential electric arc furnace conversion, labor relations and union contracts, supplier agreements, the financial model and deferred tax assets.

Graubard Miller sent the first revised draft of the proposed Merger Agreement between Legato and Algoma to Paul, Weiss on April 22, 2021. The revised draft included revisions to each party’s representations and warranties, and revisions with respect to the process for issuing of the earnout and deleted the minimum cash condition, among other things. On April 23, 2021, Legato received reports from its pension actuarial consultant and technical steel industry consultant.

On April 24, 2021, representatives of Algoma and Jefferies forwarded updated financial information to Legato, including an updated net debt position and updated projections. Algoma’s updated financial information demonstrated approximately $80 million less net debt and substantively increased projections for calendar year 2021. Algoma therefore proposed that Legato provide additional stock based contingent consideration as part of the transaction. In addition, Algoma proposed that Legato add EBITDA targets to the previously agreed upon stock price contingent consideration targets. After negotiation, Legato agreed to add $25 million of stock based contingent consideration to each of the three stock price targets of $12, $15 and $18 per share for additional total possible contingent consideration of $75 million. Further, Legato agreed to amend these stock price targets to include the possibility that they could be achieved if Algoma achieved Earnout Adjusted EBITDA of $750 million for the $12 target, $825 million for the $15 target and $900 million for the $18 target. These changes, along with the addition of a $200 million minimum cash closing condition, a revised structure whereby Legato would be acquired by a parent company of Algoma and an extension of exclusivity through May 7, 2021, were revised by an amendment to the Second Amended LOI (the “Third Amended LOI”), which was executed on April 25, 2021.

On April 29, 2021, Paul, Weiss sent a further revised draft of the Merger Agreement to Graubard Miller. Among other items, this draft contained updates to the contingent consideration structure and closing conditions to reflect the changes made in the Third Amended LOI.

On May 3, 2021, Mr. Sgro provided Algoma with a draft press release that could be used as a model for the announcement of the transaction.

On May 4, 2021, representatives of Legato, Algoma, Paul, Weiss, Graubard Miller, and Jefferies held a videoconference to discuss the outstanding business items in the Merger Agreement. The discussion included the definition of EBITDA, filing fees, the impact of transaction costs on the minimum cash closing condition, termination, reps and warranties and board composition. With regard to board composition, the parties agreed that the board would be composed of three Legato representatives and six Algoma representatives at the Closing and that the parities would collectively work to identify one additional board member who could be appointed prior to or after the Closing. The resolution of these items were reflected in the revised draft merger agreement sent from Graubard Miller to Paul, Weiss later in the day. On May 4, 2021, Legato received initial drafts of a lock-up agreement and Legato founder support agreement from Paul, Weiss. Also on May 4, 2021, Algoma provided Legato with a draft of its financial statements for its fiscal year ending March 31, 2021 and Algoma’s CFO, Rajat Marwah, answered certain questions regarding Algoma’s financial model and provided Legato with executive employment agreements and documents regarding board composition.

In conjunction with the pending expiration of exclusivity, Legato forwarded to Jefferies an update on the progress of the PIPE financing and Legato’s due diligence of Algoma on May 6, 2021. Legato noted that much of its diligence was complete and that it would be in a position to execute a merger agreement in the near term, subject to acceptable PIPE funding and Legato’s board approval. Algoma, which had been in exclusivity with Legato since the LOI was

 

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executed, asked for mutual exclusivity with an extension of the Third Amended LOI. Also on May 6, 2021, Graubard Miller received a further revised draft of the Merger Agreement from Paul, Weiss.

On May 7, 2021, Algoma and Legato executed an amendment to the Third Amended LOI (the “Fourth Amended LOI”), which extended exclusivity to May 12, 2021, added a provision for mutual exclusivity and provided that Legato would update Algoma regularly with regard to the PIPE Transaction. From May 7, 2021 through the signing of the Merger Agreement, Legato provided regular updates to Algoma with regard to the PIPE transaction and refrained from any discussions with other potential merger partners.

On May 7, 2021, representatives of Legato, Algoma and Jefferies held a videoconference to review and amend the presentation that would be filed with the SEC and used for the investor conference call following the announcement of the transaction. The presentation was revised and finalized over the next two weeks.

On May 8, 2021, Legato received a draft of Cassel Salpeter’s fairness opinion and a summary of the findings from Graubard Miller’s legal due diligence review.

On May 10, 2021, Paul, Weiss provided additional feedback on the Merger Agreement, which resolved a number of outstanding items. On May 12, 2021, Paul, Weiss sent a further revised draft of the Merger Agreement to Graubard Miller.

At its regularly scheduled quarterly board meeting, which was held on May 12, 2021, Legato’s management team provided a detailed update on the Algoma transaction. Prior to the board meeting, the directors were provided with a presentation on Algoma as well as a valuation analysis prepared by Legato’s management team. Messrs. Pratt, Rosenfeld and Sgro led a discussion regarding the transaction and Mr. Sgro reviewed the multiples of comparable publicly traded North American steel producers and detailed an unlevered discounted cash flow analysis that was prepared by Legato’s management team. The board was updated on the negotiation of the Merger Agreement, progress on due diligence and progress on the PIPE transaction. Following Legato’s board meeting, Messrs. Sgro and Rosenfeld held a videoconference with Algoma’s board of directors, management team and investment bankers to discuss the PIPE transaction and the extension of exclusivity. After the meeting, Algoma provided Legato with an amendment to the Fourth Amended LOI (the “Fifth Amended LOI”), which extended mutual exclusivity through May 20, 2021. Both parties executed the Fifth Amended LOI on May 12, 2021.

On May 19, 2021, Legato’s management team received a draft fairness opinion presentation from Cassel Salpeter. On May 20, 2021, Legato’s management team provided updates to the board of directors regarding the progress of the transaction and likely timing of a board meeting and transaction announcement.

On May 20, 2021, representatives of Legato, Algoma and Jefferies held a videoconference to discuss the timing of the transaction and the process for obtaining Algoma shareholder approval for the transaction. On May 20, 2021, Legato and Algoma executed the sixth and final amendment to the LOI (the “Sixth Amended LOI”), which extended mutual exclusivity through May 26, 2021.

On May 22, 2021, representatives of Algoma and Legato discussed the updated accounting treatment for Legato’s outstanding warrants and Legato provided Algoma with an accounting treatment memo and warrant valuation analysis, which were both prepared by independent third parties.

On May 24, 2021, Legato’s board of directors held another videoconference board meeting. David D. Sgro, Brian Pratt, John Ing, Ryan Hummer, Blair Baker, Adam Semler and Craig Martin, representing Legato’s entire board of directors, were present at the meeting. In addition, the following invited individuals were also present: Eric S. Rosenfeld and Adam Jaffe, executive officers of Legato, representatives of Cassel Salpeter, and representatives of Graubard Miller. Prior to the meeting, copies of the then most recent drafts of the significant transaction documents, including the Merger Agreement and draft fairness opinion, were delivered to the directors. Mr. Sgro noted that Legato’s Chairman, Bran Pratt, had a potential perceived conflict of interest as he was an investor in the PIPE transaction. In addition, he noted that John Ing, had a potential perceived conflicts of interest as he was an investor in the PIPE transaction and his firm, Maison Placements Canada, served as an agent in the PIPE transaction and would earn a fee if the transaction were to close. Legato’s board was also aware that Legato’s directors and officers have interests in the business combination that may be different from, or in addition to, the interests of Legato’s stockholders

 

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(which interests are summarized in the section entitled “– Interests of Legato’s Directors and Officers in the Merger”) but did not believe that such interests would preclude the board from recommending the business combination to Legato’s stockholders. Mr. Sgro updated the board on the status of the transaction. At the request of the Legato board, Cassel Salpeter then reviewed and discussed its financial analyses with respect to Legato, Algoma and the proposed merger. Thereafter, Cassel Salpeter rendered its oral opinion to the Legato board of directors (which was confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to (i) the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement and (ii) whether Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account. After considerable review and discussion, including consideration of the opinion of Cassel Salpeter and the factors described below under “– The Legato Board of Directors’ Reasons for Approval of the Merger” and “– Interests of Legato’s Directors and Officers in the Merger,” the Merger Agreement and related documents were unanimously approved (with both Brian Pratt and John Ing abstaining due to the aforementioned potential perceived conflicts), and the board of directors determined to recommend the approval of the Merger Agreement and each other related proposal to Legato’s stockholders. The Legato board also authorized Legato’s management team to execute the Merger Agreement and PIPE documents and to prepare and file a merger press release, Form 8-K and an F-4 registration statement and to do all things necessary for the completion of the Merger.

On May 24, 2021, Algoma’s sole shareholder and the equityholders of Algoma’s ultimate parent company with requisite ownership approved the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement and related agreements.

The Merger Agreement was signed after the market close on May 24, 2021, and Legato and Algoma issued a joint press release announcing the execution of the Merger Agreement and summarizing the material terms thereof. Prior to the market open on May 25, 2021, Legato filed a Current Report on Form 8-K, which included the press release, the Merger Agreement, an investor presentation and related exhibits.

On May 25, 2021, Legato and Algoma held a joint conference call for investors. Topics of discussion included the salient terms of the proposed transaction, key investment considerations and a discussion of Algoma’s current and prospective business. No questions were taken on the call. Speakers on the call were David Sgro and Michael McQuade.

Algoma’s Reasons for the Approval of the Merger

Algoma’s reason for the Merger include that the Merger provides Algoma with a means to become a public company, which will provide Algoma with access to capital to partially fund its proposed transformation to EAF steelmaking.

The Legato Board of Directors’ Reasons for the Approval of the Merger

Legato’s board of directors and financial advisor reviewed various industry and financial data in order to determine that the consideration to be paid was reasonable and that the Merger was in the best interests of Legato’s stockholders. Specifically, Legato’s board of directors and financial advisor reviewed Algoma’s operations, Algoma’s potential conversion to EAF steelmaking, Algoma’s historical and projected financial statements, comparable publicly traded company analyses, an unlevered discounted cash flow analysis of Algoma prepared by Legato’s management team, an analysis of pro forma capital structure and trading multiple, and the financial analyses of Algoma prepared by Cassel Salpeter.

Legato conducted a due diligence review of Algoma that included: (i) a review of historical and projected financial statements, (ii) retention of an independent third party steel industry expert engaged to study Algoma’s current steelmaking operations and potential EAF conversion, (iii) retention of an independent third party Canadian pension expert engaged to review Algoma’s pension obligations, (iv) retention of an independent third party Canadian law firm to review Algoma’s environmental framework agreement with the Province of Ontario, (v) retention of Graubard Miller to conduct legal due diligence, (vi) an analysis of Algoma’s management team; (vii) a virtual facilities tour and (viii) a valuation analysis to enable Legato’s board of directors to ascertain the reasonableness of the merger consideration. During its negotiations with Algoma, Legato did not receive services from any financial advisor to assist

 

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it in determining what consideration to offer to Algoma because Legato’s officers and directors believed that their experience and backgrounds were sufficient to enable them to make the necessary analyses and determinations.

Legato’s management has extensive and diverse experience in both operational management, investment analyses and financial management and, in Legato’s opinion, management was suitably qualified to conduct the due diligence and other investigations and analyses required in connection with Legato’s search for a merger target. David D. Sgro, Legato’s Chief Executive Officer, has served as an executive officer of several special purpose acquisition companies, including as the Chief Operating Officer and Chairman of Allegro Merger Corp the Chief Operating Officer of Harmony Merger Corp, the Chief Financial Officer of Quartet Merger Corp., Trio Merger Corp. and Rhapsody Acquisition Corp., and as part of the deal team for Arpeggio Acquisition Corp. In addition, Mr. Sgro has extensive experience as a private company valuation analyst, an investment analyst, an investment banker and has served on 14 public company boards in the United States and Canada. Eric S. Rosenfeld, Legato’s Chief SPAC Officer, served as the Chief Executive Officer of Arpeggio Acquisition Corp., Rhapsody Acquisition Corp., Trio Merger Corp., Quartet Merger Corp., Harmony Merger Corp. and Allegro Merger Corp., six special purpose acquisition companies, five of which completed business combinations. In addition, Mr. Rosenfeld has been a board member of over 20 other public companies in various industries, in addition to having extensive experience in the investment industry and as a private investor. More detailed descriptions of the experience of Legato’s executive officers are included in the section of this proxy statement titled “Other Information Related to Legato – Directors, Executive Officers.”

Additionally, Legato’s board of directors has extensive experience in investing, investment banking and operational management, which Legato believes made them well qualified to oversee the due diligence efforts undertaken by Legato’s management and evaluate the merits of the business combination with Algoma. Legato’s Chairman, Brian Pratt, spent over 30 years as the Chief Executive Officer of Primoris Services Corp., a company which he took public through a merger with Rhapsody Acquisition Corp. in 2008. As a result of his experience managing a union work force focused on building industrial facilities, completing dozens of acquisitions, as well as his knowledge of the SPAC market, Legato believes that Mr. Pratt was well positioned to oversee the management team and participate in the diligence process. Craig Martin’s experience as the CEO of Jacobs Engineering, a publicly traded engineering firm that made several acquisitions during his tenure, gives him both operating and acquisition experience. John Ing has a background in investment banking and is currently the President of Maison Placements Canada, which is a Canadian investment bank focused on the metals and mining sectors and which served as a placement agent in the PIPE Financing. Ryan Hummer has a background in public equities investing and a thorough understanding of the diligence process. Blair Baker has been the Managing Partner at the investment firm he founded 23 years ago and is well versed in public equity investing. Adam Semler began his career as an accountant, specializing in the financial services industry and later moved into investment management. Mr. Semler spent the last 16 years of his career with an investment fund where he held numerous positions, including Chief Financial Officer and Chief Operating Officer. Mr. Semler has also served on the board of two other SPACs. More detailed descriptions of the experience of Legato’s board of directors are included in the section of this proxy statement titled “Other Information Related to Legato – Directors, Executive Officers.”

The Legato board of directors concluded that Merger with Algoma was in the best interests of Legato’s stockholders. In considering the Merger, Legato’s board of directors gave considerable weight to the factors listed below; however, in light of the number and complexity of the factors considered, Legato’s board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision. In addition, individual members of the Legato board of directors may have given different weight to different factors.

The Experience of Algoma’s Management

Legato’s board of directors considered the strength and industry experience of Algoma’s management team. Algoma’s management team is made up of seasoned leaders with experience both inside and outside of the steel industry. Algoma’s executive officers have nearly 200 years of aggregate experience in the industry.

Algoma’s CEO, Michael McQuade, has over 35 years of steel industry experience, with much of that time spent in finance and operational roles at Stelco, a comparably sized Canadian integrated steel producer. Mr. McQuade’s tenure at Stelco ended in 2018, when he stepped down as the company’s President. He began his time with Algoma in 2018 as a member of the company’s board of directors, but he was asked to take the CEO role shortly thereafter. Rajat Marwah,

 

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Algoma’s Chief Financial Officer, is a chartered accountant who has spent the last 12 years at Algoma. Mr. Marwah previously held roles in Arcelor Mittal’s European operations. John Naccarato, Algoma’s General Counsel and VP of Strategy, is both a lawyer and an engineer by education. Mr. Naccarato previously spent time with Dofasco, another large Canadian steel producer, and an industrial construction company.

Since emerging from CCAA protection in the fall of 2018, the management team has worked to increase production capacity and cut operating costs. The management team has de-bottlenecked production and in the winter of 2021, they brought on line a newly commissioned ladle metallurgy facility (LMF 2), which will better align downstream production with Algoma’s liquid steelmaking capacity. It is estimated that this addition will add approximately 100 kilotons of finished steelmaking capacity, which is projected to increase Adjusted EBITDA by approximately $25 million annually through the steel cycle. The management team has also worked to reduce costs through labor attrition and improved maintenance operations, which has resulted in lower use of third-party contractors and should save approximately $44 million on an annualized basis (equal to approximately 4.3% of Algoma’s annual cost of goods sold). The management team is also in the process of upgrading Algoma’s plate mill, which will expand production capacity of steel plate, an end product which typically achieves a premium price relative to the index. This modernization is expected to add approximately $35 million to annualized Adjusted EBITDA through the cycle. Further, the management team has worked for over a year to put in place plans to move to EAF steelmaking, which has the potential to further reduce costs, increase production capacity and deliver a 70% reduction in aggregate CO2 emissions at current production levels.

Due to their depth of experience both inside and outside of Algoma and inside and outside of the steel industry as well as the cost cutting and productivity enhancement initiatives they have executed, Legato’s board of directors believes that Algoma’s management team is well positioned to execute on Algoma’s strategic initiatives and is viewed as a positive investment attribute.

Possible EAF Conversion

Legato’s board of directors reviewed Algoma’s strategy to convert its operations from traditional blast furnace steelmaking to EAF steelmaking, although a final investment decision had not yet been made by Algoma. Algoma’s management estimates that the conversion to EAF steelmaking will cost approximately $500 million and will yield both an increase in steelmaking capacity and a reduction in both operating costs and maintenance capital expenditures. In addition, the use of EAF steelmaking has the potential to decrease the variability of results as the primary raw material, scrap steel, is highly correlated with HRC prices, whereas Algoma’s current raw materials, such as coal, iron ore and limestone are not highly correlated with hot rolled coil (“HRC”) prices. Algoma’s management team believes that the conversion to EAF steelmaking will result in a 70% reduction in aggregate CO2 emissions at current production levels. Finally, given normalized HRC prices of $685, Algoma’s management believes that the conversion to EAF steelmaking will add approximately $150 million to annualized Adjusted EBITDA due to increased production capacity and reduced costs. In addition, the conversion has the potential to decrease maintenance capital expenditures.

Legato retained an independent third-party consultant in the steelmaking industry to review Algoma’s current operations as well as the potential to convert its facilities. The consultant reviewed the risks and benefits of such plans with Legato’s board of directors and noted that Algoma’s estimates with regard to both the cost to install the EAF as well as the associated costs saving estimates appear reasonable. It should be noted that the conversion to EAF steelmaking is a significant capital investment and there are risks of cost overruns, project delays, power supply issues, or performance that does not meet expectations. As such, Legato’s board of directors weighed both the risks and possible rewards of the conversion and concluded that the potential benefits outweigh the risks and the project has the potential to result in significant value creation for Legato’s stockholders.

Current Environment for Steel and Infrastructure Tailwinds

When Legato’s board of directors and management team established Legato, it decided to target the Engineering and Construction, Infrastructure, Industrial and Renewables industries because it wanted its business combination partner to be positioned to take advantage of North American infrastructure spending. The Biden Administration had proposed an infrastructure package that aimed to, among other things, “fix highways, rebuild bridges, and upgrade ports, airports and transit systems.” The plan further called for repairs to 20,000 miles of roads and 10,000 bridges. Legato believed that this proposed spending has the potential to positively impact general demand in the steel industry for the next several years. While there was and is no assurance that the U.S. Congress will pass the proposed

 

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infrastructure package or appropriate the expected level of funding, Legato’s board viewed the proposal as a positive factor.

In addition to the steel demand that Legato believes will result from proposed increased infrastructure spending, the current supply and demand environment has led to steel prices reaching their highest levels ever in June of 2021, with North American HRC, a standard measure of steel pricing, topping $1,600 per ton. The current pricing environment has resulted from robust demand in the North American market coupled with supply shortages resulting from COVID-related shutdowns, tariffs on foreign steel producers, robust prices for steel in overseas markets, high shipping costs and consolidation in the steel manufacturing industry. While more HRC supply is expected to come online in the next 12 months, which may abate some supply constraints, HRC futures point to robust steel prices well into 2022. With HRC prices above $1,500 per ton, Algoma has the potential to generate over $2.0 billion of Adjusted EBITDA on an annualized basis. Given significant net operating loss carryforwards, a corporate tax rate of 25%, maintenance capital expenditures of approximately $50 million, losses on hedges and smaller outflows for pension and environmental liabilities, the Legato board of directors believes Algoma has the potential to generate $600 million of free cash flow prior to working capital changes and growth capital expenditures from March 31, 2021 to December 31, 2021. These above average free cash flows could be used to de-lever Algoma’s balance sheet, fund value enhancing capital projects or pay a dividend to shareholders. While there can be no assurance as to the level of free cash flow that may be generated in future periods, or that Algoma will use such funds for any particular purpose, Legato’s board and management team views the current steel pricing environment and the cash flow that it is likely to generate as an attractive investment attribute. In addition, it views the likely increase in demand resulting from the proposed North American infrastructure spending as a factor that is likely to sustain higher steel prices and thus free cash flows.

Free Cash Flow Potential

Legato’s board of directors considered Algoma’s ability to generate free cash flow. Legato’s board considers free cash flow generation to be of paramount importance because of the weight investors place on the present value of future free cash flows. In addition, Legato’s board believes that free cash flow generation is essential in order to pay down debt and/or pay dividends to shareholders. Given the cyclical nature of the steel industry, Legato’s board studied both Algoma’s current free cash flow generating capacity as well as its normalized free cash flow generating capacity.

As discussed in the “Current Environment for Steel and Infrastructure Tailwinds” section above, North American HRC prices recently hit an all-time high of over $1,600 per ton, which is more than triple the lows reached during the COVID pandemic and more than double historical average prices. Based on Algoma management’s estimates, Algoma has the potential to generate $600 million of free cash flow, before discretionary capital spending on the conversion to EAF steelmaking and working capital adjustments, for the nine months ending December 31, 2021. This cash flow would reduce the pro forma enterprise value of the combined company by 35%, from $1.7 billion to $1.1 billion. While Legato’s board does not anticipate that this level of free cash flow is sustainable indefinitely, it believes that this period of excess free cash flow has the potential to create significant value for shareholders.

With the help of Algoma’s management team, Legato’s board also studied the normalized free cash flow generation capacity of Algoma’s business. In order to estimate normalized free cash flows, Legato’s board looked at Algoma’s historical free cash flows through a steel pricing cycle (“through the cycle”). Legato believes that a three-year average that excludes the global pandemic is representative of normalized steel prices and profitability. For the fiscal years ended March 31, 2018 through March 31, 2020, HRC prices averaged $685 and Algoma generated average Further Adjusted EBITDA of $245 million per annum. In order to determine how that translates to future normalized cash flows, Legato added to Adjusted EBITDA certain profit enhancement initiatives and volume enhancement initiatives that were completed subsequent to the 2018 to 2020 measurement period, as well as additional Adjusted EBITDA anticipated from the plate mill modernization, which is underway, and the EAF conversion, which is still in the planning stage. From this total Legato subtracted additional profit sharing payments that would be made to employees as a result of these Adjusted EBITDA enhancements. As a result of the forgoing, Legato estimated that Algoma had Further Adjusted EBITDA generating capacity of $460 million. From this Further Adjusted EBITDA, Legato subtracted maintenance capital expenditures and taxes and other cash payments not included in Adjusted EBITDA to arrive at normalized unlevered free cash flow of $290 million per year. Given an enterprise value of $1.7 billion, which includes all contingent consideration and excludes any cash expected to be generated in the current period of excess returns, the resulting projected free cash flow yield is 17%.

 

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Legato’s board of directors placed significant emphasis on Algoma’s current free cash flow generating capacity as well as Algoma’s ability to generate normalized free cash flow yields in the mid to high teens. Legato’s board of directors viewed this projected cash flow generating capacity, relative to the transaction value, as extremely attractive and believes that these cash flows have the potential to create significant value for Legato’s stockholders.

Competitive Dynamics (Low Cost Provider)

Legato’s board of directors considered the industry in which Algoma competes and Algoma’s competitive positioning within that industry. Algoma operates in a highly commoditized industry where production costs are a critical determinant of profitability and sustainability. Algoma has a number of competitive advantages that result in a lower cost structure than many of its North American peers.

Algoma is the only integrated steel producer in North America to operate a DSPC that converts liquid steel directly into strip in a continuous process. The DSPC process is more efficient than the typical process of casting slabs which are allowed to cool and then reheating them prior to rolling into strip form. As a result, Algoma can save on labor associated with moving the slabs, carrying costs of inventory for the cooled slabs, yield loss associated with re-heating and energy costs associated with re-heating. Algoma believes that these cost advantages result in a production cost that is $30 and $40 per ton lower than peers using more traditional processes.

In 2018, Algoma re-established its control of the port of Algoma as a means to receive critical inbound raw materials and outbound shipment of finished goods. These on-site port facilities enable access to low-cost water transportation across the Great Lakes. Since barge shipping is the cheapest form of transportation, Algoma can save considerably on both inbound and outbound shipping as compared to truck and rail freight options. In addition, Algoma’s position on the Great Lakes makes it the first stop for iron ore shipments, which gives it a relative cost advantage and positions Algoma well to take advantage of the scrap markets of Chicago, Detroit and Southern Ontario if it converts to EAF steelmaking.

Legato’s board of directors viewed the high cost of capital required to enter the steelmaking market as a positive factor with regard to competitive entry. However, this barrier to entry is negated by global steelmaking capacity that typically outstrips demand. As such, the cost of production is an important factor. Legato’s board studied Algoma’s competitive cost position relative to other producers as measured by production costs per ton of output and by Adjusted EBITDA margins. As discussed above, Algoma draws cost advantages from its DSPC facility and location on the Great Lakes. Legato’s board of directors concluded that, relative to its North American peers, Algoma appears to have a cost per ton in the lowest quartile and Adjusted EBITDA margins across the cycle that are among the highest in the industry. The intensely competitive nature of the industry was a negative factor in the eyes of Legato’s directors; however, Algoma’s competitive position within the industry was viewed positively on a relative basis.

Customer Relationships

Legato’s board of directors considered Algoma’s customer base and relationships. Algoma has a longstanding reputation in the steel industry that dates back to its founding in 1901. The average tenure for Algoma’s top ten customers, which represented approximately 52% of sales in the latest fiscal year, is 20-25 years. Algoma serves customers in a variety of industries, including automotive, construction and energy. In addition, Algoma sells steel products to a diverse base of over 200 customers in the United States and Canada and has no single customer that represents over 11% of sales. Algoma’s geographic, sector and customer diversity makes it less exposed than some of its competitors to demand shifts of individual customers or market sectors. Legato’s board considered Algoma’s customer base and relationships to be a positive investment attribute.

Liabilities

Recognizing the significant liabilities typically related to steelmaking operations, Legato’s board of directors focused on Algoma’s environmental and pension liabilities.

Algoma has been operating on the same site since the beginning of the twentieth century, in an industry know to have a significant environmental impact. While Algoma currently complies with tighter environmental regulations, the regulatory environment was much less stringent when Algoma commenced steelmaking operations. As such, the potential for substantive environmental liabilities exists on Algoma’s property. However, in association with Algoma’s

 

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restructuring and emergence from CCAA protection in 2018, Algoma executed a Framework Agreement Concerning Environmental Issues with the MECP. Pursuant to the framework agreement, the MECP agreed that during the LEAP Term, as long as Algoma is complying with its obligations under the agreement, the MECP shall not order or otherwise require Algoma or any of its subsidiaries to take any action or to incur any costs in respect of legacy environmental contamination. Further, the MECP provided a release in favor of all current and future directors and officers of Algoma and its subsidiaries from any obligations under applicable environmental laws relating to legacy environmental issues at Algoma’s Sault Ste. Marie site with respect to the historical soil, groundwater and sediment contamination. Pursuant to the agreement, Algoma agreed to fund C$3.8 million per year for 20 years to a financial assurance fund, established to fund environmental projects on the site. Additionally, Algoma was released from all legacy environmental issues with respect to the historical soil, groundwater and sediment contamination at Old Steelco’s closed iron ore mines, which Algoma does not presently own. Algoma agreed, among other things, to pay $10 million in installments of $250,000 semi-annually to be used to rehabilitate these closed iron ore mines and provided a $3.5 million letter of credit to provide financial assurance for these obligations.

Similar to many other unionized steel producing companies, Algoma has accumulated substantial pension and other post-retirement benefit obligations. Algoma has a total of approximately $1.5 billion in funded pension liabilities for hourly and salaried employees (past and present) and an additional $60 million of unfunded liabilities under the Wrap Regulations. As of March 1, 2021, the funded plans were greater than 85% funded on an actuarial basis and nearly fully funded on a going concern basis. As part of Algoma’s emergence from CCAA protection, Algoma was granted some relief from funding requirements and has an annual C$31 million cap on excess pension contributions, which moves down to C$2 million once the plans are 85% funded on an actuarial basis. As the plans are now 85% funded on an actuarial basis, these smaller contributions will apply for the upcoming year. In addition, funding for the Wrap Plan is capped annually at C$5 million. As such, the Legato board of directors believed that the additional cash requirements for underfunded pension plans are not overly burdensome.

Given their potential impact on Algoma’s free cash flow generating capacity, Legato’s board of directors considered Algoma’s environmental and pension liabilities and the cash flow required to service these liabilities. The limitations on environmental liabilities established by the Framework Agreement Concerning Environmental Issues with the MECP was considered to be a significant positive factor, particularly when Algoma is compared to similar steelmaking operations without such a favorable environmental liability provision. Legato’s board of directors also reviewed Algoma’s pension liabilities and determined that while the underfunded pension liabilities were a negative factor, these liabilities were generally not dissimilar from other similarly situated steel producers and the provisions for funding relief were generally viewed favorably.

Diversification

Legato’s board of directors considered Algoma’s operational diversification. Specifically, Legato’s board of directors considered that Algoma operates from only one facility and in only one industry. Algoma operates in the commodity steel production business, which makes Algoma vulnerable to cyclical factors that affect the broader economies in the United States and Canada as well as factors that affect the steel sector in particular. The steel industry has been characterized by significant fluctuation in supply and demand and the companies that operate in this sector typically experience significant variability in earnings and free cash flow.

Algoma has attempted to mitigate this industry specific risk through the production of differentiated products within the steel industry. For example, Algoma offers steel coils in widths that are not commonly available and it is the only plate producer in Canada. Despite these diversification efforts, Algoma remains subject to broader price and volume movements in the steel industry.

Unlike some of its competitors, Algoma operates from a single blast furnace and its operations are not geographically diverse with operations only in Sault Ste. Marie, Canada. This introduces risks associated with the failure of Algoma’s No. 7 blast furnace, its only currently operational blast furnace. In the event that this blast furnace is out of operation, Algoma’s production of steel would be stalled. While there is a smaller capacity idled blast furnace (No. 6) that is in a near ready state, it would require up to 6 months and C$60 million to bring it back into service. In order to mitigate some of this risk, Algoma is currently contemplating in investment in a dual electric arc furnace, which will provide some level of redundancy to its operations; however, this equipment, if purchased and installed, will not be operational until the end of calendar year 2023, at the earliest. As such, Algoma will remain subject to this risk for the near term.

 

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Overall, Legato’s board believed that Algoma’s lack of diversification is a negative factor and considered this in determining the merger consideration.

Algoma’ Ability to Execute its Business Plan After the Merger Using its Own Available Cash Resources, since Part of the Cash Held in the Trust Account May be Used to Pay Legato’s Public Stockholders who Exercise their Conversion Rights

Legato’s board of directors considered the risk that the current Public Stockholders of Legato would request to convert their public shares for cash upon consummation of the Transactions, thereby reducing the amount of cash available to Legato following the Transactions or causing a condition under the Merger Agreement not to be met. This risk is somewhat mitigated by the $100 million PIPE that was committed prior to the execution of the Merger Agreement. Legato’s board deemed this risk to be no worse with regard to Algoma than it would be with regard to other target companies and believes that, given Algoma’s strong free cash flow generation capacity and its potential ability to fund its capital expenditures from internally generated funds, Algoma will still be able to implement its business plan, even if the full amount of the funds deposited in the Trust Account is not available to the combined company at closing.

Other Key Risks and Uncertainties

Legato’s board of directors also considered a variety of additional uncertainties, risks, and other potentially negative factors relevant to the Merger. Some of the most prominent risks considered include: foreign exchange rates, Algoma’s debt service capacity, the volatility of commodity steel prices, cost or time overruns on the EAF conversion, production capacity of the EAF facility, raw material costs, changing consumer demand, Algoma’s labor relations and union contract and worker safety. For a full list of risk factors, please see the section of this proxy statement titled “Risk Factors.” Overall, Legato’s board of directors determined that the positive aspects of the Merger outweighed the potential risk factors.

Valuation

Based on a review of comparable publicly traded companies, a discounted cash flow analysis and the board’s significant transaction experience, Legato’s board of directors agreed upon and negotiated terms which they felt were in the best interest of Legato’s stockholders. The board used the analyses described below to estimate the likely range of values at which Algoma could be expected to trade in the public market.

 

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Comparable Company Analysis

Legato’s management relied in part upon a comparable company analysis to assess the value that the public markets would likely ascribe to Algoma as a public company following the Merger. Legato’s management compiled a list of publicly traded North American steel producers that it believes are as similar as possible to Algoma, carefully considering the material differences between Algoma and such companies. Legato’s management selected 5 publicly traded companies for review and analysis and divided this comparable company set into two distinct categories: (i) electric arc furnace/mini mill steel producers (“EAF Producers”) and (ii) traditional blast furnace or integrated steel producers (“Integrated Producers”). Legato’s management considered EAF Producers to be those who predominantly operate mini mills and Integrated Producers to be those that predominantly operate blast furnaces. Legato’s management considered this to be the most distinguishing feature within the comparable company group because the EAF Producers traditionally have lower earnings volatility and tend to trade at higher multiples of EBITDA (particularly toward the top of the cycle). Legato’s management and board focused on EBITDA multiples, rather than multiples of revenue, net income or some other metric, because this is the standard measure of profitability used by investors in the steelmaking sector.

 

Company Name

   Market
Capitalization
     Net
Debt
     Enterprise
Value
     EV / LTM
Revenue
     EV / LTM
EBITDA
     EV / 2021
Est EBITDA
     EV / 2022
Est EBITDA
 

EAF Producers

                    

Steel Dynamics, Inc.

   $ 12,998      $ 1,852      $ 14,857        1.4x        9.8x        4.7x        8.2x  

Nucor Corporation

   $ 30,562      $ 2,550      $ 33,526        1.6x        10.1x        5.3x        8.9x  

EAF Producer Median

   $ 21,780      $ 2,201      $ 24,191        1.5x        10.0x        5.0x        8.6x  

Integrated Producers

                    

Cleveland-Cliffs Inc.

   $ 9,019      $ 5,624      $ 15,711        1.7x        16.0x        3.7x        6.1x  

United States Steel Corp.

   $ 6,458      $ 5,298      $ 11,849        1.1x        25.6x        3.4x        6.7x  

Stelco Holdings Inc.

   $ 2,468      $ 371      $ 2,839        2.0x        24.5x        2.4x        5.9x  

Integrated Producer Median

   $ 6,458      $ 5,298      $ 11,849        1.7x        24.5x        3.4x        6.1x  

Overall Median

   $ 9,019      $ 2,550      $ 14,857        1.6x        16.0x        3.7x        6.7x  

Source: CapitalIQ data as of May 21, 2021.

Despite the similar nature of each of the above companies, there are several relevant differences that Legato’s board considered. As noted above, Legato’s board believes that the EAF Producers have less earnings volatility as their primary raw material, scrap steel, is more highly correlated to the market price for finished steel than the inputs for Integrated Producers. As such, EAF Producers tend to significantly outperform Integrated Producers in times of lower prices and underperform in times of higher steel prices. This stability has tended to result in higher EBITDA multiples for EAF Producers relative to their Integrated Producer counterparts. As shown above, the estimated 2021 EAF Producer median enterprise value to EBITDA multiple is 5.0x versus 3.4x for the Integrated Producers. Despite Algoma’s proposed transition to EAF steelmaking, Algoma is presently an Integrated Producer, so Legato’s board placed greater weight on the multiples of the three Integrated Producers.

The comparable companies above also differ with regard to their size, end product mix, customer mix, geographic location and vertical integration. Legato’s board of directors noted that all of the competitors in the comparable company group, except for Stelco Holdings Inc., are much larger than Algoma and operate numerous steelmaking furnaces, which decreases their reliance on any one production asset. These competitors have a greater ability to withstand prolonged downtime in any one steelmaking asset, which makes an investment in the larger and more operationally diverse competitors less risky than an investment in Algoma. Several of the competitors in the group are vertically integrated, with mining, scrap and/or iron ore producing units of their business. This integration could be viewed positively as these producers control more of their supply chain. In addition, some of these larger competitors produce a greater variety of products, which allows them to serve more end markets and limits their reliance on any one sector. However, the benefits of vertical integration and end product diversification are mitigated by the fact that all of these operations are closely tied to the steel industry. Many of the competitors in the comparable company group have operations in multiple geographies, which provides some diversification benefits; however, Algoma’s location on the Great Lakes provides Algoma with material benefits. In particular, Algoma’s Sault Ste. Marie facility borders the US and Canada, which gives it easy access to both markets. In addition, its location and its port facilities provide it with access to barge shipments for its raw materials and finished goods, which gives Algoma a cost advantage relative to its competitors.

 

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Legato’s board of directors believes that the operations of Algoma are most closely aligned with the Integrated Producers in general and Stelco Holdings Inc. in particular. Stelco Holdings Inc. is a Canadian producer with a similar level of production capacity from a single blast furnace and a similar margin profile. Given its smaller size, lack of vertical integration and reliance on just one blast furnace, Legato’s board of directors believes that Algoma should trade at a discount to the larger Integrated Producers. However, Legato’s board believes that Algoma’s Adjusted EBITDA as well as its Adjusted EBITDA market multiple could benefit greatly from a transition to EAF steelmaking, which is currently under consideration. This transition to a more stable level of cash flow along with the benefits a lower level of reliance on one steelmaking asset would argue for a multiple above those of its integrated peers. Taking all of these factors into consideration, Legato’s board of directors believes that the combined company should trade at an enterprise value to 2021 estimated Adjusted EBITDA of approximately 2.5x. As such, the enterprise value of the combined company would be approximately $2.25 billion, which would result in an equity value of approximately $2.07 billion, or $13.50 per share.

Discounted Cash Flow Analysis

Legato’s board of directors also reviewed a discounted cash flow analysis that was prepared by Legato’s management team in order to determine the appropriate level of consideration for Algoma. A discounted cash flow analysis uses projected future free cash flows discounted back to the present value using a risk adjusted rate in order to determine the value of an asset. Legato’s management applied this valuation technique to assist the board of directors in determining the present value of Algoma’s operations, or enterprise value. Algoma provided Legato with its internally prepared quarterly projections for the fiscal years ending March 31, 2022 through 2030. A summary of these projection is shown in the section entitled “Certain Unaudited Prospective Financial Information Regarding Algoma.” These projections formed the basis for Legato’s discounted cash flow analysis and are subject to the assumptions and risks set forth in such section.

Legato’s management used an unlevered free cash flow model to estimate the intrinsic value of Algoma. This unlevered DCF analysis is detailed below.

Legato used Algoma’s Adjusted EBITDA through 2030 and made adjustments to determine Algoma’s expected free cash flows as though Algoma had no leverage. These adjustments include income and other taxes, capital expenditures assuming the conversion to an electric arc furnace, pension funding requirements and other working capital adjustments. These adjustments were all derived from information contained in the detailed quarterly projections provided by Algoma. The resulting unlevered free cash flow was discounted back to the present value at an estimated weighted average cost of capital of 12.1%. Using the capital asset pricing model, which incorporates the risk-free rate, an equity market risk premium and beta (derived from comparable publicly traded companies), Legato’s management calculated Algoma’s cost of equity capital to be 15.4%. Given Algoma’s current cost of debt coupled with estimates of the current environment for high yield debt in the steel industry, Legato’s management calculated Algoma’s after-tax cost of debt to be 6.0%. Based on Algoma’s current capital structure, Legato’s management concluded that a weighting of 35% debt and 65% equity was appropriate. Legato’s management used a terminal multiple of 5.5x Adjusted EBITDA, which was derived from a longer-term average of publicly traded comparable companies. The resulting enterprise value was $2.64 billion, which would result in an equity value of approximately $2.46 billion, or $16.10 per share.

Opinion of Financial Advisor

In making its determination with respect to the Merger, Legato’s board of directors also considered the financial analysis performed by Cassel Salpeter, and the oral opinion of Cassel Salpeter to the Legato board of directors (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to (i) the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders, as defined below) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement and (ii) whether Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account. See “ – Opinion of Financial Advisor to the Board of Directors of Legato.”

Certain Unaudited Prospective Financial Information Regarding Algoma

Algoma does not as a matter of course make public projections as to future revenues, performance, financial condition or other results. However, Algoma’s management prepared and provided to its board of directors, its

 

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financial advisors and Legato certain internal, unaudited prospective financial information in connection with the evaluation of the Merger. Algoma’s management prepared such financial information based on their judgment and assumptions regarding the future financial performance of Algoma. The inclusion of the below information should not be regarded as an indication that Algoma or any other recipient of this information considered – or now considers – it to be necessarily predictive of actual future results.

The unaudited prospective financial information is subjective in many respects. As a result, there can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, that information by its nature becomes less predictive with each successive year.

While presented in this proxy statement/prospectus with numeric specificity, the information set forth in the summary below was based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Algoma’s management, including, among other things, the matters described in the sections entitled “Forward-Looking Statements” and “Risk Factors.” Algoma believes the assumptions in the prospective financial information were reasonable at the time the financial information was prepared, given the information Algoma had at the time. However, important factors that may affect actual results and cause the results reflected in the prospective financial information not to be achieved include, among other things, risks and uncertainties relating to Algoma’s business, industry performance, the regulatory environment, and general business and economic conditions. The prospective financial information also reflects assumptions as to certain business decisions that are subject to change. The unaudited prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Algoma’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Algoma. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information.

EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LAWS, NEITHER ALGOMA NOR LEGATO INTENDS TO MAKE PUBLICLY AVAILABLE ANY UPDATE OR OTHER REVISION TO THE PROSPECTIVE FINANCIAL INFORMATION. THE PROSPECTIVE FINANCIAL INFORMATION DOES NOT TAKE INTO ACCOUNT ANY CIRCUMSTANCES OR EVENTS OCCURRING AFTER THE DATE THAT INFORMATION WAS PREPARED. READERS OF THIS PROXY STATEMENT/PROSPECTUS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION SET FORTH BELOW. NONE OF ALGOMA, LEGATO OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, ADVISORS OR OTHER REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY ALGOMA SHAREHOLDER, LEGATO STOCKHOLDER OR ANY OTHER PERSON REGARDING ULTIMATE PERFORMANCE COMPARED TO THE INFORMATION CONTAINED IN THE PROSPECTIVE FINANCIAL INFORMATION OR THAT FINANCIAL AND OPERATING RESULTS WILL BE ACHIEVED.

Certain of the measures included in the prospective financial information may be considered non-IFRS financial measures. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS, and non-IFRS financial measures as used by Algoma may not be comparable to similarly titled amounts used by other companies. See “Non-IFRS Financial Measures.” Financial measures provided to a financial advisor in connection with a business combination transaction are excluded from the definition of non-IFRS financial measures and therefore are not subject to SEC rules regarding disclosures of non-IFRS financial measures, which would otherwise require a reconciliation of a non-IFRS financial measure to an IFRS financial measure. Accordingly, we have not provided a reconciliation of such financial measures.

 

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The following table sets forth certain summarized prospective financial information regarding Algoma for the period indicated:

 

    Forecast Year Ended March 31,  
    2022P     2023P     2024P     2025P     2026P     2027P     2028P     2029P     2030P  
    (in thousands of US$)(1)  

Steel Revenue(2)

  $ 2,624,655     $ 2,176,706     $ 2,125,746     $ 2,210,835     $ 2,165,113     $ 1,983,146     $ 1,998,310     $ 2,203,023     $ 2,447,946  

Steel CoGS

  $ 1,486,715     $ 1,392,577     $ 1,516,909     $ 1,618,644     $ 1,710,220     $ 1,701,470     $ 1,705,360     $ 1,758,626     $ 1,900,359  

Gross Profit

  $ 1,137,940     $ 784,129     $ 608,836     $ 592,192     $ 454,893     $ 281,677     $ 292,950     $ 444,397     $ 547,587  

SG&A

  $ 47,117     $ 46,215     $ 45,320     $ 45,077     $ 45,370     $ 45,665     $ 45,963     $ 46,263     $ 46,457  

Profit Sharing

  $ 105,002     $ 68,970     $ 52,865     $ 52,182     $ 38,770     $ 22,345     $ 24,474     $ 39,725     $ 50,747  

Operating Income

  $ 985,821     $ 668,945     $ 510,651     $ 494,932     $ 370,753     $ 213,666     $ 222,513     $ 358,409     $ 450,383  

Plus D&A

  $ 62,800     $ 55,388     $ 68,738     $ 78,312     $ 81,780     $ 91,043     $ 101,356     $ 102,714     $ 109,941  

Earnout Adjusted EBITDA(3)

  $ 1,048,621     $ 724,332     $ 579,389     $ 573,244     $ 452,533     $ 304,709     $ 323,869     $ 461,124     $ 560,324  

 

(1)

Assumes an exchange rate of US$1.00 = C$1.25.

 

(2)

Steel Revenue is Revenue from steel sales net of freight.

 

(3)

We define Earnout Adjusted EBITDA as net income (loss) before amortization of property, plant, equipment and amortization of assets, finance costs, interest on pension and other post-employment benefit obligations, income taxes, reorganization costs, finance income, inventory write-downs, carbon tax, certain exceptional items, tariff expense, non-cash adjustments and write-downs, loss (gain) on commodity hedging, loss (gain) on foreign exchange and loss (gain) associated with the Algoma Warrants.

We caution investors that amounts presented in accordance with our definition of Earnout Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers calculate Earnout Adjusted EBITDA in the same manner. In addition, investors are cautioned that Earnout Adjusted EBITDA differs from our reported Further Adjusted EBITDA. Earnout Adjusted EBITDA should not be considered as an alternative to net income (loss), cash flows from operating activities or any other performance measures derived in accordance with IFRS or as an alternative to cash flows from operating activities as a measure of our liquidity. See “Non-IFRS Financial Measures.”

The Algoma prospective financial information was prepared using the following key assumptions:

Revenue Drivers:

 

   

Shipment volumes based on the macroeconomic demand for steel products, and Algoma’s production rate increasing gradually to consider the incremental finished steel production available with the proposed EAF investment (approximately 700,000 net tons of incremental finished products), as reflected in the table below;

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  

Steel Shipments (in thousands of tons)

     2,502        2,568        2,637        2,850        3,033        3,033        3,033        3,033        3,135  

 

   

The following HRC prices derived from various industry market forecasts, as well as published futures prices for the U.S. Midwest Domestic Hot-Rolled Coil Steel (CRU) Index (the “Futures Index”);

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  

HRC Price (US$/ton)

   $ 1,221      $ 824      $ 790      $ 745      $ 681      $ 621      $ 626      $ 694      $ 750  

 

   

A forward sales mix similar to Algoma’s historic mix with an update in 2023P to reflect the plate mill modernization project currently underway;

 

   

Historical premiums and discounts on Algoma’s product categories assumed to remain in effect in the future, including (i) sheet prices historically at 95-100% of HRC CRU and (ii) plate at 110-120% of HRC CRU; and

 

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The following estimates regarding realized price per ton.

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  

Realized Price (US$/ton)

   $ 1.049      $ 848      $ 806      $ 776      $ 714      $ 654      $ 659      $ 726      $ 781  

Cost Drivers:

Variable Cost Drivers:

 

   

Iron Ore : Long term supply contracts in effect through 2024;

 

   

Scrap: Pricing based on a relationship to the Futures Index within a range of 35-45%; and

 

   

Other inputs based on unit costs historically experienced by Algoma adjusted for prospective price inflation.

Fixed Cost Drivers:

 

   

A gradual reduction in absolute fixed costs and resultant fixed costs per ton, including manufacturing and service labor and contractors materials and services costs, are expected as a result of Algoma’s ongoing efficiency initiatives and conversion of its primary steelmaking operations through its proposed EAF investment.

The following table sets forth projected variable and fixed costs, including raw material costs, energy, fuel & utilities costs, consumables and other variable costs, manufacturing & service labor costs, and fixed consumables, materials and services (“CM&S”) costs, each of which are components of Steel CoGS in the prospective financial information:

 

   

 

   

 

   

 

    Forecast Year Ended March 31,    

 

   

 

   

 

 
    2022P     2023P     2024P     2025P     2026P     2027P     2028P     2029P     2030P  
    (in thousands of US$)(1)  

Raw Material Costs

  $ 895,260   $ 848,615   $ 931,204     $ 1,045,285     $ 1,108,453     $ 1,091,070     $ 1,085,428   $ 1,142,000     $ 1,328,815  

Energy, Fuel & Utilities

  $ 109,822   $ 111,497   $ 130,305   $ 123,741   $ 132,157   $ 132,167   $ 132,187   $ 132,187   $ 124,567  

Consumables and Other Variable

  $ 72,943   $ 74,386   $ 102,219   $ 109,400   $ 114,128   $ 114,537     $ 114,896   $ 115,303   $ 122,778  

Manufacturing & Service Labor

  $ 216,295   $ 201,765   $ 206,987   $ 174,620   $ 176,373   $ 178,143     $ 179,931   $ 181,737   $ 143,764  

Fixed CM&S

  $ 119,822   $ 90,099   $ 86,113   $ 92,111   $ 92,383   $ 92,740   $ 93,073   $ 93,408   $ 73,139  

Other Relevant Financial Assumptions:

 

   

Profit Sharing: Profit sharing allotment with unionized employees under existing collective bargaining agreements;

 

   

Carbon Taxes: Carbon tax liability as prescribed by current federal regulations, including carbon pricing escalating from C$40/tonne currently to C$170/tonne by 2030P;

 

   

Capital Expenditures include major one-time capital expenditures of approximately $500 million from FY2022P to FY2024P related to the proposed EAF investment, which is expected to lower average annual maintenance capital expenditures after implementation in FY2025P. Completion of the proposed transformation to EAF steelmaking may or may not be completed. See “Risk Factors – Risks Related to Algoma’s Business”; and

 

   

Foreign Exchange: Algoma reports in Canadian dollars, but U.S. dollars are Algoma’s functional currency as 100% of sales are denominated in or linked to U.S. dollars and approximately 70% of Algoma’s costs are denominated in U.S. dollars.

In preparing the financial model associated with the prospective financial information, Algoma’s management relied on a number of factors, including its executive team’s significant experience and management’s views regarding market trends at the time the prospective financial information was prepared in April 2021. While prepared and

 

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provided with numerical specificity, the prospective financial information is forward-looking and reflect estimates and assumptions with respect to future industry performance and market trends and general business, economic, market, regulatory and financial conditions and various other factors and future events, as well as matters specific to Algoma’s business and the market in which Algoma operates, all of which are difficult to predict and many of which are beyond Algoma’s control.

Legato, with the assistance of Cassel Salpeter, derived prospective Normalized Unlevered Free Cash Flows for Algoma from the projections provided by Algoma summarized above. These Normalized Unlevered Free Cash Flows included adjustments to projected Earnout Adjusted EBITDA for environmental liabilities of approximately C$3.2 million per year, pension liabilities of approximately C$5.6 million per year and other post-employment benefits of approximately C$6.4 million per year, as well as other adjustments for taxes, depreciation, changes in net working capital and capital expenditures, in each case based on information provided by Algoma management and based on assumptions that Legato management believed to be reasonable at the time. The financial projections provided by Algoma management summarized above, as well as the projections of Normalized Unlevered Free Cash Flows set forth below, were reviewed by the Legato board of directors, which directed Cassel Salpeter to use and rely upon such projections for purposes of its analyses and opinion. The projections of Normalized Unlevered Free Cash Flows were not provided to, and were not reviewed by, Algoma prior to the announcement of the transaction.

The following table sets forth the projected Normalized Unlevered Free Cash Flows for Algoma for the period indicated which were derived by Legato, with the assistance of Cassel Salpeter:

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  
     (in thousands of US$)(1)  

Normalized Unlevered Free Cash Flows

   $ 591,104      $ 290,592      $ 399,127      $ 328,141      $ 355,488      $ 181,130      $ 159,475      $ 286,177      $ 373,121  

 

(1)

Assumes an exchange rate of US$1.00 = C$1.25.

For additional information regarding the assumptions underlying the prospective financial information regarding Algoma, see “Risk Factors – Risks Related to Algoma’s Business”, “ – Risks Related to the Merger – Legato and Algoma have no history operating as a combined company”, and “ – The projections and forecasts presented in this proxy statement/prospectus may not be an indication of the actual results of the transaction or Algoma’s future results.”

Certain Updated Unaudited Prospective Financial Information Regarding Algoma

Subsequent to the announcement of the Merger, in June 2021, Algoma’s management updated its unaudited prospective financial information regarding Algoma (the “Updated Projections”) for use in a presentation prepared by management in connection with Merger. The Updated Projections were not available to and, accordingly, not considered by the Legato board of directors in connection with its approval of the Merger Agreement.

The principal differences between the Updated Projections and the prospective financial information regarding Algoma set forth above under “Certain Unaudited Prospective Financial Information Regarding Algoma” (the “Initial Projections”) relate to HRC pricing and the use of more recently available HRC future pricing in the Updated Projections, which reflects the significant increase in HRC pricing in the first half of 2021, which increase includes the use of HRC forward pricing in the Updated Projections compared to the use of a blend of HRC forward pricing and third-party estimates for the US Midwest Hot-rolled Coil index in the Initial Projections. The assumed increase in HRC pricing also corresponded to an increase in the assumed prices of key raw material inputs to the steel making process. The following tables sets forth the HRC pricing used in the Initial Projections and the Updated Projections:

 

     Forecast Year Ended March 31,  
     2022P     2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  

HRC Price (US$/ton)

                         

Initial Projections

   $ 1,221     $ 824      $ 790      $ 745      $ 681      $ 621      $ 626      $ 694      $ 750  

Updated Projections

   $ 1,212     $ 985      $ 900      $ 900      $ 900      $ 900      $ 900      $ 900      $ 900  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Difference

   ($ 9   $ 160      $ 110      $ 155      $ 219      $ 279      $ 274      $ 206      $ 150  

 

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You should not place undue reliance on the Updated Projections as the Updated Projections are not a reliable indication of future results. While neither Legato’s management nor Algoma’s management view the Updated Projections as material to the prospects for Algoma’s business, Algoma is providing such information because it was disclosed prior to the date of this proxy statement/prospectus. Algoma does not intend to update the Updated Projections or provide any additional prospective financial information prior to the date of the Special Meeting.

Algoma does not as a matter of course make public projections as to future revenues, performance, financial condition or other results. The inclusion of the below information should not be regarded as an indication that Algoma or any other recipient of this information considered – or now considers – it to be necessarily predictive of actual future results. The Updated Projections are subjective in many respects. As a result, there can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than estimated. Since the Updated Projections cover multiple years, that information by its nature becomes less predictive with each successive year.

While presented in this proxy statement/prospectus with numerical specificity, the information set forth in the summary below was based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Algoma’s management, including, among other things, the matters described in the sections entitled “Forward-Looking Statements” and “Risk Factors.” Algoma believes the assumptions in the Updated Projections were reasonable at the time such information was prepared, given the information Algoma had at the time. However, important factors that may affect actual results and cause the results reflected in the Updated Projections not to be achieved include, among other things, risks and uncertainties relating to Algoma’s business, industry performance, the regulatory environment, and general business and economic conditions. The Updated Projections also reflect assumptions as to certain business decisions that are subject to change. The Updated Projections were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Algoma’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Algoma. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the Updated Projections.

EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LAWS, NEITHER ALGOMA NOR LEGATO INTENDS TO MAKE PUBLICLY AVAILABLE ANY UPDATE OR OTHER REVISION TO THE UPDATED PROJECTIONS. THE UPDATED PROJECTIONS DO NOT TAKE INTO ACCOUNT ANY CIRCUMSTANCES OR EVENTS OCCURRING AFTER THE DATE THAT INFORMATION WAS PREPARED. READERS OF THIS PROXY STATEMENT/PROSPECTUS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE UPDATED PROJECTIONS SET FORTH BELOW. NONE OF ALGOMA, LEGATO OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, ADVISORS OR OTHER REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY ALGOMA SHAREHOLDER, LEGATO STOCKHOLDER OR ANY OTHER PERSON REGARDING ULTIMATE PERFORMANCE COMPARED TO THE INFORMATION CONTAINED IN THE UPDATED PROJECTIONS OR THAT FINANCIAL AND OPERATING RESULTS WILL BE ACHIEVED.

Certain of the measures included in the Updated Projections may be considered non-IFRS financial measures. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS, and non-IFRS financial measures as used by Algoma may not be comparable to similarly titled amounts used by other companies. See “Non-IFRS Financial Measures.” Financial measures provided to a financial advisor in connection with a business combination transaction are excluded from the definition of non-IFRS financial measures and therefore are not subject to SEC rules regarding disclosures of non-IFRS financial measures, which would otherwise require a reconciliation of a non-IFRS financial measure to an IFRS financial measure. Accordingly, we have not provided a reconciliation of such financial measures.

 

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The following table sets forth certain summarized updated prospective financial information regarding Algoma for the period indicated:

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  
     (in thousands of US$)(1)  

Steel Revenue(2)

   $ 2,537,247      $ 2,561,217      $ 2,427,129      $ 2,652,624      $ 2,828,535      $ 2,828,535      $ 2,828,535      $ 2,828,535      $ 2,918,152  

Steel CoGS

   $ 1,444,289      $ 1,404,788      $ 1,554,178      $ 1,702,893      $ 1,858,513      $ 1,890,829      $ 1,904,066      $ 1,910,479      $ 2,064,528  

Gross Profit

   $ 1,092,958      $ 1,156,429      $ 872,951      $ 949,730      $ 970,023      $ 937,706      $ 924,469      $ 918,056      $ 853,624  

SG&A

   $ 47,117      $ 46,215      $ 45,320      $ 45,077      $ 45,370      $ 45,665      $ 45,963      $ 46,263      $ 46,457  

Profit Sharing

   $ 100,504      $ 106,200      $ 79,277      $ 87,936      $ 90,283      $ 87,948      $ 87,626      $ 87,091      $ 81,351  

Operating Income

   $ 945,338      $ 1,004,015      $ 748,354      $ 816,717      $ 834,369      $ 804,093      $ 790,880      $ 784,703      $ 725,816  

Plus D&A

   $ 62,800      $ 55,388      $ 68,738      $ 78,312      $ 81,780      $ 91,043      $ 101,356      $ 102,714      $ 109,941  

Earnout Adjusted EBITDA(3)

   $ 1,008,137      $ 1,059,402      $ 817,092      $ 895,029      $ 916,150      $ 895,135      $ 892,236      $ 887,417      $ 835,757  

 

(1)

Assumes an exchange rate of US$1.00 = C$1.25.

 

(2)

Steel Revenue is Revenue from steel sales net of freight.

 

(3)

We define Earnout Adjusted EBITDA as net income (loss) before amortization of property, plant, equipment and amortization of assets, finance costs, interest on pension and other post-employment benefit obligations, income taxes, reorganization costs, finance income, inventory write-downs, carbon tax, certain exceptional items, tariff expense, non-cash adjustments and write-downs, loss (gain) on commodity hedging, loss (gain) on foreign exchange and loss (gain) associated with the Algoma Warrants.

We caution investors that amounts presented in accordance with our definition of Earnout Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers calculate Earnout Adjusted EBITDA in the same manner. In addition, investors are cautioned that Earnout Adjusted EBITDA differs from our reported Further Adjusted EBITDA. Earnout Adjusted EBITDA should not be considered as an alternative to net income (loss), cash flows from operating activities or any other performance measures derived in accordance with IFRS or as an alternative to cash flows from operating activities as a measure of our liquidity. See “Non-IFRS Financial Measures.”

The Updated Projections were prepared using a number of assumptions, including:

 

   

HRC prices set forth in the table above;

 

   

the following estimates regarding realized price per ton, which were adjusted as a result of the HRC prices set forth in the table above;

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  

Realized Price (US$/ton)

   $ 1,014      $ 997      $ 920      $ 931      $ 933      $ 933      $ 933      $ 933      $ 931  

 

   

the following table sets forth raw material costs, which are a component of Steel CoGS in the Updated Projections; and

 

     Forecast Year Ended March 31,  
     2022P      2023P      2024P      2025P      2026P      2027P      2028P      2029P      2030P  
     (in thousands of US$)(1)  

Raw Material Costs(*)

   $ 852,415      $ 863,657      $ 966,568      $ 1,136,756      $ 1,260,428      $ 1,282,154      $ 1,282,776      $ 1,290,549      $ 1,494,019  

 

(*)

the other cost assumptions which were relied upon in preparing the Algoma prospective financial information set forth above did not change in the Updated Projections.

 

   

the assumptions detailed above which were relied upon in preparing the Algoma prospective financial information.

For additional information regarding the assumptions underlying the Updated Projections, see “Risk Factors – Risks Related to Algoma’s Business”, “ – Risks Related to the Merger – Legato and Algoma have no history operating as a combined company”, and “ – The projections and forecasts presented in this proxy statement/prospectus may not be an indication of the actual results of the transaction or Algoma’s future results.”

 

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Satisfaction of 80% Test

It is a requirement under the Existing Legato Charter that any business acquired by Legato have a fair market value equal to at least 80% of the balance of the funds in the Trust Account at the time of the execution of a definitive agreement for an initial business combination (excluding the taxes payable on the income earned on, the Trust Account).

As of May 24, 2021, the date of the execution of the Merger Agreement, the balance of the funds in the Trust Account, less the taxes payable on interest earned, was approximately $235.8 million and 80% thereof represents approximately $188.7 million. Based on the financial analysis of Algoma utilizing both DCF and comparable company valuation metrics, the Legato board of directors ascribed an enterprise value of $2.25 to $2.64 billion to Algoma and determined that this requirement was met. See “Opinion of Legato’s Financial Advisor – Summary of Material Financial Analyses.”

The Legato board of directors determined that the consideration being paid in the Merger, which amount was negotiated at arms-length, was fair to and in the best interests of Legato and its stockholders and appropriately reflected Algoma’s value. Legato’s board of directors believed that the financial skills and background of its members qualified it to conclude that the acquisition of Algoma met this requirement. In addition, Legato’s board of directors considered the financial analysis reviewed by Cassel Salpeter with the Legato board of directors, and the oral opinion of Cassel Salpeter to the Legato board of directors (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to whether Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account.

Opinion of Legato’s Financial Advisor

On May 24, 2021, Cassel Salpeter rendered its oral opinion to the Legato board of directors (which was confirmed in writing by delivery of Cassel Salpeter’s written opinion dated such date), to the effect that, as of May 24, 2021, (i) the merger consideration to be received by the holders of Legato shares, other than holders of Legato shares issued in private placements, including shares issued to Legato’s initial shareholders (such holders, “Founders”) or to underwriters and their respective affiliates (collectively, the “Excluded Holders”), in the Merger pursuant to the Merger Agreement, after giving effect to the Stock Split and assuming the full issuance of Algoma Common Shares upon satisfaction of the earnout (the “Earnout Rights Grant”), was fair, from a financial point of view, to such holders (other than the Excluded Holders) and (ii) Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account.

The summary of the opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex B to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed merger or otherwise, including, without limitation, whether any such stockholder should redeem their shares or whether any party should participate in the PIPE Investment.

The opinion was addressed to the Legato board of directors for the use and benefit of the members of the Legato board of directors (in their capacities as such) in connection with the Legato board of directors’ evaluation of the Merger. Cassel Salpeter’s opinion was just one of the several factors the Legato board of directors took into account in making its determination to approve the Merger, including those described elsewhere in this proxy statement/prospectus.

Cassel Salpeter’s opinion only addressed whether, as of the date of the opinion, (i) the merger consideration to be received by the holders of Legato shares, other than the Excluded Holders, in the Merger pursuant to the Merger Agreement, after giving effect to the Stock Split and the Earnout Rights Grant, was fair, from a financial point of view, to such holders (other than the Excluded Holders) and (ii) Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account (less any taxes payable on interest earned). It did not address any other terms,

 

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aspects, or implications of the Transaction or the Merger Agreement, including, without limitation, (i) other than assuming the consummation thereof in accordance with the Merger Agreement, the Stock Split, the Earnout Rights Grant, the PIPE Investment or the assumption by Algoma of outstanding Legato Warrants, (ii) any term or aspect of the Merger that is not susceptible to financial analysis, (iii) the fairness of the Merger, or all or any portion of the merger consideration, to any other security holders of Legato (including, without limitation, the Excluded Holders or holders of Legato Warrants), Algoma or any other person or any creditors or other constituencies of Legato, Algoma or any other person, (iv) the fairness of any portion or aspect of the Transaction to any one class or group of Legato’s or any other party’s security holders or other constituencies relative to any other class or group of Legato’s or such other party’s security holders or other constituencies (including, without limitation, the fairness of the merger consideration to be received by the Excluded Holders relative to the other holders of Legato shares or the potential dilutive or other effects of the Transaction on such other holders), (v) the appropriate capital structure of Algoma or whether Algoma should be issuing debt or equity securities or a combination of both, nor (vi) the fairness of the amount or nature, or any other aspect, of any compensation or consideration payable to or received by any officers, directors, or employees of any parties to the Transaction, or any class of such persons, relative to the merger consideration in the Merger pursuant to the Merger Agreement or otherwise. Cassel Salpeter did not express any view or opinion as to (i) what the value of Algoma Common Shares actually would be when issued in the Merger, (ii) the prices at which Algoma Common Shares or Legato shares may trade, be purchased or sold at any time, including without limitation, for purposes of assessing the Earnout Rights, or (iii) the conditions under which Algoma Common Shares are issuable in respect of the Earnout Rights pursuant to the Merger Agreement or the timing or likelihood of achieving such conditions. In addition, Cassel Salpeter made no representation or warranty regarding the adequacy of its opinion or the analyses underlying its opinion for the purpose of Legato’s compliance with the terms of its constituent documents, the rules of any securities exchange or any other general or particular purpose.

Cassel Salpeter’s opinion did not address the relative merits of the Transaction as compared to any alternative transaction or business strategy that might exist for Legato, or the merits of the underlying decision by the Legato board of directors or Legato to engage in or consummate the Transaction. The financial and other terms of the Transaction were determined pursuant to negotiations between the parties to the Merger Agreement and were not determined by or pursuant to any recommendation from Cassel Salpeter. In addition, Cassel Salpeter was not authorized to, and did not, solicit indications of interest from third parties regarding a potential transaction involving Legato.

Cassel Salpeter was not requested to, and did not, (a) initiate or participate in any discussions or negotiations with respect to the Transaction, the securities, assets, businesses or operations of Legato, Algoma or any other party, or any alternatives to the Transaction, (b) negotiate the terms of the Transaction, or (c) advise the Legato board of directors or any other party with respect to alternatives to the Transaction. Cassel Salpeter’s analysis and opinion were necessarily based upon market, economic, and other conditions as they existed on, and could be evaluated as of, the date of the opinion. Furthermore, as the Legato board of directors was aware, the credit, financial and stock markets had been experiencing significant volatility, due to, among other things, the COVID-19 pandemic and related illnesses and the direct and indirect business, financial, economic and market implications thereof, and Cassel Salpeter expressed no opinion or view as to any potential effects of such matters on Legato, Algoma or the Transaction. Accordingly, although subsequent developments could arise that would otherwise affect its opinion, Cassel Salpeter did not assume any obligation to update, review, or reaffirm its opinion to the Legato board of directors or any other person or otherwise to comment on or consider events occurring or coming to its attention after the date of the opinion.

In arriving at its opinion, Cassel Salpeter made such reviews, analyses, and inquiries as Cassel Salpeter deemed necessary and appropriate under the circumstances. Among other things, Cassel Salpeter:

 

   

Reviewed an execution copy, dated May 24, 2021, of the Merger Agreement.

 

   

Reviewed certain publicly available financial information and other data with respect to Legato and Algoma that Cassel Salpeter deemed relevant.

 

   

Reviewed certain other information and data with respect to Legato and Algoma made available to Cassel Salpeter by Legato and Algoma, including financial projections with respect to the future financial performance of Algoma prepared by, and adjusted based on discussions with, management of Algoma (the “Algoma Projections”) as further adjusted for certain contingent liabilities based on discussions with management of Legato (the “Legato Projections for Algoma”) and other internal financial information furnished to Cassel Salpeter by or on behalf of Legato and Algoma.

 

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Considered and compared the financial and operating performance of Algoma with that of companies with publicly traded equity securities that Cassel Salpeter deemed relevant.

 

   

Considered the publicly available financial terms of certain transactions that Cassel Salpeter deemed relevant.

 

   

Compared the implied enterprise value reference ranges of Algoma to the balance, as provided by Legato management, of funds in the Trust Account.

 

   

Discussed the business, operations and prospects of Algoma and the proposed merger with Legato’s and Algoma’s management and certain of Legato’s and Algoma’s representatives.

 

   

Conducted such other analyses and inquiries, and considered such other information and factors as Cassel Salpeter deemed appropriate.

For purposes of its analyses and opinion Cassel Salpeter, at the Legato board of directors’ direction, (i) assumed that the aggregate value of the Algoma Common Shares issued in the Stock Split would be equal to $750,000,000 (the “Equity Value”), based on the number of Algoma Common Shares to be issued immediately following the Stock Split being equal to (a) the Equity Value divided by (b) the product of (1) $10.00 multiplied by (2) the number of Algoma Common Shares outstanding immediately prior to the Merger and the reference value of $10.00 per share of Legato Common Stock; (ii) assumed that the maximum aggregate value of the Earnout Rights would, based on the maximum number of Algoma Common Shares issuable in respect thereof and the reference value of $10.00 per share of Legato Common Stock, be $375,000,000 (the “Assumed Maximum Earnout Value”), and (iii) evaluated the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement, after giving effect to the Stock Split and the Earnout Rights Grant, based solely on a comparison of (a) the Equity Value and the Assumed Maximum Earnout Value and (b) the implied aggregate equity value reference ranges for Algoma that Cassel Salpeter believed were indicated by its financial analyses of Algoma. In addition, for purposes of its analysis and opinion Cassel Salpeter, with the Legato board of directors’ consent, evaluated whether Algoma had a fair market value equal to at least 80% of the balance of funds in the Trust Account solely upon the basis of a comparison of the implied enterprise value reference ranges of Algoma indicated by its financial analysis with the balance of funds in the Trust Account, which the Legato board of directors advised Cassel Salpeter and Cassel Salpeter, for purposes of its analysis and opinion, assumed did not and would not exceed $235,790,000.

In arriving at its opinion, Cassel Salpeter, with the Legato board of directors’ consent, relied upon and assumed, without independently verifying, the accuracy and completeness of all of the financial and other information that was supplied or otherwise made available to it or available from public sources, and Cassel Salpeter further relied upon the assurances of Legato’s and Algoma’s management that they were not aware of any facts or circumstances that would have made any such information inaccurate or misleading. Cassel Salpeter is not a legal, tax, accounting, environmental, or regulatory advisor, and Cassel Salpeter did not express any views or opinions as to any legal, tax, accounting, environmental, or regulatory matters relating to Legato, Algoma, the Transaction, or otherwise. Cassel Salpeter understood and assumed that Legato had obtained or would obtain such advice as it deemed necessary or appropriate from qualified legal, tax, accounting, environmental, regulatory, and other professionals, that such advice was sound and reasonable and that Legato had acted or would act in accordance with such advice.

With the Legato board of directors’ consent, Cassel Salpeter assumed that the Algoma Projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Algoma with respect to the future financial performance of Algoma. Legato advised Cassel Salpeter and at the Legato board of directors’ direction Cassel Salpeter assumed that (i) the Legato Projections for Algoma were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Legato with respect to the future financial performance of Algoma, and (ii) that the Legato Projections for Algoma provided a reasonable basis upon which to analyze and evaluate Algoma and form an opinion. At the Legato board of directors’ direction, Cassel Salpeter used and relied upon the Legato Projections for Algoma for purposes of its analyses and opinion. Cassel Salpeter expressed no view with respect to the Algoma Projections, the Legato Projections for Algoma or the respective assumptions on which they were based. Cassel Salpeter did not evaluate the solvency or creditworthiness of Legato, Algoma or any other party to the Transaction, the fair value of Legato, Algoma or any of their respective assets or liabilities, or whether Legato, Algoma or any other party to the Transaction is paying or receiving reasonably equivalent value in the Transaction under any applicable foreign, state, or federal laws relating to

 

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bankruptcy, insolvency, fraudulent transfer, or similar matters, nor did Cassel Salpeter evaluate, in any way, the ability of Legato, Algoma or any other party to the Transaction to pay its obligations when they come due. Cassel Salpeter did not physically inspect Legato’s or Algoma’s properties or facilities and did not make or obtain any evaluations or appraisals of Legato’s or Algoma’s assets or liabilities (including any contingent, derivative, or off-balance-sheet assets and liabilities). Cassel Salpeter did not attempt to confirm whether Legato or Algoma had good title to their respective assets. Cassel Salpeter’s role in reviewing any information was limited solely to performing such reviews as Cassel Salpeter deemed necessary to support its own advice and analysis and was not on behalf of the Legato board of directors, Legato, or any other party.

Cassel Salpeter assumed, with the Legato board of directors’ consent, that the Transaction would be consummated in a manner that complies in all respects with applicable foreign, federal, state, and local laws, rules, and regulations and that, in the course of obtaining any regulatory or third party consents, approvals, or agreements in connection with the Transaction, no delay, limitation, restriction, or condition would be imposed that would have an adverse effect on Legato, Algoma or the Transaction. Cassel Salpeter also assumed, with the Legato board of directors’ consent, that the final executed form of the Merger Agreement would not differ in any material respect from the copy Cassel Salpeter reviewed and that the Transaction would be consummated on the terms set forth in the Merger Agreement, without waiver, modification, or amendment of any term, condition, or agreement thereof material to Cassel Salpeter’s analyses or opinion. Cassel Salpeter also assumed that the representations and warranties of the parties to the Merger Agreement contained therein were true and correct and that each such party would perform all of the covenants and agreements to be performed by it under the Merger Agreement. Cassel Salpeter offered no opinion as to the contractual terms of the Merger Agreement or the likelihood that the conditions to the consummation of the Transaction set forth in the Merger Agreement would be satisfied. The Legato board of directors also advised Cassel Salpeter, and Cassel Salpeter assumed, that for U.S. federal tax income purposes the Merger would qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended.

In connection with preparing its opinion, Cassel Salpeter performed a variety of financial analyses. The following is a summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion. It is not a complete description of all analyses underlying such opinion. The preparation of an opinion is a complex 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. As a consequence, neither Cassel Salpeter’s opinion nor the respective analyses underlying its opinion is readily susceptible to partial analysis or summary description. In arriving at its opinion, Cassel Salpeter assessed as a whole the results of all analyses undertaken by it with respect to the opinion. While it took into account the results of each analysis in reaching its overall conclusions, Cassel Salpeter did not make separate or quantifiable judgments regarding individual analyses and did not draw, in isolation, conclusions from or with regard to any individual analysis or factor. Therefore, Cassel Salpeter believes that the analyses underlying the opinion must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors underlying the opinion collectively, could create a misleading or incomplete view of the analyses performed by Cassel Salpeter in preparing the opinion.

The implied valuation reference ranges indicated by Cassel Salpeter’s analyses are not necessarily indicative of actual values nor predictive of future results, which may be significantly more or less favorable than those suggested by such analyses. Much of the information used in, and accordingly the results of, Cassel Salpeter’s analyses are inherently subject to substantial uncertainty.

Summary of Material Financial Analyses.

The following summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion includes information presented in tabular format. The tables alone do not constitute a complete description of these analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses Cassel Salpeter performed.

For purposes of its analyses, Cassel Salpeter considered the implied value of the Algoma Common Shares to be issued immediately following the Stock Split and the Earnout Rights Grant to be $750,000,000 to $1,125,000,000, assuming the issuance of a number of shares issuable pursuant to the Earnout Rights Grant ranging from no shares up to the maximum number of shares issuable pursuant to the Earnout Rights Grant and based upon the reference value of

 

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$10.00 per share as provided by the Merger Agreement, which the Legato board of directors advised Cassel Salpeter, and Cassel Salpeter, with the consent of the Legato board of directors, assumed was a reasonable basis upon which to evaluate the Algoma Common Shares after giving effect to the Stock Split.

Share prices for the selected companies used in the selected companies analysis described below were as of May 19, 2021. The relevant values for the selected transactions analysis described below were calculated on an enterprise value basis based on the consideration proposed to be paid in the selected transactions. Estimates of financial performance for the selected companies listed below were based on publicly available research analyst estimates for those companies. Estimates of financial performance for Algoma were based on the Legato Projections for Algoma.

For purposes of its analyses, Cassel Salpeter reviewed a number of financial metrics, including:

 

   

“EBITDA,” which generally refers to the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization for a specified time period; and

 

   

“Enterprise Value,” which generally refers to the value as of a specified date of the relevant company’s outstanding equity securities (taking into account its options and other outstanding convertible securities) plus the value as of such date of its net debt (the value of its outstanding indebtedness, preferred stock and minority interests less the amount of cash on its balance sheet).

Discounted Cash Flows Analysis. Cassel Salpeter performed a discounted cash flow analysis of Algoma based on the Legato Projections for Algoma. In performing this analysis, Cassel Salpeter applied discount rates ranging from 19.0% to 21.0%, taking into account its experience and professional judgment and an estimate of Algoma’s weighted-average cost of capital, and perpetual growth rates ranging from 2.75% to 3.25%, taking into account its experience and professional judgment. This analysis indicated an implied aggregate equity value reference range of approximately $1,506,442,000 to $1,722,842,000 for Algoma, as compared to the implied value of Algoma Common Shares to be issued immediately following the Stock Split and the Earnout Rights Grant of $750,000,000 to $1,125,000,000.

Selected Companies Analysis. Cassel Salpeter considered certain financial data for Algoma and selected companies with publicly traded equity securities Cassel Salpeter deemed relevant.

The financial data reviewed included:

 

   

Enterprise value as multiple of mean EBITDA for fiscal year 2019, EBITDA for fiscal year 2020 and estimated EBITDA for fiscal year 2021, or “Mean FY 2019, 2020 and 2021E EBITDA.”

 

   

Enterprise value as multiple of estimated EBITDA for the calendar year 2021, or “CY 2021E EBITDA.”

 

   

Enterprise value as multiple of estimated EBITDA for the calendar year 2022, or “CY 2022E EBITDA.”

The selected companies and corresponding multiples were:

 

     Enterprise Value / EBITDA  

Selected Company

   Mean FY 2019, 2020 and 2021E      CY 2021E      CY 2022E  

Basic Oxygen Furnace (BOF)

        

Cleveland-Cliffs Inc.

     13.2x        4.0x        6.5x  

United States Steel Corporation

     15.0x        3.4x        6.7x  

Stelco Holdings Inc.

     18.4x        2.5x        6.1x  

Electric Arc Furnace (EAF)

        

Steel Dynamics, Inc.

     9.2x        4.8x        8.3x  

Nucor Corporation

     9.8x        5.3x        9.1x  

Commercial Metals Company

     9.6x        6.9x        6.9x  

Schnitzer Steel Industries, Inc.

     10.1x        5.7x        5.6x  

 

Enterprise Value Multiple of

   High      Mean      Median      Low  

Mean FY 2019, 2020 and 2021E EBITDA

     18.4x        12.3x        10.1x        9.2x  

CY 2021E EBITDA

     6.9x        4.6x        4.8x        2.5x  

CY 2022E EBITDA

     9.1x        7.0x        6.7x        5.6x  

 

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Taking into account the results of the selected companies analysis, Cassel Salpeter applied multiple ranges of 8.0x to 10.0x to Algoma’s mean FY 2019, 2020 and estimated 2021E EBITDA; 2.0x to 2.5x to Algoma’s estimated CY 2021E EBITDA; and 2.0x to 2.5x to Algoma’s estimated CY 2022E EBITDA, in each case based on the Legato Projections for Algoma, which resulted in an implied aggregate equity value reference range of approximately $1,249,142,000 to $1,682,342,000 for Algoma, as compared to the implied value of the Algoma Common Shares to be issued immediately following the Stock Split and the Earnout Rights Grant of $750,000,000 to $1,125,000,000.

None of the selected companies have characteristics identical to Algoma. An analysis of selected publicly traded companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of the companies reviewed.

Selected Transactions Analysis. Cassel Salpeter considered the financial terms of the following business transactions Cassel Salpeter deemed relevant. The financial data reviewed included transaction value as a multiple of trailing twelve months, or “TTM” EBITDA. The selected transactions and the resulting high, low, mean and median financial data were:

 

Date         Enterprise Value/
TTM EBITDA

Announced

   Closed   

Target

 

Acquiror

28-Sep-20    9-Dec-20    ArcelorMittal USA LLC   Cleveland-Cliffs Inc.    6.6x
3-Dec-19    13-Mar-20    AK Steel Holding Corporation   Cleveland-Cliffs Inc.    4.6x
3-Jun-19    3-Jun-19    Premier Forge Group   Wynnchurch Capital, L.P    NA
8-May-18    30-Aug-18    Seah Steel California, LLC   SeAH Steel International Co., Ltd.    NA
1-Nov-16    1-Nov-16    ASW Steel Inc. (nka:Valbruna ASW, Inc.)   Union Electric Steel Corporation    NA
21-Jul-14    16-Sep-14    Severstal Dearborn, Inc.   AK Steel Corporation    29.4x
21-Jul-14    16-Sep-14    Severstal Columbus, LLC   Steel Dynamics, Inc.    NA
20-Jun-11    29-Feb-12    Latrobe Specialty Metals, Inc.   Carpenter Technology Corporation    8.8x
15-Sep-10    21-Oct-10    TAMCO Steel, Inc.   Gerdau Ameristeel US Inc.    NA

 

“NA”

refers to “not available.”

 

     High      Mean      Median      Low  

Enterprise Value Multiple of

                           

TTM EBITDA

     29.4x        12.4x        7.7x        4.6x  

Taking into account the results of the selected transactions analysis, Cassel Salpeter applied multiples of 7.0x to 8.0x to Algoma’s Mean FY 2019, 2020 and 2021E EBITDA, which resulted in an implied aggregate equity value reference range of approximately $1,026,042,000 to $1,241,642,000 for Algoma, as compared to the implied value of the Algoma Common Shares to be issued immediately following the Stock Split and the Earnout Rights Grant of $750,000,000 to $1,125,000,000.

None of the target companies or transactions in the selected transactions have characteristics identical to Algoma or the proposed Transaction. Accordingly, an analysis of selected business combinations is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the target companies in the selected transactions and other factors that could affect the respective acquisition values of the transactions reviewed.

Implied Value Reference Range of the Company Compared to Trust Fund Balance. Cassel Salpeter also compared the implied enterprise value reference range indicated by its financial analyses for the Company of $1,509,700,000 to $2,206,500,000 with the balance of funds in the Trust Account, which the Legato board of directors advised Cassel Salpeter and Cassel Salpeter, for purposes of its analysis and opinion, assumed did not and would not exceed $235,790,000.

Other Matters Relating to Cassel Salpeter’s Opinion

As part of its investment banking business, Cassel Salpeter regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements and other

 

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purposes. Cassel Salpeter is a recognized investment banking firm that has substantial experience in providing financial advice in connection with mergers, acquisitions, sales of companies, businesses and other assets and other transactions. Cassel Salpeter received a fee of $100,000 for rendering its opinion, no portion of which was contingent upon the completion of the Merger. In addition, Legato agreed to reimburse Cassel Salpeter for certain expenses incurred by it in connection with its engagement and to indemnify Cassel Salpeter and its related parties for certain liabilities that may arise out of its engagement or the rendering of its opinion. Cassel Salpeter in the past provided investment banking or other financial services to affiliates of the Founders for which Cassel Salpeter received compensation, including, during the past two years, having acted as the financial advisor to Allegro Merger Corp., a special purpose acquisition company sponsored by certain of the Founders or their affiliates, in connection with a potential acquisition announced in November 2019, for which Cassel Salpeter received aggregate fees of $85,000. Cassel Salpeter has not provided investment banking or other financial services to Legato or Algoma for which it has received, or would expect to receive, compensation. In accordance with Cassel Salpeter’s policies and procedures, a fairness committee of Cassel Salpeter was not required to, and did not, approve the issuance of Cassel Salpeter’s opinion.

Recommendation of Legato’s Board of Directors

The board of directors determined that the consideration being paid in the Merger, which amount was negotiated at arms-length, was fair to and in the best interests of Legato and its stockholders. In reaching this determination, the board of directors concluded that it was appropriate to base such valuation on qualitative factors such as: (1) management strength and depth, (2) currently favorable supply/demand dynamics, (3) expected tailwinds from infrastructure spending, (4) Algoma’s position as a low cost manufacturer, (5) limited environmental liabilities, and (6) plans for a possible conversion to electric arc steelmaking, as well as quantitative factors such as: (a) Algoma’s current and expected future free cash flow generation, (b) the current and expected future price of steel, (c) low relative level of debt, and (d) intrinsic value of Algoma based on both DCF and comparable company valuation metrics. Legato’s board of directors believed that the financial skills and background of its members qualified it to conclude that the acquisition of Algoma met this requirement. In addition, Legato’s board of directors considered the financial analysis reviewed by Cassel Salpeter with the Legato board of directors, and the oral opinion of Cassel Salpeter to the Legato board of directors (which was subsequently confirmed in writing by delivery of Cassel Salpeter’s written opinion dated the same date, May 24, 2021), as to the fairness, from a financial point of view, to Legato’s stockholders (other than the Excluded Holders) of the merger consideration to be received by such holders in the Merger pursuant to the Merger Agreement.

After careful consideration of the matters described above, Legato’s board of directors determined that the Merger Proposal and the Adjournment Proposal, if presented, are fair to and in the best interest of Legato’s stockholders and recommends that you vote or give instructions to vote “FOR” each of these proposals.

The foregoing discussion of the information and factors considered by the Legato board of directors is not meant to be exhaustive, but includes the material information and factors considered by the Legato board of directors.

Interests of Legato’s Directors and Officers in the Merger

John Ing and Brian Pratt, directors of Legato, participated in the PIPE Investment and, to avoid the appearance of a conflict of interest, each abstained from the Legato board of directors’ vote to approve the Merger. When you consider the recommendation of Legato’s board of directors in favor of approval of the Merger Proposal, you should keep in mind that the Founders, including Legato’s directors and executive officers, have interests in such proposal that may be different from, or in addition to, your interests as a stockholder. These interests include, among other things:

 

   

If the Merger with Algoma or another business combination is not consummated by July 22, 2022 (or such later date as may be approved by Legato stockholders), Legato will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding Public Shares for cash and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, the Founder Shares, would be worthless because the Founder Shares are not entitled to participate in any Redemption or distribution with respect to such shares. Such shares had an aggregate market value of $                based upon the closing price of $                per share on Nasdaq on                , 2021, the record date for the Special Meeting. On the other hand, if the Merger is consummated, each outstanding share of Legato Common Stock will be converted into one Algoma Common Share.

 

   

The Founders, Legato’s officers or directors, or their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Legato’s behalf, such as identifying and investigating possible business targets and mergers. If Legato fails to consummate the Merger, they will not

 

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have any claim against the Trust Account for repayment or reimbursement. In addition, in order to meet its working capital needs the Founders may, but are not obligated to, loan Legato funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. These loans would be repayable upon consummation of the Merger or, with the consent of Algoma, may be converted into Private Units immediately prior to the Effective Time at an exchange rate of $10.00 of borrowings per Private Unit. In the event that the Merger does not close, Legato may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no other proceeds from the Trust Account would be used for such repayment. Accordingly, Legato may not be able to repay or reimburse these amounts if the Merger is not completed. As of August 13, 2021, there were no reimbursable fees, loans or out of pocket expenses outstanding.

 

   

Certain of the Founders purchased 604,000 Private Units from Legato for $10.00 per Private Unit. This purchase took place on a private placement basis simultaneously with the consummation of the IPO. The Legato Common Stock and Legato Warrants comprising part of the Private Units and the Legato Common Stock underlying such Warrants will become worthless if Legato does not consummate an initial business combination by July 22, 2022 (or such later date as may be approved by Legato stockholders). Such Units had an aggregate market value of $                based upon the closing price of $                per Unit on Nasdaq on                 , 2021, the record date for the Special Meeting. On the other hand, if the Merger is consummated, each Private Unit will separate into one share of Legato Common Stock and one Legato Warrant, and each outstanding share of Legato Common Stock will be converted into one Algoma Common Share and each outstanding Legato Warrant will become an Algoma Warrant, exercisable to purchase one Algoma Common Share following consummation of the Merger.

 

   

Three of the Founders, Brian Pratt, John Ing and Stephen Lack, and/or their affiliates agreed to purchase approximately 2.64 million PIPE Shares. Messrs. Pratt and Ing are directors of Legato. If the Merger is not consummated, the PIPE Investment will not be consummated and the PIPE Investors will not have the opportunity to invest in Algoma.

 

   

John Ing, one of Legato’s board members, is a principal in Maison Placements Canada, an entity that participated as a placement agent in the PIPE Investment. As a result of its participation in the PIPE Investment, Maison Placements Canada will receive a fee of $1,133,100, which is conditioned upon the closing of the Merger.

 

   

Three of the Legato’s directors, Eric S. Rosenfeld, David D. Sgro and Brian Pratt, are expected to be appointed to the board of directors of Algoma following the Merger. As a result, they will likely receive the same compensation that other directors of Algoma will receive following the Merger.

 

   

In connection with Legato’s IPO, Crescendo, an entity affiliated with Eric S. Rosenfeld, Legato’s Chief SPAC Officer, has agreed to be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by certain claims of target businesses or vendors or other entities that are owed money by Legato for services rendered or contracted for or products sold to Legato. The agreement entered into by Crescendo specifically provides for two exceptions to the indemnity given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with Legato waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of Legato’s IPO against certain liabilities, including liabilities under the Securities Act. WithumSmith+Brown, PC, Legato’s independent registered public accounting firm, and the underwriters of the initial public offering, have not executed agreements with Legato waiving such claims to the monies held in the Trust Account. Legato has not independently verified whether Crescendo has sufficient funds to satisfy its indemnity obligations, it has not asked it to reserve for such obligations and it does not believe it has any significant liquid assets. Accordingly, Legato believes it is unlikely that Crescendo will be able to satisfy its indemnification obligations if it is required to do so.

 

   

All rights specified in the Existing Legato Charter relating to the right of officers and directors to be indemnified by Legato, and of Legato’s officers and directors to be exculpated from monetary liability with respect to prior acts or omissions, will continue after a business combination. If the business combination is not approved and Legato liquidates, Legato will not be able to perform its obligations to its officers and directors under those provisions.

 

   

The Founders purchased their Founder Shares from Legato prior to the Legato IPO at a price of approximately $0.004 per Founder Share, or an aggregate purchase price of $25,000. Given the differential in

 

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purchase price that the Legato Founders paid for the Founder Shares as compared to the price of the Legato Units sold in the IPO, the Legato Founders may realize a positive rate of return on such investment even if Legato’s Public Stockholders experience a negative rate of return following the business combination. See “Questions and Answers About the Proposals – What will be the relative equity stakes of Legato’s Public Stockholders, the Founders, the PIPE Investors and Algoma’s existing shareholders in Algoma upon completion of the Merger?

At any time prior to the Special Meeting, during a period when they are not then aware of any material nonpublic information regarding Legato or its securities, the Founders, Algoma, or the equityholders of Legato and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the Merger Proposal, or who redeem or indicate an intention to redeem their public shares, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of Legato Common Stock or vote their shares in favor of the Merger Proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirement that the holders of a majority of the then outstanding shares of Legato Common Stock vote at the meeting to approve the Merger Proposal and/or to decrease the number of Redemptions. While the nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer to such investors or holders of shares or rights owned by the Founders for nominal value.

Entering into any such arrangements may have a depressive effect on the price of the Legato Common Stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than the market price and may therefore be more likely to sell the shares he owns, either prior to or immediately after the Special Meeting.

If such transactions are effected, the consequence could be to cause the Merger Proposal to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Merger Proposal and other proposals to be presented at the Special Meeting and would likely increase the chances that such proposals would be approved.

As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such effect have been entered into with any such investor or holder. Legato will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons.

Anticipated Accounting Treatment

The Transaction is comprised of a series of transactions pursuant to the Merger Agreement, as described elsewhere in this proxy statement/prospectus. For accounting purposes, the Transactions will be effectuated through three main steps:

 

  1.

The Merger will be accounted for as an acquisition of assets (in exchange for shares) as the underlying transactions do not result in a business combination in accordance with IFRS 3, Business Combinations (“IFRS 3”) as Legato does not constitute a business as defined under IFRS 3. Consequently, the Merger will be accounted for under IFRS 2, Share-Based Payment. In the accompanying pro forma information, the net assets of Legato were recognized at its fair value, which was approximated by its carrying value, and no goodwill or other intangible assets were recorded. All direct costs of the Merger will be expensed. Any difference between the fair value of Algoma Common Shares and Algoma Warrants issued and the fair value of Legato’s identifiable net assets are recorded as a listing fee.

 

  2.

The PIPE Subscription Agreements related to the PIPE Investment, which were executed concurrently with the Merger Agreement, will result in the issuance of Algoma Common Shares and Legato Common Stock, leading to an increase in share capital.

Regulatory Matters

The Merger is not subject to any federal or state regulatory requirement or approval, except for the filing of the Notice of Alteration (as defined in the Merger Agreement) under the BCA and the certificate of Merger under the DGCL.

 

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No Appraisal Rights

Under Section 262 of the General Corporation Law of the State of Delaware, the holders of Legato Common Stock will not have appraisal rights in connection with the Merger.

Resales of Algoma Common Shares

The Algoma Common Shares to be issued in connection with the Merger will be freely transferable under the Securities Act except for (i) the Algoma Common Shares held by the Algoma shareholders upon completion of the Stock Split and the Parent Distribution, (ii) the PIPE Shares and (iii) shares issued to any shareholder who may be deemed, for purposes of Rule 144 under the Securities Act to be an “affiliate” of Legato immediately prior to the Effective Time, or an “affiliate” of Algoma following the Merger. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or are under common control with, Algoma or Legato (as appropriate) and include the executive officers, directors and certain significant shareholders of Algoma or Legato (as appropriate). However, following the Closing, we intend to file the Resale Registration Statement to register the resale of the Algoma Common Shares described in clauses (i), (ii) and (iii) above such that, upon the effectiveness of such registration statement, such shares will be freely transferable under the Securities Act. See “Algoma Common Shares Eligible for Future Sale” for additional details.

The Algoma Warrants to be issued in connection with the Merger, and the Algoma Common Shares issued upon the exercise of the Algoma Warrants in accordance with the terms and conditions thereof and of the Warrant Agreement, will be freely transferable under the Securities Act except for the Algoma Warrants and Algoma Common Shares issued upon the exercise of Algoma Warrants that are issued to any shareholder who may be deemed for purposes of Rule 144 under the Securities Act an “affiliate” of Legato immediately prior to the Effective Time or an “affiliate” of Algoma following the Merger.

The Algoma Common Shares and Algoma Warrants to be issued in connection with the Merger, and the Algoma Common Shares issued upon the exercise of the Algoma Warrants in accordance with the terms and conditions thereof and of the Warrant Agreement, will not be legended and may be resold through registered dealers in each of the provinces and territories of Canada, provided that: (i) the trade is not a “control distribution” (as defined in National Instrument 45-102Resale of Securities of the Canadian Securities Administrators); (ii) no unusual effort is made to prepare the market or create a demand for those securities; (iii) no extraordinary commission or consideration is paid in respect of that trade; (iv) if the selling securityholder is an insider or officer of Algoma (as defined under applicable Canadian securities legislation), the insider or officer has no reasonable grounds to believe that Algoma is in default of applicable Canadian securities legislation; and (v) Algoma is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade (subject to the abridgment of such four month period upon Algoma becoming a reporting issuer by filing a non-offering prospectus in the province of Ontario).

Stock Exchange Listing of Algoma Common Shares and Algoma Warrants

Algoma has applied to list the Algoma Common Shares and Algoma Warrants on Nasdaq under the proposed symbols “ASTL” and “ASTLW,” respectively, to be effective at the consummation of the Merger. In addition, Algoma intends to become a reporting issuer in Canada under applicable Canadian securities laws following the closing of the Merger and intends to apply for listing of the Algoma Common Shares and Algoma Warrants on the TSX under the proposed symbols “ASTL” and “ASTL.WT”, respectively, to be effective at the consummation of the Merger. Approval of the listing on Nasdaq and conditional approval of the listing on the TSX of the Algoma Common Shares and Algoma Warrants (subject only to official notice of issuance thereof and/or the satisfaction of the conditions of approval) is a condition to each party’s obligation to complete the Merger.

In connection with the listing of the Algoma Warrants on the TSX, in accordance with the TSX’s listing requirements in respect of warrants, Algoma will provide certain undertakings to the TSX to the effect that Algoma will not exercise certain of its rights under the Warrant Agreement, including, notably, (i) lowering of the exercise price of the Algoma Warrants and (ii) extending the duration of the Algoma Warrants by delaying the expiration date thereof.

Delisting and Deregistration of Legato Common Stock

If the Merger is completed, shares of Legato Common Stock, Legato Warrants and Legato’s Units will be delisted from Nasdaq and will be deregistered under the Exchange Act.

 

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Algoma Status as a Foreign Private Issuer under the Exchange Act

Algoma will be a “foreign private issuer” under SEC rules following the consummation of the Merger. Consequently, Algoma will be subject to the reporting requirements under the Exchange Act applicable to foreign private issuers.

Based on its foreign private issuer status, Algoma will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as a U.S. company whose securities are registered under the Exchange Act and will also be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. Algoma will also not be required to comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information. In addition, among other matters, Algoma officers, directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Algoma Common Shares. Additionally, Nasdaq rules allow foreign private issuers to follow home country practices in lieu of certain of Nasdaq’s corporate governance rules. As a result, its shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

Required Vote

The approval of the Merger Proposal will require the affirmative vote by the holders of a majority of the shares of outstanding Legato Common Stock. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal. Broker Non-Votes will have the same effect as a vote “AGAINST” the Merger Proposal.

Recommendation of the Legato Board of Directors

THE LEGATO BOARD OF DIRECTORS RECOMMENDS THAT LEGATO STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE MERGER PROPOSAL.

 

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PROPOSAL NO. 2 – THE ADJOURNMENT PROPOSAL

The Adjournment Proposal, if adopted, will allow Legato’s board of directors to adjourn the Special Meeting to a later date or dates, if necessary. In no event will Legato solicit proxies to adjourn the Special Meeting or consummate the Merger beyond the date by which it may properly do so under the Existing Legato Charter, Delaware law and the Merger Agreement. The purpose of the Adjournment Proposal is to provide more time for Legato’s stockholders, Algoma and the Algoma shareholders to make purchases of Public Shares or other arrangements that would increase the likelihood of obtaining a favorable vote on the Merger Proposal and to meet the requirements that are necessary to consummate the Merger. See the section entitled “Proposal No. 1 – The Merger Proposal – Interests of Legato’s Directors and Officers in the Merger.”