| Item 1.01. | Entry into a Material Definitive Agreement. |
On October 20, 2024, Construction Partners, Inc., a Delaware corporation (the “Company”), entered into a Unit Purchase Agreement (the “Purchase Agreement”), by and among the Company, Asphalt Inc., LLC (doing business as Lone Star Paving), a Texas limited liability company (“Lone Star”), the individual sellers listed on the signature pages thereto (the “Sellers”) and John J. Wheeler, in his capacity as the Sellers’ representative thereunder. Pursuant to the Purchase Agreement, the Company agreed to purchase all of the issued and outstanding membership units of Lone Star from the Sellers (the “Acquisition”) for aggregate consideration consisting of (i) $654.2 million in cash (subject to customary purchase price adjustments) at the closing of the Acquisition (the “Closing,” and such cash payment, the “Cash Purchase Price”), (ii) 3.0 million shares (the “Closing CPI Shares”) of the Company’s Class A common stock, par value $0.001 per share (the “Class A Common Stock”) (subject to rounding for fractional shares), and (iii) cash in an amount equal to the working capital remaining in Lone Star at the Closing, as finally determined (subject to adjustments and offsets to satisfy certain of the Sellers’ indemnification obligations and any purchase price overpayments) to be paid out in quarterly installments over four quarters following the Closing, with the first payment due on the first business day after the expiration of the first full fiscal quarter following the Closing.
The Purchase Agreement contains customary representations and warranties of the parties. Additionally, the Purchase Agreement provides for customary covenants of the parties, relating to, among other things, (i) confidentiality, (ii) employee benefit matters, (iii) the conduct of Lone Star’s business during the period between the execution of the Purchase Agreement and the Closing and (iv) the efforts of the parties to cause the Acquisition to be completed, including obtaining any required governmental approval. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired, and as a result, all regulatory approval conditions have been satisfied. The parties each have customary indemnification obligations and rights under the terms of the Purchase Agreement.
The Purchase Agreement provides that, during the period from the date of the execution of the Purchase Agreement until the Closing, the Sellers and Lone Star shall not (i) solicit from, or engage in negotiations with, third parties with respect to alternative acquisition proposals or (ii) provide non-public information to third parties in connection with alternative acquisition proposals.
The obligations of the Company, Lone Star and the Sellers to consummate the Acquisition are subject to the satisfaction or waiver of certain customary closing conditions, including (i) with respect to the Company’s obligation to consummate the Acquisition, the representations and warranties of Lone Star and the Sellers being true and correct (subject to certain materiality exceptions) and Lone Star and the Sellers having performed in all material respects their obligations under the Purchase Agreement, (ii) with respect to Lone Star and the Sellers’ obligations to consummate the Acquisition, the representations and warranties of the Company being true and correct (subject to certain materiality exceptions) and the Company having performed in all material respects their obligations under the Purchase Agreement, (iii) the absence of any order, law or proceeding prohibiting or restraining the consummation of the Acquisition, and (iv) there not having been any event or development that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on the other party since the date of the Purchase Agreement. In addition, as a condition to the Closing, the Company and the Sellers must execute a conditional purchase agreement whereby the Company will agree to purchase from the Sellers, upon the receipt of necessary governmental entitlements, an entity that owns certain real property located in Central Texas for aggregate consideration of $30.0 million.
The Purchase Agreement contemplates that, at the Closing, the Company and the Sellers will enter into lock-up agreements that will provide for, among other things, a lock-up on any transfer of the Closing CPI Shares issued to the Sellers, subject to certain exceptions, which lock-up will expire with respect to (i) 50% of the Closing CPI Shares on the six-month anniversary of the Closing and (ii) 50% of the Closing CPI Shares on the one-year anniversary of the Closing.
The Purchase Agreement may be terminated prior to the Closing under the following circumstances: (i) by the mutual written consent of the Company and Lone Star, (ii) subject to certain limited exceptions, by either the Company or Lone Star if the Closing has not occurred on or before December 31, 2024, (iii) by the Company in the event of a breach by the Sellers or Lone Star of any representation, warranty, covenant or other agreement contained in the Purchase Agreement that would result in a failure of applicable closing conditions if such breach was continuing as of the Closing, subject to certain customary cure rights set forth in the Purchase Agreement, (iv) by Lone Star in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in the Purchase Agreement that would result in a failure of applicable closing conditions if such breach was continuing as of the Closing, subject to certain customary cure rights set forth in the Purchase Agreement, and (v) by either the Company or Lone Star if the condition requiring the absence of any order, law or proceeding prohibiting or restraining the consummation of the Acquisition becomes incapable of satisfaction. Subject to certain exceptions, in the event that the Purchase Agreement is terminated by Lone Star as a result of a breach of any representation, warranty, covenant or other agreement set forth in the Purchase Agreement on the part of the Company, the Company will be required to pay Lone Star a termination fee of $9.0 million.
The Company expects to finance the Cash Purchase Price with the proceeds of debt financing. The Company has engaged BofA Securities, Inc. (“BofA Securities”) and PNC Capital Markets LLC (“PNCCM”) to, among other things, serve as joint lead arrangers and joint bookrunners in connection with (i) the arrangement and/or syndication of any financing undertaken in connection with the Acquisition, (ii) the arrangement of an amendment to the Company’s existing credit facility and the solicitation and receipt of requisite consents from the lenders under such facility and (iii) if applicable, any other financing for the purpose of refinancing all or a portion of the Bridge Loan Facility (as defined below).
