| Item 1.01 | Entry into a Material Definitive Agreement. |
On July 19, 2021, LSB Industries, Inc. (the “Company”) entered into a Securities Exchange Agreement (the “Agreement”) with LSB Funding LLC (the “Holder”). Pursuant to the terms of the Agreement, the Holder has agreed with the Company to exchange all of the outstanding Series E-1 and Series F-1 Redeemable Preferred Stock (“Series E-1 Preferred” and “Series F-1 Preferred”) held by the Holder into common stock, par value $0.10, of the Company (the “Common Stock”), by dividing the liquidation preference payable therefore, in the case of the Series E-1 Preferred, and the redemption price payable therefore, in the case of the Series F-1 Preferred, by $6.16 (collectively the “Transaction”). The exchange price of $6.16 is equal to the volume weighted average price (“VWAP”) per share of the Common Stock over the 30-day period ended July 16, 2021. In connection with the Transaction, existing Company common stockholders, and holders of the Series B 12% Cumulative, Convertible Preferred Stock and the Series D 6% Cumulative, Convertible Preferred Stock, in each case, on an as converted basis, will receive a special dividend of 0.30 shares of Common Stock for every 1 share of Common Stock, or on an as converted basis, as applicable, owned as of the record date (the “Special Dividend”); provided, however, that the aggregate number of shares of Common Stock issuable pursuant to the Transaction will be reduced by the number of shares of Common Stock that the Holder will receive in respect of the payment of the Special Dividend on the Common Stock held by the Holder on the record date. The terms and conditions of the Transaction were established by arm’s length negotiations between an independent special committee of the board of directors (the “Board”) of the Company (the “Special Committee”) and the Holder. The Special Committee and the Board each unanimously approved the Transaction, including, in the case of the Board, for the purpose of rendering inapplicable to the Agreement and the Transaction the provisions of Section 203 of the Delaware General Corporation Law to the extent, if any, such section would otherwise be applicable.
Consummation of the Transaction is subject to customary closing conditions as well as (i) the approval of the Transaction and the Agreement by Company stockholders holding greater than 50% of the voting power of the outstanding shares of capital stock of the Company held by stockholders other than Holder and affiliates of the Holder (collectively, the “Disinterested Stockholders”) and entitled to vote thereon, in a vote of the Disinterested Stockholders, (ii) the approval and adoption by holders of greater than 50% of the voting power of the outstanding shares of capital stock of the Company entitled to vote thereon of (x) an amendment to the Company’s Amended and Restated Certificate of Incorporation, dated January 21, 1977, as amended on August 27, 1987 (the “Charter”) to increase the total number of authorized shares of Common Stock to 150,000,000 shares and (y) the Transaction and the Agreement pursuant to Section 312.03 of the New York Stock Exchange Listed Company Manual, and (iii) the approval by holders of greater than 50% of the voting power of the outstanding shares of capital stock of the Company entitled to vote thereon and greater than 50% of the outstanding shares of Series E-1 Preferred entitled to vote thereon of an amendment to the Charter to permit the Transaction and to eliminate the right of the Series E-1 Preferred to participate in the Special Dividend (items (i) through (iii) collectively, the “Company Stockholder Approval”), (iv) termination of certain related party contracts between the Company and the Holder, (v) an amendment to the Board Representation and Standstill Agreement by and among the Company, the Holder, and the other parties thereto, dated December 4, 2015, as amended, to amend Section 3 thereof with respect to the share ownership limitations to give effect to the issuance of the shares of Common Stock in connection with the Transaction (the “Issued Shares”) and to make certain other changes, (vi) approval of the Issued Shares for listing on the New York Stock Exchange subject to official notice of issuance and (vii) expiration or termination of any applicable waiting period under the Hart–Scott–Rodino Antitrust Improvements Act of 1976 relating to the Transaction.
The Agreement includes customary representations, warranties and covenants including, among others, a covenant to cause a special meeting of stockholders to be held to consider the Company Stockholder Approval. The Agreement provides for mutual indemnification by the Company and the Holder for breaches of representations, warranties and covenants, subject to certain customary limitations. In addition, the Company has agreed to provide indemnification to the Holder with respect to any losses, including costs and expenses, arising out of any litigation related to the Transaction. The Company has also agreed to certain interim operating covenants and, for so long as the Holder directly or indirectly beneficially owns 15% or more of the outstanding Common Stock, post-closing consent rights in favor of the Holder including, among others, limitations on certain (i) incurrences of indebtedness, (ii) capital expenditures, (iii) sales, leases, licenses, disposals or encumbrances of material properties or assets, (iv) acquisitions of, or agreements to acquire, businesses or assets, and agreements with respect to joint ventures, strategic alliances or partnerships, (v) amendments to the Charter and the Company’s bylaws and changes to the size of Board and (vi) declarations or payments of dividends or distributions during the period between execution and closing under the Agreement. The Company has also agreed to provide the Holder with certain preemptive rights on the issuance of additional Common Stock, or other equity securities of the Company convertible into, exercisable for or exchangeable into Common Stock, so long as the Holder directly or indirectly beneficially owns 20% or more of the outstanding Common Stock. The Company has also agreed, for so long as the Holder directly or indirectly beneficially owns 10% or more of the outstanding Common Stock, to provide the Holder with certain information concerning the business of the Company, including its financial condition and results of operations.
The Company has agreed to pay a termination fee to the Holder if the Board, acting on the recommendation of the Special Committee, authorizes the Company to enter into a definitive agreement for a bona fide written acquisition proposal for at least a majority of the outstanding shares of capital stock of the Company or at least a majority of the consolidated assets of the Company, for consideration consisting exclusively of cash or publicly traded equity securities (and for which financing, to the extent required by the person submitting the written acquisition proposal, is then fully committed), that (i) would be, if consummated, more favorable to the
