UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
Schedule
TO
Tender
Offer Statement under Section 14(d)(1) or 13(e)(1) of the
Securities
Exchange Act of 1934
____________________
LSB
INDUSTRIES, INC.
(Name
of
Subject Company (Issuer) and Filing Person (Offeror))
$3.25
Convertible Exchangeable Class C Preferred Stock, Series 2
(Title
of
Class of Securities)
502160500
(CUSIP
Number of Class of Securities)
Jack
E.
Golsen
Chairman
of the Board and
Chief
Executive Officer
16
South
Pennsylvania Avenue
Oklahoma
City, Oklahoma 73107
(405)
235-4546
(Name,
address and telephone number of person authorized to receive notices and
communications on behalf of filing person)
____________________
With
copies to:
Irwin
H.
Steinhorn, Esq.
Conner
& Winters, LLP
1700
One
Leadership Square
211
North
Robinson
Oklahoma
City, Oklahoma 73102-7101
(405)
272-5711
(405)
232-2695 (fax)
____________________
____________________
CALCULATION
OF FILING FEE
|
Transaction
valuation(*)
|
|
Amount
of Filing Fee(**)
|
|
$30,980,700
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$3,314.94
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*
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Calculated
solely for the purpose of determining the registration fee. This
amount
assumes that 309,807 shares of $3.25 Convertible Exchangeable Class
C
Preferred Stock, Series 2, will be exchanged pursuant to this offer.
The
transaction value is equal to the approximate aggregate market value
of
the Preferred Stock based on the average
of the high and low prices of the Preferred Stock as
reported on the OTCBB on February 2, 2007, which was $100.00 per
share..
|
|
**
|
The
amount of the filing fee was calculated in accordance with Rule 0-11
of
the Securities Exchange Act of 1934 and equals $107.00 for each $1,000,000
of the value of the transaction.
|
|
¨
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Check
box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and
identify the filing with which the offsetting fee was previously
paid.
Identify the previous filing by registration statement number, or
the Form
or Schedule and the date of its filing.
|
|
Amount
Previously Paid:
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N/A
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|
Filing
Party:
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N/A
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Form
or Registration No.:
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N/A
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Date
Filed:
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N/A
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¨
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Check
the box if the filing relates solely to preliminary communications
made
before the commencement of a tender offer.
|
Check
the
appropriate boxes below to designate any transactions to which the statement
relates:
|
¨
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third-party
tender offer subject to Rule 14d-1.
|
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x
|
issuer
tender offer subject to Rule 13e-4.
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¨
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going-private
transaction subject to Rule 13e-3.
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¨
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amendment
to Schedule 13D under Rule 13d-2.
|
Check
the
following box if the filing is a final amendment reporting the results of the
tender offer: ¨
This
Tender Offer Statement on Schedule TO relates to an offer by LSB Industries,
Inc., a Delaware corporation (the “Company”), to exchange 7.4 shares of the
Company’s common stock for each validly tendered and accepted share of $3.25
Convertible Exchangeable Class C Preferred Stock, Series 2, on the terms and
subject to the conditions described in the Offer to Exchange, dated February
9,
2007 (the “Offer to Exchange”) and the related Letter of Transmittal, which, as
amended or supplemented from time to time, together constitute the Exchange
Offer.
The
Offer
to Exchange is attached to this Schedule TO as Exhibit (a)(1) and the related
Letter of Transmittal and other ancillary documents are attached as Exhibits
(a)(2) - (a)(6).
This
Schedule TO is filed in satisfaction of the reporting requirements of Rule
13e-4
under the Securities Exchange Act of 1934, as amended. The exchange offer is
being made by the Company pursuant to an exemption from registration under
Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities
Act”).
The
information set forth in the Offer to Exchange and the Letter of Transmittal
attached hereto, are hereby expressly incorporated herein by reference in
response to all items required in this Schedule TO.
|
Item 1.
|
Summary
Term Sheet.
|
The
information set forth in the Offer to Exchange in the sections entitled
“Questions and Answers About the Exchange Offer” and “Summary—Summary of the
Exchange Offer” is incorporated herein by reference.
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Item 2.
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Subject
Company Information.
|
(a)
Name
and Address.
The
name
of the subject company is LSB Industries, Inc. The address of the Company’s
principal executive offices is 16 South Pennsylvania Avenue, Oklahoma City,
Oklahoma 73107. Its telephone number is (405) 235-4546.
(b)
Securities.
The
information set forth in the Offer to Exchange in the section entitled
“Description of Preferred Stock” is incorporated herein by reference.
(c)
Trading
Market and Price.
The
information set forth in the Offer to Exchange in the section entitled “Market
for Common Stock and Preferred Stock” is incorporated herein by reference.
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Item 3.
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Identity
and Background of Filing Person.
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(a)
Name
and Address.
The
filing person is the issuer. The information set forth in Item 2(a) above
and in the Offer to Exchange in the section entitled “Interests of Our Principal
Stockholders, Officers and Directors” is incorporated herein by reference.
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Item 4.
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Terms
of the Transaction.
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(a)
Material
Terms.
The
information set forth in the Offer to Exchange in the sections entitled
“Questions and Answers About the Exchange Offer,” “Summary—The Exchange Offer,”
“The Exchange Offer—Terms of the Exchange Offer,”“The Exchange Offer—Expiration
Date,” “The Exchange Offer—Conditions to the Exchange Offer,” “The Exchange
Offer—Extension, Delay in Acceptance, Amendment or Termination,” “The Exchange
Offer—Procedures for Tendering Shares of Preferred Stock,” “The Exchange
Offer—Withdrawals of Tenders,” “The Exchange Offer—Acceptance; Exchange of
Shares of Preferred Stock,” “Comparison of Rights Between the Preferred Stock
and Our Common Stock,” “Description of Capital Stock—Common Stock,” “Description
of Preferred Stock,” “The Exchange Offer—Accounting Treatment,” and “Material
United States Federal Income Tax Consequences” is incorporated herein by
reference.
(b)
Purchases.
The
information set forth in the Offer to Exchange in the sections entitled
“Interests of Our Principal Stockholders, Officers and Directors” and “Summary -
Recent Developments - Jayhawk Agreement” is incorporated herein by reference.
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Item 5.
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Past
Contacts, Transactions, Negotiations and Agreements.
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(e)
Agreements
Involving the Subject Company’s Securities.
The
information set forth in the Offer to Exchange in the sections entitled “Summary
- Recent Developments - Jayhawk Agreement”, “Description of Capital Stock”,
“Description of Preferred Stock” and “Interests of Our Principal Stockholders,
Officers and Directors” is incorporated herein by reference.
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Item 6.
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Purposes
of the Transaction and Plans or Proposals.
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(a)
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Purposes.
|
The
information set forth in the Offer to Exchange in the sections entitled
“Questions and Answers About the Exchange Offer—Why are we making the Exchange
Offer” and “The Exchange Offer—Purpose and Effects of the Exchange Offer” is
incorporated herein by reference.
(b)
Use
of Securities Acquired.
The
information set forth in the Offer to Exchange in the sections entitled
“Questions and Answers About the Exchange Offer—What do we intend to do with the
shares of Preferred Stock that are tendered in the Exchange Offer,”
“Summary—Summary of the Exchange Offer” and “The Exchange Offer—Terms of the
Exchange Offer” is incorporated herein by reference.
(c)
Plans.
The
information set forth in the Offer to Exchange in the section entitled
“Summary—LSB Industries, Inc.,” “Summary—Recent Developments — Jayhawk
Agreement,” “Risk Factors—Shares of Preferred Stock that you continue to hold
after the exchange offer are expected to become less liquid following the
exchange offer”, “Risk Factors — If the number of outstanding shares of
Preferred Stock falls below a certain level, holders of the Preferred Stock
will
no longer be entitled to their current rights to elect directors” and “Interests
of Our Principal Stockholders, Officers and Directors” is incorporated herein by
reference. Because there are less than 300 holders of record of the Preferred
Stock, the Preferred Stock is eligible for termination from registration under
Section 12(g)(4) of the Securities Exchange Act of 1934.
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Item 7.
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Source
and Amount of Funds or Other Consideration.
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(a)
Source
of Funds.
The
information set forth in the Offer to Exchange in the sections entitled
“Questions and Answers About the Exchange Offer—What will I receive in the
exchange offer if I tender shares of Preferred Stock and they are accepted,”
“Summary—Summary of the Exchange Offer,” “Capitalization” and “The Exchange
Offer—Terms of the Exchange Offer” is incorporated herein by reference.
(b)
Conditions.
Not
applicable.
(d)
Borrowed
Funds.
Not
applicable.
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Item 8.
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Interest
in the Securities of the Subject Company.
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(a)
Securities
Ownership.
The
information set forth in the Offer to Exchange in the section entitled
“Interests of Our Principal Stockholders, Officers and Directors” is
incorporated herein by reference.
(b)
Securities
Transactions.
The
information set forth in the Offer to Exchange in the section entitled “Summary
— Recent Developments — Prior Exchanges” is incorporated herein by
reference.
Members
of the group consisting of Kent C. McCarthy, Jayhawk Capital Management, L.L.C.,
Jayhawk Institutional Partners, L.P. and Jayhawk Investments, L.P. acquired
shares of Preferred Stock in open market transactions on December 15, 2006
(800
shares at $74.50 per share and 2,500 shares at $75.50 per share), December
18,
2006 (500 shares at $72.00 per share), December 22, 2006 (100 shares at $75.00
per share), December 29, 2006 (100 shares at $89.00 per share and 1600 shares
at
$0 per share), and January 4, 2007 (162 shares at $78.00 per
share).
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Item 9.
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Persons/Assets,
Retained, Employed, Compensated or Used.
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(a)
Solicitations
or Recommendations.
The
information set forth in the Offer to Exchange in the sections entitled “The
Exchange Offer—Solicitation,” and “—Fees and Expenses” is incorporated herein by
reference.
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Item 10.
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Financial
Statements.
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(a)
Financial
Information.
The
information set forth in the Offer to Exchange in the sections entitled “Where
to Find Additional Information,” “Summary Consolidated Financial Data” and
"Ratio of Earnings to Fixed Charges" is incorporated herein by reference. The
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2005 and Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2006 are incorporated herein by reference and can also be accessed
electronically on the Securities and Exchange Commission’s website at
http://www.sec.gov.
(b)
Pro
Forma Information.
Not
applicable.
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Item 11.
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Additional
Information.
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(a)
Agreements,
Regulatory Requirements and Legal Proceedings.
The
information set forth in the Exchange Offer Prospectus in the section entitled
“Summary — Recent Developments — Jayhawk Agreement”, “The Exchange
Offer—Conditions to the Exchange Offer” and “Interests of Our Principal
Stockholders, Officers and Directors” is incorporated herein by reference.
(b)
Other
Material Information.
Not
applicable.
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Item 12.
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Exhibits.
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(a)
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(1)
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Offer
to Exchange, dated February 9, 2007
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(a)
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(2)
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Letter
of Transmittal
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(a)
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(3)
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Notice
of Guaranteed Delivery
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(a)
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(4)
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Letter
to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
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(a)
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(5)
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Letter
to Clients
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(a)
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(6)
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Press
Release, dated February 9, 2007
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(b)
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Not
applicable
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||
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(d)
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(1)
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Agreement
dated November 10, 2006 by and among LSB Industries, Inc., Kent C.
McCarthy, Jayhawk Capital Management, L.L.C., Jayhawk Institutional
Partners, L.P. and Jayhawk Investments, L.P.
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(g)
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Not
applicable
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||
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(h)
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Not
applicable
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Item 13.
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Information
Required by Schedule 13E-3.
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(a)
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Not
applicable
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SIGNATURES
After
due
inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Date:
February 9, 2007
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LSB
INDUSTRIES, INC.
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||
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By:
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/s/ Jack
E. Golsen
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Jack
E. Golsen
Chairman
of the Board and
Chief
Executive Officer
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EXHIBIT
INDEX
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99
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(a)
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(1)
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|
Offer
to Exchange, dated February 9, 2007
|
|
99
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(a)
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(2)
|
|
Letter
of Transmittal
|
|
99
|
(a)
|
(3)
|
Notice
of Guaranteed Delivery
|
|
|
99
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(a)
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(4)
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Letter
to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
|
|
|
99
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(a)
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(5)
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Letter
to Clients
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|
|
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||||
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99
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(a)
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(6)
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Press
Release, dated February 9, 2007
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||||
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99
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(d)
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(1)
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Agreement
dated November 10, 2006 by and among LSB Industries, Inc., Kent C.
McCarthy, Jayhawk Capital Management, L.L.C., Jayhawk Institutional
Partners, L.P. and Jayhawk Investments, L.P.
|
|
LSB
Industries, Inc.
Offer
to
Exchange
Shares
of
Common Stock
for
Each
Outstanding Share of
$3.25
Convertible Exchangeable Class C Preferred Stock, Series 2
(CUSIP
No. 502160500)
__________________________
__________________________
We
are
offering to exchange shares of our common stock for each validly tendered and
accepted share of our $3.25 Convertible Exchangeable Class C Preferred Stock,
Series 2 upon the terms and subject to the conditions set forth in this offer
to
exchange and in the related letter of transmittal. On January 23, 2007, 499,102
shares of our $3.25 Convertible Exchangeable Class C Preferred Stock, Series
2
were outstanding. In this offer to exchange, we refer to our $3.25 Convertible
Exchangeable Class C Preferred Stock, Series 2 as “Preferred Stock.”
The
number of shares of common stock to be exchanged for each share of Preferred
Stock will be 7.4 shares of common stock per share of Preferred Stock.
The
exchange offer will expire at 5:00 p.m., New York City time, on Monday, March
12, 2007, unless extended or earlier terminated by us. You may withdraw shares
of Preferred Stock that you tender at any time before the exchange offer
expires. In addition, you may withdraw any tendered shares of Preferred Stock
if
we have not accepted them for payment within 40 business days from the
commencement of our exchange offer on February 9, 2007.
The
exchange offer is subject to the conditions described in “The Exchange
Offer—Conditions to the Exchange Offer”. We reserve the right to extend or
terminate the exchange offer if any condition of the exchange offer is not
satisfied and otherwise to amend the exchange offer in any respect.
Our
common stock is listed on the American Stock Exchange (“AMEX”) under the symbol
“LXU”. On February 2, 2007, the last reported sale price of our common stock on
the AMEX was $14.85 per share.
We
urge you to carefully read the “Risk
Factors”
section beginning on page 11 before you make any decision regarding the exchange
offer.
You
must
make your own decision whether to tender any shares of Preferred Stock in the
exchange offer and, if so, the number of shares of Preferred Stock to tender.
We
do not make any recommendation as to whether or not holders of outstanding
shares of Preferred Stock should tender their shares of Preferred Stock for
exchange in the exchange offer.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the securities being offered in this exchange offer,
or determined if this offer to exchange is truthful or complete. Any
representation to the contrary is a criminal offense.
The
date
of this offer to exchange is February 9, 2007.
| QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER ............................................... |
2
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||
| SUMMARY .......................................................................................................................................... |
6
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| RISK FACTORS .................................................................................................................................. |
11
|
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| USE OF PROCEEDS ........................................................................................................................... |
19
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| CAPITALIZATION ............................................................................................................................. |
20
|
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| MARKET FOR COMMON STOCK AND PREFERRED STOCK .................................................. |
21
|
|
| SUMMARY CONSOLIDATED FINANCIAL DATA ........................................................................ |
22
|
|
| THE EXCHANGE OFFER .................................................................................................................. |
24
|
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| COMPARISON
OF RIGHTS BETWEEN
THE PREFERRED STOCK AND OUR COMMON STOCK .............................................................................................................................. |
37
|
|
| DESCRIPTION OF CAPITAL STOCK .............................................................................................. |
39
|
|
| DESCRIPTION OF PREFERRED STOCK ........................................................................................ |
44
|
|
| DESCRIPTION OF DEBENTURES ................................................................................................... |
52
|
|
| INTERESTS OF OUR PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS ............. |
57
|
|
| MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ............................. |
62
|
|
| WHERE YOU CAN FIND MORE INFORMATION ......................................................................... |
66
|
|
| FORWARD-LOOKING STATEMENTS ............................................................................................ |
67
|
|
| APPENDIX A - FAIRNESS OPINIONA-1 .......................................................................................... |
A-1
|
____________________
You
should rely only on the information contained or incorporated by reference
in
this offer to exchange. None of us, the Exchange Agent or the Information Agent
has authorized any other person to provide you with different or additional
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are offering to exchange, and are seeking tenders
of, these securities only in jurisdictions where the offers or tenders are
permitted. You should assume that the information appearing in this offer to
exchange and the documents incorporated by reference in this offer to exchange
is accurate only as of the dates of the offer to exchange or of those documents.
Our business, financial condition, results of operations and prospects may
have
changed since those dates.
____________________
We
are
relying on Section 3(a)(9) of the Securities Act of 1933, as amended (the
“Securities Act”), to exempt the exchange offer from the registration
requirements of the Securities Act. We are also relying on Sections 18(b)(1)(A)
and 18(b)(4)(C) of the Securities Act to exempt the exchange offer from the
registration and qualification requirements of state securities laws. We have
no
contract, arrangement or understanding relating to, and will not, directly
or
indirectly, pay any commission or other remuneration to any broker, dealer,
salesperson, agent or any other person for soliciting tenders in the exchange
offer. Our regular employees may solicit tenders and will answer inquiries
concerning the exchange offer. These employees will not receive additional
compensation for these services.
None
of
us, our board of directors, our executive officers, the Exchange Agent
or
the
Information Agent
makes
any recommendation to holders of Preferred Stock as to whether to exchange
or
refrain from exchanging their Preferred Stock. In addition, no one has been
authorized to make any such recommendation. You must make your own decision
whether or when to exchange Preferred Stock pursuant to the exchange offer
and,
if so, the aggregate principal amount of Preferred Stock to exchange.
These
answers to questions that you may have as a holder of shares of our $3.25
Convertible Exchangeable Class C Preferred Stock, Series 2, as well as the
summary that follows, highlight selected information included elsewhere or
incorporated by reference in this offer to exchange. To fully understand the
exchange offer and the other considerations that may be important to your
decision about whether to participate in the exchange offer, you should
carefully read this offer to exchange in its entirety, including the section
entitled “Risk Factors,” as well as the information incorporated by reference in
this offer to exchange. For further information regarding LSB Industries, Inc.,
see the section of this offer to exchange entitled “Where You Can Find More
Information.” Except as otherwise specified, the words “we,” “our,” “ours,” “us”
and the “Company” refer to LSB Industries, Inc. and its subsidiaries. In this
offer to exchange, we refer to the $3.25 Convertible Exchangeable Class C
Preferred Stock, Series 2 as “Preferred Stock”.
Why
are we making the exchange offer?
We
are
making the exchange offer to reduce our dividend obligations, including the
outstanding amount of accrued and unpaid dividends, and to simplify our capital
structure. The exchange offer allows current holders of shares of Preferred
Stock to receive a number of shares of common stock in excess of the shares
of
common stock that they would receive upon conversion of the Preferred
Stock.
What
will I receive in the exchange offer if I tender shares of Preferred Stock
and
they are accepted?
For
each
share of Preferred Stock that we accept in the exchange offer, you will receive
7.4 shares of our common stock upon the terms and subject to the conditions
set
forth in this offer to exchange and the related letter of transmittal. You
will
be waiving any and all rights to accrued and unpaid dividends on your Preferred
Stock that you exchange. As a result, you will not receive any additional
consideration for accrued and unpaid dividends on your Preferred
Stock.
Our
common stock is listed on the AMEX under the symbol “LXU”. On February 2, 2007,
the last reported sale price per share of our common stock on the AMEX was
$14.85.
How
many shares of Preferred Stock are being sought in the exchange offer?
We
have
entered into an agreement (the “Jayhawk Agreement”) pursuant to which certain
investors, who we refer to as the Jayhawk Group, will exchange 180,450 of the
shares of Preferred Stock that they own in the exchange offer. As of January
23,
2007, the Jayhawk Group owned 346,662 shares of Preferred Stock. A condition
to
the Jayhawk Agreement is that Jack E. Golsen, our Chairman and Chief Executive
Officer, and his spouse and children and the entities they control, who we
refer
to as the Golsen Group, exchange 26,467 of the 49,550 shares of Preferred Stock
they own. We are offering to exchange 309,807 outstanding shares of the
Preferred Stock in this offer to exchange. As of January 23, 2007, 499,102
shares of Preferred Stock were outstanding. For more information regarding
the
Jayhawk Agreement, see the section of this offer to exchange entitled “Summary
-- Recent Developments - Jayhawk Agreement.”
How
does the consideration I will receive if I tender my shares of Preferred Stock
compare to the payments I would receive on the shares of Preferred Stock if
I do
not tender?
Holders
of shares of our Preferred Stock are entitled to quarterly dividends which
are
paid when, if and as declared by our board of directors. As of January 31,
2007,
total accrued and unpaid dividends were $23.975 per share of Preferred Stock.
As
of March 31, 2007, total accrued and unpaid dividends will be $24.7875 per
share
of Preferred Stock. For each share of Preferred Stock that you exchange, you
will be entitled to receive 7.4 shares of common stock. You will not receive
any
additional consideration for accrued and unpaid dividends on your Preferred
Stock.
If
you do
not participate in the exchange offer, your Preferred Stock not exchanged would
be entitled to receive, when, if and as declared by our board of directors,
dividends at an annual rate of $3.25
per
share, on March 15, June 15, September 15 and December 15 of each year for
as
long as such shares remain outstanding. Undeclared dividends will continue
to
accrue.
What
other rights will I lose if I tender my shares of Preferred Stock in the
exchange offer?
If
you
validly tender your shares of Preferred Stock and we accept them for exchange,
you would lose the rights of a holder of Preferred Stock, which are described
below in this offer to exchange. For example you would lose the right to
receive, out of assets available for distribution to our stockholders and before
any distribution is made to the holders of stock ranking junior to the Preferred
Stock (including common stock), a liquidation preference in the amount of $50
per share of Preferred Stock, plus accumulated and unpaid dividends, upon any
voluntary or involuntary liquidation, winding up or dissolution of the Company.
May
I tender only a portion of the shares of Preferred Stock that I hold?
Yes.
You
do not have to tender all of your shares of Preferred Stock to participate
in
the exchange offer.
If
the exchange offer is consummated and I do not participate in the exchange
offer
or I do not tender all of my shares of Preferred Stock in the exchange offer,
how will my rights and obligations under my remaining outstanding shares of
Preferred Stock be affected?
The
terms
of your shares of Preferred Stock, if any, that remain outstanding after the
consummation of the exchange offer will not change as a result of the exchange
offer.
What
do we intend to do with the shares of Preferred Stock that are tendered in
the
exchange offer?
Shares
of
Preferred Stock accepted for exchange by us in the exchange offer will be
retired and cancelled and will be returned to status of authorized but unissued
shares of Class C Preferred Stock, without designation as to series, and may
thereafter be issued, but not as shares of Preferred Stock.
Are
we making a recommendation regarding whether you should tender in the exchange
offer?
We
are
not making any recommendation regarding whether you should tender or refrain
from tendering your shares of Preferred Stock in the exchange offer.
Accordingly, you must make your own determination as to whether to tender your
shares of Preferred Stock in the exchange offer and, if so, the number of shares
of Preferred Stock to tender. Before making your decision, we urge you to
carefully read this offer to exchange in its entirety, including the information
set forth in the section of this offer to exchange entitled “Risk Factors,” and
the other documents incorporated by reference in this offer to exchange.
Does
the Company have a financial advisor for the exchange
offer?
We
have
retained J Giordano Securities Group as our exclusive financial advisor in
connection with the exchange offer. On January 26, 2007, J Giordano
Securities Group delivered their opinion to our board of directors that the
consideration to be paid to the holders of Preferred Stock in the exchange
offer
was fair from a financial point of view. Neither our board of directors nor
J Giordano Securities Group is making any recommendation regarding whether
you should tender or refrain from tendering your shares of Preferred Stock
in
the exchange offer.
Will
the common stock to be issued in the exchange offer be listed for trading?
Yes.
The
shares of our common stock to be issued in the exchange offer have been approved
for listing on the AMEX. Generally, the common stock you receive in the exchange
offer will be freely tradeable, unless you are considered an “affiliate” of
ours, as that term is defined in the Securities Act of
1933.
For
more information regarding the market for our common stock, see the section
of
this offer to exchange entitled “Market for Common Stock and Preferred Stock.”
What
are the conditions to the exchange offer?
The
exchange offer is conditioned upon the closing conditions described in “The
Exchange Offer—Conditions to the Exchange Offer.” We may waive certain
conditions of this exchange offer. If any of the conditions is not satisfied
or
waived, we will not accept and exchange any validly tendered shares of Preferred
Stock. For more information regarding the conditions to the exchange offer
(including conditions we cannot waive), see the section of this offer to
exchange entitled “The Exchange Offer—Conditions to the Exchange Offer.”
When
does the exchange offer expire?
The
exchange offer will expire at 5:00 p.m., New York City time, on March 12, 2007,
unless extended or earlier terminated by us.
Under
what circumstances can the exchange offer be extended, amended or terminated?
We
reserve the right to extend the exchange offer for any reason or no reason
at
all. We also expressly reserve the right, at any time or from time to time,
to
amend the terms of the exchange offer in any respect prior to the expiration
date of the exchange offer. Further, we may be required by law to extend the
exchange offer if we make a material change in the terms of the exchange offer
or in the information contained in this offer to exchange or waive a material
condition to the exchange offer. During any extension of the exchange offer,
shares of Preferred Stock that were previously tendered and not validly
withdrawn will remain subject to the exchange offer. We reserve the right,
in
our sole and absolute discretion, to terminate the exchange offer, at any time
prior to the expiration date of the exchange offer. If the exchange offer is
terminated, no shares of Preferred Stock will be accepted for exchange and
any
shares of Preferred Stock that have been tendered will be returned to the holder
promptly after the termination. For more information regarding our right to
extend, amend or terminate the exchange offer, see the section of this offer
to
exchange entitled “The Exchange Offer—Extension, Delay in Acceptance, Amendment
or Termination.”
How
will I be notified if the exchange offer is extended, amended or terminated?
If
the
exchange offer is extended, amended or terminated, we will promptly make a
public announcement by issuing a press release, with the announcement in the
case of an extension, to be issued no later than 9:00 a.m., New York City time,
on the first business day after the previously scheduled expiration date of
the
exchange offer. For more information regarding notification of extensions,
amendments or the termination of the exchange offer, see the section of this
offer to exchange entitled “The Exchange Offer—Extension, Delay in Acceptance,
Amendment or Termination.”
What
risks should I consider in deciding whether or not to tender my Preferred Stock?
In
deciding whether to participate in the exchange offer, you should carefully
consider the discussion of risks and uncertainties affecting our business,
the
Preferred Stock and our common stock described in the section of this offer
to
exchange entitled “Risk Factors,” and the documents incorporated by reference in
this offer to exchange.
What
are the federal income tax consequences of my participating in the exchange
offer?
Please
see the section of this offer to exchange entitled “Material United States
Federal Income Tax Consequences.” The tax consequences to you of the exchange
offer will depend on your individual circumstances. You should consult your
own
tax advisor for a full understanding of the tax consequences of participating
in
the exchange offer.
How
will the exchange offer affect the trading market for the shares of Preferred
Stock that are not exchanged?
If
a
sufficiently large number of shares of Preferred Stock do not remain outstanding
after the exchange offer, the trading market for the remaining outstanding
shares of Preferred Stock may be less liquid and more sporadic, and market
prices may fluctuate significantly depending on the volume of trading in shares
of Preferred Stock. Accordingly, your ability to sell your shares of Preferred
Stock not tendered in the exchange offer may be impaired.
Are
the financial condition and results of operations of the Company relevant to
my
decision to tender in the exchange offer?
Yes.
The
price of both our common stock and the Preferred Stock are closely linked to
our
financial condition and results of operations. For information about the
accounting treatment of the exchange offer, see the section of this offer to
exchange entitled “The Exchange Offer—Accounting Treatment.” In addition, the
tax treatment to you of the exchange offer is dependent on whether we have
current earnings and profits for 2007. See “Material United States Federal
Income Tax Consequences For Preferred Stock Holders.”
Will
the Company receive any cash proceeds from the exchange offer?
No.
We
will not receive any cash proceeds from the exchange offer.
How
do I tender my shares of Preferred Stock?
The
exchange of shares of common stock for shares of Preferred Stock tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the Exchange Agent of the following:
(1) a
book-entry confirmation with respect to such securities,
(2) the
letter of transmittal (or a facsimile thereof) properly completed and duly
executed or a properly transmitted agent’s message, and
(3) any
required signature guarantees and other documents required by the letter of
transmittal.
For
more
information regarding the procedures for tendering your shares of Preferred
Stock, see the section of this offer to exchange entitled “The Exchange
Offer—Procedures for Tendering Shares of Preferred Stock.”
What
happens if some or all of my shares of Preferred Stock are not accepted for
exchange?
If
we
decide for any reason not to accept some or all of your shares of Preferred
Stock, the shares of Preferred Stock not accepted by us will be returned to
you,
at our expense, promptly after the expiration or termination of the exchange
offer. For more information, see the section of this offer to exchange entitled
“The Exchange Offer—Return of Unaccepted Shares of Preferred Stock.”
Until
when may I withdraw previously tendered shares of Preferred Stock?
If
not
previously returned, you may withdraw previously tendered shares of Preferred
Stock at any time until the exchange offer has expired. In addition, you may
withdraw any shares of Preferred Stock that you tender that are not accepted
for
exchange by us after the expiration of 40 business days from February 9, 2007.
For more information, see the section of this offer to exchange entitled “The
Exchange Offer—Withdrawals of Tenders.”
How
do I withdraw previously tendered shares of Preferred Stock?
Beneficial
owners desiring to withdraw shares of Preferred Stock previously tendered
through the Depository Trust Company (“DTC”) should contact the DTC participant
through which such beneficial owners hold their shares of Preferred Stock.
Registered holders who tendered other than through DTC should send written
notice of withdrawal to the Exchange Agent specifying the name of the holder
who
tendered the securities being withdrawn and the number of shares of Preferred
Stock being withdrawn. For
more
information regarding the procedures for withdrawing tendered shares of
Preferred Stock, see the section of this offer to exchange entitled “The
Exchange Offer—Withdrawals of Tenders.”
Will
I have to pay any fees or commissions if I tender my shares of Preferred Stock?
If
your
shares of Preferred Stock are held through a broker or other nominee who tenders
the Preferred Stock on your behalf, your broker may charge you a commission
for
doing so. You should consult with your broker or nominee to determine whether
any charges will apply.
With
whom may I talk if I have questions about the exchange offer?
If
you
have questions regarding the procedures for tendering in the exchange offer,
require additional exchange offer materials or require assistance in tendering
your shares of Preferred Stock, please contact the Information Agent. You can
call the Information Agent toll-free at (800) 657-4428.
You may
also write to the Information Agent at the address set forth on the back cover
of this offer to exchange.
This
summary highlights selected information contained or incorporated by reference
in this offer to exchange. It likely does not contain all of the information
that may be important to you or that you should consider when making a decision
regarding the exchange offer. You should carefully read this entire offer to
exchange, including “Risk Factors,” and the information we have incorporated by
reference before making a decision to participate in the exchange offer.
LSB
Industries, Inc.
We
were
formed in 1968 as an Oklahoma corporation, and became a Delaware corporation
in
1977. We are a diversified holding company. Our wholly-owned subsidiary,
ThermaClime, Inc. (“ThermaClime”) through its subsidiaries, owns substantially
all of our core businesses consisting of the:
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•
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Climate
Control Business engaged in the manufacturing and selling of a broad
range
of heating, ventilation and air conditioning (“HVAC”) products used in
commercial and residential new building construction, renovation
of
existing buildings and replacement of existing systems.
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•
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Chemical
Business engaged in the manufacturing and selling of chemical products
produced from three plants in Texas, Arkansas and Alabama for the
industrial, mining and agricultural markets.
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Our
executive offices are located at 16 South Pennsylvania Avenue, Oklahoma City,
Oklahoma 73107. Our telephone number at that location is (405) 235-4546.
Recent
Developments
Prior
Exchanges
On
October 6, 11, 12 and 25, 2006, we entered into various Exchange Agreements
with
certain holders of our Preferred Stock to exchange an aggregate of 104,548
shares of Preferred Stock for an aggregate of 773,655 shares of common stock
subject to approval by AMEX to list the shares of common stock to be issued
in
connection with the Exchange Agreements. The exchange rate for each share was
7.4 shares of common stock for each share of Preferred Stock surrendered to
the
Company. The holders agreed to waive all accrued and unpaid dividends. On
November 7, 2006, the AMEX approved the listing of the
shares
to
be issued in the exchange. Pursuant to the terms of the Exchange Agreements,
promptly after approval of the listing of the shares by AMEX, 104,548 shares
of
Preferred Stock were surrendered to us (including 35,428 shares of James
W.
Sight (“Sight”) and 41,000 shares by Paul J. Denby and his affiliates
(collectively, “Denby”), and in exchange we issued 773,655 shares of common
stock (including 262,167 to Sight and 303,400 shares to Denby). An aggregate
of
approximately $2.43 million in accrued and unpaid dividends were waived in
the
exchanges. All such exchanges have been completed. See “Interests of Our
Principal Stockholders, Officers and Directors.”
The
Exchange Agreements were solicited by and negotiated with each of the holders.
Neither we nor any of the holders has paid or given, or agreed to pay or give,
directly or indirectly, any commission or other remuneration in connection
with
the Exchange Agreements. The exchanges were conducted under the exemption from
registration provided by Section 3(a)(9) of the Securities Act.
Jayhawk
Agreement
On
November 10, 2006, we entered into an agreement (the “Jayhawk Agreement”)
with the Jayhawk Group, which consists of Kent C. McCarthy, Jayhawk Capital
Management, L.L.C., Jayhawk Institutional Partners, L.P., and Jayhawk
Investments, L.P. The Jayhawk Agreement provides that if we undertake, in our
sole discretion, within one year from the date of the Jayhawk Agreement, a
tender offer for, or exchange of, our Preferred Stock, that the Jayhawk Group
will either exchange or deliver to us 180,450 of the 346,662 shares of the
Preferred Stock owned by the Jayhawk Group for 1,335,330 shares of our common
stock, based on 7.4 shares of common stock for each share of Preferred Stock
surrendered to us in the transaction.
The
Jayhawk Agreement further provides that the Jayhawk Group will waive its rights
to all accrued and unpaid dividends on the Preferred Stock tendered or
exchanged. As of January 31, 2007, the accrued and unpaid dividends on the
Preferred Stock were $23.975 per share. Accordingly, if a tender offer or
exchange is completed, including the exchange offer pursuant to this offer
to
exchange, the Jayhawk Group will waive a total of approximately $4.3 million
in
accrued and unpaid dividends on the 180,450 shares of Preferred Stock which
will
be surrendered to us.
The
terms
of Section 7(b) of the certificate of designations of the Preferred Stock
currently provides that, whenever dividends on the Preferred Stock are in
arrears and unpaid in an amount equal to at least six quarterly dividends:
(a) the number of members of our board of directors shall be increased by
two; and (b) the Preferred Stock holders have the exclusive right to vote
for and elect two additional directors until the payment of accrued and unpaid
dividends on the Preferred Stock. In 2002, the holders of the Preferred Stock,
including the Jayhawk Group, elected two directors pursuant to the terms of
the
Preferred Stock.
The
Jayhawk Agreement further provides that any such exchange or tender offer will
be subject to:
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our
receipt of a fairness opinion for the
transaction;
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the
listing on the AMEX of the common stock to be issued in the
transaction;
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the
approval by the holders of our common stock and Preferred Stock of
the
amendments described below under “Amendment of the Certificate of
Designation of the Preferred Stock”;
and
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the
Golsen Group exchanging or tendering in connection with this transaction
26,467 shares of the 49,550 shares of Preferred Stock beneficially
owned
by them, and waiving all accrued and unpaid dividends on the 26,467
shares
(approximately $634,500) tendered or
exchanged.
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The
Jayhawk Agreement was solicited by the Jayhawk Group and negotiated with the
Jayhawk Group. Neither we nor any of member of the Jayhawk Group has paid or
given, or agreed to pay or give, directly or indirectly, any commission or
other
remuneration in connection with the Agreement.
Recent
Transactions
Members
of the Jayhawk Group acquired shares of Preferred Stock in open market
transactions on December 15, 2006 (3300 shares), December 18, 2006 (500 shares),
December 22, 2006 (100 shares), December 29, 2006 (1700 shares), and January
4,
2007 (162 shares).
Amendment
of the Certificate of Designations of the Preferred Stock
The
Preferred Stock has
the
right to elect two additional directors to our board of directors if dividends
are in arrears and unpaid in an amount equal to at least six quarterly
dividends, as they currently are. We are submitting a proposal to be voted
on at
the special meeting to be held on March 6, 2007. The proposal is to approve
two
amendments to the certificate of designations of the Preferred Stock to
provide
as follows:
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the
first Amendment permits us and our subsidiaries, during the period
that
cumulative accrued and unpaid dividends exist on our Preferred Stock,
to
purchase, redeem, or otherwise acquire shares of our common stock
for a
period of five years from the date of completion of an exchange or
tender
offer by the Company after January 1, 2007, for at least 180,000
shares of
the outstanding Preferred Stock;
and
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the
second Amendment provides that the current right of the holders of
Preferred Stock to elect two directors to our board when at least
six
quarterly dividends on the Preferred Stock are in arrears and unpaid
may
be exercised only if and so long as at least 140,000 shares of Preferred
Stock are issued and outstanding.
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Passage
of the proposal to approve the two amendments is a condition to this exchange
offer. If
the
proposal passes and the number of outstanding shares of Preferred Stock falls
below 140,000, (a) the Preferred Stock holders will not be entitled to elect,
as
a class, any members to the board of directors, and (b) the term of any
directors that were elected by the Preferred Stock who are then serving as
members will expire, notwithstanding that dividends on the Preferred Stock
are
or remain in the arrears and unpaid in an amount equal to at least six quarterly
dividends.
Under
our
existing stock option plans, certain options for the purchase of our common
stock permit the holder of the option to pay the purchase price of the option
by
tendering to us shares of our common stock already owned by the holder. This
is
commonly referred to as a “cashless” exercise of a stock option. Since 1999, we
have received 251,174 shares of our common stock from employees in payment
of
the exercise price under our stock option plans pursuant to the cashless
exercise provisions of the plans. A holder of our Preferred Stock has alleged
that the receipt by us of common stock under the cashless exercise provisions
of
our stock option plans during the period that we had cumulative accrued and
unpaid dividends on our Preferred Stock may constitute an “acquisition” of
common stock that is prohibited under the certificate of designations. If
approved, the proposal to amend the certificate of designations of the Preferred
Stock will clarify that receipt by us of common stock upon the cashless exercise
of our outstanding stock options is not prohibited by the terms of the
certificate of designations and to expressly permit such transactions during
the
period that cumulative accrued and unpaid dividends exist on our Preferred
Stock
for a period of five years from the completion after January 1, 2007, of a
tender offer or exchange by us for at least 180,000 shares of our Preferred
Stock.
On
February 6, 2007, we filed with the SEC and mailed to our stockholders our
definitive proxy statement for the special meeting of stockholders to be held
March 6, 2007, to consider the approval of the amendments to the certificate
of
designations of Preferred Stock. The Company’s stockholders are urged to read
the proxy statement and other relevant materials because they will contain
important information about the proposed amendments to the certificate of
designations. Investors and security holders may obtain
free
copies of these documents and other documents filed with the SEC at the SEC’s
web site at www.sec.gov.
Informal
Inquiry
The
SEC
made an informal inquiry to us by letter dated August 15, 2006. The inquiry
relates to the restatement of our financial statements for the year ending
December 31, 2004, due to accounting matters relating to the change in inventory
accounting from LIFO to FIFO. At the present time, the informal inquiry is
not a
pending proceeding nor does it rise to the level of a government
investigation. At this time, we are unable to determine if the inquiry
will ever rise to the level of an investigation or proceeding or will result
in
an enforcement action, if any, by the SEC.
Summary
of the Exchange Offer
The
material terms of the exchange offer are summarized below. In addition, we
urge
you to read the detailed descriptions in the sections of this offer to exchange
entitled “The Exchange Offer,” “Description of Capital Stock,” “Description of
the Preferred Stock” and “Comparison of Rights Between the Preferred Stock and
Our Common Stock.”
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Offeror
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LSB
Industries, Inc.
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Securities
Subject to the Exchange Offer
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Up
to 309,807 shares of $3.25 Convertible Exchangeable Class C Preferred
Stock, Series 2.
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The
Exchange Offer
|
We
are offering to exchange 7.4 shares of our common stock for each
validly
tendered and accepted share of Preferred Stock upon the terms and
subject
to the conditions set forth in this offer to exchange and in the
related
letter of transmittal (including, if the exchange offer is extended
or
amended, the terms and conditions of any such extension or
amendment).
Any
shares of Preferred Stock not exchanged will remain outstanding.
The
shares of Preferred Stock validly tendered and accepted for exchange
in
the exchange offer will be retired and
cancelled.
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Exchange
Ratio
|
For
each share of Preferred Stock validly tendered and not validly withdrawn
on or prior to 5:00 p.m., New York City time, on the expiration date,
the
holder will receive 7.4 shares of our common stock.
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Accrued
and Unpaid Dividends
|
You
will be waiving all rights to any and all accrued and unpaid dividends
existing on the Preferred Stock as to the shares of Preferred Stock
so
exchanged.
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Fractional
Shares
|
Fractional
shares will not be issued in the exchange offer and cash will be
paid in
lieu of any fractional shares.
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Expiration
Date
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The
exchange offer will expire at 5:00 p.m., New York City time, on March
12,
2007, unless extended or earlier terminated by us.
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Certain
Consequences to Non-Tendering Holders
|
Shares
of Preferred Stock not exchanged in the exchange offer will remain
outstanding after the consummation of the exchange offer.
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Conditions
to the Exchange Offer
|
The
exchange offer is conditioned upon the closing conditions described
in
“The Exchange Offer—Conditions to the Exchange Offer.” If a sufficiently
large number of shares of Preferred Stock do
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not
remain outstanding after the exchange offer, the trading market for
the
remaining outstanding shares of Preferred Stock may be less
liquid.
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No
Appraisal Rights
|
No
appraisal rights are available to holders of Preferred Stock in connection
with the exchange offer.
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Procedures
For Tendering Shares
of
Preferred Stock
|
To
tender shares of Preferred Stock, UMB Bank, n.a., the Exchange Agent,
must
receive timely, prior to the expiration date of the exchange offer,
(1) a
book-entry confirmation with respect to the Preferred Stock, (2) the
letter of transmittal (or a facsimile thereof) properly completed
and duly
executed or a properly transmitted agent’s message and (3) any
required signature guarantees and other documents required by the
letter
of transmittal.
We
describe the procedures for tendering shares of Preferred Stock in
“The
Exchange Offer - Procedures for Tendering Shares of Preferred Stock.” For
further information, contact the Exchange Agent at its telephone
number
and address set forth on the back cover page of this offer to
exchange
or
consult your broker, dealer, commercial bank, trust company or custodian
for assistance.
If
you wish to tender shares of Preferred Stock that are held in the
name of
a broker or other nominee, you should instruct your broker or other
nominee to tender on your behalf.
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Withdrawal
Rights
|
You
may withdraw previously tendered shares of Preferred Stock at any
time
before the expiration date of the exchange offer. In addition, you
may
withdraw any shares of Preferred Stock that you tender that are not
accepted by us for purchase after the expiration of 40 business days
from
February 9, 2007. See the section of this offer to exchange entitled
“The
Exchange Offer—Withdrawals of Tenders.”
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Risk
Factors
|
You
should consider carefully all of the information set forth in this
offer
to exchange and, in particular, you should evaluate the specific
factors
set forth under “Risk Factors” before deciding whether to participate in
the exchange offer.
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Material
United States Federal Income Tax Consequences For Preferred Stock
Holders
|
We
intend to treat the exchange of your shares of Preferred Stock for
shares
of our common stock pursuant to the exchange offer as a recapitalization.
While generally a recapitalization is not a taxable transaction for
persons who exchange preferred stock for common stock, some portion
of the
common stock you will receive if you make the exchange may be treated
as a
dividend. For a detailed discussion, please see the section titled
“Material United States Federal Income Tax Consequences.”
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Brokerage
Commissions
|
If
your shares of Preferred Stock are held through a broker or other
nominee
who tenders shares of Preferred Stock on your behalf, your broker
may
charge you a commission for doing so.
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Information
Agent
|
Georgeson,
Inc.
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Exchange
Agent
|
UMB
Bank, n.a.
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Market-Trading
|
Our
common stock is listed on the AMEX under the symbol “LXU.” On February 2,
2007, the last reported sale price of our common stock on the AMEX
was
$14.85 per share. The AMEX has approved the listing of the shares
of our
common stock to be issued in the exchange offer.
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Further
Information
|
If
you have questions regarding the procedures for tendering in the
exchange
offer or require assistance in tendering your shares of Preferred
Stock,
please contact the Information Agent. If you would like additional
copies
of this offer to exchange, our annual, quarterly, and current reports,
proxy statement and other information that we incorporate by reference
in
this offer to exchange, please contact the Information Agent. The
contact
information is set forth on the back cover of this offer to exchange.
|
In
considering whether to participate in the exchange offer, you should carefully
consider the risks described below and the other information we have included
or
incorporated by reference in this offer to exchange.
Risks
Related to the Exchange Offer
By
tendering your shares of Preferred Stock, you will lose your right to receive
accrued and unpaid dividends and future dividends.
Holders
of shares of our Preferred Stock are entitled to quarterly dividends, which
are
paid when, if and as declared by our board of directors. As of December 31,
2006, total accrued and unpaid dividends were $23.975 per share of Preferred
Stock. As of March 31, 2007, total accrued and unpaid dividends will be $24.7875
per share of Preferred Stock.
As
of
December 31, 2006, there was an aggregate of approximately $14 million of
cumulative accrued and unpaid dividends on all of our outstanding preferred
stock, which includes approximately $12 million as to the Preferred Stock.
None of the cumulative accrued and unpaid dividends have been declared payable
by our board of directors. Although we do not anticipate paying all
accrued and unpaid dividends on our outstanding Preferred Stock in the
foreseeable future, we have paid nominal dividends on the Preferred Stock each
quarter during 2006. We may continue to pay nominal dividends on our Preferred
Stock from time to time, if the Board determines that our financial condition
and requirements justify such dividends.
For
each
share of Preferred Stock that you exchange, you will be entitled to receive
7.4
shares of common stock, and you will be required to waive all accrued and unpaid
dividends on each share of Preferred Stock exchanged. You will not receive
any
additional consideration for accrued and unpaid dividends on your Preferred
Stock.
If
your
shares of Preferred Stock are validly tendered and accepted for exchange, you
will lose the right to receive any future dividends to be paid on such shares
after completion of the exchange offer.
In
the future, we may acquire any shares of Preferred Stock that are not tendered
in the exchange offer for consideration different than that in the exchange
offer.
In
the
future, we may acquire shares of Preferred Stock that are not tendered in the
exchange offer through open market purchases, privately negotiated transactions,
an exchange offer or such other means as we deem appropriate. Any such
acquisitions will occur upon the terms and at the prices as we may determine
in
our discretion, which may be more or less than the value of the common stock
being exchanged for the Preferred Stock under the exchange offer, and could
be
for cash or other consideration. We may choose to pursue any or none of these
alternatives, or combinations thereof, in the future.
We
are
offering to exchange 7.4 shares of our common stock for each share of Preferred
Stock. The price of our common stock may fluctuate widely in the future. If
the
market price of our common stock declines, the value of the shares you will
receive in exchange for your shares of Preferred Stock will decline. The trading
value of our common stock could fluctuate depending upon any number of factors,
including those specific to us and those that influence the trading prices
of
equity securities generally, many of which are beyond our control. Please see
“—Risks Related to Us and Our Business.”
All
of our debt obligations and our preferred stock, including any shares of
Preferred Stock that remain outstanding after the exchange offer, will have
priority over our common stock with respect to payment in the event of a
liquidation, dissolution or winding up.
In
any
liquidation, dissolution or winding up of the Company, our common stock would
rank below all debt claims against the Company and all of our outstanding shares
of preferred stock, including the shares of Preferred Stock that are not
tendered and accepted by us in this exchange offer. As a result, holders of
our
common stock will not be entitled to receive any payment or other distribution
of assets upon the liquidation or dissolution until after our obligations to
our
debt holders and holders of preferred stock have been satisfied.
Future
sales of our common stock in the public market or the issuance of securities
senior to our common stock could adversely affect the trading price of our
common stock and our ability to raise funds in new stock offerings and may
dilute your percentage interest in our common stock.
Future
sales of substantial amounts of our common stock or equity-related securities
in
the public market, or the perception that such sales could occur, could
adversely affect prevailing trading prices of our common stock and could impair
our ability to raise capital through future offerings of equity or
equity-related securities. No prediction can be made as to the effect, if any,
that future sales of shares of common stock or the availability of shares of
common stock for future sale, will have on the trading price of our common
stock. Such future sales could also significantly reduce the percentage
ownership of our existing common stockholders.
We
have not declared or paid dividends on our outstanding common stock in many
years and have a substantial amount of accrued and unpaid dividends on our
outstanding series of cumulative preferred stock.
We
have
not paid cash dividends on our outstanding common stock in many years, and
from
January 1, 1999, through December 31, 2005, we did not pay any accrued dividends
on our outstanding cumulative preferred stock, including the Preferred Stock.
We
intend to retain most of our future earnings, if any, to provide funds for
our
operations and/or expansion of our businesses. However, during each quarter
in
2006, our board of directors declared nominal dividends on certain outstanding
series of our preferred stock, as follows: $.10 per share on the then
outstanding shares of our Preferred Stock, $.37 per share on our outstanding
Series B 12% Cumulative Convertible Preferred, and $.31 per share on our
outstanding Non-Cumulative Preferred. These dividends are not for the full
amount of the required quarterly dividends pursuant to the terms of our
outstanding series of preferred stock. As of December 31, 2006, there were
approximately $14 million of accrued and unpaid dividends on our outstanding
cumulative preferred stock.
We
do not
anticipate paying cash dividends on our outstanding common stock in the
foreseeable future, and until all accrued and unpaid dividends are paid on
our
outstanding cumulative preferred stock, no dividends may be paid on our common
stock. In the event of our liquidation, winding up or dissolution, there can
be
no distributions on our common stock until all of the liquidation preference
and
stated value amounts of our outstanding preferred stock and all accrued and
unpaid dividends due on our outstanding cumulative preferred stock are paid
in
full. Further, not paying all of the cumulative accrued dividends on our
outstanding preferred stock could adversely affect the marketability of our
common stock and our ability to raise additional equity capital.
If
we have current or accumulated earnings and profits, a portion of the common
stock you receive in exchange for shares of Preferred Stock will be treated
as a
dividend.
The
exchange of Preferred Stock for common stock pursuant to the exchange offer
constitutes a recapitalization for federal tax purposes. While generally a
recapitalization is not a taxable transaction for persons who exchange preferred
stock for common stock, some portion of the common stock you will receive if
you
make the exchange will be treated as a dividend to the extent we have current
or
accumulated earnings and profits as determined for U.S. Federal Income Tax
purposes. We believe that the amount of our “accumulated” earnings and
profits through December 31, 2006, is negative. However, “current”
earnings and profits means our earnings and profits for the current taxable
year, which will not end until December 31, 2007, and we are unable to predict
whether we will have earnings and profits for 2007. See “Material United
States Federal Income Tax Consequences.”
Risks
Related to Holding Shares of Preferred Stock After the Exchange Offer
Shares
of Preferred Stock that you continue to hold after the exchange offer are
expected to become less liquid following the exchange offer.
If
a
sufficiently large number of shares of Preferred Stock do not remain outstanding
after the exchange offer, the trading market for the remaining outstanding
shares of Preferred Stock may be less liquid and market prices may fluctuate
significantly depending on the volume of trading in shares of Preferred Stock.
Furthermore, a security with a smaller “float” may command a lower price and
trade with greater volatility or much less frequently than would a comparable
security with a greater float. This decreased liquidity may also make it more
difficult for holders of shares of Preferred Stock that do not tender to sell
their shares of Preferred Stock.
If
the number of outstanding shares of Preferred Stock falls below a certain level,
holders of the Preferred Stock will no longer be entitled to their current
rights to elect directors.
The
Preferred Stock has
the
right to elect two additional directors to our board of directors if dividends
are in arrears and unpaid in an amount equal to at least six quarterly
dividends, as they currently are. We are submitting a proposal to be voted
on at
the special meeting to be held on March 6, 2007, to amend the certificate of
designations of the Preferred Stock to provide
that the right of the holders of Preferred Stock to elect the two directors
to
our board may be exercised only if and so long as at least 140,000 shares of
the
Preferred Stock are issued and outstanding. Passage of the proposal is a
condition to the exchange offer. If
the
proposal passes and the number of outstanding shares of Preferred Stock falls
below this level, the Preferred Stock holders will not be entitled to elect,
as
a class, any members to the board of directors.
We
may use funds otherwise available for the payment of dividends on the Preferred
Stock to purchase shares of our common stock.
The
certificate of designations of the Preferred Stock prohibits us from purchasing
shares of our common stock at any time unless and until all cumulative and
unpaid dividends on Preferred Stock have been paid or declared or set apart
for
payment through the last dividend due date. The proposal to be voted on at
the
special meeting of stockholders to be held on March 6, 2007, if approved, would
amend the certificate of designations of Preferred Stock to permit us to
purchase, redeem, or otherwise acquire in any manner and for any reason shares
of common stock for a period of five years from the completion of an exchange
or
tender offer by us for at least 180,000 shares of the Preferred Stock. If the
proposal passes, funds otherwise available for the payment of dividends on
the
Preferred Stock may be utilized by us to purchase shares of common stock.
Passage of the proposal is a condition to this exchange offer.
If
you do not participate in the exchange offer, your shares of Preferred Stock
will continue to be subject to our right to cause the exchange of the Preferred
Stock into our 6.50% convertible subordinated debentures upon satisfaction
of
certain conditions.
Each
outstanding share of Preferred Stock may be exchanged at our option, in whole,
but not in part, for our 6.50% convertible subordinated debentures, if we are
not in default on any payments of dividends on the Preferred Stock or on any
senior stock or parity stock.
The
trading prices for the shares of Preferred Stock that remain outstanding after
the exchange offer will be directly affected by the trading prices of our common
stock.
Because
the Preferred Stock is convertible into shares of our common stock, the trading
prices of the Preferred Stock in the secondary market is directly affected
by
the trading prices of our common stock, the general level of interest rates
and
our credit quality. It is impossible to predict whether the price of the common
stock or interest rates will rise or fall. Trading prices of the common stock
will be influenced by the factors described in the section of this offer to
exchange entitled “—Risks Related to the Exchange Offer—The value of the common
stock that you receive may fluctuate” and “—Risks Related to Us and Our
Business.”
Risks
Related to Us and Our Business
Cost
and availability of raw materials could materially affect our profitability
and
liquidity.
Our
Chemical Business’ sales and profits are heavily affected by the costs and
availability of its primary raw materials. Anhydrous ammonia and natural gas,
which are purchased from unrelated third parties, represent the primary raw
material feedstocks in the production of most of the products of the Chemical
Business. The primary material utilized in anhydrous ammonia production is
natural gas, and fluctuations in the price of natural gas can have a significant
effect on the cost of anhydrous ammonia. Historically, there has been volatility
in the cost of anhydrous ammonia and natural gas, and in many instances we
were
unable to increase our sales prices to cover all of the higher anhydrous ammonia
and natural gas costs incurred. Although our Chemical Business has a program
to
enter into contracts with certain customers that provide for the pass-through
of
raw material costs, we have a substantial amount of sales by the Chemical
Business that do not provide for these pass-throughs. Thus, in the future,
we
may not be able to pass along to all of our customers the full amount of
increases in anhydrous ammonia and natural gas costs. We have suspended in
the
past, and could in the future, from time to time, suspend production at our
chemical facilities due to, among other things, the cost or unavailability
of
such primary raw materials. Accordingly, our results of operations and financial
condition have in the past been, and will in the future be, materially affected
by the cost or unavailability of raw materials, including anhydrous ammonia
and
natural gas.
In
addition, our Climate Control Business depends on raw materials such as copper
and steel, which have recently shown considerable price volatility. While we
periodically enter into fixed-price contracts on copper to hedge against price
increases, there can be no assurance that our Climate Control Business will
effectively manage against price fluctuations in copper and other raw materials
or that future price fluctuations in copper and other raw materials will not
have an adverse effect on our financial condition, liquidity and results of
operations. Our Climate Control Business depends on certain suppliers to deliver
the key components that are required in the production of its products. Any
disruption in such supply could result in lost production or delayed shipments,
which could materially affect our operations and cash flow.
In
recent years our Chemical Business has been unable to generate significant
positive cash flows.
Due,
in
part, to lower than optimum sales levels, margin problems and extensive capital
expenditures, our Chemical Business has not generated significant positive
cash
flows in recent years. Continuing significant cash flow expenditures by this
business could have a material adverse effect on our financial condition and
liquidity.
Our
Climate Control Business and its customers are sensitive to economic cycles.
Our
Climate Control Business is affected by cyclical factors, such as interest
rates, inflation and economic downturns. Our Climate Control Business depends
on
sales to customers in the commercial construction and renovation industries,
which are particularly sensitive to these factors. A decline in the economic
activity in the United States has in the past, and could in the future, have
a
material adverse effect on our customers in the commercial construction and
renovation industries in which our Climate Control Business sells a substantial
amount of its products. Such a decline could result in a decrease in revenues
and profits, and an increase in bad debts, in our Climate Control Business.
Weather
conditions adversely affect our Chemical Business.
The
agricultural products produced and sold by our Chemical Business have in the
past, and could continue in the future, to be materially affected by adverse
weather conditions outside of our control (such as excessive rains or drought)
in the primary markets for our fertilizer and related agricultural products.
If
any of these unusual weather events occur during the primary seasons for sales
of our agricultural products (March-June and September-November), this could
have a material adverse effect on the agricultural sales of our Chemical
Business and our financial condition and results of operation.
Environmental
and regulatory matters entail significant risk for us.
Our
Chemical Business is subject to numerous environmental laws and regulations.
The
manufacture and distribution of chemical products are activities which entail
environmental risks and impose obligations under environmental laws and
regulations, many of which provide for substantial fines and potential criminal
sanctions for violations. Our Chemical Business has in the past, and may in
the
future, be subject to fines, penalties and sanctions for violations of
environmental laws and substantial expenditures for cleanup costs and other
liabilities relating to the handling, manufacture, use, emission, discharge
or
disposal of pollutants or other substances at or from the Chemical Business’
facilities. Further, a number of our Chemical Business’ facilities are dependent
on environmental permits to operate, the loss of which could have a material
adverse effect on its operations and our financial condition.
We
may be required to expand our security procedures and install additional
security equipment for our Chemical Business in order to comply with the
Homeland Security Act of 2002 and possible future government
regulation.
The
chemical industry in general, and producers of ammonium nitrate specifically,
are scrutinized by the government, industry and public on security issues.
Under the Homeland Security Act of 2002, as well as current and proposed
regulations, we may be required to incur substantial additional costs relating
to security at our chemical facilities and distribution centers and security
for
the transportation of our products. These costs could have a material
impact on our financial condition and results of operation.
A
substantial portion of our sales is dependent upon a limited number of
customers.
Based
on
our preliminary unaudited sales results, during 2006, five customers of our
Chemical Business accounted for 56.9% of its net sales and 26.7% of our
consolidated net sales, and during 2006, our Climate Control Business had one
customer that accounted for 16.0% of its net sales and 7.2% of our consolidated
net sales. During the last quarter of 2006, five customers of our Chemical
Business accounted for 61.4% of its net sales and
29.2% of
our consolidated net sales, and during the same period, the Climate Control
Business had one customer that accounted for 13.4% of its net sales and 6.6%
of
our consolidated net sales. The loss of, or a material reduction in purchase
levels by, one or more of these customers could have a material adverse effect
on our business and our results of operations, financial condition and liquidity
if we are unable to replace a customer on substantially similar terms.
15
Our working capital requirements fluctuate because of the seasonal nature of our Chemical Business’ agricultural products.
Because
of the seasonal nature of our Chemical Business’ agricultural products, our
working capital requirements are significantly higher at certain times of the
year due to increases in inventories of ammonium nitrate, urea ammonium nitrate
(UAN) and other agricultural products prior to the beginning of each planting
season. If additional working capital is required and not available under our
revolving credit facility, this could have a negative impact on our other
operations, including our Climate Control Business.
There
is intense competition in the Climate Control and Chemical industries.
Substantially
all of the markets in which we participate are highly competitive with respect
to product quality, price, design innovations, distribution, service,
warranties, reliability and efficiency. We compete with a number of established
companies that have greater financial, marketing and other resources than we
have and are less highly leveraged than we are. Competitive factors could
require us to reduce prices or increase spending on product development,
marketing and sales which would have a material adverse effect on our business,
results of operation and financial condition.
We
are subject to a variety of factors that could discourage other parties from
attempting to acquire us.
Our
certificate of incorporation provides for a staggered board of directors and,
except in limited circumstances, a two-thirds vote of outstanding voting shares
to approve a merger, consolidation or sale of all, or substantially all, of
our
assets. In addition, we have entered into severance agreements with our
executive officers and some of the executive officers of our subsidiaries that
provide, among other things, that if, within a specified period of time after
the occurrence of a change in control of our company, these officers are
terminated, other than for cause, or the officer terminates his employment
for
good reason, we must pay such officer an amount equal to 2.9 times the officer’s
average annual gross salary for the last five years preceding the change in
control.
We
have
authorized and unissued (including shares held in treasury) 58,226,535 shares
of
common stock and
3,730,237 shares of preferred stock as of January 23, 2007. These unissued
shares could be used by our management to make it more difficult, and thereby
discourage an attempt to acquire control of us. Upon completion of the exchange
offer, as a result of the issuance of common stock in exchange for shares of
Preferred Stock tendered, the number of authorized and unissued shares of common
stock will decrease and the number of authorized and unissued shares of
preferred stock will increase.
We
have
adopted a preferred share purchase plan, which is designed to ensure that all
of
our stockholders receive fair and equal treatment in the event of a proposed
takeover or abusive tender offer.
The
foregoing provisions and agreements are designed to discourage a third party
tender offer or proxy contest for control of us and could have the effect of
making it more difficult to remove incumbent management.
Delaware
has adopted an anti-takeover law which, among other things, will delay for
three
years business combinations with acquirers of 15% or more of the outstanding
voting stock of publicly-held companies (such as us), unless (a) the acquirer
owned at least 85% of the outstanding voting stock of such company prior to
commencement of the transaction, or (b) two-thirds of the stockholders, other
than the acquirer, vote to approve the business combination after approval
thereof by the board of directors, and (c) the stockholders decide to opt out
of
the statute.
We
are effectively controlled by the Golsen Group.
Jack
E.
Golsen, our Chairman of the Board and Chief Executive Officer, members of
his
immediate family (spouse and children), including Barry H. Golsen, our Vice
Chairman and President, entities owned by them and trusts for which they
possess
voting or dispositive power as trustee (collectively, the “Golsen Group”)
beneficially owned as of January 23, 2007, an aggregate of 3,396,520
shares
of
our common stock and 1,020,000 shares of our voting preferred stock (1,000,000
of which shares have .875 votes per share, or 875,000 votes), which together
votes as a class and represented approximately 24.3% of the voting power
of our
issued and outstanding voting securities as of that date. At such date, the
Golsen Group also beneficially owned options, rights and other convertible
preferred stock that allowed its members to acquire an additional 507,502
shares
of our common stock within 60 days of January 23, 2007. Thus, the Golsen
Group
may be considered to effectively control us. As a result, the ability of
other
stockholders to influence our management and policies could be
limited.
We
anticipate that the Golsen Group will exchange 26,467 shares of Preferred Stock
in this offer to exchange for 195,855 shares of common stock and will then,
after the expiration date, own 3,592,375 shares of common stock.
After
such exchange, the Golsen Group would, in the aggregate, beneficially own
approximately 24% of the then issued and outstanding shares of our voting
securities (common or preferred), which includes 392,926 shares that the Golsen
Group has the right to acquire upon the conversion of preferred stock, stock
options and a promissory note. This percentage ownership assumes that all
309,807 shares of Preferred Stock subject to the offer to exchange are tendered
to us in exchange for a total of 2,292,571 shares of common stock.
Loss
of key personnel could negatively affect our business.
We
believe that our performance has been and will continue to be dependent upon
the
efforts of our principal executive officers. We cannot promise you that our
principal executive officers will continue to be available. Jack E. Golsen
has
an employment agreement with us. No other principal executive has an employment
agreement with us. The loss of some of our principal executive officers could
have a material adverse effect on us. We believe that our future success will
depend in large part on our continued ability to attract and retain highly
skilled and qualified personnel.
We
may have inadequate insurance.
While
we
maintain liability insurance, including certain coverage for environmental
contamination, it is subject to coverage limits and policies may exclude
coverage for some types of damages. Although there may currently be sources
from
which such coverage may be obtained, it may not continue to be available to
us
on commercially reasonable terms or the possible types of liabilities that
may
be incurred by us may not be covered by our insurance. In addition, our
insurance carriers may not be able to meet their obligations under the policies
or the dollar amount of the liabilities may exceed our policy limits. Even
a
partially uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on our business, results of operations, financial
condition and liquidity.
Our
warranty claims are not generally covered by our insurance.
The
development, manufacture, sale and use of products by our Climate Control
Business involve a risk of warranty and product liability claims. Warranty
claims are not generally covered by our product liability insurance and there
may be types of product liability claims that are not covered by our product
liability insurance. A successful warranty or product liability claim not
covered by our insurance could have a material adverse effect on our business,
results of operations, financial condition and liquidity.
Terrorist
attacks and other acts of violence or war, including natural disasters (such
as
hurricanes, pandemic health crisis, etc.), have and could negatively impact
the
U.S. and foreign companies, the financial markets, the industries where we
operate, our operations and profitability.
Terrorist
attacks and natural disasters (such as hurricanes) have in the past, and can
in
the future, negatively affect our operations. We cannot predict further
terrorist attacks and natural disasters in the United States and elsewhere.
These attacks or natural disasters have contributed to economic instability
in
the United States and elsewhere, and further acts of terrorism, violence, war
or
natural disasters could further affect the industries where we operate, our
ability to purchase raw materials, our business, results of
operations
and financial condition. In addition, terrorist attacks and natural disasters
may directly impact our physical facilities, especially our chemical facilities,
or those of our suppliers or customers and could impact our sales, our
production capability and our ability to deliver products to our customers.
In
the past, hurricanes affecting the Gulf Coast of the United States have resulted
in damages to, or shutdown of, the gas pipeline to our Cherokee Facility,
resulting in that facility being shutdown for several weeks. The consequences
of
any terrorist attacks or hostilities or natural disasters are unpredictable,
and
we may not be able to foresee events that could have an adverse effect on our
operations.
Our
net loss carryovers are subject to various limitations and have not been
approved by the Internal Revenue Service.
Our
net
loss carryovers have resulted from certain losses, and we anticipate they may
be
used to reduce the federal income tax payments which we would otherwise be
required to make with respect to income, if any, generated in future years.
Our
available regular-tax net operating loss carryovers were approximately $67
million as of December 31, 2005. The use of the net operating loss carryovers
is, however, subject to certain limitations and will expire to the extent not
utilized beginning in 2009. In addition, the amount of these carryovers has
not
been audited or approved by the Internal Revenue Service, and, accordingly,
we
cannot promise that such carryovers will not be reduced as a result of audits
in
the future.
Restatements
and amendments to our 2004 audited financial statements and certain matters
related to our disclosure controls and procedures may present a risk of future
restatements and could in turn lead to legal exposure.
In
response to comments from the SEC to our 2004 Form 10-K, and as a result of
changes we made internally, we restated and amended our 2004 audited financial
statements and on December 30, 2005, filed a Form 10-K/A (Amendment No. 1)
for
year ended December 31, 2004. As a result of the restatement and amendments
to
our 2004 audited financial statements and SEC comments, we also filed on
December 30, 2005, an amended Form 10-Q/A for each of the quarters ended March
31, 2005 and June 30, 2005.
As
a
result of this restatement to our 2004 financial statements, we also revised
our
2004 Form 10-K and first two quarters 2005 Form 10-Qs to provide that our
disclosure controls and procedures were not effective as of December 31, 2004,
March 31, 2005 and June 30, 2005, in our Form 10-K/A and Forms 10-Q/A, as a
result of assessing that the change from the LIFO method to the FIFO method
of
accounting was not material resulting in the decision at the time of the change
not to disclose and not to restate the prior years financial statements. We
believe that during December 2005, we corrected the weakness to our disclosure
controls and procedures by, among other things, establishing a Disclosure
Committee to maintain oversight activities and to examine and reevaluate our
policies, procedures and criteria to determine materiality of items relative
to
our financial statements taken as a whole. Restatements by others have, in
some
cases, resulted in the filing of class action lawsuits against such companies
and their management and further inquiries from the SEC. Any similar lawsuit
against us could result in substantial defense and/or liability costs and would
likely consume a material amount of management’s attention that might otherwise
be applied to our business. Under certain circumstances, these costs might
not
be covered by, or might exceed the limits of, our insurance
coverage.
In
addition, by letter received in August 2006 from the SEC, the SEC has made
an
informal inquiry of us relating to the change in inventory accounting from
LIFO
to FIFO resulting in the restatement of our financial statements, and, at this
time, we do not know if the informal inquiry:
| · |
will
rise to the level of an investigation or proceeding,
or
|
| · |
will
result in an enforcement action, if any, by the
SEC.
|
We
are a holding company and depend, in large part, on receiving funds from our
subsidiaries to fund our indebtedness.
Because
we are a holding company and operations are conducted through our subsidiaries,
principally ThermaClime and its subsidiaries, our ability to make scheduled
payments of principal and interest on our indebtedness depends on operating
performance and cash flows of our subsidiaries and the ability of our
subsidiaries to make distributions and pay dividends to us. Under its loan
agreements, ThermaClime and its subsidiaries may only make distributions and
pay
dividends to us under limited circumstances and in limited amounts. If
ThermaClime is unable to make distributions or pay dividends to us, or the
amounts of such distributions or dividends are not sufficient for us to service
our debts, we may not be able to pay the principal or interest, or both, due
on
our indebtedness.
We
are leveraged, which could affect our ability to pay our indebtedness.
We
have a
substantial amount of debt. At September 30, 2006, our aggregate consolidated
debt was approximately $112.7 million resulting in total debt as a percentage
of
total capitalization of 79%.
The
degree to which we are leveraged could have important consequences to us,
including the following:
|
|
•
|
|
our
ability to obtain additional financing in the future for refinancing
indebtedness, acquisitions, working capital, capital expenditures
or other
purposes may be impaired;
|
|
|
•
|
|
funds
available to us for our operations and general corporate purposes
or for
capital expenditures will be reduced because a substantial portion
of our
consolidated cash flow from operations could be dedicated to the
payment
of the principal and interest on our indebtedness;
|
|
|
•
|
|
we
may be more highly leveraged than some of our competitors, which
may place
us at a competitive disadvantage;
|
|
|
•
|
|
the
agreements governing our long-term indebtedness, including indebtedness
under our debentures, and those of our subsidiaries (including
indebtedness under the debentures) and bank loans contain certain
restrictive financial and operating covenants;
|
|
|
•
|
|
an
event of default, which is not cured or waived, under financial and
operating covenants contained in these debt instruments could occur
and
have a material adverse effect on us; and
|
|
|
•
|
|
we
may be more vulnerable to a downturn in general economic conditions.
|
Our
ability to make principal and interest payments, or to refinance indebtedness,
will depend on our future operating performance and cash flow, which are subject
to prevailing economic conditions and other factors affecting us, many of which
are beyond our control.
We
will
not receive any cash proceeds from the exchange offer. We will pay all fees
and
expenses related to the exchange offer, other than any commissions or
concessions of any broker or dealer. Except as otherwise provided in the letter
of transmittal, we will pay the transfer taxes, if any, on the exchange of
any
shares of Preferred Stock.
The
following table shows our capitalization as of September 30, 2006:
|
|
•
|
|
on
a historical basis;
|
|
|
•
|
|
on
a pro forma basis as adjusted to reflect the transactions in the
Preferred
Stock described in the notes to the table, including the consummation
of
this exchange offer assuming the tender and acceptance of all outstanding
shares of Preferred Stock (other than the 23,083 shares that the
Golsen
Group and the 166,212 shares that the Jayhawk Group will not exchange)
at
7.4 shares of common stock for each share of Preferred Stock tendered
and
accepted.
|
This
table should be read in conjunction with, and is qualified in its entirety
by
reference to, our consolidated financial statements and the accompanying notes
which are incorporated by reference herein.
|
September
30, 2006
(Unaudited)
|
||||||||||
|
As
Reported
|
Pro
Forma
Notes
(1)(2)&(3)
|
Pro
Forma
As
Adjusted
|
||||||||
|
(dollars
in thousands)
|
||||||||||
|
Long-term
debt:
|
||||||||||
|
Current
portion of long term debt
|
$
|
5,641
|
$
|
5,641
|
||||||
|
Long
term debt, net of current portion
|
107,104
|
$
|
(10,250
|
)
|
96,854
|
|||||
|
Total
long term debt
|
112,745
|
(10,250
|
)
|
102,495
|
||||||
|
Stockholders’
equity:
|
||||||||||
|
Series
B 12% cumulative, convertible preferred stock, $100 per value 20,000
shares issued and outstanding; aggregate liquidation preference of
$3,597,800
|
2,000
|
2,000
|
||||||||
|
Series
2 $3.25 convertible, exchangeable Class C preferred stock, $50 stated
value; 621,950 shares issued; aggregate liquidation preference of
$45,139,908
|
31,097
|
(20,717
|
)
|
10,380
|
||||||
|
Series
D 6% cumulative, convertible Class C preferred stock, no par value;
1,000,000 shares issued; aggregate liquidation preference of
$1,240,000
|
1,000
|
1,000
|
||||||||
|
Common
stock, $.10 par value, 75,000,000 shares authorized, 17,945,758 shares
issued
|
1,795
|
451
|
2,246
|
|||||||
|
Capital
in excess of par value
|
62,263
|
46,609
|
108,872
|
|||||||
|
Accumulated
other comprehensive loss
|
(773
|
)
|
(773
|
)
|
||||||
|
Accumulated
deficit
|
(49,400
|
)
|
(17,200
|
)
|
(66,600
|
)
|
||||
|
Less
treasury stock, at cost:
|
||||||||||
|
Series
2 Preferred; 18,300 shares
|
(797
|
)
|
(797
|
)
|
||||||
|
Common
stock; 3,447,754 shares
|
(17,636
|
)
|
(17,636
|
)
|
||||||
|
Total
stockholders’ equity
|
29,549
|
9,143
|
38,692
|
|||||||
|
Total
capitalization
|
$
|
142,294
|
$
|
(1,107
|
)
|
$
|
141,187
|
|||
Notes:
(1) Pro
forma
adjustment to record 1,447,812 shares of LSB common stock issued during the
three months ended December 31, 2006 upon conversion of $10.250 million LSB
7%
Convertible
Senior Subordinated Notes due 2011 (the “Bonds”). The Bonds are convertible into
LSB common stock at the rate of 141,250 shares of LSB common stock per each
$1
million principal amount of the Bonds. The proforma adjustment includes the
reduction of debt issuance costs of $723,000 and the recognition of induced
conversion costs of $189,000.
(2) Pro
forma
adjustment to record 773,655 shares of LSB common stock issued, in a series
of
exchanges, during the three months ended December 31, 2006 in exchange for
104,548 shares of LSB Series 2, $3.25 convertible, exchangeable Class C
preferred stock (the “Preferred Stock”) at the rate of 7.4
shares
of
common for each share of Preferred Stock exchanged. Market values of LSB
common
stock, as reported on the AMEX, on the dates of the exchanges varied from
$8.88
to $9.23 per share.
(3) Pro
forma
adjustment to record 2,292,571 shares of LSB common stock to be issued in
connection with the Exchange Offer. Assumes acceptance of the Company’s offer by
all holders of 309,807 shares of Preferred Stock eligible to exchange at the
rate of 7.4 shares of common per share of Preferred Stock. For purposes of
this
pro forma presentation, $14.85, the market price per share of LSB’s common stock
as of February 2, 2007, was used for valuation purposes, adjusted by estimated
exchange offering expenses of $195,000.
Our
common stock is listed for trading on the AMEX under the symbol “LXU.” The
following table shows, for the periods indicated, the high and low closing
prices for our common stock which reflects inter-dealer prices, without retail
markup, markdown or commission, and may not represent actual transactions.
|
Common
stock price
|
|||
|
High
|
Low
|
||
|
First
Quarter 2007 (through February 2, 2007):
|
$14.85
|
$11.60
|
|
|
Fiscal
year ending December 31, 2006:
|
|||
|
Fourth
quarter
|
$12.98
|
$8.88
|
|
|
Third
quarter
|
$10.12
|
$8.30
|
|
|
Second
quarter
|
$9.00
|
$7.16
|
|
|
First
quarter
|
$7.48
|
$6.04
|
|
|
Fiscal
year ending December 31, 2005:
|
|||
|
Fourth
quarter
|
$6.68
|
$4.95
|
|
|
Third
quarter
|
$7.30
|
$6.10
|
|
|
Second
quarter
|
$7.49
|
$6.15
|
|
|
First
quarter
|
$7.85
|
$5.98
|
|
As
of
February 2, 2007, we had approximately 750 record holders of our common stock.
This number does not include investors whose ownership is recorded in the name
of their brokerage company.
The
Preferred Stock is quoted on the OTCBB under the symbol “LSBDP.OB.” The
following table shows, for the periods indicated, the high and low closing
prices for the Preferred Stock as reported on the OTCBB.
|
Preferred
Stock price
|
|||
|
High
|
Low
|
||
|
First
Quarter 2007 (through February 2, 2007):
|
$100.00
|
$78.00
|
|
|
Fiscal
year ending December 31, 2006:
|
|||
|
Fourth
quarter
|
$89.00
|
$59.90
|
|
|
Third
quarter
|
$62.00
|
$58.50
|
|
|
Second
quarter
|
$64.99
|
$68.00
|
|
|
First
quarter
|
$59.00
|
$53.00
|
|
|
Fiscal
year ending December 31, 2005:
|
|||
|
Fourth
quarter
|
$55.00
|
$44.00
|
|
|
Third
quarter
|
$56.75
|
$44.00
|
|
|
Second
quarter
|
$50.00
|
$44.97
|
|
|
First
quarter
|
$60.00
|
$47.50
|
|
As
of
February 2, 2007, we had approximately 14 record holders of the Preferred
Stock. This number does not include investors whose ownership is recorded in
the
name of their brokerage company.
The
following summary historical consolidated financial data should be read in
conjunction with our audited consolidated financial statements as of and for
the
years ended December 31, 2004 and 2005, as reported in our Form 10-K for the
year ended December 31, 2005, and incorporated in this document by reference,
and our unaudited consolidated financial statements for the nine and three
months ended September 30, 2005 and 2006, as reported in our Form 10-Q for
the
quarter ended September 30, 2006, and incorporated by reference in this
document. The consolidated statements of operations data for the years ended
December 31, 2004 and 2005, and the consolidated balance sheet data as of
December 31, 2004 and 2005, have been derived from our audited consolidated
financial statements incorporated by reference in this document. The
consolidated statements of operations data for the nine and three months ended
September 30, 2005 and 2006, and the consolidated balance sheet data as of
September 30, 2006, have been derived from unaudited consolidated financial
statements incorporated by reference in this document. Results for the nine
and
three months ended September 30, 2006, are not necessarily indicative of the
expected results for the full year.
|
Year
ended
December
31,
|
Nine
Months ended
September
30,
|
Three
months ended
September
30,
|
|||||||||||||||||
|
2004
|
2005
|
2005
|
2006
|
2005
|
2006
|
||||||||||||||
|
(In
thousands, except per share amounts)
|
|||||||||||||||||||
|
(unaudited)
|
(unaudited)
|
||||||||||||||||||
|
Net
sales
|
$
|
363,608
|
$
|
396,722
|
$
|
301,370
|
$
|
367,864
|
$
|
105,181
|
$
|
123,847
|
|||||||
|
Gross
profit
|
$
|
53,111
|
$
|
66,071
|
$
|
50,002
|
$
|
68,077
|
$
|
17,733
|
$
|
23,567
|
|||||||
|
Operating
income
|
$
|
3,244
|
$
|
14,965
|
$
|
12,291
|
$
|
20,975
|
$
|
4,797
|
$
|
6,583
|
|||||||
|
Interest
expense
|
$
|
7,393
|
$
|
11,407
|
$
|
8,627
|
$
|
8,957
|
$
|
2,799
|
$
|
3,196
|
|||||||
|
Income
from continuing operations before cumulative effect of accounting
change
|
$
|
1,906
|
$
|
5,746
|
$
|
5,659
|
$
|
12,786
|
$
|
2,168
|
$
|
3,453
|
|||||||
|
Net
income
|
$
|
1,370
|
$
|
5,102
|
$
|
5,147
|
$
|
12,542
|
$
|
1,656
|
$
|
3,340
|
|||||||
|
Net
income (loss) applicable to common stock
|
$
|
(952
|
)
|
$
|
2,819
|
$
|
3,476
|
$
|
10,887
|
$
|
1,102
|
$
|
2,789
|
||||||
|
Weighted
average common shares outstanding:
|
|||||||||||||||||||
|
Basic
|
12,888
|
13,617
|
13,571
|
13,839
|
13,751
|
13,979
|
|||||||||||||
|
Diluted
|
12,888
|
14,907
|
15,147
|
21,058
|
15,984
|
21,346
|
|||||||||||||
|
Income
(loss) per common share:
|
|||||||||||||||||||
|
Basic:
|
|||||||||||||||||||
|
Income
(loss) from continuing operations before cumulative effect of accounting
change
|
$
|
(0.03
|
)
|
$
|
0.26
|
$
|
0.30
|
$
|
0.81
|
$
|
0.12
|
$
|
0.21
|
||||||
|
Loss
from discontinued operations, net
|
-
|
(0.05
|
)
|
(0.04
|
)
|
(0.02
|
)
|
(0.04
|
)
|
(0.01
|
)
|
||||||||
|
Cumulative
effect of accounting change
|
(0.04
|
)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||
|
Net
income (loss)
|
$
|
(0.07
|
)
|
$
|
0.21
|
$
|
0.26
|
$
|
0.79
|
$
|
0.08
|
$
|
0.20
|
||||||
|
Diluted:
|
|||||||||||||||||||
|
Income
(loss) from continuing operations before cumulative effect of accounting
change
|
$
|
(0.03
|
)
|
$
|
0.23
|
$
|
0.26
|
$
|
0.65
|
$
|
0.10
|
$
|
0.18
|
||||||
|
Loss
from discontinued operations, net
|
-
|
(0.04
|
)
|
(0.03
|
)
|
(0.01
|
)
|
(0.03
|
)
|
(0.01
|
)
|
||||||||
|
Cumulative
effect of accounting change
|
(0.04
|
)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||
|
Net
income (loss)
|
$
|
(0.07
|
)
|
$
|
0.19
|
$
|
0.23
|
$
|
0.64
|
$
|
0.07
|
$
|
0.17
|
||||||
Consolidated
balance sheet data:
|
As
of December 31,
|
As
of September 30,
|
|||||||||
|
2004
|
2005
|
2006
|
||||||||
|
(In
thousands)
|
||||||||||
|
(unaudited)
|
||||||||||
|
Cash
|
$
|
1,020
|
$
|
4,653
|
$
|
480
|
||||
|
Other
current assets
|
$
|
86,144
|
$
|
99,757
|
$
|
130,389
|
||||
|
Property,
plant and equipment, net
|
$
|
70,219
|
$
|
74,082
|
$
|
73,001
|
||||
|
Total
assets
|
$
|
167,568
|
$
|
188,963
|
$
|
214,399
|
||||
|
Total
current liabilities
|
$
|
53,318
|
$
|
61,044
|
$
|
72,154
|
||||
|
Long-term
debt (net of current portion)
|
$
|
101,674
|
$
|
108,776
|
$
|
107,104
|
||||
|
Other
liabilities
|
$
|
4,178
|
$
|
5,687
|
$
|
5,592
|
||||
|
Total
liabilities
|
$
|
159,170
|
$
|
175,507
|
$
|
184,850
|
||||
|
Stockholders’
equity
|
$
|
8,398
|
$
|
13,456
|
$
|
29,549
|
||||
The
Company’s book value per share was $ 2.04 as of September 30, 2006 (book value
per share equals the total stockholders’ equity divided by the number of shares
of common stock outstanding (less treasury shares)).
RATIO
OF EARNINGS TO FIXED CHARGES
We
have
presented in
the
table below our historical consolidated ratio of earnings to fixed charges
for
the periods shown.
|
Years
ended December 31,
|
Nine
months ended
September 30, |
|||||||||||||||||
|
2004
|
2005
|
2005
|
2006
|
|||||||||||||||
|
(Dollars
in thousands, except ratio)
|
||||||||||||||||||
|
Earnings:
|
||||||||||||||||||
|
The
sum of:
|
||||||||||||||||||
|
Pre-tax
income from continuing operations
|
$
|
1,238
|
$
|
5,119
|
$
|
5,189
|
$
12,583
|
|||||||||||
|
Fixed
charges
|
11,955
|
15,936
|
12,032
|
12,450
|
||||||||||||||
|
Amortization
of capitalized interest
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Share
of distributed income of 50% owned affiliate
|
250
|
488
|
313
|
700
|
||||||||||||||
|
Adjusted earnings
|
$
|
13,443
|
$
|
21,544
|
$
|
17,534
|
$
|
$
25,733
|
||||||||||
|
Fixed
Charges :
|
||||||||||||||||||
|
The
sum of :
|
||||||||||||||||||
|
(i) Interest
expensed
|
$
|
7,393
|
$
|
11,407
|
$
|
8,627
|
$
8,957
|
|||||||||||
|
(ii) Amortized
premiums, discounts and capitalized expenses related to indebtedness
(included in interest)
|
--
|
--
|
--
|
--
|
||||||||||||||
|
(iii) estimate
of interest in rental expense(1)
|
4,562
|
4,529
|
3,405
|
3,493
|
||||||||||||||
|
$
|
11,955
|
$
|
15,936
|
$
|
12,032
|
$
|
12,450
|
|||||||||||
|
Ratio
of earnings to fixed charges
|
1.1
|
1.4
|
1.5
|
2.1
|
||||||||||||||
| (1) |
To
estimate the amount of interest expense included in rental expense,
we
used various approaches, primarily the NPV approach for approximately
65%
of the actual rent expense.
|
Purpose
and Effects of the Exchange Offer
The
purpose of the exchange offer for the Preferred Stock is to reduce our fixed
dividend obligations, including the outstanding amount of our accrued and unpaid
dividends, and to simplify our capital structure. The exchange offer allows
current holders of shares of Preferred Stock to receive a premium in shares
of
common stock to the dividend payments they would receive if their Preferred
Stock was converted on February 9, 2007, the date of commencement of this
exchange offer.
Following
the consummation of the exchange offer, we will no longer have any payment
obligations, with respect to shares of Preferred Stock that are exchanged,
including with respect to accrued and unpaid dividends. Holders of Preferred
Stock who participate in the exchange offer will waive their rights to receive,
and forfeit any right to, accumulated but unpaid distributions on the shares
of
Preferred Stock that they exchange.
Background
of the Offer
At
a
board of directors meeting held on January 26, 2007, J Giordano Securities
Group (“J Giordano”) made a presentation to the board regarding the
fairness of the exchange offer and stated that it was prepared to render its
opinion that the offer (based on an exchange ratio of 7.4 shares of common
stock
for each share of Preferred Stock exchanged and the waiver of the accrued and
unpaid dividends on the shares of Preferred Stock tendered) was fair from a
financial point of view to us and our stockholders. The proposed exchange offer
was then presented to the board. The board reviewed the opinion of
J Giordano, and the terms of the exchange offer, and determined to approve
the exchange offer as fair and in the best interests of us and our stockholders.
Decision
Not to Appoint A Special Committee of the Board to Consider Or Structure The
Offer
Our
board
of directors did not form a special committee to approve the offer. We have
13
directors, of whom only six own shares of Preferred Stock. Of the seven
directors that do not own shares of Preferred Stock, six are outside,
non-employee directors, five of whom are deemed to be independent as defined
in
the listing standards of the AMEX. The six directors that own Preferred Stock
abstained from voting for the approval of the exchange offer.
If
a
special committee had been formed, it is likely it would have consisted of
all
of the non-employee directors that did not own Preferred Stock, so it did not
appear to be meaningful to form such a committee. Contributing to the board’s
decision not to form a separate committee to consider or structure the exchange
offer was the fact that all of our directors, but one, own shares of our common
stock, and that the board received the advice of an independent financial
advisor regarding the fairness of the consideration to be offered in the tender
offer.
Fairness
of the Offer
On
January 26, 2007, our board of directors approved the exchange offer as fair
and
in our best interests and our stockholders’ best interests, including
unaffiliated stockholders. The board of directors took into account a number
of
factors, including the following, in support of its determination that the
exchange offer is substantively fair and in our best interest and the best
interest of our stockholders, including its unaffiliated
stockholders:
• The
opinion delivered to the board of directors by J Giordano, our financial
advisor, that the consideration to be received in the offer is fair, from a
financial point of view, to us and our stockholders, and the oral and written
presentations of J Giordano supporting this opinion. A copy of
J Giordano’s opinion is attached to this document as Exhibit A and should
be read in its entirety by each stockholder. For a description of the
information presented by J Giordano to our board, see “Fairness Opinion of
Financial Advisor.”
• Our
financial condition and results of operations, including our earnings per share
and capital levels for the year ended December 31, 2005, and the first nine
months of fiscal year 2006.
• The
likelihood that the transaction would be consummated.
• The
fact that our offer is a
voluntary transaction in which our holders of Preferred Stock may or may not
participate.
• The
limited trading market for our Preferred Stock, including limited liquidity
and
trading volume.
• The
holders of the Preferred Stock are provided with full disclosure of the terms
and conditions of the exchange offer; and
• The
holders of the Preferred Stock are afforded sufficient time to consider the
offer.
In
view
of the wide variety of factors considered in connection with its evaluation
of
the offer, our board of directors has found it impractical to, and therefore
has
not, quantified or otherwise attempted to assign relative weights to the
specific factors considered in reaching a decision to approve the offer. In
making its determination that the offer is substantively fair and in our best
interests and the best interests of our stockholders, our board of directors
considered the opinion of J Giordano and the oral and written presentations
of J Giordano discussing the material factors included in its analysis, and
such opinion and related discussion were accepted and adopted by the Board.
J Giordano’s analysis is described under “Fairness Opinion of Financial
Advisor.”
The
Board
also believes that the transaction is fair to those holders of Preferred Stock
who decline to tender their shares of Preferred Stock and choose to continue
holding shares of Preferred Stock following the completion of the exchange
offer. See “Risk Factors - Risks Related to Holding Shares of Preferred Stock
After the Exchange Offer” for a discussion of the consequences that result from
continuing to hold shares of Preferred Stock
Fairness
Opinion Of Financial Advisor
We
have
retained J Giordano, an independent, privately-owned, full-service
investment banking and brokerage firm with considerable experience in the
securities industry, to render a fairness opinion to our board of directors
as
to the fairness of our offer price, from a financial point of view, to our
stockholders. J Giordano, as part of its consulting business, is regularly
engaged in the valuation of securities in connection with stock offerings,
tender offers, acquisition and other securities transactions. J Giordano
also served as our placement agent in connection with our March 2006 sale of
$18
million principal amount of 7% Convertible Senior Subordinated Debentures due
2011.
On
January 26, 2007, J Giordano provided a written fairness opinion to our
board of directors that, in its opinion, the exchange ratio in the exchange
offer is fair, from a financial point of view, to us and our stockholders.
A
copy of the opinion which discusses, among other things, assumptions made,
matters considered, and limits on the review undertaken by J Giordano is
attached as Exhibit A to this document, and each holder of Preferred Stock
should read such opinion carefully in its entirety. The following summary of
J Giordano’s opinion is qualified in its entirety by reference to the full
text of the opinion.
J Giordano’s written opinion does not constitute an endorsement of the
offer or a recommendation as to whether any holder should tender its shares
of
Preferred Stock. In rendering its opinion, J Giordano does not admit that
it is an expert within the meaning of the term “expert” as used within the
Securities Act, and the rules and regulations promulgated thereunder, or that
its opinion constitutes a report or valuation within the meaning of Section
11
of the Securities Act and the rules and regulations promulgated thereunder.
In
delivering its opinion, J Giordano has reviewed, analyzed and
relied
upon material bearing upon our financial condition and operating performance
and
the value of the Preferred Stock, including among other things, the
following:
• The
offer
to exchange;
• Certain
publicly available information with respect to us;
• The
Preferred Stock’s recent trading values;
• Our
common stock’s historical trading values and trading volume;
• Our
dividend payment history;
• The
likelihood of a forced redemption of the Preferred Stock by the
Company;
• The
conversion price and conversion ratio of the Preferred Stock;
• The
amount of accrued and unpaid dividends on the Preferred Stock; and
• The
costs
that would be incurred by us to redeem the Preferred Stock, including the
redemption price.
J Giordano
relied upon, without independent investigation or evaluation, the accuracy
and
completeness of all of the financial and other information discussed and
reviewed by J Giordano for purposes of its opinion. J Giordano did not
undertake an independent evaluation or appraisal of our assets, including any
patents, and liabilities, contingent or otherwise, and was not furnished with
such an evaluation or appraisal.
Any
estimates contained in J Giordano’s analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than such estimates. J Giordano expressed no opinion as to such financial
prospects or the assumptions on which they were based.
J Giordano
has not been requested to, and did not, initiate any discussions with, or
solicit any indications of interest from, third parties with respect to the
contemplated tender offer or any alternative transaction or negotiate the terms
of the contemplated tender offer. The opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information
made
available to J Giordano as of, the date of the opinion. J Giordano has
not undertaken, and is under no obligation, to update, revise, reaffirm or
withdraw the opinion, or otherwise comment on or consider events occurring
after
the date of the opinion. J Giordano has not considered, nor does
J Giordano express any opinion with respect to, the prices at which our
common stock has traded or may trade subsequent to the disclosure or completion
of the contemplated tender offer. The opinion of J Giordano was furnished
solely for the use and benefit of our board of directors in connection with
its
consideration of the contemplated tender offer and, by its terms, is not
intended to be used, and may not be used, for any other purpose or by any other
person without the express written consent of J Giordano, and does not
constitute a recommendation as to whether or how many shares any holder of
Preferred Stock should tender in the exchange offer.
General
The
terms
of the exchange offer contemplate that we will issue up to 2,292,571 shares
of
our common stock in unregistered exchanges of up to 309,807 shares of our
Preferred Stock and the waiver by the exchanging holders of their rights to
all
accrued and unpaid dividends on the Preferred Stock. The exchange ratio for
the
exchange is 7.4 shares of common stock for each share of Preferred Stock
tendered in the exchange. As of December 31, 2006, the accrued and unpaid
dividends on the Preferred Stock were $23.975 per share.
Valuation
Analysis
Convertible
preferred equity that does not pay a cash dividend can be valued as common
stock
plus a put option, for the following reasons:
|
•
|
the
holders can convert the shares of convertible preferred to common
shares
at a fixed ratio; and
|
|
•
|
the
holders also have a put option because they can choose to continue
to
receive dividend accruals and delay conversion to a future
date.
|
Based
on
the foregoing, in establishing a value for the Preferred Stock and in light
of
the fact that we have paid only negligible dividends on the Preferred Stock,
J Giordano believes that the value of the Preferred Stock may be best
viewed as follows:
Value
of
Preferred Stock = Common
Stock + Put Option + Accrued Dividends + Yield Advantage
with
a maximum of (1):
Redemption
Price of Preferred Stock + Accrued Dividends + New common stock issuance costs
as a percentage of the redemption price of preferred stock and accrued
dividends
(1)
Assumes
redemption financed by proceeds from an offering and issuance of new common
stock.
The
common stock portion of the equation is based on the number of shares of common
stock that a holder of a share of Preferred Stock would receive upon conversion
of a share of Preferred Stock, the current market price of our common stock
and
the price at which a share of Preferred Stock is convertible into common stock.
The price of the put option was calculated by J Giordano using a
Black-Scholes formula. The yield advantage places a value on the amount by
which
dividends on the Preferred Stock exceeds that of our common stock. Because
we
had previously indicated to the public that we were considering a tender offer
for shares of our Preferred Stock, J Giordano determined that the expected
value of the yield advantage was significantly diminished.
In
determining the maximum value of the Preferred Stock, J Giordano assumed
that we would issue common stock at a discount based on the offering size and
relevant market conditions, and use the proceeds to redeem the Preferred Stock
for cash and issuance related costs.
Based
on
the methodology and formulas used by J Giordano, J Giordano stated
that the 7.4 exchange ratio for the tender offer represents a slight premium
to
the maximum price in J Giordano’s analysis. J Giordano advised our
Board that the exchange ratio is fair given the risk of an adverse price
movement during the time it would take to complete a new common stock offering
and the potential for the discount in a common stock offering to be slightly
greater than that projected in J Giordano’s analysis.
The
foregoing summary describes the analyses and facts that J Giordano deemed
material in its presentation to our board of directors, but is not a
comprehensive description of all analyses performed and factors considered
by
J Giordano in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods
of
financial analysis and the application of these methods to the particular
circumstances and, therefore, is not readily susceptible to summary
description.
J Giordano’s
opinion was based solely upon the information available to it and the economic,
market and other circumstances as they existed as of the date of the opinion.
With regard to J Giordano’s services in connection with the exchange offer,
we agreed to pay J Giordano approximately $75,000, plus reimbursement for
expenses that we and J Giordano do not expect to exceed $5,000.
J Giordano
and its affiliates have rendered and may in the future render various investment
banking, lending and commercial banking services and other advisory services
to
us and our subsidiaries. J Giordano has received, and may in the future
receive, customary compensation from us and our subsidiaries for such services.
It may from time to time hold shares of Preferred Stock and shares of our common
stock in their proprietary accounts, and, to the extent it owns shares of
Preferred Stock in these accounts at the time of its exchange offer, it may
tender such shares of Preferred Stock. During the course of the exchange offer,
it may trade shares of our common or preferred stock for its own account or
for
the accounts of its customers. As a result, J Giordano may hold a long or
short position in our common or preferred stock.
Terms
of the Exchange Offer
We
are
offering to exchange 7.4 shares of our common stock for each validly tendered
and accepted share of Preferred Stock upon the terms and subject to the
conditions set forth in this offer to exchange and in the related letter of
transmittal.
Any
shares of Preferred Stock tendered but not accepted because they were not
validly tendered shall remain outstanding upon completion of the exchange offer.
Shares of Preferred Stock accepted in the exchange offer will be retired and
cancelled and will be restored to the status of authorized and unissued shares
of Class C Preferred Stock without designation as to series.
You
will
not receive any consideration specifically attributed to accrued and unpaid
dividends on your shares of Preferred Stock tendered in the exchange offer.
Holders of Preferred Stock who participate in the exchange offer will waive
and
forfeit any right to receive accumulated but unpaid dividends on the Preferred
Stock that they exchange. By tendering your shares of Preferred Stock, you
will
also lose your right to receive quarterly dividend payments, when, if and as
declared by our board of directors, after the completion of the exchange
offer.
If
all
309,807 shares of Preferred Stock eligible for tender are exchanged, an
aggregate of 2,292,571 shares of common stock will be issued.
Expiration
Date
The
term
“expiration date” means 5:00 p.m., New York City time, on March 12, 2007.
However, if we extend the period of time for which the exchange offer remains
open, the term “expiration date of this exchange offer” means the latest time
and date to which the exchange offer is so extended.
Fractional
Shares
We
will
not issue any fractional shares of common stock in the exchange offer. In lieu
of fractional shares otherwise issuable (calculated on an aggregate basis for
each holder), holders participating in the exchange offer will be entitled
to
receive an amount of cash equal to the fraction of a share multiplied by the
closing price per share of our common stock on the last business day immediately
preceding the expiration date of the exchange offer.
Conditions
to the Exchange Offer
Notwithstanding
any other provision of the exchange offer to the contrary, we will not be
required to accept for exchange shares of Preferred Stock tendered pursuant
to
the exchange offer and may terminate or extend the exchange offer, if any
condition to the exchange offer is not satisfied. We may also, subject to Rule
14e-1 under the Securities Exchange Act of 1934, which requires that an offeror
pay the consideration offered or return the securities deposited by or on behalf
of the holders thereof promptly after the termination or withdrawal of a tender
offer, postpone the acceptance for exchange of shares of Preferred Stock validly
tendered and not withdrawn prior to the expiration date of the exchange offer,
if any one of
the
following conditions has occurred, and the occurrence thereof has not been
waived by us in our sole discretion:
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there
shall have been instituted, threatened or be pending any
action or
proceeding before or by any court, governmental, regulatory
or
administrative agency or instrumentality, or by any other
person, in
connection with the exchange offer, that is, or is reasonably
likely to
be, in our reasonable judgment, materially adverse to our
business,
operations, properties, condition, assets, liabilities or
prospects, or
which would or might, in our reasonable judgment, prohibit,
prevent,
restrict or delay consummation of the exchange offer or materially
impair
the contemplated benefits to us of the exchange offer;
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an
order, statute, rule, regulation, executive order, stay,
decree, judgment
or injunction shall have been proposed, enacted, entered,
issued,
promulgated, enforced or deemed applicable by any court or
governmental,
regulatory or administrative agency or instrumentality that,
in our
reasonable judgment, would or might prohibit, prevent, restrict
or delay
consummation of the exchange offer or materially impair the
contemplated
benefits to us of the exchange offer, or that is, or is reasonably
likely
to be, materially adverse to our business, operations, properties,
condition, assets, liabilities or prospects;
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there
shall have occurred or be likely to occur any material adverse
change to
our business, operations, properties, condition, assets,
liabilities,
prospects or financial affairs or to the markets in which
we conduct
business;
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the
Jayhawk Group shall not have exchanged or tendered in this
transaction
180,450 shares of the 346,662 shares of Preferred Stock beneficially
owned
by them; and
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the
Golsen Group shall not have exchanged or tendered in this
transaction
26,467 shares of the 49,550 shares of Preferred Stock beneficially
owned
by them.
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the
holders of our voting stock and Preferred Stock have not
approved the
amendments described above under “Recent Developments -- Amendment of the
Certificate of Designation of the Preferred Stock”;
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there
shall have occurred:
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Ø any
general suspension of, or limitation on prices for, trading
in securities
in United States securities or financial markets;
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Ø any
material change in the price of our common stock in United
States
securities or financial markets;
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Ø declaration
of a banking moratorium or any suspension of payments in
respect to banks
in the United States;
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Ø any
limitation (whether or not mandatory) by any government or
governmental,
administrative or regulatory authority or agency, domestic
or foreign, or
other event that, in our reasonable judgment, might affect
the extension
of credit by banks or other lending institutions; or
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Ø commencement
or significant worsening of a war or armed hostilities or
other national
or international calamity, including but not limited to,
catastrophic
terrorist attacks against the United States or its
citizens.
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These
conditions to the exchange offer are for our sole benefit and may be asserted
by
us in our reasonable discretion or may be waived by us, in whole or in part,
in
our reasonable discretion on or before the expiration date of the exchange
offer, whether or not any other condition of the exchange offer also is waived
and regardless of the circumstances giving rise to the failure of any such
condition. We have not
made
a
decision as to what circumstances would lead us to waive any such condition,
and
any such waiver would depend on circumstances prevailing at the time of such
waiver. Any determination by us concerning the events described in this section
will be final and binding upon all persons.
Extension,
Delay in Acceptance, Amendment or Termination
We
expressly reserve the right to extend the exchange offer for such period or
periods as we may determine in our sole discretion from time to time by giving
oral, confirmed in writing, or written notice to the Exchange Agent and by
making a public announcement by press release prior to 9:00 a.m., New York
City
time, on the next business day following the previously scheduled expiration
date of the exchange offer. During any extension of the exchange offer, all
shares of Preferred Stock previously tendered and not accepted for purchase
will
remain subject to the exchange offer and may, subject to the terms of the
exchange offer, be accepted for exchange by us.
We
also
expressly reserve the right, at any time or from time to time, subject to and
in
accordance with applicable law, to delay the acceptance for exchange of shares
of Preferred Stock or waive any condition or otherwise amend the terms of the
exchange offer in any respect prior to the expiration of the exchange offer,
by
giving oral, confirmed in writing, or written notice of such waiver or amendment
to the Exchange Agent.
Other
than an extension of the exchange offer, we are not aware of any circumstance
that would cause us to delay acceptance of any validly tendered share of
Preferred Stock.
If
we
make a material change in the terms of the exchange offer or the information
concerning the exchange offer, or waive a material condition of the exchange
offer, we will promptly disseminate disclosure regarding the changes to the
exchange offer and extend the exchange offer, if required by law, to ensure
that
the exchange offer remains open a minimum of five business days from the date
we
disseminate disclosure regarding the changes.
If
we
make a change in the number of shares of Preferred Stock sought or the amount
of
consideration offered in the exchange, we will promptly disseminate disclosure
regarding the changes and extend the exchange offer, if required by law, to
ensure that the exchange offer remains open a minimum of ten business days
from
the date we disseminate disclosure regarding the changes.
Any
waiver, amendment or modification will apply to all shares of Preferred Stock
tendered, regardless of when or in what order such shares of Preferred Stock
were tendered. Any extension, amendment or termination will be followed promptly
by public announcement thereof, with the announcement in the case of an
extension to be issued no later than 9:00 a.m., New York City time, on the
first
business day after the previously scheduled expiration date of the exchange
offer.
Except
as
set forth above or as otherwise required by law, without limiting the manner
in
which we may choose to make any public announcement, we will have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by issuing a press release.
We
expressly reserve the right, in our sole discretion, to terminate the exchange
offer if any of the conditions set forth above in the first paragraph under
“—Conditions to the Exchange Offer” shall have occurred. Any such termination
will be followed promptly by a public announcement of such termination. In
addition, if we terminate the exchange offer, we will give immediate notice
thereof to the Exchange Agent. If the exchange offer is terminated, withdrawn
or
otherwise not completed, the consideration will not be paid or become payable
to
you, even if you have validly tendered your shares of Preferred Stock in
connection with the exchange offer, and any shares of Preferred Stock you have
tendered that we have not accepted for exchange will be returned promptly to
you.
Procedures
for Tendering Shares of Preferred Stock
General
Only
a
holder of Preferred Stock or the holder’s legal representative or
attorney-in-fact, or a person who has obtained a properly completed irrevocable
proxy acceptable to us that authorizes such person, or that person’s legal
representative or attorney-in-fact, to tender Preferred Stock on behalf of
the
holder, may validly tender the Preferred Stock.
In
order
for a holder to receive shares of common stock, such holder must validly tender
its shares of Preferred Stock pursuant to the exchange offer and not withdraw
those shares of Preferred Stock pursuant to the exchange offer.
Delivery
of shares of Preferred Stock through DTC and acceptance of an agent’s message
(as defined below) transmitted through DTC’s Automated Tender Offer Program, or
ATOP, and the method of delivery of all other required documents, is at the
election and risk of the person tendering shares of Preferred Stock and
delivering a letter of transmittal and, except as otherwise provided in the
letter of transmittal, delivery will be deemed made only when actually received
by the Exchange Agent. If delivery of any document is by mail, we suggest that
the holder use properly insured, registered mail, with a return receipt
requested, and that the mailing be made sufficiently in advance of the
expiration date to permit delivery to the Exchange Agent prior to the expiration
date.
Tender
of Securities
The
tender by a holder of Preferred Stock pursuant to the procedures set forth
below, and the subsequent acceptance of that tender by us, will constitute
a
binding agreement between that holder and us in accordance with the terms and
subject to the conditions set forth in this offer to exchange and the related
letter of transmittal.
Valid
Tender
Except
as
set forth below, for a holder to validly tender shares of Preferred Stock
pursuant to the exchange offer, a properly completed and duly executed letter
of
transmittal (or a facsimile thereof), together with any signature guarantees
and
any other document required by the instructions to the letter of transmittal,
or
a properly transmitted agent’s message, must be received by the Exchange Agent
at the address set forth on the back cover of this offer to exchange prior
to
5:00 p.m., New York City time, on the expiration date and such shares of
Preferred Stock must be transferred pursuant to the procedures for book-entry
transfer described under “— Book-Entry Delivery Procedures” below and a
book-entry confirmation (as defined below) must be received by the Exchange
Agent, in each case prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
The
letter of transmittal and shares of Preferred Stock must be sent only to the
Exchange Agent. Do not send letters of transmittal or shares of Preferred Stock
to the Information Agent or to us.
In
all
cases, notwithstanding any other provision of this offer to exchange, the
exchange of shares of common stock for shares of Preferred Stock tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the Exchange Agent of the following:
(1) a
book-entry confirmation with respect to such securities,
(2) the
letter of transmittal (or a facsimile thereof) properly completed and duly
executed or a properly transmitted agent’s message, and
(3) any
required signature guarantees and other documents required by the letter of
transmittal.
If
you
tender less than all your outstanding shares of Preferred Stock, you should
fill
in the number of shares of Preferred Stock so tendered in the appropriate box
on
the letter of transmittal. All of your shares of Preferred Stock deposited
with
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
Book-Entry
Delivery Procedures
Within
two business days after the date of this offer to exchange, the Exchange Agent
will establish an account at DTC for purposes of the exchange offer, and any
financial institution that is a DTC participant and whose name appears on a
security position listing as the record owner of the Preferred Stock may make
book-entry delivery of shares of Preferred Stock by causing DTC to transfer
such
shares into the Exchange Agent’s account at DTC in accordance with DTC’s
procedure for such transfer. Delivery of documents to a book-entry transfer
facility in accordance with the book-entry transfer facility’s procedures does
not constitute a valid tender of the shares of Preferred Stock to the Exchange
Agent.
A
letter
of transmittal (or a facsimile thereof) properly completed and duly executed,
along with any required signature guarantees, or a properly transmitted agent’s
message, must in any case be transmitted to and received by the Exchange Agent
at the address set forth on the back cover of this offer to exchange on or
prior
to the expiration date. The confirmation of a book-entry transfer into the
Exchange Agent’s account at DTC as described above is referred to as a
“book-entry confirmation.”
Tender
of Shares of Preferred Stock Held Through DTC
The
Exchange Agent and DTC have confirmed that the exchange offer is eligible for
ATOP. DTC has authorized any DTC participant who has Preferred Stock credited
to
its DTC account to tender their shares of Preferred Stock as if it were the
beneficial holder. Accordingly, DTC participants may, in lieu of physically
completing and signing the letter of transmittal and delivering it to the
Exchange Agent, electronically transmit their acceptance of the exchange offer
(and thereby tender their securities) by causing DTC to transfer shares of
Preferred Stock to the Exchange Agent in accordance with DTC’s ATOP procedures
for transfer. DTC will then send to the Exchange Agent an “agent’s message”
which is a message transmitted by DTC, received by the Exchange Agent and
forming part of the book-entry confirmation, which states that DTC has received
an express acknowledgment from a participant in DTC that is tendering shares
of
Preferred Stock that are the subject of such book-entry confirmation, that
such
participant has received and agrees to be bound by the terms of the applicable
letter of transmittal and that we may enforce such agreement against such
participant.
Holders
of Preferred Stock desiring to tender their shares of Preferred Stock by
5:00 p.m., New York City time, on the expiration date of the exchange offer
must allow sufficient time for completion of the ATOP procedures during normal
business hours of DTC on that date.
Tender
of Shares of Preferred Stock Held Through Custodians
To
validly tender its shares of Preferred Stock pursuant to the exchange offer,
a
beneficial owner of shares of Preferred Stock held through a direct or indirect
DTC participant, such as a broker, dealer, commercial bank, trust company or
other financial intermediary, must instruct that holder to tender the beneficial
owner’s shares of Preferred Stock on behalf of the beneficial owner. A letter of
instructions is included in the materials provided with this offer to exchange.
The letter to custodians may be used by a beneficial owner to instruct a
custodian to tender shares of Preferred Stock on the beneficial owner’s behalf.
Except
with respect to guaranteed delivery procedures described below, unless the
shares of Preferred Stock being tendered are deposited with the Exchange Agent
by 5:00 p.m., New York City time, on the expiration date accompanied by a
properly completed and duly executed letter of transmittal or a properly
transmitted agent’s message, we may, at our option, treat such tender as
invalid. Exchange of shares of common stock for Preferred Stock will be made
only against the valid tender of the securities.
Guaranteed
Delivery
If
you
wish to exchange your shares of Preferred Stock and time will not permit your
letter of transmittal and all other required documents to reach the Exchange
Agent, or if the procedures for book-entry transfer cannot be completed on
or
prior to the expiration date of the exchange offer, you may still exchange
your
shares of Preferred Stock if you comply with the following requirements:
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you
tender your shares of Preferred Stock by or through a recognized
participant in the Securities Transfer Agents Medallion Program,
the NYSE
Medallion Signature Program or the Stock Exchange Medallion
Program;
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on
or prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer, the Exchange Agent has received from such participant
a properly completed and validly executed notice of guaranteed delivery,
by manually signed facsimile transmission, mail or hand delivery,
in
substantially the form provided with this offer to
exchange; and
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the
Exchange Agent receives a properly completed and validly executed
letter
of transmittal (or facsimile thereof) together with any required
signature
guarantees, or a book-entry confirmation, and any other required
documents, within three NYSE trading days after the date of the notice
of
guaranteed delivery.
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Signature
Guarantees
Signatures
on the applicable letter of transmittal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the NYSE
Medallion Signature Program or the Stock Exchange Medallion Program, each a
Medallion Signature Guarantor, unless the shares of Preferred Stock tendered
thereby are tendered: (1) by a holder whose name appears on a security
position listing as the owner of those shares of Preferred Stock who has not
completed any of the boxes entitled “Special Issuance Instructions” or “Special
Delivery Instructions” on the applicable letter of transmittal; or (2) for
the account of a member firm of a registered national securities exchange,
a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States
referred to as an “Eligible Guarantor Institution.”
If
the
holder of the shares of Preferred Stock being tendered is a person other than
the signer of the related letter of transmittal, or if shares of Preferred
Stock
not accepted for exchange or securities previously tendered and being withdrawn
are to be returned to a person other than the registered holder or a DTC
participant, then the signatures on the letter of transmittal accompanying
the
tendered shares of Preferred Stock must be guaranteed by a Medallion Signature
Guarantor as described above.
The
method of delivery of letters of transmittal, any required signature guarantees
and any other required documents, including delivery through DTC, is at the
option and risk of the tendering holder and, except as otherwise provided in
the
letter of transmittal, delivery will be deemed made only when actually received
by the Exchange Agent. In all cases, sufficient time should be allowed to ensure
timely delivery.
Determination
of Validity
We
will
determine in our sole discretion all questions as to the validity, form,
eligibility, including time of receipt, and acceptance and withdrawal of
tendered shares of Preferred Stock. We reserve the absolute right to reject
any
and all shares of Preferred Stock not validly tendered or any shares of
Preferred Stock whose acceptance by us would, in the opinion of our counsel,
be
unlawful. We also reserve the right to waive any defects or irregularities
either before or after the expiration date of the exchange offer. Our
interpretation of the terms and conditions of the exchange offer, including
the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of shares of Preferred Stock must be cured within a time period that we will
determine.
Neither we, the Exchange Agent nor any other person will have any duty to give
notification of any defects or irregularities nor will any of them incur any
liability for failure to give such notification. Tenders of shares of Preferred
Stock will not be considered to have been made until any defects or
irregularities have been cured or waived. Any shares of Preferred Stock received
by the Exchange Agent that are not validly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering owners promptly after the expiration date of the exchange
offer.
Withdrawals
of Tenders
You
may
validly withdraw shares of Preferred Stock that you tender at any time prior
to
the expiration date of the exchange offer, which is 5:00 p.m., New York City
time, on March 12, 2007, unless we extend it. In addition, if not previously
returned, you may withdraw any shares of Preferred Stock that you tender
that are not accepted by us for exchange after the expiration of 40 business
days from February 9, 2007.
Beneficial
owners desiring to withdraw shares of Preferred Stock previously tendered
through DTC should contact the DTC participant through which such beneficial
owners hold their Preferred Stock. In order to withdraw shares of Preferred
Stock previously tendered, a DTC participant may, prior to the withdrawal time,
withdraw its instruction previously transmitted through ATOP by
(1) withdrawing its acceptance through ATOP, or (2) delivering to the
Exchange Agent by mail, hand delivery or facsimile transmission, notice of
withdrawal of such instruction. The notices of withdrawal must contain the
name
and number of the DTC participant. A withdrawal of an instruction must be
executed by a DTC participant as such DTC participant’s name appears on its
transmission through ATOP to which such withdrawal relates. A DTC participant
may withdraw a tender only if such withdrawal complies with the provisions
described in this paragraph.
Registered
holders who tendered other than through DTC should send written notice of
withdrawal to the Exchange Agent specifying the name of the holder who tendered
the securities being withdrawn and the number of shares of Preferred Stock
being
withdrawn. All signatures on a notice of withdrawal must be guaranteed by a
Medallion Signature Guarantor; provided, however, that signatures on the notice
of withdrawal need not be guaranteed if the shares of Preferred Stock being
withdrawn are held for the account of an Eligible Guarantor Institution.
Withdrawal of a prior tender will be effective upon receipt of the notices
of
withdrawal by the Exchange Agent. Selection of the method of notification is
at
the risk of the holder, and notice of withdrawal must be timely received by
the
Exchange Agent.
If
we
extend the exchange offer, are delayed in our acceptance of the shares of
Preferred Stock for exchange or are unable to accept shares of Preferred Stock
pursuant to the exchange offer for any reason, then, without prejudice to our
rights under the exchange offer, the Exchange Agent may retain tendered shares
of Preferred Stock and such shares of Preferred Stock may not be withdrawn
except as otherwise provided in this offer to exchange, subject to provisions
under the Securities Exchange Act of 1934 that provide that an issuer making
an
exchange offer shall either pay the consideration offered or return tendered
securities promptly after the termination or withdrawal of the exchange offer.
All
questions as to the validity, form and eligibility, including time of receipt,
of notices of withdrawal will be determined by us. Our determination will be
final and binding on all parties. Any shares of Preferred Stock withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offer
and no exchange consideration will be issued in exchange unless the shares
of
Preferred Stock so withdrawn are validly re-tendered. Properly withdrawn shares
of Preferred Stock may be re-tendered by following the procedures described
above under “—Procedures for Tendering Shares of Preferred Stock” at any time
prior to the expiration date of the exchange offer.
Acceptance;
Exchange of Shares of Preferred Stock
We
will
issue the shares of common stock to be issued in the exchange offer upon the
terms of the exchange offer and applicable law in exchange for shares of
Preferred Stock validly tendered in the
exchange
offer promptly after the expiration date of the exchange offer. For purposes
of
the exchange offer, we will be deemed to have accepted for exchange validly
tendered shares of Preferred Stock or defectively tendered shares of Preferred
Stock with respect to which we have waived such defect, when, as and if we
give
oral, confirmed in writing, or written notice of such acceptance to the Exchange
Agent.
In
all
cases, issuance of shares of common stock for shares of Preferred Stock accepted
for exchange by us pursuant to the exchange offer will be made promptly after
the expiration date of the exchange offer and assuming receipt by the Exchange
Agent of:
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book-entry
confirmation of the transfer of such shares of Preferred Stock into
the
Exchange Agent’s account at DTC as described
above; and
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a
letter of transmittal, or a facsimile of that document, with respect
to
the tendered shares of Preferred Stock properly
completed and duly executed, with any required signature guarantees
and
any other documents required by the letter of transmittal, or a properly
transmitted agent’s message.
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Return
of Unaccepted Shares of Preferred Stock
Any
tendered shares of Preferred Stock that are not accepted for exchange by us
will
be returned without expense to their tendering holder promptly after the
expiration or termination of the exchange offer.
Compliance
With State Securities Laws
We
are
making the exchange offer to all holders of outstanding shares of Preferred
Stock. We are not aware of any jurisdiction in which the making of the exchange
offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the exchange offer would not be in
compliance with applicable law, we will make a good faith effort to comply
with
any such law. If, after such good faith effort, we cannot comply with any such
law, the exchange offer will not be made to, nor will tenders of shares of
Preferred Stock be accepted from or on behalf of, the holders of shares of
Preferred Stock residing in any such jurisdiction.
Foreign
Securities Matters
No
action
has been or will be taken in any jurisdiction that would permit a public
offering of our shares of common stock, or the possession, circulation or
distribution of this offer to exchange or any other material relating to us
or
our shares of common stock in any jurisdiction where action for that purpose
is
required. Accordingly, our shares of common stock may not be offered or sold,
directly or indirectly, and neither this offer to exchange nor any other
offering material or advertisements in connection with our shares of common
stock may be distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations of any such
country or jurisdiction. This offer to exchange does not constitute an offer
to
sell or a solicitation of an offer to buy in any jurisdiction where such offer
or solicitation would be unlawful. Persons into whose possession this offer
to
exchange comes are advised to inform themselves about and to observe any
restrictions relating to this exchange offer, the distribution of this offer
to
exchange, and the resale of the shares of common stock.
Exchange
Agent
UMB
Bank,
n.a. has been appointed as the Exchange Agent for the exchange offer. We have
agreed to pay the Exchange Agent reasonable and customary fees for its services.
All required documents should be sent or delivered to the Exchange Agent at
the
address set forth on the back cover of this offer to exchange.
Any
questions and requests for assistance, or requests for additional copies of
this
offer to exchange, the letter of transmittal or the notice of guaranteed
delivery should be directed to the Exchange Agent at the address set forth
on
the back cover of this offer to exchange.
Information
Agent
Georgeson,
Inc. has been appointed as the Information Agent for the exchange offer. We
have
agreed to pay the Information Agent reasonable and customary fees for its
services and will reimburse the Information Agent for its reasonable
out-of-pocket expenses. Any questions and requests for assistance, or requests
for additional copies of this offer to exchange, the letter of transmittal
or
the notice of guaranteed delivery should be directed to the Information Agent
at
the address set forth on the back cover of this offer to exchange.
Solicitation
The
exchange offer is being made by us in reliance on the exemption from the
registration requirements of the Securities Act, afforded by Section 3(a)(9)
thereof. We, therefore, will not pay any commission or other remuneration to
any
broker, dealer, salesman or other person for soliciting tenders of shares of
Preferred Stock. We have not retained any dealer, manager or other agent to
solicit tenders with respect to the exchange offer. The Exchange Agent will
mail
solicitation materials on our behalf.
In
connection with the exchange offer, our directors and officers and those of
our
respective affiliates may solicit tenders by use of the mails, personally or
by
telephone, facsimile, telegram, electronic communication or other similar
methods. Members of our board of directors and our officers will not be
specifically compensated for these services.
Fees
and Expenses
We
will
bear the fees and expenses of soliciting tenders for the exchange offer. We
are
making the principal solicitation by mail and overnight courier. However, where
permitted by applicable law, additional solicitations may be made by facsimile,
telephone or in person by officers and regular employees of us and our
affiliates. We will also pay the Exchange Agent and the Information Agent
reasonable and customary fees for their services and will reimburse them for
their reasonable out-of-pocket expenses. We will indemnify each of the Exchange
Agent and the Information Agent against certain liabilities and expenses in
connection therewith, including liabilities under the federal securities laws.
Transfer
Taxes
Holders
who tender their shares of Preferred Stock for exchange will not be obligated
to
pay any transfer taxes. If, however:
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shares
of our common stock are to be delivered to, or issued in the name
of, any
person other than the registered owner of the tendered shares of
Preferred
Stock; or
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the
shares of Preferred Stock are registered in the name of any person
other
than the person signing the letter of transmittal,
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then
the
amount of any transfer taxes, whether imposed on the registered owner or any
other persons, will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption from them is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed directly to
the
tendering holder.
No
Appraisal Rights
No
appraisal or dissenters’ rights are available to holders of shares of Preferred
Stock under applicable law in connection with the exchange offer.
Accounting
Treatment
As
consideration for the exchange of the shares of Preferred Stock, we will issue
shares of our common stock. We will record as a decrease to stockholders’ equity
the fees and expenses incurred by us in connection with the exchange offer,
which we estimate will be $195,000. Assuming 309,807 shares of Preferred Stock
are tendered and accepted, the excess of the fair value of our common shares
exchanged over the fair value of common shares issuable pursuant to the original
conversion terms, less the amount of accrued and unpaid dividends, which we
estimate to be approximately $6.7 million (based on the closing price of our
common stock of $14.85 on February 2, 2007), will be subtracted from net
earnings to arrive at net earnings available to common stockholders in the
calculation of earnings per share.
Subsequent
Repurchases of Shares of Preferred Stock
Whether
or not the exchange offer is consummated, we or our affiliates may from 10
days
after the termination or expiration of the offer acquire shares of Preferred
Stock, other than pursuant to the exchange offer, through open market purchases,
privately negotiated transactions, tender offers, exchange offers or otherwise,
upon such terms and at such prices as we may determine, which may be more or
less than the 7.4 shares of common stock to be exchanged for each share of
Preferred Stock pursuant to the exchange offer and could be for cash or other
consideration.
AND
OUR COMMON STOCK
The
following describes the material differences between the rights of holders
of
the shares of Preferred Stock and holders of shares of our common stock.
While
we believe that the description covers the material differences between the
shares of Preferred Stock and our common stock, this summary may not contain
all
of the information that is important to you. You should carefully read this
entire offer to exchange and the other documents we refer to for a more complete
understanding of the differences between being a holder of shares of Preferred
Stock and a holder of shares of our common stock.
Governing
Document
As
a
holder of Preferred Stock, your rights are currently set forth in, and you
may
enforce your rights under, the Delaware General Corporation Law and our
certificate of incorporation, including the certificate of designations with
respect to the Preferred Stock. After completion of the exchange offer, holders
of shares of our common stock will have their rights set forth in, and may
enforce their rights under, Delaware General Corporation Law and our certificate
of incorporation and bylaws.
Dividends
The
Preferred Stock ranks senior to the common stock with respect to the payment
of
any dividends. Holders of Preferred Stock are entitled to receive, when,
and if
declared by our board of directors out of funds legally available for payment,
cumulative quarterly dividends, as described in the section of this offer
to
exchange entitled “Description of Preferred Stock—Dividends.” Holders of shares
of our common stock are entitled to receive dividends only when, as, and
if
declared by our board of directors from time to time at its sole discretion,
after all dividends are paid on the outstanding shares of preferred stock
and
out of funds legally available for such purpose.
Liquidation
Preference
In
the
event of our winding-up or dissolution, each holder of Preferred Stock is
entitled to receive and be paid out of our assets available for distribution
to
our stockholders, before any payment or distribution is made to holders of
junior stock, including our common stock, a liquidation preference in the
amount
of $50 per share of Preferred Stock, plus accumulated and unpaid dividends.
Ranking
In
the
event of our liquidation, dissolution or winding up, our common stock would
rank
below all outstanding preferred stock, including the Preferred Stock. As
a
result, holders of our common stock will not be entitled to receive any payment
or other distribution of assets upon the liquidation or dissolution until
after
our obligations to our debt holders and holders of preferred stock have been
satisfied.
Conversion
Rights
Each
share of Preferred Stock is convertible at the holder’s option into that
number of shares of our common stock, obtained by dividing the stated value
by
the conversion price then in effect, with the initial conversion price set
at
$11.55 per share, subject to adjustment under certain conditions,
as
described under “Description of Preferred Stock—Conversion Rights.”
Exchange
Provisions
Each
outstanding share of Preferred Stock may be exchanged at our option, in whole,
but not in part, for our 6.50% convertible subordinated debentures, if we
are
not in default on any payments of dividends on the Preferred Stock or on
any
senior stock or parity stock.
Redemption
Provisions
Each
outstanding share of Preferred Stock may be redeemed at our option, in whole
or
in part, at $50 per share, plus accumulated but unpaid dividends to the date
fixed for redemption, if we are not in default on any payments of dividends
on
the Preferred Stock or on any senior stock or parity stock.
Voting
Rights
Except
as
provided by Delaware law and our certificate of incorporation, holders of
Preferred Stock have no voting rights except if the dividends payable on
the
Preferred Stock are in arrears for six or more quarterly periods. Since
dividends have been in arrears since January 1, 1999, holders of the Preferred
Stock, voting as a single class with the shares of any other preferred stock
or
preference securities having similar voting rights, have been entitled to
elect
two directors. These voting rights and the terms of the directors so elected
will continue until such time as the dividend arrearage on the preferred
stock
has been paid in full.
We
are
submitting a proposal to be voted on at the special meeting to be held March
6,
2007, to amend the certificate of designations of the Preferred Stock to
provide
that the right of the holders of Preferred Stock to elect the two directors
to
our board may be exercised only if and so long as at least 140,000 shares
of the
Preferred Stock are issued and outstanding. Passage of the proposal is a
condition to the exchange offer. Under
Delaware law and the certificate of designations of the Preferred Stock,
approval of the amendment requires both the affirmative vote of a majority
of
the outstanding shares of our common stock and voting preferred stock, voting
together as a class, and the affirmative vote of two-thirds of our outstanding
shares of Preferred Stock voting separately as a class.
If
the
proposal passes and the number of outstanding shares of Preferred Stock falls
below 140,000, the Preferred Stock holders will not be entitled to elect,
as a
class, any members to the board of directors.
The
affirmative consent of holders of at least two-thirds of
the
outstanding Preferred Stock is required for the issuance of any class or
series
of stock (or security convertible into stock) ranking senior
to
the
Preferred Stock as to dividend rights or rights upon our liquidation, winding-up
or dissolution and for amendments to our certificate of incorporation that
would
affect adversely the rights of holders of the Preferred Stock.
Holders
of shares of our common stock are entitled to one vote for each share held
of
record on all matters submitted to a vote of stockholders, other than matters
solely affecting any series of preferred securities.
Authorized
capital stock
Our
authorized capital stock consists of 75,000,000 shares of common stock, $.10
par
value per share, and 250,000 shares of preferred stock, $100 par value per
share
(“$100 Par Value Preferred Stock”), and 5,000,000 shares of Class C Preferred
Stock, no par value (“Class C Preferred Stock”).
Common
stock
As
of
January 23, 2007, we had issued and outstanding 16,773,465 shares of our
common
stock (excluding 3,447,754 shares held in treasury). The shares of common
stock
currently outstanding are validly issued, fully paid and non-assessable.
Subject
to the rights of the holders of shares of preferred stock outstanding, if
any,
holders of shares of our common stock:
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are
entitled to receive dividends, when and as declared by the board
of
directors, from legally available
funds;
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are
entitled, upon our liquidation, dissolution or winding up, to a
pro rata
distribution of the assets and funds available for distribution
to
stockholders;
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are
entitled to one vote per share on all matters on which stockholders
generally are entitled to vote; and
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do
not have preemptive rights to subscribe for additional shares of
common
stock or securities convertible into shares of common
stock.
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Holders
of common stock vote on all matters brought for the stockholders’ approval,
except as otherwise required by law and subject to the voting rights of the
holders of any outstanding shares of preferred stock. As of January 23, 2007,
we
had outstanding three series of voting preferred stock that vote together
with
our common stock as a single class, as described below.
Preferred
stock
The
$100
Par Value Preferred Stock and Class C Preferred Stock (which includes the
Preferred Stock) are issuable in one or more series, each with such
designations, preferences, rights, qualifications, limitations and restrictions
as our board of directors may determine in resolutions providing for their
issuance. As of January 23, 2007, the following shares of $100 Par Value
Preferred Stock and Series C Preferred Stock have been designated:
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4,662
shares of our convertible, noncumulative preferred stock, $100
par value
(“Noncumulative Preferred”), of which 660.5 shares are issued and
outstanding;
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20,000
shares of our Series B 12% cumulative, convertible preferred stock,
$100
par value (“Series B Preferred”), of which 20,000 shares are issued and
outstanding;
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1,000,000
shares of our Series D 6% cumulative, convertible Class C preferred
stock
no par value (“Series D Class C Preferred”), of which 1,000,000 shares are
issued and outstanding; and
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920,000
shares of the Preferred Stock, of which 499,102 shares are issued
and
outstanding (excluding 18,300 shares held in
treasury).
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The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of us without further action by the stockholders
and may adversely affect the voting and other rights of the holders of our
common stock. The issuance of preferred stock with voting and conversion
rights
may adversely affect the voting power of the holders of common stock, including
loss of voting control to others. As of January 23, 2007, we had outstanding
the
following series of preferred stock:
Outstanding
$100 Par Value Preferred
Noncumulative
Preferred, par value $100.
Each
outstanding share of Noncumulative Preferred:
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is
entitled to receive noncumulative cash dividends, when and as declared
by
our board of directors, at the rate of 10% per year of the par
value;
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is
entitled to one vote for each outstanding share (or one-half of one
vote
for each fractional one-half share) on all matters submitted to a
vote of
the stockholders and votes together with the common stock and each
series
of voting preferred stock as a single class or as otherwise required
by
law;
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is
convertible, at any time and at the option of the holder, into 40
shares
of our common stock (or each fractional one-half share is convertible
into
20 shares of our common stock), subject to adjustment under certain
conditions;
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is
redeemable by us at par value (or each fractional one-half share
at
one-half of the par value) at the option of the holder to the extent
we
earn net income (as determined under GAAP) after all debt owed by
us to
our senior lenders (as defined) has been paid in
full;
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is
redeemable by us, in whole or in part, by paying the holders in cash
the
par value (one-half of par value for a fractional share);
and
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in
the event of our liquidation or dissolution, will be entitled to
be paid
the par value (for each fractional share, one-half of par value)
to the
extent funds are available before any payment is made to the holders
of
our common stock, but will not be entitled to participate any further
in
our assets.
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Series
B Preferred, par value $100.
All of
the Series B Preferred are owned by the Golsen Group. Each share of the Series
B
Preferred:
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is
entitled to receive cumulative cash dividends, when and as declared
by our
board of directors, at the annual rate of 12% of the par value of
each
outstanding share;
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is
entitled to one vote for each outstanding share on all matters submitted
to a vote of stockholders and votes together with our common stock
and
each series of voting preferred stock as a single class or as otherwise
required by law;
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is
convertible, at any time and at the option of the holder, into 33.3333
shares of our common stock, subject to adjustment under certain
conditions; and
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in
the event of our liquidation each outstanding share will be entitled
to be
paid its par value, plus accrued and unpaid dividends, before any
payment
is made to holders of our common stock, but will not be entitled
to
participate any further in our
assets.
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Outstanding
Class C Preferred Stock
Preferred
Stock.
Each
outstanding share of Preferred Stock:
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has
a stated value of $50 per share;
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entitles
the holder to receive cumulative cash dividends, when and as declared
by
our board of directors, at the rate of $3.25 per annum;
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does
not have any voting rights, except (i) as otherwise required by law
or
(ii) to elect (voting separately as class with all other affected
classes
or series of parity stock upon which like voting rights have been
conferred) two additional directors to our board of directors if
dividends
are in arrears and unpaid, whether or not declared, in an amount
equal to
at least six quarterly dividends;
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is
convertible into that number of shares of our common stock, obtained
by
dividing the stated value by the conversion price then in effect,
with the
initial conversion price set at $11.55 per share, subject to adjustment
under certain conditions;
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is
subject to special conversion rights upon a change in control or
ownership
change (as such terms are defined in the terms of the Preferred
Stock);
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in
the event of our liquidation, dissolution or winding up, is entitled
to be
paid its stated value plus accrued and unpaid dividends, before any
payment shall be made on our common stock;
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is
redeemable by us at its stated value plus all accrued and unpaid
dividends; and
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is
exchangeable at our option in whole, but not in part, for our 6.50%
convertible subordinated
debentures.
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Series
D Class C Preferred, no par value.
All
outstanding shares of Series D Class C Preferred are owned by the Golsen Group.
Each outstanding share of Series D Class C Preferred:
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has
a liquidation preference of $1.00 per share;
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entitles
the holder to receive cumulative cash dividends, when and if declared
by
our board of directors, at the rate of 6% per annum of the liquidation
preferences, except if the dividends on the Preferred Stock are in
default, in whole or in part, no dividends shall be paid on this
stock
until all accrued and unpaid dividends on the Preferred Stock have
been
paid;
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has
.875 votes on all matters submitted to a vote of stockholders and
votes
together with our common stock and each series of voting preferred
stock
as a single class or as otherwise required by law;
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is
convertible at a rate of four shares of Series D Class C Preferred
into
one share of our common stock (equivalent to a conversion price of
$4 per
share of our common stock), subject to adjustment under certain
conditions;
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in
the event of our liquidation, dissolution or winding up or any reduction
in our capital resulting from any distribution of assets to our
stockholders, shall receive the sum $1.00, plus all accrued and unpaid
dividends, before any amount is paid to holders of our common stock;
and
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there
is no mandatory or optional redemption of these
shares.
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As
of
January 23, 2007, there were approximately $14 million of accrued and unpaid
dividends on our outstanding cumulative preferred stock. Until all accrued
and
unpaid dividends are paid on our outstanding cumulative preferred stock, no
dividends may be paid on our common stock. Not paying
cumulative
accrued dividends on our outstanding preferred stock could adversely affect
the
marketability of our common stock and our ability to raise additional equity
capital.
Preferred
Share Purchase Rights
We
have
adopted a preferred share rights plan (the “rights plan”), which rights plan
became effective as of February 27, 1999. The rights plan replaced and renewed
a
rights plan that was terminating as of that date. Under the rights plan, we
declared a dividend distribution of one renewed preferred share purchase right
(the “renewed preferred right”) for each outstanding share of our common stock
outstanding as of February 27, 1999 and all further issuances of our common
stock would carry the rights. The rights plan has a term of ten years from
its
effective date. The renewed preferred rights are designed to ensure that all
of
our stockholders receive fair and equal treatment in the event of a proposed
takeover or abusive tender offer.
The
renewed preferred rights are generally exercisable when a person or group (other
than Jack E. Golsen, our chairman and chief executive officer, and his
affiliates, our company or any of our subsidiaries, our employee benefit plans
and certain other limited excluded persons or entities, as set forth in the
rights plan) acquire beneficial ownership of 20% or more of our common stock
(such a person or group will be referred to as the “acquirer”). Each renewed
preferred right (excluding renewed preferred rights owned by the acquirer)
entitles stockholders to buy one one-hundredth (1/100) of a share of a new
series of participating preferred stock (Series 3 Participating Class C
Preferred Stock, no par value (the “Series 3 Preferred”)) at an exercise price
of $20. Following the acquisition by the acquirer of beneficial ownership of
20%
or more of our common stock, and prior to the acquisition of 50% or more of
our
common stock by the acquirer, our board of directors may exchange all or a
portion of the renewed preferred rights (other than renewed preferred rights
owned by the acquirer) for our common stock at the rate of one share of common
stock per renewed preferred right. Following acquisition by the acquirer of
20%
or more of our common stock, each renewed preferred right (other than the
renewed preferred rights owned by the acquirer) will entitle its holder to
purchase a number of our common shares having a market value of two times the
renewed preferred right’s exercise price in lieu of the Series 3 Preferred.
Thus, only as an example, if our common shares at such time were trading at
$10
per share and the exercise price of the renewed preferred right is $20, each
renewed preferred right would thereafter be exercisable at $20 for four shares
of our common stock.
If
after
the renewed preferred rights are triggered, we are acquired, or we sell 50%
or
more of our assets or earning power, each renewed preferred right (other than
the renewed preferred rights owned by the acquirer) will entitle its holder
to
purchase a number of the acquiring company’s common shares having a market value
at the time of two times the renewed preferred right’s exercise price, except if
the transaction is consummated with a person or group who acquired our common
shares pursuant to a permitted offer, the price for all of our common shares
paid to all of our common stockholders is not less than the price per share
of
our common stock pursuant to the permitted offer and the form of consideration
offered in the transaction is the same as the form of consideration paid
pursuant to the permitted offer. As defined in the rights plan, a “permitted
offer” is an offer for all of our common shares at a price and on terms that a
majority of our board, who are not officers or the person or group who could
trigger the exerciseability of the renewed preferred rights, deems adequate
and
in our best interest and that of our stockholders. Thus, only as an example,
if
our common shares were trading at $10 per share and the exercise price of a
renewed preferred right is $20, each renewed preferred right would thereafter
be
exercisable at $20 for four shares of the acquirer.
Prior
to
the acquisition by the acquirer of beneficial ownership of 20% or more of our
stock, our board of directors may redeem the renewed preferred rights for $.01
per renewed preferred right.
Warrants
On
March
25, 2003, we issued warrants (the “Jayhawk warrants”) for the purchase of up to
112,500 shares of our common stock. The exercise price of such warrants is
$3.49
per share, and the warrants expire on March 24, 2008. The Jayhawk warrants
are
subject to certain anti-dilution adjustments.
We
entered into a Registration Rights Agreement, dated March 25, 2003, with the
members of the Jayhawk Group covering 1,248,500 shares of common stock owned
the
Jayhawk Group, 112,500 shares issuable upon the exercise of the Jayhawk
warrants, and 1,401,081 shares of common stock issuable to the Jayhawk Group
upon conversion of 323,650 shares of our Preferred Stock owned by the Jayhawk
Group. We are required to use our reasonable efforts to effect the registration
of the securities upon the written request of the holders of at least 50% of
such securities. We are not required to effect more than two registrations
pursuant to such demand rights of the Jayhawk Group. In addition, the agreement
entitles the Jayhawk Group to certain piggyback registration rights if, at
any
time, we propose to register any of our common stock, whether or not for our
own
account, subject to certain limitations.
Certificate
of Incorporation, Bylaws and Delaware Law
Our
certificate of incorporation provides for three classes of directors having
staggered terms and, except in limited circumstances, a two-thirds vote of
outstanding shares to approve a merger, consolidation, sale of all or
substantially all of our assets, amend certain provisions of our certificate
of
incorporation or amend our bylaws. The term of office of each class is for
three
years. Under the Delaware General Corporation Law, if a board of directors
is
classified, a director on such a board may be removed by stockholders only
for
cause, unless the certificate of incorporation otherwise provides. Our
certificate of incorporation does not provide otherwise. In this regard, our
bylaws add a definition of “cause” for the purpose of removal of a director.
“Cause” is defined to exist only if the director whose removal is proposed has
been convicted of a felony by a court of competent jurisdiction or has been
adjudged by a court of competent jurisdiction to be liable for intentional
misconduct or knowing violation of law in the performance of such director’s
duty to us and, in each case, only after such adjudication is no longer subject
to direct appeal.
We
have
authorized and unissued (including shares held in treasury) 58,226,535 shares
of
common stock and 3,730,237 shares of preferred stock as of
January
23, 2007. Pursuant to our certificate of incorporation, these authorized and
unissued shares could be used by our management to make it more difficult,
and
thereby discourage, an attempt to acquire control of us.
In
addition, our bylaws provide a procedure for filling a vacancy on our board
of
directors resulting from a newly-created directorship, removal or resignation
of
a director. Pursuant to those procedures, such a vacancy shall be filled only
by
the affirmative vote of a majority of the directors then in office. Therefore,
stockholders would not have the power to elect any director to fill such
vacancy. Further,
our bylaws provide for certain procedures to be followed in order to obtain
a
consent of our stockholders in lieu of a meeting, the business that may be
conducted at a meeting of our stockholders and who may be eligible for election
as a director. Our bylaws further provide that they may only be amended by
a
vote of a majority of the directors then in office or by a vote of the holders
of two-thirds of the issued and outstanding shares of our stock entitled to
vote.
Delaware
has adopted an anti-takeover law, which, among other things, will delay for
three years business combinations with acquirers of 15% or more of the
outstanding voting stock of certain publicly-held companies (such as us), unless
(a) the acquirer owned at least 85% of the outstanding voting stock of such
company prior to commencement of the transaction, or (b) two-thirds of the
stockholders, other than the acquirer, vote to approve the business combination
after approval thereof by the board of directors and (c) the stockholders decide
to opt out of the statute.
As
of
January 23, 2007, the Golsen Group owned an aggregate of 3,396,520 shares of
our
common stock and 1,020,000 shares of our voting preferred stock (of which
1,000,000 shares have .875 votes per share, or 875,000 votes), which together
represented approximately 24.3% of the voting power of our issued and
outstanding voting securities as of that date. At such date, the Golsen Group
also beneficially owned options, rights and other convertible preferred stock
that allowed its members to acquire an additional 507,502 shares of our common
stock within 60 days of January 23, 2007. If the Golsen
Group
were to acquire the additional 507,502 shares of common stock, the Golsen Group
would, in the aggregate, beneficially own approximately 26.4% of the voting
power of our issued and outstanding shares of our voting securities (common
and
preferred). Thus, the Golsen Group may be considered to effectively control
us.
See “Risk Factors.”
The
foregoing preferred share rights plan, the provisions of our certificate of
incorporation and bylaws, the laws of Delaware, and the Golsen Group’s ownership
of our voting capital stock could render more difficult or discourage a tender
offer or proxy contest for control of us and could have the effect of making
it
more difficult to remove incumbent management in such situations.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is UMB Bank, n.a. Its address
is P.O. Box 410064, Kansas City, Missouri 64141, and its telephone number is
(800) 821-2171.
The
following is a summary of the material terms of the Preferred Stock. For
additional information, reference is made to the Certificate of Designations
of
$3.25 Convertible Exchangeable Class C Preferred stock, Series 2, no
par value, filed with the Secretary of State of Delaware on May 21, 1993,
amending the Certificate of Incorporation and setting forth the rights,
preferences and limitations of the Preferred Stock (the “certificate of
designations”), a form of which is filed as an exhibit to the Form S-2
Registration Statement No. 33-61640. Up to 920,000 shares of Preferred Stock
are
authorized under the certificate of designations. The stated value of each
share
of Preferred Stock is $50.00. As of January 23, 2007, 499,102 shares of
Preferred Stock were outstanding. All references to the term “Company” under
this section refer only to LSB Industries, Inc.
Dividends
The
holders of the Preferred Stock are entitled to receive when, as and if declared
by the board of directors out of funds of the Company legally available for
payment, an annual cash dividend of $3.25 per share, payable quarterly in
arrears on June 15, September 15, December 15, and March 15
of each year, commencing June 15, 1993. Dividends are payable to holders of
record as they appear on the stock books of the Company on such record dates
not
more than 60 days nor less than 10 days prior to such dividend payment date
as
shall be fixed by the board of directors. Dividends on the Preferred Stock
accrue and are cumulative from the date of initial issuance. Holders of the
Preferred Stock are not entitled to any dividends, whether payable in cash,
property or securities, in excess of the full cumulative dividends. No interest,
sum of money in lieu of interest or other property or securities is payable
on
account of any dividend payment or payments which may be in arrears. Dividends
paid on shares of Preferred Stock in an amount less than the total amount of
such dividends at the time accumulated and payable on such shares are allocated
pro rata among all such shares at the time outstanding. The amount of dividends
payable per share for each full dividend period is computed by dividing by
four
the $3.25 annual rate. The amount of dividends payable for any period shorter
than a full dividend period shall be computed on the basis of a 360-day year
of
twelve 30-day months.
As
long
as any Preferred Stock shall be outstanding, the Company may not declare, pay,
or set aside for payment any dividend (except for a dividend paid in common
stock or any other class or series of stock ranking junior to the Preferred
Stock as to the payment of dividends or the distribution of assets upon
liquidation (“junior stock”)) or declare or make any distribution (other than a
distribution of Rights, as defined below) upon or purchase, redeem or otherwise
acquire common stock or junior stock (or make any payment to or available for
a
sinking fund for the redemption of any shares of such junior stock) unless
there
are no arrearages in dividends on the Preferred Stock for any past quarterly
dividends.
We
are
submitting a proposal to be voted on at the special meeting of stockholders
to
be held on March 6, 2007, to amend
the
certificate of designations to allow us to purchase shares of our common
stock
when
dividends are in arrears in the open market or through privately negotiated
transactions if we deem that a repurchase program is advisable and in the best
interest of the Company.
If
at any
time any dividend on any capital stock of the Company ranking senior as to
dividends or distribution of assets upon liquidation to the Preferred Stock
(the
“senior stock”) shall be in default, in whole or in part, then (except to the
extent allowed by the terms of such senior stock) no dividends may be paid
or
declared and set apart for payment on the Preferred Stock unless and until
all
accrued and unpaid dividends with respect to the senior stock, including the
full dividends for the then-current dividend period, shall have been paid or
declared and set apart for payment, without interest. No full dividends may
be
paid or declared and set apart for payment on any class or series ranking on
a
parity with the Preferred Stock as to payment of dividends or distribution
of
assets upon liquidation (“parity stock”) for any period unless full cumulative
dividends have been, or contemporaneously are, paid or declared and set apart
for such payment on the Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of such full cumulative
dividends. No full dividends may be paid or declared and set apart for payment
on the Preferred Stock for any period unless full cumulative dividends have
been, or contemporaneously are, paid or declared and set apart for payment
on
the parity stock for all dividend periods terminating on or prior to the date
of
payment of such full dividends. When dividends are not paid in full upon the
Preferred Stock and the parity stock, all dividends paid or declared and set
aside for payment upon shares of Preferred Stock and the parity stock shall
be
paid or declared and set aside for payment pro rata so that the amount of
dividends paid or declared and set aside for payment per share on the Preferred
Stock and the parity stock shall in all cases bear to each other the same ratio
that accrued and unpaid dividends per share on the shares of Preferred Stock
and
the parity stock bear to each other.
The
Company is a holding company and, accordingly, its ability to pay dividends
on
the Preferred Stock and the common stock is dependent in large part on its
ability to obtain funds from its subsidiaries. The ability of the subsidiaries
to pay dividends to the Company, to fund the payment of dividends by the Company
or for other purposes, is restricted by certain agreements to which they are
parties.
Rights
of Other Preferred Stock
The
Company currently has outstanding three other series of preferred stock: the
Noncumulative Preferred, the Series B Preferred and the Series D Preferred.
Each such series of preferred stock ranks on a parity with the Preferred Stock
as to liquidation. The Series B Preferred and Series D Preferred rank on a
parity with the Preferred Stock with respect to all dividends, and the
Noncumulative Preferred ranks on a parity with the Preferred Stock with respect
to dividends in any particular year.
The
Company has approximately 3,730,237 shares of authorized but unissued preferred
stock. Except as described below, such stock could be issued by the board of
directors without a vote of the holders of the common stock or preferred stock.
The board has sole discretion as to the rights, powers and preferences of such
preferred stock and could, if it so chooses, issue preferred stock, which ranks
on parity with the Preferred Stock with respect to dividends and payments upon
liquidation.
Voting
Rights
Except
as
described below or as required by applicable law, the holders of the Preferred
Stock have no voting rights. If at any time dividends payable on the Preferred
Stock are in arrears and unpaid in an amount equal to or exceeding the amount
of
dividends payable thereon for six quarterly dividend periods, whether or not
consecutive, the holders of Preferred Stock (voting separately as a class
together with the holders of any parity stock upon which like voting rights
have
been conferred and are then exercisable) have the exclusive right to elect
two
directors of the Company, such directors to be in addition to the number of
directors constituting the board of directors of the Company immediately prior
to the accrual of that right. In 2002, the holders of our cumulative preferred
stock elected Grant J. Donovan and Dr. N. Allen Ford to serve on our board
of
directors, and they are currently serving as members of our board of directors.
Such voting rights continue for the Preferred Stock until all dividends
accumulated and payable on that stock have been paid in full, at which time
such
voting rights of the holders of the Preferred Stock will terminate, subject
to
re-vesting in the event of a subsequent similar arrearage.
We
are
submitting a proposal to be voted on at the special meeting of stockholders
to
be held on March 6, 2007, to amend
the
certificate of designations to provide that these voting rights also terminate
if and so long as the number of shares of Preferred Stock outstanding falls
below 140,000. This proposal must be approved by the holders of a majority
of
the common stock and voting preferred stock of the Company, voting as a class,
and the holders of two-thirds of the then outstanding shares of Preferred Stock
voting separately as a class. Approval of this proposal is a condition to the
exchange offer. Upon any termination of such voting right, subject to the
requirements of Delaware corporation law, the term of office of all the
directors elected by holders of Preferred Stock will terminate.
So
long
as any shares of Preferred Stock remain outstanding, the Company shall not
(i) amend, alter or repeal any of the provisions of its Certificate of
Incorporation so as to affect adversely the powers, preferences, qualifications,
limitations or rights of the holders of the Preferred Stock; or
(ii) authorize, issue, or increase the authorized amount of any senior
stock or any security convertible into senior stock, without the prior vote
or
consent of the holders of two-thirds of the then outstanding shares of Preferred
Stock voting or consenting separately as a class. A class vote on the part
of
the holders of the Preferred Stock shall not be required (except as otherwise
required by law or resolution of the board of directors) in connection with
the
authorization, issuance or increase in the authorized amount of any shares
of
any junior stock or an increase in the amount of any bonds, mortgages,
debentures or other obligations of the Company. In addition, the Company shall
not increase the authorized amount of the Preferred Stock without the vote
or
consent of the holders of at least a majority of the shares of Preferred Stock
then outstanding, voting or consenting separately as a class.
Liquidation
Rights
In
the
event of any voluntary or involuntary liquidation, dissolution or winding up
of
the Company, the holders of shares of Preferred Stock are entitled to receive
out of the assets of the Company available for distribution to stockholders,
subject to the rights of any senior stock and subject to the rights of any
parity stock, but before any distribution is made on any junior stock, $50.00
per share in cash plus accumulated and unpaid dividends. If upon any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
amounts payable with respect to the Preferred Stock and parity stock are not
paid in full, the holders of the Preferred Stock and parity stock will share
ratably in any distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment of
the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company. A consolidation
or
merger of the Company with one or more corporations or a sale of all or
substantially all of the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up of the Company.
Conversion
Rights
Each
share of Preferred Stock is convertible at any time at the option of the holder
thereof into such number of shares of common stock equal to a fraction, the
numerator of which is the liquidation preference (excluding accrued but unpaid
dividends, if any) of such shares of Preferred Stock surrendered for conversion
and the denominator of which is the then current conversion price, except that,
if a share of Preferred Stock is called for redemption or exchange, the
conversion right with respect to such share will terminate at the close of
business on the business day immediately preceding the date fixed for such
redemption or exchange (provided that no default by the Company in the payment
of the applicable redemption price (including any accrued and unpaid dividends)
or in the exchange of such share of Preferred Stock, as the case may be, shall
have occurred and be continuing on the date fixed for redemption or exchange,
as
the case may be) and will be lost if not exercised prior to that time. No
fractional share of common stock will be issued upon conversion but, in lieu
thereof, an amount in cash will be paid by the Company based on the closing
market price of the common stock on the last trading day prior to the date
of
conversion. The initial conversion price per share of common stock was
$11.55.
The
holder of record of a share of Preferred Stock on a record date with respect
to
the payment of a dividend on the Preferred Stock is entitled to receive such
dividend on such share of Preferred Stock on the corresponding dividend due
date
notwithstanding the conversion thereof after such record date or default by
the
Company in the payment of the dividend payable on such dividend due date.
However, a share of Preferred Stock surrendered for conversion during the period
from the close of business on any record date for the payment of a dividend
on
the Preferred Stock to the opening of business on the corresponding dividend
due
date (except a share of Preferred Stock called for redemption on a redemption
date during such period) must be accompanied by payment of an amount equal
to
the dividend payable on such dividend due date. The dividend with respect to
a
share of Preferred Stock called for redemption on a redemption date during
the
period from the close of business on a record date with respect to the payment
of a dividend on the Preferred Stock to the opening of business on the
corresponding dividend due date shall be payable on such dividend due date
to
the holder of record of such share on such dividend record date notwithstanding
the conversion of such share of Preferred Stock after such record date and
prior
to such dividend due date and the holder converting such share of Preferred
Stock need not include a payment of such dividend amount upon surrender of
such
share of Preferred Stock for conversion. Holders of record of shares of
Preferred Stock on a record date with respect to the payment of a dividend
on
the Preferred Stock who convert such shares on or after the corresponding
dividend due date will receive the dividend payable by the Company on such
date
and need not include payment in the amount of such dividend upon surrender
of
such shares for conversion. Except as stated above, no payment or adjustment
is
to be made on conversion for dividends accrued on the shares of Preferred Stock
or for dividends on the common stock issued on conversion.
With
certain exceptions described herein, the conversion price is subject to
adjustment upon the occurrence of certain events, including: (i) dividends
in common stock on shares of capital stock of the Company;
(ii) subdivisions, combinations and reclassifications of the common stock;
(iii) the issuance to all holders of common stock of certain rights or
warrants (other than Rights) entitling the holders of such rights, options,
options or warrants to subscribe for common stock at less than the current
market price per share of the common stock, determined pursuant to the Preferred
Stock certificate of designations (the “current market price”); (iv) the
distribution to all holders of common stock of evidences of indebtedness or
other assets (including securities, but excluding Rights, any rights, options
or
warrants referred to in clause (iii) of this sentence, any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in clause (i) of this sentence); (v) the distribution to or payment
of a dividend to all holders of common stock payable exclusively in cash (other
than in connection with a merger or consolidation of the Company) in an
aggregate amount that, combined together with (A) other such exclusively
cash distributions made within the preceding 12 months in respect of which
no
adjustment has been made and (B) with respect to any tender offer by the
Company for its common stock, any cash plus the fair market value (as determined
by the board of directors) as of the expiration of such tender offer of any
non-cash consideration payable in a tender offer concluded within the preceding
12 months in respect of which no adjustment has been made, exceeds ten percent
of an amount determined by multiplying the number of shares of common stock
outstanding on the record date for the determination of holders of common stock
entitled to receive such distribution by the current market price as of such
record date; or (vi) the expiration of a tender offer by the Company for
common stock of the Company which requires payment to holders of common stock
of
an aggregate consideration, consisting of any cash plus the fair market value
of
any non-cash consideration (as determined by the board of directors), as of
the
expiration of such tender offer, that combined together with (A) the
aggregate of any cash plus the fair market value (as determined by the board
of
directors) of any non-cash consideration payable in respect of any other tender
offer by the Company for common stock expiring during the preceding 12 months
and in respect of which no adjustment has been made and (B) the aggregate
amount of all distributions and dividends to all holders of common stock,
payable exclusively in cash, during the preceding 12 months and in respect
of
which no adjustment has been made, exceeds ten percent of an amount determined
by multiplying the number of shares of common stock outstanding on the last
day
on which tender could have been made pursuant to such tender offer by the
current market price on such day.
No
adjustment in the conversion price pursuant to the provisions described in
the
preceding paragraph will be required unless such adjustment would require a
change of at least one percent in the conversion price then in effect, but
any
adjustment that would otherwise be required to be made shall be
carried
forward and taken into account in any subsequent adjustment. Before taking
any
action which would cause an adjustment effectively reducing the conversion
price
below the par value of the common stock, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that
the
Company may validly and legally issue fully paid and non-assessable shares
of
common stock at the conversion price as so adjusted.
In
the
event of any dividend or distribution to stockholders of the Company consisting
exclusively of capital stock of the Company’s subsidiaries, LSB Chemical Corp.,
El Dorado Chemical Company or any of their respective subsidiaries, the Company
may, at its option, in consultation with an independent financial advisor
selected by the board of directors of the Company, elect, in lieu of all or
any
portion of the adjustment to the conversion price described in clause (iv)
of the second preceding paragraph, to make a cash payment to the holders of
the
Preferred Stock, as provided in the Preferred Stock certificate of designation.
In the event the Company makes such election, the Company shall pay to each
holder of Preferred Stock an amount in cash for each such share held by such
holder equal to the product of (A) the difference between (x) the
quotient of (1) $50.00 divided by (2) the conversion price, as it
would have been adjusted but for such election by the Company, minus
(y) the quotient of (1) $50.00 divided by (2) the conversion
price, as partially adjusted or without any adjustment, as the Company may
elect, times (B) the adjusted market price. Such financial advisor is not
required to deliver a fairness opinion in connection with the determination
of
the amount of such cash payment. Such cash payment will be made to the holders
of record of the Preferred Stock as they appear on the stock books of the
Company at the close of business on the date such distribution is effected.
The
Company will notify the registered holders of Preferred Stock of such dividend
or distribution and of the Company’s election to make any such cash payment at
least 30 days in advance of the record date for the determination of the holders
of common stock entitled to receive such dividend or distribution. As used
herein “adjusted market price” means the market price per share of the Company’s
common stock at the close of business on the date fixed for determination of
stockholders entitled to receive such dividend or distribution less the then
fair market value (as determined by the board of directors, whose reasonable
determination shall be conclusive) of the portion of the assets so distributed
applicable to one share of common stock.
With
respect to the Preferred Stock Purchase Rights (as defined in the Rights
Agreement, dated as of February 17, 1989, between the Company and the
Liberty National Bank and Trust Company of Oklahoma City), and, in the event
that the Company should distribute rights or warrants issued by the Company
to
all holders of common stock entitling the holders thereof to subscribe for
or
purchase shares of common stock or preferred stock, which rights or warrants
(i) are deemed to be transferred with such shares of common stock,
(ii) are not exercisable and (iii) are also issued in respect of
future issuances of common stock, in each case in clauses (i) through (iii)
until the occurrence of a specified event or events (such Preferred Stock
Purchase Rights and such rights or warrants, if any, collectively, “Rights”),
the Company shall make effective provisions so that each holder of the Preferred
Stock who converts any shares of Preferred Stock shall (but only if such Rights
have not been previously redeemed or terminated) be entitled to receive upon
such conversion, in addition to the shares of common stock issuable upon such
conversion, a number of such Rights to be determined as follows: (i) if
such conversion occurs on or prior to the date for the distribution to the
holders of Rights of separate certificates evidencing such Rights (the
“distribution date”), the same number of Rights to which a holder of a number of
shares of common stock equal to the number of shares issued upon such conversion
is entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the Rights; and (ii) if such conversion
occurs after the distribution date, the same number of Rights to which a holder
of the number of shares of common stock into which such shares of Preferred
Stock so converted were convertible immediately prior to the distribution date,
would have been entitled on the distribution date in accordance with the terms
and provisions of and applicable to the Rights.
Special
Conversion Rights Upon Corporate Change or Ownership
Change
If
a
corporate change (as defined below) has occurred with respect to the Company,
then, except as otherwise provided below, each holder of Preferred Stock shall
have the right, at the holder’s option, for a period of 45 days after the
mailing of a notice by the Company that a corporate change has occurred, to
convert all, but not less than all, of such holder’s Preferred Stock into shares
of marketable stock (as
defined
below) with an aggregate applicable value (as defined below) equal to the
aggregate stated value (as defined below) of the Preferred Stock for which
conversion is elected. The Company or the successor corporation, as the case
may
be, may, at its option, in lieu of providing all or a portion of the marketable
stock upon any such conversion, provide the holder with cash in an amount equal
to the aggregate stated value of the shares of Preferred Stock for which such
conversion was elected and with respect to which marketable stock is not being
provided. Shares of Preferred Stock which are not converted or cashed out as
provided above will remain convertible into the kind and amount of securities,
cash or other assets which the holders of the Preferred Stock would have owned
immediately after the corporate change if the holders had converted the
Preferred Stock immediately before the effective date of the corporate change.
The Company will notify the registered holders of Preferred Stock of any
corporate change at least 30 days in advance of the effective date of any such
corporate change in order to allow such holders an opportunity to exercise
their
conversion rights prior to the effective date of such corporate change and
before the special conversion right commences.
If
an
ownership change (as defined below) has occurred with respect to the Company,
then, except as provided below, each holder of the Preferred Stock shall have
the right, at the holder’s option, for a period of 45 days after the mailing of
a notice by the Company that an ownership change has occurred, to convert all,
but not less than all, of such holders’ Preferred Stock into common stock with
an aggregate applicable value equal to the aggregate stated value of the
Preferred Stock for which conversion is elected. The Company or the successor
corporation, as the case may be, may at its option, and in lieu of providing
all
or a portion of the common stock upon such conversion, provide the holder with
cash in an amount equal to the aggregate stated value of the shares of Preferred
Stock for which such conversion was elected and with respect to which common
stock is not being provided. The conversion right arising upon an ownership
change will only be applicable with respect to the first ownership change that
occurs after the date of issuance of the Preferred Stock.
If
a
corporate change or an ownership change occurs with respect to the Company,
then, within 30 days after the occurrence of such corporate change or ownership
change, as the case may be, the Company will mail to each registered holder
of
Preferred Stock a notice setting forth details regarding the special conversion
right available to such holder based upon such corporate change or ownership
change. A holder of Preferred Stock must exercise the special conversion right,
if at all, within the 45-day period after the mailing of such notice by the
Company. Exercise of such special conversion right shall be irrevocable and
dividends on Preferred Stock tendered for conversion shall cease to accrue
from
and after the conversion date. The conversion date with respect to the exercise
of a special conversion right arising upon a corporate change or ownership
change shall be the 45th
day
after the mailing of the notice by the Company that a corporate change or
ownership change, as the case may be, has occurred. If a corporate change or
an
ownership change occurs with respect to the Company, the Company will comply
with Rule 13c-4 and Regulation 14E under the Exchange Act with respect
to the exercise of the special conversion rights described in this
section.
The
board
of directors of the Company does not have the power to waive the holders’
special conversion rights described above without the consent of the holders
of
two-thirds of the then outstanding shares of Preferred Stock.
As
used
in this section and “Description of Debentures”, a “corporate change” with
respect to the Company shall be deemed to have occurred at such time as the
Company shall consummate any transaction of merger or consolidation of the
Company or the Company shall convey, sell, lease, assign, transfer or otherwise
dispose of all or substantially all of the Company’s property, business or
assets, except that none of the following shall constitute a corporate
change:
(i) the
merger or consolidation of any subsidiary (as defined below) of the Company
with
or into the Company (provided that the Company shall be the continuing or
surviving corporation) or the merger or consolidation of the Company or any
subsidiary with or into any one or more wholly-owned subsidiaries of the Company
(provided that a wholly-owned subsidiary shall be the continuing or surviving
corporation);
(ii) any
sale,
lease, transfer or other disposition by any wholly-owned subsidiary of any
or
all of its assets (upon voluntary liquidation or otherwise) to the Company
or
any sale, lease, transfer or other disposition by the Company of any or all
of
its assets to a wholly-owned subsidiary of the Company;
(iii) any
sale,
transfer or other disposition by the Company of any or all of the capital stock
or assets of LSB Chemical Corp. or El Dorado Chemical Company or any of their
subsidiaries or any business acquired after May 19, 1993; and
(iv) any
merger, consolidation, sale, lease, assignment, transfer or disposition pursuant
to which the consideration received and to be received by holders of the common
stock solely of marketable stock (as defined below).
The
term
“all or substantially all” of the assets is not defined under the Delaware
General Corporation Law or in the indenture covering our 6.50% convertible
subordinated debentures into which the Preferred Stock is convertible at the
option of the Company. As a result, the meaning of such term depends on, among
other things, the amount of revenues or profits attributable to such assets
and
the value of such assets to the Company on a consolidated basis. Accordingly,
it
may not be clear whether a particular disposition of assets by the Company
would
be deemed to constitute a disposition of “all or substantially all” of the
assets of the Company that would give rise to the special conversion rights
described above.
As
used
in this section and “Description of Debentures”, an “ownership change” with
respect to the Company shall be deemed to have occurred at such time as any
person (other than Jack E. Golsen and members of his immediate family and
entities controlled by Jack E. Golsen and members of his immediate family),
together with its affiliates and associates, is or becomes the beneficial owner,
directly or indirectly, of more than 50% of the outstanding common stock
pursuant to a transaction that does not constitute a corporate change with
respect to the Company.
As
used
in this section and “Description of Debentures”, the “applicable value” of a
share of the common stock or a share of common stock of a corporation that
is
the successor to all or substantially all of the business and assets of the
Company as the result of a corporate change, shall be the higher of the market
value or the reference value (as defined below).
As
used
in this section and “Description of Debentures”, the “market value” of a share
of the common stock or a share of common stock of a corporation that is the
successor to all or substantially all of the business and assets of the Company
as the result of a corporate change, shall be the average of the closing market
price of such common stock for the five business days (as defined) ending on
the
last business day preceding the date of the corporate change or ownership
change.
As
used
in this section and “Description of Debentures”, the term “marketable stock”
shall mean common stock or common stock of any corporation that is the successor
to all or substantially all of the business or assets of the Company as a result
of a corporate change, as the case may be, which is (or will, upon distribution
thereof, be) listed on a national securities exchange or approved for quotation
in the NASDAQ National Market System or any similar system of automated
dissemination of quotations of securities prices in the United States.
Marketable stock is not required to be registered under the Securities Act
prior
to issuance.
As
used
in this section, “stated value” of a share of Preferred Stock converted during
the 45-day period following the notice of a corporate change or an ownership
change shall mean $50.00 plus accrued and unpaid dividends to the conversion
date.
As
used
in this section and “Description of Debentures”, “subsidiary” means a
corporation more than 50% of the outstanding voting stock of which is owned,
directly or indirectly, by the Company or by one or more other subsidiaries,
or
by the Company and one or more other subsidiaries.
As
used
in this section and “Description of Debentures”, the term “reference value”
initially means $6.42 per share (which is an amount equal to two-thirds of
the
closing price of the common stock on the business day immediately prior to
the
date of the filing of the registration statement covering the Preferred Stock);
provided, however, that in the event of any adjustment to the conversion price
(which was initially $11.55 per share), the reference value shall also be
adjusted so that the ratio of the reference value to the conversion price,
after
giving effect to any such adjustment, shall always be the same as the ratio
of
$6.42 to the initial conversion price (without giving effect to any adjustment);
provided, further, that if the market value of a share of common stock of a
corporation that is the successor to all or substantially all of the business
and assets of the Company as the result of a corporate change is less than
the
reference value (as calculated above), then the reference value shall be equal
to the amount determined by multiplying the market value per share of such
successor corporation’s common stock by a fraction of which the numerator shall
be the reference value of the common stock of the Company (as calculated above)
and the denominator shall be the market value of the common stock of the
Company.
The
foregoing provisions do not afford holders of Preferred Stock protection in
the
event of highly leveraged or other transactions involving the Company that
may
adversely affect holders of Preferred Stock. In particular, in the event a
holder elects to exercise the foregoing special conversion right to convert
such
holder’s Preferred Stock into marketable stock or common stock, as the case may
be, such holder will be subject to the same risks, including the risk of an
increase in leverage, to which such holder would have been subject if such
holder had not so converted.
The
special conversion rights may deter or make more difficult a tender offer for
shares, or a change in control, of the Company.
Exchange
Provisions
The
Preferred Stock is exchangeable in whole, but not in part, at the option of
the
Company on any dividend payment date for our 6.50% convertible subordinated
debentures (the “Debentures”). See “Description of Debentures”. Holders of
outstanding shares of the Preferred Stock will be entitled to receive $50.00
principal amount of the Debentures in exchange for each share of Preferred
Stock
held by them at the time of exchange. Upon such exchange, the rights of the
holders of Preferred Stock as stockholders of the Company shall cease (except
the right to receive on the Debenture date of exchange (the “Debenture exchange
date”) accrued and unpaid dividends to the Debenture exchange date and the
Debentures), and the person or persons entitled to receive the Debentures
issuable upon exchange shall be treated for all purposes as the registered
holder or holders of such Debentures. The Company will mail written notice
of
its intention to exchange the Preferred Stock for the Debentures to each holder
of record of the Preferred Stock not less than 30 or more than 60 days prior
to
the Debenture exchange date.
If
on the
Debenture exchange date the Company is in default in the payment of any
dividends on Preferred Stock or on any senior stock or parity stock or if such
exchange shall on the Debenture exchange date be prohibited by applicable law,
then no shares of the Preferred Stock shall be exchanged.
Optional
Redemption
On
and
after June 15, 2003, the Preferred Stock may be redeemed at the option of
the Company, in whole or, from time to time, in part, at $50.00 per share,
plus
accumulated but unpaid dividends to the date fixed for redemption (subject
to
the right of the holder of record on the record date for the payment of a
dividend to receive the dividend due on the corresponding dividend due
date).
If
less
than all of the then outstanding shares of Preferred Stock are to be redeemed,
the Company will select those to be redeemed pro rata or by lot or in such
other
manner as the board of directors may determine. Without the consent of the
holders of at least two-thirds of the then outstanding shares of Preferred
Stock, the Company may not redeem less than all of the outstanding shares of
Preferred Stock until all dividends accrued and in arrears upon all outstanding
shares of Preferred Stock have been paid for all past dividend
periods.
Notice
of
redemption will be mailed at least 30 days but not more than 60 days before
the
redemption date to each holder of record of shares of Preferred Stock to be
redeemed addressed to such stockholders at the address shown on the books of
the
Company. On and after the redemption date, dividends shall cease to accumulate
on shares of Preferred Stock called for redemption, and all rights of the
holders of such shares shall terminate except the right to receive the
redemption price.
There
is
no mandatory redemption or sinking fund obligation with respect to the Preferred
Stock.
Miscellaneous
Holders
of Preferred Stock have no preemptive rights. Shares of Preferred Stock redeemed
or otherwise reacquired by the Company, converted into common stock of the
Company or exchanged for Debentures shall resume the status of authorized and
unissued shares of the Company’s Class C preferred stock, undesignated as
to series, and shall be available for subsequent issuance.
In
case
any dividend payment date, any redemption date or the last date on which a
holder of Preferred Stock has the right to convert such holder’s shares of
Preferred Stock shall not be a business day, then payment of a dividend due
or a
redemption price or conversion of the shares of Preferred Stock need not be
made
on such date, but may be made on the next succeeding business day, provided
that, for purposes of computing such payment, no interest shall accrue for
the
period from and after such dividend payment date or redemption date, as the
case
may be.
The
Preferred Stock is not listed on any national securities exchange.
If
the
Company elects to exchange the Preferred Stock for the Debentures, the Company
will issue the Debentures under an indenture to be dated as of the Debenture
exchange date between the Company and a designated trustee at a rate of $50.00
principal amount of Debentures for each share of Preferred Stock so exchanged.
The indenture will be substantially in the form filed as an exhibit to the
Form
S-2 Registration Statement No. 33-61640 registering the Preferred Stock, with
such changes as may be required by law or usage. The following is a summary
of
the material provisions of the indenture. For further information, reference
is
made to the indenture, including the definitions therein of certain terms.
References in this section to the Company refer only to LSB Industries,
Inc.
General
The
Debentures will be unsecured, subordinated obligations of the Company, limited
to a principal amount equal to the total liquidation preference of the Preferred
Stock for which the Debentures will be exchanged, and will mature on
June 15, 2018. The Company will pay interest on the Debentures
semiannually, from the Debenture exchange date, on June 15 and
December 15 of each year, commencing on the first such interest payment
date following the Debenture exchange date, at the rate of 6.5% per annum.
Interest will be paid on the Debentures to the persons who are registered
holders at the close of business on the June 1 or December 1, as the
case may be, next preceding the interest payment date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. Principal (and premium,
if any) and interest will be payable and the Debentures may be presented for
conversion, exchange or transfer at an office or agency of the Company
maintained for such purposes in the Borough of Manhattan, The City of New York,
or Oklahoma City, Oklahoma, except that payment of interest may, at the option
of the Company, be made by check mailed to the address of the person entitled
thereto as it appears in the Debenture register.
In
case
any interest payment date, redemption date or stated maturity of any Debenture
or the last date on which a holder has the right to convert such holder’s
Debentures shall not be a business day, then payment of interest or principal
or
conversion of the Debentures need not be made on such date, but may be made
on
the next succeeding business day, provided that, for purposes of computing
such
payment, no
interest
shall accrue for the period from and after such interest payment date or stated
maturity, as the case may be.
The
Debentures will be issued only in fully registered form in denominations of
$50.00 or any integral multiple thereof. The Debentures are exchangeable at
the
option of the holder for other authorized denominations and transfers thereof
will be registrable without charge, but the Company may require payment of
a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The
Indenture does not restrict the ability of the Company to incur indebtedness,
create liens on its assets or pay dividends and does not restrict the operations
of the Company.
Conversion
Rights
The
holders of Debentures will be entitled at any time on or before June 15,
2018, to convert the Debentures into common stock, initially at the conversion
price in effect for the Preferred Stock on the Debenture exchange date, except
that, with respect to Debentures called for redemption, conversion rights will
expire at the close of business on the business day immediately prior to the
redemption date, unless the Company defaults in making the payment due upon
redemption. With limited exceptions, no payment or adjustment is to be made
on
conversion for interest accrued on the Debentures or for dividends on the common
stock issued on conversion. No fractional shares will be issued, and, in lieu
of
any fractional share, an amount in cash will be paid based on the closing market
price of the common stock on the last trading day prior to the date of
conversion.
The
conversion price is subject to adjustment upon the occurrence of the events
described under “Description of Preferred Stock-Conversion Rights.”
The
registered holder of Debentures at the close of business on an interest payment
record date shall be entitled to receive the interest payable on such Debentures
on the corresponding interest payment date notwithstanding the conversion
thereof after such record date or, subject to certain provisions applicable
to
defaulted interest, the Company’s default in payment of the interest due on such
interest payment date. However, Debentures surrendered for conversion during
the
period from the close of business on any record date for the payment of interest
to the opening of business on the corresponding interest payment date (except
Debentures called for redemption on a redemption date during such period) must
be accompanied by payment of an amount equal to the interest payable on such
interest payment date. Subject to certain provisions applicable to defaulted
interest, the interest payment with respect to a Debenture called for redemption
on a redemption date during the period from the close of business on an interest
payment record date to the opening of business on the corresponding interest
payment date shall be payable on such interest payment date to the registered
holder of such Debenture at the close of business on such interest payment
record date notwithstanding the conversion of such Debenture after such interest
payment record date and prior to such interest payment date, and the holder
converting such Debenture need not include a payment of such interest payment
amount upon surrender of such Debenture for conversion. Registered holders
of
Debentures on an interest payment record date who convert Debentures on or
after
the corresponding interest payment date will receive the interest payable by
the
Company on such date and need not include payment in the amount of such interest
upon surrender of such Debentures for conversion. Except as stated above, no
payment or adjustment is to be made on conversion for interest accrued on the
Debentures or for dividends on the common stock issued on
conversion.
Special
Conversion Rights Upon Corporate Change or Ownership
Change
If
a
corporate change has occurred with respect to the Company, then, except as
otherwise provided below, each holder of a Debenture then outstanding shall
have
the right, at the holder’s option, for a period of 45 days after the mailing of
a notice by the Company that a corporate change has occurred, to convert all,
but not less than all, of such holder’s Debentures into shares of marketable
stock with an aggregate applicable value equal to the aggregate stated value
(as
defined below) of the Debentures for which conversion is elected. The Company
or
the successor corporation, as the case may be, may, at its option, in lieu
of
providing all or a portion of the marketable stock upon any such conversion,
provide the
holder
with cash in an amount equal to the aggregate stated value of the Debentures
for
which such conversion was elected and with respect to which marketable stock
is
not being provided. Debentures which are not converted or cashed out as provided
above will become convertible into the kind and amount of securities, cash
or
other assets which the holders of the Debentures would have owned immediately
after the corporate change if the holder had converted the Debentures
immediately before the effective date of the corporate change. The Company
will
notify the registered holders of Debentures of any corporate change at least
30
days in advance of the effective date of any such corporate change in order
to
allow such holders an opportunity to exercise their conversion rights prior
to
the effective date of such corporate change and before the special conversion
right commences. As used in this section “stated value” of a Debenture converted
during the 45-day period following the notice of a corporate change or an
ownership change shall mean 100% of the principal amount of the Debentures
so
converted, plus accrued and unpaid interest to the conversion date.
If
an
ownership change should occur with respect to the Company, then, except as
otherwise provided below, each holder of a Debenture shall have the right,
at
the holder’s option, for a period of 45 days after the mailing of a notice by
the Company that an ownership change has occurred, to convert all, but not
less
than all, of such holder’s Debentures into common stock of the Company with an
aggregate applicable value equal to the aggregate stated value of the Debentures
for which conversion was elected. The Company or the successor corporation,
as
the case may be, may, at its option and in lieu of providing all or a portion
of
the common stock upon any such conversion, provide the holder with cash in
an
amount equal to the aggregate stated value of Debentures for which such
conversion was elected and with respect to which common stock is not being
provided. The conversion right arising upon an ownership change will only be
applicable with respect to the first ownership change that occurs after the
Debenture exchange date.
If
a
corporate change or an ownership change has occurred with respect to the
Company, then, within 30 days after the occurrence of such corporate change
or
ownership change, as the case may be, the Company will mail to the trustee
and
each registered holder of a Debenture a notice setting forth details regarding
the special conversion right available to such holder based upon such corporate
change or ownership change. The holder of a Debenture must exercise this special
conversion right, if at all, within the 45-day period after the mailing of
such
notice by the Company. Exercise of such conversion right shall be irrevocable
and interest on Debentures (or portions thereof) tendered for conversion shall
cease to accrue from and after the conversion date. The conversion date with
respect to the exercise of a conversion right arising upon a corporate change
or
ownership change shall be the 45th
day
after the mailing of the notice by the Company that a corporate change or
ownership change, as the case may be, has occurred. If a corporate change or
an
ownership change occurs with respect to the Company, the Company will comply
with Rule 13c-4 and Regulation 14B under the Exchange Act with respect
to the exercise of the special conversion rights described in this
section.
Neither
the board of directors of the Company nor the trustee has the power to waive
the
holders’ special conversion rights described above without the consent of the
holders of at least two-thirds in aggregate principal amount of the outstanding
Debentures.
The
foregoing provisions will not afford holders of the Debentures protection in
the
event of highly leveraged or other transactions involving the Company that
may
adversely affect holders of the Debentures. In particular, in the event a holder
elects to exercise the foregoing special conversion right to convert such
holder’s Debentures into marketable stock or common stock, as the case may be,
such holder will be subject to the same risks, including the risk of an increase
in leverage, to which such holder would have been subject if such holder had
not
so converted.
The
special conversion right may deter or make more difficult a tender offer for
shares, or a change in control, of the Company.
Subordination
The
payment of principal (and premium, if any), sinking fund requirements and
interest on the Debentures is subordinated in right of payment to the payment
of
all senior indebtedness of the Company.
“Senior
indebtedness” is defined as the principal of, premium, if any, and unpaid
interest on the following, whether outstanding as of the Debenture exchange
date
or thereafter incurred or created: (a) indebtedness of the Company for
money borrowed (including purchase-money obligations) evidenced by notes or
other written obligations; (b) indebtedness of the Company evidenced by
notes, debentures, bonds or other securities issued under the provisions of
an
indenture or similar instrument; (c) obligations of the Company as lessee
under capitalized leases and under leases of property made as part of any sale
and leaseback transactions; (d) indebtedness of others of any of the kinds
described in the preceding clauses (a) through (c) assumed or guaranteed by
the Company and (e) renewals, extensions and refundings of, and
indebtedness and obligations issued in exchange for or in replacement of,
indebtedness or obligations of the kinds described in the preceding
clauses (a) through (d); provided, however, that the following will not
constitute senior indebtedness: (i) any indebtedness or obligation as to
which, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is expressly provided that such indebtedness or
obligations is subordinate in right of payment to all other indebtedness of
the
Company not expressly subordinated to such indebtedness or obligation;
(ii) any indebtedness or obligation which by its terms refers explicitly to
the Debentures and states that such indebtedness or obligation shall not be
senior in right of payment thereto; (iii) any indebtedness or obligation of
the Company in respect of the Debentures; and (iv) any indebtedness or
obligation of the Company to any subsidiary. The indenture does not limit the
amount of senior indebtedness that may be incurred.
With
limited exceptions, no payment on account of principal (and premium, if any),
sinking fund requirements or interest on the Debentures may be made if at the
time of such payment there exists a default with respect to any senior
indebtedness. In the event that, notwithstanding the restrictions described
in
the preceding sentence, the Company makes any payment to the trustee or a holder
of Debentures prohibited by any such restriction with such trustee or holder,
as
the case may be, knowing of such contravention before receipt thereof, then
such
payment will be required to be paid over and delivered forthwith to the holders
of senior indebtedness remaining unpaid, to the extent necessary to pay in
full
all such senior indebtedness. The subordination provisions in the indenture
are
intended to benefit, and may be enforced directly by, the holders of senior
indebtedness. Upon any payment or distributions of the assets of the Company
to
creditors upon any dissolution, total or partial liquidation, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings relating to the Company, the
holders of senior indebtedness will be entitled to receive payments in full
of
all amounts due or to become due thereon before the holders of Debentures are
entitled to receive any payment.
By
reason
of such subordination, in the event of insolvency, creditors of the Company
who
are not holders of senior indebtedness or of the Debentures may recover less,
ratably, than holders of senior indebtedness and may recover more, ratably,
than
holders of the Debentures.
Sinking
Fund
The
indenture requires the Company to redeem through a mandatory sinking fund
commencing on June 15, 2003, or the first June 15 following the
Debenture exchange date, whichever is later, on each succeeding June 15 to
and including June 15, 2017, on at least 30 days and not more than 60 days
notice mailed to each holder of Debentures to be redeemed at his address
appearing in the security register, five percent of the principal amount of
the
Debentures issued, at a redemption price equal to the principal amount thereof
plus interest accrued to the redemption date. Debentures acquired by the Company
through purchase, Debentures redeemed by the Company otherwise than through
the
mandatory sinking fund, and Debentures which have been converted may be used,
at
the principal amount thereof, to reduce the amount of any mandatory sinking
fund
payment.
Optional
Redemption
The
Debentures were not redeemable prior to June 15, 1996. The Debentures may
be redeemed otherwise than through the operation of the sinking fund, at the
Company’s option, in whole or, from time to time, in part, on at least 30 days
and not more than 60 days notice mailed to each holder of Debentures to be
redeemed at his address appearing in the security register, at 100% of the
principal amount, plus accrued
and
unpaid interest to the date of redemption (subject to the right of the
registered holder on the record date for an interest payment to receive such
interest payment payable on the corresponding Interest Payment date), if
any.
Debentures
in a denomination larger than $50.00 may be redeemed in part in whole multiples
of $50.00. On and after the redemption date, interest ceases to accrue on
Debentures, or portions thereof, called for redemption.
Modification
of the Indenture
With
the
consent of the holders of at least two-thirds in aggregate principal amount
of
the outstanding Debentures, the Company and the trustee may enter into an
indenture or indentures supplemental to the original indenture, provided that
no
such supplemental indenture may, without the consent of the holder of each
outstanding Debenture affected thereby, (a) change the stated maturity of
the principal of (and premium, if any), or any installment of interest on,
any
Debenture, (b) reduce the principal amount of, or the interest on, or any
premium payable on redemption of, any Debenture, (c) change the place of or
currency for payment of the principal of or premium or interest on, any
Debenture, (d) impair the right to institute suit for the enforcement of
any such payment when due, (e) adversely affect the right to convert any
Debenture, (f) modify the provisions of the indenture with respect to the
subordination of the Debentures in a manner adverse to the holders of the
outstanding Debentures, (g) reduce the percentage of the principal amount
of outstanding Debentures necessary to modify or amend the indenture or to
consent to any waiver provided for in the indenture or (h) modify any
provisions of the indenture relating to the modification and amendment of the
indenture or waivers of past defaults, except as otherwise specified. The
indenture is also subject to modification as a result of amendments to the
Trust
Indenture Act and the rules and regulations promulgated thereunder by the
SEC.
Events
of Default, Notice and Waiver
The
following will be events of default under the indenture: (a) any default in
the payment of any interest, which shall have continued for 30 days;
(b) any default in the payment of principal (or premium, if any) when due;
(c) any default in the deposit of a sinking fund payment when due,
(d) any failure to perform any other covenant of the Company contained in
the indenture, which shall have continued for at least 60 days after written
notice as provided in the indenture; and (e) certain events of bankruptcy,
insolvency or reorganization relating to the Company. If an event of default
(other than an event of default described in clause (e) of the immediately
preceding sentence) shall occur and be continuing, the trustee or the holders
of
at least 25% in aggregate principal amount of the outstanding Debentures may
declare the Debentures due and payable. If an event of default described in
clause (e) above shall occur, the principal of, and accrued interest on,
the Debentures will become immediately due and payable without any declaration
or other act of the holders or the trustee.
The
indenture will provide that the trustee shall, as and to the extent provided
by
the Trust Indenture Act, give to the holders of Debentures notice of all uncured
defaults known to it, provided, however, that in the case of a default described
in (d) of the preceding paragraph, such notice shall not be given for at least
30 days after the occurrence thereof. The trustee shall be protected in
withholding such notice if the trustee in good faith determines that the
withholding of such notice is in the interest of such holders, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any of the Debentures.
The
indenture will provide that the holders of a majority in aggregate principal
amount of the outstanding Debentures may direct the time, method and place
of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. Before proceeding to exercise
any
right or power under the indenture at the direction of such holders, the trustee
shall be entitled to receive reasonable security or indemnity from such holders
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction. The right of a holder to institute a
proceeding with respect to the indenture is subject to certain conditions
precedent, including notice and indemnity to the trustee, but the holder has
an
absolute right, subject to the rights of holders of
senior
indebtedness as described in “Subordination” above, to receipt of principal of
(and premium, if any) and interest on such holder’s Debentures at the stated
maturity of the principal or interest or both, as the case may be, and to
convert such Debentures and to institute suit for the enforcement of any such
payment or such conversion.
The
holders of a majority in aggregate principal amount of the outstanding
Debentures may on behalf of the holders of all Debentures waive certain past
defaults, except a default in payment of the principal of (or premium, if any)
or interest on any Debentures or in respect of certain provisions of the
indenture which cannot be modified or amended without the consent of the holder
of each outstanding Debenture affected thereby.
The
Company will be required to furnish to the trustee annually a statement of
certain officers of the Company stating whether or not to the best of their
knowledge the Company is in default in the performance and observance of certain
terms of the indenture and, if they have knowledge that the Company is in
default, specifying such default.
INTERESTS
OF OUR PRINCIPAL STOCKHOLDERS, OFFICERS
AND
DIRECTORS
The
tables below are based on information available to us as of January 23, 2007,
and are believed to be current. Such information was furnished by the listed
individuals or entities or contained in filings made with the SEC or our
records. A person is deemed to be the beneficial owner of shares of our
Preferred Stock or common stock which the person could acquire within 60 days
of
January 23, 2007. Because of SEC requirements as to the method of determining
the amount of shares an individual or entity may beneficially own, the amounts
shown below for an individual or entity may include shares of Preferred Stock
or
common stock also considered beneficially owned by others.
Principal
Stockholders
The
following table sets forth the following information with respect to each person
(including any “group” as used in Section 13(d)(3) of the Securities Act of
1934, as amended) that we know to have beneficial ownership of more than 5%
of
our Preferred Stock or our common stock:
| · |
the
number of shares and percentage of class beneficially owned as of
January
23, 2007;
|
| · |
the
number of shares of Preferred Stock eligible to be tendered in this
offer;
|
| · |
the
number of shares of Preferred Stock that will not be tendered in
this
offer;
|
| · |
The
number of shares and percentage of class beneficially owned following
the
completion of this offer, assuming 309,807 shares of Preferred Stock
are
tendered and accepted.
|
|
Beneficial
Owner
|
Class
|
Number
of
Shares
|
Percentage
of
Class
|
Preferred
Stock
To
Be
Tendered |
Preferred
Stock Not Tendered
|
Number
of
Shares
After Exchange |
Percentage
of
Class
|
|
Jack
E. Golsen
and members of his family(1) |
Preferred
Stock
common
voting
preferred
|
49,550(2)
4,820,688(3)
1,020,000(4)
|
9.9%
26.5%
99.9%
|
26,467(2)
--
--
|
23,083(2)
--
--
|
23,083
4,901,968
1,020,000
|
12.2%
24.1%
99.9%
|
|
Kent C. McCarthy and affiliates(5) |
Preferred
Stock
common
|
346,662(6)
2,969,150(7)
|
69.5%
16.0%
|
180,450(6)
--
|
166,212(6)
--
|
166,212
3,523,312
|
87.8%
17.6%
|
|
Paul
J. Denby
(8)
|
common
|
1,270,400
|
7.6%
|
--
|
--
|
1,270,400
|
6.7%
|
|
James
W. Sight(9)
|
common
|
966,320
|
5.8%
|
--
|
--
|
966,320
|
5.1%
|
(1)
Includes Jack E. Golsen (“J. Golsen”) and the following members of his family:
wife, Sylvia H. Golsen; son, Barry H. Golsen (“B. Golsen”) (a director, Vice
Chairman of the Board of Directors, and President of the Company and its Climate
Control Business); son, Steven J. Golsen (“S. Golsen”) (executive officer of
several subsidiaries of the Company); and daughter, Linda F. Rappaport (“L.
Rappaport”). SBL Corporation (“SBL”) is wholly-owned by Sylvia H. Golsen (40%
owner), B. Golsen (20% owner), S. Golsen (20% owner), and L. Rappaport (20%
owner) and, as a result, SBL, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen,
and L. Rappaport share the voting and dispositive power of the shares
beneficially owned by SBL and its wholly owned subsidiary, Golsen Petroleum
Corp
(“GPC”). The address of Jack E. Golsen, Sylvia H. Golsen, Barry H. Golsen, and
Linda F. Rappaport is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma
73107; and Steven J. Golsen’s address is 7300 SW 44th Street, Oklahoma City,
Oklahoma 73179. SBL's address is 16 South Pennsylvania Avenue, Oklahoma City,
Oklahoma 73107.
(2)
Includes 9,050 shares of Preferred Stock owned of record by SBL and 40,500
shares of Preferred Stock owned of record by GPC. Pursuant to the Jayhawk
Agreement, and as a condition to the exchange offer, Jack E. Golsen and his
family members will tender 26,467 of the 49,550 shares of the Preferred Stock
beneficially owned by them through SBL and GPC. For more information regarding
the Jayhawk Agreement, see the section of this offer to exchange entitled
“Summary - Recent Developments - Jayhawk Agreement.” SBL’s and GPC’s address is
16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107.
(3)
Includes (a) the following shares over which J. Golsen has the sole voting
and
dispositive power: (i) 25,000 shares that he owns of record, (ii) 4,000 shares
that he has the right to acquire upon conversion of a promissory note, (iii)
133,333 shares that he has the right to acquire upon the conversion of 4,000
shares of LSB's Series B Preferred owned of record by a trust, of which he
is
the sole trustee, (iv) 93,529 shares owned of record by a trust, of which he
is
the sole trustee, and (v) 176,500 shares that he has the right to acquire
within the next 60 days under LSB's stock option plans; (b) 838,747 shares
owned
of record by a trust, of which Sylvia H. Golsen is the sole trustee, over which
she and her husband, J. Golsen share voting and dispositive power; (c) 311,639
shares over which B. Golsen has the sole voting and dispositive power, 533
shares owned of record by B. Golsen's wife, over which he shares the voting
and
dispositive power, and 66,250 shares that he has the right to acquire within
the
next 60 days under LSB's stock option plans; (d) 248,915 shares over which
S.
Golsen has the sole voting and dispositive power and 46,250 shares that he
has
the right to acquire within the next 60 days under LSB's stock option plans;
(e)
195,406 shares held in trust for the grandchildren and great grandchild of
J.
Golsen and Sylvia H. Golsen of which B. Golsen, S. Golsen and L. Rappaport
jointly share voting and dispositive power; (f) 82,552 shares owned of record
by
L. Rappaport over which she has sole voting and dispositive power;
(g) 1,512,099 shares owned of record by SBL, 39,177 shares that SBL has the
right to acquire upon conversion of 9,050 shares of Preferred Stock; 400,000
shares that SBL has the right to acquire upon conversion of 12,000 shares of
Series B Preferred owned of record by SBL, and 250,000 shares that SBL has
to
right to acquire upon conversion of 1,000,000 shares of Series D Preferred
owned
of record by SBL and (h) 88,100 shares owned of record by GPC, 133,333 shares
that GPC has the right to acquire upon conversion of 4,000 shares of Series
B
Preferred owned of record by GPC and 175,325 shares that GPC has the right
to
acquire upon conversion of 40,500 shares of Preferred Stock owned of record
by
GPC. J. Golsen disclaims beneficial ownership of the shares that B. Golsen,
S.
Golsen, and L. Rappaport each have the sole voting and investment power over
as
noted above. B. Golsen, S. Golsen, and L. Rappaport disclaim beneficial
ownership of the shares that J. Golsen has the sole voting and investment power
over as noted above and in footnote (5) and the shares owned of record by Sylvia
H. Golsen. Sylvia H. Golsen disclaims beneficial ownership of the shares that
J.
Golsen has the sole voting and dispositive power over. Does not include 70,200
shares of our common stock that L. Rappaport's husband owns of record and
185,000 shares which he has the right to acquire within the next 60 days under
our stock option plans, all of which L. Rappaport disclaims beneficial
ownership. Does not include 263,320 shares of common stock owned of record
by
certain trusts for the benefit of B. Golsen, S. Golsen, and L. Rappaport over
which B. Golsen, S. Golsen and L. Rappaport have no voting or dispositive power.
Heidi Brown Shear, our Vice President and Managing Counsel, the niece of J.
Golsen, the wife of David M. Shear, our Senior Vice President and General
Counsel, and daughter of Dr. Robert C. Brown, a director of our Company, is
the
Trustee of each of these trusts.
(4)
Includes: (a) 4,000 shares of Series B Preferred owned of record by a trust,
of
which J. Golsen is the sole trustee, over which he has the sole voting and
dispositive power; (b) 12,000 shares of Series B Preferred owned of record
by
SBL; (c) 4,000 shares Series B Preferred owned of record by GPC, over which
SBL,
J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the
voting and dispositive power and (d) 1,000,000 shares of Series D Preferred
owned of record by SBL.
(5)
Kent
C. McCarthy as the manager and sole member of Jayhawk Capital Management, L.L.C.
(“Jayhawk”), a Delaware limited liability company, and as Jayhawk’s investment
advisor, is deemed to beneficially own, and has sole voting and dispositive
power over, the shares of our Preferred Stock and common stock beneficially
owned by Jayhawk, as well as the shares that Mr. McCarthy personally owns.
Jayhawk is deemed to have beneficial ownership of our Preferred Stock and common
stock held in the portfolios of (a) Jayhawk Institutional Partners, L.P.
(“Jayhawk Institutional”), a Delaware limited partnership, and (b) Jayhawk
Investments, L.P. (“Jayhawk Investments”), a Delaware limited partnership.
Jayhawk is the general partner and manager of Jayhawk Institutional and Jayhawk
Investments and, as such, has sole voting and dispositive power over such
shares. Mr. McCarthy disclaims beneficial ownership of all such shares other
than his personal holdings. Mr. McCarthy’s address is 5410 West 61st
Place,
Suite 100, Mission, Kansas 66205.
(6)
Includes 23,800 shares of Preferred Stock that Mr. McCarthy owns of record,
171,390 shares of Preferred Stock held in the portfolio of Jayhawk Institutional
and 151,472 shares held in the portfolio of Jayhawk Investments. Pursuant to
the
Jayhawk Agreement, and as a condition to the exchange offer, Mr. McCarthy will
tender 180,450 of the 346,662 shares of the Preferred Stock beneficially owned
by him. For more information regarding the Jayhawk Agreement, see the section
of
this offer to exchange entitled “Summary - Recent Developments - Jayhawk
Agreement.”
(7)
Includes 161,000 shares of common stock that Mr. McCarthy holds through a
revocable trust, 1,053,700 shares of common stock held in the portfolio of
Jayhawk Institutional, 1,500,700 shares of common stock receivable upon
conversion of 346,662 shares of our Preferred Stock , 112,500 shares of common
stock that may be acquired upon exercise of warrants, and 141,250 shares of
common stock that may be acquired upon conversion of $1 million principal amount
of our 7% Convertible Senior Subordinated Debentures due 2011. Mr. McCarthy
disclaims beneficial ownership of all of our securities held by Jayhawk, Jayhawk
Institutional, and Jayhawk Investments.
(8)
Includes 53,400 shares held by Mr. Denby’s wife, with whom he shares voting and
dispositve power over such shares of common stock. Mr. Denby’s address is 4613
Redwood Court, Irving, Texas 75038.
(9)
Mr.
Sight’s address is 2100 Brookwood, Mission Hill, Kansas 66208.
Security
Ownership of Management
The
following table sets forth information obtained from our directors and executive
officers and our directors and executive officers as a group as to their
beneficial ownership of our Preferred Stock and common stock as of January
23,
2007.
| · |
the
number of shares and percentage of class beneficially owned as of
January
23, 2007;
|
| · |
the
number of shares of Preferred Stock eligible to be tendered in this
offer;
|
| · |
the
number of shares of Preferred Stock that will not be tendered in
this
offer;
|
| · |
the
number of shares and percentage of class beneficially owned following
the
completion of this offer, assuming 309,807 shares of Preferred Stock
are
tendered and accepted.
|
|
Beneficial
Owner**
|
Class
|
Number
of
Shares
|
Percentage
of
Class
|
Preferred
Stock To Be Tendered |
Preferred
Stock Not Tendered
|
Number
of
Shares
After
Exchange |
Percent
of
Class
|
|
Raymond
B. Ackerman
Director |
common(1)
|
21,000
|
*
|
--
|
--
|
21,000
|
*
|
|
Robert
C. Brown, M.D.
Director |
common(2)
|
208,329
|
1.2%
|
--
|
--
|
208,329
|
1.1%
|
|
Charles
A. Burtch
Director |
common(3)
|
15,000
|
*
|
--
|
--
|
15,000
|
*
|
|
Grant
J. Donovan
Director |
Preferred
Stock
common(4)
|
6,988
42,951
|
1.4%
*
|
6,988
--
|
0
--
|
0
64,411
|
--
*
|
|
N.
Allen Ford
Director |
Preferred
Stock(5)
common(5)
|
100
1,432
|
*
*
|
100
|
0
|
0
1,739 |
--
*
|
|
Barry
H. Golsen
Vice Chairman of the Board, President |
Preferred
Stock(6)
common(6)
voting
preferred(6)
|
49,550
3,169,462
1,016,000
|
9.9%
17.8%
99.5%
|
26,467
--
--
|
23,083
--
--
|
23,083
3,250,742
1,016,000
|
12.2%
16.2%
99.5%
|
|
Jack
E. Golsen
Chairman of the Board, Chief Executive Officer |
Preferred
Stock(6)
common(6)
voting
preferred(6)
|
49,550
3,869,143
1,020,000
|
9.9%
21.4%
99.9%
|
26,467
--
--
|
23,083
--
--
|
23,083
3,950,423
1,020,000
|
12.2%
19.5%
99.9%
|
|
David
R. Goss
Director, Executive Vice President - Operations |
common(7)
|
263,641
|
1.6%
|
--
|
--
|
263,641
|
1.4%
|
|
Bernard
G. Ille
Director |
common(8)
|
45,000
|
*
|
--
|
--
|
45,000
|
*
|
|
Jim
D. Jones
Senior Vice President, Corporate Controller, Treasurer |
common(9)
|
186,352
|
1.1%
|
--
|
--
|
186,352
|
1.0%
|
|
Donald
W. Munson
Director |
Preferred
Stock(10)
common(10)
|
100
16,432
|
*
*
|
100
--
|
0
--
|
0
16,739
|
*
|
|
Horace
G. Rhodes
Director |
common(11)
|
20,000
|
*
|
--
|
--
|
20,000
|
*
|
|
David
M. Shear
Senior Vice President, General Counsel |
common(12)
|
165,756
|
1.0%
|
--
|
--
|
165,756
|
*
|
|
Tony
M. Shelby
Director |
Preferred
Stock(13)
common(13)
|
3,500
305,421
|
*
1.8%
|
3,500
--
|
0
--
|
0
316.170
|
--
1.7%
|
|
John
A. Shelly
Director |
common
|
--
|
--
|
--
|
--
|
--
|
--
|
|
Directors
and
Executive Officers as a group (15 persons) |
Preferred
Stock(14)
common(14)
voting
preferred
|
60,238
5,731,885
1,020,000
|
12.1%
30.6%
99.9%
|
37,155
--
--
|
23,083
--
--
|
23,083
5,845,988
1,020,000
|
12.2%
28.0%
99.9%
|
____________
*
Less
than 1%.
**The
business address of each of the executive officers and directors identified
in
the table is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107,
unless
otherwise noted.
(1)
This
amount includes the following shares over which Mr. Ackerman shares voting
and
dispositive power: (a) 2,000 shares held by Mr. Ackerman's trust, and (b) 4,000
shares held by the trust of Mr. Ackerman's wife. The remaining 15,000 shares
of
common stock included herein are shares that Mr. Ackerman may acquire pursuant
to currently exercisable non-qualified stock options.
(2)
The
amount shown includes 15,000 shares of common stock that Dr. Brown may acquire
pursuant to currently exercisable non-qualified stock options granted to him
by
the Company. The shares, with respect to which Dr. Brown shares the voting
and
dispositive power, consists of 122,516 shares owned by Dr. Brown's wife, 50,727
shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned by
Dr.
Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc. Employee Profit
Sharing Plan, of which Dr. Brown serves as the trustee. The amount shown does
not include shares owned directly, or through trusts, by the children of Dr.
Brown and the son-in-law of Dr. Brown, all of which Dr. Brown disclaims
beneficial ownership.
(3)
Mr.
Burtch has sole voting and dispositive power over these shares, which may be
acquired by Mr. Burtch pursuant to currently exercisable non-qualified stock
options.
(4)
Mr.
Donovan owns 6,988 shares of Preferred Stock, over which he has the sole voting
and dispositive power. The shares of common stock amount include (a) 42,451
shares of common stock over which he has the sole voting and dispositive power,
including 30,251 shares that Mr. Donovan has the right to acquire upon
conversion of 6,988 shares of Preferred Stock, and (b) 500 shares owned of
record by Mr. Donovan’s wife, voting and dispositive power of which are shared
by Mr. Donovan and his wife.
(5)
Mr.
Ford and his wife share voting and dispositive over these shares, which include
(a) 1,000 shares of common stock and (b) 432 shares of common stock that Mr.
Ford has the right to acquire upon conversion of 100 shares of Series 2
Preferred.
(6)
See
footnotes (1), (2), (3), and (4) of the table under ”Principal Stockholders” for
a description of the amount and nature of the shares beneficially owned by
each
of J. Golsen and B. Golsen.
(7)
Mr.
Goss has the sole voting and dispositive power over these shares, which include
600
shares
held in a trust of which Mr. Goss is trustee and 115,000 shares that Mr. Goss
has the right to acquire within 60 days pursuant to options granted under our
stock option plans.
(8)
The
amount includes (a) 15,000 shares that Mr. Ille may purchase pursuant to
currently exercisable non-qualified stock options, over which Mr. Ille has
the
sole voting and dispositive power, and (b) 30,000 shares owned of record by
Mr.
Ille's wife, voting and dispositive power of which are shared by Mr. Ille and
his wife.
(9)
Mr.
Jones has the sole voting and dispositive power over these shares which includes
115,000 shares that Mr. Jones has the right to acquire within 60 days pursuant
to options granted under our stock option plans.
(10)
Mr.
Munson has the sole voting and dispositive power over these shares, which
include (a) 432 shares of common stock that Mr. Munson has the right to acquire
upon conversion of 100 shares of Preferred Stock and (b) 15,000 shares that
Mr.
Munson may purchase pursuant to currently exercisable non-qualified stock
options.
(11)
Mr.
Rhodes has sole voting and dispositive power over these shares, which include
15,000 shares that may be acquired by Mr. Rhodes pursuant to currently
exercisable non-qualified stock options granted to him by the
Company.
(12)
Includes 100,544 shares that Mr. Shear has the right to acquire within 60 days
pursuant to options granted under the Company's stock option plans and over
which he has the sole voting and dispositive power and 65,212 shares in which
he
shares voting and dispositive powers with his wife. This amount
does
not
include, and Mr. Shear disclaims beneficial ownership of, the shares
beneficially owned by Mr. Shear's wife, which consist of 22,760 shares that
she
has the right to acquire within 60 days pursuant to options granted under the
Company's stock option plans and 291,308 shares, the beneficial ownership of
which is disclaimed by her, that are held by trusts of which she is the
trustee.
(13)
Mr.
Shelby has the sole voting and dispositive power over these shares, which
include 115,000 shares that Mr. Shelby has the right to acquire within 60 days
pursuant to options granted under our stock option plans and 15,151 shares
that
Mr. Shelby has the right to acquire upon conversion of 3,500 shares of Preferred
Stock.
(14)
The
shares of common stock include 778,294 shares of common stock that executive
officers and directors have the right to acquire within 60 days under our stock
option plans, 260,768 shares that executive officers, directors, or entities
controlled by our executive officers and directors, have the right to acquire
within 60 days upon conversion of the 60,238 shares of Preferred Stock, and
920,666
shares
of
common stock that executive officers, directors, or entities controlled by
our
executive officers and directors, have the right to acquire within 60 days
under
other rights, warrants and convertible securities.
Other
Transactions in Preferred Stock
On
October 6, 11, 12 and 25, 2006, we entered into various Exchange Agreements
with
certain holders of our Preferred Stock to exchange an aggregate of 104,548
shares of Preferred Stock in exchange for an aggregate of 773,655 shares of
common stock, subject to approval by AMEX to list the shares of common stock
to
be issued in connection with the Exchange Agreements. The exchange rate was
7.4
shares of common stock for each share of Preferred Stock surrendered to the
Company. The holders agreed to waive all accrued and unpaid dividends on the
Preferred Stock exchanged. On November 7, 2006, the AMEX approved the listing
of
the 773,655 shares of common stock to be issued, and thereafter, we completed
the exchanges pursuant to the Exchange Agreements.
Members
of the Jayhawk Group acquired shares of Preferred Stock in open market
transactions on December 15, 2006 (3,300 shares), December 18, 2006 (500
shares), December 22, 2006 (100 shares), December 29, 2006 (1,700 shares),
and
January 4, 2007 (162 shares).
Except
as
otherwise described in this offer to exchange, neither we nor, to the best
of
our knowledge, any of our executive officers, directors, affiliates, or
subsidiaries nor, to the best of our knowledge, any of our or our subsidiaries’
directors or executive officers, nor any associates or subsidiaries of any
of
the foregoing, (a) has effected any transactions involving the shares of
Preferred Stock during the 60 days prior to January 23, 2007, or (b) is a party
to any contract, arrangement, understanding or relationship with any other
person relating, directly or indirectly, to the exchange offer or with respect
shares of Preferred Stock, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of the Preferred Stock , joint ventures, loan or option arrangements, puts
or
calls, guaranties of loans, guaranties against loss or the giving or withholding
of proxies, consents or authorizations.
The
following discussion summarizes the material U.S. Federal income tax
consequences to holders of Preferred Stock that participate in the exchange
offer. This discussion is based upon the provisions of the Internal Revenue
Code
of 1986, as amended (the “Code”), the final, temporary and proposed Treasury
Regulations promulgated thereunder, and administrative rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. This summary does not purport
to deal with all aspects of U.S. Federal income taxation that may be relevant
to
an investor’s decision to participate in the exchange, nor any tax consequences
arising under the laws of any state, local or foreign jurisdiction. This summary
is not intended to be applicable to all categories of investors, such as dealers
in securities, banks, insurance companies, tax-exempt
organizations,
foreign persons, persons that hold the Preferred Stock through an entity treated
as a partnership for U.S. federal income tax purposes or as part of a straddle
or conversion transaction, or holders subject to the alternative minimum tax,
which may be subject to special rules. In addition, this discussion is limited
to persons who hold the Preferred Stock as a “capital asset” (generally,
property held for investment) within the meaning of Section 1221 of the Code.
Compliance
with Circular 230
The
United States Treasury Department establishes standards for tax practitioners
who practice before the Internal Revenue Service (the “Service”). Those
standards are set forth in a publication known as Circular 230. Circular 230
was
recently revised and now requires that written statements adhere to certain
standards of factual and legal due diligence, contain certain material and
conform to a specific manner of presentation.
The
following discussion is not intended to be a Marketed Opinion within the meaning
of Circular 230. Therefore, as permitted in Circular 230, please note the
following Marketed Opinion disclaimer:
IMPORTANT
LIMITATIONS ON TAX ASPECTS --
MARKETED
OPINION DISCLAIMER
In
order
to avoid the characterization of this discussion as a Marketed Opinion, please
note that the discussion: (i) was not intended or written to be used and cannot
be used by any taxpayer for the purpose of avoiding penalties; (ii) was written
to support the promotion or marketing of the transaction or matters addressed
herein; and (iii) taxpayers should seek advice based on the taxpayer’s
particular circumstances from an independent tax advisor.
Please
note that any tax advice contained in this discussion was not intended or
written to be used, and cannot be used, for the purpose of (i) avoiding
tax-related penalties under the Internal Revenue Code or (ii) promoting,
marketing or recommending to another party any tax-related matter addressed
herein.
As
used
in this section, a “U.S. holder” is a beneficial owner of Preferred Stock or
common stock that is for U.S. Federal income tax purposes:
|
•
|
an
individual U.S. citizen or resident alien;
|
|
•
|
a
corporation, or entity taxable as a corporation for U.S. federal
income
tax purposes that was created or organized in or under the laws of
the
United States, any state thereof or the District of Columbia;
|
|
•
|
an
estate whose world-wide income is subject to U.S. Federal income
tax; or
|
|
•
|
a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
United
States persons have the authority to control all substantial decisions
of
the trust, or that has a valid election in effect under applicable
U.S.
Treasury Regulations to be treated as a United States
person.
|
A
non-U.S. holder is any holder (other than an entity treated as a partnership
for
U.S. federal income tax purposes) that is not a U.S. holder.
YOU
SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN
TAX CONSEQUENCES OF PARTICIPATING IN THE EXCHANGE OFFER.
Participation
in the Exchange Offer.
The
exchange of Preferred Stock for common stock pursuant to the exchange offer
constitutes a recapitalization within the meaning of section 368(a)(1)(E) of
the
Code. Accordingly, except as described below with respect to dividends in
arrears and fractional shares, no gain or loss will be recognized on the
exchange. Your initial tax basis in common stock received in the exchange (other
than common stock attributable to dividends in arrears on the Preferred Stock)
will be equal to your basis in the Preferred Stock surrendered in the exchange,
and your holding period for such common stock will include the period during
which you held such Preferred Stock. The fair market value of any common stock
received by you attributable to dividends in arrears on the Preferred Stock
may
be taxable in part as ordinary dividend income and in part as a nontaxable
recovery of part of your tax basis in the common stock you receive in exchange
for your Preferred Stock. Your tax basis in the common stock you receive for
your Preferred Stock (and not for the dividend arrearages) will be reduced
by
any part of the value of the common stock received in respect of the dividend
arrearages that is treated as a nontaxable return of your tax basis. Your
initial tax basis in the common stock you receive in respect of the dividend
arrearages will be equal to the fair market value of such common stock, and
your
holding period with respect to such common stock will begin on the date of
the
exchange.
A
holder
of Preferred Stock who receives cash in lieu of a fractional share of common
stock will generally recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the holder’s adjusted tax
basis allocable to such fractional share.
Effect
of Accrued and Unpaid Dividends.
Under
provisions of section 301 of the Code and Treasury Regulation section
1.368-2(e)(5), a holder of Preferred Stock will be deemed to have received
a
distribution from us if the fair market of the common stock received in the
exchange exceeds the $50.00 issue price of the Preferred Stock surrendered.
The
amount of this deemed distribution will be the lesser of (a) the amount of
such
excess or (b) the amount of the accumulated and unpaid dividends on the
Preferred Stock. Pursuant to the exchange offer, we will exchange 7.4 shares
of
common stock for each share of Preferred Stock tendered. If the exchange were
made as of February 2, 2007, the deemed distribution would be $23.975, which
is
the lesser of (a) $59.89 (the value of 7.4 shares of common stock, based on
a closing price on that date of $14.85 per share, $109.89, less the $50.00
issue
price of the Preferred Stock) or (b) $23.975 (the amount of accumulated and
unpaid dividends on a share of Preferred Stock on such date). To determine
if
there will be a deemed distribution in respect of the dividend arrearages on
the
Preferred Stock you exchange and the amount of any such deemed distribution,
the
calculation must be made as of the date of the closing of the exchange offer
based on the value of our common stock at that time.
The
amount of any deemed distribution will be treated as a dividend to holders
tendering Preferred Stock only to the extent we have current or accumulated
earnings and profits (as determined for U.S. federal income tax purposes) and
will be includible in income by holders of the Preferred Stock when received
(those earnings and profits will be allocated proportionately to each share
of
Preferred Stock we receive in the exchange offer). Under current law, such
dividends paid to a U.S. holder who is an individual will be taxed at a 15%
tax
rate. Any such dividend will be eligible for the dividends received deduction
if
the U.S. holder is an otherwise qualifying corporate holder that meets the
holding period and other requirements for the dividends received deduction.
The
amount of any deemed distribution to you in excess of your share of our current
or accumulated earnings and profits will be treated as a return of capital
to
the extent of your basis in your common stock and thereafter, as capital gain.
The
calculation of earnings and profits for federal income tax purposes involves
difficult factual determinations and many questions as to which the law is
unclear. For this purpose, “current” earnings and profits means our earnings and
profits for the current taxable year, which will not end until December 31,
2007. We are unable to predict whether we will have earnings and profits for
2007. Accordingly, we are unable to determine if (a) there will be a deemed
distribution in respect of the exchange for holders who tender their Preferred
Stock for shares of common stock (because we do not know what the price of
a
share of common stock will be on the day of closing or if the value of 7.4
shares of common stock on that day will exceed the $50 issue price of a share
of
Preferred Stock) or (b) if the value of 7.4 shares of common stock does exceed
the $50 issue price of a share of Preferred Stock, how much, if any, of the
excess will be a dividend or a return of capital that results in a reduction
in
the tax basis of the recipient in the shares of common stock received (because
we do not know if we will have current earnings and profits for
2007).
Ownership
of Common Stock Received in the Exchange Offer.
While
we have not made a distribution in respect of our common stock since January
1,
1999, any distributions paid by us out of our current or accumulated earnings
and profits on our common stock (whether received pursuant to the exchange
offer
or otherwise) will constitute a dividend and will be includible in income by
holders when received. Under current law, such dividends paid through December
31, 2010, to a U.S. holder who is an individual will be taxed at a 15% rate.
Any
such dividend will be eligible for the dividends received deduction if the
U.S.
holder is an otherwise qualifying corporate holder that meets the holding period
and other requirements for the dividends received deduction. Distributions
in
excess of our current or accumulated earnings and profits will be treated as
a
return of capital to the extent of your basis in your common stock and
thereafter, as capital gain.
Upon
a
disposition of our common stock, you generally will recognize capital gain
or
loss equal to the difference between the amount realized and your adjusted
tax
basis in the common stock. Such capital gain or loss generally will be long-term
capital gain or loss if you held such common stock for more than one year on
the
date of such disposition. Currently long-term capital gains of a U.S. holder
who
is an individual are taxed at a 15% rate. The deductibility of capital losses
is
subject to limitations.
Backup
Withholding Tax and Information Reporting.
Unless
you are an exempt recipient, such as a corporation, the exchange of Preferred
Stock for common stock pursuant to the exchange offer and the receipt of
dividends on our common stock received as part of the exchange will be subject
to information reporting and may be subject to United States federal backup
withholding tax at a current rate of 28%, if you fail to supply an accurate
taxpayer identification number or otherwise fail to comply with applicable
United States information reporting or certification requirements.
65
We
file
annual, quarterly and special reports, proxy statements and other information
with the SEC.
We
incorporate by reference in this offer to exchange the following documents
filed
with the SEC pursuant to the Securities Exchange Act of 1934 (the “Exchange
Act”):
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•
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our
Annual Report on Form 10-K for the fiscal year ended December 31,
2005;
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•
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our
Quarterly Report on Form 10-Q for the quarter ended September 30,
2006;
and
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•
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our
current reports on Form 8-K filed on October 12, 2006, October 16,
2006,
October 31, 2006, November 14, 2006 (two reports of the same date),
November 21, 2006 (two reports of the same date), November 30, 2006,
December 22, 2006, January 12, 2007, and January 29,
2007.
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The
information incorporated by reference is an important part of this offer to
exchange.
You
may
read and copy any document we file with the SEC at the SEC public reference
room
located at:
100
F
Street, N.E.
Room
1580
Washington,
D.C. 20549
Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room and its copy charges. Our SEC filings are also available to the public
on
the SEC’s website at http://www.sec.gov and through the American Stock Exchange,
Inc., 86
Trinity Place, New York, New York 10006-1872 and at AMEX’s website,
www.amex.com.
You
may
obtain a copy of any or all of the documents summarized in this offer to
exchange or incorporated by reference in this offer to exchange, without charge,
at our website at www.lsbindustries.com
or
by
request directed to us at the following address and telephone number:
LSB
Industries, Inc.
Attention:
Secretary
16
South
Pennsylvania
P.O.
Box
754
Oklahoma
City, OK 73101-0754
(telephone
(405) 235-4546).
Pursuant
to Rule 13e-4 promulgated under the Exchange Act, we have filed a statement
on
Schedule TO, which contains additional information with respect to the exchange
offer. The Schedule TO, including the exhibits and any amendments and
supplements to that document, may be examined, and copies may be obtained,
at
the same places and in the same manner set forth above. We will amend the
Schedule TO to disclose additional material information about us and the
exchange offer that occurs following the date of this offer to
exchange.
This
offer to exchange and the documents incorporated by reference into this offer
to
exchange contain forward-looking statements. All statements in this offer to
exchange and such incorporated information other than statements of historical
fact are forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which could cause actual results and performance
of the Company to differ materially from such statements. The words “believe”,
“may”, “expect”, “estimate”, “anticipate”, “intend”, “will”, “project” and
similar expressions identify forward-looking statements. Such forward-looking
statements relate to statements about our business strategies, our expected
financial position and operating results, the projected size of our markets
and
our financing plans and similar matters, including but not limited to, the
following:
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the
Climate Control’s emphasis on increasing the sales and operating margins
of all products and to continue to develop new products and increase
production to meet customer demand;
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the
Climate Control Business shipping substantially all of their backlog
within twelve months;
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•
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the
cost increases for certain raw materials and component parts in the
Climate Control Business impacting future margin
percentages;
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•
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the investment
in the Climate Control Business is expected to increase capacity
and
reduce overtime;
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•
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the
Climate Control Business will continue to launch new products and
product
upgrades in an effort to maintain our current market position and
to
establish presence in new markets;
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prospects
for Climate Control’s new products are improving and will make a
contribution in the future;
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•
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our
results of operations and financial condition at Cherokee may in
the
future be materially affected by changes in the supply and cost of
natural
gas;
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•
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funding
our projected capital expenditures from working capital and
financing;
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•
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the
outlook for capital expenditures for 2007;
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our
plans for 2007 include additional production capacity at Climate
Control
if there is sufficient cash flow;
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•
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the
projected cost of and expected completion of soil remediation at
the
Hallowell Facility;
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•
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retaining
most of our future earnings, if any, to provide funds for our operations
and/or expansion of our business;
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paying
dividends on our stock;
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ability
to meet all required covenants under our loan
agreements;
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our
seasonal products in our Chemical Business;
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our
primary efforts to improve the results of the Chemical Business include
efforts to increase the non-seasonal sales volumes of Cherokee and
El
Dorado with an emphasis on customers that will accept the commodity
risk
inherent with natural gas and anhydrous ammonia;
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projected
capital expenditures and the amounts thereof including the amounts
relating to the NPDES permit and the sulfuric acid plant’s air emissions;
and
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•
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ability
of the Climate Control Business vendors to deliver required inventory
components on a timely basis.
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While
we
believe the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance such expectations will prove to have been
correct. There are a variety of factors
which
could cause future outcomes to differ materially from those described in this
report, including, but not limited to,
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•
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decline
in general economic conditions, both domestic and
foreign,
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material
reduction in revenues,
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•
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material
increase in interest rates,
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•
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ability
to collect in a timely manner a material amount of
receivables,
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•
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increased
competitive pressures,
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•
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changes
in federal, state and local laws and regulations, especially environmental
regulations, or in interpretation of such, pending,
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•
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additional
releases (particularly air emissions) into the
environment,
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•
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material
increases in equipment, maintenance, operating or labor costs not
presently anticipated by us,
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•
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the
requirement to use internally generated funds for purposes not presently
anticipated,
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•
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the
inability to secure additional financing for planned capital
expenditures,
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•
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the
cost for the purchase of raw materials including anhydrous ammonia
and
natural gas,
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•
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changes
in competition,
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•
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the
loss of any significant customer,
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•
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changes
in operating strategy or development plans,
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•
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inability
to fund the working capital and expansion of our
businesses,
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•
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adverse
results in any of our pending litigation,
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•
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inability
to obtain necessary raw materials and
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•
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other
factors described in “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” contained in our Annual Report on 10-K
for the year ended December 31, 2005 and in our Quarterly Report
on Form
10-Q for the quarter ended September 30,
2006.
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Given
these uncertainties, all parties are cautioned not to place undue reliance
on
such forward-looking statements. We disclaim any obligation to update any such
factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
The
safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 does not apply to the forward-looking statements
in this offer to exchange.
J
GIORDANO SECURITIES GROUP
425
Madison Avenue, 3rd
Floor,
New York, NY 10017
jgiordano.com
/ Tel 212-209-7676 / Fax 212-759-5618
January
26, 2007
PERSONAL
AND CONFIDENTIAL
Board
of
Directors
LSB
Industries, Inc.
16
South
Pennsylvania Avenue
Oklahoma
City, OK 73107
Dear
Members of the Board of Directors:
You
have
requested our opinion as to the fairness, from a financial point of view, to
LSB
Industries, Inc. (the “Company”) and its shareholders of a tender offer for the
Company’s $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 (the
“Series 2 Preferred”) in exchange for issuance of 7.4 LSB Industries, Inc.
common shares, par value $0.10 per share (“Common Shares”) for each Series 2
Preferred share, and the waiver by each Exchanging Holder (as defined below)
of
their rights to all accrued and unpaid dividends on the Series 2 Preferred
shares tendered. An “Exchanging Holder” is any Series 2 Preferred shareholder
that tenders and subsequently has shares accepted for exchange.
In
arriving at our opinion, we have reviewed, among other things, (a) the
transaction and related agreements thereto; (b) certain financial and other
information related to the Company including audited and unaudited financial
statements; (c) the Company’s recent and three year Common Share price history;
(d) the Company’s recent Series 2 Preferred share price history; and (e) the
amount of Series 2 Preferred accrued and unpaid dividends. We also have held
discussions with members of the senior management of the Company regarding
their
assessment of the strategic rationale for, and the potential benefits of, the
tender offer.
We
have
assumed and relied upon, without independent investigation or evaluation, the
accuracy and completeness of all of the financial and other information
discussed or reviewed by us and assumed such accuracy and completeness for
purposes of rendering this opinion without independent verification. In
addition, we did not undertake an independent evaluation or appraisal of the
assets, including any patents, and liabilities, contingent or otherwise, of
the
Company and we have not been furnished with such evaluation or appraisal. Our
advisory services and the opinion expressed herein are provided solely for
the
information and assistance of the Board of Directors of the Company in
connection with their consideration of the contemplated tender offer and does
not constitute a recommendation as to whether any Exchange Holder should tender
its Series 2 Preferred.
J
Giordano Securities Group (“JGSG”), as part of its investment banking business,
is continually engaged in the valuation of businesses and their securities
in
connection with mergers and acquisitions, secondary distributions of listed
securities, private placements and other valuations for corporate and other
purposes. In March 2006, JGSG completed the private placement of an $18 million
convertible debenture for the Company.
A-1
JGSG may provide investment banking services to the Company in the future. JGSG provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold securities of the Company for its own account and for the accounts of customers.
This
opinion as to the fairness of the contemplated tender offer to the Company
and
its shareholders is based on the market, economic and other conditions as they
existed on, and could be evaluated as of the date of this letter. In our
analysis and determination of fairness, we have relied upon information
available on the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. This opinion has been prepared
solely for the use stated above. The opinion may not be furnished to any other
person without our written permission, nor may it be relied upon by any other
person.
Based
upon the foregoing and other matters that we consider relevant, it is our
opinion that as of the date hereof, the Common Shares proposed to be issued
by
the Company in the contemplated tender offer is fair from a financial point
of
view to the Company and its shareholders.
Very
truly yours,
/s/
J
Giordano Securities Group
J
Giordano Securities Group
[THIS
PAGE INTENTIONALLY LEFT BLANK]
[THIS
PAGE INTENTIONALLY LEFT BLANK]
The
exchange agent (the “Exchange Agent”) for the Exchange Offer
is:
UMB
Bank, n.a.
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By
Registered or Certified Mail:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
P.O.
Box 419064
Kansas
City, MO 64141-6064
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By
Overnight Mail or Courier:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
928
Grand Boulevard, 5th
Floor
Kansas
City, Missouri 64106
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For
Confirmation by Telephone: (800) 884-4225
For
eligible institutions only
The
Information Agent for the Exchange Offer is:
Georgeson
17
State
Street, 10th Floor
New
York,
NY 10004
(800)
657-4428 (Toll Free)
Banks
and
Brokerage Firms please call:
(212)
440-9800
Additional
copies of this offer to exchange, the letter of transmittal or other tender
offer materials may be obtained from the Information Agent and will be furnished
at our expense. Questions and requests for assistance or additional copies
hereof or the letter of transmittal should be directed to the Information
Agent.
Exhibit
99 (a) (2)
LETTER
OF TRANSMITTAL
LSB
INDUSTRIES, INC.
Offer
to Exchange
Shares
of Common Stock
for
Outstanding Shares
of
$3.25
Convertible Exchangeable Class C Preferred Stock, Series 2
(CUSIP
No. 502160500)
THE
EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MONDAY, MARCH 12, 2007 WHICH WE REFER TO AS THE EXPIRATION
DATE,
UNLESS EARLIER TERMINATED OR EXTENDED BY US. YOU MAY REVOKE YOUR TENDER AT
ANY
TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
PLEASE
READ CAREFULLY THE ATTACHED INSTRUCTIONS
The
exchange agent (the “Exchange Agent”) for the Exchange Offer
is:
UMB
Bank, n.a.
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By
Registered or Certified Mail:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
P.O.
Box 419064
Kansas
City, MO 64141-6064
|
|
By
Overnight Mail or Courier:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
928
Grand Boulevard, 5th
Floor
Kansas
City, Missouri 64106
|
For
Confirmation by Telephone: (800) 884-4225
For
eligible institutions only
Delivery
of this Letter of Transmittal to an address other than as set forth above,
will
not constitute a valid delivery unless an agent’s message is delivered in
accordance with Instruction 1 to this Letter of
Transmittal.
The
undersigned hereby acknowledges receipt of the Offer to Exchange dated February
9, 2007 (the “Offer to Exchange”), of LSB Industries, Inc., a Delaware
corporation (the “Company”), and this Letter of Transmittal, which together
constitute the Company’s offer (the “Exchange Offer”) to exchange its shares of
its common stock, $.10 par value per share (the “common stock”), for shares of
its Convertible Exchangeable Class C Preferred Stock, Series 2 (“Preferred
Stock”). For each share of Preferred Stock, including accrued and unpaid
distributions, tendered in the Exchange Offer and accepted for exchange,
the
holder of that share of Preferred Stock will be entitled to receive 7.4 shares
of common stock.
This
Letter of Transmittal is to be completed by a holder of Preferred Stock
either
if certificates are to be forwarded with the Letter of Transmittal or if
a
tender of certificates for Preferred Stock, if available, is to be made
by
book-entry transfer to the account maintained by the Exchange Agent at
the
Depository Trust Company (“DTC”) pursuant to the procedures set forth in the
Offer to Exchange under “The Exchange Offer — Book Entry Delivery
Procedures.” Holders of Preferred Stock whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation
of
the book-entry tender of their Preferred Stock into the Exchange Agent’s account
at DTC (a “Book-Entry Confirmation”) and all other documents required by this
Letter of Transmittal to the Exchange Agent on or before
March 12, 2007 (the “Expiration Date”), must tender their Preferred Stock
according to the
guaranteed
delivery procedures set forth in the Offer to Exchange under “The Exchange
Offer — Procedures for Tendering Shares of Preferred Stock — Guaranteed
Delivery.” See Instruction 1. Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
The
undersigned hereby tenders the Preferred Stock described in Box 1 below
pursuant to the terms and conditions described in the Offer to Exchange and
this
Letter of Transmittal. The undersigned is the registered owner of all the
tendered shares of Preferred Stock and the undersigned represents that it
has
received from each beneficial owner of the tendered shares of Preferred Stock
(collectively, the “Beneficial Owners”) a duly completed and executed form of
“Instructions with respect to the Offer to Exchange,” a form of which is
attached to the “Letter to Clients” accompanying this Letter of Transmittal,
instructing the undersigned to take the action described in this Letter of
Transmittal.
Subject
to, and effective upon, the acceptance for exchange of the tendered shares
of
Preferred Stock, the undersigned hereby exchanges, assigns and transfers
to, or
upon the order of, the Company, all right, title and interest in, to, and
under
the shares of Preferred Stock that are being tendered hereby, waives any
and all
other rights with respect to such Preferred Stock and releases and discharges
the Company from any and all claims the undersigned may have now, or may
have in
the future, arising out of, or related to, such shares of Preferred Stock,
including without limitation, any claims that the undersigned is entitled
to
receive additional dividend payments with respect to such shares of Preferred
Stock or to participate in any redemption of such Preferred Stock.
The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as
the true and lawful agent and attorney-in-fact of the undersigned with respect
to the Preferred Stock, with full power of substitution (the power of attorney
being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the tendered shares of Preferred Stock to the Company or cause
ownership of the tendered shares of Preferred Stock to be transferred to,
or
upon the order of, the Company, on the books of the registrar for the Preferred
Stock and deliver all accompanying evidences of transfer and authenticity
to, or
upon the order of, the Company upon receipt by the Exchange Agent, as the
undersigned’s agent, of the common stock to which the undersigned is entitled
upon acceptance by the Company of the tendered shares of Preferred Stock
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the tendered Preferred Stock
all
in accordance with the terms and conditions of the Exchange Offer, as described
in the Offer to Exchange.
Unless
otherwise indicated under “Special Issuance Instructions” below (Box 2),
please issue the common stock exchanged for tendered shares of Preferred
Stock
in the name(s) of the undersigned. Similarly, unless otherwise indicated
under
“Special Delivery Instructions” below (Box 3), please send or cause to be
sent the certificates for the common stock (and accompanying documents, as
appropriate) to the undersigned at the address shown below in Box 1 or
provide the name of the account at DTC to which the common stock should be
issued.
The
undersigned understands that tenders of Preferred Stock pursuant to the
procedures described under the caption “The Exchange Offer” in the Offer to
Exchange and in the instructions to this Letter of Transmittal will constitute
a
binding agreement between the undersigned and the Company upon the terms
of the
Exchange Offer set forth in the Offer to Exchange under the caption “The
Exchange Offer — Terms of the Exchange Offer,” and subject to the
conditions of the Exchange Offer set forth in the Offer to Exchange under
the
caption “The Exchange Offer — Conditions to the Exchange Offer,” subject
only to withdrawal of tenders on the terms set forth in the Offer to Exchange
under the caption “The Exchange Offer — Withdrawals of Tenders.” All
authority conferred in this Letter of Transmittal or agreed to be conferred
will
survive the death, bankruptcy or incapacity of the undersigned and any
Beneficial Owner(s), and every obligation of the undersigned of any Beneficial
Owners under this Letter of Transmittal will be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees
in
bankruptcy and other legal representatives of the undersigned and such
Beneficial Owner(s).
The
undersigned hereby represents and warrants that the undersigned has full
power
and authority to tender, exchange, assign and transfer the shares of Preferred
Stock being surrendered, and that, when the shares of Preferred Stock are
accepted for exchange as contemplated in this Letter of Transmittal, the
Company
will acquire good and unencumbered title thereto, free and clear of all
security
interests, liens, restrictions, charges, encumbrances, conditional sale
agreements, other obligations relating to their sale or transfer and
adverse
claims. The undersigned and each Beneficial Owner will, upon request,
execute
and deliver any additional documents reasonably requested by the Company
or the
Exchange Agent as necessary or desirable to complete and give effect
to the
transactions contemplated hereby.
NOTE:
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE
READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BEFORE
COMPLETING THE BOXES.
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CHECK
HERE IF TENDERED SHARES OF PREFERRED STOCK ARE BEING DELIVERED
PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE
AGENT
AND COMPLETE BOX 4 BELOW.
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CHECK
HERE IF TENDERED SHARES OF PREFERRED STOCK ARE BEING DELIVERED
BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT
WITH DTC AND COMPLETE BOX 5
BELOW.
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Name:
_______________________________________________________________
Address:
____________________________________________________________
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Box
1
Description
of shares of preferred stock tendered
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Name(s)
and Address(es) of Registered Holder(s)
(Please
fill in, if blank, exactly as name(s) appears on shares of Preferred
Stock)
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Shares
of Preferred Stock Tendered
(attach
additional signed list if necessary)
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Securities
Certificate
Number(s)*
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Aggregate
Number
of Shares
Represented
by
Certificate(s)*
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Aggregate
Number
of Shares
Tendered**
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Total
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*
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Need
not be completed if shares of Preferred Stock are being tendered
by
book-entry transfer.
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**
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Unless
otherwise indicated, it will be assumed that all shares of Preferred
Stock
represented by certificates delivered to the Exchange Agent are
being
tendered. See Instruction 3.
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Box 2
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Special
issuance instructions
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(See
Instructions 4, 5, and 6)
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To
be completed ONLY
if
the certificates for shares of Preferred Stock not tendered or
the
certificates for the common stock are to be issued in the name
of someone
other than the undersigned or if shares of Preferred Stock delivered
by
book-entry transfer which are not accepted for exchange are to
be returned
by credit to an account maintained at DTC other than the account
indicated
above.
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Issue:
common stock or shares of Preferred Stock to:
Name:_________________________________________________________________________________________________________________
(Please
Print or Type)
Address:_______________________________________________________________________________________________________________
(Include
Zip Code)
(Taxpayer
Identification or
Social
Security Number)
o
Credit
unexchanged shares of Preferred Stock delivered by book-entry transfer to
the
DTC account set forth below:
(DTC
Account Number)
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Box 3
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Special
delivery instructions
|
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(See
Instructions 4, 5, and 6)
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To
be completed ONLY
if
certificates for the shares of Preferred Stock not tendered or
accepted
for exchange or the certificates for the common stock are to be
sent to
someone other than the undersigned at an address other than that
shown
below the undersigned’s signature(s).
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Mail:
o
Common
stock and any untendered shares of Preferred Stock to:
Name:
_________________________________________________________________________________________________________________
(Please
Print or Type)
Address:_______________________________________________________________________________________________________________
(Include
Zip Code)
(Taxpayer
Identification or
Social
Security Number)
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Box 4
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Use
of guaranteed delivery
(See Instruction 1)
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To
be completed ONLY
if
shares of Preferred Stock are being tendered by means of a Notice
of
Guaranteed Delivery.
|
|
Name(s)
of Registered
Holders(s):__________________________________________________________________
Name(s)
of Registered
Holder(s):___________________________________________________________________
Date
of
Execution of Notice of Guaranteed Delivery:
____________________________________________________
Name
of
Institution which Guaranteed Delivery:
_______________________________________________________
|
|
Box 5
|
|
|
|
Use
of book-entry transfer (See
Instruction 1)
|
|
|
|
||
|
|
To
be completed ONLY
if
delivery of shares of Preferred Stock is to be made by book-entry
transfer.
|
|
Name
of
Tendering Institution:
____________________________________________________________________
Account
Number:
______________________________________________________________________________
Transaction
Code Number:
_______________________________________________________________________
Box 6
Tendering
holder signature
(See
Instructions 1 and 4)
X ___________________________________________________________________________________________________________
X ___________________________________________________________________________________________________________
(Signature
of Registered Holder(s) or Authorized Signatory)
Note: The
above lines must be signed by the registered holder(s) of shares of Preferred
Stock as their name(s) appear(s) on the shares or by person(s) authorized
to
become registered holder(s) (evidence of which authorization must be transmitted
with this Letter of Transmittal). If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer, or other person acting
in a
fiduciary or representative capacity, that person must set forth his or her
full
title below. See Instruction 4.
Name(s):
____________________________________________________________________________________________________________
Capacity:
____________________________________________________________________________________________________________
Street
Address:
________________________________________________________________________________________________________
(Include
Zip Code)
Area
Code
and Telephone Number:
_________________________________________________________________________________________
Tax
Identification or Social Security
Number: __________________________________________________________________________________
Signature
Guarantee:
____________________________________________________________________________________________________
(If
Required by Instruction 4)
Authorized
Signature:
___________________________________________________________________________________________________
Name: _______________________________________________________________________________________________________________
(Please
Print or Type)
Title:
________________________________________________________________________________________________________________
Name
of
Firm:
_________________________________________________________________________________________________________
(Must
be
Eligible institution as defined in Instruction 1)
Address:
____________________________________________________________________________________________________________
(Include
Zip Code)
Area
Code
and Telephone Number:
________________________________________________________________________________________
Dated:
___________________________________________________________________
INSTRUCTIONS
TO LETTER OF TRANSMITTAL
FORMING
PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery
of this Letter of Transmittal and Certificates; Guaranteed
Delivery.
This
Letter of Transmittal is to be used if (a) certificates for shares of
Preferred Stock are to be physically delivered to the Exchange Agent herewith
or
(b) tenders are to be made according to the guaranteed delivery procedures.
For holders whose shares of Preferred Stock are being delivered pursuant
to the
procedures for book-entry transfer, all as set forth in the Offer to Exchange,
delivery of an Agent’s Message by DTC will satisfy the terms of the Exchange
Offer in lieu of execution and delivery of a Letter of Transmittal by the
participant(s) identified in the Agent’s Message.
To
validly tender shares of Preferred Stock, either (a) the Exchange Agent
must receive a properly completed and duly executed copy of this Letter of
Transmittal (or a facsimile thereof) with any required signature guarantees,
together with either a properly completed and duly executed Notice of Guaranteed
Delivery or certificates for the shares of Preferred Stock, or an Agent’s
Message, as the case may be, and any other documents required by this Letter
of
Transmittal or (b) a holder of shares of Preferred Stock must comply with
the guaranteed delivery procedures set forth below.
Holders
of shares of Preferred Stock who desire to tender shares of Preferred Stock
pursuant to the Exchange Offer and whose certificates representing the shares
of
Preferred Stock are not lost but are not immediately available, or time will
not
permit all required documents to reach the Exchange Agent before 5:00 p.m.,
New York City time, on the Expiration Date, or who cannot complete the procedure
for book-entry transfer on a timely basis, may still exchange their shares
of
Preferred Stock by complying with the guaranteed delivery procedures set
forth
in the Offer to Exchange under “The Exchange Offer — Procedures for
Tendering Shares of Preferred Stock — Guaranteed Delivery.” Pursuant to those
procedures, (a) you tender your shares of Preferred Stock by or through a
recognized participant in the Securities Transfer Agents Medallion Program,
the
NYSE Medallion Signature Program or the Stock Exchange Medallion Program;
(b) on or prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent has received from such participant a properly completed
and validly executed notice of guaranteed delivery, by manually signed facsimile
transmission, mail or hand delivery, in substantially the form provided with
this Offer to Exchange; and (c) the Exchange Agent receives a properly
completed and validly executed Letter of Transmittal (or facsimile thereof)
together with any required signature guarantees, or a book-entry confirmation,
and any other required documents, within three NYSE trading days of the notice
of guaranteed delivery.
The
method of delivery of this Letter of Transmittal, the certificates for shares
of
Preferred Stock and other required documents is at the election and risk
of the
tendering holder. Except as otherwise provided in this Letter of Transmittal
and
in the Offer to Exchange, delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, we recommend that
the
holder use properly insured, registered mail with return receipt requested,
and
that the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent before 5:00 p.m., New York City time,
on the Expiration Date.
2. Beneficial
Owner Instructions to Registered Holders.
Only a
holder of shares of Preferred Stock or the holder’s legal representative or
attorney-in-fact, or a person who has obtained a properly completed irrevocable
proxy acceptable to the Company that authorizes such person, or that person’s
legal representative or attorney-in-fact, to tender shares of Preferred Stock
on
behalf of the holder may validly tender the shares of Preferred Stock. Any
Beneficial Owner of tendered shares of Preferred Stock who is not the registered
holder must arrange promptly with the registered holder to execute and deliver
this Letter of Transmittal, or an Agent’s Message by DTC, on his or her behalf.
3. Partial
Tenders.
A holder
may tender all or a portion of Preferred Stock. If a holder tenders less
than
all of his or her shares of Preferred Stock, such holder should fill in the
number of shares of Preferred Stock so tendered in the column labeled “Number of
Shares Tendered” of Box 1 above. All of the shares of Preferred Stock
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
4. Signatures
on the Letter of Transmittal; Signature Guarantees.
If this
Letter of Transmittal is signed by the registered holder(s) of the tendered
shares of Preferred Stock, the signature must correspond with the name(s)
as
written on the face of the tendered shares of Preferred Stock without
alteration, enlargement or any change whatsoever. If this Letter of Transmittal
is signed by a participant in DTC whose name is shown on a security position
listing as the owner of the shares of Preferred Stock tendered hereby, the
signature must correspond with the name shown on the security position listing
as the owner of the shares of Preferred Stock.
If
any of
the tendered shares of Preferred Stock are registered in the name of two
or more
holders, all holders must sign this Letter of Transmittal. If any shares
of
Preferred Stock tendered hereby are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of the Letter of Transmittal as there are different registrations
of
certificates.
If
this
Letter of Transmittal or any share of Preferred Stock or instrument of transfer
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper
evidence satisfactory to the Company of such person’s authority to so act must
be submitted.
When
this
Letter of Transmittal is signed by the registered holders of the shares of
Preferred Stock tendered hereby, no endorsements of the shares of Preferred
Stock or separate instruments of transfer are required unless shares of
Preferred Stock not tendered or exchanged or common stock are to be issued
to a
person other than the registered holders, in which case signatures on the
shares
of Preferred Stock or instruments of transfer must be guaranteed by a Medallion
Signature Guarantor, unless the signature is that of an Eligible Institution.
Signatures
on the Letter of Transmittal must be guaranteed by a recognized participant
in
the Securities Transfer Agents Medallion Program, the NYSE Medallion Signature
Program or the Stock Exchange Medallion Program, each a Medallion Signature
Guarantor, unless the shares of Preferred Stock tendered thereby are tendered:
(a) by a holder whose name appears on a security position listing as the
owner of those shares of Preferred Stock, who has not completed any of the
boxes
entitled “Special Instructions” or “Special Delivery Instructions” on the
applicable Letter of Transmittal; or (b) for the account of a member firm
of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States referred to as an
“Eligible Guarantor Institution.”
If
the
holder of the shares of Preferred Stock being tendered is a person other
than
the signer of the related Letter of Transmittal, or if shares of Preferred
Stock
not accepted for exchange or shares of Preferred Stock previously tendered
and
being withdrawn are to be returned to a person other than the registered
holder
or a DTC participant, then the signatures on the Letter of Transmittal
accompanying the tendered shares of Preferred Stock must be guaranteed by
a
Medallion Signature Guarantor as described above.
The
Letter of Transmittal and shares of Preferred Stock should be sent only to
the
Exchange Agent, and not to the Information Agent, the Company or DTC.
5. Special
Issuance and Delivery Instructions.
Tendering holders should indicate, in the appropriate box (Box 2 or 3), the
name and address to which the common stock and/or substitute certificates
evidencing shares of Preferred Stock not tendered or not accepted for exchange
are to be sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name,
the
taxpayer identification or social security number of the person named must
also
be indicated. Holders of shares of Preferred Stock tendering shares of Preferred
Stock by book-entry transfer may request that shares of Preferred Stock not
exchanged be credited to such account maintained at DTC as the holder may
designate on this Letter of Transmittal. If no instructions are given, the
shares of Preferred Stock not exchanged will be returned to the name or address
of the person signing this Letter of Transmittal.
6. Transfer
Taxes.
The
Company will pay all transfer taxes, if any, applicable to the exchange of
shares of Preferred Stock pursuant to the Exchange Offer. If, however, common
stock issued in exchange for shares of Preferred Stock accepted for tender
are
to be delivered to, or are to be registered or issued in the name of, any
person
other than the registered holder of the shares of Preferred Stock or if common
stock is to be registered in the name of any person other than the person
signing the Letter Of Transmittal or, in the case of tender through DTC
transmitting instructions through ATOP, or if a transfer tax is imposed for
any
reason other than the exchange of securities pursuant to the Exchange Offer,
then the amount of any such transfer tax (whether imposed on the registered
holder or any other person) will be payable by the tendering holder.
Except
as
provided in this Instruction 6, it will not be necessary for transfer tax
stamps to be affixed to the tendered shares of Preferred Stock listed in
this
Letter of Transmittal.
7. Validity
of Tenders.
The
Company expressly reserves the right to terminate the Exchange Offer and
not to
accept for exchange any shares of Preferred Stock if any of the conditions
set
forth under “The Exchange Offer — Conditions to the Exchange Offer” have
not been satisfied or waived by the Company at its option for any reason
on or
before 5:00 p.m., New York City time, on the Expiration Date. In all cases,
exchange of the shares of Preferred Stock accepted for exchange for common
stock
will be made only after timely receipt by the Exchange Agent of certificates
representing the original shares of Preferred Stock, or by confirmation of
book-entry transfer, together with a properly completed and duly executed
Letter
of Transmittal, a manually signed facsimile of the Letter of Transmittal,
or
satisfaction of DTC’s ATOP procedures, and any other documents required by the
Letter of Transmittal.
8. Irregularities.
The
Company will determine, in its sole discretion, all questions as to the form,
validity, eligibility (including time of receipt) and acceptance for exchange
of
any tender of shares of Preferred Stock, which determination shall be final
and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular shares of Preferred Stock not properly tendered or to not
accept any particular shares of Preferred Stock which acceptance might, in
the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right, in its sole discretion, to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular shares
of Preferred Stock either before or after the Expiration Date (including
the
right to waive the ineligibility of any holder who seeks to tender shares
of
Preferred Stock in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular shares of Preferred
Stock
either before or after the Expiration Date (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on
all
parties. Unless waived, any defects or irregularities in connection with
the
tender of shares of Preferred Stock for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of
shares
of Preferred Stock for exchange, nor shall any of them incur any liability
for
failure to give such notification.
9. No
Conditional Tenders.
No
alternative, conditional or contingent tender of shares of Preferred Stock
or
transmittal of this Letter of Transmittal will be accepted.
10. Mutilated,
Lost, Stolen or Destroyed Certificates for Shares of Preferred
Stock.
Any
holder whose certificates for shares of Preferred Stock have been mutilated,
lost, stolen or destroyed should contact the Exchange Agent at the address
indicated in this Letter of Transmittal for further instructions.
11. Requests
for Assistance or Additional Copies.
Questions and requests for assistance and requests for additional copies
of the
Offer to Exchange or this Letter of Transmittal may be directed to the
Information Agent at the address and telephone number indicated in this Letter
of Transmittal. Holders may also contact their broker, dealer, commercial
bank,
trust company or other nominee for assistance concerning the Exchange Offer.
12. Acceptance
of Tendered Shares of Preferred Stock and Issuance of Common Stock; Return
of
Shares of Preferred Stock.
Subject
to the terms and conditions of the Exchange Offer, the Company will accept
for
exchange all validly tendered shares of Preferred Stock as soon as practicable
after the
Expiration
Date and will issue common stock for the shares of Preferred Stock as soon
as
practicable thereafter. For purposes of the Exchange Offer, the Company will
be
deemed to have accepted tendered shares of Preferred Stock when, as and if
the
Company has given written or oral notice (immediately followed in writing)
of
acceptance to the Exchange Agent. If any tendered shares of Preferred Stock
are
not exchanged pursuant to the Exchange Offer for any reason, those unexchanged
shares of Preferred Stock will be returned, without expense, to the tendering
holder at the address shown in Box 1 or at a different address as may be
indicated in this Letter of Transmittal under “Special Delivery Instructions”
(Box 3).
13. Withdrawal.
Tenders
may be withdrawn only pursuant to the procedures set forth in the Offer to
Exchange under the caption “The Exchange Offer — Withdrawals of Tenders.”
14. Certain
Tax Matters.
Under
U.S. federal income tax law, a tendering holder of any shares of Preferred
Stock that are accepted for exchange is required to furnish its taxpayer
identification number (“TIN”) on the attached Substitute Form W-9 or
otherwise establish a basis for exemption from backup withholding. If the
holder
is an individual, the TIN is his or her Social Security number. If the holder
fails to provide its TIN or otherwise establish an exemption from backup
withholding, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service (the “IRS”) and to backup withholding, at a 28% rate, on any
reportable payment made by the Company (or its paying agent) within the United
States to the holder. Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules will be allowed as a refund or
a
credit against a holder’s U.S. federal income tax liability provided the
required information is timely furnished to the IRS.
Certain
payees (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding requirements. In
the
case of a holder that is a foreign individual, the holder generally must
submit
to the Exchange Agent a properly completed IRS Form W-8BEN (which may be
obtained from the Exchange Agent or on the IRS website at www.irs.gov)
to
establish his or her exemption from backup withholding with respect to any
reportable payment made by the Company (or its paying agent) within the United
States to the holder.
For
additional guidance, please refer to the attached “Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9.”
GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER
ON SUBSTITUTE FORM W-9
Guidelines
for determining the proper identification number for the payee (you) to give
the
payer.
Social
security numbers have nine digits separated by two hyphens: i.e., 000-00-0000.
Employee identification numbers have nine digits separated by only one hyphen:
i.e., 00-0000000. The table below will help determine the number to give
the
payer. All “Section” references are to the Internal Revenue New Code of 1986, as
amended.
|
|
||||
|
|
|
Give
the SOCIAL
|
||
|
|
|
SECURITY
number
|
||
|
For
this type of account:
|
|
of:
|
||
|
1.
|
|
Individual
|
|
The
individual
|
|
2.
|
|
Two
or more individuals (joint account)
|
|
The
actual owner of the account or, if combined funds, the first individual
on
the account(1)
|
|
3.
|
|
Custodian
account of a minor (Uniform Gift to Minors Act)
|
|
The
minor(2)
|
|
4.
|
|
a. The
usual revocable savings trust account (grantor is also
trustee)
|
|
The
grantor-trustee(1)
|
|
|
|
b. So-called
trust account that is not a legal or valid trust under state
law
|
|
The
actual owner(1)
|
|
5.
|
|
Sole
proprietorship
|
|
The
owner(3)
|
|
|
|
Give
the EMPLOYER IDENTIFICATION number
|
||
|
For
this type of account:
|
|
of:
|
||
|
6.
|
|
Sole
proprietorship
|
|
The
owner(3)
|
|
7.
|
|
A
valid trust, estate, or pension trust
|
|
The
legal entity(4)
|
|
8.
|
|
Corporate
|
|
The
corporation
|
|
9.
|
|
Association,
club, religious, charitable, educational, or other tax-exempt
organization
|
|
The
organization
|
|
10.
|
|
Partnership
|
|
The
partnership
|
|
11.
|
|
A
broker or registered nominee
|
|
The
broker or nominee
|
|
12.
|
|
Account
with the Department of Agriculture in the name of a public entity
(such as
a state or local government, school district, or prison) that receives
agricultural program payments
|
|
The
public entity
|
|
|
||||
(1) List
first and circle the name of the person whose number you furnish. If only
one
person on a joint account has a social security number, that person’s number
must be furnished.
(2) Circle
the minor’s name and furnish the minor’s social security number.
(3) You
must show your individual name, but you may also enter your business or “doing
business as” name. You may use either your social security number or your
employer identification number (if you have one).
(4) List
first and circle the name of the legal trust, estate, or pension trust. (Do
not
furnish the TIN of the personal representative or trustee unless the legal
entity itself is not designated in the account title.)
|
|
NOTE:
|
If
no name is circled when there is more than one name, the number
will be
considered to be that of the first name
listed.
|
GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER
ON SUBSTITUTE FORM W-9
Obtaining
a Number
If
you do
not have a TIN or you do not know your number, obtain Form SS-5,
Application for a Social Security Card, at the local Social Security
Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM or from the IRS website
at www.irs.gov,
and
apply for a number.
Payees
Exempt from Backup Withholding
Payees
specifically exempted from backup withholding include:
|
|
•
|
An
organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under
Section 403(b)(7), if the account satisfies the requirements of
Section 401(f)(2).
|
|
|
||
|
|
•
|
The
United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or instrumentality
of any
one or more of the foregoing.
|
|
|
||
|
|
•
|
An
international organization or any agency or instrumentality
thereof.
|
|
|
||
|
|
•
|
A
foreign government and any political subdivision, agency or
instrumentality thereof.
|
Payees
that may be exempt from backup withholding include:
|
|
•
|
A
corporation.
|
|
|
||
|
|
•
|
A
financial institution.
|
|
|
||
|
|
•
|
A
dealer in securities or commodities required to register in the
United
States, the District of Columbia, or a possession of the United
States.
|
|
|
||
|
|
•
|
A
real estate investment trust.
|
|
|
||
|
|
•
|
A
common trust fund operated by a bank under
Section 584(a).
|
|
|
||
|
|
•
|
An
entity registered at all times during the tax year under the Investment
Company Act of 1940.
|
|
|
||
|
|
•
|
A
middleman known in the investment community as a nominee or
custodian.
|
|
|
||
|
|
•
|
A
futures commission merchant registered with the Commodity Futures
Trading
Commission.
|
|
|
||
|
|
•
|
A
foreign central bank of issue.
|
|
|
||
|
|
•
|
A
trust exempt from tax under Section 664 or described in
Section 4947.
|
Payments
of dividends and patronage dividends generally exempt from backup withholding
include:
|
|
•
|
Payments
to nonresident aliens subject to withholding under
Section 1441.
|
|
|
||
|
|
•
|
Payments
to partnerships not engaged in a trade or business in the United
States
and that have at least one nonresident alien partner.
|
|
|
||
|
|
•
|
Payments
of patronage dividends not paid in money.
|
|
|
||
|
|
•
|
Payments
made by certain foreign organizations.
|
|
|
||
|
|
•
|
Section 404(k)
payments made by an employee stock ownership plan
(ESOP).
|
Payments
of interest generally exempt from backup withholding include:
|
|
•
|
Payments
of interest on obligations issued by individuals. Note: You may
be subject
to backup withholding if this interest is $600 or more and you
have not
provided your correct TIN to the
payer.
|
|
|
•
|
Payments
of tax-exempt interest (including exempt-interest dividends under
Section 852).
|
|
|
||
|
|
•
|
Payments
described in Section 6049(b)(5) to nonresident
aliens.
|
|
|
||
|
|
•
|
Payments
on tax-free covenant bonds under Section 1451.
|
|
|
||
|
|
•
|
Payments
made by certain foreign organizations.
|
|
|
||
|
|
•
|
Mortgage
interest paid to you.
|
Certain
payments, other than payments of interest, dividends, and patronage dividends,
that are exempt from information reporting are also exempt from backup
withholding. For details, see the regulations under Sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
Exempt
payees described above must file Form W-9 or a substitute Form W-9 to
avoid possible erroneous backup withholding. File this form with the payer,
furnish your TIN, write “exempt” in Part IV of the form, sign and date the
form, and return it to the payer.
Privacy
Act Notice —
Section 6109 requires you to provide your correct TIN to payers, who must
report the payments to the IRS. The IRS uses the number for identification
purposes and may also provide this information to various government agencies
for tax enforcement or litigation purposes. Payers must be given the numbers
whether or not payees are required to file tax returns. Payers must generally
withhold up to 28% of taxable interest, dividends, and certain other payments
to
a payee who does not furnish a TIN to payer. Certain penalties may also apply.
Penalties
(1) Failure
to Furnish Taxpayer Identification Number. —
If you fail to furnish your TIN to a payer, you are subject to a penalty
of $50
for each such failure unless your failure is due to reasonable cause and
not to
willful neglect.
(2) Civil
Penalty for False Information With Respect to Withholding. —
If you make a false statement with no reasonable basis that results in no
backup
withholding, you are subject to a $500 penalty.
(3) Criminal
Penalty for Falsifying Information. —
Willfully falsifying certifications or affirmations may subject you to criminal
penalties including fines and/or imprisonment.
For
additional information contact your tax consultant or the
IRS.
|
|
||||||
|
SUBSTITUTE
FORM
W-9
Department
of the Treasury Internal Revenue Service Payor’s Request for Taxpayer
Identification Number (TIN)
|
|
Part I —
Please provide your name, address and check the appropriate
box
o Individual/Sole
Proprietor
o Corporation
o Partnership
o Other
|
|
Part II —
TIN — Please provide Your TIN In the Space Provided and Certify By
Signing and Dating Below.
Social
Security Number or Employer Identification Number
____________________
|
|
Part III —
Awaiting TIN — If you have not been issued a TIN but have applied for
one, or intend to apply for one in the near future, please check
the box
provided and certify by signing and dating Part IV and the
“Certificate Of Taxpayer Awaiting Identification Number”
below.
o
Awaiting
TIN
|
|
Part IV —
Exempt Holders — If you are exempt from backup withholding (e.g. a
corporation), you must still certify your TIN by completing Part I
and by signing and dating below. Please indicate your exempt
status by
writing “EXEMPT” in the space provided to the
right.
|
||||||
|
|
||||||
|
Part V —
Certification — Under penalties of perjury, I certify
that:
|
||||||
|
|
||||||
|
(1) The
number shown on this form is my correct TIN (or I am waiting
for a TIN to
be issued to me), and
|
||||||
|
|
||||||
|
(2) I
am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service (“IRS”) that I am subject to backup withholding as a
result of failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup
withholding; and
|
||||||
|
|
||||||
|
(3) I
am a U.S. person (including a U.S. resident
alien).
|
||||||
|
|
||||||
|
Certification
Instructions — You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding
because of under reporting interest or dividends on your tax
return.
However, if you have since been notified by the IRS that you
are no longer
subject to backup withholding, do not cross out
item (2).
|
||||||
SIGNATURE DATE
|
|
NOTE:
|
Failure
to complete and return this form may result in a $50 penalty imposed
by
the IRS and backup withholding taxes on reportable payments received
by
you with respect to the exchange offer. Please review the attached
Guidelines for Certification of Taxpayer Identification Number
on
Substitute Form W-9 for additional
details.
|
YOU
MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED
THE BOX IN PART III OF SUBSTITUTE FORM W-9 ABOVE.
CERTIFICATE
OF TAXPAYER AWAITING IDENTIFICATION NUMBER
I
certify, under penalties of perjury, that a taxpayer identification number
has
not been issued to me, and that I mailed or delivered an application to receive
a taxpayer identification number to the appropriate Internal Revenue Service
Center or Social Security Administration Office (or I intend to mail or deliver
an application in the near future). I understand that if I do not provide
a
taxpayer identification number within sixty (60) days, applicable backup
withholding taxes on all reportable payments made to me thereafter will be
withheld until I provide a taxpayer identification number.
SIGNATURE DATE
The
exchange agent (the “Exchange Agent”) for the Exchange Offer
is:
UMB
Bank, n.a.
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|
|
|
|
By
Registered or Certified Mail:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
P.O.
Box 419064
Kansas
City, MO 64141-6064
|
|
By
Overnight Mail or Courier:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
928
Grand Boulevard, 5th
Floor
Kansas
City, Missouri 64106
|
For
Confirmation by Telephone: (800) 884-4225
For
eligible institutions only
Delivery
to an address other than as listed above or transmission of instructions
via
facsimile other than as listed
above does not constitute a valid delivery.
The
Information Agent for the Exchange Offer is:
Georgeson
17
State
Street, 10th Floor
New
York,
NY 10004
(800)
657-4428 (Toll Free)
Banks
and
Brokerage Firms please call:
(212)
440-9800
Questions,
requests for assistance and requests for additional copies of this offer
to
exchange and related letter of transmittal may be directed to the Information
Agent
NOTICE
OF GUARANTEED DELIVERY
for
tender of
shares
of
$3.25
Convertible Exchangeable Class C Preferred Stock,
Series 2
Series 2
of
LSB INDUSTRIES, INC.
(CUSIP
No. 502160500)
pursuant
to the Offer to Exchange dated February 9, 2007
This
Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must
be used to accept the Exchange Offer (as defined below) (i) if certificates
representing shares of Convertible Exchangeable Class C Preferred Stock, Series
2 (“Preferred Stock”) are not immediately available, or (ii) if the
procedures for book-entry transfer cannot be completed on a timely basis, or
(iii) if time will not permit all required documents to reach the Exchange
Agent as soon as possible and, in any event, prior to the Expiration Date (as
defined below). This Notice of Guaranteed Delivery may be delivered by hand,
transmitted by telegram, telex, facsimile transmission or mailed to the Exchange
Agent. See “The Exchange Offer — Procedures for Tendering Shares of
Preferred Stock— Guaranteed Delivery” in the Offer to Exchange.
The
Exchange Offer will expire at 5:00 p.m., New York City time, on March 12,
2007, which we refer to as the Expiration Date, unless extended by us. You
may
revoke your tender at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
The
exchange agent (the “Exchange Agent”) for the Exchange Offer
is:
UMB
Bank, n.a.
|
|
By
Registered or Certified
Mail: UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
P.O.
Box 419064
Kansas
City, MO 64141-6064
|
|
By
Overnight Mail or Courier:
UMB
Bank, n.a.
Securities
Transfer Division
Attn:
Jennifer Fuller
928
Grand Boulevard, 5th
Floor
Kansas
City, Missouri 64106
|
For
Confirmation by Telephone: (800) 884-4225
For
eligible institutions only
Delivery
of this Notice of Guaranteed Delivery to an address or via a facsimile other
than to the Exchange Agent as set forth above, or transmission of instructions
via a facsimile transmission other than as set forth above, will not constitute
a valid delivery to the Exchange Agent.
The
Information Agent for the Exchange Offer is:
Georgeson
17
State
Street, 10th Floor
New
York,
NY 10004
(800)
657-4428 (Toll Free)
Banks
and
Brokerage Firms please call:
(212)
440-9800
This
form
is not to be used to guarantee signatures. If a signature on a Letter of
Transmittal is required to be guaranteed by an Eligible Institution (as defined
below) under the instructions thereto, such signature guarantee must appear
in
the applicable space provided in the signature box on the Letter of Transmittal
(the “Letter of Transmittal”).
An
Eligible Institution that completes this form must communicate the guarantee
to
the Exchange Agent and must deliver the Letter of Transmittal or an Agent’s
Message (as defined in the Offer to Exchange under “The Exchange Offer —
Procedures for Tendering Shares of Preferred Stock— Tender of Shares of
Preferred Stock Held Through DTC”) and shares of Preferred Stock to the Exchange
Agent within the time period specified herein. Failure to do so could result
in
financial loss to the Eligible Institution.
Ladies
and Gentlemen:
The
undersigned hereby tenders to LSB Industries, Inc., upon the terms and subject
to the conditions set forth in the Offer to Exchange dated February 9, 2007
(the
“Offer to Exchange”), the Letter of Transmittal (which together with the Offer
to Exchange, as they may be amended or supplemented from time to time,
constitute the “Exchange Offer”), receipt of which is hereby acknowledged, and
accepts the Exchange Offer in accordance with its terms in respect of the number
of shares of Preferred Stock specified below pursuant to the guaranteed delivery
procedure described under “The Exchange Offer — Procedures for Tendering
Shares of Preferred Stock — Guaranteed Delivery” in the Offer to Exchange.
|
|
||||
|
Certificate
Number(s) (if available): ____________________
Aggregate
Number of Shares Represented by
Certificates):_____________________________________
Aggregate
Number of Shares Tendered:________________
Please
check box if the shares
of Preferred Stock will
be tendered by
book-entry transfer:o
DTC
Account No.: ______________________________
Date:_________________________________________
|
|
Name
of Record Holder(s):
_______________________________________
_______________________________________
Please
Type or
Print
Address(es)
with Zip Code:
_______________________________________
_______________________________________
_______________________________________
Area
Code and Telephone Number(s):
_______________________________________
Signature(s)
of
Holder(s):
_______________________________________
_______________________________________
_______________________________________
|
||
The
Notice of Guaranteed Delivery must be signed by the holder(s) exactly as their
name(s) appear(s) on certificates for shares
of
Preferred Stock or
on a
security position listing as the owner of shares
of
Preferred Stock,
or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature
is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer
or
other person acting in a fiduciary or representative capacity, that person
must
provide the following information.
Please
print name(s) and address(es)
Name(s):
________________________________________________________________________
Capacity:
_______________________________________________________________________
Address(es):
_____________________________________________________________________
GUARANTEE
(Not
to be used for signature guarantee)
The
undersigned, a firm which is a member of the Medallion Signature Guarantee
Program, or any other “eligible guarantor institution,” as such term is defined
in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended
(each, an “Eligible Institution”), guarantees to deliver to the Exchange Agent,
at one of its addresses set forth above, either certificates for shares
of
Preferred Stock tendered
hereby in proper form for transfer, or confirmation of book-entry transfer
of
such shares
of
Preferred Stock in
the
Exchange Agent’s account at The Depository Trust Company, in each case with
delivery of a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, or an Agent’s
Message in the case of a book-entry transfer, and any other required documents,
all by 5:00 p.m., New York City time, on the third New York Stock Exchange
business day following the date hereof.
|
|
||||
|
|
Name
of Firm: ________________________
___________________________________
Address: ____________________________
___________________________________
Zip
Code:___________________________
Area
Code and Telephone Number(s):
|
|
Authorized Signature:_________________________
_____________________________________
Title:______________________________________ Name: _____________________________________ Please
Type or Print
Date:____________________________________
|
|
DO
NOT SEND CERTIFICATES FOR SHARES OF PREFERRED STOCK WITH THIS NOTICE OF
GUARANTEED DELIVERY. SUCH CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
INSTRUCTIONS
FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery
of this Notice of Guaranteed Delivery.
A
properly completed and duly executed copy of this Notice of Guaranteed Delivery
must be received by the Exchange Agent at its address set forth in this Notice
of Guaranteed Delivery before the Expiration Date. The method of delivery of
this Notice of Guaranteed Delivery and any other required documents to the
Exchange Agent is at the election and sole risk of the holder of shares
of
Preferred Stock,
and the
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, we recommend registered mail with return receipt
requested, properly insured. As an alternative to delivery by mail, the holders
may wish to use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. For a description of the
guaranteed delivery procedures, see the Offer to Exchange and Instruction 1
of the Letter of Transmittal.
2. Signatures
on this Notice of Guaranteed Delivery.
If this
Notice of Guaranteed Delivery is signed by the registered holder(s) of the
shares
of
Preferred Stock referred
to in this Notice of Guaranteed Delivery, the signatures must correspond with
the name(s) written on the face of the certificates for shares
of
Preferred Stock without
alteration, enlargement or any change whatsoever. If this Notice of Guaranteed
Delivery is signed by a participant of DTC whose name appears on a security
position listing as the owner of the shares
of
Preferred Stock,
the
signature must correspond with the name shown on the security position listing
as the owner of the shares
of
Preferred Stock.
If
this
Notice of Guaranteed Delivery is signed by a person other than the registered
holder(s) of any shares
of
Preferred Stock listed
or
a participant of DTC whose name appears on a security position listing as the
owner of the shares
of
Preferred Stock,
this
Notice of Guaranteed Delivery must be accompanied by appropriate stock powers,
signed as the names(s) of the registered holder(s) appear(s) on the shares
of
Preferred Stock or
signed
as the name of the participant is shown on DTC’s security position listing.
If
this
Notice of Guaranteed Delivery is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a
fiduciary or representative capacity, that person should so indicate when
signing and submit with the Notice of Guaranteed Delivery evidence satisfactory
to the Company of the person’s authority to so act.
3. Requests
for Assistance or Additional Copies.
Questions and requests for assistance and requests for additional copies of
the
Offer to Exchange, the Letter of Transmittal or this Notice of Guaranteed
Delivery may be directed to the Information Agent at the address specified
in
this Notice of Guaranteed Delivery and in the Offer to Exchange. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
LSB
INDUSTRIES, INC.
Offer
to Exchange
Shares
of Common Stock
for
Outstanding
$3.25
Convertible Exchangeable Class C Preferred Stock,
Series 2
Series 2
(CUSIP
No. 502160500)
Pursuant
to the Offer to Exchange dated February 9, 2007
The
Exchange Offer will expire at 5:00 p.m., New York City time, on March 12,
2007, which we refer to as the Expiration Date, unless extended by us. You
may
revoke your tender at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
To
Brokers, Dealers, Commercial Banks, Trust Companies, Other Nominees and
Depositary Trust Company Participants:
LSB
Industries, Inc. (the “Company”) is offering to exchange shares of its common
stock, $.10 par value per share (the “Common Stock”), subject to the procedures
and limitations described in the Offer to Exchange dated February 9, 2007,
and
related Letter of Transmittal (the “Letter of Transmittal”), for any and all
outstanding shares of Convertible Exchangeable Class C Preferred Stock, Series
2
(“Preferred Stock”).
For
your
information and for forwarding to your clients for whom you hold shares of
Preferred Stock registered in your name or in the name of your nominee, we
are
enclosing the following documents:
|
|
1. The Offer to Exchange, dated February 9, 2007;
|
|
|
|
|
|
2. The Letter of Transmittal including a substitute IRS Form W-9 for
your use and for the information of your clients. Facsimile copies
of the
Letter of Transmittal with manual signature(s) may be used to tender
shares of Preferred Stock;
|
|
|
|
|
|
3. The Notice of Guaranteed Delivery to be used to accept the
Exchange Offer (i) if certificates evidencing shares of Preferred
Stock are not immediately available or (ii) if procedures for
book-entry transfer cannot be completed prior to the expiration date
or
(iii) if time will not permit all required documents to reach UMB
Bank, n.a., the Exchange Agent prior to the Expiration Date;
and
|
|
|
|
|
|
4. A letter which may be sent to your clients for whose accounts you
hold shares of Preferred Stock registered in your name or in the
name of
your nominee, with space provided for obtaining such clients’ instructions
with regard to the Exchange Offer.
|
|
|
WE
URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 PM, NEW YORK CITY TIME, ON MARCH
12, 2007, UNLESS THE OFFER IS EXTENDED.
Any
inquiries you may have with respect to the Exchange Offer should be addressed
to
the Information Agent at its address and telephone numbers set forth on the
back
cover of the Offer to Exchange.
Additional
copies of the enclosed materials may be obtained from the Information Agent,
at
the address and telephone number set forth on the back cover of the Offer to
Exchange.
|
|
Very
truly yours,
|
|
|
|
|
|
LSB
INDUSTRIES, INC.
|
NOTHING
CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER
PERSON THE AGENT OF LSB INDUSTRIES, INC., THE INFORMATION AGENT OR THE EXCHANGE
AGENT, OR OF ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY
OF
THE FOREGOING IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS
AND
THE STATEMENTS CONTAINED THEREIN.
LSB
INDUSTRIES, INC.
Offer
to Exchange
Shares
of Common Stock
for
Outstanding
$3.25
Convertible Exchangeable Class C Preferred Stock,
Series 2
Series 2
(CUSIP
No. 502160500)
Pursuant
to the Offer to Exchange dated February 9, 2007
The
Exchange Offer will expire at 5:00 p.m., New York City time, on March 12,
2007, which we refer to as the Expiration Date, unless extended by us. You
may
revoke your tender at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
February
9, 2007
To
Our
Clients:
Enclosed
for your consideration are the Offer to Exchange, dated February 9, 2007 (the
“Offer to Exchange”), and the related Letter of Transmittal (the “Letter of
Transmittal”) in connection with the offer by LSB Industries, Inc. (the
“Company”), to exchange (the “Exchange Offer”) its shares of its common stock
for any and all outstanding shares of Convertible Exchangeable Class C Preferred
Stock, Series 2 (“Preferred Stock”) subject, in each case, to the procedures and
limitations described in the Offer to Exchange and the Letter of Transmittal.
This material relating to the Exchange Offer is being forwarded to you as the
beneficial owner of shares of Preferred Stock carried by us for your account
or
benefit but not registered in your name. A tender of such shares of Preferred
Stock can be made only by us as the holder of record and pursuant to your
instructions. The enclosed Letter of Transmittal is furnished to you for your
information only and cannot be used by you to tender shares of Preferred Stock
held by us for your account.
We
request instructions as to whether you wish us to tender any or all of the
shares of Preferred Stock held by us for your account, upon the terms and
subject to the conditions set forth in the Exchange Offer. We also request
that
you confirm that we may make the representations contained in the Letter of
Transmittal on your behalf.
If
you
wish to have us tender any or all of your shares of Preferred Stock, please
so
instruct us by completing, executing and returning to us the instruction form
set forth on the reverse side of this letter. An envelope to return your
instructions to us is enclosed. If you authorize the tender of your shares
of
Preferred Stock, all such shares of Preferred Stock will be tendered unless
otherwise specified on the reverse side of this letter. Your instructions should
be forwarded to us in sufficient time to permit us to submit a tender on your
behalf prior to the Expiration Date of the Exchange Offer.
INSTRUCTIONS
WITH RESPECT TO THE
OFFER
TO EXCHANGE
The
undersigned acknowledge(s) receipt of your letter and the enclosed material
referred to therein relating to the Exchange Offer.
This
will
instruct you to tender the number of shares of Preferred Stock indicated below
(or if no number is indicated below, all shares of Preferred Stock) that are
held by you for the account of the undersigned.
|
Aggregate
Number of Shares of Preferred Stock to be Tendered*:
|
|
|
Date:
_____________ ,
2007
|
|
|
|
|
|
Signature(s): ________________________________
|
|
|
______________________________
|
|
|
Print
Name(s):________________________________
|
|
|
______________________________
|
|
|
Area
Code and Telephone Number: _______________
|
|
|
|
|
|
Tax
ID or Social Security Number:_________________
|
|
*
|
Unless
otherwise indicated, it will be assumed that all shares of Preferred
Stock
held by us for your account are to be
tendered.
|
If
the
undersigned instructs you to tender the shares of Preferred Stock held by you
for the account of the undersigned, it is understood that you are authorized:
|
|
(a) to make on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect
to
the undersigned as a beneficial owner, including but not limited
to the
representations that:
|
|
|
(i) the undersigned’s principal residence is in the state of
______________
(fill in state),
|
|
|
|
|
|
(ii) the undersigned has full power and authority to tender,
exchange, assign and transfer the shares of Preferred Stock tendered,
and
LSB Industries, Inc. will acquire good and unencumbered title to
the
shares of Preferred Stock being tendered, free and clear of all security
interests, liens, restrictions, charges, encumbrances, conditional
sale
arrangements or other obligations relating to their sale or transfer,
and
are not subject to any adverse claim when the shares of Preferred
Stock
are accepted by LSB Industries,
Inc.;
|
|
|
(b) to agree, on behalf of the undersigned, as set forth in the
Letter of Transmittal; and
|
|
|
|
|
|
(c) to take any other action as necessary under the Offer to Exchange
or the Letter of Transmittal to effect the valid tender of the shares
of
Preferred Stock.
|
PLEASE
RETURN THIS FORM TO THE BROKERAGE
FIRM
MAINTAINING YOUR ACCOUNT
COMPANY
CONTACT: Tony
M.
Shelby
Chief
Financial Officer
(405)
235-4546
Investor
Relations Contact: Linda
Latman (212) 836-9609
Lena
LeCati (212) 836-9611
The
Equity Group, Inc
February
9, 2007
AMEX:LXU
LSB
INDUSTRIES, INC. ANNOUNCES EXCHANGE OFFER FOR CONVERTIBLE EXCHANGEABLE CLASS
C
PREFERRED STOCK, SERIES 2
Oklahoma
City, Oklahoma . . . February 9, 2007. . . LSB Industries, Inc. (the “Company”
or “LSB”) (AMEX: LXU), announced today that it has commenced an offer to
exchange shares of its common stock for 309,807 outstanding shares of
Convertible
Exchangeable Class C Preferred Stock, Series 2 (“Preferred Stock”) (CUSIP
No. 502160500).
In
the
exchange offer, the Company is offering to exchange 7.4 shares of its common
stock for each share of Preferred Stock validly tendered and not withdrawn
before the expiration date. The exchange offer will remain open until March
12,
2007, unless extended or earlier terminated by the Company. The exchange
offer
is subject to the satisfaction of certain conditions.
Record
holders of Preferred Stock have been sent written materials explaining the
precise terms and timing of the exchange offer. Holders of shares of Preferred
Stock are urged to read these written materials carefully because they contain
important information about the exchange offer. The Company has filed the
written materials relating to the exchange offer with the Securities and
Exchange Commission (the “SEC”) as part of a tender offer statement on
Schedule TO. Holders of shares of Preferred Stock, as well as shareholders
of the Company and the public, can obtain these written tender offer materials
and other documents filed by the Company with the SEC free of charge from
the
SEC’s website at www.sec.gov. Holders of shares of Preferred Stock may also
obtain a written copy of the tender offer materials by calling the Information
Agent for the exchange offer, Georgeson, toll free at (800)
657-4428.
The
securities to be offered have not been and will not be registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements
of
the Securities Act and applicable state securities laws. The Company is relying
on Section 3(a)(9) of the Securities Act to exempt the exchange offer from
the
registration requirements of the Securities Act, and because the Preferred
Stock
was registered, the Company believes that the common stock issued in the
exchange offer will be freely tradeable by the receipients of such shares.
This
press release is not an offer to purchase or an offer to exchange or a
solicitation of acceptance of the offer to exchange, which may be made only
pursuant to the terms of the offer to exchange and related letter of
transmittal.
LSB
is a manufacturing, marketing, and engineering company with activities on
a
world wide basis. LSB’s principal business activities consist of the manufacture
and sale of commercial and residential climate control products, the manufacture
and sale of chemical products for the mining, agricultural and industrial
markets, the provision of specialized engineering services, and other
activities.
Exhibit-99
(d)(1)
AGREEMENT
Exhibit-(D)(1)This
AGREEMENT (the “Agreement”)
is
dated this November 10, 2006, by and among LSB INDUSTRIES, INC., a Delaware
corporation (the “Company”),
KENT
C. McCARTHY, an individual (“McCarthy”),
JAYHAWK CAPITAL MANAGEMENT, L.L.C., a Delaware limited liability company
(“Jayhawk”),
JAYHAWK INSTITUTIONAL PARTNERS, L.P., a Delaware limited partnership
(“Jayhawk
Institutional”),
and
JAYHAWK INVESTMENTS, L.P., a Delaware limited partnership (“Jayhawk
Investments”).
McCarthy, Jayhawk, Jayhawk Institutional, and Jayhawk Investments are
collectively referred to as the “Jayhawk
Group.”
W
I T
N E S S E T H:
WHEREAS,
the Company’s outstanding $3.25 Convertible Exchangeable Class C Preferred
Stock, Series 2 (the “Series
2 Preferred”),
is
registered with the Securities and Exchange Commission under the Form S-2
Registration Statement No. 33-61640, effective May 19, 1993;
WHEREAS,
Jayhawk Capital, as the investment advisor and manager of Jayhawk Institutional
and the investment advisor and general partner of Jayhawk Investments, is
deemed
to beneficially own the securities held by Jayhawk Institutional and Jayhawk
Investments;
WHEREAS,
McCarthy, as the manager and sole member of Jayhawk Capital, has sole voting
and
dispositive power over the Series 2 Preferred owned by Jayhawk Capital, Jayhawk
Institutional and Jayhawk Investments;
WHEREAS,
the Jayhawk Group is the record and beneficial owner of 340,900 shares of
Series
2 Preferred, which shares of Series 2 Preferred are owned of record by the
members of the Jayhawk Group, as set forth in the table below:
|
Record
Owner
|
Shares
of
Series
2 Preferred
|
|||
|
Kent
C. McCarthy
|
23,800
|
|||
|
Jayhawk
Institutional Partners, L.P.
|
171,390
|
|||
|
Jayhawk
Investments, L.P.
|
145,710
|
|||
|
Total
|
340,900
|
WHEREAS,
the Jayhawk Group is the record and beneficial owner of 2,837,956 shares
of LSB
common stock, which includes 1,124,700 shares of common stock, 1,475,756
shares
of common stock receivable upon conversion of the 340,900 shares of Series
2
Preferred, 112,500 shares of common stock that may be acquired upon exercise
of
warrants, and 125,000 shares of common stock that may be acquired upon
conversion of $1 million principal amount of the 7% Convertible Senior
Subordinated Debentures due 2011 shares of common stock;
WHEREAS,
as of September 30, 2006, the amount of accrued and unpaid dividends on the
340,900 shares of Series 2 Preferred was $23.2625 per share, resulting in
accrued and unpaid dividends on the shares of Series 2 Preferred owned by
the
Jayhawk Group;
WHEREAS,
McCarthy individually, and on behalf of the Jayhawk Group, contacted the
Company
and solicited the Company to exchange either directly or as a part of a tender
offer by the Company of its Series 2 Preferred, a portion of the shares of
the
Series 2 Preferred owned by the Jayhawk Group for shares of the Company’s common
stock, par value $.10 per share, based on an exchange rate of 7.4 shares
of the
common stock for each share of Series 2 Preferred surrendered to the Company,
and to waive all right, title and interest that the Jayhawk Group may have
in
and to any and all accrued and unpaid dividends on the Series 2 Preferred
so
tendered or exchanged;
WHEREAS,
the Company and the Jayhawk Group desire to amend the Certificate of
Designations, filed with the Delaware Secretary of State of the State of
Delaware on May 21, 1993 (the “Certificate
of Designations”)
that
is included in the Company’ Amended and Restated Certificate of Incorporation,
filed with the Delaware Secretary of State of the State of Delaware on September
2, 1987, as amended prior to the date hereof (including the Certificate of
Designations, the “Charter”),
which
sets forth the rights, preferences and designations of the Series 2 Preferred
to
(a) allow the Company to purchase, redeem or otherwise acquire shares of
its
common stock without the approval of the holders of the Series 2 Preferred,
notwithstanding that accrued and unpaid dividends may exist with respect
to the
Series 2 Preferred, and (b) provide that the existing right of the holders
of
Series 2 Preferred to elect two directors to the Company’s Board of Directors
when dividends on the Series 2 Preferred are unpaid may be exercised only
if and
so long as at least 140,000 shares of Series 2 Preferred remain issued and
outstanding; and
WHEREAS,
if the Company undertakes, within one (1) year from the date of this Agreement,
a tender offer for all of the issued and outstanding Series 2 Preferred,
with
the consideration to be paid to the holders of Series 2 Preferred that the
tender shares of Series 2 Preferred to be 7.4 shares of the common stock
for
each share of Series 2 Preferred tendered, and, in the event of such tender
offer, the Jayhawk Group agrees to tender only 180,450 shares of Series 2
Preferred that it beneficially owns in connection with such tender offer
(which
constitutes 0.5293341 percent of the Series 2 Preferred beneficially owned
by
the Jayhawk Group); provided that the Jayhawk Group acknowledge and agree
that
the Company, as of the date of this Agreement, has not determined to undertake
any tender offer for the Series 2 Preferred;
NOW,
THEREFORE, in consideration of the terms and conditions contained herein,
the
Company and the Holder hereby agree as follows:
1. Amendment
to Charter.
Each member of the Jayhawk Group hereby agrees, whether by written consent
or at
a meeting of the Company’s shareholders held by such purpose, to vote and issue
its consent with respect to all of the shares of common stock and Series
2
Preferred beneficially owned by the Jayhawk Group “for” and in favor of the
adoption and approval to amend the Certificate of Designations included in
the
Charter, substantially as follows (collectively, the “Amendments”):
| (a) |
For
a period of five (5) years from the date of completion of the exchange
or
tender, whichever is applicable, to allow LSB to purchase, redeem
or
otherwise acquire shares of its common stock (including without
limitation, pursuant to the
|
2
| cashless exercise of Company options) without the approval of the holders of the Series 2 Preferred, notwithstanding that accrued and unpaid dividends may exist with respect to the Series 2 Preferred, and |
| (b) |
to
provide that the existing right of the Series 2 Preferred to elect
two
directors to the Company’s Board of Directors when dividends are unpaid on
the Series 2 Preferred will be effective only if and so long as
at least
140,000 shares of Series 2 Preferred remain issued and
outstanding.
|
Each
member of the Jayhawk Group agrees to (y) execute a written consent as a
holder
of Series 2 Preferred and common stock in accordance with the Delaware General
Corporation Law, approving the adoption of the Amendments and (z) to vote
“for”
and in favor of the adoption and approval of the Amendments if the Company
determines to hold a meeting of the holders of the Series 2 Preferred and/or
the
common stock to vote upon the Amendments.
2. Exchange/Tender
Offer.
If the Company undertakes, in its sole discretion, within one (1) year from
the
date of this Agreement, (a) a tender offer for its issued and outstanding
shares
of Series 2 Preferred or (b) to issue shares of its common stock for a portion
of the Series 2 Preferred owned by the Jayhawk Group pursuant to a private
exchange, each member of the Jayhawk Group, jointly and severally, agrees
to
tender or exchange, as applicable, an aggregate total of only 180,450 shares
of
Series 2 Preferred beneficially owned by the Jayhawk Group pursuant to the
terms
of the tender offer or exchange, whichever is undertaken by the Company,
and
waive any and all of the Holders’ right, title and interest in and to any and
all accrued and unpaid dividends on the Series 2 Preferred so tendered or
exchanged, subject to the satisfaction of the following:
| (a) |
the
consideration paid by the Company for each share of Series 2 Preferred
so
tendered or exchanged to the Company will be 7.4 shares of common
stock;
|
| (b) |
the
Board of Directors of the Company shall have received an opinion,
in form
satisfactory to the Board of Directors, that the tender offer or
exchange
and the consideration therefore is fair to the shareholders of
the
Company;
|
| (c) |
the
common stock to be issued to the holders of the Series 2 Preferred
pursuant to the terms of the tender offer or exchange shall have
been
approved for listing, upon official notice of issuance, with the
American
Stock Exchange (“AMEX”);
|
| (d) |
the
holders of the issued and outstanding shares of common stock of
the
Company and the Series 2 Preferred shall have approved the Amendments
and,
if required by the rules and regulations of the AMEX, the holders
of the
issued and outstanding common stock shall have approved the issuance
of
the shares of common stock pursuant to the tender offer or exchange;
and
|
| (e) | the Golsen Group (defined as Jack E. Golsen, his spouse and children, and SBL Corporation and Golsen Petroleum Corporation, which are entities controlled by Jack E. Golsen, his wife and children) shall only exchange or tender in such exchange or tender undertaken by the Company within one (1) year from the date of this Agreement 26,467 shares of the Series 2 Preferred beneficially owned by |
3
|
the
Golsen Group (which represents 0.5293341 percent of the Series
2 Preferred
beneficially owned by the Golsen Group) and to waive any and all
of the
Golsen Group’s right, title and interest in and to any and all accrued and
unpaid dividends on the 26,467 shares of Series 2 Preferred so
tendered or
exchanged, subject to the conditions set forth in subparagraphs
(a)
through (d) of this paragraph 2.
|
3. Miscellaneous
Provisions.
| 3.1 |
Governing
Law; Jurisdiction; Jury Trial.
All questions concerning the construction, validity, enforcement
and
interpretation of this Agreement shall be governed by the internal
laws of
the State of Delaware, without giving effect to any choice of law
or
conflict of law provision or rule (whether of the State of Delaware
or any
other jurisdictions) that would cause the application of the laws
of any
jurisdictions other than the State of Delaware. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,
A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION
WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
|
| 3.2 |
Counterparts.
This Agreement may be executed in two or more identical counterparts,
all
of which shall be considered one and the same agreement and shall
become
effective when counterparts have been signed by each party and
delivered
to the other party; provided
that a facsimile signature shall be considered due execution and
shall be
binding upon the signatory thereto with the same force and effect
as if
the signature were an original, not a facsimile
signature.
|
| 3.3 |
Headings.
The headings of this Agreement are for convenience of reference
and shall
not form part of, or affect the interpretation of, this
Agreement.
|
| 3.4 |
Severability.
If any provision of this Agreement shall be invalid or unenforceable
in
any jurisdiction, such invalidity or unenforceability shall not
affect the
validity or enforceability of the remainder of this Agreement in
that
jurisdiction or the validity or enforceability of any provision
of this
Agreement in any other
jurisdiction.
|
| 3.5 |
Entire
Agreement; Amendments.
This Agreement supersedes all other prior oral or written agreements
between the Jayhawk Group, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein,
and
this Agreement and the instruments referenced herein contain the
entire
understanding of the parties with respect to the matters covered
herein
and therein. No provision of this Agreement may be amended other
than by an instrument in writing signed by the party against whom
the
amendment may be enforced. No provision hereof may be waived other
than by an instrument in writing signed by the party against whom
enforcement is sought.
|
4
| 3.6 |
Successors
and Assigns.
This Agreement shall be binding upon and inure to the benefit of
the
parties and their respective successors and
assigns.
|
| 3.7 |
No
Third Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto
and their
respective permitted successors and assigns, and is not for the
benefit
of, nor may any provision hereof be enforced by, any other
person.
|
| 3.8 |
Further
Assurances.
Each party shall do and perform, or cause to be done and performed,
all
such further acts and things, and shall execute and deliver all
such other
agreements, certificates, instruments and documents, as any other
party
may reasonably request in order to carry out the intent and accomplish
the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.
|
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
LSB
INDUSTRIES, INC., a Delaware corporation
By:_/s/
Jack E. Golsen
Jack
E.
Golsen, Chief Executive Officer
(the
“Company”)
/s/
Kent C. McCarthy
KENT
C.
McCARTHY, an individual
(“McCarthy”)
JAYHAWK
CAPITAL MANAGEMENT,
L.L.C., a Delaware limited liability company
L.L.C., a Delaware limited liability company
By:
/s/ Kent C. McCarthy
Name:_Kent
C. McCarthy
Title:
President
(“Jayhawk”)
5
JAYHAWK
INSTITUTIONAL
PARTNERS, L.P., a Delaware limited partnership
PARTNERS, L.P., a Delaware limited partnership
By:/s/
Kent C. McCarthy
Name:
Kent C. McCarthy _
Title:__President
(“Jayhawk
Institutional”)
JAYHAWK
INVESTMENTS, L.P., a Delaware limited partnership.
By:_/s/
Kent C. McCarthy _
Name
:_Kent C. McCarthy ___
Title::__President
(“Jayhawk
Investments”)