LSB buys back $5 million of 5.5% convertibles; Jayhawk files suit against company

By Jennifer Chiou

New York, Nov. 14 - LSB Industries, Inc. purchased a total of $5 million of its 5.5% convertible senior subordinated debentures due 2012, according to an 8-K filing with the Securities and Exchange Commission.

The company said it paid $3.6 million plus accrued interest of $100,833 using its working capital.

According to the filing, SBL, LLC purchased $4 million of the debentures for $2.88 million plus accrued interest of $80,667. SBL is owned by Golsen Family, LLC; Barry H. Golsen, the company's president and chief operating officer and a member of its board of directors; Steven J. Golsen, the chief executive of one of the company's subsidiaries; and Linda F. Rappaport.

Rappaport purchased $1 million of the debentures for $720,000 plus accrued interest of $20,167.

The debentures are convertible by the holders, in whole or in part, into shares prior to their maturity at a conversion rate of 36.4 shares per $1,000 principal amount, representing a conversion price of $27.47 per share.

The closing price of the company's common stock on Nov. 10 was $8.70 per share.

Jayhawk agreement and suit

As previously disclosed, Jayhawk Capital Management, LLC and some of its affiliates advised LSB that it may bring legal action against the company for all dividends in arrears amounting to about $4 million on the 155,012 shares of series 2 $3.25 convertible exchangeable class C preferred stock that it converted after receipt of the company's notice of redemption of all the preferreds in July 2007.

In connection with its claims, the general counsel of the Jayhawk Group orally offered to settle all claims against LSB in return for a payment of $100,000.

Through counsel, LSB agreed to the settlement offer verbally and by e-mail, and after doing so, the Jayhawk Group's general counsel purported to withdraw the settlement offer and asserted the Jayhawk Group was not bound by any settlement agreement, LSB alleged in the filing.

According to the certificate of designations for the preferreds, holders could elect to convert each preferred into 4.329 shares of the company's common stock. Holders who convert, however, would not be entitled to receive payment of any dividends in arrears.

Despite the provided conversion rate, in October 2007, Kent C. McCarthy, the manager and member of Jayhawk Capital, solicited LSB on behalf of the Jayhawk Group to exchange either directly or as part of a tender offer, a portion of the preferreds based on an exchange rate of 7.4 shares of common stock for each preferred.

As part of the solicitation by the Jayhawk Group, the Jayhawk Group and the company entered into the Jayhawk agreement, which provided, in part, that if the company undertook within one year of the agreement, (a) a tender offer for its issued and outstanding preferred shares, or (b) to issue shares of its common stock for a portion of the preferreds, each member of the Jayhawk Group agreed to tender or exchange an aggregate total of only 180,450 shares, or 52.9% of the shares of series 2 preferreds, at an exchange rate of 7.4 shares per preferred.

This month, the Jayhawk Group filed a lawsuit against LSB and Jack E. Golsen alleging, among other things, that the company and Golsen fraudulently induced the Jayhawk Group to enter into the Jayhawk agreement.

The lawsuit does not allege that the Jayhawk Group was entitled to accrued dividends on the shares of series 2 preferreds that it converted, the filing noted.

The Jayhawk Group claims that it suffered losses because it did not tender or exchange 166,212 shares of the preferreds in connection with LSB's February 2007 tender offer.

On Nov. 9, LSB said that investors led by Jayhawk Capital sold 2,207,844 shares of the company's stock between Aug. 31 and Nov. 7.

The shares were priced between $21.14 and $26.69 each, according to a schedule 13D filing with the SEC.

LSB is an Oklahoma City-based manufacturer of climate-control products.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.