Note 16: Subsequent Events

Issuance of Senior Secured Notes and Pay Off of Secured Term Loan—On August 7, 2013, LSB sold $425 million aggregate principal amount of the 7.75% Senior Notes due 2019 (the “Senior Secured Notes”) in a 144A transaction pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Act”). The Senior Secured Notes are eligible for resale by the investors under Rule144A under the Act. LSB received net proceeds of approximately $418 million, after commissions and fees. In connection with the closing, LSB entered into an indenture (the “Indenture”) with UMB Bank, as trustee, governing the Senior Secured Notes and as collateral agent, and will receive customary compensation from us for such services.

The Senior Secured Notes bear interest at the rate of 7.75% per year and mature on August 1, 2019. Interest is to be paid semiannually, beginning on February 1, 2014.

The Senior Secured Notes are general senior secured obligations of LSB. The Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed by all of LSB’s current subsidiaries, with all of the guarantees, except two, being senior secured guarantees and two being senior unsecured guarantees. The Senior Secured Notes will rank equally in right of payment to all of LSB and the guarantors’ existing and future senior secured debt, including the Amended Working Capital Revolver Loan discussed below, and will be senior in right of payment to all of LSB and the guarantors’ future subordinated indebtedness. LSB does not have independent assets or operations.

Those subsidiaries that provided guarantees of the Senior Secured Notes will be released from such guarantees upon the occurrence of certain events, including the following:

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the designation of such guarantor as an unrestricted subsidiary;

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the release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the Senior Secured Notes by such guarantor;

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the sale or other disposition, including by way of merger or otherwise, the sale of its capital stock or the sale of all or substantially all of the assets, of such guarantor; or

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LSB’s exercise of its legal defeasance option or its covenant defeasance option as described in the Indenture with LSB’s obligations under the Indenture are discharged in accordance with the Indenture.

The Senior Secured Notes will be effectively senior to all existing and future unsecured debt of LSB and the guarantors to the extent of the value of the property and assets subject to liens (“Collateral”) and will be effectively senior to all existing and future obligations under the Amended Working Capital Revolver Loan and other debt to the extent of the value of the certain collateral (“Priority Collateral”).

The Senior Secured Notes will be secured on a first-priority basis by the Priority Collateral owned by LSB and the guarantors (other than the two unsecured guarantors) and on a second-priority basis by the certain collateral securing the Amended Working Capital Revolver Loan owned by LSB and the guarantors (other than the two unsecured guarantors), in each case subject to certain liens permitted under the Indenture. The Senior Secured Notes will be equal in priority as to the Priority Collateral owned by LSB and the guarantors with respect to any obligations under any equally ranked lien obligations subsequently incurred.

The Senior Secured Notes will be effectively subordinated to all of LSB and the guarantors’ existing and future obligations under the Amended Working Capital Revolver Loan and other debt to the extent of the value of the certain collateral securing such debt and to any of LSB and the guarantors’ existing and future indebtedness that is secured by liens that are not part of the Collateral. The Senior Secured Notes will be structurally subordinated to all of the existing and future indebtedness, preferred stock obligations and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Senior Secured Notes in the future.

Except under certain conditions, the Senior Secured Notes are not redeemable before August 1, 2016. On or after such date, LSB may redeem the Senior Secured Notes at its option, in whole or in part, upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as percentages of the principal amount thereof), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period commencing on August 1st of the year set forth below:


Year	Percentage
2016		103.875	%
2017		101.938	%
2018 and thereafter		100.000	%

Upon the occurrence of a change of control, as defined in the Indenture, each holder of the Senior Secured Notes will have the right to require that LSB purchase all or a portion of such holder’s notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

The Indenture contains covenants that, among other things, limit LSB’s ability, with certain exceptions and as defined in the Indenture, to:

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incur additional indebtedness;

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pay dividends;

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repurchase LSB’ common and preferred stocks;

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make investments;

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repay certain indebtedness;

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create liens on, sell or otherwise dispose of our assets;

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engage in mergers, consolidations or other forms of recapitalization;

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engage in sale-leaseback transactions; or

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engage in certain affiliate transactions.

LSB has used $67.2 million of the net proceeds from Senior Secured Notes to pay all outstanding borrowings, including the prepayment penalty, under the Secured Term Loan.

In conjunction with the Senior Secured Notes, we entered into an amendment to the Working Capital Revolver Loan as discussed below.

In conjunction with the Senior Secured Notes, LSB entered into a Registration Rights Agreement (the “Registration Rights Agreement”).

In connection with the Registration Rights Agreement, we have agreed to use our reasonable best efforts to file with the SEC a registration statement (“Registration Statement”) on an appropriate form with respect to a registered offer to exchange the notes for new notes with terms substantially identical in all material respects to the notes, cause the Registration Statement to be declared effective under the Securities Act, and complete the exchange within 180 days after the effective date of such Registration Statement. We are also obligated to update the Registration Statement by filing a post-effective amendment. If the exchange offer is not completed on or prior to the expiration of 365 days from August 7, 2013 (the date of closing) and under certain other conditions, the annual interest rate on the notes will be increased by (i) 0.25% for the first 90 day period immediately following such default and (ii) an additional 0.25% with respect to each subsequent 90 day period, in each case until and including the date such default ends, up to a maximum increase of 1.00%.

Amendment to Working Capital Revolver Loan—Our wholly-owned subsidiary, ThermaClime and certain of its wholly-owned subsidiaries (the “Borrowers”), are parties to the Working Capital Revolver Loan. On July, 31, 2013, we entered into an amendment to the Working Capital Revolver Loan, which amends our existing senior secured revolving credit facility (the “Amended Working Capital Revolver”). The Amended Working Capital Revolver Loan became effective concurrently with the closing of the issuance of Senior Secured Notes discussed above. Upon the Amended Working Capital Revolver Loan becoming effective, such increased the principal amount that ThermaClime and its subsidiaries may borrow on a revolving basis from up to $50.0 million to up to $100.0 million, based on specific percentages of eligible accounts receivable and inventories and permits the Senior Secured Notes and the guarantees to be secured on a first-priority basis by the Priority Collateral and on a second-priority basis by the certain collateral securing the Amended Working Capital Revolver Loan and provides that the Amended Working Capital Revolver Loan be secured on a second-priority basis by the Priority Collateral. The Amended Working Capital Revolver Loan will mature on April 13, 2018.

The Amended Working Capital Revolver Loan accrues interest at a base rate (generally equivalent to the prime rate) plus 0.50% if borrowing availability is greater than $25.0 million, otherwise plus 0.75% or, at our option, accrues interest at LIBOR plus 1.50% if borrowing availability is greater than $25.0 million, otherwise LIBOR plus 1.75%. At August 7, 2013, the interest rate was 3.75% based on LIBOR. Interest is paid monthly, if applicable. At August 7, 2013, there were no outstanding borrowings under the Amended Working Capital Revolver Loan.

The Amended Working Capital Revolver Loan provides for up to $15.0 million of letters of credit. All letters of credit outstanding reduce availability under the Amended Working Capital Revolver Loan. Under the Amended Working Capital Revolver Loan, the lender also requires the Borrowers to pay a letter of credit fee equal to 1% per annum of the undrawn amount of all outstanding letters of credit, an unused line fee equal to .25% per annum for the excess amount available under the Amended Working Capital Revolver Loan not drawn and various other audit, appraisal and valuation charges.

The lender has the ability to, upon an event of default, as defined, terminate the Amended Working Capital Revolver Loan and make the balance outstanding, if any, due and payable in full. The terms of the Amended Working Capital Revolver Loan provided that ThermaClime could prepay the Secured Term Loan as discussed above.

The Amended Working Capital Revolver Loan requires ThermaClime to meet a minimum fixed charge coverage ratio of not less than 1.10 to 1, if at any time the excess availability (as defined by the Amended Working Capital Revolver Loan), under the Amended Working Capital Revolver Loan is less than or equal to $12.5 million. This ratio will be measured monthly on a trailing twelve month basis and as defined in the agreement. The Amended Working Capital Revolver Loan contains covenants that, among other things, limit the Borrowers’ (which does not include LSB) ability, without consent of the lender and with certain exceptions, to:

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incur additional indebtedness;

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create liens on, sell or otherwise dispose of our assets;

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engage in certain fundamental corporate changes or changes to our business activities;

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make certain material acquisitions;

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engage in sale-leaseback transactions;

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make other restricted payments, including, without limitation, investments;

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repay certain indebtedness;

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engage in certain affiliate transactions;

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engage in mergers, consolidations or other forms of recapitalization; or

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dispose assets.

The Amended Working Capital Revolver Loan allows the borrowers and subsidiaries under the Senior Secured Notes to guarantee those notes. So long as no default or event of default has occurred and is continuing or would result therefrom, ThermaClime may make distributions and pay dividends to LSB in amounts necessary to permit LSB to make required payments of principal and payments of scheduled interest under the Senior Secured Notes, in each case not more than five business days prior to the date such payments are due and not in excess of the actual amounts due. The ability of ThermaClime and its wholly-owned subsidiaries to pay other dividends and to make other distributions to LSB or ThermaClime’s parent, Consolidated Industries Corp. (“Consolidated Industries”), is restricted by certain covenants contained in the Amended Working Capital Revolver Loan, which prohibits ThermaClime from transferring other funds to LSB in the form of cash dividends or other distributions, except for the following (so long as no default or event of default has occurred, is continuing or would result therefrom):

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amounts not to exceed $7.5 million annually under a certain management agreement between LSB and ThermaClime, provided certain conditions are met;

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the repayment of costs and expenses incurred by LSB that are directly allocable to ThermaClime or its subsidiaries for LSB’s provision of services under a certain services agreement;

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the amount of income taxes that ThermaClime would be required to pay if they were not consolidated with LSB; and

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an amount not to exceed 50% of ThermaClime’s consolidated net income during each fiscal year determined in accordance with GAAP, plus income taxes paid to LSB during such fiscal year within the previous bullet above.

So long as both immediately before and after giving effect to any of the following, excess availability as defined by the Amended Working Capital Revolver Loan is equal to or greater than the greater of (x) 20% of the maximum revolver commitment or (y) $20 million, the Amended Working Capital Revolver will allow each of the borrowers under the Amended Working Capital Revolver Loan to make:

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loans to, or other investments in, LSB in an aggregate amount exceeding $5.0 million at any time outstanding;

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distributions and pay dividends with respect to amounts in excess of $0.5 million during each fiscal year to Consolidated Industries or to LSB or to any subsidiary of Consolidated Industries that is not also a subsidiary of ThermaClime;

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investments in joint ventures in an aggregate amount not exceeding $35.0 million; and

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other investments in an aggregate amount not exceeding $50.0 million at any one time outstanding.

The Amended Working Capital Revolver Loan includes customary events of default, including events of default relating to nonpayment of principal and other amounts owing under the Amended Working Capital Revolver Loan from time to time, any material misstatement or misrepresentation and breaches of representations and warranties made, violations of covenants, cross-payment default to indebtedness in excess of $0.1 million, cross-acceleration to indebtedness in excess of $0.1 million, bankruptcy and insolvency events, certain unsatisfied judgments, certain liens, and certain assertions of, or actual invalidity of, certain loan documents.

The Amended Working Capital Revolver Loan contains numerous other covenants applicable to the borrowers including, but not limited to, the following:

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limitation on the incurrence of certain additional indebtedness and liens;

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limitations on mergers, acquisitions, dissolution and sale of assets;

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limitations on declaration of dividends and distributions to LSB; and

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limitations on payments to non-borrower affiliates.

Capital Project Commitment—Using a portion of the net proceeds from the sale of the Senior Secured Notes, we will proceed with the design, engineering, and construction of an ammonia plant at the El Dorado Facility. The estimated cost for this project ranges from $250 million to $300 million, of which $16.4 million has been incurred and capitalized at June 30, 2013. We are negotiating or have negotiated an Engineering Procurement and Construction Agreement with SAIC Constructors, LLC, a subsidiary of SAIC, to engineer and construct the ammonia plant and certain support facilities. We expect SAIC Constructor’s fees in connection with this agreement to be approximately $22 million.