Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On November 14, 2020, Foundation Building Materials, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ASP Flag Intermediate Holdings, Inc., a Delaware corporation (“Parent”), and ASP Flag Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of American Securities LLC. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are affiliates of certain funds managed by American Securities LLC (the “AS Funds”).
Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of common stock of the Company (the “Common Stock”) will be converted into the right to receive $19.25 in cash, without interest, and subject to deduction for any required withholding tax (the “Merger Consideration”), other than shares of the Company’s Common Stock held by Parent, Merger Sub or any other wholly-owned subsidiary of the Company, shares held by the Company in treasury and shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law.
At the Effective Time, each grant of restricted stock units granted under the Company’s 2017 Stock Incentive Plan (the “Company Stock Plan”) that is outstanding immediately prior to the Effective Time shall fully vest and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the product of (i) the Merger Consideration multiplied by (ii) the number of shares of Common Stock subject to such restricted stock units. At the Effective Time, each option to purchase Common Stock granted under the Company Stock Plan that is outstanding immediately prior to the Effective Time shall fully vest and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the product of (i) the remainder, if positive, of (A) the Merger Consideration minus (B) the exercise price per share of Common Stock of such option multiplied by (ii) the number of shares of Common Stock subject to such option.
Each party’s obligation to consummate the Merger is subject to certain conditions, including, among others: (i) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and receipt of the Competition Act Approval (as defined in the Merger Agreement); (ii) the absence of any order issued by any court of competent jurisdiction, other legal restraint or prohibition or any law enacted or deemed applicable by a governmental entity that prohibits or makes illegal the consummation of the Merger; (iii) the passing of twenty (20) days from the date on which the Company mails to the Company’s stockholders the Information Statement (as defined below) in definitive form; (iv) subject to certain qualifications, the accuracy of representations and warranties of the other party set forth in the Merger Agreement; and (v) the performance by the other party in all material respects of its obligations under the Merger Agreement. Parent’s obligation to consummate the Merger is also conditioned on, among other things, the absence of any Material Adverse Effect (as defined in the Merger Agreement).
Entry into the Merger Agreement has been unanimously approved by the board of directors of the Company, acting on the unanimous recommendation of the special committee of the board of directors, consisting solely of independent members of the board of directors.
Following execution of the Merger Agreement on November 14, 2020, LSF9 Cypress Parent 2 LLC (the “Principal Stockholder”), being the holder of a majority of the issued and outstanding shares of Common Stock, duly executed and delivered to the Company a written consent, approving and adopting the Merger Agreement and the transactions contemplated thereby, including the Merger (the “Written Consent”). No further approval of the Company's stockholders is required to adopt the Merger Agreement or will be sought. As a result of receipt of the Written Consent, the Company is prohibited from engaging in any further discussions or solicitations regarding an alternative potential acquisition of the Company.
The Merger Agreement includes customary representations, warranties and covenants of the Company, Parent and Merger Sub. Among other things, the Company has agreed to use commercially reasonable efforts to conduct its business in the ordinary course of business consistent with past practice and use commercially reasonable efforts to preserve intact its business until the Merger is consummated. The Company and Parent have also agreed to use their respective reasonable best efforts to obtain any approvals from governmental authorities for the Merger, including all required antitrust approvals, on the terms and subject to the conditions set forth in the Merger Agreement, provided that Parent and its affiliates will not be required to take any actions that would, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the business, assets, financial condition or results of operations of Parent, the Company and its subsidiaries, taken as a whole.
Parent and its affiliates also will not acquire or agree to acquire any rights, assets, business, person or division thereof (through acquisition, license, joint venture, collaboration or otherwise) if such acquisition would reasonably be expected to materially increase the risk of not obtaining, or materially delaying receipt of, any applicable clearance, consent, approval or waiver under the HSR Act or Competition Act with respect to the Merger Agreement.
The Merger Agreement contains certain provisions giving each of Parent and the Company rights to terminate the Merger Agreement under certain circumstances, including the right for either Parent or the Company to terminate the Merger Agreement if the Merger has not been consummated on or before March 31, 2021.
If the Merger is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to and qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1, and the terms of which are incorporated herein by reference.
The Merger Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Company, Parent or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made by the parties thereto only for purposes of the Merger Agreement and as of specific dates as set forth therein; were made solely for the benefit of the parties to the Merger Agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Merger Agreement; may have been made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Tax Receivable Agreement
In connection with the closing of the Merger, an early termination payment will become payable in cash under the Tax Receivable Agreement, dated as of February 8, 2017, between the Company and the Principal Stockholder (the “Tax Receivable Agreement”). The Company will make such payment in connection with the closing of the Merger. An agreement to terminate the Tax Receivable Agreement (the "Tax Receivable Termination Agreement") was entered into concurrently with the execution of the Merger Agreement, clarifying how the early termination payment will be calculated and providing that the Tax Receivable Agreement will terminate once such payment is made and that the Company will be released from all further obligations under the Tax Receivable Agreement.
A copy of the Tax Receivable Termination Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference.