Item 1.01 Entry into a Material Definitive Agreement.
Issuance of Convertible Senior Secured Notes due 2019
As
previously disclosed, A.M. Castle & Co. (the Company) entered into Transaction Support Agreements (as amended and restated, the Support Agreements) with certain holders of the Companys 7.00% Convertible Senior
Notes due 2017 (the Existing Convertible Notes) providing for, among other things, the terms of private exchanges of Existing Convertible Notes into new 5.25% Convertible Senior Secured Notes due 2019 (the New Convertible
Notes) and/or shares of the Companys common stock, at the noteholders election (the Exchanges).
Effective as of
May 19, 2016, the Company issued $23,810,000 aggregate principal amount of New Convertible Notes in the Exchanges pursuant to separate exchange agreements (the Exchange Agreements). Included in this issuance were
(i) $20,870,000 in aggregate principal amount of New Convertible Notes issued pursuant to previously announced Exchange Agreements between the Company and certain non-affiliate noteholders and (ii) $2,940,000 in aggregate principal amount
of New Convertible Notes issued pursuant to an Exchange Agreement with Raging Capital Management, LLC and certain of its affiliates (Raging Capital), an affiliate of the Company.
For each $1,000 principal amount of Existing Convertible Notes validly exchanged in the Exchanges, an exchanging holder of Existing Convertible Notes received
$700 principal amount of New Convertible Notes, plus accrued and unpaid interest. The New Convertible Notes mature on December 30, 2019, and pay interest at a rate of 5.25% per annum, payable semi-annually in cash.
The New Convertible Notes were issued pursuant to an indenture, dated as of May 19, 2016 (the New Indenture), among the Company, certain
subsidiaries of the Company (the Note Guarantors), and U.S. Bank National Association, as trustee and as collateral agent. The Company did not receive any cash proceeds in connection with the Exchanges and issuance of the New Convertible
Notes.
The New Convertible Notes are initially convertible into shares of the Companys common stock at a conversion price (the Conversion
Price) per share of $2.25. The Conversion Price is subject to the same adjustment provisions contained in the indenture governing the Existing Convertible Notes, subject to certain exceptions; provided that, to the extent the Companys
common stock (or derivatives) is issued in respect of any Existing Convertible Notes after the completion of the Exchanges at an issue price (or exercise or Conversion Price, as the case may be) per share that is lower than the Conversion Price then
in effect, (i) the Conversion Price shall be adjusted to the lower of (x) the lowest issue price per share of the Companys common stock so issued and (y) the lowest conversion or exercise price per share of any such derivatives,
and (ii) the Conversion Price shall have the benefit of any adjustment provision applicable to the conversion or exercise price of such derivatives, to the extent such provision is more favorable than that applicable to the Conversion Price.
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The holders of New Convertible Notes may convert the New Convertible Notes, from time to time, in whole or in
part, into shares of the Companys common stock, at the then-applicable Conversion Price. The conversion may be settled in the form of cash, shares of the Companys common stock, or a combination of both, in the Companys sole
discretion.
The value of shares of the Companys common stock for purposes of the settlement of the conversion right will be calculated as provided
in the indenture for the Existing Convertible Notes, using a 20 trading day period rather than a 40 trading day period for the observation period. Upon such conversion, the converting holder also shall be entitled to receive an amount equal to the
Make-Whole Premium (as defined below), payable in the form of cash, shares of the Companys common stock, or a combination of both, in the Companys sole discretion. The value of shares of the Companys common stock for purposes of
calculating the Make-Whole Premium upon conversion will be based on the greater of (x) 130% of the conversion price then in effect and (y) the volume weighted average price (VWAP) of such shares for the relevant observation
period (using a 20 trading day period), as provided in the indenture for the Existing Convertible Notes.
If a conversion occurs in connection with a
fundamental change, for each $1,000 principal amount of New Convertible Notes, the number of shares of the Companys common stock issuable upon conversion shall equal he greater of (A) $1,000 plus the amount of a Make-Whole Premium divided
by the then applicable Conversion Price and (B) $1,300 divided by the price per share of the Companys common stock paid in connection with the fundamental change. Settlement upon conversion in connection with a fundamental change shall be
in the form of cash, shares of the Companys common stock, or a combination of both, in the Companys sole discretion. The value of shares of the Companys common stock for purposes of the settlement of such conversion will be based
on the VWAP of such shares for the 20 trading days immediately preceding the date of conversion. The New Convertible Notes do not contain provisions analogous to those applicable to the Existing Convertible Notes that require the issuance of
additional shares in connection with a fundamental change.
Upon 20 trading days notice, if the daily VWAP of the Companys common stock has
been at least 130% of the Conversion Price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which such
notice of redemption is provided, the Company shall, from time to time, have the right to redeem any or all of the New Convertible Notes at a price equal to (A) 100.0% of the aggregate principal amount thereof plus (B) the Make-Whole
Premium. The redemption price can be paid in the form of cash, shares of the Companys common stock, or a combination of both, in the Companys sole discretion. The value of shares of the Companys common stock will be based on the
VWAP of such shares for the 20 trading days immediately preceding the date of redemption. Prior to the third trading day prior to the date of any such redemption, any New Convertible Notes called for redemption may be converted into shares of the
Companys common stock at the Conversion Price then in effect.
In addition, the Company shall pay, on the relevant redemption date (whether a
conversion date or a fundamental change settlement date), in cash, all accrued and unpaid interest on the New Convertible Notes to be redeemed to, but not including the relevant redemption date (or conversion date or fundamental change settlement
date, as the case may be) (the Accrued Interest Amount).
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Make-Whole Premium means, with respect to each $1,000 in principal amount of New Convertible Notes,
an amount equal to the present values of all scheduled payments of interest on the New Convertible Notes to be redeemed from the relevant redemption date (or conversion date, in the case of a conversion) to (and including) the earlier of
(x) the fourth interest payment date after such redemption date (or conversion date, as the case may be) and (y) December 30, 2019 (excluding the Accrued Interest Amount), computed using a discount rate equal to the yield on the U.S.
Treasury security whose tenor most nearly approximates the time until each such interest payment plus 0.50%. It is understood for purposes of this definition that if a redemption date or conversion date occurs other than on an interest payment date,
(i) any accrued and unpaid interest on the New Convertible Notes that is paid in cash on the redemption date or conversion date shall be subtracted from the amount of the first interest payment to be included in the calculation of the
Make-Whole Premium, and (ii) if there are fewer than 90 days left in the current interest period as of such redemption date or conversion date, clause (x) should refer to the fifth interest payment date after such redemption date or
conversion date rather than the fourth.
Delisting from the NYSE or NASDAQ is not an event of default or fundamental change, but the Company has agreed to
use all commercially reasonable efforts to remain listed on either the NYSE or NASDAQ. The Company and the guarantors of the New Convertible Notes may not incur additional debt secured by liens that rank equally with the liens securing the New
Convertible Notes, other than additional New Convertible notes issued in exchange for Existing Convertible Notes that have not been exchanged in the Exchanges, on terms no more advantageous to the holders of such Existing Convertible Notes than the
terms of the Exchanges are to the noteholders party to a Support Agreement.
The Company may not refinance the remaining Existing Convertible Notes or the
Old Secured Notes with any indebtedness (i) that is senior (either in right of payment or as to security) to the New Convertible Notes, (ii) as to which a person other than the Company or a guarantor of the New Convertible Notes is an
obligor or provides credit support or (iii) that has any scheduled amortization payments or a maturity date that is earlier than 91 days after the maturity date of the New Convertible Notes; except that such limitation shall not apply to
borrowings by the Company in an amount not to exceed $10.0 million under the Companys senior secured credit facility (the Senior Credit Facility), the proceeds of which are used to repay, redeem, prepay, retire, defease, or
otherwise satisfy the Existing Secured Notes.
The conversion right will also be limited so that, while the shares of the Companys common stock are
registered under the Exchange Act, no holder (or group of affiliated holders) may convert its New Convertible Notes into a number of shares of the Companys common stock that exceeds the number that would cause such holder (or group of
affiliated holders) to beneficially own for the first time more than 9.99% of the outstanding shares of the Companys common stock, except in connection with an issuance of the Companys common stock pursuant to, or upon a conversion in
connection with, (i) the Companys optional redemption rights or (ii) a fundamental change.
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All current and future guarantors of the Old Secured Notes, the Companys 12.75% Senior Secured Notes due
2018 (the New Secured Notes), the Companys Senior Credit Facility and any other material indebtedness of the Company (the Note Guarantors) guarantee the New Convertible Notes.
The New Convertible Notes and the related guarantees are secured on a silent third-priority basis by a lien on substantially all of the
Companys and the Note Guarantors assets, subject to certain exceptions and permitted liens pursuant to the Pledge and Security Agreement, dated as of May 19, 2016, by the Company and the subsidiaries party thereto, in favor of U.S.
Bank National Association, as collateral agent for the benefit of the Secured Parties named therein (the Pledge and Security Agreement). However, the security interest in such assets that secure the New Convertible Notes and the related
guarantees are contractually subordinated to liens thereon that secure the Companys Senior Credit Facility by means of the Amended and Restated Intercreditor Agreement, dated as of February 8, 2016, among Wells Fargo Bank, National
Association, in its capacity as administrative and collateral agent for the First Lien Secured Parties and U.S. Bank National Association, in its capacity as trustee and collateral agent for the Second Lien Secured Parties (the Intercreditor
Agreement). The New Convertible Notes are also secured by a pledge of capital stock of all of the Companys domestic subsidiaries and all of the domestic subsidiaries of the Note Guarantors and up to 65% of the voting stock of certain of
the Companys foreign subsidiaries.
The foregoing descriptions of the New Indenture and the Pledge and Security Agreement are qualified in their
entirety by reference to the complete text of such agreements, copies of which are filed herewith as Exhibits 4.1 and 10.1, respectively, and are incorporated herein by reference. The foregoing description of the Intercreditor Agreement is qualified
in its entirety by reference to the complete text of such agreement, a copy of which is filed as Exhibit 10.5 to the Companys Form 8-K filed on February 11, 2016, and is incorporated herein by reference.