UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
LSB Industries, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Notice of Annual Meeting of Stockholders
LSB INDUSTRIES, INC.
3503 NW 63rd Street, Suite 500
Oklahoma City, Oklahoma 73116
To the Stockholders of
LSB Industries, Inc.
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YOUR VOTE IS IMPORTANT
You are urged to vote your shares by promptly marking, signing, dating and returning the proxy card or, in the alternative, by voting your shares electronically either over the Internet or by touch tone telephone. Please see “QUESTIONS & ANSWERS – How Do I Cast My Vote?” in the Proxy Statement for further information and instructions.
HOW TO VOTE |
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VIA THE INTERNET Visit the website listed on your proxy card |
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BY MAIL Sign, date and return your proxy card in the enclosed envelope |
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BY TELEPHONE Call the telephone number on your proxy card |
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IN PERSON Attend the 2020 Annual Meeting of Stockholders in person |
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The 2020 Annual Meeting of the Stockholders of LSB Industries, Inc. (the “Company”) will be held at our offices located at 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116, on May 14, 2020, at 8:30 a.m. CDT, for the purpose of considering and voting upon the following matters:
(1) To elect three nominees to the Board of Directors;
(2) To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2020; and
(3) To approve, on an advisory basis, named executive officer compensation.
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You may vote if you were a stockholder of record at the close of business on March 16, 2020.
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Please note that you may attend the meeting in person or via conference call by dialing (201) 493-6739. Materials presented at the meeting will be posted at www.lslbindustries.com on the Webcast section of the Investors tab. If you plan to attend via teleconference, you must vote prior to the meeting by Internet, by mail or by telephone.
Your vote is important. Please sign and promptly return the enclosed proxy card in the accompanying self-addressed envelope, which requires no postage if mailed in the United States. In addition, you can vote by telephone or Internet. Instructions are included on the proxy card.
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By order of the Board of Directors, |
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Michael J. Foster |
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Executive Vice President, |
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Secretary and General Counsel |
Oklahoma City, Oklahoma
April 14, 2020
IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020.
This Notice of Annual Meeting of Stockholders and related proxy materials are being distributed or made available to stockholders beginning on or about April 14, 2020. This includes instructions on how to access these materials (including the Proxy Statement for the Annual Meeting, along with the LSB 2019 Annual Report) via the Internet at www.proxypush.com/LXU.
Proxy Statement Summary
The Annual Meeting
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Below is a summary of certain information included in the Proxy Statement. Please review the entire Proxy Statement before you vote. |
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Time and Date: |
8:30 a.m., Central Daylight Time (“CDT”), on May 14, 2020 |
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Place: |
LSB Industries, Inc., 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116 |
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Record Date: |
March 16, 2020
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Matters For Stockholder Vote
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Board Recommendation |
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“FOR” each nominee |
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“FOR” |
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3: Advisory vote to approve named executive officer compensation |
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Please note that you may attend the meeting in person or via conference call by dialing (201) 493‑6739. Materials presented at the meeting will be posted at www.lsbindustries.com on the webcast section of the Investors tab.
If you plan to attend via teleconference you must vote prior to the meeting via the Internet, by mail or by telephone.
You may vote at the meeting if you were a holder of record of our common stock and certain preferred stock at the close of business on March 16, 2020. Please see page 2 for instructions on how to vote your shares.
LSB INDUSTRIES, INC.
PROXY STATEMENT FOR
2020 ANNUAL MEETING OF STOCKHOLDERS
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LSB Industries Proxy Statement |
LSB INDUSTRIES, INC.
3503 NW 63rd Street, Suite 500
Oklahoma City, Oklahoma 73116
PROXY STATEMENT FOR
2020 ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 14, 2020
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This Proxy Statement is furnished in connection with the solicitation on behalf of the Board of Directors (the “Board”) of LSB Industries, Inc. (the “Company,” “us,” “our,” or “we”) for proxies to be voted at our Annual Meeting of Stockholders to be held on May 14, 2020, at 8:30 a.m. CDT at our offices located at 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116 and at any adjournment thereof.
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About the Annual Meeting
What matters are being considered?
You will be voting on each of the following items of business:
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Election of three nominees to our Board; |
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Ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2020; and |
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Advisory vote to approve the compensation of our executive officers named in the Summary Compensation Table included in this Proxy Statement (the “named executive officers”). |
The Board recommends a vote “FOR” each of the director nominees and a vote “FOR” each of Proposals 2 and 3.
What is a proxy?
A proxy is your legal appointment of another person to vote the shares that you own in accordance with your instructions. The person you appoint to vote your shares is also called a proxy. On the enclosed proxy card, you will find the names of the persons designated by the Company to act as proxies to vote your shares at the annual meeting. The designated proxies are required to vote your shares in the manner you instruct.
Will other matters be brought before the annual meeting?
The Board does not intend to bring any other matters before the annual meeting and does not expect any other items of business because the deadline for stockholder proposals and nominations has already passed. However, if any other matter is properly brought before the annual meeting, the accompanying proxy gives discretionary authority to the persons named in the proxy with respect to any other matters that might be brought before the annual meeting. Those
persons intend to vote that proxy in accordance with their best judgment on such matter.
Who is entitled to vote at the annual meeting?
You or your proxy may vote if you owned voting stock as of the close of business on March 16, 2020, which is the record date for determining who is eligible to vote at the annual meeting.
As of the close of business on the record date, we had the following number of shares of common stock and voting preferred stock issued and outstanding which were eligible to be voted:
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29,303,216 shares of common stock, with each share entitling its holder to one vote; |
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20,000 shares of Series B 12% Cumulative Convertible Preferred Stock (“Series B Preferred”), with each share entitling its holder to one vote; |
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1,000,000 shares of Series D 6% Cumulative Convertible Preferred Stock (“Series D Preferred”), with each share entitling its holder to .875 of one vote; and |
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1 share of Series F-1 Redeemable Class C Preferred Stock (“Series F-1 Preferred”) entitling its holder to a number of votes equal to 456,225 shares of common stock, subject to adjustment. |
Shares of our Series B Preferred, Series D Preferred and Series F-1 Preferred are referred to as our “voting preferred stock.” All of our outstanding shares of common stock and voting preferred stock will vote together as a single class on all matters coming before the annual meeting.
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LSB Industries Proxy Statement |
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Questions and Answers About the Annual Meeting
In order to conduct the annual meeting, we must have a quorum. Holders of a majority of the total of all of the outstanding shares of common stock and voting preferred stock will constitute a quorum for the annual meeting.
What vote is required to approve the items under consideration?
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Directors are elected by the affirmative vote of a majority of votes cast by the holders of shares present in person or represented by proxy and entitled to vote at the annual meeting. |
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The ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of a majority of votes cast by the holders of shares present in person or represented by proxy and entitled to vote at the annual meeting. |
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The advisory vote on executive compensation requires the affirmative vote of a majority of votes cast by the holders of shares present in person or represented by proxy and entitled to vote at the annual meeting. |
Are abstentions counted?
Abstentions occur when stockholders are present in person or by proxy at the annual meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting. If your proxy indicates an abstention from voting on the proposal, the shares represented will be counted as present for the purpose of determining a quorum, but they will not be voted on any matter at the annual meeting. If you abstain from voting, you have not cast a vote and the abstention will not be counted in determining the outcome of the proposals.
How do I cast my vote?
Registered Holders. If shares are registered in your name, you may vote those shares in person at the annual meeting or by proxy. If you decide to vote by proxy, you may do so in any ONE of the following three ways.
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By telephone. After reading the proxy materials, you may call the toll-free number (866) 286-3181, using a touch-tone telephone. You will be prompted to enter your Control Number, which you can find on your Notice of Internet Availability or your proxy card. This number will identify you and the Company. You can then follow the simple instructions that will be given to you to record your vote. |
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Over the Internet. After reading the proxy materials, you may use a computer to access the website www.proxypush.com/LXU. You will be prompted to enter your Control Number, which you can find on your Notice of Internet Voting Availability or your proxy card. This number will identify you and the Company. You can then follow the simple instructions that will be given to you to record your vote. |
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By mail. After reading the proxy materials, you may vote your shares by marking, signing, dating and returning your proxy card in the envelope provided. To best ensure timely receipt of your proxy, you are encouraged to mail your proxy card for arrival by May 12, 2020. |
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The Internet and telephone voting procedures have been set up for your convenience and have been designed to authenticate your identity, allow you to give voting instructions and confirm that those instructions have been recorded properly. Whether you choose to vote in person, by telephone, over the Internet or by mail, you can specify whether your shares should be voted for all, some or none of the director nominees. You can also specify whether you want to vote for or against, or abstain from voting on: • The ratification of the appointment of the independent auditors; and • The advisory vote to approve the compensation of the Company’s named executive officers Beneficial Owner. If your stock is held in your brokerage account, also known as “street name,” you should instruct your broker how your shares should be voted. If you fail to give your broker instructions, in some cases but not others the broker may submit a “broker non-vote,” which is explained below. If you are a beneficial owner whose shares are held of record directly in your name by a broker, you will receive instructions from the broker describing how to direct the voting of or vote your shares. If you do not instruct your broker how to vote your shares, it may vote your shares as it decides with respect to any matter for which it has discretionary authority under the rules of the New York Stock Exchange (“NYSE”). There are also non-discretionary matters for which your broker does not have discretionary authority to vote unless it receives timely instructions from you. A “broker non-vote” results when a broker does not have discretion to vote on a particular matter, you have not given timely instructions on how the |
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LSB Industries Proxy Statement |
Questions and Answers About the Annual Meeting
broker should vote your shares and the broker indicates it does not have authority to vote such shares on its proxy. Although broker non-votes will be counted as present at the annual meeting for purposes of determining a quorum, they will be treated as shares not entitled to vote on the proposal.
If your shares are held in street name and you do not give voting instructions, the broker will only be entitled to vote your shares in its discretion with respect to the ratification of the appointment of our independent registered public accounting firm. Without voting instructions from you, the record holder will not be permitted to vote your shares with respect to the election of directors or the advisory vote on executive compensation. Your shares would therefore be considered broker non-votes with respect to these proposals and would have no effect on the proposal. Accordingly, it is important for you to instruct your broker how you wish to vote your shares.
Can I change my mind after I vote?
Yes, you may change your mind at any time before the polls close at the annual meeting, which will be at 8:30 a.m. CDT on May 14, 2020. If you hold your shares directly in record name, you can change your vote by:
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Submitting a revised proxy using the previously mentioned telephone or Internet voting systems by the deadlines described for each such method above; |
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Sending a written revocation to our Secretary by mail to LSB Industries, Inc., 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116; or |
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Voting in person at the annual meeting. |
In the absence of a revocation, shares represented by the proxies will be voted at the annual meeting. Your attendance at the annual meeting will not automatically revoke your proxy. If you do not hold your shares directly, you should follow the instructions provided by your broker, bank or nominee to revoke your previously voted proxy.
What if I sign and return my proxy card but I do not include voting instructions?
If you properly complete and submit a proxy card, but do not indicate any contrary voting instructions, your shares will be voted as follows:
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“FOR” the election of the three nominees to our Board; |
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“FOR” the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for 2020; and |
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“FOR” the advisory vote to approve named executive officer compensation. |
If any other business comes before the stockholders for a vote at the annual meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. The Board knows of no matters, other than those previously stated, to be presented for consideration at the annual meeting.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare Trust Company, N.A., 462 South 4th Street, Suite 1600, Louisville, KY 77845, (800) 736-3001 (U.S. and Canada) and (781) 575-3100 (outside U.S. and Canada).
Will my shares be voted if I do not provide my proxy?
If your shares are registered in your name, they will not be voted unless you submit your proxy or vote in person at the annual meeting. As discussed above, if your shares are held in street name and you do not give voting instructions, the broker will only be entitled to vote your shares in its discretion with respect to the ratification of the appointment of our independent registered public accounting firm.
Who will count the votes?
All votes will be tabulated by Mediant Communications, Inc., who will serve as the inspector of election for the annual meeting.
What is the deadline for submission of stockholder proposals for the 2021 annual meeting?
If you wish to submit proposals to be included in our proxy statement for our 2021 annual meeting, proposals must be received at our principal executive offices in writing not later than December 15, 2020 and should be addressed to Michael J. Foster, Secretary, LSB Industries, Inc., 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116.
If you wish to present a proposal, but you fail to notify us by such deadline, you will not be entitled to present the proposal at the 2021 annual meeting.
For more information regarding stockholder proposals, please see “Stockholder Proposals” below.
Who is soliciting proxies?
We will pay for preparing, printing and mailing this Proxy Statement. Proxies may be solicited on our
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LSB Industries Proxy Statement |
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Questions and Answers About the Annual Meeting
behalf by our directors, officers or employees, without additional consideration, in person or by telephone, electronic transmission and facsimile transmission. We will reimburse banks, brokers and other custodians, nominees and fiduciaries for their out-of-pocket costs of sending the proxy materials to our beneficial stockholders.
A list of stockholders entitled to vote at the annual meeting will be open for examination by any stockholder for any purpose relevant to the annual meeting during ordinary business hours commencing 10 days before the annual meeting. The list will be maintained at our principal executive offices located at 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116.
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LSB Industries Proxy Statement |
Proposal 1—Election of Directors
Our Certificate of Incorporation and Bylaws provide for the division of the Board into three classes, each class consisting as nearly as possible of one-third of the whole. The term of office of one class of directors expires each year; with each class of directors elected for a term of three years and until the stockholders elect their qualified successors.
Agreements as to Certain Directors and Committees
Board Representation and Standstill Agreement
On December 4, 2015, the Company entered into the Board Representation and Standstill Agreement (the “Board Representation and Standstill Agreement”), by and among the Company, LSB Funding LLC (“LSB Funding”), Security Benefit Corporation (“Security Benefit”), Todd Boehly, Jack E. Golsen (“J. Golsen”), Steven J. Golsen (“S. Golsen”), Barry H. Golsen (“B. Golsen”), Linda Golsen Rappaport (“L. Rappaport”), Golsen Family LLC, an Oklahoma limited liability company (“Family LLC”), SBL LLC, an Oklahoma limited liability company (“SBL LLC”), and Golsen Petroleum Corp., an Oklahoma corporation (“GPC,” and together with Messrs. J. Golsen, S. Golsen and B. Golsen, Ms. L. Rappaport, Family LLC, SBL LLC, each a “Golsen Holder” and, collectively, the “Golsen Holders”). On October 26, 2017 and October 18, 2018, the parties to the Board Representation and Standstill Agreement entered into amendments thereto (the “Amendments”). The Board Representation and Standstill Agreement and the Amendments are collectively the “Amended Board Representation and Standstill Agreement”.
LSB Funding Designees
Pursuant to the Amended Board Representation and Standstill Agreement and based upon the equity holdings of LSB Funding, the Company has agreed to permit LSB Funding, an affiliate of Security Benefit, to designate up to three nominees to the Board, at least one of which will meet the NYSE standards of independence. LSB Funding designated, and our Board appointed, Jonathan S. Bobb and Kanna Kitamura to the Board.
Under the Amended Board Representation and Standstill Agreement and based upon the Golsen Holders’ equity holdings, the Golsen Holders, collectively, have the right to designate two directors. Messrs. Jack E. Golsen and Barry H. Golsen are the current Golsen designees. Mr. J. Golsen, our Chairman Emeritus and the founder of the Company, will retire effective as of the date of the 2020 annual meeting. The Golsen Holders designated Steven L. Packebush as a director upon Mr. J. Golsen’s retirement, and our Board nominated Mr. Packebush as a director nominee for election at the 2020 Annual Meeting of Stockholders.
Other Governance Matters
Our Bylaws provide that the Board may change the total number of directors on our Board from time to time provided that the minimum number of directors is 3 and the maximum is 14. Currently there are 9 directors.
As discussed under “Corporate Governance — Nominating Committee,” our Nominating and Corporate Governance Committee (the “Nominating Committee”) reviews the composition of the Board as part of its assessment of the Board’s performance, and effectiveness. The Nominating Committee values certain characteristics in all Board members, including personal and professional integrity, reputation, outstanding professional achievement, and sound business judgment. The Nominating Committee evaluates each individual director in the context of the Board as a whole with the goal of recommending an effective group with a diversity of experience and skills that exercises sound business judgment in the interest of our business and our stockholders. Consistent with their responsibilities, members of the Nominating Committee have interviewed and evaluated each of the current nominees for director and has determined that each is highly qualified to serve as a member of our Board.
The following sets forth certain information regarding the director nominees and other directors whose term will continue after the annual meeting.
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LSB Industries Proxy Statement |
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Proposal 1 – Election of Directors
Nominees for the Class of Directors Whose Term will Expire in 2023
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STEVEN L. PACKEBUSH Age: 55 Director since: New Nominee
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Steven L. Packebush, age 55, is a new nominee director. If elected, his term will expire in 2023. Mr. Packebush is a founder and principal in Elevar Resources, LLC, a company providing advisory and consulting services and capital solutions for companies in the agriculture and energy markets. Prior to Elevar Resources, Mr. Packebush worked at Koch Industries, Inc. for over 30 years, retiring in March 2018. Until his retirement, he was the president of Koch Ag & Energy Solutions (“Koch Ag”). Under Mr. Packebush’s leadership, Koch Ag grew from a break-even business to one of the larger business units at Koch Industries and one of world’s largest fertilizer companies. Koch Ag manufactured, marketed, distributed, and traded more than 14 million tons of fertilizer products annually. Key to this growth was acquiring and integrating five nitrogen fertilizer production plants in North America and equity interest in three nitrogen plants in Trinidad and Tobago. In addition, significant capital and resources were invested in the North American plants to improve the environmental, health and safety, efficiencies, and reliability of these facilities. Also, a $1.3 billion plant expansion project located in Enid, Oklahoma was executed and a global fertilizer supply, trading, and distribution business was developed with commercial office locations in Europe, Asia, and Latin America. Mr. Packebush also oversaw the expansion of Koch Ag to include three additional start-up businesses. Koch Energy Services became one of the largest natural gas marketing companies in North America. Koch Methanol supplied methanol to global customers in the plywood, carpet, fuels, and plastics markets. Koch Agronomic Services became one of world’s largest enhanced-efficiency fertilizer producers and marketers. Prior to his time in Koch Ag, Mr. Packebush held various business development and commercial roles in Koch International, Koch Agriculture, and Koch Minerals. |
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Mr. Packebush currently serves on the EuroChem Group AG Board of Directors, Wichita State University Board of Trustees, Kansas State University Dean’s Agriculture Advisory Board, and The Fundamental Learning Center Board of Directors. Previously he served on the board of directors of Caribbean Nitrogen, Nitrogen 2000, KOCHPAC, and The Fertilizer Institute. He has also served on The Fertilizer Institute’s executive committee and Koch Industries’ Compliance and Ethics Executive Committees. Mr. Packebush is a 1987 graduate of Kansas State University with a bachelor’s degree in agricultural economics. Mr. Packebush’s extensive industry and executive leadership experience, among other factors, led the Board to conclude that he should serve as a director. |
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DIANA M. PENINGER Age: 55 Director since: 2020
Committees: Audit Compensation
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Diana M. Peninger, age 55, was appointed in March, 2020 as a director whose term will expire at the annual stockholder meeting in May of 2020. Ms. Peninger is therefore up for re-election. Ms. Peninger founded and serves as CEO of Geneva Lake Partners LLC since 2017. Geneva Lake Partners is an advisory firm working with middle market private industrial companies to help them develop individual strategic plans, assess acquisitions, improve profitability and identify investment partners. Ms. Peninger spent 30 years in the chemical industry including three expat assignments in Frankfurt, Germany. In 2018, she served as interim CEO for Synata Bio a renewable clean fuels and chemicals technology company owned by True North Venture Partners. From 2007 through 2016, she held various roles within Celanese Corporation including, Vice President, Acetyl Intermediates, a $2.3B global commodity business portfolio, Vice President and General Manager, EVA Performance Polymer Business serving the medical, adhesives, solar and film industries and as Vice President General Manager for Nutrinova Specialty Food Ingredients business. As Director of Corporate Strategy and Business Development, she led the initiatives to establish manufacturing locations in low cost regions of China and the Middle East. From 2005 to 2007 while at Chemtura Corp., Ms. Peninger served as Vice President, Consumer Products and Vice President, PVC Additives businesses. She started her career in 1987 with Celanese Corporation in Pampa, Texas as a plant engineer before taking on progressively more responsibility including Director of Global Glass Fibers business and leading the integration of the recently acquired Clariant Emulsions business and the subsequent acquisition of the ICI/Vinamul Emulsions businesses resulting in a leading global industry emulsions position. In addition, she serves on the board of Rogers Group, Inc. chairs their compensation committee and is a member of their audit committee. Previously, she served as the Board Vice-Chair of the Committee of 200 which is a non-profit organization comprised of influential women CEO’s and senior business executives. Ms. Peninger holds a B.S. in Chemical Engineering from South Dakota School of Mines and was honored in 2017 with the prestigious “Distinguished Alumni” award for achievement of excellence in their careers and their communities. She is a National Association of Corporate Directors (NACD) Board Leadership Fellow and serves on the University Advisory Board of the South Dakota School of Mines & Technology. Ms. Peninger’s extensive industry, executive and board leadership experience, among other factors, led the Board to conclude that she should serve as a director. |
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6 |
LSB Industries Proxy Statement |
Proposal 1 – Election of Directors
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE THREE NOMINEES AS DIRECTORS OF THE COMPANY |
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LSB Industries Proxy Statement |
7 |
Proposal 1 – Election of Directors
The following six directors will continue in office until the expiration of their respective terms and until their successors have been elected and qualified.
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MARK T. BEHRMAN |
Mark T. Behrman, age 57, has been a director of the Company since December 2018. His current term expires in 2022. Mr. Behrman was appointed as the Company’s President and Chief Executive Officer and as a member to its Board of Directors in December 2018. Prior to his appointment as Chief Executive Officer, he served as the Company’s Executive Vice President and Chief Financial Officer since June 2015 and as its Senior Vice President of Corporate Development beginning in March 2014. In addition to his experience at the Company, he has over 30 years of financial and investment banking experience, including merger and acquisition advisory and capital market transactions. Mr. Behrman is currently the Lead Independent Director of Panhandle Oil and Gas Inc. (NYSE: PHX) and the Chairman of its Audit Committee. He previously served as a director of Noble International Ltd (NASDAQ: NOBL) from 1998-2007, Oakmont Acquisition Corporation (AMEX: OMAC) from 2005-2007 and Robocam Systems International, Inc. (NASDAQ: RIMS) from 1998-2000. Mr. Behrman holds a Master of Business Administration in Finance from Hofstra University and a Bachelor of Science in Accounting from Binghamton University. |
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Age: 57 Director since: 2018
Committees: none
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JONATHAN S. BOBB |
Jonathan S. Bobb, age 44, has been a director of the Company since 2015. His current term expires in 2022. Mr. Bobb is a Director on the investment team at Eldridge Industries. In this role, he is responsible for originating, executing and overseeing investments in operating companies and assets across a range of industries. Mr. Bobb previously served in a similar capacity at Guggenheim Partners. Prior to joining Guggenheim, Mr. Bobb was a senior member of the investment banking division at Goldman Sachs & Co. from 2007 to 2013. His previous business experience includes investment banking positions with J.P. Morgan and Deutsche Bank and financial planning roles at Gap Inc. Mr. Bobb received a B.A. in Economics from Stanford University and an M.B.A. from the University of Michigan. Mr. Bobb serves as an LSB Funding designee under the Amended Board Representation and Standstill Agreement. Mr. Bobb’s extensive investment and executive leadership experience, among other factors, led the Board to conclude that he should serve as a director. |
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Age: 44 Director since: 2015
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Committees: Compensation Audit
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BARRY H. GOLSEN, J.D. Age: 69 Director since: 1981
Committees: None
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Barry H. Golsen, J.D., age 69, has been a director of the Company since 1981. His current term expires in 2021. Mr. B. Golsen is President of GOL Capital LLC. He served as the Vice-Chairman of the Board of the Company from 1993 until 2015. Previously he served as the Company’s President and Chief Executive Officer from January 2015 until September 2015 and as the Company’s President and Chief Operating Officer from 2004 to 2014. Mr. B. Golsen joined the Company in 1978 as a product manager at International Environmental Corporation (“IEC”). He became Executive Vice President of IEC in 1979 and IEC’s President in 1980. Mr. B. Golsen spearheaded the growth of the Company’s Climate Control Business with a number of business startups as well as the acquisition of Climate Master, Inc. (and its merger with CHP Corporation and subsequent move to Oklahoma City). Under his leadership, the Company’s Climate Control Business attained leading shares of the U.S. markets for water source and geothermal heat pumps and hydronic fan coils. Mr. B. Golsen attended Cornell University College of Engineering prior to earning both his B.A. and J.D. degrees from the University of Oklahoma. He was admitted to the Oklahoma Bar in 1978. Mr. B. Golsen is a past Director of the Oklahoma City Branch of the Federal Reserve Bank of Kansas City. Mr. B. Golsen served on the Board of Directors of Equity Bank for Savings N.A., and on many of the bank’s committees. His professional affiliations have included the Oklahoma Bar Association, the American Bar Association, the American Society of Heating, Refrigeration and Air-Conditioning Engineers, Young Presidents Organization and World Presidents Organization. Mr. B. Golsen is a National Association of Corporate Directors (NACD) Board Leadership Fellow, the Gold Standard Director Credential. NACD Fellowship is a comprehensive and continuous program of study that empowers directors with the latest insight intelligence, and boardroom practices. Mr. B. Golsen serves as a Golsen Designee under the Amended Board Representation and Standstill Agreement. Mr. B. Golsen’s extensive experience and his in-depth of knowledge and understanding of the businesses in which we operate, and his demonstrated leadership skills within the Company, among other factors, led the Board to conclude that he should serve as a director. |
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8 |
LSB Industries Proxy Statement |
Proposal 1 – Election of Directors
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KANNA KITAMURA Age: 47 Director since: 2018
Committees: Compensation Nominating and
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Kanna Kitamura, age 47, has been a director of the Company since December, 2018. Her current term expires in 2021. Ms. Kitamura is a Senior Director and Chief Talent Officer at Eldridge Industries. Prior to joining Eldridge, Ms. Kitamura was a Vice President and Head of Legal Operations for Guggenheim Investments. She was a member of Guggenheim Partners’ Women’s Innovation and Inclusion Network, Secretary of the Pro Bono Committee, and acted as a mentor in its Veterans Transition Assistance Program. Prior to joining Guggenheim Partners, Ms. Kitamura was a VP of Business Development and Director of Operations for a management consulting firm and was employed by the United Nations Development Programme in the Division of Public Affairs. Ms. Kitamura serves on the Advisory Board of the NYC Kids Project, a non-profit organization based in New York. Ms. Kitamura is a certified Special Olympics Equestrian Coach and volunteers with various wildlife and conservation groups. Ms. Kitamura serves as a LSB Funding designee under the Amended Board Representation and Standstill Agreement. Ms. Kitamura’s extensive financial industry leadership and legal experience, among other factors, led the Board to determine that she should serve as a director. |
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RICHARD W. ROEDEL Age: 70 Director since: 2015
Committees: Audit (Chair) Nominating and
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Richard W. Roedel, age 70, has been a director of the Company since 2015. His current term expires in 2021. Mr. Roedel has served as a director of IHS Markit, Inc. (NYSE:INFO) since 2004, Six Flags Entertainment Corporation (NYSE:SIX) since 2010, Luna Innovations Incorporated (NASDAQ: LUNA) since 2005, and BrightView Holdings, Inc. (NYSE: BV) since 2015. Mr. Roedel serves as a member of the audit committee of Six Flags Entertainment Corporation and IHS Market and as the Chairman of IHS Markit’s Risk Committee. Mr. Roedel serves as the Chairman of the audit committee of BrightView. Mr. Roedel also serves as the Non-Executive Chairman of the Board of Luna Innovations. As a director of public companies, Mr. Roedel has served as lead independent director and as the chairman of several governance, compensation, and special committees. From 1985 through 2000, Mr. Roedel was employed by the accounting firm BDO Seidman LLP, the United States member firm of BDO International, as an Audit Partner. He was promoted in 1990 to Managing Partner in Chicago, then to Managing Partner in New York in 1994, and finally, in 1999, to Chairman and Chief Executive. Mr. Roedel joined the Board of Directors of Take-Two Interactive Software, Inc., a publisher of video games, in 2002, and served in various capacities with that company until 2005, including Chairman and Chief Executive Officer. Mr. Roedel served on the Boards of Directors of BrightPoint, Inc. from 2002 to 2012 and Sealy Corporation (NYSE:ZZ) from 2006 to 2013. He also served as a director and chairman of the audit committees of Lorillard, Inc. (NYSE:LO) until 2015, Dade Behring Holdings, Inc. (NYSE:DADE) until 2007 and Broadview Network Holdings, Inc., a private company, until 2012. Mr. Roedel is a member of the National Association of Corporate Directors Risk Oversight Advisory Council. In 2014 Mr. Roedel was appointed to the Public Accounting Oversight Board’s Standing Advisory Group for a three-year term ending in 2017. Until 2016, Mr. Roedel was a director of the Association of Audit Committee Members, Inc., a non-profit association of audit committee members dedicated to strengthening audit committees by developing best practices. Mr. Roedel holds a B.S. in Accounting and Economics from The Ohio State University and he is a certified public accountant. Mr. Roedel’s extensive experience in finance, accounting, risk management, and public company governance led the Board to conclude that he should serve as a director. |
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LSB Industries Proxy Statement |
9 |
Proposal 1 – Election of Directors
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RICHARD S. SANDERS, JR. Age: 63 Director since: 2014
Committees: Audit Compensation
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Richard S. Sanders, Jr., age 63, has been a director of the Company since 2014. His current term expires in 2022. Mr. Sanders served as our Interim Executive Vice President, Chemical Manufacturing from September 2015 until August 2016. Mr. Sanders has been a nitrogen fertilizer manufacturing consultant since January 2011 through Circle S. Consulting LLC, of which he is the sole owner. Previously, Mr. Sanders served as Vice President of Manufacturing of Terra Industries Inc. from 2003 until the acquisition of Terra Industries by CF Industries Holdings, Inc. in April 2010. On completion of the transaction, he worked on the integration of manufacturing operations, and as Vice President of Environmental Health and Safety, Engineering and Procurement. At Terra Industries Inc., Mr. Sanders was responsible for Terra’s six manufacturing facilities’ overall operations including production operations, environmental health and safety, project engineering, and technical services. He was also responsible for Terra’s capital investment program of approximately $250 million per year, including major expansion projects. Mr. Sanders was Plant Manager of Terra’s Verdigris, Oklahoma nitrogen manufacturing complex for nine years prior to his role as Vice President of Manufacturing. Prior to Terra, Mr. Sanders served as Plant Manager at the Beaumont Methanol Corporation’s 800,000 GPD methanol manufacturing facility and in management and engineering positions for Agrico Chemical Company. Mr. Sanders served as a Non-Executive Director of Open Joint Stock Company Mineral and Chemical Company EuroChem during 2013. Mr. Sanders received a Bachelor of Science degree in Chemical Engineering from Louisiana State University in 1980. Mr. Sanders’ extensive experience in the chemical industry, his depth of knowledge and understanding of the chemical manufacturing facilities that we operate, and his demonstrated leadership skills throughout his career, among other factors, led the Board to conclude that he should serve as a director. |
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10 |
LSB Industries Proxy Statement |
Proposal 2—Ratification of The Appointment of
Ernst & Young LLP as the Independent
Registered Public Accounting Firm for 2020
The Audit Committee has appointed the firm of Ernst & Young LLP (“E&Y”) as its independent registered public accounting firm for 2020. E&Y has served as our auditors for more than five years, including the fiscal year most recently completed. If the stockholders do not ratify the appointment of E&Y, the Audit Committee will reconsider the appointment and may or may not
consider the appointment of another independent registered public accounting firm for the Company for 2020 or future years.
Consistent with past practices, it is expected that one or more representatives of E&Y will attend the annual meeting and will be available to respond to appropriate questions or make a statement should they desire to do so.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020. |
Proposal 3—Advisory Vote to Approve Named Executive Officer Compensation
We are asking our stockholders to approve the following advisory resolution related to the compensation of the Company’s named executive officers commonly known as a “say-on-pay” proposal:
RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, and the compensation tables, and the related narrative discussion in this Proxy Statement.
Our stockholders’ opinions are important to us and we hold this advisory vote annually in order to get a better understanding of their views on the compensation of our named executive officers and its alignment with stockholder interests. The Board and the Compensation Committee, which is composed of independent directors, will review and take into account the outcome of this vote when considering future executive compensation decisions.
Stockholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables, and the narrative disclosure related to executive compensation disclosure in this Proxy Statement, which provide information about our compensation policies and the compensation of our named executive officers. Stockholders should note that, because the advisory vote on executive compensation occurs well after the beginning of the compensation year, and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one another, it may not be appropriate or feasible to change our executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the time of the following year’s annual meeting of stockholders.
The Board intends to hold this vote annually, and the next advisory vote to approve named executive officer compensation will occur in 2021.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE RESOLUTION TO APPROVE THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION. |
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LSB Industries Proxy Statement |
11 |
Corporate Governance Highlights
The Board is committed to continually improving its corporate governance processes, practices and procedures. Our governance policies and structures are designed to promote the Board’s thoughtful oversight of the Company’s business decisions and ensure intelligent risk-taking, with the goal of furthering our long-term strategic goal of becoming a best in class chemical producer. Highlights include:
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An increasingly diverse Board with the appropriate mix of skills, experience and perspective. With the appointment of Diana Peninger, 22% of our directors are women; |
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The appointment of a non-Executive Chairman of the Board; |
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A portion of all executives’ annual compensation tied to the achievement of safety metrics, reflecting the importance of our employees and their safety to the Company; |
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With the pending retirement of Mr. J. Golsen from the Board, seven of our nine directors will be independent under NYSE listing standards, with the non-independent directors consisting of Mr. Behrman, and Mr. B. Golsen. While such directors are not deemed to be independent, we believe their interests are aligned with the Company’s as a result of their significant ownership interest in the Company; |
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All Board committees are fully independent; |
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Policy limiting the number of public company boards on which directors may serve; |
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Minimum share ownership guidelines for Directors and requirements for Executive Officers; |
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Anti-Hedging of Company Securities Policy; and |
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Stockholder ratification of the selection of external audit firm. |
Our Board held 7 meetings in 2019. All directors, for the period of time they served on the Board in 2019, attended 100% of the combined total of the meetings held by the Board and the meetings held by all committees of the Board on which each director served.
In December 2018, Mr. Roedel was named Chairman of the Board, and Mr. Behrman became the Chief Executive Officer. The responsibilities of the Chairman of the Board generally include:
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Assisting the Board and management in providing leadership and developing overall corporate strategy; and |
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Building consensus in the development of the Company’s overall strategic plan. |
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Serving as a liaison between management, and the directors; and |
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Overseeing the Board’s stockholder communications policies. |
Committees of the Board of Directors and Committee Charters
The Board has three separately-designated active standing committees: a Nominating and Corporate Governance Committee, an Audit Committee, and a Compensation Committee. The Board has adopted written charters for each of these committees. The Board has determined that all members of these committees are independent directors and satisfy the Securities and Exchange Commission (“SEC”) and NYSE requirements for independence. A current copy of the charters of the aforementioned committees along with our corporate governance guidelines are available on our website at www.lsbindustries.com and are also available from the Company upon request to the Secretary. The following sets forth the current members of each committee and current Board class expiration year:
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Name |
Class |
Audit |
Nominating and Corporate Governance |
Compensation |
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Jack E. Golsen (1) |
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2020 |
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Diana M. Peninger (2) |
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2020 |
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X |
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Lynn F. White |
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2020 |
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X |
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Chair |
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Barry H. Golsen |
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2021 |
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Richard W. Roedel |
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2021 |
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Chair |
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Chair |
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X |
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Kanna Kitamura |
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2021 |
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Mark T. Behrman |
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2022 |
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Jonathan S. Bobb |
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2022 |
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X |
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Richard Sanders, Jr. |
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2022 |
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X |
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(1) |
Retiring at 2020 annual meeting. |
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(2) |
Nominee for election at 2020 annual meeting. |
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12 |
LSB Industries Proxy Statement |
Corporate Governance
Nominating and Corporate Governance Committee
The Nominating Committee consists entirely of independent directors who were appointed by the Board to serve until their successors are appointed and qualified. The Board has determined that each member of the Nominating Committee is independent in accordance with the listing standards of the NYSE. During 2019, the Nominating Committee held 4 meetings.
The Nominating Committee is primarily responsible for:
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Developing and recommending to the Board, appropriate corporate governance principles and practices and assisting the Board in implementing those practices; and |
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Developing criteria for, and identifying individuals qualified to become, members of the Board and recommending to the Board nominees for election at the annual meetings of stockholders or for appointment to fill vacancies. |
The Nominating Committee periodically assesses the skills and experience needed for the Board to properly direct the business and affairs of the Company. The Nominating Committee seeks Board candidates possessing the following qualities:
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Diverse mix of skills, qualifications and experience, including business leadership, financial expertise, corporate governance, chemical expertise, and legal and risk management; |
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Proven leadership, sound judgment, integrity and a commitment to the success of the Company; and |
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Independence, financial literacy, personal and professional accomplishments and experience considering the needs of the Company. |
The Nominating Committee evaluates the skills, qualifications, experience and expertise of candidates to determine director nominees. For incumbent directors, the factors also include past performance on the Board and contributions to their respective committees.
The Nominating Committee is also responsible for:
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Advising the Board about the appropriate composition of the Board and its committees, including recommendations related to the Board’s leadership structure and the designation of individuals to serve as Chairman of the Board and Lead Director (if any); and |
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Leading the evaluation of the Board through an annual review of the performance of the Board and its committees. |
The Nominating Committee considers the qualifications of director candidates recommended by stockholders and evaluates each of them using the same criteria the Nominating Committee uses for
incumbent or other candidates identified by the Nominating Committee. Director candidate recommendations by stockholders must be made in compliance with the procedures set forth in our Bylaws by notice in writing delivered or mailed by first class U.S. mail, postage prepaid, to the Chairman of the Nominating and Corporate Governance Committee, in care of the Secretary of the Company, 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116. Please indicate “Nominating Committee” on the envelope.
The Audit Committee assists the Board in (i) overseeing the accounting, reporting, and financial practices of the Company and its subsidiaries, and (ii) preparing the report required by the SEC to be included in the Company’s annual proxy.
In carrying out these purposes, the Audit Committee, among other things, is responsible for:
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Providing an open means of communication among the independent auditors, financial and senior management, the internal auditors and the Board; |
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Appointing, evaluating and approving the appointment, compensation, retention and oversight of the independent registered public accounting firm; |
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Approving in advance all auditing services and permitted non-audit services to be provided by the independent auditor; |
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Annually considering the qualifications, independence and performance of the independent registered public accounting firm; |
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Reviewing recommendations of the independent registered public accounting firm concerning our accounting principles, internal controls and accounting procedures and practices; |
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Providing oversight of the internal audit function; |
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Reviewing and approving the scope of the annual audit; |
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Reviewing and discussing with management and the independent registered public accounting firm the annual audited and quarterly unaudited financial statements; |
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Reviewing legal matters and the Company’s compliance programs and other systems in place designed to ensure that the Company’s financial statements, reports and other financial information satisfy applicable legal, regulatory or NYSE requirements; and |
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Performing such other duties as set forth in the Audit Committee Charter. |
During 2019, the Audit Committee held 8 meetings.
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LSB Industries Proxy Statement |
13 |
Corporate Governance
Audit Committee Financial Expert
In 2019, the Board evaluated the members of the Audit Committee and believes that each member of the Audit Committee is financially literate and that each member has sufficient background and experience to fulfill the duties of the Audit Committee. The
Board has determined that Mr. Roedel satisfies the definition of “audit committee financial expert” under the NYSE listing standards and applicable SEC regulations.
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In accordance with its charter, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the Company’s accounting and financial reporting processes and its internal and external audit processes. The Audit Committee has implemented procedures to ensure that it devotes the attention necessary to each of the matters assigned to it under its charter. In discharging its oversight responsibility, the Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements and related footnotes and the effectiveness of the Company’s internal control over financial reporting for the fiscal year ended December 31, 2019 and the independent registered public accounting firm’s report on those financial statements and report on the Company’s internal control over financial reporting, with our management and with E&Y our independent registered public accounting firm. Management represented to the Audit Committee that our financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”). The Audit Committee has discussed with E&Y the matters required to be discussed under Auditing Standard No. 1301, “Communications with Audit Committees,” adopted by the Public Company Accounting Oversight Board. As part of its responsibilities for oversight of risk management, the Audit Committee reviewed and discussed Company policies with respect to risk assessment and risk management, including discussions of individual risk areas. The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent registered public accounting firm. Consistent with its charter, the Audit Committee has evaluated E&Y’s qualifications, performance, and independence, including that of the lead audit partner. The Audit Committee has received and reviewed the written disclosures and the letter from E&Y required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee, and has discussed with E&Y, its independence from the Company. Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for filing with the SEC. Submitted by the Audit Committee of the Company’s Board of Directors. |
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Richard W. Roedel (Chair) |
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Jonathan S. Bobb Diana M. Peninger Richard S. Sanders |
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Lynn F. White |
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Notwithstanding anything to the contrary set forth in our filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate by reference previous or future filings, including this Proxy Statement, in whole or in part, the foregoing report of the Audit Committee and any statements regarding the independence of the Audit Committee members shall not be incorporated by reference into any such filings. |
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14 |
LSB Industries Proxy Statement |
Corporate Governance
Fees Paid to Independent Registered Public Accounting Firm
Audit Fees
The aggregate fees billed by E&Y for professional services rendered for the audit of our annual financial statements for the fiscal years ended December 31, 2019 and 2018, for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q for those fiscal years, and for review of SEC-related documents for those fiscal years were approximately $1,110,000 and $1,195,000, respectively.
Audit-Related Fees
E&Y billed us $35,400 during both 2019 and 2018, for audit-related services, which included services relating to our benefit plan audits.
Tax Fees
E&Y billed us $283,769 and $263,434 during 2019 and 2018, respectively, for tax services, which included tax return review and preparation, tax consultations and planning.
All Other Fees
Not applicable for 2019 and 2018.
Engagement of the Independent Registered Public Accounting Firm
The Audit Committee is responsible for approving all engagements with E&Y to perform audit or non-audit services for us prior to us engaging E&Y to provide those services. All of the services outlined under the headings “Audit Related Fees,” “Tax Fees,” and “All Other Fees,” above were approved by the Audit Committee. The Audit Committee of our Board has considered whether E&Y’s provision of the services described above for the fiscal years ended December 31, 2019 and 2018 is compatible with maintaining its independence.
Audit Committee’s Pre-Approval Policies and Procedures
All audit and non-audit services that may be provided to us by our principal accountant, E&Y, require pre-approval by the Audit Committee. The Audit Committee delegates such pre-approval of services to the Chairman of the Audit Committee. The Audit Committee or the Chairman of the Audit Committee evaluates the pre-approval request to determine the appropriateness of the proposed project and proposed fee. Further, E&Y may not provide to us those services specifically prohibited by the SEC.
The Board oversees management’s risk management activities, including those relating to credit risk, liquidity risk, and operational risk, through a combination of processes. The Board believes effective risk management will enable us to accomplish the following:
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Timely identification of material risks that the Company encounters; |
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Communication of necessary information with respect to material risks to senior executives and, as appropriate, the Board or relevant committee of the Board; |
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Implementation of appropriate and responsive risk management strategies consistent with the Company’s risk profile; and |
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Integration of risk management into the Company’s decision-making. |
In addition to the Company’s compliance program, the Board encourages management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. The Board also continually works, with the input of the Company’s executive officers, to assess and analyze the most likely areas of future risk for the Company.
The Audit Committee is responsible for overseeing the Company’s policies with respect to risk assessment and risk management relating to the Company’s major financial risk exposures and to review and discuss such material risks and the steps taken to monitor and control such exposures.
Code of Ethics
The Chief Executive Officer, the Chief Financial Officer, the principal accounting officer, treasurer, and the controllers of each of our subsidiaries, or persons performing similar functions, are subject to our Code of Ethics for CEO and Senior Financial Officers. Additionally, we and each of our subsidiary companies have adopted a Code of Business Conduct applicable to all of the employees, officers and directors of the Company and its subsidiaries.
Our Code of Ethics for CEO and Senior Financial Officers and Code of Business Conduct are available on our website at www.lsbindustries.com. We will post any amendments to these documents, as well as any waivers that are required to be disclosed pursuant to the rules of either the SEC or the NYSE, on our website (to the extent applicable to the Company’s executive officers, senior financial officers or directors).
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LSB Industries Proxy Statement |
15 |
Corporate Governance
Our Compensation Committee is comprised of non-employee, independent directors in accordance with the rules of the NYSE. During 2019, the Compensation Committee held 6 meetings.
The Compensation Committee’s responsibilities include, among other duties:
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Overseeing management’s compliance with the compensation reporting requirements of the SEC, the NYSE and any other regulatory bodies, including reviewing and discussing with management the Compensation Discussion and Analysis (“CD&A”) to be included in the Company’s proxy statement for its annual meeting of stockholders or Annual Report on Form 10-K and determining whether to recommend to the Board that the CD&A be included in the proxy statement or Annual Report on Form 10-K; |
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Reviewing, evaluating and overseeing the incentive, equity-based and other compensation agreements, plans, policies and programs of the Company to compensate the Company’s executive officers and directors; |
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Conducting an annual review of the Chief Executive Officer’s performance and discussing the Chief Executive Officer’s review of the other executive officers; and |
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Performing other functions or duties deemed appropriate by the Board. |
Recommendations regarding non-equity compensation of our non-executive officers and our named executive officers are made by our Chief Executive Officer, other than decisions related to his own compensation, and are presented for discussion with the Compensation Committee.
During 2019, the agenda for meetings of the Compensation Committee was determined by its Chairman with the assistance of
our Chief Executive Officer. Compensation Committee meetings are regularly attended by the Chief Executive Officer. At each Compensation Committee meeting, the Compensation Committee also meets in executive session without the Chief Executive Officer. The Compensation Committee may delegate authority to the Chief Executive Officer in order to fulfill certain administrative duties regarding the compensation programs.
The Compensation Committee has authority under its charter to retain, approve fees for, and terminate advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities. If a compensation consultant is engaged, the Compensation Committee reviews the total fees paid to such outside consultant by the Company to ensure that the consultant maintains its objectivity and independence when rendering advice to the Compensation Committee. During 2019, the Compensation Committee retained Compensation Strategies, Inc. ("Compensation Strategies”) as independent compensation consultants to advise the Compensation Committee on matters related to executive and non-employee director compensation. For information regarding compensation consultants, please see “Executive Compensation — Compensation Discussion and Analysis-Role of Compensation Consultants in Compensation Decisions” in this Proxy Statement.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee has the authority to set the compensation of all of our officers. The Compensation Committee considered the recommendations of the Chief Executive Officer when setting the compensation of our officers. During 2019 the Chief Executive Officer did not make any recommendation regarding his own compensation. None of the members of the Compensation Committee is an officer or employee of the Company or any of its subsidiaries, or had any relationship requiring disclosure by the Company under Item 404 of Regulation S-K during 2019. No executive officer of the Company served on any board of directors or compensation committee of any other company for which any of our directors served as an executive officer at any time during 2019.
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16 |
LSB Industries Proxy Statement |
Corporate Governance
The Board has determined that Messrs. Roedel, White, Bobb, and Sanders and Mmes. Kitamura and Peninger are “independent” in accordance with the current listing standards of the NYSE. Additionally, the Board has determined that nominee Steven L. Packebush will be considered “independent” in accordance with NYSE listing standards. Our independent directors are regularly scheduled to meet in executive session following each meeting of the Board.
The Board has affirmatively determined that each of the independent directors had no material relationship with the Company whether directly or as a partner, stockholder or officer of an organization that had a relationship with the Company during 2019. Directors responded to a questionnaire asking about their relationships (and those of their immediate family members) with us and other potential conflicts of interest.
The Board determined that the members of each of the Audit Committee, Compensation Committee, and Nominating Committee meet the independence tests of the NYSE and the SEC. In connection with the independence of each non-employee director, the Board also determined that each member of the Audit Committee and Compensation Committee meets the additional independence standards of the NYSE and SEC applicable to members of the respective committees.
Communication with the Board
Our Board believes that it is important for us to have a process whereby stockholders may send communications to the Board. Stockholders and interested parties who wish to communicate with the Board, the Chairman, the independent directors as a group, or a particular director, may do so by sending a letter to the Chairman of the Board of Directors at 3503 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116. The mailing envelope must contain a clear notation indicating that the enclosed letter is a
“Stockholder-Board Communication” or “Stockholder-Director Communication.” All such letters must identify the author as a stockholder or an interested party and clearly state whether the intended recipients are all members of the Board, the Chairman, the independent directors, non-management directors, or only certain specified individual directors. The Chairman will make copies of all such letters and circulate them to the appropriate director or directors.
Policy as to Related Party Transactions
Pursuant to the Audit Committee Charter, our Audit Committee reviews any related party transactions involving any of our directors and executive officers. The Audit Committee believes that it considers all relevant facts and circumstances in its review process. The following related party transactions were reviewed by the Audit Committee or the Board as a whole.
The following related party transactions were reviewed by the Audit Committee or the Board as a whole:
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In March 2019, a subsidiary of the Company entered into a secured loan agreement with an affiliate of LSB Funding LLC, an unrelated third party and the holder of our Series E-1 cumulative redeemable Class C preferred stock (“Series E-1 Redeemable Preferred”), for available borrowings up to $7.5 million (the “Interim Loan”) during the construction of certain equipment. Pursuant to the terms of the agreement, the Interim Loan was replaced by a term loan in February 2020. |
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In May 2019, a subsidiary of the Company entered into a $15 million secured financing arrangement with an affiliate of LSB Funding LLC. This financing included debt issuance costs of $75,000 paid to this affiliate. |
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In June 2019, the Company incurred a consent fee of $250,000 from LSB Funding LLC associated with the issuance of the $35 million of Senior Secured Notes. |
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LSB Industries Proxy Statement |
17 |
Mark T. Behrman—Mr. Behrman became our President and Chief Executive Officer effective December 30, 2018. He served as the Company’s Executive Vice President and Chief Financial Officer from June 2015 and its Senior Vice President of Corporate Development beginning in March 2014. Mr. Behrman’s biographical information is set forth above. See “Continuing Directors”
Kristy D. Carver—Ms. Carver, age 52, became the Company’s Senior Vice President and Treasurer in January 2019. She has extensive experience in financial, accounting and tax across the manufacturing and financial services industries. She joined the Company as Vice President in 2008 and was appointed Vice President and Treasurer in January 2014. Prior to joining the Company, Ms. Carver was a Senior Vice President at IBC Bank (formerly known as Local Oklahoma Bank) primarily focused on strategic tax planning, compliance, reporting and supervising multi-year tax litigation arising from certain government assisted acquisitions and related matters. Ms. Carver began her career at Arthur Andersen LLP and is a certified public accountant. Ms. Carver holds a Bachelor of Science in Accounting from the University of Central Oklahoma.
John H. Diesch—Mr. Diesch, age 63, served as the Executive Vice President, Manufacturing of the Company since August 2016. Mr. Diesch retired from the Company effective February 28, 2020. Mr. Diesch served as President and was a member of the board of directors of Rentech Nitrogen GP, LLC (“Rentech”) from 2011 until April 2016. From 2008 to 2013, he held the position of Senior Vice President of Operations at Rentech, where he was responsible for operations at Rentech’s facilities as well as its Product Demonstration Unit in Commerce City, Colorado. From 2006 to 2008, Mr. Diesch served as President of RNLLC (formerly REMC) and Vice President of Operations for Rentech. Before that, he was Managing Director of Royster-Clark Nitrogen, Inc. from 1999 to 2006, and previously served as Vice President and General Manager of nitrogen production and distribution for IMC AgriBusiness Inc., an agricultural fertilizer manufacturer. In 1991, Mr. Diesch joined Vigoro Industries Inc., a manufacturer and distributor of potash, nitrogen fertilizers and related products, as North Bend, Ohio Plant Manager after serving as Plant Manager, Production Manager and Process Engineer with Arcadian Corporation, a nitrogen manufacturer, Columbia Nitrogen Corp., a manufacturer of fertilizer products, and Monsanto Company, a multinational agricultural biotechnology corporation. Mr. Diesch was a member of the board of directors of The Fertilizer Institute,
a former member of the board of directors of the Gasification Technologies Council and previously served as director of the Dubuque Area Chamber of Commerce, and was management Chairman of the Board for the Dubuque Area Labor Management Council. Mr. Diesch holds a Degree in Chemical Engineering and Environmental Studies from the University of Minnesota and Bemidji State University.
Michael J. Foster—Mr. Foster, age 53, became the Company’s Executive Vice President, General Counsel and Secretary on December 30, 2018. He joined the Company as Senior Vice President, General Counsel and Secretary in January 2016. Immediately prior to joining the Company, Mr. Foster was engaged in the private practice of law. From 2007 to 2014 Mr. Foster served as the Senior Vice President, General Counsel and Secretary for Tronox (NYSE:TROX), a global mining and manufacturing firm. Before his appointment as the Tronox General Counsel, Mr. Foster served as its Managing Counsel where he led the operations of the Tronox legal team following its spin-off from Kerr-McGee Corporation. Prior to the Tronox spin-off, Mr. Foster served as a member of the Kerr-McGee legal team. His earlier experience includes nearly five years in the midstream energy industry and more than five years in the public and private practice of law. Mr. Foster holds a Bachelor of Science degree in Agriculture Science from the University of Illinois and a Juris Doctor degree from the University of Tulsa.
Cheryl A. Maguire—Ms. Maguire, age 42, became the Company’s Executive Vice President and Chief Financial Officer January, 2020, and as of December 30, 2018, was previously the Company’s Senior Vice President and Chief Financial Officer. She joined the Company as Vice President, Financial Planning and Accounting in November 2015. She has more than 17 years of financial and accounting experience across manufacturing and energy industries. Prior to joining the Company, Ms. Maguire served as a Senior Manager of financial planning and analysis with LyondellBasell, a large international plastics, chemicals and refining company, from July 2012 to June 2015. Ms. Maguire was previously head of external reporting, corporate accounting, accounting policy and financial analysis at Petroplus, a European Refining company. During her career, Ms. Maguire was integral to the financial integration of large-scale acquisitions, the execution of multiple debt and equity transactions and the implementation of several corporate restructurings and business turnarounds. She began her career at Grant Thornton LLP. Ms. Maguire holds a Bachelor of Business Administration from University of Prince Edward Island and is a certified public accountant.
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18 |
LSB Industries Proxy Statement |
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The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2019. This report is provided by the following independent Directors, who comprise the Compensation Committee. |
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Lynn F. White (Chair) Jonathan S. Bobb Kanna Kitamura Diana M. Peninger Richard W. Roedel |
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Notwithstanding anything to the contrary set forth in our filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate by reference previous or future filings, including this Proxy Statement, in whole or in part, the foregoing report of the Compensation Committee and any statements regarding the independence of the Compensation Committee members shall not be incorporated by reference into any such filings.
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Compensation Discussion and Analysis
Overview of Compensation Program
This Compensation Discussion and Analysis describes our compensation philosophy, objectives, policies and practices framed within the context of the chemical manufacturing industry our specific strategy and the performance of our named executive officers for 2019.
Our named executive officers during 2019 were:
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Mark T. Behrman |
President and Chief Executive Officer |
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John H. Diesch |
Executive Vice President, Manufacturing |
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Michael J. Foster |
Executive Vice President, General Counsel & Secretary |
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Cheryl A. Maguire |
Executive Vice President and Chief Financial Officer |
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Kristy D. Carver |
Senior Vice President and Treasurer |
Our long-term success depends on our ability to operate our facilities efficiently, to continue to develop our product lines and technologies, and to focus on developing our product markets. To achieve these goals, it is important that we attract, motivate, and retain highly talented individuals who are committed to our values and goals.
The Compensation Committee has the responsibility to establish, in consultation with management, our compensation philosophy for our senior executive officers and to implement and oversee a compensation program consistent with such philosophy. This group of senior executive officers includes the named executive officers, as well as our other executive officers.
A primary objective of the Compensation Committee is to ensure that the compensation paid to the senior executive officers provides appropriate incentives for superior performance, aligns their interests with our stockholders, and is fair, reasonable, and competitive.
The Compensation Committee is responsible for approval of all decisions for the compensation of our named executive officers.
The three elements of total direct compensation for our executives are: (i) base salary, (ii) short-term incentive and (iii) long-term incentive. Unlike base salary, which is fixed annually, short-term and long-term incentive awards each represent variable compensation. These three elements are balanced such that each executive has an appropriate amount of compensation that is contingent on performance across both near and long-term horizons. The Compensation Committee has adopted and implemented core principles that form the framework for our executive compensation program. In 2018, the Compensation Committee commenced a process to review the Company compensation program to determine if significant structural changes were warranted. The Compensation Committee initiated its review partially in response to input from stockholders and other consultants, but also as a normal review of executive employment agreements that were due to renew at the end of 2018. As part of a continuation of this review, in 2019 the Compensation Committee engaged Compensation Strategies as its compensation consultant to review our Chief Executive Officer’s compensation plans, provide input on incentive plan design and compensation competitiveness now and for the future. Ultimately, the Compensation Committee in consultation with the management team, determined that changes to the Long-Term Incentive Plan and the form and structure of the Company’s employment agreements with the Chief Executive Officer and other executive officers were appropriate and implemented new agreements in 2018. While it always has been the philosophy of the Compensation Committee to align our executive compensation program with our stockholders, we believe that the updated compensation program more clearly aligns executive compensation opportunities with our long-term strategic plan and provides greater accountability for long-term results.
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LSB Industries Proxy Statement |
19 |
Compensation Philosophy - How Executive Pay is Linked to Company Performance
Our executive compensation program is designed to incentivize and motivate our executive officers to lead and manage our business well over the long-term, drive performance improvements, and to increase stockholder value. It is also designed to enable us to compete effectively with other companies in attracting, motivating and retaining talented executives.
The incentive compensation elements of our program are designed to align closely the financial interests of our executives with those of our stockholders. We believe the portion of compensation that is at-risk and tied to organization-wide performance metrics should increase as the level of responsibility increases.
We also believe a portion of at-risk compensation should be tied to an executive’s individual performance, and those leaders should be measured not just on results, but also on how each leader delivers results. We expect our executives to manage wisely and with good judgment, to develop strong, engaged and motivated management teams, and to lead with our values. Because of the inherent risk in chemical operations, we place a high priority on our leaders to create, maintain and reinforce a strong safety culture. Because of the environmental risks in our business, we place a high priority on managing our operations responsibly and sustainably.
We regularly assess how our executive compensation program compares to companies with a similar profile to ours. Our objective is to deliver compensation at a competitive market level which will enable executive officers who demonstrate consistent performance over a multi-year period to earn compensation that is competitive and consistent with targeted performance levels of total compensation. For executives who deliver performance that is above target over the long-term, we believe the program will reward above the competitive median. Conversely, the program will pay less than the annual target compensation when performance does not meet expectations. Individual executive compensation may be above or below the annual target level, based on our performance; economic and market conditions; the individual’s performance, contribution to the organization, experience, expertise, and skills; and other relevant factors.
Summary of our Executive Compensation Program
Set forth below is a summary of our key executive compensation practices.
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• |
We seek and carefully consider stockholder feedback regarding our compensation practices. |
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We strive to link our executive compensation to our performance as follows: |
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48% of the target compensation for the Chief Executive Officer and 38% of the target compensation for other named executive officers is “at-risk”. |
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Executive Officer’s and other named executive officers’ performance is measured against pre-defined objectives. |
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Metrics in our long-term incentive plan focus our Chief Executive Officer and other named executive officers on achieving long-term financial goals that are expected to lead to increased stockholder value; annual grants with overlapping performance periods reward sustained performance over the long-term. |
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For our Chief Executive Officer and other named executive officers, 86% of targeted 2019 short-term incentive plan payout was linked to overall Company results, including Adjusted EBITDA; on-stream rates, sales volumes, selling prices; and certain safety metrics. |
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50% of the annual long-term equity awards are performance-based restricted stock that vest following the end of the three-year performance period based on Company performance during such period. |
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50% of the annual long-term equity awards are time-based restricted stock that vest in equal amount yearly over a three-year time period. These time-based awards are intended to incentivize executives to create stockholder value through stock price appreciation and provide an employee retention incentive. |
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Metrics and targets for both the short-term and long-term incentive plans are based on the Company’s strategic and business plans and annual budgets that are approved by the full Board and are analyzed and tested for reasonableness by the Compensation Committee at the beginning of the performance period. The Compensation Committee actively evaluates the appropriateness of the financial measures used in incentive plans and the degree of difficulty in achieving specific performance targets. |
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The Compensation Committee also reviews compensation programs in hindsight when evaluating any future proposed changes. |
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Peer group appropriateness |
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Our 2019 Compensation Peer Group includes 9 companies and our Relative TSR Peer Group includes 17 companies that the Compensation Committee believes reflect appropriate industry, size, geographic scope, and market dynamics. |
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Independent compensation consultants |
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The Compensation Committee directly retained Compensation Strategies for 2019. Compensation Strategies did not provide any other services to the Company. |
In addition, the Company adopted an anti-hedging policy and a claw-back policy as part of the review of the compensation program. These policies are available on the Investors section of the Company’s website at www.lsbindustries.com. The table below describes the elements of our compensation program and how each supports our compensation philosophy:
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20 |
LSB Industries Proxy Statement |
Executive Compensation
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Compensation Element |
Performance Period |
Performance Measures |
Purpose of Compensation Element |
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Base Salary |
• 1 year |
• Pay aligned with |
• Provides |
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Performance Annual Incentive Award (Short-Term Incentive) |
• 1 year |
• Safety • Financial and • Individual employee |
• Promotes • Evaluates |
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Equity Grants (Long-Term Incentive)(1) |
• 3 years |
Depending on form of grant: • Time-based (vesting • Financial • Stock price |
• Aligns named • Retains talent with |
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Limited Perquisites and Other Benefits |
• Not applicable |
• Not applicable |
• Allows the |
Setting Executive Compensation
The Compensation Committee annually sets cash and non-cash executive compensation to reward the named executive officers for achievement of, and to motivate the named executive officers to achieve, near-term and long-term business objectives. The Compensation Committee also reviews the compensation information of our peer companies, as provided by our compensation consultants. As described in more detail below, in 2019, the Compensation Committee engaged Compensation Strategies as compensation consultants to assist the Compensation Committee in conducting its review of our compensation program. This information is used to determine whether our compensation amounts are within the range of similar companies, as further described below.
The Compensation Committee also considers the allocation between cash and non-cash compensation amounts as well as near-term and long-term compensation but does not have a specific formula or required allocation between such compensation types. In each case, such allocation is considered as part of the overall compensation determination.
During 2019, the Compensation Committee compared the Chief Executive Officer’s total compensation to the total compensation of
our other named executive officers. However, the Compensation Committee has not established a target ratio between total compensation of the Chief Executive Officer and the median total compensation level for the next lower tier of management. The Compensation Committee also considers internal pay equity among the named executive officers and in relation to the next lower tier of management and average compensation of all employees to maintain compensation levels that are consistent with the individual contributions and responsibilities of those executive officers. The Compensation Committee does not consider amounts payable under severance agreements when setting the annual compensation of the named executive officers.
Base Salary
The Compensation Committee annually reviews and adjusts salaries based on changes in the market, responsibilities and performance against job expectations, strategic importance, and experience and tenure. The following table sets forth the base salaries for each of our named executive officers as of the end of 2019. The Compensation Committee, based upon its annual review, recommended the base salaries remain the same for Messrs. Behrman, Diesch and Foster, and Ms. Maguire. Ms. Carver’s salary was increased.
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LSB Industries Proxy Statement |
21 |
Executive Compensation
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Named Executive Officer |
2019 Base Salary |
2020 Base Salary |
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Mark T. Behrman |
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$ |
650,000 |
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$ |
650,000 |
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John H. Diesch |
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$ |
350,000 |
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$ |
350,000 |
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Michael J. Foster |
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$ |
390,000 |
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$ |
390,000 |
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Cheryl A. Maguire |
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$ |
370,000 |
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$ |
370,000 |
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Kristy D. Carver (1) |
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$ |
290,000 |
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$ |
298,700 |
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(1) |
Ms. Carver received a 3% merit increase; however, merit increases were deferred company-wide as part of the Company’s COVID-19 response plans. |
Short-Term (Annual) Incentive Plan
Executive officers participate in the Company’s Short-Term Incentive Plan (the “STI Plan”). The STI Plan is our annual performance pay plan developed and instituted in 2016. The STI Plan provides the opportunity for annual cash payments tied directly to the achievement of key pre-established financial and operational goals, as well as individual employee performance.
The Compensation Committee sets goals derived from our strategic plan that are designed to align the interests of management with the interests of our stockholders. The goals for 2019, and our performance compared to those goals are shown below. We did not make substantial changes to the STI Plan as part of the program review in 2019.
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Goal |
Weighting of Goal |
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Target(1) |
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Achievement(1) |
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Percentage Payout Toward Target(1) |
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Financial Performance |
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40% |
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Achieve EBITDA at Budget |
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0.0% |
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0.0% |
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On-Stream Rates / Uptime |
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20% |
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Achieve Production of NH3 tons at Budget |
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0.0% |
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0.0% |
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Sales Volumes / Prices |
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10% |
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Achieve Budgeted Sales Volumes (on a NH3 or 100% "N" Basis) |
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16.0% |
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1.6% |
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Sales Volumes / Prices |
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5% |
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Achieve Budgeted Sales Prices (On a NH3 or 100% "N" Basis) |
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16.0% |
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0.8% |
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Operating and Maintenance Activities |
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15% |
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Demonstrate planned progress on certain operating and maintenance activities |
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100.0% |
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15.0% |
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Individual Goals |
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10% |
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Achievement of goals set by the Board for CEO and by CEO for other NEOs |
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59.0% |
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5.9% |
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Safety/ Environmental Performance(2) |
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Achievement of targets set by the Board and CEO |
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(2.0)% |
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(2.0)% |
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Total |
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100% |
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21.3% |
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(3) |
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(1) |
The Company is not disclosing details of specific 2019 financial and other targets applied to the various goals because of competitive sensitivity. These targets apply to Messrs. Behrman, Diesch, and Foster and Ms. Maguire. The achievement and payout percentages are weighted percentages. Individually, Messrs. Behrman, Diesch, and Foster and Ms. Maguire’s percentage payout equaled 25.5%, 10.0%, 15.0%, and 27.5%, respectively. |
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(2) |
Safety is a critical objective of the Company—overall performance can be negative adjusted up to 5% if safety and environmental goals are not met. The Board of Directors determined that a negative adjustment of 2% was appropriate for 2019 based upon the Company’s safety performance. |
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(3) |
Ms. Carver, our SVP and Treasurer had different 2019 STI targets comprised of 40% EBITDA and 60% individual goals. Ms. Carver’s percentage payout equaled 60%. |
Payment to an executive officer under the STI Plan is calculated as follows:
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Base Salary x Target Payout Percentage x Company Performance |
Company performance is measured against the achievement of the performance goals. Each performance goal is measured independently of other goals. Company performance for 2019 was 21.3% as shown in the table above.
Each payout target for Messrs. Behrman, Diesch and Foster and Ms. Maguire is established in his or her respective employment
agreements. Ms. Carver’s payout was established in her annual bonus program performance goal metric at the beginning of 2019. The target and actual annual incentive awards under the STI Plan for 2019 for each of our named executive officers are set forth in the following table:
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22 |
LSB Industries Proxy Statement |
Executive Compensation
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2019 Base Salary |
STI Plan Target as a Percentage of Base Salary |
2019 Target Award |
2019 Actual Award |
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Mark T. Behrman |
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$ |
650,000 |
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100 |
% |
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$ |
650,000 |
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$ |
165,500 |
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John H. Diesch |
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$ |
350,000 |
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60 |
% |
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$ |
210,000 |
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$ |
21,000 |
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Michael J. Foster |
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$ |
390,000 |
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70 |
% |
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$ |
273,000 |
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$ |
41,000 |
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Cheryl A. Maguire |
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$ |
370,000 |
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60 |
% |
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$ |
222,000 |
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$ |
61,000 |
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Kristy D. Carver(1) |
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$ |
290,000 |
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40 |
% |
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$ |
116,000 |
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$ |
69,600 |
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(1) |
Ms. Carver, our SVP and Treasurer had different 2019 STI targets comprised of 40% EBITDA and 60% individual goals. Ms. Carver’s percentage payout equaled 60%. |
Long-Term (Equity) Incentive Plan
We award long-term performance pay to our named executive officers under the terms of the 2016 Long Term Incentive Plan (the “LTI Plan”) that was approved by stockholders at the 2016 annual meeting of stockholders. The Compensation Committee, with the input of its independent compensation consultant, designed the LTI Plan to align named executive officer compensation with stockholders’ interests and to serve as a retention tool. The Compensation Committee believes the LTI Plan will allow us to continue to motivate our named executive officers through the grant of stock awards and will also increase the Compensation Committee’s flexibility to grant different types of equity, equity-based, and cash awards in the future.
As a result of our 2018 compensation plan review, the Compensation Committee determined to amend the program to eliminate the guaranteed time-based equity grants from the named executive officer’s employment agreements and instead evaluate each named executive officer’s performance on an annual basis and make appropriate discretionary equity awards. Additionally, the Compensation Committee instituted a policy of splitting the equity grants between time-based grants and performance-based grants. Beginning with the December 30, 2018 equity grants, LTI Plan grants for the named executive officer awards are split 50/50 between time-based and performance-based awards. The Compensation Committee and management also agreed to change the vesting terms granted under the LTI Plan in the event of a change of control or other termination of employment.
Both types of awards generally vest over a three-year period. Time-based awards vest one-third on each of the first three anniversaries of the date of grant. Performance-based awards vest at the end of the three-year performance measurement period. We believe both award types link the value of payments to the long-term results of the Company.
Beginning with the December 30, 2018 LTI grants, the performance-based stock grants are tied to our free cash flow and fixed costs per ton of ammonia (NH3) measured annually over a
three year period and modified based on our ranking relative to total stockholder return (stock price appreciation plus dividends reinvested) (“TSR”) versus the companies in the 2019 peer group over a three-year measurement period. The actual number of shares of stock that will vest will be based on the performance of the Company against the metrics set out above. The threshold performance for free cash flow is 70% and for fixed costs per ton of NH3 is 50% of the targeted improvement with a maximum for each of 120% of target. The TSR modifier will adjust the overall actual performance up or down by as much as 25% based on the Company’s TSR versus the 2019 peer group average TSR.
The performance grant made to Mr. Diesch prior to 2018 was tied to our TSR over a three-year measurement period. The actual number of shares of stock that could have vested would be equal to the aggregate number of shares of stock granted multiplied by the TSR payout percentage. TSR payout percentage was determined using a non-linear interpolation between threshold and target and between target and maximum. The threshold TSR was 25%. Since the actual Company TSR over the three-year period was below 25% there was no earned award in February 2020.
Perquisites and Other Personal Benefits
We and the Compensation Committee believe that perquisites are necessary and appropriate parts of total compensation that contribute to our ability to attract and retain superior executives. Accordingly, the Company provided our named executive officers a limited number of perquisites that are reasonable and consistent with our overall compensation program.
In 2019, we provided an automobile for business use by Mr. Diesch and an automobile allowance to Messrs. Behrman and Foster and Ms. Carver.
The Compensation Committee periodically reviews the levels of perquisites provided to the named executive officers to determine whether such perquisites are consistent with our compensation policies.
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LSB Industries Proxy Statement |
23 |
Executive Compensation
Role of Executive Officers in Compensation Decisions
Our Chief Executive Officer annually reviews the performance of each of our named executive officers (other than his own) and provides recommendations to the Compensation Committee with respect to salary, STI Plan and LTI Plan compensation, and other benefits. The Compensation Committee reviews these recommendations while considering the compensation philosophy and objectives. Historically, the Compensation Committee has generally accepted the compensation recommended by the Chief Executive Officer. In determining compensation for our Chief Executive Officer, the Compensation Committee reviews his responsibilities and performance. Such review includes interviewing our Chief Executive Officer and consideration of the Compensation Committee’s observations of his performance during the applicable year. When appropriate, named executive officers are invited by the Compensation Committee to provide insight regarding Company and individual performance and feedback regarding compensation structure. Named executive officers are not present at any meeting of the Compensation Committee while their own compensation is being discussed or determined.
Use of Compensation Consultants
The Compensation Committee has the sole authority to hire and terminate its consultant, approve its compensation, determine the nature and scope of its services, and evaluate its performance. In 2019 the Compensation Committee engaged Compensation Strategies as its compensation consultant to provide information to the Compensation Committee to assist it in making determinations regarding our compensation programs for executives and non-employee directors.
In July 2019, Compensation Strategies provided the Compensation Committee with among other things, a competitive pay analysis comparing the compensation of our executive officers against peer group compensation statistics, 2020 program design advice, an
independent review of 2020 compensation proposals developed by management, comparative analysis of non-employee director compensation, review of trends and regulatory developments, and assistance with peer group review.
A representative from Compensation Strategies attended the July and October meetings of the Compensation Committee during 2019. Compensation Strategies did not perform any other services for the Company or its management other than that described above.
Compensation Strategies provides information and data to the Compensation Committee from its surveys, proprietary databases and other sources, which the Compensation Committee utilizes along with information provided by management and obtained from other sources. In making its decisions, the Compensation Committee reviews such information and data provided to it by Compensation Strategies and management and also draws on the knowledge and experience of its members as well as the expertise and information from within the Company, including from the human resources, legal, and finance groups. The Compensation Committee considers executive and non-employee director compensation matters at its quarterly meetings and at special meetings as needed based on our annual compensation schedule.
In connection with its engagement of Compensation Strategies, the Compensation Committee considered various factors bearing upon Compensation Strategies’ independence including, but not limited to, the amount of fees received by Compensation Strategies from the Company as a percentage of Compensation Strategies’ respective total revenue, Compensation Strategies’ policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact Compensations Strategies’ independence. After reviewing these and other factors, the Compensation Committee determined that Compensation Strategies is independent and that its engagement did not present any conflicts of interest.
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24 |
LSB Industries Proxy Statement |
Executive Compensation
To ensure that our executive compensation program provides competitive compensation opportunities that are necessary to attract and retain well-qualified executives, the Compensation Committee reviews the level and mix of compensation for our Chief Executive Officer and other named executive officers against the compensation provided by a group of peer companies (in addition to survey data provided by Compensation Strategies). For 2019
the Compensation Committee approved a set of peer companies for the review of executive compensation -- the Compensation Peer Group. In addition, the Compensation Committee identified a set of peer companies which includes the Compensation Peer Group and additional companies, the combined set of companies to be used to compare relative total stockholders returns – the Relative TSR Peer Group. The Compensation Peer Group and the Relative TSR Peer Group are set out below:
2019 Compensation Peer Group
|
American Vanguard Corporation |
Balchem Corporation |
CVR Partners, LP |
|
Flotek Industries, Inc. |
Hawkins, Inc. |
Intrepid Potash, Inc. |
|
Landec Corporation |
OMNOVA Solutions Inc. |
Quaker Chemical Corporation |
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2019 Relative TSR Peer Group
|
AdvanSix Inc. |
American Vanguard Corporation |
Balchem Corporation |
|
CF Industries Holdings, Inc. |
CVR Partners, LP |
Flotek Industries, Inc. |
|
H.B. Fuller Company |
Hawkins, Inc. |
Innospec Inc. |
|
Landec Corporation |
The Mosaic Company |
Nutrien Ltd. |
|
OMNOVA Solutions Inc. |
PolyOne Corporation |
Quaker Chemical Corporation |
|
Stepan Company |
Yara International ASA |
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LSB Industries Proxy Statement |
25 |
Executive Compensation
As part of our 2018 compensation review, the Company implemented numerous changes to the form and structure of its executive employment agreements (the 2018 Agreements”). Notably, the term of the 2018 Agreements for each of Messrs. Behrman, Diesch and Foster was reduced from three-years with an automatic one-year renewal to a one-year term with an automatic renewal for successive one-year periods thereafter. Additionally, the new agreements eliminate the guaranteed grants of restricted stock under the prior employment agreements in favor of discretionary grants determined by the Board.
Ms. Maguire did not have an employment agreement prior to her appointment as Senior Vice President and Chief Financial Officer on December 30, 2018, at which time we entered into an employment agreement with Ms. Maguire.
We are not party to an employment agreement with Ms. Carver. Mmes. Maguire and Carver each had retention agreements that vested on December 31, 2019, as reflected in the Summary Compensation Table included in this Proxy Statement.
Mark T. Behrman
2018 Behrman Agreement—On December 30, 2018, we entered into an employment agreement with Mr. Behrman (the “2018 Behrman Agreement”) which replaced Mr. Behrman’s prior employment agreement dated December 31, 2015. The employment agreement provides that Mr. Behrman will:
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Serve as our President and Chief Executive Officer for an initial term of one year with automatic one-year extensions until terminated by either party in accordance with the employment agreement; |
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Receive an annual base salary of at least $650,000; and |
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• |
Be eligible to receive an annual cash performance bonus equal to between 0% and 200% of his base salary with a target of 100% of base salary, depending on the Company’s achievement of performance criteria, as determined by the Compensation Committee. |
Following his termination of employment, Mr. Behrman will be subject to non-compete and non-solicitation restrictions for a period of 24 months. For information regarding the provisions of the 2018 Behrman Agreement related to change of control and severance payments, please see “Potential Payments Upon Termination or Change in Control” below.
John H. Diesch
2019 Diesch Agreement—On February 11, 2019, we entered into an employment agreement with Mr. Diesch (the “2019 Diesch Agreement”) which replaced Mr. Diesch’s prior employment agreement dated July 21, 2016. The 2019 Diesch Agreement provides that Mr. Diesch will:
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Serve as our Executive Vice President —Manufacturing for an initial term expiring on December 30, 2019 with automatic one-year extensions until terminated by either party in accordance with the 2019 Diesch Agreement; |
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• |
Receive an annual base salary of at least $350,000; and |
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• |
Be eligible to receive an annual cash performance bonus equal to between 0% and 120% of his base salary with a target of |
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60% of base salary, depending on the Company’s achievement of performance criteria, as determined by the Compensation Committee. |
Following his termination of employment, Mr. Diesch will be subject to non-solicitation restrictions for a period of 24 months. For information regarding the provisions of the 2019 Diesch Agreement related to change of control and severance payments, please see “Potential Payments Upon Termination or Change in Control” below.
Michael J. Foster
2018 Foster Agreement—On December 30, 2018, we entered into an employment agreement with Mr. Foster (the “2018 Foster Agreement”), which replaced Mr. Foster’s prior employment agreement dated January 6, 2016. The 2018 Foster Agreement provides that Mr. Foster will:
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Serve as our Executive Vice President, General Counsel and Secretary for an initial term of one year with automatic one-year extensions until terminated by either party in accordance with the 2018 Foster Agreement; |
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Receive an annual base salary of at least $390,000; and |
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Be eligible to receive an annual cash performance bonus equal to between 0% and 140% of his base salary with a target of 70% of base salary, depending on the Company’s achievement of certain performance criteria, as determined by the Compensation Committee. |
Following his termination of employment, Mr. Foster will be subject to non-compete and non-solicitation restrictions for a period of 24 months. For information regarding the provisions of the 2018 Foster Agreement related to change of control and severance payments, please see “Potential Payments Upon Termination or Change in Control” below.
Cheryl A. Maguire
2018 Maguire Agreement—On December 30, 2018, we entered into an employment agreement with Ms. Maguire (the “2018 Maguire Agreement”). The employment agreement provides that Ms. Maguire will:
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Serve as our Senior Vice President and Chief Financial Officer for an initial term of one year with automatic one-year extensions until terminated by either party in accordance with the 2018 Maguire Agreement. Ms. Maguire was appointed Executive Vice President and Chief Financial Officer on January 23, 2020; |
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Receive an annual base salary of at least $370,000; and |
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Be eligible to receive an annual cash performance bonus equal to between 0% and 120% of her base salary with a target of 60% of base salary, depending on the Company’s achievement of performance criteria, as determined by the Compensation Committee. |
Following her termination of employment, Ms. Maguire will be subject to non-compete and non-solicitation restrictions for a period of 24 months. For information regarding the provisions of the 2018 Maguire Agreement related to change of control and severance payments, please see “Potential Payments Upon Termination or Change in Control” below.
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26 |
LSB Industries Proxy Statement |
Executive Compensation
Management Stock Ownership Guidelines
Beginning in April 2017, the Compensation Committee approved stock ownership guidelines that ensure that the interests of our named executive officers are aligned with the interests of our stockholders by requiring them to hold significant levels of Company stock. In keeping with our overall compensation
philosophy, we believe that the equity ownership levels that they are required to maintain are high enough to assure our stockholders of our named executive officers’ commitment to long-term value creation. The terms of our Stock Ownership Guidelines are set out below:
|
Term |
Component/Description |
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Position |
Guidelines |
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Target Ownership Amount |
Chief Executive Officer
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5x base salary
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Chief Financial Officer
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3x base salary
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Other Named Executive Officers(1)
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3x base salary
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Shares Counted Towards Ownership |
∎ Shares owned outright or held in trust ∎ Time-based vesting restricted stock or restricted stock units ∎ The target number of any performance shares or units |
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Compliance Period |
∎ The later of April 26, 2022 or 5 years from hire/promotion into covered role |
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Tracking Achievement |
∎ Measure compliance on December 31 each year using 90-trading day average stock price ∎ Notify participants and Compensation Committee of compliance/progress towards meeting guidelines |
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Controls |
∎ Once the guideline is met, participants are expected to maintain share ownership pursuant to the guideline thereafter ∎ Should a participant who previously met the guideline subsequently fall below the guideline for any reason, they will be required to meet the guideline within 2 years |
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(1) |
Ms. Carver does not receive equity grants under the LTI Plan and is not subject to the Management Stock Ownership Guidelines. |
As of December 31, 2019, each of Messrs. Behrman and Foster exceeded the stock ownership guidelines. Mr. Diesch retired effective February 28, 2020, and Ms. Maguire is in compliance with the policy and has until December 30, 2024 to meet the stock ownership guidelines.
Section 162(m) of the Internal Revenue Code (the “Code”) provides that we may not deduct, for federal income tax purposes, compensation in excess of $1 million paid to our Chief Executive Officer and each of the three other most highly-compensated officers (other than the Chief Executive Officer and Chief Financial Officer) whose compensation is required to be disclosed to our stockholders under the federal securities laws in any taxable year. However, compensation in excess of $1 million may be deducted if it is “performance-based compensation” or qualifies for one of the other exemptions from the deductibility limit.
The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) of the Code and, among other things, eliminated the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. As a result, beginning in 2018, compensation paid to certain executive officers in excess of $1 million is generally nondeductible, whether or not it is performance-based. In addition, beginning in 2018, the executive officers subject to Section 162(m) of the Code (the “Covered Employees”) will include any individual who served as the Chief Executive Officer and Chief Financial Officer at any time during the taxable year and the three other most highly compensated officers (other than the Chief Executive Officer and Chief Financial Officer) for the taxable year, and once an individual
becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.
The Tax Cuts and Jobs Act includes a transition rule under which the changes to Section 162(m) of the Code described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not materially modified after that date. To the extent applicable to our existing contracts and awards, the Compensation Committee may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing contracts and awards, even if in place on November 2, 2017, will meet the requirements of the transition rule. Moreover, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the company, the Compensation Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) of the Code if the Compensation Committee determines that a given action is otherwise in the best interests of the Company and its stockholders.
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LSB Industries Proxy Statement |
27 |
Executive Compensation
We account for stock-based payments, including our incentive and nonqualified stock options and restricted stock awards, in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). FASB ASC Topic 718 requires us to measure the compensation expense for all share-based payment awards made to our employees and members of our Board based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the awards may never realize any value from their awards. While we consider the expense resulting from the application of FASB ASC Topic 718 when granting our stock-based compensation awards to ensure that it is reasonable, the amount of this expense is not the most important factor that the Compensation Committee considers when making equity-award decisions.
Our compensation program, which applies to all employees including named executive officers, is designed to provide competitive levels of reward that are responsive to company and individual performance but do not incentivize risk taking that is reasonably likely to have a material adverse effect on the Company. In reaching our conclusion that our compensation
policies do not create risks that are reasonably likely to have a material adverse effect on us, we examined the various elements of our compensation programs and policies and our risk mitigation controls. In particular, numerous factors were considered, including:
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Absence of significant short-term incentives that would reasonably be considered as motivating high-risk investments or other conduct that is not consistent with the long-term goals of the Company; |
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Provision of a mix of short-term and long-term compensation, which is discussed in the CD&A, above; |
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Type of equity awards granted to employees and level of equity and equity award holdings; and |
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Historical emphasis on long-term growth and profitability, over short-term gains. |
Senior executives representing our legal and compliance, human resources, finance, and audit functions, as well as the Compensation Committee’s independent compensation consultant, are involved in this review process, which is conducted under the oversight of the Compensation Committee.
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28 |
LSB Industries Proxy Statement |
2019 Summary Compensation Table
The following table sets forth the total compensation earned by or paid to our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers, collectively our named executive officers, for the years ended December 31, 2019, 2018, and 2017.
|
Name and Principal Position |
Year |
Salary |
Bonus |
Stock Awards(1) |
Option Awards |
Non-Equity Incentive Plan Compensation |
All other Compensation(2) |
Total |
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|
Mark T. Behrman |
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2019 |
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|
$ |
650,000 |
|
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|
$ |
— |
|
|
|
$ |
1,431,545 |
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|
|
$ |
— |
|
|
|
$ |
165,500 |
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|
|
$ |
7,800 |
|
|
|
$ |
2,254,845 |
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President and Chief |
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2018 |
|
|
|
$ |
500,000 |
|
|
|
$ |
— |
|
|
|
$ |
2,258,337 |
|
|
|
$ |
— |
|
|
|
$ |
107,063 |
|
|
|
$ |
7,800 |
|
|
|
$ |
2,873,200 |
|
|
Executive Officer |
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|
2017 |
|
|
|
$ |
500,000 |
|
|
|
$ |
32,500 |
|
|
|
$ |
750,003 |
|
|
|
$ |
— |
|
|
|
$ |
102,500 |
|
|
|
$ |
9,000 |
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|
|
$ |
1,394,003 |
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|
John H. Diesch |
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2019 |
|
|
|
$ |
347,116 |
|
|
|
$ |
— |
|
|
|
$ |
48,290 |
|
|
|
$ |
— |
|
|
|
$ |
21,000 |
|
|
|
$ |
24,046 |
|
|
|
$ |
440,452 |
|
|
Executive Vice |
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|
2018 |
|
|
|
$ |
325,000 |
|
|
|
$ |
— |
|
|
|
$ |
190,482 |
|
|
|
$ |
— |
|
|
|
$ |
74,531 |
|
|
|
$ |
24,659 |
|
|
|
$ |
614,672 |
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|
President Manufacturing |
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2017 |
|
|
|
$ |
325,000 |
|
|
|
$ |
— |
|
|
|
$ |
259,588 |
|
|
|
$ |
— |
|
|
|
$ |
55,000 |
|
|
|
$ |
28,811 |
|
|
|
$ |
668,399 |
|
|
Michael J. Foster |
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|
2019 |
|
|
|
$ |
390,000 |
|
|
|
$ |
— |
|
|
|
$ |
343,575 |
|
|
|
$ |
— |
|
|
|
$ |
41,000 |
|
|
|
$ |
7,800 |
|
|
|
$ |
782,375 |
|
|
Executive Vice President |
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|
2018 |
|
|
|
$ |
360,000 |
|
|
|
$ |
— |
|
|
|
$ |
652,165 |
|
|
|
$ |
— |
|
|
|
$ |
79,500 |
|
|
|
$ |
— |
|
|
|
$ |
1,091,665 |
|
|
and General Counsel |
|
|
2017 |
|
|
|
$ |
360,000 |
|
|
|
$ |
— |
|
|
|
$ |
359,997 |
|
|
|
$ |
— |
|
|
|
$ |
74,000 |
|
|
|
$ |
— |
|
|
|
$ |
793,997 |
|
|
Cheryl A. Maguire |
|
|
2019 |
|
|
|
$ |
370,000 |
|
|
|
$ |
100,000 |
|
|
|
$ |
260,761 |
|
|
|
$ |
— |
|
|
|
$ |
61,000 |
|
|
|
$ |
— |
|
|
|
$ |
791,761 |
|
|
Executive Vice President |
|
|
2018 |
|
|
|
$ |
264,500 |
|
|
|
$ |
— |
|
|
|
$ |
260,239 |
|
|
|
$ |
— |
|
|
|
$ |
106,600 |
|
|
|
$ |
— |
|
|
|
$ |
631,339 |
|
|
and Chief Financial Officer |
|
|
2017 |
|
|
|
$ |
244,365 |
|
|
|
$ |
21,000 |
|
|
|
$ |
103,680 |
|
|
|
$ |
— |
|
|
|
$ |
129,000 |
|
|
|
$ |
— |
|
|
|
$ |
498,045 |
|
|
Kristy D. Carver |
|
|
2019 |
|
|
|
$ |
290,000 |
|
|
|
$ |
100,000 |
|
|
|
$ |
98,327 |
|
|
|
$ |
— |
|
|
|
$ |
69,600 |
|
|
|
$ |
10,037 |
|
|
|
$ |
567,964 |
|
|
Senior Vice President |
|
|
2018 |
|
|
|
$ |
264,500 |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
106,520 |
|
|
|
$ |
10,672 |
|
|
|
$ |
381,692 |
|
|
and Treasurer |
|
|
2017 |
|
|
|
$ |
256,769 |
|
|
|
$ |
— |
|
|
|
$ |
103,680 |
|
|
|
$ |
— |
|
|
|
$ |
129,000 |
|
|
|
$ |
10,073 |
|
|
|
$ |
499,522 |
|
|
(1) |
The amounts shown in this column represent the aggregate grant date fair value of the restricted stock granted to our named executive officers pursuant to the terms of the respective executive’s employment agreement or other retention agreements computed in accordance with FASB ASC Topic 718, determined without regard to forfeitures. This amount does not reflect the actual value that may be recognized by the named executive officers. |
|
(2) |
For 2019, “All Other Compensation” includes: |
|
|
• |
For Messrs. Behrman and Foster an automobile allowance. |
|
|
• |
For Mr. Diesch: $22,951 for reimbursement of commuting expenses and $1,095 for a Company car. |
|
|
• |
For Ms. Carver: $7,800 for an automobile allowance and $2,237 for automobile related expenses. |
