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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _____)*
LSB Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.10 per share
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(Title of Class of Securities)
502160104
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(CUSIP Number)
Louis J. Bevilacqua, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6057
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
August 27, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
- ------------------- ------------------
CUSIP No. 502160104 13D Page 2 of 10 Pages
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1 NAME OF REPORTING PERSON Wynnefield Partners Small Cap Value L.P.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
13-3688497
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X| (b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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- --------------------- ------ ---------------------------------------------------
7 SOLE VOTING POWER
336,345
------ ---------------------------------------------------
------ ---------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY
------ ---------------------------------------------------
------ ---------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 349,734
PERSON
WITH
------ ---------------------------------------------------
------ ---------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------- ------ ---------------------------------------------------
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
336,345
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.6%
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14 TYPE OF REPORTING PERSON (See Instructions)
PN
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CUSIP No. 502160104 13D Page 3 of 10 Pages
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1 NAME OF REPORTING PERSON Wynnefield Partners Small Cap Value L.P. I
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
13-3953291
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X| (b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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- --------------------- ------ ---------------------------------------------------
7 SOLE VOTING POWER
161,655
------ ---------------------------------------------------
------ ---------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY
------ ---------------------------------------------------
------ ---------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 161,655
PERSON
WITH
------ ---------------------------------------------------
------ ---------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------- ------ ---------------------------------------------------
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
161,655
- ------- ------------------------------------------------------------------------
- ------- ------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.3%
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14 TYPE OF REPORTING PERSON (See Instructions)
PN
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CUSIP No. 502160104 13D Page 4 of 10 Pages
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1 NAME OF REPORTING PERSON Channel Partnership II L.P.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
22-3215653
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X| (b) |_|
- -------
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
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- --------------------- ------ ---------------------------------------------------
7 SOLE VOTING POWER
24,000
------ ---------------------------------------------------
------ ---------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY
------ ---------------------------------------------------
------ ---------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 24,000
PERSON
WITH
------ ---------------------------------------------------
------ ---------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------- ------ ---------------------------------------------------
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
24,000
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.2%
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14 TYPE OF REPORTING PERSON (See Instructions)
PN
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CUSIP No. 502160104 13D Page 5 of 10 Pages
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1 NAME OF REPORTING PERSON Wynnefield Small Cap Value Offshore Fund Ltd
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
- ------- ------------------------------------------------------------------------
- ------- ------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X| (b) |_|
- -------
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3 SEC USE ONLY
- ------- ------------------------------------------------------------------------
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4 SOURCE OF FUNDS (See Instructions)
WC
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
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- --------------------- ------ ---------------------------------------------------
7 SOLE VOTING POWER
125,700
------ ---------------------------------------------------
------ ---------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY
------ ---------------------------------------------------
------ ---------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 125,700
PERSON
WITH
------ ---------------------------------------------------
------ ---------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------- ------ ---------------------------------------------------
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
125,700
- ------- ------------------------------------------------------------------------
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.0%
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14 TYPE OF REPORTING PERSON (See Instructions)
PN
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CUSIP No. 502160104 13D Page 6 of 10 Pages
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1 NAME OF REPORTING PERSON Nelson Obus
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
###-##-####
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X| (b) |_|
- -------
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
PF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
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- --------------------- ------ ---------------------------------------------------
7 SOLE VOTING POWER
20,000
------ ---------------------------------------------------
------ ---------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY
------ ---------------------------------------------------
------ ---------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 20,000
PERSON
WITH
------ ---------------------------------------------------
------ ---------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------- ------ ---------------------------------------------------
- ------- ------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
20,000
- ------- ------------------------------------------------------------------------
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.2%
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14 TYPE OF REPORTING PERSON (See Instructions)
IN
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Item 1. Security and Issuer.
This Statement relates to shares of common stock, par value $.10 per share
(the "Common Stock"), of LSB Industries, Inc., a Delaware corporation (the
"Corporation"). The Corporation's principal executive office is located at 16
South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107.
Item 2. Identity and Background.
(a) The persons filing this statement are Wynnefield Partners Small Cap
Value L.P. I, a limited partnership organized under the laws of the State of
Delaware ("Wynnefield I"), Wynnefield Partners Small Cap Value L.P., a limited
partnership organized under the laws of the State of Delaware ("Wynnefield"),
Channel Partnership II L.P., a limited partnership organized under the laws of
the State of New York ("Channel"), and Wynnefield Small Cap Offshore Fund Ltd, a
partnership organized under the laws of the Cayman Islands ("Wynnefield
Offshore"), (Wynnefield I, Wynnefield, Channel and Wynnefield Offshore,
collectively, the "Reporting Partnerships') and Nelson Obus, an individual (the
"Reporting Individual"). The Reporting Partnerships and the Reporting Individual
are collectively referred to herein as the "Reporting Persons."
(b) The address of each of the Reporting Partnerships' principal business
and principal office, and the Reporting Individual's business address, is One
Penn Plaza, Suite 4720, New York, New York 10119.
(c) The principal business of each of the Reporting Partnerships is that of
acting as a private investment firm. The principal employment of the Reporting
Individual is as President of Wynnefield Capital, Inc., a private investment
firm whose address is One Penn Plaza, Suite 4720, New York, New York 10119.
(d) During the last five years, none of the Reporting Persons has been
convicted in a criminal proceeding.
(e) During the last five years, none of the Reporting Persons has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
The source of the $684,493.99 used by Wynnefield I to purchase its 161,655
shares of Common Stock was its working capital. The source of the $1,416,257.43
used by Wynnefield to purchase its 336,345 shares of Common Stock was its
working capital. The source of the $91,343.50 used by Channel to purchase its
24,000 shares of Common Stock was its working capital. The source of the
$515,333.70 used by Wynnefield Offshore to purchase its 125,700 shares of Common
Stock was its working capital. The source of the $77,050 used by the Reporting
Individual to purchase his 20,000 shares of Common Stock was personal funds. No
funds were borrowed by any of the Reporting Persons in connection with its
purchases of Common Stock.
Item 4. Purpose of Transaction.
The Reporting Person has acquired its beneficial ownership in the shares of
Common Stock for investment purposes. The Reporting Persons intend to take an
active role as shareholders of the Company to raise the interest and awareness
of other shareholders with respect to the Reporting Persons concerns.
Specifically, among other things, the Reporting Persons are concerned about (i)
the inability of the Company's management to achieve focus as it expressed it
would do in the Company's Form 10-K for the year ended December 31, 1996 and
subsequently and (ii) the proposal by an affiliate of the Company's Chairman and
President to take a preferred voting equity interest in the Company as described
in the Company's Form 10-Q for the quarterly period ended June 30, 1997, which
the Reporting Persons believe would not be in the best interests of the
Company's shareholders. The Reporting Persons presently cannot predict the scope
of any actions they may take; nevertheless, the Reporting Persons will first
seek to discuss its concerns with the Company's management and Board of
Directors.
Item 5. Interest in Securities of the Issuer.
(a) According to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, as of August 12, 1997, the Corporation had
12,861,081 shares of Common Stock outstanding. Wynnefield I is the beneficial
owner of 161,655 shares of Common Stock, or 1.3% of the outstanding Common
Stock. Wynnefield is the beneficial owner of 336,345 shares of Common Stock, or
2.6% of the outstanding Common Stock. Channel is the beneficial owner of 24,000
shares of Common Stock, or 0.2% of the outstanding Common Stock. Wynnefield
Offshore is the beneficial owner of 125,700 shares of Common Stock, or 1.0% of
the outstanding Common Stock. The Reporting Individual is the beneficial owner
of 20,000 shares of Common Stock, or 0.2% of the outstanding Common Stock. The
Reporting Persons are the beneficial owner of 667,700 shares of Common Stock, or
5.2% of the outstanding Common Stock.
(b) Wynnefield I has the sole power to vote, or to direct the vote of,
161,655 shares of Common Stock and the sole power to dispose of, or to direct
the disposition of, 161,655 shares of Common Stock. Wynnefield has the sole
power to vote, or to direct the vote of, 336,345 shares of Common Stock and the
sole power to dispose of, or to direct the disposition of, 336,345 shares of
Common Stock. Channel has the sole power to vote, or to direct the vote of,
24,000 shares of Common Stock and the sole power to dispose of, or to direct the
disposition of, 24,000 shares of Common Stock. Wynnefield Offshore the sole
power to vote, or to direct the vote of, 125,700 shares of Common Stock and the
sole power to dispose of, or to direct the disposition of, 125,700 shares of
Common Stock. The Reporting Individual has the sole power to vote, or to direct
the vote of, 20,000 shares of Common Stock and the sole power to dispose of, or
to direct the disposition of, 20,000 shares of Common Stock. The Reporting
Persons have the sole power to vote, or to direct the vote of, 667,700 shares of
Common Stock and the sole power to dispose of, or to direct the disposition of,
667,700 shares of Common Stock.
(c) The following table describes all transactions in the Common Stock
effected during the past 60 days by the Reporting Persons:
No. of
Reporting Person Date Shares Purchased Price per Share
- ---------------- ---- ---------------- ---------------
Wynnefield............... 07/11/97 1,437 4.1850
07/22/97 37,227 3.6750
07/22/97 6,531 4.0600
07/29/97 5,290 4.0225
07/30/97 4,000 4.0600
08/05/97 10,000 3.9250
08/06/97 1,800 3.9606
08/06/97 6,200 4.0231
08/07/97 10,000 4.0008
08/08/97 13,061 4.0400
08/18/97 9,143 4.2670
08/19/97 10,450 4.2900
08/21/97 5,029 4.2900
08/22/97 4,376 4.2900
08/25/97 2,482 4.2900
08/27/97 13,389 4.6873
Wynnefield I............. 07/11/97 763 4.1850
07/22/97 19,773 3.6750
07/22/97 3,469 4.0600
07/29/97 2,810 4.0225
08/08/97 6,939 4.0400
08/18/97 4,857 4.2670
08/19/97 5,550 4.2900
08/21/97 2,671 4.2900
08/22/97 2,324 4.2900
08/25/97 1,318 4.2900
08/27/97 7,111 4.6873
Channel.................. 07/22/97 3,000 3.6750
Wynnefield Offshore...... 07/22/97 40,000 3.6750
07/22/97 5,000 4.0600
08/07/97 9,000 4.0008
08/11/97 10,000 4.0400
08/14/97 10,000 4.1475
08/26/97 1,700 4.2900
08/27/97 10,000 4.6873
All of the foregoing purchases were made in the open market through
broker-dealers.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
Not applicable.
Item 7. Material to Be Filed as Exhibits.
Exhibit 99.1 -- Joint Filing Agreement
Exhibit 99.2 -- Letter from the Reporting Persons to the Chairman of the
Board and President of the Company, dated September 4, 1997.
Exhibit 99.3 -- Letter from the Reporting Persons to the Board of Directors
of the Company, dated September 4, 1997
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: September 4, 1997
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
CHANNEL PARTNERSHIP II L.P.
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
General Partner
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
By: WYNNEFIELD CAPITAL, INC.,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
President
/S/ NELSON OBUS
-------------------------
Nelson Obus
JOINT FILING AGREEMENT
The Schedule 13D, relating to the common stock, par value $.10 per share,
of LSB Industries, Inc., dated September 4, 1997, is filed on behalf of
Wynnefield Partners Small Cap Value L.P., Wynnefield Partners Small Cap Value
L.P. I, Channel Partnership II L.P., Wynnefield Small Cap Value Offshore Fund
Ltd and Nelson Obus.
Dated: September 4, 1997
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
CHANNEL PARTNERSHIP II L.P.
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
General Partner
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
By: WYNNEFIELD CAPITAL, INC.,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
President
/S/ NELSON OBUS
-------------------------
Nelson Obus
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
CHANNEL PARTNERSHIP II L.P.
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
NELSON OBUS
ONE PENN PLAZA
SUITE 4720
NEW YORK, NEW YORK 10119
September 4, 1997
Mr. Jack E. Golsen
Chairman of the Board and President
LSB Industries, Inc.
16 South Pennsylvania Avenue
Oklahoma City, OK 73107
Dear Jack:
I'm sorry you were unable to return my calls or meet with me as we had
discussed when you were in New York in August. Nevertheless, I trust that our
Schedule 13D filing will underscore the magnitude of my interest in LSB
Industries and my concern that the independent shareholders have yet to receive
much value from their investment in the Company.
In the Overview of the MD&A section of your December 1996 Form 10-K and
subsequently there is mention of LSB's need to focus on profitable businesses
and achieving adequate returns. This is encouraging, but I feel the actions you
have taken to achieve these goals have been much too tentative. Specifically, I
believe the Automotive and Industrial Product Segments should be promptly sold
or discontinued and liquidated in their entirety because they have lost money
for four consecutive years and lack economies of scale. In addition, off balance
sheet assets such as the bank building in Oklahoma City should be liquidated,
and further speculative ventures such as the Kestral Aircraft investment should
be curtailed. At your convenience, I would like to discuss with you my ideas
with respect to how LSB can achieve solid profitability and an adequate return
for shareholders going forward. It is unacceptable that 1997 is shaping up to be
the third straight year that LSB has failed to record a profit from operations.
On a more urgent and serious note, I must tell you that I was both shocked
and deeply disappointed to read in the June 1997 Form 10-Q of the Insider's
proposal to infuse $3 million into LSB in return for a preferred stock interest
which carries a 10% coupon and entitles holders to three million common share
votes. This is truly an unconventional proposal! Given LSB's $150 million of
long term debt and $65 million of working capital, I can only surmise that all
the Insiders are trying to accomplish is to give themselves enough voting power
to completely ignore the outside shareholders. I have believed you to be a fair
and honest individual who would never resort to such a transparent ploy to
entrench you and your family at the helm of LSB. This proposal has caused me
both to reconsider my judgment and consult legal counsel. Indeed, it is so
troubling to me that I have written to the outside directors detailing my
concerns, and a copy of that letter is attached.
I have been quite outspoken in this public letter about my feelings towards
the new preferred stock proposal and encourage you to communicate with me
directly if you feel the conclusions I have reached are off the mark.
Sincerely,
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
CHANNEL PARTNERSHIP II L.P.
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
General Partner
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
By: WYNNEFIELD CAPITAL, INC.,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
President
/S/ NELSON OBUS
-------------------------
Nelson Obus
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
CHANNEL PARTNERSHIP II L.P.
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
NELSON OBUS
ONE PENN PLAZA
SUITE 4720
NEW YORK, NEW YORK 10119
September 4, 1997
Board of Directors
LSB Industries, Inc.
c/o Corporate Secretary
16 South Pennsylvania Avenue
Oklahoma City, OK 73107
Gentlemen:
As you probably know, investment partnerships in which I possess voting
control recently have acquired 5.2% of LSB Industries and have filed a Schedule
13D. I am President of Wynnefield Capital, Inc., a corporation formed to invest
in publicly traded small capitalization securities which are believed to be
undervalued. Wynnefield currently has over $100 million under management.
Earlier in my Wall Street career I worked for almost a decade in the
institutional sales department of Lazard Freres in roles including the Director
of Research. My investment background includes almost 40 years of experience
analyzing and investing in small cap value stocks.
The purpose of this letter is to share with you my concerns regarding the
SBL Corporation's proposal to purchase preferred stock from LSB as outlined in
the second quarter Form-10Q. This is one of the most unconventional offers I
have come upon in my years as an investor. Given the existence of $150 million
in long term debt and $65 million of working capital, it is almost impossible
for me to understand how an infusion of merely $3 million would materially
improve LSB's balance sheet. The offer appears to be nothing more than a
transparent effort by insiders to entrench themselves and escape all
accountability for their inability to generate profits or enhance shareholder
value.
As you know, it is your duty to perform careful due diligence in regard to
SBL's proposal if you expect to rely on the business judgment rule with respect
to any decision made regarding the proposal. If for some reason you determine
that a small cash infusion would be meaningfully helpful to the Company, I
insist that Wynnefield be given the opportunity to present an alternative
proposal to the Board. I can assure you that I am prepared and have sufficient
resources to offer the Company significantly better terms than those offered by
SBL.
The SBL proposal has served to give me second thoughts regarding the
character and motives of the Chairman of LSB. I have articulated these concerns
quite bluntly in a letter to Mr. Golsen, which I have attached to my Schedule
13D filing. I urge you to read this filing and in your obligation generally to
generate shareholder value.
As Directors, and particularly with respect to independent Directors, I
expect you to represent non-affiliated shareholders like myself in considering
the SBL proposal and in your obligation generally to generate shareholder value.
I look forward to hearing from you directly in regard to this matter.
Sincerely,
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P.
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
WYNNEFIELD PARTNERS SMALL CAP VALUE L.P. I
By: WYNNEFIELD CAPITAL MANAGEMENT, LLC,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
Managing Member
CHANNEL PARTNERSHIP II L.P.
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
General Partner
WYNNEFIELD SMALL CAP VALUE OFFSHORE FUND LTD
By: WYNNEFIELD CAPITAL, INC.,
as general partner
By: /S/ NELSON OBUS
-------------------------
Nelson Obus
President
/S/ NELSON OBUS
-------------------------
Nelson Obus