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LSB INDUSTRIES, INC.
16 SOUTH PENNSYLVANIA AVENUE
POST OFFICE BOX 754
OKLAHOMA CITY, OK 73101
FAX: 405-235-5067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 25, 1998
To the Stockholders of
LSB INDUSTRIES, INC.
The Annual Meeting of the Stockholders of LSB Industries,
Inc. (the "Company") will take place at the Company's financial
center located at 4000 Northwest 39th Expressway, Oklahoma City,
Oklahoma, on Thursday, June 25, 1998, at 11:30 a.m. (CST), for
the purpose of considering and acting upon the following matters:
(1) The election of 4 nominees to the Board of Directors;
(2) The approval of the selection of independent auditors;
(3) Any other business which properly may come before the
meeting or any adjournment of the meeting.
The Board of Directors has fixed the close of business on
May 15, 1998, as the record date for the determination of holders
of the voting common stock and voting preferred stock of the
Company entitled to receive notice of, and to vote at, the Annual
Meeting.
To ensure the presence of a quorum at the Annual Meeting,
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.
The Company is distributing its 1997 Annual Report to
Stockholders with the enclosed proxy soliciting material.
By order of the Board of Directors
David M. Shear
Secretary
Oklahoma City, Oklahoma
May 26, 1998
1
LSB INDUSTRIES, INC.
16 SOUTH PENNSYLVANIA
POST OFFICE BOX 754
OKLAHOMA CITY, OK 73101
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 25, 1998
SOLICITATION OF PROXIES
SOLICITATION.
- -------------
This Proxy Statement is solicited on behalf of the Board of
Directors of LSB Industries, Inc. (the "Company") and is hereby
furnished to the stockholders of the Company to solicit their
proxies for use at the Annual Meeting of Stockholders to take
place on Thursday, June 25, 1998 at 11:30 a.m. at the Company's
financial center located at 4000 Northwest 39th Expressway,
Oklahoma City, Oklahoma 73112 (the "Annual Meeting"). The Company
may use the services of its directors, officers, and employees to
solicit proxies personally or by telephone, without additional
compensation therefore. The Company will bear all of the costs
of preparing, printing, assembling, and mailing this Proxy
Statement and the Proxy Card and all of the costs of the
solicitation of the proxies. The Company has also retained the
services of Corporate Investor Communications, Inc., to aid in
the solicitation of proxies for a fee of $3,000, plus reasonable
out-of-pocket expenses incurred by them.
REIMBURSEMENT OF EXPENSES.
- --------------------------
The Company will reimburse any bank, broker-dealer, or other
custodian, nominee, or fiduciary for its reasonable expenses
incurred in completing the mailing of proxy materials to the
beneficial owners of the Company's voting Common Stock and voting
Preferred Stock.
REVOCATION OF PROXY.
- --------------------
Any stockholder giving his or her proxy may revoke it at any
time before its exercise by notifying the Secretary of the
Company, by facsimile or in writing.
MAILING OF PROXY STATEMENT AND PROXY CARD.
- ------------------------------------------
This Proxy Statement and the Proxy Card are being first sent to
the stockholders of the Company on or about May 26, 1998.
STOCKHOLDER PROPOSALS.
- ---------------------
In order for the Company to include a stockholder proposal in
the proxy materials for the Company's 1998 Annual Meeting of
Stockholders, a stockholder must deliver the proposal in writing
to the Secretary of the Company no later than January 26, 1999.
2
SECURITIES AND PRINCIPAL HOLDERS
RECORD DATE AND VOTING SECURITIES.
- ----------------------------------
Only the record holders of shares of the voting Common Stock
and voting Preferred Stock of the Company as of the close of
business on May 15, 1998 (the "Record Date"), will have the right
to receive notice of, and to vote at, the Annual Meeting. As of
the close of business on the Record Date, the Company had the
following shares of voting Common Stock and voting Preferred
Stock issued and outstanding; (a) 12,623,026 shares of Common
Stock (excluding 2,482,590 shares held in treasury); (b) 1,539
shares of Convertible Noncumulative Preferred Stock; and (c)
20,000 shares of Series B 12% Cumulative Convertible Preferred
Stock. Each stockholder of record, as of the Record Date, will
have one vote for each share of voting Common Stock and voting
Preferred Stock of the Company (or one-half of one vote for each
fractional one-half share of the Convertible Noncumulative
Preferred Stock) that the stockholder owned as of the Record
Date. All shares of voting Common Stock and voting Preferred
Stock will vote together as a single class on all matters coming
before the Annual Meeting, and a majority of all of the
outstanding shares of voting Common Stock and voting Preferred
Stock of the Company, represented as a single class, entitled to
notice of, and to vote at, the Annual Meeting, represented in
person or by proxy, will constitute a quorum for the meeting.
Pursuant to the General Corporation Law of the State of
Delaware, only votes cast "For" a matter constitute affirmative
votes, except proxies in which the stockholder fails to make a
specification as to whether he votes "For", "Against", "Abstains"
or "Withholds" as to a particular matter shall be considered as a
vote "For" that matter. Votes will be tabulated by an inspector
of election appointed by the Company's Board of Directors. Votes
in which the stockholder specifies that he is "Withholding" or
"Abstaining" from voting are counted for quorum purposes.
Abstentions and broker non-votes are not considered as votes
"For" a particular matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
- ------------------------------------------------
The following table shows the total number and percentage of
the outstanding shares of the Company's voting Common Stock and
voting Preferred Stock beneficially owned as of the close of
business on the Record Date, with respect to each person
(including any "group" as used in Section 13(d)(3) of the
Securities Act of 1934, as amended) that the Company knows to
have beneficial ownership of more than five percent (5%) of the
Company's voting Common Stock and voting Preferred Stock. A
person is deemed to be the beneficial owner of voting shares of
Common Stock of the Company which he or she could acquire within
sixty (60) days of the Record Date.
3
Because of the requirements of the Securities and Exchange
Commission as to the method of determining the amount of shares
an individual or entity may beneficially own, the amounts shown
below for an individual or entity may include shares also
considered beneficially owned by others.
Amounts
Name and Address Title of Shares Percent
of of Beneficially of
Beneficial Owner Class Owned(1) Class
- ---------------- --------- ------------ --------
Jack E. Golsen and Common 3,900,568 (3)(5)(6) 29.0%
members of his family(2) Voting Preferred 20,000 (4)(6) 92.7%
Riverside Capital
Advisors, Inc. (7) Common 1,467,397 (7) 10.4%
Ryback Management
Corporation Common 1,835,063 (8) 12.7%
Dimensional Fund
Advisors, Inc. Common 748,800 (9) 5.9%
Wynnefield Partners Small
Cap Value, L.P. and
Nelson Obus(10) Common 975,000 (10) 7.7%
- ---------------------------------------
(1) The Company based the information, with respect to
beneficial ownership, on information furnished by the above-named
individuals or entities or contained in filings made with the
Securities and Exchange Commission or the Company's records.
(2) Includes Jack E. Golsen and the following members of
his family: wife, Sylvia H. Golsen; son, Barry H. Golsen (a
Director, Vice Chairman of the Board of Directors, and President
of the Climate Control Business of the Company); son, Steven J.
Golsen (executive officer of several subsidiaries of the
Company); and daughter, Linda F. Rappaport. The address of Jack
E. Golsen, Sylvia H. Golsen, Barry H. Golsen, and Linda F.
Rappaport is 16 South Pennsylvania Avenue, Oklahoma City,
Oklahoma 73107; and Steven J. Golsen's address is 7300 SW 44th
Street, Oklahoma City, Oklahoma 73179.
(3) Includes (a) the following shares over which Jack E.
Golsen ("J. Golsen") has the sole voting and dispositive power:
(i) 109,028 shares that he owns of record, (ii) 99,000 shares
that he has the right to acquire within sixty (60) days under a
non-qualified stock option, (iii) 4,000 shares that he has the
right to acquire upon conversion of a promissory note, (iv)
133,333 shares that he has the right to acquire upon the
conversion of 4,000 shares of the Company's Series B 12%
4
Cumulative Convertible Preferred Stock (the "Series B
Preferred") owned of record by him, (v) 10,000 shares owned of
record by the MG Trust, of which he is the sole trustee, and (vi)
20,000 shares that he has the right to acquire within the next
sixty (60) days under the Company's stock option plans; (b)
1,052,250 shares owned of record by Sylvia H. Golsen, over which
she and her husband, J. Golsen share voting and dispositive
power; (c) 246,616 shares over which Barry H. Golsen ("B.
Golsen") has the sole voting and dispositive power, 533 shares
owned of record by B. Golsen's wife, over which he shares the
voting and dispositive power, and 21,000 shares that he has the
right to acquire within the next sixty (60) days under the
Company's stock option plans; (d) 206,987 shares over which
Steven J. Golsen ("S. Golsen") has the sole voting and
dispositive power and 17,000 shares that he has the right to
acquire within the next sixty (60) days under the Company's stock
option plans; (e) 222,460 shares held in trust for the
grandchildren of J. Golsen and Sylvia H. Golsen of which B.
Golsen, S. Golsen and Linda F. Rappaport ("L. Rappaport") jointly
or individually are trustees; (f) 82,552 shares owned of record
by L. Rappaport, over which L. Rappaport has the sole voting and
dispositive power; (g) 1,042,699 shares owned of record by SBL
Corporation ("SBL"), 39,177 shares that SBL has the right to
acquire upon conversion of 9,050 shares of the Company's non-
voting $3.25 Convertible Exchangeable Class C Preferred Stock,
Series 2 (the "Series 2 Preferred"), and 400,000 shares that SBL
has the right to acquire upon conversion of 12,000 shares of
Series B Preferred owned of record by SBL, and (h) 60,600 shares
owned of record by Golsen Petroleum Corporation ("GPC"), which is
a wholly-owned subsidiary of SBL, and 133,333 shares that GPC has
the right to acquire upon conversion of 4,000 shares of Series B
Preferred owned of record by GPC. SBL is wholly-owned by Sylvia
H. Golsen (40% owner), B. Golsen (20% owner), S. Golsen (20%
owner), and L. Rappaport (20% owner) and, as a result, SBL, J.
Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport
share the voting and dispositive power of the shares beneficially
owned by SBL. SBL's address is 16 South Pennsylvania Avenue,
Oklahoma City, Oklahoma 73107.
(4) Includes: (a) 4,000 shares of Series B Preferred owned
of record by J. Golsen, over which he has the sole voting and
dispositive power; (b) 12,000 shares of Series B Preferred owned
of record by SBL; and (c) 4,000 shares owned of record by SBL's
wholly-owned subsidiary, GPC, over which SBL, J. Golsen, Sylvia
H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the
voting and dispositive power.
(5) Does not include 124,350 shares of Common Stock that L.
Rappaport's husband owns of record and 17,000 shares which he has
the right to acquire within the next sixty (60) days under the
Company's stock option plans, all of which L. Rappaport disclaims
beneficial ownership. Does not include 219,520 shares of Common
Stock owned of record by certain trusts for the benefit of B.
Golsen, S. Golsen, and L. Rappaport over which B. Golsen, S.
5
Golsen and L. Rappaport have no voting or dispositive power.
Heidi Brown Shear, an officer of the Company and the niece of J.
Golsen, is the Trustee of each of these trusts.
(6) J. Golsen disclaims beneficial ownership of the shares
that B. Golsen, S. Golsen, and L. Rappaport each have the sole
voting and investment power over as noted in footnote (3) above.
B. Golsen, S. Golsen, and L. Rappaport disclaim beneficial
ownership of the shares that J. Golsen has the sole voting and
investment power over as noted in footnotes (3) and (4) and the
shares owned of record by Sylvia H. Golsen. Sylvia H. Golsen
disclaims beneficial ownership of the shares that J. Golsen has
the sole voting and dispositive power over as noted in footnotes
(3) and (4) above.
(7) Riverside Capital Advisors, Inc. ("Riverside") has
advised the Company that it owns 341,255 shares of Series 2
Preferred that is convertible into 1,467,397 shares of Common
Stock. Riverside further advised the Company that it has voting
and dispositive power over such shares as a result of Riverside
having full discretionary investment authority over customers'
accounts to which it provides investment services. The address
of Riverside is 1650 Southeast 17th Street Causeway, Fort
Lauderdale, Florida 33316.
(8) Ryback Management Corporation ("Ryback") is the
Investment Company Advisor for Lindner Dividend Fund, a
registered investment company, which owns 423,900 shares of
Series 2 Preferred that is convertible into 1,835,063 shares of
Common Stock. Ryback has sole voting and dispositive power over
these shares. The address of Ryback is 7711 Corondelet Avenue,
Suite 700, St. Louis, Missouri 63105.
(9) Dimensional Fund Advisors, Inc. ("Dimensional"), a
registered investment advisor, is deemed to have beneficial
ownership of 748,800 shares of the Company's Common Stock, all of
which shares are held in portfolios of DFA Investment Dimensions
Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment
manager. Dimensional disclaims beneficial ownership of all such
shares. The address of Dimensional is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(10) Wynnefield Partners Small Cap Value, L.P.
("Wynnefield"), together with Wynnefield Partners Small Cap
Value, L.P. I ("Wynnefield I"), Channel Partnership II,
L.P.("Channel"), Wynnefield Value Offshore Fund, Ltd.
("Wynnefield Offshore"), and Nelson Obus, an individual ("Obus")
(collectively, the Wynnefield Group"), filed a joint group
Schedule 13D, as amended. The Schedule 13D, as amended, states
that Wynnefield has sole voting and dispositive power over
458,720 shares; Wynnefield I
6
has sole voting and dispositive power over 308,180 shares;
Channel has sole voting and dispositive power over 24,000 shares;
Wynnefield Offshore has sole voting and dispositive power over
164,100 shares, and Obus has sole voting and dispositive power
over 20,000 shares. However, Obus has advised the Company that
he possesses voting control over the 975,000 shares officially
owned by the Wynnefield Group. The address of Wynnefield and
Obus is One Penn Plaza, Suite 4720, New York, New York 10119.
SECURITY OWNERSHIP OF MANAGEMENT.
---------------------------------
The following table sets forth information obtained from the
directors and nominees to be elected as a director of the Company
and the directors, nominees and executive officers of the Company
as a group as to their beneficial ownership of the Company's
voting Common Stock and voting Preferred Stock as of the Record
Date.
Because of the requirements of the Securities and Exchange
Commission as to the method of determining the amount of shares
an individual or entity may own beneficially, the amount shown
below for an individual may include shares also considered
beneficially owned by others. Any shares of stock which a person
does not own, but which he or she has the right to acquire within
sixty (60) days of the Record Date, are deemed to be outstanding
for the purpose of computing the percentage of outstanding stock
of the class owned by such person but are not deemed to be
outstanding for the purpose of computing the percentage of the
class owned by any other person.
Amounts of
Shares
Name of Title of Beneficially Percent of
Beneficial Owner Class Owned Class
- ---------------- -------- ------------ ----------
Raymond B. Ackerman Common 11,000(2) *
Robert C. Brown, M.D. Common 218,329(3) 1.7%
Gerald J. Gagner Common 1,000(4) *
Barry H. Golsen Common 2,166,418(5) 16.4%
Voting Preferred 16,000(5) 74.2%
Jack E. Golsen Common 3,103,420(6) 23.1%
Voting Preferred 20,000(6) 92.7%
David R. Goss Common 216,585(7) 1.7%
Bernard G. Ille Common 100,000(8) *
Donald W. Munson Common 1,432(9) *
Horace G. Rhodes Common 5,000(10) *
7
Jerome D. Shaffer, M.D. Common 139,363(11) 1.1%
Tony M. Shelby Common 220,879(12) 1.7%
Directors and Common 4,668,394(13) 34.3%
Executive Officers Voting Preferred 20,000 92.7%
as a group number
(13 persons)
- -----------------------------------
* Less than 1%.
(1) The Company based the information, with respect to
beneficial ownership, on information furnished by each director
or officer, contained in filings made with the Securities and
Exchange Commission, or contained in the Company's records.
(2) Mr. Ackerman has sole voting and dispositive power over
these shares. 1,000 of these shares are held in a trust for
which Mr. Ackerman is both the settlor and the trustee and in
which he has the vested interest in both the corpus and income.
The remaining 10,000 shares of Common Stock included herein are
shares that Mr. Ackerman may acquire pursuant to currently
exercisable non-qualified stock options granted to him by the
Company.
(3) The amount shown includes 10,000 shares of Common Stock
that Dr. Brown may acquire pursuant to currently exercisable non-
qualified stock options granted to him by the Company. The
shares, with respect to which Dr. Brown shares the voting and
dispositive power, consists of 122,516 shares owned by Dr.
Brown's wife, 15,000 shares held jointly by Dr. Brown and his
wife, 50,727 shares owned by Robert C. Brown, M.D., Inc., a
corporation wholly-owned by Dr. Brown, and 20,086 shares held by
the Robert C. Brown M.D., Inc. Employee Profit Sharing Plan, of
which Dr. Brown serves as the trustee. The amount shown does not
include 57,190 shares directly owned by the children of Dr.
Brown, all of which Dr. Brown disclaims beneficial ownership.
(4) Mr. Gagner has sole voting and dispositive power over
these shares.
(5) See footnotes (3), (4), and (6) of the table under
"Security Ownership of Certain Beneficial Owners" of this item
for a description of the amount and nature of the shares
beneficially owned by B. Golsen, including shares he has the
right to acquire within sixty (60) days.
(6) See footnotes (3), (4), and (6) of the table under
"Security Ownership of Certain Beneficial Owners" of this item
for a description of the amount and nature of the shares
beneficially owned by J. Golsen, including the shares he has the
right to acquire within sixty (60) days.
8
(7) The amount shown includes 28,000 shares that Mr. Goss
has the right to acquire within sixty (60) days pursuant to
options granted under the Company's stock option plans. Mr. Goss
has the sole voting and dispositive power over these shares,
except for 2,429 shares owned by Mr. Goss' wife, individually
and/or as custodian for Mr. Goss' children. Mr. Goss disclaims
beneficial ownership of the shares owned by Mr. Goss' wife.
(8) The amount includes (i) 10,000 shares that Mr. Ille may
purchase pursuant to currently exercisable non-qualified stock
options, over which Mr. Ille has the sole voting and dispositive
power, and (ii) 75,000 shares owned of record by Mr. Ille's wife.
Mr. Ille disclaims beneficial ownership of the 75,000 shares
owned by Mr. Ille's wife.
(9) This amount includes (i) 432 shares of Common Stock
that Mr. Munson has the right to acquire upon conversion of 100
shares of non-voting Series 2 Preferred that he beneficially
owns, and (ii) 1,000 shares of Common Stock owned directly by Mr.
Munson. Mr. Munson has sole voting and dispositive power over
these shares.
(10) Mr. Rhodes has sole voting and dispositive power over
these shares.
(11) Dr. Shaffer has the sole voting and dispositive power
over these shares, which include 10,000 shares that Dr. Shaffer
may purchase pursuant to currently exercisable non-qualified
stock options and 4,329 shares that Dr. Shaffer has the right to
acquire upon conversion of 1,000 shares of Series 2 Preferred
owned by Dr. Shaffer.
(12) Mr. Shelby has the sole voting and dispositive power
over these shares, which include 28,000 shares that Mr. Shelby
has the right to acquire within sixty (60) days pursuant to
options granted under the Company's ISOs and 15,152 shares that
Mr. Shelby has the right to acquire upon conversion of 3,500
shares of Series 2 Preferred owned by Mr. Shelby.
(13) The amount shown includes 1,022,355 shares of Common
Stock that executive officers, directors, or entities controlled
by executive officers and directors of the Company have the right
to acquire within sixty (60) days.
ELECTION OF DIRECTORS
GENERAL.
- --------
The Board of Directors has nominated for election to the Board
of Directors four (4) nominees. The nominees, Robert C. Brown,
M.D., Jack E. Golsen, Horace G. Rhodes and Gerald J. Gagner are
presently serving as directors of the Company. Messrs. Brown,
Golsen and Rhodes are to be elected for a term of three (3) years
and until their successors are duly elected, while Mr. Gagner is
to be elected in the class whose term expires in 1999 and until
9
his successor is duly elected. If any of the nominees become
unable or unwilling to accept the election or to serve as a
director (an event which the Board of Directors does not
anticipate), the person or persons named in the proxy as the
proxies will vote for the election of the person or persons
recommended by the Board of Directors. The proxies cannot be
voted for a greater number of persons than the number of nominees
named above.
The Certificate of Incorporation and By-laws of the Company
provide for the division of the Board of Directors into three (3)
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 (3) years and until the shareholders elect their
qualified successors. Robert C. Brown, M.D., Jack E. Golsen,
Horace G. Rhodes and Gerald J. Gagner are presently serving as
directors of the Company in the class whose term is expiring as
of the Annual Meeting.
The Company's By-laws provide that the Board of Directors,
by resolution from time to time, may fix the number of directors
that shall constitute the whole Board of Directors. The By-laws
presently provide that the number of directors may consist of not
less than three (3) nor more than eleven (11). The Board of
Directors currently has set the number of directors at eleven
(11).
The By-laws of the Company further provide that only persons
nominated by or at the direction of: (i) the Board of Directors
of the Company, or (ii) any stockholder of the Company entitled
to vote for the election of the directors that complies with
certain notice procedures, shall be eligible for election as a
director of the Company. Any stockholder desiring to nominate
any person as a director of the Company must give written notice
to the Secretary of the Company at the Company's principal
executive office not less than fifty (50) days prior to the date
of the meeting of stockholders to elect directors; except, if
less than sixty (60) days' notice or prior disclosure of the date
of such meeting is given to the stockholders, then written notice
by the stockholder must be received by the Secretary of the
Company not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. In
addition, if the stockholder proposes to nominate any person, the
stockholder's written notice to the Company must provide all
information relating to such person that the stockholder desires
to nominate that is required to be disclosed in solicitation of
proxies pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
10
The following table sets forth the name, principal
occupation, business experience, age, year in which the
individual first became a director, and year in which the
director's term will expire for each nominee for election as a
director at the Annual Meeting and all other directors whose term
will continue after the Annual Meeting.
FIRST
BECAME TERM PRINCIPAL OCCUPATION
NAME AND AGE A DIRECTOR EXPIRES AND OTHER INFORMATION
------------ ---------- ------- ---------------------
Nominees:
- ---------
Robert C. Brown, 1969 2001 Dr. Brown has practiced medicine for
M.D., many years and is Vice President and
Age 67 Treasurer of Plaza Medical Group,
P.C. Dr. Brown is a graduate of
Tufts University and received his
medical degree from Tufts
University.
Gerald J. Gagner 1997 1999 Mr. Gagner, a resident of New Hope,
Age 62 Pennsylvania, served as President,
Chief Executive Officer and director
of USPCI, Inc., a New York Stock
Exchange Company involved in the
waste management industry, from 1984
until 1988, when USPCI was acquired
by Union Pacific Corporation. From
1988 to the present, Mr. Gagner has
been engaged as a private investor.
Mr. Gagner has served, and is
presently serving, as President and
a director of Dragerton Investments,
Inc., which developed and sold one
of the world's largest industrial
waste landfills, and is presently
general partner of New West
Investors, L.P., which has
investments principally in the
financial service industry.
Mr. Gagner is also a director of
Automation Robotics, A.G., a German
corporation. Mr. Gagner has an
engineering degree from the
University of Utah.
Jack E. Golsen, 1969 2001 Mr. Golsen, founder of the Company,
Age 69 is Chairman of the Board and
President of the Company and has
served in that capacity since the
inception of the Company in 1969.
During 1996, Mr. Golsen was inducted
into the Oklahoma Commerce and
11
Industry Hall of Honor as one of
Oklahoma's leading industrialists.
Mr. Golsen has a degree from the
University of New Mexico in
Biochemistry.
Horace G. Rhodes, 1996 2001 Mr. Rhodes is the managing partner
Age 70 of the law firm of Kerr, Irvine,
Rhodes & Ables and has served in
such capacity and has practiced law
for a period in excess of five (5)
years. Since 1972, Mr. Rhodes has
served as Executive Vice President
and General Counsel for the
Association of Oklahoma Life
Insurance Companies and since 1982
has served as Executive Vice
President and General Counsel for
the Oklahoma Life and Health
Insurance Guaranty Association.
Mr. Rhodes received his
undergraduate and law degrees from
the University of Oklahoma.
Other Directors:
- ----------------
Raymond B. 1993 1999 From 1972 until his retirement in
Ackerman, 1992, Mr. Ackerman served as
Age 70 Chairman of the Board and President
of Ackerman, McQueen, Inc., the
largest public relations firm in
Oklahoma. Mr. Ackerman currently
serves as Chairman Emeritus of
Ackerman, McQueen, Inc. Mr.
Ackerman retired as a Rear Admiral
from the United States Naval
Reserves. Mr. Ackerman is a
graduate of Oklahoma City
University, and in 1996, he was
awarded an honorary doctorate from
Oklahoma City University.
Barry H. Golsen 1981 2000 Mr. Golsen, L.L.B., has served as
Age 47 Vice Chairman of the Board of the
Company since August, 1994, and for
more than five (5) years has been
the President of the Company's
Climate Control Business.
Mr. Golsen has both his
undergraduate and law degrees from
the University of Oklahoma.
12
David R. Goss 1971 2000 Mr. Goss, a certified public
Age 57 accountant, is Senior Vice
President-Operations of the Company
and has served in substantially the
same capacity for the past five (5)
years. Mr. Goss is a graduate of
Rutgers University.
Bernard G. Ille, 1971 1999 Mr. Ille served as President and
Age 71 Chief Executive Officer of First
Life Assurance Company from May,
1988, until it was acquired by
another company in March, 1994. For
more than five (5) years prior to
joining First Life, Mr. Ille served
as President of United Founders Life
Insurance Company. Mr. Ille is a
director of Landmark Land Company,
Inc., which was the parent company
of First Life. Mr. Ille is
currently a private investor. He is
a graduate of the University of
Oklahoma.
Donald W. Munson 1997 1999 Mr. Munson is a resident of England.
From January, 1988, until his
retirement in August, 1992, Mr.
Munson served as President and Chief
Operating Officer of Lennox
Industries. Prior to his election
as President and Chief Operating
Officer of Lennox Industries, Mr.
Munson served as Executive Vice
President of Lennox Industries'
Canadian operation and Managing
Director of Lennox Industries'
European operations. Prior to
joining Lennox Industries, Mr.
Munson served in various capacities
with the Howden Group, a company
located in the United Kingdom, and
The Trane Company, including serving
as the managing director of various
companies within the Howden Group
and Vice President-Europe for The
Trane Company. Mr. Munson is
currently a consultant and
international distributor for the
Ducane Company, a manufacturer of
certain types of residential air
conditioning, air furnaces and other
equipment, and is serving as a
member of the Board of Directors of
Multi- Clima, a French manufacturer
of air-conditioning-heating
13
equipment, which the Company has an
option to acquire. Mr. Munson has
degrees in engineering and business
administration from the University
of Minnesota.
Jerome D. Shaffer, 1969 2000 Dr. Shaffer, a director of the
M.D., Company since its inception, is
Age 81 currently a private investor. He
practiced medicine for many years
until his retirement in 1987.
Dr. Shaffer is a graduate of Penn
State University and received his
medical degree from Jefferson
Medical College.
Tony M. Shelby 1971 1999 Mr. Shelby, a certified public
Age 56 accountant, is Senior Vice President
and Chief Financial Officer of the
Company, a position he has held for
a period in excess of five (5)
years. Prior to becoming Senior
Vice President and Chief Financial
Officer of the Company, Mr. Shelby
served as Chief Financial Officer of
a subsidiary of the Company and was
with the accounting firm of Arthur
Young & Co., a predecessor to Ernst
& Young. Mr. Shelby is a graduate
of Oklahoma City University.
- ---------------------------------
Approval of each nominee for election to the Board of
Directors will require the affirmative vote of a plurality of the
votes cast by the holders of the voting securities of the
Company, voting together as one class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE FOUR (4) NOMINEES AS DIRECTORS OF THE COMPANY.
FAMILY RELATIONSHIPS.
- ---------------------
Jack E. Golsen is the father of Barry H. Golsen and the
brother-in-law of Robert C. Brown, M.D. Robert C. Brown, M.D. is
the uncle of Barry H. Golsen.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS.
- --------------------------------------------------
The Company has an Executive Salary Review Committee and an
Audit Committee. The Company does not have a nominating
committee. The Board of Directors nominates the nominees for
election as directors of the Company.
14
The Company's Executive Salary Review Committee has the
authority to set the compensation of all officers of the Company.
The present members of the Executive Salary Review Committee are
Robert C. Brown, M.D., Bernard G. Ille, and Jerome D. Shaffer,
M.D. During 1997, the Executive Salary Review Committee had one
(1) meeting.
The Audit Committee's functions include: (a) recommending a
public accounting firm for appointment by the Board of Directors
for the purpose of conducting the annual audit of the Company;
(b) reviewing the recommendations of the auditors regarding
internal controls and procedures; (c) reviewing from time to time
the Company's general policies and procedures with respect to
auditing, accounting, and the application of financial resources;
(d) reviewing all other matters and making special inquiries and
investigations referred to it by the Board of Directors; and (e)
making other recommendations to the Board of Directors as the
Committee may deem appropriate. The members of the Audit
Committee are Bernard G. Ille (Chairman), Jerome D. Shaffer,
M.D., Robert C. Brown, M.D., and Horace G. Rhodes. The Audit
Committee held three (3) meetings during 1997.
The Board of Directors of the Company held six (6) meetings
in 1997. During 1997, no incumbent director attended fewer than
seventy-five percent (75%) of the aggregate of the total number
of meetings of the Board of Directors and the total number of
meetings held by all committees of the Board of Directors on
which he served.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
- --------------------------------------------------------
Based solely on a review of copies of the Forms 3, 4 and 5 and
amendments thereto furnished to the Company with respect to 1997,
or written representations that no such reports were required to
be filed with the Securities and Exchange Commission, the Company
believes that during 1997 all directors and officers of the
Company and beneficial owners of more than ten percent (10%) of
any class of equity securities of the Company registered pursuant
to Section 12 of the Exchange Act filed their required Forms 3,
4, or 5, as required by Section 16(a) of the Securities Exchange
Act of 1934, as amended, on a timely basis, except that Mike
Tepper, Senior Vice President, LSB International Operations,
filed one late Form 4 to report one transaction.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -----------------------------------------------
A subsidiary of the Company, Hercules Energy Mfg. Corporation
("Hercules"), leases land and a building in Oklahoma City,
Oklahoma from Mac Venture, Ltd. ("Mac Venture"), a limited
partnership. GPC (a wholly owned subsidiary of SBL) serves as
the general partner of Mac Venture. The limited partners of Mac
Venture include GPC and the three children of Jack E. Golsen. See
"Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" above for a discussion of the stock
15
ownership of SBL. The land leased by Hercules from Mac Venture
consists of a total of 341,000 square feet, with 44,000 square
feet in the building. Hercules leases the property from Mac
Venture for $7,500 per month under a triple net lease which began
as of January 1, 1982, and expires on December 31, 1998.
Northwest Internal Medicine Associates, ("Northwest") a
division of Plaza Medical Group., P.C., has an agreement with the
Company to perform medical examinations of the management and
supervisory personnel of the Company and its subsidiaries. Under
such agreement, Northwest is paid $4,000 a month to perform all
such examinations. Dr. Robert C. Brown (a director of the
Company) is Vice President and Treasurer of Plaza Medical Group.,
P.C.
In 1983, LSB Chemical Corp. ("LSB Chemical"), a subsidiary
of the Company, acquired all of the outstanding stock of El
Dorado Chemical Company ("EDC") from its then four stockholders
("Ex-Stockholders"). A substantial portion of the purchase price
consisted of an earnout based primarily on the annual after-tax
earnings of EDC for a ten-year period. During 1989, two of the
Ex-Stockholders received LSB Chemical promissory notes for a
portion of their earnout, in lieu of cash, totaling approximately
$896,000, payable $496,000 in January 1990, and $400,000 in May
1994. LSB Chemical agreed to a buyout of the balance of the
earnout from the four Ex-Stockholders for an aggregate purchase
amount of $1,231,000. LSB Chemical purchased for cash the
earnout from two of the Ex-Stockholders and issued multi-year
promissory notes totaling $676,000 to the other two Ex-
Stockholders. Jack E. Golsen guaranteed LSB Chemical's payment
obligation under the promissory notes. The unpaid balance of
these notes at March 31, 1998, was $400,000.
On October 17, 1997, Prime Financial Corporation ("Prime"),
a subsidiary of the Company, borrowed from SBL, a corporation
wholly owned by the spouse and children of Jack E. Golsen,
Chairman of the Board and President of the Company, the principal
amount of $3 million (the "Prime Loan") on an unsecured basis and
payable on demand, with interest payable monthly in arrears at a
variable interest rate equal to the Wall Street Journal Prime
Rate plus 2% per annum. The purpose of the loan was to assist
the Company by providing additional liquidity. The Company has
guaranteed the Prime Loan. SBL had previously proposed
purchasing a new series of the Company's voting convertible
preferred stock. During the period that such proposal was being
considered by a special committee of the Board of Directors of
the Company, SBL entered into the Prime Loan to assist the
Company's liquidity. The proposal to purchase a new series of
preferred stock has been withdrawn by SBL and SBL and the Company
agreed that SBL would continue the Prime Loan on an unsecured
basis, payable on demand and at an annual rate of interest of 10
3/4%. During 1997, $79,600 in interest was paid on the Prime
Loan, and as of April 15, 1998, the unpaid principal balance of
the Prime Loan was $2.7 million.
16
EXECUTIVE COMPENSATION
AND OTHER INFORMATION
EXECUTIVE COMPENSATION.
- -----------------------
The following table shows the aggregate cash compensation which
the Company and its subsidiaries paid or accrued to the Chief
Executive Officer and each of the other four (4) most highly-paid
executive officers of the Company (which includes the Vice
Chairman of the Board who also serves as President of the
Company's Climate Control Business). The table includes cash
distributed for services rendered during 1997, plus any cash
distributed during 1997 for services rendered in a prior year,
less any amount relating to those services previously included in
the cash compensation table for a prior year.
SUMMARY COMPENSATION TABLE
Long-term
Compen-
sation
Annual Compensation Awards
---------------------------- ----------
Other All
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Stock sation
Position Year ($) ($)(1) ($)(2) Options ($)
- ------------ ---- ------ ------ ------- ---------- ------
Jack E. Golsen, 1997 470,450 - - - -
Chairman of the 1996 469,125 - - 100,000 -
Board, President 1995 457,892 100,000 - - -
and Chief
Executive Officer
Barry H. Golsen, 1997 223,300 - - - -
Vice Chairman of 1996 209,125 - - 105,000 -
the Board of 1995 187,885 60,000 - - -
Directors and
President of the
Climate Control
Business
David R. Goss, 1997 187,750 - - - -
Senior Vice 1996 173,300 - - 85,000 -
President - 1995 153,022 60,000 - - -
Operations
Tony M. Shelby, 1997 187,750 - - - -
Senior Vice 1996 173,425 - - 85,000 -
President/Chief 1995 152,923 60,000 - - -
Financial Officer
17
David M. Shear, 1997 162,500 - - - -
Vice President/ 1996 151,300 - - 64,000 -
General Counsel 1995 137,923 40,000 - - -
- -------------------------------
(1) Bonuses noted are for services rendered for the prior
fiscal year. No bonuses were paid to the above named executive
officers for 1996 and no bonuses for 1997 performance are to be
paid to the above named executive officers.
(2) Does not include perquisites and other personal
benefits, securities or property for the named executive officer
in any year if the aggregate amount of such compensation for such
year does not exceed the lesser of either $50,000 or 10% of the
total of annual salary and bonus reported for the named executive
officer for such year.
OPTION GRANTS IN 1997.
- ----------------------
There were no grants of stock options made to the named
executive officers in 1997.
AGGREGATED OPTION EXERCISES IN 1997 AND FISCAL YEAR END OPTION
VALUES.
- --------------------------------------------------------------
The following table sets forth the information concerning each
exercise of stock options by each of the named executive officers
during the last fiscal year and the year-end value of unexercised
options:
Number of Value
Securities of Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year End
FY End (#)(3) ($) (3) (4)
------------- ---------------
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#)(1) ($) (2) Unexercisable Unexercisable
- --------------- ------------ --------- ------------- -------------
Jack E. Golsen 40,000 42,480 119,000/ 142,313 /
146,000 (5) 94,875
Barry H. Golsen 8,000 8,496 21,000/ - /
84,000 -
David R. Goss - - 28,000/ 15,563 /
68,000 -
Tony M. Shelby - - 28,000/ 15,563 /
68,000 -
David M. Shear - - 35,800/ 26,813 /
51,200 -
- -----------------------------------------
(1) Each number represents the number of shares received by
the named individual upon exercise.
18
(2) The values set forth in this column are the difference
between the market value of the Company's Common Stock on the
date the particular option was exercised and the exercise price
of such option.
(3) The options granted under the Company's Plans become
exercisable 20% after one year from date of grant, an additional
20% after two years, an additional 30% after three years, and the
remaining 30% after four years.
(4) The values are based on the difference between the
price of the Company's Common Stock on the New York Stock
Exchange at the close of trading on December 31, 1997 of $4.0625
per share and the exercise price of such option. The actual
value realized by a named executive on the exercise of these
options depends on the market value of the Company's Common Stock
on the date of exercise.
(5) The amounts shown include a non-qualified stock option
covering 165,000 shares of Common Stock, which vest and are
exercisable 20% on June 1, 1995, June 1, 1996, and June 1, 1997,
and the remaining 40% exercisable June 1, 1998.
OTHER PLANS.
------------
The Board of Directors has adopted an LSB Industries, Inc.,
Employee Savings Plan (the "401(k) Plan") for the employees
(including executive officers) of the Company and its
subsidiaries. The 401(k) Plan is an employee contribution plan,
and the Company and its subsidiaries make no contributions to the
401(k) Plan. The amount that an employee may contribute to the
401(k) Plan equals a certain percentage of the employee's
compensation, with the percentage based on the employee's income
and certain other criteria as required under Section 401(k) of
the Internal Revenue Code. The Company or subsidiary deducts the
amounts contributed to the 401(k) Plan from the employee's
compensation each pay period, in accordance with the employee's
instructions, and pays the amount into the 401(k) Plan for the
employee's benefit. The Summary Compensation Table set forth
above includes any amount contributed and deferred during the
1995, 1996, and 1997 fiscal years pursuant to the 401(k) Plan by
the named executive officers of the Company.
The Company has a death benefit plan for certain key
employees. Under the plan, the designated beneficiary of an
employee covered by the plan will receive a monthly benefit for a
period of ten (10) years if the employee dies while in the
employment of the Company or a wholly-owned subsidiary of the
Company. The agreement with each employee provides, in addition
to being subject to other terms and conditions set forth in the
agreement, that the Company may terminate the agreement as to any
employee at anytime prior to the employee's death. The Company
has purchased life insurance on the life of each employee covered
under the plan to provide, in large part, a source of funds for
19
the Company's obligations under the Plan. The Company also will
fund a portion of the benefits by investing the proceeds of such
insurance policy received by the Company upon the employee's
death. The Company is the owner and sole beneficiary of the
insurance policy, with the proceeds payable to the Company upon
the death of the employee. The following table sets forth the
amounts of annual benefits payable to the designated beneficiary
or beneficiaries of the executive officers named in the Summary
Compensation Table set forth above under the above-described
death benefits plan.
Amount of
Name of Individual Annual Payment
------------------ --------------
Jack E. Golsen $175,000
Barry H. Golsen $ 30,000
David R. Goss $ 35,000
Tony M. Shelby $ 35,000
David M. Shear $ N/A
In addition to the above-described plans, during 1991 the
Company entered into a non-qualified arrangement with certain key
employees of the Company and its subsidiaries to provide
compensation to such individuals in the event that they are
employed by the Company or a subsidiary of the Company at age 65.
Under the plan, the employee will be eligible to receive for the
life of such employee, a designated benefit as set forth in the
plan. In addition, if prior to attaining the age 65 the employee
dies while in the employment of the Company or a subsidiary of
the Company, the designated beneficiary of the employee will
receive a monthly benefit for a period of ten (10) years. The
agreement with each employee provides, in addition to being
subject to other terms and conditions set forth in the agreement,
that the Company may terminate the agreement as to any employee
at any time prior to the employee's death. The Company has
purchased insurance on the life of each employee covered under
the plan where the Company is the owner and sole beneficiary of
the insurance policy, with the proceeds payable to the Company to
provide a source of funds for the Company's obligations under the
plan. The Company may also fund a portion of the benefits by
investing the proceeds of such insurance policies. Under the
terms of the plan, if the employee becomes disabled while in the
employment of the Company or a wholly-owned subsidiary of the
Company, the employee may request the Company to cash-in any life
insurance on the life of such employee purchased to fund the
Company's obligations under the plan. Jack E. Golsen does not
participate in the plan. The following table sets forth the
amounts of annual benefits payable to the executive officers
named in the Summary Compensation Table set forth above under
such retirement plan.
20
Amount of
Name of Individual Annual Payment
------------------ -------------
Barry H. Golsen $17,480
David R. Goss $17,403
Tony M. Shelby $15,605
David M. Shear $17,822
COMPENSATION OF DIRECTORS.
--------------------------
In 1997, the Company compensated each non-management director
of the Company for his services in the amount of $4,500, with the
exception of Messrs. Gagner and Munson who were not elected to
the Board until June 1997. The non-management directors of the
Company also received $500 for every meeting of the Board of
Directors attended during 1997. For 1997, $2,250 has been paid
or accrued for the benefit of Messrs. Gagner and Munson for their
services as members of the Board of Directors for the period from
their election to the Board until December 31, 1997. Each member
of the Audit Committee, consisting of Messrs. Rhodes, Ille,
Brown, and Shaffer, received an additional $20,000 for his
services in 1997. Each member of the Public Relations and
Marketing Committee, consisting of Messrs. Ackerman and Ille,
received an additional $20,000 for his services in 1997. During
1997, the Board of Directors established a special committee of
the Board of Directors for European business development (the
"European Operations Committee") and elected Mr. Munson as a
member of that committee. Mr. Munson is to receive an additional
$20,000 annually for his services as a member of that committee.
During 1997, Mr. Munson was paid $20,000 for his services on the
European Operations Committee.
In September 1993, the Company adopted the 1993 Non-Employee
Director Stock Option Plan (the "Outside Director Plan"). The
Outside Director Plan authorizes the grant of non-qualified stock
options to each member of the Company's Board of Directors who is
not an officer or employee of the Company or its subsidiaries.
The maximum shares for which options may be issued under the
Outside Director Plan will be 150,000 shares (subject to
adjustment as provided in the Outside Director Plan). The
Company shall automatically grant to each outside director an
option to acquire 5,000 shares of the Company's Common Stock on
April 30 following the end of each of the Company's fiscal years
in which the Company realizes net income of $9.2 million or more
for such fiscal year. The exercise price for an option granted
under the Outside Director Plan shall be the fair market value of
the shares of Common Stock at the time the option is granted.
Each option granted under the Outside Director Plan, to the
extent not exercised, shall terminate upon the earlier of the
termination of the outside director as a member of the Company's
Board of Directors or the fifth anniversary of the date such
option was granted. On April 30, 1995, options to acquire 5,000
shares of Common Stock were granted under this plan to each of
Messrs. Ille, Brown, Shaffer, and Ackerman, at a per share
exercise price of $5.375. The Company did not grant options
under the Outside Director Plan in April, 1996, 1997, or 1998.
21
During April 1998, each of the outside directors of the
Company (Messrs. Ackerman, Brown, Gagner, Ille, Munson, Rhodes
and Shaffer) was granted a non-qualified stock option for the
purchase of up to 15,000 shares of Common Stock at an exercise
price of $4.1875 per share, which was the closing price for the
Company's Common Stock as quoted on the New York Stock Exchange
as of the date of grant. These non-qualified options terminate
at the earlier of (i) five years from the date of grant or (ii)
upon an optionee ceasing to be a director of the Company, (other
than if the optionee dies while a director, then the optionee's
representative has the right to exercise such option within the
lesser of (i) twelve months from the date of death or (ii)
expiration of five years from date of grant), and are
exercisable, in whole or in part, at anytime after six months
from the date of grant prior to termination of the options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS.
- -----------------------------------------------------------
(A) TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS.
The Company has entered into severance agreements with Jack
E. Golsen, Barry H. Golsen, Tony M. Shelby, David R. Goss,
David M. Shear, and certain other officers of the Company
and subsidiaries of the Company.
Each severance agreement provides (among other things) that
if, within twenty-four (24) months after the occurrence of a
change in control (as defined) of the Company, the Company
terminates the officer's employment other than for cause (as
defined), or the officer terminates his employment for good
reason (as defined), the Company must pay the officer an
amount equal to 2.9 times the officer's base amount (as
defined). The phrase "base amount" means the average annual
gross compensation paid by the Company to the officer and
includable in the officer's gross income during the period
consisting of the most recent five (5) year period
immediately preceding the change in control. If the officer
has been employed by the Company for less than 5 years, the
base amount is calculated with respect to the most recent
number of taxable years ending before the change in control
that the officer worked for the Company.
The severance agreements provide that a "change in control"
means a change in control of the Company of a nature that
would require the filing of a Form 8-K with the Securities
and Exchange Commission and, in any event, would mean when:
(1) any individual, firm, corporation, entity, or group (as
defined in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) becomes the beneficial owner, directly
or indirectly, of thirty percent (30%) or more of the
combined voting power of the Company's outstanding voting
securities having the right to vote for the election of
directors, except acquisitions by: (a) any person, firm,
22
corporation, entity, or group which, as of the date of the
severance agreement, has that ownership, or (b) Jack E.
Golsen, his wife; his children and the spouses of his
children; his estate; executor or administrator of any
estate, guardian or custodian for Jack E. Golsen, his wife,
his children, or the spouses of his children, any
corporation, trust, partnership, or other entity of which
Jack E. Golsen, his wife, children, or the spouses of his
children own at least eighty percent (80%) of the
outstanding beneficial voting or equity interests, directly
or indirectly, either by any one or more of the above-
described persons, entities, or estates; and certain
affiliates and associates of any of the above-described
persons, entities, or estates; (2) individuals who, as of
the date of the severance agreement, constitute the Board of
Directors of the Company (the "Incumbent Board") and who
cease for any reason to constitute a majority of the Board
of Directors except that any person becoming a director
subsequent to the date of the severance agreement, whose
election or nomination for election is approved by a
majority of the Incumbent Board (with certain limited
exceptions), will constitute a member of the Incumbent
Board; or (3) the sale by the Company of all or
substantially all of its assets.
Except for the severance agreement with Jack E. Golsen, the
termination of an officer's employment with the Company "for
cause" means termination because of: (a) the mental or
physical disability from performing the officer's duties for
a period of one hundred twenty (120) consecutive days or one
hundred eighty days (even though not consecutive) within a
three hundred sixty (360) day period; (b) the conviction of
a felony; (c) the embezzlement by the officer of Company
assets resulting in substantial personal enrichment of the
officer at the expense of the Company; or (d) the willful
failure (when not mentally or physically disabled) to follow
a direct written order from the Company's Board of Directors
within the reasonable scope of the officer's duties
performed during the sixty (60) day period prior to the
change in control. The definition of "Cause" contained in
the severance agreement with Jack E. Golsen means
termination because of: (a) the conviction of Mr. Golsen of
a felony involving moral turpitude after all appeals have
been completed; or (b) if due to Mr. Golsen's serious,
willful, gross misconduct or willful, gross neglect of his
duties has resulted in material damages to the Company and
its subsidiaries, taken as a whole, provided that (i) no
action or failure to act by Mr. Golsen will constitute a
reason for termination if he believed, in good faith, that
such action or failure to act was in the Company's or its
subsidiaries' best interest, and (ii) failure of Mr. Golsen
to perform his duties hereunder due to disability shall not
be considered willful, gross misconduct or willful, gross
negligence of his duties for any purpose.
23
The termination of an officer's employment with the Company
for "good reason" means termination because of (a) the
assignment to the officer of duties inconsistent with the
officer's position, authority, duties, or responsibilities
during the sixty (60) day period immediately preceding the
change in control of the Company or any other action which
results in the diminishment of those duties, position,
authority, or responsibilities; (b) the relocation of the
officer; (c) any purported termination by the Company of the
officer's employment with the Company otherwise than as
permitted by the severance agreement; or (d) in the event of
a change in control of the Company, the failure of the
successor or parent company to agree, in form and substance
satisfactory to the officer, to assume (as to a successor)
or guarantee (as to a parent) the severance agreement as if
no change in control had occurred.
Except for the severance agreement with Jack E. Golsen, each
severance agreement runs until the earlier of: (a) three
years after the date of the severance agreement, or (b) the
officer's normal retirement date from the Company; however,
beginning on the first anniversary of the severance
agreement and on each annual anniversary thereafter, the
term of the severance agreement automatically extends for an
additional one-year period, unless the Company gives notice
otherwise at least sixty (60) days prior to the anniversary
date. The severance agreement with Jack E. Golsen is
effective for a period of three (3) years from the date of
the severance agreement; except that, commencing on the date
one (1) year after the date of such severance agreement and
on each annual anniversary thereafter, the term of such
severance agreement shall be automatically extended so as to
terminate three (3) years from such renewal date, unless the
Company gives notices otherwise at least one (1) year prior
to the renewal date.
Effective June 1, 1994, the Company extended until June 1,
1999, the option period of a nonqualified stock option
previously granted to Jack E. Golsen for the purchase of
165,000 shares of the Company's Common Stock at an exercise
price of $2.625 per share (the "Extended NQSO"). The
Extended NQSO vests and becomes exercisable at twenty
percent (20%) per year on June 1, 1995, 1996, and 1997, and
the remaining forty percent (40%) becomes exercisable on
June 1, 1998. The terms of the Extended NQSO provide, in
part, that the Extended NQSO shall become immediately
exercisable upon a change in control of the Company. A
"change in control" for purposes of the Extended NQSO, shall
be deemed to have occurred upon any of the following events:
(i) consummation of any of the following transactions: any
merger, recapitalization, or other business combination of
the Company pursuant to which the Company is the non-
surviving corporation, unless the majority of the holders of
Common Stock immediately prior to such transaction will own
24
at least fifty percent (50%) of the total voting power of
the then outstanding securities of the surviving corporation
immediately after such transaction; (ii) a transaction in
which any person, corporation, or other entity (A) shall
purchase any Common Stock pursuant to a tender offer or
exchange offer, without the prior consent of the Board of
Directors or (B) shall become the "beneficial owner" (as
such term is defined in Rule 13(d)(3) under the Securities
Exchange Act of 1934, as amended) of securities of the
Company representing fifty percent (50%) or more of the
total voting power of the then outstanding securities of the
Company; or (iii) if, during any period of two (2)
consecutive years, individuals who, at the beginning of such
period, constituted the entire Board of Directors and any
new director whose election by the Board of Directors, or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination for
election by the stockholders was previously approved, cease
for any reason to constitute a majority thereof.
(B) EMPLOYMENT AGREEMENT. In March 1996, the Company entered
into an employment agreement with Jack E. Golsen. The
employment agreement requires the Company to employ Jack E.
Golsen as an executive officer of the Company for an initial
term of three (3) years and provides for two (2) automatic
renewals of three (3) years each unless terminated by either
party by the giving of written notice at least one (1) year
prior to the end of the initial or first renewal period,
whichever is applicable. Under the terms of such employment
agreement, Mr. Golsen shall be paid (i) an annual base
salary at his 1995 base rate, as adjusted from time to time
by the Compensation Committee, but such shall never be
adjusted to an amount less than Mr. Golsen's 1995 base
salary, (ii) an annual bonus in an amount as determined by
the Compensation Committee, and (iii) receive from the
Company certain other fringe benefits. The employment
agreement provides that Mr. Golsen's employment may not be
terminated, except (i) upon conviction of a felony involving
moral turpitude after all appeals have been exhausted, (ii)
Mr. Golsen's serious, willful, gross misconduct or willful,
gross negligence of duties resulting in material damage to
the Company and its subsidiaries, taken as a whole, unless
Mr. Golsen believed, in good faith, that such action or
failure to act was in the Company's or its subsidiaries'
best interest, and (iii) Mr. Golsen's death; provided,
however, no such termination under (i) or (ii) above may
occur unless and until the Company has delivered to
Mr. Golsen a resolution duly adopted by an affirmative vote
of three-fourths of the entire membership of the Board of
Directors at a meeting called for such purpose after
reasonable notice given to Mr. Golsen finding, in good
25
faith, that Mr. Golsen violated (i) or (ii) above. If
Mr. Golsen's employment is terminated in breach of this
Agreement, then he shall, in addition to his other rights
and remedies, receive and the Company shall pay to
Mr. Golsen (i) in a lump sum cash payment, on the date of
termination, a sum equal to the amount of Mr. Golsen's
annual base salary at the time of such termination and the
amount of the last bonus paid to Mr. Golsen prior to such
termination times (a) the number of years remaining under
the employment agreement or (b) four (4) if such termination
occurs during the last twelve (12) months of the initial
period or the first renewal period, and (ii) provide to
Mr. Golsen all of the fringe benefits that the Company was
obligated to provide during his employment under the
employment agreement for the remainder of the term of the
employment agreement, or, if terminated at any time during
the last twelve (12) months of the initial period or first
renewal period, then during the remainder of the term and
the next renewal period.
If there is a change in control (as defined in the severance
agreement between Mr. Golsen and the Company) and within
twenty-four (24) months after such change in control
Mr. Golsen is terminated, other than for Cause (as defined
in the severance agreement), then in such event, the
severance agreement between Mr. Golsen and the Company shall
be controlling.
In the event Mr. Golsen becomes disabled and is not able to
perform his duties under the employment agreement as a
result thereof for a period of twelve (12) consecutive
months within any two (2) year period, the Company shall pay
Mr. Golsen his full salary for the remainder of the term of
the employment agreement and thereafter sixty percent (60%)
of such salary until Mr. Golsen's death.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
------------------------------------------------------------
The Company's Executive Salary Review Committee has the
authority to set the compensation of all officers of the Company.
This Committee generally considers and approves the
recommendations of the President, other than the compensation
payable to the President. The members of the Executive Salary
Review Committee are the following non-management directors:
Robert C. Brown, M.D., Jerome D. Shaffer, M.D., and Bernard G.
Ille. During 1997, the Executive Salary Review Committee had one
(1) meeting.
See "Compensation of Directors" for information concerning
compensation paid and options granted to non-employee directors
of the Company during 1997 for services as a director to the
Company.
26
REPORT OF EXECUTIVE SALARY REVIEW COMMITTEE.
--------------------------------------------
The following report by the Executive Salary Review Committee
required by the rules of the Securities and Exchange Commission
to be included in this Proxy Statement shall not be considered
incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934
(collectively, the "Acts"), except to the extent that the Company
specifically incorporates this information by reference, and
shall not otherwise be deemed to be soliciting material or to be
filed under such Acts.
GENERAL. The Executive Salary Review Committee ("Committee") is
presently comprised of three (3) directors of the Company, who
are not current or former employees of the Company. See
"Compensation Committee Interlocks and Insider Participation."
The Committee is responsible for reviewing and approving the
compensation paid to executive officers of the Company.
COMPENSATION POLICY FOR EXECUTIVE OFFICERS. Although the
Committee has not established specific quantitative compensation
policies for executive officers of the Company, including the
President-Chief Executive Officer, the Committee reviews each
executive officer's performance on behalf of the Company during
the last preceding year in establishing the executive officer's
bonus for such year, if any, and any increase or decreases to
such executive officers' compensation for the next year. The
guiding principle of the Committee is based on the following
objectives: (i) to attract and retain qualified executives in a
highly competitive environment who will play significant roles in
achieving the Company's goals; (ii) to reward executives for
strategic management and the long-term enhancement of shareholder
value; (iii) to create a performance-oriented environment that
rewards performance with respect to financial and operational
goals of the Company; and, (iv) motivate executives to protect
the interests of the Company in all situations. The key elements
of the Company's executive compensation program have consisted of
a base salary, bonus and stock options.
As to the compensation (salary and bonus) paid or payable to
executive officers, other than the President-Chief Executive
Officer, the President-Chief Executive Officer makes a
recommendation to the Committee. The Committee considers such
recommendations. The President-Chief Executive Officer's
recommendation with respect to base salary and the Committee's
approval or disapproval of such recommendation is primarily based
on the objectives set forth above. With respect to bonus
compensation, such recommendation by the President - Chief
Executive Officer and approval is closely tied to the
individual's performance and the Company's financial performance.
27
Jack E. Golsen has been President and Chief Executive
Officer of the Company since its formation in 1969. In setting
Mr. Golsen's salary and bonus, the Committee takes into account
shareholder value, which he helped create, and the fact that Mr.
Golsen initiated and continues to spearhead the strategy of
expanding and diversifying the Company through internal growth,
acquisitions, redeployment of assets and personnel and
development of international markets. Due to losses sustained by
the Company in 1995, 1996 and 1997, increases in Mr. Golsen's
annual salary for 1995, 1996 and 1997 were nominal. In March
1996, the Company entered into an employment agreement with Mr.
Golsen, which employment agreement set Mr. Golsen's salary at his
1995 base rate, as adjusted from time to time by the Committee.
See "Executive Compensation and Other Information - Employment
Contracts and Termination of Employment and Change in Control
Arrangements".
Bonuses, if any, are paid to executive officers in arrears
for performance during the previous fiscal year. Due to the
Company's performance in 1995, 1996 and 1997, no bonuses were
paid or will be paid, for 1996 or 1997 performance to the
executive officers of the Company, including Jack E. Golsen. The
Committee considers the payment of bonuses to be consistent with
the goals set forth above.
The Company has had a practice of granting stock options to
the President-Chief Executive Officer and other executive
officers of the Company. This practice is founded on the belief
that stock options offer executive officers a valuable incentive
to achieve increased profitability of the Company in order to
enhance shareholder value. There are no specific factors used to
determine the number of options granted or to the timing of such
grants; however, certain criteria are considered such as length
of service, level of responsibility, and the achievement of the
Company's earnings objective.
MEMBERS OF THE COMMITTEE:
Bernard G. Ille, Chairman
Robert C. Brown, M.D.
Jerome D. Shaffer, M.D.
FIVE YEAR TOTAL SHAREHOLDER RETURN GRAPH.
-----------------------------------------
Due to the constraints of the EDGAR system, the performance
graph (in a line graph format) has been omitted. The following
table has been provided to take its place in the EDGAR filing.
The following table compares the yearly percentage change in the
cumulative total shareholder return assuming reinvestment of
dividends, if any, of (i) the Company, (ii) a composite index
("Peer Group") comprised of a peer group of entities from two
distinct industries which represent the Company's two primary
lines of business (Chemical and Climate Control), and (iii) the
New York Stock Exchange Market Value Index ("Broad Market"). The
table set forth below covers the period from year-end 1992
through year-end 1997.
28
FISCAL YEAR ENDING
1992 1993 1994 1995 1996 1997
---- ------- ------ ------ ------ ------
LSB INDUSTRIES, INC. 100 142.66 92.27 65.37 68.03 62.28
PEER GROUP 100 112.11 110.95 134.15 153.21 167.16
BROAD MARKET 100 113.54 111.33 144.36 173.90 228.78
Assumes $100 invested at year-end 1992 in the Company, the
Peer Group, and the Broad Market.
The Peer Group was developed for the Company by Media General
Financial Services and is comprised of certain companies that
have Standard Industrial Classification ("SIC") codes which the
Company believes correspond to the Company's primary lines of
business. The companies which comprise the Peer Group are listed
on Exhibit "A" to this Proxy Statement. The Peer Group is
comprised of (a) chemical companies having SIC codes 102
(sulfuric and nitrate) and 103 (specialty chemicals); and (b)
climate control companies having SIC code 059 (plumbing, heating,
and air conditioning), and is provided for comparison to the
Company's two primary lines of business, Chemical and Climate
Control. The Broad Market line is provided as a result of the
Company's Common Stock being listed on the New York Stock
Exchange. The Company has been advised that the cumulative total
return of each component company in the Peer Group has been
weighted according to the respective company's stock market
capitalization. In light of the Company's unique industry
diversification, the Company believes that the Peer Group is
appropriate for comparison to the Company.
The above Five-Year Total Shareholder Return Graph shall not
be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933 or the Securities Exchange Act
of 1934 (collectively, the "Acts"), except to the extent that the
Company specifically incorporates this information by reference,
and shall not otherwise be deemed to be soliciting material or to
be filed under such Acts.
29
SELECTION OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
AND RATIFICATION OF THE REAPPOINTMENT OF ERNST & YOUNG LLP.
The Board of Directors, based on the recommendation of the
Audit Committee, has recommended, subject to ratification by the
shareholders, the firm of Ernst & Young LLP, certified public
accountants, ("Ernst & Young") as the Company's auditors for
1998, subject to the approval and ratification by the
stockholders. Ernst & Young (or its predecessor, Arthur Young &
Company) has served as the Company's auditors for a period in
excess of five (5) years, including the fiscal year most recently
completed.
In line with past practices, it is expected that one or more
representatives of Ernst & Young will attend the Annual Meeting
and will be available to respond to appropriate questions or make
a statement should they desire to do so.
30
OTHER MATTERS
The Board of Directors knows of no other matters which may
come before the Annual Meeting. If any other business properly
comes before the meeting, the persons named in the proxy will
vote with respect to that matter in accordance with their best
judgment.
Pursuant to the By-laws of the Company, only such business
shall be conducted at the Annual Meeting as shall have been
brought before the meeting (i) by or at the direction of the
Board of Directors of the Company, or (ii) by any stockholder of
the Company who is entitled to vote at the Annual Meeting and who
complies with the following notice requirements. No business may
be properly brought before the Annual Meeting by a stockholder
unless the stockholder gives written notice to the Secretary of
the Company of the business to be presented at the Annual Meeting
not less than fifty (50) days prior to the date of the Annual
Meeting (or in the event that less than sixty (60) days notice,
or public disclosure of the date of the Annual Meeting, is given
or made to stockholders, written notice by the stockholder must
be received by the Secretary of the Company not later than the
close of business on the tenth (10th) day following the day on
which notice of the date of the meeting was mailed or public
disclosure was made). The written notice must set forth: (i) a
brief description of the business desired to be presented before
the Annual Meeting and reasons for conducting such business at
the meeting; (ii) the name and address, as they appear on the
Company's books, of the stockholder proposing such business,
(iii) the class and number of shares of the Company's voting
stock beneficially owned by such stockholder, and (iv) any
material interest of such stockholder in such business.
LSB INDUSTRIES, INC.
BY ORDER OF
THE BOARD OF DIRECTORS
DATE: MAY 26, 1998
DAVID M. SHEAR
SECRETARY
31
Exhibit "A"
AAON INC INTERNAT FLAVORS & FRAG
ACR GROUP INC IVAX CORP
ADM TRONICS UNLIMITED KINARK CORP
AGRIUM INC KYZEN CORP CL A
AIRGAS INC LANCER CORP
ALBEMARLE CORP LAWTER INTERNAT INC
ALCIDE CORP LEARONAL INC
AMCOL INTERNATIONAL CORP LESCO INC
AMERICAN RESIDENTL SVCS LSB INDUSTRIES INC
AMERICAN STANDARD COS LUBRIZOL CORP
ARROW-MAGNOLIA INTERNAT MACDERMID INC
BALCHEM CORP MACE SECURITY INTERNAT
BEARD CO MALLINCKRODT INC
BETZ DEARBORN INC MASCO CORP
BOC GROUP PLC ADS MEDTOX SCIENTIFIC INC
BUSH BOAKE ALLEN INC MESTEK INC
CAMBREX CORP METALCLAD CORP
CARBIDE/GRAPHITE GRP INC MINERALS TECHNOLOGIES
CATALYTICA INC MONTEDISON SPA ADR ORD
CFC INTERNATIONAL INC MORTON INTERNAT INC
CHEMED CORP MYCOGEN CORP
CHEMFIRST INC N-VIRO INTERNAT CORP
CLEAN DIESEL TECH INC NALCO CHEMICAL CO
CONSEP INC NCH CORP
CONTINENTAL MATERIALS CP NORSK HYDRO AS ADR
CROMPTON & KNOWLES CORP NORTHERN TECHNOLOGY
CYANOTECH CORP NUCLEAR METALS INC
CYTEC INDUSTRIES INC NUCO2 INC
DANAHER CORP OCAL INC
DETREX CORPORATION OM GROUP INC
DEXTER CORP P&F INDUSTRIES CL A
DUALSTAR TECHNOLOGIES CP PENFORD CORP
DWYER GROUP INC PHOSPHATE RESOURCE PTNRS
DYNAMOTIVE TECHNOLOGIES POLYDEX PHARMACEUTICALS
ECOGEN INC PRAXAIR INC
ECOSCIENCE CORP QUAKER CHEMCIAL CORP
ENERGY BIOSYSTEMS CORP RINGER CORP
ENVIRON TECHNOLOGY CORP RONSON CORP
EPL TECHNOLOGIES INC SCOTSMAN INDUSTRIES INC
FERRO CORP SCOTT'S LIQUID GOLD INC
FLAMEMASTER CORP SERVICE EXPERTS INC
GENERAL CHEMICAL GROUP SIGMA-ALDRICH CORP
GREAT LAKES CHEMICAL CP SOCIEDAD QUIMICA CHILE
H.B. FULLER CO STAKE TECHNOL LTD
H.E.R.C. PRODUCTS INC STANDEX INTERNAT CORP
HAUSER INC (CO) STARMET CORP
HAWKINS CHEMICAL INC SYBRON CHEMCIAL INC
HIGH PLAINS CORP SYNTHETECH INC
HUNTINGDON LIFE SCIENCES TEAM INC
ICC TECHNOLOGIES INC TECUMSEH PRODUCTS CL A
IMC GLOBAL INC TECUMSEH PRODUCTS CL B
INTERNAT COMFORT PRD CP TERRA INDUSTRIES INC
33/34