FORM 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period_________to__________
Commission file number 1-7677
LSB INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 73-1015226
----------------------- -----------------
(State of Incorporation) (I.R.S. Employer
identification No.)
16 South Pennsylvania Avenue
Oklahoma City, Oklahoma 73107
---------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(405) 235-4546
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
-------------------- -----------------------
Common Stock, Par Value $.10 New York Stock Exchange
$3.25 Convertible Exchangeable
Class C Preferred Stock, Series New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
1
(Facing Sheet Continued)
Indicate by check mark whether the Registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for the
shorter period that the Registrant has had to file the reports),
and (2) has been subject to the filing requirements for the past
90 days. YES X NO.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S - K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10 - K or any amendment to
this Form 10-K. __________.
As of February 28, 1998, the aggregate market value of the
8,543,152 shares of voting stock of the Registrant held by non -
affiliates of the Company equaled approximately $35,240,502 based
on the closing sales price for the Company's common stock as
reported for that date on the New York Stock Exchange. That
amount does not include (1) the 1,539 shares of Convertible Non-
Cumulative Preferred Stock (the "Non - Cumulative Preferred
Stock") held by non-affiliates of the Company, (2) the 20,000
shares of Series B 12% Convertible, Cumulative Preferred Stock
(the "Series B Preferred Stock"), and (3) the 915,000 shares of
$3.25 Convertible Exchangeable Class C Preferred Stock, Series 2,
excluding 5,000 shares held in treasury (the "Series 2 Preferred
Stock"). An active trading market does not exist for the shares
of Non - Cumulative Preferred Stock or the Series B Preferred
Stock. The shares of Series 2 Preferred Stock do not have voting
rights except under limited circumstances.
As of February 28, 1998, the Registrant had 12,759,226
shares of common stock outstanding (excluding 2,346,390 shares of
common stock held as treasury stock).
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has
caused the undersigned, duly - authorized, to sign this Amendment
No. 1 to the report on its behalf of this 29th day of April,
1998.
LSB INDUSTRIES, INC.
By:
/s/ Jack E. Golsen
------------------------------
Jack E. Golsen
Chairman of the Board and
President
(Principal Executive Officer)
By:
/s/ Tony M. Shelby
------------------------------
Tony M. Shelby
Senior Vice President of Finance
(Principal Financial Officer)
By:
/s/ Jim D. Jones
-------------------------------
Jim D. Jones
Vice President, Controller and
Treasurer (Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the undersigned have signed this report on
behalf of the Company, in the capacities and on the dates
indicated.
Dated: April 29, 1998 By:
/s/ Jack E. Golsen
-------------------------------
Jack E. Golsen, Director
Dated: April 29, 1998 By:
/s/ Tony M. Shelby
-------------------------------
Tony M. Shelby, Director
Dated: April 29, 1998 By:
/s/ David R. Goss
-------------------------------
David R. Goss, Director
Dated: April 29, 1998 By:
/s/ Barry H. Golsen
-------------------------------
Barry H. Golsen, Director
Dated: April 29, 1998 By:
/s/ Robert C. Brown
-------------------------------
Robert C. Brown, Director
3
Dated: April 29, 1998 By:
/s/ Bernard G. Ille
-------------------------------
Bernard G. Ille, Director
Dated: April 29, 1998 By:
/s/ Jerome D. Shaffer
-------------------------------
Jerome D. Shaffer, Director
Dated: April 29, 1998 By:
/s/ Raymond B. Ackerman
-------------------------------
Raymond B. Ackerman, Director
Dated: April 29, 1998 By:
/s/ Horace Rhodes
-------------------------------
Horace Rhodes, Director
Dated: April 29, 1998 By:
-------------------------------
Gerald J. Gagner, Director
Dated: April 29, 1998 By:
------------------------------
Donald W. Munson, Director
4
PART 111
Item 10. Directors and Executive Officers of the Company
- ------- -----------------------------------------------
Directors.
----------
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.
The following table sets forth the name, principal
occupation, 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.
5
Name and First Became
Principal Occupation A Director Term Expires Age
- -------------------- ------------ ------------- ---
Robert C. Brown, M.D. (1) 1969 1998 67
President of Northwest
Internal Medicine
Associates, Inc.
Gerald G. Gagner (2) 1997 1998 62
President of Dragerton
Investments
Jack E. Golsen (3) 1969 1998 69
President, Chief Executive
Officer and Chairman of
the Board of Directors of
the Company
Horace G. Rhodes (4) 1996 1998 70
President / Managing Partner,
Kerr, Irvine, Rhodes
and Ables
Raymond B. Ackerman (5) 1993 1999 75
Chairman Emeritus of Ackerman
McQueen, Inc.
Bernard G. Ille (6) 1971 1999 71
Investments
Donald W. Munson (7) 1997 1999 65
Consultant
Tony M. Shelby (8) 1971 1999 56
Senior Vice President of
Finance and Chief
Financial Officer of the
Company
Barry H. Golsen (9) 1981 2000 47
Vice Chairman of the
Board of Directors of
the Company and President
of the Climate Control
Business of the Company
David R. Goss (10) 1971 2000 57
Senior Vice President of
Operations of the Company
Jerome D. Shaffer, M.D. (11) 1969 2000 81
Investments
(1) Dr. Brown has practiced medicine for many years and is Vice
6
President and Treasurer of Plaza Medical Group, P.C. Dr.
Brown is a graduate of Tufts University and received his
medical degree from Tufts University.
(2) Mr. Gagner, a resident of Key West, Florida, 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.
(3) Mr. Golsen, founder of the Company, 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
Industry Hall of Honor as one of Oklahoma's leading
industrialists. Mr. Golsen has a degree from the University
of New Mexico in Biochemistry.
(4) Mr. Rhodes is the managing partner 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.
(5) From 1972 until his retirement in 1992, Mr. Ackerman served
as 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.
(6) Mr. Ille served as President and Chief Executive Officer of
First Life Assurance Company from May, 1988, until it was
acquired by another company in March, 1994. In 1991, First
Life was placed in conservatorship by the Oklahoma
Department of Insurance and operated under conservatorship
until sold 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 parent
7
company of First Life. Mr. Ille is currently a private
investor. He is a graduate of University of Oklahoma.
(7) 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' Division Operations,
President of Lennox Canada 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 England, and The Trane
Company, including serving as the managing director of
various companies within the Howden Group and Vice President
Europe for The Train 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
SA, a French manufacturer of air conditioning - heating
equipment, which the Company has an option to acquire. Mr.
Munson has degrees in mechanical engineering and business
administration from the University of Minnesota.
(8) Mr. Shelby, a certified public 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.
(9) Mr. Golsen, L.L.B., has served as 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
Environmental Control Business. Mr. Golsen has both his
undergraduate and law degrees from the University of
Oklahoma.
(10) Mr. Goss, a certified public accountant, is a 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.
(11) Dr. Shaffer, a director of the Company since its inception,
is 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.
8
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.
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.
Item 11. 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.
9
<TABLE>
<CAPTION>
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 ($)
- -------------- ---- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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
David M. Shear, 1997 162,500 - - - -
Vice President / 1996 151,300 - - 64,000 -
General Counsel 1995 137,923 40,000 - - -
</TABLE>
- --------------------------------
(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 $50,000 or 10% of the
total of annual salary and bonus reported for the named executive
officer for such year.
Option Grants in 1997.
- ----------------------
There were no grants of stock options made to the named
executive officers in 1997.
10
Aggregated Option Exercises in 1997
and Fiscal Year End Option Values.
----------------------------------
The following table sets forth information concerning each
exercise of stock options by each of the named executive officers
during the last fiscal year and the year-end value of unexercised
options:
Number of Value
Securities of Unexercised
Underlying In - the - Money
Unexercised Options at
Options at Fiscal Year End
FY End (#)(3) ($) (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.
(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 officer 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
11
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, excluding certain (but not all) employees covered
under union agreements. 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
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
12
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.
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. 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.
The non-management directors of the Company also received $500
for every meeting of the Board of Directors attended during 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. As a member of such 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.
13
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, and 1998.
During April 1998, each of the outside directors of the
Company (Messrs. Brown, Gagner, Ille, Munson 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 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
14
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,
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
15
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.
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.
16
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
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.
17
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 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. The members of the Executive
Salary Review Committee are the following non - management
18
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.
Item 12. Security Ownership of Certain Beneficial Owners and
- ------- -----------------------------------------------------
Management.
-----------
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 March 31, 1998, 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.
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) 28.9%
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 830,000 (10) 6.6%
- -----------------------------------------
(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
19
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%
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
20
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.
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
21
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. The Schedule 13D states that Wynnefield has sole
voting and dispositive power over 425,720 shares; Wynnefiled I
has sole voting and dispositive power over 214,780 shares;
Channel has sole voting and dispositive power over 24,000 shares;
Wynnefield Offshore has sole voting and dispositive power over
145,500 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 830,000 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 March
31, 1998.
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) *
22
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) *
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) 34.2%
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
23
"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.
(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.
24
Item 13. 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 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 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.
